SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Hagler Bailly, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement/Prospectus
if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
2) Aggregate number of securities to which transaction applies:
17,927,812 shares of common stock and 2,844,843 options to purchase
common stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): $5.32
per share
4) Proposed maximum aggregate value of transaction: $95,695,239
5) Total fee paid: $19,139.05
|X| Fee paid previously with preliminary materials:
The total fee of $19,139.05 computed pursuant to Exchange Act Rules
14a-6(i)(l) and 0-11 was previously paid in connection with the initial filing
of preliminary proxy materials on July 19, 2000.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
--------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------
4) Date Filed:
HAGLER BAILLY, INC.
1530 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
_____________, 2000
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders to
be held on ___________, 2000, at ____ [a.m.][p.m.] local time, at our corporate
headquarters located at 1530 Wilson Boulevard, Suite 400, Arlington, Virginia
22209.
At the special meeting, you will be asked to approve and adopt an
agreement and plan of merger, as amended, among the company, PA Consulting
Group, Inc., PA Holdings Inc., a wholly-owned direct subsidiary of PA Consulting
Group, Inc., and, only with respect to certain payment obligations and
representations, PA Holdings Limited (the "merger agreement"). If the merger
agreement is approved and the merger becomes effective, the company will become
a wholly-owned direct subsidiary of PA Consulting Group, Inc. and a wholly-owned
indirect subsidiary of PA Holdings Limited and you will receive $5.32 in cash
for each share of our common stock that you own immediately prior to the
effective time of the merger.
Our board of directors has determined that the merger is fair to and in
the best interests of the company and our stockholders and has unanimously
approved the merger and the merger agreement. The board of directors unanimously
recommends that you vote "FOR" approval and adoption of the merger agreement.
Banc of America Securities LLC, financial advisor to the company, has given its
opinion dated June 19, 2000 to our board of directors that the merger
consideration was fair, from a financial point of view, to our stockholders as
of such date.
This proxy statement provides you with detailed information about the
special meeting and the proposed merger. A copy of the merger agreement is
attached to the accompanying proxy statement as Appendix A. Please read both
carefully.
It is very important that your shares be represented and voted at the
special meeting. Whether or not you plan to attend the special meeting, please
complete, sign and promptly return the proxy card in the enclosed postage-paid
envelope. You may revoke your proxy at any time before it has been voted, and if
you attend the special meeting you may vote in person even if you have
previously returned your proxy card.
We hope that you can attend the special meeting of stockholders.
Henri-Claude A. Bailly
Chairman of the Board
This proxy statement is dated __________, 2000 and is first being mailed
to stockholders on or about ____________, 2000.
HAGLER BAILLY, INC.
1530 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ____________, 2000
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Hagler
Bailly, Inc. (the "company") will be held on ____________, 2000, at _____
[a.m.][p.m.] local time, at our corporate headquarters located at 1530 Wilson
Boulevard, Suite 400, Arlington, Virginia 22209, for the following purposes:
1. To approve and adopt an agreement and plan of merger, dated as
of June 19, 2000, as amended by the first amendment to
agreement and plan of merger dated as of August 30, 2000 (the
"merger agreement") among Hagler Bailly, Inc., PA Consulting
Group, Inc., PA Holdings Inc., a wholly-owned direct
subsidiary of PA Consulting Group, Inc., and, only with
respect to certain payment obligations and representations, PA
Holdings Limited, pursuant to which PA Holdings Inc. will
merge into the company and the company will be the surviving
corporation. In the merger, holders of common stock (other
than PA Consulting Group, Inc. and its subsidiaries, PA
Holdings Inc. and stockholders who seek appraisal of their
shares) will receive $5.32 in cash for each share of common
stock held by them immediately prior to the effective time of
the merger. Approval and adoption of the merger agreement will
also constitute approval of the merger and the other
transactions contemplated by the merger agreement; and
2. To transact such other business as may properly come before
the special meeting, or any adjournments or postponements
thereof.
Only holders of our common stock of record at the close of business on
___________, 2000 will be entitled to notice of and to vote at the special
meeting or any adjournments or postponements thereof. The merger, the merger
agreement and other related matters are more fully described in the accompanying
proxy statement and the Appendices thereto, which form a part of this notice and
should be read carefully by all stockholders.
Stockholders who do not vote in favor of adopting the merger agreement and
who otherwise comply with the requirements of Delaware law will be entitled to
appraisal rights. A summary of the applicable Delaware law provision, including
the requirements a stockholder must follow in order to exercise his or her
appraisal rights, is contained in the accompanying proxy statement. A copy of
the applicable Delaware law is included as Appendix C to the accompanying proxy
statement.
By Order of the Board of Directors
Stephen V.R. Whitman
Secretary
Arlington, Virginia
____________, 2000
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting in person, please complete, date, sign and return the enclosed proxy
card in the enclosed postage-paid envelope. If you attend the special meeting,
you may vote in person, even if you have previously returned your proxy card.
Please do not send in your stock certificates at this time. If the merger
is consummated, you will be sent instructions regarding the surrender of your
certificates.
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................iii
SUMMARY TERM SHEET.............................................................1
The Parties..............................................................1
The Special Meeting......................................................1
Structure and Effectiveness of the Merger................................1
Conversion of Common Stock...............................................2
Conversion of Stock Options..............................................2
Vote Required............................................................2
Recommendation of the Board of Directors.................................2
Conditions to Consummation of the Merger.................................3
Conduct of Business Pending the Merger...................................3
Termination of the Merger Agreement; Termination Fee.....................3
No Solicitation of Proposals.............................................4
Opinion of Financial Advisor.............................................4
Interests of Directors and Officers of the Company in the Merger.........4
Regulatory Approvals.....................................................5
Certain Federal Income Tax Consequences of the Merger....................5
Accounting Treatment of the Merger.......................................5
Appraisal Rights of Dissenting Stockholders..............................5
Market Price of Common Stock.............................................5
Selected Financial Data..................................................6
THE SPECIAL MEETING............................................................9
Date, Time, Place and Purpose of the Special Meeting.....................9
Record Date and Outstanding Shares.......................................9
Vote and Quorum Required.................................................9
Broker Non-Votes; Abstentions............................................9
Stock Ownership of Management and Other Affiliates; Voting Agreement.....9
Voting and Revocation of Proxies.........................................9
Solicitation of Proxies.................................................10
THE PARTIES...................................................................11
Hagler Bailly...........................................................11
PA Holdings Limited.....................................................12
PA Consulting Group, Inc................................................12
PA Holdings Inc.........................................................12
THE MERGER....................................................................13
Background of the Merger................................................13
Reasons for the Merger..................................................16
Recommendation of the Board of Directors................................18
Opinion of Hagler Bailly's Financial Advisor............................18
Interests of Certain Persons in the Merger..............................24
Merger Financing........................................................28
Regulatory Approvals....................................................28
Certain Federal Income Tax Consequences of the Merger...................28
Accounting Treatment of the Merger......................................29
Appraisal Rights of Dissenting Stockholders.............................29
THE MERGER AGREEMENT..........................................................33
Structure and Effectiveness of the Merger...............................33
Conversion of Common Stock..............................................33
Conversion of Stock Options.............................................33
Exchange of Shares for Cash.............................................34
-i-
Representations and Warranties..........................................35
Conduct of Business Pending the Merger..................................36
Certain Other Covenants and Agreements..................................38
No Solicitation of Proposals............................................39
Conditions to Consummation of the Merger................................41
Termination of the Merger Agreement; Termination Fee....................43
Amendment, Extension and Waiver of the Merger Agreement.................44
Indemnification and Insurance...........................................44
Expenses of the Merger..................................................45
RELATED AGREEMENTS............................................................46
The Voting Agreement....................................................46
The Earnout Agreement...................................................46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................48
FORWARD LOOKING STATEMENTS....................................................50
STOCKHOLDER PROPOSALS.........................................................50
WHERE YOU CAN FIND MORE INFORMATION...........................................50
APPENDICES
APPENDIX A - Agreement and Plan of Merger....................................A-1
APPENDIX B - Opinion of Banc of America Securities LLC.......................B-1
APPENDIX C - Section 262 of the Delaware General Corporation Law.............C-1
-ii-
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly some
commonly asked questions regarding the merger. These questions and answers may
not address all questions that may be important to you as a stockholder. Please
refer to the more detailed information contained elsewhere in this proxy
statement and its appendices.
Q: What is the proposal that I will be voting on?
A: You are being asked to approve and adopt the merger agreement. Approval
and adoption of the merger agreement will also constitute approval of the merger
and the other transactions contemplated by the merger agreement. The merger
agreement provides that PA Holdings Inc., a wholly-owned direct subsidiary of PA
Consulting Group, Inc., will merge with and into the company. As a result, the
company will become a wholly-owned subsidiary of PA Consulting Group, Inc. and a
wholly-owned indirect subsidiary of PA Holdings Limited.
Q: What will I receive in the merger?
A: If the merger is completed, you will receive $5.32 in cash for each
share of common stock that you own immediately prior to the effective time of
the merger.
Q: Who is entitled to vote at the meeting?
A: Holders of record of common stock as of the close of business on
_________, 2000 are entitled to vote at the special meeting. Each stockholder
has one vote for each share of common stock he or she owns on the record date.
Q: What vote is required for stockholders to approve the merger agreement?
A: In order for the merger agreement to be approved, holders of a majority
of the outstanding shares of common stock entitled to vote must vote "FOR"
approval of the merger agreement. If your shares are not voted, it has the same
effect as a vote "AGAINST" approval of the merger agreement.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in
this proxy statement, please vote your shares as soon as possible by completing,
signing and returning the enclosed proxy card.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: No. Your broker can vote your shares only if you provide instructions
to him or her on how to vote. You should instruct your broker on how to vote
your shares, using the instructions provided by your broker. If your shares are
not voted, it has the same effect as a vote "AGAINST" approval of the merger
agreement.
Q: Can I change my vote after I have mailed the proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You may revoke your proxy by notifying the Corporate
Secretary in writing or by submitting a new proxy card after the date of the
proxy being revoked. In addition, your proxy will
iii
be revoked by attending the special meeting and voting in person. However,
simply attending the special meeting will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the instructions
received from your broker to change your vote.
Q: Do I need to attend the special meeting in person?
A: No. Although you are welcome to attend, it is not necessary for you to
attend the special meeting in order to vote your shares.
Q: Will I have appraisal rights as a result of the merger?
A: Yes. If you wish to exercise your appraisal rights, you must follow the
requirements of Delaware law. A summary describing the requirements you must
follow in order to exercise your appraisal rights is described in "Appraisal
Rights of Dissenting Stockholders" in this proxy statement.
Q: When will I receive the merger consideration?
A: The merger is expected to be completed promptly following the special
meeting of the stockholders. Following the merger, you will receive instructions
on how to receive your cash payment in exchange for your shares of common stock.
You must return your stock certificates as described in the instructions. You
will receive your cash payment as soon as practicable after the paying agent
receives your stock certificate.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, the paying agent will send you
written instructions for exchanging your stock certificates for cash.
Q: Will I owe taxes as a result of the merger?
A: Yes. The merger will be a taxable transaction to you. You will
recognize long or short-term capital gain or loss in the merger in an amount
determined by the difference between the cash you receive and your tax basis in
the exchanged shares. We recommend that you read the section entitled "The
Merger -- Certain Federal Income Tax Consequences of the Merger" in this proxy
statement for a more detailed explanation of the tax consequences of the merger.
You should consult your tax advisor regarding the specific tax consequences of
the merger applicable to you.
Q: Who can help answer more questions?
A: If you have more questions about the merger after reading this proxy
statement, you should contact:
Stephen V.R. Whitman
Corporate Secretary
1530 Wilson Boulevard
Suite 400
Arlington, Virginia 22209
(703) 312-9855
iv
- --------------------------------------------------------------------------------
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement and may not contain all of the information that is important to you.
To understand the merger and related matters fully, you should read carefully
this entire document and the merger agreement which is attached as Appendix A to
this proxy statement. Each item in this summary term sheet includes a page
reference directing you to a more complete description of that item.
The Parties (See page 11)
Hagler Bailly. We provide management, economic and operations consulting
services to clients in the energy, network (including electric, gas and water
utilities), transportation, and telecommunications industries, commercial
litigation consulting and environmental consulting.
PA Holdings Limited. PA Holdings Limited, incorporated under the laws of
England, is the top tier holding company of a number of companies collectively
known as PA Consulting Group, which includes PA Consulting Group, Inc. and PA
Holdings Inc. PA Consulting Group provides management, systems and technology
consulting to clients in the chemicals, financial services, government and
public services, information, manufacturing, oil and gas, utilities,
pharmaceuticals and healthcare industries.
PA Consulting Group, Inc. PA Consulting Group, Inc. is the top tier U.S.
company through which PA Consulting Group conducts its operations in the United
States. It has offices in Plainsboro, New Jersey and Cambridge, Massachusetts,
from which it provides the consulting services described above.
PA Holdings Inc. PA Holdings Inc., a wholly-owned direct subsidiary of PA
Consulting Group, Inc., was formed solely for the purpose of effecting the
merger.
The Special Meeting (See page 9)
The special meeting will be held on ___________, 2000, at ____
[a.m.][p.m.] local time, at our corporate headquarters located at 1530 Wilson
Boulevard, Suite 400, Arlington, Virginia 22209. At the special meeting, you
will be asked to approve and adopt an agreement and plan of merger, dated as of
June 19, 2000, as amended, among the company, PA Consulting Group, Inc., PA
Holdings Inc., a wholly-owned direct subsidiary of PA Consulting Group, Inc.,
and, only with respect to certain payment obligations and representations, PA
Holdings Limited.
Structure and Effectiveness of the Merger (See page 33)
In the merger, PA Holdings Inc., a wholly-owned subsidiary of PA
Consulting Group, Inc., will merge with and into the company, and, as a result,
the company will become a wholly-owned direct subsidiary of PA Consulting Group,
Inc. and a wholly-owned indirect subsidiary of PA Holdings Limited.
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived. This includes approval and adoption of the
merger agreement by our stockholders. Approval and adoption of the merger
agreement will also constitute approval of the merger and the other transactions
contemplated by the merger agreement. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware.
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
Conversion of Common Stock (See page 33)
As a result of the merger, you will receive $5.32 in cash for each share
of our common stock you own immediately prior to the effective time of the
merger. You should not send in any stock certificates with your proxies. A
transmittal form with instructions for the surrender of your stock certificates
will be mailed to you as soon as practicable after completion of the merger.
Conversion of Stock Options (See page 33)
PA Consulting Group, Inc. will pay cash for outstanding stock options
granted pursuant to the Hagler Bailly Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan, as follows:
o with respect to options which are vested and have an exercise price
of less than $5.32, PA Consulting Group, Inc. will pay an amount per
option equal to the excess of $5.32 over each option's per share
exercise price, the "option spread", to the holders of such options;
o with respect to options which have an exercise price equal to or
greater than $5.32 per share, whether vested or unvested, PA
Consulting Group, Inc. will pay an amount per option grant equal to
$1.00 (or a lesser amount if the total number of grants of
out-of-the-money options is greater than 2,000) multiplied by the
total number of grants of out-of-the-money options to such
optionholder. To the extent that the number of grants of out-of-the
money options exceeds 2,000 the amount to be received by each
optionholder per grant will be reduced pro rata so that in the
aggregate the consideration paid to holders of out-of-the-money
options does not exceed $2,000; and
o with respect to any option which is not, as of the effective time of
the merger, vested, but which has an exercise price of less than
$5.32, PA Consulting Group, Inc. will pay to the optionholder the
option spread as soon as practicable after the date when such option
would otherwise have vested if such option had not been canceled.
Vote Required (See page 9)
The holders of a majority of the outstanding shares of our common stock
owned as of _________, 2000, the record date, must approve and adopt the merger
agreement in order for the merger to be consummated. You are entitled to one
vote for each share of our common stock you owned on the record date.
Certain directors, executive officers and affiliates who hold
approximately 12.1% of our common stock as of the record date have executed a
voting agreement under which they have agreed to vote all of their shares in
favor of approval and adoption of the merger agreement.
Recommendation of the Board of Directors (See page 18)
The board of directors has determined that the merger and the merger
agreement are fair to and in the best interests of the company and our
stockholders and has unanimously approved the merger, the merger agreement and
the transactions contemplated by the merger agreement. The board of directors
unanimously recommends that you vote "FOR" approval and adoption of the merger
agreement.
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Conditions to Consummation of the Merger (See page 41)
The respective obligations of each of the parties to complete the merger
are subject to the satisfaction or waiver of conditions. The conditions that
must be satisfied or waived before the parties can complete the merger include
the following, subject to exceptions and qualifications:
o the merger agreement must be approved by the requisite vote of our
stockholders;
o no law, regulation or order may be enacted or issued which has the
effect of preventing or prohibiting consummation of the merger;
o all applicable waiting periods under applicable antitrust laws must
have expired or been terminated and all material foreign antitrust
approvals required to be obtained prior to the merger must have been
obtained;
o to the extent required by contract, the company must have received
consents of third parties to the consummation of the merger, except
where the failure to receive such consents would not have a material
adverse effect on the company;
o the representations and warranties of each party to the merger
agreement must be true and correct, except for such inaccuracies
which would not individually or in the aggregate have a material
adverse effect;
o the parties to the merger agreement must have complied in all
material respects with their respective agreements in the merger
agreement;
o no material adverse effect with respect to the company must have
occurred and be continuing or be reasonably expected to occur; and
o each of the voting agreement and the earnout agreement (as described
in the section entitled "Related Agreements") must have been entered
into and remain in full force and effect.
Conduct of Business Pending the Merger (See page 36)
We have agreed to operate our business in the usual and ordinary course
and generally to preserve our business organization, properties and assets,
retain the services of our principal officers and key employees and maintain our
relationships with our principal customers and suppliers until the merger is
completed. In addition, we have agreed to a number of specific conditions on the
conduct of our business until the closing of the merger.
Termination of the Merger Agreement; Termination Fee (See page 43)
The merger agreement may be terminated by the mutual written consent of
the company and PA Consulting Group, Inc.
In addition, subject to qualifications, the merger agreement may be
terminated by either the company or PA Consulting Group, Inc. if:
o the other materially breaches any of its representations,
warranties, covenants or agreements contained in the merger
agreement and causes the conditions to closing relating to those
representations, warranties, covenants and agreements to be
unsatisfied, and such breach has not been cured, or by its nature or
timing cannot be cured, within 30 days after written notice thereof;
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
o a final injunction or order prohibiting the merger is issued and is
not appealable;
o our stockholders do not approve the merger agreement at the special
meeting; or
o the merger is not consummated by the date which is 180 days after
the date of the merger agreement, provided that the right to
terminate the merger agreement is not available to any party whose
breach of its obligations under the merger agreement has caused such
termination and that applicable cure periods have run.
PA Consulting Group, Inc. may terminate the merger agreement if:
o our board of directors accepts or recommends to its stockholders a
"superior proposal," as described in the section entitled "No
Solicitation of Proposals";
o any of our stockholders who are parties to the voting agreement
breach in any material respect any representation, warranty, or
agreement in the voting agreement without curing it and such breach
denies PA Consulting Group, Inc. the material benefits contemplated
by the voting agreement; or
o subject to certain notice and cure periods, after the date of the
merger agreement, there shall occur and be continuing a material
adverse effect relating to us.
We may terminate the merger agreement if:
o our board of directors accepts or recommends to our stockholders a
superior proposal, provided that our board of directors has
materially complied with their obligations relating to negotiation
with others under the merger agreement.
Under the merger agreement, we are obligated to pay PA Consulting Group,
Inc. a termination fee of $5,000,000 if either we or PA Consulting Group, Inc.
terminates the merger agreement as a result of our board of directors accepting
or recommending to our stockholders a superior proposal.
No Solicitation of Proposals (See page 39)
Until the merger is completed or the merger agreement is terminated, we
have generally agreed not to solicit, initiate, facilitate or encourage any
inquiries or engage in discussions that could be expected to result in an
"acquisition proposal," as described in the section entitled "No Solicitation of
Proposals".
However, if we receive an unsolicited acquisition proposal that our board
of directors reasonably concludes, after consultation with an independent
investment bank, may constitute a superior proposal, we may furnish non-public
information regarding the acquisition proposal and may enter into discussions
with the person or entity who has made the acquisition proposal if we follow
other specified procedures.
Opinion of Financial Advisor (See page 18)
Banc of America Securities LLC delivered an opinion to our board of
directors that as of June 19, 2000 the merger consideration was fair from a
financial point of view to the holders of our common stock. We have attached
this opinion as Appendix B to this proxy statement.
Interests of Directors and Officers of the Company in the Merger (See page 24)
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
In considering the recommendation of the board of directors to vote in
favor of the merger agreement, you should be aware that a number of our
directors and executive officers have interests in the merger that are different
from, or are in addition to, yours. These interests include:
o specified indemnification rights to which our directors and officers
are entitled;
o payment of $43,767 in the aggregate to the directors and executive
officers for their outstanding options to purchase our common stock;
and
o employment agreements with a number of our executive officers which
provide for payments to such executive officers upon consummation of
the merger. The aggregate amount of these payments will not exceed
$345,000.
As a result, these directors and officers may be more likely to vote in
favor of approving the merger and the merger agreement than if they did not have
these interests.
Regulatory Approvals (See page 27)
The merger is subject to antitrust laws. On July 7, 2000, the company and
PA Consulting Group, Inc. each filed the required information and materials with
the Department of Justice and Federal Trade Commission. The applicable waiting
period has terminated. However, the Antitrust Division of the Department of
Justice, the Federal Trade Commission, state antitrust authorities or a private
person or entity may challenge the merger at any time before or after its
completion.
Certain Federal Income Tax Consequences of the Merger (See page 28)
The merger will be a taxable transaction to our stockholders. Stockholders
will recognize long or short-term capital gain or loss in the merger in an
amount determined by the difference between the cash received and their tax
basis in the exchanged shares.
Accounting Treatment of the Merger (See page 29)
The merger is expected to be accounted for using the purchase method of
accounting.
Appraisal Rights of Dissenting Stockholders (See page 29)
If you are a stockholder who does not vote in favor of the merger
agreement, and you satisfy all other conditions of Section 262 of the Delaware
General Corporation Law you will be entitled to dissent and demand an appraisal
of the "fair value" of your shares. To exercise your appraisal rights, you must
deliver a written objection to the merger to us at or before the special
meeting. Your failure to follow the exact procedures specified under Section 262
of the Delaware General Corporation Law, which is included as Appendix C to this
proxy statement, will result in the loss of your dissenters' rights.
Market Price of Common Stock
Our common stock was first offered to the public on July 3, 1997, and
since that time has been traded on the Nasdaq National Market under the symbol
"HBIX." The following table sets forth the range of reported high and low
closing sales prices for our common stock, for the periods indicated, as
reported by the Nasdaq National Market.
High Low
---- ---
Fiscal 2000
First Quarter $5.875 $3.750
Second Quarter $5.000 $1.875
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
Third Quarter (through August 30, 2000) $5.188 $4.875
Fiscal 1999
First Quarter $22.313 $6.250
Second Quarter $10.375 $5.625
Third Quarter $10.375 $6.563
Fourth Quarter $7.750 $4.469
Fiscal 1998
First Quarter $25.000 $18.625
Second Quarter $30.000 $22.500
Third Quarter $30.250 $16.750
Fourth Quarter $24.000 $13.563
The closing market price per share of our stock on June 16, 2000, which
was the last full trading day immediately preceding the public announcement of
the proposed merger, was $4.00. On __________, 2000, the most recent practicable
date prior to the printing of this proxy statement, the closing price of our
stock was $____.
We had 226 holders of record of our common stock at July 7, 2000, and
approximately 1,000 beneficial owners. We have never paid a cash dividend on our
common stock and do not expect to pay a cash dividend on our common stock in the
foreseeable future.
Selected Financial Data
The following selected consolidated financial data for the year ended
December 31, 1995, combine the financial data of RCG/Hagler Bailly, Inc., a
wholly-owned subsidiary of RCG International Inc., which was acquired on May 25,
1995 by the management of RCG/Hagler Bailly, Inc. and the consolidated financial
data of the company from May 26, 1995 to December 31, 1995 derived from the
consolidated financial statements of the company. The selected consolidated
financial data as of December 31, 1995, is derived from the consolidated
financial statements of the company. The selected consolidated financial data as
of and for the years ended December 31, 1996, 1997, 1998 and 1999 have been
derived from the audited consolidated financial statements of the company. The
unaudited interim financial statements of the company for the six months ended
June 30, 1999 and 2000 have been derived from the unaudited interim consolidated
financial statements of the company. The company's prior years have been
restated to include the historical financial information of Apogee Research,
Inc. ("Apogee"), TB&A Group, Inc. and its wholly-owned subsidiary Theodore Barry
& Associates (collectively, "TB&A"), IGA and Putnam Hayes & Bartlett, Inc.
("PHB") as a result of business combinations accounted for as poolings of
interests.
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
The results of operations for prior periods are not necessarily indicative
of the results that may be expected for future years. The information set forth
below should be read in conjunction with the company's consolidated financial
statements and the notes thereto.
Six Months Ended
Years ended December 31, June 30,
------------------------------------------------------------- ----------------------
1995(1)(2) 1996 (2) 1997 (2) 1998 1999 (2) 1999 2000
--------- --------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (In thousands, except per share data)
Revenues $ 120,566 $ 143,141 $ 160,615 $ 177,462 $ 181,981 $ 84,787 $ 82,995
Cost of services 94,163 110,500 120,585 126,204 147,294 64,341 64,083
--------- --------- --------- --------- --------- --------- ---------
Gross profit 26,403 32,641 40,030 51,258 34,687 20,466 18,912
Liquidation of subsidiary (4) -- 662 328 -- --
Merger related and other
nonrecurring costs (5) -- -- 1,235 8,275 292
Asset impairment (8) -- -- -- 1,107 4,591
Selling, general and
administrative expenses 21,810 26,047 26,868 25,112 40,440 15,744 23,081
Stock and stock option
compensation (3) -- 6,172 9,965 2,595 --
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) from operations 4,593 (240) 1,634 14,169 (10,636) 4,702 (4,169)
Other income (expense), net (7) (799) (853) (400) 269 (73) 91 (130)
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before equity
investment in joint venture,
income tax expense and
extraordinary gain 3,794 (1,093) 1,234 14,438 (10,709) 4,793 (4,229)
Income tax expense (benefit) 1,907 1,786 5,460 7,275 (1,212) (1,871) 992
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before equity
investment in joint venture
and extraordinary gain 1,887 (2,879) (4,226) 7,163 (9,497) 2,922 (3,307)
(Loss) from equity investment in
joint venture -- -- -- (463) (427) (230) 98
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary gain 1,887 (2,879) (4,226) 6,700 (9,924)
Extraordinary gain (6) 1,055 145 2,336 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,942 $ (2,734) $ (1,890) $ 6,700 $ (9,924) $ 2,692 $ (3,209)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share
Basic:
Net (loss) income before
extraordinary gain * $ (0.25) $ (0.32) $ 0.42 $ (0.58) $ 0.16 $ (0.18)
Extraordinary gain * $ 0.01 $ 0.17 -- --
Net (loss) income * $ (0.24) $ (0.14) $ 0.42 $ (0.58) $ 0.16 $ ( 0.18)
Dilutive:
Net (loss) income before
extraordinary gain * $ (0.25) $ (0.32) $ 0.40 $ (0.58) $ 0.16 $ (0.18)
Extraordinary gain * $ 0.01 $ 0.17 -- --
Net (loss) income * $ (0.24) $ (0.14) $ 0.40 $ (0.58) $ 0.16 $ (0.18)
Weighted average shares outstanding
Basic * 11,321 13,361 15,992 17,059 16,533 17,920
Dilutive * 11,321 13,361 16,772 17,059 17,041 17,920
* Due to the acquisition on May 25, 1995, and the related change in capital
structure, earnings per share information for this period is not
meaningful and, accordingly, is not presented.
- --------------------------------------------------------------------------------
7
DECEMBER 31, JUNE 30,
-------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- ------- -------- -------
BALANCE SHEET DATA (In Thousands)
Cash and cash equivalents $ 1,753 $ 3,218 $ 5,261 $ 16,165 $ 9,656 $ 11,587 $ 5,352
Working capital 5,054 7,382 34,122 54,294 44,354 52,714 43,370
Total assets 52,703 55,872 84,657 101,422 116,209 101,146 103,010
Total debt 20,606 16,790 2,752 1,026 666 1,007 4,070
Total stockholders' equity 3,772 9,958 48,849 73,599 72,292 74,741 69,100
(1) The operating data for the year-ended December 31, 1995 reflect the
combined results of operations of the RCG/Hagler Bailly, Inc. from January
1, 1995 to May 24, 1995, the company from May 25, 1995 to December 31,
1995, and the annual results of Apogee, TB&A, IGA and PHB.
(2) The statements of operations data for the years ended December 31, 1995,
1996 and 1997 include performance incentive compensation paid to PHB
senior staff members in excess of a standard bonus set for their
respective staff levels. The excess performance incentive compensation was
included in cost of services and selling, general and administrative
expenses was $6,260, $9,588 and $7,294 for the years ended December 31,
1995, 1996 and 1997, respectively. In addition, the year ended December
31, 1996 includes approximately $500 of cost of services, representing
that portion of officer compensation that exceeded the compensation that
would have been paid had the compensation plan adopted in January 1997
been in effect for all of 1996; and the year ended December 31, 1999
includes $10,868 in bonuses paid to key staff. In 1997 the Board adopted a
resolution limiting the amount that may be set aside for bonuses to forty
percent (40%) of net income before bonuses and taxes. In approving bonuses
for 1999 the Board of Directors made an exception to this limitation.
(3) In connection with an amendment to the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan and a
reclassification of its common stock, each effective December 31, 1996,
the company incurred non-recurring, non-cash charges to operations
amounting to approximately $4,600 for options and approximately $1,600 for
stock in 1996. In connection with a stock bonus to an employee, the
company incurred a non-cash compensation charge to operations in the first
quarter of 1997 of $65. PHB common stock issued or subject to issuance
under subscriptions receivable entered into within 12 months preceding the
closing of the merger were presumed to have been issued in contemplation
of the proposed transaction and were accounted for at their fair market
value at date of issuance. Accordingly, PHB recognized a non-recurring,
non-cash, non-tax deductible compensation charges for the years ended
December 31, 1997 and 1998 of approximately $9,900 and $2,600,
respectively, representing the difference between the fair market and book
value of shares of common stock then issuable.
(4) On December 31, 1996, PHB liquidated its wholly-owned subsidiary in the
U.K. Of PHB's loss of $662 in 1996, $549 represented cumulative foreign
currency translation losses that had previously been recorded as a
separate component of the PHB's shareholders' equity. In 1997, $328 was
recorded as management's estimate of the uncollectable net proceeds
resulting from the liquidation.
(5) For the year ended December 31, 1997, 1998 and 1999, the company recorded
merger related and other nonrecurring costs of $1,235, $8,275 and $292,
respectively, as a result of business combinations and related costs (see
note 17 to the 1999 financial statements).
(6) For the years ended December 31, 1995, 1996 and 1997, the company recorded
extraordinary gains of $1,055, $145 and $2,336, respectively, as a result
of extinguishment of debt at beneficial terms by TB&A.
(7) Other income (expenses), net includes interest income, interest expense,
minority interest, other income, and other expenses.
(8) For the years ended December 31, 1998 and 1999, the company recorded asset
impairment expenses of $1,107 and $4,591, respectively. In 1998, the
expense was recorded as a result of certain software development costs
which were impaired due to the duplication of technologies resulting from
the company's business combinations and its joint venture with Cap Gemini.
In 1999, the expense was recorded as a result of the impairment of
goodwill associated with certain subsidiaries (see note 18 to the 1999
financial statements).
- --------------------------------------------------------------------------------
8
THE SPECIAL MEETING
Date, Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to stockholders as part of the
solicitation of proxies by our board of directors for use at the special meeting
and at any adjournments or postponements thereof.
The special meeting is scheduled to be held on ___________, 2000 at ____
[a.m.] [p.m.] at our corporate headquarters, located at 1530 Wilson Boulevard,
Suite 400, Arlington, Virginia 22209.
At the special meeting, stockholders will be asked to approve and adopt
the merger agreement and to transact any other business that is properly brought
before the special meeting or any postponement or adjournment thereof.
Record Date and Outstanding Shares
Only holders of record of our common stock at the close of business on
_________, 2000, the record date, are entitled to notice of and to vote at the
special meeting or any adjournments thereof. As of the close of business on the
record date, there were 17,927,812 shares of common stock outstanding and
entitled to vote. These shares were held of record by approximately ___________
stockholders.
Vote and Quorum Required
Holders of common stock are entitled to one vote for each share held on
the record date on all matters properly presented at the special meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of common stock entitled to vote is necessary to constitute a quorum for
the transaction of business at the special meeting. Approval of the merger
agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of common stock entitled to vote.
Broker Non-Votes; Abstentions
Broker "non-votes" and abstentions will be included in determining the
number of shares represented at the special meeting. Because approval of the
merger agreement requires the affirmative vote of the holders of a majority of
the outstanding shares of common stock entitled to vote, abstentions and broker
"non-votes" will have the same effect as a vote against approval of the merger
agreement. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power on that item and has not received
instructions from the beneficial owner.
Stock Ownership of Management and Other Affiliates; Voting Agreement
Certain directors, executive officers and affiliates who own an aggregate
of 2,170,849 shares of our common stock as of the record date, or approximately
12.1% of the outstanding shares, have executed a voting agreement with PA
Consulting Group, Inc. under which they have agreed to vote all of their shares
in favor of approval of the merger agreement. See "Related Agreements -- The
Voting Agreement" for a description of the terms of the voting agreement.
Voting and Revocation of Proxies
All shares entitled to vote and represented by properly executed proxies
received prior to the special meeting, and not revoked, will be voted as
instructed on those proxies. Executed proxies
9
with no instructions indicated thereon will be voted "FOR" approval and adoption
of the merger agreement.
Our board of directors is not aware of any matters other than the
approval of the merger agreement that may be properly brought before the special
meeting. If any other matters are properly presented at the special meeting or
any adjournments or postponements of the special meeting for consideration, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in accordance with the determination
of a majority of the board of directors.
The accompanying form of proxy is for use at the meeting if a holder of
common stock is unable to attend in person. You may revoke your proxy at any
time before it is exercised at the meeting by taking any of the following
actions:
o delivering to our Corporate Secretary a written notice bearing a
date later than the date of the proxy, stating that the proxy is
revoked;
o signing and delivering a proxy relating to the same shares and
bearing a later date prior to the vote at the special meeting; or
o attending the special meeting and voting in person, although
attendance at the meeting will not, by itself, revoke a proxy.
Any written notice of revocation or subsequent proxy should be sent before
the taking of the vote at the special meeting to Hagler Bailly, Inc., 1530
Wilson Boulevard, Suite 400, Arlington, Virginia 22209, Attention: Stephen V.R.
Whitman, Corporate Secretary.
You should not send in any stock certificates with your proxies. A
transmittal form with instructions for the surrender of your stock certificates
will be mailed to you as soon as practicable after completion of the merger.
Solicitation of Proxies
We will pay the expenses of soliciting proxies and the cost of printing
and mailing this proxy statement. In addition to soliciting proxies by mail,
proxies may be solicited personally or by telephone, facsimile, or other means
of communications, without additional remuneration, by directors, officers and
employees. We have retained a proxy solicitation firm, Corporate Investor
Communications, Inc., to assist us in the solicitation process for a fee of
approximately $5,000, plus out-of-pocket expenses, and we have agreed to
indemnify Corporate Investor Communications generally for liabilities arising
out of our contract with them. We will also request brokers, custodians,
nominees and other fiduciaries to send solicitation materials to beneficial
owners of shares of common stock and will reimburse them for their reasonable
expenses in connection therewith.
10
THE PARTIES
Hagler Bailly
Our predecessor was founded in 1980 as Hagler, Bailly & Company, Inc. In
July 1984, RCG International, Inc., an indirect subsidiary of Reliance Group
Holdings, Inc., acquired Hagler, Bailly & Company, Inc., which was renamed
RCG/Hagler Bailly, Inc. in 1987. In May 1995, the management of RCG/Hagler
Bailly, Inc. completed the purchase of RCG/Hagler Bailly, Inc. from RCG
International and the successor to RCG/Hagler Bailly, Inc. became a wholly-owned
subsidiary of Hagler Bailly. In July 1997, we completed our initial public
offering.
Over the past 20 years, we have developed expertise in management,
economic and operations consulting to clients in the energy, network (including
electric, gas and water utilities), transportation, and telecommunications
industries, commercial litigation and the environment. By maintaining our
industry focus, we have established ourselves as one of the premier consulting
firms in these fields.
Our business strategy is to combine proprietary knowledge and methods with
industry expertise and functional consulting skills to develop customized
solutions for our clients' complex business problems, then offer resources such
as information technologies needed to implement and sustain the solutions,
thereby creating tangible long-term value for the client.
To better serve the varying needs of our clients, we provide services
through the following principal subsidiaries: PHB Hagler Bailly, Inc., GKMG,
Inc. and Hagler Bailly Services, Inc.
Through PHB Hagler Bailly, we provide commercial-rate consulting services
in the areas of strategic advice and analysis to commercial sector clients
(including businesses and governments) in developed countries, helping clients
solve issues involving energy, telecommunications, transportation, water
resources, the environment, litigation and other matters. Referred to as the
commercial segment, PHB Hagler Bailly's consulting professionals have first-hand
experience in developing sound strategies and applying business principles that
focus on issues and increase enterprise value. PHB Hagler Bailly has been at the
forefront of assessing market strength, providing asset valuations and
performance measurements, analyzing competition, measuring risks, and improving
financial and operating performance.
Through GKMG, we provide management and economic consulting to the
aviation industry on how to compete in the deregulated, competitive
transportation environment.
Through Hagler Bailly Services, we provide government-rate consulting
services in the areas of advisory and technical services to government sector
clients worldwide in energy, transportation, water, telecommunications, and the
environment. Referred to as the government segment, Hagler Bailly Services, in
addition to advising U.S. federal and state governments, advises multilateral
and bilateral donor and financial organizations as well as foreign governments,
and selected commercial clients in emerging or developing markets. Hagler Bailly
Services' consulting experts provide public policy assistance by advising
governments and business leaders on the evolution of specific policies in each
country and creating a global view of policy reforms. Hagler Bailly Services has
been at the forefront of developing policy and pricing frameworks, formulating
national and provincial strategy and planning, drafting laws and regulations,
managing the transition to competitive markets, promoting investment and
business creation, evaluating assets, and promoting sustainable development.
Our principal executive offices are located at 1530 Wilson Boulevard,
Suite 400, Arlington, Virginia 22209 and our telephone number is (703) 351-0300.
11
PA Holdings Limited
PA Holdings Limited, incorporated under the laws of England, is the top
tier holding company of a number of companies collectively known as PA
Consulting Group, which includes PA Consulting Group, Inc. and PA Holdings Inc.
PA Consulting Group is a leading management, systems and technology consulting
group of companies. It was established almost 60 years ago and operates
worldwide through several operating companies from over 30 offices in 20
countries. PA Consulting Group provides consulting services in the areas of
strategy, human resources, performance improvement, information technology, and
project management to clients in the chemicals, financial services, government
and public services, information, manufacturing, oil and gas, utilities,
pharmaceuticals and healthcare industries.
PA Consulting Group's business strategy is to combine the knowledge and
industry expertise of its consultants to develop and implement tailored
solutions for its clients' complex business needs.
In the area of strategy development, PA Consulting Group provides clients
with strategies for managing shareholder value, accelerating business growth,
business modeling, mergers, acquisitions and divestments, strategic sourcing,
and strategic marketing.
In the area of human resources, PA Consulting Group assists clients in
developing and implementing organizational solutions for the management of
employees, management development, training and education and use of the PA
Preference Inventory as an assessment tool for the selection, recruitment and
development of employees.
In the area of performance improvement, PA Consulting Group assists
clients in achieving sustainable improvement in performance, using business
process redevelopment, enterprise re-engineering, process improvement using a
chosen enterprise resource planning system, supply chain consulting,
manufacturing and engineering consulting, and e-business solutions.
In the area of information technology (IT), PA Consulting Group develops
and implements IT initiatives for clients by providing IT strategy, IT sourcing
and systems development and transforming IT performance and IT infrastructure.
In the area of project management, PA Consulting Group's specialists
provide project management ranging from construction and engineering projects to
transformation projects involving significant IT and projects involving
organizational development, training and the introduction of a projects culture.
The principal executive offices of PA Holdings Limited are located at 123
Buckingham Palace Road, London SW1W 9SR, England and its telephone number is
44-20-7730-9000.
PA Consulting Group, Inc.
PA Consulting Group, Inc. is the top tier U.S. company through which PA
Consulting Group conducts its operations in the United States. It has offices in
Plainsboro, New Jersey and Cambridge, Massachusetts, from which it provides the
consulting services described above.
PA Holdings Inc.
PA Holdings Inc., a wholly-owned direct subsidiary of PA Consulting Group,
Inc., was formed solely for the purpose of effecting the merger.
12
THE MERGER
The following is a summary of the material provisions of the merger. This
summary does not purport to describe all the terms of the merger and is
qualified in its entirety by reference to the merger agreement which is attached
as Appendix A to this proxy statement and is incorporated by reference. You are
urged to read the merger agreement carefully and in its entirety.
Background of the Merger
On March 3, 1999 our management decided to retain Banc of America
Securities LLC ("Banc of America Securities") under a broad mandate to assist us
in exploring various strategic and financial alternatives in an effort to
maximize stockholder value, including possible acquisitions and sale
transactions. In subsequent months, however, we were disappointed with our
profit performance, the depressed level of our share price and our inability to
leverage our market position, intellectual capital and reputation to the benefit
of our stockholders.
On September 27, 1999 we publicly announced that our board of directors
had engaged Banc of America Securities as our financial advisor to assist us in
exploring strategic and financial alternatives to maximize shareholder value,
including the potential sale or merger of the company.
After discussions with management, Banc of America Securities undertook to
solicit interest in a potential sale or merger of the company. During October
and November 1999, in conjunction with management, Banc of America Securities
prepared a confidential memorandum concerning the company and its business.
Throughout December 1999 and January 2000, Banc of America Securities contacted
64 potential purchasers, including 45 potential strategic partners and 19
potential financial partners. Confidentiality agreements and a confidential
memorandum dated December 1999 were then sent to 32 potential purchasers,
including 18 potential strategic partners and 14 potential financial partners.
Banc of America Securities also distributed an addendum to the confidential
memorandum, dated January 2000, to potential purchasers. Initial indications of
interest were received between January 24, 2000 and February 4, 2000, from two
potential strategic partners for the entire company, two potential strategic
partners for the commercial consulting business on a stand-alone basis and three
potential strategic partners for the government consulting business on a
stand-alone basis.
At a board of directors meeting on February 2, 2000, Banc of America
Securities reviewed for the board of directors the initial indications of
interest, and the board of directors requested that Banc of America Securities
invite five of the interested parties to attend management presentations and
complete their initial due diligence and submit proposals for a transaction with
the company. Banc of America Securities received a third indication of interest
for the commercial consulting business two weeks after the initial bid date
which it also discussed with the board of directors. We hosted five management
presentations between February 14, 2000 and March 1, 2000, and the five
interested parties interviewed members of our management and reviewed additional
information made available by the company regarding its business operation,
contracts, employee benefit plans, business projections and other operational
information. Final indications of interest were received on March 17, 2000 and
March 20, 2000 from two parties. The first was a letter of interest for the
government consulting business on a stand-alone basis.
The second was a written proposal from PA Consulting Group for an all-cash
acquisition of the company for consideration of $7.12 per share. PA Consulting
Group's proposal was contingent upon satisfactory completion of further due
diligence review of the company, the absence of any material adverse change with
respect to the company and its performance, execution of an exclusive
negotiation agreement and various other conditions.
13
At a board of directors meeting on March 24, 2000, the board members
received a detailed briefing on the developments regarding the strategic
transaction discussions. The briefing also included a presentation by Banc of
America Securities regarding the following:
o an overview of the company's financial condition including a
discussion of the viability of the business in the absence of a
strategic transaction, reliability of our projected financial
performance in light of the impact of potential consultant
resignations, and lack of market interest in the company;
o a summary of marketing efforts by Banc of America Securities to
solicit interest from potential strategic and financial partners,
including a tally of parties solicited, initial indications of
interest received and letters of interest received with respect to a
potential strategic transaction;
o our stock price, historical trading ranges and stock performance
relative to the selected market and peer group indices since our
initial public offering in July 1997;
o a summary of analyst commentaries on the company's stock since 1998;
o a review of the institutional holdings in the company, including a
discussion of the decrease or elimination of major institutional
holdings since the first quarter of 1999;
o information with respect to our financial condition, financial
projections, results of operation, cash flow and business prospects;
and
o a preliminary valuation analysis for our common stock, including a
comparable company analysis, precedent transaction analysis,
discounted cash flow analysis and premiums analysis.
The board of directors evaluated Banc of America Securities' presentation,
including its recommendation to pursue further negotiations with PA Consulting
Group, subject to certain conditions, and held discussions with management
regarding the future prospects of the company. Based on all the factors
presented, at the March 24, 2000 meeting, the board of directors concluded that
management should proceed with the merger discussions with PA Consulting Group
and take all the necessary steps to conclude the merger transaction in a speedy
manner. The board of directors appointed a transaction team led by Stephen V.R.
Whitman, Senior Vice President and General Counsel, to negotiate the definitive
merger agreement.
On March 29, 2000, members of our management, Jeremy Asher, Group Chief
Executive of PA Consulting Group, and representatives of Banc of America
Securities met at the company's offices to discuss and clarify certain terms of
PA Consulting Group's proposal. As a result of these discussions, PA Consulting
Group submitted a revised written proposal to us in a letter dated March 30,
2000 for an all-cash acquisition of the company for consideration of $7.12 per
share subject to possible downward adjustments resulting from payments to
certain executive officers, payments relating to the earnout agreement and other
matters that might arise as a result of further due diligence.
At a board of directors' meeting on March 31, 2000, Mr. Whitman summarized
the discussions with, and the terms of the revised proposal from, PA Consulting
Group for the board of directors. The board of directors reviewed and discussed
the items in the revised proposal that could lead to possible downward
adjustments to the merger consideration. After further deliberations, the board
of directors authorized Mr. Whitman and the transaction team to proceed with
discussions with PA Consulting Group on an exclusive basis.
14
On April 7, 2000, the company and PA Consulting Group entered into an
exclusive negotiation agreement which provided for an exclusive negotiation
period between the parties through June 30, 2000. Between April 7, 2000 and June
18, 2000, our management, Banc of America Securities and PA Consulting Group
continued to hold discussions regarding the structure of the merger transaction,
merger agreement provisions, transaction timing, integration of the businesses,
employee matters and various other financial and operational matters. In
addition, during the same period, the company and PA Consulting Group, through
respective counsel, exchanged drafts and negotiated the specific terms of a
proposed agreement and plan of merger, pursuant to which PA Consulting Group
would acquire all of the company's outstanding capital stock and stock options
for cash.
Concurrent with these merger discussions, management of the company held a
series of meetings and discussions with its board of directors to apprise them
of the merger discussions. During board of directors' meetings on April 20, 2000
and May 11, 2000, Mr. Whitman provided status reports to the board of directors
on the progress of the merger negotiations.
On May 23, 2000, Henri-Claude Bailly, Geoffrey Bobsin, and Stephen V.R.
Whitman of the company met with Nick Hayes, Chief Financial Officer of PA
Consulting Group, to further discuss and negotiate various issues including the
merger consideration, future revenue stream, settlement with GKMG stockholders,
treatment of bonuses and the need to make additional retention bonuses available
to certain employees, retention of senior vice presidents and various other
business and operational matters.
On June 2, 2000, Messrs. Asher and Hayes of PA Consulting Group, Messrs.
Bobsin and Whitman of the company, and representatives of Banc of America
Securities met to discuss various business and pricing issues. Messrs. Asher and
Hayes reviewed the results of PA Consulting Group's additional due diligence
with the members of our management and expressed the view that the proposed
merger consideration of $7.12 should be reduced to reflect a number of
adjustments. The potential adjustments reflected, among other things, PA
Consulting Group's assessment of the performance of our business, the future
prospects of our environmental, telecommunications, energy and commercial
litigation practices and the potential adverse impact of loss of business in
such practices on the merger consideration. Messrs. Asher and Hayes advised
members of our management that balance sheet adjustments also would require a
decrease of approximately $12 million in the total merger consideration. They
also asserted PA Consulting Group's position that certain contractual payments
to Messrs. Dickenson, Bailly and Pifer would exceed PA Consulting Group's prior
estimates by $4 million, that the earnout payments to the former GKMG
stockholders would exceed PA Consulting Group's prior estimates by $3 million,
and that payments of retention bonuses to administrative and consulting
employees would exceed PA Consulting Group's prior estimates by approximately
$5.7 million. As a result of these adjustments, the proposed merger
consideration would be reduced from $7.12 per share to a range between $3.50 and
$5.00 per share. At a meeting on June 6, 2000, members of the board of directors
deliberated on the issues discussed at the June 2, 2000 meeting.
Subsequent to the discussions on June 2, 2000 there were numerous
telephone conversations between Mr. Bobsin and Mr. Asher about the price PA
Consulting Group would pay for the company. Managements of both the company and
PA Consulting Group decided not to address and negotiate separately each factor
that might affect price but rather to negotiate the price based on the overall
condition of the company and its prospects. Mr. Bailly and Mr. Schriever, an
outside director of the company, also had telephone discussions with Mr. Asher
during this time concerning the price to be paid by PA Consulting Group for the
company.
At a board of directors' meeting on June 14, 2000, Messrs. Bailly and
Bobsin gave a progress report on the status of negotiations with PA Consulting
Group to the members of the board of directors. Messrs. Bailly and Bobsin
reported to the board of directors that PA Consulting Group
15
had revised its offer to $5.25 per share. After discussion, the board of
directors requested that Messrs. Bailly, Bobsin, Schriever and representatives
of Banc of America Securities contact PA Consulting Group with a counteroffer of
$5.35 per share. Ultimately the managements of both the company and PA
Consulting Group agreed on a price of $5.32 per share, subject to possible
downward adjustments.
In the afternoon of June 18, 2000, Banc of America Securities delivered an
updated presentation to the board of directors and indicated that it expected to
be in a position to render a fairness opinion, subject to review of the final
merger agreement. After further deliberations with respect to the terms of the
merger transaction, the board of directors determined that the merger with PA
Consulting Group was fair and in the best interests of the stockholders and
approved the merger and authorized the execution of the merger agreement and
related agreements, substantially in the form presented to them at the meeting,
subject to resolution of certain pending issues and receipt of the final
fairness opinion from Banc of America Securities. The board of directors also
determined that the merger agreement be submitted to a vote of stockholders and
unanimously recommended that the stockholders approve and adopt the merger
agreement.
During the evening of June 18, 2000, the management of the company and PA
Consulting Group met for several hours and resolved all of the remaining issues
relating to the merger. On the morning of June 19, 2000, Banc of America
Securities delivered its oral fairness opinion to the board of directors
(subsequently confirmed by delivery of a written opinion dated June 19, 2000)
that as of such date and subject to the assumptions, limitations and
qualifications contained in the written opinion dated June 19, 2000, the
consideration to be received by stockholders pursuant to the merger agreement
was fair from a financial point of view to the stockholders. By unanimous
written consent effective June 19, 2000, the board of directors ratified and
approved the merger agreement.
On June 19, 2000, each of the parties executed the merger agreement. The
company and PA Consulting Group then issued a joint press release announcing the
execution of the merger agreement.
On August 30, 2000, the parties entered into an amendment to the merger
agreement which is attached as Appendix A. The merger agreement initially had
provided for the possibility that the purchase price of $5.32 per share could be
adjusted downward in certain circumstances. The amendment to the merger
agreement amends the merger agreement to eliminate the adjustment provision.
Reasons for the Merger
In making its decision to approve the merger agreement and to recommend to
the holders of common stock that they vote their shares in favor of adoption of
the merger agreement, the board of directors identified and considered a number
of factors which weighed in favor of adoption of the merger agreement,
including, among others, the following:
o the anticipated significant loss of senior consultants if a
strategic transaction was not consummated, as many consultants had
expressed continuing dissatisfaction with the company's performance
and long-term prospects;
o the fact that the company had limited research or financial analyst
coverage by the professional investment community;
o the company's loss of credibility in the equity markets as a result
of past inability to meet financial expectations;
16
o the decline in operating margins and growth rates that the company
had suffered;
o the fact that after an exhaustive search for an acquiror by the
board of directors and its financial advisor, the company had
received only the PA Consulting Group acquisition offer;
o the recent decline in the company's earnings and its failure to meet
analysts' projections for earnings for the first, second, third and
fourth quarters in 1999 and first quarter of 2000, resulting in the
need to revise earnings estimates downward;
o declines in the company's stock price from a 52-week high of $10.38
to a 52-week low of $1.73 which made retention of key personnel
difficult;
o the current and prospective environment in which the company
operates, including the loss of interest of the investment community
in the management consulting industry and the dramatic decline in
the price of the stock of several large publicly-traded management
consulting firms (including five of the six publicly-traded
companies analyzed by Banc of America Securities);
o the approximately 33% premium which $5.32 per share represented to
the market price of the company's common stock on June 16, 2000, the
last trading day before the announcement of the merger;
o the approximately 64% premium which $5.32 per share represented to
the average market price of the company's common stock for the three
month period prior to the announcement of the merger;
o disagreements among members of senior management regarding the
direction and leadership of the company;
o presentations by, and the opinion of, Banc of America Securities
that as of the date of, and subject to the assumptions, limitations
and qualifications contained in, such opinion, the merger
consideration was fair from a financial point of view to our
stockholders;
o oral presentations by executive officers of the company regarding
the business, financial condition and recent results of operations
of the company, and their best estimates of the prospects of the
company;
o the fact that the terms of the merger agreement were determined
through arm's-length negotiations;
o the terms of the merger agreement as reviewed by the board of
directors with its legal and financial advisors;
o the board of directors' assessment that PA Consulting Group, Inc.
has the financial capability to acquire the company for the merger
consideration and therefore is likely to consummate the merger,
coupled with the fact that there are no financing conditions
relating to the merger; and
o the board of directors' belief, after consultation with its legal
counsel, that the required regulatory approvals for the merger could
be obtained.
The board of directors also identified and considered the following
potentially negative factors in its deliberations concerning the merger
agreement:
17
o the decreased likelihood of a third party acquisition proposal
because of the termination fee and the voting agreement; and
o the fact that because the stockholders would receive only cash in
the merger, such stockholders would not have the opportunity to
participate in future growth prospects of the company.
After due consideration, the board of directors concluded that the
potential benefits to the stockholders of the merger outweighed the risks
associated with the merger.
In view of the variety of factors considered in connection with its
evaluation of the merger and the transactions contemplated by the merger
agreement, the board of directors did not quantify or otherwise assign relative
weights to the various factors that it considered or determine that any factor
was of particular importance in reaching its determination that the merger is
fair to and in the best interests of stockholders. In addition, individual
members of the board of directors may have given different weight to the
different factors.
Recommendation of the Board of Directors
After careful consideration, our board of directors has unanimously
determined that the merger agreement and the merger are fair to and in the best
interests of the company and its stockholders. The board of directors
unanimously recommends that stockholders vote "FOR" approval of the merger
agreement and the merger.
Opinion of Hagler Bailly's Financial Advisor
We retained Banc of America Securities on March 3, 1999 under a broad
mandate to assist the company in evaluating strategic alternatives, including
maximizing stockholder value through a possible sale transaction as well as to
help evaluate acquisition candidates.
Banc of America Securities delivered an oral opinion, subsequently
confirmed in writing, to our board of directors on June 19, 2000 that, based
upon and subject to the assumptions, limitations and qualifications set forth in
the written opinion, the consideration to be received by our stockholders
pursuant to the merger agreement was fair, from a financial point of view, to
the company's stockholders. Neither management nor the board of directors of the
company undertook any other independent financial analysis of the transaction.
The full text of the written opinion of Banc of America Securities, dated
June 19, 2000, which sets forth assumptions made, general procedures followed,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached as Appendix B to this proxy statement and is
incorporated herein by reference. You are urged to, and should, read the opinion
in its entirety. The opinion addresses only the consideration to be paid in the
merger transaction and is not a recommendation to any stockholder as to how that
stockholder should vote at the special meeting.
For purposes of the opinion set forth herein, Banc of America Securities:
o reviewed certain publicly available financial statements and other
business and financial information of the company;
o reviewed certain internal financial statements and other financial
and operating data relating to the company;
18
o analyzed certain financial forecasts prepared in conjunction with
the management of the company and considered the company's present
financial condition;
o discussed the past and current operations, financial condition and
prospects of the company with senior executives and members of the
Board of Directors, including, without limitation, their belief,
based on discussions with consultants by management, that the
company would suffer a potential significant loss of key consultants
in the event that a strategic transaction did not occur in the near
future;
o at the request of the board of directors, spoke with a number of
potential purchasers concerning their possible interest in the
company, and noted that no potential purchaser other than PA
Consulting Group presented a proposal to acquire the company;
o reviewed the reported prices and trading activity for the company's
common stock;
o compared the financial performance of the company and the prices and
trading activity of the company's common stock with that of certain
other publicly traded companies Banc of America Securities deemed
relevant;
o compared certain financial terms of the merger transaction to
financial terms, to the extent publicly available, of certain other
business combination transactions Banc of America Securities deemed
relevant;
o participated in discussions and negotiations among representatives
of the company and PA Consulting Group and their legal advisors;
o reviewed the merger agreement, including the form of earnout
agreement, and certain related documents; and
o performed such other analyses and considered such other factors as
Banc of America Securities deemed appropriate.
Banc of America Securities assumed and relied upon, without independent
verification, the accuracy and completeness of the financial and other
information reviewed by Banc of America Securities for the purposes of its
opinion, including the company's representation regarding the number of shares
and options outstanding. Banc of America Securities, with management's consent,
also assumed, and relied upon, the representations of management that it
believes that the earnout agreement (as described in the section entitled
"Related Agreements") would be executed on terms substantially similar to the
form thereof attached to the merger agreement and any difference between the
actual earnout agreement and the form thereof attached to the merger agreement
would not materially affect the consideration paid to the stockholders in the
merger. With respect to the financial forecasts, Banc of America Securities
assumed, and relied upon, without independent verification, the views of
management that they have been reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the future financial
performance of the company. Banc of America Securities did not make any
independent valuation or appraisal of the assets or liabilities of the company,
nor had Banc of America Securities been furnished with any such appraisals.
Banc of America Securities also held discussions with certain members of
the management of the company and PA Consulting Group regarding numerous aspects
of the transaction, the past and current business operations of the company, the
financial condition and future prospects and operations of the company, the
effects of the transaction on the financial condition and prospects of the
company, and other matters that Banc of America Securities believed necessary or
appropriate to
19
its inquiry. In addition, Banc of America Securities reviewed other financial
studies and analyses and considered other information that it considered
appropriate for the purposes of its opinion.
The following is a summary of the financial analyses performed by Banc of
America Securities in connection with providing its written opinion attached as
Appendix B to this proxy statement. Banc of America Securities has consented to
the inclusion of this summary in this proxy statement. These descriptions of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses performed by Banc of America Securities,
the tables must be read together with the text of each description. The tables
alone do not constitute a complete description of such financial analyses.
Considering the data in the tables without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the financial analyses performed by Banc of America Securities.
Analysis of Selected Publicly Traded Companies. Based on public and other
available information, Banc of America Securities calculated the multiples of
aggregate value, which Banc of America Securities defined as equity value plus
debt, less cash and cash equivalents, to revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") covering the latest twelve months ("LTM"), projected 2000
("2000P") and projected 2001 ("2001P"), where available. Based on public and
other available information, Banc of America Securities also calculated the
multiples of current stock price to LTM and projected earnings per share ("EPS")
for fiscal years 2000 and 2001, where available. Banc of America Securities
calculated these multiples for six companies in the management consulting sector
whose securities are publicly traded. Banc of America Securities analyzed
Charles River Associates Inc., Maximus, Inc., Navigant Consulting, Inc., Nextera
Enterprises, Inc., Superior Consultant Holdings Corp. and Tetra Tech, Inc. (the
"Banc of America Securities Selected Companies"). Banc of America Securities
believes that these six companies in the management consulting sector have
operations similar to some of the operations of the company, but noted that none
of these companies has the same management, composition, size or combination of
businesses as the company. This analysis reviews, for a group of publicly traded
peer companies, the relationship of the enterprise value and equity value of a
company to its operating performance compared to the implied transaction
multiples for a company in a particular transaction.
The following table presents information concerning the range, averages
and medians of multiples for the Banc of America Securities Selected Companies:
- --------------------------------------------------------------------------------
Range of Multiples for Implied
Selected Companies Transaction
----------------------
Aggregate Value to: Low High Average Median Multiples
- --------------------------------------------------------------------------------
LTM Gross Revenue 0.42x - 1.48x 1.13x 1.30x 0.61x
- --------------------------------------------------------------------------------
2000P Gross Revenue 0.47 - 1.33 1.05 1.20 0.84
- --------------------------------------------------------------------------------
2001P Gross Revenue 0.48 - 1.10 0.88 0.97 0.90
- --------------------------------------------------------------------------------
LTM EBITDA 4.2 - 8.7 7.0 7.5 7.0
- --------------------------------------------------------------------------------
2000P EBITDA 7.1 - 12.4 10.2 11.0 8.6
- --------------------------------------------------------------------------------
2001P EBITDA 5.5 - 9.2 6.8 5.7 9.6
- --------------------------------------------------------------------------------
LTM EBIT 7.5 - 12.5 9.7 9.0 10.7
- --------------------------------------------------------------------------------
2000P EBIT 6.7 - 13.5 9.2 8.3 14.0
- --------------------------------------------------------------------------------
2001P EBIT 2.1 - 11.2 6.0 5.8 17.5
- --------------------------------------------------------------------------------
Current Stock Price to:
- --------------------------------------------------------------------------------
LTM EPS 14.5x - 25.2x 19.4x 19.0x 16.0x
- --------------------------------------------------------------------------------
2000P EPS 12.6 - 22.8 15.9 14.2 21.1
- --------------------------------------------------------------------------------
2001P EPS 10.0 - 18.7 12.1 10.5 27.7
- --------------------------------------------------------------------------------
20
Banc of America Securities noted that the aggregate value of the
consideration to be paid by PA Consulting Group in connection with the
transaction resulted in implied multiples as set forth in the table above. Banc
of America Securities concluded that LTM data is largely misleading in the
company's case because of the projected significant loss of senior consultants
throughout 2000 in the event that a strategic transaction is not consummated. As
a result, application of LTM multiples largely overstates the implied per share
value of the company as these results are based on a higher billing capacity
relative to the company's projected billing capacity. Banc of America Securities
noted that the aggregate value of the consideration to be paid by PA Consulting
Group in connection with the transaction resulted in implied multiples of
projected EBITDA and EBIT that were within the range of multiples for the Banc
of America Securities Selected Companies.
Analysis of Selected Acquisitions. Banc of America Securities analyzed
information relating to the following selected transactions in the management
consulting sector above a $50 million aggregate value which became effective
between August 6, 1997 and March 10, 2000, collectively referred to as the "Banc
of America Securities Selected Transactions":
- --------------------------------------------------------------------------------
Effective Date Acquiror Target / (Parent)
- --------------------------------------------------------------------------------
03/10/00 Behrman Capital II, L.P. Renaissance Worldwide Strategy,
Inc./ (Renaissance Worldwide, Inc.)
- --------------------------------------------------------------------------------
09/07/99 USWeb Corp. Mitchell Madison Group
- --------------------------------------------------------------------------------
06/30/99 CM Equity Partners LP ICF Consulting Group, Inc. /
(ICF Kaiser International, Inc.)
- --------------------------------------------------------------------------------
02/17/99 Nextera Enterprises, Inc. Lexecon Inc.
- --------------------------------------------------------------------------------
02/08/99 The Metzler Group, Inc. Strategic Decision Group Inc.
- --------------------------------------------------------------------------------
08/28/99 Hagler Bailly Putnam Hayes & Bartlett Inc.
- --------------------------------------------------------------------------------
08/20/99 The Metzler Group, Inc. LECG, Inc.
- --------------------------------------------------------------------------------
08/06/97 The Metzler Group, Inc. Resource Management
International, Inc.
- --------------------------------------------------------------------------------
Based on public and other available information, Banc of America
Securities calculated the multiples for the Banc of America Securities Selected
Transactions of (a) aggregate value to gross revenue (in those transactions
where publicly available data did not confirm whether the disclosed revenue
figures were stated on a gross or net basis, Banc of America Securities
conservatively assumed that such statistics were gross revenue figures), EBITDA
and EBIT and (b) equity value to net income in each case for the acquired
business in the twelve months preceding the acquisition announcements. The
following table sets forth the range, averages and medians of the Banc of
America Securities Selected Transactions:
- --------------------------------------------------------------------------------
Range of Multiples for Implied
Selected Transactions Transaction
----------------------
Aggregate Value to: Low High Average Median Multiples
- --------------------------------------------------------------------------------
LTM Gross Revenue 0.75x - 5.01x 2.27x 1.82x 0.61x
- --------------------------------------------------------------------------------
LTM EBITDA 9.3x - 24.9x 17.1x 17.1x 7.0x
- --------------------------------------------------------------------------------
LTM EBIT 8.8x - 27.1x 15.5x 10.5x 10.7x
- --------------------------------------------------------------------------------
Equity Value to:
- --------------------------------------------------------------------------------
LTM Net Income 15.2x - 31.3x 23.2x 23.2x 16.0x
- --------------------------------------------------------------------------------
21
The company's LTM gross revenue, LTM EBITDA, LTM EBIT and LTM Net Income
were $178.9 million, $15.7 million, $10.2 million and $5.7 million,
respectively.
Banc of America Securities noted that the aggregate value of the
consideration to be paid by PA Consulting Group in connection with the
transaction resulted in implied multiples of LTM EBIT and LTM Net Income within
the range of multiples for the Banc of America Securities Selected Transactions.
The fact that the consideration to be received in the transaction is below the
range of multiples for the Banc of America Securities Selected Transactions in
the case of Aggregate Value to LTM Gross Revenue and LTM EBITDA and below all of
the medians except the LTM EBIT medians did not impact Banc of America's
conclusion as to fairness because Banc of America concluded that LTM data is
largely misleading in the company's case because of the projected significant
loss of senior consultants throughout 2000 in the event that a strategic
transaction is not consummated.
No company or transaction used in the comparable company or comparable
transactions analyses is identical to the company or the merger transaction,
respectively. Accordingly, an analysis of the results of the foregoing is not
merely a mathematical exercise, but rather involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value or
purchase price of the companies to which the company and the merger transaction
are being compared.
Discounted Cash Flow Analysis. Banc of America Securities performed a
discounted cash flow analysis by using financial cash flow forecasts of the
company for fiscal years 2000 through 2004 prepared in conjunction with the
management of the company. In conducting this analysis, Banc of America
Securities assumed that the company would perform in accordance with these
forecasts. Banc of America Securities first estimated the terminal value of the
projected cash flows by applying multiples to the company's projected 2004
EBITDA, which multiples ranged from 6.0x to 8.0x. Banc of America Securities
then discounted the cash flows projected through 2004 and the terminal values to
present values using rates ranging from 13.0% to 15.0%. This analysis indicated
a range of aggregate values, which were then reduced by the company's net debt
as of May 31, 2000 (which, for purposes of analyses conducted by Banc of America
Securities, included the estimated present value of obligations to be assumed by
PA Consulting Group using a 21.0% discount rate), to calculate a range of equity
values. These equity values were then divided by fully diluted shares to
calculate implied equity values per share ranging from $3.87 to $5.18. Banc of
America Securities noted that the value of consideration to be received in
connection with the merger transaction was $5.32 per share which compared
favorably to the equity values per share implied by the discounted cash flow
analysis.
Premiums Paid Analysis. Banc of America Securities analyzed the premiums
paid in 81 U.S. acquisitions announced since January 1, 1999 in which 100% of
the target's stock was purchased with cash and that had an aggregate value
between $50 to $150 million. Banc of America Securities calculated the premiums
paid one day and four weeks prior to the announcement of the acquisition offer.
The following table sets forth the average and median premiums paid in these
transactions:
- --------------------------------------------------------------------------------
Premium One Day prior Premium 4 Weeks prior to
to Announcement Announcement
- --------------------------------------------------------------------------------
Average 44.4% 57.1%
- --------------------------------------------------------------------------------
Median 28.8% 43.6%
- --------------------------------------------------------------------------------
Banc of America Securities noted that the value of the cash consideration
in connection with the merger transaction implied a premium of 33.0% over the
company's share price of $4.00 at the close of trading on June 16, 2000 (the
last trading day prior to the announcement of the transaction),
22
a 304% premium over the company's share price of $1.75 at the close of trading
on May 16, 2000 (four weeks prior to the announcement of the transaction), and a
64.2% premium over the company's three-month average share price of $3.24 as of
June 16, 2000.
The foregoing description is only a summary of the analyses and
examinations that Banc of America Securities deems material to its opinion. It
is not a comprehensive description of all analyses and examinations actually
conducted by Banc of America Securities and is qualified by reference to the
written opinion of Banc of America Securities set forth in Appendix B to this
proxy statement. The preparation of a fairness opinion necessarily is not
susceptible to partial analysis or summary description. Banc of America
Securities believes that its analyses and the summary set forth above must be
considered as a whole. Banc of America Securities further believes that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the board of
directors. In addition, Banc of America Securities may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis
that was referred to in the summary above. Accordingly, the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Banc of America Securities' view of the actual value of the company.
In performing its analyses, Banc of America Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
company and PA Consulting Group. For example, Banc of America Securities assumed
that the company's target markets would experience future growth consistent with
historical trends and that the general economic conditions would not materially
change from the current state as a result of the financial markets or
macroeconomic events. The analyses performed by Banc of America Securities are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than those suggested by these analyses.
These analyses were prepared solely as part of Banc of America Securities'
analysis of the financial fairness of the consideration to be paid by PA
Consulting Group for the acquisition of the company and were provided to the
board of directors in connection with the delivery of its opinion. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at any
time in the future.
As described above, Banc of America Securities' opinion and presentation
to the board of directors were among the many factors taken into consideration
by the board of directors in making its determination to approve the merger
agreement.
The company engaged Banc of America Securities to act as its financial
advisor under an agreement dated March 3, 1999 as amended on October 5, 2000.
Under this agreement, the company will pay Banc of America Securities a fee of
$1.5 million. We have also agreed to reimburse Banc of America Securities for
its reasonable out-of-pocket expenses, including reasonable fees and expenses of
counsel, and to indemnify Banc of America Securities and related persons against
certain liabilities, including, without limitation, liabilities under federal
securities laws arising out of Banc of America Securities' engagement.
Bank of America, an affiliate of Banc of America Securities LLC, is a
lender to the company pursuant to the terms of the company's Amended and
Restated Revolving Credit Agreement, dated as of July 28, 2000.
In the ordinary course of its business, Banc of America Securities may
actively trade the equity securities of the company for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
23
Banc of America Securities, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Banc of
America Securities was selected by the company as its financial advisor with
respect to the merger transaction on the basis of its experience and familiarity
with the company.
Interests of Certain Persons in the Merger
In considering the recommendation of the board of directors with respect
to the merger, you should be aware that certain directors and executive officers
of the company have interests in the merger that are different from, or are in
addition to, yours. In addition, you should be aware that the employment
agreements of the chairman of the board and two other former senior executives
of the company have recently been terminated.
Agreements with Certain Executive Officers
Geoffrey W. Bobsin. The company has an employment agreement with
Geoffrey W. Bobsin, President and Chief Executive Officer of the company, dated
as of October 20, 1999, as amended on February 29, 2000 and May 31, 2000,
pursuant to which Mr. Bobsin will, as of May 11, 2000, serve as president and
chief executive officer of the company. Mr. Bobsin's agreement will terminate on
March 31, 2001, unless terminated earlier in accordance with the terms of the
agreement. Under the agreement, Mr. Bobsin receives a base salary, as of May 10,
2000, at an annual rate of $363,480. Mr. Bobsin is also entitled to a bonus
payment for the calendar year 2000 in the aggregate amount of $122,500, payable
in several installments. Mr. Bobsin is also entitled to participate in all of
the benefit programs provided by the company. Upon a change in control of the
company as defined in the employment agreement (which would include the
consummation of this merger), Mr. Bobsin is entitled to an additional amount of
$102,500, as well as the payment of any unpaid installments of his calendar year
2000 bonus.
Stephen V.R. Whitman. The company has an employment agreement with
Stephen V.R. Whitman, dated as of May 31, 2000, pursuant to which Mr. Whitman
will serve as Senior Vice President and General Counsel of the company. Mr.
Whitman's agreement will terminate on March 31, 2001, unless terminated earlier
in accordance with the terms of the agreement. Under the agreement, Mr. Whitman
receives a base salary at an annual rate of $225,264. Mr. Whitman is also
entitled to a bonus payment for the calendar year 2000 in the aggregate amount
of $122,500, payable in several installments. Mr. Whitman is also entitled to
participate in all of the benefit programs provided by the company. Upon a
change in control of the company as defined in the employment agreement (which
would include the consummation of this merger), Mr. Whitman is entitled to an
additional amount of $102,500, as well as the payment of any unpaid installments
of his calendar year 2000 bonus.
Termination of Certain Agreements With Certain Current and Former
Executive Officers and Directors. The company had an employment agreement with
each of Messrs. Bailly, Dickenson and Pifer. Pursuant to each of the employment
agreements, upon a change in control as defined in the employment agreement,
each of Messrs. Bailly, Dickenson and Pifer would be entitled to certain
payments.
The definition of change in control in the employment agreements
includes when, other than as a result of death, disability or termination for
cause, (x) Mr. Dickenson shall cease to serve as chief executive officer of PHB
Hagler Bailly or as executive vice president and chief operating officer of the
company before January 1, 2000, or after January 1, 2000, as chief executive
officer of the company or as a member of the company's board of directors; (y)
Dr. Pifer shall cease to serve as chairman of the company's board of directors
before January 1, 2000, or as a member of the company's board of directors; or
(z) Mr. Bailly shall cease to serve as chief executive officer of the company
before January 1, 2000, or after January 1, 2000, as chairman of the company's
board of directors. In addition, the definition includes (i) certain changes in
ownership of the stock of the company (in connection with a merger or other
corporate reorganization or otherwise) and (ii) a sale of all or substantially
all of the assets of the company or dissolution or liquidation of the company.
On March 31, 1999, the company's board of directors elected Mr.
Dickenson president and chief executive officer of the company. At the same
time, the board of directors determined that Mr. Bailly would become chairman of
the board of directors on September 1, 1999. Dr. Pifer served as chairman of the
board of directors until September 1, 1999. Each of Messrs. Bailly, Pifer and
Dickenson construed the board of directors' actions on March 31, 1999 to have
caused a change in control of the company within the meaning of that term under
their respective employment agreements. Each of Messrs. Bailly, Dickenson and
Pifer, in a separate letter dated April 7, 1999, determined not to exercise his
right to terminate his employment agreement as a result of the board of
directors' action on March 31, 1999 for so long as the other two individuals
exercised such powers and performed such duties as are set forth for their
respective offices in the then current by-laws of the company.
William E. Dickenson. On May 3, 2000, the company entered into an
Employment Separation Agreement and General Release with Mr. William E.
Dickenson, pursuant to which the company paid Mr. Dickenson a lump-sum amount of
$2.376 million on May 11, 2000. On May 11, 2000, Mr. Dickenson resigned as
president, chief executive officer and a member of the board of directors of the
company.
24
Mr. Dickenson's resignation constituted a "change in control" as
defined in the respective employment agreements of Mr. Bailly and Dr. Pifer,
thereby granting the right to Mr. Bailly and Dr. Pifer to terminate their
respective employment agreements and to receive the payments described below.
Moreover, since Mr. Dickenson ceased to carry out his duties as president and
chief executive officer on May 11, 2000, Mr. Bailly construed such event to
relieve him from the obligation, if any, to continue to refrain, in accordance
with his letter of April 7, 1999, from exercising his right to terminate his
employment agreement as a result of the board of directors' actions of March 31,
1999. Mr. Bailly construed that the right to terminate his employment agreement
and to receive certain payments thereunder had vested on March 31, 1999. The
company agreed with Mr. Bailly and Dr. Pifer that Mr. Dickenson's resignation
constituted a "change of control" as defined under their respective employment
agreements. The terminations of Mr. Dickenson's, Mr. Bailly's and Dr. Pifer's
respective employment agreements are unrelated to the merger, the merger
agreement or the board of directors' recommendation relating to the merger and
are effective whether or not the merger is consummated.
Howard W. Pifer, III. Based on Mr. Dickenson's resignation on May
11, 2000, on May 12, 2000, Dr. Pifer terminated his employment agreement with
the company. On June 9, 2000, the company paid Dr. Pifer a lump-sum amount of
$1,526,304. Pursuant to the terms of his employment agreement, Dr. Pifer will
receive semi-monthly payments for a period of thirty-six (36) months commencing
on May 12, 2000, at an annual rate of $381,576. On May 25, 2000, the company
entered into an agreement with Dr. Pifer pursuant to which Dr. Pifer will serve
as a senior advisor to the company. Under the terms of Dr. Pifer's agreement
with the company, Dr. Pifer performs consulting services on a non-exclusive
basis in conjunction with the company's consultants, but he bills the clients
directly for his services and receives no compensation from the company. Dr.
Pifer also provides the company with two days per month of business development
time without compensation, except that the company pays all of his expenses when
he undertakes business development on behalf of the company. Dr. Pifer resigned
as a member of the board of directors of the company on July 5, 2000.
Henri-Claude A. Bailly. Based on Mr. Dickenson's resignation on May
11, 2000, on July 3, 2000, Mr. Bailly terminated his employment agreement with
the company. On August 2, 2000, the company paid Mr. Bailly a lump-sum amount of
$1,737,616. Pursuant to the terms of his employment agreement, Mr. Bailly will
receive semi-monthly payments for a period of thirty-six (36) months commencing
on July 3, 2000, at an annual rate of $434,404. Mr. Bailly has waived the right
to receive the first four of these payments. Mr. Bailly remains as an executive
officer of the company with the title of chairman of the board of directors.
Voting Agreement. Certain directors and officers of the company have
entered into a voting agreement with PA Consulting Group, Inc. and PA Holdings
Inc., pursuant to which they have agreed to vote all of their shares of common
stock (i) in favor of the merger and the adoption of the merger agreement and
the transactions contemplated thereby; (ii) against approval or adoption of
resolutions which would prevent or materially delay the company from performing
its obligations under the merger agreement; and (iii) against any action which
would constitute a material breach of any provision of the merger agreement. See
"Related Agreements -- The Voting Agreement". As a result of the interests
described above, these directors and officers may have been more likely to enter
into the voting agreement requiring them to vote in favor of approving the
merger agreement and the merger than if they did not have these interests.
25
Stock Options. Under the merger agreement, at the effective time of the
merger, each option to purchase a share of the company's common stock
outstanding and unexercised as of the effective time of the merger granted
pursuant to the Hagler Bailly Employee Incentive and Non-Qualified Stock Option
and Restricted Stock Plan will be canceled, whether or not then exercisable or
vested.
With respect to options which are vested and have an exercise price of
less than $5.32, PA Consulting Group, Inc. will pay an amount per option equal
to the excess of $5.32 over each option's per share exercise price (the "option
spread") to the holders of such options.
With respect to options which have an exercise price equal to or greater
than $5.32 per share, PA Consulting Group, Inc. will pay an amount per option
grant equal to $1.00 (or a lesser amount if the total number of grants of
out-of-the-money options is greater than 2,000) multiplied by the total number
of grants of out-of-the-money options to such optionholder. To the extent that
the number of grants of out-of-the-money options exceeds 2,000, the amount to be
received by each optionholder per grant will be reduced pro rata so that in the
aggregate the consideration paid to holders of out-of-the-money options does not
exceed $2,000.
With respect to any option which is not, as of the effective time of the
merger, vested, but which has an exercise price of less than $5.32, PA
Consulting Group, Inc. will pay to the optionholder the option spread as soon as
practicable after the date when (but only if) such option would otherwise have
vested if such option had not been canceled.
As of July 7, 2000, directors, executive officers and other employees held
in the aggregate (i) 137,501 in-the-money options and (ii) 2,707,342
out-of-the-money options for a total amount of 2,844,843 options outstanding.
Indemnification of Directors and Officers. Under the merger agreement, PA
Consulting Group, Inc. has agreed that it will not, for a period of six years
after the effective time of the merger, amend the surviving corporation's
certificate of incorporation or bylaws in any manner that would adversely affect
the rights of persons who at any time prior to the effective time of the merger
were identified as prospective indemnitees in respect of actions or omissions
occurring at or prior to the effective time of the merger, unless such amendment
is required by law. In addition, the merger agreement provides that the
surviving corporation will, after the effective time of the merger and to the
extent permitted by Delaware law, indemnify, defend and hold harmless the
present and former officers, directors and employees of the company and its
subsidiaries against all losses, expenses, claims, damages, liabilities or
amounts that are paid in settlement of, with the approval of PA Consulting
Group, Inc., and the surviving corporation, or otherwise in connection with, any
claim, action, suit, proceeding or investigation based in whole or in part on
the fact that such person is or was such a director, officer or employee and
arising out of actions or omissions occurring at or prior to the effective time
of the merger. PA Consulting Group, Inc. has also agreed to cause to be
maintained in effect for not less than six years after the effective time of the
merger the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by the company (or substitute policies
with substantially the same coverage and terms) with respect to matters
occurring prior to the effective time of the merger except that PA Consulting
Group, Inc. shall not be required to pay an annual premium for such insurance of
more than 200% of the last annual premium paid prior to the date of the merger
agreement.
Continued Employment with PA Consulting Group, Inc.
Except as indicated below, the following directors and executive officers
of the company will continue their employment with PA Consulting Group, Inc.
following the merger:
26
o Messrs. Bobsin and Whitman have employment agreements as disclosed
above which will stay in effect until March 31, 2001;
o the remaining executive officers of the company, Roger Gale, James
Miller, Kenneth Rubin and James Speyer, will each be employed as
"associate partners" at their current salaries, and Mr. Gale will
head PA Consulting Group, Inc.'s energy consulting practice;
o two employee directors of the company, Jasjeet S. Cheema and Alain
Streicher, will be employed as "associate partners" at their current
salaries;
o Henri-Claude Bailly, the chairman of the board of the company, and
PA Consulting Group, Inc. are considering an arrangement, the
details of which have not been finalized, in which Mr. Bailly will
contract with PA Consulting Group, Inc. to assist with client
relationships and business development over a three year period. Mr.
Bailly will not become an employee of PA Consulting Group, Inc.; and
o the non-employee directors have no employment or other agreements to
provide services for PA Consulting Group, Inc. or any of PA
Consulting Group, Inc.'s affiliates.
Merger Financing
The total amount of funds required to pay the merger consideration is
estimated to be approximately $95.4 million. PA Holdings Limited currently has
adequate cash on hand to consummate the merger. PA Holdings Limited will provide
such funds to PA Consulting Group, Inc. to allow PA Consulting Group, Inc. to
pay the merger consideration. Approximately $319,280 will be required to pay
holders of outstanding options upon cancellation of such options.
Regulatory Approvals
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act (the "HSR Act"), which prevents certain transactions
from being completed until required information and materials are furnished to
the Antitrust Division of the Department of Justice and the Federal Trade
Commission and the appropriate waiting periods expire without objection. On July
7, 2000, the company and PA Consulting Group, Inc. each filed the required
information and
27
materials with the Department of Justice and the Federal Trade Commission. The
applicable waiting period has terminated.
At any time before or after the merger becomes effective, the Antitrust
Division, the Federal Trade Commission, state antitrust authorities or a private
person or entity could seek to enjoin the merger or to seek divestiture of
substantial assets of the company, PA Consulting Group, Inc., or their
subsidiaries. A challenge to the merger could be made, and if a challenge is
made, we may not prevail.
The company is not aware of any other material governmental or regulatory
approval required for completion of the merger, other than compliance with the
applicable corporate law of Delaware.
Certain Federal Income Tax Consequences of the Merger
The following discussion describes certain material United States federal
income tax consequences of the merger. The discussion is based upon the Internal
Revenue Code of 1986, as amended, existing and proposed Treasury regulations,
rulings, administrative pronouncements and judicial decisions, changes to which
could materially affect the tax consequences described in this proxy statement
and could be made on a retroactive basis. This discussion does not address all
aspects of federal income taxation that may be important to you based on your
particular circumstances and does not address any aspect of state, local or
foreign tax laws. This summary generally considers only shares of common stock
that are held as capital assets (generally, assets held for investment) and may
not apply to holders who are subject to special treatment under the Internal
Revenue Code, including, without limitation, financial institutions or trusts;
tax-exempt entities; insurance companies; dealers in securities or foreign
currencies; stockholders who received their shares of common stock through an
exercise of employee stock options or otherwise as compensation; stockholders
who are foreign corporations, foreign partnerships or other foreign entities, or
individuals who are not citizens or residents of the U.S.; and holders that hold
common stock as part of a "straddle," "hedge" or "conversion transaction."
For federal income tax purposes, the merger will be treated as a taxable
purchase of stock by PA Consulting Group, Inc. from the stockholders. A holder
of common stock will recognize taxable gain or loss equal to the difference
between the amount of cash received in the merger and such holder's adjusted tax
basis in the shares of common stock exchanged. Such gain or loss will generally
be capital gain or loss and will be long-term capital gain or loss if at the
effective time of the merger, the holder has a holding period for the common
stock of more than one year.
Payments of cash to a holder surrendering shares of common stock will be
subject to information reporting and "backup" withholding at a rate of 31% of
the cash payable to the holder, unless the holder furnishes its taxpayer
identification number in the manner prescribed in applicable treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions. Any
amounts withheld from payments to a holder under the backup withholding rules
generally will be allowed as a credit against the holder's United States federal
income tax liability, which may entitle such holder to a refund provided the
required information is furnished to the Internal Revenue Service.
No ruling has been requested from the Internal Revenue Service as to any
of the tax effects to stockholders of the transactions discussed in this proxy
statement, and no opinion of counsel has or will be rendered to stockholders
with respect to any of the tax effects of the merger or the other related
transactions.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER.
28
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM (INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS) OF THE MERGER.
Accounting Treatment of the Merger
The merger will be treated as a purchase for accounting purposes under
generally accepted accounting principles.
Appraisal Rights of Dissenting Stockholders
If you are a stockholder who does not vote in favor of the merger
agreement and who properly demands appraisal of your shares of common stock, you
will be entitled to appraisal rights in connection with the merger under Section
262 of the Delaware General Corporation Law.
The following discussion only applies to stockholders who wish to dissent
from the merger. Only a holder of record of shares may exercise appraisal
rights.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law and is qualified
in its entirety by the full text of Section 262 which is attached as Appendix C
to this proxy statement. All references in Section 262 and in this summary to a
stockholder are to the record holder of the shares as to which appraisal rights
are asserted. A person having a beneficial interest in shares held of record in
the name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below in a proper and
timely manner to perfect appraisal rights.
Under the Delaware General Corporation Law, if you follow the procedures
set forth in Section 262, you will be entitled to have your shares appraised by
the Delaware Court of Chancery and to receive payment of the fair value of your
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, as determined
by the Court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of its
stockholders entitled to appraisal rights that appraisal rights are available
and include in the notice a copy of Section 262. This proxy statement will
constitute such notice to the stockholders, and the applicable statutory
provisions are attached as Appendix C to this proxy statement. If you wish to
exercise appraisal rights or to preserve your right to do so, you should review
the following discussion and Appendix C carefully. If you fail to timely and
properly comply with the procedures specified, you will lose your appraisal
rights.
If you wish to exercise appraisal rights, you must:
o deliver to the company, before the vote on the merger at the
special meeting, a written demand for appraisal;
o not vote in favor of the merger; and
o continuously hold of record your shares from the date of
delivering a demand for appraisal through the effective time
of the merger.
To not vote in favor of the merger, you can either (a) vote "no" in person
or by proxy, (b) fail to vote or (c) abstain from voting. However, if you vote
in favor of the merger agreement, by proxy or in person, or return a signed
proxy that does not contain voting instructions and do not revoke it, you
29
will waive your right of appraisal and nullify any previously filed written
demand for appraisal. A vote against the merger, in person or by proxy, will not
in and of itself constitute a written demand for appraisal satisfying the
requirements of Section 262. If you fail to comply with any of these conditions
and the merger becomes effective, you will lose your appraisal rights and
receive instead the merger consideration you are entitled to in accordance with
the merger agreement.
Only a holder of record of shares may assert appraisal rights for the
shares registered in his or her name. A demand for appraisal should be executed
by or on behalf of the holder of record, fully and correctly, as the holder of
record's name appears on the stock certificates. It must also state that the
holder of record intends to demand appraisal of his or her shares in connection
with the merger. If the shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of the demand should be made
in that capacity. If the shares are owned of record by more than one person, as
in a joint tenancy and tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including two or more joint
owners, may execute a demand for appraisal on behalf of a holder of record.
However, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners without exercising appraisal rights with
respect to the shares held for other beneficial owners. If you hold your shares
in brokerage accounts or other nominee forms and wish to exercise appraisal
rights, you should consult your broker to determine the appropriate procedures
for making a demand for appraisal.
All written demands for appraisal under Section 262 should be sent or
delivered to Hagler Bailly, Inc., 1530 Wilson Boulevard, Suite 400, Arlington,
Virginia 22209, Attention: Corporate Secretary.
Within 10 days after the effective time of the merger, the surviving
corporation of the merger must notify each holder of shares who has complied
with Section 262 and has not voted in favor of or consented to the merger of the
date that the merger has become effective. At any time within 60 days after the
effective time of the merger, you have the right to withdraw your demand for
appraisal and to accept the consideration offered in the merger. Within 120 days
after the effective time of the merger, but not after that time, the surviving
corporation of the merger or any holder of shares who is entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the dissenting shares. The surviving
corporation of the merger is under no obligation to file this petition and PA
Consulting Group has no present intention to cause the surviving corporation of
the merger to do so. Accordingly, it is the obligation of the holders of shares
to initiate all necessary action to perfect appraisal rights within the time
prescribed in Section 262.
Within 120 days after the effective time of the merger, if you have
complied with the requirements for exercise of appraisal rights, you will be
entitled, upon written request, to receive from the surviving corporation of the
merger a statement setting forth the aggregate number of shares not voted in
favor of the merger as to which demands for appraisal have been received and the
aggregate number of holders of those shares. The surviving corporation of the
merger must mail this statement to you within 10 days after it receives a
written request from you or within 10 days after the expiration of the period
for delivery of demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed by a holder of shares and a
copy is served upon the surviving corporation of the merger, the surviving
corporation of the merger will then be obligated within 20 days to file with the
Delaware Register in Chancery a duly verified list containing the names and
addresses of all holders of shares who have demanded an appraisal of
30
their shares and with whom agreements as to the value of their shares have not
been reached. After notice to these stockholders as required by the Court, the
Delaware Court of Chancery may conduct a hearing on this petition to determine
those holders of shares who have complied with Section 262 and who have become
entitled to appraisal rights. The Delaware Court of Chancery may require the
holders of shares who demanded appraisal to submit their stock certificates to
the Register in Chancery for notation of the pendency of the appraisal
proceeding. If you fail to comply with this direction, the Court of Chancery may
dismiss the proceedings as to you.
After determining the holders of shares entitled to appraisal, the
Delaware Court of Chancery will appraise the fair value of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. You should be aware that the fair
value of your shares as determined by Section 262 could be more than, the same
as or less than the consideration you would receive in the merger if you did not
seek appraisal of your shares.
Section 262 provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger." The
Delaware Supreme Court has stated, in Cede & Co. v. Technicolor, Inc., 684 A.2d
289, 299 (Del. 1996), that this "narrow exclusion does not encompass known
elements of value, including those which exist on the date of the merger because
of a majority acquiror's interim acquisition in a two-step cash-out
transaction." In Weinberger v. Uop, Inc., 457 A.2d 701 (Del. 1983), the Delaware
Supreme Court held that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered." The Delaware Supreme
Court has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
In addition, Delaware courts have decided that the statutory appraisal
remedy, depending on factual circumstances, may or may not be a dissenter's
exclusive remedy. The Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares have been appraised. The costs of the action may be determined by the
Court and taxed upon the parties as the Court deems equitable. Upon application
by a stockholder, the Court may also order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all the shares entitled to be appraised.
If you have duly demanded an appraisal in compliance with Section 262, you
will not, after the effective time of the merger, be entitled to vote your
shares for any purpose or be entitled to the payment of dividends or other
distributions on those shares, except dividends or other distributions payable
to holders of record of shares as of a date prior to the effective time of the
merger.
If you demand appraisal of your shares under Section 262 but fail to
perfect, or effectively withdraw or lose, your right to appraisal, your shares
will be converted into the right to receive the merger consideration you are
entitled to under the merger agreement, without interest. You will fail to
perfect, or effectively lose or withdraw, your right to appraisal if no petition
for appraisal is filed within 120 days after the effective time of the merger,
or if you deliver to the surviving corporation of the merger a written
withdrawal of your demand for appraisal and an acceptance of the merger.
However, any attempt to withdraw made more than 60 days after the effective time
of the merger will require the written approval of the surviving corporation of
the merger and, once a petition for appraisal is filed, the appraisal proceeding
may not be dismissed as to any holder absent court approval. It is not necessary
that each holder of shares properly demanding appraisal file a petition
31
for appraisal in the Delaware Court of Chancery. Rather, a single valid petition
suffices for the petitioning and non-petitioning holders of shares who have
properly demanded appraisal.
If you fail to follow the steps required by Section 262 of the Delaware
General Corporation Law for perfecting appraisal rights, you may lose these
rights. In that case, you will receive the merger consideration you are entitled
to in accordance with the merger agreement.
32
THE MERGER AGREEMENT
The following is a summary of the material terms and provisions of the
merger agreement. This summary does not purport to describe all the terms of the
merger agreement and is qualified in its entirety by reference to the merger
agreement which is attached as Appendix A to this proxy statement and is
incorporated by reference. You are urged to read the merger agreement carefully
and in its entirety.
Structure and Effectiveness of the Merger
In the merger, PA Holdings Inc., an indirect wholly-owned subsidiary of PA
Holdings Limited, will merge with and into the company. As a result of the
merger, the separate corporate existence of PA Holdings Inc. will cease and the
company will survive the merger as an indirect wholly-owned subsidiary of PA
Holdings Limited.
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived. This includes approval and adoption of the
merger agreement by our stockholders. Approval and adoption of the merger
agreement will also constitute approval of the merger and the other transactions
contemplated by the merger agreement. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware.
Conversion of Common Stock
At the effective time of the merger, without any further action on the
part of the parties or the holders of any securities of the company:
o all shares of the company's common stock held in the treasury or
owned directly or indirectly by PA Consulting Group, Inc., or any of
its subsidiaries will be canceled and no consideration will be
delivered for the shares; and
o each other share of the company common stock issued and outstanding
prior to the effective time of the merger (other than shares as to
which dissenters' rights of appraisal have been perfected) will be
converted into the right to receive $5.32 in cash (subject to
possible downward adjustments). If the number of outstanding shares
of our common stock or the number of in the money options to
purchase our common stock are greater than as set forth in the
merger agreement, the purchase price per share will be adjusted
downward so that the total consideration paid by PA Consulting
Group, Inc. to stockholders and optionholders stays the same.
Management believes that the number of shares and in the money
options is correctly set forth in the merger agreement and that an
adjustment will not be made to the purchase price. Upon
effectiveness of the merger, all shares of the company's common
stock will no longer be outstanding and will automatically be
canceled and retired and each holder of a certificate representing
any of these shares shall cease to have any rights as a stockholder
except the right to receive the merger consideration.
Conversion of Stock Options
Under the merger agreement, at the effective time of the merger, each
option to purchase a share of the company's common stock outstanding and
unexercised as of the effective time of the merger granted pursuant to the
Hagler Bailly Employee Incentive and Non-Qualified Stock Option and Restricted
Stock Plan will be canceled, whether or not then exercisable or vested.
33
With respect to options which are vested and have an exercise price of
less than $5.32, PA Consulting Group, Inc. will pay an amount per option equal
to the excess of $5.32 over each option's per share exercise price, the "option
spread", to the holders of such options.
With respect to options which have an exercise price equal to or greater
than $5.32 per share, whether vested or unvested, PA Consulting Group, Inc. will
pay an amount per option grant equal to $1.00 (or a lesser amount if the total
number of grants of out-of-the-money options is greater than 2,000) multiplied
by the total number of grants of out-of-the-money options to such optionholder.
To the extent that the number of grants of out-of-the-money options exceeds
2,000, the amount to be received by each optionholder per grant will be reduced
pro rata so that in the aggregate the consideration paid to holders of
out-of-the-money options does not exceed $2,000.
With respect to any option which is not, as of the effective time of the
merger, vested, but which has an exercise price of less than $5.32, PA
Consulting Group, Inc. will pay to the optionholder the option spread as soon as
practicable after the date when, but only if, such option would otherwise have
vested if such option had not been canceled.
Exchange of Shares for Cash
Immediately prior to the effective time of the merger, PA Consulting
Group, Inc. will deposit with a paying agent designated by the company and PA
Consulting Group, Inc. an amount in cash equal to the product of the number of
shares outstanding immediately prior to the effective time of the merger and
$5.32. Promptly after the effective time of the merger (but in any event within
one business day thereafter), the paying agent will mail to each holder of
record of common stock (other than holders who have perfected dissenters' rights
of appraisal) a letter of transmittal and instructions on how to surrender their
stock certificates in exchange for the cash merger consideration.
Please do not send in your stock certificates until you receive the letter
of transmittal and instructions from the paying agent. Do not return your stock
certificates with the enclosed proxy card.
After receipt of the letter of transmittal, each holder of certificates
(other than holders who have perfected dissenters' rights of appraisal) that
represented common stock prior to the merger should surrender the certificates
together with the signed letter of transmittal duly executed, and any other
required documents as set forth in the letter of transmittal to the paying
agent, and each such holder will receive in exchange the merger consideration.
Thereafter, the stockholder will be entitled to receive an amount of cash equal
to the product of the number of shares of common stock formerly represented by
that stockholder's certificate(s) and $5.32.
After the effective time of the merger, each certificate formerly
representing shares of common stock (other than those with respect to which
dissenters' rights of appraisal have been perfected), until surrendered and
exchanged, will be deemed for all purposes to evidence the right to receive only
the merger consideration, without interest, for the shares of common stock
represented.
Other than transfers pursuant to Section 262 of the Delaware General
Corporation Law relating to dissenters' rights of appraisal, after the
completion of the merger, (i) there will be no further transfers of shares of
common stock, and (ii) stock certificates presented for transfer after the
completion of the merger will be canceled and exchanged for the merger
consideration.
If a certificate for shares of common stock has been lost, stolen or
destroyed, payment will be made in accordance with the merger agreement upon
receipt by the paying agent of an affidavit setting forth that fact by the
person claiming such lost, stolen and destroyed certificate and granting
34
a reasonable indemnity against any claim that may be made against PA Consulting
Group, Inc., the company or the paying agent with respect to such certificate.
Representations and Warranties
The merger agreement contains various representations and warranties of
the company (on behalf of itself and, as applicable, its subsidiaries), on the
one hand, and PA Holdings Limited, PA Holdings Inc. and PA Consulting Group,
Inc. on the other hand, relating to the following:
o corporate organization, qualification to conduct business, corporate
standing and similar corporate matters;
o authorization, execution, delivery, performance and enforceability
of the merger agreement and related agreements;
o absence of a breach of the organizational documents, law or material
agreements as a result of the merger; and
o requirement of consents, approvals, filings or other authorizations
of any governmental entity to enter into the merger agreement and
consummate the merger.
The company has made additional representations relating to:
o validity and effectiveness of its certificate of incorporation and
bylaws;
o capital structure;
o filings with the Securities and Exchange Commission (the "SEC");
o financial statements;
o absence of certain changes or events;
o litigation;
o possession and effectiveness of permits and licenses necessary to
carry on the business as currently conducted;
o compliance with laws;
o tax matters;
o intellectual property matters;
o material contracts;
o employee benefit matters;
o title to assets and absence of liens and encumbrances;
o labor matters;
o environmental matters;
35
o insurance matters;
o board approval of the merger;
o stockholder vote required to adopt the merger agreement;
o opinion of financial advisor;
o use of, and payment to, finders or brokers in connection with the
merger agreement;
o inapplicability of the Delaware takeover statute;
o transactions with affiliates; and
o disclosure.
PA Holdings Inc. has made additional representations relating to:
o validity and effectiveness of its certificate of incorporation and
bylaws; and
o stockholder vote required to adopt the merger agreement.
PA Consulting Group, Inc. has made additional representations relating to:
o financing required to consummate the merger;
o litigation;
o use of, and payment to, finders or brokers in connection with the
merger agreement; and
o financial statements.
None of the representations or warranties made by the company, PA Holdings
Limited, PA Consulting Group, Inc., or PA Holdings Inc. in the merger agreement
will survive the closing of the merger.
Conduct of Business Pending the Merger
The company has agreed that, prior to the effective time of the merger,
except as otherwise permitted by the merger agreement or otherwise consented to
in writing by PA Consulting Group, Inc., it will, and will cause each of its
subsidiaries to,:
o operate its business in the usual and ordinary course consistent
with past practice;
o use its reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain
the services of its respective principal officers and key employees
and maintain its relationships with its respective principal
customers and suppliers;
o use its reasonable efforts to maintain and keep its properties and
assets in as good repair and condition as at present, ordinary wear
and tear excepted;
o use its reasonable efforts to keep its insurance in full force and
effect; and
36
o use its commercially reasonable efforts to comply with all
applicable laws with respect to its employee benefit plans.
From the date of the merger agreement until the effective time of the
merger, except as otherwise permitted by the merger agreement or otherwise
consented to in writing by PA Consulting Group, Inc., the company and each of
its subsidiaries will not:
o other than as required by law or contracts in effect as of the date
of the merger agreement, (i) increase the compensation or other
benefits of any of its current or former employees, consultants or
directors, (ii) except as contemplated by the terms of the merger
agreement, vest or pay any pension or retirement allowance other
than as required by any existing benefit plans to any such current
or former employees, consultants, officers or directors, (iii)
except as contemplated by the terms of the merger, become a party
to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment,
severance, consulting, retention, change in control, termination,
deferred compensation or incentive pay agreement with or for the
benefit of any current or former employee, consultant, officer or
director or accelerate the vesting, funding or payment of any
compensation payment or benefit, or (iv) grant any additional
options, restricted shares, incentive compensation awards, or grant
any person any right to acquire any shares of its capital stock or
any right the value of which is based on the value of shares of its
capital stock;
o declare or pay any dividend or other distribution (except in
connection with the exercise of outstanding options referred to in
the merger agreement and as contemplated by the earnout agreement);
o redeem, repurchase or otherwise reacquire any of its capital stock
or any securities convertible into any of its capital stock, or any
options, warrants, commitments or other rights to acquire any of its
capital stock or any such securities (except in connection with the
exercise of outstanding options referred to in the merger
agreement);
o effect any reorganization or recapitalization;
o split, combine or reclassify its capital stock or issue or authorize
the issuance of any other securities in respect of its capital
stock;
o issue, grant or sell any of its capital stock, any securities
convertible into or exercisable for any such shares, or any rights,
warrants or options to acquire any such shares (except for the
issuance of shares upon the exercise of outstanding options under
the Hagler Bailly Employee Incentive and Non-Qualified Stock Option
Plan), or amend the terms of any such rights, warrants or options
the effect of which would be to make such terms more favorable to
the holders thereof;
o except for the voting agreement, enter into any agreement with
respect to the sale or voting of its capital stock;
o except for the company's acquisition of equity interests in certain
clients pursuant to pre-existing agreements, acquire or agree to
acquire, by merging or consolidating with, by purchasing an equity
interest in or a portion of the assets of, any business or any
corporation (other than a wholly-owned subsidiary), or otherwise
acquire or agree to acquire any assets of any other person (other
than the purchase of assets in the ordinary course of business and
consistent with past practice), or make or commit to make any
capital expenditures other than capital expenditures in the ordinary
course of business consistent with past practice;
37
o sell, lease, pledge, transfer or otherwise dispose of any of its
material assets, including without limitation the capital stock of
the company or any of its subsidiaries except in the ordinary course
of business and consistent with past practice;
o propose or adopt any amendments to its or any of its subsidiaries'
certificate of incorporation or bylaws or limited liability company
agreement, as the case may be;
o settle or compromise any material claim or proceeding involving
money damages except any settlement where the amount of such
settlement individually does not exceed $150,000;
o change any of its methods of accounting or methods relating to tax
matters, except as may be required by law or generally accepted
accounting principles, or settle tax claims in excess of $75,000;
o except in the ordinary course of business, permit any insurance
policy naming it as a beneficiary or a loss-payable payee to be
canceled or terminated;
o with some exceptions, incur or guarantee additional debt;
o enter into, modify or terminate in any material respect any material
contract;
o hire for, or promote any person to, the position of vice president,
executive vice president or senior vice president;
o take any action, or omit to take an action, which would result in a
breach of a representation or warranty of the company which would
have a material adverse effect and which is not cured within thirty
(30) days after written notice thereof;
o enter into any contract for services with a fixed price greater than
$750,000;
o enter into any contract for services where the company's potential
liability exceeds three times the consulting fees received under
such contract;
o terminate any vice president or senior vice president, except for
cause;
o fail to bill or properly invoice any client;
o write-off or disclaim any indebtedness in excess of $75,000; or
o agree in writing or otherwise to do any of the foregoing.
Certain Other Covenants and Agreements
The company and PA Consulting Group, Inc. have also agreed to additional
covenants and agreements, which are in certain cases mutual and other cases
covenants of either party only, relating to the following matters:
o providing reasonable access to properties, personnel and
information;
o compliance with the terms of the confidentiality agreement between
the company and PA Consulting Group, Inc.;
38
o holding the special meeting and using reasonable best efforts to
solicit proxies in favor of the merger agreement and the merger;
o preparing and filing a proxy statement with the SEC;
o causing the conditions to the merger to be fulfilled and the merger
to be consummated, including obtaining all necessary licenses,
permits, consents, approvals, authorizations, qualifications and
orders of governmental entities and parties to contracts with the
respective parties;
o taking further action to complete the merger;
o notification of any pending or threatened action by any governmental
entity or other person challenging the merger or the conversion of
the common stock into the merger consideration, seeking to restrain
the consummation of the merger;
o notice of any event which would cause any of the representations or
warranties of the parties to be materially untrue or inaccurate and
use of commercially reasonable efforts not to take any action or
enter into any transaction which would be expected to cause the
representations and warranties to be untrue or result in a breach of
any covenant in the merger agreement;
o making public announcements regarding the merger;
o indemnification;
o increasing the amount of the company's errors and omissions
insurance coverage pre-closing;
o employee benefit matters, including PA Consulting Group, Inc.'s
agreement to honor the retention bonus plans;
o regulatory filings;
o board recommendations and no negotiations with others;
o execution of standard employment agreements; and
o the amendment of the company's credit facility and the consummation
of certain investments by the company.
No Solicitation of Proposals
Under the merger agreement, the company has agreed to, and shall cause any
of its subsidiaries and their respective affiliates, directors, officers,
financial and legal advisors and other representatives to, cease immediately all
activities, discussions, and negotiations, if any, with any person conducted
with respect to any acquisition proposal (as defined below).
In addition, the company has agreed not to, and not to permit any of its
subsidiaries to, directly or indirectly, through any of their respective
affiliates, directors, officers, financial or legal advisors, or other
representatives:
o take any action to solicit, initiate, facilitate or encourage any
acquisition proposal; or
39
o engage in negotiations or discussions with, or disclose any
nonpublic information relating to the company or any of its
subsidiaries or afford access to the properties, books or records of
the company or any of its subsidiaries to any person making, or
which the company or any such representative has reason to believe
is likely to make, an acquisition proposal (or a potential
acquisition proposal).
However, prior to the adoption of the merger agreement by the company's
stockholders, the company, in response to an unsolicited acquisition proposal,
may:
o request clarifications from, or furnish information to, any third
party which makes such an unsolicited acquisition proposal, for the
purpose of obtaining information reasonably necessary to ascertain
whether such acquisition proposal is, or should reasonably be
expected to lead to, a superior proposal (as defined below); and
o if the board of directors (after consultation with an independent,
nationally recognized investment bank) reasonably determines in good
faith that such acquisition proposal is or is reasonably expected to
be a superior proposal, participate in discussions or negotiations
with or furnish information to the third party which has made such
acquisition proposal.
Prior to taking any action with respect to such unsolicited acquisition
proposal, the following conditions must be met:
o the company must enter into a confidentiality agreement with such
third party with confidentiality and standstill terms at least as
stringent as those contained in the confidentiality agreement
between the company and PA Consulting Group, Inc. and, to the extent
permitted by such confidentiality agreement to which the company
becomes subject, the company has notified PA Consulting Group, Inc.
in writing of the receipt of an acquisition proposal which notice
will include a detailed summary of the acquisition proposal and
copies of any documentation received by the company in connection
with such acquisition proposal;
o the board of directors (after receiving advice from outside legal
counsel) reasonably determines in good faith that it is necessary to
take each such action in order to comply with its fiduciary duties
under Delaware law; and
o the board of directors has concluded that such third party is
capable of executing a definitive agreement and consummating a
transaction on a reasonable schedule.
Under the merger agreement, the term:
o "acquisition proposal" means any proposal or offer to acquire all or
any substantial part of the business and properties or capital stock
of the company or its subsidiaries, whether by merger,
consolidation, sale of assets, tender offer or similar transaction
or series of transactions involving the company or its subsidiaries;
and
o "superior proposal" means a bona fide acquisition proposal that the
board of directors determines in good faith (after consultation with
its financial advisor and outside legal counsel) (i) would, if
consummated, result in a transaction more favorable to stockholders,
from a financial point of view, than the transactions contemplated
by the merger agreement, taking into account all the terms and
conditions of such acquisition proposal, including any proposed
break-up fees or similar devices, expense reimbursement provisions,
conditions to consummation and conditions to execution of a
definitive agreement, and (ii) is reasonably capable of being
consummated.
40
Notwithstanding the terms of the no solicitation provision of the merger
agreement, the company and PA Consulting Group, Inc. have agreed that the
company may take any necessary actions to divest its Indonesian subsidiary,
Fieldston Publications, Inc. and CapGemini Hagler Bailly LLC, subject to PA
Consulting Group, Inc.'s reasonable satisfaction with the terms of any such
divestitures.
Conditions to Consummation of the Merger
The respective obligations of each of the company, PA Holdings Limited, PA
Consulting Group, Inc., and PA Holdings Inc. to complete the merger are subject
to the satisfaction or waiver of each of the following conditions prior to the
effective time of the merger:
o the merger agreement must be approved by the requisite vote of our
stockholders;
o no law, regulation or order may be enacted or issued which has the
effect of preventing or prohibiting consummation of the merger;
o all applicable waiting periods under applicable antitrust laws must
have expired or been terminated and all material foreign antitrust
approvals required to be obtained prior to the merger must have been
obtained; and
o to the extent required by contract, the company must have received
consents of third parties to the consummation of the merger, except
where the failure to receive such consents would not have a material
adverse effect on the company.
PA Consulting Group, Inc.'s obligations to complete the merger are subject
to the satisfaction or waiver of each of the following additional conditions:
o the representations and warranties of the company must be true and
correct in all respects as of the effective time of the merger as if
made on and as of such time, except:
- where the representations and warranties address matters only
as of a particular date, in which case they must be true and
correct as of that date; and
- where the failure to be true and correct is not reasonably
expected to have, individually or in the aggregate, a material
adverse effect;
o the company must have performed and complied in all material
respects with all of its covenants and obligations required by the
merger agreement to be performed or complied with by it at or before
the effective time of the merger;
o no material adverse effect with respect to the company shall have
occurred and be continuing or reasonably expected to occur; and
o the earnout agreement and the voting agreement (as more fully
described under "Related Agreements ") will not have been terminated
and will be in full force and effect.
The company's obligations to complete the merger are subject to the
satisfaction or waiver of each of the following additional conditions:
o the representations and warranties of each of PA Holdings Limited,
PA Consulting Group, Inc. and PA Holdings Inc. must be true and
correct in all respects as of the effective time of the merger as if
made on and as of such time, except:
41
- where the representations and warranties address matters only
as of a particular date, in which case they must be true and
correct as of that date; and
- where the failure to be true and correct is not reasonably
expected to have, individually or in the aggregate, a material
adverse effect; and
o each of PA Consulting Group, Inc. and PA Holdings Inc.,
respectively, must have performed and complied in all material
respects with all of its covenants and obligations required by the
merger agreement to be performed or complied with by it at or before
the effective time of the merger.
As it relates to the company, a "material adverse effect" is defined in
the merger agreement as:
o any material adverse effect or change (whether taken individually or
in the aggregate) on the financial condition, business, results of
operations or employee relations of the company or its subsidiaries,
taken as a whole, other than any material adverse effect or change
arising out of any change or development relating (A) to any
generally applicable change in law, rule or regulation or generally
accepted accounting principles or interpretation thereof, or (B) to
the U.S. or global economies or to industries in which the company
or its subsidiaries operate or provide services, but only to the
extent in the case of (A) or (B) that any such effect, change or
development adversely affects the company in substantially the same
manner and to substantially the same degree as similarly situated
companies in the same industry;
o a material impairment of the company's ability to perform its
obligations under the merger agreement or to consummate the
transactions contemplated thereby on or prior to the termination
date of the merger agreement;
o at the effective time of the merger, 25% or more of the practice
area leaders designated in the merger agreement have not signed PA
Consulting Group, Inc.'s standard forms of employment agreement,
have suffered death or long-term disability, or have formally
resigned from the company. In accordance with the terms of the
merger agreement, this portion of the definition of material adverse
effect no longer applies because all six of the practice area
leaders have signed supplemental agreements regarding
non-competition on or prior to August 3, 2000;
o at the effective time of the merger, 50% or more of the senior vice
presidents in the energy, environment, government or transport
practice areas have not signed PA Consulting Group, Inc.'s standard
forms of employment agreement, have suffered death or long-term
disability, or have formally resigned from the company. In
accordance with the terms of the merger agreement, this portion of
the definition of material adverse effect no longer applies because
all six of the practice area leaders have signed supplemental
agreements regarding non-competition on or prior to August 3, 2000;
o at the effective time of the merger, 25% or more of the senior vice
presidents have not signed PA Consulting Group, Inc.'s standard
forms of employment agreement, have suffered death or long-term
disability, or have formally resigned from the company;
o at the effective time of the merger, 25% or more of the vice
presidents have not signed PA Consulting Group, Inc.'s standard
forms of employment agreement, have suffered death or long-term
disability, or have formally resigned from the company; or
42
o at the effective time of the merger, 25% or more of the consulting
staff (other than research associates, analysts, senior vice
presidents and vice presidents) have suffered death or long-term
disability, or have formally resigned from the company.
As it relates to PA Consulting Group, Inc., a "material adverse effect" is
defined in the merger agreement as a material impairment of PA Consulting Group,
Inc.'s ability to perform its obligations under the merger agreement or to
consummate the transactions contemplated thereby on or prior to the termination
date of the merger agreement.
Termination of the Merger Agreement; Termination Fee
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the requisite stockholder approval,
in the circumstances listed below.
The merger agreement may be terminated by mutual written consent of the
company and PA Consulting Group, Inc.
The merger agreement may be terminated by either the company or PA
Consulting Group, Inc., if any of the following events occur:
o the other materially breaches any of its representations,
warranties, covenants or agreements contained in the merger
agreement and causes the conditions to closing relating to those
representations, warranties, covenants and agreements to be
unsatisfied, and such breach has not been cured, or by its nature or
timing cannot be cured, within 30 days after written notice thereof;
o there exists any final and nonappealable decree, permanent
injunction, judgment, order or other action preventing or
prohibiting consummation of the merger;
o the stockholders do not approve the merger and do not approve and
adopt the merger agreement at the special meeting; or
o the merger is not consummated by the date which is 180 days after
the date of the merger agreement, provided that the right to
terminate the merger agreement is not available to any party whose
breach of its obligations under the merger agreement has caused such
termination and that applicable cure periods have run.
PA Consulting Group, Inc. may terminate the merger agreement if:
o the company or its board of directors accepts or recommends to the
stockholders a superior proposal;
o any of the stockholders who are parties to the voting agreement
breach in any material respect any representation, warranty,
covenant or agreement thereof and such breach has not been promptly
cured after written notice to any such stockholder; provided that
such breach shall be of the kind that denies PA Consulting Group,
Inc. the material benefits contemplated by the voting agreement; or
o there has been a material adverse effect on the company which has
not been cured within thirty days after notice thereof, provided
that PA Consulting Group, Inc. shall be deemed to waive the right to
terminate or not to close based on such material adverse effect if
PA Consulting Group, Inc. has not exercised its right to terminate
before the date which is sixty days after receipt or delivery of the
notice that the material adverse effect has occurred.
43
The company may terminate the merger agreement if:
o the company or its board of directors shall have accepted or
recommended to the stockholders a superior proposal, provided that
the company and its board of directors have materially complied with
their obligations relating to negotiation with others under the
merger agreement.
Under the merger agreement, the company is obligated to pay PA Consulting
Group, Inc. a termination fee of $5,000,000 if either the company or PA
Consulting Group, Inc. terminates the merger agreement as a result of the
company or its board of directors accepting or recommending to the stockholders
a superior proposal. The termination fee must be paid within 5 days of such
termination by wire transfer of immediately available funds.
Amendment, Extension and Waiver of the Merger Agreement
The merger agreement may be amended in writing by the parties thereto by
action taken by or on behalf of their respective boards of directors at any time
prior to the effective time of the merger; provided that, after approval of the
merger agreement by the stockholders, no amendment may be made which would
reduce the amount of consideration or change the type of consideration into
which each share of common stock shall be converted pursuant to the merger
agreement upon consummation of the merger.
At any time prior to the effective time of the merger, either the company
or PA Consulting Group, Inc. may, in writing, extend the other's time for the
performance of any of its obligations or other acts, waive any inaccuracies in
the other's representations and warranties contained in the merger agreement or
in any document delivered pursuant to the merger agreement and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
Indemnification and Insurance
Under the merger agreement, PA Consulting Group, Inc. has agreed that it
will not, for a period of six years after the effective time of the merger,
amend the surviving corporation's certificate of incorporation or bylaws in any
manner that would adversely affect the rights of persons who at any time prior
to the effective time of the merger were identified as prospective indemnitees
in respect of actions or omissions occurring at or prior to the effective time
of the merger, unless such amendment is required by law.
In addition, the merger agreement provides that the surviving corporation
will, after the effective time of the merger and to the extent permitted by
Delaware law, indemnify, defend and hold harmless the present and former
officers, directors and employees of the company and its subsidiaries against
all losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of, with the approval of PA Consulting Group, Inc. and the surviving
corporation, or otherwise in connection with, any claim, action, suit,
proceeding or investigation based in whole or in part on the fact that such
person is or was such a director, officer or employee and arising out of actions
or omissions occurring at or prior to the effective time of the merger. PA
Consulting Group, Inc. has also agreed to cause to be maintained in effect for
not less than six years after the effective time of the merger the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance maintained by the company (or substitute policies with substantially
the same coverage and terms) with respect to matters occurring prior to the
effective time of the merger, except that PA Consulting Group, Inc. shall not be
required to pay an annual premium for such insurance of more than 200% of the
last annual premium paid prior to the date of the merger agreement.
44
Expenses of the Merger
The company and PA Consulting Group, Inc. will each pay their own costs
and expenses relating to the merger agreement and the transactions contemplated
thereby. If the closing does not occur, the company will reimburse PA Consulting
Group, Inc. one-half of the filing fees paid by PA Consulting Group, Inc. in
connection with filings made pursuant to U.S. and foreign antitrust laws.
45
RELATED AGREEMENTS
The Voting Agreement
As an inducement for PA Consulting Group, Inc. to enter into the merger
agreement, the following directors, officers and affiliates of the company have
entered into a voting agreement with PA Consulting Group, Inc. and PA Holdings
Inc.: Henri-Claude Bailly, Geoffrey W. Bobsin, Jasjeet S. Cheema, Robert W. Fri,
Roger W. Gale, Richard H. O'Toole, Fred M. Schreiver, James Speyer, Alain M.
Streicher, and Stephen V.R. Whitman, pursuant to which they have agreed to vote
all of their shares of common stock: (i) in favor of the merger and the adoption
of the merger and the transactions contemplated thereby; (ii) against approval
or adoption of resolutions which would prevent or materially delay the company
from performing its obligations under the merger agreement; and (iii) against
any action which would constitute a material breach of any provision of the
merger agreement.
As of ________, 2000, these directors, officers and affiliates owned in
the aggregate 2,170,849 shares of common stock, which represented approximately
12.1% of the outstanding company common stock. The voting agreement will
terminate upon the earlier of the termination of the merger agreement or the
effective time of the merger.
The Earnout Agreement
On August 12, 1999, the company acquired all of the outstanding stock of
GKMG, Inc., a Washington, D.C.-based consulting firm specializing in the
economic, strategic, financial and regulatory analysis of the aviation industry,
in exchange for 1,420,000 shares of the company's common stock. Under the terms
of the Share Exchange Agreement by and among the company, GKMG and former
stockholders of GKMG, the company is obligated to issue additional shares of its
common stock to the former stockholders of GKMG with a fair market value (as
defined in the Share Exchange Agreement) up to $15 million if certain earnings
targets for GKMG are met for the periods July 1, 1999 to June 30, 2000 and July
1, 2000 to June 30, 2001. In addition, the company is obligated to issue up to
192,857 additional shares of its common stock to the former stockholders of GKMG
if certain stock price performance contingencies are not met.
As a condition to the consummation of the merger, the company was required
to amend certain of the terms and conditions of the Share Exchange Agreement.
On July 3, 2000, the company entered into the earnout agreement with the
former stockholders of GKMG, pursuant to which the company and the former
stockholders of GKMG amended the Share Exchange Agreement to provide for:
o the satisfaction of contingent payment obligations of the company
under the Share Exchange Agreement;
o the payment of such obligations in cash in lieu of common stock of
the company as required by the Share Exchange Agreement;
o the elimination of certain affirmative covenants of the company
under the Share Exchange Agreement which were related to the earnout
payments; and
o a mutual release of each of the company and the former stockholders
of GKMG with respect to any liabilities pursuant to the Share
Exchange Agreement.
46
In full satisfaction of the contingent payment obligations of the company
under the Share Exchange Agreement, the former stockholders of GKMG and the
company agreed that the former stockholders of GKMG will be paid an aggregate
cash amount equal to:
o a cash payment for the first year earnout payment in accordance with
the Share Exchange Agreement;
o $2,620,000 over the next two years in lieu of the second year
earnout payment; and
o 192,857 multiplied by $5.32 payable immediately prior to the closing
of the merger agreement.
Thus, if the merger closes prior to December 31, 2000, the company will
not have to issue any additional common shares to the stockholders under the
Share Exchange Agreement, nor will it have to issue any shares of common stock
in the event certain share price performance targets are not met. Additionally,
the company agreed to waive any claims which the company might have against the
former stockholders of GKMG under the indemnification provisions of the Share
Exchange Agreement.
The effectiveness of the earnout agreement is conditioned on the closing
of the merger agreement, except that the company and the former stockholders of
GKMG have agreed that the payment of the first installment of the first year
earnout payment, which was scheduled to be made on or prior to August 15, 2000,
will not be paid until the earlier of the consummation of the merger or the
termination of the merger agreement, but in no event later than December 31,
2000 and the company and the former stockholders of GKMG have agreed not to
assert indemnity claims against each other during this period.
47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of ________, 2000, with respect to each
person who is known by the company to own beneficially more than five percent
(5%) of the outstanding shares of common stock, the name and address of such
owner, the number of shares of common stock beneficially owned, the nature of
such ownership, and the percentage such shares comprised of the outstanding
shares of common stock. Under the rules of the SEC, a person is deemed a
"beneficial owner" of a security if such person has or shares the power to vote
or direct the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial
ownership within 60 days.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Cap Gemini S.A. 2,596,243(1) 12.65%
11, rue de Tilsitt
75017 Paris, France
T. Rowe Price Associates, Inc. 1,350,800(2) 7.00%
100 E. Pratt Street
Baltimore, Maryland 21202
- ----------
(1) On January 7, 2000, Cap Gemini S.A. and Cap Gemini America, Inc. (formerly
named Cap Gemini Holding, Inc.) filed an amendment to a Schedule 13D with
the SEC reporting beneficial ownership of 2,125,268 and 470,975 shares of
common stock, respectively.
(2) On February 14, 2000, T. Rowe Price Associates, Inc. (Price Associates)
filed a Schedule 13G with the SEC reporting beneficial ownership of
1,350,800 shares of common stock. These securities are owned by various
individual and institutional investors including T. Rowe Price New
Horizons Fund, Inc. (which owns 1,250,000 shares, representing 6.97% of
the shares outstanding), which Price Associates serves as an investment
advisor with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, Price Associates is deemed to be a beneficial owner
of such securities; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities.
48
The following table sets forth certain information as of _________, 2000
with respect to the beneficial ownership of common stock by each director and
the chief executive officer and four most highly compensated officers of the
company and all executive officers and directors as a group.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Henri-Claude A. Bailly 908,486 (1) 4.82%
Geoffrey W. Bobsin 0 0
Jasjeet S. Cheema 69,612 (2) *
Robert W. Fri 33,700 (3) *
Roger Gale 144,210 *
James Miller 444,460 2.41%
Richard H. O'Toole 21,000 (4) *
Fred M. Schriever 92,248 (5) *
James Speyer 322,428 (6) 1.76%
Alain M. Streicher 512,677 (7) 2.78%
All Directors and Executive Officers as a Group 2,548,821 12.45%
(10 persons) ========= ======
- ----------
* Less than one percent (1%) of the outstanding shares of common stock.
(1) Includes 72,500 shares of common stock held in trust by Mr. Bailly and Mr.
Streicher on behalf of Mr. Streicher's children and options to purchase
153,300 shares of common stock.
(2) Includes options to purchase 19,500 shares of common stock.
(3) Includes options to purchase 26,187 shares of common stock.
(4) Constitutes options to purchase 21,000 shares of common stock.
(5) Includes 50,000 shares of common stock owned by Mr. Schriever's wife and
options to purchase 26,186 shares of common stock.
(6) Includes options to purchase 67,233 shares of common stock.
(7) Includes 72,500 shares of common stock held in trust by Mr. Bailly and Mr.
Streicher on behalf of Mr. Streicher's children and options to purchase
22,000 shares of common stock.
49
FORWARD LOOKING STATEMENTS
Some of the statements contained in or considered a part of this proxy
statement discuss future expectations or state other forward-looking
information. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The "forward-looking" information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these so-called forward-looking statements by words like "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of those words and other
comparable words. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. You should be
aware that those statements only reflect our predictions. Actual events or
results may differ substantially from the forward-looking statements throughout
this proxy statement. The company undertakes no obligation to publicly revise
the forward-looking statements to reflect any future events or circumstances.
STOCKHOLDER PROPOSALS
In the event that the merger is not consummated, any stockholder proposal
submitted under Rule 14a-8 of the Securities Exchange Act of 1934 for inclusion
in the proxy statement for the 2001 annual meeting of stockholders should be
submitted to Stephen V.R. Whitman, Secretary, Hagler Bailly, Inc., 1530 Wilson
Boulevard, Arlington, Virginia 22209 so that it is received no later than
December 9, 2000 to be eligible for inclusion in the proxy materials for the
annual meeting. Pursuant to the rules of the Securities Exchange Act of 1934,
the company may use discretionary authority to vote with respect to stockholder
proposals presented in person at the 2001 annual meeting of stockholders if the
stockholder making the proposal has not given notice to the company by February
22, 2001.
WHERE YOU CAN FIND MORE INFORMATION
The company files annual, quarterly and special reports, proxy statements
and other information with the SEC under the Securities Exchange Act of 1934.
You may read and copy any of this information at the following locations of the
SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet Web site that contains reports, proxy
statements and other information regarding issuers, like the company, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
This document is a proxy statement of the company. The company has not
authorized anyone to give any information or make any representation about the
merger or the company that is different from, or in addition to, that contained
in this proxy statement. Therefore, if anyone does give you information of this
sort, you should not rely on it. This proxy statement does not constitute an
offer or solicitation to sell or a solicitation of an offer to buy any
securities. The delivery of this
50
proxy statement shall not, under any circumstances, imply or create an
implication that there have not been any changes in the affairs of the company
or in the information set forth herein subsequent to the date hereof.
51
REVOCABLE PROXY
HAGLER BAILLY, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of Hagler Bailly, Inc. ("HBIX") hereby
appoints Geoffrey Bobsin and Stephen V.R. Whitman, or either of them, with full
power of substitution in each, as proxies to cast all votes as designated below
which the undersigned stockholder is entitled to cast at the special meeting of
stockholders (the "HBIX Meeting") to be held at _____ [a.m.] [p.m.] on
______________, 2000 at 1530 Wilson Boulevard, Arlington, Virginia 22209 and at
any adjournments thereof, upon the following matters. The undersigned
stockholder hereby revokes any proxy or proxies heretofore given.
This proxy when properly executed will be voted as directed by the
undersigned stockholder and in accordance with the determination of a majority
of the board of directors of HBIX as to any other business as may properly come
before the meeting, or any adjournments or postponements thereof. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED: "FOR" Proposal 1. The
board of Directors recommends a vote "FOR" Proposal 1.
The undersigned stockholder may revoke this proxy at any time before it is
voted by (i) delivering to the Corporate Secretary of HBIX a written notice of
revocation prior to the HBIX Meeting, (ii) delivery to HBIX prior to the HBIX
Meeting a duly executed proxy bearing a later date, or (iii) attending the HBIX
Meeting and voting in person. The undersigned stockholder hereby acknowledges
receipt of HBIX's Notice of Special Meeting and Proxy Statement.
If you receive more than one proxy card, please sign and return all cards
in the accompanying envelope.
(continued and to be signed and dated on reverse side)
----------------
See
Reverse Side
----------------
52
-------
X
-------
Please mark your
votes as this
--------
Shares of Common Stock
Proposal 1: To approve and adopt an agreement and plan of merger, dated as
of June 19, 2000, as amended by the first amendment to
agreement and plan of merger dated as of August 30, 2000,
among Hagler Bailly, Inc., PA Consulting Group, Inc., PA
Holdings Inc., a wholly-owned direct subsidiary of PA
Consulting Group, Inc., and, only with respect to certain
payment obligations and representations, PA Holdings Limited,
pursuant to which, among other things, PA Holdings Inc. will
merge into the company and the company will be the surviving
corporation. Approval and adoption of the merger agreement
will also constitute approval of the merger and the other
transactions contemplated by the merger agreement as more
fully described in the Proxy Statement.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
Other Matters: The proxies are authorized to vote upon such other business as
may properly come before the meeting, or any adjournments or
postponements thereof, in accordance with the
determination of a majority of HBIX's Board of Directors.
Date: __________________
___________________________
___________________________
___________________________
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary should
sign and indicate his or her full title. When stock has been issued in the name
of two or more persons, all should sign.
53
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of the 19th day of June, 2000, by and among Hagler Bailly, Inc., a Delaware
corporation (the "Company"), PA Consulting Group, Inc., a New Jersey corporation
("Acquiror"), PA Holdings Inc., a Delaware corporation ("Merger Sub") and PA
Holdings Limited, a corporation organized under the laws of England and Wales
and the ultimate parent entity of the Acquiror (the "Parent"), only with respect
to the payment obligations contained in Section 2.2, the representations
contained in Sections 5.5 and 5.8, and the provisions of Article X hereof.
WHEREAS, the Board of Directors of the Company has determined that
it is fair to, and in the best interest of its stockholders that Merger Sub, a
wholly-owned subsidiary of Acquiror, merge with and into the Company, pursuant
to and subject to the terms and conditions of this Agreement and the Delaware
General Corporation Law ("Delaware Law");
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, certain of the officers,
directors and affiliates of the Company ("Company Affiliates"), have entered or
will enter into a voting agreement with Acquiror (the "Voting Agreement")
pursuant to which, among other things, each Company Affiliate has agreed to vote
all of its shares of common stock of the Company in favor of this Agreement, the
Merger (as defined below) and the other transactions contemplated by this
Agreement;
WHEREAS, the Company is negotiating to enter into an agreement (the
"Earnout Agreement") with respect to the future payment by the Company of its
obligations under existing earn-out and price performance share arrangements
with the former shareholders of GKMG, Inc., a draft of which is attached hereto
as Schedule A.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Delaware Law, at the Effective Time (as
defined in Section 1.2) Merger Sub shall be merged with and into the Company
(the "Merger"). As a result of the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (sometimes referred to herein as the "Surviving
Corporation") and a wholly-owned subsidiary of Acquiror. The name of the
Surviving Corporation shall be PA/Hagler Bailly Inc.
A-1
SECTION 1.2 Effective Time.
As promptly as practicable after the Closing, the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware,
in such form as required by, and executed in accordance with the relevant
provisions of, Delaware Law and in such form as approved by the Company and
Acquiror prior to such filing (the date and time of the filing of the
Certificate of Merger or the time specified therein being the "Effective Time").
SECTION 1.3 Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of Delaware Law. At the Effective Time, except as
otherwise provided herein, all the rights, privileges, powers and franchises of
Merger Sub and the Company, shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub and the Company shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation; Bylaws.
At the Effective Time, (a) the certificate of incorporation of the
Merger Sub, as in effect immediately prior to the Effective Time and as amended
by the Certificate of Merger, shall be the certificate of incorporation of the
Surviving Corporation, and (b) the bylaws of the Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
SECTION 1.5 Directors and Officers.
The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the initial directors and officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6 Closing.
Subject to the terms and conditions of this Agreement, the closing
of the Merger (the "Closing") will take place as promptly as practicable after
satisfaction of the latest to occur or, if permissible, waiver of the conditions
set forth in Article VIII hereof (the "Closing Date"), at the offices of Loeb &
Loeb LLP, 345 Park Avenue, New York, NY 10154, unless another date or place is
agreed to in writing by the parties hereto.
SECTION 1.7 Subsequent Actions.
If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to continue
in, vest, perfect or confirm of record or otherwise in the Surviving Corporation
its right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be
A-2
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
assets in the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1 Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, the Company or the holders of any of
the following securities:
(a) Company Common Stock. Subject to the other provisions of this
Section 2.1, each share of common stock, par value $.01 per share, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding any shares described in Sections 2.1(b) and (c) and
any Dissenting Shares (as hereinafter defined)), shall be converted into the
right to receive $5.32 in cash, without interest (the "Per Share Amount");
provided, however, that the Per Share Amount shall be adjusted in accordance
with Section 2.1(e) below if and only if (i) the number of shares of Common
Stock issued and outstanding immediately prior to the Effective Time shall be
greater than the sum of (A) 17,927,812 plus (B) the number of shares of Common
Stock issued upon any exercise of the Options set forth on Schedule 2.1 hereto
prior to the Effective Time plus (C) any other Options that have an exercise
price of $5.32 or higher which are exercised prior to the Effective Time; and/or
(ii) Schedule 2.1 does not set forth all of the Options outstanding immediately
prior to the Effective Time which have an exercise price which is less than
$5.32; and/or (iii) any further shares of Common Stock are issued by the Company
pursuant to the Share Exchange Agreement dated August 12, 1999 relating to GKMG,
Inc.; and/or (iv) if the aggregate economic value of the consideration and other
terms to be paid or assumed by the Company pursuant to the Earn-Out Agreement
exceeds the amount contemplated in the draft Earn-Out Agreement attached hereto
as Schedule A. All such shares of Common Stock shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter represent
only the right to receive the Merger Consideration as described below. The
holders of certificates previously evidencing such shares of Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Common Stock, except as otherwise provided
herein or by law. Each such certificate previously evidencing such shares of
Common Stock shall be exchanged for the Per Share Amount multiplied by the
number of shares previously evidenced by the canceled certificate upon the
surrender of such certificate in accordance with the provisions of Section 2.2,
without interest;
(b) Acquiror-Owned Shares. All shares of capital stock of the
Company owned, directly or indirectly, by Acquiror, Merger Sub or any Subsidiary
of Acquiror immediately prior
A-3
to the Effective Time shall be canceled and extinguished without any conversion
thereof and no cash or other consideration shall be delivered or deliverable in
exchange therefor;
(c) Treasury Stock. All shares of capital stock of the Company held
in the treasury of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no cash or other
consideration shall be delivered or deliverable in exchange therefor; and
(d) Merger Sub Stock. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one (1) duly authorized, validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation.
(e) Purchase Price Adjustment. If the Unadjusted Aggregate Purchase
Price would have exceeded $95,708,973.83 as calculated at the Effective Time
prior to any adjustments as contemplated by this Section 2.1(e), then the Per
Share Amount shall be reduced as follows: (a) if the Unadjusted Aggregate
Purchase Price is greater than $95,708,973.83 but is less than or equal to
$95,890,877.83, then the Per Share Amount shall be reduced to $5.31, (b) if the
Unadjusted Aggregate Purchase Price is greater than $95,890,877.83 but is less
than or equal to $96,072,781.83, then the Per Share Amount shall be reduced to
$5.30, and (c) if the Unadjusted Aggregate Purchase Price is greater than
$96,072,781.83, then for each $181,528 increment above such amount, the Per
Share Amount shall be reduced by $.01.
For purposes of this Section 2.1(e), the "Unadjusted Aggregate Purchase
Price" shall mean initially the amount equal to (a) the number of shares of
Common Stock outstanding immediately prior to the Effective Time multiplied by a
Per Share Amount of $5.32, plus (b) the aggregate value of the Option Spread
calculated based on a Per Share Amount of $5.32, plus (c) One Thousand Five
Hundred Two Dollars ($1,502), plus (d) the amount by which the aggregate
economic value of the consideration or other terms to be paid or assumed by the
Company pursuant to the final form of the Earn-Out Agreement exceeds the
aggregate economic value of the consideration or other terms contemplated in the
draft of the Earn-Out Agreement attached as Schedule A, minus (e) all amounts
received by the Company after the date hereof in connection with the exercise of
Options prior to the Closing Date.
The provisions of this Section 2.1(e) shall only be operative as set forth
in Section 2.1(a).
SECTION 2.2 Payment.
(a) Paying Agent. Immediately prior to the Effective Time, Acquiror
shall, on behalf of Merger Sub, deposit with a bank theretofore designated by
the Company and Acquiror (the "Paying Agent"), for the benefit of the holders of
shares of Common Stock (excluding any shares described in Sections 2.1(b) and
(c) and any Dissenting Shares), for payment in accordance with this Article II,
through the Paying Agent, cash in an aggregate amount equal to the Per Share
Amount multiplied by the number of shares of Common Stock outstanding
immediately prior to the Effective Time (excluding any shares described in
Sections 2.1(b) and (c) and any Dissenting Shares) (such cash being hereinafter
referred to as the "Payment Fund"). Acquiror shall cause the Paying Agent,
pursuant to irrevocable instructions, to deliver
A-4
the cash contemplated to be paid pursuant to Section 2.1(a) out of the Payment
Fund. The Payment Fund shall not be used for any other purpose.
(b) Payment Procedures. Promptly after the Effective Time, but in no
event later than one (1) business day thereafter, Acquiror shall cause the
Paying Agent to mail to each record holder, as of the Effective Time, of an
outstanding certificate (each a "Certificate" and collectively, the
"Certificates") that immediately prior to the Effective Time evidenced
outstanding shares of Common Stock (excluding any shares described in Section
2.1(b) and Section 2.1 (c) and any Dissenting Shares), a form letter of
transmittal and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal duly executed, and any
other required documents, the holder of such Certificate shall be entitled to
receive in exchange therefor the consideration set forth in Section 2.1(a) (the
"Merger Consideration"), and such Certificate shall forthwith be canceled. No
interest will be paid or accrued on the cash payable upon the surrender of the
Certificates. Until surrendered in accordance with the provisions of this
Section 2.2, each Certificate shall represent for all purposes only the right to
receive the consideration set forth in Section 2.1(a), without any interest
thereon.
(c) No Further Rights in Common Stock. All cash paid upon conversion
of the shares of Common Stock in accordance with the terms of this Article II,
and all cash paid pursuant to Section 2.5, shall be deemed to have been paid in
full satisfaction of all rights pertaining to such shares of Common Stock.
(d) Termination of Payment Fund. Any portion of the Payment Fund
that remains undistributed to the holders of Common Stock for one hundred eighty
(180) days after the Effective Time shall be delivered to Acquiror, upon demand,
and any holders of Common Stock that have not theretofore complied with this
Article II shall thereafter look only to the Surviving Corporation and Acquiror
for the Merger Consideration to which they are entitled.
(e) No Liability. Neither Acquiror nor the Surviving Corporation
shall be liable to any holder of shares of Common Stock for any cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificate evidencing shares of Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit setting forth that fact by the person
claiming such lost, stolen or destroyed Certificate(s) and granting a reasonable
indemnity against any claim that may be made against Acquiror or the Paying
Agent with respect to such Certificate(s), Acquiror shall cause the Paying Agent
to pay to such person the Merger Consideration with respect to such lost, stolen
or destroyed Certificate(s).
SECTION 2.3 Company Options; Restricted Stock.
(a) Options. At the Effective Time, each option to purchase a share
of the Company Stock (an "Option" and, collectively, the "Options") outstanding
and unexercised as of the Closing Date granted pursuant to the Company Stock
Option Plan shall be canceled, whether or not then exercisable or vested, and
shall represent the right to receive the following
A-5
consideration in settlement thereof. As soon as practicable after the Effective
Time, the Acquiror shall, on behalf of Merger Sub, pay to the optionholder
thereof the greater of (i) the excess, if any, of the Per Share Amount (as may
be adjusted pursuant to Section 2.1(e)) over such Option's per share exercise
price (the "Option Spread") multiplied by the number of Options which remain
unexercised at the Effective Time in relation to those Options set forth in
Schedule 2.1 or (ii) One Dollar ($1.00) multiplied by the total number of grants
(as opposed to the number of shares of Common Stock underlying a particular
grant) of Options to such optionholder; provided, that the number of such grants
shall not exceed 2,000. To the extent that the number of grants exceeds 2,000,
then the amount to be received by each optionholder per grant shall be reduced
pro rata so that in the aggregate the consideration per grant multiplied by the
number of grants does not exceed $2,000. With respect to any Option which is
not, as of the Effective Term, vested, the Acquiror shall, on behalf of Merger
Sub, pay to the optionholder thereof the Option Spread, as soon as practicable
after the date when (but only if) such Option would otherwise have vested had
such Option not been canceled pursuant hereto.
(b) The Company has no outstanding shares of restricted stock.
(c) Notice. As soon as practicable after the Effective Time,
Acquiror shall deliver to each holder of an Option an appropriate written notice
setting forth such holder's rights pursuant thereto.
SECTION 2.4 Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company with
respect to all shares of capital stock of the Company shall be closed and no
further registration or transfers of such shares of capital stock shall
thereafter be made on the records of the Company. On or after the Effective
Time, any Certificates for shares of Common Stock (excluding any shares
described in Sections 2.1(b) and (c) and Dissenting Shares) presented to the
Paying Agent, the Surviving Corporation or Acquiror for any reason shall be
converted into the Merger Consideration.
SECTION 2.5 Dissenting Shares.
Notwithstanding any other provisions of this Agreement to the
contrary, shares of Common Stock that are issued and outstanding immediately
prior to the Effective Time and that are held by stockholders who shall not have
voted in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such shares in accordance with
Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
shares of Common Stock held by them in accordance with the provisions of such
Section 262, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of Common Stock under such Section 262 shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive, without any interest
thereon, the Merger Consideration, upon surrender, in the manner provided in
Section 2.2, of the certificate or certificates that formerly evidenced such
shares of Common Stock.
A-6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger
Sub as follows:
SECTION 3.1 Organization and Qualification; Company Subsidiaries.
(a) Each of the Company and the Subsidiaries (as defined below) of
the Company (each a "Company Subsidiary" and collectively, the "Company
Subsidiaries") is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization. Each of the Company and the Company Subsidiaries is duly qualified
to conduct its business, and is in good standing, in each jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such jurisdictions
where failure to be so qualified and in good standing, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect (as defined below). The minute books of the Company accurately reflect in
all material respects all material corporate actions taken by their stockholders
and boards of directors (including committees of their boards of directors).
Each of the Company and the Company Subsidiaries has the requisite power and
authority and any necessary governmental authority, franchise, license or permit
to own, operate, lease and otherwise to hold and operate its assets and
properties and to carry on the businesses as now being conducted, except for
such failure which, individually or in the aggregate, is not reasonably expected
to have a Company Material Adverse Effect. The Company has no Company
Subsidiaries (as defined below) or any equity or similar interest in any entity
other than those listed in Schedule 3.1.
SECTION 3.2 Certificate of Incorporation and Bylaws.
The Company has heretofore made available to Acquiror a complete and
correct copy of the certificate or articles of incorporation and the bylaws of
the Company, (ii) a complete and correct copy of the certificate or articles of
incorporation and the bylaws of each Company Subsidiary that is a corporation,
and a correct copy of the limited liability company agreement for each Company
Subsidiary that is a limited liability company, and (iii) a complete and correct
copy of the certificate or articles of incorporation and the bylaws, limited
liability company agreement or partnership agreement, as the case may be, of
each entity in which the Company or a Company Subsidiary has an equity or
equity-related investment (individually a "Company Investee Entity" and
collectively "Company Investee Entities"). Each such certificate or articles of
incorporation, bylaws, limited liability company agreement and partnership
agreement is in full force and effect. Neither the Company, any Company
Subsidiary or Company Investee Entity is in violation of any of the provisions
of each such certificate or articles of incorporation, bylaws, limited liability
company agreement, partnership agreement or other organizational document.
SECTION 3.3 Capitalization.
A-7
The authorized capital stock of the Company consists of: (a) fifty
million (50,000,000) shares of Common Stock, of which seventeen million nine
hundred twenty-seven thousand eight hundred twelve (17,927,812) shares are
issued and outstanding as of the date of this Agreement; and (b) five million
(5,000,000) shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding. The Board has amended the Company Stock
Option Plan to increase the number to eight million (8,000,000) but the
amendment will only become effective when the Stockholders of the Company
approve this amendment; provided, however, that in the event that the Merger
shall take place, nothing in this Section 3.3 shall be construed to permit the
issuance of a greater number of shares than 17,927,812 shares of Common Stock
plus the number of shares of Common Stock issuable upon any exercise of the
Options set forth either on Schedule 2.1 hereto plus any shares of Common Stock
issuable upon any exercise of other Options that have an exercise price in
excess of the Per Share Amount. Eight million (8,000,000) shares of Common Stock
have been reserved for issuance upon the exercise of Options granted under the
Company Stock Option Plan, of which 2,859,293 shares are issuable upon the
exercise of Options outstanding under the Company Stock Option Plan as of the
date hereof. Except as set forth in Schedule 3.3 and other than as set forth on
Schedule 2.1 and Options issued under the Company Stock Option Plan with
exercise prices above the Per Share Amount, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Company or any Company Subsidiary
or obligating the Company or any Company Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in the Company or any Company
Subsidiary. Except as set forth in Schedule 3.3 and other than as set forth on
Schedule 2.1 and Options issued under the Company Stock Option Plan with
exercise prices above the Per Share Amount, there are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any shares
of its capital stock or make any material investment (in the form of a loan,
capital contribution or otherwise) in any other person. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable and not subject to preemptive rights. With
respect to each Company Subsidiary that is a corporation, all of the outstanding
shares of capital stock of such Company Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable. With respect to each
Company Subsidiary that is a corporation, all of the outstanding shares of
capital stock owned by the Company, and with respect to each Company Subsidiary
that is a limited liability company, all of the limited liability company
interests owned by the Company, are owned by the Company free and clear of any
liens, security interests, pledges, agreements, claims, charges or encumbrances
(the "Encumbrances"). As of the date hereof, the only outstanding indebtedness
for borrowed money for which the Company or any of the Company Subsidiaries is
liable (including contingent liability) is as set forth in Schedule 3.3.
SECTION 3.4 Authority.
Subject to the approval of this Agreement by the holders of a
majority of the outstanding shares of Common Stock, the Company has the
necessary corporate power and authority to enter into, perform its obligations
under and engage in any transactions contemplated by this Agreement and to
consummate the Merger. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Company are necessary to
authorize this
A-8
Agreement or to consummate the transactions contemplated hereby, other than,
with respect to consummation of the Merger, the foregoing approval of this
Agreement by the stockholders of the Company in accordance with Delaware Law.
This Agreement has been duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Acquiror and Merger Sub,
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance by the Company of its obligations under this Agreement
will not, (i) conflict with or violate the certificate or articles of
incorporation, bylaws, limited liability company agreement, partnership
agreement or other organizational document of the Company, any Company
Subsidiary or any Company Investee Entity, (ii) subject to compliance with the
requirements set forth in Section 3.5(b) below, conflict with or violate any
law, statute, ordinance, rule, regulation, order, judgment or decree applicable
to the Company, any Company Subsidiary or any Company Investee Entity or by
which any of their respective properties is bound or affected, (iii) result in
any breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of the Company,
any Company Subsidiary or any Company Investee Entity pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company, any Company
Subsidiary or any Company Investee Entity is a party or by which the Company,
any Company Subsidiary, any Company Investee Entity or any of their respective
properties or assets is bound or affected, except, in the case of clauses (ii)
and (iii) above, for any such conflicts, violations, breaches, defaults or other
alterations or occurrences which, individually or in the aggregate, are not
reasonably expected to have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any government or any agency, bureau, board, commission, court, department,
political subdivision or other instrumentality of the U.S. Government or any of
the fifty states (each a "Governmental Entity"), except (i) for (A) applicable
requirements, if any, of the Securities Exchange Act of 1934 (the "Exchange
Act"), any exchange on which the Company's securities are traded, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and any
foreign antitrust or competition law or regulation, (B) applicable requirements,
if any, of the consents, approvals, authorizations or permits described in
Schedule 3.5, and (C) filing and recordation of appropriate merger documents as
required by Delaware Law and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
SECTION 3.6 SEC Filings; Financial Statements.
A-9
(a) The Company has filed all forms, reports, statements and other
documents required to be filed with the Securities and Exchange Commission (the
"SEC") since July 3, 1997, and has heretofore made available to Acquiror, in the
form filed with the SEC since such date, together with any amendments thereto,
its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q,
(iii) all proxy statements relating to meetings of stockholders (whether annual
or special), (iv) all reports on Form 8-K, and (v) all other reports or
registration statements filed by the Company (without giving effect to any
amendment or supplement filed on or after the date of this Agreement,
collectively, the "Company SEC Reports"). As of their respective filing dates,
the Company SEC Reports (i) comply as of their respective dates as to form in
all material respects with the requirements of the Exchange Act and the
Securities Act of 1933 (the "Securities Act") and (ii) do not as of their
respective dates contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The financial statements, including all related notes and
schedules and, in the case of audited statements, the reports therein of Ernst &
Young LLP, contained in the Company SEC Reports (or incorporated by reference
therein) (i) fairly present the consolidated financial position of the Company
and the Company Subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and the Company
Subsidiaries for the periods indicated in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be noted therein, and subject, in the case of interim
financial statements, to normal year-end adjustments), (ii) comply as of their
respective dates in all material respects with applicable accounting
requirements and with rules and regulations of the SEC with respect thereto and
(iii) have been prepared in all material respects in accordance with generally
accepted accounting principles consistently applied throughout the period
involved (subject to normal year-end adjustments).
(c) The Company has provided Acquiror with copies of (i) all
management letters received from the Company's auditors during the Company's
last three fiscal years and (ii) all representation letters furnished by the
Company to its auditors during the Company's last three fiscal years of the
Company.
SECTION 3.7 Absence of Certain Changes or Events.
Except as disclosed in the Company SEC Reports filed prior to the
date of this Agreement or as set forth in an appropriately enumerated section of
Schedule 3.7, since December 31, 1999, (a) the Company, the Company Subsidiaries
and any Company Investee Entities have not incurred any liability whatsoever,
whether or not accrued and whether or not contingent or absolute, determined or
determinable, except in the ordinary course of their businesses consistent with
their past practices, (b) there has not been any event or change, which,
individually or in the aggregate, has had, or is reasonably likely to have, a
Company Material Adverse Effect, (c) the Company, the Company Subsidiaries and
any Company Investee Entities have conducted their respective businesses in the
ordinary course consistent with their past practices, (d) there has not occurred
any material damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by the Company, any Company
Subsidiaries or any Company Investee Entities, whether or not covered by
insurance, (e) there
A-10
has not been any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any Company
capital stock, except for issuances of Company Common Stock upon the exercise of
Options awarded prior to the date hereof in accordance with the terms of the
Company Stock Option Plan, (f) there has not been any split, combination or
reclassification of any Company capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, or in lieu
of or in substitution for shares of the Company capital stock, except for
issuances of Company Common Stock upon the exercise of Options awarded prior to
the date hereof in accordance with the terms of the Company Stock Option Plan;
or (g) except insofar as required by a change in generally accepted accounting
principles, there has not been any change in accounting methods, principles or
practices by the Company or any Company Subsidiaries.
SECTION 3.8 Absence of Litigation; Discrimination.
(a) Except as set forth in Schedule 3.8 and except for any actions
under the False Claims Act against the Company of which the Company has no
knowledge, as of the date hereof there are (a) no claims, actions, suits,
investigations, or proceedings pending against the Company or any of the Company
Subsidiaries before any court, administrative, governmental, arbitral, mediation
or regulatory authority or body, domestic or foreign, that (i) if adversely
determined would involve the payment, individually, of more than Seventy-Five
Thousand Dollars ($75,000) or, in the aggregate, more than One Hundred Thousand
Dollars ($100,000), by the Company or any Company Subsidiary, (ii) if adversely
determined individually or in the aggregate, would be reasonably expected to
have a Company Material Adverse Effect, or (iii) challenge or seek to prevent,
enjoin, alter or materially delay the transactions contemplated hereby, and (b)
no material judgments, decrees, injunctions or orders of any Governmental Entity
or arbitrator outstanding against the Company or any Company Subsidiary.
(b) Except as disclosed on Schedule 3.8, there are no claims, nor
any basis for any claim, against the Company or any Company Subsidiary or any
director, officer or employee of the Company or any Company Subsidiary for
discrimination based upon race, creed, color, religion, gender, sexual
preferences, national origin, handicap, ancestry, or age (collectively
"Discrimination") or sexual harassment and no person has asserted that there is
a basis for any such claim or reported actions or omissions by the Company, any
Company Subsidiary or any director, officer or employee of the Company or any
Company Subsidiary that might form a basis for such a claim. Schedule 3.8 also
sets forth a list and description of all claims, complaints, demands, notices by
employees of the Company or any Company Subsidiary alleging Discrimination or
sexual harassment during the period from January 1, 1997 through May 31, 2000.
SECTION 3.9 Licenses and Permits; Compliance with Laws.
The Company and the Company Subsidiaries hold all permits, licenses
and approvals (none of which has been modified or rescinded and all of which are
in full force and effect) from all Governmental Entities (collectively, the
"Permits") necessary for the Company and the Company Subsidiaries to own, lease
and operate their respective properties and to carry on their respective
businesses as now being conducted, except for the Permits for which the failure
to obtain, individually or in the aggregate, is not reasonably expected to have
a Company
A-11
Material Adverse Effect. The businesses of the Company and the Company
Subsidiaries are not being conducted in violation of any applicable law,
statute, ordinance, regulation, judgment, Permits, order, decree, concession,
grant or other authorization of any Governmental Entity, except for violations
which, individually or in the aggregate, are not reasonably expected to have a
Company Material Adverse Effect.
SECTION 3.10 Taxes.
Representations relating to the Company in this Section 3.10 shall
be deemed to be made separately with respect to the Company and each Company
Subsidiary or its predecessor, and each Subsidiary that was a Company Subsidiary
at any time during the applicable statute of limitations relating to the
assessment or collection of Taxes with respect to the period before such
Subsidiary was sold or otherwise disposed of by the Company. Except as set forth
in Schedule 3.10,
(a) All Tax Returns that are required to be filed by or with respect
to the Company have been or will be duly and timely filed and all such Tax
Returns are or will be true and complete in all material respects;
(b) All Taxes for which the Company is or may be liable or that
could result in an Encumbrance on any of its assets (collectively, "Tax
Liability") have been duly and timely paid;
(c) The Company has duly and timely collected or withheld, reported
and paid over to the appropriate taxing authority all Taxes required to be
withheld or collected;
(d) The Company has made adequate provision on its Financial
Statements for the payment of any Tax Liability that is not due and payable as
of the date of such Financial Statements and on its books and records for any
Tax arising after the date of such Financial Statements that is not due and
payable;
(e) No Taxing authority has asserted any adjustment that could
result in any Tax Liability;
(f) There is no pending audit, examination, investigation, dispute,
proceeding or claim (collectively, "Proceeding") relating to any Tax Liability
and to the knowledge of the Hagler Bailly Inc., no Taxing authority is
contemplating such a Proceeding;
(g) No statute of limitations with respect to any Tax Liability has
been waived or extended (unless the period to which it has been waived or
extended has expired);
(h) There is no outstanding power of attorney authorizing anyone to
act on behalf of the Company in connection with any Tax Liability, Tax Return or
Proceeding relating to any Tax;
(i) There is no outstanding closing agreement, ruling request,
request to consent to change a method of accounting, subpoena or request for
information with or by any taxing authority with respect to the Company or any
Tax Liability;
A-12
(j) The Company is not required to include any adjustment under
Section 481 of the Code (or any corresponding provision of applicable law) in
income for any period ending after December 31, 1999;
(k) The Company has not deferred any income to a period after the
Closing Date that has economically accrued on or prior to December 31, 1999;
(l) The Company has not accelerated any deduction into a period on
or before the Closing Date that economically accrues after December 31, 1999;
(m) The Company is not liable for the Tax of any other person (other
than Hagler Bailly Inc.'s and the Company Subsidiaries' being acquired pursuant
to this Agreement);
(n) Except as provided on Schedule 3.10(n), the Company is not a
party to any agreement, contract or arrangement for services that would result,
individually or in the aggregate, in the payment of any amount that would not be
deductible by the Company by reason of Section 162, 280G or 404 of the Code. The
Company is not a "consenting corporation" within the meaning of Section 341(f)
of the Code. The Company does not have any "tax-exempt bond financed property"
or "tax-exempt use property" within the meaning of Section 168(g) or (h),
respectively, of the Code. The Company has not entered into any sale-leaseback
or leveraged lease transaction;
(o) None of the assets of the Company is required to be treated as
being owned by any other person pursuant to the "safe harbor" leasing provisions
of Section 168(f)(8) of the Internal Revenue Code of 1954, as in effect prior to
the repeal of said leasing provisions. The Company has never made or been
required to make an election under Section 338 of the Code.
(p) There are no Encumbrances on any of the assets of the Company
that arose in connection with any failure (or alleged failure) to pay any Tax;
(q) The Company has never been a member of an affiliated, combined,
consolidated or unitary Tax group for purposes of filing any Tax Return, other
than the consolidated group for purposes of filing consolidated U.S. Federal
income tax returns, of which Hagler Bailly Inc. was the common parent;
(r) No closing agreements, private letter ruling, technical advance
memorandum or similar agreement or ruling has been entered into or issued by any
taxing authority with respect to the Company; and
(s) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
SECTION 3.11 Intellectual Property.
(a) Except as set forth in Schedule 3.11, the Company or one of the
Company Subsidiaries owns or possesses all rights to use of the patents, service
marks, copyrights, franchises, trademarks, trade names, jingles, slogans,
logotypes and other similar intangible assets and applications for registration
thereof (the "Intellectual Property") maintained, owned,
A-13
used, held for use or otherwise held by the Company and the Company
Subsidiaries, material to the conduct of the business of the Company and the
Company Subsidiaries as currently conducted. The Company or a Company
Subsidiary, as of the date hereof, owns or possesses all of the right to use
such Intellectual Property and has all of the rights, benefits and privileges
associated therewith material to the conduct of the business of the Company and
the Company Subsidiaries and, to the extent to which the Company or a Company
Subsidiary does not own the Intellectual Property, such failure will not,
individually or in the aggregate, have a Company Material Adverse Effect.
(b) To the knowledge of the Company, (i) neither the Company nor any
Company Subsidiary has infringed or is infringing upon any Intellectual Property
right or other legally protectable right of another, and (ii) no person is
infringing upon any Intellectual Property right of the Company or any Company
Subsidiary, except where such infringements, individually or in the aggregate,
are not reasonably expected to have, a Company Material Adverse Effect.
(c) The Company and the Company Subsidiaries have at all times
retained Intellectual Property developed by the Company or any Company
Subsidiary (whether in the course of client assignments or otherwise) and have
licensed (both in-bound and out-bound) the Intellectual Property on normal
commercial terms, except where failure to do so, individually or in the
aggregate, has not had a Company Material Adverse Effect.
SECTION 3.12 Material Contracts.
(a) Except as otherwise indicated on Schedule 3.12, Schedule 3.12
sets forth a complete and correct list, as of the date of this Agreement, of all
agreements of the following type to which the Company or a Company Subsidiary is
a party or may be bound (collectively, the "Material Contracts"): (i) agreement
filed as an exhibit to the Company SEC Reports and each agreement that would
have been required to be filed as an exhibit to the Company SEC Reports had such
agreement been entered into as of the date of filing any such Company SEC
Report; (ii) any loan agreement, indenture, letter of credit, mortgage, note and
other debt instrument evidencing indebtedness in excess of One Hundred Thousand
Dollars ($100,000); (iii) any loan agreements or promissory notes or other
instruments evidencing indebtedness between the Company or Company Subsidiary,
on the one hand, and any director, officer or employee of the Company or any
Company Subsidiary, on the other hand; (iv) any agreement that requires
aggregate future payments to or by the Company or any Company Subsidiary of more
than One Hundred Thousand Dollars ($100,000) (other than contracts entered into
in the ordinary course of business); (v) any agreement involving payments in
excess of Fifty Thousand Dollars ($50,000) concerning any provisions with
respect to a "change in control" or otherwise triggering rights or obligations
which, individually or in the aggregate, are reasonably expected to have, a
Company Material Adverse Effect; (vi) any material agreement with any key
employee, director, officer, or person known to the Company to be a direct or
indirect stockholder of the Company; (vii) except for the limited liability
company agreements of the Company Subsidiaries, any joint venture, limited
liability company, partnership and similar agreements involving a sharing of
profits; (viii) acquisition or divestiture agreements relating to the sale of
assets or stock of the Company or any Company Subsidiary (other than sales of
inventory in the ordinary course of business); (ix) brokerage or finder's
agreements; (x) guarantees of indebtedness for borrowed money of any person
(other than a Company
A-14
Subsidiary); (xi) all deferred compensation arrangements; and (xii) all swaps,
options, collars and any other hedging or derivative transactions. To the best
of the Company's knowledge, there are no agreements (except for restrictions
arising from client contracts that do not purport to cover an entire line of
business) restricting the Company or any Company Subsidiary from engaging or
competing in any line of business.
(b) Except as set forth in Schedule 3.12, all the Material Contracts
are valid and in full force and effect on the date hereof except to the extent
they have previously expired in accordance with their terms, and neither the
Company nor any Company Subsidiary has (or has any knowledge that any other
party thereto has) violated any provision of, or committed or failed to perform
any act which with or without notice, lapse of time or both would constitute a
default under the provisions of, any Material Contract, except for defaults
which, individually or in the aggregate, are not reasonably expected to have a
Company Material Adverse Effect. True and complete copies of all Material
Contracts have been delivered to Acquiror or made available for inspection.
SECTION 3.13 Employee Benefit Plans.
Except as set forth in Schedule 3.13,
(a) All material benefit and compensation plans, contracts, policies
or arrangements covering current or former employees of the Company and its
Company Subsidiaries (the "Employees") and current or former directors of the
Company, including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and deferred compensation, stock option, stock purchase,
stock appreciation rights, stock based, incentive and bonus plans (the "Benefit
Plans"), are listed in Schedule 3.13. True and complete copies of all Benefit
Plans, including, but not limited to, any trust instruments and insurance
contracts forming a part of any Benefit Plans, and all amendments thereto have
been provided or made available to Acquiror.
(b) All employee benefit plans covering Employees (the "Plans") are
in substantial compliance with all applicable legal requirements. Each Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the
Internal Revenue Service with respect to "TRA" (as defined in Section 1 of Rev.
Proc. 93-39), and the Company is not aware of any circumstances likely to result
in revocation of any such favorable determination letter. There is no material
pending or, to the knowledge of the Company threatened, litigation relating to
the Plans. Neither the Company nor any Company Subsidiaries has engaged in a
transaction with respect to any Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject the Company or any
subsidiary to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(c) No liability under Title IV of ERISA has been or is expected to
be incurred by the Company or any Company Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is
A-15
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). Neither the Company, any Company
Subsidiaries nor an ERISA Affiliate has contributed to a "multiemployer plan",
within the meaning of Section 3(37) of ERISA, at any time on or after September
26, 1980. No notice of a "reportable event", within the meaning of Section 4043
of ERISA for which the 30-day reporting requirement has not been waived, has
been required to be filed for any Pension Plan or by any ERISA Affiliate within
the 12-month period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Agreement. All
contributions required to be made under the terms of any Benefit Plan have been
timely made or have been reflected on the financial statements contained in the
Company SEC Reports. Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA
and no ERISA Affiliate has an outstanding funding waiver. Neither the Company
nor any Company Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(d) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent actuarial valuation),
did not exceed the then current value of the assets of such Plan, there has been
no material change in the financial condition of such Plan since the last day of
the most recent plan year and the assets of each such Plan are sufficient to
satisfy all Plan liabilities on a termination basis.
(e) Other than under Section 4980B of the Code, the Federal Social
Security Act, or a plan qualified under Section 401 of the Code, neither the
Company nor any of Company Subsidiaries has any obligations for retiree health
and life benefits under any Benefit Plan, except as set forth on Schedule 3.13.
The Company or the Company Subsidiaries may amend or terminate any such Benefit
Plan at any time without incurring any material liability thereunder.
(f) Except as set forth on Schedule 3.13 the consummation of the
transactions contemplated by this Agreement will not (i) entitle any employees
of the Company or any of the Company Subsidiaries to severance pay, (ii)
accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Benefit Plans or (iii) result in any payments under, any of the
Benefit Plans which would not be deductible under Section 162(m) or Section 280G
of the Code.
SECTION 3.14 Properties; Assets.
Except as set forth in Schedule 3.14, the Company or one of the
Company Subsidiaries (a) has good and marketable title to all the properties and
assets reflected in the latest audited consolidated balance sheet of the Company
dated as of December 31, 1999 (the "Balance Sheet") as being owned by the
Company or one of the Company Subsidiaries (except properties sold or otherwise
disposed of since the date thereof in the ordinary course of business), or
acquired after the date thereof which are material to the Company's business on
a consolidated basis, free and clear of all Encumbrances except (i) statutory
liens securing
A-16
payments not yet due, and (ii) such imperfections or irregularities of title,
claims, liens, charges, security interests or encumbrances as do not materially
affect the use of the properties or assets subject thereto or affected thereby
or otherwise materially impair business operations at such properties, and (b)
is the lessee of all leasehold estates which are material to its business on a
consolidated basis and is in possession of the properties purported to be leased
thereunder, and to the knowledge of the Company, each such lease is valid
without default thereunder by the lessee or lessor. The assets and properties of
the Company and the Company Subsidiaries, taken as a whole, are in good
operating condition and repair (ordinary wear and tear excepted), and constitute
all of the assets and properties which are required for the businesses and
operations of the Company and the Company Subsidiaries as presently conducted.
SECTION 3.15 Labor Relations.
Neither the Company nor any Company Subsidiary is a party to any
collective bargaining agreement or other contract or agreement with any labor
organization or other representative of any of the employees of the Company or
any Company Subsidiary. Except as set forth in Schedule 3.15, the Company and
each Company Subsidiary is in compliance in all material respects with all laws
relating to the employment or the workplace, including, without limitation,
provisions relating to wages, hours, collective bargaining, safety and health,
work authorization, equal employment opportunity, immigration and the
withholding of income taxes, unemployment compensation, worker's compensation,
employee privacy and right to know and social security contributions. There has
not occurred or, to the knowledge of the Company or the Company Subsidiaries,
been threatened any strikes, slowdowns, picketing, work stoppages, concerted
refusals to work or other similar labor activities with respect to employees
employed by the Company or any Company Subsidiary which individually or in the
aggregate are reasonably expected to have a Company Material Adverse Effect.
SECTION 3.16 Environmental Matters.
(a) Each of the Company and the Company Subsidiaries has been and is
in compliance with all Environmental Laws, except for any noncompliance which,
individually or in the aggregate, are not reasonably expected to have, a Company
Material Adverse Effect. There are no pending or, to the knowledge of such
parties, threatened actions, suits, claims, legal proceedings or other
proceedings based on, and none of such parties has directly or indirectly
received any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility or information request from
any person arising out of or attributable to: (i) the current or past presence
at any part of the Company Real Property of Hazardous Materials; (ii) the
current or past release or threatened release into the environment from the
Company Real Property (including, without limitation, into any storm drain,
sewer, septic system or publicly owned treatment works) of any Hazardous
Materials; (iii) the off-site disposal of Hazardous Materials originating on or
from the Company Real Property or (iv) any violation of Environmental Laws at
any part of the Company Real Property or otherwise arising from the Company's or
any of the Company Subsidiaries' activities involving Hazardous Materials.
(b) Neither the Company nor any of the Company Subsidiaries has been
issued any permits, licenses, certificates and approvals required to be
maintained by such party under any Environmental Law with respect to the use or
ownership of the Company Real Property by
A-17
the Company or any of the Company Subsidiaries. There has been no discharge of
any Hazardous Materials or any other material regulated by any permits,
licenses, certificates or approvals required to be maintained by the Company or
any of the Company Subsidiaries under any Environmental Law.
(c) There is no Environmental Claim pending or, to the knowledge of
the Company or the Company Subsidiaries, threatened against or involving the
Company or any of the Company Subsidiaries, or against any person whose
liability for any Environmental Claim the Company or any of the Company
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(d) To the knowledge of the Company and the Company Subsidiaries,
there are no past or present actions or activities by the Company or any of the
Company Subsidiaries, including the storage, treatment, release, emission,
discharge, disposal or arrangement for disposal of any Hazardous Materials, that
could reasonably form the basis of any Environmental Claim against any of such
parties or against any person whose liability for any Environmental Claim the
Company or any Company Subsidiary may have retained or assumed either
contractually or by operation of law.
(e) To the knowledge of the Company and the Company Subsidiaries,
the Company Real Property does not contain any underground storage tanks, or
underground piping associated with such tanks, used currently or in the past for
Hazardous Materials.
(f) As used herein, these terms shall have the following meanings:
(i) "Company Real Property" means all leasehold interests in
real estate, easements, rights to access, rights-of-way and other real
property interests which are owned, leased used or held for use by the
Company or any Company Subsidiary that is material to the business,
prospects, financial condition or results of operation of the Company and
the Company Subsidiaries, all of which are set forth in Schedule 3.16.
(ii) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any person or Governmental
Entity alleging potential liability arising out of, based on or resulting
from the presence, or release or threatened release into the environment,
of any Hazardous Materials at any location owned or leased by the Company
or any Company Subsidiary or other circumstances forming the basis of any
violation or alleged violation of any Environmental Law.
(iii) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules,
requirements and regulations relating to pollution, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or protection of human health as it
relates to the environment including, without limitation, laws and
regulations relating to releases of Hazardous Materials, or otherwise
relating to the manufacture, processing,
A-18
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iv) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous,
toxic, pollutants, or contaminants, including without limitation,
substances defined as "hazardous substances", "toxic substances",
"radioactive materials", or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws.
SECTION 3.17 Insurance.
Schedule 3.17 contains a list of all insurance policies in force at
the date thereof with respect to the Company and the Company Subsidiaries. All
such insurance policies: (a) insure against such risks, and are in such amounts,
as appropriate and reasonable considering the Company's and the Company
Subsidiaries' properties, businesses and operations; (b) are in full force and
effect and all premiums are current thereunder; and (c) are valid, outstanding,
and enforceable. Neither the Company nor any of the Company Subsidiaries has
received or given notice of cancellation with respect to any insurance policies.
SECTION 3.18 Board Approval; Vote Required.
The Board of Directors of the Company has determined that the
transactions contemplated by this Agreement are advisable and in the best
interests of the Company and its stockholders and has resolved to recommend to
such stockholders that they vote in favor thereof. The affirmative vote of a
majority of the votes entitled to be cast by the holders of outstanding shares
of the Common Stock is the only vote of any class or series of securities of the
Company necessary to approve the transactions contemplated under this Agreement
and the Merger.
SECTION 3.19 Opinion of Financial Advisor.
The Company's Board of Directors has received the opinion of Banc of
America Securities LLC that the Merger Consideration to be received in the
Merger by the stockholders of the Company is fair to such stockholders from a
financial point of view, a written copy of which opinion will be provided to
Acquiror when received by the Company's Board of Directors, and such opinion has
not been withdrawn or modified in any respect as of the date hereof.
SECTION 3.20 Brokers.
Except for Banc of America Securities LLC, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3.21 State Takeover Statutes.
The Board of Directors of the Company has taken all necessary action
to approve the transactions contemplated by this Agreement such that the
restrictions under Section 203(a) of the Delaware Law shall not apply to such
transactions. No other "fair price", "moratorium",
A-19
"control share acquisition" or other similar antitakeover statute or regulation
(each a "Takeover Statute") is applicable to the Company, the Merger or the
transactions contemplated in this Agreement.
SECTION 3.22 Transactions with Affiliates.
Except as disclosed in the Company SEC Reports filed prior to the
date hereof and except as disclosed on Schedule 3.22, from January 1, 1999
through the date hereof there have been no transactions, agreements,
arrangements or understandings between the Company or any of its Subsidiaries,
on the one hand, and the Company's affiliates (other than wholly-owned
Subsidiaries of the Company) or other persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act.
SECTION 3.23 Disclosure.
No representation or warranty of the Company and no statement in the
Company's Schedules hereto contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES AS TO MERGER SUB
Acquiror and Merger Sub jointly and severally represent and warrant
to the Company as follows:
SECTION 4.1 Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. As of the date of this Agreement, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement, Merger Sub has
not incurred, directly or indirectly, any obligations or liabilities or engaged
in any business activities or entered into any agreements or arrangements with
any person.
SECTION 4.2 Certificate of Incorporation and Bylaws.
Merger Sub has heretofore made available to the Company a complete
and correct copy of the certificate of incorporation and the bylaws of Merger
Sub. Such certificate of incorporation and bylaws are in full force and effect.
Merger Sub is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
SECTION 4.3 Authority.
Merger Sub has the necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the
A-20
consummation by Merger Sub of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Merger Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Merger Sub and, assuming the due
authorization, execution and delivery by the Company and Acquiror, constitutes a
legal, valid and binding obligation of Merger Sub, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
SECTION 4.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do
not, and the performance by Merger Sub of its obligations under this Agreement
will not, (i) conflict with or violate the certificate of incorporation or
bylaws of Merger Sub, (ii) subject to compliance with the requirements set forth
in Section 4.4(b) below, conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to Merger Sub or by which
any of its properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Encumbrance on any of the properties or assets of Merger Sub pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Merger Sub is a party or by
which Merger Sub or any of its properties or assets is bound or affected,
except, in the case of clauses (ii) and (iii) above for any such conflicts,
violations, breaches, defaults or other alterations or occurrences that would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent Merger Sub from performing its obligations under this
Agreement in any material respect.
(b) The execution and delivery of this Agreement by Merger Sub does
not, and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) applicable requirements, if any,
of the HSR Act and any foreign antitrust or competition law or regulation, (B)
applicable requirements, if any, of the consents, approvals, authorizations or
permits described in Schedule 4.4, and (C) filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger in any
material respect.
SECTION 4.5 Vote Required.
The affirmative vote of Acquiror, the sole stockholder of Merger
Sub, is the only vote of the holders of any class or series of Merger Sub
capital stock necessary to approve any of the transactions contemplated hereby.
A-21
ARTICLE V.
REPRESENTATIONS AND WARRANTIES AS TO ACQUIROR
AND CERTAIN REPRESENTATIONS AS TO PARENT
Acquiror represents and warrants to the Company as follows:
SECTION 5.1 Organization.
Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation. Acquiror is
duly qualified to conduct its business, and is in good standing, in the States
of New Jersey and Massachusetts.
SECTION 5.2 Authority.
Acquiror has the necessary power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Acquiror and the consummation by Acquiror of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other proceedings on the part of Acquiror are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Acquiror and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Acquiror, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
SECTION 5.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Acquiror do not,
and the performance by Acquiror of its obligations under this Agreement will
not, (i) conflict with or violate the certificate of incorporation or bylaws of
Acquiror, (ii) subject to compliance with the requirements set forth in Section
5.3(b) below, conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to Acquiror or by which any of
its properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of Acquiror pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Acquiror is a party or by
which Acquiror or any of its properties or assets is bound or affected, except,
in the case of clauses (ii) and (iii) above, for any such conflicts, violations,
breaches, defaults or other alterations or occurrences which, individually or in
the aggregate, are not reasonably expected to have an Acquiror Material Adverse
Effect.
(b) The execution and delivery of this Agreement by Acquiror does
not, and the performance of this Agreement by Acquiror will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except
A-22
(i) for (A) applicable requirements, if any, of the Exchange Act, state takeover
laws, exchanges on which Acquiror's securities are traded, and the HSR Act and
any foreign antitrust or competition law or regulation, (B) applicable
requirements, if any, of the consents, approvals, authorizations or permits
described in Schedule 5.3, and (C) filing and recordation of appropriate merger
documents as required by Delaware Law and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, would not have an Acquiror
Material Adverse Effect.
SECTION 5.4 Vote Required.
No vote of the stockholders of Acquiror is necessary to approve any
of the transactions contemplated hereby.
SECTION 5.5 Financing.
Parent has available sufficient funds as necessary to cause (and at
the Effective Time shall cause) Acquiror to have available sufficient funds to
consummate the Merger and to make all the payments necessary to consummate the
transactions contemplated hereby, including, without limitation, payments under
Article II hereof for the Common Stock, Options and Dissenting Shares, and
payments necessary to satisfy all amounts outstanding as of the Closing Date
under the Company's credit facilities described on Schedule 3.3 hereto.
SECTION 5.6 Absence of Litigation.
There are (a) no claims, actions, suits, investigations, or
proceedings pending or, to Acquiror's knowledge, threatened against Acquiror or
any of its properties or assets before any court, administrative, governmental,
arbitral, mediation or regulatory authority or body, domestic or foreign, that
challenge or seek to prevent, enjoin, alter or materially delay the transactions
contemplated hereby, and (b) no judgments, decrees, injunctions or orders of any
Governmental Entity or arbitrator outstanding against Acquiror or any of its
properties or assets that would, individually or in the aggregate, result in an
Acquiror Material Adverse Effect.
SECTION 5.7 Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquiror.
SECTION 5.8 Parent Financial Statements.
Parent has prepared and furnished to the Company the audited
consolidated balance sheet of the Parent as of the end of the fiscal year ended
December 31, 1999, and the audited consolidated profit and loss accounts and
cash flow statements for such fiscal year accompanied by an unqualified audit
report of Parent auditors, BDO Stoy Hayward. All of the financial statements,
including, without limitation, the notes thereto, referred to in this Section
5.8 or furnished to the Company after the date hereof pursuant to this
Agreement: (a) are in accordance with the books and records of Parent (b)
present a true and fair view of the assets, liabilities and state of affairs of
Parent as of the respective dates and profits and losses of Parent
A-23
for the respective periods indicated, and (c) have been prepared in accordance
with all applicable accounting standards and legal requirements in the United
Kingdom, including, without limitation, United Kingdom generally accepted
accounting principles, standards and practices applied on a basis consistent
with prior accounting periods. The consolidated financial statements furnished
to the Company set forth all changes in accounting methods (for financial
accounting purposes) at any time made, agreed to, requested or required with
respect to Parent.
ARTICLE VI.
COVENANTS
SECTION 6.1 Affirmative Covenants of the Company.
The Company hereby covenants and agrees that, prior to the Effective Time,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Acquiror, the Company shall, and shall cause each Company Subsidiary
to, (a) operate its business in the usual and ordinary course consistent with
past practices; (b) use its reasonable efforts to preserve substantially intact
its business organization, maintain its rights and franchises, retain the
services of its respective principal officers and key employees and maintain its
relationships with its respective principal customers and suppliers; (c) use its
reasonable efforts to maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted; (d) use its
reasonable efforts to keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained; (e) invoice and
collect accounts in the ordinary course of business consistent with the
Company's past practices; and (f) use commercially reasonable efforts to comply
with all applicable laws with respect to employment practices and employee
benefit plans and related tax compliance.
SECTION 6.2 Negative Covenants of the Company.
Except as expressly contemplated by this Agreement and except as set forth
in Schedule 6.2, or otherwise consented to in writing by Acquiror (which consent
shall not be unreasonably withheld, delayed or conditioned), from the date
hereof until the Effective Time, the Company shall not, and shall cause each
Company Subsidiary not to, do any of the following:
(a) other than as required by law or contracts in effect as of the
date hereof, (i) increase in any manner the wages, salaries, compensation,
pension or other employee benefit or fringe benefits or perquisites of any
current or former employees, consultants or directors of the Company or any
Company Subsidiaries, (ii) except as contemplated by the terms hereof, vest,
fund or pay any pension or retirement allowance other than as required by any
existing Company Benefit Plans to any such current or former employees,
consultants, officers or directors; (iii) except as contemplated by the terms
hereof, become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment, severance,
consulting, retention, change in control, termination, deferred compensation or
incentive pay agreement with or for the benefit of any current or former
employee, consultant, officer or director or accelerate the vesting, funding or
payment of any compensation payment or benefit; or (iv) grant any additional
Options, restricted shares, incentive compensation awards, or
A-24
grant any person any right to acquire any shares of its capital stock or any
right the value of which is based on the value of shares of its capital stock.
(b) declare, set aside or pay any dividend on, or make any other
distribution in cash, stock or property in respect of, any of its capital stock
(except the issuance of shares of Common Stock in connection with the exercise
of outstanding Options referred to in Schedule 3.3 in accordance with their
terms and except as contemplated by the Earnout Agreement);
(c) (i) redeem, repurchase or otherwise reacquire any share of its
capital stock or any securities or obligations convertible into or exercisable
or exchangeable for any share of its capital stock, or any options, warrants,
calls, commitments or conversion or other rights to acquire any shares of its
capital stock or any such securities or obligations (except in connection with
the exercise of outstanding Options referred to in Schedule 3.3 in accordance
with their terms); (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock;
(d) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including
Restricted Shares and shares held in treasury), any securities convertible into
or exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares (except for the issuance of shares upon the
exercise of outstanding Options and the issuance of Shares under the Company
Stock Option Plan); (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; or (iii) except for the Voting Agreement,
enter into any agreement, understanding or arrangement with respect to the sale
or voting of its capital stock.
(e) acquire or agree to acquire, by merging or consolidating with,
by purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, limited liability company,
partnership, association or other business organization or division (other than
a wholly-owned Subsidiary) thereof, or otherwise acquire or agree to acquire any
assets of any other person (other than the purchase of assets in the ordinary
course of business and consistent with past practice), or make or commit to make
any capital expenditures other than capital expenditures in the ordinary course
of business consistent with past practice;
(f) except as set forth in Section 7.10(c) hereof, sell, lease,
exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell,
lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its
material assets, including without limitation the capital stock of the Company
or any Company Subsidiary except for the grant of purchase money security
interests and dispositions in the ordinary course of business and consistent
with past practice;
(g) propose or adopt any amendments to its or any Company
Subsidiary's certificate of incorporation or, to its or any Company Subsidiary's
bylaws or limited liability company agreement, as the case may be;
A-25
(h) settle or compromise any material claim, action or proceeding
involving money damages except any settlement where the amount of such
settlement individually does not exceed One Hundred Fifty Thousand Dollars
($150,000);
(i) (A) change any of its methods of accounting in effect at January
1, 2000, or (B) make or rescind any express or deemed election relating to
taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes (except where
the amount of such settlements or controversies, individually or in the
aggregate, does not exceed Seventy-Five Thousand Dollars ($75,000)), or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ending December 31, 1999, except, in the case of
clause (i) or clause (ii), as may be required by law or generally accepted
accounting principles;
(j) except in the ordinary course of business, permit any insurance
policy naming it as a beneficiary or a loss-payable payee to be canceled or
terminated;
(k) incur any obligation for borrowed money or guarantee
indebtedness for borrowed money of any person (other than a Company Subsidiary),
whether or not evidenced by a note, bond, debenture or similar instrument, other
than (i) purchase money indebtedness not to exceed Seventy-Five Hundred Thousand
Dollars ($75,000) in the aggregate, (ii) indebtedness incurred in the ordinary
course of business under the existing loan agreements described on Schedule 3.3
hereto, and (iii) capitalized leases not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate;
(l) enter into, modify or terminate in any material respect any
agreement which, if in effect as of the date hereof, would have been required to
be disclosed on Schedule 3.12 as a Material Contract described in Section
3.12(a)(i);
(m) hire for, or promote any person to, the position of Vice
President, Executive Vice President or Senior Vice President of the Company or
any Company Subsidiary;
(n) take any action, or omit to take any action, that would or would
be likely to result in a breach of a representation or warranty of the Company
which (i) would, individually or in the aggregate, give rise to a failure of the
conditions set forth in Section 8.2(a) and (ii) has not been cured within thirty
(30) days after written notice thereof;
(o) enter into any contract for services with a fixed price greater
than $750,000;
(p) enter into any contract where the Company's potential liability
exceeds three times the consulting fees received by the Company under such
contract, other than preliminary oral agreements entered into in contemplation
of a final written contract;
(q) terminate any VP, SVP or Designated Practice Area Leader of the
Company or any Company Subsidiary, except for cause;
(r) (i) fail to bill or properly invoice any client or (ii) write
off or discharge any indebtedness in excess of $75,000 owed to the Company or
any Company Subsidiary; or
A-26
(s) agree in writing or otherwise to do any of the foregoing.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1 Access and Information.
(a) From the date hereof to the Effective Time, the Company shall,
and shall cause the Company Subsidiaries to, afford to Acquiror and its
officers, employees, accountants, consultants, legal counsel, representatives of
current and prospective sources of financing for the Merger and other
representatives of Acquiror (collectively, the "Acquiror Representatives"),
reasonable access during normal business hours to the properties, executive
personnel and all information concerning the business, properties, contracts,
records and personnel of the Company and the Company Subsidiaries as Acquiror
may reasonably request.
(b) Any formal general communication with the Company's employees or
any communication of determination of future employment with any of the
Company's administrative employees, or any pre-merger activities which would
have a direct material impact on the financial condition of the Company shall be
subject to the prior approval of the Chief Executive Officer of the Company,
which approval shall not be unreasonably withheld, delayed or conditioned;
provided, however, that nothing contained in this Section 7.1(b) shall be
construed to prevent reasonable planning of the post-Closing integration or to
delay the Closing.
SECTION 7.2 Confidentiality.
Acquiror acknowledges and agrees that all information received from
or on behalf of the Company or any of the Company Subsidiaries in connection
with the Merger shall be deemed received pursuant to the confidentiality
agreement, dated as of December 9, 1999, between the Company and Acquiror (the
"Confidentiality Agreement") and Acquiror shall, and shall cause the Acquiror
Representatives to comply with the provisions of the Confidentiality Agreement
with respect to such information and the provisions of the Confidentiality
Agreement are hereby incorporated herein by reference with the same effect as if
fully set forth herein.
SECTION 7.3 Stockholder Approval.
The Company shall, promptly after the date of this Agreement, take
all action necessary in accordance with Delaware Law and its certificate of
incorporation and bylaws to convene, as promptly as possible, a meeting of the
Company's stockholders (the "Stockholders' Meeting") to approve and adopt this
Agreement and the Merger (and to take any and all other action that may be
necessary in order to effect consummation of the transactions contemplated
hereby); provided, however, that the Board of Directors of the Company shall
submit this Agreement to the Company's stockholders, whether or not the Board of
Directors of the Company at any time subsequent to the date hereof determines
that this Agreement is no longer advisable or recommends that the Stockholders
of the Company reject it. Unless the Board of Directors of the Company has
withdrawn its recommendation of this Agreement in compliance
A-27
herewith, the Company shall use its reasonable efforts to solicit from
stockholders of the Company proxies in favor of the approval and adoption of
this Agreement and the Merger.
SECTION 7.4 Proxy Statement.
(a) As promptly as practicable, the Company shall prepare and file
with the SEC a proxy statement in connection with the matters to be considered
at the Stockholders' Meeting (such proxy statement, together with any
supplements or amendments thereto, the "Proxy Statement"). The Company shall use
its reasonable efforts to cause the Proxy Statement to be cleared by the SEC for
mailing to the stockholders of the Company as promptly as practicable and shall
mail the Proxy Statement to its stockholders as promptly as practicable
thereafter. Acquiror shall furnish all information concerning it and the holders
of its capital stock as the Company may reasonably request in connection with
such actions. Unless the Board of Directors of the Company has withdrawn its
recommendation of this Agreement in compliance herewith, the Proxy Statement
shall include the recommendation of the Company's Board of Directors in favor of
approval of this Agreement (and any other necessary matters). Acquiror shall
have the right to review and comment on the Proxy Statement from time to time
before it is mailed to shareholders. The Company shall deliver drafts of the
Proxy Statement, any comments from the SEC on the Proxy Statement, draft
responses by the Company to any SEC comments, and other similar information and
documents related to the Proxy Statement and the related meeting of the Company
stockholders to the Acquiror in a timely manner sufficient so that Acquiror
shall have the opportunity to effectively comment thereon; provided, however,
that the contents of the Proxy Statement shall be prepared in the sole and
absolute discretion of the Company.
(b) The information supplied by Acquiror for inclusion in the Proxy
Statement shall not, at the date the Proxy Statement (or any supplement thereto)
is first mailed by stockholders or at the time of the Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Stockholders' Meeting any event or
circumstance relating to Acquiror or any of its affiliates, or its or their
respective officers or directors, should be discovered by Acquiror that should
be set forth in a supplement to the Proxy Statement, Acquiror shall promptly
inform the Company.
(c) All information contained in the Proxy Statement (other than
information provided by Acquiror in writing for inclusion therein) shall not, at
the date the Proxy Statement (or any supplement thereto) is first mailed to
stockholders or at the time of the Stockholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Stockholders' Meeting any event or circumstance relating to the
Company or any of the Company Subsidiaries, or to its or their respective
officers or directors, should be discovered by the Company that should be set
forth in a supplement to the Proxy Statement, the Company shall promptly inform
Acquiror, continue to keep the Acquiror informed on a current basis of any
developments thereafter and mail such supplement to its shareholders within five
(5) business days of the occurrence of any such event or circumstance. All
documents that the Company is
A-28
responsible for filing with the SEC in connection with the transactions
contemplated herein, including the Proxy Statement, will comply as to form and
substance in all material respects with the applicable requirements of the
Exchange Act and the rules and regulations thereunder.
SECTION 7.5 Further Action; Reasonable Efforts.
(a) Each of the parties shall use commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable laws or otherwise to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable. This shall include commercially reasonable efforts to
(i) obtain all licenses, Permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts with
the Company and Acquiror as are necessary for the transactions contemplated
herein, and (ii) retain SVPs, VPs and other Consulting Staff and to encourage
such persons to enter into employment agreements with Acquiror on substantially
the terms offered by Acquiror in writing to such persons prior to the date
hereof. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use commercially
reasonable efforts to take all such action.
(b) From the date of this Agreement until the Effective Time, each
of the parties shall promptly notify the other in writing (and subsequently keep
the other party informed on a current basis) of any pending or, to the knowledge
of such party, threatened action, proceeding or investigation by any
Governmental Entity or any other person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Common Stock into the Merger
Consideration pursuant to the Merger or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Acquiror to own or
operate all or any portion of the business or assets of the Company.
(c) The Company shall give prompt written notice to Acquiror (and
subsequently keep the Acquiror informed on a current basis), and Acquiror and
Merger Sub shall give prompt written notice to the Company (and subsequently
keep the Company informed on a current basis) of the occurrence, or failure to
occur, of any event, which occurrence or failure to occur would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Effective Time. Each party shall use its commercially reasonable efforts
to not take, or omit to take, any action, or enter into any transaction, which
would be expected to cause any of its representations or warranties contained in
this Agreement to be untrue or result in a breach of any covenant made by it in
this Agreement.
SECTION 7.6 Public Announcements.
Acquiror and the Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement of Acquiror or the Company with any exchange on which the
securities of the Company or Acquiror are traded or quotation service on which
the prices of trades of the Company's or Acquiror's securities are quoted.
A-29
SECTION 7.7 Indemnification and Insurance.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the certificate of incorporation and bylaws of the Company on the date
of this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6) years after the Effective Time in any manner
that would adversely affect the rights thereunder of persons who at any time
prior to the Effective Time were identified as prospective indemnities under the
certificate of incorporation or bylaws of the Company in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by applicable law.
(b) From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless the present and former officers,
directors and employees of the Company and the Company Subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of, with the
approval of Acquiror and the Surviving Corporation (which approval shall not be
unreasonably withheld), or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on the
fact that such person is or was such a director, officer or employee and arising
out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), in each case to the fullest extent permitted under Delaware Law (and
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law).
(c) Without limiting the foregoing, in the event any Claim is
brought against any Indemnified Party (whether arising before or after the
Effective Time) after the Effective Time (i) the Indemnified Parties may retain
its regularly engaged independent legal counsel as of the date of this
Agreement, or other independent legal counsel satisfactory to them provided that
such other counsel shall be reasonably acceptable to Acquiror and the Surviving
Corporation, (ii) the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (iii) the Surviving Corporation will use its
reasonable efforts to assist in the vigorous defense of any such matter,
provided that the Surviving Corporation shall not be liable for any settlement
of any Claim effected without its written consent, which consent shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.7, upon learning of any such Claim, shall notify the
Surviving Corporation (although the failure so to notify the Surviving
Corporation shall not relieve the Surviving Corporation from any liability which
the Surviving Corporation may have under this Section 7.7, except to the extent
such failure prejudices the Surviving Corporation), and shall deliver to the
Surviving Corporation the undertaking contemplated by Section 145(e) of Delaware
Law. The Indemnified Parties as a group may retain one law firm (in addition to
local counsel) to represent them with respect to each such matter unless there
is, under applicable standards of professional conduct (as determined by counsel
to such Indemnified Parties) a conflict on any significant issue between
A-30
the position of any two or more of such Indemnified Parties, in which event, an
additional counsel as may be required may be retained by such Indemnified
Parties.
(d) Acquiror shall cause to be maintained in effect for not less
than six (6) years after the Effective Time the current policies of directors'
and officers' liability insurance and fiduciary liability insurance maintained
by the Company with respect to matters occurring prior to the Effective Time;
provided, however, that (i) Acquiror may substitute therefor policies of
substantially the same coverage containing terms and conditions that are
substantially the same for the Indemnified Parties to the extent reasonably
available and (ii) Acquiror shall not be required to pay an annual premium for
such insurance in excess of two hundred percent (200%) of the last annual
premium paid prior to the date of this Agreement, but in such case shall
purchase as much coverage as possible for such amount.
(e) This Section 7.7 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties referred to herein, their heirs and
personal representatives and shall be binding on Acquiror and Merger Sub and the
Surviving Corporation and their respective successors and assigns. Acquiror
hereby guarantees the Surviving Corporation's obligations pursuant to this
Section 7.7.
(f) The Company shall use commercially reasonable efforts to
increase its errors and omissions insurance policy coverage to $150,000,000;
provided, however, that if the increase in premium for such increased coverage
exceeds $50,000, the Company shall obtain the maximum policy coverage obtainable
for an increased premium equal to $50,000.
SECTION 7.8 Employee Benefits Matters.
(a) Acquiror shall cause the Surviving Corporation to provide
employee benefits under plans, programs and arrangements, which will provide
benefits to the employees of the Company and the Company Subsidiaries
substantially comparable in the aggregate to benefits provided to similarly
situated employees of the Acquiror; provided, however, that nothing herein shall
interfere with the Surviving Corporation's right or obligation to make such
changes to such plans, programs or arrangements as are necessary to conform with
applicable law. Acquiror will cause each employee benefit plan of Acquiror in
which employees of the Company are eligible to participate to take into account
for purposes of eligibility and vesting thereunder the service of such employees
with the Company (and any predecessors of the Company) as if such service were
with Acquiror, to the same extent that such service was credited under a
comparable plan of the Company as reflected on the records of such plan. Unless
otherwise required by law, only employees of the Company who sign and comply
with the Acquiror's standard forms of employment and related agreements will be
eligible to participate in Acquiror's bonus, share and other benefit plans.
(b) Following the Effective Time, with respect to the Company's
retention bonus plan, Acquiror shall, or shall cause the Surviving Corporation
to honor the letters to employees in respect of such retention bonus plan, all
of which letters are substantially in the form of the letter attached hereto as
Schedule 7.8(b); provided, however, that the employee is on the payroll at the
time any retention bonus is due.
A-31
(c) Following the Effective Time, Acquiror shall, or shall cause the
Surviving Corporation to, honor all terms and conditions of the Company's
administrative retention plan and related agreements attached as Schedule
7.8(c).
SECTION 7.9 HSR Act Matters; Foreign Antitrust Laws.
Acquiror, Merger Sub and the Company (as may be required pursuant to
the HSR Act and any applicable foreign antitrust or competition law or
regulation) promptly will complete and file all documents required to be filed
with the Federal Trade Commission and the United States Department of Justice or
any foreign Governmental Entity in order to comply with the HSR Act and any
applicable foreign antitrust or competition law or regulation. Acquiror, Merger
Sub and the Company shall furnish promptly all materials thereafter required by
any of the Governmental Entities having jurisdiction over such filings, and
shall take all reasonable actions and shall file and use reasonable best efforts
to have declared effective or approved all documents and notifications with any
such Governmental Entity, as may be required under the HSR Act, other Federal
antitrust laws, or any applicable foreign antitrust or competition law or
regulation for the consummation of the Merger and the other transactions
contemplated hereby. If the Closing does not occur, for whatever reason, unless
the Company shall have paid the Acquiror the Termination Fee, the Company shall
reimburse the Acquiror for one-half (1/2) of all fees paid by the Acquiror in
connection with any filings made pursuant to the HSR Act and any applicable
foreign antitrust or competition law or regulation in connection with this
Agreement. The Company shall reimburse such fees to the Acquiror within five (5)
days after the termination of this Agreement.
SECTION 7.10 Board Recommendations; Negotiation With Others.
(a) The Company shall, and shall cause any Company Subsidiary and
the respective affiliates, directors, officers, financial and legal advisors and
other representatives of the Company or the Company Subsidiaries to, cease
immediately all activities, discussions or negotiations, if any, with any person
conducted heretofore with respect to any Acquisition Proposal.
(b) From and after the date of this Agreement, the Company, the
Company Subsidiaries, and their respective affiliates, directors, officers,
financial or legal advisors or other representatives, will not, directly or
indirectly, (i) take any action to solicit, initiate, facilitate or encourage
any Acquisition Proposal or (ii) engage in negotiations or discussions with, or
disclose any nonpublic information relating to the Company or any of the Company
Subsidiaries or afford access to the properties, books or records of the Company
or any of the Company Subsidiaries to, any person making or which the Company or
any such representative has reason to believe is likely to make an Acquisition
Proposal (or a potential Acquisition Proposal); provided, however, that if at
any time prior to the time that the stockholders of the Company shall have voted
on this Agreement at a meeting held for such purpose pursuant to Section 7.3
hereof, the Company is otherwise in compliance with the Company's obligations
under Section 7.3 and this Section 7.10, the Company, in response to an
unsolicited Acquisition Proposal, may (1) request clarifications from, or
furnish information to, any third party which makes such an unsolicited
Acquisition Proposal, for the purpose of obtaining information reasonably
necessary to ascertain whether such Acquisition Proposal is, or should
reasonably be expected to lead to, a Superior
A-32
Proposal and (2) if the board of directors of the Company (after consultation
with an independent, nationally recognized investment bank) reasonably
determines in good faith that such Acquisition Proposal is or is reasonably
expected to be a Superior Proposal, participate in discussions or negotiations
with or furnish information to the third party which has made such Acquisition
Proposal, if, in the case of each action to be taken under clause (1) or (2),
(x) each such action is taken subject to a confidentiality agreement with
confidentiality and standstill terms at least as stringent as those contained in
the Confidentiality Agreement, and, to the extent permitted by the terms of any
confidentiality agreement to which the Company is or becomes subject, the
Company has notified Acquiror in writing of the receipt of an Acquisition
Proposal which notice will include a detailed summary of the Acquisition
Proposal and copies of any documentation received by the Company in connection
with such Acquisition Proposal, (y) the board of directors of the Company (after
receiving advice from outside legal counsel to the Company) reasonably
determines in good faith that it is necessary to take each such action in order
to comply with its fiduciary duties under Delaware Law, and (z) the board of
directors of the Company has concluded that such third party is capable of
executing a definitive agreement and consummating a transaction on a reasonable
schedule.
(c) Notwithstanding anything in this Agreement to the contrary,
Acquiror and the Company agree that the Company may take such actions as are
necessary to divest its Indonesian subsidiary, Fieldston Publications, Inc. and
CapGemini Hagler Bailly LLC (it being recognized that this Agreement has been
made subject to Acquiror's reasonable satisfaction with the terms of any such
divestitures).
(d) Nothing contained in this Section 7.10 shall prohibit the board
of directors of the Company from, to the extent applicable, complying with Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal for the Company.
(e) For purposes of this Agreement, "Acquisition Proposal" means any
proposal or offer to acquire all or any substantial part of the business and
properties or capital stock of the Company or the Company Subsidiaries, whether
by merger, consolidation, sale of assets, tender offer or similar transaction or
series of transactions involving the Company or the Company Subsidiaries.
(f) For purposes of this Agreement, "Superior Proposal" means a bona
fide Acquisition Proposal that the board of directors of the Company determines
in good faith (after consultation with its financial advisor and outside legal
counsel) (i) would, if consummated, result in a transaction more favorable to
the Company's stockholders, from a financial point of view, than the
transactions contemplated by this Agreement, taking into account all the terms
and conditions of such Acquisition Proposal, including any proposed break-up
fees or similar devices, expense reimbursement provisions, conditions to
consummation and conditions to execution of a definitive agreement and (ii) is
reasonably capable of being consummated.
SECTION 7.11 Prior Agreements with Company Employees.
The parties acknowledge and agree that the individuals listed on
Schedule 7.11 have executed on or prior to the date hereof Acquiror's standard
forms of employment agreement.
A-33
SECTION 7.12 Company Credit Agreement.
The parties acknowledge and agree that notwithstanding any
provisions to the contrary contained in this Agreement, the Company shall have
the right to amend and restate that certain Revolving Credit Agreement dated as
of November 20, 1998, as amended, by and among the Company and Bank of America,
as agent, in substantially similar form and on substantially similar terms and
conditions as the May 22, 2000 draft of such Revolving Credit Agreement which
was delivered to Parent, without the prior consent of Parent, Acquiror or Merger
Sub.
SECTION 7.13 Certain Investments.
The parties acknowledge and agree that notwithstanding any
provisions to the contrary contained in this Agreement, the Company shall have
the right to enter into and consummate the equity investments set forth on
Schedule 7.13 hereto without the prior consent of Acquiror or Merger Sub.
ARTICLE VIII.
CLOSING CONDITIONS
SECTION 8.1 Conditions to Obligations of Acquiror, Merger Sub and the
Company to Effect the Merger.
The respective obligations of Acquiror, Merger Sub and the Company
to effect the Merger shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which may be waived,
in whole or in part, to the extent permitted by Delaware Law:
(a) Stockholder Approval. This Agreement shall have been approved by
the requisite vote of the stockholders of the Company in accordance with
Delaware Law.
(b) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger or any other transactions contemplated in this Agreement; provided,
however, that the parties shall use their reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
(c) HSR Act and Foreign Antitrust Laws. Any waiting period with any
extensions thereof under the HSR Act shall have expired or been terminated, and
all material foreign antitrust approvals required to be obtained prior to the
Merger in connection with the Merger shall have been obtained.
(d) Third Party Consents. Any third party fails to provide its
consent, at no cost to the Company or the Acquiror, to the Merger where (i) such
consent is required pursuant to change in control/assignment provisions of other
similar provisions of a contract, including leases and debt instruments and
agreements, with such third party and the Company or any
A-34
Company Subsidiary, and (ii) the failure to obtain such consents would be
reasonably expected to have, either individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 8.2 Additional Conditions to Obligations of Acquiror.
The obligations of Acquiror to effect the Merger are also subject to
the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law:
(a) Representations, Warranties, and Covenants. (i) The
representations and warranties of the Company in this Agreement shall be true
and correct as of the Effective Time as though such representations and
warranties were made on and as of such time (except that any representation or
warranty that by its terms was made with reference to a specific date was true
and correct as of such date), except where the failure of such representations
and warranties to be true and correct (without giving any effect, solely for
purposes of this Section 8.2(a), to any materiality or Company Material Adverse
Effect qualification contained therein and reading any representation or
warranty in Article III as if that language were not present in the applicable
sections of Article III) is not reasonably expected to have, individually or in
the aggregate, a Company Material Adverse Effect; and (ii) the Company shall
have performed and complied in all material respects with all covenants,
obligations, and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time. Acquiror shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to that effect.
(b) No Company Material Adverse Effect. After the date hereof, no
Company Material Adverse Effect (taken individually or in the aggregate) shall
(i) have occurred and be continuing or (ii) would be reasonably expected to
occur.
(c) Certain Agreements. The Earn-out Agreement and the Voting
Agreement shall have been entered into and shall remain in full force and
effect.
SECTION 8.3 Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger are also subject
to the following conditions any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law: (a) the representations and
warranties of each of Acquiror and Merger Sub, respectively, in this Agreement
shall be true and correct on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except that any
representation or warranty that by its terms was made with reference to a
specific date was true and correct as of such date), except where the failure of
such representations and warranties to be true and correct (without giving any
effect, solely for purposes of this Section 8.3, to any materiality or Acquiror
Material Adverse Effect qualification contained therein and reading any
representation or warranty in Article IV and Article V respectively as if that
language were not present in the applicable sections, does not have, and is not
reasonably likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect; and (b) each of Acquiror and Merger Sub, respectively,
shall have performed and complied in all material respects with all covenants,
obligations, and conditions of this Agreement required to be
A-35
performed and complied with by it as of the Effective Time. The Company shall
have received a certificate of the Chief Executive Officer and Chief Financial
Officer of Acquiror to that effect.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement and the Merger by the
stockholders of the Company:
(a) by mutual written consent of each of Acquiror and the Company;
(b) by either the Company or Acquiror, if the other shall have
breached, or failed to comply with, in any material respect, any of its
obligations under this Agreement or any representation or warranty made by such
other party, which breach, failure or misrepresentation, (i) would, individually
or in the aggregate give rise to a failure of the conditions set forth in
Section 8.2 (a) or Section 8.3, as applicable, and (ii) has not been cured
within thirty (30) days after written notice thereof or such breach, by its
nature or timing, cannot be cured within such a 30-day period;
(c) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting consummation
of the Merger shall have become final and nonappealable;
(d) by either Acquiror or the Company, if the Merger and the
Agreement shall fail to receive the requisite vote for approval and adoption by
the stockholders of the Company at the Stockholders' Meeting;
(e) by either the Company or Acquiror, if the merger shall not have
been consummated on the date which is one hundred eighty (180) days after the
date hereof (the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 9.1(e) shall not be available to any
party who is in breach of this Agreement or whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before the Termination Date;
provided, further, that the Termination Date shall be automatically extended to
allow sufficient time for any cure, notice and termination periods pursuant to
Section 9.1(h) to expire;
(f) by Acquiror, if the Company or its board of directors shall have
accepted or recommended to the stockholders of the Company a Superior Proposal;
(g) by the Company, if the Company or its board of directors shall
have accepted or recommended to the stockholders of the Company a Superior
Proposal; provided that the Company and its board of directors shall have
complied, in all material respects, with their obligations under Section 7.10;
A-36
(h) by Acquiror, if after the date hereof there shall have occurred
and be continuing a Company Material Adverse Effect, upon written notice to the
Company and subject to the following conditions: (i) in the event that either
the Company or the Acquiror becomes aware of a Company Material Adverse Effect,
such party shall immediately provide written notice of the specific Company
Material Adverse Effect (the "MAE Notice") to the other party; (ii) upon either
receipt or delivery of an MAE Notice, the Company shall have thirty (30) days to
cure such Company Material Adverse Effect; and (iii) if such Company Material
Adverse Effect is not cured by the Company within such thirty-day period, then
following thirty (30) days from receipt or delivery of the MAE Notice, Acquiror
shall have a further thirty (30) days to terminate this Agreement or else shall
be deemed to waive the right to terminate (or not consummate the transactions
hereunder) as a result of such Company Material Adverse Effect that gave rise to
the specific MAE Notice (for the avoidance of doubt, sixty (60) days from the
receipt or delivery of the original MAE Notice);
(i) by Acquiror, if any of the stockholders who are parties to the
Voting Agreement shall have breached in any material respect any representation,
warranty, covenant or agreement thereof and such breach has not been promptly
cured after written notice to any such stockholder; provided, however, that such
breach shall be of the kind that denies Acquiror the material benefits
contemplated by the Voting Agreement.
SECTION 9.2 Effect of Termination.
(a) Except as provided in Section 9.2(b), Section 9.3 or Section
10.1, in the event of the termination of this Agreement pursuant to Section 9.1,
this Agreement shall forthwith become void, there shall be no liability on the
part of Acquiror, Merger Sub or the Company or any of their respective officers
or directors to the other parties hereto and all rights and obligations of any
party hereto shall cease, except that nothing herein shall relieve any party for
any willful breach of this Agreement provided, however, that no party hereto
shall be liable for any consequential or punitive damages.
(b) If (i) the Company terminates this Agreement pursuant to Section
9.1(g) or (ii) Acquiror terminates this Agreement pursuant to Section 9.1(f),
then within five (5) business days of such termination, the Company shall pay
Acquiror by wire transfer in immediately available funds a fee of Five Million
Dollars ($5,000,000) ("Termination Fee").
SECTION 9.3 Expenses.
Except as otherwise expressly provided herein, all expenses incurred
by the parties hereto shall be borne solely by the party that has incurred such
expenses.
SECTION 9.4 Amendment.
This Agreement may be amended by the parties hereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of this Agreement and
the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Common Stock shall be converted pursuant to this
A-37
Agreement upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 9.5 Waiver.
At any time prior to the Effective Time, the parties may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement and (c) waive compliance by the other party with any of the agreements
or conditions contained in this Agreement. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1 Nonsurvival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement
(and in any certificate delivered in connection with the Closing) shall be
deemed to be conditions to the Merger and shall not survive the Effective Time
or termination of this Agreement, except for the agreements set forth in Article
I (the Merger) and Article II (Conversion of Securities; Exchange of
Certificates) and Section 7.7 (Indemnification and Insurance), Section 7.8
(Employee Benefits Matters), Section 7.2 (Confidentiality), Section 9.2 (Effect
of Termination) and Section 9.3 (Expenses), each of which shall survive
indefinitely.
SECTION 10.2 Notices.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted, and shall be effective upon receipt,
if delivered personally, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(a) If to Acquiror or Parent:
PA Consulting Group, Inc.
c/o PA Consulting Group
123 Buckingham Palace Road
London SW1W 9SR
England
Telecopier No.: 44-1-207-333-5112
Attention: Nick Hayes
With a copy (which shall not constitute notice) to:
A-38
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Telecopier No.: (212) 407-4990
Attention: Stanley M. Johnson, Esq.
(b) If to the Company:
Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 400
Arlington, VA 22209
Telecopier No.:(703) 351-8159
Attention: Stephen V. R. Whitman, Esq.
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, VA 22102
Telecopier No.: (703) 610-6200
Attention: Richard T. Horan, Jr., Esq.
SECTION 10.3 Certain Definitions.
For purposes of this Agreement, the term:
"Acquiror Material Adverse Effect" means a material impairment of
Acquiror's ability to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby on or prior to the Termination
Date;
"Acquiror Representations" shall have the meaning ascribed thereto
in Section 7.1.
"affiliate" shall mean a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
"Balance Sheet" shall have the meaning ascribed thereto in Section
3.14.
"beneficial owner" shall mean with respect to any shares of Common
Stock a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or
A-39
(B) the right to vote pursuant to any agreement, arrangement or understanding,
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding voting or
disposing of any such shares or (iv) pursuant to Section 13(d) of the Exchange
Act and any rules or regulations promulgated thereunder,
"Benefit Plans" shall have the meaning ascribed thereto in Section
3.13(a).
"Business day" shall mean any day other than a day on which banks in
the Commonwealth of Virginia are authorized or obligated to be closed;
"Certificate of Certificates" shall have the meaning ascribed
thereto in Section 2.2(b).
"Certificate of Merger" shall have the meaning ascribed thereto in
Section 1.2
"Claim" shall have the meaning ascribed thereto in Section 7.7(b).
"Closing" shall have the meaning ascribed thereto in Section 1.6.
"Closing Date" shall have the meaning ascribed thereto in Section
1.6.
"Code" shall mean the Internal Revenue Code of 1986, as amended;
"Common Stock" shall have the meaning ascribed thereto in Section
2.1(a).
"Company Group" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that includes the Company or any predecessor of or
successor to the Company (or another such predecessor or successor);
"Company Investee Entity" or "Company Investee Entities" shall have
the meaning ascribed thereto in Section 3.2.
"Company Material Adverse Effect" means
(i) a material adverse effect or change (whether taken individually
or in the aggregate) on the financial condition, business, results of operations
or employee relations of the Company and the Company Subsidiaries, taken as a
whole, other than any material adverse effect or change arising out of any
change or development relating (A) to any generally applicable change in law,
rule or regulation or generally accepted accounting principles or interpretation
thereof, (B) to the U.S. or global economies or to industries in which the
Company or Company Subsidiaries operate or provide services, but only to the
extent in the case of (A) or (B) any such effect, change or development
adversely affects the Company in substantially the same manner and to
substantially the same degree as similarly situated companies in the same
industry;
A-40
(ii) a material impairment of the Company's ability to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby on or prior to the Termination Date;
(iii) as at the Effective Time, twenty-five percent (25%) or more of
the Designated Practice Area Leaders (e.g., 2 or more of the six Designated
Practice Area Leaders) fail or refuse to sign SVP Employment Agreements with the
Acquiror without conditions or qualifications of any kind (except for such
conditions or qualifications contained in the form of SVP Employment Agreement
delivered by Acquiror), suffer death or a long-term disability which prevents
such person from performing his or her duties at the Acquiror or otherwise leave
the Company or formally announce (whether (x) orally if announced to any of the
Company's executive officers or to the Acquiror or (y) in writing, which may
include email, to any executive officer of the Company or the Acquiror) their
intention to do so; provided that none of the matters described in this clause
(iii) shall constitute a Company Material Adverse Effect hereunder if, within 45
days of the date of this Agreement, at least 5 of the 6 Designated Practice Area
Leaders shall have executed the SVP Employment Agreements with the Acquiror
without conditions or qualifications of any kind (except for such conditions or
qualifications contained in the form of SVP Employment Agreement delivered by
Acquiror), and shall in addition have agreed in writing to be bound by the
Restrictions after Termination contained in the SVP Employment Agreements if the
Closing hereunder occurs even if any such Designated Practice Area Leaders leave
the Company before the new SVP Employment Agreements become effective upon the
Closing.
(iv) as at the Effective Time, fifty percent (50%) or more of the
SVPs in any one of the Designated Practice Areas (e.g., 2 or more SVPs of a 3-
or 4-SVP Designated Practice Area) fail or refuse to sign SVP Employment
Agreements with the Acquiror without conditions or qualifications of any kind
(except for such conditions or qualifications contained in the form of SVP
Employment Agreement delivered by Acquiror), suffer death or a long-term
disability which prevents such person from performing his or her duties at the
Acquiror or otherwise leave the Company or announce (whether (x) orally if
announced to any of the Company's executive officers, any Designated Practice
Area Leader, or to the Acquiror or (y) in writing, which may include email, to
any executive officer of the Company or the Acquiror) their intention to do so;
provided that none of the matters described in this clause (iv) shall constitute
a Company Material Adverse Effect hereunder if, within 45 days of the date of
this Agreement, at least 5 of the 6 Designated Practice Area Leaders shall have
executed the SVP Employment Agreements with the Acquiror without conditions or
qualifications of any kind (except for such conditions or qualifications
contained in the form of SVP Employment Agreement delivered by Acquiror), and
shall in addition have agreed in writing to be bound by the Restrictions after
Termination contained in the SVP Employment Agreements if the Closing hereunder
occurs even if any such Designated Practice Area Leaders leave the Company
before the new SVP Employment Agreements become effective upon the Closing.
(v) as at the Effective Time, twenty-five percent (25%) or more of
the SVPs, taken as a whole amongst all the Company's practice areas and
determined collectively as at the date hereof, fail or refuse to sign SVP
Employment Agreements without conditions or
A-41
qualifications of any kind (except for such conditions or qualifications
contained in the form of SVP Employment Agreement delivered by Acquiror) with
the Acquiror, suffer death or a long-term disability which prevents such person
from performing his or her duties at the Acquiror or otherwise leave the Company
or announce (whether (x) orally if announced to any of the Company's executive
officers, any Designated Practice Area Leader, or to the Acquiror or (y) in
writing, which may include email, to any executive officer of the Company or the
Acquiror) their intention to do so;
(vi) as at the Effective Time, twenty-five percent (25%) or more of
the VPs, taken as a whole amongst all the Company's practice areas and
determined collectively as at the date hereof, fail or refuse to sign VP
Employment Agreements with the Acquiror without conditions or qualifications of
any kind (except for such conditions or qualifications contained in the form of
VP Employment Agreement delivered by Acquiror), suffer death or a long-term
disability which prevents such person from performing his or her duties at the
Acquiror or otherwise leave the Company or announce (whether (x) orally if
announced to any of the Company's executive officers, any Designated Practice
Area Leader, or any SVP, or to the Acquiror or (y) in writing, which may include
email, to any executive officer of the Company or the Acquiror) their intention
to do so; or
(vii) as at the Effective Time, twenty-five percent (25%) or more of
the Company's Consulting Staff, determined collectively as at the date hereof,
suffer death or a long-term disability which prevents such person from
performing his or her duties at the Acquiror or otherwise leave the Company or
announce (whether (x) orally if announced to any of the Company's executive
officers, any Designated Practice Area Leader, any SVP, or any VP or to the
Acquiror or (y) in writing, which may include email, to any executive officer of
the Company or the Acquiror) their intention to do so.
"Consulting Staff" means the Company's entire staff, other than its
SVPs, VPs, Research Associates, Analysts and administrative staff.
"Designated Practice Areas" means the Company's consulting practices
in the areas of Energy, Environment, Government and Transport.
"Designated Practice Area Leaders" shall mean the persons set forth
on Schedule 10.3 hereto.
"Company SEC Reports" shall have the meaning ascribed thereto in
Section 3.6(a).
"Company Stock Option Plan" shall mean the Company Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan as in effect
on the date hereof;
"Company Subsidiary" or "Company Subsidiaries" shall have the
meaning ascribed thereto in Section 3.1(c).
"Confidentiality Agreement" shall mean that certain confidentiality
agreement dated as of December 9, 1999, between the Company and Acquiror.
A-42
"control" (including the terms "controlled by" and "under common
control with") shall mean, the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
"Discrimination" shall have the meaning ascribed thereto in Section
3.8(b).
"Dissenting Shares" shall have the meaning ascribed thereto in
Section 2.5.
"Dollars" or "$" when used herein shall refer to United States
dollars.
"Effective Time" shall have the meaning ascribed thereto in Section
1.2
"Employees" shall have the meaning ascribed thereto in Section
3.13(a).
"Encumbrances" shall have the meaning ascribed thereto in Section
3.3.
"ERISA Affiliate" shall have the meaning ascribed thereto in Section
3.13(c).
"ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Governmental Entity" shall have the meaning ascribed thereto in
Section 3.5(b).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"Indemnified Parties" shall have the meaning ascribed thereto in
Section 7.7(b).
"Intellectual Property" shall have the meaning ascribed thereto in
Section 3.11(a).
"Material Contracts" shall have the meaning set forth in Section
3.12(a).
"Merger Consideration" shall have the meaning ascribed thereto in
Section 2.2(b).
"Option" or "Options" shall have the meaning ascribed thereto in
Section 2.3(a).
"Option Spread" shall have the meaning ascribed thereto in Section
2.3(a).
"Paying Agent" shall have the meaning ascribed thereto in Section
2.2(a).
"Payment Fund" shall have the meaning ascribed thereto in Section
2.2(a).
"Pension Plan" shall have the meaning ascribed thereto in Section
3.13(b).
"Per Share Amount" shall have the meaning ascribed thereto in
Section 2.1(a).
A-43
"Permits" shall have the meaning ascribed thereto in Section 3.9.
"person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in Section 13(d) of the Exchange Act);
"Plan" shall have the meaning ascribed thereto in Section 3.13(b).
"Proxy Statement" shall have the meaning ascribed thereto in Section
7.4(a).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933.
"Stockholders' Meeting" shall have the meaning ascribed thereto in
Section 7.3.
"Subsidiary" of any person means any corporation, limited liability
company, partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other Subsidiary) (i) owns,
directly or indirectly, fifty percent (50%) or more of the stock, membership
interests, partnership interests or other equity interests the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body of such corporation, limited liability company,
partnership, joint venture or other legal entity; or (ii) possesses, directly or
indirectly, control over the direction of management or policies of such
corporation, limited liability company, partnership, joint venture or other
legal entity (whether through ownership of voting securities, by agreement or
otherwise).
"Surviving Corporation" shall mean Hagler Bailly, Inc.
"SVPs" means the Company's senior vice presidents and executive vice
presidents listed on Schedule 10.3 hereto.
"SVP Employment Agreements" shall mean the employment agreement and
the side letter to be entered into between any SVP and the Acquiror in the form
attached as Schedule 10.3(a) hereto.
"Takeover Statute" shall have the meaning set forth in Section 3.21.
"Taxes" shall mean all federal, state, local and foreign taxes,
charges, fees, levies, deficiencies or other assessments of whatever kind or
nature (including without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, unemployment, excise, estimated, severance,
stamp, occupation, real property, personal property, intangible property,
occupancy, recording, minimum, environmental and windfall profits taxes),
including any liability therefor as a transferee (including without limitation
under Section 6901 of the Code or any similar provision of applicable law), as a
result of Treasury Regulation Section 1.1502-6 or, any similar provision of
applicable law, or as a result of any Tax sharing or similar agreement, together
with any interest, penalties, additions to tax or additional amounts imposed by
any federal, state, local or foreign Taxing authority.
A-44
"Tax Returns" includes any return, declaration, report, claim for
refund or credit, information return or statement, and any amendment thereto,
including without limitation any consolidated, combined or unitary return or
other document (including any related or supporting information or schedule),
filed or required to be filed with any federal, state, local or foreign
governmental entity or agency in connection with the determination, assessment,
collection or payment of Taxes or the administration of any laws, regulations or
administrative requirements relating to Taxes or ERISA.
"Termination Date" shall have the meaning ascribed thereto in
Section 9.1(e).
"Termination Fee" shall have the meaning ascribed thereto in Section
9.2.
"VPs" the Company's vice presidents listed on Schedule 10.3 hereto.
"VP Employment Agreements" shall mean the employment agreements and
the side letter to be entered into between any VP and the Acquiror in the form
attached as Schedule 10.3(b) hereto.
SECTION 10.4 Headings.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.5 Severability.
If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.6 Entire Agreement.
This Agreement (together with the Exhibits, the Schedules and the
other documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 10.7 Assignment.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement
A-45
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 10.8 Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement except for (a) the
Indemnified Parties under Section 7.7, (b) the rights of the holders of Common
Stock to receive the Merger Consideration payable in the Merger pursuant to
Article II, and (c) the rights of individuals as set forth in Section 7.8.
SECTION 10.9 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial;
No Punitive Damages.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law.
(b) The state or federal courts located within the State of Delaware
will have jurisdiction over any and all disputes between the parties hereto,
whether in law or equity, arising out of or relating to this Agreement and the
agreements, instruments and documents contemplated hereby and the parties
consent to and agree to submit to the jurisdiction of such courts. Each of the
parties hereby waives and agrees not to assert in any such dispute, to the
fullest extent permitted by applicable law, any claim that (i) such party is not
personally subject to the jurisdiction of such courts, (ii) such party and such
party's property is immune from any legal process issued by such courts or (iii)
any litigation or other proceeding commenced in such courts is brought in an
inconvenient forum. The parties hereby agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 10.2, or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof and hereby waive any objections to service
accomplished in the manner herein provided.
(c) Each party hereto acknowledges and agrees that any controversy
which may arise under this Agreement is likely to involve complicated and
difficult issues, and therefore each party hereby irrevocably and
unconditionally waives any right such party may have to a trial by jury in
respect of any litigation, directly or indirectly, arising out of, or relating
to, this Agreement, or the transactions contemplated by this Agreement. Each
party certifies and acknowledges that (i) no representative, agent or attorney
of any other party has represented, expressly or otherwise, that such other
party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each party understands and has considered the implications of this
waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has
been induced to enter into this Agreement by, among other things, the mutual
waivers and certifications in this Section 10.9.
(d) Each party hereto acknowledges and agrees that in no event will
the other party or any of its officers, agents or employees be liable for any
direct or indirect consequential loss or damages, for punitive or special
damages or for loss of profit, opportunity or business in
A-46
connection with the transactions contemplated by this Agreement, in each case
whether based on contract, tort or otherwise, even if the party claiming such
damages or any of its affiliates, officers or agents have been advised of the
possibility or such loss or damages.
SECTION 10.10 Counterparts.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
[The remainder of this page intentionally left blank.]
A-47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
and Plan of Merger to be executed and delivered as of the date first written
above.
PA CONSULTING GROUP, INC.
By: /s/ Jeremy Asher
----------------------------------------
Name: Jeremy Asher
---------------------------------------
Title: Group Chief Executive
--------------------------------------
PA HOLDINGS INC.
By: /s/ Jeremy Asher
----------------------------------------
Name: Jeremy Asher
---------------------------------------
Title: President
--------------------------------------
HAGLER BAILLY, INC.
By: /s/ Geoffrey W. Bobsin
----------------------------------------
Name: Geoffrey W. Bobsin
---------------------------------------
Title: President and CEO
--------------------------------------
Agreed and Accepted only as to
Sections 2.2, 5.5, 5.8 and Article X
hereof:
PA HOLDINGS LIMITED
By: /s/ Jeremy Asher
-------------------------------------
Name: Jeremy Asher
-----------------------------------
Title: Group Chief Executive
----------------------------------
A-48
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "First
Amendment") is entered into as of the 30th day of August, 2000, by and among
HAGLER BAILLY, INC., a Delaware corporation (the "Company"), PA CONSULTING
GROUP, INC., a New Jersey corporation ("Acquiror"), PA HOLDINGS INC., a Delaware
corporation ("Merger Sub") and PA HOLDINGS LIMITED, a corporation organized
under the laws of England and Wales and the ultimate parent entity of the
Acquiror ("Parent"). The Company, Acquiror, Parent and Merger Sub are referred
to herein individually as a "Party" and collectively as the "Parties."
WHEREAS, the Parties entered into that certain Agreement and Plan of
Merger dated June 19, 2000 (the "Merger Agreement"), and
WHEREAS, the Parties hereto desire to amend the Merger Agreement to
eliminate the possibility of any adjustment to the Per Share Amount as set forth
below.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties do hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Section 2.1(a). Section 2.1(a) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) Company Common Stock. Subject to the other provisions of this
Section 2.1, each share of common stock, par value $.01 per share, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding any shares described in Sections 2.1(b) and (c) and
any Dissenting Shares (as hereinafter defined)), shall be converted into the
right to receive $5.32 in cash, without interest (the "Per Share Amount"). All
such shares of Common Stock shall cease to be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter represent
only the right to receive the Merger Consideration as described below. The
holders of certificates previously evidencing such shares of Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Common Stock, except as otherwise provided
herein or by law. Each such certificate previously evidencing such shares of
Common Stock shall be exchanged for the Per Share Amount multiplied by the
number of shares previously evidenced by the canceled certificate upon the
surrender of such certificate in accordance with the provisions of Section 2.2,
without interest;"
3. Section 2.1(e). Section 2.1(e) of the Merger Agreement is hereby
deleted in its entirety.
4. Section 2.3(a). Section 2.3(a) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) Options. At the Effective Time, each option to purchase a share
of the Company Stock (an "Option" and, collectively, the "Options") outstanding
and unexercised as of the Closing Date granted pursuant to the Company Stock
Option Plan shall be canceled, whether or not then exercisable or vested, and
shall represent the right to receive the following consideration in settlement
thereof. As soon as practicable after the Effective Time, the Acquiror shall, on
behalf of Merger Sub, pay to the optionholder thereof the greater of (i) the
excess, if any, of the Per Share Amount over such Option's per share exercise
price (the "Option Spread") multiplied by the number of Options which remain
unexercised at the Effective Time in relation to those Options set forth in
Schedule 2.1 or (ii) One Dollar ($1.00) multiplied by the total number of grants
(as opposed to the number of shares of Common Stock underlying a particular
grant) of Options to such optionholder; provided, that the number of such grants
shall not exceed 2,000. To the extent that the number of grants exceeds 2,000,
then the amount to be received by each optionholder per grant shall be reduced
pro rata so that in the aggregate the consideration per grant multiplied by the
number of grants does not exceed $2,000. With respect to any Option which is
not, as of the Effective Term, vested, the Acquiror shall, on behalf of Merger
Sub, pay to the optionholder thereof the Option Spread, as soon as practicable
after the date when (but only if) such Option would otherwise have vested had
such Option not been canceled pursuant hereto."
5. Prior Agreements and Understandings. This First Amendment
constitutes the final agreement of the parties concerning the matters referred
to herein, and supersedes all prior agreements and understandings with respect
to the matters covered by this First Amendment.
6. Amendment. This First Amendment may be amended only by an
agreement in writing of all Parties. No waiver of any provision nor consent to
any exception to the terms of this First Amendment shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
7. Counterparts; Fax Signatures. To facilitate execution, this First
Amendment may be executed in counterparts and by facsimile, and all counterparts
shall collectively constitute a single agreement.
8. Successors and Assigns. This First Amendment shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns and personal representatives.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties hereto have executed this First
Amendment as of the date first above written.
HAGLER BAILLY, INC.
By: /s/ Geoffrey W. Bobsin
-------------------------------------
Name: Geoffrey W. Bobsin
Title: President and Chief Executive
Officer
PA CONSULTING GROUP, INC.
By: /s/ Jeremy Asher
-------------------------------------
Name: Jeremy Asher
Title: Group Chief Executive
PA HOLDINGS INC.
By: /s/ Jeremy Asher
-------------------------------------
Name: Jeremy Asher
Title: President
PA HOLDINGS LIMITED
By: /s/ Jeremy Asher
-------------------------------------
Name: Jeremy Asher
Title: Group Chief Executive
APPENDIX B
[LETTERHEAD OF BANC OF AMERICA SECURITIES LLC]
June 19, 2000
Board of Directors
Hagler Bailly, Inc.
1530 Wilson Blvd.
Suite 400
Arlington, VA 22209
Members of the Board of Directors:
You have requested our opinion as to the fairness from a financial point
of view to the stockholders of Hagler Bailly, Inc. (the "Company") of the
consideration proposed to be received by such stockholders in the proposed
merger (the "Merger") of the Company with a wholly owned subsidiary of PA
Consulting Group, Inc. (the "Purchaser"). Pursuant to the terms of the Agreement
and Plan of Merger, dated as of June 19, 2000 (the "Agreement"), among the
Company, the Purchaser, PA Holdings Inc. and PA Holdings Limited, the ultimate
parent of the Purchaser, the Company will become a wholly owned subsidiary of
the Purchaser, and stockholders of the Company will receive for each share of
common stock, par value $.01 per share, of the Company (the "Company Common
Stock"), held by them, other than shares held in treasury or held by the
Purchaser or any affiliate of the Purchaser or as to which dissenters' or
appraisal rights have been perfected, consideration equal to $5.32 per share,
subject to adjustment. The terms and conditions of the Merger are more fully set
out in the Agreement.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other business and financial information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company;
(iii) analyzed certain financial forecasts prepared in conjunction
with the management of the Company and considered the present financial
condition of the Company;
(iv) discussed the past and current operations, financial condition
and prospects of the Company with senior executives and members of the
Board of Directors of the Company, including, without limitation, their
belief that the Company would suffer
B-1
a significant loss of key consultants in the event that a strategic
transaction does not occur in the near future;
(v) at the request of the Board of Directors of the Company, spoke
with a number of potential purchasers concerning their possible interest
in the Company, and noted that no potential purchaser other than the
Purchaser presented a proposal to acquire the Company;
(vi) reviewed the reported prices and trading activity for the
Company Common Stock;
(vii) compared the financial performance of the Company and the
prices and trading activity of the Company Common Stock with that of
certain other publicly traded companies we deemed relevant;
(viii) compared certain financial terms to financial terms, to the
extent publicly available, of certain other business combination
transactions we deemed relevant;
(ix) participated in discussions and negotiations among
representatives of the Company and the Purchaser and their legal advisors;
(x) reviewed the Agreement, including the form of Earnout Agreement
(as defined in the Agreement) attached thereto as Schedule A, and certain
related documents; and
(xi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion, including the Company's representation
regarding the number of shares and options outstanding. We have with your
consent also assumed, and relied upon the representations of management of the
Company that it believes, that the Earnout Agreement will be executed on terms
substantially similar to the form thereof included in the Agreement and any
difference between the actual Earnout Agreement and the form thereof included in
the Agreement will not materially affect the consideration paid to the
stockholders of the Company in the Merger. With respect to the financial
forecasts, we have assumed, and relied upon, without independent verification,
the views of management of the Company that they have been reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the future financial performance of the Company. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals.
We have acted as financial advisor to the Board of Directors of the
Company in connection with this transaction and will receive a fee for our
services, including a fee, which is contingent upon the consummation of the
Merger. In the past, Banc of America Securities LLC
B-2
or its affiliates have provided financial advisory and financing services for
the Company and have received fees for the rendering of these services. In the
ordinary course of our businesses, we and our affiliates may actively trade the
debt and equity securities of the Company and the Purchaser for our own account
or for the accounts of customers and, accordingly, we or our affiliates may at
any time hold long or short positions in such securities. We serve as the
Company's lender under a senior credit facility and have received and expect to
receive fees for the rendering of such services.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company in connection with and for purposes of its
evaluation of the Merger and is not on behalf of, and shall not confer rights or
remedies upon, any person other than the Board of Directors. This opinion may
not be disclosed, referred to, or communicated (in whole or in part) to any
third party for any purpose whatsoever except with our prior written consent in
each instance. However, this opinion may be included in its entirety in any
filing made by the Company in respect of the transactions contemplated by the
Agreement with the Securities and Exchange Commission, so long as this opinion
is reproduced in such filing in full and any description of or reference to us
or summary of this opinion in such filing is in a form acceptable to us and our
counsel. In furnishing this opinion, we do not admit that we are experts within
the meaning of the term "experts" as used in the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, nor do we admit that this opinion constitutes a report or valuation
within the meaning of Section 11 of the Securities Act. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. It should be
understood that subsequent developments may affect this opinion and we do not
have any obligation to update, revise, or reaffirm this opinion. In addition,
BAS expresses no opinion or recommendation as to how the stockholders of the
Company should vote at the stockholders' meeting held in connection with the
Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion on the date hereof that
the consideration to be received by the Company's stockholders in the proposed
Merger is fair from a financial point of view to the Company's stockholders.
Very truly yours,
BANC OF AMERICA SECURITIES LLC
By: /s/ Gray W. Hampton III
--------------------------
Gray W. Hampton III
Managing Director
B-3
APPENDIX C
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS - (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to 251 (other than a merger effected pursuant to 251(g) of
this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of 251
of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the
C-1
terms of an agreement of merger or consolidation pursuant to 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's
C-2
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to
228 or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix,
C-3
in advance, a record date that shall be not more than 10 days prior to the date
the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
C-4
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
C-5
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-6