-----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, EKdOcRkRHBHoxxdTwygM+8j7WWpKQuT3M2KbhETnrR14kl71IiiFKoIA2fgwFzva 4vbuHyNnZYDKFe9Qjmejig== /in/edgar/work/20000526/0000950135-00-003037/0000950135-00-003037.txt : 20000919 0000950135-00-003037.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950135-00-003037 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GZA GEOENVIRONMENTAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000852004 STANDARD INDUSTRIAL CLASSIFICATION: [4955 ] IRS NUMBER: 043051642 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17882 FILM NUMBER: 645207 BUSINESS ADDRESS: STREET 1: 320 NEEDHAM ST CITY: NEWTON UPPER FALLS STATE: MA ZIP: 02164 BUSINESS PHONE: 6179690700 MAIL ADDRESS: STREET 1: 320 NEEDHAM STREET CITY: NEWTON UPPER FALLS STATE: MA ZIP: 02164 10-K 1 FORM 10-K DATED 02/29/00 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000 Commission File No. 0-17882 GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 04-3051642 (State of Incorporation) (I.R.S. Employer Identification No.) 320 Needham Street, Newton Upper Falls, Massachusetts 02464 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 969-0050 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Common stock, par value $.01 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Number of Shares of Common Stock outstanding at May 19, 2000 4,197,093 The aggregate market value of voting stock of the registrant held by non-affiliates of the registrant (i.e., stockholders who are not directors or officers of the registrant and are not otherwise persons who control or are controlled by or under common control with the registrant) was $22,191,541 as of May 19, 2000. Documents Incorporated by Reference Certain portions of the definitive proxy statement for the Company's 2000 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. The Index to Exhibits is located on Page 42. 1 2 PART I ITEM 1. BUSINESS GENERAL GZA GeoEnvironmental Technologies, Inc. (GZA) is a multidisciplinary consulting and engineering firm offering environmental, geo-civil and remediation services, as well as regulatory compliance, information management, solid waste management, and various support services. Founded in 1964, the company now employs approximately 500 engineers, scientists, and technical support staff in 20 offices nationwide. The firm has completed over 60,000 projects in all 50 states and 21 foreign countries. By leveraging core services, GZA is expanding capabilities strategically to meet clients' business challenges. Through the successful integration of our geotechnical, environmental and civil engineering expertise, we offer broad-based technical approaches to provide cost-effective and technically appropriate solutions to engineering challenges. Our growth is occurring through the successful integration of technical expertise, the expansion of capabilities that complement our traditional core services, and development of competitive service delivery models including risk-sharing arrangements and strategic partnerships. In addition to environmental and engineering consulting services provided through GZA GeoEnvironmental, Inc., the company performs drilling operations through GZA Drilling, Inc. Both are wholly-owned subsidiaries of GZA GeoEnvironmental Technologies, Inc. Goldberg-Zoino Associates of New York, P.C. d/b/a GZA GeoEnvironmental of New York, a professional corporation owned by officers, directors and stockholders of GZA is an affiliate of GZA. SERVICE CAPABILITIES ENVIRONMENTAL CONSULTING AND RESTORATION Our consulting and engineering services help clients develop and manage their safety, health and environmental compliance programs. We also characterize environmental contamination concerns and design, construct and operate restoration solutions. ENVIRONMENTAL SITE ASSESSMENTS AND INVESTIGATIONS. GZA has assisted over 4,000 industrial companies, developers, banks, lending institutions, title insurers, and state agencies among others to collect and interpret information about current or past hazardous material releases at a site. REMEDIAL INVESTIGATIONS. GZA evaluates the nature, extent, and possible health and environmental impacts of site contamination. Comprehensive site examinations include characterization of contaminants through sampling and analysis of soils, sediments, groundwater, surface water, and air. In assessing contamination, predictive and analytical techniques such as computer modeling to quantify concentrations and migration rates are used. FEASIBILITY STUDIES. Using information developed during the remedial investigation, feasibility studies involve identifying and evaluating alternative remedial technologies and developing a conceptual remedial design. When necessary, GZA performs laboratory and onsite bench-scale and pilot-scale tests to assist in designing and estimating the cost of proposed remediation systems. 2 3 RISK ASSESSMENTS. GZA is experienced in preparing human health and ecological risk assessments. We conduct surveys to identify facility hazards, including indoor air quality assessments; develop respiratory protection, industrial hygiene, and health and safety programs; train workers to handle hazardous materials; and conduct asbestos investigations and develop asbestos abatement programs. GROUNDWATER MONITORING PROGRAMS. GZA designs and implements groundwater monitoring programs to meet state and federal Resource Conservation and Recovery Act of 1976 (RCRA) compliance requirements for non-hazardous and hazardous waste landfills, and to support hydrogeologic evaluations and contamination assessments. Work on these programs includes establishing test parameters and sampling protocols, siting and developing wells, creating and applying database management systems, predicting groundwater flow and contaminant transport with supporting statistical analyses. ENVIRONMENTAL IMPACT ASSESSMENTS AND PERMITTING. GZA performs environmental impact assessments to estimate the chemical and physical state and biological impacts associated with the discharge of contaminants into the environment. We provide a wide range of services associated with acquisition of environmental permits, including those for surface water, wetlands, waterways and solid waste facilities. ENVIRONMENTAL REMEDIATION. As real estate market forces promote redevelopment of contaminated sites and refurbishing of commercial buildings, GZA's remediation services combine environmental and engineering and construction management expertise to provide savings and streamline project tasks. REMEDIAL TECHNOLOGIES. GZA's remedial technologies are applied to contaminated groundwater recovery and treatment; soil remediation and stabilization; and contaminant containment methodologies including cutoff walls, caps, liners and drainage systems. REMEDIAL DESIGN/CONSTRUCTION SERVICES. GZA provides comprehensive design, engineering, and construction services for environmental remediation. These services range from traditional remedial measures (removal, transportation and disposal) to design, installation, and operation of complex treatment systems for contaminant reduction or removal. STORAGE TANK MANAGEMENT. GZA's full range of services pertaining to aboveground and underground tanks includes removal, replacement, and installation; tank testing and assessment; regulatory compliance and auditing; operations and management planning; and tank and piping upgrades. FACILITY/SITE CLOSURES & REDEVELOPMENT. By combining geotechnical and environmental capabilities, GZA provides cost-effective risk management solutions for subsurface contamination. Complementing this, GZA provides turnkey closure services including demolition, decontamination, asbestos management and lead abatement. REGULATORY COMPLIANCE & ENVIRONMENTAL MANAGEMENT. Compliance with environmental regulations is mandated by state and federal regulatory agencies. In addition, companies operating in today's business marketplace, in which acquisitions and mergers are common, recognize that value can be derived from efficient environmental management systems. GZA's knowledge and experience helps clients meet or exceed regulatory requirements related to ongoing plant operations. Our Web-based software applications expedite tasks associated with required reporting to environmental agencies. By providing real-time monitoring as well as automated record keeping, GZA develops compliance programs designed to complement internal environmental, health and safety programs while reducing resources required for reporting functions. 3 4 AIR QUALITY SERVICES. GZA's air quality team focuses on minimizing regulatory burdens while maximizing operational productivity. Services include: emissions inventories; regulatory compliance assessments; permitting; accidental release prevention studies; air dispersion modeling; control technology evaluations; and air monitoring. In April, 2000, South Jersey Energy Company (South Jersey) and GZA GeoEnvironmental Technologies, Inc. announced the formation of AirLogics, LLC, a joint venture between GZA and South Jersey, to expand marketing efforts of their patent-pending, real-time air monitoring system. The companies also announced a new marketing alliance with the Institute of Gas Technology, a leading energy and environmental research and development group, to increase product sales within the utility industry. AirLogics targets its marketing efforts on electric and gas utility companies involved in the remediation of former manufactured gas plants. POLLUTION PREVENTION. Our pollution prevention services involve finding ways to assist companies in eliminating, reducing and recycling waste. GZA provides facility assessments; operational compliance evaluations; feasibility studies; environmental, health and safety compliance assistance; prevention-based management program development; and source reduction planning for toxic chemical use. ISO 14000 SERVICES. GZA works with plant environmental management teams to develop ISO certification strategies. Services include: gap analysis; gap closure planning and implementation; executive briefings and employee awareness training; internal auditor training; policies and procedures development; and preparation of environmental quality manuals. WASTE MINIMIZATION AND REGULATORY COMPLIANCE SERVICES. GZA offers hazardous waste minimization audits; permitting services including National Pollution Discharge Elimination System (NPDES), hazardous waste facility Parts A and B, air toxics/emissions and discharge; and regulatory assistance including RCRA corrective actions, Superfund Amendments and Reauthorization Act of 1986 (SARA) Title III compliance, underground storage tank registrations, and hazardous waste facility closures. TRAINING. GZA's training staff provides health and safety training for workers engaged in hazardous materials and waste operations. Compliance training includes hazardous waste; sewer and water discharge; air emissions; OSHA hazard communication; motor carrier safety and hazardous materials handling; and right-to-know. GEO-CIVIL & ENGINEERING DESIGN Founded in 1964 as a geotechnical engineering firm, GZA has developed a wealth of expertise in project design and construction implementation of large-scale waterfront, brownfield, commercial development, public works, water resource improvements, and transportation initiatives including tunnels, highways, bridges, airports and railways for public and private clients. SITE INVESTIGATION EXPERTISE. GZA routinely performs site and subsurface explorations for foundation engineering projects. Tasks may include site history research; soil and rock borings and test pit explorations; undisturbed soil sampling; soil engineering studies; geophysical investigations; geologic mapping; and groundwater measurement and analyses. GEOTECHNICAL STUDIES. GZA's geotechnical studies include: foundation system design; embankment stability analyses; settlement analysis; pavement design; soil stabilization studies; evaluating liquefaction potential; soil and water sampling programs; dewatering system design; instrumentation program development; shaft and tunnel engineering; slope stability analysis; field testing; lateral support system design; impermeable liner selection; and seepage analyses. 4 5 DAM/FLOOD CONTROL STRUCTURE INVESTIGATION, DESIGN, AND REPAIR EXPERTISE. GZA has analyzed, designed and provided construction observation services for more than 300 dams in the United States. We also have extensive experience in performing dam safety inspections and stability evaluations and hydraulic hydrology studies, as well as providing remedial recommendations for the U.S. Army Corps of Engineers, state and local agencies, and private owners. CONSTRUCTION SUPPORT SERVICES. Construction services to include: earthwork quality control; resident engineering; foundation load testing; ground exploration; construction management; site engineering; materials testing; and construction monitoring. INFORMATION MANAGEMENT SERVICES GZA provides specialized, internet-based applications to help clients run their businesses with greater cost-effectiveness. Conceptualizing, developing, implementing and hosting those applications enhances internal operations, providing both GZA and its clients opportunities for expanded growth and profitability. ENVIRONMENTAL INFORMATION MANAGEMENT SYSTEMS. GZA's Information Solutions Department has devised information management solutions to provide real-time monitoring, automated recordkeeping, and enhanced regulatory compliance applications for industrial, government, real estate and commercial clients. INFOLINK INTRANET SYSTEM. GZA's suite of Web-based modular applications include: Material Safety Data Sheet management; health/safety incident tracking; environmental management with Geographic Information System interface; air emissions tracking and reporting; self-audit tracking; ISO 14000 management; and waste minimization. CUSTOMERLINK. GZA uses Internet technologies to help manage complex projects by providing clients with secured access to their information. We develop and implement "extranets" to provide clients and project team members with secure access to project data, document libraries, and database applications from remote locations. GEOGRAPHIC INFORMATION SYSTEMS (GIS). GIS technology links digital mapping with relational databases. Key services include: needs assessment and planning; database modeling and design; application development; and training and support. SOLID WASTE MANAGEMENT GZA combines environmental and engineering specialties to serve public and private clients in developing, expanding and closing of solid waste transfer stations and landfills. SOLID WASTE/LANDFILL DESIGN AND MANAGEMENT. GZA has experience in all aspects of landfill design and management, from hydrogeologic investigations at existing sites to siting, design, construction observation, and monitoring of new hazardous/solid waste disposal facilities. GZA has performed remedial investigations and feasibility studies, design, construction, and closures at over 500 landfills. Additionally, we have provided design and laboratory services associated with natural and synthetic liners, leachate collection and detection systems, landfill gas management programs, capping schemes, slope stability evaluations, and construction/remediation monitoring. 5 6 SUPPORT SERVICES GZA's support services complement its technical service offerings and address clients' evolving needs. SOIL AND ROCK TESTING LABORATORY. GZA's laboratories conduct a wide variety of tests on soil, rock and geomembrane materials. Testing methods conform with the latest specifications of the American Society for Testing and Materials, American Association of State Highway Officials, U.S. Army Corps of Engineers, U.S. Environmental Protection Agency, and the U.S. Department of Transportation. ENVIRONMENTAL CHEMISTRY LABORATORY. GZA's Environmental Chemistry Laboratory is a state-of-the-practice facility supporting the environmental investigations of our technical staff. The lab participates in the EPA's Performance Evaluation Program, has received validation from the U.S. Army Corps of Engineers, and is certified in many individual states. DRILLING, TEST BORING AND IN-SITU TESTING SERVICES. GZA owns and operates a variety of land-based and waterborne drilling equipment used to obtain geotechnical and environmental information and samples. We also provide pump test support, as well as specialty drilling, site dewatering, and subsurface grouting services. JOINT VENTURES ENVIRONMENTAL REAL ESTATE INVESTORS, INC. In January 1999 GZA and Southborough Ventures, Inc. (SVI) formed Environmental Real Estate Investors, Inc., (EREI) a joint venture, to target environmentally impaired properties for development. On July 21, 1999, Somerville Avenue LLC was incorporated in accordance with the terms of the EREI joint venture agreement. Somerville Avenue LLC subsequently acquired at a cost of $436,000 a former industrial property in Somerville, Massachusetts and plan to transform the parcel into a site for commercial development. The cost of the property consists of the purchase price plus closing costs such as legal, accounting and other similar costs directly associated with the acquired property. The formation of a site specific Limited Liability Corporation is consistent with the EREI joint venture agreement. In addition, EREI made a $65,000 deposit for a commercial development site in New Bedford, Massachusetts. The development of the New Bedford site is currently under negotiation with EREI and the owner. Gains or losses, if any, from investment in real estate transactions will be recorded as "Other Income" on our Consolidated Statements of Operations and Comprehensive Income. Due to the terms of the joint venture 100% of the assets, liabilities, and equity will be consolidated into GZA. AQUATERRA ENVIRONMENTAL CONSULTANTS LIMITED (U.K.) In 1991, GZA entered into a joint venture with Carl Bro Group (UK) Limited to form Aquaterra Environmental Consultants Limited (Aquaterra). The stock of Aquaterra was owned equally by GZA and Carl Bro Group Limited. Aquaterra, with offices in Leeds, London, and Edinburg, provides services related to contaminated land and groundwater remediation, environmental compliance of operating facilities and geotechnical engineering. On April 26, 2000 an agreement was consummated between GZA GeoEnvironmental, Inc., Carl Bro Group Limited and Aquaterra for the sale of GZA's 5,000 shares, representing a 50% ownership interest in Aquaterra, to Carl Bro Group Limited for $316,322 and repayment of a GZA loan to Aquaterra of $128,480. The terms of the agreement were substantially complete as of February 29, 2000, and therefore the sale is reflected in the fiscal 2000 financial statements. Carl Bro Group Limited will defend, indemnify, and hold harmless GZA against any action, sums, demands, damages, loss or liability arising out of (i) any professional services rendered by Aquaterra, (ii) the employment of any Aquaterra person, (iii) taxes payable by Aquaterra and (iv) any obligation or liability arising out of the 6 7 operation of Aquaterra's business, whether after the sale. AIRLOGICS, LLC (AIRLOGICS) On April 1, 2000 South Jersey Energy Company (SJE) and GZA consummated a Limited Liability Company Operating Agreement for the formation of AirLogics, LLC (AirLogics). GZA and SJE formed AirLogics to expand marketing efforts of their patent-pending, real-time air monitoring system and to focus its marketing efforts on electric and gas utility companies involved in the remediation of former manufactured gas plants. During fiscal 2000 GZA billed approximately $783,000 in net revenues for air monitoring services provided for several SJE clients. Future profits and losses of AirLogics will be shared equally by GZA and SJE and will be accounted for under the equity method of accounting. CUSTOMERS Our client base includes industrial companies, owners and operators of solid waste landfills, real estate developers, architects and engineers, construction firms, parties to property transfers and financings (lenders, law firms, corporations and developers) and public agencies. We derive most of our revenues from the private sector. During the past year, the private sector accounted for approximately 88% of net revenues. In fiscal 2000, we were actively engaged in approximately 3,500 assignments for approximately 1,600 clients. These assignments ranged from brief projects such as environmental site assessments and geotechnical foundation evaluations to long-term projects such as multi-year hazardous waste cleanups and geotechnical infrastructure projects. Most of our assignments lasted less than six months in duration. Management estimates that 42% of net revenues in fiscal 2000 were derived from projects for which net revenues were $50,000 or less. In fiscal 2000, no one customer accounted for more than 5% of our net revenues. BACKLOG As of April 30, 2000, we had a backlog of orders we believed to be firm of approximately $54 million. This includes estimated amounts under orders for time, materials and unit price. The amount represents gross revenues, including costs of services and materials subcontracted to third parties. Backlog at April 30, 2000 excludes the value of government contracts that have been awarded but have not yet been executed and/or funded. It also excludes the value of contract options that have not yet been exercised. As of April 30, 1999, we had a backlog of orders calculated on the same basis of approximately $47 million. Because work can be terminated by the client at any time, there is no assurance that all the amounts included in backlog will ultimately be realized, even if covered by written contracts or task orders. COMPETITION The markets for environmental and geotechnical services have become increasingly competitive. We compete with many different small local firms and large regional and national firms having substantially greater financial and marketing resources than we have. Competition in both the environmental and geotechnical services markets is based primarily on quality, diversity of services, geographic location, price and reputation. In some geographic markets, GZA provides environmental engineering and consulting, geotechnical engineering design and contractor support services. Some state and local statutes and regulations may inhibit our ability to compete for construction work in areas at or near sites where we have formerly provided engineering or design services. Management believes we are one of a few firms that offers a combination of environmental consulting, remediation, 7 8 geotechnical engineering with integrated information management services. Management believes that the ability to provide this range of services enhances our competitive position in our market areas. IMPACT OF ENVIRONMENTAL REGULATION The business of GZA and its clients is subject to a wide range of overlapping federal, state and local environmental laws and regulations. These laws and regulations have helped to create a demand for many of our services. Changes in environmental laws and regulations, in the regulatory climate generally, and in the resources available to and priorities of the federal, state and local agencies responsible for enforcement of environmental laws and regulations could materially affect demand for our services. Reductions of the budgets of the U.S. Environmental Protection Agency and Department of Defense, ongoing legislative proposals to narrow the scope of some federal statutes, and delays in the U.S. Environmental Protection Agency legislation could result in reduced demand for our services. Conversely, regulatory reform initiatives designed to shift responsibility for environmental compliance and enforcement from government agencies to private parties could create new opportunities for us. Such initiatives have been taken in Massachusetts and Connecticut where supervision of the clean-up of contaminated sites has for the most part been delegated by state regulatory officials to "licensed site professionals" or "licensed environmental professionals" employed by private entities. We employ a number of individuals qualified and licensed in these and other states in which we provide services. Regulatory reform initiatives may also reduce the cost of environmental cleanups and therefore may encourage more private remediation projects. Whether such initiatives will lead to an increased need for our services is uncertain. There can be no assurance that changes in the regulatory climate and in environmental statutes and regulations will not result in reduced demand for such services. The principal statutes affecting our business and the markets it serves include the following: RESOURCE CONSERVATION AND RECOVERY ACT OF 1976. The Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, establish a comprehensive regulatory scheme for the handling, transportation, treatment, storage and disposal of hazardous waste. Although "cradle-to-grave" responsibility for hazardous wastes rests with generators of the material, every facility that treats, stores or disposes of specified minimum amounts of hazardous waste must comply with specific operating, design, financial responsibility and closure requirements. These requirements have contributed to demand for our consulting services, permitting assistance, remedial design and implementation and waste management services. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, addresses problems created by past handling and disposal of hazardous substances. It requires the U.S. Environmental Protection Agency to identify contaminated sites and to compel a wide array of "responsible parties" to pay for necessary cleanup activities. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 also authorizes multiple damages and penalties for non-compliance with the U.S. Environmental Protection Agency orders and provides for the U.S. Environmental Protection Agency to perform cleanup activities in appropriate circumstances. Our services include site investigations, feasibility studies, development and implementation of alternative remediation plans, oversight of contractors and support and expert testimony for related litigation. FEDERAL WATER POLLUTION CONTROL ACT OF 1972. The Federal Water Pollution Control Act of 1972 establishes a system of standards, permits and enforcement procedures for the discharge into water of pollutants from industrial and municipal sources. The law sets treatment standards for industries and wastewater treatment plants. The law also regulates and requires permits for development and construction activities involving wetlands and navigable waters. We provide a range of services in connection with this regulatory scheme, including regulatory permitting 8 9 assessments, conceptual design planning, wastewater pretreatment engineering, assistance with environmental impact studies, reports and applications for environmental permits and construction services. CLEAN AIR ACT AMENDMENTS OF 1990. The Clean Air Act Amendments of 1990 consist of major initiatives to attain and maintain national ambient air quality standards. These standards ensure that new sources of potential atmospheric emissions are equipped with appropriate pollution control technology and ensure that emissions of hazardous air pollutants are controlled to the maximum extent possible. The law requires a comprehensive operating permit program. We provide a range of air quality services including emission inventories, preparation of permit applications, and oversight of contractors. OTHER REGULATIONS. In addition to federal environmental regulations, many states and local authorities have enacted laws regulating activities affecting the environment. Some of these laws impose differing, and sometimes stricter, standards than their federal counterparts. Examples include a variety of statutes related to "Brownfields" initiatives. Brownfields are abandoned or underutilized properties where actual or perceived contamination may interfere with redevelopment. Many states are encouraging reuse of such sites by implementing regulations that establish clean-up standards based on current risks and reasonably foreseeable future site use, rather than theoretical risks and unlikely end uses. Some states also may provide covenants not to sue or agreements that document the regulators' acceptance of the clean-up process. Such covenants and agreements may be transferable with the property. The national trend at the state and federal levels of risk-based cleanups of contaminated properties may have a positive impact on the demand for our services. We are working on a number of projects involving Brownfields sites, providing services ranging from initial investigation through final construction. We also are seeking investments in contaminated property to apply our remediation experience to produce attractive financial returns. Through a limited liability company or other affiliations with experienced property developers, we are seeking premium returns with controlled risks. POTENTIAL LIABILITY, RISK MANAGEMENT AND INSURANCE Our professional environmental consulting, remediation design and geotechnical engineering services, as well as our remedial construction, drilling and test boring operations, involve risks of significant liability for environmental and property damage, personal injury, economic loss, and costs, fines and penalties assessed by regulatory agencies. Liability for environmental contamination and for providing environmental services is a developing area of the law, and it is difficult to assess accurately the potential risks to us. Some statutes and judicial decisions impose strict liability on a party that causes or contributes to the release of contaminants into the environment, even if the party acted without negligence or fault. Under certain circumstances, a government or private party might allege that our own analytical, consulting or remedial activities subjected us to liability under various statutes or regulations. Services by our environmental consultants as licensed site professionals and licensed environmental professionals may expose us to additional liability. In addition to our potential liability under statutes and common law, we sometimes agree to indemnify clients for losses and expenses they may incur as a result of our services. Some of these losses may not be covered by our insurance. Our information management services also pose risks, associated primarily with systems' security. We maintain comprehensive programs for risk management, health and safety training and medical monitoring of field employees, quality assurance and quality control and loss prevention. We seek to limit our liability to the client and to require the client to indemnify us for costs and liabilities not caused by our negligence or misconduct. 9 10 However, not all contracts include these provisions. There is no assurance that such provisions can be enforced or that our clients will always have adequate financial resources to stand behind these types of contractual promises. We have a broad-range risk management and insurance program with large commercial insurers. We maintain workers' compensation/employer's liability, commercial general, automobile and umbrella liability coverage. This coverage is written on an incident/occurrence basis. Our property is insured for loss or damage. We also maintain environmental professional liability policies that cover professional liability, contractor's environmental liability and completed operations, with aggregate limits each of $5 million in excess of a deductible of $500,000 per claim/$1,000,000 in the annual aggregate written on a claims-made/occurrence-type basis (respectively) for events since 1964. Shared umbrella and follow-form excess liability coverage is secured in the amount of $50,000,000 under one policy concurrent with the various underlying coverages. The law concerning the extent of coverage available under liability insurance policies in the context of environmental claims is unsettled and is likely to remain unsettled in the foreseeable future. All of our policies permit termination by the insurer without cause subject to a notice period. There is no assurance that we will be able to maintain or replace our insurance policies, that premiums will remain at levels that economically permit the maintenance of such coverage, that all claims that may be asserted against us will be covered by insurance or that such claims will not exceed the coverage limits. EMPLOYEES On April 30, 2000, we had 499 employees, including 397 technical personnel. Our technical staff consists of civil and environmental engineers, geologists, drillers and a number of specialists in such fields as hydrology, chemistry, toxicology, biology and industrial hygiene. Management believes that our future success depends in large part on its ability to attract and retain qualified professional staff. The market for such professionals is competitive. ITEM 2. PROPERTIES Our corporate and administrative headquarters and one of our district offices, are located in Newton Upper Falls, Massachusetts, where we occupy two buildings. One of the buildings is approximately 42,000 square feet and has a lease that extends through February 2001. During fiscal year 2000, we paid approximately $714,000 in base rent for this facility. The other location in Newton Upper Falls is for approximately 10,000 square feet. In fiscal year 2000, we paid approximately $140,000 in base rent for this facility. GZA leases 20 other principal facilities located in: Vernon, Connecticut; Portland, Maine; Brockton, Massachusetts; West Newton, Massachusetts; Worcester, Massachusetts; Livonia, Michigan; Grand Rapids, Michigan; Manchester, New Hampshire; Wayne, New Jersey; Hammonton, New Jersey; Buffalo, New York; New York City, New York; Rochester, New York; Coraopolis, Pennsylvania; Providence, Rhode Island; Dallas, Texas; Houston, Texas; Rutland, Vermont; South Burlington, Vermont and Pewaukee, Wisconsin. These other facilities have a combined square footage of approximately 106,000 square feet. Aggregate base rent for all facilities leased by us (other than our facilities in Newton Upper Falls) during fiscal year 2000 totaled approximately $1,375,000. Lease terms expire at various times through January 31, 2004. We believe that existing facilities are adequate to meet our current requirements. We also believe that suitable additional or substitute space will be available on reasonable terms as needed to accommodate expansion of operations. In addition to its leasehold interests in real property, we also own computer equipment, vehicles, drilling rigs, laboratory equipment and instrumentation, remediation treatment equipment and other machinery, equipment and furniture. 10 11 ITEM 3. LEGAL PROCEEDINGS In 1997, Goldberg-Zoino Associates of New York, P.C. ("GZANY"), our New York professional corporation affiliate, entered into a contract with E.E. Cruz/Nab/Frontier-Kemper, A Joint Venture ("JV"), to design a temporary earth support system required for construction of the Flushing Bay Combined Sewer Overflow Protection Facility Storage Tank, Project No. CS 4-3 for the New York City Department of Environmental Protection. Design by GZANY and soil mix design and installation development by the JV's construction subcontractor, The Millgard Corporation, proceeded from August 1997 through to the end of the year. On January 28, 1998, the JV terminated Millgard's contract for failure to perform the specified work. On April 22, 1999, Millgard filed suit against the JV for costs incurred prior to termination and for lost profits for work not executed following termination. The JV denied Millgard's claim in July 1999 and counterclaimed against Millgard for damages of $10,750,000 resulting from a breach of contract and delay. On September 9, 1999, the JV filed a third-party action against GZANY in the United States District Court Southern District of New York for contribution, defense and indemnity of claims made by Millgard. In March 2000, the JV filed an amended complaint against GZANY alleging breach of contract and a failure to exercise the required standard of care and claiming indemnification for any damages owed by the JV to Millgard and for direct damages of at least $10,750,000. In addition, we are party to several other legal proceedings arising in the normal course of business. Management believes that the outcome of these actions will not, individually or in the aggregate, have a material adverse effect on the results of operations or financial condition of GZA. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK GZA's common stock is traded in the over-the-counter market under the symbol "GZEA" and is included in the National Association of Securities Dealers, Inc. National Market System ("NASDAQ"). The following table sets forth the quarterly range of high and low sale prices per share of GZA's common stock for fiscal year 2000, as reported by NASDAQ.
Fiscal 2000 Fiscal 1999 - -------------------------------------------------------------------------------- High Low High Low - -------------------------------------------------------------------------------- First Quarter 4.63 3.75 5.19 4.50 Second Quarter 5.50 4.00 5.19 4.69 Third Quarter 4.50 3.63 4.88 4.13 Fourth Quarter 4.94 3.75 5.00 4.00
As of May 19, 2000, GZA's common stock was held by 334 holders of record. GZA has never paid cash dividends on its common stock, and does not intend to pay cash dividends in the foreseeable future. GZA currently intends to retain any future earnings to finance growth. 12 13 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. The statement of operations data for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998 and the balance sheet data at February 29, 2000 and February 28, 1999 are derived from our financial statements audited by PricewaterhouseCoopers LLP, which are included elsewhere in this report. The statement of operations data for the fiscal years ended February 28, 1998, 1997 and February 29, 1996 and the balance sheet data at February 28, 1998, 1997 and February 29, 1996 are derived from our financial statements audited by PricewaterhouseCoopers LLP that are not included in this report.
Years ended 2/29/00 2/28/99 2/28/98 2/28/97 2/29/96 - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands except per share amounts) STATEMENT OF OPERATIONS DATA: Net revenues $ 44,151 $ 40,308 $ 37,851 $ 38,211 $ 40,158 Income from continuing operations, before other income 1,800 2,098 1,810 565 1,260 and taxes Income from continuing operations before taxes 2,094 2,481 2,247 821 1,283 Income from continuing operations 1,275 1,509 1,370 529 798 Loss from discontinued operations -- -- -- -- (99) Net income 1,275 1,509 1,370 529 699 BASIC EARNINGS PER SHARE: Earnings per share from continuing operations $ .35 $ .42 $ .35 $ .13 $ .21 Loss per share from discontinued operations -- -- -- -- $ (.03) Basic earnings per share $ .35 $ .42 $ .35 $ .13 $ .18 Basic weighted average shares outstanding 3,629 3,604 3,932 3,929 3,857 DILUTED EARNINGS PER SHARE: Earnings per share from continuing operations $ .35 $ .41 $ .34 $ .13 $ .21 Loss per share from discontinued operations -- -- -- -- $ (.03) Diluted earnings per share $ .35 $ .41 $ .34 $ .13 $ .18 Diluted weighted average shares outstanding 3,678 3,674 3,973 3,929 3,857 BALANCE SHEET DATA: Working capital $ 18,776 $ 17,551 $ 17,366 $ 17,177 $ 18,175 Total assets 38,359 35,257 34,221 35,535 37,614 Long-term debt (less current portion) -- -- -- -- 1,860 Stockholders' equity $ 25,617 $ 24,141 $ 22,886 $ 23,257 $ 22,465
13 14 The following selected quarterly financial data are unaudited and should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. We have prepared this information on the same basis as our audited financial statements. In the opinion of our management, this information includes all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of our operating results for the quarters presented. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three months ended 2/29/00 11/30/99 8/31/99 5/31/99 - ----------------------------------------------------------------------------------------------------------------------------------- In thousands except per share amounts Revenues $ 21,377 $ 18,118 $ 17,055 $ 15,533 Net revenues 11,137 10,999 11,331 10,684 Income (loss) before other income and tax 427 720 738 (85) Net income 330 481 473 (9) Other comprehensive income-change in unrealized gains (losses) (2) (3) (20) (20) on securities Comprehensive income (loss) 332 478 453 (29) Basic earnings per share $ .09 $ .13 $ .13 $ (.00) Diluted earnings per share $ .09 $ .13 $ .13 $ (.00)
Three months ended 2/28/99 11/30/98 8/31/98 5/31/98 - ----------------------------------------------------------------------------------------------------------------------------------- In thousands except per share amounts Revenues $ 14,673 $ 17,146 $ 15,330 $ 13,504 Net revenues 9,516 10,674 10,517 9,601 Income before other income and tax (41) 800 682 657 Net income 55 512 470 472 Other comprehensive income-change in unrealized gains (losses) (30) 21 11 (5) on securities Comprehensive income 25 533 481 467 Basic earnings per share $ .02 $ .14 $ .13 $ .13 Diluted earnings per share $ .01 $ .14 $ .13 $ .13
14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, (i) the percentage which certain items in the consolidated statements of operations of the Company bear to net revenues, and (ii) the percentage increase (decrease) in the dollar amount of such items from year to year.
Year-to-Year Percentage Percentage of Net Revenues Increase (Decrease) Fiscal Year Ended Fiscal Years - ----------------------------------------------------------------------------------------------------------------------------------- February 29, February 28, February 28, 2000 vs. 1999 vs. 2000 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Net revenues 100% 100% 100% 10% 7% Salaries and related costs 72 71 71 10 7 General and administrative expenses 24 24 24 13 4 Income, before other income and taxes 4 5 5 (14) 16 Other income, net 1 1 1 (23) (13) Provision for income taxes 2 2 2 (16) 11 Net income 3 4 4 (16) 10
GENERAL GZA's gross revenues include the cost of services and materials subcontracted to third parties and certain expenditures such as equipment purchases, laboratory testing, use of our field and technical equipment, travel, telephone and reproduction charges that, under the terms of our contracts, are billed to clients, generally with an added service and handling charge. Net revenues exclude the amount of such reimbursable costs and expenditures but include the corresponding service and handling charges. Net revenues also reflect estimates for loss contingencies for disputed contract and pending change order items. Accordingly, we regard net revenues, which reflect services provided and revenues earned directly by us, as the primary measure of our business growth. Salaries and related costs include the cost of professional, clerical and administrative salaries, and related costs such as taxes, insurance, Incentive Compensation Plan bonuses, which are based on total company and individual performance goals, and other fringe benefits. General and administrative expenses include costs of marketing, professional development and training, professional and general liability insurance, claims and legal proceedings, occupancy, depreciation, amortization, and clerical and administrative overhead. FISCAL 2000 AND 1999 VERSUS PRIOR YEARS
2000 vs. 1999 1999 vs. 1998 Increase Increase 1998 Amount -------- -------- ----------- Net Revenues. $3,844,000 9.5% $2,457,000 6.5% $37,851,000
The increase in fiscal 2000 net revenues is attributable to an increase in demand for our services in the Northeast and Great Lakes Regions. The increase in the Northeast Region includes approximately $762,000 attributable to our December, 1998 acquisition of Raamot Associates. The increase was offset by a $525,000 decline in net revenues for our Southern Region due primarily to our decision to close the Atlanta office in the first quarter of fiscal 2000. The increase in fiscal 1999 net revenues is attributable to an increase in demand for our services in the Northeast and Great Lakes Regions. The increase was offset by decrease in demand for our services in the Southern Region and lower prices received for contracted billable hours of our technical staff.
2000 vs. 1999 1999 vs. 1998 Increase Increase 1998 Amount -------- -------- ----------- Salaries and Related Costs. $2,895,000 10.0% $1,786,000 6.6% $26,981,000
15 16 The increase in fiscal 2000 salaries and related expenses is attributable to the increase in full-time equivalent professional and support staff employees, annual salary increases and a $372,000 (27%) increase in the cost of the Company's self-insured employee medical insurance program. The increase in salary and related expenses reflects the hiring of senior staff for initiatives undertaken to increase net revenues and expand engineering and consulting services. The increase in fiscal 1999 salaries and related expenses is attributable to the increase in the number of full-time equivalent professional and support staff employees, annual salary increases and Incentive Compensation Plan bonuses. The salary and related costs increases were offset, in part, by a net reduction in medical and workers' compensation insurance expenses.
2000 vs. 1999 1999 vs. 1998 Increase Increase 1998 Amount -------- -------- ----------- General and Administrative Expenses. $1,247,000 13.2% $385,000 4.2% $9,060,000
The increase in general and administrative expenses is attributable to higher occupancy cost due, in part, to the Raamot Associates acquisition, greater amortization and depreciation expense for leasehold improvements and expenditures for computer and drilling equipment and rigs, costs related to due diligence and valuation efforts for potential acquisitions, costs for investment banking fees and increases in professional liability claims expenses and related legal expenses. The increase in fiscal 2000 general and administrative expenses is also attributable to our decision to close the Atlanta office, which resulted in lease settlement expenses and other legal, contractual and administrative costs. The increase in general and administrative expenses was offset partially by decreases in bad debts, general and professional liability insurance premiums and employee placement and recruiting fees. The increase in fiscal 1999 general and administrative expenses is attributable primarily to higher business development, professional development and training, placement and recruiting, consulting, and bad debt expenses which were offset, in part, by reductions in professional liability claims and legal expenses and lower net cost for technical equipment and small tools and computer automated design services.
2000 vs. 1999 1999 vs. 1998 Decrease Decrease 1998 Amount -------- -------- ----------- Other Income, Net. ($89,000) (23.0%) ($55,000) (12.5%) $437,000
On April 26, 2000 an agreement was consummated between GZA GeoEnvironmental, Inc, Carl Bro Group Limited and Aquaterra Environmental Consultants Limited (Aquaterra) for the sale of GZA's 5,000 shares, representing a 50% ownership interest in Aquaterra, to Carl Bro Group Limited for $316,322. The sale price was based primarily on a September 1999 KPMG UK valuation opinion of Aquaterra. The decrease in fiscal 2000 other income, net is due primarily to a $155,000 decrease in equity income from Aquaterra in fiscal 2000. The decrease, due to the discontinuation of the joint venture, was offset by increases in interest income. The decrease in fiscal 1999 other income, net was due primarily to reductions of interest income and increases in interest expense for financing growth of the business throughout fiscal 1999. Provision for Income Taxes. The provision for income taxes reflects effective tax rates of 39% for each of fiscal 2000, 1999, and 1998. Differences from the 34% federal statutory rate resulted primarily from the combined effect of the addition of provisions for state taxes (net of federal tax benefit), tax-exempt interest income, and other non-deductible items. Quarterly Fluctuations and Seasonality. Our results may fluctuate from quarter to quarter due to such factors as weather, the timing of major contracts, the mix of projects and the level of subcontracted services involved, the timing of additions to our professional and support staff (who may require health and safety training and technical and project management training and, therefore, may initially charge clients a lower percentage of their time), and the opening or closing of offices. Operating results for any one fiscal quarter may not be indicative of the results that will be achieved in any subsequent quarter or for the year. Inflation. Management does not believe that inflation has had a significant effect on our results of operations. 16 17 Future Operating Results. The volume of our services is affected by federal and state government spending and changes in environmental regulations. In addition, the industry is continuing to experience a period of consolidation, continuing price competition and increasing salaries and demand for entry level and experienced project managers. These trends are expected to continue. Liquidity and Capital Resources. Cash provided by operating activities was $7,355,000 in fiscal 2000 compared with $998,000 used by operations in fiscal 1999. The increase in cash provided in fiscal 2000 is due primarily to improved collections of accounts receivable and lower costs and estimated earnings in excess of billings on uncompleted contracts. The increase in cash used in fiscal 1999 was due primarily to increases in accounts receivables and costs and estimated earnings in excess of billings on uncompleted contracts. We made capital expenditures of $1,833,000 in fiscal 2000 and $1,972,000 in 1999. The increase in capital expenditures in fiscal 2000 reflects our investments in computer technology, testing and sampling equipment, specialty drilling equipment rigs and accessories. GZA has a Revolving Credit and Term Loan Agreement with Fleet Bank (the "Bank") which provides for unsecured borrowings in the aggregate amount of $10,000,000. The facility consists of a revolving credit line of $5,500,000 and a term loan facility of $4,500,000. Revolving credit advances bear interest at the Bank's floating base rate or, at our option, at LIBOR plus 200 basis points. Under the terms of the line of credit, we are required to maintain a minimum net worth, working capital, current ratio, quick ratio, tangible net worth and cash flow coverage ratio. Term loans bear interest at the Bank's floating rate or, at our option, at a fixed rate equal to the Bank's cost of funds plus 200 basis points. At February 29, 2000, we had no borrowings under the revolving credit line and no term loans. These two financing arrangements expire on August 31, 2000. GZA's cash and cash equivalents were $5,966,000 at the end of fiscal 2000 compared with $894,000 at the end of fiscal 1999. Short-term investments were $3,829,000 at the end of fiscal 2000 compared with $3,837,000 at the end of fiscal 1999. These investments consist primarily of tax-exempt municipal bonds, taxable U.S. Treasury Notes and other bonds and commercial paper. Funding requirements for operations and for future growth are expected to be met from existing cash and investments and funds generated from operations. We believe that these sources will enable us to meet our cash requirements for at least the next twelve months. NEWLY ISSUED ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This bulletin summarizes certain views of the staff on applying generally accepted accounting principles to revenue recognition in financial statements. The staff believes that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collection is reasonably assured. We do not expect the application of SAB 101 to have a material impact on our financial position or results of operations. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. We do not expect the application of FIN 44 to have a material impact on our financial position or results of operations. RECENT DEVELOPMENTS On May 17, GZA GeoEnvironmental Technologies, Inc. entered into a letter of intent with Futureco Environmental, Inc., a privately-held company organized by certain members of GZA's senior management, providing for the acquisition by Futureco, at a price of $6.45 per share, of all of the outstanding shares of GZA common stock which Futureco does not already own or have the right to acquire. GZA has appointed a Special Committee of outside directors to consider the letter of intent as well as other strategic alternatives that may be available to the Company, and to make recommendations to the Board of Directors. The proposed acquisition is subject to certain conditions, including completion of financing for the transaction by Futureco; GZA and Futureco entering into a definitive merger agreement, which would be subject to the approval of the holders of at least two-thirds of the outstanding shares of common 17 18 stock of GZA which Futureco does not already own or have to right to acquire. The Company cannot predict whether the proposed transaction will be completed. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GZA does not hold derivative financial investments, derivative commodity investments or other financial investments or engage in foreign currency hedging or other transactions that expose us to material market risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of GZA GeoEnvironmental Technologies, Inc. and Affiliate: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of GZA GeoEnvironmental Technologies, Inc. and its Affiliate at February 29, 2000 and February 28, 1999, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 2000 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP May 5, 2000, except for Note 17, as to which the date is May 17, 2000 18 19 CONSOLIDATED BALANCE SHEETS
February 29, 2000 and February 28, 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,966,000 $ 894,000 Available-for-sale securities 3,829,000 3,837,000 Accounts receivable, net 13,924,000 13,503,000 Costs and estimated earnings in excess of billings on uncompleted contracts, net 5,669,000 8,018,000 Prepaid expenses and other current assets 215,000 149,000 Deferred income taxes 1,399,000 1,450,000 - --------------------------------------------------------------------------------------------------------------------------- Total current assets $31,002,000 27,851,000 Property and equipment, net 5,973,000 5,901,000 Investments in real estate 501,000 - Other assets, net 883,000 1,505,000 - --------------------------------------------------------------------------------------------------------------------------- Total assets $38,359,000 $ 35,257,000 =========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 6,516,000 $ 4,776,000 Accrued payroll and expenses 3,958,000 3,900,000 Billings in excess of costs and estimated earnings on uncompleted contracts 1,539,000 1,313,000 Income taxes payable 213,000 311,000 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 12,226,000 10,300,000 - --------------------------------------------------------------------------------------------------------------------------- Deferred income taxes 516,000 816,000 Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized - 1,000,000 shares; issued and outstanding - none - - Common stock, $.01 par value; authorized - 14,000,000 shares; issued (including treasury shares) - 4,134,999 shares at February 29, 2000 and 4,078,104 shares at February 28, 1999 41,000 41,000 Capital in excess of par value 14,892,000 14,650,000 Accumulated other comprehensive income (51,000) (10,000) Retained earnings (includes $748,000 and $926,000 of retained earnings of the Company's consolidated affiliate at February 29, 2000 and February 28, 1999, respectively) 13,177,000 11,902,000 - --------------------------------------------------------------------------------------------------------------------------- Subtotal 28,059,000 26,583,000 Less: Common stock held in treasury, at cost (500,000 shares at February 29, 2000 and February 28, 1999) (2,442,000) (2,442,000) - --------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 25,617,000 24,141,000 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $38,359,000 $ 35,257,000 ===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 19 20 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the Years Ended February 29, 2000 and February 28, 1999 and 1998 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues $72,083,000 $60,653,000 $ 59,546,000 Subcontractor costs and other direct expenses 27,932,000 20,345,000 21,695,000 - ---------------------------------------------------------------------------------------------------------------------------------- Net revenues 44,151,000 40,308,000 37,851,000 Costs and expenses: Salaries and related costs 31,661,000 28,766,000 26,981,000 General and administrative 10,690,000 9,444,000 9,060,000 - ---------------------------------------------------------------------------------------------------------------------------------- Income before other income and taxes 1,800,000 2,098,000 1,810,000 - ---------------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest income 286,000 254,000 346,000 Gain (loss) on sale of equipment, and other assets - 4,000 (6,000) Equity in net income of joint venture 19,000 175,000 97,000 Interest expense (11,000) (50,000) - - ---------------------------------------------------------------------------------------------------------------------------------- Total other income, net 294,000 383,000 437,000 - ---------------------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 2,094,000 2,481,000 2,247,000 Provision for income taxes 819,000 972,000 877,000 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 1,275,000 1,509,000 1,370,000 Other comprehensive income - change in unrealized gains (losses) on securities (41,000) (4,000) 1,000 Comprehensive income $ 1,234,000 $ 1,505,000 $ 1,371,000 - ---------------------------------------------------------------------------------------------------------------------------------- Per share amounts: Basic earnings per share $ .35 $ .42 $ . 35 Basic weighted average shares 3,629,000 3,604,000 3,932,000 Diluted earnings per share $ .35 $ .41 $ .34 Diluted weighted average shares 3,678,000 3,674,000 3,973,000 ==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 20 21 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock ------------------- Treasury Stock Number of Par Capital in Accumulated ------------------- Shares Value Excess of Other Retained Number Amount Total Par Value Comprehensive Earnings of Shares Stockholders' Income Equity - --------------------------------------------------------------------------------------------------------------------------------- Balance February 28, 1997 3,948,794 $39,000 $14,202,000 $ (7,000) $9,023,000 $23,257,000 Issuance of common stock 78,646 1,000 228,000 229,000 Change in unrealized losses on available-for-sale securities 1,000 1,000 Net income 1,370,000 1,370,000 Buyback of treasury shares 400,475 $(1,971,000) (1,971,000) - ----------------------------------------------------------------------------------------------------------------------------------- Balance February 28, 1998 4,027,440 40,000 14,430,000 (6,000) 10,393,000 400,475 (1,971,000) 22,886,000 Issuance of common stock 50,664 1,000 220,000 221,000 Change in unrealized losses on available-for-sale securities (4,000) (4,000) Net income 1,509,000 1,509,000 Buyback of treasury shares 99,525 (471,000) (471,000) - ----------------------------------------------------------------------------------------------------------------------------------- Balance February 28, 1999 4,078,104 41,000 14,650,000 (10,000) 11,902,000 500,000 (2,442,000) 24,141,000 Issuance of common stock 56,895 242,000 242,000 Change in unrealized losses on available-for-sale securities (41,000) (41,000) Net income 1,275,000 1,275,000 - ----------------------------------------------------------------------------------------------------------------------------------- Balance February 29, 2000 4,134,999 $41,000 $14,892,000 $(51,000) $13,177,000 500,000 $(2,442,000) $25,617,000 - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 21 22 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended February 29, 2000 and February 28, 1999 and 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,275,000 $1,509,000 $1,370,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,870,000 1,300,000 1,333,000 (Gain) loss on disposal of equipment, other assets (2,000) (4,000) 6,000 Gain on sale of other assets 42,000 -- -- Equity in net income of joint venture (19,000) (175,000) (97,000) Deferred (prepaid) income taxes (249,000) (347,000) 442,000 Changes in assets and liabilities: Decrease (increase) in accounts receivable, net (105,000) (2,080,000) 1,636,000 Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net 2,575,000 (1,279,000) (739,000) Decrease (increase) in prepaid expenses and other current assets (66,000) (16,000) 238,000 (Decrease) increase in accounts payable, trade 1,740,000 103,000 (882,000) (Decrease) increase in accrued payroll and expenses 229,000 (218,000) 389,000 Increase (decrease) in income taxes payable 65,000 209,000 (261,000) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) in operating activities 7,355,000 (998,000) 3,435,000 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchases of available-for-sale securities (33,000) (322,000) (64,000) Proceeds from disposal of equipment 5,000 155,000 82,000 Acquisition of property and equipment (1,833,000) (1,972,000) (1,232,000) (Increase) decrease in other assets 8,000 (148,000) 56,000 Investment in real estate (501,000) - - - --------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,354,000) (2,287,000) (1,158,000) - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit 4,050,000 8,830,000 - Payments on line of credit (4,050,000) (8,830,000) - Proceeds from issuance of common stock, net 71,000 56,000 59,000 Acquisition of treasury stock (471,000) (1,971,000) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used) in financing activities 71,000 (415,000) (1,912,000) - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 5,072,000 (3,700,000) 365,000 Cash and cash equivalents at beginning of year 894,000 4,594,000 4,229,000 - --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $5,966,000 $ 894,000 $4,594,000 - --------------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Interest paid $ 11,000 $ 50,000 $ - Income taxes paid, net $ 984,000 $1,110,000 $ 696,000 Non-cash investing activities: Note payable issued in connection with asset acquisition: $ - $ 300,000 $ -
The accompanying notes are an integral part of these consolidated financial statements. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GZA GeoEnvironmental Technologies, Inc. and subsidiaries and affiliate ("GZA") prepares its financial statements in accordance with generally accepted accounting principles and has adopted accounting policies and practices which are generally accepted in the industries in which it operates. GZA, a multi-disciplinary consulting firm, provides a wide range of environmental consulting, remediation, geotechnical and information system services to industrial, commercial, financial, public service, and government clients. The following are our significant accounting policies. Basis of Consolidation. The accompanying consolidated financial statements include the accounts of GZA GeoEnvironmental Technologies, Inc. and its wholly owned subsidiaries and affiliate. All material intercompany transactions and balances have been eliminated. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported amounts that reflect estimates that require the use of significant judgment by management. Such amounts include, but are not limited to, estimated contract revenues and related costs, allowances for doubtful accounts, reserves for unbilled amounts and claims reserves. Revenues and Cost Recognition. Revenue from engineering service contracts is recognized as the services are provided. Revenue from long-term contracts is generally recognized on the percentage-of-completion method. Under this method, we recognize the proportion of the total profit anticipated from the contract which the cost of the work completed bears to the estimated total cost of the contractual work. For contracts which extend over more than one year, revisions in cost and earnings estimates during the course of the work are reflected in the period when the facts requiring the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period when it is determined a loss may occur. For purposes of determining the percentage of completion, contract costs include all material, labor, and other direct costs related to contract performance. Contracts relating to government-funded projects may include clauses under which the contract may be terminated for the convenience of the government, or be subject to renegotiation at the request of the government based upon certain contractual conditions. If such contracts are terminated or renegotiated, we reflect any adjustments in the period they become known. GZA's gross revenues include the cost of services and materials subcontracted to third parties and certain expenditures such as equipment purchases, laboratory testing, use of our field and technical equipment, travel, telephone and reproduction charges that, under the terms of our contracts, are billed to clients, generally with an added service and handling charge. Net revenues exclude the amount of such reimbursable costs and expenditures but the corresponding service and handling charges. Net revenues also reflect estimates for loss contingencies for disputed contract and pending change order items. On April 1, 2000 South Jersey Energy Company (SJE) and GZA consummated a Limited Liability Company Operating Agreement for the formation of AirLogics, LLC (AirLogics). GZA and SJE formed AirLogics to expand marketing efforts of their patent-pending, real-time air monitoring system and to focus its marketing efforts on electric and gas utility companies involved in the remediation of former manufactured gas plants. During fiscal 2000 GZA billed approximately $783,000 in net revenues for air monitoring services provided for several SJE clients. Future profits and losses of AirLogics will be shared equally by GZA and SJE and will be accounted for under the equity method of accounting. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and investments in fixed income securities with original maturity dates of three months or less. Concentration of Credit Risk. Financial instruments which potentially expose us to concentrations of credit risk consist primarily of trade accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts. We have not experienced significant losses related to receivables from individual customers or groups of customers in a particular industry or geographic area. Accordingly, no additional credit risk beyond amounts provided for collection losses is believed present in our accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts. Available-for-Sale Securities. Available-for-sale securities, consisting primarily of tax exempt municipal bonds, taxable U.S. treasury notes and other bonds and commercial paper, with original maturity dates of three months or more, are carried at fair value. We limit the amount of our investments in any one entity to minimize exposure to loss. The securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component of comprehensive income, and therefore as an adjustment to stockholders' equity. Property, Equipment and Depreciation. Property and equipment are stated at cost. Additions and improvements, unless of a relatively minor amount, are capitalized. Expenditures for normal maintenance and repairs are charged to expense as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are eliminated from the accounts and the resulting gains or losses are reflected in income. Depreciation is provided using various straight-line and accelerated methods over the estimated useful lives of the individual assets, which range from three to ten years. Leasehold improvements are amortized on a straight-line basis over the estimated useful life of the improvement or the remaining life of the lease, whichever is shorter. 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Other Assets. Other assets consist principally of investments in unconsolidated companies and the excess of cost over net assets acquired resulting from acquisitions of businesses (goodwill). Amortization of these costs is computed on a straight-line basis over the estimated useful life of other assets, ranging from ten to twenty-five years. For the fiscal years ended February 29, 2000 and February 28, 1999 and 1998, we recorded goodwill amortization expense of $112,000, $29,000 and $19,000, respectively. On April 26, 2000 an agreement was consummated between GZA GeoEnvironmental, Inc., Carl Bro Group Limited and Aquaterra for the sale of GZA's 5,000 shares, representing a 50% ownership interest in Aquaterra, to Carl Bro Group Limited for $316,322 and repayment of a GZA loan to Aquaterra of $128,480. The terms of the agreement were substantially complete as of February 29, 2000, and therefore the sale is reflected in the fiscal 2000 financial statements. Carl Bro Group Limited will defend, indemnify, and hold harmless GZA against any action, sums, demands, damages, loss or liability arising out of (i) any professional services rendered by Aquaterra, (ii) the employment of any Aquaterra person, (iii) taxes payable by Aquaterra and (iv) any obligation or liability arising out of the operation of Aquaterra's business, whether after the sale. The sale of shares resulted in a gain of $7,000 in fiscal 2000. The sale price of $316,322 was reclassed out of other assets and is included in accounts receivable in the accompanying financial statements. We periodically review the propriety of carrying amounts of our long-lived and intangible assets, and periodically review the amortization periods, to determine whether current events and circumstances warrant adjustments to the carrying value or estimated useful lives. At each balance sheet date, management evaluates whether there has been a permanent impairment in the value of such assets by assessing the carrying value against anticipated future operating results. If it is determined that an impairment exists, the appropriate adjustment to the carrying value is made. Factors which management considers in performing the assessment include past and projected operating results, trends and prospects. Income Taxes. We account for income taxes pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," under which the liability method is used to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Computation of Earnings Per Share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, including the dilutive effect of common stock equivalents. Stock options having an exercise price below the average fair market value of our common stock during the fiscal year are deemed to be common stock equivalents. 24 25 Newly Issued Accounting Standards. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This bulletin summarizes certain views of the staff on applying generally accepted accounting principles to revenue recognition in financial statements. The staff believes that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collection is reasonably assured. We do not expect the application of SAB 101 to have a material impact on our financial position or results of operations. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. We do not expect the application of FIN 44 to have a material impact on our financial position or results of operations. Reclassification. Certain reclassifications have been made to the prior years' financial statements to conform to the current presentation. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. CONDENSED FINANCIAL INFORMATION OF AFFILIATE The condensed financial information of GZA's affiliate, GZA GeoEnvironmental of New York P.C., at February 29, 2000 and February 28, 1999 and for each of the three years in the period ended February 29, 2000 is as follows:
CONDENSED BALANCE SHEETS 2000 1999 - ----------------------------------------------------------------------------------------------- Total assets $2,300,000 $1,961,000 =============================================================================================== Total liabilities $1,552,000 $1,035,000 - ----------------------------------------------------------------------------------------------- Total stockholders' equity $ 748,000 $ 926,000 - -----------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Net revenues $3,880,000 $1,509,000 $1,099,000 - ---------------------------------------------------------------------------------------------------------------- Net income $ (178,000) $ 36,000 $ 4,000 - ----------------------------------------------------------------------------------------------------------------
Approximately $145,000, $164,000 and $198,000 of net revenues were billed to GZA in fiscal 2000, 1999 and 1998, respectively. NOTE 3. AVAILABLE-FOR-SALE SECURITIES Unrealized losses on available-for-sale securities at February 29, 2000 and February 28, 1999 were approximately $51,000 and $10,000, respectively, net of deferred taxes. The maturities of available-for-sale securities held at February 29, 2000 are as follows:
Within one year $ 1,181,000 From 1-10 years 2,648,000 --------- Total $ 3,829,000
Certain of these available-for-sale securities have maturities in excess of one year but are classified as current assets consistent with their use. Gross realized gains and losses from available-for-sale securities were immaterial to GZA's operating results. NOTE 4. ACCOUNTS RECEIVABLE, NET Accounts receivable consist of the following at February 29, 2000 and February 28, 1999:
2000 1999 - ------------------------------------------------------------------------------------------------------- Accounts receivable, principally trade $15,194,000 $15,179,000 Retainage 1,025,000 982,000 - ------------------------------------------------------------------------------------------------------- 16,219,000 16,161,000 Less - Allowance for doubtful accounts 2,295,000 2,658,000 - ------------------------------------------------------------------------------------------------------- $13,924,000 $13,503,000 =======================================================================================================
All amounts billed under retainage provisions of long-term contracts are expected to be collected within one year of completion of the contracts. 26 27 NOTE 5. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS, NET Costs and estimated earnings in excess of billings on uncompleted contracts, net, which represent revenues earned but not billed under the terms of the related contracts, are as follows, as of February 29, 2000 and February 28, 1999:
2000 1999 - ---------------------------------------------------------------------------------------- Costs incurred on uncompleted contracts $3,441,000 $4,539,000 Estimated earnings 2,228,000 3,479,000 - ---------------------------------------------------------------------------------------- $5,669,000 $8,018,000 ========================================================================================
Unbilled costs and estimated earnings on uncompleted contracts are reduced by accumulated adjustments of $316,000 and $396,000 as of February 29, 2000 and February 28, 1999, respectively, based on management's estimates of the contract values. Management continuously evaluates and adjusts specific reserves based on progress of contract negotiations and management's judgment of the ultimate contract value. At the point when material changes are renegotiated or known, GZA reflects the appropriate adjustments. Costs incurred on uncompleted contracts are typically billed at the end of a two-week or four-week billing cycle. NOTE 6. PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost and consist of the following as of February 29, 2000 and February 28, 1999:
2000 1999 - ---------------------------------------------------------------------------------------------------------------- Machinery and equipment $4,402,000 $3,619,000 Laboratory and technical equipment 3,363,000 3,254,000 Furniture, fixtures and computer equipment 7,915,000 7,232,000 Motor vehicles, rigs and trucks 935,000 827,000 Leasehold improvements 2,549,000 2,408,000 - ---------------------------------------------------------------------------------------------------------------- 19,164,000 17,340,000 Less - Accumulated depreciation and amortization 13,191,000 11,439,000 - ---------------------------------------------------------------------------------------------------------------- $5,973,000 $5,901,000 ================================================================================================================
Depreciation expense for the years ended February 29, 2000 and February 28, 1999 and 1998 was $ 1,758,000, $1,289,000 and $1,315,000, respectively. At February 29, 2000 GZA had contributed approximately $388,000 for the purchase of air monitoring equipment for activities relating to the joint marketing and subcontract activities for South Jersey Energy Company (SJE) and GZA. GZA's portion of this jointly owned equipment is included in furniture, fixtures and computer equipment shown above. NOTE 7. REVOLVING LINE OF CREDIT AND TERM LOAN FACILITY During 2000, GZA renewed its two financing arrangements with a financial institution (the "Bank"). We have available an unsecured revolving line of credit under which we can borrow up to $5,500,000 in a combination of cash and letters of credit, with interest payable monthly at the Bank's Corporate Base Rate, as defined, or the applicable LIBOR rate plus 200 basis points. Under the terms of the line of credit, we are required to maintain a minimum net worth, working capital, current ratio, quick ratio, tangible net worth and cash flow coverage ratio. There were no borrowings under this revolving credit agreement at February 29, 2000 and February 28, 1999. We had no letters of credit outstanding at February 29, 2000 or February 28, 1999. GZA also has available a $4,500,000 term loan facility, providing for term borrowings amortized through July 31, 2000 bearing interest at a variable rate equal to the Bank's Corporate Base Rate, as defined, or a fixed rate over the term of the loan. There were no borrowings under the term loan facility at February 29, 2000 or February 28, 1999. The term loan facility requires maintenance of the same ratios and financial covenants as the revolving line of credit. These two financing arrangements expire on August 31, 2000. 27 28 NOTE 8. ACCRUED PAYROLL AND EXPENSES Accrued payroll and expenses consist of the following at February 29, 2000 and February 28, 1999:
2000 1999 - ------------------------------------------------------------------------------------------------------------ Accrued payroll and related benefits $3,330,000 $3,368,000 Legal and claims reserves 300,000 266,000 Other 328,000 266,000 - ------------------------------------------------------------------------------------------------------------ $3,958,000 $3,900,000 ============================================================================================================
NOTE 9. EARNINGS PER SHARE (EPS)
For the Year Ended February 29, 2000 - --------------------------------------------------------------------------------------------------------------------------- Income Shares (000s) Per share Amount - --------------------------------------------------------------------------------------------------------------------------- Basic EPS: Income available to common shareholders $1,275,000 3,629 $ .35 - --------------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities Stock options - 49 - - --------------------------------------------------------------------------------------------------------------------------- Diluted EPS: Income available to common shares and common share equivalents $1,275,000 3,678 $ .35 ===========================================================================================================================
For the Year Ended February 28, 1999 - ------------------------------------------------------------------------------------------------------------------------------ Income Shares (000s) Per share Amount - ------------------------------------------------------------------------------------------------------------------------------ Basic EPS: Income available to common shareholders $1,509,000 3,604 $ .42 - ------------------------------------------------------------------------------------------------------------------------------ Effect of dilutive securities Stock options - 70 - - ------------------------------------------------------------------------------------------------------------------------------ Diluted EPS: Income available to common shares and common share equivalents $1,509,000 3,674 $ .41 ==============================================================================================================================
For the Year Ended February 28, 1998 - --------------------------------------------------------------------------------------------------------------------------- Income Shares (000s) Per share Amount - --------------------------------------------------------------------------------------------------------------------------- Basic EPS: Income available to common shareholders $1,370,000 3,932 $ .35 - --------------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities Stock options - 41 - - --------------------------------------------------------------------------------------------------------------------------- Diluted EPS: Income available to common shares and common share equivalents $1,370,000 3,973 $ .34 ===========================================================================================================================
28 29 NOTE 10. TREASURY STOCK In 1997, the Board of Directors authorized the repurchase of up to 500,000 shares of GZA's common stock in the open market at prevailing prices. The amount and timing of stock repurchases depended on market conditions, share price and other factors. During the year ended February 28, 1999 and February 28, 1998, we repurchased 99,525 and 400,475 shares of common stock, at a cost of $471,000 and $1,971,000, which includes transaction fees, respectively. NOTE 11. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLAN Under GZA's 1999 Stock Incentive Plan, (the "1999 Plan"), options to purchase shares of common stock may be issued to key employees including executive officers and directors who are employees. Under the 1999 Plan we may issue either incentive stock options or non-statutory stock options. Option prices may not be less than fair market value on the date of grant and terms of options may not be more than ten years. All 1999 Plan options are non-assignable and have various vesting terms. The number of shares reserved for issuance under the 1999 Plan is 425,000 shares. During 2000 the Board of Directors approved the issuance of 250,250 incentive stock options and 27,700 non-qualified stock options at an exercise price of $4.13. The awards made in 2000 under the 1999 Plan cliff vest on the earlier of attainment of certain financial goals or June 1, 2002. Under the 1989 Stock Incentive Plan (the "1989 Incentive Plan"), options to purchase shares of common stock may be issued to key employees including executive officers and directors who are employees. Option prices may not be less than fair market value on the date of grant and terms of options may not exceed ten years. All 1989 Plan options are non-assignable and vest over a five-year period. Information related to the stock options plans described above is as follows:
Stock Options Outstanding ----------------------------------- Number of Range of Shares Exercise Prices - --------------------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1997 304,878 3.50 Granted 10,000 3.50 Cancelled (18,200) 3.50 Exercised (3,600) 3.50 - --------------------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1998 293,078 3.50 Granted 2,000 5.00 Cancelled (16,200) 3.50 Exercised 0 3.50 - --------------------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1999 278,878 $3.50 Granted under the 1989 Plan 8,000 $4.50 Granted under the 1999 Plan 277,950 $4.13 Cancelled (10,800) $3.50 Expired (21,978) $3.50 Exercised (7,200) $3.50 - --------------------------------------------------------------------------------------------------------------------------------- Balance at February 29, 2000 524,850 $3.85 - ---------------------------------------------------------------------------------------------------------------------------------
As of February 29, 2000, none of the options granted under the 1999 plan, all at the exercise price of $4.13, were exercisable. Under the 1999 Plan options to purchase 147,050 shares were available to be granted. The weighted-average remaining contractual life of the options outstanding is 3.5 years. As of February 29, 2000, 1999 and 1998, options under the 1989 Incentive Plan, for 217,500, 234,878 and 224,158 shares, with weighted-average exercise prices of $3.51, $3.50 and $3.50 respectively, were exercisable. The weighted-average remaining contractual life of the options outstanding is 2.1 years. 29 30 Under GZA's 1989 Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), non-qualified stock options to purchase up to 15,000 shares of common stock may be issued to key employees, executive officers and directors of GZA. All Non-Qualified Plan options are non-assignable and vest over a five-year period. The Non-Qualified Plan terminated in May 31, 1999 and only the options that were issued prior to that date remain exercisable in accordance with the non-qualified plan terms. As of February 29, 2000, February 28, 1999 and 1998 options to purchase 7,500 shares of common stock at an exercise price of $3.50 per share were outstanding under the 1989 Non-Qualified Plan. All such options were exercisable. All stock option plans are administered by the Compensation Committee of our Board of Directors. Under GZA's 1995 Stock Incentive Plan (the "Stock Plan"), we may grant certain key employees, at no cost, shares of "restricted stock" in consideration of services. A condition of receipt of any award under the Stock Plan is that the employee must either own, or agree to acquire within one year, an equivalent number of shares. All shares awarded under the Stock Plan vest over a five-year period. Unearned compensation related to the award of restricted stock is recorded at the date of award, based on the fair market value of the shares, against paid in capital, and is amortized to expense over the applicable vesting period. The maximum number of shares that may be granted under the Stock Plan is 200,000. Pursuant to the Plan, 3,733, 4,432, and 2,273 shares were issued to employees during fiscal years ending 2000, 1999 and 1998, respectively. During fiscal 2000, 1,724 shares were forfeited by employees who left the company. As of July 1999, the 1989 Incentive Plan and the 1995 Stock Incentive Plan were terminated, and any future awards of these types are to be issued under the 1999 Plan. Awards issued under these Plans prior to July 1999 remain exercisable. We also maintain an employee stock purchase plan (the "ESPP plan") under which up to 220,000 shares of our common stock are available for purchase by our employees. Eligible employees can purchase shares of the stock at the lower of 85% of the fair market value of the stock on the first or last day of each six-month period beginning on March 1 or September 1. Monies to purchase the shares are withheld from an employee's pay through payroll deductions. Under the ESPP plan, 10,004, 10,466 and 11,102 shares were purchased during fiscal 2000, 1999 and 1998, respectively. GZA applies Accounting Principles Board Opinion No. 25 in accounting for awards to employees under our stock option and employee stock purchase plans. Accordingly, no compensation cost has been recognized for our stock option plans. Had compensation cost for our stock-based compensation plans been determined based on the fair market value at the grant dates as calculated in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," our net income and diluted net income per common share amounts would have been reduced. Our pro forma net income amounts would have been $1,136,000, $1,433,000 and $1,304,000 for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998. Our pro forma diluted net income per share would have been $.31, $.39, and $.32 for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998, respectively. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $1.83, $2.13 and $1.47 per option, respectively. The fair value of these options at date of grant was estimated using the Black-Scholes model with the following assumptions for fiscal years 2000, 1999 and 1998: risk free interest rates of 5.63%, 5.61% and 6.16%, respectively; dividend yields of 0%; volatility factors of the expected market price of our common stock of 48%, 38% and 43%, respectively; and a weighted average expected life of the options of 3.5 years. NOTE 12. INVESTMENT IN REAL ESTATE In January 1999 GZA and Southborough Ventures, Inc. (SVI) formed Environmental Real Estate Investors, Inc., (EREI) a joint venture, to target environmentally impaired properties for development. On July 21, 1999, Somerville Avenue LLC was incorporated with the terms of the EREI joint venture agreement. Somerville Avenue LLC subsequently acquired at a cost of $436,000 a former industrial property in Somerville, Massachusetts and plan to transform the parcel into a site for commercial development. The cost of the property consists of the purchase price plus closing costs such as legal, accounting and other similar costs directly associated with the acquired property. The formation of a site specific Limited Liability Corporation is consistent with the EREI joint venture agreement. In addition, EREI made a $65,000 deposit for a commercial development site in New Bedford, Massachusetts. The development of the New Bedford site is currently under negotiation with EREI and the owner. Gains or losses, if any, from investment in real estate transactions will be recorded as "Other Income" on our Consolidated Statements of Operations and Comprehensive Income. Due to the terms of the joint venture 100% of the assets, liabilities, and equity are consolidated into GZA. 30 31 NOTE 13. INCOME TAXES The provision for income taxes consisted of the following for fiscal years:
2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Currently payable: State $ 240,000 $ 303,000 $ 109,000 Federal 800,000 1,016,000 326,000 - -------------------------------------------------------------------------------------------------------------------------- Total current 1,040,000 1,319,000 435,000 - -------------------------------------------------------------------------------------------------------------------------- Deferred (prepaid): State (49,000) (83,000) 98,000 Federal (172,000) (264,000) 344,000 - -------------------------------------------------------------------------------------------------------------------------- Total deferred (prepaid) (221,000) (347,000) 442,000 - -------------------------------------------------------------------------------------------------------------------------- Total provision for income taxes $ 819,000 $ 972,000 $ 877,000 ==========================================================================================================================
Deferred income taxes are provided to account for temporary differences between the financial reporting basis and income tax basis of GZA's assets and liabilities using the liability method of accounting for income taxes. Deferred taxes represent the future income tax effect of reported differences between the book and tax bases of GZA's assets and liabilities. Reconciliations of the U.S. federal statutory income tax rate to the effective income tax rate are as follows for fiscal years:
2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ U.S. federal statutory income tax rate 34% 34% 34% State and foreign income tax, net of federal income tax benefit 6 6 6 Reduction of valuation allowance (4) (1) (1) Non-deductible expenses 3 - - - ------------------------------------------------------------------------------------------------------------------------------ Effective income tax rate 39% 39% 39% ==============================================================================================================================
GZA's net deferred tax asset at February 29, 2000 and February 28, 1999 consists of gross deferred tax liabilities of $885,000 and $753,000 and deferred tax assets of $2,044,000 and $1,763,000, respectively. GZA's state and federal net operating loss carryforwards expire in fiscal 2010 through fiscal 2013. As a result of the sale of Aquaterra, during 2000, the company utilized approximately $250,000 of a capital loss carryforward which had previously been offset with a full valuation allowance. Accordingly, the valuation allowance has been reduced by $100,000. The components of GZA's net deferred tax assets as of February 29, 2000 and February 28, 1999 are as follows:
2000 1999 - ------------------------------------------------------------------------------------------------------- Cash versus accrual method of accounting $ 510,000 $ 167,000 Depreciation and amortization 375,000 586,000 Net operating loss carryforwards (617,000) (214,000) Allowance for doubtful accounts (855,000) (945,000) Other accrued expenses (572,000) (604,000) Valuation allowance 276,000 376,000 - ------------------------------------------------------------------------------------------------------- Total net deferred tax assets $ (883,000) $ (634,000) =======================================================================================================
The components of GZA's deferred income tax provision (benefit) for the years ended February 29, 2000 and February 28, 1999 are as follows:
2000 1999 - -------------------------------------------------------------------------------------------------------------- Cash versus accrual method of accounting $ 343,000 $ 3,000 Depreciation and amortization (211,000) 94,000 Net operating loss carryforwards (403,000) 17,000 Allowance for doubtful accounts 90,000 (586,000) Other accrued expenses 60,000 145,000 Valuation allowance (100,000) (20,000) - -------------------------------------------------------------------------------------------------------------- Total deferred income tax provision (benefit) $ (221,000) $ (347,000) ==============================================================================================================
31 32 NOTE 14. RETIREMENT PLAN GZA maintains a Profit Sharing Plan under Section 401(k) of the Internal Revenue Code which covers all employees who meet minimum age and service requirements. Annual contributions are determined by the Board of Directors. The year end for the profit sharing plan is December 31. Amounts contributed by us under the plan vest according to a seven-year vesting schedule. To participate in the plan, an employee must contribute a minimum of 2% of his or her base salary, and may contribute additional amounts. Participant contributions are fully vested at all times. Our contributions to the plan were $716,000, $660,000, and $661,000 for fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, 1999 and 1998, the Board of Directors voted to make 25% of our contribution to the Plan in stock of GZA. As a result, in fiscal years 2000, 1999 and 1998, respectively, 42,725, 38,152, and 32,445 shares of our stock (having a total fair value of approximately $179,000, $172,000, and $165,000 on the date of contribution) were contributed in addition to cash contributions of $537,000, $488,000, and $496,000, respectively. These contributions are accrued for at the balance sheet date as a component of accrued payroll and expenses, and are transferred to the profit sharing plan after year end. NOTE 15. RELATED PARTY TRANSACTIONS GZA leases office space from certain stockholders and from entities owned by certain stockholders and employees. Lease payments, net of sublease income, to these entities totaled $886,000, $868,000, and $901,000 in fiscal 2000, 1999 and 1998, respectively. GZA provides geotechnical design, instrumentation and other consulting services, on a contracting and subcontracting basis, to a company and affiliates of the company of which a director of GZA was Chairman of the Board of Directors during 2000. In fiscal 2000 and 1999, we billed an aggregate of $2,695,000 and $5,100,000, respectively for services provided to this company and its affiliates. During fiscal 2000, the Chairman of the Board of GZA provided consulting services for which he was compensated $67,000. NOTE 16. COMMITMENTS AND CONTINGENCIES Lease Commitments. GZA leases certain facilities and equipment under the terms of various noncancellable operating leases, including leases with related parties described in Note 15. Lease terms generally range from two to five years. Additionally, we lease certain equipment under operating leases. Future minimum lease payments under noncancellable operating leases as of February 29, 2000 are as follows:
2001 $2,158,000 2002 965,000 2003 648,000 2004 311,000 2005 - - ------------------------------------------------------------------------- Total minimum lease payments $4,082,000 =========================================================================
Rent expense charged to operations was $2,352,000, $2,061,000 and $2,137,000 in fiscal 2000, 1999 and 1998, respectively. Claims and Legal Proceedings. GZA is a party to several legal actions claiming damages in connection with environmental remediation, environmental consulting, and construction projects arising in the normal course of business. Management believes that the outcomes of the legal actions to which it is a party will not, in the aggregate, have a material adverse effect on the results of operations or financial condition of GZA. Our services involve risks of significant liability for environmental and property damage, personal injury, economic loss, and costs assessed by regulatory agencies for which insurance coverage or the contractual provisions may apply. Claims may potentially be asserted against us under federal and state statutes, common law, contractual indemnification agreements or otherwise. 32 33 In 1997, Goldberg-Zoino Associates of New York, P.C. ("GZANY"), our New York professional corporation affiliate, entered into a contract with E.E. Cruz/Nab/Frontier-Kemper, A Joint Venture ("JV"), to design a temporary earth support system required for construction of the Flushing Bay Combined Sewer Overflow Protection Facility Storage Tank, Project No. CS 4-3 for the New York City Department of Environmental Protection. Design by GZANY and soil mix design and installation development by the JV's construction subcontractor, The Millgard Corporation, proceeded from August 1997 through to the end of the year. On January 28, 1998, the JV terminated Millgard's contract for failure to perform the specified work. On April 22, 1999, Millgard filed suit against the JV for costs incurred prior to termination and for lost profits for work not executed following termination. The JV denied Millgard's claim in July 1999 and counterclaimed against Millgard for damages of $10,750,000 resulting from a breach of contract and delay. On September 9, 1999, the JV filed a third-party action against GZANY in the United States District Court Southern District of New York for contribution, defense and indemnity of claims made by Millgard. In March 2000, the JV filed an amended complaint against GZANY alleging breach of contract and a failure to exercise the required standard of care and claiming indemnification for any damages owed by the JV to Millgard and for direct damages of at least $10,750,000. In addition, we are party to several other legal proceedings arising in the normal course of business. Management believes that the outcome of these actions will not, individually or in the aggregate, have a material adverse effect on the results of operations or financial condition of GZA. NOTE 17. SUBSEQUENT EVENT On May 17, GZA GeoEnvironmental Technologies, Inc. entered into a letter of intent with Futureco Environmental, Inc., a privately-held company organized by certain members of GZA's senior management, providing for the acquisition by Futureco, at a price of $6.45 per share, of all of the outstanding shares of GZA common stock which Futureco does not already own or have the right to acquire. GZA has appointed a Special Committee of outside directors to consider the letter of intent as well as other strategic alternatives that may be available to the Company, and to make recommendations to the Board of Directors. The proposed acquisition is subject to certain conditions, including completion of financing for the transaction by Futureco; GZA and Futureco entering into a definitive merger agreement, which would be subject to the approval of the holders of at least two-thirds of the outstanding shares of common stock of GZA which Futureco does not already own or have the right to acquire. The Company cannot predict whether the proposed transaction will be completed. 33 34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Items 10, 11, 12 and 13 is incorporated by reference to the definitive proxy statement relating to the 2000 Annual Meeting of Stockholders of the Company, to be filed with the Commission no later than 120 days after the end of the fiscal year covered by this report. 34 35 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of the report: (1) The following consolidated financial statements of GZA GeoEnvironmental Technologies, Inc. and its Subsidiaries and Affiliate are included in this report: Report of Independent Accountants. Consolidated Balance Sheets at February 29, 2000 and February 28, 1999. Consolidated Statements of Operations and Comprehensive Income for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998. Consolidated Statements of Stockholders' Equity for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998. Consolidated Statements of Cash Flows for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998. Notes to Consolidated Financial Statements for the fiscal years ended February 29, 2000 and February 28, 1999 and 1998. (2) The following consolidated financial statement schedule of GZA GeoEnvironmental Technologies, Inc. and its Subsidiaries and Affiliate is included in this report: Report of Independent Accountants
Page ---- Schedule II Valuation and Qualifying Accounts 41
(3) Exhibits. EXHIBIT NO. DESCRIPTION 3.1* Restated Certificate of Incorporation of the Company 3.3* Amended and Restated By-Laws of the Company 4.1* Specimen certificate for the Common Stock of the Company 10.2* Indenture of Lease dated September 5, 1984 and effective as of December 1, 1981, and First Amendment to Indenture of Leases, between GZA and Donald T. Goldberg and William S. Zoino, for the GEO Building, Newton Upper Falls, Massachusetts 35 36 10.6*# 1989 Incentive Stock Option Plan of the Company 10.7*# 1989 Non-Qualified Stock Option Plan of the Company 10.21* Support Services Agreement among the Company, Goldberg-Zoino Associates of New York, P.C. and GZA, dated July 26, 1989 10.22*** Stockholders' Agreement among GZANY, Richard M. Simon and Joseph D. Guertin, Jr. dated May 1, 1996, together with related Powers of Attorney 10.23*** Voting Trust Agreement among the Company, GZANY, Messrs. Simon and Guertin, and Richard M. Simon, as Trustee, dated May 1, 1996 10.24*** Indemnification Agreement among the Company, GZA GeoEnvironmental, Inc. and Messrs. Simon and Guertin dated May 1, 1996 10.25* Security Agreement between GZANY and the Company dated July 26,1989 10.26* Credit Agreement among the Company, GZANY and GZA dated July 26, 1989 10.30** Revolving Credit and Term Loan Agreement among Fleet Bank and the Company and its subsidiaries and affiliate dated February 28, 1994 10.34**# Amendment No. 1 to 1989 Incentive Stock Option Plan of the Company 10.35**# GZA 1995 Stock Incentive Plan 10.37** Lease Agreement dated January 1, 1992 between GZRI Associates and GZA GeoEnvironmental, Inc. for the Providence, Rhode Island district office 10.38** Lease Agreement dated March 1, 1992 between GZAIAT Associates and GZA Drilling, Inc. for the Brockton, Massachusetts facilities of GZA Drilling, Inc. 10.39** Second Amendment dated December 11, 1991 to Indenture of Lease listed as Exhibit 10.2 hereto 10.40**# Form of Confidentiality, Non-Disclosure and Restrictive Covenant Agreement between the Company and, respectively, Donald T. Goldberg, Andrew P. Pajak, M. Joseph Celi, Richard M. Simon, John E. Ayres, William E. Hadge, Lawrence Feldman, Joseph P. Hehir, Joseph D. Guertin, Jr., and certain other employees 10.42**# Form of Group Life Insurance Plan for key employees; letter describing coverage levels 10.43** Form of Indemnity Agreement between the Company and its respective directors 10.51+ Form of Assignment of Beneficial Interest between GZA GeoEnvironmental, Inc. ("Assignee") and, respectively, John E. Ayres, Joseph D. Guertin, Jr., and Steven J. Trettel ("Assignors"), dated June, 1996, to transfer each Assignor's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to Assignee 10.52+ Form of Assignment of Beneficial Interest and Indemnity Agreement between GZA GeoEnvironmental, Inc. ("Assignee") and Donald T. Goldberg ("Assignor"), dated June, 1996, to transfer Assignor's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to Assignee 10.53++ Second Loan Modification Agreement, dated as of August 7, 1997, to the Revolving Credit and Term Loan Agreement among Fleet Bank and the Company and its subsidiaries and affiliate 36 37 included as Item 10.30, including a Promissory Note dated August 7, 1997 and a form of Promissory Note. 10.54+++# GZA Restated 401(k) Profit Sharing Plan, effective as of January 1, 1998 10.55+++ Memorandum of Understanding, Transfer of Assets, Contract Obligations and Personnel From Raamot Associates, P.C. to GZA GeoEnvironmental of New York; Confidentiality, Non-disclosure and Restrictive Covenant Agreement between GZA and Tonis Raamot; Bill of Sale - Personal Good Will of Tonis Raamot, P.E. 10.56# GZA 1999 Stock Incentive Plan 10.57# GZA Long-Term Incentive Compensation Plan of FYE 2000-2002 10.58 Letter of agreement dated April 26, 2000 regarding sale of GZA's interest in Carl Bro Aquaterra Limited to Carl Bro Group Limited 10.59 Limited Liability Company Operating Agreement of AirLogics, LLC 10.60 Third Loan Modification Agreement dated as of February 25, 2000 between Fleet Bank and the Company 22.1 Subsidiaries of the Registrant on Financial Statement Schedule 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule - ------------------- * Incorporated by reference to the Company's Registration Statement on Form S-1, as amended (File No. 333-29369) ** Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995, as filed with the Commission on June 12, 1995. *** Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996, as filed with the Commission on May 24, 1996. + Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997, as filed with the Commission on May 29, 1997. ++ Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998, as filed with the Commission on May 29, 1998. +++ Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999, as filed with the Commission on May 26, 1999. # Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K: None. 37 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned, thereunto duly authorized. GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. Date: May 26, 2000 /s/ Andrew P. Pajak --------------------------- Andrew P. Pajak Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Andrew P. Pajak Chief Executive Officer and Director May 26, 2000 - --------------------------- (Principal Executive Officer) Andrew P. Pajak /s/ Joseph P. Hehir Chief Financial Officer May 26, 2000 - --------------------------- (Principal Financial and Accounting Officer) Joseph P. Hehir /s/ Donald T. Goldberg Director May 26, 2000 - --------------------------- Donald T. Goldberg /s/ M. Joseph Celi Director May 26, 2000 - --------------------------- M. Joseph Celi
38 39
/s/ William E. Hadge Director May 26, 2000 - --------------------------- William E. Hadge /s/ Dr. Lewis Mandell Director May 26, 2000 - --------------------------- Dr. Lewis Mandell /s/ Dr. Thomas W. Philbin Director May 26, 2000 - ------------------------- Dr. Thomas W. Philbin /s/ Timothy W. Devitt Director May 26, 2000 - --------------------------- Timothy W. Devitt /s/ Rose Ann Giordano Director May 26, 2000 - --------------------- Rose Ann Giordano /s/ David B. Perini Director May 26, 2000 - ------------------- David B. Perini
39 40 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of GZA GeoEnvironmental Technologies, Inc. and Affiliate: Our report on the consolidated financial statements of GZA GeoEnvironmental Technologies, Inc. has been incorporated by reference in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule presented on page 41 of this Annual Report on Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PRICEWATERHOUSECOOPERS LLP May 5, 2000, except for Note 17, as to which the date is May 17, 2000. 40 41 SCHEDULE II GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE VALUATION AND QUALIFYING ACCOUNTS Years Ended February 28, 1998, 1999, and February 29, 2000
Balance at Charged to beginning costs and Balance at Description of year expenses Write-offs end of year ----------- ------- -------- ---------- ----------- Year ended February 28, 1998 Allowance for doubtful accounts (deducted from accounts receivable).................... $844,000 $378,000 $323,000 $899,000 Year ended February 28, 1999 Allowance for doubtful accounts (deducted from accounts receivable)..................... $899,000 $2,021,000 $262,000 $2,658,000 Year ended February 29, 2000 Allowance for doubtful accounts (deducted from accounts receivable)...................... $2,658,000 $423,000 $786,000 $2,295,000
41 42 EXHIBIT INDEX
Exhibit Number Description Page - ------ ----------- ---- 10.56 GZA 1999 Stock Incentive Plan 10.57 GZA Long-Term Incentive Compensation Plan of FYE 2000-2002 10.58 Letter of agreement dated April 26, 2000 regarding sale of GZA's interest in Carl Bro Aquaterra Limited to Carl Bro Group Limited 10.59 Limited Liability Company Operating Agreement of AirLogics, LLC 10.60 Third Loan Modification Agreement dated as of February 25, 2000 between Fleet bank and the Company 22.1 Subsidiaries of the Registrant on Financial Statement Schedule 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule
42 43 EXHIBIT LIST FOR GZA GEOENVIRONMENTAL TECHNOLOGIES, Inc. 1) GZA 1999 Stock Incentive Plan 2) GZA Long-Term Incentive Compensation Plan of FYE 2000-2002 3) Sale of GZA's interest in Carl Bro Aquaterra Limited to Carl Bro Group Limited. 4) Limited Liability Company Operating Agreement of AirLogics, LLC 5) 3rd loan Modification Agreement EX-10.56 2 1999 STOCK INCENTIVE PLAN 1 Exhibit - 10.56 GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. 1999 STOCK INCENTIVE PLAN(1) SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS The name of the plan is the GZA GeoEnvironmental Technologies, Inc. 1999 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable officers, directors, and employees of GZA GeoEnvironmental Technologies, Inc. (the "Company") and its Subsidiaries and other persons to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company and its shareholders, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Award" or "Awards", except where referring to a particular category of grant under the Plan or where the context otherwise does not permit, shall include Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock Awards, Unrestricted Stock Awards and Performance Share Awards. "Board" means the Board of Directors of the Company. "Cause" means (i) any material breach by the participant of any agreement to which the participant and the Company are both parties, and (ii) any act or omission justifying termination of the participant's employment for cause, as determined by the Committee. "Change of Control" shall have the meaning set forth in Section 14. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Conditioned Stock Award" means an Award granted pursuant to Section 6. "Committee" shall have the meaning set forth in Section 2. "Disability" means disability as set forth in Section 22(e)(3) of the Code. - -------------- (1) Adopted by the Board of Directors of the Company on May 17, 1999. Approved by the Stockholders on July 13, 1999. Amended by the Board [P. 5(b)] on July 13, 1999. March 27, 2000 Page 1 of 14 2 "Effective Date" means the date on which the Plan is adopted by the Board. "Eligible Person" shall have the meaning set forth in Section 4. "Fair Market Value" on any given date means the closing price per share of the Stock on such date as reported by a nationally recognized stock exchange, or, if the Stock is not listed on such an exchange, as reported by the NASDAQ National Market, or, if the Stock is not listed on NASDAQ, the fair market value of the Stock as determined by the Committee. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Non-Statutory Stock Option" means any Stock Option that is not an Incentive Stock Option. "Normal Retirement" means retirement from active employment with the Company and its Subsidiaries in accordance with the retirement policies of the Company and its Subsidiaries then in effect. "Outside Director" means any director who is not an officer or employee of the Company. "Option" or "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. "Performance Share Award" means an Award granted pursuant to Section 8. "Stock" means the Common Stock, $.01 par value per share, of the Company, subject to adjustments pursuant to Section 3. "Subsidiary" means a subsidiary as defined in Section 424 of the Code. "Unrestricted Stock Award" means an Award granted pursuant to Section 7. SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS. (a) Committee. The Plan shall be administered by a committee of the Board (the "Committee") consisting of not less than two (2) Outside Directors, but the authority and validity of any act taken or not taken by the Committee shall not be affected if any person administering the Plan is not an "Outside Director." Except as specifically reserved to the Board under the terms of the Plan, the Committee shall have full and final authority to operate, manage and administer the Plan on behalf of the Company. Action by the Committee shall require the affirmative vote of a majority of all members thereof. March 27, 2000 Page 2 of 14 3 (b) Powers of Committee. The Committee shall have the power and authority to grant and modify Awards consistent with the terms of the Plan, including the power and authority: (i) to select the persons to whom Awards may from time to time be granted; (ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock or Unrestricted Stock Awards and Performance Shares, or any combination of the foregoing, granted to any one or more participants; (iii) to determine the number of shares to be covered by any Award; (iv) subject to the provisions of Section 5, to determine and to modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards; provided, however, that no such action shall adversely affect rights under any outstanding Award without the participant's consent; (v) to accelerate the exercisability or vesting of all or any portion of any Award; (vi) subject to the provisions of Section 5(a)(ii), to extend the period in which any outstanding Stock Option may be exercised; (vii) to determine whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts equal to interest (at rates determined by the Committee) or dividends or deemed dividends on such deferrals; and (viii) to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. (c) Ratification by Board of Awards to Officers. Notwithstanding the foregoing, no grant by the Committee of an Award to a participant who is then an officer of the Company (within the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as amended) shall be effective unless and until such Award has been approved and ratified by the Board. March 27, 2000 Page 3 of 14 4 Subject to the foregoing, all decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan participants. SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION. (a) Shares Issuable. The maximum number of shares of Stock with respect to which Awards may be granted under the Plan shall be 425,000. For purposes of this limitation, the shares of Stock underlying any Awards which are forfeited, cancelled, reacquired by the Company or otherwise terminated (other than by exercise) shall be added back to the shares of Stock with respect to which Awards may be granted under the Plan so long as the participants to whom such Awards had been previously granted received no benefits of ownership of the underlying shares of Stock to which the Award related. Subject to such overall limitation, any type or types of Award may be granted with respect to shares, including Incentive Stock Options. Shares issued under the Plan may be authorized but unissued shares or shares reacquired by the Company. (b) Stock Dividends, Mergers, etc. In the event that after the Effective Date, the Company effects a stock dividend, stock split or similar change in capitalization affecting the Stock, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock or securities with respect to which Awards may thereafter be granted (including without limitation the limitations set forth in Section 3(a) above), (ii) the number and kind of shares remaining subject to outstanding Awards, and (iii) the option or purchase price in respect of such shares. In the event of any merger, consolidation, dissolution or liquidation of the Company, the Committee in its sole discretion may, as to any outstanding Awards, make such substitution or adjustment in the aggregate number of shares reserved for issuance under the Plan and in the number and purchase price (if any) of shares subject to such Awards as it may determine and as may be permitted by the terms of such transaction, or accelerate, amend or terminate such Awards upon such terms and conditions as it shall provide (which, in the case of the termination of the vested portion of any Award, shall require payment or other consideration which the Committee deems equitable in the circumstances), subject, however, to the provisions of Section 14. (c) Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by employees of another corporation who concurrently become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Shares which may be delivered under such substitute awards may be in addition to the maximum number of shares provided for in Section 3(a). March 27, 2000 Page 4 of 14 5 SECTION 4. ELIGIBILITY. Awards may be granted to officers, directors, consultants and employees of the Company or its Subsidiaries ("Eligible Persons"). SECTION 5. STOCK OPTIONS. The Committee may grant to Eligible Persons options to purchase stock. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be either Incentive Stock Options or Non-Statutory Stock Options. Unless otherwise so designated, an Option shall be a Non-Statutory Stock Option. To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a Non-Statutory Stock Option. No Incentive Stock Option shall be granted under the Plan after the tenth anniversary of the date of adoption of the Plan by the Board. The Committee in its discretion may determine the effective date of Stock Options, provided, however, that grants of Incentive Stock Options shall be made only to persons who are, on the effective date of the grant, employees of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and the terms and conditions of Section 12 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable. (a) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Committee at the time of grant but shall be not less than one hundred percent (100%) of Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation and an Incentive Stock Option is granted to such employee, the option price shall be not less than one hundred ten percent (110%) of Fair Market Value on the grant date. (b) Prohibition on Repricing of Options. No grant of a Stock Option under the Plan shall be made contingent upon the surrender or cancellation by the holder of such Stock Option of an outstanding option to purchase Common Stock that has an exercise price higher than that of the new Stock Option, nor shall any outstanding Stock Option be modified or amended to reduce the exercise price thereof (other than pursuant to Section 3(b) above). March 27, 2000 Page 5 of 14 6 (c) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable more than ten (10) years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five (5) years from the date of grant. (d) Exercisability; Rights of a Shareholder. Stock Options shall become vested and exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at or after the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a shareholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. (e) Method of Exercise. Stock Options may be exercised in whole or in part, by delivering written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods: (i) In cash, or by check or other instrument acceptable to the Committee; (ii) In the form of shares of Stock that are not then subject to restrictions and that have been outstanding for at least six months, if permitted by the Committee in its sole discretion. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or (iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure. The Company need not act upon such exercise notice until the Company receives full payment of the exercise price; or (iv) By any other means (including, without limitation, by delivery of a promissory note of the optionee payable on such terms as are specified by the Committee) which the Committee determines are consistent with the purpose of the Plan and with applicable laws and regulations. March 27, 2000 Page 6 of 14 7 The delivery of certificates representing shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the Optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Stock Option or imposed by applicable law. (f) Non-transferability of Options. Except as the Committee may provide with respect to a Non-Statutory Stock Option, no Stock Option shall be transferable other than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. (g) Annual Limit on Incentive Stock Options. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Stock with respect to which incentive stock options granted under this Plan and any other plan of the Company or its Subsidiaries become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. (h) Form of Settlement. Shares of Stock issued upon exercise of a Stock Option shall be free of all restrictions under the Plan, except as otherwise provided in this Plan. SECTION 6. RESTRICTED STOCK AWARDS. (a) Nature of Restricted Stock Award. The Committee in its discretion may grant Restricted Stock Awards to any Eligible Person. A Restricted Stock Award is an Award entitling the recipient to acquire, at no cost, shares of Stock subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"). Shares of Restricted Stock may be granted in respect of past services or other valid consideration. (b) Acceptance of Award. A participant who is granted a Restricted Stock Award shall have no rights with respect to such Award unless the participant shall have accepted the Award within 60 days (or such shorter date as the Committee may specify) following the award date by executing and delivering to the Company a written instrument that sets forth the terms and conditions of the Restricted Stock Award in such form as the Committee shall determine. (c) Rights as a Stockholder. Upon complying with Section 6(b) above, a participant shall have all the rights of a stockholder with respect to the Restricted Stock, including voting and dividend rights, subject to non-transferability restrictions and Company forfeiture rights described in this Section 6 and subject to such other conditions, if any, contained in the written instrument evidencing the Restricted Award. Unless the Committee shall otherwise determine, certificates evidencing shares of Restricted Stock shall remain in the possession of the Company until such shares are vested as provided in Section 6(e) below. March 27, 2000 Page 7 of 14 8 (d) Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein. In the event of termination of employment by the Company and its Subsidiaries for any reason (including, without limitation, death, disability or retirement), the participant or the participant's legal representative shall, unless otherwise determined by the Committee in its sole discretion, forfeit to the Company the shares of Restricted Stock with respect to which conditions have not lapsed or otherwise been satisfied. Except as otherwise specified in the written instrument evidencing the Restricted Award or otherwise determined in writing by the Committee, such forfeiture shall be effective on the thirtieth (30th) day following such termination of employment. (e) Vesting of Restricted Stock. The Committee at the time of grant shall specify the date or dates and other conditions, if any, on which the non-transferability of the Restricted Stock and the Company's right of forfeiture shall lapse. Subsequent to such date or dates and/or the satisfaction of such other conditions, if any, the shares with respect to which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed "vested". (f) Certificate from Recipient. The Committee may require that, as a condition to receipt of a Restricted Stock Award or the vesting of a Restricted Stock Award and delivery to the recipient of a certificate evidencing the vested shares, the recipient provide the Company with satisfactory evidence that the recipient has satisfied those conditions established by the Committee and/or this Plan with respect to the grant or vesting of such Award. (g) Waiver, Deferral and Reinvestment of Dividends. The written instrument evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. SECTION 7. UNRESTRICTED STOCK AWARDS. (a) Grant or Sale of Unrestricted Stock. The Committee in its discretion may grant or sell to any Eligible Person shares of Stock free of any restrictions under the Plan ("Unrestricted Stock") at a purchase price determined by the Committee. Shares of Unrestricted Stock may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration. (b) Restrictions on Transfers. The right to receive unrestricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. March 27, 2000 Page 8 of 14 9 SECTION 8. PERFORMANCE SHARE AWARDS. Nature of Performance Shares. A Performance Share Award is an award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Committee may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. Performance Share Awards may be granted under the Plan to any Eligible Person. The Committee in its discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares. SECTION 9. TERMINATION OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. (a) Stock Options: (i) Termination by Death. If any participant's employment by the Company and its Subsidiaries terminates by reason of death, any Stock Option owned by such participant may thereafter be exercised to the extent exercisable at the date of death, by the legal representative or legatee of the participant, for a period of one hundred eighty (180) days (or such longer period as the Committee shall specify at any time) from the date of death, or until the expiration of the stated term of the Stock Option, if earlier. (ii) Termination by Reason of Disability or Normal Retirement. (A) Any Stock Option held by a participant whose employment by the Company and its Subsidiaries has terminated by reason of Disability may thereafter be exercised, to the extent it was exercisable at the time of such termination, for a period of one hundred eighty (180) (or such longer period as the Committee shall specify at any time) from the date of such termination of employment, or until the expiration of the stated term of the Option, if earlier. (B) Any Stock Option held by a participant whose employment by the Company and its Subsidiaries has terminated by reason of Normal Retirement may thereafter be exercised, to the extent it was exercisable at the time of such termination, for a period of one hundred eighty (180) (or such longer period as the Committee shall specify at any time) from the date of such termination of employment, or until the expiration of the stated term of the Option, if earlier. (C) The Committee shall have sole authority and discretion to determine whether a participant's employment has been terminated by reason of Disability or Normal Retirement. March 27, 2000 Page 9 of 14 10 (D) Except as otherwise provided by the Committee at the time of grant, the death of a participant during a period provided in this Section 9(a)(ii) for the exercise of an Incentive Stock Option shall extend such period for one hundred eighty (180) days from the date of death, subject to termination on the expiration of the stated term of the Option, if earlier. (iii) Termination for Cause. If any participant's employment by the Company and its Subsidiaries has been terminated for Cause, any Stock Option held by such participant shall immediately terminate and be of no further force and effect. (iv) Other Termination. Unless otherwise determined by the Committee, if a participant's employment by the Company and its Subsidiaries terminates for any reason other than death, Disability, Normal Retirement or for Cause, any Stock Option held by such participant may thereafter be exercised, to the extent it was exercisable on the date of termination of employment, for thirty (30) days (or such longer period as the Committee shall specify at any time) from the date of termination of employment or until the expiration of the stated term of the Option, if earlier. SECTION 10. TAX WITHHOLDING. (a) Payment by Participant. Each participant shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any Federal, state or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. (b) Payment in Shares. A Participant may elect, with the consent of the Committee, to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to an Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum statutory withholding amount due with respect to such Award, or (ii) transferring to the Company shares of Stock owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy such minimum statutory withholding amount. (c) Section 83(b) Election. As a condition to the grant and acceptance of any Restricted Stock Award hereunder, the Committee may require that a participant execute and file or deliver to the Company for filing with the Internal Revenue Service an election under Section 83(b) of the Code to have the fair value of the total number of shares subject to the Award March 27, 2000 Page 10 of 14 11 included in the gross income of the participant for Federal income tax purposes in the year in which the Award was granted. SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 12. AMENDMENTS AND TERMINATION. The Board may at any time amend or discontinue the Plan and the Committee may at any time amend or cancel any outstanding Award (or, subject to Section 5(b) above, provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price, provided that such price, if any, must satisfy the requirements which would apply to the substitute or amended Award if it were then initially granted under this Plan) for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder's consent. However, no such amendment, unless approved by the stockholders of the Company, shall be effective if it would cause the Plan to fail to satisfy the incentive stock option requirements of the Code SECTION 13. STATUS OF PLAN. With respect to the portion of any Award which has not been exercised and any payments in cash, Stock or other consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the provision of the foregoing sentence. March 27, 2000 Page 11 of 14 12 SECTION 14. CHANGE OF CONTROL PROVISIONS. (a) Upon the occurrence of a Change of Control as defined in this Section 14: (i) subject to the provisions of clause (iii) below, after the effective date of such Change of Control, each holder of an outstanding Stock Option, Restricted Stock Award or Performance Share Award shall be entitled, upon exercise of such Award, to receive, in lieu of shares of Stock (or consideration based upon the Fair Market Value of Stock), shares of such stock or other securities, cash or property (or consideration based upon shares of such stock or other securities, cash or property) as the holders of shares of Stock received in connection with the Change of Control; (ii) the Committee may accelerate the time for exercise of, and waive all conditions and restrictions on, each unexercised and unexpired Stock Option, Restricted Stock Award or Performance Share Award, effective upon a date prior or subsequent to the effective date of such Change of Control, specified by the Committee; or (iii) each outstanding Stock Option, Restricted Stock Award and Performance Share Award may be cancelled by the Committee as of the effective date of any such Change of Control provided that (x) notice of such cancellation shall be given to each holder of such an Award and (y) each holder of such an Award shall have the right to exercise such Award to the extent that the same is then exercisable or, in full, if the Committee shall have accelerated the time for exercise of all such unexercised and unexpired Awards, during the thirty (30) day period preceding the effective date of such Change of Control; provided that (iv) notwithstanding the foregoing, if the Board has determined that accounting for a specific transaction involving a Change in Control as a pooling of interests is desirable, and if the Company is advised in writing by its independent public accountants that acceleration of the vesting of any outstanding Award pursuant to the foregoing provisions or pursuant to the specific provisions of such Award, by reason of such Change in Control, would preclude accounting for such Change in Control as a pooling of interests, and if prior to such change in Control the Company shall notify the holder of each such Award in writing to such effect, then in such event the provision providing for acceleration of such Award shall be of no force or effect in connection with such Change in Control. (b) The Committee may include in the written instrument evidencing any Award such provisions for acceleration of the vesting of such Award in the event of a Change in Control as the Committee determines to be appropriate, subject to paragraph 4(a)(iv) above. March 27, 2000 Page 12 of 14 13 (c) "Change of Control" shall mean the occurrence of any one of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, unless (A) such merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company of such surviving entity outstanding immediately after such merger or consolidation or (B) a majority of the directors constituting the full Board of Directors of the surviving entity immediately following such merger or consolidation are persons who immediately prior to the merger or consolidation were directors of the Company; or (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. SECTION 15. GENERAL PROVISIONS. (a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Award until all applicable securities laws and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of such stop orders and restrictive legends on certificates for Stock and Awards as it deems appropriate. (b) Delivery of Stock Certificates. Delivery of stock certificates to participants under this Plan shall be deemed effected for all purposes when the Company or a stock transfer agent of the Company shall have delivered such certificates in the United States mail, addressed to the participant, at the participant's last known address on file with the Company. March 27, 2000 Page 13 of 14 14 (c) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan or any Award under the Plan does not confer upon any employee any right to continued employment with the Company or any Subsidiary. SECTION 16. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its adoption by the Board. The Board may, but shall not be required to, submit the Plan for approval by the holders of a majority of the shares of capital stock of the Company present or represented and entitled to vote at a meeting of stockholders. Failure to obtain such stockholder approval shall not affect the validity of any Award granted under the Plan; provided, that it is understood that if such approval is not obtained within twelve (12) months of the Effective Date, Stock Options granted under the Plan will not qualify as Incentive Stock Options. SECTION 17. GOVERNING LAW. This Plan shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. * * * * * March 27, 2000 Page 14 of 14 EX-10.57 3 LONG-TERM INCENTIVE COMPENSATION PLAN 1 Exhibit - 10.57 Summary Plan Description To: Long-Term Incentive Compensation Plan Participants From: A. P. Pajak Date: September 14, 1999 Re: SUMMARY PLAN DESCRIPTION LONG-TERM INCENTIVE COMPENSATION PLAN OF FYE 2000-2002 1 Introduction The purpose of the Long-Term Incentive Compensation Plan of FYE 2000-2002 (the "Plan") is to encourage and enable executives, officers and key employees of GZA GeoEnvironmental Technologies, Inc. (the "Company") and its Subsidiaries and other persons to acquire a direct stake in the Company's welfare. Promoting closer identification of these individuals' personal interests with those of the Company and its shareholders is expected to stimulate their efforts on the Company's behalf and strengthen their desire to remain with the Company. The Plan focuses on achieving financial goals set forth in the Company's long-term Strategic Plan. 2 Plan Summary 2.1 Overview Upon selection to participate in the Plan, each designated "Participant" will be assigned a Target Award that represents the amount of Plan compensation that is expected to be paid to a Participant if certain pre-established financial goals ("Performance Objectives") are fully met. The Target Award will be calculated by multiplying the Participant's base salary (inclusive of pre-tax deductions for 401(k) deferral and benefits deductions but exclusive of any bonus payments made during the Plan Period under either the Annual or Long-Term Plans or any special compensation) earned during the initial year of the Plan by a Target Award Percentage. Groups of Participants' awards may be adjusted to yield uniform Target Awards for common classes of Participants in the Plan. 2.2 Eligibility a) Eligibility to participate in the Plan is limited to individuals who are executives, managers and key employees of the Company whose duties and responsibilities provide them the opportunity to (i) make a material and significant impact on the financial performance of the Company, (ii) have major responsibility in the control of the corporate assets, and (iii) provide critical staff support necessary to enhance operating profitability. b) Eligibility and designated levels of participation will be determined by the CEO subject to Committee approval as described below. The fixing of eligibility and level of participation shall not create any vested right in any Participant to receive a bonus hereunder. Long-Term Incentive Stock Option Plan of FYE 2000--2002 1 September 14, 1999 2 2.3 Administration a) The Compensation Committee, or such other Committee of the Board of Directors designated by the Board, shall administer the Plan. The administration of the Plan shall include the power to: i) Approve Participants participation in the Plan ii) Establish Performance Goals iii) Determine if and when any Bonuses shall be paid iv) Pay out any Bonuses, in cash, Stock, or stock options, or a combination thereof, as the Committee shall determine from time to time v) Approve the amount, the form, performance targets, and all other particulars of awards under the Plan vi) If deemed appropriate, adjust targets or payments to reflect special achievements to which no bonus would, by strictest adherence to the Plan, be due or to adjust actual results to be used for bonus performance measures in the event of one-time-only or unusual charges or additions to earnings, such as special write-offs or extraordinary gains vii) Impose and change, from time to time, the maximum amounts or percentages payable under the Plan viii) Construe and interpret the Plan ix) Establish rules and regulations and to perform all other acts it believes reasonable and proper, including the authority to delegate responsibilities to others to assist in administering the Plan. b) Until such time as the Committee makes a determination to make payment of the incentive compensation hereunder with respect to the actual results compared to the Performance Goals for any Plan Period, no Participant shall have any vested right to receive any amount that might be calculated as payable pursuant to the Plan. Furthermore, for any Plan Period and up until the Payment Date, the Committee may cancel any Bonuses awarded under the Plan if a Participant conducts himself or herself in a manner that the Committee determines to be inimical to the best interests of the Company. c) Any decision made or action taken by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. d) If any statute, rule or government regulation or any related compensation plan of the Company requires ratification of the Committee's action, the Committee will submit its recommendation to the Board for such ratification. 2.4 Form of Award The Target Award will be delivered in three forms: o Cash Performance Awards that will be paid following the Plan Period if the EBIBT reported to the stockholders meets or exceeds the earnings goal approved by the Committee. o Incentive and Non-Qualified Stock Options that will deliver reward to the extent that the market value of the Company's stock increases due to achievement of the Strategic Plan goals The percentage of Target Award assigned to stock options and to cash will be determined by the Committee. Long-Term Incentive Stock Option Plan of FYE 2000--2002 2 September 14, 1999 3 2.5 Value of ICP Awards 2.5.1 STOCK OPTIONS Stock options will be issued pursuant to a current Stock Incentive Plan approved by the Stockholders of the Company at the time a Participant is selected to participate in the Plan. The projected value of stock option awards will be based on the current market value and the expected market value of the Company's shares at the end of the Plan Period based on projected earnings of the Company at the end of the Plan Period and anticipated price/earnings ratio. Stock option vesting may be step or cliff but will be determined at the time of grant irrespective of future stock price or other performance parameter. Early vesting may be provided if target measures are reached prior to the end of the Plan Period. There is no guarantee that the share price will reach the projected value even if the projected earnings per share is reached. There is no guarantee that the expected level of compensation will be realized from the stock options. 2.5.2 CASH PERFORMANCE AWARDS Cash Performance Awards will be made based on achieving the cumulative earnings goal over the Plan Period. The goal will be based on projected earnings before bonus, interest and taxes (EBIBT) from the current Five-year Strategic Plan plus such additional earnings necessary to fund the Cash Performance Awards. The cash awards will be paid in full if the target cumulative earnings are achieved over the period of the Plan. Individual year earnings achievements will be ignored for the purpose of Plan goals. No payment will be made if the achieved cumulative earnings do not meet or exceed the target earnings. Payments will be made irrespective of the market price of the Company's shares. The performance goal for the current Plan Period is defined in Exhibit A. 2.6 TERMINATION OF EMPLOYMENT In the event a Participant ceases to be employed by the Company: a) Due to normal retirement, or early retirement with Committee consent, under a formal plan or policy of the Company, or total and permanent disability, as determined by the Committee, or death, a Participant's eligibility shall continue to remain in effect for the duration of the Plan Period. In the event of such a termination of employment, the Participant, or her or his Beneficiary, on the Payment Date, shall receive the Participant's portion of the Cash Performance Award for the applicable Plan Period, adjusted by the Committee in its sole discretion, pro rata, for the Participant's shortened participation. b) In the event that a Participant shall cease to be an employee of the Company upon the occurrence of any other event, the Participant's eligibility under the Plan shall be canceled and terminated forthwith, and no Bonuses shall be payable under the Plan except as and to the extent the Committee may determine otherwise. c) For purposes of the preceding, it shall not be considered a termination of employment when a Participant is placed by the Company on military or sick leave or such other type of leave of absence, for a period of six months or less, that is considered as continuing intact the employment relationship of the Participant. For any such leave extending beyond six months, the Committee shall decide whether and when there has been a termination of employment. d) Disposition of stock options and restricted stock awarded under this Plan, subsequent to termination, will be determined by the provisions of the Stock Incentive Plan under which such options or shares have been issued. Long-Term Incentive Stock Option Plan of FYE 2000--2002 3 September 14, 1999 4 2.7 ADJUSTMENTS If there shall be any change in the Stock subject to the Plan through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, exchange of stock or other change in the corporate structure, appropriate adjustments shall be made in the aggregate number and kind of shares subject to the Plan to reflect such changes, if and to the extent determined by the Committee, whose determination shall be conclusive. Such adjustments shall be made in accordance with the Stock Incentive Plan under which the shares were issued. 2.8 AMENDMENT AND TERMINATION OF PLAN The Board may, at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as the Board may deem appropriate and in the best interests of the Company. 3 Miscellaneous a) GOVERNMENT AND OTHER REGULATIONS: The obligation of the Company to issue, or transfer and deliver shares for Bonuses under the Plan shall be subject to all applicable laws, regulations, rules and orders that shall then be in effect. b) UNFUNDED PLAN: The Plan, insofar as it provides for payments, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be subject to Bonuses under the Plan. Any liability of the Company to any person with respect to any award under this Plan shall be based solely upon contractual obligations that may be created under this Plan. c) RIGHT TO CONTINUED EMPLOYMENT: No person shall have any claim or right to be granted a Bonus under the Plan, and the grant of a Bonus under the Plan shall not be construed as giving any Participant the right to be retained in the employ of the Company, and the Company expressly reserves the right at any time to dismiss a Participant with or without cause, free from any liability, or any claim under the Plan. d) NON-TRANSFERABILITY: Except by will or the laws of descent and distribution, no right or interest of any Participant in the Plan shall be assignable or transferable and no right or interest of any Participant shall be liable for, or subject to, any lien, obligation or liability of such Participant. e) WITHHOLDING: The Company shall have the right to withhold from cash payments sufficient amounts to cover tax withholding for income and employment taxes, and if the amount of cash payment is insufficient, the Company may require the Participant to pay to it the balance required to be withheld. Likewise, the Company may require a payment by the Participant to cover applicable withholding for income and employment taxes in the event any part of the Bonus is paid in Stock. f) PLAN EXPENSES: Any expenses of administering this Plan shall be borne by the Company. g) LEGAL CONSIDERATIONS: No persons, including a Participant, or his or her Beneficiary, shall have any claim or right to the payment of an award, if, in the opinion of counsel for the Company, such payment does not comply with legal requirements or is opposed to governmental public policy. h) OTHER PLANS: Nothing contained herein shall prevent the Company from establishing other incentive and benefit plans in which Participants in the Plan may also participate. However, any amounts paid to a Participant with respect to Bonuses under the Plan shall not affect the level of benefits provided to or received by any Participant (or his or her estate or Beneficiary) as part of any other employee benefit plan of the Company. i) NO WARRANTY OF TAX EFFECT: No opinion shall be deemed to be expressed or warranties made as to the effect for federal, state or local tax purposes of any Bonuses. Long-Term Incentive Stock Option Plan of FYE 2000--2002 4 September 14, 1999 5 j) CONSTRUCTION OF PLAN: The place of administration of the Plan shall be in the Commonwealth of Massachusetts, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the Commonwealth of Massachusetts. 4 Implementation a) The CEO will develop a Schedule of Participants Awards (the "Schedule", Exhibit A), detailing Participants and levels of long-term incentive compensation as a function of base salary and target performance measures for and adoption by the Compensation Committee. b) The Committee will present a motion to the Board for award of stock options to be granted to Participants, including numbers of shares, vesting and exercise period and other terms based on a recommendation prepared by the CEO. c) The Committee will authorize the CEO to grant Cash Performance Awards pursuant to the amounts set forth in the approved schedule subject to the conditions set forth in the plan prepared by the CEO. * * * * Long-Term Incentive Stock Option Plan of FYE 2000--2002 5 September 14, 1999 EX-10.58 4 SALE AND PURCHASE AGREEMENT 1 EXHIBIT 10.58 Private & Confidential DATED 2000 ---------------------------------- GZA GEOENVIRONMENTAL, INC. (1) CARL BRO GROUP LIMITED (2) AND CARL BRO AQUATERRA LIMITED (3) --------------------------------------------- AGREEMENT FOR THE SALE AND PURCHASE OF THE 5,000 "B" ORDINARY SHARES OF (POUND)1 EACH IN CARL BRO AQUATERRA LIMITED --------------------------------------------- 2 CONTENTS CLAUSE HEADING PAGE 1 Definitions and interpretation....................................1 2 Sale of the Sale Shares and the Vendor's title....................3 3 Indemnity.........................................................4 4 Mutual Release....................................................4 5 Consideration for the sale of the Sale Shares.....................5 6 Completion........................................................5 7 Post-Completion matters...........................................5 8 Payments..........................................................6 9 General...........................................................6 10 Applicable law and submission to jurisdiction.....................8 SCHEDULE 1 The Company.......................................................9 2 Completion matters...............................................10 AGREED FORM DOCUMENTS Officers' resignations (schedule 2 paragraph 1.5) 3 THIS AGREEMENT is dated 26TH APRIL 2000 and is made BETWEEN: (1) GZA GEOENVIRONMENTAL, INC., a company incorporated under the laws of the State of Massachusetts whose principal place of business is at 320 Needham Street, Newton, Upper Falls, Massachusetts 02464, USA ("THE VENDOR"); (2) CARL BRO GROUP LIMITED, a company incorporated in England (No. 2237772) whose registered office is at Newton House, Newton Road, Leeds LS7 4DN ("THE PURCHASER"); and (3) CARL BRO AQUATERRA LIMITED, a company incorporated in England (No. 2621323), further details of which are set out in schedule 1 ("THE COMPANY"), (together "THE PARTIES" and each a "PARTY"). NOW IT IS HEREBY AGREED as follows: 1 DEFINITIONS AND INTERPRETATION 1.1 DEFINED TERMS USED IN THIS AGREEMENT In this Agreement, unless the context otherwise requires: "CA 1985" means the Companies Act 1985; "COMPLETION" means completion of the sale and purchase of the Sale Shares by the performance by the Parties of their respective obligations under clause 4 and schedule 2; "COMPLETION DATE" means the date of this Agreement; "HOLDING COMPANY" means a holding company (as defined in sections 736 and 736A CA 1985) or a parent undertaking (as defined in section 258 CA 1985)); "PURCHASE PRICE" has the meaning given in clause 5; "PURCHASER'S SOLICITORS" means Addleshaw Booth & Co of Sovereign House, PO Box 8, Sovereign Street, Leeds LS1 1HQ; "SALE SHARES" means the 5,000 "B" Ordinary Shares of (pound)1 each in the Company held by the Vendor; "SECURITY INTEREST" means any claim, mortgage, lien, pledge, charge, encumbrance, equity, hypothecation, right of pre-emption or other security interest or any other restriction or right exercisable by, or in favour of, any third party (or an agreement or commitment to create any of them); "SHARE TRANSFERS" has the meaning given in paragraph 1.2 of schedule 2; and 1 4 "SUBSIDIARY" means a subsidiary (as defined by sections 736 and 736A CA 1985) or a subsidiary undertaking (as defined by section 258 CA 1985). 1.2 TERMS DEFINED ELSEWHERE IN THIS AGREEMENT In addition to the terms defined in clause 1.1, certain other terms are defined elsewhere in this Agreement (denoted by capitalised words in quotes and bold type). Each such term shall have the meaning stated for the purpose of the provision in which it is defined and, if used elsewhere in this Agreement, where so used, unless the context otherwise requires. 1.3 INTERPRETATION OF WORDS AND EXPRESSIONS USED IN THIS AGREEMENT In this Agreement, unless the context otherwise requires: (a) a document expressed to be "IN THE AGREED FORM" means a document in a form which has been agreed by the Parties at or before the execution of this Agreement and which has, for the purposes of identification, been signed or initialled by them or on their behalf; (b) references to a clause or schedule are to a clause of, or a schedule to, this Agreement respectively; references to this Agreement include its schedules and references in a schedule to a paragraph are to a paragraph of that schedule; (c) references to this Agreement or any other document or to any specified provision of this Agreement or any other document are to this Agreement, that document or that provision as in force for the time being and as amended from time to time in accordance with the terms of this Agreement or that document, as the case may be; and (d) references to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, Court, official or any legal concept or thing shall, in respect of any jurisdiction other than England and Wales, be deemed to include what most nearly approximates in that jurisdiction to the English legal term. 1.4 CONTENTS TABLE AND HEADINGS In this Agreement, the contents table and the descriptive headings to, and within, clauses, schedules and paragraphs are inserted for convenience only, have no legal effect and shall be ignored in the interpretation and construction of this Agreement. 2 SALE OF THE SALE SHARES AND THE VENDOR'S TITLE 2.1 SALE OF THE SALE SHARES The Vendor shall sell to the Purchaser and the Purchaser (relying, as the Vendor hereby acknowledges, on the representations, warranties, covenants, undertakings 2 5 and indemnities of the Vendor referred to in this Agreement) shall purchase from the Vendor the Sale Shares. The Vendor makes no representation and provides no warranty, covenant or indemnity other than those set out in this Agreement. 2.2 THE VENDOR'S TITLE TO THE SALE SHARES The Vendor shall sell and transfer to the Purchaser the Sale Shares with full title guarantee and free from any Security Interest. 2.3 TITLE TO SALE SHARES TO PASS ON COMPLETION Title to, beneficial ownership of, and any risk attaching to, the Sale Shares shall pass on Completion and the Sale Shares shall be sold and purchased together with all rights and benefits attached or accruing to them at, or at any time on or after, Completion (including the right to receive all dividends, distributions or any return of capital declared, paid or made by the Company in respect of any such shares on or after Completion). 2.4 WAIVER OF PRE-EMPTION RIGHTS BY THE VENDOR AND PURCHASER Each of the Purchaser and the Vendor hereby waives any rights of pre-emption or first refusal or similar rights conferred on it by the articles of association of the Company or otherwise over any of the Sale Shares. 2.5 CAPACITY OF THE VENDOR The Vendor warrants, undertakes and represents to the Purchaser that: (a) the Vendor has the requisite power and authority under its constitutional documents and otherwise to execute, deliver and perform its obligations under this Agreement and any other document to be executed by it; (b) the execution and delivery of, and the performance of the obligations of the Vendor under, this Agreement have been duly authorised by all necessary corporate action on its part whether under its constitutional documents or otherwise; and (c) this Agreement constitutes legal, valid and binding obligations of the Vendor enforceable in accordance with its terms. 2.6 SHARE CERTIFICATE (a) The Vendor confirms that, so far as it is aware, no certificate of title to the Sale Shares has been issued to it. (b) The Vendor further confirms that neither the Sale Shares nor any certificate of title relating to them has been transferred, charged, lent, deposited or 3 6 dealt with in any manner affecting the title to them and the Vendor is the person entitled to be on the register in respect of the Sale Shares. (c) The Vendor undertakes to indemnify and keep the Company fully and effectively indemnified from and against all actions, proceedings, claims, damages, costs, expenses and demands which may be brought or made against the Company or suffered or incurred by the Company or for which the Company may become liable by reason of the Vendor having undertaken any of the matters referred to in clause 2.6(b). 3 INDEMNITY The Purchaser will defend, indemnify and hold harmless the Vendor against any action, sums, demand, damages, loss or liability arising out of: (a) any professional services rendered by the Company; (b) the employment by the Company of any person; (c) taxes payable by the Company, and (d) any other obligation or liability arising out of the operation of the Company's business, whether or after the Completion Date, in each case arising out of the ownership by GZA of the sale shares and excluding any liability arising as a consequence of trading between the Vendor and the Company. 4 MUTUAL RELEASE Except as otherwise expressly set forth herein and except for any liability arising as a consequence of trading between the parties, each Party hereby releases the other Parties and the officers, directors, employees, agents and affiliates of such other Parties of and from all actions, suits, damages, losses, liabilities or claims of any character that a releasing Party has or may have had against any of the released Parties at any time to and including the Completion Date. 5 CONSIDERATION FOR THE SALE OF THE SALE SHARES The consideration for the sale of the Sale Shares shall be the payment on Completion by the Purchaser to the Vendor of (pound)210,000 ("THE PURCHASE PRICE"), plus interest at the rate of 8.5 per cent per annum applied to all outstanding amounts not paid at Completion until such amounts are paid in full, in cash in accordance with the provisions of clause 8. 4 7 6 COMPLETION Completion shall take place at the offices of the Purchaser's Solicitors or at such other place as the Parties may agree on the Completion Date when the Parties shall comply with all of their respective obligations as set out in schedule 2. The Purchaser shall not be obliged to complete the purchase of any of the Sale Shares unless the purchase of all the Sale Shares is completed simultaneously. 7 POST-COMPLETION MATTERS 7.1 APPOINTMENT OF THE PURCHASER AS ATTORNEY FOR THE VENDOR The Vendor hereby irrevocably and unconditionally appoints the Purchaser and any director of the Purchaser for the time being acting severally as its lawful attorney (and to the complete exclusion of any rights that it may have in such regard) for the purpose of exercising any and all voting and other rights and receiving any and all benefits and entitlements which may now or at any time after the date of this Agreement attach to or arise in respect of any of the Sale Shares and receiving notices of and attending and voting at all meetings of the members of the Company (or any class thereof) and generally executing or approving such deeds or documents and doing any such acts or things in relation to any of the Sale Shares as the attorney may think fit, in each case from Completion to the day on which the Purchaser is entered in the register of members as the holder of the Sale Shares. For such purpose, the Vendor hereby authorises and instructs the Company to send all notices in respect of the Sale Shares to the Purchaser during such period. 7.2 FURTHER ASSURANCE BY THE VENDOR The Vendor shall execute or, so far as it is able, procure the execution of all such documents and/or do or, so far as it is able, procure the doing of, such acts and things as the Purchaser shall after Completion require in order to give effect to the provisions of this Agreement and to give to the Purchaser the full benefit of this Agreement or any other such document. 8 PAYMENTS 8.1 PAYMENTS TO THE VENDOR Any amounts payable to the Vendor pursuant to this Agreement shall be paid by way of telegraphic transfer to the following account of the Vendor: Bank: Fleet Bank, N.A. 1 Federal Street Boston MA 02110 Sort Code: 011000138 Account Name: GZA GeoEnvironmental - Accounts Payable 5 8 Account No.: 027-890-4909 9 GENERAL 9.1 CONTINUING EFFECT OF THIS AGREEMENT All provisions of this Agreement shall, so far as they are capable of being performed or observed, continue in full force and effect notwithstanding Completion, except in respect of those matters then already performed and Completion shall not constitute a waiver of any of the Purchaser's rights in relation to this Agreement. 9.2 ANNOUNCEMENTS Save as (but only to the extent) expressly required by law or by any relevant national or supra-national regulatory, governmental or quasi-governmental body or authority, all announcements by, of or on behalf of the Vendor relating to the subject matter of this Agreement or the transaction contemplated by this Agreement shall be in terms to be approved in writing by the Purchaser in advance of issue. 9.3 ENTIRE AGREEMENT (a) This Agreement sets out the entire agreement and understanding between the Parties in connection with the sale and purchase of the Sale Shares and other matters described in them. (b) Without prejudice to the generality of clause 9.3(a), this Agreement shall supersede as from the date of this Agreement: (i) a shareholders agreement dated 10th November 1992 between the Purchaser, the Vendor and the Company; and (ii) a letter dated 21st October 1999 from Andrew Pajak of the Vendor to Roger Pyle of the Purchaser. 9.4 ALTERATIONS No purported alteration of this Agreement shall be effective unless it is in writing, refers specifically to this Agreement and is duly executed by each Party to this Agreement. 9.5 COUNTERPARTS This Agreement may be entered into in the form of two or more counterparts, each executed by one or more of the Parties but, taken together, executed by all and, provided that all the Parties so enter into this Agreement, each of the executed counterparts, when duly exchanged and delivered, shall be deemed to be an original, but, taken together, they shall constitute one instrument. 6 9 9.6 PAYMENT OF COSTS (a) Subject to clause 9.6(b) each of the Parties shall be responsible for its respective legal and other costs and expenses incurred in relation to the negotiation, preparation and completion of this Agreement and all ancillary documents. (b) The Purchaser shall reimburse the Vendor for reasonable legal and accounting costs incurred by the Vendor in relation to the negotiation, preparation and completion of the Agreement and all ancillary documents up to a maximum of $14,600. 9.7 SUCCESSORS AND ASSIGNS (a) This Agreement shall be binding on, and shall enure for the benefit of, the successors in title of each Party. (b) Save as provided in clause 9.7(c), none of the Parties to this Agreement may be entitled to assign the benefit of any rights under this Agreement. (c) The benefit of this Agreement shall be freely assignable by the Purchaser and, in the event of any such assignment, all references in this Agreement to the Purchaser shall be deemed to include its assigns. (d) The Parties agree that any loss suffered by any member of the Purchaser's Group or any assignee of the Purchaser's rights under this Agreement as a result of a breach of any provision of this Agreement shall be treated as, and shall be deemed to be, a loss of the Purchaser. 10 APPLICABLE LAW AND SUBMISSION TO JURISDICTION APPLICABLE LAW 10.1 This Agreement shall be governed by and construed in accordance with English law, and all claims and disputes between the parties or any of them arising out of or in connection with this Agreement (whether or not contractual in nature) shall be determined in accordance with English law. 10.2 For the avoidance of doubt, the parties expressly agree if in any court any party argues that a court (other than a court in England and Wales) has jurisdiction to determine any dispute or difference between the parties or any of them arising out of or in connection with this Agreement shall be determined in accordance with English law, and any right any party might otherwise have to rely upon the law of the forum is hereby irrevocably and unconditionally waived. SUBMISSION TO JURISDICTION 10.3 Each party submits to the jurisdiction of the Courts of England and Wales in relation to all claims, disputes, differences or other matters arising out of or in connection 7 10 with this Agreement, provided that nothing in this clause shall prevent the Purchaser or the Company in its or their sole and unfettered discretion, from commencing proceedings against the Vendor in any court of competent jurisdiction. 10.4 Each party irrevocably waives any right that it may have: (a) to object to an action being brought in those Courts, to claim that the action has been brought in an inconvenient forum, or to claim that those Courts do not have jurisdiction. The waiver contained in this clause includes (without limitation) a waiver of all formal and substantive requirements of any otherwise competent jurisdiction in relation to this clause; or (b) to oppose the enforcement of any judgment of any court of England and Wales whether on any ground referred to in clause 10.4(a) or otherwise. IN WITNESS whereof this Agreement has been entered into as a Deed on the date specified above. 8 11 SCHEDULE 1 ---------- THE COMPANY ----------- 1 Date of incorporation: 18th June 1991 2 Registered number: 2621323 3 Registered office: Newton House, Newton Road, Leeds LS7 4DN 4 Authorised share capital: (pound)10,000 divided into 5,000 "A" ordinary shares of (pound)1 each and 5,000 "B" ordinary shares of(pound)1 each 5 Issued share capital: 5,000 "A" ordinary shares all fully paid registered in the name of the Purchaser 5,000 "B" ordinary shares all fully paid registered in the name of the Vendor 6 Directors: Andrew Richard Dean Andrew P Pajak James Roger Pyle 7 Secretary: Paul David Berry 8 Auditors: PricewaterhouseCoopers 9 Accounting reference date: 30 June 9 12 SCHEDULE 2 COMPLETION MATTERS 1 DOCUMENTS AND OTHER ITEMS TO BE DELIVERED BY THE VENDOR 1.1 The following documents and other items set out in the remainder of this paragraph 1 shall be delivered by the Vendor to the Purchaser at Completion. THE SALE SHARES 1.2 A transfer in respect of the Sale Shares ("THE SHARE TRANSFER") duly executed and completed in favour of the Purchaser. 1.3 Share certificates for the Sale Shares. BOARD MINUTES OF THE VENDOR 1.4 Certified copies of the board minutes for the Vendor recording the resolution of the board of directors of the Vendor authorising: (a) the sale of the Sale Shares held by the Vendor; (b) the execution of the transfers in respect of such Sale Shares; and (c) the execution of this Agreement and all relevant Transaction Documents. DIRECTOR'S RESIGNATION 1.5 The written resignation of Andrew P Pajak in the agreed form resigning his office as a director of the Company. 2 OBLIGATIONS OF THE VENDOR BOARD RESOLUTIONS 2.1 The Purchaser and the Vendor shall procure that written board resolutions of the Company are passed which: Registration of the Share Transfer (a) resolve to register the Share Transfer (subject only to it being duly stamped) notwithstanding any provision to the contrary in the articles of association of the Company; Resignation of director 10 13 (b) approve the resignation of Andrew P Pajak as a director of the Company; and Miscellaneous (c) approve the matters referred in paragraph 4. REPAYMENT OF INDEBTEDNESS 2.2 The Vendor shall repay to the Company, or procure the repayment to the Company of, all indebtedness outstanding at Completion from the Vendor in respect of trading in the ordinary course of business by the Company with the Vendor which has become payable in accordance with any terms previously agreed by the Vendor and the Company. 3 OBLIGATIONS OF THE PURCHASER 3.1 The Purchaser shall pay the Purchase Price in accordance with the provisions of clause 8. 4 JOINT OBLIGATIONS OF THE PURCHASER AND THE VENDOR 4.1 The Purchaser and the Vendor shall join in procuring that: (a) all existing bank mandates in force for the Company shall be altered (in such manner as the Purchaser shall at Completion require) to reflect the resignations and appointments referred to in paragraph 2.1; and (b) the Company shall repay the loan of (pound)80,000 made to it by the Vendor in full and final settlement of all and any amounts due by the Company, plus interest at the rate of 8.5 per cent per annum applied to all outstanding amounts not paid at Completion until such amounts are paid in full, to the Vendor (other than any trading in the ordinary course of business by the Company with the Vendor which has not yet become payable in accordance with any terms previously agreed by the Vendor and the Company and which shall be repaid in accordance with existing arrangements). 11 14 EXECUTED and delivered as a DEED ) by GZA GEOENVIRONMENTAL, INC ) acting by: ) ------------------------------------- Director ------------------------------------- Director/Secretary EXECUTED and delivered as a DEED ) by CARL BRO GROUP LIMITED ) acting by: ) ------------------------------------- Director ------------------------------------- Director/Secretary EXECUTED and delivered as a DEED ) by CARL BRO AQUATERRA LIMITED ) acting by: ) ------------------------------------- Director ------------------------------------- Director/Secretary 12 EX-10.59 5 LIMITED LIABILITY AGREEMENT 1 \ Exhibit 10.59 LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF AIRLOGICS, LLC This Limited Liability Company Operating Agreement (including the appendices attached hereto, the "Agreement") of AirLogics LLC, a Delaware limited liability company (the "Company"), is made as of April 1, 2000 between SOUTH JERSEY ENERGY COMPANY ("SJE"), a New Jersey corporation, located at Number One South Jersey Plaza, Route 54, Folsom, NJ 08037 and GZA GEOENVIRONMENTAL, INC. ("GZA"), a Massachusetts corporation, located at 320 Needham Street, Newton Upper Falls, MA 02464 as the members of the Company ("Members," and each a "Member"). ARTICLE I DEFINITIONS. Capitalized terms used in this Agreement shall have the meanings set forth in this Article I unless otherwise expressly provided. 1.1 "ACT" means the Delaware Limited Liability Company Act, as amended. 1.2 ADJUSTED CAPITAL ACCOUNT DEFICIT - with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Operating Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) Debit to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1 (b)(2)(ii)(d) and shall be interpreted consistently therewith. 1.3 "AFFILIATE" means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person. "Controlled Affiliate" means, with respect to any Person: (a) any Person directly or indirectly controlled by such Person, and (b) any Person a majority of whose equity securities are owned directly or indirectly by such Person. For purposes of these definitions, the term "controls," "is controlled by," or "is under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. -1- 2 1.4 "AGREEMENT" means the Limited Liability Company Operating Agreement of the Company between SJE and GZA, as the Members of the Company. 1.5 "ASSETS" has the meaning defined in Section 3.1 (a). 1.6 " BUSINESS" has the meaning given that term in Section 3.1. 1.7 CAPITAL ACCOUNT - with respect to any Member, the Capital Account maintained or such Person in accordance with the following provisions: (i) To each Members Capital Account there shall be credited such Members Capital Contributions, such Member's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Sections 4.08 or 4.09 hereof, and the amount of any Company liabilities assumed by such Member or which are secured by any Property distributed to such Member. (ii) To each Member's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Property distributed to such Member pursuant to any provision of this Operating Agreement, such Member's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 4.08 or 4.09 hereof, and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company. (iii) In the event any interest in the Company is transferred in accordance with the terms of this Operating Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. (iv) In determining the amount of any liability for purposes of Sections 1.7(i) and 1.7(ii) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Operating Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.7041 (b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Executive Committee shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or the Members), are computed in order to comply with such Regulations, the Executive Committee may make such modification, provided that is not likely to have a material effect on the amounts distributable to any Member pursuant to Article IX hereof upon the dissolution of the Company. The Executive Committee also shall (i) make any adjustments that -2- 3 are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes in accordance with Regulations Section 1.7041(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Operating Agreement not to comply with Regulations Section 1.7041(b). 1.8 CAPITAL CONTRIBUTION - With respect to any Member, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Company with respect to the Percentage Interest held by such Member pursuant to the terms of this Operating Agreement. The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Company by the maker of the note (or by a Person related to the maker of the note within the meaning of Regulations Section 1.7041(b)(2)(ii)(c)) shall not be included in the Capital Contribution of any Member until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Regulations Section 1.7041(b)(2)(iv)(d)(2). 1.9 COMPANY MINIMUM GAIN - Refers to "partnership minimum gain" as set forth in Regulations Sections 1.7042(b)(2) and 1.7042(d). 1.10 "CERTIFICATE OF FORMATION" means the Certificate of Formation of the Company as filed with the Secretary of State of Delaware, as the same may be amended or restated from time to time. 1.11 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 1.12 "COMPANY" means AirLogics, LLC, a Delaware limited liability company. 1.13 "CONTRACT" means a contract for the sale of air monitoring equipment and services to a customer. 1.14 "CONTROLLED AFFILIATE" has the meaning defined in Section 1.3. 1.15 "COVERED PERSON" is any Member, Executive Committee, employee or agent of the Company. 1.16 "DEPRECIATION" - For each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with -3- 4 reference to such beginning Gross Asset Value using any reasonable method selected by the Executive Committee. 1.17 "EFFECTIVE DATE" means April 1, 2000 which is the date on which the Certificate of Formation is, by its express terms, to become effective. 1.18 GROSS ASSET VALUE - With respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the majority of the Members; (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Executive Committee, as of the following times: (a) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (b) the distribution by the Company to a Member of more than a de minimis amount of Property as consideration for an interest in the Company; and (c) the liquidation of the Company within the meaning of Regulations Section 1.7041(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the Executive Committee reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the Executive Committee; and (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Sections 734(b) or 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.7041 (b)(2)(iv)(m) and Sections 2.01(42)(vi) and 9.03(e) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 2.01(18)(iv) to the extent the Executive Committee determines that an adjustment pursuant to Section 2.01(17)(ii) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 1.18(iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to these Sections 1.18(i), (ii), or (iv) hereof, such Gross Asset Value shall thereafter -4- 5 be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 1.19 "GZA GEOENVIRONMENTAL INC." means GZA, a Massachusetts corporation and Member of the Company. 1.20 "ENTITY" means any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association, or any foreign trust, or foreign business organization. 1.21 "EVENT OF DISSOLUTION" has the meaning defined in Section 9.1. 1.22 "EXECUTIVE COMMITTEE" has the meaning defined in Section 5.2(a). 1.23 "FISCAL YEAR" means (i) the period commencing on the Effective Date and ending on the immediately succeeding December 31, and (ii) any subsequent twelve month period commencing on January 1 and ending on December 31, and any portion of said subsequent period for which the Company is required to allocate Profits, Losses, and other items of Company income, gain, loss, or deduction. 1.24 LIQUIDATING EVENT - Any of the events described in Section 14.01. 1.25 "LLC LAW" means the Delaware Limited Liability Company Act and all amendments thereto. 1.26 "MEMBER" means each of SJE and GZA; together SJE and GZA may be referred to as "Members". 1.27 "MEMBER MONTHLY LOAN BALANCE" has the meaning defined in Section 6.2. 1.28 MEMBER NONRECOURSE DEBT - Refers to "partner nonrecourse debt" as set forth in Regulations Section 1.7042(b)(4). 1.29 MEMBER NONRECOURSE DEBT MINIMUM GAIN - An amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.7042(i)(3). 1.30 MEMBER NONRECOURSE DEDUCTIONS - Refers to "partner nonrecourse deductions" as set forth in Regulations Sections 1.7042(i)(1) and 1.7042(i)(2). 1.31 NET CASH FROM OPERATIONS - The gross cash proceeds from Company operations less the portion thereof used to pay or establish reserves for all Company expenses, debt payments, capital improvements, replacements, and contingencies, all as determined by the -5- 6 Executive Committee. "Net Cash From Operations" shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established pursuant to the first sentence of this definition. 1.32 NONRECOURSE DEDUCTIONS - has the meaning set forth in Regulations Section 1.7042(b)(3). 1.33 NONRECOURSE LIABILITY - Has the meaning set forth in Regulations Section 1.7042(b)(3). 1.34 "PERCENTAGE INTEREST" means, subject to Section 4.03, as to SJE having 50% and GZA having 50% of all interests in the Company, which shall be such Member's percentage share of (i) total Profits or Losses of the Company to be allocated; (ii) the total amount of the initial and each additional capital contribution; and (iii) the total amount of each distribution. 1.35 "PERSON" means any individual or Entity, and the executors, administrators, legal representatives, successors, and assigns of a "Person" when the context so permits. 1.36 PROFITS AND LOSSES - For each Fiscal Year, an amount equal to the Company's taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purposes, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.37 shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.7041(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.37 shall be subtracted from such taxable income or added to such loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 1.18(ii) or Section 1.18(iii) hereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (iv) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; -6- 7 (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with Section 1.16 hereof; (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required pursuant to Regulations Section 1.7041(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Members interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and (vii) Notwithstanding any other provision of this Section 1.37, any items which are specially allocated pursuant to Sections 4.08 and 4.09 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 4.08 and 4.09 hereof shall be determined by applying rules analogous to those set forth in Sections 1.37(i) through 1.37(vi) above. 1.37 PROPERTY - All real and personal property acquired by the Company and any improvements thereto, and shall include both tangible and intangible property. 1.38 REGULATIONS - Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 1.39 REGULATORY ALLOCATIONS - Has the meaning set forth in Section 4.09 hereof. 1.40 "SJE" means South Jersey Energy Company, a New Jersey corporation and Member of the Company. 1.41 "SUPPORT SERVICES AGREEMENT" has the meaning defined in Section 6.1. 1.42 TAXING JURISDICTION - Any state, local or foreign government that collects tax, interest or penalties, however designated, on any Member's share of the income or gain attributable to the Company. 1.43 "TRANSACTION OPPORTUNITY" means the sale of equipment and/or provision of service to perform automated real-time air monitoring. 1.44 "TRANSFER" means, in either noun or verb form, any voluntary or involuntary -7- 8 transfer, sale, or other disposition. ARTICLE II FORMATION, TERM, NAME AND STATUS. 2.1 FORMATION. The Members acknowledge that the Company is to be formed pursuant to the Act by the filing of a Certificate of Formation in the form required with the Delaware Secretary of State upon signing of the Operating Agreement. The fact that the Certificate of Formation is on file with the Department of State of the State of Delaware shall constitute notice that the Company is a limited liability company. Simultaneously with the execution of this Operating Agreement and filing and acceptance of the Certificate of Formation, GZA and SJE shall be admitted as Members of the Company. 2.2 TERM. The term of the Company shall commence on the Effective Date and, unless sooner dissolved in accordance with this Agreement or as required by statute, shall continue until the twentieth anniversary of the Effective Date. 2.3 NAME. The name of the Company is AirLogics, LLC. 2.4 NO STATE LAW PARTNERSHIP, LIABILITY TO THIRD PARTIES. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership), and that no Member be a partner or joint venture of any other Member nor assume the duties that either such status may impose, for any purposes other than federal and state tax purposes, and that this Agreement not be construed otherwise. Except to the limited extent expressly provided in Section 7.4, no Member shall be liable for the debts, obligations or liabilities of the Company to third parties, including under a judgment, decree or order of a court. 2.5 AGREEMENT, EFFECT OF INCONSISTENCIES WITH LLC LAW. For and in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Members executing this Operating Agreement hereby agree to the terms and conditions of this Operating Agreement, as it may from time to time be amended according to its terms. It is the express intention of the Members that this Operating Agreement shall be the sole source of agreement of the parties, and, except to the extent a provision of this Operating Agreement expressly incorporates federal income tax rules by reference to sections of the Code or Regulations or is expressly prohibited or ineffective under the LLC Law, this Operating Agreement shall govern, even when inconsistent with, or different than, the provisions of the LLC Law or any other law or rule. To the extent any provision of this Operating Agreement is prohibited or ineffective under the LLC Law, this Operating Agreement shall be considered amended to the smallest degree possible in order to make the agreement effective under the LLC Law. In the event the LLC Law is subsequently amended or interpreted in such a way to make any provision of this Operating Agreement that was formerly invalid valid, such provision shall be considered to be valid from the effective date of such interpretation or amendment. The Members hereby agree that each Member shall be entitled to rely on the provisions of this Operating Agreement, and no Member shall be liable to the Company or to any Member for any action or refusal to act taken in good faith reliance on the terms of this Operating Agreement. The Members hereby agree that the duties and obligations imposed on the Members -8- 9 as such shall be those set forth in this Operating Agreement, which is intended to govern the relationship among the Company and the Members, notwithstanding any provision of the LLC Law or common law to the contrary. 2.6 CONFIRMATION OF STATUS, SCOPE OF AUTHORITY. Each Member hereby confirms and agrees to its status as a Member upon the terms and conditions set forth in this Agreement. 2.7 PRINCIPAL OFFICE. The principal office of the Company shall be located at 1 South Jersey Plaza, Folsom, New Jersey 08037. ARTICLE III PURPOSE, EXCLUSIVE DEALINGS, AND ASSETS. 3.1 PURPOSE. (a) The Company has been organized for the purpose of providing automated real-time air monitoring equipment and services, (the "Business"). The Executive Committee shall have no authority to undertake any activity outside of the parameters of the Business without the unanimous support of all Members. (b) In addition, the Company may engage in any act concerning any or all other business or activity that now or hereafter may be necessary, incidental, proper, advisable, or convenient to accomplish the foregoing purposes and that is not forbidden by the law of the jurisdiction in which the Company engages in that business; PROVIDED, HOWEVER, THAT NOTWITHSTANDING ANYTHING STATED HEREIN TO THE CONTRARY, the Company shall not engage in any activity which would cause the Company to be a "public utility company" or a "holding company" as such terms are used in the Public Utility Holding Company Act of 1935, as amended. The Company may accomplish the purposes set forth in this Section 3.1 by entering into any contract, subject to the provisions of this Agreement, or taking any other action permitted under the Act and any other applicable law and necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company. (c) Except as provided in Sections 3.2(a)-(d), any Member may engage in or possess an interest in other business ventures of every nature and description, independently or with others, and neither the Company nor the Members shall have any right by virtue of this Agreement in such other business ventures or to the income or profits derived therefrom. (d) The Company exists only for the purposes specified in this Article III, and may not conduct any business other than the Business without the approval of an unanimous decision of the Members. Furthermore, notwithstanding the provisions of this Agreement, the Company shall not do business in any jurisdiction that would jeopardize the limitation on liability afforded to Members under the LLC Law or this Operating Agreement. -9- 10 3.2 EXCLUSIVE DEALINGS. (a) From the Effective Date, each Member must offer to the Company each Transaction Opportunity which falls within the purpose defined herein. Neither Member shall pursue (or permit its Affiliates or Controlled Affiliates to pursue) such Transaction Opportunities for itself (or themselves) except as permitted by Sections 3.2 (e), and 9.2(b). (b) After a Transaction Opportunity has been offered to the Company, the Members of the Executive Committee shall accept or reject the Transaction Opportunity on behalf of the Company. (c) If a Transaction Opportunity is accepted, the Executive Committee shall document the acceptance of the Transaction Opportunity and pursue the underlying transaction. (d) Any Transaction Opportunity which the Executive Committee does not accept within a reasonable time (two weeks) of its presentation to the Executive Committee will be deemed to be rejected by the Company. For purposes of Article XIV, such rejection shall not constitute a dispute unless there is a good faith dispute as to whether or not a rejection actually occurred. (e) If Transaction Opportunity is rejected by the Company: (i) the Company shall not pursue the Transaction Opportunity; and (ii) either Member, or both, may pursue the Transaction Opportunity for its own benefit. 3.3 INTELLECTUAL PROPERTY. Upon formation of AirLogics, LLC, SJE and GZA agree to assign all of their intellectual property rights in the Perimeter Air Monitoring System for which a patent is pending with the United States Patent Office, Application No. 09/143,699 to Airlogics, LLC. 3.4 RESPONSIBILITY FOR WARRANTIES AND SYSTEM SUPPORT. AirLogics shall be exclusively responsible for providing any warranties on sales of automated air monitoring equipment. AirLogics shall provide all required system support on equipment sold and services provided to customers. ARTICLE IV MEMBER CONTRIBUTIONS, ALLOCATIONS, DISTRIBUTIONS AND TAXES. 4.1 INITIAL CAPITAL CONTRIBUTIONS. The names, addresses, initial Capital Contributions, and Percentage Interests of the Members are set forth below. The initial Capital Contributions shall be made concurrently with the last execution of this Operating Agreement. Each Member acknowledges that the interests in the Company have not been registered under the -10- 11 Securities Act of 1933, as amended, or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements. SJE: $250,000 GZA: $250,000 4.2 CAPITAL ACCOUNTS. A separate Capital Account shall be established and maintained for each Member. 4.3 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) Additional monetary Capital Contributions, may be requested by the Executive Committee in its reasonable discretion as may be needed to cover ongoing operating expenses or to cover losses the Company has incurred, Such additional monetary Capital Contributions shall be payable in cash in proportion to the Percentage Interests of the Members. Except as stated above, no Member shall be required to make any additional monetary capital contributions. (b) In the event that a Member fails to make any additional monetary Capital Contribution as provided above, all other Members may elect to make any monetary Capital Contributions that have not been made by the non-contributing Member. Such election shall be made in writing, with notice to all other Members, within twenty-five (25) days after the issuance of the original written notice from the Executive Committee regarding the additional Capital Contributions. If more than one Member elects to make the additional Capital Contribution, then all such electing Members shall contribute on a pro rata basis determined by their respective Percentage Interests. (c) In the event that a Member fails to make an additional Capital Contribution as provided above, the Percentage Interests of the Members shall be adjusted so that the Percentage Interest of each Member shall equal the Gross Asset Value of the Capital Contributions made by such Member divided by the Gross Asset Value of all Capital Contributions. 4.4 LOANS. If any Member shall make any loan or loans to the Company or advance money on its behalf, the amount of any such loan or advance shall not be treated as a Capital Contribution of the Company but shall be a debt due from the Company. The amount of such loan or advance by a lending Member shall be repayable out of the Company's cash and shall bear interest at the rate agreed between the Company and the lending Member. No Member shall be obligated to make any loan or advance to the Company. 4.5 OTHER CONTRIBUTIONS MATTERS. -11- 12 (a) Under circumstances requiring a return of any Capital Contributions, no Member shall have the right to receive property other than cash except as may be specifically provided herein. (b) No Member shall receive any interest, salary, or drawing with respect to its Capital Contributions or its Capital Account or for services rendered on behalf of the Company or otherwise in its capacity as Member, except as otherwise provided in this Operating Agreement. (c) Each Member waives any and all rights that it may have to maintain an action for partition of the Company's Property. 4.6 PROFITS. After giving effect to the special allocations set forth in Sections 4.8 and 4.9 hereof, Profits for any Fiscal Year shall be allocated among the Members in proportion to their Percentage Interests. 4.7 LOSSES. (a) After giving effect to the special allocations set forth in Sections 4.8 and 4.9 hereof, Losses for any Fiscal Year shall be allocated among the Members in proportion to their Percentage Interests. (b) The Losses allocated pursuant to Section 4.7(a) hereof shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 4.7(a) hereof, the limitation set forth in this Section 4.7(b) shall be applied on a Member by Member basis so as to allocate the maximum permissible Losses to each Member under Regulations Section 1.7041(b)(2)(ii)(d). All Losses in excess of the limitations set forth in this Section 4.7(b) shall be allocated to the Members in proportion to their Percentage Interests. 4.8 SPECIAL ALLOCATIONS. The following special allocations shall be made in the following order: (a) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.7042(f), notwithstanding any other provision of this Article IV, if there is a net decrease in Company Minimum Gain during any Company Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.7042(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.7042(f)(6) and 1.70420)(2). This Section -12- 13 4.8(a) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.7041 (f) and shall be interpreted consistently therewith. (b) Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.7041 (i)(4), notwithstanding any other provision of this Article IV, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Company Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.7042(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.7042(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.7042(i)(4) and 1.70420)(2). This Section 4.8(b) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.7042(i)(4) and shall be interpreted consistently therewith. (c) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year shall be specially allocated among the Members in proportion to their Percentage Interests. (d) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.7042(i)(1). (e) Code Section 754 Adjustment. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Regulations Sections 1.7041(b)(2)(iv)(m)(2) or 1.7041(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Percentage Interests in the Company in the event Regulations Section 1.7041(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event Regulations Section 1.7041(b)(2)(iv)(m)(4) applies. (f) Allocations Relating to Taxable Issuance of Percentage Interests. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of an interest in the Company to a Member (the "Issuance Items") shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Operating Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Member if the Issuance Items had not been realized. -13- 14 (g) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulations Sections 1.7041(b)(2)(ii)(d) (4), 1.704(b)(2)(ii)(d)(5), or 1.7041(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 4.8(g) shall be made only if and to the extent that such Member would have an adjusted Capital Account Deficit after all other allocations provided for in this Section 4.8 have been tentatively made as if this Section 4.8(g) were not included in this Operating Agreement. 4.9 CURATIVE ALLOCATIONS. The allocations set forth in Sections 4.8(a), 4.8(b), 4.8(c), 4.8(d), 4.8(e) and 4.8(g) hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 4.9. Therefore, notwithstanding any other provision of this Article IV (other than the Regulatory Allocations), the Executive Committee shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Operating Agreement and all Company items were allocated pursuant to Sections 4.6 and 4.7 hereof. In exercising its discretion under this Section 4.9, the Executive Committee shall take into account future Regulatory Allocations under Sections 4.8(a) and 4.8(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 4.8(c) and 4.8(d). 4.10 OTHER ALLOCATION RULES. (a) The Members are aware of the income tax consequences of the allocations made by this Article IV and hereby agree to be bound by the provisions of this Article IV in reporting their shares of Company income and loss for income tax purposes. (b) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Executive Committee using any permissible method under Code Section 706 and the Regulations thereunder. (c) Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company, within the meaning of Regulations Section 1.7523(a) (3), the Members' interests in Company profits are in proportion to their Percentage Interests. (d) To the extent permitted by Regulations Section 1.7042(h)(3), the Executive Committee shall endeavor not to treat distributions of Net Cash from Operations as having been made from the proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt. -14- 15 4.11 TAX ALLOCATIONS: CODE SECTION 704(C). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 1.18 hereof). In the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 1.18 hereof, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Executive Committee in any manner that reasonably reflects the purpose and intention of this Operating Agreement. Allocations pursuant to this Section 4.11 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provisions of this Operating Agreement. 4.12 TAX CHARACTERIZATION AND RETURNS. (a) The Members acknowledge that the Company will be treated as a "partnership" for federal and State of Delaware state tax purposes. All provisions of this Operating Agreement and the Company's Articles of Organization are to be construed so as to preserve that tax status. (b) In accordance with Section 10.03, within ninety (90) days after the end of each Fiscal Year, the Executive Committee will cause to be delivered to each person who was a Member at any time during such Fiscal Year a Form K-1 and such other information, if any, with respect to the Company as may be necessary for the preparation of each Members federal or state income tax (or information) returns, including a statement showing each Member's share of income, gain or loss, and credits for the Fiscal Year. 4.13 TAX ELECTIONS. The Executive Committee may make any tax elections for the Company allowed under the Code or the tax laws of any state or other jurisdiction having taxing jurisdiction over the Company, including the election referred to in Code Section 754 to adjust the basis of Company assets. 4.14 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of any Taxing Jurisdiction require, each Member (or such Members as maybe required by the Taxing Jurisdiction) will submit an agreement indicating that the Member will make timely income tax payments to the Taxing Jurisdiction and that the Member accepts personal jurisdiction of the Taxing Jurisdiction with regard to the collection of income taxes attributable to the Member's income, and interest, and penalties assessed on such income. If the Member fails to provide such agreement, the Company may withhold and pay over to such Taxing Jurisdiction the amount of -15- 16 tax, penalty and interest determined under the laws of the Taxing Jurisdiction with respect to such income. The Tax Partner on behalf of the Executive Committee, where permitted by the rules of any Taxing Jurisdiction, may file a composite, combined or aggregate tax return reflecting the income of the Company and pay the tax, interest and penalties of some or all of the Members on such income to the Taxing Jurisdiction, in which case the Company shall inform the Members of the amount of such tax interest and penalties so paid. 4.15 TAX MATTERS PARTNER. SJE is initially designated as the "tax matters partner" of the Company pursuant to Code Section 321 (a)(7). The Members may, by vote of a majority of the Members, designate any Member as tax matters partner. Any Member designated as tax matters partner shall take such action as may be necessary to cause each other Member to become a "notice partner" within the meaning of Code Section 6223. Any Member who is designated tax matters partner may not take any action contemplated by Code Sections 6222 through 6232 without the consent of the other Member. ARTICLE V MANAGEMENT. 5.1 MANAGEMENT BY MEMBERS. The business and affairs of the Company shall be directed by its Members in accordance with the provisions of this Agreement as set forth below. 5.2 EXECUTIVE COMMITTEE. (a) The Company shall be managed by and at the direction of its Members through a committee consisting of two representatives of SJE and two representatives of GZA (the "Executive Committee"). Each meeting of the Executive Committee shall be deemed a meeting of the Members. Meetings of the Members (apart from meetings of the Executive Committee) are neither necessary nor required. (b) From time to time, each Member shall elect its two representatives to the Executive Committee, and such election shall be communicated in writing to the LLC. At the time of formation, GZA names M. Joseph Celi and William R. Beloff as its representatives. SJE names Edward J. Graham and George L. Baulig as its representatives. (c) The Executive Committee shall have the authority to manage and establish policies and strategies of the Company including, without limitation, the authority to: (i) enter into any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance and operation of the property of the -16- 17 Company, or in connection with managing the affairs of the Company, including amendments to this Agreement and the Certificate of Formation in accordance with the terms of this Agreement; (ii) allocate and distribute Profits and Losses to Members in accordance with their Percentage Interests; (iii) establish an Operating Committee, if desired, establish and modify Operating Committee Procedures from time to time; (iv) establish reserves from Profits which otherwise would be distributed to Members; (v) borrow money and issue evidence of indebtedness necessary, convenient, or incidental to the accomplishment of the purpose of the Company; and secure the same by mortgage, pledge, or other lien on any property or asset of the Company; (vi) prepay in whole or part, refinance, recast, increase, modify or extend any liabilities affecting the property of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such property; (vii) invest, manage, and distribute Company funds to the Members in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement, including but not limited to opening and maintaining Company bank accounts and authorizing signatories with respect thereto; (viii) employ accountants, legal counsel, managing agents and other Persons (including but not limited to Affiliates of Members, subject to Section 6.1 of the Agreement) to perform service for the Company and to compensate them from Company funds; (ix) make any and all elections for federal, state, and local tax purposes including, without limitation, any election, if permitted by applicable law: (A) to adjust the basis of property of the Company pursuant to Code Sections 754, 734(b), and 743(b), or comparable provisions of state or local law, in connection with Company distributions; (B) to extend the statute of limitations for assessment of tax deficiencies against Members with respect to adjustments to the Company's federal, state, or local tax returns; and (C) to the extent provided in Code Sections 6221 through 6231, to represent the Company and its Members before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company and its Members, and to file any tax returns and to -17- 18 execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of the Company or the Members; (x) institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company or the Members in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith; (xi) engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to property of the Company) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the Act; (xii) take, or refrain from taking, all actions not expressly proscribed or limited by or addressed in this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company, including but not limited to the establishment, maintenance, and expenditure of reserves to provide for working capital, debt service, and such other purposes as it may deem necessary or advisable; (xiii) sell all or substantially all of the assets of the Company; (xiv) merge or consolidate the Company; (xv) mortgage or encumber all or substantially all of the assets of the Company; (xvi) approve the Company's budget; (xvii) vote to dissolve the Company; (xviii) vote to seek bankruptcy protection for the Company; and (xix) distribute excess cash to the Members. (d) Any decision or act of the Executive Committee taken in accord with the provisions of this Agreement shall control and bind the Company. (e) Any Member may replace either or both of its representatives on the Executive Committee at any time. -18- 19 5.3 DECISIONS OF THE EXECUTIVE COMMITTEE. All decisions of the Executive Committee require the assent of a majority of all then current Executive Committee members, provided that such majority assent shall include the assent of at least one representative each of SJE and GZA. 5.4 RIGHT TO RELY ON EXECUTIVE COMMITTEE. (a) Any Person dealing with the Company may rely (without duty of further inquiry) upon a certificate signed by any member of the Executive Committee as to: (i) the identity of any member of the Executive or Operating Committees or Member of the Company; (ii) the existence or nonexistence of any fact or facts which constitute a condition precedent to acts by the Executive Committees or which are in any other manner germane to the affairs of the Company; (iii) the Persons who are authorized to execute and deliver any instrument or document of the Company; or (iv) any act or failure to act by the Company or any other matter whatsoever involving the Company or any member of the Executive Committee, or any Member of the Company. (b) Except as otherwise required by law, the signature of any member of the Executive Committee shall be sufficient to constitute execution of a document, on behalf of the Company, which has been properly authorized by action of the Executive Committee. Notwithstanding Article XIII, the Members agree that a copy of this Agreement may be shown to appropriate parties in order to confirm the same. Any member of the Executive Committee shall have the power and authority to execute on behalf of the Company, the Executive Committee, or the Members any document to be filed with the Secretary of the State of Delaware pursuant to the Act. 5.5 DESIGNATION OF OFFICER TITLES. The Members may provide officer titles for members of the Executive Committee of the Company. The officer titles may include, but shall not be limited to, a Chairman, a President, one or more Vice Presidents, a Treasurer, a Secretary and such other officer titles as the Members decide to appoint. 5.6 FUNCTIONING OF THE EXECUTIVE COMMITTEE (a) Quorum and Voting. Three of the four members of the Executive Committee shall constitute a quorum for the conducting of business. Approval of any matter brought before the Executive Committee requires the assent of three of the four members of the Executive Committee. Each member of the Executive Committee shall have one vote on each matter. -19- 20 (b) Chairman. One of the members of the Executive Committee shall serve as the Chairman of the Executive Committee for a term of one year. The position of Chairman shall rotate annually between a representative of SJE and a representative of GZA. The initial Chairman of the Executive Committee shall be a representative of GZA. The Chairman shall vote solely in his capacity as a member of the Executive Committee. (c) Meetings. Regular meetings of the Executive Committee shall be held as determined by the Chairman of the Executive Committee, but at least quarterly. Members of the Executive Committee may participate in a meeting of the Executive Committee by a means of a conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other and be heard sufficiently to permit contemporaneous exchange and debate. Participation in a meeting in this manner shall constitute presence in person at the meeting. (d) Notice, Waiver, and Minutes. All members of the Executive Committee shall receive a notice of each regular meeting of the Executive Committee together with a copy of the proposed agenda for such meeting at least five days prior to a scheduled regular meeting date. The Chairman or any two members of the Executive Committee may, upon two day's notice (such notice to include a proposed agenda) to the other members of the Executive Committee, call a special meeting of the Executive Committee at any time. Attendance at any meeting of the Executive Committee (either in person or by means of conference telephone or similar communications equipment) shall constitute waiver of notice thereof. The Executive Committee shall cause minutes of its meetings to be kept which shall be open for inspection by any Member at any time. (e) Alternate Representatives. Each member of the Executive Committee shall be entitled to appoint (and to change) an alternate representative to attend meetings of the Executive Committee in such member's place. A member of the Executive Committee may appoint as an alternate, only a representative of the same Member. An alternate may not be a member of the Executive Committee in his own right. Alternate representatives shall be appointed or changed by the appointer serving notice to the effect upon SJE and GZA. An alternate representative shall not be entitled to vote in his capacity as such at any meeting at which his appointer is present. (f) Action Without Meeting. Any action which may be taken by the Executive Committee at a meeting thereof may be taken without a meeting by the unanimous written consent of all members of the Executive Committee. ARTICLE VI SUPPORT BY MEMBERS. 6.1 SUPPORT SERVICES AGREEMENTS. With the execution of this Agreement, each of SJE and GZA intend to execute support services agreements in substantially similar form to those which are attached as Appendices A and B. Such agreements will provide for the rendition -20- 21 of services to the Company on the terms stated therein. Each such agreement is referred to as a "Support Services Agreement." 6.2 REIMBURSEMENTS TO COMMITTEE MEMBERS. Subject to limits established in the Company's budget, reasonable travel expenses of the Executive Committee members shall be reimbursed by the Company. 6.3 STATEMENTS TO MEMBERS FOR SERVICES RENDERED. After a period of two years from the date a statement for services rendered under an Support Services Agreement or for a sale of Assets is delivered to the Company, neither the Company nor the other Member may contest the amount or validity of such statement. 6.4 MEMBERS ACTING AS AGENT. With the prior, specific, written authorization of the Executive Committee in each case, a Member may from time to time in its own name but as agent for and on behalf of the Company enter into transactions for the acquisition or disposition of Assets. Any Member which acts as an agent of the Company pursuant to this Section 6.6 shall have the benefit of the guarantee set forth in Section 7.3. ARTICLE VII LIABILITIES, LIMITATION OF LIABILITIES AND INDEMNIFICATION. 7.1 LIMITATION OF LIABILITY of Members, and Executive Committee members and Limitation of Duty Owed by Members, and Executive Committee members. It is specifically understood and agreed that: (a) a Member or Executive Committee member shall not be required to devote full time to Company business; (b) except as expressly otherwise provided herein to the contrary regarding Transaction Opportunities, in no event shall any doctrine similar to the doctrine of corporate opportunity apply with regard to the actions or activities of any Member, or Executive Committee member; (c) in no event shall any doctrine or duty similar to the duty of loyalty owed by corporate directors be owed by any Member or Executive Committee member; (d) except as expressly otherwise provided herein to the contrary, each Member and Executive Committee member shall be free to conduct any business or activity whatsoever, without obligation to the Company or any other Member. (e) except as otherwise provided by the LLC Law, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Covered Person. -21- 22 (f) except as otherwise required by law, a Member, in its capacity as Member, shall have no liability in excess of (i) the amount of its Capital Contributions, (ii) its share of any assets and undistributed Profits of the Company, (iii) its obligation to make other payments expressly provided for in this Operating Agreement, and (iv) the amount of any distributions wrongfully distributed to it. 7.2 ACTIONS BEYOND SCOPE OF AGREEMENT. Any Member who binds or obligates the Company for any debt or liability or causes the Company to act except in accordance with the provisions of this Agreement shall be liable to the Company for any such debt, liability or act. 7.3 INDEMNIFICATION. (a) To the fullest extent permitted by law, a Member (herein the "Indemnifying Member") shall INDEMNIFY and DEFEND the Company and the other Member and HOLD them HARMLESS from and against all claims, losses, costs, liabilities, damages and expenses (including, without limitation, costs of suit or proceeding and attorneys' fees) they may incur by virtue of claims by third parties arising out of any action of the Indemnifying Member that could obligate or bind the Company for any debt, liability or act except as such may be incurred in accordance with the provisions of this Agreement. For the avoidance of doubt, the Members agree that the indemnification provided in the immediately preceding sentence applies only to claims by third parties. (b) To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Operating Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of gross negligence or willful misconduct with respect to such acts or omissions or if a judgment or other final adjudication adverse to such Covered Person establishes that the Covered Person's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the Covered Person personally gained in fact a financial profit or other advantage to which the Covered Person is not entitled; provided, however, that any indemnity pursuant to this Section shall be provided out of and to the extent of Company assets only, and no Covered Person shall have any personal liability on account thereof. (c) The Company may purchase and maintain insurance, to the extent and in such amounts as the Executive Committee shall, in its sole discretion, deem reasonable, on behalf of such of the Covered Persons and other Persons as the Executive Committee shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Operating Agreement. The Company may, with the approval of the Executive Committee, enter into indemnity contracts with Covered Persons and adopt written -22- 23 procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 7.3 hereof and containing such other procedures regarding indemnification as are appropriate. (d) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 7.3 hereof. ARTICLE VIII NO TRANSFER OF INTERESTS. Except pursuant to a corporate reorganization of one of the Members, no Member shall transfer, encumber, mortgage, pledge, or create a security interest in all or any part of its Percentage Interest in the Company unless approved by all the Members. Any purported Transfer of a Percentage Interest shall be null and void and of no effect. ARTICLE IX DISSOLUTION AND TERMINATION. 9.1 EVENTS OF DISSOLUTION. Each of the following shall each be an "Event of Dissolution": (a) a unanimous decision by the Executive Committee to dissolve the Company; (b) the expiration of the term of the Company stated in Section 2.2; (c) June 1, 2002 and each June 1 thereafter, if at least six months prior to any such date, either Member has given written notice to the other that it elects to dissolve the Company; (d) the giving of written notice of dissolution by either Member to the other Member after any breach of Article XIII (Non-Disclosure) by the other Member; (e) a material breach of this Agreement (other than a breach of Article XIII) or of any Support Services Agreement by a Member and the continuation of such breach for 30 days after the other Member has given written notice of such breach and of its election to dissolve to the breaching Member; (f) the expulsion, bankruptcy (which shall mean being the subject of an order for relief under Title 11 of the United States Code), or dissolution of a Member, or occurrence of any other event that terminates the continued membership of a Member in the Company; (g) a Change of Control of a Member, at the written election of either -23- 24 Member to dissolve where: (i) for purposes of this Section 9.1 a "Change of Control" means: (A) the acquisition, directly or indirectly, of 25% or more of the voting securities of a Member by any Person other than a Person who owns, directly or indirectly, 25% or more of such securities on the Effective Date, or (B) the ability to elect a majority of the directors of a Member by any Person other than a Person who possesses such ability on the Effective Date; and (ii) notwithstanding Section 9.1(g)(i) above, a public offering or distribution to existing shareholders of the securities of a Member or its Affiliates or a management buyout of all the shares of the securities of a Member shall not be deemed an Event of Dissolution; (h) as otherwise required by the Act, including but not limited to the entry of a decree of judicial dissolution pursuant to the Act; 9.2 EFFECT OF DISSOLUTION. (a) Upon the occurrence of an Event of Dissolution set forth in Section 9.1, the Executive Committee shall commence dissolution of the Company which shall continue solely for the purpose of winding up its affairs in an orderly manner, disposing of its Assets in a commercially reasonable manner consistent with obtaining the fair market value thereof, and satisfying the claims of its creditors and Members. (b) After the occurrence of an Event of Dissolution, the obligations of each Member to offer Transaction Opportunities to the Company shall be terminated. The Executive Committee shall cause the Company's Assets, with the exception of the intellectual property rights to the real-time automated air monitoring system for which a patent is pending as identified in Section 3.4, to be disposed of as promptly as is consistent with obtaining the fair market value thereof (or limiting loss incurred with respect thereto). The intellectual property rights of the real-time automated air monitoring system shall first be offered to the Members at a price which is mutually agreeable to all the Members. If none of the Members is interested in purchasing the intellectual property rights to the aforementioned system, then those rights shall be disposed of as is consistent with obtaining the fair market value thereof. (c) The Executive Committee shall be responsible for overseeing the winding up and dissolution of the Company, shall take full account of the Company's liabilities -24- 25 and property, and shall cause the proceeds from the liquidation of the Company's property, to the extent sufficient therefore, to be applied and distributed in the following order: (i) first, to the payment and discharge of all the Company's debts and liabilities to creditors other than Members or their Affiliates; (ii) second, to the payment and discharge of all of the Company's debts and liabilities to Members and their Affiliates; and (iii) third, to the Members pro rata in accordance with their positive capital account balances, after giving effect to all contributions, distributions, and allocations for all periods. No Member shall receive any additional compensation for any services performed pursuant to this Section 9.2. Each Member understands and agrees that by accepting the provisions of this Section 9.2 setting forth the priority of the distribution of the assets of the Company to be made upon its liquidation, such Member expressly waives any right which it, as a creditor of the Company, might otherwise have under the Act to receive distributions of assets of the Company in satisfaction of any liability of the Company, and hereby subordinates to said creditors any such right. (d) after an Event of Dissolution, no Member or member of the Executive Committee shall take any action that is inconsistent with, or not appropriate for, winding up the Company's business and affairs. (e) To the extent not inconsistent with the foregoing, all covenants and obligations in this Agreement shall continue in full force and effect until such time as the Company Assets have been disposed of or distributed and the Company's risk management contracts satisfied or terminated. When that has occurred, the Members shall have no further obligations under this Agreement except under Sections 13.2, 13.3 and 13.4, which shall survive dissolution and winding up of the Company. 9.3 FILING OF ARTICLES OF CANCELLATION. Upon the completion of the disposition of the Assets pursuant to Section 9.2, the Executive Committee shall (or, on the failure of the Executive Committee to act, either Member may) promptly file a Certificate of Cancellation with the office of the Delaware Secretary of State. 9.4 RESERVE. Notwithstanding the provisions of Section 9.2, the Executive Committee may retain such funds as it deems necessary as a reserve for any contingent liabilities or obligations of the Company, which reserve, after the passage of a reasonable period of time, shall be distributed pursuant to Section 9.2(c). ARTICLE X ACCOUNTING AND BANK ACCOUNTS. 10.1 ACCOUNTING METHOD. The books of the Company shall be kept using -25- 26 accrual accounting in accordance with generally accepted accounting principles. 10.2 BOOKS AND RECORDS The books and records of the Company shall be maintained at the office of the Member which provides bookkeeping services under its respective Support Services Agreement. Books and records shall be maintained for the longer of two years or any period required by applicable statute or regulation. In any event, the other Member, at its expense, shall have the right during ordinary business hours and upon reasonable notice to inspect and copy such books and records. 10.3 FINANCIAL REPORTS. (a) The Company shall cause to be prepared and delivered to each Member, financial statements of the Company in such detail and with such frequency as either Member may reasonably request, together with all information with respect to the Company necessary for the preparation of the Members' federal, state, and local income tax returns. (b) At either Member's request, the annual financials may be audited at the expense of the Company. 10.4 TAX RETURNS AND ELECTIONS. The Company shall cause to be prepared and timely filed all federal, state and local income tax returns or other returns or statements required by applicable law. The Company shall claim all deductions and make such elections for federal or state income tax purposes which the Executive Committee reasonably believes will produce the most favorable tax results for the Members. 10.5 BANK ACCOUNTS. All funds of the Company shall be deposited in a separate bank, money market or similar account or accounts approved by the Executive Committee and in the name of the Company. Withdrawals therefrom shall be made only by Persons, and for purposes, authorized by the Executive Committee. ARTICLE XI REPRESENTATIONS AND WARRANTIES OF SJE. SJE represents, warrants and covenants to GZA as follows: 11.1 ORGANIZATION, QUALIFICATION. SJE is a corporation duly organized and validly existing under the laws of the State of New Jersey. SJE has all requisite power and authority to carry on its business as and where presently being conducted. 11.2 AUTHORIZATION AND ENFORCEABILITY. SJE has the full corporate power and authority to make, execute, deliver and perform this Agreement, and the execution, delivery and performance of this Agreement by SJE has been duly authorized by all necessary corporate action, including, if necessary, shareholder approval. This Agreement has been duly executed and delivered by SJE and this Agreement constitutes, when executed, the legal, valid and binding -26- 27 obligation of SJE enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws relating to creditors' rights generally. 11.3 NO VIOLATION OF LAWS OR AGREEMENTS. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by SJE will not, conflict with or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any lien upon any of the business, assets or properties of SJE under, any provision of (A) its Articles of Incorporation, Bylaws or other corporate documents, or (B) any note, bond, mortgage, indenture, license, lease, contract, commitment, agreement or arrangement to which SJE is a party, or (C) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to SJE or the business assets or properties of SJE. 11.4 CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or authority, is required to be obtained or made, by or with respect to, SJE in connection with the execution and delivery of this Agreement or the consummation by SJE of the transactions contemplated hereby. ARTICLE XII REPRESENTATIONS AND WARRANTIES OF GZA. GZA represents, warrants and covenants to SJE as follows: 12.1 ORGANIZATION, QUALIFICATION. GZA is a corporation duly organized and validly existing under the laws of the Commonwealth of Massachusetts. GZA has all requisite power and authority to carry on its business as and where presently being conducted. 12.2 AUTHORIZATION AND ENFORCEABILITY. GZA has the full corporate power and authority to make, execute, deliver and perform this Agreement, and the execution, delivery and performance of this Agreement by GZA has been duly authorized by all necessary corporate action, including, if necessary, shareholder approval. This Agreement has been duly executed and delivered by GZA and this Agreement constitutes, when executed, the legal, valid and binding obligation of GZA enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws relating to creditors' rights generally. 12.3 NO VIOLATION OF LAWS OR AGREEMENTS. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by GZA will not, conflict with or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation -27- 28 or loss of a material benefit under, or result in the creation of any lien upon any of the business, assets or properties of GZA under, any provision of (A) its Articles of Incorporation, Bylaws or other corporate documents, or (B) any note, bond, mortgage, indenture, license, lease, contract, commitment, agreement or arrangement to which GZA is a party, or (C) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to GZA or the business, assets or properties of GZA. 12.4 CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or authority, is required to be obtained or made, by or with respect to, GZA in connection with the execution and delivery of this Agreement or the consummation by GZA of the transactions contemplated hereby. ARTICLE XIII NON-DISCLOSURE. 13.1 COMPANY-INFORMATION. From the date of this Agreement, each Member hereby agrees to use only on behalf of the Company and not otherwise disclose information regarding the business and finances of the Company until the later of the dissolution of the Company or the extinguishment of both Members' obligations under Section 9.2, except that a Member may disclose such confidential information of the Company at any time to: (a) a regulatory or judicial authority when given under appropriate confidentiality arrangements; and (b) Affiliates of either Member except those Affiliates which from time to time compete with the Company. After the later of dissolution of the Company or the extinguishment of both Members' obligations under Section 9.2, no restrictions on disclosure or use of such Company information shall continue. 13.2 MEMBER INFORMATION. From the date of this Agreement, each Member hereby agrees to keep confidential all information regarding the business and finances of the other Member, except that a Member may disclose confidential information about the Company at any time to a regulatory or judicial authority when given under appropriate confidentiality arrangements. 13.3 GENERALLY AVAILABLE INFORMATION. Notwithstanding Sections 13.1 and 13.2, the obligation of non-disclosure shall not apply to any information relating to the business and finances of the Company which is or becomes generally available to the public through no fault of any Person owing an obligation of non-disclosure or confidentiality to the Company. 13.4 BREACH AND RECOURSE. Each Member hereby acknowledges and agrees that a breach of this covenant of non-disclosure may cause immediate and irreparable injury to the -28- 29 Company and its Members and will authorize recourse by the Company and Members to injunction and/or specific performance, as well as all other available legal or equitable remedies. ARTICLE XIV ARBITRATION. 14.1 RESOLUTION OF DISPUTES BY ARBITRATION AND SELECTION OF ARBITRATORS. Any and all good faith differences and disputes of whatsoever nature arising out of this Agreement shall be resolved and finally settled by binding arbitration. The Members shall each appoint one arbitrator, and the two arbitrators so appointed will select a third arbitrator, all of such arbitrators to be qualified by education, knowledge, and experience to resolve the difference or dispute. 14.2 JURISDICTION OF ARBITRATORS AND RULES APPLIED TO ARBITRATION. The jurisdiction of the arbitrators will be limited to the issue(s) referred to arbitration, and the arbitration shall be conducted pursuant to the rules of the American Arbitration Association and the substantive laws of Delaware; provided, however, that should there be any conflict between such guidelines and the procedures set forth in this Agreement, the terms of this Agreement shall control. 14.3 INDIVIDUAL ISSUE RESOLUTION AND DISCOVERY. Within 15 days following selection of the third arbitrator, each Member shall furnish the arbitrators in writing its position regarding the issue being arbitrated. In the event multiple issues are in dispute, each Member shall submit its position regarding each issue and the arbitrators shall resolve each issue individually unless the Members otherwise agree. The arbitrators may, if they deem necessary or desirable, convene a hearing regarding the issue(s) being arbitrated. Discovery shall be permitted by the arbitrators to the extent that, though requested by a Member, witnesses do not agree to appear or do not appear at the arbitration or documents are not produced at least 20 days before the arbitration. Within 30 days following the later of the appointment of the third arbitrator or of the hearing, if one is held, the arbitrators shall notify the Members in writing as to which position of the two Members on each issue is most consistent with the applicable provision(s) of this Agreement, if any, which are relevant to the dispute. Such decision shall be binding on the Members hereto until and unless changed in accordance with the provisions of this Agreement. 14.4 ENFORCEMENT of the award may be entered in any court having jurisdiction over the Members. 14.5 EXPENSES. Each Member will pay the expenses of the arbitrator selected by or for it, and its counsel, witnesses and employees and the presentation of its case. All other costs of arbitration will be divided equally between the Members. 14.6 INJUNCTION AND SPECIFIC PERFORMANCE. Notwithstanding anything to the contrary contained in Sections 14.1 through 14.5, in the event interim judicial relief (including, without limitation, that referred to in Section 13.4) is necessary prior to rendition of any arbitral award in order to avoid irreparable injury to either Member, then such Member may seek interim measures of protection, including without limitation orders of injunction, specific performance or other equitable relief, from any court of competent jurisdiction. The provisions of this Section 14.6 shall not be deemed to preclude the awards. -29- 30 ARTICLE XVI MISCELLANEOUS PROVISIONS. 15.1 NOTICES. Any notice, demand or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered personally to the party or to an executive officer of the party to whom the same is directed or if sent by registered or certified mail, postage and charges prepaid, return receipt requested, or by overnight courier of national reputation or transmitted by telecopy with evidence of the telephone number to which sent, in each case addressed to the Member's and/or Company's address or telecopier number, as appropriate, which is set forth in the books and records of the Company. Any such notice shall be deemed to be given as of the date so delivered or telecopied if delivered or telecopied during regular business hours, as of the next business day if delivered by overnight courier or delivered or telecopied after regular business hours, and if sent by mail, three business days after the date on which the same was deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and sent as aforesaid. 15.2 GOVERNING LAW. This Agreement and all questions with respect to its construction, enforcement or interpretation, the rights and obligations of the parties hereto, or the formation, administration, or termination of the Company shall be governed by the Act and other applicable laws of the State of Delaware without regard to Delaware's conflict of law rules. 15.3 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to execute such documents or instruments as may be necessary to comply with applicable laws, rules, or regulations. 15.4 CONSTRUCTION. Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the neuter gender shall include the masculine and feminine genders and vice versa. 15.5 HEADINGS. The headings in this Agreement are for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any of its provisions. 15.6 WAIVERS. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not constitute a waiver of any subsequent violation or of the right to so insist. 15.7 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by this Agreement are cumulative, and also are provided in addition to any other rights the parties may have by law, statute, ordinance, or otherwise. 15.8 SEVERABILITY. Any provision of this Agreement that is invalid, illegal, or unenforceable in any jurisdiction shall be ineffective only in such jurisdiction and only to the extent of such invalidity, illegality, or unenforceability, and without rendering ineffective the remaining provisions of the Agreement in any jurisdiction. -30- 31 15.9 SUCCESSORS AND ASSIGNS. The rights, duties and obligations of a Member under this Agreement may not be assigned without the prior written consent of the other Member which may be given or withheld in its sole discretion. To the extent that such consent is given, each and all of the covenants, terms, provisions, and agreements contained in this Agreement shall be binding upon and inure to the benefit their successors in interest. 15.10 NO THIRD PARTY BENEFICIARIES. None of the provisions of this Agreement shall be construed to be for the benefit of or enforceable by any Person other than the parties hereto and, to the extent permitted by this Agreement, their successors in interest. 15.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 15.12 FACSIMILE SIGNATURES. The Members agree that a facsimile signature will serve as an original, and that the Statute of Frauds will be waived as to any claim associated with transmittal or acceptance of the facsimile signature. 15.13 ENTIRE AGREEMENT. This Agreement, including any exhibits, is the entire agreement between the parties regarding the subject matter of the formation and operation of the limited liability company. It supersedes any other representations or agreements, whether oral or written and specifically supersedes and nullifies the January 21, 1999 Letter of Intent as it pertains to the formation of the limited liability company between the parties. The contractual documents that underlie the transactions regarding automated air monitoring services provided to customers prior to formation of the limited liability company are to be given full force and effect and are not affected by the formation of the limited liability company. This paragraph is not intended to supersede or nullify those documents. -31- 32 IN WITNESS WHEREOF, the parties have executed this Agreement to be effective the date first noted above. SOUTH JERSEY ENERGY COMPANY BY: -------------------------------- TITLE: ----------------------------- DATE OF EXECUTION: GZA GEOENVIRONMENTAL INC. BY: -------------------------------- TITLE: ----------------------------- DATE OF EXECUTION: -32- 33 Exhibit A SUPPORT SERVICES AGREEMENT BETWEEN SOUTH JERSEY ENERGY COMPANY AND AIRLOGICS, L.L.C. -33- 34 SUPPORT SERVICES AGREEMENT This Agreement is made as of April 1, 2000 by and between SOUTH JERSEY ENERGY COMPANY, a New Jersey corporation with its principal place of business at One South Jersey Plaza, Route 54, Folsom, NJ 08037 ("SJE"), and AIRLOGICS, L.L.C., a Delaware Limited Liability Company with its principal place of business at 1 South Jersey Plaza, Folsom, NJ 08037 ("AIRLOGIC"). WHEREAS, SJE is willing to provide support services to AIRLOGICS; and WHEREAS, AIRLOGICS requires support services and desires to use and purchase such services from SJE; and NOW, THEREFORE, it is hereby agreed as follows: ARTICLE I - GENERAL SCOPE OF SERVICES 1. SJE shall provide, as needed, support services to AIRLOGICS, enumerated in Exhibit A, attached hereto and made a part hereof, subject to the applicable provisions of this Agreement; provided, however, that SJE and AIRLOGICS shall not be responsible for policy or management decisions of the other, such functions being reserved exclusively for each party to this Agreement, respectively. 2. SJE shall provide support services using personnel from within its own organization. In addition, SJE may use persons from outside its organization with the other party's approval, such approval not to be unreasonably withheld. ARTICLE II - PAYMENT FOR SERVICES 1. All of the support services rendered under this Agreement shall be charged to the other in accordance with the fee schedule identified in Exhibit B. Support services that benefit both SJE and AIRLOGICS shall be fairly and equitably allocated between the parties. The methods of determining the costs and the allocation may be modified or changed by either party with the prior written approval of the other party. If either party objects, in writing, to the proposed changes or modifications, the parties agree to make a good faith effort to renegotiate the terms and conditions of Exhibit B. If no agreement can be reached within sixty (60) days of the proposal to modify Exhibit B, the proposed modifications will not take effect and either party may terminate this Agreement as provided herein. 2. SJE shall submit itemized invoices for services rendered, including, when requested or required by AIRLOGICS, all sales, use, excise, or similar taxes that may be applicable to such services, as soon as practicable after the close of each month. All invoices submitted by SJE shall have adequate documentation to justify all labor and material costs. AIRLOGICS shall pay such invoice within thirty days after receipt, to the extent the costs are not disputed. Such disputes must be raised within eighteen (18) months after receipt of the invoice with the disputed -34- 35 cost. Simple annual interest at the prime rate then in effect at Bank Boston, plus 1.5%, shall accrue on any undisputed invoice items not paid within thirty days after receipt by the other, interest computed from the 31st day following the date of receipt. 3. Upon the written request of AIRLOGICS, SJE shall permit AIRLOGICS reasonable access to its books and records for the purpose of auditing charges billed by SJE. ARTICLE III - TERM OF CONTRACT This Agreement shall commence on the date first written above and continue until terminated by either party by at least two (2) months prior written notice to the other. ARTICLE IV - CHANGES No waiver, alteration, amendment, consent, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by a duly authorized representative of both parties. ARTICLE V - ASSIGNMENT Neither SJE nor AIRLOGICS may assign any of its rights or obligations hereunder, except with the prior written consent of the other; provided, however, SJE shall be entitled to use affiliates, as its agent, to provide services hereunder. ARTICLE VI - FORCE MAJEURE Force Majeure means an event that is beyond the reasonable control of, and without the fault or negligence of, the party claiming Force Majeure, which delays, hinders, or prevents performance of that party's obligations under this Agreement. SJE or AIRLOGICS shall not be liable to the other for loss or damage resulting from (1) any delay in performance, in whole or in part, or (2) nonperformance of its contractual obligations, in whole or in part, insofar as such delay or nonperformance is caused by Force Majeure, provided that the party invoking Force Majeure provides written notice to the other party of the circumstances giving rise to such delay or nonperformance within a reasonable time after learning of such circumstances and, to the extent possible, takes reasonable steps to correct or alleviate the circumstances that led to the Force Majeure event. ARTICLE VII - INSURANCE AND INDEMNIFICATION 1. SJE may, with respect to the services performed under this Agreement, self-insure or obtain insurance coverage with respect to its facilities and shall maintain the following coverage, naming the other party to this Agreement as an additional insured, as applicable: a) Workers' Compensation Insurance that complies with the provisions of applicable law. -35- 36 b) Employer's Liability Insurance with limits not less than $1,000,000 each occurrence; c) General Liability Insurance with limits not less than $2,000,000 combined bodily injury and property damage liability; d) Automobile Liability Insurance with limits not less than $1,000,000 combined bodily injury and property damage. e) Professional Liability Insurance with limits not less than $3,000,000 per claim and annual aggregate including coverage for damages resulting from a release of pollutants 2. SJE shall defend (at the other's option), indemnify, and hold harmless AirLogics, its directors, officers, employees, contractors, agents, successors, and assigns from and against, any actions, penalties, claims, costs (including, but not limited to, reasonable attorney's fees), or damages of any nature caused in whole or in part by any act or omission of SJE related to the services performed by SJE pursuant to this Agreement and resulting in personal injury or property damage. 3. SJE shall defend (at the other's option), indemnify, and hold harmless AirLogics, its directors, officers, employees, contractors, agents, successors, and assigns from and against, any actions, penalties, claims, costs (including, but not limited to, reasonable attorney's fees), or damages of any nature caused by SJE's negligent professional acts, errors and omissions. SJE shall in no case be required to pay an amount disproportionate to SJE's negligence, nor shall SJE be required to pay any amount or sum levied against AirLogics to recognize more than actual and/or reasonable damages. 4. SJE shall name AirLogics as an "Additional Insured" on its General Liability and Automobile Liability Insurance policies. Certified copies of said policies or certificates evidencing such insurance shall be filed with AirLogics. ARTICLE VIII - GENERAL LIMITATIONS OF LIABILITY AND WAIVER 1. SJE shall provide well-qualified and experienced staff to perform services covered by this Agreement. Names and backgrounds of said personnel shall be provided to AIRLOGICS on request. 2. Services provided by SJE hereunder shall be performed in a prudent, professional, and workmanlike manner. If any such services provided by SJE fail to conform to this standard, AIRLOGICS shall, at its option, have the right to correct or re-perform such services, the cost of which shall be deducted from the monies owed to SJE. -36- 37 3. Except for the obligation in (2) above to correct or re-perform services, SJE shall not be liable for any reason to the other for claims for incidental, indirect, consequential, or other damages of any nature connected with or resulting from the performance or non-performance of this Agreement by SJE or AIRLOGICS, whether or not due to negligence by SJE or AIRLOGICS. 4. Except for the obligation imposed upon it for the payment of support services pursuant to Article III, neither party shall be liable to the other for claims for direct, incidental, indirect, consequential, or other damages of any nature connected with or resulting from performance or non-performance of this Agreement by SJE or AIRLOGICS, whether or not due to negligence by SJE or AIRLOGICS. 5. EXCEPT AS MAY BE PROVIDED IN PARAGRAPHS 1 AND 2 OF THIS ARTICLE, NO WARRANTIES OF ANY KIND WHETHER STATUTORY, WRITTEN, ORAL OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, SHALL APPLY TO SERVICES PERFORMED HEREUNDER. ARTICLE IX - NOTICE 1. All communications and notices by AIRLOGICS to SJE under this Agreement shall be sent to and addressed as follows: South Jersey Energy Company One South Jersey Plaza Route 54 Folsom, NJ 08037 ATTN: Joseph A. Rodio 2. All communications and notices by SJE to AIRLOGICS under this Agreement shall be sent to and addressed as follows: AirLogics, LLC AirLogics, L.L.C. 1 South Jersey Plaza C/O GZA GeoEnvironmental, Inc. Folsom, NJ 08037 320 Needham Street ATTN: Edward J. Graham Newton, MA 02446-1594 Attn: M. Joseph Celi 3. Either party may change the address set forth by written notice to the other. -37- 38 ARTICLE X - APPLICABLE LAW 1. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware except that its conflict of law shall not apply. 2. This Agreement shall be subject to approval by any regulatory body whose approval is a legal prerequisite to its execution, delivery, or performance. 3. This Agreement constitutes the entire Agreement between the parties for the services to be provided hereunder, and supersedes all prior representations and Agreements, whether written or oral, between the parties as to such services. -38- 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized representatives, to become effective as of the date first written above. SOUTH JERSEY ENERGY COMPANY By: _______________________________ Its: _______________________________ AIRLOGICS, LLC By: ________________________________ Its: ________________________________ -39- 40 EXHIBIT A to Support Services Agreement GENERAL DESCRIPTION OF SOUTH JERSEY ENERGY COMPANY SUPPORT SERVICES The services available under this Agreement that are to be provided under this Agreement and are the services normally furnished by AIRLOGICS are as follows: 1. Accounting 2. Administrative Support including billing, collection, clerical, records management, and legal 3. Tax and insurance services 4. Insurance 5. Technical support 6. Sales, client development & relations, proposal preparation 7. Marketing support -40- 41 EXHIBIT B TO SUPPORT SERVICES AGREEMENT DETERMINATION OF COST OF SERVICE AND ALLOCATION THEREOF SJE shall bill AIRLOGICS for costs incurred on behalf of performing services as described using the fixed hourly/monthly rates outlined below. These rates are in effect for the year ending December 31, 2000 and may be adjusted annually thereafter to reflect inflation and other cost-of-living increases. Where services performed by SJE benefit other entities, SJE shall equitably allocate the costs of such services among the entities benefiting from such services. SJE shall maintain records adequate to support the costs to be charged to AIRLOGICS. These records shall be made available to the other for audit as requested. Services in support of equipment fabrication will be separated to allow capitalization of these costs with the equipment. SERVICE PROVIDED - FEE 1. Accounting - $71.45 per hour 2. Administrative Support including billing, collection, clerical, records - $46.16 per hour 3. Tax and insurance services - $84.60 per hour 4. Technical support - $ 130.45 per hour 5. Sales, client development & relations, proposal preparation - $6,500 plus comm. per month 6. Marketing support - $109.34 per hour -41- 42 EXHIBIT B SUPPORT SERVICES AGREEMENT BETWEEN GZA GEOENVIRONMENTAL INC. AND AIRLOGICS, L.L.C. -42- 43 SUPPORT SERVICES AGREEMENT This Agreement is made as of April 1, 2000 by and between GZA GEOENVIRONMENTAL INC., a Massachusetts corporation with its principal place of business at 320 Needham St., Newton Upper Falls MA 02464 ("GZA"), and AIRLOGICS, L.L.C., a Delaware Limited Liability Company with its principal place of business 1 South Jersey Plaza, Folsom, New Jersey 08037 ("AIRLOGIC"). WHEREAS, GZA is willing to provide support services to AIRLOGICS; and WHEREAS, AIRLOGICS requires support services and desires to use and purchase such services from GZA; and NOW, THEREFORE, it is hereby agreed as follows: ARTICLE I - GENERAL SCOPE OF SERVICES 1. GZA shall provide, as needed, support services to AIRLOGICS, enumerated in Exhibit A, attached hereto and made a part hereof, subject to the applicable provisions of this Agreement; provided, however, that GZA and AIRLOGICS shall not be responsible for policy or management decisions of the other, such functions being reserved exclusively for each party to this Agreement, respectively. 2. GZA shall provide support services using personnel from within its own organization. In addition, GZA may use persons from outside its organization with the other party's approval, such approval not to be unreasonably withheld. ARTICLE II - PAYMENT FOR SERVICES 1. All of the support services rendered under this Agreement shall be charged to the other in accordance with schedule in Exhibit B. Support services that benefit both GZA and AIRLOGICS shall be fairly and equitably allocated between the parties. The methods for determining fees for support services may be modified or changed by either party with the prior written approval of the other party. If either party objects, in writing, to the proposed changes or modifications, the parties agree to make a good faith effort to renegotiate the terms and conditions of Exhibit B. If no agreement can be reached within sixty (60) days of the proposal to modify Exhibit B, the proposed modifications will not take effect and either party may terminate this Agreement as provided herein. 2. GZA shall submit itemized invoices for services rendered, including, when requested or required by AIRLOGICS, all sales, use, excise, or similar taxes that may be applicable to such services, as soon as practicable after the close of each month. All invoices submitted by GZA shall have adequate documentation, where applicable, to justify all labor and material costs. AIRLOGICS shall pay such invoice within thirty days after receipt, to the extent the costs are not -43- 44 disputed. Such disputes must be raised within eighteen (18) months after receipt of the invoice with the disputed cost. Simple annual interest at the prime rate then in effect at Bank Boston, plus 1.5%, shall accrue on any undisputed invoice items not paid within thirty days after receipt by the other, interest computed from the 31st day following the date of receipt. 3. Upon the written request of AIRLOGICS, GZA shall permit AIRLOGICS reasonable access to its books and records for the purpose of auditing charges billed by GZA. ARTICLE III - TERM OF CONTRACT This Agreement shall commence on the date first written above and continue until terminated by either party by at least two (2) months prior written notice to the other. ARTICLE IV - CHANGES No waiver, alteration, amendment, consent, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by a duly authorized representative of both parties. ARTICLE V - ASSIGNMENT Neither GZA nor AIRLOGICS may assign any of its rights or obligations hereunder, except with the prior written consent of the other; provided, however, GZA shall be entitled to use affiliates, as its agent, to provide services hereunder. ARTICLE VI - FORCE MAJEURE Force Majeure means an event that is beyond the reasonable control of, and without the fault or negligence of, the party claiming Force Majeure, which delays, hinders, or prevents performance of that party's obligations under this Agreement. GZA or AIRLOGICS shall not be liable to the other for loss or damage resulting from (1) any delay in performance, in whole or in part, or (2) nonperformance of its contractual obligations, in whole or in part, insofar as such delay or nonperformance is caused by Force Majeure, provided that the party invoking Force Majeure provides written notice to the other party of the circumstances giving rise to such delay or nonperformance within a reasonable time after learning of such circumstances and, to the extent possible, takes reasonable steps to correct or alleviate the circumstances that led to the Force Majeure event. ARTICLE VII - INSURANCE AND INDEMNIFICATION 1. GZA may, with respect to the services performed under this Agreement, self-insure or obtain insurance coverage with respect to its facilities and shall maintain the following coverage, naming the other party to this Agreement as an additional insured, as applicable: -44- 45 a) Workers' Compensation Insurance that complies with the provisions of applicable law. b) Employer's Liability Insurance with limits not less than $1,000,000 each occurrence; c) General Liability Insurance with limits not less than $2,000,000 combined bodily injury and property damage liability; and d) Automobile Liability Insurance with limits not less than $1,000,000 combined bodily injury and property damage. e) Umbrella Liability with limits not less than $5,000,000 per claim and aggregate f) Professional Liability Insurance with limits not less than $3,000,000 per claim and annual aggregate including coverage for damages resulting from a release of pollutants 2. GZA shall defend (at the other's option), indemnify, and hold harmless AirLogics, its directors, officers, employees, contractors, agents, successors, and assigns from and against, any actions, penalties, claims, costs (including, but not limited to, reasonable attorney's fees), or damages of any nature caused in whole or in part by any act or omission of GZA related to the services performed by GZA pursuant to this Agreement and resulting in personal injury or property damage. 3. GZA shall defend (at the other's option), indemnify, and hold harmless AirLogics, its directors, officers, employees, contractors, agents, successors, and assigns from and against, any actions, penalties, claims, costs (including, but not limited to, reasonable attorney's fees), or damages of any nature caused by GZA's negligent professional acts, errors and omissions. GZA shall in no case be required to pay an amount disproportionate to GZA's negligence, nor shall GZA be required to pay any amount or sum levied against AirLogics to recognize more than actual and/or reasonable damages. 4. GZA shall name AirLogics as an "Additional Insured" on its General Liability and Automobile Liability Insurance policies. Certified copies of said policies or certificates evidencing such insurance shall be filed with AirLogics. ARTICLE VIII - GENERAL LIMITATIONS OF LIABILITY AND WAIVER 1. GZA shall provide well-qualified and experienced staff to perform services covered by this Agreement. Names and backgrounds of said personnel shall be provided to AIRLOGICS on request. 2. Services provided by GZA hereunder shall be performed in a prudent, professional, and workmanlike manner. If any such services provided by GZA fail to conform to this standard, -45- 46 AIRLOGICS shall, at its option, have the right to correct or re-perform such services, the cost of which shall be deducted from the monies owed to GZA. 3. Except for the obligation in (2) above to correct or re-perform services, GZA shall not be liable for any reason to the other for claims for incidental, indirect, consequential, or other damages of any nature connected with or resulting from the performance or non-performance of this Agreement by GZA or AIRLOGICS, whether or not due to negligence by GZA or AIRLOGICS. 4. Except for the obligation imposed upon it for the payment of support services pursuant to Article III, neither party shall be liable to the other for claims for direct, incidental, indirect, consequential, or other damages of any nature connected with or resulting from performance or non-performance of this Agreement by GZA or AIRLOGICS, whether or not due to negligence by GZA or AIRLOGICS. 5. EXCEPT AS MAY BE PROVIDED IN PARAGRAPHS 1 AND 2 OF THIS ARTICLE, NO WARRANTIES OF ANY KIND WHETHER STATUTORY, WRITTEN, ORAL OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, SHALL APPLY TO SERVICES PERFORMED HEREUNDER. ARTICLE IX - NOTICE 1. All communications and notices by AIRLOGICS to GZA under this Agreement shall be sent to and addressed as follows: GZA Geoenvironmental Technologies, Inc. 320 Needham St. Newton Upper Falls, MA 02464 Attn.: Joseph Celi 2. All communications and notices by GZA to AIRLOGICS under this Agreement shall be sent to and addressed as follows: AIRLOGICS, L.L.C. AIRLOGICS, L.L.C. 1 South Jersey Plaza. C/O GZA GeoEnvironmental, Inc. Folsom, NJ 08037 320 Needham Street ATTN: Edward J. Graham Newton, MA 02464-1594 Attn: William R. Beloff 3. Either party may change the address set forth by written notice to the other. ARTICLE X - APPLICABLE LAW -46- 47 1. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware except that its conflict of law shall not apply. 2. This Agreement shall be subject to approval by any regulatory body whose approval is a legal prerequisite to its execution, delivery, or performance. 3. This Agreement constitutes the entire Agreement between the parties for the services to be provided hereunder, and supersedes all prior representations and Agreements, whether written or oral, between the parties as to such services. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized representatives, to become effective as of the date first written above. GZA GEOENVIRONMENTAL, INC. By: ____________________________ Title: ____________________________ AIRLOGICS, LLC BY: _______________________________ TITLE:______________________________ -47- 48 EXHIBIT A to Support Services Agreement GENERAL DESCRIPTION OF GZA GEOENVIRONMENTAL TECHNOLOGIES, INC SUPPORT SERVICES The services available under this Agreement that are to be provided under this Agreement and are the services normally furnished by AIRLOGICS are as follows: - - Patent Application and Support - - Air Monitoring Equipment Design/Configuration - - Fabrication Oversight - - Procurement and Expediting Support - - Regulatory Support - - Equipment Mobilization - - System Start-up and Troubleshooting - - Operations - Field Technicians, Supervision and Technical Support - - Engineering, Design and Consulting Services - - Marketing and Proposal Preparation - - Data Management and Record Management - - Client Development and Relations -48- 49 EXHIBIT B TO SUPPORT SERVICES AGREEMENT DETERMINATION OF COST OF SERVICE AND ALLOCATION THEREOF GZA shall bill AIRLOGICS for costs incurred on behalf of performing services as described using the fixed hourly rates outlined below. These rates are in effect for the year ending December 31, 2000 and may be adjusted annually thereafter to reflect inflation and other cost-of-living increases. Where services performed by GZA benefit other entities, GZA shall equitably allocate the costs of such services among the entities benefiting from such services. GZA shall maintain records adequate to support the costs to be charged to AIRLOGICS. These records shall be made available to the other for audit as requested. Services in support of equipment fabrication will be separated to allow capitalization of these costs with the equipment.
- Principal-in-Charge $105.40 - Technical Project Manager 83.80 - Assistant Project Manager 61.70 - Engineer I 55.70 - Engineer II 36.90 - Engineer Technician, Lead 55.90 - Engineering Field Technician 48.90 - Technician II 36.90 - Administrative Staff 38.20
GZA shall hire, or assign temporarily, two Technician II personnel for the AirLogics at a reduced multiplier of 1.7 times raw salary commencing April 1, 2000. Each Technician will be full-time chargeable (minimum of 40 hours/week) for a period of one year to AirLogics. Costs to hire, train and certify these new employees will be shared equally by the AirLogics members. -49- EX-10.60 6 3RD LOAN MODIFICATION AGREEMENT 1 Exhibit 10.60 THIRD LOAN MODIFICATION AGREEMENT This Third Loan Modification Agreement ("this Agreement") is made as of February 25, 2000 by and among Fleet National Bank (the "Bank") (the Bank being the successor by merger to Fleet National Bank of Massachusetts, said Fleet National Bank of Massachusetts being formerly known as "Shawmut Bank, N.A."), GZA GeoEnvironmental Technologies, Inc., a Delaware corporation ("GZA"), GZA GeoEnvironmental, Inc., a Massachusetts corporation ("GZA Associates"), GZA Drilling, Inc., a Massachusetts corporation ("GZA Drilling"), GZA Remediation, Inc., a Massachusetts corporation ("GZA Remediation"), GZA Securities Corp., a Massachusetts corporation ("GZA Securities"), Delta Geotechnical Services, Inc., a Massachusetts corporation ("Delta"), Grover Enterprises, Inc., a Massachusetts corporation ("Grover") and Goldberg Zoino Associates of New York, P.C. ("GZA New York") (GZA, GZA Associates, GZA Drilling, GZA Remediation, GZA Securities, Delta, Grover and GZA New York being hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"). For good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the Borrowers and the Bank act and agree as follows: 1. Reference is made to: (i) that certain Revolving Credit and Term Loan Agreement dated as of February 28, 1994 among Shawmut Bank, N.A. and the Borrowers, as amended (as so amended, the "Loan Agreement"), the Bank having succeeded by merger to the rights of Shawmut Bank, N.A. thereunder; (ii) that certain $5,500,000 face principal amount promissory note dated August 7, 1997, as amended (as so amended, the "1997 Line of Credit Note") made by the Borrowers and payable to the order of the Bank; (iii) those promissory notes (collectively, the "Term Notes") made by GZA (or, in certain cases, GZA and another Borrower) which have heretofore been issued and may hereafter be issued pursuant to Section 1.02(B) of the Loan Agreement (the Borrowers hereby representing and agreeing that the obligations of those Borrowers named in each such Term Note are joint and several); (iv) those certain guaranties (collectively, the "Guaranties") executed and delivered in favor of Shawmut Bank, N.A. by each of the Borrowers pursuant to clause (iii) of Section 3.01(b) of the Loan Agreement, the Bank having succeeded by merger to the rights of Shawmut Bank, N.A. thereunder; and (v) that certain $5,500,000 face principal amount promissory note of even date herewith (the "2000 Line of Credit Note") made by the Borrowers and payable to the order of the Bank. The Loan Agreement, the 2000 Line of Credit Note, the Term Notes and the Guaranties are hereinafter collectively referred to as the "Financing Documents". As used herein, "1997 Modification" refers to the Second Loan Modification Agreement dated as of August 7, 1997 by and among the Bank and the Borrowers. 2. The Loan Agreement is hereby amended: a. By deleting from Section 1.01(C) of the Loan Agreement the words "`Expiration Date' means July 31, 1999" (such words having been inserted by the 1997 Modification) and by substituting in their stead the following: "`Expiration Date' means August 31, 2000" 2 b. By deleting from Section 1.01(D) of the Loan Agreement the words "`Maturity Date' means July 31, 2004" (such words having been inserted by the 1997 Modification) and by substituting in their stead the following: "`Maturity Date' means August 31, 2005" c. By deleting from Section 1.03(a) of the Loan Agreement (such Section having been inserted by the 1997 Modification) the definition of "Prime Rate" contained therein and by substituting in its stead the following: "`Prime Rate' - That variable rate of interest per annum designated by the Lender from time to time as its `prime rate', it being understood that such rate is merely a reference rate and does not necessarily represent the lowest or best rate being charged to any customer." d. By inserting into Section 1.03(d) of the Loan Agreement (such Section having been inserted by the 1997 Modification), immediately after the seventh sentence thereof, the following: "Notwithstanding the foregoing, after the occurrence and during the continuance of any Event of Default, interest will, at the option of the Lender, accrue and be payable on each Loan at a rate per annum which at all times shall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the per annum rate otherwise applicable to such Loan (but in no event in excess of the maximum rate permitted by then applicable law)." e. By changing the Bank's notice address, pursuant to Section 7.06 of the Loan Agreement, to the following: "Fleet National Bank 100 Federal Street Mail Code: MA BOS 01-07-06 Boston, MA 02110 Attention: Thomas F. Brennan, Vice President" f. By deleting in its entirety Exhibit A to the Loan Agreement and by substituting in its stead Exhibit A in the form attached hereto. g. By deleting in its entirety Exhibit B to the Loan Agreement and by substituting in its stead Exhibit B in the form attached hereto. Said Exhibit B in the form attached hereto will be used for all future Term Loans. -2- 3 3. Whenever in any Financing Document, or in any borrowing request, certificate or opinion to be delivered in connection therewith, reference is made to a "Loan Agreement" (or, in the case of a request for a Term Loan, to the "Agreement"), from and after the date hereof same will be deemed to refer to the Loan Agreement, as hereby amended. The 2000 Line of Credit Note is being issued this day in replacement of the 1997 Line of Credit Note. Whenever in any Financing Document, or in any borrowing request, certificate or opinion to be delivered in connection therewith, reference is made to a "Line of Credit Note", "Unsecured Revolving Credit Note" or "Unsecured Line of Credit Note", from and after the date hereof same will be deemed to refer to the 2000 Line of Credit Note. 4. In order to induce the Bank to enter into this Agreement, the Borrowers further jointly and severally represent and warrant to the Bank as follows: a. The execution, delivery and performance of this Agreement, the 2000 Line of Credit Note and each Term Note to be delivered hereafter have been duly authorized by each Borrower by all necessary corporate and other action, will not require the consent of any third party and will not conflict with, violate the provisions of, or cause a default or constitute an event which, with the passage of time or the giving of notice or both, could cause a default on the part of any Borrower under its charter documents or by-laws or under any contract, agreement, law, rule, order, ordinance, franchise, instrument or other document, or result in the imposition of any lien or encumbrance on any property or assets of any Borrower. b. Each Borrower has duly executed each of this Agreement and the 2000 Line of Credit Note and has delivered same to the Bank. c. Each of this Agreement and the 2000 Line of Credit Note is the legal, valid and binding obligation of the Borrowers, enforceable jointly and severally against each of the Borrowers in accordance with its respective terms. Each Term Note will (when issued) be the legal, valid and binding obligation of the Borrower or Borrowers named therein, enforceable against each of them in accordance with its terms. d. The representations and warranties made in the Loan Agreement continue to be correct as of the date hereof, except as supplemented and/or modified on the attached Supplemental Disclosure Schedule. e. The covenants and agreements of the Borrowers contained in the Loan Agreement (as amended hereby) have been compiled with on and as of the date hereof. f. No event which constitutes or which, with notice or lapse of time, or both, could constitute, an Event of Default (as defined in the Loan Agreement) has occurred and is continuing. g. No material adverse change has occurred in the financial condition of the Borrowers from that disclosed in the financial statements of GZA as at November 30, 1999, heretofore provided to the Bank. -3- 4 5. Except as expressly affected hereby, the Loan Agreement and each of the other Financing Documents remains in full force and effect as heretofore. Each Borrower hereby agrees that the respective Guaranty heretofore given by such Borrower (i) remains in full force and effect, (ii) runs to the benefit of Fleet National Bank and (iii) includes, as obligations guaranteed thereunder, the Loan Agreement (as amended by this Agreement), the 2000 Line of Credit Note and all Term Notes. 6. Nothing contained herein will be deemed to constitute a waiver or a release of any provision of any of the Financing Documents. Nothing contained herein will in any event be deemed to constitute an agreement to give a waiver or release or to agree to any amendment or modification of any provision of any of the Financing Documents on any other or future occasion. -4- 5 Executed, as an instrument under seal, as of the date and year first above written. FLEET NATIONAL BANK By:____________________________________ Name: Title: GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. By:____________________________________ Name: Title: GZA GEOENVIRONMENTAL, INC. By:____________________________________ Name: Title: GZA DRILLING, INC. By:____________________________________ Name: Title: GZA REMEDIATION, INC. By:____________________________________ Name: Title: -5- 6 GZA SECURITIES CORP. By:____________________________________ Name: Title: DELTA GEOTECHNICAL SERVICES, INC. By:____________________________________ Name: Title: GROVER ENTERPRISES, INC. By:____________________________________ Name: Title: GOLDBERG ZOINO ASSOCIATES OF NEW YORK, P.C. By:____________________________________ Name: Title: -6- 7 SUPPLEMENTAL DISCLOSURE SCHEDULE [To be provided by Borrowers, if needed] EX-22.1 7 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 22.1 Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction of - ------------------ Incorporation ------------- 1. GZA GeoEnvironmental, Inc. Massachusetts 2. GZA Securities Corporation Massachusetts 3. GZA Drilling, Inc. (a wholly owned Massachusetts subsidiary of GZA GeoEnvironmental, Inc.) 4. GZA Texas, Inc. (a wholly owned subsidiary of GZA Massachusetts GeoEnvironmental, Inc.)
43 EX-23.1 8 CONSENT OF INDEPENDENT ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 33-63940, File No. 33-75688 and File No. 333-24423) of GZA GeoEnvironmental Technologies, Inc. of our report dated May 5, 2000, except as to Note 17, for which the date is May 17, 2000, relating to the financial statements, which appears in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated May 5, 2000, except as to Note 17, for which the date is May 17, 2000 relating to the financial statement schedule and reference to us under the heading "Selected Financial Data", which appears in this Form 10-K. PRICEWATERHOUSECOOPERS LLP May 26, 2000 44 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF THE REGISTRANT AT FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OF THE REGISTRANT FOR THE TWELVE MONTHS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN FORM 10K FOR THE TWELVE MONTH PERIOD ENDED FEBRUARY 29, 2000. YEAR FEB-29-2000 MAR-01-1999 FEB-29-2000 5,966,000 3,829,000 13,924,000 0 0 31,002,000 5,973,000 0 38,359,000 12,226,000 0 0 0 41,000 0 38,359,000 0 72,083,000 0 70,283,000 0 0 11,000 2,094,000 819,000 1,275,000 0 0 0 1,275,000 .35 .35
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