Item 1. Business
General
TENERA, Inc. ("TENERA" or the "Company"), a Delaware corporation, is the parent company of the subsidiaries described below.
TENERA Rocky Flats, LLC ("Rocky Flats"), a Colorado limited liability company, was formed in 1995 to provide consulting and management services in connection with participation in the Performance Based Integrating Management Contract ("Rocky Flats Contract") at the DOE's Rocky Flats Environmental Technology Site ("Site").
In 1997, the Company formed TENERA Energy, LLC ("Energy"), a Delaware limited liability company, to consolidate its commercial electric power utility business into a separate legal entity.
In November 1997, the Company consummated the sale of all of the assets ("Asset Sale") of its TENERA Technologies, LLC ("Mass Transportation") subsidiary (see Notes 1 and 8 to Consolidated Financial Statements).
In 1999, the Company formed TENERA GoTrain.Net, LLC ("GoTrain.Net"), a Delaware limited liability company, to engage in the joint venture design, development, marketing, sale and maintenance of a web-based Corporate Distance Learning Center ("CDLC"). The joint venture operation was established with its minority interest partner, SoBran, Inc., an Ohio corporation, specializing in Internet technologies. The CDLC is a robust, fully scaleable application tool for managing all levels of training needs, from corporate universities to the individual learner. The CDLC is also the Internet delivery platform for TENERA's line of interactive, multi-media, regulatory-driven training products and services (Technology Enhanced Training or "TET").
In February 2000, the Company purchased the Internet-based development and support services business of SoBran, Inc., to provide support for TENERA's Technology Enhanced Training Services group ("TET Group") and for its line of Internet-based, regulatory-driven training products and services. The acquisition also included SoBran's minority interest in TENERA GoTrain.Net, LLC.
The Company's subsidiaries provide a broad range of professional consulting, management, and technical services, along with business-to-business (B2B) delivery of web-based driven training services ("TET Courses"), to solve complex management, engineering, environmental, and safety challenges associated with the operation, asset management, and maintenance of electric generating plants, federal government properties, and capital intensive industries.
TENERA provides services and TET Courses to assist its commercial electric power generation clients with respect to nuclear and fossil plant operations, maintenance, and safety. This includes accelerated change management, organizational diagnostics and effectiveness, online, interactive compliance and regulatory-driven training applications, strategic business management, risk management, and ecological services. For its governmental clients, TENERA provides the Department of Energy ("DOE") and DOE prime contractors with assistance in devising, implementing, and monitoring strategies to improve performance and cost effectiveness from an operational, safety, and environmental perspective at DOE-owned nuclear reactor sites and national research laboratories.
TENERA has developed expertise in providing solutions to complex technical and regulatory issues facing the commercial electric power generation industry. Over the past several years, commercial electric utilities have experienced increased competitive pressure due to continued deregulation. For example, utilities are no longer able to recover capital expenditures through rate increases, due to increasing competition from independent power producers, alternative energy production, and cogeneration. During the same period, utilities and independent power producers have responded to continued regulatory pressures to comply with complex safety and environmental guidelines. Safety problems and environmental issues have also emerged at government-owned weapons production facilities. The end of the "Cold War" has prompted DOE to shut down
many of its aging weapons production facilities and begin the challenging task of dismantling, disposal, and clean-up of the facilities. A massive program is underway throughout the DOE complex of nuclear weapons production facilities and national laboratories to implement this new shutdown mission, while complying with health, safety, and environmental requirements similar to those applicable to commercial facilities, principally in the areas of hazardous wastes, decontamination, decommissioning, and remediation. Electric power generators, as well as a variety of other industries, have been subjected to extensive regulation regarding environmentally safe handling of hazardous materials.
Responding to this shift in national defense mission, as well as the associated emerging regulatory compliance issues, the Company, using its joint venture operation and strategic alliances, created the CDLC and a suite of regulatory-driven training courses for delivery to its clients in a productive and cost-effective manner, interactively via the Internet.
It has been TENERA's strategy to provide solutions to these issues by providing clients with a high level of professional skills and a broad range of scientific, technological, and management resources. These include software and databases, which are used either in support of consulting projects or as the basis for development of stand alone software products and systems. The Company assists its clients in the initial identification and analysis of a problem, the implementation of a feasible solution that the client believes will be sensitive to business and public interest constraints, and the ongoing monitoring of that solution.
Background
The Company's principal markets are the DOE-owned nuclear materials production sites and national research laboratories, and the electric power generation industry, including regulated and deregulated producers. The emerging market for the Company's TET Courses includes those commercial operations that are subject to compliance with federally mandated regulatory training requirements.
The Company's largest business area, DOE-owned nuclear weapons production sites, faces close scrutiny resulting from public concern over health, safety, and the environment. The Company believes that DOE's new mission of closing aging weapons plants, coupled with increased enforcement of environmental laws and regulations continues to be prompted by publicity and public awareness of environmental problems and health hazards posed by hazardous materials and toxic wastes. The dismantlement and cleanup of the aging DOE weapons complex represents a significant market for the Company's service offerings.
The DOE has begun the implementation of programs to address safety problems and environmental concerns, which have emerged at its nuclear facilities. These programs are designed to bring the operations into compliance with a variety of health, safety, and environmental requirements, similar to those applicable to the commercial electric utility industry. The DOE's decontamination, decommissioning, and remediation programs are also aimed at achieving significant cleanup of its hazardous waste production and storage facilities and the partial shutdown of nuclear operations at a number of its sites
The electric utility industry has undergone considerable change in recent years and faces a complex mix of economic and regulatory pressures. There is continuing deregulation of the production and distribution of electricity, accompanied by the desire of utilities to meet demand for electricity through higher operating efficiency. Some of the Company's largest electric utility clients have responded to a more competitive environment by implementation of significant cost control measures and activity in the merger and acquisition arena.
Economic pressures have resulted in certain changes in the focus of electric utility management. For example, the ratemaking process now represents a significant area of risk to utilities. This has highlighted the importance of careful planning and documentation in connection with rate case preparation. Furthermore, utilities appear to be shifting their emphasis to ongoing performance reviews in making their rate base decisions, related to such measures as plant capacity factors. These changes in the ratemaking process subject the utilities to substantial economic penalties for extended plant outages and have stimulated actions by them to assure more reliable operations.
The markets for electric utility and DOE facility professional services and software products cover a broad range of activities. Typical markets include waste management, outage support, operating plant services, licensing support, safety and health management, maintenance and information services, decommissioning consulting, risk assessment, quality assurance and control, organizational effectiveness, engineering support, records management, fuel related services, plant security, and surplus asset disposal.
The market for the Company's emerging technology enhanced training services is broad and encompasses those commercial operations that are subject to compliance and regulatory-driven training requirements. The Company's initial market penetration has been focused in the electric utility industry. Traditionally a marketplace for instructor-led training, the Company believes that Internet-based training will grow significantly over the next few years as an important resource to meet the needs of this market.
Services and Products
The Company provides its services by utilizing its professional skills and technological resources in an integrated approach, which combines strategic consulting, technical, and project management capabilities with software systems and databases. Services performed by the Company typically include one or more of the following: consultation with the client to determine the nature and scope of the problem, identification and evaluation of the problem and its impact, development and design of a process for correcting the problem, preparation of business plans, preparation of reports for obtaining regulatory agency permits, and analysis in support of regulatory and legal proceedings. The Company operates in one business segment providing services, which cover these general areas: strategic consulting, management, and technical services.
The following table reflects the percentage of revenues derived for each of these areas for the period indicated during the fiscal years ended December 31, 1997 through 1999:
* Reflects only 10 months of revenues in 1997 due to the Asset Sale.
Consulting and Management Services. The Company's consulting and management services involve determining a solution to client problems and challenges in the design, operation, and management of large facilities. Focus is also placed on providing expertise in the wide range of disciplines required to resolve complex legal and regulatory issues and offering executives guidance in strategic planning and implementing a coordinated, effective response to such issues. The Company applies its professional skills, software, and specialized databases to all aspects of these problems and challenges in the following general areas:
o Strategic business management
o Organizational effectiveness and change management
o Web-based technology enhanced training services
o Risk management
o Environmental and ecological issues at DOE and electric utility facilities
o Operations and maintenance performance improvement
o Plant safety
o Nuclear safety and criticality at DOE facilities
o Engineering design review and verification
o Company/organized labor union consulting
o Surplus property management and disposal services
Marketing and Clients
Marketing. The Company's marketing strategy emphasizes its ability to offer a broad range of services designed to meet the needs of its clients in a timely and cost-efficient manner. The Company can undertake not only small tasks requiring a few professionals but also the management, staffing, design, and implementation of major projects which may last for many months and involve large numbers of professionals and subcontractors in several geographic locations. Characteristic of TENERA's marketing strategy are significant projects in which initial contracts have been only a fraction of the ultimate sale.
The Company provides financial incentives to attract senior technical professionals with extensive utility industry experience and to encourage these individuals to market the complete range of TENERA's services throughout existing and potential customer organizations.
TENERA's marketing efforts are facilitated by the technical reputation and industry recognition often enjoyed by its professional staff. TENERA's reputation in the electric power industry and as a DOE contractor often leads to invitations to participate at an early stage in the conceptualization of a project. During this phase, the Company assists clients in developing an approach for efficiently and productively solving a problem. If new services or products are developed for a client, they generally are marketed to other clients with similar needs.
The Company's reputation also leads to invitations to participate in multi-company teams assembled to bid on large DOE or utility projects.
Clients. During the year ended December 31, 1999, TENERA provided services to over 35 clients involving over 55 contracts. During the year ended December 31, 1998, TENERA provided services to over 35 clients involving over 65 contracts. Over 80% of TENERA's clients during the year ended December 31, 1999, had previously used its services.
During the year ended December 31, 1999, three clients, Kaiser-Hill Company, LLC ("Kaiser-Hill"), prime contractor of the Rocky Flats Contract, Rocky Mountain Remediation Services, LLC ("RMRS"), a prime subcontractor of the Rocky Flats Contract, and Safe Sites of Colorado, LLC ("Safe Sites"), a prime subcontractor of the Rocky Flats Contract, accounted for 75% of the Company's total revenue (Kaiser-Hill - 32%; RMRS - 26%; Safe Sites - 17%). During the year ended December 31, 1998, two clients accounted for 64% of the Company's total revenue (Kaiser-Hill - 37%; Safe Sites - 27%;). The Company has maintained working relationships with Kaiser-Hill, RMRS, and Safe Sites for five years, during which time various contracts have been completed and replaced with new or follow-on contracts. There can be no assurance that these relationships will be maintained at current levels or beyond the existing contracts, and the loss of these clients would have a material adverse effect on the Company (see "Operating Risks").
Operations
The Company primarily contracts for its services in one of three ways: time and materials ("T & M"), time and materials plus incentive fee ("TMIF"), or fixed price. T & M and TMIF contracts, which cover the majority of TENERA's revenues, are generally billed monthly by applying a multiplier factor to specific labor costs or by use of a fixed hourly labor rate charged to each project. T & M and TMIF contracts are generally structured to include "not-to-exceed" ceilings; however, if after initial review or after work has started, it is noted that additional work is required, the contract normally can be renegotiated to include such additional work and to increase the contract ceiling accordingly. Also, prior to the Asset Sale, the Company received license and annual maintenance fees from contracts involving software products. During the year ended December 31, 1997, such fees amounted to $600,000.
Fixed-price contracts are generally applicable where TENERA has been requested to deliver services and/or products previously developed by it or deliverable to multiple customers. At December 31, 1999, of the total outstanding contracts, less than 10% were fixed-price.
TENERA generally receives payments on amounts billed 30 to 90 days after billing, except for retention under contracts. Since the majority of TENERA's clients are utility companies, DOE, or DOE prime contractors, TENERA historically has experienced a low percentage of losses due to poor credit risks.
Backlog
As of December 31, 1999, TENERA had contracted a backlog of approximately $15.3 million, all of which is cancelable by the clients. The Rocky Flats and Energy subsidiaries account for $14.9 million and $.4 million, respectively, of the backlog. Contracted backlog represents the aggregate of the remaining value of those active contracts entered into by TENERA for services which are limited by a contractual amount and does not include any estimates of open-ended services contracts or unfunded backlog that may result from additions to existing contracts.
Since all outstanding contracts are cancelable, there is no assurance that the revenues from these contracts will be realized by the Company. If any contract is canceled, there is no assurance that the Company will be successful in replacing such contract.
Competition
The market for consulting and management services is highly competitive and TENERA competes with several larger firms with significantly greater resources. The primary competitive factor in the market for consulting and management services is price, and certain of TENERA's competitors are able to offer similar services at prices that are lower than those offered by TENERA (see "Operating Risks").
Research and Development
It has been TENERA's policy to undertake development projects of software, systems, and data bases only if they can be expected to lead directly to proprietary products that may be generally marketable. A portion of TENERA's research and development effort may be funded through customer-sponsored projects, although the rights to the systems and databases generally remain with TENERA. Because TENERA's research and development activities involve the integration of customer-funded, cost sharing, and TENERA-funded projects, it is not possible to segregate on a historical basis all of the specific costs allocable as research and development costs. In 1999 and 1998, TENERA spent in excess of $100,000 annually on software development related to its TET and consulting services businesses, in contrast to expending in excess of $1.5 million in 1997 on software development related to its Mass Transportation business prior to the Asset Sale.
Patents and Licenses
The Company does not hold any patents material to its business. TENERA relies upon trade secret laws and contracts to protect its proprietary rights in software systems and databases. The service and license agreements under which clients acquire certain rights to access and use TENERA's software technology generally restrict the clients' use of the systems to their own operations and prohibit disclosure to others.
Personnel
At December 31, 1999, the Company employed a total of 164 consultants, engineers, and scientists and a supporting administrative staff of 23 employees. Eight employees hold doctorates and 52 employees hold master's degrees. TENERA also retains the services of numerous independent contractors in order to fulfill specific needs for particular projects. None of TENERA's employees are represented by a labor union.
Item 2.
Item 2. Properties
The Company's headquarters are located in San Francisco, California, and consist of approximately 13,500 square feet of leased office space, expiring in October 2000. TENERA also leases approximately 6,500 square feet in Louisville, Colorado, expiring in October 2000 and approximately 3900 square feet in Knoxville, Tennessee, expiring in December 2000. Additionally, TENERA maintains a 900 square feet project office in San Luis Obispo, California on a month-to-month lease basis. As a result of the Asset Sale, TENERA vacated its office space in Hartford, Connecticut, and is subleasing the space until lease expiration in May 2000.
The Company believes that its facilities are well maintained and adequate for its current needs. However, the Company expects to face a substantially higher lease rate upon expiration of its San Francisco lease in October 2000, which may result in relocation of its headquarters.
Item 3.
Item 3. Legal Proceedings
None.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of the Company's Common Stock are listed for trading on AMEX under the symbol TNR. The first trading day on AMEX was June 30, 1995, at which time 10,417,345 shares were outstanding. There were approximately 500 shareholders of record as of March 1, 2000.
The Board of Directors of the Company determines the amount of cash dividends which the Company may make to shareholders after consideration of projected cash requirements and a determination of the amount of retained funds necessary to provide for growth of the Company's business. The Company has made no distributions since 1991. The Company does not anticipate resumption of dividends in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
The following consolidated selected financial data of the Company for the five prior years should be read in conjunction with the consolidated financial statements and related notes included elsewhere.
TENERA, INC. FINANCIAL HIGHLIGHTS
(In thousands, except per share and statistical amounts)
Item 7.
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition
TENERA, INC. RESULTS OF OPERATIONS
* Less than 0.05%
Year Ended December 31, 1999 versus Year Ended December 31, 1998
The Company's increased revenue in its Rocky Flats subsidiary resulted in net earnings, before income tax expense of $2,455,000, compared to net earnings of $1,653,000 in 1998 before income tax expense, special item, and adjustment to litigation judgment costs.
The revenue increase in 1999 is primarily the result of increased Rocky Flats Contract activity. For 1999, the concentration of revenue from the government sector increased to 81% of total revenue from 78% in 1998. Revenue concentration from the government sector is expected to remain high in 2000. The number of clients served during 1999 totaled over 35, approximately the same as 1998.
Direct costs were higher in 1999, primarily as a result of increased revenue generation and the related use of subcontractor teams under the Rocky Flats Contract. Gross margins decreased to 23%, in 1999 from 25% in 1998, mainly due to an increase in the proportion of revenue derived from lower margin government projects.
General and administrative costs were higher compared to a year ago, primarily reflecting increased costs associated with the development of TET Courses and the establishment of GoTrain.Net, and higher performance bonuses to employees based on higher operating income. However, general and administrative expenses, as a percentage of revenue, decreased to 16% in 1999 from 20% in 1998.
The special item of $300,000 in 1998, reflects the additional realized gain from the Asset Sale associated with the repayment of the Promissory Note (see Notes 1 and 8 to Consolidated Financial Statements).
The litigation judgment cost adjustment in 1998 relates to the settlement of litigation for $50,000 less than the amount accrued in 1997 (see Note 7 to Consolidated Financial Statements).
Other income in 1999 was immaterial. Other income in 1998 reflects certain accounting and administrative services provided on a temporary basis to the purchaser in the Asset Sale. These services ceased during the fourth quarter of 1998.
Net interest income in 1999 and 1998 represents earnings from the investment of cash balances in short-term, high-quality, government and corporate debt instruments. The lower net interest income in 1999, as compared to a year ago, primarily reflects lower interest rates. The Company had no borrowings under its line of credit during 1999 and 1998.
Year Ended December 31, 1998 versus Year Ended December 31, 1997
The Company's increased revenue in its Rocky Flats subsidiary, lower overall general and administrative expenses, and the elimination of significant ongoing development costs as a result of the Asset Sale in the fourth quarter of 1997, resulted in net earnings, before income tax expense, special item, and adjustment to litigation judgment costs, of $1,653,000, compared to a loss of $1,434,000 in 1997 before income tax benefit, special item, and accrual for litigation judgment costs.
The revenue increase in 1998 was primarily the result of increased Rocky Flats Contract activity, partially offset by the absence of Mass Transportation revenue as a result of the Asset Sale. For 1998, the concentration of revenue from the government sector increased to 78% of total revenue from 53% in 1997. Approximately one-half of the increase in revenue concentration related to the loss of Mass Transportation revenue as a result of the Asset Sale. The other one-half of the revenue concentration increase was due to higher levels of Rocky Flats Contract activity versus 1997. The number of clients served during the year decreased to 35 from 40 (excluding 20 clients associated with the Mass Transportation business) in 1997.
Direct costs were higher in 1998, primarily as a result of increased revenue generation and the related use of subcontractor teams under the Rocky Flats Contract. Gross margins decreased to 25%, in 1998 from 38% in 1997, mainly due to an increase in the proportion of revenue derived from lower margin government projects.
General and administrative costs were lower compared to the prior year, primarily reflecting increased utilization of employees on billable contracts and reduced corporate and subsidiary administrative staffs. General and administrative expenses also decreased, as a percentage of revenue, to 20% in 1998 from 39% in 1997.
Due to the Asset Sale, the Company's software product development expenditures were not material in 1998, as compared to $1,531,000 in 1997.
Effective November 14, 1997, the Company consummated the sale of all of the assets related to the Mass Transportation business for $1,300,000 in cash, a promissory note in the amount of $300,000, a warrant to acquire 4% of the then outstanding shares of the buyer's common stock, exercisable upon the occurrence of an initial public offering or a change of control (as defined in the warrant), plus the assumption of all liabilities associated with the Mass Transportation business. The Mass Transportation subsidiary was not expected to produce profitable results in the subsequent twelve months due to the anticipated high level of investment needs to develop its products and for its business development activities. The special item of $355,000 in 1997 reflected the realized gain (exclusive of the effect of the note and warrant) from the Asset Sale (see Notes 1 and 8 to Consolidated Financial Statements). The note was repaid in full in February 1998, and an additional gain of $300,000 was reported in 1998 as a special item. In December 1999, the warrant was exchanged for convertible preferred stock equivalent to 4% ownership of the buyer on a fully diluted basis under the capital structure at the time of the exchange, and a redemption right equal to $525,000 in the event of the buyer's liquidation (see Note 8 to Consolidated Financial Statements).
On February 10, 1998, the Company was notified by the Superior Court for Alameda County of the trial judge's decision against the defendants in the action entitled PLM Financial Services, Inc. v TERA Corporation, et al. (Case No. 743 439-0, the "PLM Litigation"), in which TENERA and others were named as defendants. Damages were not specified in the Court's decision, but based on exposure estimates by the Company's counsel, the Company accrued litigation judgment expenses of $950,000 in 1997 related to this matter. In May 1998, the Company settled the case for $950,000 in cash, of which approximately $50,000 was paid by a co-defendant, TERA Corporation Liquidating Trust. The litigation judgment cost adjustment of $50,000 in 1998 reflected the lower amount paid by the Company versus the accrual established in 1997 (see Note 7 to Consolidated Financial Statements).
Other income in 1998 reflected temporary accounting and administrative services provided to the buyer in the Asset Sale. These services ceased during the fourth quarter of 1998. Other income in 1997 reflects gains on the sale of assets related to facility downsizing.
Net interest income in 1998 and 1997 represents earnings from the investment of cash balances in short-term, high-quality, government and corporate debt instruments. The higher net interest income in 1998, as compared to a year ago, primarily reflects larger average cash balances. The Company had no borrowings under its line of credit during 1998 and 1997.
Liquidity and Capital Resources
Cash and cash equivalents increased by $132,000 during 1999. The increase was due to cash provided by operations ($631,000), partially offset by the net acquisition of equipment ($249,000) and the repurchase of the Company's Common Stock ($250,000).
Receivables increased by $1,127,000 from December 31, 1998, primarily due to an increase in revenue in 1999. The allowance for sales adjustments decreased $2,000 from December 31, 1998.
Accounts payable increased by $598,000 since the end of 1998, primarily associated with higher direct costs supporting increased revenues. Accrued compensation and related expenses decreased by $86,000 during 1999, primarily reflecting lower usage of self-insured medical benefits in 1999.
No cash dividend was declared in 1999.
The impact of inflation on project revenue and costs of the Company was minimal.
At December 31, 1999, the Company had available $2,500,000 of a $3,000,000 revolving loan facility with its lender which expires in May 2000. The Company expects to renew on substantially the same terms. The Company has no outstanding borrowing against the line; however, $500,000 was assigned to support standby letters of credit.
Management believes that cash expected to be generated by operations, the Company's working capital, and its loan facility are adequate to meet its anticipated liquidity needs through the next twelve months.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $40,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly (see "Operating Risks").
Operating Risks
Statements contained in this report which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to the risks and uncertainties which could cause actual results to differ materially from those projected, including those risks and uncertainties discussed below.
Reliance on Major Customers; Concentration of Revenue from the Government Sector. During fiscal 1999, three customers, Kaiser-Hill, RMRS, and Safe Sites, accounted for approximately 75% of the Company's total revenues, and during 1998, two customers, Kaiser-Hill and Safe Sites, accounted for approximately 64% of the Company's total revenues. Additionally, for 1999, the concentration of
the Company's total revenue from the government sector increased to 81% of total revenue from 78% in 1998. This level of concentration of revenues from the lower margin government sector is expected to continue and possibly increase in the future. Further, all outstanding customer contracts are cancelable upon notice by either party, and therefore, there can be no assurance that relationships with customers will be maintained at existing levels, or at all. The discontinuation or material reduction of business relations with any of these customers would have a material adverse impact on TENERA's business (see Item 1, "Business -- Marketing and Clients").
History of Losses; Uncertainty of Future Profitability. Although the Company had net earnings of $0.8 million in 1992, $1.7 million in 1998, and $1.3 million in 1999, net (losses) over the period 1991 through 1997 were $(6.4 million) in 1991, $(0.3 million) in 1993, $(1.2 million) in 1994, $0.9 million in 1995, $(1.1 million) in 1996, $(1.9 million) in 1997. There can be no assurance of the level of earnings, if any, that the Company will be able to derive in the future.
Uncertainty Regarding Industry Trends and Customer Demand. As a result of the slowdown in the construction of power plants and the absence of new power plants scheduled for construction, as well as the gradual deregulation of the production and distribution of electricity, the market for engineering services relating to licensing and construction of power plants has contracted, and the market for services related to efficient and profitable operation of existing capacity has expanded. There can be no assurance that (i) TENERA will have the financial and other resources necessary to successfully research, develop, introduce, and market new products and services, (ii) if, or when, such new products or services are introduced, they will be favorably accepted by current or potential customers, or (iii) TENERA will be otherwise able to fully adjust its services and products to meet the changing needs of the industry (see Item 1, "Business -- Background").
Uncertainty of Access to Capital. Management currently believes that cash expected to be generated from operations, the Company's working capital, and its available loan facility, are adequate to meet its anticipated near-term needs. If cash from operations is less than currently anticipated, TENERA may need to seek other sources of capital. There can be no guarantee that such sources will be available in sufficient amounts or on terms favorable to TENERA, or at all.
Reliance on Key Personnel. Due to the nature of the consulting and professional services business, the Company's success depends, to a significant extent, upon the continued services of its officers and key technical personnel and the ability to recruit additional qualified personnel. The Company experienced a historically high rate of turnover as revenue and earnings began to decline in 1991 and thereafter. Further loss of such officers and technical personnel, and the inability to recruit sufficient additional qualified personnel, could have a material adverse effect on the Company.
Government Contracts Audits. The Company's United States government contracts are subject in all cases to audit by governmental authorities. In 1994, an audit was concluded, which began in 1991, of certain of its government contracts with the DOE relating to the allowability of certain employee compensation costs. The Company made a special charge to earnings in 1991 for a $2.4 million provision for the potential rate adjustments then disputed by the Company and the government. As a result of resolving certain issues in the dispute, the Company recognized increases to earnings of $500,000 in 1994 and $250,000 in 1996. Cash payments to clients associated with the settlement, which are estimated to be between $400,000 and $500,000, which were accrued for in the 1991 Special Charge to earnings, are expected to be made as government contracts with individual clients are closed out. There can be no assurance that no additional charges to earnings of the Company may result from future audits of the Company's government contracts.
Competition. The market for management and consulting services is highly competitive and TENERA competes with several larger firms with significantly greater resources. Significant competitive factors in the market for engineering and management services are price and the ability to offer new products and services designed to meet changing customer demand. A number of TENERA's competitors are able to offer such services at prices that are lower than those offered by TENERA, and to devote far greater resources toward the development of new products and services. This competition has had, and is expected to continue to have, a material adverse impact on TENERA's business.
Year 2000 Issue. The Company has corrected its known internal Year 2000 system problems and has received notification from key vendors and clients that their systems are Year 2000 compliant. Furthermore, the Company has not experienced any material problems subsequent to the date change. However, the Company has no control over the systems of third parties and it is possible that Year 2000 problems may occur at a later date, which could materially affect the Company's business operations and financial condition. For example, if a major client has a Year 2000 problem with its accounts payable system, payment of the Company's invoices could be delayed, adversely affecting cash flow.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company has minimal exposure to market and interest risk as the Company invests its excess cash in instruments, which mature within 90 days from the date of purchase. The Company does not have any derivative instruments.
Item 8.
Item 8. Financial Statements and Supplementary Data
TENERA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
See accompanying notes.
TENERA, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
See accompanying notes.
TENERA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
See accompanying notes.
TENERA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See accompanying notes.
TENERA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999
Note 1. Organization
TENERA, Inc.(the "Company"), a Delaware corporation, is the parent company of the subsidiaries described below.
TENERA Rocky Flats, LLC ("Rocky Flats"), a Colorado limited liability company, was formed by the Company in 1995, to provide consulting services in connection with participation in the Performance Based Integrating Management Contract ("Rocky Flats Contract") at the Department of Energy's ("DOE") Rocky Flats Environmental Technology Site. In May 1997, the Company's other government business was consolidated within the Rocky Flats subsidiary. This business provides consulting and management services to the DOE directly and through subcontracts with DOE prime contractors. These services provide assistance to DOE-owned nuclear facilities in devising, implementing, and monitoring strategies to upgrade from an operational, safety, and environmental perspective.
TENERA Energy, LLC ("Energy"), a Delaware limited liability company, was formed by the Company in May 1997, to consolidate its commercial electric power utility business into a separate legal structure. The Energy subsidiary provides consulting, management services, and technology enhanced training programs in organizational effectiveness and organizational development, environmental outsourcing and monitoring, risk analysis and modeling, and business process improvement.
TENERA Technologies, LLC ("Mass Transportation"), a Delaware limited liability company, was formed by the Company in May 1997 to consolidate its mass transportation business into a separate legal entity. Before the Asset Sale described below, Mass Transportation provided computerized maintenance management software and consulting to the mass transit industry. On November 14, 1997, the Company consummated the sale of all of the assets ("Asset Sale") related to the Mass Transportation business, to Spear Technologies, Inc. ("Spear"), a California corporation newly formed by former members of the Company's management (see Note 8).
TENERA GoTrain.Net, LLC ("GoTrain.Net"), a Delaware limited liability company, was formed by the Company in October 1999, as a joint venture operation to design, develop, market, and maintain a web-based Corporate Distance Learning Center ("CDLC"). The joint venture was established with its minority interest partner, SoBran, Inc., an Ohio corporation specializing in Internet technologies. In February 2000, the Company purchased the Internet-based development and support business of SoBran, Inc., including SoBran's minority interest in GoTrain.Net.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions 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 materially from these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand deposits, money market accounts, and commercial paper issued by companies with strong credit ratings. Cash and cash equivalents are carried at cost, which approximates fair value. The Company includes in cash and cash equivalents, all short-term, highly liquid investments, which mature within three months of acquisition.
Concentrations of Credit Risk and Credit Risk Evaluations. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents consist principally of demand deposit, money market accounts, and commercial paper issued by companies with strong credit ratings. Cash and cash equivalents are held with various domestic financial institutions
with high credit standing. The Company has not experienced any significant losses on its cash and cash equivalents. The Company conducts business with companies in various industries primarily in the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential credit issues, and such losses to date have been within management's expectations.
Property and Equipment. Property and equipment are stated at cost ($2,587,000 and $2,382,000 at December 31, 1999 and 1998, respectively), net of accumulated depreciation ($2,294,000 and $2,188,000 at December 31, 1999 and 1998, respectively). Depreciation is calculated using the straight-line method over the estimated useful lives, which range from three to five years.
Revenue. The Company primarily offers its services to the United States electric power industry and the DOE. Revenue from time-and-material and cost plus fixed-fee contracts is recognized when costs are incurred; from fixed-price contracts, on the basis of percentage of work completed (measured by costs incurred relative to total estimated project costs).
The Company performs credit evaluations of these clients and normally does not require collateral. Reserves are maintained for potential sales adjustments and credit losses; such losses to date have been within management's expectations. Actual revenue and cost of contracts in progress may differ from management estimates and such differences could be material to the financial statements.
During 1999, three clients accounted for 32%, 26%, and 17% of total revenue. In 1998, two clients accounted for 37%, and 27% of the Company's total revenue, and in 1997, three clients accounted for 43%, 14%, and 10% of total revenue.
Income Taxes. The Company uses the liability method to account for 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. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company is a C Corporation subject to federal and state statutory income tax rates for income earned. Due to a net loss in 1997, an income tax benefit was recorded for that year. During 1998, a provision for income taxes was made after taking into account net operating loss carryforwards from previous years. In 1999, a provision for federal and state income taxes was made at a combined rate of 45% (see Note 5).
Accounting for Stock-Based Compensation. The Company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25 ("APB 25") and has provided the pro forma disclosures required by Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123") in Note 4.
Per Share Computation. Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, warrants and convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive. Due to the loss from operations in 1997, loss per share is based on the weighted average number of common shares only, as the effect of including equivalent shares from stock options would be anti-dilutive.
The following table sets forth the computation of basic and diluted (loss) earnings per share as required by Financial Accounting Standards Board Statement No. 128:
(In thousands, except per share amounts)
Comprehensive Income (Loss). The Company does not have material components of other comprehensive income. Therefore, comprehensive income (loss) is equal to net earnings (loss) reported for all periods presented.
Disclosures about Segments of an Enterprise. The Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," (FAS 131"), which establishes standards for the way public business enterprises report information about operating segments in annual financial statements. The Company has one reportable operating segment under this statement, which is providing services with respect to operations, maintenance, safety, strategic business and risk management, and environmental/ecological issues for electric utility and DOE facilities.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company will be required to adopt FAS 133 effective January 1, 2001. Management of the Company does not believe the adoption of this statement will have a material effect on the Company's consolidated financial position, results of operations, or cash flows.
Note 3. Related Party Transactions
TERA Corporation Liquidating Trust ("Trust"). The Trust was established by TERA Corporation ("Predecessor Corporation") in 1986, to facilitate the orderly sale or other disposition of the remaining assets and satisfaction of all remaining debts and liabilities of the Predecessor Corporation. As of May 31, 1998, the Trust was terminated after the total liquidation of its assets in connection with the settlement of litigation with PLM Financial Services, Inc. (see Note 7). The Company did not recognize any income or expense from the Trust in 1999, 1998, and 1997.
Note 4. Employee Benefit Plans
401(k) Savings Plan. The 401(k) Savings Plan is administered through a trust that covers substantially all employees. Employees can contribute amounts to the plan, not exceeding 15% of salary. Effective January 1, 1998, the Company matches employee contributions equal to 50% of the first 4% of salary deferred. The Company, at its discretion, may also contribute funds to the plan for the benefit of employees. In 1999 and 1998, charges to earnings for the 401(k) Savings Plan were $164,000 and $233,000, respectively. There were no charges to earnings in 1997 for the 401(k) Savings Plan. During 1999, 1998, and 1997, no discretionary amounts were contributed to the plan by the Company.
Stock Option Plans. The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Under the provisions of the Company's 1992 Option Plan, 1,500,000 shares are reserved for issuance upon the exercise of options granted to key employees and consultants. During 1999, options were granted for 285,000 shares at an exercise price of $1.3625, the then fair market value, expiring on March 9, 2005. In 1998, options were granted for 300,000, 20,000 and 50,000 shares at an exercise price of $0.725, $0.5875 and $0.675, respectively, the then fair market values, expiring on February 19, 2004, April 20, 2004 and July 1, 2004, respectively. In 1997, options were granted for 370,000 and 50,000 shares at an exercise price of $0.70 and $0.65, respectively, the then fair market values, expiring on March 12, 2003 and May 1, 2003, respectively. During 1999, options for 94,000 shares were canceled due to employee terminations (660,750 and 122,500 in 1998 and 1997, respectively). Options for 6,250 shares were exercised in 1998, but no options were exercised in 1999 and 1997. As of December 31, 1999, options for 1,272,500 shares were outstanding and options for 921,250 shares were exercisable.
Under the provisions of the 1993 Outside Directors Compensation and Option Plan, which was approved by the Board of Directors, effective March 1, 1994, as amended in 1998, 300,000 shares are reserved for issuance upon the exercise of options granted to non-employee directors. During 1999, options were granted for 62,500 shares at an exercise price of $1.375, the then fair market value, expiring on March 1, 2009. In 1998, options were granted for 37,500 and 25,000 shares at an exercise price of $0.5625 and $0.75, respectively, the then fair market value, expiring on March 1, 2008 and July 1, 2008, respectively. In 1997, options were granted for 32,000 shares at an exercise price of $0.6875, the then fair market value, expiring on March 1, 2007. During 1999, 12,500 options were forfeited (8,000 share options were canceled in 1998 and 12,500 in 1997). No options were exercised in 1999, 1998, and 1997. As of December 31, 1999, options for 254,000 shares were outstanding and 204,000 were exercisable.
The combined stock option activity of the Company's two option plans is summarized below:
(In thousands, except per share amounts)
Exercise prices for options outstanding as of December 31, 1999, ranged from $0.5625 to $1.75. The weighted-average remaining contractual life of those options is 4.4 years.
Proforma Disclosures of the Effect of Stock-Based Compensation. Pro forma information regarding net earnings (loss) and earnings (loss) per share is required by FAS 123 for fiscal years beginning after December 31, 1994, and has been determined as if the Company had accounted for its stock options under the fair value method of FAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998, and 1997: risk-free interest rates of 5.3% for the March 1999 grants; 5.0% each for the February, March, April, and July 1998 grants; and 6.0% and 5.85%, respectively, for the March and May 1997 grants; dividend yield of 0% for all years; volatility factors of the expected market price of the Company's common stock of 0.56, 0.48, and 0.51, respectively; and a weighted-average expected life of the option of five years for all employee grants and seven years for director grants.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, options valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting periods of the options. The Company has elected to base its initial estimate of compensation expense on the total number of options granted. Subsequent revisions to reflect actual forfeitures are made in the period the forfeitures occur through a catch-up adjustment.
Pro forma information regarding the Company's net earnings (loss) and earnings (loss) per share follows:
(In thousands, except per share amounts)
The weighted-average grant-date fair value of options granted, which is the value assigned to the options under FAS 123, was $0.75, $0.35, and $0.36 for grants made during years ended December 31, 1999, 1998, and 1997, respectively.
Note 5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1999 and 1998, are as follows, using the liability method:
The current tax provision (benefit) for the years ended December 31, 1999, 1998, and 1997, are as follows:
The valuation allowance decreased by $45,000, during the year ended December 31, 1999, for those deferred tax assets, which may not be realized. The decrease primarily relates to the reduction of employee vacation and holiday accrual balances during 1999.
The provision (benefit) for income taxes differed from the amount computed by applying the statutory federal and state income tax rate for the years ended December 31, 1999, 1998, and 1997, as follows:
The Company paid income taxes of $1,363,000 in 1999 and $222,000 in 1998.
Note 6. Commitments and Contingencies
Leases. The Company occupies facilities under noncancelable operating leases expiring at various dates through 2000. The leases call for proportionate increases due to property taxes and certain other expenses. Rent expense amounted to $349,000 for the year ended December 31, 1999 ($309,000 in 1998 and $524,000 in 1997).
Minimum rental commitments under operating leases, principally for real property, are as follows (in thousands):
(Year Ending December 31)
Revolving Loan Agreement. A loan agreement with a bank provides for a revolving line of credit of $3,000,000, through May 2000. At December 31, 1999, $2,500,000 was available under the credit line, and in addition, $500,000 was
assigned to support standby letters of credit. Amounts advanced under the line of credit are secured by the Company's eligible accounts receivable. Under the agreement, the Company is obligated to comply with certain covenants related to equity, quick ratio, debt/equity ratio, and profits. The interest rate under the agreement is the bank's prime rate (8.5% at December 31, 1999). During 1999, 1998, and 1997, the Company paid no interest expense, as there were no borrowings.
Note 7. Litigation Judgment
On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action, entitled PLM Financial Services, Inc. v. TERA Corporation, et al., Case No. 743 439-0, against TENERA, L.P. (the predecessor of the Company; the "Predecessor Partnership"), among others, in the Superior Court of California for the County of Alameda, seeking damages in excess of $4.6 million in unpaid equipment rent and other unspecified damages allegedly owing to PLM under an equipment lease dated September 29, 1984 between PLM and TERA Power Corporation ("TERA Power"), a former subsidiary of TERA Corporation (the "Predecessor Corporation"). PLM named the Predecessor Partnership in the action pursuant to a Guaranty dated September 24, 1984 of the lease obligations of TERA Power made by the Predecessor Corporation. Upon the liquidation of the Predecessor Corporation in late 1986, the stock of TERA Power was transferred to the TERA Corporation Liquidating Trust (the "Trust") and was thereafter sold to Delta Energy Projects Phases II, IV, and VI pursuant to a stock purchase agreement dated May 31, 1991. TERA Power asserted various defenses to the claims asserted by PLM in the action and the trial in this matter was concluded in August 1997. In February 1998, the trial judge issued a minute order rendering his decision against the defendants in the action. Accordingly, for the year 1997, the Company accrued litigation judgment expenses of $950,000 related to this matter. In April 1998, the trial judge entered a judgment in the amount of approximately $830,000 plus costs and attorney fees, against TERA Power and TENERA, as guarantor. Counsel for PLM had advised counsel for TENERA that PLM had incurred costs and attorney fees exceeding $600,000, and, if this matter was not settled, PLM would file a cost bill and motion for attorney fees in the action for such amounts.
On May 1, 1998, the Company settled the case for $950,000 in cash, which was less than the Company's total exposure in the litigation. Of this amount, approximately $50,000 was paid by the Trust (to the extent of its assets) and the remainder was paid by the Company.
Note 8. Special Items
On November 14, 1997, the Company consummated the sale of all of the assets related to Mass Transportation' mass transportation business to Spear Technologies, Inc., a California corporation newly formed by former members of the Company's management. The Company received $1,300,000 in cash, a promissory note in the amount of $300,000, and a warrant to acquire 4% of Spear's then outstanding shares of common stock exercisable upon an initial public offering or a change of control (as defined in the warrant). Spear also assumed all liabilities associated with the Mass Transportation business. The special item of $355,000 in 1997, reflects the gain on sale from the Asset Sale, exclusive of the effect of the note and warrant. Full repayment of the note was contingent upon a minimum amount of equity funding of the buyer, which had not occurred at December 31, 1997. Therefore, the Company provided an allowance for the potential uncollectability of the note in 1997. The note was repaid in full in February 1998, and the additional gain of $300,000 was reported as a special item in 1998. In December 1999, the warrant was exchanged for convertible preferred stock, equivalent to 4% ownership of Spear on a fully diluted basis under the capital structure at the time of the exchange, and a redemption right equal to $525,000 in the event of Spear's liquidation. Neither the warrant nor the preferred stock has been assigned any value in the financial statements as the Company is not able to determine the recoverability of these assets.
Note 9. Selected Quarterly Combined Financial Data (Unaudited)
A summary of the Company's quarterly financial results follows.
(In thousands, except per share amounts)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders TENERA, Inc.
We have audited the accompanying consolidated balance sheets of TENERA, Inc. at December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TENERA, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Walnut Creek, California January 21, 2000
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The following tables set forth certain information with respect to the directors and executive officers of the Company.
The directors of the Company are as follows:
William A. Hasler, 58, has served as a Director of the Company since his election in March 1992 and Chairman of the Board of the Company since July 1998. Mr. Hasler is Co-Chief Executive Officer of Aphton Corporation, a bio-technology firm. Previously, Mr. Hasler was dean of the Walter A. Hass School of Business at the University of California, Berkeley. Prior to his appointment as dean in 1991, Mr. Hasler was Vice Chairman of Management Consulting for KPMG Peat Marwick from 1986 to 1991. Mr. Hasler is also a director of Solectron Corporation., Aphton Corporation, Walker Systems, and TCSI Corporation.
Jeffrey R. Hazarian, 44, has served as a Director of the Company since his election in October 1996, and was named its Executive Vice President in November 1997. He has also served as its Chief Financial Officer and Corporate Secretary since 1992. Previously, Mr. Hazarian held the position of Vice President of Finance from 1992 to 1997.
Thomas S. Loo, Esq., 56, was elected as a Director of the Company in February 1997. He previously served as a Director of the Company from August 1987 to September 1993. Mr.Loo has been a partner, since 1986, of Bryan Cave LLP, general counsel to the Company. Mr.Loo has also served as a director of Teknekron Corporation since March 1989.
Robert C. McKay, 48, has served as a Director of the Company since his election in June 1997, and was appointed its Chief Executive Officer and President in November 1997. Previously, Mr. McKay was Chief Operating Officer of the Company since April 1997. He was elected Senior Vice President of the Company in December 1992.
Andrea W. O'Riordan, 28, has served as Director of the Company since her election in June 1998. Ms. O'Riordan is an Applications Marketing Coordinator for Oracle Corporation. Prior to her joining Oracle Corporation in 1996, Ms.O'Riordan was Marketing Coordinator,Latin America, for a Reuters Company, from 1993 to 1995.
George L. Turin, Sc.D., 70, has served as a Director of the Company since his election in March 1995. Previously, Mr. Turin served as a Professor of Electrical Engineering and Computer Science at the University of California at Berkeley from 1960 to 1990. Mr. Turin also served as Vice President, Technology for Teknekron Corporation from 1988 to 1994.
Officers of the Company hold office at the pleasure of the Board of Directors. There are no familial relationships between or among any of the executive officers or directors of the Company.
Item 11.
Item 11. Executive Compensation
The following tables set forth certain information covering compensation paid by TENERA to the Chief Executive Officer and each of the Company's other executive officers, whose total annual salary and bonus exceeded $100,000 (the "named executives") for services to TENERA in all their capacities during the fiscal years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
[FN] (1) Includes $100,000 retention bonus paid to Mr. McKay in 1998 (see "Other Compensation Arrangements" below). Mr. Hazarian's bonus amounts in 1999 and 1998 include accrued bonuses of $4,000 and $3,000, respectively, paid in the beginning of the subsequent years.
(2) Reflects the number of options granted under the Company's 1992 Option Plan. The options expire at the earlier of the end of the option period, generally six years, or three months after employment termination.
(3) These amounts represent the amounts accrued for the benefit of the named executives under the Company's 401(k) Plan.
The following table sets forth certain information concerning options granted during 1999 to the named executives:
OPTIONS GRANTS IN 1999
Other Compensation Arrangements
The Company's 1992 Option Plan provides that options may become exercisable over such periods as provided in the agreement evidencing the option award. Options granted to date, including options granted to executive officers and set forth in the above tables, generally call for vesting over a four-year period. The 1992 Option Plan provides that a change in control of the Company will result in immediate vesting of all options granted and not previously vested.
Other than as set forth below for Mr. McKay, the Company has no employment contracts or arrangements for its executive officers.
Mr. McKay, upon appointment to Chief Operating Officer in 1997, was granted a retention bonus arrangement, amounting to $100,000, dependent upon his continued employment through June 30, 1998. The bonus was paid to Mr. McKay in 1998 in accordance with the arrangement.
Directors Compensation
Except as described below, the directors of the Company are paid no compensation by the Company for their services as directors. William A. Hasler, Thomas S. Loo, Andrea W. O'Riordan, and George L. Turin as non-employee directors, are paid a retainer of $1,000 per month. These non-employee directors are also paid a fee of $1,000 for each meeting of the Board, and any Board Committee meeting not held on the same day as a Board meeting, which they attend. The 1993 Outside Directors Compensation and Option Plan was approved by the Board effective March 1, 1994, as amended by the Board in 1998, and reserves up to 300,000 options for issuance to non-employee directors. During 1999, 12,500 stock options were issued to each of Messrs. Hasler, Loo, Turin, Bunch (resigned in July 1999), and Ms. O'Riordan. During 1998, 12,500 stock options were granted to each of Messrs. Hasler, Loo, Turin, Bunch, and Ms. O'Riordan. During 1997, 8,000 stock options were issued to each of Messrs. Hasler, Loo, Turin, and Williams (resigned in December 1997). The options expire ten (10) years after, vest one (1) year after the date of grant, and have an exercise price equal to the fair market value of the shares of the Company's Common Stock on the date of grant. Upon exercise of the options, a director may not sell or otherwise transfer more than 50% of the shares until six (6) months after the date on which the director ceases to be a director of the Company. Due to their resignations, Mr. Bunch's 1999 options and Mr. Williams' 1997 options did not vest and were forfeited.
Compensation Committee Interlocks and Insider Participation
During 1999, the Compensation Committee was composed of William A. Hasler, Thomas S. Loo, Andrea W. O'Riordan, and George Turin. Thomas S. Loo is a partner in the law firm of Bryan Cave LLP, general counsel to the Company and Teknekron Corporation, and is a director of Teknekron Corporation. Andrea W. O'Riordan, a director of the Company since June 29, 1998, is the daughter of Harvey E. Wagner, the Company's largest stockholder by virtue of a limited partnership interest in Incline Village Investment Group Limited Partnership (see Item 12). Mr. Wagner is also the sole stockholder and a director of Teknekron Corporation.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 1, 2000, with respect to beneficial ownership of the shares of Common Stock of the Company by each person who is known by the Company to own beneficially more than 5% of the shares of Common Stock:
[FN] (1) Such shares are held of record by Incline Village Investment Group Limited Partnership, a Georgia limited partnership, and were contributed to such partnership by Mr. Wagner in exchange for a 99% limited partnership interest. An additional 37,462 shares, as to which Mr. Wagner disclaims beneficial ownership, were contributed to such partnership by Mr. Wagner's spouse, Leslie Wagner, in exchange for a 1% general partner interest. Such partnership has sole voting and investment power with respect to all such shares. Mr. Wagner subsequently transferred a 14.7% limited partnership interest in the partnership to Ms. O'Riordan, a director of the Company, who disclaims beneficial ownership of all the shares held by such partnership.
(2) Mr. Keaton has sole voting and investment power with respect to all shares shown as beneficially owned by him, subject to community property laws where applicable.
(b) Security Ownership of Management
The following table sets forth information as of March 1, 2000, with respect to current beneficial ownership of shares of Common Stock by (i) each of the directors of the Company, (ii) each of the named executive officers (see Item 11. "Executive Compensation"), and (iii) all current directors and executive officers as a group.
[FN] (1) The persons named above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.
(2) Based on the number of shares outstanding at, or acquirable within 60 days of March 1, 2000. Asterisks represent less than 1% ownership.
(3) Represents options under the Company's 1993 Outside Directors Compensation and Option Plan which are exercisable on March 1, 2000, or within 60 days thereafter.
(4) Represents options under the Company's 1992 Option Plan which are exercisable on March 1, 2000, or within 60 days thereafter.
(5) Ms. O'Riordan is the daughter of Harvey E. Wagner, the Company's largest stockholder by virtue of a limited partnership interest in Incline Village Investment Group Limited Partnership (see Item 12(a), "Security Ownership of Certain Beneficial Owners").
Beneficial ownership as shown in the tables above has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this Rule, certain securities may be deemed to be beneficially owned by more than one person (such as where persons share voting power or investment power). In addition, securities are deemed to be beneficially owned by a person if the person has the right to acquire the securities (for example, upon exercise of an option or the conversion of a debenture) within 60 days of the date as of which the information is provided; in computing the percentage of ownership of any person, the amount of securities outstanding is deemed to include the amount of securities beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the preceding tables do not necessarily reflect the person's actual voting power at any particular date.
Item 13.
Item 13. Certain Relationships and Related Transactions
See "Compensation Committee Interlocks and Insider Participation."
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements of the Company are filed with this report and can be found in Part II, Item 8, on the pages indicated below:
PAGE
Consolidated Statements of Operations-- Years Ended December 31, 1999, 1998, and 1997 ................. 13 Consolidated Balance Sheets-- December 31, 1999 and 1998 ...... 14 Consolidated Statements of Stockholders' Equity-- Years Ended December 31, 1999, 1998, and 1997 ................. 15 Consolidated Statements of Cash Flows-- Years Ended December 31, 1999, 1998, and 1997 ................. 16 Notes to Consolidated Financial Statements .................... 17 Report of Independent Auditors ................................ 27 (a)(2) Financial Statement Schedules
The following financial statement schedules with respect to the Company are filed in this report:
Schedule VIII-- Valuation and Qualifying Accounts and Reserves . 36
All other schedules are omitted because they are either not required or not applicable.
(a)(3) Exhibits
2.1 Agreement and Plan of Merger dated as of June 6, 1995 among the Registrant, Teknekron Technology MLP I Corporation, TENERA, L.P., and TENERA Operating Company, L.P. (a form of which is attached as Annex A to the Registrant's Consent Solicitation Statement/Prospectus included in the Registration Statement on Form S-4 (Registration No. 33-58393) declared effective by the Securities and Exchange Commission ("SEC") on June 2, 1995 (the "Registration Statement"), and is incorporated herein by this reference).
2.2 Asset Acquisition Agreement dated November 14, 1997, between the Registrant and Spear Technologies, Inc. (filed as Exhibit 2.1 to the Registrant's Form 8-K filed with the SEC on November 14, 1997 and incorporated by reference herein (the "Form 8-K")).
2.3(1) Series C Preferred Stock Purchase Agreement dated March __, 2000 between the Registrant and Spear Technologies, Inc.
2.4(1) Asset Acquisition Agreement dated February 10, 2000 between the Registrant and SoBran, Inc.
3.1 Certificate of Incorporation of the Registrant dated October 27, 1994 (filed by incorporation by reference to Exhibit 3.3 to the Registration Statement).
3.2 By-Laws of the Registrant (filed by incorporation by reference to Exhibit 3.4 to the Registration Statement).
4.1 Form of Certificate of Common Stock of the Registrant (filed by incorporation by reference to Exhibit 4.5 to the Registration Statement). ------------------------------------
(1) Filed herewith.
11.1 Statement regarding computation of per share earnings: See "Note 5 to Consolidated Financial Statements."
21.1(1) List of Subsidiaries of the Registrant.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors.
27.1(1) Financial Data Schedule.
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the last quarter of 1999.
(c) Exhibits (see Item 14(a)(3) above.)
(d) Financial Statement Schedules
The schedules listed in Item 14(a)(2) above should be used in conjunction with the Consolidated Financial Statements of the Company for the year ended December 31, 1999.
----------------------------- (1) Filed herewith.
SCHEDULE VIII
TENERA, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2000
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN ---------------------------------------- Jeffrey R. Hazarian Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM A. HASLER Director March 28, 2000 - -------------------------- (William A. Hasler) Director, Chief Financial Officer, Executive Vice President, and Corporate Secretary /s/ JEFFREY R. HAZARIAN (Principal Financial Officer) March 28, 2000 - -------------------------- (Jeffrey R. Hazarian)
/s/ THOMAS S. LOO Director March 28, 2000 - -------------------------- (Thomas S. Loo)
Director, Chief Executive Officer, and President /s/ ROBERT C. MCKAY (Principal Executive Officer) March 28, 2000 - -------------------------- (Robert C. McKay)
/s/ ANDREA W. O'RIORDAN Director March 28, 2000 - -------------------------- (Andrea W. O'Riordan)
Controller and Treasurer /s/ JAMES A. ROBISON, JR. (Principal Accounting Officer) March 28, 2000 - -------------------------- (James A. Robison, Jr.)
/s/ GEORGE L. TURIN Director March 28, 2000 - -------------------------- (George L. Turin)
EXHIBIT INDEX
Ex. 2.3 Series C Preferred Stock Purchase Agreement between the Registrant and Spear Technologies, Inc.
Ex. 2.4 Asset Acquisition Agreement between the Registrant and SoBran, Inc.
Ex. 21.1 List of Subsidiaries of the Registrant
Ex. 23.1 Consent of Ernst & Young LLP, Independent Auditors
Ex. 27.1 Financial Data Schedule