<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE METZLER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8742 36-4094854
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
520 LAKE COOK ROAD, SUITE 500, DEERFIELD, ILLINOIS 60015 (847) 914-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT P. MAHER
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN
THE METZLER GROUP, INC.
520 LAKE COOK ROAD, SUITE 500, DEERFIELD, ILLINOIS 60015 (847) 914-9100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
Copies to:
DOUGLAS R. NEWKIRK, ESQ. ROBERT F. WALL, ESQ.
J. TODD ARKEBAUER, ESQ. WINSTON & STRAWN
SACHNOFF & WEAVER, LTD. 35 WEST WACKER DR., SUITE 4200
30 SOUTH WACKER DR., 29TH FLOOR CHICAGO, ILLINOIS 60601
CHICAGO, ILLINOIS 60606 TELEPHONE: (312) 558-5600
TELEPHONE: (312) 207-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED AMOUNT
AMOUNT MAXIMUM PROPOSED OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
4,715,000
Common Stock, par value $.001 per share... shares $39 7/16 $185,947,813 $56,348
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</TABLE>
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(1) Includes 615,000 shares that are subject to an over-allotment option
granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of
the average high and low sale prices of the Common Stock on the Nasdaq
National Market on November 14, 1997.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1997
PROSPECTUS
, 1997
4,100,000 SHARES
LOGO
COMMON STOCK
Of the 4,100,000 shares of Common Stock offered hereby, 1,000,000 shares are
being sold by The Metzler Group, Inc. ("The Metzler Group" or the "Company")
and 3,100,000 shares are being sold by the Selling Stockholders. See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"METZ." On November 14, 1997, the last reported sale price of the Common Stock
was $39 3/16 per share. See "Price Range of Common Stock and Dividend Policy."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses, estimated at $500,000, which will be paid by the
Company.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to 615,000 additional shares of Common Stock at the Price to
the Public, less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, Proceeds to
the Company and Proceeds to the Selling Stockholders will be $ ,
$ , $ and $ , respectively. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders pursuant to the Underwriters' over-allotment, if
exercised. See "Selling Stockholders" and "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in
New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY
<PAGE>
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute
to such differences include those discussed in "Risk Factors."
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated by reference
herein. The Company acquired L.E. Burgess Consulting, Inc. ("Burgess") as of
January 1997; Resource Management International, Inc. ("RMI") as of July 1997;
and Reed Consulting Group, Inc. ("Reed") as of August 1997. For financial
reporting purposes, each of these transactions (the "Acquisitions") was
accounted for using the pooling of interests method. As used in this
Prospectus, except where the context clearly requires otherwise, references
made to the "Company" mean the Company and its subsidiaries, including the
acquired companies. The Consolidated Financial Statements of the Company
included herein include the Company's initial subsidiary, Metzler & Associates,
Inc. ("Metzler & Associates"), and give retroactive effect to the acquisitions
of RMI and Reed. As a result, the financial position, results of operations and
cash flows are presented as if RMI and Reed had been consolidated for all
periods presented. As required by generally accepted accounting principles, the
Consolidated Financial Statements became the historical financial statements of
the Company upon issuance of the financial statements for the quarter ending
September 30, 1997. The Consolidated Financial Statements, including the Notes
thereto, should be read in conjunction with the historical consolidated
financial statements of the Company and RMI incorporated by reference into this
Prospectus.
Unless otherwise indicated, the information contained in this Prospectus
assumes that: (i) the Underwriters' over-allotment option is not exercised;
(ii) the proposed amendment to the Company's Amended and Restated Certificate
of Incorporation to increase the authorized Common Stock from 15 million shares
to 75 million shares is approved and gives retroactive effect to such
amendment; and (iii) the proposed amendment to the Company's Long-Term
Incentive Plan to increase the number of shares available for grants thereunder
from 1.3 million shares to 2.0 million shares is approved and gives retroactive
effect to such amendment. See "Underwriting."
THE COMPANY
The Metzler Group, Inc. is a leading nationwide provider of consulting
services to electric, gas and water utilities and other energy and utility-
related businesses. The Company offers a wide range of consulting services
designed to assist its clients in succeeding in a business environment of
changing regulation, increasing competition and evolving technology. The
Company's clients include the 50 largest investor-owned electric utilities
("IOUs") and the 20 largest gas distribution companies in the United States.
During the first nine months of 1997, the Company broadened its service
offerings with the addition of economic and regulatory and engineering and
technical services; expanded its domestic presence on the east and west coasts;
established an international presence in Europe, Asia and Australia; and since
its initial public offering in October 1996, has more than tripled its
revenues, principally through the Acquisitions. With the addition of these
three utility consulting businesses, the Company's service offerings now
include: (i) management consulting; (ii) information technology; (iii) economic
and regulatory; and (iv) engineering and technical.
The Metzler Group acts as a holding company that manages four wholly owned
subsidiaries: Metzler & Associates, Burgess, RMI and Reed. This organizational
structure allows the Company to expand its breadth of service offerings,
increase its client base and add highly skilled professionals through
acquisitions, and then to integrate these acquisitions into The Metzler Group
to achieve operational and cost benefits. Effective January 1, 1997, the
Company acquired Chicago-based Burgess, which provides litigation, regulatory
policy support and operations management consulting services to electric and
natural gas utilities. The Company acquired RMI as of July 31, 1997. RMI, based
in Sacramento, California, is a leading provider of consulting services to gas,
water and electric utilities, with operations in the western and eastern United
States and international marketplace. RMI's operations complement the Company's
existing management consulting and information technology
3
<PAGE>
services and expand the Company's service offerings to include a broad range of
engineering and technical services and economic and regulatory services. The
Company acquired Reed as of August 15, 1997. Reed, based in the Boston,
Massachusetts area, provides strategic planning, operations management and
economic and regulatory services to electric and natural gas utilities. Reed's
operations complement the Company's existing services and client base and
expand the Company's presence in the northeast United States and
internationally. The Company has begun to integrate these acquisitions into its
operating model through operations and cost management.
The changing regulatory and competitive environment in the energy utility
industry has forced utility companies to confront an evolving range of
strategic options, challenges and opportunities. In order to deal with these
challenges and address these opportunities, energy utilities are formulating
and implementing new strategies and tactics, including redesigning business
processes, re-engineering work forces, acquiring more effective information
technology and adopting or restructuring customer service and marketing
programs. Electric and other utilities are increasingly turning to experienced
outside consulting firms to assist in or lead this process because: (i) the
pace of change is eclipsing utilities' internal resources; (ii) many utilities
lack the depth and breadth of experience to identify, evaluate and implement
the full range of possible options and solutions; (iii) outside specialists
often enable energy utilities to develop better solutions in shorter time
frames; (iv) purchasing consulting expertise converts fixed labor costs to
variable costs and can be more cost-effective; and (v) consultants can often
formulate more objective advice, free of internal cultural or political forces.
Industry sources estimate that in 1996 the market for consulting services to
the utility industry was approximately $3 billion, or 6% of the $50 billion
total market for consulting services, and project a growth rate of 15% per year
through 2000.
The Company believes that several competitive factors distinguish it from
other participants in the consulting market, including: (i) established energy
utility expertise developed over more than fifteen years of providing
consulting services to the energy utility industry; (ii) deep-rooted client
relationships supporting multiple engagements; and (iii) a wide range of
industry-specific services that enables the Company to be a single-source
provider of consulting services to energy utilities while maintaining advanced
skill sets in each area.
The Company's growth strategy is to: (i) capitalize on current energy
industry dynamics supporting increased reliance on consulting services; (ii)
continue to build a complementary spectrum of consulting services through
acquisitions; (iii) expand its client base in both domestic and international
markets while further penetrating its existing client base; (iv) continue to
recruit and retain highly skilled professionals; and (v) consolidate the
fragmented utility consulting industry by leveraging its public company status.
The Company maintains its principal executive offices at 520 Lake Cook Road,
Suite 500, Deerfield, Illinois 60015. The Company's telephone number is (847)
914-9100.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Compa-
ny................................ 1,000,000 shares
Common Stock offered by the Selling
Stockholders...................... 3,100,000 shares
Common Stock to be outstanding af-
ter the offering.................. 14,289,088 shares(1)
Use of proceeds.................... Expansion of existing operations, including
development of new service offerings and
possible acquisitions of related
businesses, and general corporate purposes,
including working capital.
Nasdaq National Market symbol...... METZ
</TABLE>
- -------------------
(1) Based on 13,289,088 shares outstanding on November 7, 1997. Excludes: (i)
options outstanding on the date hereof to purchase 1,412,410 shares of
Common Stock at a weighted average exercise price of $24.10 per share; and
(ii) 587,590 shares of Common Stock reserved for issuance upon exercise of
options that may be granted in the future under the Company's Long-Term
Incentive Plan. See Note 9 of Notes to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $35,158,575 $46,175,370 $47,103,998 $55,817,351 $63,553,337 $47,160,440 $59,417,571
Cost of services....... 20,345,306 31,344,460 32,059,131 37,085,413 42,315,400 30,776,522 35,169,117
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 14,813,269 14,830,910 15,044,867 18,731,938 21,237,937 16,383,918 24,248,454
Merger related costs... -- -- -- -- -- -- 1,311,959
Selling, general and
administrative
expenses.............. 14,102,138 14,356,299 14,548,285 17,811,846 15,609,906 10,651,889 13,233,069
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income....... 711,131 474,611 496,582 920,092 5,628,031 5,732,029 9,703,426
Other expense (income),
net................... (188,006) 43,122 300,309 240,819 73,278 290,812 (619,811)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
tax expense........... 899,137 431,489 196,273 679,273 5,554,753 5,441,217 10,323,237
Income tax expense
(benefit)............. 420,311 546,393 262,541 392,908 (180,351) (71,342) 3,851,879
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 478,826 $ (114,904) $ (66,268) $ 286,365 $ 5,735,104 $ 5,512,559 $ 6,471,358
=========== =========== =========== =========== =========== =========== ===========
Net income per share .. $ .49
===========
Pro forma net
income(1)............. $ 1,951,541 $ 2,916,241 $ 2,693,696
=========== =========== ===========
Pro forma net income
per share(1).......... $ .15 $ .23 $ .22
=========== =========== ===========
<CAPTION>
AS OF SEPTEMBER 30,
1997
------------------------
AS
ACTUAL ADJUSTED(2)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $20,611,754 $57,339,879
Working capital..................................................................... 30,601,662 67,329,787
Total assets........................................................................ 44,552,378 81,280,503
Long-term debt, less current portion................................................ 369,724 369,724
Total stockholders' equity.......................................................... 30,817,181 67,545,306
</TABLE>
- -------------------
(1) Pro forma net income for the two years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1996 reflect the impact of a Metzler &
Associates compensation plan that went into effect on July 1, 1996 and
Metzler & Associates' election to be treated as an S corporation effective
January 1, 1996. See Note 2 of Notes to Consolidated Financial Statements
and Note 2 of the Notes to Unaudited Consolidated Financial Statements for
the nine months ended September 30, 1997.
(2) As adjusted to give effect to the sale of 1,000,000 shares of Common Stock
by the Company offered hereby at an assumed public offering price of $39
3/16 per share and the receipt of the estimated net proceeds therefrom. See
"Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus, investors
should carefully consider the following factors in connection with an
investment in the shares of Common Stock offered hereby.
RISKS OF ACQUISITION STRATEGY; RISKS OF COMPLETED ACQUISITIONS
Since its initial public offering in October 1996, the Company has more than
tripled its revenues and expanded its geographic presence and breadth of
service offerings, principally through the acquisition of three utility
consulting firms. The Company expects to continue this expansion as an element
of its growth strategy. However, there can be no assurance that the Company
will be able to identify suitable acquisition candidates or that, if
identified, the Company will be able to acquire such companies on suitable
terms. Moreover, other companies are competing for acquisition candidates,
which could result in an increase in the price of acquisition targets and a
decrease in the number of attractive companies available for acquisition.
The Company acquired RMI in July 1997 and Reed in August 1997. The Company
has only begun the process of integrating the operations of these two
companies, including their accounting and billing functions. There can be no
assurance that the anticipated economic, operational and other benefits of any
of the completed or future acquisitions will be achieved or that the Company
will be able to successfully integrate acquired businesses in a timely manner
without substantial costs, delays or other operational or financial problems.
The difficulties of such integration may initially be increased by the
necessity of integrating personnel with disparate business backgrounds and
corporate cultures. In addition, acquisitions may involve the expenditure of
significant funds. Failure to effectively integrate the acquired companies may
adversely affect the Company's ability to bid successfully on certain
engagements and otherwise grow its business. Client dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on the reputation of the Company as a whole, resulting in increased difficulty
in marketing services or acquiring companies in the future. In addition, there
can be no assurance that the acquired companies will operate profitably.
Acquisitions also involve a number of additional risks, including diversion of
management attention, potential loss of key clients or personnel, risks
associated with unanticipated problems, liabilities or contingencies and risks
of entering markets in which the Company has limited or no direct expertise.
The occurrence of some or all of the events described in these risks could
have a material adverse effect on the Company's business, operating results
and financial condition.
MANAGEMENT OF GROWTH
The Company is currently experiencing rapid growth that has strained, and
could continue to strain, the Company's managerial, administrative,
operational and other resources. The Company's ability to manage the growth of
its operations will require it to continue to improve its operational,
financial and other internal systems and to attract, develop, motivate and
retain its employees. The Company's rapid growth has presented and will
continue to present numerous operational challenges, such as the assimilation
of financial reporting systems and increased pressure on the Company's senior
management and will increase the demands on the Company's systems and internal
controls. If the Company's management is unable to manage growth or new
employees are unable to achieve anticipated performance or utilization levels,
the Company's business, operating results and financial condition could be
materially and adversely affected.
BENEFITS OF OFFERING TO SELLING STOCKHOLDERS
The Selling Stockholders, many of whom are officers of the Company or are
officers or key employees of the Company's operating subsidiaries, will
receive substantial proceeds from this offering and certain other benefits in
connection with this offering. After deduction of estimated underwriting
discounts and commissions, the aggregate net proceeds to the Selling
Stockholders as a result of this offering (at an assumed public offering price
of $39 3/16) will be approximately $115.4 million ($138.3 million if the
Underwriters' over-allotment option is exercised in full). The Company will
pay the offering expenses of the Selling Stockholders, other than underwriting
discounts and commissions. See "Use of Proceeds" and "Selling Stockholders."
In addition, this offering will increase the number of shares freely available
for trading in the public market. This increased float will in turn provide
increased liquidity to the Selling Stockholders for the shares of Common Stock
they will
6
<PAGE>
continue to own after this offering, a substantial amount of which will be
freely salable, subject to certain legal limitations, within a relatively short
period following the completion of this offering. See "--Shares Eligible for
Future Sale."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business consists of the delivery of professional services and
is labor-intensive. The Company's success depends in large part upon its
ability to attract, develop, motivate and retain highly skilled consultants and
senior consultants possessing business generation skills. Qualified consultants
are in great demand and are likely to remain a limited resource for the
foreseeable future. There can be no assurance that the Company will be able to
attract and retain sufficient numbers of highly skilled consultants in the
future. The Company has increased its number of consultants substantially as a
result of the Acquisitions and there can be no assurance that the Company will
be able to retain a substantial majority of these consultants for the long
term. The loss of a significant number of consultants could adversely affect
its ability to secure and complete engagements and could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Human Resources."
CONCENTRATION OF REVENUES IN THE UTILITY INDUSTRY
The Company currently derives the majority of its revenues from consulting
engagements with electric utility companies and all of its revenues from
utilities generally. Much of the Company's recent growth in this area has
arisen from the business opportunities presented by the trend to deregulate the
electric utility industry and introduce increased competition. If the current
trend towards government deregulation in the utility industry slows or the
industry becomes subject to more government regulation, the demand for
consulting work from utilities is likely to decrease. For example, if the
United States were to experience a shortage of electricity or a nuclear
accident should occur, increased governmental regulation of the electric
utility industry would be likely, and the Company's business, operating results
and regulatory financial condition could be materially and adversely affected.
Moreover, as a result of deregulation, the electric utility industry is in a
period of consolidation, which could have the effect of reducing the number of
the Company's current or potential clients or create conflicts of interest
between its clients. To date, the Company has lost one client from a conflict
of interest attributable to this industry consolidation trend. Although this
client loss did not have a material effect on the Company's business,
additional conflicts may develop, preventing the Company from representing
certain clients and potentially causing a material adverse effect on the
Company's business, operating results and financial condition. Furthermore, the
number of potential clients in the utility industry may decrease. Additionally,
current and future economic pressures may limit spending by utilities for the
types of services offered by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Because of the nature and scope of many of the Company's projects, the
Company derives a significant portion of its revenues from a relatively limited
number of clients that operate exclusively in the utility industry. There can
be no assurance that these clients will continue to engage the Company for
additional significant projects. Clients engage the Company on an assignment-
by-assignment basis, and a client can generally terminate an assignment at any
time without penalty. The Company's typical engagement cycle causes the
Company's clients, absent project carryovers, to change from year to year. The
loss of significant clients could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Representative Clients."
PROJECT AND SERVICE RISKS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' business and provide benefits that may be difficult
to quantify, including advice on critical engineering matters, potential
mergers and acquisitions or other financial advisory and restructuring matters.
The Company's failure or inability to meet a client's expectations in the
performance of its services could have a material adverse effect
7
<PAGE>
on the Company's reputation, thereby adversely affecting its business,
operating results and financial condition. The Company's services involve risks
of professional, fiduciary and other liability, particularly in the areas of
engineering services, merger and acquisition consulting and other financial
services. If the Company were found to have been negligent or to have breached
its obligations or duties to its clients, the Company could be exposed to
significant liabilities and its reputation could be adversely affected.
Engineering engagements pose special risks because the consulting services
provided by the Company include construction project budgeting and supervision
and studies of critical project areas such as structural or stress analysis. As
a result, the Company is exposed to damage claims if a construction project
experiences time or budget overruns, fails to achieve a client's expectations
or suffers a catastrophic failure. See "--Certain Litigation Proceedings." In
connection with many of its public sector engagements, the Company employs the
services of local personnel and consultants who are treated as independent
contractors. Negligent or illegal acts or ethical violations by these
independent contractors could adversely affect the Company. The Company
maintains professional liability insurance to an aggregate maximum of
approximately $12 million. As a result of the nature of the business of certain
recently acquired companies, a portion of the Company's projects are billed on
a fixed-bid basis as opposed to the Company's general method of billing on a
time-and-expenses basis. The Company's failure to estimate accurately the
resources and related expenses required for these fixed-bid projects or the
Company's failure to complete its contractual obligations in a manner
consistent with the project plan upon which its fixed-bid contact was based
could have a material adverse effect on the Company's business, operating
results and financial condition.
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts, abilities,
business generation capabilities and project execution skills of many of its
executive officers and senior managers. With one limited exception, the Company
does not have an employment agreement with any of these executive officers and
senior employees. The loss of the services of any of these key executives for
any reason could have a material adverse effect upon the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. The Company maintains no key-man life insurance policies
on any of its executive officers or senior managers. See "Management."
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
Variations in the Company's revenues and operating results occur from quarter
to quarter as a result of a number of factors, including client engagements
commenced and completed during a quarter, the number of business days in a
quarter, employee hiring and utilization rates, the announcement and market
acceptance of acquisitions, the length of the Company's sales cycle, the
ability of clients to terminate engagements without penalty, the size and scope
of assignments and general economic conditions. Because a significant portion
of the Company's expenses are relatively fixed, a variation in the number of
client assignments or the timing of the initiation or the completion of client
assignments can cause significant variations in operating results from quarter
to quarter and could result in losses to the Company. To the extent that
increases in the number of professional personnel are not followed by
corresponding increases in revenues, the Company's operating results could be
materially and adversely affected. Furthermore, the Company has on occasion
experienced a seasonal pattern in its operating results, with a smaller
proportion of the Company's revenues and lower operating income occurring in
the fourth quarter of the year or a smaller sequential growth rate than in
other quarters. The Company believes these results can be attributed to
constraints on the annual budgets of utilities, and vacation and holidays taken
by both its clients and its consultants. In addition, material settlement
payments or judgments against the Company in connection with certain litigation
matters could have an adverse effect on the Company's operating results in the
quarter in which they occur. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Unaudited Quarterly Results" and
"Business--Litigation."
INTERNATIONAL OPERATIONS
The Company operates offices in a total of six foreign countries and during
the nine months ended September 30, 1997 was engaged in projects in
approximately 30 foreign countries. The Company expects to continue to expand
its international operations and offices. Expansion into new geographic regions
requires
8
<PAGE>
considerable management and financial resources and may negatively impact the
Company's near-term results of operations. The Company's international
operations are subject to numerous potential challenges and risks, including
war, civil disturbances, varying and evolving political, regulatory and
economic conditions in various jurisdictions, such as tariffs and other trade
barriers, longer accounts receivable collection cycles, fluctuations in
currency and potentially adverse tax consequences. There can be no assurance
that such international factors will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Growth Strategy."
LIMITED PROTECTION OF PROPRIETARY SYSTEMS AND PROCEDURES
The Company's performance is in part dependent upon its internal information
and communication systems, databases, tools, and the methods and procedures
that it has developed to serve its clients. The Company relies on a combination
of nondisclosure and other contractual arrangements and copyright, trademark
and trade secret laws to protect its proprietary systems, information and
procedures. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
such rights or that the Company will be able to detect unauthorized use and
take appropriate steps to enforce its proprietary rights. The Company believes
that its systems and procedures and other proprietary rights do not infringe
upon the rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future or that any such claims will not require the Company to enter into
costly litigation or materially adverse settlements to litigation, regardless
of the merits of such claims. See "Business--Strengths and Differentiation."
INTENSE COMPETITION
The market for consulting services to electric and other energy-based
utilities is intensely competitive, highly fragmented and subject to rapid
change. The market includes a large number of participants from a variety of
market segments, including general management or marketing consulting firms,
the consulting practices of national accounting firms and local or regional
firms specializing in utility services. Many information technology consulting
firms also maintain significant practice groups devoted to the utility
industry. Many of these companies are national and international in scope and
have greater personnel, financial, technical and marketing resources than the
Company. There can be no assurance that the Company will compete successfully
with its existing competitors or with any new competitors. See "Business--
Competition."
CERTAIN LITIGATION PROCEEDINGS
The Company is currently defending two lawsuits that were commenced against
RMI prior to its acquisition by the Company. The Company has entered into a
settlement agreement with respect to the largest of these two lawsuits.
However, the settlement agreement is subject to court approval and certain
other conditions and there can be no assurance that such approval will be
obtained. The second lawsuit is at an early stage, and although the Company
believes that it has a meritorious defense to the claims and intends to
vigorously defend its position, there can be no assurance that the Company will
prevail. Substantial settlements or damage judgments against the Company in
either of these matters could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--
Litigation."
INFLUENCE OF PRINCIPAL STOCKHOLDERS
After completion of this offering, the Company's executive officers and
certain other key employees will beneficially own an aggregate of approximately
37.9% of the Company's outstanding shares of Common Stock (33.8% if the
Underwriters' over-allotment option is exercised in full). As a result, these
stockholders will retain voting power to exercise significant influence over
the outcome of matters requiring a stockholder vote, including the election of
the members of the Board of Directors, thereby controlling the affairs and
management of the Company. Such control could adversely affect the market price
of the Common Stock or delay or prevent a change in control of the Company. See
"Selling Stockholders."
SIGNIFICANT UNALLOCATED NET PROCEEDS
None of the estimated net proceeds of this offering have been designated for
specific uses. Therefore, the Board of Directors of the Company will have broad
discretion with respect to the use of the net proceeds of the Offering. See
"Use of Proceeds."
9
<PAGE>
STOCK PRICE VOLATILITY
The Common Stock was first publicly traded on October 4, 1996 after the
Company's initial public offering at $16 per share. Between October 4, 1996
and November 14, 1997, the closing sale price has ranged from a low of $20 per
share to a high of $41 1/8 per share. The market price of the Common Stock
could continue to fluctuate substantially due to a variety of factors,
including quarterly fluctuations in results of operations, adverse
circumstances affecting the introduction or market acceptance of new services
offered by the Company, announcements of new services by competitors, the
Company's loss of key employees, changes in the regulatory environment or
market conditions affecting the utility industry, changes in earnings
estimates by analysts, changes in accounting principles, sales of Common Stock
by existing holders, loss of key personnel, the announcement and market
acceptance of proposed acquisitions and other factors. The market price for
the Company's Common Stock may also be affected by the Company's ability to
meet analysts' expectations, and any failure to meet such expectations, even
if minor, could have a material adverse effect on the market price of the
Company's Common Stock. In addition, the stock market is subject to extreme
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to the operating performance of these companies. In the past, following
periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on the Company's business,
operating results and financial condition. See "Price Range of Common Stock
and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
14,289,088 shares of Common Stock outstanding, of which the 4,100,000 shares
sold pursuant to this offering and the 4,025,000 shares sold in the Company's
initial public offering will generally be freely tradable without restriction
or further registration under the Securities Act. Approximately 6,560,625 of
the remaining 6,564,088 shares of Common Stock constitute "Restricted Shares"
under Rule 144 under the Securities Act ("Rule 144"). Of these Restricted
Shares, 3,862,866 will be eligible for sale by the holders thereof subject,
however, to the manner of sale, volume, notice information requirements and
other restrictions (other than the holding period) of Rule 144, as applicable.
The remaining 2,697,759 Restricted Shares will become eligible for sale under
Rule 144 at various times between January and September 1998. The Company,
together with the Selling Stockholders and executive officers and directors of
the Company (holding in the aggregate 6,041,188 shares of Common Stock after
completion of this offering), have each agreed that they will not, subject to
certain exceptions, register the sale of, sell, offer to sell, contract to
sell, grant any option to purchase or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, other than the shares offered
hereby, for a period of 90 days after the date of this Prospectus, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its
discretion, waive the foregoing restrictions in whole or in part, with or
without a public announcement of such action. The sale of a substantial number
of shares of Common Stock, or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock. In
addition, any such sale or such perception could make it more difficult for
the Company to sell equity securities or equity-related securities in the
future at a time and price that the Company deems appropriate.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain all earnings for the
development of its business. See "Price Range of Common Stock and Dividend
Policy."
CERTAIN ANTITAKEOVER EFFECTS
The Company's Amended and Restated Certificate of Incorporation and By-Laws
and the Delaware General Corporation Law include provisions that may be deemed
to have antitakeover effects and may delay, defer or prevent a takeover
attempt that stockholders might consider in their best interests. Directors of
the Company are
10
<PAGE>
divided into three classes and are elected to serve staggered three-year terms.
The Board of Directors of the Company is authorized to issue up to 3,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of such shares, without any further stockholder action. The
existence of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. In addition, the existence or
issuance of "blank-check" preferred stock may have an adverse effect on the
market price of the Common Stock.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Included in this Prospectus are various forward-looking statements,
including, among others, the Company's goals and strategies, the expected
growth of the utility consulting industry, the pace of change in the utility
marketplace, the demand for utility consulting services, the Company's goal to
expand service offerings and to pursue acquisitions, the ability to leverage
the Company's client base into additional contracts, and the ability to obtain
new outsourcing contracts.
These statements are forward-looking and reflect the Company's current
expectations. Such statements are subject to a number of risks and
uncertainties, including, but not limited to, changes in the economic and
political environments, changes to technology and changes in the energy utility
consulting marketplace. In light of the many risks and uncertainties
surrounding the Company and the energy utility consulting marketplace, there
can be no assurance that the events described in forward-looking statements
contained in this Prospectus will transpire.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company (after deducting underwriting discounts and
commissions and estimated offering expenses, all of which are payable by the
Company) are estimated to be approximately $36.7 million, based upon an assumed
public offering price of $39 3/16 per share. The Company anticipates that the
net proceeds, including interest thereon, will be used for expansion of
existing operations, including development of new service offerings, possible
acquisitions of related businesses and general corporate purposes, including
working capital. The Company is continually involved in the evaluation of, and
discussions with, potential acquisition candidates, but the Company has not
reached any agreements with respect to any future acquisitions. The Company
currently has no agreements, understandings or commitments regarding any future
acquisitions. Pending such uses, the net proceeds will be invested in short-
term, interest-bearing investment grade securities.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Selling Stockholders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol METZ since October 4, 1996. The following table sets forth,
for the periods indicated, the range of high and low closing sale prices for
the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1996
Fourth Quarter (from October 4, 1996)................... $34 1/2 $ 20
1997
First Quarter........................................... $33 5/8 $ 22
Second Quarter.......................................... $32 3/4 $ 20
Third Quarter........................................... $41 1/8 $ 31
Fourth Quarter (through November 14, 1997).............. $41 1/8 $36 7/8
</TABLE>
On November 14, 1997, the last reported sale price of the Common Stock was
$39 3/16 per share. The Company had 43 stockholders of record on November 4,
1997.
The Company has not since its initial public offering paid cash dividends on
its Common Stock. The Company currently anticipates that all of its earnings
will be retained for development of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Company's Selected Consolidated Financial
Data, which are derived from the Company's Consolidated Financial Statements.
The Consolidated Financial Statements give retroactive effect to the
acquisitions of RMI as of July 31, 1997 and Reed as of August 15, 1997, each
of which has been accounted for using the pooling-of-interest method. As a
result, the financial position, results of operations and cash flows are
presented as if the combining companies had been consolidated for all periods
presented. The Company acquired Burgess effective January 1, 1997. The
stockholder's equity and operations of Burgess were not material in relation
to those of the Company. As such, the Company recorded the combination by
restating stockholders' equity as of January 1, 1997 without restating prior
periods' statements of operations to reflect the pooling-of-interest
combination of Burgess. The financial data as of and for the nine month
periods ended September 30, 1996 and 1997 are derived from unaudited
Consolidated Financial Statements, and include in the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for the periods. These Selected Consolidated Financial
Data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related Notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............... $35,158,575 $46,175,370 $47,103,998 $55,817,351 $63,553,337 $47,160,440 $59,417,571
Cost of services....... 20,345,306 31,344,460 32,059,131 37,085,413 42,315,400 30,776,522 35,169,117
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 14,813,269 14,830,910 15,044,867 18,731,938 21,237,937 16,383,918 24,248,454
Merger related costs... -- -- -- -- -- -- 1,311,959
Selling, general and
administrative
expenses.............. 14,102,138 14,356,299 14,548,285 17,811,846 15,609,906 10,651,889 13,233,069
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income....... 711,131 474,611 496,582 920,092 5,628,031 5,732,029 9,703,426
Other expense (income),
net................... (188,006) 43,122 300,309 240,819 73,278 290,812 (619,811)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
tax expense........... 899,137 431,489 196,273 679,273 5,554,753 5,441,217 10,323,237
Income tax expense
(benefit)............. 420,311 546,393 262,541 392,908 (180,351) (71,342) 3,851,879
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 478,826 $ (114,904) $ (66,268) $ 286,365 $ 5,735,104 $ 5,512,559 $ 6,471,358
=========== =========== =========== =========== =========== =========== ===========
Net income per share... $ .49
===========
Pro forma net
income(1)............. $ 1,951,541 $ 2,916,241 $ 2,693,696
=========== =========== ===========
Pro forma net income
per share(1).......... $ .15 $ .23 $ .22
=========== =========== ===========
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 670,201 $ 132,107 $ 278,428 $ 701,206 $33,536,265 $ 1,284,658 $20,611,754
Working capital........ 1,793,785 3,761,717 3,945,584 5,202,147 36,428,859 7,434,565 30,601,662
Total assets........... 14,345,701 14,856,927 14,962,044 16,838,683 52,269,105 22,434,980 44,552,378
Long-term debt, less
current portion....... 621,661 668,273 832,563 1,002,703 1,400,553 1,968,821 369,724
Total stockholders'
equity................ 3,721,820 3,282,962 3,173,714 3,646,012 35,949,374 6,270,418 30,817,181
</TABLE>
- ---------------------
(1) Pro forma net income for the two years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 reflect the impact of a
Metzler & Associates compensation plan that went into effect on July 1,
1996 and Metzler & Associates' election to be treated as an S corporation
effective January 1, 1996. See Note 2 of Notes to Consolidated Financial
Statements and Note 2 of Notes to Unaudited Consolidated Financial
Statements for the nine months ended September 30, 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the Prospectus, Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this section, the words "anticipate," "believe," "estimate," and
"expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors."
As an integral part of the Company's growth strategy, it has recently
consummated the Acquisitions of Burgess, RMI and Reed (see "--Acquisitions").
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (this "MD&A") relates to the Consolidated Financial Statements
included in this Prospectus, which are presented as if Metzler & Associates,
RMI and Reed had been consolidated for all periods presented. Consequently,
information regarding the Company in this MD&A gives retroactive effect to the
Acquisitions.
OVERVIEW
The Metzler Group, Inc. is a leading nationwide provider of consulting
services to electric, gas and water utilities and other energy and utility-
related businesses. The Company offers a wide range of consulting services
designed to assist its clients in succeeding in a business environment of
changing regulation, increasing competition and evolving technology. The
Company's service offerings include: (i) management consulting; (ii)
information technology; (iii) economic and regulatory; and (iv) engineering
and technical.
The Company derives substantially all of its revenues from fees for
professional services, which are billed at standard hourly or daily rates or
provided on a fixed-bid basis. Over the last three years, the substantial
majority of the Company's revenues has been generated under standard hourly or
daily rates billed on a time-and-expenses basis. Clients are typically
invoiced on a monthly basis with revenue recognized as the services are
provided.
The Company's most significant expenses are project personnel costs, which
consist of consultant salaries and benefits, and travel-related direct project
expenses. Project personnel are typically full-time professionals employed by
the Company, although the Company supplements its project professional
personnel through the use of independent contractors. The Company retains
contractors for specific client engagements on a task-specific, per diem basis
during the period their expertise or skills are required. The Company believes
that retaining contractors on a per-engagement basis provides it with greater
flexibility in adjusting professional personnel levels in response to changes
in demand for its services.
ACQUISITIONS
As part of its growth strategy, the Company expects to continue to pursue
complementary acquisitions to expand its geographic reach, expand the breadth
and depth of its service offerings and enhance the Company's consultant base.
In furtherance of this growth strategy, the Company has acquired three
additional utility consulting firms during 1997. Each of these three
transactions was accounted for as a pooling of interest.
As of January 1, 1997, the Company acquired Burgess in exchange for 42,181
shares of Common Stock (valued at approximately $0.9 million at the closing).
At the closing, Burgess' sole stockholder also entered into a three-year
employment agreement with Burgess providing for a base salary, performance
bonus and other
13
<PAGE>
standard benefits. Burgess, based in the Chicago area, provides litigation,
regulatory policy support and operations management consulting services to
electric and natural gas utilities. At the time of its acquisition, Burgess
had approximately four employees.
As of July 31, 1997, the Company acquired substantially all of the common
stock of RMI in exchange for 2,137,178 shares of Common Stock (valued at
approximately $75.3 million at the closing) and acquired the remaining
minority interests in exchange for cash. Approximately 18% of the Common Stock
issued in this transaction was placed in an escrow to secure the general and
specific indemnity obligations of the selling shareholders. RMI, based in
Sacramento, California, is a leading provider of consulting services to gas,
water and electric utilities, with operations in the western and eastern
United States and international marketplace. RMI's operations complement the
Company's existing management consulting and information technology services
and expand the Company's service offerings to include a broad range of
engineering and technical and economic and regulatory services. At the time of
its acquisition, RMI had approximately 325 employees.
As of August 15, 1997, the Company acquired substantially all of the common
stock of Reed in exchange for 518,400 shares of Common Stock (valued at
approximately $17.6 million at the closing) and acquired the remaining
minority interests in exchange for cash. Ten percent of the Common Stock
issued in this transaction was placed in an escrow to secure the indemnity
obligations of the selling stockholders. Reed, based in the Boston area,
provides strategic planning, operations management and economic and regulatory
services to electric and natural gas utilities. Reed's operations complement
the Company's existing services and client base and expand the Company's
presence in the northeast United States and internationally. At the time of
its acquisition, Reed had approximately 51 employees.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED SEPTEMBER
DECEMBER 31, 30,
-------------------- ------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services........................ 68.1 66.5 66.6 65.3 59.2
----- ----- ----- ----- -----
Gross profit............................ 31.9 33.5 33.4 34.7 40.8
Merger related costs.................... -- -- -- -- 2.2
Selling, general and administrative
expenses............................... 30.9 31.9 24.6 22.6 22.3
----- ----- ----- ----- -----
Operating income (loss)................. 1.0 1.6 8.8 12.1 16.3
Other expense (income), net............. 0.6 0.4 0.1 0.6 (1.1)
----- ----- ----- ----- -----
Income (loss) before income tax expense
(benefit).............................. 0.4 1.2 8.7 11.5 17.4
Income tax expense (benefit)............ 0.5 0.7 (0.3) (0.2) 6.5
----- ----- ----- ----- -----
Net income (loss)....................... (0.1)% 0.5% 9.0% 11.7% 10.9%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Revenues. Revenues for the first nine months of 1997 increased 26% to $59.4
million from $47.2 million for the first nine months of 1996. These increases
were the result of continued strong demand for the Company's management
consulting, engineering and technical, and economic and financial services for
the electric and energy-related industries. The growth in revenues was due to
increases in both the number and average size of client projects.
Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant salaries, benefits and travel-related direct project
expenses. For the first nine months of 1997, gross profit grew 48.0% to $24.2
million from $16.4 million in the comparable 1996 period. Gross profit as a
percentage of revenues was
14
<PAGE>
40.8% for the nine months ended September 30, 1997 as compared to 34.7% for
the nine months ended September 30, 1996. The improvement in gross profit
margins was driven primarily by increased utilization of the Company's
professional consultants.
Merger Related Costs. In the third quarter of 1997, the Company incurred
merger related costs of $1.3 million related to acquisitions accounted for as
poolings of interests. The merger costs include legal, accounting and other
transaction-related fees and expenses. There were no acquisitions or
corresponding related costs in the prior-year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include salaries and benefits of management and
support personnel, facilities costs, recruiting and training, direct selling,
outside professional fees and all other corporate costs. Selling, general and
administrative expenses for the nine months ended September 30, 1997 increased
approximately 24.2% to $13.2 million from $10.7 million for the comparable
period in 1996. The pro forma adjustments for 1996 include an increase in
officer compensation of $1.0 million for the first nine months of the year to
reflect the impact of a compensation plan adopted July 1, 1996. After giving
effect to this pro forma adjustment, selling, general and administrative
expenses for the nine months ended September 30, 1997 increased approximately
13.4% to $13.2 million from the pro forma $11.7 million for the first nine
months of 1996. This increase is largely attributable to the overall higher
business volume in 1997, partially offset by economies and increased
efficiency in certain support functions.
Income Taxes. For the first nine months of 1996, one the Company's
subsidiaries was taxed under Subchapter S of the Internal Revenue Code. Under
the provisions of Subchapter S, federal income taxes were the responsibility
of the stockholders as were certain state income taxes. Accordingly, the
statement of operations for the three-month and nine-month periods ended
September 30, 1996 did not include a provision for federal or certain state
income taxes with respect to such subsidiary. The pro forma adjustments for
these periods include additional federal and state taxes that would have been
required had the S-corporation election not been in effect.
1996 COMPARED TO 1995
Revenues. Revenues increased 13.9% to $63.6 million in 1996 from $55.8
million in 1995. This increase was caused by increased demand for management
consulting services in the electric utility industry and increased selling and
business development efforts. These factors generated increases in both the
number of client projects and the average size of client projects.
Gross Profit. Gross profit increased 13.4% to $21.2 million in 1996 from
$18.7 million in 1995. Gross profit as a percentage of revenues was 33.4% in
1996 compared to 33.5% in 1995. The gross profit percentage was largely
consistent year to year based on comparable utilization rates in both periods
for the Company's full time professional personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 12.4% to $15.6 million in 1996 from $17.8
million in the prior year. As a percentage of revenues, selling, general and
administrative expenses decreased to 24.6% in 1996 from 31.9% in 1995. In
connection with the change in the taxable status of one of the Company's
subsidiaries from a C corporation to an S corporation commencing January 1,
1996, the Company eliminated all other incentive compensation programs for
certain key executives. Effective July 1, 1996, in contemplation of the
termination of the S-corporation status in connection with the closing of the
Company's initial public offering of common stock, the Company adopted a new
executive compensation plan. The pro forma adjustments for 1996 and 1995
reflect the impact of this compensation plan. The pro forma adjustment for
1996 includes an increase in executive compensation of $1.0 million while the
pro forma adjustment for 1995 incorporates a decrease in executive
compensation of $2.8 million. After giving effect to these pro forma
adjustments, selling, general and administrative expenses would represent
$16.6 million, or 26.2% of revenues, in 1996 and $15.0 million, or 26.9% of
revenues, in 1995. The increase in selling, general and administrative
expenses was due primarily to higher business volume, offset in part by
increased efficiency in certain administrative functions.
15
<PAGE>
Income Taxes. Effective January 1, 1996, the stockholders of one of the
Company's subsidiaries elected to be taxed under Subchapter S of the Internal
Revenue Code. As an S corporation, net income from January 1, 1996 was taxable
for federal (and some state) income tax purposes directly to the subsidiaries'
stockholders. The S-corporation status was terminated October 4, 1996 upon the
completion of the Company's initial public offering of its Common Stock.
Accordingly, the consolidated statement of operations for 1996 does not include
a provision for federal or certain state income taxes for this subsidiary
during the period January 1, 1996 through October 3, 1996.
1995 COMPARED TO 1994
Revenues. Revenues increased 18.5% to $55.8 million in 1995 from $47.1
million in 1994. The increase in revenues was attributable to an increase in
the number of client projects and an increase in the average size of client
projects. This growth was driven by strong demand for consulting services
within the utility industry and increases in the Company's business development
and selling activities.
Gross Profit. Gross profit increased 24.5% to $18.7 million in 1995 from
$15.0 million in 1994. Gross profit as a percentage of revenues increased to
33.5% in 1995 from 31.9% in 1994. The improvement in gross margin is due in
large part to higher utilization rates for professional personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.4% to $17.8 million in 1995 from $14.5
million in 1994. The pro forma adjustments for 1995 reflect a decrease in
compensation of certain executives in the amount of $2.8 million. This
adjustment is consistent with the compensation plan adopted July 1, 1996 which
normalized 1995 compensation expense. After the adjustment, selling, general
and administrative expenses increased 3% to $15.0 million in 1995 from $14.5
million in 1994.
16
<PAGE>
UNAUDITED QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly operating
information for each of the 11 quarters ending September 30, 1997. These data
have been prepared on the same basis as the audited financial statements
contained elsewhere in this Prospectus and include all normal recurring
adjustments necessary for the fair presentation of the information for the
periods presented, when read in conjunction with the Company's Consolidated
Financial Statements and related Notes thereto. Results for any previous
fiscal quarter are not necessarily indicative of results for the full year or
for any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........ $12,695 $13,987 $14,082 $15,054 $15,318 $15,654 $16,189 $16,392 $18,084 $20,194 $21,140
Cost of
services....... 8,423 9,289 8,936 10,437 9,609 10,344 10,824 11,538 11,154 11,948 12,067
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 4,272 4,698 5,146 4,617 5,709 5,310 5,365 4,854 6,930 8,246 9,073
Merger related
costs.......... -- -- -- -- -- -- -- -- -- -- 1,312
Selling, general
and
administrative
expenses....... 4,107 4,521 4,559 4,626 3,282 3,485 3,885 4,958 4,256 4,681 4,296
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)......... 165 177 587 (9) 2,427 1,825 1,480 (104) 2,674 3,565 3,465
Other expense
(income), net.. 143 107 (22) 13 46 102 142 (218) (220) (209) (190)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
before income
tax expense
(benefit)...... 22 70 609 (22) 2,381 1,723 1,338 114 2,894 3,774 3,655
Income tax
expense
(benefit)...... 53 56 323 (39) 167 (152) (86) (109) 1,088 1,437 1,327
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)......... $ (31) $ 14 $ 286 $ 17 $ 2,214 $ 1,875 $ 1,424 $ 223 $ 1,806 $ 2,337 $ 2,328
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues,
as previously
reported....... $ 2,526 $ 3,100 $ 3,692 $ 4,142 $ 5,344 $ 5,513 $ 5,603 $ 5,634 $ 6,258 $ 7,824
Adjustments(1).. 10,169 10,887 10,390 10,912 9,974 10,141 10,586 10,758 11,826 12,370
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues.. 12,695 13,987 14,082 15,054 15,318 15,654 16,189 16,392 18,084 20,194 $21,140
Gross profit, as
previously
reported....... 1,232 1,553 2,047 2,206 2,798 2,844 2,828 2,513 3,054 3,940
Adjustments(1).. 3,040 3,145 3,099 2,411 2,911 2,466 2,537 2,341 3,876 4,306
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 4,272 4,698 5,146 4,617 5,709 5,310 5,365 4,854 6,930 8,246 9,073
Operating income
(loss), as
previously
reported....... (754) (484) 105 521 2,089 2,149 1,612 1,400 1,625 2,562
Adjustments(1).. 919 661 482 (530) 338 (324) (132) (1,504) 1,049 1,003
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)......... 165 177 587 (9) 2,427 1,825 1,480 (104) 2,674 3,565 3,465
Net income
(loss), as
previously
reported....... (534) (324) 67 318 2,034 2,106 1,547 1,167 1,230 1,801
Adjustments(1).. 503 338 219 (301) 180 (231) (123) (944) 576 536
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)......... $ (31) $ 14 $ 286 $ 17 $ 2,214 $ 1,875 $ 1,424 $ 223 $ 1,806 $ 2,337 $ 2,328
</TABLE>
- ---------------------
(1) Adjustments reflect the effect of acquisitions accounted for as poolings
of interests of the amounts previously reported in the Company's
Registration Statement on Form S-1 (File No. 333-9019) and in the
Company's quarterly reports on Form 10-Q. See Note 3 of Notes to the
Consolidated Financial Statements for a more detailed discussion of these
transactions.
17
<PAGE>
Revenues and operating results fluctuate from quarter to quarter as a result
of a number of factors, such as the significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter and employee hiring and utilization rates. The timing of revenues
varies from quarter to quarter because of the Company's sales cycle, the
ability of clients to terminate engagements without penalty, the size and
scope of assignments and general economic conditions. Because a significant
percentage of the Company's expenses are relatively fixed, a variation in the
number of client assignments or the timing of the initiation or the completion
of client assignments can cause significant variations in operating results
from quarter to quarter. Furthermore, the Company has on occasion experienced
a seasonal pattern in its operating results, with a smaller proportion of the
Company's revenues and lower operating income occurring in the fourth quarter
of the year or a smaller sequential growth rate than in other quarters.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company completed the acquisition of RMI in a transaction
accounted for as a pooling of interests. RMI is a leading provider of
consulting services to gas, water and electric utilities. In August 1997, the
Company completed another acquisition of privately owned Reed in a transaction
also accounted for as a pooling of interests. Reed provides strategic
planning, operations management and economic and regulatory services to
electric and natural gas utilities. In connection with these acquisitions, the
Company made cash payments totaling approximately $8.9 million to acquire
shares of the combining enterprises held by certain minority stockholders. The
Company also made payments of approximately $3.6 million to repay principal
and accrued interest on outstanding debt obligations of RMI.
In January 1997, the Company repaid notes payable to two stockholders in the
aggregate amount of $1.0 million. The notes, each with a principal amount of
$0.5 million, bore interest at a rate of 10%. The Company repaid notes payable
to other officers aggregating $0.8 million under various other pre-existing
arrangements at RMI and Reed.
During the period from January 1, 1996 to October 4, 1996, one of the
Company's subsidiaries was taxed as an S-corporation. As an S-corporation, all
of the net income from that period will be distributed to its shareholders and
included in their personal taxable income. During the first quarter of 1997,
the Company distributed $3.0 million of S-corporation earnings. Undistributed
S-corporation earnings amounted to $0.5 million as of September 30, 1997.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
was issued in February 1997. The Company will be required to adopt the new
standard for the year and quarter ended December 31, 1997. Early adoption of
this standard is not permitted. The primary requirements of this standard are:
(i) replacement of primary earnings per share with basic earnings per share,
which eliminates the dilutive effect of options and warrants; (ii) use of an
average share price in applying the treasury method to compute dilution for
options and warrants for diluted earnings per share; and (iii) disclosure
reconciling the numerator and denominator of earnings per share calculations.
The Company plans to adopt this statement in fiscal year 1997. The effect of
applying this standard is not expected to be significant.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997.
The Company will be required to adopt the new standard for the year ending
December 31, 1998, although early adoption is permitted. This statement
requires use of the "management approach" model for segment reporting. The
management approach model is based on the way the Company's management
organizes segments within the Company for making operating decisions and
assessing performance. Reportable segments are based on products and services,
geography, legal structure, management structure, or any other manner in which
management disaggregates a company. The Company will adopt this statement in
fiscal year 1998. The effect of applying this standard is not expected to be
significant.
18
<PAGE>
BUSINESS
The Metzler Group, Inc. is a leading nationwide provider of consulting
services to electric, gas and water utilities and other energy and utility-
related businesses. The Company offers a wide range of consulting services
designed to assist its clients in succeeding in a business environment of
changing regulation, increasing competition and evolving technology. The
Company's clients include the 50 largest IOUs and the 20 largest gas
distribution companies in the United States.
During the first nine months of 1997, the Company broadened its service
offerings with the addition of economic and regulatory and engineering and
technical services; expanded its domestic presence on the east and west
coasts; established an international presence in Europe, Asia and Australia;
and since its initial public offering in October 1996, has more than tripled
its revenues, principally through the Acquisitions. With the addition of these
three utility consulting businesses, the Company's service offerings now
include: (i) management consulting; (ii) information technology; (iii)
economic and regulatory; and (iv) engineering and technical.
The Metzler Group acts as a holding company that manages four wholly owned
subsidiaries: Metzler & Associates, Burgess, RMI and Reed. This organizational
structure allows the Company to expand its breadth of service offerings,
increase its client base and add highly skilled professionals through
acquisitions, and then to integrate these acquisitions into The Metzler Group
to achieve operational and cost benefits.
The Company believes that several competitive factors distinguish it from
other participants in the utility consulting market, including: (i)
established energy utility expertise developed over more than fifteen years of
providing consulting services to the energy utility industry; (ii) deep-rooted
client relationships supporting multiple engagements; and (iii) a wide range
of industry-specific services that enables the Company to be a single-source
provider of consulting services to energy utilities while maintaining advanced
skill sets in each area.
The Company's growth strategy is to: (i) capitalize on current energy
industry dynamics supporting increased reliance on consulting services; (ii)
continue to build a complementary spectrum of consulting services through
acquisitions; (iii) expand its client base in both domestic and international
markets while further penetrating its existing client base; (iv) continue to
recruit and retain highly skilled professionals; and (v) consolidate the
fragmented utility consulting industry by leveraging its public company
status.
OVERVIEW
Background. The energy utility industry is one of the largest industries in
the United States, with revenues in excess of $250 billion. The gas
distribution industry has undergone deregulation and is now approaching a
fully competitive market, giving rise to expanded consulting needs. The
electric utility industry is in the early stages of deregulation and therefore
provides the greatest opportunities for energy utility consulting as industry
participants seek to address the ramifications of deregulation and position
themselves in anticipation of these changes. The Company believes that the
water industry will undergo deregulation in the mid-term future and will give
rise to increased demand for consulting services.
Like other businesses, energy utilities are increasingly turning to outside
consulting firms to assist in or lead the process by which the utility
industry addresses fundamental changes. In general, businesses engage
consultants because: (i) the pace of change is eclipsing the companies'
internal resources; (ii) many enterprises lack the depth and breadth of
experience to identify, evaluate and implement the full range of possible
options and solutions; (iii) outside specialists often enable their clients to
develop better solutions in shorter time frames;
19
<PAGE>
(iv) purchasing consulting expertise converts fixed labor costs to variable
costs and can be more cost-effective; and (v) consultants can often formulate
more objective advice, free of internal cultural or political forces.
Utility Consulting Opportunity. The energy utility industry represents a
significant market for consulting services. Industry sources estimate that the
market for utility consulting in the U.S. was $3.0 billion, or 6% of the $50
billion total market for consulting services in 1996, and that this market
will grow at a rate of 15% per year through 2000.
This demand for consulting services is driven in significant part by the
revolutionary change facing the U.S. electric utility industry as it begins to
convert from a regulated regional monopoly structure to an increasingly
competitive environment. Historically, due to the significant fixed costs
inherent in generating and transmitting electricity, electric utilities were
viewed as natural local monopolies, operating as integrated entities to
generate, transmit and distribute retail electricity within defined geographic
retail service areas without competition from other suppliers.
As a result of recent market, regulatory and legislative factors,
competition in the electric utility industry is being encouraged at both the
state and federal regulatory levels, but the transformation to a competitive
market is proceeding unevenly. Although deregulation of the transportation and
telecommunications industries was accomplished relatively rapidly,
deregulation of the electric utility industry has been more difficult due to
the complex and overlapping regulatory web imposed by over 200 federal and
state bodies and the presence of a large number of separate, regulated
companies. Accordingly, implementation of the change will likely unfold on a
state-by-state basis over the next decade and may well face challenges from
utilities and state and local governments.
Deregulation and the introduction of competition have created a significant
need for consulting services that provide solutions to the current problems
facing electric utilities as well as other energy-related businesses today.
The changing competitive environment has forced the entire utility industry to
confront an evolving range of strategic options and challenges, most of which
are unfamiliar to companies that have operated under a paradigm of
monopolistic assumptions since inception. Emerging strategies and challenges
presently identified include the following:
MANAGEMENT
. Strategic Planning. A number of energy utilities are abandoning their
traditional integrated corporate structure and are organizing into
distinct divisions responsible for power generation, transmission,
distribution, and billing and customer service in an effort to provide
these services more efficiently and effectively. These divisions need to
formulate their own strategies, develop their own administrative
infrastructure and implement their own marketing campaigns. As energy
utilities are faced with increasing competition, many have either
consummated or announced mergers and other consolidations. This trend is
expected to continue as energy utilities seek to achieve economies of
scale, increase geographic coverage, eliminate redundant infrastructure,
increase market leverage, reduce their cost of capital and expand their
customer base. After a combination is consummated, the new entity often
faces the difficult process of combining separate operations and
infrastructure to achieve the desired efficiencies.
. Marketing and Customer Service. In a fully deregulated utility market,
end users select their provider, much as they can choose their provider
of long-distance and cellular telephone services. Even other major
utilities such as telecommunications and cable companies or independent
suppliers can compete to provide energy to customers. In response, energy
utilities, which have historically enjoyed a captive customer base, are
developing marketing and sales skills to attract and retain customers,
develop customer awareness and loyalty enhancement programs in order to
establish brand identity and provide innovative services.
20
<PAGE>
. Operations Management. Energy utilities must reduce their costs in order
to improve margins and to offer more competitive prices. Many energy
utilities are already engaging in significant restructuring efforts,
including process redesigns, deploying innovative information systems and
technologies and redefining staffing and skill-mix requirements.
INFORMATION TECHNOLOGY
. Systems Planning. In general, the energy utility industry has been slow
to adopt the latest information technologies. Pressures from deregulation
have compelled organizations to improve the quality of products and
services, shorten response times, reduce costs and strengthen customer
relationships. Increasingly, organizations are addressing these issues by
utilizing information technology solutions that facilitate the rapid and
flexible collection, analysis and dissemination of information. Rapid
technological advances and competitive pressures are forcing energy
utilities to replace antiquated systems with new technology and to
undertake major, critical systems projects.
ECONOMIC AND REGULATORY
. Market Analysis/Economic Services. In order to meet the increased
expectations of the competitive marketplace, energy utilities are
evaluating new value-added services, such as the ability to monitor and
control electrical power usage with computerized metering devices. Energy
utilities have access to homes and businesses through their existing
connections, and they possess a significant infrastructure and related
property easements. In addition, energy utilities have long-standing
billing relationships with virtually every home and business in their
service area. These factors may permit energy utilities to offer their
customers a variety of new services--from security services in the near
future, to telecommunications services and direct access video services
in the distant future. In addition, many energy utilities are redirecting
and redeploying assets through diversification initiatives, primarily
within traditional business sectors such as energy services, fuel
resources and services, and energy project investments.
. Regulatory Policy. The advent of utility deregulation has created a
rapidly changing and uncertain regulatory landscape. Utilities are
increasingly turning to outside consultants for ongoing assessment of
regional and national directions, as well as to map new strategies as
needed to incorporate regulatory changes.
ENGINEERING AND TECHNICAL
. Transmission Distribution Planning. Changes in utilities almost always
have an affect on their service delivery profiles. These new strategies
require modification to the distribution network, long line transmission
grid and the operation of base and peak-load power plants. Integration of
these technical services into new business plans is becoming an almost
mandatory piece of all new profiles.
STRENGTHS AND DIFFERENTIATION
The Company offers a wide range of consulting services to electric, gas and
water utilities and other energy and utility-related businesses to assist them
in succeeding in a business environment of changing regulation, increasing
competition and evolving technology. The Company believes that several factors
distinguish it from many of the other participants in the utility consulting
industry, including the following:
Established Energy Utility Expertise. For over fifteen years, the Company
has focused primarily on providing consulting services to energy utilities.
The Company believes that its vertical focus and broad service offerings
differentiate it from both general consulting firms that serve multiple
industries and "niche" firms with limited skill sets that focus on individual
aspects of the energy utility industry. The Company's consultants have
significant industry and consulting experience across critical business
disciplines, including strategic planning, systems planning, accounting,
finance, economics, organizational design, engineering, marketing, sales,
customer service, systems analysis, resource acquisition and asset management.
21
<PAGE>
Deep-Rooted Client Relationships. The Company believes its wide exposure
across its broad client base provides opportunities for deepening its client
relationships. The Company's clients include the 50 largest IOUs and the 20
largest gas distribution companies in the United States. The Company has
developed numerous contacts at various levels within client organizations,
ranging from chief executive officers and other senior management to
functional managers. The Company's relationships can span multiple functional
areas, which often lead to follow-on engagements. Many of the Company's
relationships have moved beyond a relatively small initial project to span
multiple engagements over a period of as much as eighteen months.
Wide Range of Industry-Specific Services. Many energy utility consulting
engagements require the vendor to provide a broad array of service offerings,
something many "niche" players cannot provide. Engagements often require
creative solutions that must be drawn from diverse areas of expertise. The
Company's expertise in a wide range of services enables the Company to better
pursue such opportunities and to offer itself as a single-source provider of
services to utilities, including: (i) management consulting; (ii) information
technology; (iii) economic and regulatory; and (iv) engineering and technical.
GROWTH STRATEGY
The Company's goal is to become the preeminent provider of a full range of
consulting services necessary for energy utilities to thrive in a dynamic
environment. The Company's strategy to achieve this goal includes the
following elements:
Leverage Vertical Focus to Capitalize on Current Industry Dynamics. The
Company believes that its vertical focus on the energy utility industry
positions it to offer comprehensive services anchored by an in-depth knowledge
of the unique market dynamics and regulatory change facing the energy utility
industry. By leveraging the Company's vertical focus on this industry, which
is currently confronting such challenges as regulatory reform, industry
restructuring, increased competition and inadequate information systems, the
Company intends to enhance its position as a leading world-wide provider of
utility consulting services.
Continue To Build a Complementary Spectrum of Consulting Services. The
Company intends to continue to broaden its range of service offerings to offer
a comprehensive set of services necessary to respond to the evolving needs of
its clients. To date, the Company has completed three acquisitions. Through
these acquisitions, the Company has added significant consulting services in
both the gas and water utility industries, added economic and regulatory
services, engineering and technical services and expanded its domestic and
international presence. This broad range of consulting services allows the
Company to leverage its expertise and provide follow-on engagements for many
of its clients.
Leverage Existing Relationships and Expand Client Base in Both Domestic and
International Markets. Although the Company has provided consulting services
to many of the largest energy utilities in the United States, some of these
clients have historically engaged the Company to provide only limited types of
services or to provide services to a single division or business unit. The
Company believes that the provision of additional services to its existing
client base represents a significant growth opportunity that the Company can
better pursue by adding consultants and further developing its internal
resources. The access, contact and goodwill provided by its existing client
relationships afford the Company significant advantages in marketing
additional services and solutions on an enterprise-wide basis. The Company
intends to target new clients by increasing its domestic and international
presence and through the hiring of consultants with established client
relationships.
Continue to Recruit and Retain Highly Skilled Professionals. The Company
believes that its continued success and growth require it to expand its base
of highly skilled professionals. In order to compete successfully for new
business and to obtain additional business from existing clients, the Company
continually strives to recruit qualified, experienced personnel possessing the
skills currently demanded by the changing dynamics of the energy utility
industry. The Company particularly targets senior professionals with skills
and client relationships that complement services currently offered by the
Company. The Company believes it enhances
22
<PAGE>
recruitment and retention of consultants by offering packages of base and
incentive compensation and benefits that are significantly more attractive
than those offered by the consulting industry in general. The Company also
believes that its status as a public company aids in recruiting, retaining and
incentivizing current and future employees.
Consolidate the Fragmented Industry; Leverage Public Company Position. Given
the highly fragmented nature of the consulting services marketplace, the
Company believes numerous acquisition opportunities exist. The Company
believes that acquisitions provide it with a fast, cost-effective method to
increase its number of consultants, broaden its client base, expand its
geographic presence and enhance and broaden its service offerings. In
addition, the Company intends to acquire or develop relationships with firms
whose services complement the Company's current offerings, thereby enabling
enhanced cross-selling and cross-marketing to the Company's existing clients
and those of the acquired firms. The Company may also pursue vertical
integration by acquiring businesses that it currently engages on a
subcontractor basis to provide specialized technical skills in certain
engagements. The Company believes its public company status makes it an
attractive consolidation partner and provides the Company with an acquisition
currency and the financial flexibility to effectively pursue this element of
its growth strategy.
23
<PAGE>
SERVICES
The Company offers its consulting services in four principal areas:
management consulting, information technology, economic and regulatory and
engineering and technical services. The table below provides examples of the
Company's service offerings in each of these areas:
CATEGORY
OF SERVICE
DESCRIPTION OF PROJECTS
MANAGEMENT . Develop non-regulated business plans and objectives,
CONSULTING including investment and spending objectives.
--Strategic . Examine domestic and international energy market
Planning sectors and identify opportunities for competitive
--Marketing and leverage.
Customer Service . Quantify and prioritize operational and business
--Operations strategies.
Management . Consolidate and integrate options for marketing and
--Financial customer services operations.
Services . Redesign and implement marketing and customer service
functions.
. Examine and reorganize client operations.
. Develop procurement strategies, policies and
procedures.
. Restructure and consolidate distribution system
networks to optimize service delivery.
. Identify and evaluate candidates for merger,
consolidation or acquisition.
- -------------------------------------------------------------------------------
INFORMATION . Develop strategic information systems plans.
TECHNOLOGY . Perform total life cycle analysis and implement
--Systems activity-based management systems, including process
Planning evaluation, activity definition, chart of accounts
--General and system design, construction and implementation.
Business . Develop information systems, such as activity-based
Applications management and marketing information systems.
--Utility- . Develop information requirements and package
Specific evaluations for executive information systems,
Applications materials management systems and work management
--Network/ systems.
Communications . Develop telecommunications systems, including
integrated communications planning, communications
market analysis, network traffic evaluation and
customer operations process design.
- -------------------------------------------------------------------------------
ECONOMIC AND . Serve as expert witnesses.
REGULATORY . Evaluate alternative regulatory and legislative
--Litigation positions.
Support . Develop regulatory strategy and provide support.
--Regulatory . Develop environmental regulatory strategy.
Policy . Serve as community and agency liaison.
--Market . Develop resource economics.
Analysis/ . Create demand forecasting.
Economic . Develop competitive supply evaluation.
Services . Develop power market modeling and pricing.
. Develop transmission pricing.
- -------------------------------------------------------------------------------
ENGINEERING AND . Develop electric transmission and distribution
TECHNICAL strategy.
--Engineering . Develop water supply and conveyance strategy.
Services . Provide supply bidding advice.
--Project/ . Provide project and construction management.
Construction . Provide owner and lender engineering services.
Management . Provide infrastructure and facility environmental
--Environmental compliance.
Services . Develop environmental management systems.
--Outsourcing
24
<PAGE>
MARKETING AND SALES
The Company markets its services directly to mid-level to senior executives
of utilities from its headquarters near Chicago, Illinois and through each of
its subsidiaries. The Company employs a variety of business development and
marketing techniques to communicate directly with current and prospective
clients, including on-site presentations to senior utility executives,
industry seminars featuring presentations by the Company's personnel and
authoring of articles and other publications regarding the energy utility
industry and the Company's methodologies.
A significant portion of new business arises from prior client engagements.
In addition, the Company expects to leverage the client relationships of firms
it acquires by cross-selling its existing services. Clients frequently expand
the scope of engagements during delivery to include follow-on complementary
activities. Also, the Company's on-site presence affords it the opportunity to
become aware of, and to help define, additional project opportunities as they
are identified by the client. The strong client relationships arising out of
many engagements often facilitate the Company's ability to market additional
capabilities to its clients in the future. In addition, the Company's senior
management team actively meets with utilities that have not yet engaged the
Company and newly appointed senior managers in utilities where the Company has
worked in the past to make them aware of the Company's capabilities.
REPRESENTATIVE CLIENTS
The Company has performed consulting assignments for more than 200 utility
industry clients, principally IOUs. The Company's clients include the 50
largest IOUs and the 20 largest gas distribution companies in the United
States. The Company's clients also include gas and water companies and other
utility ownership structures such as holding companies, electric cooperatives,
public power agencies and state regulatory commissions. The Company also
serves independent power producers, co-generators and power marketers and
suppliers to the utility industry.
Because of the nature and scope of many of the Company's projects, the
Company derives a significant portion of its revenues from a relatively
limited number of clients that operate exclusively in the electric utility
industry.
A list of representative clients is set forth below:
ELECTRIC
Allegheny Power System, FPL Group PECO Energy
Inc. General Public Utilities Pinnacle West Capital
American Electric Power Corp. Corp.
Co. Houston Industries Potomac Electric Power
Baltimore Gas & Electric Incorporated PP&L Resources
Co. Illinova Corp. PSC of Colorado
Boston Edison LG&E Energy Public Service Enterprise
Carolina Power & Light Long Island Lighting Co. Group, Inc.
Co. MidAmerican Energy Public Service of
Centerior Energy Corp. Holdings Colorado
Central and South West New England Electric SCANA Corp.
Corp. System Southern Company
CINergy Corp. New York State Electric & TECO Energy
CMS Energy Corp. Gas Texas Utilities Company
Consolidated Edison Co. Niagara Mohawk Power Co. UGI Corp.
of NY NIPSCO Industries Unicom Corp.
DTE Energy Co. Northeast Utilities Union Electric Co.
Dominion Resources, Inc. Northern States Power Co. Utilicorp United
Duke Power OGE Energy Western Resources
Edison International Ohio Edison Co. Wisconsin Energy Corp.
Entergy Corp. Pacific Gas & Electric Co.
Enova Corp. PacifiCorp
Florida Progress Corp.
25
<PAGE>
GAS
Atlanta Gas Light Co. Michigan Consolidated Gas Public Service Electric &
Brooklyn Union Gas National Fuel Gas Gas
Columbia Gas of Ohio Distribution Southern California Gas
Consolidated Edison of NorAm Energy Corp. Southern Union Gas
NY Northern Illinois Gas (Austin)
Consolidated Gas Pacific Gas & Electric Southwest Gas Corp.
Distribution Peoples Gas Light & Coke Utilicorp United
Consumers Power Public Service Co. of Washington Gas Light Co.
Entex (a unit of NorAm) Colorado
WATER
Arvin-Edison Water Storage District Phelps Dodge Morenci
Calleguas Municipal Water District Semitropic Water Storage District
Central Utah Water Conservancy DistrictTulare Irrigation District
Del Webb Corporation U.S. Bureau of Reclamation Indefinite
Metropolitan Water District of Services Contract
Southern California Yuba County Water Agency
HUMAN RESOURCES
As of October 1, 1997, the Company's personnel consisted of approximately 475
employees. The Company's success depends in large part on attracting, retaining
and motivating talented, creative and experienced professionals at all levels.
See "Risk Factors--Attraction and Retention of Employees." In connection with
its hiring efforts, the Company employs internal recruiters, retains several
executive search firms and relies on personal and business contacts to recruit
professionals with significant utility industry or consulting experience. The
Company's consultants are drawn from utility and related industries, including
engineering, construction and telecommunications, and from accounting and other
consulting organizations.
To assist in further development of its employees, the Company has developed
mentor programs. The Company also develops its consultants through a training
program, as well as review of precedent from prior Company engagements. The
Company promotes loyalty and continuity of its consultants by offering packages
of base and incentive compensation and benefits that it believes are
significantly more attractive than those offered by the consulting industry in
general.
In addition to the employees discussed above, the Company supplements its
consultants on certain engagements with independent contractors, many of whom
are former employees of the Company. The Company believes that its practice of
retaining independent contractors on a per-engagement basis provides it with
greater flexibility in adjusting professional personnel levels in response to
changes in demand for its services.
COMPETITION
The market for consulting services to electric and other energy-based
utilities is intensely competitive, highly fragmented and subject to rapid
change. The market includes a large number of participants from a variety of
market segments, including general management or marketing consulting firms,
the consulting practices of national accounting firms, and local or regional
firms specializing in utility services. Many information technology consulting
firms also maintain significant practice groups devoted to the utility
industry. Many of these companies are national and international in scope and
have greater personnel, financial, technical and marketing resources than the
Company. The Company believes that its experience, reputation, industry focus
and broad range of services will enable it to compete effectively in its
marketplace. See "Risk Factors--Intense Competition."
26
<PAGE>
FACILITIES
The Company's headquarters are currently located in 10,000 square feet of
leased office space in Deerfield, Illinois. In addition to its headquarters,
the Company owns or leases office space as listed below. The Company believes
that additional space will be required as its business expands geographically
and that it will be able to obtain suitable space as needed.
The Company maintains principal offices in the following locations:
UNITED STATES INTERNATIONAL
Austin, TX New York City, NY Beijing, PRC
Philadelphia, PA Orlando, FL Copenhagen, Denmark
Boston, MA Phoenix, AZ Jakarta, Indonesia
Chicago, IL Portland, OR Manila, Philippines
Columbus, OH Sacramento, CA Melbourne, Australia
Los Angeles, CA Washington, DC Prague, Czech Republic
LITIGATION
The Company is currently defending two lawsuits that were commenced against
RMI prior to its acquisition by the Company. RMI is one of several co-
defendants in an action involving $25 million in aggregate claims against all
defendants for damages caused by flooding that resulted from a dam break in
Arizona. RMI is a party to the action because it had been engaged to prepare a
structural study of the dam several years prior to the accident. In defending
the claim, RMI asserted that the cause of the dam break was beyond the scope
of its engagement. In November 1997, RMI executed a settlement agreement with
all plaintiffs pursuant to which it agreed to pay approximately $800,000. As
of the date of this Prospectus, no other defendants in the matter have entered
settlement agreements. The settlement agreement is contingent on the governing
Arizona court entering an order barring contribution claims by the other
defendants.The Company is unable to predict whether or when such an order will
be entered. The Company believes that the entire agreed settlement amount and
all attorney's fees associated with the defense will be covered by RMI's
professional liability insurance, less a $100,000 deductible. In addition,
because the lawsuit was identified at the time the Company acquired RMI, RMI's
shareholders indemnified the Company against certain losses resulting from the
lawsuit. A total of 106,859 of the shares issued in the acquisition have been
placed in a specific escrow to be retired at a price of $35.25 in satisfaction
of any such indemnification claims. Based on the foregoing, the Company does
not believe that adverse developments involving this lawsuit should have a
material adverse effect on the Company's financial condition. However, until
the settlement is final, amounts are collected from RMI's insurance carrier
and the specific purchase escrow is released, no assurance can be given.
RMI is also a defendant in an action involving $1.05 million in stated
claims and other unspecified compensatory damages that arose in connection
with a co-generation construction project in Connecticut with respect to which
RMI provided consulting services. The complaint also seeks punitive damages.
The plaintiff claims that the RMI consultant was hired with broad
responsibilities for the design, construction and budgeting of a proposed $1.0
million co-generation project that reached $2.0 million before it was
abandoned. The plaintiff has subsequently filed for bankruptcy and the Company
believes that the action against RMI is the plaintiff's sole asset. The
Company believes that the plaintiff's claims are beyond the scope of RMI's
engagement responsibilities and that the Company has meritorious defenses to
this claim. However, this action is in the early stages of discovery and the
Company is unable to predict the outcome of this matter at this time. RMI's
professional liability insurer has asserted that losses resulting from
supervision of subcontractors and project budgeting as well as punitive
damages claims are generally outside of the scope of coverage of RMI's
policies. However, the Company intends to challenge this position. In
addition, because this lawsuit was identified at the time the Company acquired
RMI, a specific indemnification escrow was established with 56,737 shares to
be retired at a price of $34.75 in satisfaction of indemnification claims.
However, no assurance can be given that the value of the escrowed shares will
be sufficient to cover damages that the Company may ultimately be responsible
for in connection with this lawsuit.
27
<PAGE>
MANAGEMENT
The following is a brief description of the Company's executive officers,
directors and certain key employees:
Robert P. Maher, 47, has served as a director of the Company since April
1991. He has served as Chief Executive Officer and President since January
1996 and as Chairman of the Board since June 1996. From August 1990 to
December 1995, Mr. Maher held various positions with the Company, most
recently as a Senior Vice President working primarily in the information
technology area. From 1988 to August 1990, he was a principal with the
consulting practice of Ernst & Young LLP where he organized and directed
information technology engagements for the regulated segment of the
communications industry practice. From 1983 to 1988, Mr. Maher served as the
Corporate Vice President--Chief Information Officer for Newell Companies Inc.,
a manufacturer of consumer hardgood products distributed through mass
merchandizers, where he was involved in the integration of 23 acquired
companies.
Gerald R. Lanz, 49, has served as a director of the Company since January
1996 and as Chief Operating Officer since June 1996. From December 1994 to
June 1996, Mr. Lanz held various management positions with the Company, most
recently as a Senior Vice President working in the area of strategic and
business practices. From July 1989 to June 1994, he was employed by Ameritech
Corporation in a series of management positions, most recently as Vice
President of Marketing and Business Development for its Small Business
Services division.
James F. Hillman, 40, has served as the Chief Financial Officer and
Treasurer since June 1996. From April 1996 to June 1996, Mr. Hillman served as
a Principal Associate of the Company. From July 1988 to March 1996, he was
employed by Ameritech Corporation, most recently as the Chief Financial
Officer of Ameritech Monitoring Services, Inc.
James T. Ruprecht, 38, has served as a director of the Company since
December 1994, as a Senior Vice President of the Company from January 1994 to
July 1997, and as President of Metzler & Associates since July 1997. From
April 1987 to January 1994, Mr. Ruprecht held various management positions
with the Company, working primarily in the areas of business process re-
engineering, customer operations and supply chain management. Prior to his
employment at the Company, he held various positions with the Northern
Illinois Gas Company, most recently as an Area Manager of Operations.
Peter B. Pond, 53, has served as a director of the Company since November
1996. Mr. Pond has served as the Midwest Head of Investment Banking for
Donaldson, Lufkin & Jenrette Securities Corporation since June 1991.
Mitchell H. Saranow, 52, has served as a director of the Company since
November 1996. Mr. Saranow has served as Chairman of The Saranow Group L.L.C.,
an investment company, since August 1996. He founded Fluid Management, LP, in
April 1987 and served as Chairman until January 1997.
Lee E. Burgess, 48, is the founder of Burgess and has served as its
President since its inception in March 1993. From January 1984 to February
1993, Mr. Burgess was a partner in Metzler & Associates.
Lloyd H. Harvego, 58, is the founder of RMI and has served as its President
since its inception in January 1980.
John J. Reed, 43, is the founder of Reed and has served as its President
since its inception in July 1988.
Barry S. Cain, 55, has accepted employment with the Company as its Vice
President--Chief Administrative Officer and is in the process of transitioning
to the Company on a full-time basis. Mr. Cain is joining the Company from his
position as a member of the law firm of Sachnoff & Weaver, Ltd., where he was
co-chairman of the firm's Business Group and a member of its board of
directors. Prior to joining the Company, Mr. Cain served as the Company's
outside general counsel since its inception.
Charles A. Demirjian, 32, has accepted employment with the Company as its
General Counsel, Vice President and Secretary and is in the process of
transitioning to the Company on a full-time basis. Mr. Demirjian is joining
the Company from his position as a member of the law firm of Sachnoff &
Weaver, Ltd.
28
<PAGE>
Stephen J. Denari, 44, has served as the Company's Vice President-Corporate
Development since July 1997. Prior to joining the Company, Mr. Denari served as
a turn-around specialist for a variety of companies, including Harley Davidson,
DMBS, Inc., American Capital Enterprises, and First National Entertainment. Mr.
Denari has also assisted the Company since 1990 in various specialized projects
for the Company's clients.
The Company has recently expanded its management team to include Messrs.
Cain, Demirjian and Denari in furtherance of its growth strategy. Working in
conjunction with the Company's other officers, Mr. Denari's principal role is
to identify and evaluate acquisition candidates for the Company. In addition to
assisting with the evaluation of acquisition candidates, Mr. Cain will focus on
integrating acquired businesses into the Company, facilitating interaction and
cross-marketing among the Company's subsidiaries and developing and
implementing opportunities to leverage economies of scale.
29
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth, as of November 7, 1997, certain information
regarding the beneficial ownership of outstanding Common Stock by each Selling
Stockholder, both before this offering and as adjusted to reflect the sale of
the shares of Common Stock in this offering. Except where otherwise noted,
each person named in the following table has, to the knowledge of the Company,
sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PRIOR BENEFICIAL OWNERSHIP
TO OFFERING (1) NUMBER AFTER OFFERING (1)
----------------- OF -----------------------
NUMBER OF SHARES NUMBER OF
SELLING STOCKHOLDERS SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Lloyd H. Harvego(2)......... 1,497,593 11.3% 697,593 800,000 5.6%
David J. Donovan(3)......... 1,060,000 8.0 254,000 806,000 5.6
Stephen R. Goldfield(3)..... 1,060,000 8.0 254,000 806,000 5.6
Gerald R. Lanz(4)........... 1,060,000 8.0 254,000 806,000 5.6
James T. Ruprecht(5)........ 1,060,000 8.0 254,000 806,000 5.6
Robert P. Maher(6).......... 943,429 7.1 225,000 718,429 5.0
James R. Blomberg(3)........ 660,000 5.0 158,000 502,000 3.5
Richard J. Metzler(7)....... 600,000 4.5 550,000 50,000 *
Ronald O. Nichols(2)........ 359,557 2.7 130,000 229,557 1.6
Larry R. Gawlik(2).......... 280,028 2.1 101,200 178,828 1.3
John J. Reed(8)............. 162,000 1.2 64,800 97,200 *
Frederick J. Nemergut(8).... 113,400 * 45,360 68,040 *
Wayne J. Oliver(8).......... 108,000 * 43,200 64,800 *
John C. Dalton(8)........... 72,000 * 28,800 43,200 *
Malcolm R. Ketchum(8)....... 60,000 * 24,000 36,000 *
Lee E. Burgess(9)........... 42,181 * 14,847 27,334 *
Mary Louise Zoukis(8)....... 3,000 * 1,200 1,800 *
</TABLE>
- ---------------------
* Less than one percent.
(1) Applicable percentage of ownership as of November 7, 1997 is based upon
13,289,088 shares of Common Stock outstanding. Applicable percentage
ownership after this offering is based upon 14,289,088 shares of Common
Stock outstanding. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission (the "Commission"),
and includes voting and investment power with respect to the shares shown
as beneficially owned. Assumes no exercise of the Underwriters' over-
allotment option to purchase up to an aggregate of 615,000 shares of
Common Stock from certain Selling Stockholders.
(2) Mr. Harvego is President and Messrs. Nichols and Gawlik are Vice
Presidents of RMI. The shares beneficially owned by Messrs. Harvego,
Nichols and Gawlik represent shares received by them in connection with
the Acquisition of RMI by the Company.
(3) Messrs. Donovan, Goldfield and Blomberg are Vice Presidents of Metzler &
Associates and of the Company.
(4) Mr. Lanz is Chief Operating Officer and a director of the Company.
(5) Mr. Ruprecht is the President of Metzler & Associates and a director of
the Company.
(6) Mr. Maher is the Chairman, Chief Executive Officer, President and a
director of the Company and is Chairman, Chief Executive Officer, Vice
President and the sole director of each of the Company's subsidiaries.
(7) Mr. Metzler is a Vice President of Metzler & Associates.
(8) Mr. Reed is the President and Messrs. Nemergut, Oliver, Dalton and Ketchum
and Ms. Zoukis are Vice Presidents of Reed. The shares beneficially owned
by Messrs. Reeds, Nemergut, Oliver, Dalton and Ketchum and Ms. Zoukis
represent shares received by them in connection with the Acquisition of
Reed by the Company.
(9) Mr. Burgess is the President of Burgess. The shares beneficially owned by
Mr. Burgess represent shares received by him in connection with the
Acquisition of Burgess by the Company.
30
<PAGE>
UNDERWRITING
Subject to certain terms and conditions of an Underwriting Agreement dated
December , 1997 (the "Underwriting Agreement"), the underwriters named below
(the "Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Lehman Brothers Inc., BancAmerica Robertson
Stephens and William Blair & Company, L.L.C. (the "Representatives"), have
agreed severally to purchase from the Company and the Selling Stockholders,
and the Company and the Selling Stockholders have agreed severally to sell to
each of the Underwriters, an aggregate of 4,100,000 shares of Common Stock at
the public offering price per share less the underwriting discounts and
commissions set forth on the cover of this Prospectus. The number of shares of
Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Lehman Brothers Inc...................................................
BancAmerica Robertson Stephens........................................
William Blair & Company, L.L.C........................................
Total............................................................. 4,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are purchased.
The Underwriters propose to initially offer the shares of Common Stock in
part directly to the public at the price to the public set forth on the cover
page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow to certain other
dealers, a concession not in excess of $ per share. After this offering,
the offering price and other selling terms may be changed by the Underwriters.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 calendar days after the date of the Underwriting
Agreement, to purchase from time to time, in whole or in part, up to an
aggregate of 615,000 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent that the Underwriters exercise such option, each Underwriter will
become obligated, subject to certain conditions, to purchase its pro rata
portion of such additional shares based on such Underwriter's percentage
underwriting commitment as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company and each of the Selling Stockholders and the executive officers
and directors of the Company has agreed subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any
of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for
a period of 90 days after the date of this Prospectus without the
31
<PAGE>
prior written consent of DLJ. In addition, during such period, the Company has
also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain stockholders of the Company
(including the Selling Stockholders) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock without DLJ's prior written consent.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public
offering of the shares of Common Stock offered hereby in any jurisdiction
where action for that purpose is required. The shares of Common Stock offered
hereby may not be offered or sold, directly or indirectly, nor may this
Prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares of Common Stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this Prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the offering of
the Common Stock and the distribution of this Prospectus. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
shares of Common Stock offered hereby in any jurisdiction in which such an
offer or a solicitation is unlawful.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two-month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
In connection with this offering, certain Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot this offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. These
activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage
in these activities and may end any of these activities at any time.
Peter B. Pond, a director of the Company, is a principal of DLJ. DLJ from
time to time provides and in the past has provided investment banking services
to the Company and is serving as the lead manager in this offering. The
Company granted Mr. Pond options to acquire 3,000 and 9,000 shares,
respectively, on the date of his initial appointment to the Board in 1996 and
upon his re-election at the Company's annual stockholders' meeting in May
1997. These options were granted pursuant to the outside directors' formula
plan under the Company's Long-Term Incentive Plan and become exercisable over
a three-year period at a per share exercise price equal to the fair market
value of the Common Stock on the respective grant dates. In May 1997, the
Company granted Mr. Pond options to acquire an additional 15,000 shares of
Common Stock in connection with Mr. Pond's services and duties as a director.
This later option has an exercise price equal to the fair market value of the
Common Stock on the date of grant. Fifty percent of this later option becomes
exercisable on the second anniversary of the date of grant and twenty-five
percent on each of the third and fourth anniversaries of the date of grant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, and amendments thereto, for
the fiscal year ended December 31, 1996;
32
<PAGE>
2. The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
3. The Company's Current Reports on Form 8-K, and amendments thereto,
dated August 14, 1997 and October 21, 1997; and
4. The description of the Common Stock, contained in the Company's
Registration Statement on Form 8-A filed pursuant to Section 12 of the
Exchange Act and all amendments thereto and reports filed for the purpose
of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13 (c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in any subsequently filed document which is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other
than exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's
principal office: The Metzler Group, Inc., 520 Lake Cook Road, Suite 500,
Deerfield, Illinois 60015, Attn: Investor Relations (telephone: (847) 914-
9100).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference room of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
DC 20549, and at the public reference facilities at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
North-West Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549. In addition, material filed by the Company
may be inspected at the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, DC 20006.
These Company reports, proxy statements and other information may be obtained
from the Commission's web site at www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form S-
3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement. Such
additional information may be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549. The Registration
Statement, including the exhibits and schedules thereto, may be obtained from
the Commission's web site at www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, in each instance, reference is made to
the copy of such contract or other documents filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
such reference.
33
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sachnoff & Weaver, Ltd., Chicago, Illinois. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Winston & Strawn, Chicago, Illinois.
EXPERTS
The historical consolidated financial statements of The Metzler Group, Inc.
as of December 31, 1995 and 1996, and for each of the years in the three-year
period ended December 31, 1996, incorporated by reference herein and elsewhere
in the Registration Statement from the 1996 Form 10-K, have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
The Consolidated Financial Statements of The Metzler Group, Inc. as of
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996, appearing in this Prospectus and the Registration
Statement relating to this Prospectus have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and
which is based in part on the report of Coopers & Lybrand L.L.P., independent
accountants, whose report is included herein. Such Consolidated Financial
Statements are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated balance sheet of Resource Management International, Inc.
and Subsidiaries as of December 31, 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended, incorporated by reference herein and elsewhere in the Registration
Statement from the Company's report on Form 8-K/A, as amended, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
34
<PAGE>
THE METZLER GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of KPMG Peat Marwick LLP........................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996................. F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheet as of September 30, 1997 (unaudited)........... F-19
Consolidated Statements of Operations for the three- and nine-month
periods ended September 30, 1996 and 1997 (unaudited).................... F-20
Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 1996 and 1997 (unaudited).................................. F-21
Notes to Unaudited Consolidated Financial Statements...................... F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Metzler Group, Inc.:
We have audited the consolidated financial statements of The Metzler Group,
Inc. and subsidiaries as of December 31, 1995 and 1996 and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Resource Management International, Inc., a wholly owned subsidiary, which
financial statements reflect total assets constituting 73 percent and 24
percent as of December 31, 1995 and 1996, respectively, and total revenues
constituting 70 percent, 67 percent and 56 percent for each of the years in
the three-year period ended December 31, 1996, respectively, of the related
consolidated totals. Those financial statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for Resource Management International, Inc.,
is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Metzler Group, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
(signed) KPMG Peat Marwick LLP
November 14, 1997
Chicago, Illinois
F-2
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 701,206 $33,536,265
Accounts receivable, net of the allowance for
doubtful accounts of $650,000 and $706,000 in 1995
and 1996, respectively.............................. 12,535,075 14,184,458
Prepaid expenses..................................... 352,367 525,957
Other current assets................................. 167,406 129,211
----------- -----------
Total current assets............................... 13,756,054 48,375,891
----------- -----------
Net property and equipment............................. 2,404,368 2,713,793
Intangible assets, net of the accumulated amortization
of $93,842 and $113,176 in 1995 and 1996,
respectively.......................................... 570,084 749,345
Other assets........................................... 108,177 430,076
----------- -----------
Total assets....................................... $16,838,683 $52,269,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft....................................... $ -- $ 642,124
Lines of credit...................................... 1,205,740 1,685,133
Notes payable to related parties, current portion.... 648,449 1,734,580
Long-term debt, current portion...................... 372,587 606,621
Accounts payable..................................... 1,987,851 2,699,675
Accrued liabilities.................................. 586,139 749,947
Accrued compensation and related costs............... 2,638,549 1,797,676
Income taxes payable................................. 218,085 771,157
Deferred income taxes................................ 740,080 711,626
Other current liabilities............................ 156,427 548,493
----------- -----------
Total current liabilities.......................... 8,553,907 11,947,032
Long-term debt, less current portion................... 1,002,703 1,400,553
Notes payable to related parties, less current portion. 23,724 88,725
Deferred income taxes.................................. 3,229,398 2,305,639
Other noncurrent liabilities........................... 382,939 577,782
----------- -----------
Total liabilities.................................. 13,192,671 16,319,731
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares
authorized; no shares issued or outstanding......... -- --
Common stock, $.001 par value; 75,000,000 shares
authorized; 12,759,458 and 13,467,758 shares issued
and outstanding in 1995 and 1996, respectively...... 12,760 13,468
Additional paid-in capital........................... 857,506 30,014,290
Cumulative translation adjustment.................... -- 6,066
Retained earnings.................................... 2,775,746 5,915,550
----------- -----------
Total stockholders' equity......................... 3,646,012 35,949,374
----------- -----------
Total liabilities and stockholders' equity......... $16,838,683 $52,269,105
=========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues................................ $47,103,998 $55,817,351 $63,553,337
Cost of services........................ 32,059,131 37,085,413 42,315,400
----------- ----------- -----------
Gross profit.......................... 15,044,867 18,731,938 21,237,937
Selling, general and administrative
expenses............................... 14,548,285 17,811,846 15,609,906
----------- ----------- -----------
Operating income...................... 496,582 920,092 5,628,031
----------- ----------- -----------
Other expense (income):
Interest expense...................... 287,556 247,971 578,642
Interest income....................... (11,726) (27,125) (370,750)
Other, net............................ 24,479 19,973 (134,614)
----------- ----------- -----------
Total other expense................. 300,309 240,819 73,278
----------- ----------- -----------
Income before income tax expense
(benefit).............................. 196,273 679,273 5,554,753
Income tax expense (benefit).......... 262,541 392,908 (180,351)
----------- ----------- -----------
Net income (loss)....................... $ (66,268) $ 286,365 $ 5,735,104
=========== =========== ===========
Pro forma income data (unaudited):
Net income as reported................ $ 286,365 $ 5,735,104
Pro forma adjustments to income tax
expense.............................. (1,110,117) (1,799,403)
Pro forma adjustments to executive
compensation expense................. 2,775,293 (1,019,460)
----------- -----------
Pro forma net income................ 1,951,541 2,916,241
=========== ===========
Pro forma net income per share...... $ 0.15 $ 0.23
=========== ===========
Shares used in computing pro forma net
income per share....................... 12,688,451 12,953,618
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------- ------------------- PAID-IN TRANSLATION RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ------ ---------- ------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- -- 3,053,904 $ 3,054 $ 691,258 $ -- $ 2,588,650 $ 3,282,962
Retroactive restatement
for a 9,714.285 to 1
stock split in the form
of a common stock
dividend effective
September 20, 1996..... -- -- 9,616,152 9,616 (9,616) -- -- --
--- --- ---------- ------- ----------- ------ ----------- -----------
As restated............. -- -- 12,670,056 12,670 681,642 -- 2,588,650 3,282,962
Net loss................ -- -- -- -- -- -- (66,268) (66,268)
Purchase and retirement
of common stock........ -- -- (619,027) (619) (285,625) -- (13,001) (299,245)
Issuance of common
stock.................. -- -- 478,679 479 255,786 -- -- 256,265
--- --- ---------- ------- ----------- ------ ----------- -----------
Balance at December 31,
1994................... -- -- 12,529,708 12,530 651,803 -- 2,509,381 3,173,714
Net income.............. -- -- -- -- -- -- 286,365 286,365
Purchase and retirement
of common stock........ -- -- (23,902) (24) (29,849) -- (20,000) (49,873)
Issuance of common
stock.................. -- -- 253,652 254 235,552 -- -- 235,806
--- --- ---------- ------- ----------- ------ ----------- -----------
Balance at December 31,
1995................... -- -- 12,759,458 12,760 857,506 -- 2,775,746 3,646,012
Net income.............. -- -- -- -- -- -- 5,735,104 5,735,104
Purchase and retirement
of common stock........ -- -- (1,932,706) (1,933) (8,157,929) -- (395,300) (8,555,162)
Issuance of common
stock.................. -- -- 2,641,006 2,641 37,314,713 -- -- 37,317,354
S-corporation
distributions.......... -- -- -- -- -- -- (2,200,000) (2,200,000)
Foreign currency
translation adjustment. -- -- -- -- -- 6,066 -- 6,066
--- --- ---------- ------- ----------- ------ ----------- -----------
Balance at December 31,
1996................... -- -- 13,467,758 $13,468 $30,014,290 $6,066 $ 5,915,550 $35,949,374
=== === ========== ======= =========== ====== =========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (66,268) $ 286,365 $ 5,735,104
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization.......... 805,388 1,071,984 1,063,986
Loss on sale of property and equipment. 25,246 93,115 71,225
Provision for bad debts................ 436,060 815,860 253,306
Deferred income taxes.................. 186,846 194,394 (952,213)
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable.................. (536,421) (1,997,479) (1,768,689)
Prepaid expenses and other assets.... 138,011 (229,546) (135,395)
Accounts payable and accrued
liabilities......................... 195,054 622,901 875,632
Accrued compensation and related
costs............................... (469,762) 662,592 (840,873)
Income taxes payable................. 9,409 208,676 553,072
Other current liabilities............ (235,144) (28,287) 392,066
--------- ----------- -----------
Net cash provided by operating
activities.............................. 488,419 1,700,575 5,247,221
--------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment..... (855,763) (620,359) (1,284,156)
Sale of property and equipment......... 20,500 5,183 46,743
Cash paid for acquisitions............. -- (80,000) (313,000)
Other, net............................. 300,532 (56,210) (285,156)
--------- ----------- -----------
Net cash used in investing activities.... (534,731) (751,386) (1,835,569)
--------- ----------- -----------
Cash flows from financing activities:
Purchase of common stock............... (299,245) (49,873) (8,555,162)
Sale of common stock................... 256,265 235,806 37,317,354
Repayment of notes payable to related
parties............................... (60,649) (22,043) (648,449)
Proceeds from notes payable to related
parties............................... 213,077 23,724 1,799,581
Repayment of long-term debt............ (524,487) (691,445) (826,449)
Proceeds from long-term debt........... 700,000 226,552 1,458,333
Net borrowings on lines of credit...... (84,260) 255,000 479,393
Distributions to former S-corporation
stockholders.......................... -- -- (2,200,000)
Increase (reduction) in book overdraft. 172,328 (482,855) 642,124
Payments for obligations under capital
lease................................. (180,396) (21,277) (43,318)
--------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 192,633 (526,411) 29,423,407
--------- ----------- -----------
Net increase in cash and cash
equivalents............................. 146,321 422,778 32,835,059
Cash and cash equivalents at beginning of
year.................................... 132,107 278,428 701,206
--------- ----------- -----------
Cash and cash equivalents at end of year. $ 278,428 $ 701,206 $33,536,265
========= =========== ===========
Supplemental information:
Interest payments...................... $ 358,024 $ 252,797 $ 532,383
Income tax payments.................... $ 112,088 $ 17,469 $ 228,010
========= =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Metzler Group, Inc. (the "Company") is a leading provider of consulting
services to energy-based and related industries. The Company's services
include: (i) management consulting; (ii) information technology; (iii)
economic and regulatory; and (iv) engineering and technical. The Company's
operating subsidiaries include Metzler & Associates, Inc. ("Metzler &
Associates"), Resource Management International, Inc., ("RMI") and Reed
Consulting Group, Inc. ("Reed"). The Company is headquartered in Chicago,
Illinois and has regional offices in various cities within the United States,
Denmark, Australia, Czechoslovakia Republic, China, Indonesia, and the
Philippines.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries: Metzler & Associates, RMI, Reed, Bookman-Edmonston
Engineering, Inc., RMI Utility Services, Synergic Resources Corporation (SRC)
and Synergic Resources Group (SRC Group). All significant intercompany
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash equivalents are comprised of highly liquid instruments with original
maturities of 90 days or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line and declining balance methods based on
the estimated useful lives, ranging from three to forty years, of the various
classes of property and equipment. Depreciation related to capital lease
obligations is amortized over the shorter of their useful lives or the term of
the related leases by use of the straight-line method.
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill (excess of purchase price
over the fair value of net assets acquired) and covenants not to compete.
Goodwill is being amortized using the straight-line method from ten to forty
years. The non-compete covenants are recorded at cost and are being amortized
over their respective terms of 33 to 72 months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximates fair
value because of the short maturity of those instruments.
REVENUE RECOGNITION
The Company recognizes revenues as the related services are provided.
Certain contracts are accounted for on the percentage of completion method
whereby revenues are recognized based upon costs incurred in relation to total
estimated costs at completion. Provision is made for the entire amount of
estimated losses, if any, at the time when they are known.
F-7
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK BASED COMPENSATION
The Company utilizes the intrinsic value-based method of accounting for its
stock-based compensation arrangements.
INCOME TAXES
Income taxes, including pro forma calculations, are accounted for in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement 109). Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Prior to January 1, 1996, Metzler & Associates had operated as a C-
corporation. Effective January 1, 1996, the stockholders of Metzler &
Associates elected to be taxed under Subchapter S of the Internal Revenue
Code. During such period, federal income taxes were the responsibility of
Metzler & Associates' stockholders as were certain state income taxes. As of
the effective date of the election, Metzler & Associates was responsible for
Federal built-in-gain taxes to the extent applicable. Accordingly, the
consolidated statement of operations for the year ended December 31, 1996
provides for such taxes. The S-corporation election terminated in connection
with the consummation of the initial public offering of the Company's common
stock on October 4, 1996.
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per common and common equivalent share is computed
based on the weighted average of 12,688,451 common and common equivalent
shares outstanding during the year ended December 31, 1995 and 12,953,618
common and common equivalent shares outstanding during the year ended December
31, 1996.
Net income per share is computed using the weighted average number of shares
of common stock and dilutive common equivalent shares outstanding during the
period using the treasury stock method. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common equivalent
shares issued by the Company during the twelve-month period prior to the
initial public offering have been included in the calculation of common and
common equivalent shares using the treasury stock method and the initial
public offering price per share as if they were outstanding for all periods
presented.
The pro forma adjustments during the years 1995 and 1996 reflect the impact
of a Metzler & Associates compensation plan effective July 1, 1996. The pro
forma adjustments for 1995 include a decrease to officer compensation expense
of $2,775,293. The pro forma adjustments for 1996 include an increase to
officer compensation expense of $1,019,460.
The pro forma adjustments for 1995 include additional federal and state
income tax expense of $1,110,117, that would have been required had Metzler &
Associates' compensation expense decreased in 1995 to the level commensurate
with the compensation plan adopted effective July 1, 1996, as noted above. The
pro forma adjustments for 1996 include federal and additional state income tax
expense of $1,799,403 that would have been required had Metzler & Associates
not made the S-corporation election effective January 1, 1996, partially
offset by a reduction in taxes that would have been incurred had Metzler &
Associates adopted the officers' compensation plan referred to above.
F-8
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates in
which it is reasonably possible that there could be a change in the estimates
in the near term include the calculation of contingency reserves and revenue
recognized on long-term contracts.
3. BUSINESS COMBINATIONS
On July 31, 1997, the Company issued 2,137,178 shares of common stock for
substantially all the outstanding common stock of Resource Management
International, Inc. (RMI). Additionally, on August 15, 1997, the Company issued
518,400 shares of common stock for substantially all of the outstanding common
stock of Reed Consulting Group, Inc. (Reed). Each of the transactions were
accounted for as a pooling of interests. The consolidated financial statements
have been restated as if RMI and Reed had been combined for all periods
presented.
The following information shows total revenues and net income (loss) of The
Metzler Group, Inc. and the combining companies during the three years ended
December 31, 1994, 1995, and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
METZLER (1) RMI AND REED TOTAL
<S> <C> <C> <C>
Revenues................................ $10,419,878 $36,684,120 $47,103,998
Net income (loss)....................... (183,774) 117,506 (66,268)
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
METZLER (1) RMI AND REED TOTAL
<S> <C> <C> <C>
Revenues................................ $13,459,725 $42,357,626 $55,817,351
Net income (loss)....................... (473,232) 759,597 286,365
Pro forma net income (loss) (2)......... 1,191,944 759,597 1,951,541
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------
METZLER (1) RMI AND REED TOTAL
<S> <C> <C> <C>
Revenues................................ $22,092,969 $41,460,368 $63,553,337
Net income (loss)....................... 6,854,149 (1,119,045) 5,735,104
Pro forma net income (loss) (2)......... 4,035,286 (1,119,045) 2,916,241
</TABLE>
- ---------------------
(1) Represents the historical data of The Metzler Group, Inc. without
considering the effect of the poolings.
(2)See discussion of pro forma adjustments in Note 2.
In May 1996, RMI purchased the outstanding shares of SRC and SRC Group. The
acquired companies provide consulting and technical research services to
governmental agencies, public and private utilities, research institutions and
industrial firms located throughout the world. RMI paid approximately $313,000
in cash for combined net assets of approximately $134,000. The acquisition has
been accounted for by the purchase method of accounting. The excess of the
purchase price over the fair value of net assets acquired has been recorded as
goodwill which is being amortized on a straight-line basis over ten years. The
operating results of the acquired companies are included in RMI's results of
operations from the date of acquisition.
F-9
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the SRC and SRC Group purchase agreement, RMI entered into
employment and covenant not to compete agreements with certain officers of the
acquired companies. These agreements provide for the officers to receive
salaries totaling approximately $600,000 annually through May 1998, bonus
payments totaling $480,000 and covenant payments totaling approximately
$120,000. The covenant payments are to be paid out with interest in monthly
installments over a 36-month period.
During 1995, the Company issued 59,366 shares of Common Stock in exchange
for the remaining minority shareholders' stock of Bookman-Edmonston
Engineering, Inc. (B-E). The fair market value of the B-E stock approximated
the carrying value. No gain or loss was recorded on the transaction.
In addition, in 1995 RMI purchased all of the outstanding stock of JanCom
Engineering Company and Robert E. Meyer Consultants, Inc. The acquired
companies provide environmental engineering services and are based in the
western United States. RMI paid $80,000 in cash for assets and liabilities of
approximately $377,000 and $297,000, respectively. The acquisitions have been
accounted for by the purchase method of accounting. The excess of the fair
market value of net assets acquired over the purchase price reduced long-term
assets. The operating results of the acquired companies are included in RMI's
consolidated results of operations from the dates of acquisition. The purchase
agreements provide covenants for the former shareholders not to compete
totaling $520,000. Additionally, one of the purchase agreements provides for
monthly salaries to the former shareholders of $8,125 through December 1997,
increased each year based upon the Consumer Price Index.
4. INITIAL PUBLIC OFFERING
On October 4, 1996 the Company completed an initial public offering of its
common stock in which 2,300,000 shares were sold by the Company, along with an
additional over-allotment of 285,000 shares, resulting in proceeds of
approximately $37 million, net of issuance costs of approximately $4 million.
Concurrent with the completion of the initial public offering and in
accordance with an agreement entered into during July 1996 between the Company
and its founding shareholder, the Company redeemed 1,714,285 shares of the
founding shareholder's common stock and issued to the shareholder a promissory
note for $7,975,000. See Note 13 of the Notes to Consolidated Financial
Statements regarding repayment of the promissory note.
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, as of December 31 consisted of:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Land and buildings................................ $ 370,000 $ 370,000
Furniture, fixtures and equipment................. 6,081,525 7,151,716
Computer software................................. 55,109 58,729
Leasehold improvements............................ 915,994 1,040,121
Transportation equipment.......................... 409,933 386,521
Other............................................. 32,500 50,110
---------- ----------
7,865,061 9,057,197
Less: accumulated depreciation and amortization. (5,460,693) (6,343,404)
---------- ----------
$2,404,368 $2,713,793
========== ==========
</TABLE>
F-10
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LINES OF CREDIT
The Company had $4,500,000 and $4,900,000 available under lines of credit at
December 31, 1995 and 1996, respectively. Amounts outstanding at December 31
are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Line of credit, maximum borrowings of $800,000 at
December 31, 1995 and $1,200,000 at December 31,
1996, expired on December 31, 1996.............. $ 405,740 $ --
$2,500,000 line of credit, interest payable
monthly at the bank's prime rate (8.25% at
December 31, 1996) plus .375%, collateralized by
substantially all assets of RMI, outstanding
balance due on demand........................... -- 590,133
$1,000,000 line of credit, interest payable
monthly at the bank's prime rate (8.25% at
December 31, 1996) plus 1.0%, collateralized by
substantially all assets of RMI, outstanding
balance due on April 30, 1997................... -- 1,000,000
$200,000 line of credit, interest payable at
bank's prime rate (8.25% at December 31, 1996)
plus 1.0%, collateralized by all assets of Reed,
guaranteed by officers of Reed.................. -- 95,000
$2,500,000 line of credit, paid in May 1996...... 800,000 --
---------- ----------
$1,205,740 $1,685,133
========== ==========
</TABLE>
Covenants under the lines of credit and term loan agreements contain
provisions that limit capital expenditures or incurrence of new debt or leases,
require maintaining profitable operations, minimum levels of net worth,
tangible net worth, and minimum ratio of current assets to current liabilities.
At December 31, 1996, the Company had letters of credit available of $800,000
of which $255,272 has been utilized. The letters of credit expire on April 30,
1997.
7. LEASE COMMITMENTS
The Company leases its office facilities and certain equipment under
operating and capital lease arrangements which expire at various dates through
2002 with renewal options of two to five years.
OPERATING LEASES
The Company leases office facilities under noncancelable operating leases
which include fixed or minimum payments plus, in some cases, scheduled base
rent increases over the term of the lease and additional rents based on the
Consumer Price Index. Certain leases provide for monthly payments of real
estate taxes, insurance and other operating expenses applicable to the
property. The total amount of the base rent payments is being charged to
expense as incurred. In addition, the Company leases equipment under
noncancelable operating leases.
F-11
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum annual lease payments, for the years subsequent to 1996 and in
the aggregate, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
<S> <C>
1997.................................. $ 3,206,142
1998.................................. 2,896,139
1999.................................. 2,135,844
2000.................................. 2,106,739
2001.................................. 1,993,257
Thereafter............................ 98,319
-----------
$12,436,440
===========
</TABLE>
The Company also subleases some of these buildings to others under
noncancelable operating leases. The leases expire through November 1998,
without renewal options. Future minimum rentals to be received are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
<S> <C>
1997..................................... $ 89,832
1998..................................... 77,023
--------
$166,855
========
</TABLE>
Rent expense for operating leases entered into by the Company and charged to
operations amounted to $2,631,415, $2,660,513 and $3,072,500 for the years
ended December 31, 1994, 1995, and 1996, respectively.
CAPITAL LEASES
The Company leases certain equipment under capital lease agreements which
expire through May 2000. Future minimum payments under the capital lease
agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
<S> <C>
1997............................................................ $ 80,422
1998............................................................ 75,719
1999............................................................ 61,614
2000............................................................ 31,111
--------
Net minimum rentals............................................. 248,866
Less interest portion........................................... (44,880)
--------
Present value of net minimum rentals at December 31, 1996....... $203,986
========
</TABLE>
F-12
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
<S> <C> <C> <C>
Federal:
Current.................................. $(19,069) $168,171 $ 477,323
Deferred................................. 167,044 146,215 (574,015)
-------- -------- ---------
Total.................................... 147,975 314,386 (96,692)
-------- -------- ---------
State:
Current.................................. 74,137 43,626 219,806
Deferred................................. 40,429 34,896 (303,465)
-------- -------- ---------
Total.................................... 114,566 78,522 (83,659)
-------- -------- ---------
Total federal and state income tax expense
(benefit)................................. $262,541 $392,908 $(180,351)
======== ======== =========
</TABLE>
Income tax expense (benefit) differs from the amounts estimated by applying
the statutory income tax rates to income (loss) before income tax expense
(benefit) as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995 1996
<S> <C> <C> <C>
Federal tax at statutory rate.................. $ 68,316 $238,007 $1,943,496
State tax at statutory rate, net of federal tax
benefits...................................... 25,159 52,864 262,242
Effect of nontaxable interest and dividends.... -- -- (88,000)
Effect of nondeductible expenses............... 101,159 63,791 80,246
Effect of S-corporation election............... (1,118) 81,303 (2,260,499)
Other.......................................... 69,024 (43,058) (117,837)
-------- -------- ----------
$262,541 $392,908 $(180,351)
======== ======== ==========
</TABLE>
F-13
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes result from temporary differences between years in the
recognition of certain expense items for income tax and financial reporting
purposes. The source and income tax effect of these differences are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................ $ -- $ 6,365
State income taxes..................................... 264,911 157,076
Accrued rent........................................... 61,595 201,240
Alternative minimum tax carryforward................... 36,663 35,426
Other.................................................. -- 8,933
---------- ----------
Total deferred tax assets................................ $ 363,169 $ 409,040
---------- ----------
Deferred tax liabilities:
Built-in gain--resulting from the change in the method
of accounting used for tax purposes from the cash
basis to the accrual basis............................ $ -- $ 120,000
Accrual to cash adjustment............................. 3,902,158 2,984,306
Depreciation--resulting from the difference between
using straight-line and accelerated methods........... 193,335 112,436
Other assets Investments in partnerships............... 226,491 200,532
Other.................................................. 10,663 9,031
---------- ----------
Deferred tax liabilities................................. 4,332,647 3,426,305
---------- ----------
Net deferred tax liabilities............................. $3,969,478 $3,017,265
========== ==========
</TABLE>
9. LONG-TERM INCENTIVE PLAN
On June 30, 1996, the Company adopted a Long-Term Incentive Plan which
provides for common stock, common stock-based, and other performance incentives
to employees, consultants, directors, advisors, and independent contractors of
the Company. The maximum number of shares of common stock which may be issued
and sold under the plan is 2,000,000 shares. As of December 31, 1996, the
Company has 459,591 options outstanding at a weighted average exercise price of
$15.53 per share which was equal to the estimated fair market value of common
stock at the dates of grant. As of December 31, 1996 no options were
exercisable. In general, the options are exercisable in three or four annual
installments commencing on the second anniversary of the date of grant.
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for the plan been
determined based on the fair value at the grant dates for awards under the plan
consistent with the method of FASB Statement 123, Accounting for Stock-Based
Compensation, (FASB 123) the Company's compensation expense for the year ended
December 31, 1996 would have been increased by $102,000, net of related income
taxes. As a result, the Company's pro forma net earnings available to common
stockholders and earnings per common and common equivalent shares would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
<S> <C>
Pro forma earnings per common and common equivalent share:
As reported................................................ $2,916,241
Pro forma--fair value method............................... $2,814,241
Pro forma net earnings available to common stockholders:
As reported................................................ $ 0.23
Pro forma--fair value method............................... $ 0.22
</TABLE>
F-14
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of calculating compensation cost under FASB 123, the fair value
of each option grant is estimated as of the date of grant using the Black-
Scholes option pricing model. The following weighted average assumptions were
used in the model for grants made in 1996:
<TABLE>
<S> <C>
Expected volatility............................................... 40%
Risk free interest rate........................................... 6.5%
Dividend yield.................................................... 0%
Expected lives.................................................... 3 years
</TABLE>
Additional information on the shares subject to options is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE EXERCISE
SHARES PRICE
<S> <C> <C>
Options outstanding at December 31, 1995...... 0 $ --
Granted....................................... 483,258 15
Exercised..................................... 0 --
Forfeited..................................... (23,667) 12
--------
Options outstanding at December 31, 1996...... 459,591 16
--------
Options exercisable at December 31, 1996...... 0 --
======== ====
Per share weighted average fair value of
options granted during the year.............. $ 3
========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE
<S> <C> <C>
$12 to $16................................... 341,425 $12
$20 to $24................................... 2,000 22
$24 to $28................................... 116,166 26
-------
459,591 $16
======= ===
</TABLE>
10. EMPLOYEE BENEFIT PLANS
As of January 1, 1996, the Company maintained four profit sharing plans
(Profit Sharing and Savings Plan and Trust, RMI Profit Sharing Plan, Bookman-
Edmonston Profit Sharing Plan, and Robert E. Meyer Consultants, Inc. Profit
Sharing Plan) and two money purchase pension plans (RMI, Inc. Money Purchase
Pension Plan and RMI Utility Services Money Purchase Pension Plan). In
connection with RMI's acquisition of SRC Group and SRC as discussed in Note 3,
RMI assumed the SRC Profit Sharing Plan.
The Company amended to suspend participation, cease benefit accruals and
terminate the Robert E. Meyer Consultants, Inc. Profit Sharing Plan and the
RMI, Inc. Money Purchase Pension Plan in 1996, and the SRC Profit Sharing Plan
effective January 1, 1997. Eligible employees under these plans became 100%
vested upon termination.
Effective July 1996, the Company amended the RMI and Bookman-Edmonston
Profit Sharing Plans converting these plans to the RMI, Inc. 401(k) and Profit
Sharing Plan. Former employees of Robert E. Meyer Consultants, Inc. also
became eligible to participate in the RMI, Inc. 401(k) and Profit Sharing
Plan. SRC employees became eligible to participate in the RMI, Inc. 401(k) and
Profit Sharing Plan effective January 1, 1997.
F-15
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the RMI, Inc. 401(k) and Profit Sharing Plan, eligible employees may
contribute up to 12% of their compensation to these plans and the Company
matches a percentage of employees' contributions as determined by the Board of
Directors. The Company may also make an annual profit sharing contribution at
its discretion. Employees are eligible to participate after age 21 and six
months of service. After the second year of service, vesting of all
contributions made by the Company occurs ratably at 20% per year.
The Profit Sharing and Savings Plan and Trust covers certain employees upon
the completion of one year of service. Participants may contribute up to 15%
of their eligible compensation. The Company, at its discretion, matches
participant contributions as defined within the Savings Plan. In addition, the
Company, at its discretion, makes profit sharing contributions.
Under the RMI Utility Services Money Purchase Pension Plan, the Company
contributes the greater of 5.72% or the OASDI limit of the employees' total
wages. Only union employees may participate and are eligible upon the date of
employment and after the first year of service, contributions made by the
Company vest 100%.
The Company, as sponsor of the plans, uses independent third parties to
provide administrative services to the plans. The Company has the right to
terminate plans at any time.
The Company contributions to the various plans which were charged to
operations were the following:
<TABLE>
<CAPTION>
PERIOD ENDED TOTAL
<S> <C>
December 31, 1994.............................................. $1,217,748
December 31, 1995.............................................. 1,384,083
December 31, 1996.............................................. 1,356,014
</TABLE>
11. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Term loan to bank, variable interest at the bank's prime
rate (8.25% at December 31, 1996) plus 1.0%,
collateralized by substantially all assets of RMI,
monthly principal and interest installments of $36,458,
through April 2000...................................... $ -- $1,458,333
Term loan to bank, variable interest at the bank's prime
rate plus 1.25%, collateralized by substantially all
assets of RMI, paid in May 1996......................... 490,000 --
Term loan to bank, variable interest at the bank's prime
rate plus 1.25%, collateralized by substantially all
assets of RMI, paid in May 1996......................... 262,500 --
Covenant not to compete, payable in equal monthly
installments of $5,000 including imputed interest of
10%, through December 1997.............................. 209,924 56,872
Covenant not to compete, payable in equal annual
installments of $60,000 plus interest of 4%, commencing
July 1997 through July 2001............................. 300,000 300,000
Covenants not to compete, payable in equal monthly
installments from $3,220 to $3,864 plus interest of 6%,
payable through May 1999................................ -- 97,198
Mortgage payable, interest at 10%, collateralized by land
and building, payable in equal monthly installments of
principal and interest of $2,095, due in 2001........... 108,442 94,771
Other.................................................... 4,424 --
---------- ----------
1,375,290 2,007,174
Less portion due within one year......................... 372,587 606,621
---------- ----------
$1,002,703 $1,400,553
========== ==========
</TABLE>
F-16
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future aggregate annual maturities of long-term debt as of December 31,
1996, are as follows:
<TABLE>
<S> <C>
1997................................... $ 606,621
1998................................... 566,134
1999................................... 542,681
2000................................... 228,461
2001................................... 63,277
----------
$2,007,174
==========
</TABLE>
12. RELATED-PARTY TRANSACTIONS
During January 1996, the Company entered into note payable agreements with
two officers. The notes, each with a principal amount of $500,000, bear
interest at a rate of 10%. The notes matured on December 31, 1996 and were
repaid on January 2, 1997. In addition, the Company has notes payable
outstanding to related parties including RMI and Reed employees, officers, and
stockholders. The notes are without collateral, bear interest at rates ranging
from 5% to 10%, and mature during 1997 and 1998.
In May 1996, the Company made an advance of $725,000 to an officer as part
of an employment agreement and entered into a note receivable agreement with
the officer. The note receivable bore interest at a rate of 6%. The note, plus
accrued interest, was repaid on November 8, 1996.
During July 1996, the Company entered into an agreement with its founding
shareholder, who, at that time, was the beneficial owner of 15% of the
Company's common stock, to redeem 1,714,285 shares of the shareholder's common
stock in exchange for a promissory note in the amount of $7,975,000. The
redemption value per share was negotiated by the Company's other executive
officers, who collectively owned the remaining 85% of the Company's common
stock at the time of the agreement. The Company redeemed the stock on October
4, 1996 in accordance with the agreement and repaid the promissory note within
30 days of the redemption.
RMI leases office space from a company in which a related party holds a
minority interest. Rent expenses amounted to $74,412 for the year ended
December 31, 1996.
13. SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES AND CASH FLOW
INFORMATION
During 1996, RMI acquired SRC and SRC Group (Note 3) which included non-
compete agreements with the former owners. RMI recorded the fair value of
intangible assets and notes payable totaling $115,934. Additionally, as part
of these acquisitions RMI recorded equipment under capital leases of $207,484
and recorded an obligation under capital lease of the same amount.
During 1995, the Company issued 59,366 shares of common stock in exchange
for 950 shares of Bookman Edmonston Engineering, Inc. stock valued at
$174,727. As a result, the minority interest was eliminated as of the date of
the exchange.
During 1995, RMI acquired two companies which included non-compete
agreements with the former owners. RMI recorded the fair value of intangible
assets and notes payable totaling $481,299.
In 1995, Metzler & Associates, exchanged like-kind property amounting to
$28,500.
14. CONTINGENCIES
The Company is currently defending two lawsuits regarding the preparation of
engineering reports that were commenced against RMI prior to its acquisition
by the Company. Management believes that the subsidiary acted
F-17
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
in accordance with their contract and is not liable. Although it is too early
to conclude on the outcome of these actions, management believes that it is
unlikely that the outcome will have a material impact on the financial
condition of the Company. Management intends to defend these actions
vigorously.
15. SUBSEQUENT EVENTS (UNAUDITED)
During 1997, the Company issued 42,181 shares of common stock for all of the
outstanding common stock of Burgess Consulting, Inc. (BCI). The stockholder's
equity and operations of BCI were not material in relation to those of the
Company. As such, the Company recorded the combination by restating
stockholders' equity as of January 1, 1997 without restating prior period
statements of operations to reflect the pooling-of-interest combination.
Also during 1997, the Company's Board of Directors approved an amendment to
the Company's Amended and Restated Certificate of Incorporation to increase
the authorized Common Stock from 15.0 million shares to 75.0 million shares
and an amendment to the Company's Long-Term Incentive Plan to increase the
number of shares available for grants thereunder from 1.3 million shares to
2.0 million shares. The Company's shareholders have not yet approved such
increases. These increases in the number of shares have been included in the
accompanying consolidated financial statements.
F-18
<PAGE>
THE METZLER GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER
30,
1997
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents........................................ $20,611,754
Accounts receivable, net......................................... 19,078,159
Prepaid expenses................................................. 1,054,218
Other current assets............................................. 326,112
-----------
Total current assets........................................... 41,070,243
Property and equipment, net........................................ 2,487,504
Intangible assets.................................................. 743,710
Other assets....................................................... 250,921
-----------
Total assets................................................... $44,552,378
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Book overdraft................................................... $ --
Line of credit................................................... 1,191,924
Notes payable to related parties................................. --
Current portion of long-term debt................................ 183,780
Accounts payable................................................. 1,941,442
Accrued liabilities.............................................. 860,400
Accrued compensation and related costs........................... 3,277,944
Income taxes payable............................................. 1,993,405
Deferred income taxes............................................ 425,545
Other current liabilities........................................ 594,141
-----------
Total current liabilities...................................... 10,468,581
Long-term debt, less current maturities............................ 369,724
Notes payable to related parties, less current portion............. --
Deferred income taxes.............................................. 2,639,268
Other noncurrent liabilities....................................... 257,624
-----------
Total liabilities.............................................. 13,735,197
-----------
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized, no
shares issued or outstanding...................................... --
Common stock, $.001 par value; 75,000,000 shares authorized,
13,287,449 shares issued and outstanding ......................... 13,287
Additional paid-in capital......................................... 21,266,146
Retained earnings.................................................. 9,537,748
-----------
Total stockholders' equity..................................... 30,817,181
-----------
Total liabilities and stockholders' equity......................... $44,552,378
===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-19
<PAGE>
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenues................... $16,189,157 $21,139,574 $47,160,440 $59,417,571
Cost of services........... 10,824,079 12,066,962 30,776,522 35,169,117
----------- ----------- ----------- -----------
Gross profit............... 5,365,078 9,072,612 16,383,918 24,248,454
Merger related costs....... -- 1,311,959 -- 1,311,959
Selling, general and
administrative expenses... 3,885,602 4,295,668 10,651,889 13,233,069
----------- ----------- ----------- -----------
Operating income........... 1,479,476 3,464,985 5,732,029 9,703,426
Other (income) expense,
net....................... 141,704 (190,633) 290,812 (619,811)
----------- ----------- ----------- -----------
Income before income tax
expense (benefit)......... 1,337,772 3,655,618 5,441,217 10,323,237
Income tax expense
(benefit)................. (86,080) 1,327,424 (71,342) 3,851,879
----------- ----------- ----------- -----------
Net income................. $ 1,423,852 $ 2,328,194 $ 5,512,559 $ 6,471,358
=========== =========== =========== ===========
Pro forma income data :
Net income as reported..... $ 1,423,852 $ 2,328,194 $ 5,512,559 $ 6,471,358
Pro forma adjustments to
income tax expense........ (602,759) -- (1,799,403) --
Pro forma adjustments to
executive compensation
expense................... -- -- (1,019,460) --
----------- ----------- ----------- -----------
Pro forma net income....... $ 821,093 $ 2,328,194 2,693,696 6,471,358
=========== =========== =========== ===========
Pro forma net income per
share..................... $ 0.07 $ 0.18 $ 0.22 $ 0.49
=========== =========== =========== ===========
Shares used in computing
pro forma net income per
share..................... 12,458,781 13,287,449 12,458,781 13,285,115
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-20
<PAGE>
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 5,512,559 $ 6,471,358
Adjustments to reconcile net income to net cash
provided by operating activities, net of
acquisition:
Depreciation and amortization..................... 737,501 769,893
Loss on sale of property and equipment............ 665 --
Deferred income taxes............................. (1,218,690) (18,452)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable............................. (2,809,909) (4,718,923)
Prepaid expenses and other current assets....... (867,800) (725,162)
Accounts payable and accrued liabilities........ 159,575 (647,780)
Accrued compensation and related costs.......... 1,988,107 1,480,268
Other current liabilities....................... 861,129 45,648
Taxes payable................................... (77,916) 1,222,248
----------- -----------
Net cash provided by operating activities........... 4,285,221 3,879,098
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment................ (803,617) (537,969)
Other, net........................................ (147,773) (83,201)
Cash paid for acquisitions........................ (313,000) --
----------- -----------
Net cash used in investing activities............... (1,264,390) (621,170)
----------- -----------
Cash flows from financing activities:
Issuance of common stock.......................... -- 155,562
Repurchase of common stock........................ (618,476) --
Reduction in book overdraft....................... -- (642,124)
Issuance of notes payable......................... 1,128,592 --
Principal payments on notes payable............... (324,082) (1,453,670)
Payments for obligations under capital lease...... (35,902) (57,802)
Net repayments of lines of credit................. (106,323) (493,209)
Issuance of notes payable to officers............. 1,000,000 --
Repayment of notes payable to officers............ (536,340) (1,823,305)
Issuance of notes receivable to officers.......... (744,848) --
Purchase of dissenting shares issued in business
combinations..................................... -- (8,867,891)
Distribution to former S-corporation stockholders. (2,200,000) (3,000,000)
----------- -----------
Net cash used in financing activities............. (2,437,379) (16,182,439)
----------- -----------
Net increase (decrease) in cash................... 583,452 (12,924,511)
Cash and cash equivalents at beginning of period.... 701,206 33,536,265
----------- -----------
Cash and cash equivalents at end of period.......... $ 1,284,658 $20,611,754
=========== ===========
Supplemental information:
Interest payments................................. $ 369,649 $ 262,561
Income tax payments............................... $ 165,763 $ 2,595,077
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-21
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of The
Metzler Group, Inc. (the "Company") have been prepared pursuant to the rules
of the Securities and Exchange Commission and do not include all of the
information and note disclosures required by generally accepted accounting
principles. The information furnished herein includes all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of results for these interim
periods.
The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1997.
The consolidated financial statements include the accounts of The Metzler
Group, Inc. and its subsidiaries. As discussed in Note 3, during the three
months ended September 30, 1997, the Company entered into business
combinations with Resource Management International, Inc. ("RMI") and Reed
Consulting Group, Inc. ("Reed"). Each of these transactions was accounted for
as a pooling of interests and, accordingly, the consolidated financial
statements have been restated as if the combining companies had been combined
for all periods presented.
In addition, these financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 1996 included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission on March 31,
1997, which reflect the historical financial statements of the Company prior
to the business combinations discussed in Note 3, as well as with the interim
reports on Form 8-K filed by the Company with the Securities and Exchange
Commission on August 14th.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pro Forma Net Income Per Share
Net income per common and common equivalent share is computed based on the
weighted average of common and common equivalent shares (stock options)
outstanding during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common and common equivalent shares issued during the twelve months
immediately preceding the initial public offering date (using the treasury
stock method and the initial public offering price per share) have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented.
The pro forma adjustments during the nine month period ended September 30,
1996 reflect the impact of a compensation plan effective July 1, 1996. The pro
forma effect of this compensation plan was an increase in officer compensation
of $1,019,460 for the nine month period ended September 30, 1996.
The pro forma adjustments for the three and nine month periods ended
September 30, 1996 include additional federal and state income tax expense of
$602,759 and $1,799,403, respectively. This represents the additional tax that
would have been required had one of the Company's subsidiaries not made an S-
corporation election effective January 1, 1996, partially offset by a
reduction in taxes that would have occurred had the Company adopted the
officers compensation plan referred to above.
F-22
<PAGE>
THE METZLER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. BUSINESS COMBINATIONS
On July 31, 1997, the Company issued 2,137,178 shares of common stock for
substantially all the outstanding common stock of RMI. Additionally, on August
15, 1997, the Company issued 518,400 shares of common stock for substantially
all of the outstanding common stock of Reed. Each of these transactions was
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated as if the combining companies had been
combined for all periods presented.
The Company's consolidated statements of operations for the three month and
nine month periods ended September 30, 1996 have been restated to reflect
revenues of $10,586,472 and $30,701,108, respectively, for the combined
operations of RMI and Reed. The Company's consolidated statements of
operations for the nine months ended September 30, 1997 include revenues from
RMI and Reed totaling $24,195,771 through the six months ended June 30, 1997
and $4,710,311 for the period from July 1, 1997 through the dates of
acquisition.
The Company's restated consolidated statements of operations for the three
month and nine month periods ended September 30, 1996 reflect net losses of
$122,737 and $174,099, respectively, for the combined operations of RMI and
Reed. The Company's restated consolidated statements of operations for the
nine months ended September 30, 1997 include net income from RMI and Reed
totaling $1,112,130 through the six months ended June 30, 1997 and $416,558
for the period from July 1, 1997 through the dates of acquisition.
The Company incurred significant costs and expenses in connection with these
acquisitions, including legal and accounting, and other various expenses.
These costs and expenses were recorded in the statement of operations during
the third quarter of 1997.
NOTE 4. SUBSEQUENT EVENT
Also during 1997, the Company's Board of Directors approved an amendment to
the Company's Amended and Restated Certificate of Incorporation to increase
the authorized Common Stock from 15.0 million shares to 75.0 million shares
and an amendment to the Company's Long-Term Incentive Plan to increase the
number of shares available for grants thereunder from 1.3 million to 2.0
million shares. The Company's stockholders have not yet approved such
increases. These increases in the number of shares have been included in the
accompanying consolidated financial statements.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CRE-
ATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANYTIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Price Range of Common Stock and Dividend Policy........................... 11
Selected Consolidated Financial Data...................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 19
Management................................................................ 28
Selling Stockholders...................................................... 30
Underwriting.............................................................. 31
Incorporation of Certain Documents by Reference........................... 32
Available Information..................................................... 33
Legal Matters............................................................. 33
Experts................................................................... 34
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,100,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the distribution
of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 56,348
National Association of Securities Dealers, Inc. filing fee...... 19,050
Nasdaq National Market additional listing fee.................... 17,500
Printing and related expenses.................................... 100,000
Blue sky fees and expenses....................................... 5,000
Legal fees and expenses.......................................... 125,000
Accounting fees and expenses..................................... 125,000
Miscellaneous.................................................... 52,102
--------
Total........................................................ $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Six of the Registrant's Certificate of Incorporation ("Article Six")
is consistent with Section 102(b)(7) of the Delaware General Corporation Law,
which generally permits a company to include a provision limiting the personal
liability of a director in the company's certificate of incorporation. With
limitations, Article Six eliminates the personal liability of the Registrant's
directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director. However, Article Six does not
eliminate director liability: (1) for breaches of the duty of loyalty to the
Registrant and its stockholders; (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (3) for
transactions from which a director derives improper personal benefit; or (4)
under Section 174 of the Delaware General Corporation Law ("Section 174").
Section 174 makes directors personally liable for unlawful dividends and stock
repurchases or redemptions and expressly sets forth a negligence standard with
respect to such liability. While Article Six protects the directors from
awards for monetary damages for breaches of their duty of care, it does not
eliminate their duty of care. The limitations in Article Six have no effect on
claims arising under the federal securities laws.
With certain limitations, Section 13.1 of Article Thirteen of the
Registrant's By-laws ("Section 13.1") provides for indemnification of any of
the Registrant's past, present and future officers and directors against
liabilities and reasonable expenses incurred in any criminal or civil action
by reason of such person's being or having been an officer or director of the
Registrant or of any other corporation which such person serves as such at the
request of the Registrant. Indemnification under Section 13.1 is limited to
officers and directors who have acted in good faith and in a manner they
reasonably believed to be in the best interests of the Registrant. Any
questions regarding whether the officer or director has met the required
standards of conduct are to be answered by (1) the majority of disinterested
directors, (2) a written opinion of a reputable disinterested legal counsel
selected by the Board, or (3) the stockholders. Indemnification rights under
Section 13.1 are non-exclusive. In the event of an officer's or director's
death, such person's indemnification rights shall extend to his or her heirs
and legal representatives. Rights under Section 13.1 are severable, and if any
part of that section is determined to be invalid for any reason, all other
parts remain in effect.
Under Section 145 of the Delaware General Corporation Law, directors and
officers, as well as other employees and individuals, may be indemnified
against expenses (including attorneys' fees), judgments, fines, amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation "derivative action") if they acted in
good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to criminal
actions or proceedings, had no reasonable cause to believe their
II-1
<PAGE>
conduct was unlawful. A similar standard of care is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the Delaware General Corporation Law
requires court approval before there can be any indemnification where the
person seeking indemnification has been found liable to the corporation.
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C>
1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation (1)
3.2 Form of Amendment No. 1 to Amended and Restated Certificate of Incorporation
3.3 By-Laws of the Company(1)
5 Opinion of Sachnoff & Weaver, Ltd.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Report of Coopers & Lybrand L.L.P.
23.4 Consent of Sachnoff & Weaver, Ltd. (included in Exhibit 5)
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- ---------------------
(1) Incorporated by reference to Registration Statement on Form S-1 (File No.
333-9019), filed July 26, 1996.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS ON THE 18TH DAY OF
NOVEMBER, 1997.
THE METZLER GROUP, INC.
/s/ Robert P. Maher
By: _________________________________
Robert P. Maher
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JAMES F. HILLMAN AND CHARLES A. DEMIRJIAN, HIS
TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION
AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES (INCLUDING HIS OR HER CAPACITY AS A DIRECTOR OR OFFICER OF THE
METZLER GROUP, INC.) TO SIGN ANY AND ALL AMENDMENTS AND POST-EFFECTIVE
AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING REGISTRATION STATEMENTS
FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933 AND ALL
AMENDMENTS THERETO) AND TO FILE THE SAME, WITH ALL EXHIBITS HERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENT, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEY-IN-FACT AND AGENT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE THEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Robert P. Maher Chairman of the Board, November 18, 1997
____________________________________ President, Chief Executive
Robert P. Maher Officer and Director
(Principal Executive
Officer)
/s/ James F. Hillman Chief Financial Officer November 18, 1997
____________________________________ (Principal Financial
James F. Hillman Officer)
/s/ Gerald R. Lanz Director November 18, 1997
____________________________________
Gerald R. Lanz
/s/ James T. Ruprecht Director November 18, 1997
____________________________________
James T. Ruprecht
/s/ Peter B. Pond Director November 18, 1997
____________________________________
Peter B. Pond
Director November 18, 1997
____________________________________
Mitchell H. Saranow
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
<C> <S> <C>
1 Form of Underwriting Agreement
3.2 Form of Amendment No. 1 to Amended and Restated Certif-
icate of Incorporation
5 Opinion of Sachnoff & Weaver, Ltd.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand
23.3 Report of Coopers & Lybrand
23.4 Consent of Sachnoff & Weaver, Ltd. (included in Exhibit
5)
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
II-4
<PAGE>
EXHIBIT 1
4,100,000 Shares
THE METZLER GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS INC.
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY, L.L.C.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs and Mesdames:
The Metzler Group, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), and certain stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") severally propose to sell to the several
Underwriters, an aggregate of 4,100,000 shares of the common stock, $.001 par
value of the Company (the "Firm Shares"), of which 1,000,000 shares are to be
issued and sold by the Company and 3,100,000 shares are to be sold by the
Selling Stockholders, each Selling Stockholder selling the amount set forth
opposite such Selling Stockholder's name in Schedule II hereto. Certain of the
Selling Stockholders also propose to sell to the several Underwriters not more
than an additional 615,000 shares of common stock, $.001 par value (the
"Additional Shares") if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter referred to
collectively as the "Shares". The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock". The Company and the Selling Stockholders are
hereinafter sometimes referred to collectively as the "Sellers."
<PAGE>
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
1,000,000 Firm Shares, (ii) each Selling Stockholder agrees, severally and not
jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$__________ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) certain of the Selling
Stockholders agree, severally and jointly, to sell up to the number of
Additional Shares set forth opposite such Selling Stockholder's name in Schedule
II hereto and (ii) the Underwriters shall have the right to purchase, severally
and not jointly, up to 615,000 Additional Shares from those Selling Stockholders
who have agreed to sell Additional Shares at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company within 30 days after the
date of this Agreement. You shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof, which date shall be a business day (i) no earlier than two
business days after such notice has been given (and, in any event, no earlier
than the Closing Date (as hereinafter defined)) and (ii) no later than ten
business days after such notice has been given. The maximum number of Additional
Shares to be purchased from each such Selling Stockholder is set forth on
Schedule II hereto. If less than the maximum number of Additional Shares are to
be purchased hereunder, each of such Selling
2
<PAGE>
Stockholders, severally and not jointly, agrees to sell to the Underwriters the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional Shares to be purchased by the Underwriters as the maximum number
of Additional Shares to be sold by each of such Selling Stockholders bears to
the total number of Additional Shares. If any Additional Shares are to be
purchased, each Underwriter, severally and not jointly, agrees to purchase from
such Selling Stockholders the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares to be purchased from
such Selling Stockholders as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also
agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 90 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, each Selling Stockholder agrees that, for a period of
90 days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock. The Company shall, prior to or concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each Selling
Stockholder, (ii) each of the directors and officers of the Company who is not a
Selling Stockholder and (iii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending 90 days after the date of the Prospectus,
without the prior written consent of Donaldson, Lufkin & Jenrette Corporation,
(A) engage in any of the transactions described in the first sentence of this
paragraph or (B) make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
3
<PAGE>
SECTION 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day following the date of the initial public
offering, unless otherwise permitted by the Commission pursuant to Rule 15c6-1
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")(the
"Closing Date") at such place outside the State of New York as you shall
designate.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at such place as you shall designate
at 10:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 (an "Option Closing Date").
Any such Option Closing Date and the location of delivery of and payment for
such Additional Shares may be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes thereon duly paid by the respective Sellers, for the
respective accounts of the several Underwriters, against payment to the Sellers
of the Purchase Price therefor by wire transfer of Federal or other funds
immediately available in New York City.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the
4
<PAGE>
Registration Statement, the Company will use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To furnish to you five signed copies of the Registration Statement as
first filed with the Commission and of each amendment to it, including all
exhibits, together with five copies of all documents incorporated by reference
therein, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as
5
<PAGE>
required for distribution of the Shares and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that the Company shall not be
required in connection therewith to qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending
December 31, 1998 that shall satisfy the provisions of Section 11(a) of the Act,
and to advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses
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incident to the performance of the obligations of the Company and the Selling
Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supercede or otherwise
affect any agreement that the Company and the Selling Stockholders may otherwise
have for allocation of such expenses among themselves.
(j) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market and to maintain the listing of the Shares on the Nasdaq National
Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of this
Agreement does not cover all of the Shares, to file a Rule 462(b) Registration
Statement with the Commission registering the Shares not so covered in
compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 11(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b)(i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not 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
not misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not 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 not misleading and
(B) will comply in all material respects with the Act and (iv)
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the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an 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 the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein. Any reference herein to any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Form S-3 under the 1933 Act ("Incorporated
Documents"), as of the date of such preliminary prospectus or Prospectus, as the
case may be. Any document filed by the Company under the Exchange Act after the
effective date of the Registration Statement or the date of the Prospectus and
incorporated by reference in the Prospectus shall be deemed to be included in
that Registration Statement and the Prospectus as of the date of such filing.
The Incorporated Documents, when filed with the Commission, conformed or will
conform in all material respects to the requirements for the Exchange Act and
none of such documents, as of the date of such Incorporated Document, contained
or will contain an untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
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(f) All the outstanding shares of capital stock of the Company (including
the Shares to be sold by the Selling Stockholders) have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained or incorporated by reference in the
Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other
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documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws") or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company and its
subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(o) Each of the Company and its subsidiaries has good and marketable
title, free and clear of all liens, claims, encumbrances and restrictions except
liens for taxes not yet due and
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payable, to all property and assets described in the Registration Statement as
being owned by it. All leases to which the Company or its subsidiaries is a
party are valid and binding upon the Company or its subsidiaries, as the case
may be, and, to the Company's knowledge, upon the respective lessors thereunder
and no default has occurred or is continuing thereunder on the part of the
Company and its subsidiaries and, to the Company's knowledge, on the part of the
respective lessors, which might result in any material adverse change in the
business, prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole, and the Company and its subsidiaries
enjoy peaceful and undisturbed possession under all such leases to which any of
them is a party as lessee with such exceptions as do not materially interfere
with the use made by the Company or its subsidiaries.
(p) Each of the Company and its subsidiaries maintains reasonably adequate
insurance.
(q) Each of the Company and its subsidiaries owns or possesses adequate
rights with respect to the use of all trade secrets, know-how, propriety
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights (collectively, "Intellectual Property") described, referred
to or incorporated by reference in the Prospectus as owned or used by it, or
which are necessary for the conduct of its business as described in the
Prospectus, other than Intellectual Property the lack of which would not
reasonably be expected to result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and its
subsidiaries, taken as a whole and no such rights as are material to the
business and prospectus of the Company and its subsidiaries expire or are
subject to termination at the election of another party without cause or the
Company's or its subsidiaries' consent at a time or under circumstances which
would result in any material adverse change in the business, prospects,
financial condition or results of operation of the Company and its subsidiaries,
taken as a whole. Neither the Company or its subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, inventions, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks, service
marks, trade names or copyrights which would result in any material adverse
change in the business, prospects, financial condition or results of operation
of the Company and its subsidiaries, taken as a whole.
(r) Neither the Company or its subsidiaries is involved in any labor
dispute which, either individually or in the aggregate, would reasonably be
expected to result in any material adverse change in the business, prospects,
financial condition or results of operation of the Company and its subsidiaries,
taken as a whole, nor, to the knowledge of the Company, is any such dispute
threatened.
(s) This Agreement has been duly authorized, executed and delivered by the
Company.
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(t) KPMG Peat Marwick LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
(u) The consolidated financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (and any amendment or
supplement thereto), together with related schedules and notes, present fairly
the consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiaries on the basis stated
therein at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the supporting
schedules, if any, included or incorporated by reference in the Registration
Statement present fairly in accordance with generally accepted accounting
principles the information required to be stated therein; and the other
financial and statistical information and data set forth in or incorporated by
reference in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Company. The pro forma financial statements and data set forth
in or incorporated by reference in the Prospectus present fairly in all material
respects the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma information,
have been properly compiled on the pro forma basis described therein, and, in
the opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(v) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(w) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(x) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(y) All material tax returns required to be filed by each of the Company
and its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or its subsidiaries have been paid, other than those being contested in
good faith and for which adequate reserves have been provided.
(z) The Company has not taken and will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(aa) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(bb) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
SECTION 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have, full
legal right, power and authority, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement signed by such Selling
Stockholder and __________, as Custodian, relating to the deposit of the Shares
to be sold by such Selling Stockholder (the "Custody Agreement") and the Power
of Attorney of such Selling Stockholder appointing certain individuals as such
Selling Stockholder's attorneys-in-fact (the "Attorneys") to the extent
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set forth therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement (the "Power of Attorney") and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this Agreement
and any other document that they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such Selling
Stockholder pursuant to this Agreement, good and clear title to such Shares will
pass to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(i) Such Selling Stockholder has not taken, and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected to,
cause or result in stabilization
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or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares pursuant to the distribution contemplated by this
Agreement, and other than as permitted by the Act, the Selling Stockholder has
not distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(j) To the knowledge of such Selling Stockholder, each of the Registration
Statement and Prospectus does not contain an 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 not misleading and the preliminary prospectus does
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (ii) such
information in the Registration Statement under the caption "Principal and
Selling Stockholders" which specifically relates to such Selling Stockholder
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of circumstances under which they were made, not misleading.
(k) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(j), such Selling
Stockholder will immediately notify you of such change.
(l) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in or incorporated by
reference in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished in writing to the Company by such Underwriter through you
expressly for use therein. Notwithstanding the foregoing, the aggregate
liability of any Selling Stockholder pursuant to this Section 8(a) shall be
limited to an amount equal to the total proceeds (before deducting expenses)
received by such Selling Stockholder from the Underwriters for the sale of the
Shares sold by such Selling Stockholder hereunder.
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(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, (ii)
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and all persons, if any, who control the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
Selling Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are
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incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of any Selling Stockholders,
such firm shall be designated in writing by the Attorneys. The indemnifying
party shall indemnify and hold harmless the indemnified party from and against
any and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the
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other hand and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates The Metzler Group, Inc.,
520 Lake Cook Road, Suite 500, Deerfield, Illinois 60015, as its authorized
agent, upon which process may be served in any action which may be instituted in
any state or federal court in the State of New York by any Underwriter, any
director or officer of any Underwriter or any person controlling any Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 8, and each Selling Stockholder will accept the jurisdiction of such
court in such action, and waives, to the fullest extent permitted by applicable
law, any defense based upon lack of personal jurisdiction or venue. A copy of
any such process shall be sent or given to such Selling Stockholder, at the
address for notices specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
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(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Robert P. Maher and James F. Hillman, in their
capacities as the President and Chief Executive Officer and Chief Financial
Officer of the Company, confirming the matters set forth in Sections 6(aa), 9(a)
and 9(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Sachnoff &
Weaver counsel for the Company and the Selling Stockholders, to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
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(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company and by or on behalf of each Selling Stockholder;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained or incorporated by
reference in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors-Shares Eligible
for Future Sale and Certain Antitakeover Effects", "Description of Capital
Stock" and "Underwriting" in the Prospectus and Items 14 and 15 of Part II
of the Registration Statement, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws and, to the best of such counsel's
knowledge after due
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inquiry, neither the Company nor any of its subsidiaries is in default in
the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, (C) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result
in the suspension, termination or revocation of any Authorization of the
Company or any of its subsidiaries or any other impairment of the rights of
the holder of any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(xiii) neither the Company nor any of its subsidiaries has violated
any Environmental Law or any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate,
would not have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company and its
subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease,
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license and operate its respective properties and to conduct its business,
except where the failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or results
of operations of the Company and its subsidiaries, taken as a whole; each
such Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and no event
has occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any
such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance,
the occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities
of the Company or to require the Company to include such securities with
the Shares registered pursuant to the Registration Statement;
(xvii) to such counsel's knowledge, all leases to which the Company
or its subsidiaries is a party are valid and binding and no default has
occurred or is continuing thereunder, which might result in any material
adverse change in the business, prospects, financial condition or results
of operation of the Company and its subsidiaries taken as a whole, and the
Company and its subsidiaries enjoy peaceful and undisturbed possession
under all such leases to which any of them is a party as lessee with such
exceptions as do not materially interfere with the use made by the Company
or its subsidiaries;
(xviii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial data included therein as to which no opinion need be
expressed) comply as to form with the Act, (B) such counsel has no reason
to believe that at the time the Registration Statement became effective or
on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial data as to which
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such counsel need not express any belief) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (C)
such counsel has no reason to believe that the Prospectus, as amended or
supplemented, if applicable (except for the financial statements and other
financial data, as aforesaid) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(xix) all documents incorporated by reference in the Prospectus,
when they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act; and such
counsel has no reason to believe that any of such documents, when they were
so filed, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such
documents were so filed, not misleading; such counsel need express no
opinion as to the financial statements or other financial or statistical
data contained in any such document;
(xx) each Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to this Agreement and has good
and clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever;
(xxi) each Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and the Power of Attorney of
such Selling Stockholder and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder in the manner provided herein
and therein;
(xxii) the Custody Agreement of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is
a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms;
(xxiii) the Power of Attorney of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is
a valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such
Selling Stockholder has, among other things, authorized the Attorneys, or
any one of them, to execute and deliver on such Selling Stockholder's
behalf this Agreement and any other document they, or any one of them, may
deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be sold by
such Selling Stockholder pursuant to this Agreement;
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(xxiv) upon delivery of and payment for the Shares to be sold by each
Selling Stockholder pursuant to this Agreement, good and clear title to
such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever; and
(xxv) the execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney of each Selling Stockholder by
such Selling Stockholder, the compliance by such Selling Stockholder with
all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
such Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which any property of such Selling
Stockholder is bound or (C) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Sachnoff & Weaver described in Section 9(f) above shall be
rendered to you at the request of the Company and the Selling Stockholders and
shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Winston & Strawn, counsel for the Underwriters, as to the
matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with respect to the
Company), 9(f)(ix) (but only with respect to the statements under the caption
"Description of Capital Stock" and "Underwriting") and 9(f)(xviii) and (xix).
In giving such opinions with respect to the matters covered by Sections
9(f)(xviii) and (xix), counsel for the Company and the Selling Stockholders and
counsel for the Underwriters may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from KPMG Peat Marwick LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
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(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Stockholders, as the case may be, on or prior to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal
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affairs which in your opinion has a material adverse effect on the financial
markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the Selling Stockholders for purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in connection
with the transfer of the Shares to be sold by such Selling Stockholder to the
Underwriters.
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(b) To do and perform all things to be done and performed by such Selling
Stockholder under this Agreement prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Shares to be sold by such Selling
Stockholder pursuant to this Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Robert
P. Maher, The Metzler Group, Inc., 520 Lake Cook Road, Suite 500, Deerfield,
Illinois 60015, with a copy to Douglas R. Newkirk, Sachnoff & Weaver, 30 S.
Wacker Drive, Chicago, Illinois 60606, (ii) if to the Selling Stockholders, to
[NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF ATTORNEY-IN-FACT] and (iii) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all fees and expenses (including, without limitation, the fees
disbursements of counsel) incurred by them in connection with enforcing their
rights hereunder (including, without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and
27
<PAGE>
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
THE METZLER GROUP, INC.
By: ____________________________________
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II
HERETO, ACTING
SEVERALLY
By: ____________________________________
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS INC.
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY, L.L.C.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By ________________________________
29
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm Shares
- ------------ to be Purchased
---------------------
Donaldson, Lufkin & Jenrette Securities
Corporation
Lehman Brothers Inc.
BancAmerica Robertson Stephens
William Blair & Company, L.L.C.
________
Total 4,100,000
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
Maximum Number of
Number of Firm Additional Shares
Name Shares Being Sold Subject to Sale
- ---- ----------------- -----------------
Lloyd H. Harvego
David J. Donovan
Stephen R. Goldfield
Gerald R. Lanz
James T. Ruprecht
Robert P. Maher
James R. Blomberg
Richard J. Metzler
Ronald O. Nichols
Larry R. Gawlik
John J. Reed
Frederick J. Nemergut
Wayne J. Oliver
John C. Dalton
Malcolm R. Ketchum
Lee E. Burgess
Mary Louise Zoukis
_________ ________
Total 3,100,000 615,000
<PAGE>
Annex I
[Insert names of stockholders of the Company who will be required to sign lock
ups]
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE METZLER GROUP, INC.
-----------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
The Metzler Group, Inc.
2. The original certificate of incorporation was filed on June 6, 1996.
3. The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by striking paragraph A of Article Four and
substituting the following in lieu thereof:
A. Authorized Shares: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is seventy-eight million
(78,000,000), consisting of seventy-five million (75,000,000) shares of Common
Stock, $0.001 par value per share (the "Common Stock"), and three million
(3,000,000) shares of Preferred Stock, $0.001 par value per share (the
"Preferred Stock").
4. The Amendment to the Amended and Restated Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
Executed this ____ day of November, 1997.
----------------------------------
Barry S. Cain, Assistant Secretary
<PAGE>
EXHIBIT 5.1
SACHNOFF & WEAVER, LTD.
30 South Wacker Drive, 29th Floor
Chicago, Illinois 60606
November 18, 1997
The Metzler Group, Inc.
30 S. Wacker Drive, 29th Floor
Chicago, Illinois 60606-7484
Dear Ladies and Gentlemen:
We have acted as counsel to The Metzler Group, Inc., a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form S-1 (the
"Registration Statement"), filed by the Company under the Securities Act of
1933, as amended, with the Securities and Exchange Commission (the
"Commission"), relating to the sale of up to 4,715,000 shares (the "Shares") of
the Company's Common Stock, par value $.001 per share. We have examined the
Registration Statement and the form of the Underwriting Agreement filed with the
Commission as an exhibit to the Registration Statement (the "Underwriting
Agreement"). In addition, we have reviewed such other documents and have made
such further investigations as we have deemed necessary to enable us to express
the opinion hereinafter set forth.
We hereby advise you that in our opinion, upon stockholder approval at a
Special Meeting of Stockholders of The Metzler Group, Inc. to be held on
November 21, 1997, the Shares will be duly authorized by the Company and, upon
payment and delivery in accordance with the Underwriting Agreement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Sachnoff & Weaver, Ltd.
SACHNOFF & WEAVER, LTD.
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
The Metzler Group, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3 of The Metzler Group, Inc. of our report dated February 6, 1997
relating to the consolidated balance sheets of The Metzler Group, Inc. and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the December 31, 1996, annual report on Form 10-K of The Metzler Group, Inc.
We consent to the use of our report dated November 14, 1997 relating to the
consolidated balance sheets of The Metzler Group, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 (as restated to reflect certain
acquisitions accounted for under the pooling-of-interests method of accounting),
included herein and to the reference to our firm under the heading "Experts" in
the prospectus. The report of KPMG Peat Marwick LLP is based partially upon the
reports of other accountants.
KPMG Peat Marwick LLP
Chicago, Illinois
November 17, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 (to be filed on or about November 17, 1997) of our report, which
includes an explanatory paragraph related to substantial doubt about the ability
of Resource Management International, Inc. and Subsidiaries to continue as a
going concern, dated July 31, 1997, on our audits of the consolidated balance
sheets as of December 31, 1996 and 1995 and the consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended of
Resource Management International, Inc. and Subsidiaries, which report is
included on Form 8-K (filing for The Metzler Group, Inc.), dated August 12,
1997; of our report dated July 31, 1997, except for Notes 2, 6 and 10 for which
the date is October 10, 1997, on our audit of the consolidated balance sheet as
of December 31, 1996 and the consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended of Resource
Management International, Inc. and Subsidiaries, which report is included on
Form 8-K/A (filing for The Metzler Group, Inc.), as amended, dated October 21,
1997; and the inclusion of our report dated February 29, 1996, on our audits of
the consolidated balance sheets as of December 31, 1995 and 1994, and
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended of Resource Management International, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts".
Cooper & Lyband L.L.P.
Sacramento, California
November 17, 1997
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Exhibit 23.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Resource Management International, Inc.
Rancho Cordova, California
We have audited the accompanying consolidated balance sheets of Resource
Management International, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Resource
Management International, Inc. and Subsidiaries at December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Sacramento, California
February 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Metzler
Group, Inc's., balance sheets at September 30, 1996 and December 31, 1996 and
statements of operations for the nine and twelve months ended September 30, 1996
and December 31, 1996, respectively.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996
<CASH> 1,284,658 33,536,265
<SECURITIES> 0 0
<RECEIVABLES> 16,205,448 34,242,265
<ALLOWANCES> 860,464 706,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,692,386 48,375,891
<PP&E> 8,829,687 9,057,197
<DEPRECIATION> 6,105,480 6,343,404
<TOTAL-ASSETS> 22,484,980 52,269,105
<CURRENT-LIABILITIES> 11,257,821 11,947,032
<BONDS> 0 0
0 0
0 0
<COMMON> 12,369 13,468
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 22,484,980 52,269,105
<SALES> 47,160,440 63,553,337
<TOTAL-REVENUES> 47,160,440 63,553,337
<CGS> 30,776,522 42,315,400
<TOTAL-COSTS> 41,428,411 57,925,306
<OTHER-EXPENSES> (25,293) (505,364)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 316,105 578,642
<INCOME-PRETAX> 5,441,217 5,554,753
<INCOME-TAX> (71,342) (180,351)
<INCOME-CONTINUING> 5,512,559 5,735,104
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,512,559 5,735,104
<EPS-PRIMARY> .22 .23
<EPS-DILUTED> .22 .23
</TABLE>
