<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
THE METZLER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 8748 36-4094854
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER)IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION) 615 N. WABASH STREET
CHICAGO, ILLINOIS 60611
(312) 573-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
ROBERT P. MAHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE METZLER GROUP, INC.
615 N. WABASH STREET
CHICAGO, IL 60611
(312) 573-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
--------------
COPIES TO:
DOUGLAS R. NEWKIRK, ESQ. MICHAEL J. DANAHER, ESQ.
SACHNOFF & WEAVER, LTD. WILSON SONSINI GOODRICH & ROSATI, P.C.
30 SOUTH WACKER DRIVE 650 PAGE MILL ROAD
CHICAGO, ILLINOIS 60606 PALO ALTO, CALIFORNIA 94304-1050
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective. [_]
If the Securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 7,816,721 shares(2) $19.66 $256,127,865 $75,641
- ------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee and
based, in accordance with Rule 457(f)(1) under the Securities Act of 1933,
upon the market value of outstanding shares of LECG, Inc. common stock on
July 14, 1998, utilizing the closing sale price reported on the New York
Stock Exchange.
(2) Composed entirely of shares to be offered in respect of outstanding common
stock of LECG, Inc.
--------------
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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE METZLER GROUP, INC.
615 N. WABASH STREET
CHICAGO, ILLINOIS 60611
July 24, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of The Metzler Group, Inc. ("Metzler") to be held at The
Mid-America Club located at 200 E. Randolph Dr., Chicago, Illinois, on
Wednesday, August 19, 1998 at 4:00 p.m. Chicago time, at which you will be
asked to consider and vote upon the issuance of shares of Metzler Common Stock
("Metzler Common Stock") in connection with the acquisition by merger (the
"Merger") of LECG, Inc., a California corporation ("LECG"). If the Merger
becomes effective, Metzler will issue shares of Metzler Common Stock to the
shareholders of LECG and LECG will become a wholly-owned subsidiary of
Metzler.
After careful consideration, the Board of Directors of Metzler has approved
the Merger, the Agreement and Plan of Merger dated as of July 1, 1998, the
related issuance of Metzler Common Stock thereunder and the transactions and
agreements related thereto and has concluded that they are in the best
interests of Metzler and its stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF METZLER APPROVE THE ISSUANCE
OF THE METZLER COMMON STOCK IN CONNECTION WITH THE MERGER.
THE REASONS FOR THE BOARD'S RECOMMENDATION, AND A DESCRIPTION OF CERTAIN
FACTORS THAT STOCKHOLDERS SHOULD CONSIDER IN DECIDING HOW TO VOTE AT THE
MEETING, ARE SET FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT-PROSPECTUS
UNDER THE CAPTION "THE MERGER."
The affirmative vote of the holders of a majority of the shares of Metzler
Common Stock present in person or by proxy at the Special Meeting is needed to
approve the issuance of the Metzler Common Stock pursuant to the Merger.
Metzler stockholders have no appraisal rights in connection with the Merger.
The Notice of Special Meeting and the Joint Proxy Statement-Prospectus
describing these transactions in greater detail are attached. Whether or not
you plan to attend the Special Meeting, it is important that your shares of
Metzler Common Stock be represented at the Special Meeting. An abstention or
failure to vote by a stockholder who is present or represented at the Special
Meeting will have the same effect as a vote against the approval of the
issuance of the Metzler Common Stock. To be sure your vote is counted, we urge
you to carefully review the Joint Proxy Statement-Prospectus and vote your
shares. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. If you attend the Special Meeting
and wish to vote in person, the ballot that you submit at the Special Meeting
will supersede your proxy.
I look forward to seeing you at the Special Meeting. On behalf of the
management and directors of The Metzler Group, Inc., I want to thank you in
advance for your continued support and confidence in us.
Sincerely,
Robert P. Maher
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
THE METZLER GROUP, INC.
615 N. WABASH STREET
CHICAGO, ILLINOIS 60611
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1998
TO THE STOCKHOLDERS OF THE METZLER GROUP, INC.:
A Special Meeting of Stockholders (the "Special Meeting") of The Metzler
Group, Inc. ("Metzler") will be held at The Mid-America Club located at 200 E.
Randolph Drive, Chicago, Illinois, on Wednesday, August 19, 1998 at 4:00 p.m.,
Chicago time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance by
Metzler of shares of Metzler common stock, par value $0.001 per share
("Metzler Common Stock"), to the shareholders of LECG, Inc., a California
corporation ("LECG"), pursuant to an Agreement and Plan of Merger dated as
of July 1, 1998 (the "Merger Agreement") by and among Metzler, MGI
Acquisition Corp., a wholly-owned subsidiary of Metzler ("Acquisition") and
LECG, pursuant to which Acquisition will merge with and into LECG with the
result that LECG will become a wholly-owned subsidiary of Metzler (the
"Merger"); and
2. To consider and vote upon such other business as may properly come
before the Special Meeting, which may include a proposal to adjourn or
postpone the Special Meeting for any reason (whether for the solicitation
of additional proxies or otherwise) if Metzler determines that such an
adjournment or postponement would be desirable. Metzler has no reason to
believe that an adjournment or postponement of the Special Meeting will be
required.
The foregoing items of business are more fully described in the Joint Proxy
Statement-Prospectus accompanying this Notice.
Stockholders of record of Metzler Common Stock at the close of business on
July 1, 1998, the record date fixed by the Board of Directors, are entitled to
notice of, and to vote at, the Special Meeting, and any adjournment or
postponement thereof. Metzler stockholders have no appraisal rights in
connection with the Merger. The transfer books will not be closed. For ten
days prior to the Special Meeting, a list of stockholders entitled to vote at
the Special Meeting with the address of and number of shares held by each will
be kept on file at the offices of Metzler at 615 N. Wabash Street, Chicago,
Illinois 60611 and at the offices of Metzler's transfer agent, American Stock
Transfer & Trust Company, located at 40 Wall Street, New York, New York 10005,
and will be subject to inspection by any stockholder at any time during usual
business hours. The list will also be available for inspection by any
stockholder during the Special Meeting.
THE METZLER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE ISSUANCE OF SHARES OF METZLER COMMON STOCK IN
CONNECTION WITH THE MERGER.
Stockholders are urged to sign, date and otherwise complete the enclosed
proxy card and return it promptly in the envelope provided, whether or not
they intend to attend the meeting. Any stockholder giving a proxy has the
right to revoke it at any time before it is voted. If you attend the Special
Meeting and wish to vote in person, the ballot you submit will supersede your
proxy.
For the Board of Directors,
Charles A. Demirjian
Secretary
Chicago, Illinois
July 24, 1998
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE>
LECG, INC.
2000 POWELL STREET
EMERYVILLE, CALIFORNIA 94608
July 24, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Shareholders of LECG, Inc. ("LECG") to be held at The Mid-America
Club located at 200 E. Randolph Drive, Chicago, Illinois, on Wednesday, August
19, 1998 at 3:30 p.m. Chicago time, at which you will be asked to consider and
vote upon the merger (the "Merger") of LECG with a subsidiary of The Metzler
Group, Inc., ("Metzler"). If the Merger becomes effective, Metzler will issue
0.6 shares of its Common Stock in exchange for each outstanding share of LECG
Common Stock, and LECG will become a wholly-owned subsidiary of Metzler.
The Board of Directors of LECG has approved the Merger, the Agreement and
Plan of Merger dated as of July 1, 1998, and the transactions and agreements
related thereto and has concluded that they are in the best interests of LECG
and its shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF LECG APPROVE THE MERGER.
The reasons for the board's recommendation and a description of certain
factors that shareholders should consider in deciding how to vote at the
meeting are set forth in the accompanying joint proxy statement-prospectus
under the caption "The Merger." You are urged to read the entire joint proxy
statement-prospectus carefully, including the section captioned "Risk
Factors."
The affirmative vote of the holders of a majority of the outstanding shares
of LECG Common Stock is needed to approve the Merger. LECG shareholders have
no appraisal rights in connection with the Merger except under limited
circumstances as described in the Joint Proxy Statement-Prospectus.
Whether or not you plan to attend the Special Meeting, it is important that
your shares be represented at the Special Meeting. An abstention or failure to
vote will have the same effect as a vote against the Merger. PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS
POSSIBLE.
I look forward to seeing you at the Special Meeting. On behalf of the
management and directors of LECG, Inc., I want to thank you in advance for
your continued support and confidence in us.
Sincerely,
Thomas M. Jorde
President
<PAGE>
LECG, INC.
2000 POWELL STREET
EMERYVILLE, CALIFORNIA 94608
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 19, 1998
TO THE SHAREHOLDERS OF LECG.:
A Special Meeting of Shareholders (the "Special Meeting") of LECG, Inc.
("LECG") will be held at The Mid-America Club, 200 E. Randolph Drive, Chicago,
Illinois, on Wednesday, August 19, 1998 at 3:30 p.m., Chicago time, for the
following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of July 1, 1998 (the "Agreement") by and among LECG, The
Metzler Group, Inc. ("Metzler"), and MGI Acquisition Corp., a wholly-owned
subsidiary of Metzler ("Acquisition"), and the merger of Acquisition into
LECG with the result that LECG will become a wholly-owned subsidiary of
Metzler (the "Merger"); and
2. Such other business as may properly come before the Special Meeting.
The terms of the Agreement and information concerning the Merger are more
fully described in the Joint Proxy Statement-Prospectus accompanying this
Notice.
Shareholders of record of LECG's common stock at the close of business on
July 1, 1998, the record date fixed by the Board of Directors, are entitled to
vote at the Special Meeting, and any adjournment or postponement thereof. LECG
shareholders have no appraisal rights in connection with the Merger except
under limited circumstances as described in the Joint Proxy Statement-
Prospectus. The transfer books will not be closed. For ten days prior to the
Special Meeting, a list of shareholders entitled to vote at the Special
Meeting with the address of and number of shares held by each will be kept on
file at LECG's offices at 2000 Powell Street, Emeryville, California 94608,
and at the offices of LECG's transfer agent, Norwest Shareowner Services,
located at 161 N. Concord Exchange Street, South St. Paul, Minnesota 55275,
and will be subject to inspection by any shareholder at any time during usual
business hours. The list will also be available for inspection by any
shareholder during the Special Meeting.
THE LECG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE MERGER.
Shareholders are urged to sign, date and otherwise complete the enclosed
proxy card and return it promptly in the envelope provided, whether or not
they intend to attend the meeting. Any shareholder giving a proxy has the
right to revoke it at any time before it is voted. If you attend the Special
Meeting and wish to vote in person, the ballot you submit will supersede your
proxy.
For the Board of Directors,
Kimberly D. Gilmour
Secretary
Emeryville, California
July 24, 1998
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
<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 JULY 24, 1998
----------
THE METZLER GROUP, INC. AND LECG, INC.
JOINT PROXY STATEMENT
----------
For Special Meeting of Stockholders of The Metzler Group, Inc. to be held on
August 19, 1998.
For Special Meeting of Shareholders of LECG, Inc. to be held on August 19, 1998
----------
THE METZLER GROUP, INC. PROSPECTUS
----------
This joint proxy statement-prospectus ("Joint Proxy Statement-Prospectus") is
being furnished to the stockholders of The Metzler Group, Inc., a Delaware
corporation ("Metzler"), and the shareholders of LECG, Inc., a California
corporation ("LECG"), in connection with the solicitation of proxies by the
respective Boards of Directors of Metzler and LECG for use, respectively, at
the special meeting of stockholders of Metzler to be held at The Mid-America
Club, 200 E. Randolph Drive, Chicago, Illinois, on Wednesday, August 19, 1998
at 4:00 p.m., Chicago time, and at any adjournment or postponement thereof (the
"Metzler Special Meeting"), and at the special meeting of shareholders of LECG
to be held at The Mid-America Club, 200 E. Randolph Drive, Chicago, Illinois,
on Wednesday, August 19, 1998 at 3:30 p.m., Chicago time, and at any
adjournment or postponement thereof (the "LECG Special Meeting" and, together
with the Metzler Special Meeting, the "Special Meetings").
At the LECG Special Meeting, the holders of record ("LECG Shareholders") of
LECG Common Stock, par value $.001 per share ("LECG Common Stock"), as of the
close of business on July 1, 1998 (the "LECG Record Date") will consider and
vote upon a proposal to approve the Agreement and Plan of Merger dated as of
July 1, 1998 (the "Merger Agreement") by and among Metzler, MGI Acquisition
Corporation, a Delaware corporation wholly-owned by Metzler ("Acquisition"),
and LECG, providing for the merger of Acquisition into LECG (together with the
transactions contemplated thereby, and as more fully described herein, the
"Merger"). A copy of the Merger Agreement is attached to this Joint Proxy
Statement-Prospectus as Annex A. If the Merger is consummated, each outstanding
share of LECG Common Stock will be converted into the right to receive 0.6
shares of Metzler Common Stock (the "Exchange Ratio").
At the Metzler Special Meeting, the holders of record ("Metzler
Stockholders") of Metzler common stock, $.001 par value per share ("Metzler
Common Stock"), as of the close of business on July 1, 1998 (the "Metzler
Record Date") will consider and vote upon a proposal to approve the issuance of
Metzler Common Stock pursuant to the Merger Agreement.
This Joint Proxy Statement-Prospectus also serves as a prospectus of Metzler
under the Securities Act of 1933, as amended (the "Securities Act"), for the
issuance of shares of Metzler Common Stock in the Merger. On July 20, 1998, the
closing sale prices of Metzler Common Stock and LECG Common Stock were $36
15/16 and $21 5/8 per share, respectively. This Joint Proxy Statement-
Prospectus and the accompanying Notices of Special Meetings and proxy cards are
first being mailed to the Metzler Stockholders and to the LECG Shareholders on
or about July 24, 1998.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY BOTH THE METZLER STOCKHOLDERS AND THE LECG SHAREHOLDERS.
----------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT-
PROSPECTUS. THE METZLER STOCKHOLDERS AND THE LECG SHAREHOLDERS ARE STRONGLY
URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT-
PROSPECTUS IN ITS ENTIRETY.
----------
THE SECURITIES TO BE ISSUED IN THE MERGER 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 JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
NO PERSON IS AUTHORIZED BY METZLER OR LECG TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR REPRESENTATION CONTAINED IN
THIS JOINT PROXY STATEMENT-PROSPECTUS, IN CONNECTION WITH THE OFFERING AND THE
SOLICITATION MADE BY THIS JOINT PROXY STATEMENT-PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY SECURITIES, IN ANY JURISDICTION IN WHICH SUCH A SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT-PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF METZLER OR LECG
SINCE THE DATE HEREOF.
----------
The date of this Joint Proxy Statement-Prospectus is July , 1998.
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
Under the rules and regulations of the Securities and Exchange Commission
(the "SEC"), the solicitation of the LECG Shareholders to approve and adopt
the Merger Agreement constitutes an offering of Metzler Common Stock to be
issued in conjunction with the Merger. Accordingly, Metzler has filed with the
SEC a Registration Statement on the SEC's Form S-4 (together with any
amendments thereto, the "Registration Statement") under the Securities Act
with respect to such offering. This Joint Proxy Statement-Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the SEC. Copies of the Registration Statement are
available from the SEC, upon payment of prescribed rates. Statements contained
in this Joint Proxy Statement-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 document
filed as an exhibit to the Registration Statement or to such other document,
each such statement being qualified in all respects by such reference.
Metzler and LECG are each subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance with the Exchange Act, Metzler and LECG file proxy statements,
reports and other information with the SEC. Material filed by Metzler and LECG
can be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the SEC's Regional Offices in Chicago, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and in
New York, Seven World Trade Center, 13th Floor, New York, New York 10048, and
copies of such materials can be obtained by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. This material may be obtained from the SEC's web site at
www.sec.gov. In addition, material filed by Metzler may be inspected at the
offices of the National Association of Securities Dealers, Inc. Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006, and material filed by
LECG may be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT-PROSPECTUS RELATING
TO METZLER HAS BEEN SUPPLIED BY METZLER, AND ALL INFORMATION RELATING TO LECG
HAS BEEN SUPPLIED BY LECG. NEITHER METZLER NOR LECG WARRANTS THE ACCURACY OR
COMPLETENESS OF INFORMATION RELATING TO THE OTHER PARTY.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement-Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of such
words are intended to identify these forward-looking statements. Additionally,
statements concerning future matters such as the anticipated benefits of the
Merger, development of new services, possible changes in legislation and other
statements regarding matters that are not historical fact are forward-looking
statements. The forward-looking statements reflect the judgment of the
management of Metzler and LECG, as appropriate, based on factors currently
known and involve risks and uncertainties. Actual results and outcomes may
differ materially from the results and outcomes discussed in the forward-
looking statements. The matters set forth under the caption "Risk Factors" in
this Joint Proxy Statement-Prospectus, as well as those discussed elsewhere in
this Joint Proxy Statement-Prospectus, constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results or
outcomes to differ materially from those in such forward-looking statements.
Neither Metzler nor LECG undertakes any obligation to revise or update these
forward-looking statements to reflect any events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION........................... 2
FORWARD-LOOKING STATEMENTS................................................. 2
SUMMARY.................................................................... 5
The Parties.............................................................. 5
The Special Meetings and Votes Required.................................. 5
The Merger............................................................... 6
Market Price Data........................................................ 9
Summary Historical Consolidated Financial Information.................... 10
Selected Pro Forma Condensed Combined Financial Information.............. 12
Comparative Per Share Data............................................... 13
RISK FACTORS............................................................... 14
Risks Relating to The Merger............................................. 14
Risk Factors Relating to Metzler and LECG................................ 14
THE SPECIAL MEETINGS....................................................... 19
General.................................................................. 19
Date, Time and Place of Hearing.......................................... 19
Matters to be Considered at the Special Meetings......................... 19
Record Date; Quorum; Outstanding Shares.................................. 19
Voting Rights, Required Vote............................................. 19
Voting and Revocation of Proxies......................................... 20
THE MERGER................................................................. 22
Background of the Merger................................................. 22
Recommendations of the Boards of Directors and Reasons for the Merger.... 23
Related Agreements....................................................... 26
Interests of Certain Persons in the Merger............................... 26
Management Following the Merger.......................................... 27
Appraisal Rights......................................................... 27
Regulatory Approval...................................................... 29
Certain Federal Income Tax Considerations................................ 29
Accounting Treatment..................................................... 30
Federal Securities Law Compliance........................................ 31
Nasdaq National Market Quotations........................................ 31
THE MERGER AGREEMENT....................................................... 32
The Merger............................................................... 32
Conversion of Securities................................................. 32
Stock Plans and Options.................................................. 33
Representations and Warranties........................................... 33
Certain Covenants and Agreements......................................... 33
No Solicitation.......................................................... 34
Indemnification of Directors and Officers Maintained..................... 34
Conditions............................................................... 35
Termination; Termination Fees and Expenses............................... 35
Amendment and Waiver..................................................... 37
COMPARISON OF SECURITY HOLDER RIGHTS....................................... 37
Size of Board of Directors............................................... 38
Classified Board of Directors............................................ 38
Removal of Directors..................................................... 38
Filling Vacancies on the Board of Directors.............................. 38
Limitations of Liability of Directors; Indemnification................... 39
Annual Meetings.......................................................... 40
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Special Shareholder Meetings............................................... 40
Actions by Written Consent of Stockholders................................. 40
Advance Notice Requirement for Shareholder and Director Nominations........ 41
Voting Requirements; Super Majority Approval............................... 41
Amending the Bylaws........................................................ 41
Cumulative Voting.......................................................... 42
"Blank Check" Preferred Stock.............................................. 42
Business Combinations/Reorganizations...................................... 42
Rights of Dissenting Shareholders.......................................... 43
Inspection of Stockholders List............................................ 43
Dividends.................................................................. 43
Shareholder Derivative Suits............................................... 44
Preemptive Rights.......................................................... 44
Dissolution................................................................ 44
Board of Directors Meetings................................................ 44
Director Voting............................................................ 44
Transactions Involving Officers or Directors............................... 45
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA.......... 46
Selected Historical Financial Data......................................... 46
Selected Metzler Consolidated Financial Data............................. 46
Selected LECG Financial Data............................................. 47
Unaudited Pro Forma Consolidated Combined Condensed Financial Data......... 49
Unaudited Pro Forma Condensed Combining Financial Data..................... 49
Metzler's Pro Forma Condensed Combined Balance Sheet....................... 50
Metzler's Pro Forma Condensed Combined Statements of Income................ 51
Unaudited Quarterly Results................................................ 56
The Metzler Group........................................................ 56
LECG, Inc................................................................ 57
INFORMATION CONCERNING THE METZLER GROUP, INC................................ 58
Business................................................................... 58
Metzler Management's Discussion and Analysis of Financial Condition and
Results of Operations of Metzler.......................................... 62
Management of Metzler...................................................... 67
Director Compensation...................................................... 68
Stock Ownership of Directors, Executive Officers and Principal Holders..... 70
INFORMATION CONCERNING LECG, INC............................................. 70
Business................................................................... 70
Principal Clients and Representative Engagements........................... 77
LECG Management's Discussion and Analysis of Financial Condition and
Results of Operations of LECG............................................. 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT OF
LECG........................................................................ 87
DESCRIPTION OF METZLER SECURITIES............................................ 88
General.................................................................... 88
Common Stock............................................................... 88
Preferred Stock............................................................ 88
LEGAL MATTERS................................................................ 88
EXPERTS...................................................................... 88
STOCKHOLDER PROPOSALS........................................................ 89
INDEX TO THE FINANCIAL STATEMENTS............................................ F-1
ANNEX A--Agreement and Plan of Merger Dated as of July 1, 1998............... A-1
ANNEX B--Dissenters' Rights Under Chapter 13 of the California General
Corporation Law............................................................. B-1
</TABLE>
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement-Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Joint Proxy Statement-Prospectus and in the attached Annexes. The
Metzler Stockholders and the LECG Shareholders are urged to read carefully this
Joint Proxy Statement-Prospectus and the attached Annexes in their entirety.
All references to "Metzler" and "LECG" in this Joint Proxy Statement-Prospectus
mean the respective corporations and their respective subsidiaries except as
the context may otherwise indicate. All references to the "Combined Company"
mean Metzler following the Merger, including LECG as a wholly-owned subsidiary
of Metzler. All share and per share data in this Joint Proxy Statement-
Prospectus have been adjusted to give retroactive effect to Metzler's 3-for-2
split of its Common Stock, effective April 1, 1998.
THE PARTIES
Metzler. Metzler is a leading nationwide provider of consulting services to
energy based and related network industries. Metzler 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. See "Information Concerning the Metzler Group, Inc."
LECG. LECG is an economic consulting services firm that provides
sophisticated economic and financial analysis, expert testimony, litigation
support and strategic management consulting to a broad range of public and
private enterprises. See "Information Concerning LECG, Inc."
Acquisition. Acquisition is a corporation recently organized by Metzler for
the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except in connection with the proposed Merger.
THE SPECIAL MEETINGS AND VOTES REQUIRED
Place, Date and Time. The Metzler Special Meeting will be held at the Mid-
America Club, 200 E. Randolph Drive, Chicago, Illinois, on Wednesday, August
19, 1998 at 4:00 p.m., Chicago time.
The LECG Special Meeting will be held at the Mid-America Club, 200 E.
Randolph Drive, Chicago, Illinois, on Wednesday, August 19, 1998 at 3:30 p.m.,
Chicago time.
Matters to be Considered at the Special Meetings. At the Metzler Special
Meeting, the Metzler Stockholders will consider and vote upon a proposal to
approve the issuance of the Metzler Common Stock in connection with the Merger.
At the LECG Special Meeting, the LECG Shareholders will consider and vote upon
a proposal to approve the Merger and the Merger Agreement.
Required Vote; Interest of Certain Persons in the Merger. The approval of the
Merger Agreement requires the affirmative vote of the holders of a majority of
the shares of LECG Common Stock outstanding on the LECG Record Date. As of the
LECG Record Date, the directors and executive officers of LECG and their
affiliates had the right to vote an aggregate of 5,063,372 shares of LECG
Common Stock, representing approximately 38.9% of the LECG Common Stock then
outstanding. Certain of the directors and executive officers of LECG and
certain trusts for the benefit of members of their families holding
approximately 53.4% of the LECG Common Stock outstanding as of the LECG Record
Date are parties to voting agreements with Metzler pursuant to which each has
agreed to vote such person's shares of LECG Common Stock in favor of the Merger
Agreement. See "The Merger--Related Agreements--Voting Agreements." Also,
Metzler has agreed to indemnify all current and former directors and officers
of LECG, as provided in the Merger Agreement. See "The Merger--Interests of
Certain Persons in the Merger" and "The Merger Agreement--Indemnification of
Directors and Officers Maintained."
5
<PAGE>
The approval of the issuance of Metzler Common Stock in connection with the
Merger requires the affirmative vote of the holders of a majority of the shares
of Metzler Common Stock present in person or by proxy and voted at the Metzler
Special Meeting. As of the Metzler Record Date, the directors and executive
officers of Metzler and their affiliates had the right to vote an aggregate of
1,581,831 shares of Metzler Common Stock, representing approximately 7.0% of
the Metzler Common Stock then outstanding.
Record Date; Shares Outstanding and Entitled to Vote. The Metzler Board of
Directors has fixed July 1, 1998 as the Metzler Record Date. Accordingly, only
holders of record of Metzler Common Stock at the close of business on that date
will be entitled to notice of and to vote at the Metzler Special Meeting. At
the close of business on such date, there were 22,607,467 shares of Metzler
Common Stock outstanding.
The LECG Board of Directors has fixed July 1, 1998 as the LECG Record Date.
Accordingly, only holders of record of LECG Common Stock at the close of
business on that date will be entitled to notice of and to vote at the LECG
Special Meeting. At the close of business on such date, there were 13,027,867
shares of LECG Common Stock outstanding.
THE MERGER
General. The Merger Agreement provides that, at the effective time of the
Merger (the "Effective Time"), Acquisition will be merged into LECG, which will
continue to exist as a wholly-owned subsidiary of Metzler. See "The Merger
Agreement--The Merger".
Merger Consideration. The Merger Agreement provides that, at the Effective
Time, each share of LECG Common Stock issued and outstanding immediately prior
to the Effective Time, will cease to be outstanding and will be converted into
the right to receive 0.6 shares of Metzler Common Stock (subject to certain
adjustments and provisions, as provided in the Merger Agreement). Each holder
of shares of LECG Common Stock who would otherwise have been entitled to
receive a fraction of a share of Metzler Common Stock will receive cash in lieu
thereof. See "The Merger--Conversion of Securities." In addition, the Merger
Agreement provides that each outstanding LECG stock option will be converted
into an option to acquire Metzler Common Stock, in accordance with the Exchange
Ratio.
THE LECG SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF
LECG STOCK CERTIFICATES WILL BE MAILED TO EACH HOLDER OF LECG COMMON STOCK
FOLLOWING CONSUMMATION OF THE MERGER.
Recommendation of the Metzler Board of Directors. The Metzler Board of
Directors has unanimously approved the Merger Agreement as being fair to and in
the best interests of Metzler and its stockholders. See "The Merger--
Recommendations of the Boards of Directors and Reasons for the Merger--
Metzler."
THE METZLER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE METZLER
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF THE METZLER
COMMON STOCK.
Recommendation of the LECG Board of Directors. The LECG Board of Directors
has unanimously approved the Merger Agreement as being fair to and in the best
interests of its shareholders. See "The Merger--Recommendations of the Boards
of Directors and Reasons for the Merger--LECG."
THE LECG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE LECG SHAREHOLDERS
VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
Conditions to the Merger. The obligations of Metzler, Acquisition and LECG to
consummate the Merger are subject to various conditions, including, but not
limited to, obtaining the requisite approval of the Metzler
6
<PAGE>
Stockholders and the LECG Shareholders, the absence of material breaches of
representations and warranties by the other party, the performance by the other
party in all material respects of its obligations under the Merger Agreement,
authorization for trading on the Nasdaq National Market ("Nasdaq"), subject to
official notice of issuance of the shares of Metzler Common Stock to be issued
in connection with the Merger, the receipt by each of Metzler and LECG of
certain opinions of counsel with respect to certain legal matters and Federal
income tax consequences of the Merger, and the receipt by Metzler and LECG of
the opinions of their respective independent auditors with respect to certain
accounting issues. There are other conditions to the obligations of each party
to consummate the Merger. See "Merger Agreement--Conditions."
Termination of the Merger. The Merger Agreement may be terminated at any time
prior to the Effective Time by the mutual consent of Metzler and LECG, or by
either party if: (i) the Merger is not consummated on or before October 31,
1998, unless the failure to consummate the Merger is due to the failure of the
party seeking to terminate the Merger Agreement to perform its obligations
thereunder; (ii) the other party breaches its obligations in a manner that is
material in the context of the transactions contemplated by the Merger
Agreement; (iii) there shall exist any inaccuracies or omissions in the
representations or warranties of the other party contained in the Merger
Agreement; or (iv) the Metzler Stockholders or the LECG Shareholders vote not
to approve and adopt the Merger Agreement and the related transactions at the
Metzler Special Meeting or the LECG Special Meeting, respectively. Also, the
Merger Agreement may be terminated by Metzler if any person other than Metzler
or a subsidiary of Metzler becomes the beneficial owner of 40% or more of the
outstanding shares of LECG Common Stock or commences a tender offer or exchange
offer to acquire at least 40% of the outstanding shares of LECG Common Stock,
or if LECG executes a definitive agreement (other than the Merger Agreement)
regarding a proposal for a tender offer, exchange offer, merger, consolidation
or other business combination involving LECG or any subsidiary thereof, or for
the acquisition of a substantial portion of the equity or assets of LECG or any
subsidiary thereof. There are other termination provisions in the Merger
Agreement. See "The Merger Agreement--Termination; Termination Fees and
Expenses."
Effects of Termination of the Merger. If the Merger Agreement is terminated,
then in certain circumstances, Metzler or LECG will be obligated to reimburse
the other party for reasonable out-of-pocket expenses incurred in connection
with the Merger. See "The Merger Agreement--Termination; Termination Fees and
Expenses."
Resale of Metzler Common Stock; Agreements with Affiliates. The shares of
Metzler Common Stock to be received by holders of LECG Common Stock in the
Merger will be registered under the Securities Act and will be freely
transferable, subject in the case of affiliates of LECG to certain limitations
on resale described in this Joint Proxy Statement-Prospectus. At the Effective
Time, Metzler Common Stock will continue to trade as a Nasdaq security under
the symbol "METZ." See "The Merger--Additional Agreements--Affiliate
Agreements" and "The Merger Agreement--Additional Agreements--Additional
Covenants of LECG."
Interests of Certain Persons in the Merger. The Merger Agreement provides
that, to the extent written notice of any loss or claim is given to Metzler
after the Effective Time, Metzler will indemnify the present and former
officers and directors of LECG and its subsidiaries against such loss or claim
arising out of actions or omissions occurring at or prior to the Effective
Time. For three years after the Effective Time, Metzler will cause to be
maintained officers' and directors' liability insurance covering the current
and former officers and directors of LECG and its subsidiaries on terms not
less advantageous than those in effect on July 1, 1998. Metzler has agreed to
grant certain affiliates of LECG and certain other LECG-related shareholders
the right to participate in the next underwritten public offering of Metzler
Common Stock. See "The Merger--Interests of Certain Persons in the Merger" and
"The Merger Agreement--Indemnification of Directors and Officers Maintained."
Comparison of Rights of Holders of Metzler Common Stock and Holders of LECG
Common Stock. If the Merger is consummated, holders of LECG Common Stock will
become holders of Metzler Common Stock, which will result in their rights as
stockholders being governed by the laws of the State of Delaware, and by
7
<PAGE>
Metzler's Amended and Restated Certificate of Incorporation (the "Metzler
Certificate") and Bylaws, as amended (the "Metzler Bylaws"). See "Comparison of
Security Holder Rights."
Appraisal Rights. No LECG Shareholder is entitled to appraisal rights in
connection with the Merger pursuant to the California General Corporation Law
("CGCL") unless holders of at least 5% of the outstanding shares of LECG Common
Stock timely object in accordance with the CGCL or the Shares of Common Stock
held by such LECG Shareholders are restricted within the meaning of Section
1300 of the CGCL. The Metzler Stockholders are not entitled to appraisal rights
in connection with the Merger pursuant to the Delaware General Corporation Law
("DGCL"), the Metzler Certificate, the Metzler Bylaws or any resolution of the
Metzler Board of Directors. See "The Merger--Appraisal Rights."
Certain Federal Income Tax Consequences. As a condition to the Merger, LECG
will receive an opinion of its counsel that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Merger so qualifies, no gain or loss will be recognized by Metzler, Acquisition
or LECG as a result of the Merger and no gain or loss will generally be
recognized by a shareholder of LECG who receives Metzler Common Stock in
exchange for LECG Common Stock (except with respect to cash received in lieu of
fractional shares). LECG Shareholders are urged to consult their own tax
advisors as to the specific tax consequences of the Merger. See "The Merger--
Certain Federal Income Tax Consequences."
Accounting Treatment. Metzler intends to treat the Merger as a pooling of
interests for accounting purposes. Consequently, Metzler will restate its
consolidated financial statements to include the assets, liabilities,
shareholders' equity and results of operations of LECG, as reflected in the
consolidated financial statements of LECG. Accounting for the Merger as a
pooling of interests is a condition precedent to the consummation of the
Merger. See "The Merger--Accounting Treatment."
Operations After the Merger. After the Merger, Metzler and LECG will continue
to engage in their respective businesses. The current Board of Directors and
executive officers of Metzler will remain as the Board of Directors and
executive officers of Metzler. It is presently anticipated that each of Metzler
and LECG will continue to operate at its current facilities. See "The Merger--
Management Following the Merger."
8
<PAGE>
MARKET PRICE DATA
The following table sets forth, for the calendar quarters indicated, the
range of high and low sales prices per share for Metzler Common Stock as
reported on Nasdaq and for LECG Common Stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
METZLER
COMMON LECG COMMON
STOCK(1) STOCK(2)
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
Fourth Quarter (from October 4, 1996)............. $23.00 $13.33 -- --
1997
First Quarter..................................... $23.17 $14.00 -- --
Second Quarter.................................... $21.84 $13.17 -- --
Third Quarter..................................... $27.42 $20.67 -- --
Fourth Quarter (LECG from December 18, 1997)...... $27.67 $23.00 $ 9.06 $ 8.00
1998
First Quarter..................................... $33.50 $24.00 $13.88 $ 7.88
Second Quarter.................................... $36.62 $26.03 $17.32 $12.19
Third Quarter (through July 20, 1998)............. $37.75 $29.63 $21.88 $15.13
</TABLE>
- --------
(1) METZ Common Stock has been traded on Nasdaq since its initial public
offering on October 4, 1996.
(2) LECG Common Stock has been traded on the New York Stock Exchange since its
initial public offering on December 18, 1997.
The following table sets forth the last sales prices per share of Metzler
Common Stock and LECG Common Stock, as reported by The Wall Street Journal on
July 1, 1998, the last full trading day before the joint public announcement by
Metzler and LECG of the proposed Merger, and on July 23, 1998, and the
equivalent per share price for LECG Common Stock based on the Metzler Common
Stock price and the Exchange Ratio. See "The Merger Agreement--Conversion of
Securities."
<TABLE>
<CAPTION>
LECG
COMMON LECG PRO
METZLER COMMON STOCK FORMA
STOCK PRICE PRICE EQUIVALENT
-------------- ------ ----------
<S> <C> <C> <C>
July 1, 1998................................... $35.00 $15.00 $21.00
July 20, 1998.................................. $36.94 $21.63 $22.16
</TABLE>
On July 1, 1998, there were approximately 38 holders of record of Metzler
Common Stock and approximately 34 holders of record of LECG Common Stock.
THE METZLER STOCKHOLDERS AND THE LECG SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR METZLER COMMON STOCK AND LECG COMMON STOCK,
RESPECTIVELY, IN CONNECTION WITH VOTING THEIR SHARES. METZLER COMMON STOCK
TRADES ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "METZ" AND LECG COMMON
STOCK TRADES ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "XPT". IF THE
MERGER IS CONSUMMATED, METZLER COMMON STOCK WILL CONTINUE TO TRADE ON NASDAQ
UNDER THE SYMBOL "METZ" AND LECG COMMON STOCK WILL CEASE TO BE TRADED.
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Metzler. The summary historical consolidated financial information of Metzler
for its five fiscal years ended December 31, 1997 is derived from its audited
Consolidated Financial Statements. The financial data as of and for the three-
month periods ended March 31, 1997 and 1998 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 presented. The following information
should be read in conjunction with Metzler's Consolidated Financial Statements
and related Notes thereto, the information set forth under "Information
Concerning The Metzler Group, Inc.--Metzler Management's Discussion and
Analysis of Financial Condition and Results of Operations of Metzler" and other
financial information appearing elsewhere in this Joint Proxy Statement-
Prospectus.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF METZLER
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
INCOME DATA (2):
Revenues................ $46,175 $47,104 $55,817 $63,553 $83,661 $18,084 $25,487
Cost of services........ 31,344 32,059 37,085 42,315 49,567 11,154 14,506
------- ------- ------- ------- ------- ------- -------
Gross profit............ 14,831 15,045 18,732 21,238 34,094 6,930 10,981
Selling, general and
administrative
expenses............... 14,356 14,548 17,812 15,610 18,108 4,256 5,066
Merger-related costs.... -- -- -- -- 1,312 -- --
------- ------- ------- ------- ------- ------- -------
Income from operations.. 475 497 920 5,628 14,674 2,674 5,915
Other expense (income).. 43 301 241 73 (799) (220) (481)
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 432 196 679 5,555 15,473 2,894 6,396
Provision for income
taxes.................. 547 262 393 (180) 5,786 1,088 2,539
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (115) $ (66) $ 286 $ 5,735 $ 9,687 $ 1,806 $ 3,857
======= ======= ======= ======= ======= ======= =======
Pro forma net income
(1).................... $ 1,952 $ 2,916
======= =======
Pro forma or net income
per dilutive share..... $ 0.10 $ 0.15 $ 0.47 $ 0.09 $ 0.18
======= ======= ======= ======= =======
Diluted weighted average
shares outstanding..... 19,033 19,445 20,469 20,216 22,022
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA (2):
Cash and cash
equivalents............ $ 132 $ 278 $ 701 $33,536 $21,573 $53,702
Working capital......... 3,762 3,946 5,202 36,429 31,566 69,036
Total assets............ 14,857 14,962 16,839 52,269 50,764 86,293
Long-term debt, less
current portion........ 668 833 1,003 1,401 319 --
Total stockholders'
equity................. 3,283 3,174 3,646 35,949 32,907 73,887
</TABLE>
- --------
(1) Pro forma net income and net income per dilutive share for the years ended
December 31, 1996 and 1995 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 Metzler's Consolidated Financial Statements.
(2) The amounts above have been restated to reflect the prior transactions
accounted for as poolings of interests as described in Note 3 of Notes to
Metzler's Consolidated Financial Statements.
10
<PAGE>
LECG. The summary historical consolidated financial information of LECG for
its four fiscal years ended December 31, 1997 is derived from its audited
Consolidated Financial Statements. The financial data as of December 31, 1993
and 1994, and for the fiscal year ended December 31, 1993 and the three month
periods ended March 31, 1997 and 1998, 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 presented. The following information should be read in
conjunction with LECG's Consolidated Financial Statements and related Notes
thereto, the information set forth under "Information Concerning LECG, Inc.--
LECG Management's Discussion and Analysis of Financial Condition and Results of
Operations of LECG" and other financial information appearing elsewhere in this
Joint Proxy Statement-Prospectus.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LECG
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- ------- ------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
INCOME DATA:
Revenues................ $20,317 $24,548 $24,835 $31,392 $44,110 $9,901 $15,780
Cost of services........ 13,614 16,772 16,465 20,881 27,936 6,646 10,052
------- ------- ------- ------- ------- ------ -------
Gross profit............ 6,703 7,776 8,370 10,511 16,174 3,255 5,728
Selling, general and
administrative
expenses............... 3,537 3,639 4,048 5,258 8,114 1,415 2,868
------- ------- ------- ------- ------- ------ -------
Income from operations.. 3,166 4,137 4,322 5,253 8,060 1,840 2,860
Other income (1)........ -- -- -- -- (852) -- (193)
------- ------- ------- ------- ------- ------ -------
Income before provision
for income taxes....... 3,166 4,137 4,322 5,253 8,912 1,840 3,053
Provision for income
taxes.................. 183 90 83 189 3,148 64 1,252
------- ------- ------- ------- ------- ------ -------
Net income.............. $ 2,983 $ 4,047 $ 4,239 $ 5,064 $ 5,764 $1,776 $ 1,801
======= ======= ======= ======= ======= ====== =======
Pro forma net income
(2).................... $ 3,099 $ 5,259 $1,086
======= ======= ======
Pro forma or net income
per dilutive share..... $ 0.30 $ 0.51 $ 0.11 $ 0.14
======= ======= ====== =======
Diluted weighted average
shares outstanding..... 10,245 10,249 10,189 13,123
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ----------- ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA:
Cash and cash
equivalents............ $ 721 $ 407 $ 598 $ 3 $24,165 $21,865
Working capital......... 3,611 5,319 5,934 4,342 24,654 27,804
Total assets............ 8,469 11,348 11,566 13,198 45,056 48,398
Long-term debt, less
current portion........ -- -- -- -- -- --
Total shareholders'
equity................. 3,870 5,539 6,348 6,264 26,637 30,598
</TABLE>
- --------
(1) Other income for the year ended December 31, 1997 of $852,000 resulted from
the expiration of an option to purchase the assets of the Company by an
unrelated third party. This income is not expected to be recurring. See Notes
10 and 12 of Notes to LECG's Consolidated Financial Statements. If this non-
recurring item had not occurred, pro forma net income would be $4,756,000 and
pro forma net income per dilutive share would be $0.46.
(2) The pro forma consolidated statement of income data for the years ended
December 31, 1996 and 1997 and for the three month period ended March 31,
1997 have been adjusted to reflect a provision for income taxes that would
have been recorded had LECG been a C Corporation. See Notes 2 and 10 of Notes
to LECG's Consolidated Financial Statements.
11
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following selected pro forma condensed combined financial information
presents the Merger as a pooling of interests as if it had been consummated,
with respect to the statement of income data, at the beginning of the periods
presented or, with respect to the balance sheet data, as of the date presented.
The selected pro forma condensed combined financial information combines the
selected financial information of Metzler for each of the years in the five
year period ended December 31, 1997 with the selected financial information of
LECG for each of the years in the five year period ended December 31, 1997. The
unaudited pro forma combined statement of income data for the three month
periods ended March 31, 1998 and 1997 combine Metzler and LECG historical
results for those three month periods. Such information is derived from, and
should be read in conjunction with, the unaudited pro forma combined financial
statements, the separate historical consolidated financial statements of
Metzler and LECG, and other financial information appearing elsewhere in this
Joint Proxy Statement-Prospectus. The pro forma condensed combined financial
information has been included for comparative purposes only and does not
purport to be indicative of the results of operations or financial position
which actually would have been obtained if the Merger had been consummated at
the beginning of the periods or as of the date presented, or of the results of
operations or financial position which may be obtained in the future.
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
INCOME DATA:
Revenues................ $66,492 $71,652 $80,652 $94,945 $127,771 $ 27,985 $ 41,267
Cost of services........ 44,958 48,831 53,550 63,196 77,503 17,800 24,558
------- ------- ------- ------- -------- --------- ---------
Gross profit............ 21,534 22,821 27,102 31,749 50,268 10,185 16,709
Selling, general and
administrative
expenses............... 17,893 18,187 21,860 20,868 26,222 5,671 7,934
Merger-related costs.... -- -- -- -- 1,312 -- --
------- ------- ------- ------- -------- --------- ---------
Income from operations.. 3,641 4,634 5,242 10,881 22,734 4,514 8,775
Other expense (income).. 43 300 241 73 (1,651) (220) (674)
------- ------- ------- ------- -------- --------- ---------
Income before provision
for income taxes....... 3,598 4,334 5,001 10,808 24,385 4,734 9,449
Provision for income
taxes.................. 730 353 476 9 8,934 1,152 3,791
------- ------- ------- ------- -------- --------- ---------
Net income.............. $ 2,868 $ 3,981 $ 4,525 $10,799 $ 15,451 $ 3,582 $ 5,658
======= ======= ======= ======= ======== ========= =========
Pro forma net income.................... $ 6,191 $ 6,015 $ 14,946 $ 2,892
======= ======= ======== =========
Pro forma or net income per dilutive share...... $ 0.24 $ 0.56 $ 0.11 $ 0.19
======= ======== ========= =========
Diluted weighted average shares outstanding..... 25,592 26,618 26,329 29,896
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
---------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 75,567
Working capital (1)................................................... 91,840
Total assets.......................................................... 134,691
Long-term debt, less current portion.................................. --
Total stockholders' equity (1)........................................ 99,485
</TABLE>
- --------
(1) Adjusted to reflect the expectation of the companies to incur an estimated
$5.0 million of non-recurring merger-related costs.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Metzler
and LECG and combined per share data on an unaudited pro forma basis after
giving effect to the Merger accounted for under the pooling of interests method
of accounting and assuming that 0.6 shares of Metzler Common Stock were issued
in exchange for each share of LECG Common Stock issued and outstanding.
These data should be read in conjunction with the Selected Historical and Pro
Forma Financial Data and the historical audited and unaudited financial
statements of Metzler and LECG and the notes thereto that are included
elsewhere in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------- QUARTER ENDED
1995 1996 1997 MARCH 31, 1998
---- ---- ----- --------------
<S> <C> <C> <C> <C>
METZLER
Historical Per Common Share:
Basic:
Pro forma or net income....................... $.10 $.15 $ .48 $ .18
Book value as of period end................... $1.65 $3.50
Diluted:
Pro forma or net income....................... $.10 $.15 $ .47 $ .18
Book value as of period end................... $1.61 $3.36
Pro Forma Combined Per Metzler Common Share:
Basic:
Pro forma net income.......................... $.24 $ .57 $ .20
Book value as of period end................... $3.44
Diluted:
Pro forma net income.......................... $.24 $ .56 $ .19
Book value as of period end................... $3.33
LECG
Historical Per Common Share:
Basic:
Pro forma or net income....................... $.31 $ .52 $ .14
Book value as of period end................... $2.61 $2.35
Diluted:
Pro forma or net income....................... $.30 $ .51 $ .14
Book value as of period end................... $2.60 $2.33
Pro Forma Combined Per LECG Common Share:
Basic:
Pro forma net income.......................... $.14 $ .34 $ .12
Book value as of period end................... $2.07
Diluted:
Pro forma net income.......................... $.14 $ .34 $ .11
Book value as of period end................... $2.00
</TABLE>
13
<PAGE>
RISK FACTORS
The following factors should be considered carefully by holders of LECG
Common Stock in evaluating whether to approve the Merger Agreement and thereby
become holders of Metzler Common Stock, and by holders of Metzler Common Stock
in evaluating whether to approve the issuance of Metzler Common Stock in
connection with the Merger. These factors should be considered in conjunction
with the other information included in this Joint Proxy Statement-Prospectus.
See "Information Concerning The Metzler Group, Inc." and "Information
Concerning LECG, Inc."
This Joint Proxy Statement-Prospectus contains forward-looking statements
that involve risks and uncertainties. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
or variations of such words are intended to identify these forward-looking
statements. The forward-looking statements reflect the judgment of the
management of Metzler and LECG, as appropriate, based on factors currently
known and involve risks and uncertainties. Actual results and outcomes may
differ materially from the results and outcomes discussed in the forward-
looking statements. Factors that might cause such a difference include, but
are not limited to, those discussed in "Risk Factors" below, as well as those
discussed elsewhere in this Joint Proxy Statement-Prospectus.
RISK FACTORS RELATED TO THE MERGER
General Risks Associated with Combination of Operations. Metzler and LECG
have entered into the Merger Agreement with the expectation that the proposed
Merger will result in long-term strategic benefits. Realization of these
anticipated benefits will depend in part on whether the transition of LECG as
a wholly-owned, independently operating subsidiary of Metzler can be achieved
in an efficient and effective manner. There can be no assurance that this will
occur. The diversion of management's attention and any difficulties
encountered in the transition process could cause the interruption of, or a
loss of momentum in, the activities of either or both of the businesses and
could have a material adverse effect on the Combined Company's business,
operating results and financial condition.
Dependence on LECG Management. Metzler will rely on the current management
team of LECG to continue to operate LECG. If the members of that management
team were to terminate their employment with LECG, the ability of Metzler to
manage LECG's business would be adversely affected, LECG's client
relationships could be jeopardized and LECG's operations could be disrupted.
Any such termination of employment could defer or prevent the realization of
the benefits anticipated from the Merger and could have a material adverse
effect on the Combined Company's business, operating results and financial
condition.
Financial Impact of Failure to Achieve Synergies. If the combination of
Metzler's and LECG's operations is not successful, or if the accretive effect
of the Merger is below expectations of securities analysts, the market price
of Metzler's Common Stock could be adversely affected, perhaps significantly.
Any shortfall in anticipated operating results could have an immediate and
significant adverse effect on the market price of Metzler's Common Stock. In
particular, the Combined Company will incur substantial Merger-related
expenses, currently estimated to be approximately $5.0 million, primarily in
the quarter in which the Merger is consummated. Metzler expects that the
Merger will be accretive; however, this forward-looking statement is subject
to risks and uncertainties and actual results may vary due to unforeseen
changes, inaccurate or incomplete assumptions regarding the current business
or future prospects of either or both of LECG or Metzler, or other reasons,
including without limitation those described in this "Risk Factors" section or
elsewhere in this Joint Proxy Statement-Prospectus. Any failure of the Merger
to meet expectations as to potential business synergies or any failure of the
Merger to be accretive in any quarter could have an immediate and significant
adverse effect on the market price of Metzler's Common Stock after the Merger.
RISK FACTORS RELATED TO METZLER AND LECG
Management of Growth. Metzler and LECG are both experiencing rapid
operational and geographic growth that has strained, and could continue to
strain, the companies' managerial, administrative, operational and other
14
<PAGE>
resources. The Combined Company's ability to manage its growth after the
Merger will require it to continue to improve its operational, financial and
other internal systems and to attract, develop, motivate and retain its
professional and other employees. The rapid growth of both companies has
presented and will continue to present numerous operational challenges, such
as the assimilation of financial reporting systems, the need to identify on a
timely basis and resolve actual or potential conflicts of interests and
increased pressure on senior management. There can be no assurance that the
existing business models can be successfully scaled up in existing markets or
replicated in new geographic areas. The Combined Company's success will depend
in large part on its ability to maintain appropriate levels of consultant
utilization, to maintain billing rates, to maintain quality and to accurately
set and meet schedules. If management is unable to manage growth or new
employees are unable to achieve anticipated performance or utilization levels,
the Combined Company's business, operating results and financial condition
could be materially and adversely affected.
Risks Associated with Acquisitions. Metzler's strategy of growth through
acquisitions of consulting firms has required, and will continue to require, a
substantial amount of management resources and attention. Failure to manage
successfully the acquisition of businesses and to retain of their employees
would have a material adverse effect on the Combined Company's business,
operating results and financial condition. 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 Combined Company will be
able to successfully acquire businesses in a timely manner without substantial
costs, delays or other operational or financial problems. In addition,
acquisitions may involve the expenditure of significant funds. Client
dissatisfaction or performance problems at a single acquired company could
have an adverse effect on the reputation of the Combined Company as a whole,
resulting in increased difficulty in marketing services or acquiring companies
in the future. Acquisitions also involve a number of additional risks,
including, potential loss of key clients or personnel, risks associated with
unanticipated problems, liabilities or contingencies, conflicts of interests
and risks of entering markets in which the Combined Company has limited or no
direct expertise. The occurrence of some or all of the events could have a
material adverse effect on Metzler's business, operating results and financial
condition.
Attraction and Retention of Professional and Administrative Staff. Metzler
and LECG derive their revenues almost exclusively from consulting services
performed by their professional and administrative staffs. The Combined
Company's future performance will continue to depend in large part upon its
ability to attract, develop, motivate and retain highly-skilled professionals
possessing business generation skills and, in the case of LECG, senior
academics with superior professional reputations. Qualified professional
consultants are in great demand and are likely to remain a limited resource
for the foreseeable future. There can be no assurance that the Combined
Company will be able to retain a substantial majority of its existing or
future consultants for the long term. The loss of the services of, or the
failure to recruit, a significant number of consultants could adversely affect
the ability of the Combined Company to secure and complete engagements and
could have a material adverse effect on its business, operating results and
financial condition.
Concentration of Revenues. Metzler currently derives the majority of its
revenues from consulting engagements with electric utility companies and
substantially all of its revenues from utilities. Much of Metzler'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. 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 Metzler's current or potential clients or create conflicts of
interest between its clients. Furthermore, the number of potential clients in
the utility industry may decrease, and current and future economic pressures
may limit spending by utilities for the types of services offered by Metzler.
Because of the nature and scope of many of Metzler's projects, Metzler
derives a significant portion of its revenues from a relatively limited number
of clients that operate exclusively in the utility industry. Clients engage
Metzler on an assignment-by-assignment basis, and a client can generally
terminate an assignment at any
15
<PAGE>
time without penalty. Metzler's typical engagement cycle causes Metzler's
clients, absent project carryovers, to change from year to year. The loss of
significant clients could have a material adverse effect on the Combined
Company's business, operating results and financial condition.
Similarly, LECG currently derives approximately one half of its revenues
from two major practice areas: antitrust (including mergers and acquisitions
review) and regulation/deregulation. Changes in the politics, economics and
guiding philosophy with respect to these areas, or any area in which LECG
conducts business, could significantly reduce the need for economic consulting
services in these areas, which would have a material adverse effect on the
Combined Company's business, operating results and financial condition.
Project and Service Risks. Many of Metzler's and LECG's engagements involve
projects that are critical to their 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. Many of Metzler's and LECG's engagements also involve
projects that could have a significant financial impact on their clients'
businesses. The failure or inability to meet a client's expectations could
have a material adverse effect on the Combined Company's reputation, thereby
adversely affecting its business, operating results and financial condition.
Metzler's and LECG'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 Metzler or LECG, or
their independent contractors, were found to have been negligent or to have
breached their obligations or duties to their clients, the Combined Company
could be exposed to significant liabilities and its reputation could be
adversely affected. Similarly, the existence of a conflict of interest could
cause loss of client revenues and exposure to claims of malpractice, which
could have a material adverse effect on the Combined Company's business,
operating results and financial condition. Engineering engagements pose
special risks because the consulting services include construction project
budgeting and supervision and studies of critical project areas such as
structural or stress analysis. As a result, Metzler 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. Metzler and
LECG currently maintain professional liability insurance in an aggregate
maximum of approximately $10 million each.
A portion of Metzler's projects are billed on a fixed-bid basis as opposed
to its general method of billing on a time-and-expenses basis. The failure to
estimate accurately the resources and related expenses required for these
fixed-bid projects or the 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 Combined Company's business,
operating results and financial condition.
Some of the projects for which Metzler's and LECG's services have been
retained may be terminated prior to completion because clients are under no
contractual obligation to continue to use consulting services. Other projects
could terminate because of the settlement of litigation or the abandonment of
a merger. The premature termination of existing or future engagements by a
client could have a material adverse effect on the Combined Company's
business, operating results and financial condition. Even when a project is
successfully completed, the Combined Company may incur redeployment expenses
in locating a new project for its consultants or professional staff. In
addition, the Combined Company could incur substantial costs and expend
significant resources correcting errors if any were found in its work, and
could possibly become liable for damage caused by such errors.
Reliance on Key Personnel. The success of Metzler and LECG is highly
dependent upon the efforts, abilities, business generation capabilities and
project execution skills of many of their principals, executive officers,
senior managers, economists and consultants. There can be no assurance that
these individuals will perform at previous levels or that they will remain
with the Combined Company following the Merger. With limited exception,
neither Metzler nor LECG has an employment agreement with any of these
individuals. The loss of the services of any of these key persons for any
reason could have a material adverse effect upon the
16
<PAGE>
Combined Company's business, operating results and financial condition,
including its ability to secure and complete engagements. Neither company
maintains key-man life insurance policies on any of its executive officers or
senior managers. The engagement agreements between LECG and its principals are
terminable at will and, upon termination, do not restrict the principals from
competing with LECG. In the event that these individuals do not perform at
previous levels or do not remain with LECG, LECG's business, operating results
and financial condition would be materially and adversely affected.
Dependence on Experts. Although LECG does not derive a significant portion
of its net income from expert billings, LECG's ability to retain current
business and to attract new business is highly dependent on the academic and
consulting reputation of its experts and on the quality of their work
performed for LECG. In the event LECG's reputation for academic excellence is
tarnished or the quality of its work product is diminished, LECG's business,
operating results and financial condition could be materially adversely
affected. The ability of the experts to perform economic consulting services
also is often limited by the policies of universities with which they are
affiliated. Any change in the policies of these universities, or loss of the
services of any of these experts for any reason could have a material adverse
effect upon LECG's business, operating results and financial condition,
including its ability to secure and complete engagements. See "Information
Concerning LECG, Inc.--Business--Human Resources."
Variability of Quarterly Operating Results. Variations in Metzler's and
LECG'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 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 Metzler's and
LECG'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 extent that increases in the
number of professional personnel are not followed by corresponding increases
in revenues, operating results could be materially and adversely affected.
International Operations. Metzler and LECG operate offices in a total of
nine foreign countries and during 1997 were engaged in projects in
approximately 30 foreign countries. Metzler and LECG expect to continue to
expand their international operations and offices. Expansion into new
geographic regions requires considerable management and financial resources
and may negatively impact Metzler's and LECG's near-term results of
operations. Metzler's and LECG'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 consolidated companies'
business, operating results and financial condition.
Limited Protection of Proprietary Systems and Procedures. Metzler's and
LECG's performance depends in part upon their internal information and
communication systems, databases, tools, and the methods and procedures that
they have developed to serve their respective clients. Metzler 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 Combined Company to protect its proprietary rights will be adequate to
prevent misappropriation of such rights or that the Combined Company will be
able to detect unauthorized use and take appropriate steps to enforce its
proprietary rights. Metzler and LECG believe that their systems and procedures
and other proprietary rights do not infringe
17
<PAGE>
upon the rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Combined Company
in the future or that any such claims will not require the Combined Company to
enter into costly litigation or materially adverse settlements to litigation,
regardless of the merits of such claims.
Intense Competition. The market for Metzler's and LECG's consulting services
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, economic
consulting firms, the consulting practices of national accounting firms,
technical and economic advisory firms, regional and specialty consulting
firms, small "niche" consulting companies and individual academic 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 do Metzler, LECG or the Combined Company. There can be no assurance that
after the merger the Combined Company will compete successfully with its
existing competitors or with any new competitors.
Volatility of Stock Price. The trading prices of Metzler Common Stock and
LECG Common Stock have historically been, and after the Merger the trading
price of the common stock of the Combined Company is expected to be, subject
to wide fluctuations. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. There can be no assurance
that such fluctuations in price of the common stock of the Combined Company
will not continue in the future. See "Summary--Market Price Data."
In addition, the price of Metzler Common Stock at the effective time of the
Merger may vary from its price on the date of this Joint Proxy Statement-
Prospectus and on the date of the Special Meetings. Such variation may be the
result of changes in the business, operations or prospects of Metzler or LECG,
market assessments of the likelihood that the Merger will be consummated,
general market and economic conditions and other factors. Because the
effective time of the Merger may occur at a date later than the Special
Meetings, there can be no assurance that the price of Metzler Common Stock on
the date of the Special Meetings will be indicative of its price at the
effective time of the Merger. Shareholders of Metzler and LECG are urged to
obtain current market quotations for Metzler Common Stock and LECG Common
Stock prior to returning their proxies.
Certain Anti-Takeover Effects. The Metzler Certificate, the Metzler By-Laws
and the Delaware General Corporation Law include provisions that may be deemed
to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that stockholders might consider in their best interests. Directors of
Metzler are divided into three classes and are elected to serve staggered
three-year terms. The Board of Directors of Metzler is authorized to issue,
without obtaining stockholder approval, 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 Metzler by means of a tender offer, merger, proxy contest or
otherwise. Furthermore, such Preferred Stock may have other rights, including
economic rights, senior to the Common Stock, and, as a result, the issuance of
such stock could have a material adverse effect on the market price of the
Common Stock. Metzler has no current plans to issue shares of Preferred Stock.
The Combined Company may in the future adopt other measures that may have the
effect of delaying, deferring or preventing a change in control of the
Combined Company, even though at a premium price or favored by a majority of
unaffiliated shareholders. Certain of such measures may be adopted without any
further vote or action by the shareholders. Metzler has no current plans to
adopt any such measures.
18
<PAGE>
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement-Prospectus is being furnished to the Metzler
Stockholders and the LECG Shareholders in connection with the solicitation of
proxies by the respective Boards of Directors of Metzler and LECG for use at
the respective Special Meetings.
DATE, TIME AND PLACE OF MEETING
Place, Date and Time. The Metzler Special Meeting will be held at The Mid-
America Club, at 200 E. Randolph Drive, Chicago, Illinois, on Wednesday,
August 19, 1998 at 4:00 p.m., Chicago time.
The LECG Special Meeting will be held at The Mid-America Club, at 200 E.
Randolph Drive, Chicago, Illinois on Wednesday, August 19, 1998 at 3:30 p.m.,
Chicago time.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
At the Metzler Special Meeting, the Metzler Stockholders will consider and
vote upon a proposal to approve the issuance of the Metzler Common Stock in
connection with the Merger. At the LECG Special Meeting, the LECG Shareholders
will consider and vote upon a proposal to approve the Merger Agreement and the
Merger.
On or about July 27, 1998, a notice of the Special Meeting and a copy of
this Joint Proxy Statement-Prospectus were mailed to all of Metzler's
stockholders of record on the Metzler Record Date and LECG shareholders of
record on the LECG Record Date.
RECORD DATE; QUORUM; OUTSTANDING SHARES
Metzler. Only holders of record of Metzler Common Stock at the close of
business on the Metzler Record Date are entitled to vote at the Special
Meeting. A majority of the shares of Metzler Common Stock outstanding on the
Record Date will constitute a quorum for the transaction of business at the
Metzler Special Meeting.
At the close of business on the Metzler Record Date, there were 22,607,467
shares of Metzler Common Stock outstanding and held of record by approximately
38 stockholders (though Metzler has been informed that there are in excess of
2,300 beneficial owners).
LECG. Only holders of record of LECG Common Stock at the close of business
on the LECG Record Date are entitled to vote at the LECG Special Meeting. A
majority of the shares of LECG Common Stock outstanding on the LECG Record
Date will constitute a quorum for the transaction of business at the LECG
Special Meeting.
At the close of business on the LECG Record Date, there were 13,027,867
shares of LECG Common Stock outstanding and held of record by approximately 34
shareholders (though LECG has been informed that there are in excess of 1,600
beneficial owners).
VOTING RIGHTS; REQUIRED VOTE
Metzler. Holders of Metzler Common Stock are entitled to one vote for each
share held as of the Metzler Record Date. In the event that a broker, bank,
custodian, nominee or other record holder of Metzler Common Stock indicates on
a proxy that it does not have discretionary authority to vote certain shares
of Metzler Common Stock on a particular matter (a so called "broker non-
vote"), then those shares will not be considered present and entitled to vote
with respect to that matter, although they will be counted in determining
whether or not a quorum is present at the Meeting.
19
<PAGE>
The proposal to approve the issuance by Metzler of shares of Metzler Common
Stock in connection with the Merger requires for approval the affirmative vote
of a majority of the shares of Metzler Common Stock that are present in person
or represented by proxy at the Metzler Special Meeting and are voted for or
against the proposal. The inspector of elections appointed for the Metzler
Special Meeting will tabulate affirmative and negative votes, abstentions and
broker non-votes.
As of the Metzler Record Date, the directors and executive officers of
Metzler and their affiliates had the right to vote an aggregate of 1,581,831
shares of Metzler Common Stock, representing approximately 7.0% of the Metzler
Common Stock then outstanding. As of the Metzler Record Date, to the best of
Metzler's knowledge, neither Metzler nor any of the directors or executive
officers of Metzler owned any LECG Common Stock.
LECG. Holders of LECG Common Stock are entitled to one vote for each share
held as of the LECG Record Date. The proposal to approve the Agreement and the
Merger requires for approval the affirmative vote of a majority of the shares
of LECG Common Stock outstanding. Broker non-votes and abstentions will have
the same effect as a vote against the proposal.
The inspector of elections appointed for the LECG Special Meeting will
tabulate affirmative and negative votes, abstentions and broker non-votes.
As of the LECG Record Date, the directors and executive officers of LECG and
their affiliates had the right to vote an aggregate of 5,063,372 shares of
LECG Common Stock, representing approximately 38.9% of the LECG Common Stock
then outstanding.
VOTING AND REVOCATION OF PROXIES
Metzler. Shares of Metzler Common Stock represented by a proxy properly
signed and received at or prior to the Metzler Special Meeting, unless
subsequently revoked, will be voted in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, the shares of Metzler Common Stock represented by the proxy will
be voted FOR the issuance of Metzler Common Stock pursuant to the Merger and
FOR adjournment or postponement of the Metzler Special Meeting if an
adjournment or postponement, in the discretion of the proxy holders, is
determined to be necessary or desirable for purposes of soliciting additional
proxies. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is voted by filing with the
Secretary of Metzler prior to or at the Metzler Special Meeting either (i) an
instrument revoking it or (ii) a duly executed proxy bearing a later date, or
by voting in person at the Metzler Special Meeting. All written notices of
revocation and other communications with respect to revocation of Metzler
proxies should be addressed to: The Metzler Group, Inc., 615 N. Wabash,
Chicago, Chicago, Illinois 60611, Attention: Charles A. Demirjian, Secretary.
Attendance at the Metzler Special Meeting, in and of itself, will not
constitute a revocation of a proxy.
The Metzler Board of Directors is not aware of any business to be acted upon
at the Metzler Special Meeting other than as described herein. If, however,
other matters are properly brought before the Metzler Special Meeting,
including any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their best
judgment, except that properly executed proxies voted against approval of the
Merger, or which are voted against or which abstain with respect to an
adjournment or postponement for purposes of soliciting additional proxies,
will not be voted for any such adjournment or postponement. The grant of a
proxy will also confer discretionary authority on the persons named in the
proxy to vote on matters incident to the conduct of the Metzler Special
Meeting.
THE METZLER BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL DIRECTORS, HAS
APPROVED THE MERGER AS BEING IN THE BEST INTERESTS OF METZLER AND ITS
STOCKHOLDERS. THE METZLER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
METZLER STOCKHOLDERS VOTE FOR THE PROPOSAL TO ISSUE THE METZLER COMMON STOCK
IN CONNECTION WITH THE MERGER. THE METZLER STOCKHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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LECG. Shares of LECG Common Stock represented by a proxy properly signed and
received at or prior to the LECG Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. If a proxy is
signed and returned without indicating any voting instructions, the shares of
LECG Common Stock represented by the proxy will be voted FOR the proposal to
approve the Merger Agreement and the Merger. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted either (i) by filing with the Corporate Secretary of LECG prior
to or at the LECG Special Meeting an instrument revoking it or a duly executed
proxy bearing a later date, or (ii) by voting in person at the LECG Special
Meeting. All written notices of revocation and other communications with
respect to revocation of LECG proxies should be addressed to: LECG, Inc., 2000
Powell Street, Emeryville, California 94608 Attention: Corporate Secretary.
Attendance at the LECG Special Meeting, in and of itself, will not constitute
a revocation of a proxy.
The LECG Board of Directors is not aware of any business to be acted upon at
the LECG Special Meeting other than as described herein. If, however, other
matters are properly brought before the LECG Special Meeting, including any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their best judgment,
except that properly executed proxies voted against the Merger Agreement will
not be voted for any such adjournment or postponement. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy to
vote on matters incident to the conduct of the LECG Special Meeting.
THE LECG BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL DIRECTORS, HAS
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AS
BEING IN THE BEST INTERESTS OF LECG AND ITS SHAREHOLDERS. THE LECG BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT LECG SHAREHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
In October 1996, Metzler completed its initial public offering and soon
thereafter began focusing on implementing its growth strategy of consolidating
the management consulting industry, particularly for utilities and other
energy related businesses. In late 1997, Metzler began to explore the
strategic advantages of expanding its consulting services to include economic
and finance consulting to the utilities and energy industries, as well as to
other industries. During fall 1997 and winter 1998, Metzler held discussions
with several companies to explore their possible acquisition. In December
1997, LECG completed its own initial public offering.
In May 1998, Metzler contacted LECG regarding the possibility of a merger.
Upon such contact, senior management of LECG indicated that LECG might be
interested in pursuing a strategic combination with Metzler. In connection
with the possibility of a potential transaction, Metzler and LECG exchanged
non-confidential information. The parties also entered into a confidentiality
agreement dated as of May 15, 1998.
From May 1998 through June 1998, the management and Board of Metzler held
internal discussions regarding a merger with LECG. During the same period,
LECG's management and Board held similar internal discussions. In particular,
management of LECG discussed the impact of a merger and the merits of
remaining as a stand-alone corporation.
During this period, management of both companies continued to explore the
benefits of a merger and the operation of LECG as a subsidiary of Metzler,
including the desire of both companies for the current management team of LECG
to continue as such following the merger. Both companies undertook financial
and legal due diligence investigations and reviewed public and confidential
information, including filings with the SEC, news releases, investment banking
analysts' reports and operational information. Management of each company
discussed appropriate price parameters for a share exchange in connection with
a merger. The directors of the respective companies also discussed
alternatives available to each company. At this time, there was still no
agreement with LECG on price or structure.
On June 5, 1998, Metzler contacted LECG and made an offer to acquire all the
outstanding shares of LECG. Following such offer, the directors of LECG held a
meeting to discuss the process of negotiating a merger with Metzler. The
directors determined that, if mutually agreeable price and structure terms
could be reached, an acquisition by Metzler would be in the best interests of
LECG and its shareholders.
Between June 23, 1998 and June 25, 1998, negotiations were held between the
two companies regarding the exchange ratio for the outstanding shares of LECG
Common Stock. On June 24, 1998, a majority of the LECG Board met informally to
discuss the status of the transaction. During this time, LECG's management
continued negotiations with Metzler. Management of the two companies agreed to
an exchange ratio of 0.6 shares of Metzler Common Stock for each share of LECG
Common Stock, subject to their respective boards' approval. On June 26, 1998,
Metzler delivered a draft merger agreement to LECG. On June 27, 1998, the LECG
Board unanimously agreed to continue negotiation of terms to be set forth in
the definitive merger agreement.
From June 28 through July 1, 1998, the terms of a definitive merger
agreement were negotiated in Chicago, Illinois. The principal areas of
negotiation included representations and warranties to be made by LECG and
Metzler, respectively, in the Merger Agreement, the conditions precedent to
closing the transaction, the business covenants to be made by LECG and
Metzler, respectively, in the Merger Agreement and the conditions required for
consummating or terminating the Merger Agreement. The LECG Board met on June
29, 1998 to discuss the status of negotiations and the matters set forth under
"Recommendation of the Boards of Directors and Reasons for the Merger," as
well as to direct management and counsel regarding acceptable terms of a
definitive merger agreement. On June 30, 1998, the LECG Board met again to
discuss the status of negotiations and approved the terms of the Merger
Agreement and instructed management to finalize and execute the Merger
Agreement.
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During the above-referenced period, the Metzler Board also met informally to
stay current on the status of negotiations and the transaction terms being
discussed. On June 30, 1998, a formal meeting of the Metzler Board was
convened to discuss the transaction in detail, the status of negotiations, the
specific terms and conditions of the transaction as set forth in the then-
current draft of the Merger Agreement and the matters set forth under
"Recommendations of the Boards of Directors and Reasons for the Merger."
Following full discussion, the Metzler Board approved the Merger and terms of
the Merger Agreement and instructed Metzler's management to finalize and
execute the Merger Agreement.
At 3:00 p.m., Chicago time, July 1, 1998, the Merger Agreement was executed
by Metzler, Acquisition and LECG. The execution of the Merger Agreement was
announced promptly thereafter by the issuance of a joint press release by
Metzler and LECG.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
Joint Considerations. The Metzler Board and the LECG Board have approved the
Merger Agreement with the expectation that the proposed Merger will contribute
to the success of both companies by providing them with the ability to use
each other's services to augment their existing respective service offerings
and to develop enhanced new services, the opportunity to market their services
more effectively and the opportunity for LECG to develop greater presence as a
provider of economic analysis and related consulting services to electric and
gas utilities and other energy-related businesses and the opportunity for
Metzler's existing businesses to market their services to LECG's clients.
Metzler Considerations. At its June 30, 1998 meeting, the Metzler Board
determined that the consideration to be paid in the Merger was fair to Metzler
from a financial point of view and in the best interests of its stockholders.
In reaching this conclusion, the Metzler Board considered, with the assistance
of management and its financial advisors, numerous factors, including the
following:
a. Its conclusion that the Merger would allow Metzler to continue to
build a spectrum of complementary consulting services, and provide follow-
on engagements for many of its clients, by expanding its base of
comprehensive services, including sophisticated economic and financial
analysis, expert testimony and litigation support;
b. Its conclusion that the relationships of LECG's renowned experts,
often established during these experts' roles at the Department of Justice,
Federal Trade Commission, Federal Communication Commission and leading
universities, would be further leveraged by Metzler, in order to provide
significant opportunities for Metzler to access new clients;
c. Its conclusion that the Merger would allow Metzler to leverage LECG's
existing client relationships by cross-selling Metzler's information
technology, business strategy development consulting, process/operations
management, and marketing and sales services;
d. Its conclusion that LECG would provide Metzler with an expanded
domestic and international presence through additional offices and clients
in College Station, TX; Emeryville, CA; Salt Lake City, UT; Toronto,
Canada; Wellington, New Zealand; London, England; Brussels, Belgium; and
Toulouse, France;
e. Its conclusion that LECG's highly credentialed and experienced
professionals, many of whom have Ph.D.s or advanced degrees in economics or
finance, can provide additional analytical support and increased
utilization opportunities for Metzler's consultants;
f. Its conclusion that Metzler's reputation will be enhanced through
increased publicity resulting from the continued publication of
authoritative studies and articles in trade and academic journals by LECG's
experts;
g. Its conclusion that Metzler will be able to apply LECG's proprietary
library of economic data, studies and advanced financial models to existing
and new clients;
h. Its conclusion that the Merger strengthens Metzler's growth strategy
and established position as a leading consolidator of the highly fragmented
consulting services market;
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i. Its conclusion that the Merger will provide for greater name
recognition through the formation of a larger and more established
organization in the highly fragmented consulting services industry;
j. Its conclusion that the combined business would have the resources to
execute projects that would otherwise be too large for either Metzler or
LECG to complete independently;
k. Its conclusion that the Combined Company would have significantly
greater financial resources and improved liquidity for its stockholders;
l. Its knowledge of the business, operations, properties, assets,
financial condition, operating results and prospects of Metzler and LECG;
m. Interviews conducted with key executives of LECG regarding LECG's
revenues, operating margins, services, business strategy and the prospects
and markets for LECG's services;
n. The current industry, economic and market conditions;
o. Evaluation criteria analyses, including: (i) pro forma financial
results; (ii) relative contribution; (iii) comparable publicly traded
companies; (iv) comparable mergers and acquisitions; and (v) comparative
stock price performance;
p. The presentations by Metzler's management with respect to the
acquisition of LECG, including the expectation that the combination would
be accretive to Metzler's earnings in fiscal 1998 and 1999;
q. The historical trading prices and trading activity of Metzler Common
Stock and LECG Common Stock;
r. The terms of the Merger Agreement and the Registration Agreement; and
s. The expected accounting treatment of the transaction as a pooling of
interests and the intended tax-free nature of the transaction.
The foregoing discussion of the information and factors considered by the
Metzler Board is not intended to be exhaustive but is believed to include all
material factors considered by the Metzler Board. In view of the wide variety
of information and factors, both positive and negative, considered, and the
necessarily subjective and complex nature of many of these factors, the
Metzler Board did not find it practical to, and did not, quantify or otherwise
assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
THE METZLER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE METZLER
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF THE METZLER
COMMON STOCK IN CONNECTION WITH THE MERGER.
LECG Considerations. At its June 30, 1998 meeting, the LECG Board determined
that the consideration to be paid in the Merger was fair to LECG from a
financial point of view and in the best interests of its shareholders. The
LECG Board believes that the Merger represents a unique opportunity to combine
the talents of a leading provider of consulting services to the utility
industry and other network industries with a leading provider of economic and
financial consulting services to corporations, utilities, and national
governments and governmental agencies. The Merger will unite LECG's depth and
experience in the application of sophisticated economic and financial analysis
to complex business and policy problems with Metzler's depth and experience in
providing a broader array of consulting services related to management
consulting, information technology, economic regulation, and engineering and
technology. The LECG Board believes that this combination of consulting skills
and capabilities will allow the Combined Company to cross sell consulting
services and better compete for new consulting assignments. By combining LECG
and Metzler through the Merger, rather than pursuing internal growth or
smaller acquisitions, LECG can significantly accelerate the timetable for
growth and diversification that the management of LECG was formerly pursuing
on its own.
In reaching its conclusion that the consideration to be paid in the Merger
was fair to LECG from a financial point of view and in the best interests of
its shareholders, and its decision to approve the Merger Agreement and
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the Merger, the LECG Board considered, with the assistance of management and
its legal and financial advisors, numerous factors, including the following:
a. That the Merger offers LECG shareholders an opportunity to receive
shares in a significantly larger company with strong historical
performance, capital resources significantly greater than LECG's, and a
demonstrated ability to implement successfully an effective growth
strategy, while affording LECG shareholders the opportunity to continue to
participate in long-term growth and equity appreciation through an
ownership interest in Metzler;
b. The capital structure, client profile, consulting services
capabilities and strategy of Metzler, as well as other information on
Metzler's management and business operations, and the prospect of LECG and
Metzler achieving positive synergies from the combination;
c. The complementary nature of LECG's and Metzler's customer bases and
the potential for cross-selling and greater lead generation;
d. The potential for the combined companies to offer clients complete
solutions with full implementation capabilities;
e. The greater resources which would be available to the combined company
for development of new service offerings and products;
f. The larger geographic scope of the combined companies;
g. The operational opportunities and challenges of operating as an
independent subsidiary of Metzler and the management challenges associated
with a successful combination of the cultures and management approaches of
the two companies, as well as the several companies that have been acquired
by Metzler;
h. Publicly available information concerning Metzler's financial
performance, condition, prospects and operations, together with interviews
of key Metzler executives and consultants concerning the business and
strategic vision for the combined company;
i. Financial information indicating that the Exchange Ratio represented
$20.66 in the form of Metzler Common Stock for each share of LECG Common
Stock based on the last reported sale price of Metzler Common Stock on June
29, 1998, the last trading day prior to the meeting of the Board of
Directors of LECG at which the Merger and the Merger Agreement were
approved;
j. That the Exchange Ratio represented a significant premium over the
historical market price of LECG Common Stock, which had ranged from $7 7/8
per share to $17 5/16 per share from December 18, 1997, the first trading
day following LECG's initial public offering, through June 29, 1998, on
which date the closing sale price was $15 1/8;
k. Recognition that the Combined Company would enjoy greater financial
resources and greater shareholder liquidity;
l. Financial information indicating that, based on comparable public
company analysis and comparative mergers and acquisitions transaction
analysis performed by LECG, the Merger represents an attractive return to
LECG shareholders;
m. That the Merger provides LECG shareholders with Metzler Common Stock
in a tax-free exchange;
n. The terms and conditions of the Merger Agreement; and
o. Current industry, economic and market conditions.
The LECG Board also considered the following potentially negative factors in
its deliberations concerning the Merger:
a. The possibility that certain of the operating synergies sought to be
achieved as a result of the Merger might not be achieved;
b. The higher price-to-earnings ratio of Metzler Common Stock and the
possibility of a decrease in the market price of the Metzler Common Stock
after the Merger;
c. That, even though LECG would operate as an independent, wholly-owned
subsidiary, the Merger would still result in an ultimate loss of control,
in comparison to the level of autonomy that LECG would possess were it to
remain a separate company;
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d. The possibility of management disruption associated with the Merger;
e. The possibility that the Merger might adversely affect LECG's
relationship with certain of its clients;
f. The possibility of a decline in the value of the Metzler Common Stock;
and
g. The risk that other potential benefits of the Merger might not be
realized.
The foregoing discussion of the information and factors considered by the
LECG Board is not intended to be exhaustive but is believed to include all
material factors considered by the LECG Board. In view of the wide variety of
information and factors, both positive and negative, considered, and the
necessarily subjective and complex nature of many of these factors, the LECG
Board did not find it practical to, and did not, quantify or otherwise assign
any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
THE LECG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE LECG
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AND THE MERGER
AGREEMENT.
RELATED AGREEMENTS
Voting Agreements. Messrs. David Teece, Thomas Jorde, Robert Harris, Richard
Gilbert and Gordon Rausser (collectively the "LECG Insiders") and certain
trusts for the benefit of members of their families have each executed or have
been requested to execute a voting agreement with Metzler (the "Voting
Agreement"). As of the LECG Record Date, the LECG Insiders and such trusts
were the beneficial owners of a total of 6,955,821 shares of LECG Common
Stock, representing 53.4% of the shares of LECG Common Stock outstanding on
such Date. The Voting Agreement, among other things, and subject to certain
terms and conditions, requires the LECG Insiders (i) to grant Metzler an
irrevocable Proxy for the purpose of allowing Metzler to vote their shares of
LECG Common Stock in a manner most favorable to consummation of the Merger and
the related transactions and (ii) if for any reason Metzler cannot exercise
such Proxy, to vote their shares of LECG Common Stock in a manner most
favorable to the consummation of the Merger and related transactions. For any
violation of a Voting Agreement, Metzler has the right to seek equitable
relief in any court of competent jurisdiction to require that the LECG Insider
comply with the terms of the Voting Agreement.
Registration Agreement. Certain affiliates of LECG and other LECG-related
persons have entered into a registration rights agreement with Metzler (the
"Registration Agreement"), pursuant to which Metzler has agreed to grant them
the right to participate in the next underwritten public offering of Metzler
Common Stock.
Affiliate Letters. To help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes, each of
the LECG Insiders has entered (or will enter) into a letter agreement with
Metzler (the "Affiliate Letter"), pursuant to which such LECG Insider agrees
not to dispose of, or take any action that would reduce such person's risk of
ownership or investment in, any securities of LECG or Metzler (i) during the
30-day period immediately preceding the Effective Time or (ii) until such time
after the Effective Time as Metzler has publicly released a report including
the combined financial results of Metzler and LECG for a period of at least 30
days of post-Merger operations. The executive officers and directors of
Metzler have entered into similar agreements.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of July 1, 1998, the executive officers and directors of LECG and their
affiliates may be deemed to be the beneficial owners of an aggregate of
5,063,372 shares of LECG Common Stock. Based upon the closing sale price of
Metzler Common Stock on July 1, 1998 of $35.00, the aggregate dollar value of
the Metzler Common Stock to be received in the Merger by the executive
officers and directors of LECG is approximately $106,331,000. Certain LECG
directors and officers and trusts for the benefit of members of their
families, who hold in the aggregate more than 50% of the shares of LECG
outstanding as of the LECG Record Date, have entered into the Registration
Rights Agreement with Metzler, pursuant to which Metzler has agreed to grant
them
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the right to participate in the next underwritten public offering of Metzler
Common Stock. Pursuant to the Merger Agreement, Metzler has agreed that LECG
will maintain its existing indemnification of each person who was an officer,
director or employee of LECG against certain liabilities. As a result of the
foregoing transactions and agreements, the directors and executive officers of
LECG may have personal interests in the Merger which are not identical to the
interests of other LECG shareholders. See "The Merger Agreement--
Indemnification of Directors and Officers Maintained."
MANAGEMENT FOLLOWING THE MERGER
After the Merger, the Metzler Board will consist initially of the persons
currently serving on the Metzler Board and there will be no change in the
executive officers of Metzler. For additional information concerning the
management of Metzler and LECG. See "Information Concerning LECG, Inc." and
"Information Concerning The Metzler Group, Inc.--Management of Metzler."
APPRAISAL RIGHTS
Metzler. Holders of Metzler Common Stock are not entitled to dissenters'
appraisal or other similar rights under the DGCL in connection with the
Merger.
LECG. RIGHTS OF SHAREHOLDERS OF LECG TO DISSENT FROM THE MERGER AND TO
DEMAND PAYMENT FOR THEIR SHARES ARE GOVERNED BY CHAPTER 13 OF THE CGCL, THE
FULL TEXT OF WHICH IS ATTACHED HERETO AS ANNEX B. THE SUMMARY OF THESE RIGHTS
SET FORTH BELOW IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX B.
If holders of 5% or more of the outstanding shares of LECG Common Stock
entitled to vote at the LECG Special Meeting vote against the proposal to
approve the Merger and the Merger Agreement and file timely demands for cash
payment as described below, all holders of LECG Common Stock who so vote and
file such timely demands and comply with certain other procedures will be
entitled to exercise dissenters' rights pursuant to the provisions of Chapter
13 of the CGCL. If holders of fewer than 5% of the outstanding shares of LECG
Common Stock entitled to vote at the LECG Special Meeting vote against the
proposal to approve the Merger and the Merger Agreement, or make timely
demands for cash payment of their shares, no LECG Shareholders will be
entitled to dissenters' rights except holders of any shares with respect to
which there exists any restriction on transfer imposed by LECG or by
applicable law or regulation. Any dissenting LECG shareholders eligible to
exercise dissenters' rights under the foregoing requirements will have the
right to be paid the "fair market value" of their shares of LECG Common Stock
by fully complying with the procedures specified in Chapter 13 of the CGCL.
Under the CGCL, "fair market value" is determined as of the day before the
first announcement of the terms of the Merger.
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.
Persons who are beneficial owners of shares held of record by another person,
such as a broker, a bank or a nominee, should instruct the record holder to
follow the procedures outlined below if they wish to dissent from the Merger
with respect to any or all of their shares.
In order to perfect their dissenters' rights, shareholders of record must
(i) make written demand for the purchase of their dissenting shares upon LECG
on or before the date of the LECG Special Meeting; (ii) vote their shares
against adoption and approval of the Merger Agreement; and (iii) within 30
days after the mailing to shareholders by LECG of the notice of approval of
the Merger, submit the certificate(s) representing their dissenting shares to
LECG or its transfer agent for notation thereon that they represent dissenting
shares. Failure to follow any of these procedures may result in the loss of
statutory dissenters' rights.
Dissenting shareholders must submit to LECG at its principal office, 2000
Powell Street, Emeryville, California 94608, Attention: Secretary, a written
demand that LECG purchase for cash their dissenting shares
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(as defined in the CGCL). The notice must state the number of shares held of
record which the shareholder demands to be purchased and the amount claimed to
be the "fair market value" of those shares. That statement of fair market
value will constitute an offer by the dissenting shareholder to sell such
shares at that price. SUCH DEMAND WILL NOT BE EFFECTIVE UNLESS IT IS RECEIVED
NOT LATER THAN THE DATE OF THE LECG SPECIAL MEETING.
Dissenting shareholders may not withdraw their demand for payment without
the consent of the LECG Board. The rights of dissenting shareholders to demand
payment terminate if (i) the Merger is abandoned (although dissenting
shareholders are entitled upon demand to reimbursement of expenses incurred in
a good faith assertion of their dissenters' rights); (ii) the shares are
transferred prior to submission for endorsement as dissenting shares; (iii)
the dissenting shareholder withdraws, with the consent of LECG, his or her
demand for purchase of the dissenting shares; or (iv) the dissenting
shareholder and LECG do not agree as to the fair market value of such shares
and a complaint is not filed within six months of the date on which the notice
of approval was mailed.
No shareholder who has a right to demand payment for cash for such
shareholder's shares and who in fact makes such a demand will have any right
to attack the validity of the Merger or have the Merger set aside or
rescinded, except in an action to test whether the number of shares required
to approve the Merger have been legally voted in favor thereof. Any
shareholder who does not demand payment of cash for such shareholder's shares
and who institutes an action to attack the validity of the Merger or to have
the Merger set aside or rescinded would not thereafter have any right to
demand payment of cash pursuant to the exercise of dissenters' rights.
Dissenting shareholders must vote their dissenting shares against the Merger
Agreement. Record shareholders may vote part of the shares which they are
entitled to vote in favor of the Merger Agreement or abstain from voting a
part of such shares without jeopardizing their dissenters' rights as to other
shares; however, if record shareholders vote part of the shares they are
entitled to vote in favor of the Merger Agreement and fail to specify the
number of shares they are so voting, it is conclusively presumed under
California law that their approving vote is with respect to all shares which
they are entitled to vote. Voting against the Merger Agreement will not, of
itself, absent compliance with the provisions summarized herein, satisfy the
requirements of the CGCL for exercise and perfection of dissenters' rights.
However, any LECG shareholder desiring to exercise dissenters' rights must
vote against the Merger Agreement.
If LECG shareholders have a right to require LECG to purchase their shares
for cash under the dissenters' rights provisions of the CGCL, LECG will mail
to each such shareholder a notice of approval of the Merger within 10 days
after the date of shareholder approval, stating the price determined by it to
represent the "fair market value" of the dissenting shares. The statement of
price will constitute an offer to purchase any dissenting shares at that
price.
Within 30 days after the mailing of the notice of approval of the Merger,
dissenting shareholders must submit to LECG at the address set forth above,
certificates representing the dissenting shares with respect to which a
purchase demand has been made, to be stamped or endorsed with a statement that
the shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed. The notice of approval of the
Merger will specify the date by which the submission of certificates for
endorsement must be made and a submission made after that date will not be
effective for any purpose.
If a dissenting shareholder and LECG agree that shares are dissenting shares
and agree upon the price of the shares, LECG, upon surrender of the
certificates, will make payment of that amount (plus interest thereon at the
legal rate on judgments from the date of such agreement) within 30 days after
such agreement. Any agreement between dissenting shareholders and LECG fixing
the "fair market value" of any dissenting shares must be filed with the
Secretary of LECG.
If LECG denies that the shares are dissenting shares, or LECG and a
dissenting shareholder fail to agree upon the "fair market value" of the
shares, the dissenting shareholder may, within six months after the date on
which notice of approval of the Merger was mailed to the shareholder, but not
thereafter, file a complaint (or
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intervene in a pending action, if any) in the Superior Court for the County of
Santa Clara, State of California, requesting that the Superior Court determine
whether the shares are dissenting shares and the "fair market value" of such
dissenting shares. The Superior Court may appoint one or more impartial
appraisers to determine the "fair market value" per share of the dissenting
shares. The costs of the action will be assessed apportioned as the Superior
Court considers equitable, but if the "fair market value" is determined to
exceed the price offered by LECG, LECG will be required to pay such costs
including, in the discretion of the Superior Court, attorneys' fees, fees of
expert witnesses and interest at the legal rate on judgments, if such "fair
market value" is determined to exceed 125% of the price offered by LECG. A
dissenting shareholder must bring such an action within six months after the
date on which the notice of approval of the Merger Agreement was mailed to the
shareholder, whether or not LECG responds within such time to the
shareholder's written demand that LECG purchase for cash shares voted against
the Merger Agreement.
The respective obligations of LECG and Metzler to effect the Merger are
subject to the condition that each of them shall have received a letter from
its respective independent accountants, dated the date of this Joint Proxy
Statement-Prospectus and confirmed as of the closing date of the Merger,
stating that such accountant knows of nothing that would prohibit the Merger
from qualifying as a pooling of interests transaction under generally accepted
accounting principles. If holders of approximately 10% of the outstanding LECG
Common Stock were to exercise dissenters' rights, pooling of interests
accounting treatment might not be available, in which event either party would
have the right not to effect the Merger. See "The Merger--Accounting
Treatment" and "The Merger Agreement--Conditions."
REGULATORY APPROVAL
Under the Merger Agreement, conditions to both Metzler's and LECG's
obligations to consummate the Merger include the absence of any injunction or
other legal, contractual or regulatory restraint which would restrict the
parties from consummating the Merger.
In addition, in connection with the consummation of the Merger, the
applicable securities laws must be complied with.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of LECG
Common Stock. This discussion does not deal with all income tax considerations
that may be relevant to particular LECG shareholders in light of their
particular circumstances, such as shareholders who are dealers in securities,
foreign persons, shareholders who acquired their shares in connection with
previous mergers involving LECG or an affiliate, or shareholders who acquired
their shares in connection with stock option or stock purchase plans or in
other compensatory transactions. In addition, the following discussion does
not address the tax consequences of transactions effectuated prior to or after
the Merger (whether or not such transactions are in connection with the
Merger), including without limitation transactions in which shares of LECG
Common Stock were or are acquired or shares of Metzler Common Stock were or
are disposed of. Furthermore, no foreign, state or local tax considerations
are addressed herein. ACCORDINGLY, LECG SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER.
The Merger is intended to qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), with each of Metzler, Acquisition and LECG intended to qualify as a
"party to the reorganization" under Section 368(b) of the Code, in which case
the following federal income tax consequences will result (subject to the
limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by holders of Common Stock of LECG
who hold such stock as a capital asset solely upon their receipt of Metzler
Common Stock in exchange therefor in the Merger (except to the extent of
cash received in lieu of a fractional share thereof);
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(b) The aggregate tax basis of the Metzler Common Stock received in the
Merger by a LECG shareholder will be the same as the aggregate tax basis of
the LECG Common Stock surrendered in exchange therefor;
(c) The holding period of the Metzler Common Stock received in the Merger
by a LECG shareholder will include the period during which the shareholder
held the LECG Common Stock surrendered in exchange therefor, provided that
the LECG Common Stock is held as a capital asset at the time of the Merger;
(d) Cash payments received by holders of LECG Common Stock in lieu of a
fractional share will be treated as if such fractional share of Metzler
Common Stock had been issued in the Merger and then redeemed by Metzler. A
LECG shareholder receiving such cash generally will recognize gain or loss,
upon such payment, measured by the difference (if any) between the amount
of cash received and the shareholder's basis in such fractional share; and
(e) Neither Metzler, LECG Acquisition nor LECG will recognize material
amounts of gain or loss solely as a result of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. The obligations of LECG under the
Agreement to effect the Merger are conditioned on the receipt of an opinion
from Wilson, Sonsini Goodrich & Rosati P.C. that, for federal income tax
purposes, the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. This opinion is subject to certain assumptions and
qualifications and is based on the truth and accuracy of certain
representations by Metzler, Acquisition and LECG, including representations in
certain certificates delivered to counsel by the respective managements of
Metzler, Acquisition and LECG.
A successful IRS challenge to the "reorganization" status of the Merger
would result in a LECG shareholder's recognizing gain or loss with respect to
each share of LECG Common Stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time of the Merger, of the Metzler Common Stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the Metzler Common
Stock so received would equal its fair market value and such shareholder's
holding period of the Metzler Common Stock so received would begin the day
after the Merger. Each LECG shareholder will be required to retain records and
file with such holder's United States Federal income tax return a statement
setting forth certain facts relating to the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that Metzler
and LECG shall have received letters from KPMG Peat Marwick LLP and Arthur
Andersen LLP, their respective independent accountants, stating that they know
of nothing that would prohibit the business combination to be effected by the
Merger from qualifying as a pooling of interests transaction under generally
accepted accounting principles. Under this method of accounting, the recorded
assets and liabilities of Metzler and LECG will be carried forward to the
combined company at their recorded amounts, income of the combined company
will include income of Metzler and LECG for the entire fiscal year in which
the combination occurs and the reported income or loss of the separate
companies for prior periods will be combined and restated as income of the
combined company. See "The Merger Agreement--Conditions" and "Selected
Historical and Unaudited Pro Forma Combined Financial Data."
The letters from Metzler's and LECG's independent accountants will be based
upon certain material representations provided by Metzler and LECG. In
addition, to help ensure that the parties meet the prerequisites for pooling
of interests accounting treatment, certain LECG shareholders who may be deemed
to be affiliates of LECG have executed or will execute Affiliate letters. See
"The Merger--Related Agreements."
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FEDERAL SECURITIES LAW COMPLIANCE
All shares of Metzler Common Stock received by LECG shareholders in the
Merger will be freely transferable, except that shares of Metzler Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of LECG prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of Metzler) or as otherwise permitted under the
Securities Act. Affiliates of LECG or Metzler include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal stockholders of such party. The Merger Agreement requires LECG to
use its best efforts to cause each of its affiliates to execute a written
agreement to the effect that such person will not offer to sell or otherwise
dispose of any of the shares of Metzler Common Stock issued to such person in
or pursuant to the Merger in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
NASDAQ NATIONAL MARKET QUOTATIONS
It is a condition to the Merger that the shares of Metzler Common Stock to
be issued pursuant to the Merger Agreement in connection with the Merger be
approved for listing on the Nasdaq. An application will be filed for listing
the additional shares of Metzler Common Stock on the Nasdaq.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement-Prospectus and incorporated herein by this reference. Such summary
is qualified in its entirety by reference to the Merger Agreement, which is
the sole and exclusive source of the parties' rights and obligations
thereunder. Shareholders of LECG and stockholders of Metzler are urged to read
the Merger Agreement in its entirety for a more complete description of the
Merger and related matters.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger and
the Merger Agreement by the shareholders of LECG and approval of the issuance
of the Metzler Common Stock in connection with the Merger by the stockholders
of Metzler, and the satisfaction or waiver of the other conditions to the
Merger, Acquisition will be merged into LECG, with LECG continuing as the
surviving corporation (the "Surviving Corporation"), which will be a wholly-
owned subsidiary of Metzler. The Merger will become effective upon the filing
by the Surviving Corporation of the appropriate duly executed Merger documents
with the Secretaries of State of the States of California and Delaware or at
such time thereafter as is provided in the Certificate of Merger to be filed
in Delaware (the "Effective Time").
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of LECG Common Stock (other than shares owned by
Metzler, Acquisition or any other wholly-owned subsidiary of Metzler, all of
which will be canceled) will be converted into the right to receive 0.6 shares
of Metzler Common Stock. Based upon the outstanding shares of LECG and Metzler
as of June 30, 1998, the shareholders of LECG immediately prior to the
consummation of the Merger will own approximately 25.7% of the outstanding
shares of Metzler Common Stock immediately following consummation of the
Merger. If any holder of shares of LECG Common Stock would be entitled to
receive a number of shares of Metzler Common Stock that includes a fraction,
then, in lieu of a fractional share, such holder will be entitled to receive
cash in an amount equal to such fractional part of a share of Metzler Common
Stock multiplied by the last reported sale price of Metzler Common Stock, as
reported on the Nasdaq, on the trading day immediately preceding the date of
the Effective Time. Each share of Acquisition Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into one
share of common stock of the Surviving Corporation.
Promptly after the Effective Time, the Exchange Agent will mail transmittal
forms and exchange instructions to each holder of LECG Common Stock to be used
to surrender and exchange certificates representing shares of LECG Common
Stock for certificates representing the shares of Metzler Common Stock to
which such holder has become entitled. After receipt of such transmittal
forms, each holder of certificates formerly representing LECG Common Stock
will be able to surrender such certificates to the Exchange Agent, and each
such holder will receive in exchange therefor certificates evidencing the
number of whole shares of Metzler Common Stock to which such holder is
entitled and any cash, which may be payable in lieu of a fractional share of
Metzler Common Stock. Such transmittal forms will be accompanied by
instructions specifying other details of the exchange. LECG STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Time, each certificate representing LECG Common Stock,
until so surrendered and exchanged, will be deemed for all purposes to
evidence only the right to receive the number of whole shares of Metzler
Common Stock which the holder of such certificate is entitled to receive and
the right to receive any cash payment in lieu of a fractional share of Metzler
Common Stock. The holder of such unexchanged certificate will not be entitled
to receive any dividends or other distributions payable by Metzler until the
certificate has been exchanged. Subject to applicable laws, any cash payment
in lieu of a fractional share of Metzler Common Stock will be paid without
interest.
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STOCK PLANS AND OPTIONS
At the Effective Time, each LECG Option outstanding under the LECG Option
Plan shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such LECG Option, the number of shares of
Metzler Common Stock (rounded down to the nearest whole number) as the holder
of such LECG Option would have been entitled to receive pursuant to the Merger
had such holder exercised such LECG Option in full immediately prior to the
Effective Time, at a price per share (rounded up to the nearest whole cent)
equal to (i) the aggregate exercise price for the shares of LECG Common Stock
otherwise purchasable pursuant to such LECG Option divided by (ii) the number
of full shares of Metzler Common Stock deemed purchasable pursuant to such
LECG Option as determined above as of the Effective Time. In the case of any
LECG Stock Option to which Section 422 of the Code applies ("incentive stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. As of June 30,
1998, LECG Options to acquire an aggregate of 608,300 shares of LECG Common
Stock were outstanding under the LECG Option Plan. Metzler has agreed to make
available for issuance a sufficient number of shares of Metzler Common Stock
for delivery upon the exercise of each LECG Option assumed as described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by the
parties relating to, among other things, (i) the due organization, valid
existence and good standing of Metzler, LECG and each of their respective
subsidiaries and certain similar corporate matters; (ii) the capital structure
of each of Metzler and LECG; (iii) the authorization, execution, delivery and
enforceability of the Merger Agreement, the consummation of the transactions
contemplated by the Merger Agreement and related matters; (iv) the absence of
conflicts under charters or by-laws, required consents or approvals and
violations of any material agreements, instruments or law; (v) documents and
financial statements filed by each of Metzler and LECG with the SEC and the
accuracy of information contained therein; (vi) the absence of certain
material adverse changes or events since the date of the most recent SEC
Filings; (vii) taxes, tax returns and audits; (viii) intellectual property;
(ix) agreements, contracts and commitments; (x) litigation; (xi) employees and
employee benefit plans; (xii) compliance with laws; (xiii) matters affecting
the availability of pooling of interests accounting; (xiv) clients and client
relations and client project matters; (xv) interested party transactions;
(xvi) the accuracy of information supplied by each of Metzler and LECG in
connection with this Joint Proxy Statement-Prospectus; and (xvii) the absence
of pending discussions with other parties.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, LECG has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by Metzler or as contemplated by the Merger
Agreement, LECG will: (i) carry on its business in the ordinary course in
substantially the same manner as previously conducted; (ii) pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, and
pay or perform other obligations when due; (iii) preserve intact its present
business organization; (iv) keep available the services of its present
officers and key employees; (v) preserve its business relationships; (vi) not
accelerate, amend or change the period of exercisability of options granted
under any employee stock plan, except as required pursuant to the plan or any
related agreement; (vii) not transfer or license or otherwise extend, amend or
modify any rights to its intellectual property rights, other than in the
ordinary course of business consistent with past practices; (viii) not declare
or pay any dividends on or make other distributions, in respect of any of its
capital stock, not effect certain other changes in its capitalization, and not
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock; (ix) not issue, or authorize or propose the issuance of, any
shares of its capital stock or securities convertible into shares of its
capital stock, or any subscriptions, rights, warrants, or options to acquire,
or other agreements obligating it to issue any such shares or other
convertible securities, subject to certain exceptions relating to employee
equity plans; (x) not engage in acquisitions; (xi) not sell, lease, license or
otherwise dispose of material properties or assets, except in the ordinary
course of business; (xii) not increase the compensation payable to its
officers or employees (except
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for increases consistent with past practices), grant additional severance or
termination pay or enter into employment agreements with employees, enter into
any collective bargaining agreement, or establish, adopt, enter into or amend
any plan for the benefit of its directors, officers, or employees, subject to
certain exceptions; (xiii) not revalue any material amount of its assets,
including writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business; (xiv) not incur
indebtedness for borrowed money (or guarantees thereof) other than
indebtedness incurred under existing lines of credit; (xv) not amend its
charter documents or bylaws; (xvi) not incur, with certain exceptions,
material capital expenditures; (xvii) not take any action with respect to
accounting policies or procedures other than actions in the ordinary course of
business and consistent with past practices; (xviii) not waive or release any
material right or claim; (xix) subject to certain exceptions, not make any tax
election or settle or compromise any material Federal, state, local or foreign
tax liability; and (xx) not take any action that would or is reasonably likely
to result in any of its representations and warranties becoming untrue.
Additionally, each party agrees to promptly notify the other party of any
event or occurrence not in the ordinary course of business where such event or
occurrence would result in a breach of any covenant of LECG or Metzler or
cause any representation or warranty of LECG or Metzler to be untrue; and
confer on a regular basis with each other on operational matters of
materiality.
NO SOLICITATION
The Merger Agreement provides that LECG will not, directly or indirectly,
through any officer, director, employee, representative, agent or affiliate,
(i) solicit, initiate or encourage any inquiries or proposals that constitute,
or could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of
shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving LECG or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement (any of the
foregoing inquiries or proposals being referred to in the Merger Agreement as
a "Competing Offer"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Competing Offer, or (iii) agree to, approve or recommend any Competing Offer;
provided, however, that nothing contained in the Merger Agreement shall
prevent LECG or the LECG Board from (A) furnishing non-public information to,
or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Competing Offer by such
person or entity (including a new and unsolicited Competing Offer received by
LECG after the execution of the Merger Agreement from a person or entity whose
initial contact with LECG may have been solicited by LECG prior to the
execution of the Merger Agreement) or recommending such an unsolicited bona
fide written Competing Offer to the shareholders of LECG, if and only to the
extent that (1) the LECG Board determines in good faith (after consultation
with and based upon the written advice of its financial advisor, if any) that
such Competing Offer would, if consummated, result in a transaction more
favorable to LECG's shareholders than the transaction contemplated by the
Merger Agreement (any such more favorable Competing Offer being referred to as
a "Preferred Proposal") and that the person or entity making such Preferred
Proposal has the financial means, or the ability to obtain the necessary
financing, to conclude such transaction, (2) the LECG Board determines in good
faith (after consultation with and based upon the written advice of outside
legal counsel) that the failure to take such action would be inconsistent with
the fiduciary duties of the LECG Board to the LECG shareholders under
applicable law, and (3) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, the
LECG Board receives from such person or entity an executed confidentiality
agreement with terms no more favorable to such party than those contained in
the reciprocal non-disclosure agreement between Metzler and LECG; or (B)
complying with Rule 14c-2 promulgated under the Exchange Act with regard to an
Competing Offer. LECG is required to notify Metzler (orally and in writing)
within 24 hours after receipt of a Competing Offer or request for non-public
information or access to its properties, books or records in connection with a
Competing Offer and LECG may take no action with respect to the Competing
Offer until 48 hours after such notice is received by Metzler.
INDEMNIFICATION OF DIRECTORS AND OFFICERS MAINTAINED
The Merger Agreement provides that after the Effective Time the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
continue to indemnify and hold harmless, each present and former director
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or officer of LECG and each subsidiary of LECG (collectively, the "Indemnified
Parties") against all costs and expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, lawsuit, proceeding or
investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer, director, employee, agent
or other person to whom such indemnification rights apply, in each case
occurring before the Effective Time (including the transactions contemplated
by the Merger Agreement). In addition, for three years after the Effective
Time, Metzler will cause to be maintained officers' and directors' liability
insurance covering the current and former officers and directors of LECG and
its subsidiaries on terms not less advantageous than those in effect on July
1, 1998. The Merger Agreement provides that if the Surviving Corporation or
any of its respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity in such consolidation or merger or (ii) transfers all or
substantially all its properties and assets to any person, then, and in each
case, proper provision shall be made so that the successors and assigns of the
Surviving Corporation honor the above-described indemnification obligations.
CONDITIONS
The consummation of the Merger is subject to the following conditions, among
others: (i) the Merger Agreement shall have been approved by the shareholders
of LECG and the stockholders of Metzler; (ii) all material governmental
authorizations, consents, orders or approvals shall have been obtained; (iii)
the Registration Statement shall have become effective under the Securities
Act and shall not be the subject of a stop order or proceedings seeking a stop
order; (iv) no temporary restraining order, preliminary or permanent
injunction or other order or other legal or regulatory restraint prohibition
shall be in effect that prevents, the consummation of the Merger or which
limits the business of Metzler or the Surviving Corporation after the
consummation of the Merger, except for any such order, injunction, restraint
or prohibition which would not be reasonably likely to have a material adverse
effect on Metzler or the Surviving Corporation; (v) no action shall be taken,
or any statute, rule, regulation, or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger
illegal; (vi) Metzler and LECG shall have received letters from their
respective independent accountants stating that they know of nothing that
would prohibit the business combination to be effected by the Merger from
qualifying as a pooling of interests transaction under generally accepted
accounting principles; (vii) the Metzler Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq; (viii) LECG shall
have received an opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel to
LECG, both to the effect that the Merger will be treated for federal income
tax purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code; (ix) Metzler and LECG shall have received accountant's "comfort"
letters from their respective public accountants in connection with the
Registration Statement; (x) the holders of the issued and outstanding shares
of LECG Common Stock shall not have effectively exercised dissenters' rights
pursuant to the CGCL in an amount that would cause the Merger not to be
eligible for accounting as a pooling-of-interests transaction; (xi) the
representations and warranties of the other party set forth in the Merger
Agreement shall be true and correct in all material respects, except to the
extent such representations and warranties speak as of an earlier date; and
(xii) the other party shall have performed in all material respects all
obligations of such party to be performed under the Merger Agreement.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Metzler or the
shareholders of LECG of the matters presented in connection with the Merger:
A. by the mutual written consent of Metzler and LECG;
B. by either Metzler or LECG, if the Merger shall not have been
consummated by October 31, 1998 (provided that the right to terminate the
Merger Agreement under this clause shall not be available to any party
whose failure to fulfill any obligation under the Merger Agreement has been
the cause of or resulted
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in the failure of the Merger to occur on or before such date, and provided
further that the Merger Agreement may be extended up to 45 days by either
party by written notice to the other party if the Merger would have been
consummated but for the absence of one or more required governmental
approvals or third-party consents, and such approval(s) or consent(s) can
reasonably be expected to be obtained within such 45-day period);
C. by either Metzler or LECG, if a court of competent jurisdiction or
other Governmental Entity (as defined in the Merger Agreement) shall have
issued a nonappealable final order, decree or ruling, or taken any other
action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, except if the party relying on such
order, decree or ruling or other action has not complied with its
obligations under Section 6.6. (Legal conditions to Merger) of the Merger
Agreement;
D. by either Metzler or LECG, if, at the LECG Special Meeting or Metzler
Special Meeting (including any adjournment or postponement), the requisite
vote of the shareholders of LECG or stockholders of Metzler in favor of the
Merger Agreement and the Merger shall not have been obtained;
E. by Metzler, if (i) the LECG Board shall have withdrawn or modified its
recommendation of the Merger Agreement or the Merger in a manner adverse to
Metzler or shall have resolved or publicly announced or disclosed to any
third party its intention to do so; (ii) an Alternative Transaction (as
defined in the Merger Agreement) involving LECG shall have taken place or
the LECG Board shall have recommended such an Alternative Transaction to
the shareholders of LECG, or shall have resolved or publicly announced its
intention to recommend or engage in such an Alternative Transaction; or
(iii) a tender offer or exchange offer for 40% or more of the outstanding
shares of LECG Common Stock is commenced or a registration statement with
respect thereto shall have been filed (other than by Metzler or an
affiliate of Metzler) and the LECG Board shall have recommended or publicly
announced its intention to recommend that the shareholders of LECG tender
their shares in such tender or exchange offer or resolved or publicly
announced its intention to take no position with respect to such tender or
exchange offer;
F. by Metzler or LECG, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in
the Merger Agreement, which breach (i) causes the conditions set forth in
Sections 7.2(a) or (b) (in the case of termination by Metzler or 7.3(a) or
(b) (in the case of termination by LECG) of the Merger Agreement (relating
to the accuracy of representations and warranties of the other party and
performance by other party of certain obligations) not to be satisfied and
(ii) shall not have been cured within ten (10) business days following
receipt by the breaching party of written notice of such breach from the
other party;
G. by LECG, if the LECG Board shall have determined to recommend a
Competing Offer to its shareholders after determining that such Competing
Offer constitutes a Preferred Proposal; provided, that the LECG Board shall
provide Metzler with 48 hours prior written notice before recommending such
Competing Offer to its shareholders;
H. by Metzler if LECG's revenues, margins and earnings per share, as
reported for the three months ended June 30, 1998, shall be less than the
estimates for such period previously provided to Metzler by LECG, or by
LECG if Metzler's revenues, margins and earnings per share, as reported for
the three months ended June 30, 1998, shall be less than the estimates for
such period previously provided to LECG by Metzler; or
I. by, LECG, (i) if the Board of Directors of Metzler shall have
withdrawn or modified its recommendation of the Merger Agreement or the
Merger in a manner adverse to LECG or shall have resolved or publicly
announced or disclosed to any third party its intention to do so or (ii) if
the Board of Directors of LECG shall have determined to recommend a
Competing Offer (as defined in the Merger Agreement) to its shareholders
after determining that such Competing Offer constitutes a Preferred
Proposal (as defined in the Merger Agreement), provided, however, that the
Board of Directors of LECG shall provide Metzler with 48 hours prior
written notice before recommending such Competing Offers to its
shareholders.
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In the event of any termination of the Merger Agreement by either Metzler or
LECG as provided above, there will be no liability or obligation on the part
of Metzler, LECG, Acquisition or their respective officers, directors,
stockholders, shareholders or affiliates provided that the provisions
described below relating to the payment of fees and expenses shall survive any
such termination.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring
such expenses, except that all fees and expenses, other than attorneys' and
accounting fees and expenses, incurred in connection with the printing and
filing of this Joint Proxy Statement-Prospectus shall be shared equally by
Metzler and LECG.
If the Merger Agreement is terminated (i) by Metzler as a consequence of the
actions described in paragraph E above; (ii) by LECG as a consequence of the
actions described in paragraph D above if LECG does not receive the requisite
vote from its shareholders to approve of the Merger Agreement and the Merger;
(iii) by LECG as a consequence of the actions described in paragraph I above;
(iv) by Metzler as a consequence of the actions described in paragraph F above
relating to LECG's breach of any representations, warranties or covenants; or
(v) by Metzler as a consequence of the actions described in paragraph I
relating to LECG not achieving certain financial results, then LECG shall be
required to reimburse Metzler for all fees and expenses incurred by Metzler
relating to the Merger Agreement and the transactions contemplated thereby.
If the Merger Agreement is terminated by (i) LECG as a consequence of the
actions described in paragraph I above; (ii) by Metzler as a consequence of
the actions described in paragraph D above if Metzler does not receive the
requisite vote from its stockholders to approve the Merger Agreement and the
Merger; (iii) by LECG as a consequence of the actions described in paragraph F
above relating to Metzler's breach of any representations, warranties or
covenants; (iv) by LECG as a consequence of the actions described in paragraph
I relating to Metzler not achieving certain financial projections; or (v) by
LECG as a consequence of the actions described in paragraph I relating to
Metzler not achieving certain financial results, then Metzler shall be
required to reimburse LECG for all fees and expenses incurred by LECG relating
to the Merger Agreement and the transactions contemplated thereby.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of Metzler and LECG, but
after approval by the shareholders of LECG or the stockholders of Metzler of
the matters presented in connection with the Merger to them, no amendment
shall be made which by law requires further approval by such shareholders or
stockholders, without such further approval. Metzler and LECG, by action taken
or authorized by their respective Boards of Directors, may extend the time for
performance of the obligations or other acts of the other parties to the
Merger Agreement, may waive inaccuracies in the representations or warranties
contained in the Merger Agreement and may waive compliance with any agreements
or conditions contained in the Merger Agreement.
COMPARISON OF SECURITY HOLDER RIGHTS
The following is a summary for holders of LECG Common Stock outlining
certain of the material differences between their current rights as holders of
LECG Common Stock and the rights they would have following the Merger as
holders of Metzler Common Stock. Metzler is organized under the laws of the
State of Delaware and LECG is organized under the laws of the State of
California. Differences between the rights of holders of Metzler Common Stock
and LECG Common Stock arise from differences between various provisions of the
charter and bylaws of Metzler and LECG, as well as from the differences
between the DGCL and the CGCL.
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SIZE OF BOARD OF DIRECTORS
The DGCL permits the board of directors of a Delaware corporation to change
the authorized number of directors by amendment to the corporation's bylaws or
in the manner provided in the bylaws, unless the number of directors is fixed
in the corporation's certificate of incorporation, in which case a change in
the number of directors may be made only by amendment to the certificate of
incorporation, which requires stockholder approval. The Metzler Certificate
provides that the number of directors of Metzler will not be less than 5 nor
more than 9, with the number of directors initially fixed at 5. Changes in the
authorized number of directors, within the stated limits, may be made by
resolution of the board of directors.
Under the CGCL, the board of directors of a California corporation may fix
the number of directors within a stated range set forth in the corporation's
articles of incorporation or bylaws, if the stated range has been approved by
the shareholders. The LECG Bylaws establish a range for the number of
authorized directors of from 4 to 7, and currently fix the authorized number
of directors at 7, with changes in the authorized number of directors (within
the current range) permitted by either the board of directors or the
shareholders, through amendment of the LECG Bylaws. A change in the range of
authorized directors, or a change setting a fixed number of directors without
provision for a range, may be effected only by the shareholders.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one in which a certain number, but not all, of the
directors are elected on a rotating basis each year. This method of electing
directors makes a change in the composition of the board of directors, and a
potential change in control of a corporation, a lengthier and more difficult
process. The DGCL permits a classified board of directors, with staggered
terms under which the directors are elected for terms of two or three years.
Metzler's Bylaws provide for 3 classes of directors elected for staggered 3-
year terms.
Although the CGCL permits a classified board of directors, the LECG Articles
of Incorporation ("LECG Articles") and Bylaws do not provide for classes of
directors.
REMOVAL OF DIRECTORS
Under the DGCL, any director or the entire board of directors of a Delaware
corporation with a classified board of directors may only be removed with
cause unless the certificate of incorporation provides otherwise. The Metzler
Certificate provides that directors may be removed with or without cause by a
vote of a majority of the outstanding shares entitled to vote at an election
of directors.
Under the CGCL, any director or the entire board of directors of an
unclassified board may be removed, without cause with the approval of a
majority of the outstanding shares entitled to vote; however, no director may
be removed (unless the entire board is removed) if the number of shares voted
against the removal would be sufficient to elect the director under cumulative
voting. See "Cumulative Voting" below.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the DGCL, vacancies on the board of directors and newly created
directorships may be filled by a majority of the directors then in office
(even though less than a quorum) unless (i) otherwise provided in the
certificate of incorporation or bylaws of the corporation or (ii) the
certificate of incorporation directs that a particular class of outstanding
stock is to elect such director, in which case any other directors elected by
such class, or a sole remaining director, may fill such vacancy. The Metzler
Certificate provides that all vacancies and newly created directorships may be
filled by the board of directors.
Under the CGCL, any vacancy on the board of directors other than one created
by removal of a director may be filled by the board of directors. If the
number of directors then in office is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a
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majority of such directors at a meeting held pursuant to notice or waivers of
notice, or by a sole remaining director. A vacancy created by removal of a
director may be filled by the board of directors only if so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's shareholders. LECG's Bylaws do not authorize its board to fill
such a vacancy.
LIMITATIONS OF LIABILITY OF DIRECTORS; INDEMNIFICATION
Limitations on Director Liability. Both Delaware and California permit a
corporation to limit or eliminate the personal liability of a director to the
corporation or its shareholders or stockholders, as applicable, for monetary
damages for breach of certain duties as a director, but only if limiting
language is included in the charter.
The Metzler Certificate eliminates the monetary liability of directors to
the fullest extent permissible under Delaware law, as currently in effect or
as it may be amended in the future. Under the current version of the DGCL, a
limitation-of-liability provision may not eliminate or limit director monetary
liability for: (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. In
addition, a limitation-of-liability provision may not relieve directors from
the obligation to comply with any laws, or from the availability of non-
monetary remedies such as injunctive relief or rescission.
The LECG Articles eliminate the monetary liability of directors to the
fullest extent permissible under California law. The CGCL permits the
elimination of monetary liability of a director for breach of duties to the
corporation and its shareholders, except where such liability is based on (a)
intentional misconduct or knowing and culpable violation of law; (b) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (c) receipt of an improper personal benefit; (d)
acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing his or her duties should be aware of a risk of serious injury to
the corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the corporation and its shareholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest; or (g) liability for improper distributions,
loans or guarantees.
Indemnification of Officers and Directors. Delaware and California have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. There are nonetheless certain
differences between the laws of the two states.
Indemnification is generally permitted by both the DGCL and CGCL provided
that the requisite standard of conduct is met, as determined by a majority
vote of a disinterested quorum of the directors, independent legal counsel (if
a quorum of independent directors is not obtainable), a majority vote of a
quorum of the shareholders (excluding shares owned by the indemnified party)
or the court handling the action.
The DGCL requires indemnification when the individual has been successful in
the defense on the merits or otherwise. The CGCL requires indemnification when
the individual has successfully defended the action on the merits.
The DGCL generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is
a determination that the person seeking indemnification acted in good faith
and in a manner reasonably believed to be in or (in contrast to California
law) not opposed to the best interests of the corporation. Without court
approval, however, no indemnification may be made in respect of any derivative
action in which such person is adjudged liable for negligence or misconduct in
the performance of his or her duty to the corporation.
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The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions no
indemnification may be made without court approval (a) when a person is
adjudged liable to the corporation in the performance of that person's duty to
the corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, or (b) in respect of
amounts paid or expenses incurred in settling or otherwise disposing of a
threatened or pending action or amounts incurred in defending a pending action
which is settled or otherwise disposed of without court approval. Delaware
allows indemnification of such expenses without court approval.
Both Delaware and California law allow corporations to provide
indemnification over and above what is required or expressly permitted, if
provision for extended indemnification is made in the corporate charter
documents. Under the Metzler Certificate, Metzler is authorized to indemnify
its directors, officers, employees, and other agents, pursuant to an express
contract, bylaw provision, stockholder vote, or otherwise, any or all of which
could provide indemnification rights broader than those currently available
under the Metzler Certificate and Bylaws or the Delaware indemnification
statutes. Under the LECG Articles, LECG may provide indemnification to
"agents" (as defined under Section 317 of the CGCL) through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise. LECG has entered into indemnification agreements with certain of
its officers and directors.
ANNUAL MEETINGS
The Metzler Bylaws require that an annual meeting of stockholders be held on
such date and time as shall be designated from time to time by the Board of
Directors. The LECG Bylaws require that an annual meeting of shareholders be
held on such date and time as shall be designated from time to time by the
Board of Directors; provided that, in the absence of such designation, the
meeting shall be held on the third Wednesday of June in each year at 9 a.m.,
Pacific Standard Time (or on the next business day at the same hour if such
date is a legal holiday).
SPECIAL SHAREHOLDER MEETINGS
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or any other person authorized to do so in the corporation's
certificate of incorporation or bylaws. Metzler's Certificate provides that
special meetings of stockholders may be called only by the board of directors
or by stockholders owning at least fifty percent (50%) of the entire capital
stock issued and outstanding and entitled to vote at the meeting. The Metzler
Bylaws limit proper business at a special meeting to that presented in the
notice thereof.
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president, the holders of shares
entitled to cast not less than 10% of the votes at such meeting, and such
other persons as are authorized to do so in the articles of incorporation or
bylaws. The LECG Articles authorize no such other persons to call a special
meeting.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
The DGCL permits stockholders to act by written consent in lieu of a meeting
of stockholders, unless a corporation eliminates action by written consent in
its certificate of incorporation. The Metzler Certificate does not limit the
rights of stockholders to act by written consent.
Under the CGCL, unless otherwise provided in the articles of incorporation,
any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting by written consent of shareholders having the
requisite number of votes, subject to the requirement that ten days' advance
notice of shareholder approval of certain types of transactions and matters be
given where all shareholders' consents are not solicited. The LECG Articles do
not limit the rights of shareholders to act by written consent.
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ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSAL AND DIRECTOR NOMINATIONS
Metzler's Bylaws provide that no director nomination and no matter proposed
by Metzler stockholders will be considered at an annual meeting or special
stockholder meeting unless (a) it is brought by or at the direction of the
Board of Directors or (b) written notice of such matter is provided to Metzler
no later than the date on which stockholder proposals to be included in the
Metzler proxy statement must be received under federal securities laws.
LECG's Bylaws provide that no director nomination and no matter proposed by
LECG shareholders will be considered at an annual meeting or special
shareholder meeting unless written notice is given not less than ten (10) and
not more than sixty (60) days before the meeting.
VOTING REQUIREMENTS; SUPER MAJORITY APPROVAL
Unless otherwise specified in a Delaware corporation's certificate of
incorporation, an amendment to the certificate of incorporation requires the
affirmative vote of a majority of the outstanding stock entitled to vote
thereon. Furthermore, under the DGCL, the holders of the outstanding shares of
a class are entitled to vote as a class upon any proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
provisions of the corporation's certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or
alter or change the powers, preferences, or special rights of the shares of
such class so as to adversely affect them.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon. Under the CGCL, the holders of the outstanding shares of a class are
entitled to vote as a class if the proposed amendment would (i) increase or
decrease the aggregate number of authorized shares of such class, (ii) effect
an exchange, reclassification, or cancellation of all or part of the shares of
such class, other than a stock split, (iii) effect an exchange, or create a
right of exchange, of all or part of the shares of another class into the
shares of such class, (iv) change the rights, preferences, privileges, or
restrictions of the shares of such class, (v) create a new class of shares
having rights, preferences, or privileges prior to the shares of such class,
or increase the rights, preferences, or privileges or the number of authorized
shares having rights, preferences, or privileges prior to the shares of such
class, (vi) in the case of preferred shares, divide the shares of any class
into series having different rights, preferences, privileges, or restrictions
or authorize the board of directors to do so, or (vii) cancel or otherwise
affect dividends on the shares of such class which have accrued but have not
been paid.
Under both the DGCL and the CGCL, with certain exceptions, any merger,
consolidation, or sale of all or substantially all of a corporation's assets
must be approved by the corporation's board of directors and a majority of the
outstanding shares entitled to vote. In addition, the CGCL, but not the DGCL,
requires such transactions, among others, to be approved by a majority of the
outstanding shares of each class of stock (without regard to limitations on
voting rights). See "Business Combinations/Reorganizations" below.
Under the Metzler Certificate, the affirmative vote of the holders of two-
thirds of the outstanding shares entitled to vote is required to amend those
provisions of the Metzler Certificate addressing the number and election of
directors. Approval of stockholders holding at least two-thirds of the
outstanding shares entitled to vote is required to amend those provisions of
the Metzler Certificate addressing stockholder action by written content and
special meetings of stockholders. The effect of such supermajority voting
provisions is to make any of these changes more difficult.
AMENDING THE BYLAWS
Under the DGCL, the authority to adopt, amend, or repeal the bylaws of a
Delaware corporation is held exclusively by the stockholders unless such
authority is conferred upon the board of directors in the corporation's
certificate of incorporation. Under the Metzler Certificate, Metzler's Bylaws
may be altered, amended or repealed by either a majority of its Board of
Directors or by holders of at least two-thirds of the voting shares.
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Under the CGCL, a corporation's bylaws may be adopted, amended or repealed
either by the board of directors or the shareholders of the corporation,
provided that only the shareholders may adopt a change to a fixed number of
directors or to alter an established range. LECG's Bylaws provide that the
Bylaws may be changed either by the vote of the holders of a majority of the
outstanding shares entitled to vote or by the board of directors; provided,
however, that the Board may not amend the Bylaws in order to change a fixed
number of directors (except to alter the authorized number of directors within
the existing range of a minimum of 4 and a maximum of 7 directors).
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number
of directors to be elected. A shareholder may cast all such votes for a single
candidate or may allocate them among as many candidates as such shareholder
may choose. Without cumulative voting, the holders of a majority of the shares
present at an annual meeting or any special meeting held to elect directors
would have the power to elect all the directors to be elected at that meeting,
and no person could be elected without the support of holders of a majority of
the shares voting at such meeting.
Under the DGCL, there is no right to cumulative voting unless the charter
documents provide for it. Under the CGCL, unless a corporation's charter
documents specifically eliminate cumulative voting, shareholders have a right
to cumulate their votes in the election of directors so long as at least one
shareholder has given notice of such shareholder's intent to cumulate his or
her votes at the meeting prior to the voting. The Metzler Certificate does not
provide for cumulative voting. The LECG Bylaws, however, do provide for that
right; accordingly, LECG (in contrast to Metzler) provides for cumulative
voting for its shareholders.
"BLANK CHECK" PREFERRED STOCK
The Metzler Certificate and LECG Articles each grant the board authority to
provide for the issuance of one or more series of preferred stock without
stockholder approval, and to establish the relative designation, rights,
preferences and privileges of such preferred shares. Neither Metzler nor LECG
has any preferred stock designated, issued or outstanding.
BUSINESS COMBINATIONS/REORGANIZATIONS
A provision of the DGCL prohibits certain business combinations between a
Delaware corporation and an "interested stockholder." For purposes of this
DGCL provision, an "interested stockholder" is a stockholder that is directly
or indirectly a beneficial owner of 15% or more of the voting power of the
outstanding voting stock of a Delaware corporation (or its affiliate or
associate). This provision prohibits certain business combinations between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless (i) prior to the
date the stockholder became an interested stockholder the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the corporation's board of directors; (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation in the transaction in which it became an interested stockholder;
or (iii) the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the shares held by
disinterested stockholders.
The CGCL provides that, except where the fairness of the terms and
conditions of the transaction has been approved by the California Commissioner
of Corporations and except in a "short-form" merger (the merger of a parent
corporation with a subsidiary in which the parent owns at least 90% of the
outstanding shares of each class of the subsidiary's stock), if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, the nonredeemable common stock of a
target corporation may be converted only into nonredeemable common stock of
the surviving corporation or its parent corporation, unless all of the
shareholders of the class consent. The effect of this provision is to prohibit
a cash-out merger of minority shareholders, except where the majority
shareholder already owns 90% or more of the voting power of the target
corporation and could, therefore, effect a short-form merger to accomplish
such a cash-out of minority shareholders.
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In addition, the CGCL requires that, in connection with certain transactions
between a corporation whose shares are held of record by 100 or more persons
and an "interested party," such interested party must deliver a written
opinion as to the fairness of the consideration to the shareholders of the
corporation. An "interested party" for purposes of this CGCL provision means a
person who is a party to the transaction and (i) directly or indirectly
controls the corporation, (ii) is an officer or director of the corporation,
or (iii) is an entity in which a material financial interest is held by any
director or executive officer of the corporation.
RIGHTS OF DISSENTING SHAREHOLDERS
Under both the DGCL and the CGCL, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to
receive cash in the amount of the "fair value" (Delaware) or "fair market
value" (California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. In general,
shareholders of a California corporation have broader dissenters' rights than
stockholders of a Delaware corporation.
Under Delaware law, dissenters' rights are not available to stockholders
with respect to a merger or consolidation by a corporation, the shares of
which are either listed on a national securities exchange or designated as a
national market system security or an interdealer quotation system security by
the National Association of Securities Dealers, Inc., or are held of record by
more than 2,000 holders, if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Dissenters' rights are
also unavailable under Delaware law to shareholders of a corporation surviving
a merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger, and certain other conditions are met.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do
not have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares assert dissenters' rights. In any reorganization in which
one corporation or the shareholders of one corporation will own immediately
after the reorganization more than 5/6 of the voting power of the surviving or
acquiring corporation or its parent, shareholders of such corporations are
denied dissenters' rights under California law.
Delaware law does not provide parent company stockholders with voting or
dissenters' rights when it acquires another business through the issuance of
its stock or by purchase of assets or stock or by merger of the company being
acquired with a subsidiary of the acquiror. However, the corporate governance
rules of the major stock exchanges and The Nasdaq National Market require in
general that acquisitions involving the issuance of stock having 20% or more
of the voting power outstanding must be submitted for shareholder approval.
The CGCL treats these kinds of acquisitions in the same manner as a merger of
the issuer corporation directly with the business to be acquired, and provides
dissenters' rights in the circumstances described in the preceding paragraph.
INSPECTION OF STOCKHOLDERS LIST
Both the DGCL and the CGCL allow any stockholder to inspect the stockholders
list for a purpose reasonably related to such person's interest as a
stockholder. Additionally, the CGCL provides for an absolute right to inspect
and copy the corporation's shareholder list by a person or persons holding at
least 5% in the aggregate of the corporation's outstanding voting shares, or
any shareholder or shareholders holding 1% or more of such shares who have
filed a Schedule 14B with the Commission relating to the election of
directors. The DGCL does not provide for any such absolute right of
inspection.
DIVIDENDS
The DGCL allows the payment of dividends and redemption of stock out of
surplus (including paid-in and earned surplus) or out of net profits for the
current and immediately preceding fiscal years. Under the CGCL,
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any dividends or other distributions to shareholders, such as redemptions, are
limited to the greater of (i) retained earnings or (ii) an amount which would
leave the corporation with assets (excluding certain intangible assets) equal
to at least 125% of its liabilities (excluding certain deferred items) and
current assets equal to at least 100% (or, in certain circumstances, 125%) of
its current liabilities.
SHAREHOLDER DERIVATIVE SUITS
Under the DGCL, a stockholder may only bring a derivative action on behalf
of the corporation if the stockholder was a stockholder of the corporation at
the time of the transaction in question or the stock thereafter devolved upon
the stockholder by operation of law. The CGCL provides that a shareholder
bringing a derivative action on behalf of the corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. The CGCL also provides that the corporation or the defendant in
a derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
PREEMPTIVE RIGHTS
Stockholders of either a Delaware or a California corporation have only such
preemptive rights as may be provided in its certificate or articles of
incorporation. Neither the Metzler Certificate nor the LECG Articles grant any
preemptive rights to stockholders.
DISSOLUTION
Under the DGCL, a dissolution must be approved by stockholders holding 100%
of the total voting power or the dissolution must be initiated by the board of
directors and approved by the holders of a majority of the outstanding voting
shares of the corporation. Under the CGCL, shareholders holding 50% or more of
the total voting power may authorize a corporation's voluntary dissolution,
and this right may not be modified by its articles of incorporation.
BOARD OF DIRECTORS MEETINGS
The DGCL imposes no requirements as to calling board of directors meetings;
such requirements are as set forth in a Delaware corporation's certificate of
incorporation or bylaws. The Metzler Bylaws provide that (i) the first meeting
of the board of directors following each annual meeting of the stockholders
may be held immediately following such meeting; (ii) regular meetings of the
board of directors may be held without notice at such time and place as
determined by the board; and (iii) special meetings of the board of directors
may be called by the chairman of the board or the chief executive officer upon
at least one days' notice to each director.
Under the CGCL, meetings of the board of directors of a California
corporation, unless otherwise provided in such corporation's articles of
incorporation or bylaws, may be called by the chairman of the board, the
president, any vice president, the secretary or any two directors. The LECG
Articles and Bylaws do not provide otherwise. The LECG Bylaws provide that a
regular meeting of the board of directors may be held without notice if the
times and dates for such meetings are fixed by the board.
DIRECTOR VOTING
Under the DGCL, a quorum of the board of directors is equal to a majority of
the total number of authorized directors unless the certificate of
incorporation or bylaws provides for a greater number or a lesser number
(which in no case can be less than one-third of the total number of
directors). Under the CGCL, a quorum of a California corporation's board of
directors is equal to a majority of the authorized number of such
corporation's directors unless such corporation's articles of incorporation or
bylaws provide for a lesser number; provided, however, that such lesser number
cannot be less than the larger of (i) one-third of the authorized number of
directors or (ii) two. A California corporation's articles of incorporation
may require more than a majority of the authorized number of directors (up to
and including all of the directors) for a quorum. The Metzler Bylaws and the
LECG Bylaws each provide that a majority of the directors then in office shall
constitute a quorum.
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TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
A Delaware corporation may lend money to, or guarantee any obligation
incurred by, its officers or directors if, in the judgment of the board of
directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors or officers, such transactions
are neither void nor voidable if either (i) the director's or officer's
interest is made known to the disinterested directors or the stockholders of
the corporation, who thereafter approve the transaction in good faith, or (ii)
the contract or transaction is fair to the corporation as of the time it is
approved or ratified by either the board of directors, a committee thereof, or
the stockholders.
The CGCL permits shareholders of a corporation with 100 or more shareholders
of record to approve a bylaw authorizing the board of directors alone to
approve a loan or guarantee to or on behalf of an officer (whether or not a
director) if the board determines that such a loan or guarantee may reasonably
be expected to benefit the corporation. The LECG Bylaws contain such a
provision and allow its Board of Directors to authorize LECG to make a loan to
or guarantee the obligation of any officer of the corporation without
obtaining shareholder approval, provided that the Board determines such action
may reasonably be expected to benefit the corporation.
The CGCL also states that contracts or transactions between a corporation
and (i) any of its directors or (ii) a second corporation of which a director
is also a director are not void or voidable if the material facts as to the
transaction and as to the director's interest are fully disclosed and the
disinterested directors or a majority of the disinterested shareholders
represented and voting at a duly held meeting approve or ratify the
transaction in good faith, or the person asserting the validity of the
contract or transaction sustains the burden of proving that the contract or
transaction was just and reasonable as to the corporation at the time it was
authorized, approved or ratified.
The foregoing summary does not purport to be a complete statement of the
rights of holders of Metzler Common Stock or holders of Common Stock of LECG,
and is qualified in its entirety by reference to the DGCL and the CGCL and the
respective charter documents of Metzler and LECG.
45
<PAGE>
SELECTED HISTORICAL AND UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth certain selected historical financial data
for Metzler and LECG and unaudited pro forma consolidated combined financial
data after giving effect to the Merger as a pooling of interests for
accounting purposes, assuming the Merger had occurred at the beginning of the
periods presented.
The unaudited pro forma consolidated combined financial data of Metzler and
LECG is derived from the unaudited pro forma consolidated combined condensed
financial statements included in this Proxy Statement, which give effect to
the Merger as a pooling of interests, and should be read in conjunction with
such unaudited pro forma statements and the notes thereto.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
nor is it necessarily indicative of future operating results or financial
position.
SELECTED HISTORICAL FINANCIAL DATA
Selected Metzler Consolidated Financial Data
The following selected consolidated historical financial data of Metzler for
each of the five years in the period ended December 31, 1997 have been derived
from the Metzler historical consolidated financial statements, as audited by
KPMG Peat Marwick LLP, independent accountants, and should be read in
conjunction with such financial statements and the notes thereto included
herein. The consolidated statement of operations data of Metzler for the
three-month periods ended March 31, 1997 and 1998 and the consolidated balance
sheet data of Metzler at March 31, 1998 are unaudited but have been prepared
on the same basis as the audited consolidated financial statements of Metzler
and, in the opinion of management of Metzler, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. The results of
operations for the three-month periods ended March 31, 1997 and 1998 are not
necessarily indicative of results to be expected for any future period.
On March 5, 1998, the Board of Directors of Metzler declared a three-for-two
split of Metzler's Common Stock, effected in the form of a stock dividend
payable on April 1, 1998 to stockholders of record on March 18, 1998. All
agreements concerning stock options provide for the issuance of additional
shares due to the declaration of the stock split.
On July 31, 1997 and August 15, 1997, Metzler closed merger agreements with
Resource Management International, Inc. ("RMI") and Reed Consulting Group,
Inc. ("Reed"), respectively. The mergers were accounted for by the pooling of
interests method of accounting, and accordingly, the consolidated balance
sheets, statements of operations, cash flows and stockholders' equity and all
financial information of Metzler included in this Joint Proxy
Statement/Prospectus have been retroactively restated.
The selected historical financial information should be read in conjunction
with "Metzler's Management Discussion and Analysis of Financial Condition and
Results of Operations of Metzler" and the Consolidated and Unaudited Condensed
Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Joint Proxy Statement/Prospectus.
Pro forma net income for the two years ended December 31, 1995 and 1996
reflects 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 Metzler's
Consolidated Financial Statements.
46
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF METZLER
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
INCOME DATA:
Revenues................ $46,175 $47,104 $55,817 $63,553 $83,661 $18,084 $25,487
Cost of services........ 31,344 32,059 37,085 42,315 49,567 11,154 14,506
------- ------- ------- ------- ------- ------- -------
Gross profit............ 14,831 15,045 18,732 21,238 34,094 6,930 10,981
Selling, general and
administrative
expenses............... 14,356 14,548 17,812 15,610 18,108 4,256 5,066
Merger-related costs.... -- -- -- -- 1,312 -- --
------- ------- ------- ------- ------- ------- -------
Income from operations.. 475 497 920 5,628 14,674 2,674 5,915
Other expense (income).. 43 301 241 73 (799) (220) (481)
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 432 196 679 5,555 15,473 2,894 6,396
Provision for income
taxes.................. 547 262 393 (180) 5,786 1,088 2,539
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (115) $ (66) $ 286 $ 5,735 $ 9,687 $ 1,806 $ 3,857
======= ======= ======= ======= ======= ======= =======
Pro forma net income.... $ 1,952 $ 2,916
======= =======
Pro forma or net income
per basic share........ $ .10 $ .15 $ .48 $ .09 $ .18
======= ======= ======= ======= =======
Pro forma or net income
per dilutive share..... $ .10 $ .15 $ .47 $ .09 $ .18
======= ======= ======= ======= =======
Basic weighted average
shares outstanding..... 19,033 19,259 19,982 19,924 21,087
Diluted weighted average
shares outstanding..... 19,033 19,445 20,469 20,216 22,022
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA:
Cash and cash
equivalents............ $ 132 $ 278 $ 701 $33,536 $21,573 $53,702
Working capital......... 3,762 3,946 5,202 36,429 31,566 69,036
Total assets............ 14,857 14,962 16,839 52,269 50,764 86,293
Long-term debt, less
current portion........ 668 833 1,003 1,401 319 --
Total stockholders'
equity................. 3,283 3,174 3,646 35,949 32,907 73,887
</TABLE>
Selected LECG Financial Data
The summary historical consolidated financial information of LECG for its
four fiscal years ended December 31, 1997 is derived from its audited
Consolidated Financial Statements. The financial data as of December 31, 1993
and 1994, and for the fiscal year ended December 31, 1993 and the three month
periods ended March 31, 1997 and 1998, 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 presented.
The selected historical financial information should be read in conjunction
with "LECG's Management Discussion and Analysis of Financial Condition and
Results of Operations of LECG" and the Consolidated and Unaudited Condensed
Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Joint Proxy Statement/Prospectus.
Prior to its initial public offering, LECG was taxed under subchapter S of
the Internal Revenue Code. As an S Corporation, LECG was not subject to
federal (and some state) income taxes. The pro forma consolidated statement of
income data for the years ended December 31, 1996 and 1997 have been adjusted
to reflect a provision for income taxes assuming an effective tax rate of 41
percent that would have been recorded had LECG been a C Corporation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of LECG" and Notes 2 and 10 of Notes to LECG's Consolidated
Financial Statements.
47
<PAGE>
Included in income before income taxes for the year ended December 31, 1997
is other income of $851,862 ($817,778 net of estimated income taxes of
$34,084) resulting from the expiration of an option to purchase the assets of
LECG by an unrelated third party. This income is not expected to be recurring.
See "LECG Management's Discussion and Analysis of Financial Condition and
Results of Operations of LECG" and Notes 10 and 12 of Notes to LECG's
Consolidated Financial Statements. If this non-recurring item had not
occurred, pro forma net income would be $4,755,959 and pro forma basic and pro
forma diluted earnings per share would be $0.47 and $0.46, respectively.
See Note 10 of Notes to LECG's Consolidated Financial Statements for a
description of the computation of the number of shares used in per share
calculations and earnings per share.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LECG
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- ------- ------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
INCOME DATA:
Revenues................ $20,317 $24,548 $24,835 $31,392 $44,110 $9,901 $15,780
Cost of services........ 13,614 16,772 16,465 20,881 27,936 6,646 10,052
------- ------- ------- ------- ------- ------ -------
Gross profit............ 6,703 7,776 8,370 10,511 16,174 3,255 5,728
Selling, general and
administrative
expenses............... 3,537 3,639 4,048 5,258 8,114 1,415 2,868
------- ------- ------- ------- ------- ------ -------
Income from operations.. 3,166 4,137 4,322 5,253 8,060 1,840 2,860
Other income............ -- -- -- -- (852) -- (193)
------- ------- ------- ------- ------- ------ -------
Income before provision
for income taxes....... 3,166 4,137 4,322 5,253 8,912 1,840 3,053
Provision for income
taxes.................. 183 90 83 189 3,148 64 1,252
------- ------- ------- ------- ------- ------ -------
Net income.............. $ 2,983 $ 4,047 $ 4,239 $ 5,064 $ 5,764 $1,776 $ 1,801
======= ======= ======= ======= ======= ====== =======
Pro forma net income.... $ 3,099 $ 5,259 $1,086
======= ======= ======
Pro forma or net income
per basic share........ $ .31 $ 0.52 $ 0.11 $ 0.14
======= ======= ====== =======
Pro forma or net income
per dilutive share..... $ .30 $ 0.51 $ 0.11 $ 0.14
======= ======= ====== =======
Basic weighted average
shares outstanding..... 10,006 10,211 10,058 13,028
Diluted weighted average
shares outstanding..... 10,245 10,249 10,189 13,123
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ----------- ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA:
Cash and cash
equivalents............ $ 721 $ 407 $ 598 $ 3 $24,165 $21,865
Working capital......... 3,611 5,319 5,934 4,342 24,654 27,804
Total assets............ 8,469 11,348 11,566 13,198 45,056 48,398
Long-term debt, less
current portion........ -- -- -- -- -- --
Total shareholders'
equity................. 3,870 5,539 6,348 6,264 26,637 30,598
</TABLE>
48
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying unaudited pro forma combined condensed financial
information combines the historical results of Metzler and LECG as if the
Merger occurred on January 1, 1993. The unaudited pro forma condensed
financial statements are presented for illustrative purposes only and do not
purport to represent what the Company's results of operations or financial
position would have been had the merger between Metzler and LECG occurred on
the dates indicated or for any future period or date, and are therefore
qualified in their entirety by reference to and should be read in conjunction
with the historical financial statements of Metzler and LECG.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
INCOME DATA:
Revenues................ $66,492 $71,652 $80,652 $94,945 $127,771 $ 27,985 $ 41,267
Cost of services........ 44,958 48,831 53,550 63,196 77,503 17,800 24,558
------- ------- ------- ------- -------- --------- ---------
Gross profit............ 21,534 22,821 27,102 31,749 50,268 10,185 16,709
Selling, general and
administrative
expenses............... 17,893 18,187 21,860 20,868 26,222 5,671 7,934
Merger-related costs.... -- -- -- -- 1,312 -- --
------- ------- ------- ------- -------- --------- ---------
Income from operations.. 3,641 4,634 5,242 10,881 22,734 4,514 8,775
Other expense (income).. 43 300 241 73 (1,651) (220) (674)
------- ------- ------- ------- -------- --------- ---------
Income before provision
for income taxes....... 3,598 4,334 5,001 10,808 24,385 4,734 9,449
Provision for income
taxes.................. 730 353 476 9 8,934 1,152 3,791
------- ------- ------- ------- -------- --------- ---------
Net income.............. $ 2,868 $ 3,981 $ 4,525 $10,799 $ 15,451 $ 3,582 $ 5,658
======= ======= ======= ======= ======== ========= =========
Pro forma or net income. $ 6,191 $ 6,015 $ 14,946 $ 2,892
======= ======= ======== =========
Pro forma net income per
basic share............ $ 0.24 $ 0.57 $ 0.11 $ 0.20
======= ======== ========= =========
Pro forma or net income
per dilutive share..... $ 0.24 $ 0.56 $ 0.11 $ 0.19
======= ======== ========= =========
Basic weighted average
shares outstanding..... 25,263 26,109 25,959 28,904
Diluted weighted average
shares outstanding..... 25,592 26,618 26,329 29,896
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
---------
<S> <C> <C> <C> <C> <C>
PRO FORMA BALANCE SHEET
DATA:
Cash and cash
equivalents............ $ 75,567
Working capital(1)...... 91,840
Total assets............ 134,691
Long-term debt, less
current portion........ --
Total stockholders'
equity(1).............. 99,485
</TABLE>
- --------
(1) Adjusted to reflect the expectation of the companies to incur an estimated
$5.0 million of non-recurring merger-related costs.
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA
The following unaudited pro forma condensed combining balance sheet and
statements of income give pro forma effect to the Merger of Metzler and LECG
as if it had occurred on the first day of each period presented. The Merger
will be accounted for by the pooling of interests method of accounting. The
unaudited pro forma condensed combining balance sheet and statements of income
do not purport to be indicative of the financial position or the results of
operations of Metzler had the transaction actually been completed on the first
day of each period presented, or which may be obtained in the future.
49
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS )
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------- ---------- --------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $53,702 $21,865 $ 75,567
Accounts receivable, net............ 24,676 20,870 45,546
Prepaid expenses and other current
assets............................. 1,776 1,081 2,857
------- ------- ------ --------
Total current assets.............. 80,154 43,816 -- 123,970
Property and equipment, net........... 4,902 4,336 9,238
Other assets.......................... 1,237 246 1,483
------- ------- ------ --------
Total assets...................... $86,293 $48,398 -- $134,691
======= ======= ====== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 5,137 $ 2,105 $5,000(b) $ 12,242
Accrued compensation and projected-
related costs...................... 2,006 10,254 12,260
Income taxes payable................ 2,991 1,454 4,445
Deferred income taxes, current...... 585 703 1,288
Other current liabilities........... 399 1,496 1,895
------- ------- ------ --------
Total current liabilities......... 11,118 16,012 5,000 32,130
Deferred income taxes................. 980 1,788 2,768
Other non-current liabilities......... 308 -- 308
------- ------- ------ --------
Total liabilities................. 12,406 17,800 5,000 35,206
------- ------- ------ --------
Stockholders' equity:
Preferred stock..................... -- -- --
Common stock........................ 22 13 (5)(a) 30
Additional paid-in capital.......... 57,861 29,193 5 (a) 87,059
Notes receivable from stockholders.. -- (611) (611)
Retained earnings................... 16,075 2,003 (5,000)(b) 13,078
Accumulated other comprehensive
income............................. (71) -- (71)
------- ------- ------ --------
Total stockholders' equity........ 73,887 30,598 (5,000) 99,485
------- ------- ------ --------
Total liabilities and
stockholders' equity............. $86,293 $48,398 -- $134,691
======= ======= ====== ========
</TABLE>
- --------
(a) The pro forma amount assumes 7,816,720 shares of Metzler Common Stock are
issued in the Merger, based on the exchange ratio of .60 shares of Metzler
Common Stock for each share of LECG Common Stock outstanding as of March
31, 1998. The actual number of shares of Metzler Common Stock to be issued
will be determined at the time the Merger is consummated, based upon the
number of shares of LECG Common Stock then outstanding.
(b) Adjusted to reflect the expectation of the companies to incur an estimated
$5.0 million of non-recurring merger related costs.
50
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Revenues.................................... $25,487 $15,780 $41,267
Cost of services............................ 14,506 10,052 24,558
------- ------- ------ -------
Gross profit................................ 10,981 5,728 -- 16,709
Selling, general and administrative
expenses................................... 5,066 2,868 7,934
------- ------- ------ -------
Income from operations...................... 5,915 2,860 -- 8,775
Other income, net........................... 481 193 674
------- ------- ------ -------
Income before provision for income taxes.... 6,396 3,053 -- 9,449
Provision for income taxes.................. 2,539 1,252 3,791
------- ------- ------ -------
Net income.................................. $ 3,857 $ 1,801 -- $ 5,658
======= ======= ====== =======
Net income per basic share.................. $ 0.18 $ 0.14 -- $ 0.20
======= ======= ====== =======
Net income per dilutive share............... $ 0.18 $ 0.14 -- $ 0.19
======= ======= ====== =======
Basic shares used in computing pro forma or
net income per share....................... 21,087 13,028 (5,211) 28,904
Diluted shares used in computing pro forma
or net income per share.................... 22,022 13,123 (5,249) 29,896
</TABLE>
- --------
(a) The calculation of basic and dilutive net income per common share for the
pro forma financial statements uses the applicable weighted average number
of outstanding shares of Metzler and LECG Common Stock adjusted to
equivalent shares of Metzler Common Stock.
51
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------ ---------- -------
<S> <C> <C> <C> <C>
Revenues..................................... $18,084 $9,901 $27,985
Cost of services............................. 11,154 6,646 17,800
------- ------ ------ -------
Gross profit................................. 6,930 3,255 -- 10,185
Selling, general and administrative expenses. 4,256 1,415 5,671
------- ------ ------ -------
Income from operations....................... 2,674 1,840 -- 4,514
Other income, net............................ 220 -- 220
------- ------ ------ -------
Income before provision for income taxes..... 2,894 1,840 -- 4,734
Provision for income taxes................... 1,088 64 1,152
------- ------ ------ -------
Net income................................... $ 1,806 $1,776 -- $ 3,582
======= ====== ====== =======
Pro forma or net income...................... $ 1,806 $1,086 -- $ 2,892
======= ====== ====== =======
Pro forma or net income per basic share...... $ 0.09 $ 0.11 -- $ 0.11
======= ====== ====== =======
Pro forma or net income per dilutive share... $ 0.09 $ 0.11 -- $ 0.11
======= ====== ====== =======
Basic shares used in computing pro forma or
net income per share........................ 19,924 10,058 (4,023) 25,959
Diluted shares used in computing pro forma or
net income per share........................ 20,216 10,189 (4,076) 26,329
</TABLE>
- --------
(a) The calculation of basic and dilutive net income per common share for the
pro forma financial statements uses the applicable weighted average number
of outstanding shares of Metzler and LECG Common Stock adjusted to
equivalent shares of Metzler Common Stock.
52
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------- ---------- --------
<S> <C> <C> <C> <C>
Revenues................................... $83,661 $44,110 $127,771
Cost of services........................... 49,567 27,936 77,503
------- ------- ------ --------
Gross profit............................... 34,094 16,174 -- 50,268
Merger-related costs....................... 1,312 -- 1,312
Selling, general and administrative
expenses.................................. 18,108 8,114 26,222
------- ------- ------ --------
Income from operations..................... 14,674 8,060 -- 22,734
Other income, net.......................... 799 852 1,651
------- ------- ------ --------
Income before provision for income taxes... 15,473 8,912 -- 24,385
Provision for income taxes................. 5,786 3,148 8,934
------- ------- ------ --------
Net income................................. $ 9,687 $ 5,764 -- $ 15,451
======= ======= ====== ========
Pro forma or net income.................... $ 9,687 $ 5,259 -- $ 14,946
======= ======= ====== ========
Pro forma or net income per basic share.... 0.48 0.52 -- 0.57
======= ======= ====== ========
Pro forma or net income per dilutive share. $ 0.47 $ 0.51 -- $ 0.56
======= ======= ====== ========
Basic shares used in computing pro forma or
net income per share...................... 19,982 10,211 (4,084) 26,109
Diluted shares used in computing pro forma
or net income per share................... 20,469 10,249 (4,100) 26,618
</TABLE>
- --------
(a) The calculation of basic and dilutive net income per common share for the
pro forma financial statements uses the applicable weighted average number
of outstanding shares of Metzler and LECG Common Stock adjusted to
equivalent shares of Metzler Common Stock.
53
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Revenues................................... $63,553 $31,392 $94,945
Cost of services........................... 42,315 20,881 63,196
------- ------- ------ -------
Gross profit............................... 21,238 10,511 -- 31,749
Selling, general and administrative
expenses.................................. 15,610 5,258 20,868
------- ------- ------ -------
Income from operations..................... 5,628 5,253 -- 10,881
Other expense, net......................... 73 73
------- ------- ------ -------
Income before provision for income taxes... 5,555 5,253 -- 10,808
Provision for income taxes (benefit)....... (180) 189 9
------- ------- ------ -------
Net income................................. $ 5,735 $ 5,064 -- $10,799
======= ======= ====== =======
Pro forma net income....................... $ 2,916 $ 3,099 -- $ 6,015
======= ======= ====== =======
Pro forma net income per basic share....... $ 0.15 $ 0.31 -- $ 0.24
======= ======= ====== =======
Pro forma net income per dilutive share.... $ 0.15 $ 0.30 -- $ 0.24
======= ======= ====== =======
Basic shares used in computing pro forma or
net income per share...................... 19,259 10,006 (4,002) 25,263
Diluted shares used in computing pro forma
or net income per share................... 19,445 10,245 (4,098) 25,592
</TABLE>
- --------
(a) The calculation of basic and dilutive net income per common share for the
pro forma financial statements uses the applicable weighted average number
of outstanding shares of Metzler and LECG Common Stock adjusted to
equivalent shares of Metzler Common Stock.
54
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
METZLER LECG ADJUSTMENT FORMA
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Revenues.................................... $55,817 $24,835 $80,652
Cost of services............................ 37,085 16,465 53,550
------- ------- --- -------
Gross profit................................ 18,732 8,370 -- 27,102
Selling, general and administrative
expenses................................... 17,812 4,048 21,860
------- ------- --- -------
Income from operations...................... 920 4,322 -- 5,242
Other expense, net.......................... 241 -- 241
------- ------- --- -------
Income before provision for income taxes.... 679 4,322 -- 5,001
Provision for income taxes.................. 393 83 476
------- ------- --- -------
Net income.................................. $ 286 $ 4,239 -- $ 4,525
======= ======= === =======
Pro forma or net income..................... $ 1,952 $ 4,239 -- $ 6,191
======= ======= === =======
</TABLE>
55
<PAGE>
UNAUDITED QUARTERLY RESULTS
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 Metzler's and LECG's revenue cycles,
the ability of clients to terminate engagements without penalty, the size and
scope of assignments and general economic conditions. Because a significant
percentage of Metzler's and LECG'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.
Metzler. The following table sets forth certain unaudited quarterly
operating information for each of the nine quarters ending March 31, 1998.
These data have been prepared on the same basis as the audited financial
statements contained elsewhere herein and include all normal recurring
adjustments necessary for the fair presentation of the information for the
periods presented, when read in conjunction with Metzler'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, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $15,318 $15,654 $16,189 $16,392 $18,084 $20,194 $21,140 $24,243 $25,487
Cost of services........ 9,609 10,344 10,824 11,538 11,154 11,948 12,067 14,399 14,506
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 5,709 5,310 5,365 4,854 6,930 8,246 9,073 9,844 10,981
Merger-related costs.... -- -- -- -- -- -- 1,312 -- --
Selling, general and
administrative
expenses............... 3,282 3,485 3,885 4,958 4,256 4,681 4,296 4,874 5,066
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). 2,427 1,825 1,480 (104) 2,674 3,565 3,465 4,970 5,915
Other expense (income),
net.................... 46 102 142 (218) (220) (209) (190) (180) (481)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income tax
expense (benefit)...... 2,381 1,723 1,338 114 2,894 3,774 3,655 5,150 6,396
Income tax expense
(benefit).............. 167 (152) (86) (109) 1,088 1,437 1,327 1,934 2,539
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,214 $ 1,875 $ 1,424 $ 223 $ 1,806 $ 2,337 $ 2,328 $ 3,216 $ 3,857
======= ======= ======= ======= ======= ======= ======= ======= =======
Total revenues, as
previously reported.... $ 5,344 $ 5,513 $ 5,603 $ 5,634 $ 6,258 $ 7,824
Adjustments(1).......... 9,974 10,141 10,586 10,758 11,826 12,370
------- ------- ------- ------- ------- -------
Total revenues.......... 15,318 15,654 16,189 16,392 18,084 20,194 $21,140 $24,243 $25,487
======= ======= ======= ======= ======= =======
Gross profit, as
previously reported.... 2,798 2,844 2,828 2,513 3,054 3,940
Adjustments(1).......... 2,911 2,466 2,537 2,341 3,876 4,306
------- ------- ------- ------- ------- -------
Gross profit............ 5,709 5,310 5,365 4,854 6,930 8,246 9,073 9,844 10,981
======= ======= ======= ======= ======= =======
Operating income (loss),
as previously reported. 2,089 2,149 1,612 1,400 1,625 2,562
Adjustments(1).......... 338 (324) (132) (1,504) 1,049 1,003
------- ------- ------- ------- ------- -------
Operating income (loss). 2,427 1,825 1,480 (104) 2,674 3,565 3,465 4,970 5,915
======= ======= ======= ======= ======= =======
Net income, as
previously reported.... 2,034 2,106 1,547 1,167 1,230 1,801
Adjustments(1).......... 180 (231) (123) (944) 576 536
------- ------- ------- ------- ------- -------
Net income.............. $ 2,214 $ 1,875 $ 1,424 $ 223 $ 1,806 $ 2,337 $ 2,328 $ 3,216 $ 3,857
======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Adjustments reflect the effect of acquisitions accounted for as poolings
of interests of the amounts previously reported. See Note 3 of Notes to
Metzler's Consolidated Financial Statements for a more detailed
discussions of these transactions.
56
<PAGE>
LECG. The following table sets forth certain unaudited quarterly operating
information for each of the nine quarters ended March 31, 1998. This
information has been prepared on the same basis as the audited financial
statements contained elsewhere herein and includes all normal recurring
adjustments necessary for the fair presentation of the information for the
periods presented, when read in conjunction with LECG'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>
QUARTER ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $6,617 $7,781 $8,332 $8,662 $9,901 $10,885 $11,208 $12,116 $15,780
Cost of services........ 4,397 5,208 5,656 5,620 6,646 7,094 6,612 7,584 10,052
------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 2,220 2,573 2,676 3,042 3,255 3,791 4,596 4,532 5,728
Selling, general and
administrative
expenses............... 1,013 1,228 1,313 1,704 1,415 1,887 2,532 2,280 2,868
Other income............ 0 0 0 0 0 852 0 0 (193)
------ ------ ------ ------ ------ ------- ------- ------- -------
Income before income
taxes.................. 1,207 1,345 1,363 1,338 1,840 2,756 2,064 2,252 3,053
Income taxes............ 43 48 48 50 64 115 92 2,877 1,252
------ ------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... $1,164 $1,297 $1,315 $1,288 $1,776 $ 2,641 $ 1,972 $ (625) $ 1,801
====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
57
<PAGE>
INFORMATION CONCERNING THE METZLER GROUP, INC.
BUSINESS
Metzler is a leading nationwide provider of consulting services to energy
based and related network industries. Metzler 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. Metzler's clients include the 50 largest IOUs and the 20 largest
gas distribution companies in the United States.
During 1997, Metzler 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; expanded its base of non-
utility energy clients; 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 four acquisitions. With the
addition of these four consulting businesses, Metzler's services 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 five direct wholly-
owned subsidiaries: Metzler & Associates, Burgess, RMI, Reed and Sterling.
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.
Metzler 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 Metzler to be a single-source provider
of consulting services to energy utilities while maintaining advanced skill
sets in each area.
Metzler'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.
Services. Metzler has performed consulting assignments for more than 200
utility industry clients. Metzler's clients include the 50 largest investor-
owned electric utilities (IOUs) and the 20 largest gas distribution companies
in the United States. Metzler'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. Metzler
also serves independent power producers, co-generators and power marketers,
suppliers to the utility industry and oil and gas exploration and production
companies.
Metzler currently derives the majority of its revenues from consulting
engagements with electric utility companies and substantially all of its
revenues from utilities. Much of Metzler'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.
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. Metzler believes that the water
industry will undergo deregulation in the mid-term future and will give rise
to increased demand for consulting services.
58
<PAGE>
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; (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 CONSULTING
. 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
59
<PAGE>
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.
. 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 effect 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.
Clients and Representative Services. Metzler has performed consulting
assignments for more than 200 utility industry clients, principally IOUs.
Metzler's clients include the 50 largest IOUs and the 20 largest gas
distribution companies in the United States. Metzler'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. Metzler also serves independent power producers, co-generators
and power marketers, suppliers to the utility industry and oil and gas
exploration and production companies.
Because of the nature and scope of many of Metzler's projects, Metzler
derives a significant portion of its revenues from a relatively limited number
of clients that operate exclusively in the electric utility industry.
60
<PAGE>
Marketing and Sales. Metzler markets its services directly to mid-level to
senior executives of energy and utility-related businesses from its
headquarters in Chicago, Illinois and through each of its subsidiaries.
Metzler 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 Metzler's personnel and authoring of articles and other
publications regarding the energy utility industry and Metzler's
methodologies.
A significant portion of new business arises from prior client engagements.
In addition, Metzler 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, Metzler'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 Metzler's ability to market additional
capabilities to its clients in the future. In addition, Metzler's senior
management team actively meets with energy and utility-related businesses that
have not yet engaged Metzler and newly appointed senior managers in energy and
utility-related businesses where Metzler has worked in the past to make them
aware of Metzler's capabilities.
Human Resources. As of June 30, 1998, Metzler's personnel consisted of
approximately 525 employees. Metzler's success depends in large part on
attracting, retaining and motivating talented, creative and experienced
professionals at all levels. In connection with its hiring efforts, Metzler
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. Metzler'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, Metzler has developed
mentor programs. Metzler also develops its consultants through a training
program, as well as review of precedent from prior Metzler engagements.
Metzler 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, Metzler supplements its
consultants on certain engagements with independent contractors, many of whom
are former employees of Metzler. Metzler 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 energy and utility-
related businesses 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 Metzler. Metzler believes that its experience,
reputation, industry focus and broad range of services will enable it to
compete effectively in its marketplace.
Properties. Metzler's headquarters are currently located in a 15,000 square
foot building in Chicago, Illinois owned by Metzler. In addition to its
headquarters, Metzler leases office space as listed below. Metzler believes
that additional space will be required as its business expands geographically
and that it will be able to obtain suitable space as needed.
61
<PAGE>
Metzler maintains principal offices in the following locations:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL
<S> <C> <C>
Austin, TX Orlando, FL Copenhagen, Denmark
Boston, MA Philadelphia, PA Manila, Philippines
Chicago, IL Phoenix, AZ Melbourne, Australia
Colorado Springs, CO Portland, OR Prague, Czech Republic
Houston, TX Richardson, TX
Los Angeles, CA Sacramento, CA
New York City, NY Springfield, IL
Orem, UT Washington, DC
</TABLE>
Legal Proceedings. From time to time, Metzler is party to other lawsuits,
none of which Metzler believes are material.
METZLER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF METZLER
Statements included in this Metzler Management's Discussion and Analysis of
Financial Condition and Results of Operations of Metzler which are not
historical in nature are intended to be, and are hereby identified as,
"forward-looking statements" for purposes of the safe harbor provided by
Section 27A of the Securities Act and Section 21E of the Exchange Act. When
used in this section, the words "anticipate," "believe," "intends,"
"estimate," and "expect" and similar expressions as they relate to Metzler or
its management are intended to identify such forward-looking statements.
Metzler'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."
This Management's Discussion and Analysis of Financial Condition and Results
of Operations relates to the Metzler Consolidated Financial Statements
included in this Joint Proxy Statement-Prospectus, which present Metzler &
Associates, RMI, and Reed on a consolidated basis for all periods presented.
Overview. Metzler is a leading nationwide provider of consulting services to
energy based and related network industries. Metzler 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. Metzler's service offerings include: (i) management consulting;
(ii) information technology; (iii) economic and regulatory; and (iv)
engineering and technical.
Metzler 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
Metzler's revenues have 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.
Metzler'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
Metzler, although Metzler supplements its project professional personnel
through the use of independent contractors. Metzler retains contractors for
specific client engagements on a task-specific, per diem basis during the
period their expertise or skills are required. Metzler 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, Metzler expects to continue to
pursue complementary acquisitions to expand its geographic reach, expand the
breadth and depth of its service offerings and enhance Metzler's consultant
base. In furtherance of this growth strategy, Metzler acquired five additional
consulting firms during 1997 for an aggregate of 4,670,366 shares of its
Common Stock. Each of these five transactions was accounted for as a pooling
of interest.
62
<PAGE>
Results of Operations. The following table sets forth, for the periods
indicated, selected statements of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF INCOME DATA:
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.......................... 66.5 66.6 59.2 56.9 61.7
----- ----- ----- ------ ------
Gross profit.............................. 33.5 33.4 40.8 43.1 38.3
Merger-related costs...................... -- -- 1.6 -- --
Selling, general and administrative
expenses................................. 31.9 24.6 21.6 19.9 23.5
----- ----- ----- ------ ------
Operating income.......................... 1.6 8.8 17.6 23.2 14.8
Other expense (income), net............... 0.4 0.1 (0.9) (1.9) (1.2)
----- ----- ----- ------ ------
Income before income tax expense
(benefit)................................ 1.2 8.7 18.5 25.1 16.0
Income tax expense (benefit).............. 0.7 (0.3) 6.9 10.0 6.0
----- ----- ----- ------ ------
Net income (loss)......................... 0.5 9.0 11.6 15.1 10.0
===== ===== ===== ====== ======
</TABLE>
63
<PAGE>
Three Months Ended March 31, 1998 Compared to 1997
Revenues. Revenues increased by 41% to $25.5 million in the three months
ended March 31, 1998 from $18.1 million in the first quarter of 1997. The
growth in revenue was primarily due to expansion of services provided to
existing clients and engagements with new clients, as a result of continued
strong demand for management consulting services in the electric and energy-
related industries, increased selling and business development efforts, and
immaterial acquisitions completed in the fourth quarter of 1997.
Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant salaries, benefits and travel-related direct project
expenses. Gross profit increased 59% to $11.0 million in the first quarter of
1998 from $6.9 million in the first quarter of 1997. Gross profit as a
percentage of revenues was 43% for the first quarter of 1998 as compared to
38% in the year earlier period. The change in gross margin percentage was
primarily the result of increases in the utilization rates of Metzler's
professional personnel and the introduction of performance-based incentive
compensation plans at certain acquired businesses as of January 1, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include salaries and benefits of management and
support personnel, facilities costs, training, direct selling, outside
professional fees and all other corporate costs. As a percentage of revenue,
selling, general and administrative expenses for the three months ended March
31, 1998 and 1997 were 20% and 24%, respectively. The improvement in selling,
general and administrative expenses as a percent of revenues is attributable
to economies of scale, increased efficiency in certain support functions,
reduction of administrative headcount and closing certain facilities at the
beginning of 1998.
Income Taxes. Metzler's effective income tax rate was 39.7% for the first
quarter of 1998 as compared to 37.6% for the same period in 1997. The increase
in the effective tax rate is primarily attributable to a higher statutory
federal tax rate associated with anticipated increased earnings in 1998 and
due to an increase in the effective state tax rate resulting from a greater
proportion of Metzler's business coming from locations with higher state tax
rates.
1997 Compared to 1996
Revenues. Revenues increased 31.6% to $83.7 million in 1997 from $63.6
million in 1996. This increase was the result of continued strong demand for
Metzler'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. Gross profit grew 60.8% to $34.1 million in 1997 from $21.2 million
in 1996. Gross profit as a percentage of revenues was 40.8% in 1997 compared
to 33.4% in 1996. The improvement in gross profit margins was driven primarily
by increased utilization of Metzler's professional consultants.
Merger-Related Costs. During 1997, Metzler 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 1997 increased approximately 16.0% to $18.1
million from $15.6 million in 1996. The pro forma adjustments for 1996 include
an increase in officer compensation of $1.0 million 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 1997
64
<PAGE>
increased approximately 9.0% to $18.1 million from the pro forma $16.6 million
for 1996. This increase is largely attributable to the overall higher business
volume in 1997, partially offset by economies of scale and increased
efficiency in certain support functions.
Other Expense (Income). In 1997 interest income increased to $1.1 million
due to average cash and cash equivalents outstanding of $27.6 million in 1997.
The cash and cash equivalents balance primarily relates to the proceeds from
the initial public offering that was completed in October, 1996.
Income Taxes. For the first nine months of 1996, one Metzler'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
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. The pro forma tax adjustment for this
period includes additional federal and state taxes that would have been
required had the S-corporation election not been in effect and the net tax
benefit relating to the pro forma compensation expense adjustment described
above.
1996 Compared to 1995
Revenues. Revenues increased 14.0% 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 Metzler'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 Metzler's
subsidiaries from a C corporation to an S corporation commencing January 1,
1996, Metzler 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 Metzler's initial
public offering of common stock, Metzler 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.
Income Taxes. Effective January 1, 1996, the stockholders of one of
Metzler'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 Metzler'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.
Liquidity and Capital Resources. Net cash used by operating activites was
$1.4 million in the first quarter of 1998. Net income for the period of $3.9
million was primarily offset by $1.7 million in tax payments in excess
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<PAGE>
of current period accruals, a $0.6 million net decrease in accrued
compensation and related costs due to first quarter payments related to prior
year accrued bonuses, a $1.0 million increase in accounts receivable resulting
from higher revenues and a $0.9 million payment for the purchase of minority
interest in a company acquired in the fourth quarter of 1997.
Investing activities used net cash flows of $2.5 million in the first three
months of 1998. The net cash used in investing activities was primarily due to
the purchase of a building located in Chicago that will be used for Metzler's
corporate headquarters. Historically, investing activities have not required
significant cash flows.
Financing activities provided net cash flows of $36.1 million in the first
quarter of 1998. In March 1998, Metzler sold 1.5 million shares of Metzler
Common Stock in a secondary offering, raising approximately $36 million
dollars, net of related offering costs. During the first quarter of 1998,
Metzler repaid approximately $1.1 million of pre-existing notes and other
obligations of businesses acquired during 1997.
Operating activities provided net cash flows of $6.4 million, $5.9 million
and $1.2 million in 1997, 1996 and 1995, respectively. In 1997, the cash flow
from operations is primarily the result of net income, increases in accounts
payable, accrued liabilities and income taxes payable balances offset by an
increase in accounts receivable. The increase in accounts receivable is
primarily due to a 48% increase in revenue in the fourth quarter of 1997
versus the corresponding period in the prior year.
Investing activities used net cash flows of $1.7 million, $1.8 million and
$.8 million in 1997, 1996 and 1995, respectively. Historically investing
activities have not required significant cash flows.
Net cash (used in) provided by financing activities was ($16.7) million,
$28.8 million and ($.1) million in 1997, 1996 and 1995, respectively. In 1997,
Metzler completed the acquisition of RMI in a transaction accounted for as a
pooling of interests. In August 1997, Metzler completed another acquisition of
privately owned Reed in a transaction also accounted for as a pooling of
interests. In connection with these acquisitions and the Sterling acquisition,
Metzler made cash payments totaling approximately $9.7 million to acquire
shares of the combining enterprises held by certain minority stockholders.
Metzler also made payments of approximately $3.6 million to repay principal
and accrued interest on long term debt and line of credit obligations of RMI.
Also, in 1997, Metzler 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%. Metzler 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 Metzler's
subsidiaries was taxed as an S corporation. Approximately $3.5 million of net
income for the period during which the subsidiary was an S corporation was
distributed to former S-corporation shareholders and included in their
personal taxable income. These amounts were distributed to the former S-
Corporation stockholders in 1997.
Metzler believes that the cash and cash equivalents as of the end of the
first quarter and funds generated by operations, will provide adequate cash to
fund its anticipated cash needs, which may include future acquisitions of
complementary businesses, at least through the next twelve months. Thereafter,
Metzler anticipates that its cash requirements related to future operations
and potential acquisitions will be funded with cash generated from operations
and short-term borrowings. Metzler currently anticipates that it will retain
all of its earnings for development of Metzler's business and does not
anticipate paying any cash dividends in the foreseeable future.
Metzler believes that the effect of the millennium on its internal
information systems will have an immaterial impact on Metzler.
Recently Issued Financial Accounting Standards. In June of 1997, the FASB
also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Metzler will be required to adopt the
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<PAGE>
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 Metzler's
management organizes segments within Metzler 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. Metzler will adopt this
statement in fiscal year 1998. The effect of applying this standard is not
expected to be significant.
MANAGEMENT OF METZLER
The following table sets forth certain information with respect to the
executive officers and directors of Metzler as of July 15, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH METZLER
- ---- --- ---------------------
<S> <C> <C>
Robert P. Maher......... 48 Chairman of the Board, President, Chief Executive Officer and Director
James F. Hillman........ 40 Chief Financial Officer and Treasurer
Barry S. Cain........... 55 Vice President, Chief Administrative Officer and Director
Stephen J. Denari....... 45 Vice President--Corporate Development
Charles A. Demirjian.... 33 Vice President, General Counsel and Secretary
James T. Ruprecht....... 38 Director
Peter B. Pond........... 53 Director
Mitchell H. Saranow..... 52 Director
</TABLE>
Robert P. Maher has served as a director of Metzler 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 Metzler and its affiliates, most recently as
a Senior Vice President of Metzler & Associates, Inc. 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.
James F. Hillman joined Metzler in April 1996 and has served as the Chief
Financial Officer and Treasurer since June 1996. From July 1988 to March 1996,
he was employed by Ameritech Corporation, most recently as the Chief Financial
Officer of Ameritech Monitoring Services, Inc.
Barry S. Cain has served as Metzler's Vice President and Chief
Administrative Officer since September 1997. Mr. Cain joined Metzler 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 Metzler, Mr. Cain served as outside general
counsel of Metzler and Metzler & Associates, Inc. since their inception.
Stephen J. Denari has served as the Metzler's Vice President--Corporate
Development since July 1997. Prior to joining Metzler, Mr. Denari served as a
turn-around specialist for a variety of companies, including Harley Davidson,
DBMS, Inc., American Capital Enterprises, and First National Entertainment.
Mr. Denari has also assisted Metzler since 1990 in various specialized
projects for Metzler's clients.
Charles A. Demirjian has served as Metzler's General Counsel, Vice President
and Secretary since September 1997. Mr. Demirjian joined Metzler from his
position as a member of the law firm of Sachnoff & Weaver, Ltd. Prior to
joining Sachnoff & Weaver in March 1996, Mr. Demirjian was an associate with
the law firm of Neal, Gerber & Eisenberg.
James T. Ruprecht has served as a director of Metzler since inception, as
President of Metzler & Associates, Inc., a subsidiary of Metzler, since July
1997, and as a Senior Vice President of Metzler & Associates, Inc. from
January 1994 to July 1997. From April 1987 to January 1994, Mr. Ruprecht held
various management positions with Metzler & Associates, Inc., working
primarily in the areas of business process re-engineering, customer operations
and supply chain management.
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<PAGE>
Peter B. Pond has served as a director of Metzler since November 1996. Mr.
Pond has served as the Midwest Head of Investment Banking for Donaldson,
Lufkin & Jenrette Securities Corporation since June 1991. Mr. Pond is a
director of Maximus, Inc., a provider of program management and consulting
services to state, county and local government health and human services
agencies.
Mitchell H. Saranow has served as a director of Metzler since November 1996.
Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and its
affiliated companies since October 1984. He founded Fluid Management, L.P. in
April 1987 and served as Chairman and Chief Executive Officer until January
1997. He presently also serves as Chairman of Elf Machinery, L.L.C., a company
acquired by an affiliate of The Saranow Group in 1998.
Directors are elected to staggered three-year terms and executive officers
serve until their successors are appointed.
DIRECTOR COMPENSATION
Pursuant to the terms of the formula program of Metzler's Long-Term
Incentive Plan, each director of Metzler who is not otherwise employed by
Metzler automatically will be granted an option to purchase 3,000 shares of
Metzler Common Stock for each year of the term to be served upon his initial
election or re-election to the board. The options will have an exercise price
equal to the fair market value of the Metzler Common Stock on the date of
grant and will be exercisable in equal installments over the term to be served
beginning on the first anniversary of the date of grant. In addition, Messrs.
Pond and Saranow were each granted an option to purchase 22,500 shares of
Metzler Common Stock, which options vest 50% on March 13, 1999, 25% on March
13, 2000 and 25% on March 13, 2001 and are exercisable at $13.33 per share.
Directors who are not executive officers of Metzler are also paid a fee of
$1,000 for each Board meeting attended in person and all directors are
reimbursed for travel expenses incurred in connection with attending board and
committee meetings. Directors are not entitled to additional fees for serving
on committees of the Board.
Compensation Committee Interlocks and Insider Participation
Mr. Maher has been a member of the Compensation Committee since January
1997. Metzler did not have a Compensation Committee prior to January 1997.
Prior to January 1997, the entire Board had responsibility for all decisions
with respect to executive officer compensation.
Management Compensation
General
The following table sets forth compensation awarded or earned by Metzler's
President and Chief Executive Officer and the other executive officers who
earned more than $100,000 during the year ended December 31, 1997 (the "Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
LONG-TERM COMPENSATION COMPENSATION
------------------------------------- ---------------
NAME AND PRINCIPAL FISCAL ANNUAL OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) (NO. OF SHARES) COMPENSATION(2)
------------------ ------ ------ ----- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Maher......... 1996 $281,000 -- $ 15,648 -- $859,961
Chairman, President and 1997 411,250 -- 1,500 150,000 --
Chief Executive Officer
Gerald R. Lanz.......... 1996 200,000 -- 15,648 -- $859,961
Chief Operating Officer 1997 356,250 -- 1,500 150,000 --
James F. Hillman........ 1996 118,750 -- -- 115,500 --
Chief Financial Offi- 1997 206,250 -- 625 37,500 --
cer(3)
</TABLE>
68
<PAGE>
- --------
(1) Represents matching payments and profit sharing under Metzler's 401(k)
Plan.
(2) Represents the proportionate share of Metzler's net income for the period
January 1, 1996 through October 3, 1996. Prior to January 1, 1996, Metzler
had operated as a C corporation. Effective January 1, 1996, the
stockholders of Metzler elected to be taxed under Subchapter S of the
Code. As an S corporation, Metzler's profits were distributed to
stockholders and Metzler was not subject to federal (and some state)
income taxes. The S corporation election terminated in connection with the
consummation of Metzler's initial public offering of Metzler Common Stock
on October 4, 1996.
(3) Mr. Hillman began his employment with Metzler on April 15, 1996.
Executive Option Grants
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE GRANT
OPTIONS EMPLOYEES IN PER EXPIRATION DATE
NAME GRANTED FISCAL 1997 SHARE DATE VALUE(1)
- ---- ---------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Robert P. Maher(2)........ 150,000 9.15% $13.33 5/20/07 $274,097
Gerald R. Lanz(3)......... 150,000 9.15 13.33 5/20/07 274,097
James F. Hillman(4)....... 37,500 2.29 19.33 1/7/07 104,916
</TABLE>
- --------
(1) The fair value of the option grant is estimated as of the date of grant
using the Black-Scholes option pricing model. The following assumptions
were used:
<TABLE>
<S> <C>
Expected Volatility............................................. 45%
Risk-free interest rate......................................... 5.7%
Dividend yield.................................................. 0%
Expected life................................................... 2.6 years
Forfeiture rate................................................. 20%
</TABLE>
(2) The options were granted on May 21, 1997 at the fair market value of
Common Stock at that date and become exercisable 50% on May 21, 1999, 25%
on May 21, 2000 and 25% on May 21, 2001.
(3) The options were granted on May 21, 1997 at the fair market value of
Common Stock at that date and become exercisable 50% on May 21, 1999, 25%
on May 21, 2000 and 25% on May 21, 2001.
(4) The options were granted on January 8, 1997 at the fair market value of
Common Stock at that date and become exercisable 50% on January 8, 1999,
25% on January 8, 2000 and 25% on January 8, 2001.
Year End Option Values
The following table sets forth information concerning the value of
unexercised options held by the Named Executive Officers on December 31, 1997.
No options were exercised by such persons in fiscal 1997. The values for in-
the-money options (which represent the positive spread between the exercise
price of any existing stock options and $26.75 per share, the closing price of
the Common Stock as reported by the Nasdaq National Market on December 31,
1997) also are included.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
----------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Maher......... -- 150,000 -- $2,012,500
Gerald R. Lanz.......... -- 150,000 -- 2,012,500
James F. Hillman........ -- 153,000 -- 2,443,750
</TABLE>
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<PAGE>
Certain Relationships And Related Transactions
Peter B. Pond, a director of Metzler, is a principal of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"). DLJ from time to time provides and in
the past has provided investment banking services to Metzler. Most recently,
DLJ served as the lead manager in Metzler's secondary offering that was
completed in March 1998. In connection with that offering, DLJ received
underwriting discounts and commissions of $4,900,000. DLJ is also providing
financial advisory services in connection with the Merger.
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Metzler Common Stock as of June 30, 1998 by: (i) each person
known by Metzler to own beneficially more than five percent of the outstanding
shares of Metzler Common Stock; (ii) each of Metzler's directors; (iii) each
of the Named Executive Officers; and (iv) all directors and executive officers
of Metzler as a group. (Each person named below has an address in care of
Metzler's principal executive offices.) Metzler believes that each person
named below has sole voting and investment power with respect to all shares of
Metzler Common Stock shown as beneficial owned by such holder, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)
-----------------
OFFICERS, DIRECTORS AND 5% STOCKHOLDERS NUMBER PERCENT
--------------------------------------- --------- -------
<S> <C> <C>
ARK Asset Management................................... 2,700,000 11.9%
Dresdner RCM Global Investors.......................... 1,560,000 6.9%
Pilgrim Baxter & Associates............................ 1,374,000 6.1%
Fiduciary Trust Company International.................. 1,193,675 5.3%
Gerald R. Lanz......................................... 851,520 3.8%
James T. Ruprecht...................................... 851,520 3.8%
Robert P. Maher(2)..................................... 726,266 3.2%
James F. Hillman(3).................................... 20,250 *
Peter B. Pond(3)....................................... 9,000 *
Mitchell H. Saranow(4)................................. 12,000 *
Barry S. Cain.......................................... 862 *
All directors and executive officers as a group (8
persons)(5)........................................... 1,640,331 7.2%
</TABLE>
- --------
* less than 1%
(1) Applicable percentage of ownership as of June 30, 1998 is based upon
22,647,467 shares of Metzler Common Stock outstanding. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission.
(2) Excludes shares held by Mr. Maher's children, of which he disclaims
beneficial ownership.
(3) Consists of shares of Metzler Common Stock subject to options which are
currently exercisable.
(4) Includes 9,000 shares of Metzler Common Stock subject to options which are
currently exercisable.
(5) Includes 40,100 shares of Metzler Common Stock subject to options which
are or become exercisable within 60 days of the date of this Joint Proxy
Statement-Prospectus.
(6) Mr. Lanz is no longer an officer or director of Metzler effective as of
May 1998.
INFORMATION CONCERNING LECG, INC.
BUSINESS
LECG is an economic consulting services firm that provides sophisticated
economic and financial analysis, expert testimony, litigation support and
strategic management consulting to a broad range of public and private
enterprises. LECG's areas of expertise include antitrust, industry
deregulation, damages analyses, economic and financial modeling, intellectual
property valuation, environmental economics and public policy. Services are
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<PAGE>
provided by renowned academics, recognized industry leaders and former high-
level government officials ("Experts") who are supported by a highly educated
professional staff, most of whom have Ph.D.s or advanced degrees in economics,
finance or related disciplines ("Professional Staff"). The Experts include
those who provide services to LECG on an exclusive basis ("Principals") and on
a non-exclusive basis ("Affiliates"). The role of the Professional Staff is
critical as it enables the Experts to leverage their expertise allowing LECG
to deliver high quality work product to its clients. LECG believes that its
structure enables its Experts to provide sophisticated economic consulting
services efficiently and effectively to clients throughout the world. In 1997
alone, LECG performed over 500 assignments for more than 300 clients in 8
countries.
LECG provides its clients with insightful and original studies that are
authored, articulated and ultimately defended by independent, leading Experts,
and which are capable of commanding the attention of regulators, legislators,
judges and juries. The studies and related testimony incorporate in-depth
economic analysis on complex issues, such as the competitive effects of
mergers and acquisitions, restructuring of regulated industries, auction
design and implementation, the efficiency properties of complex contracts, the
impact of regulatory structures on technological innovation, the causes of
financial misfortunes and the cost of environmental damages.
LECG is retained by public and private companies, government agencies,
national and state governments and by major law firms on behalf of their
clients. LECG has provided consulting services to a diverse client base
including (i) leading corporations, such as Abbott Laboratories, Chevron
Corp., Dow Chemical Co., Intel Corporation, Southern Pacific and Time Warner,
Inc., (ii) large telecommunication and utility companies, such as Ameritech,
Bell Atlantic Corp., New England Power Co., Northern States Power Co., Pacific
Gas and Electric and Potomac Electric Power Co., (iii) leading financial
services firms such as Bankers Trust New York Corp., Kemper Financial
Services, Inc. and Transamerica Life Insurance and Annuity Co., (iv) United
States government and regulatory agencies, such as the Department of Justice,
the Department of Labor, the Federal Communications Commission, the Federal
Deposit Insurance Corporation, the Federal Trade Commission and the Resolution
Trust Corporation and (v) national governments and government agencies,
including the governments of Argentina, Colombia, El Salvador, Guatemala,
Japan, New Zealand and South Korea.
LECG's Principals include faculty and former faculty from leading
universities including Brigham Young University, Cambridge University, Harvard
University, the London Business School, New York University, Northwestern
University, Princeton University, Stanford University, Tel Aviv University,
Texas A&M University, the University of California at Berkeley, the University
of California at Davis, the University of California at Los Angeles, the
University of Chicago, the University of Illinois, the University of Maryland,
the University of Pennsylvania, the University of Southern California, the
University of Toronto, the University of Virginia, Vanderbilt University and
Yale University. The Experts' relationships with credentialed, internationally
renowned scholars enables LECG to serve as a "switchboard" to access talent in
the world's great universities.
LECG believes that the business environment is favorable to the continued
application of economic analysis to complex business and policy problems. LECG
believes that there are additional growth opportunities through (i) increasing
engagements performed by LECG's current Experts, (ii) attracting additional
Experts, (iii) expanding geographically in the United States and abroad and
(iv) acquiring economic consulting organizations on a selective basis.
Since its incorporation in 1988, LECG has expanded its operations from one
office in Berkeley/Emeryville, California to a current aggregate of fourteen
offices in Washington, D.C.; New York, New York; Evanston, Illinois; Salt Lake
City, Utah; College Station, Texas; Sacramento, California; Cambridge,
Massachusetts; Los Angeles, California; Toronto, Canada; Wellington, New
Zealand; London, United Kingdom; Brussels, Belgium; and Toulouse, France.
Business Environment for Complex Economic Analysis. Micro-economic thinking
and modeling have gained wide acceptance. The application of advanced micro-
economic analysis to complex decision-making has been made increasingly
possible by the development of economic models and model estimation
techniques, the advent
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<PAGE>
of low cost computing capacity and the development of large public and private
databases, which enable statistical relationships to be explored and modeled.
The increased use of economic analysis is reflected in the frequency with
which government agencies in the United States and abroad are engaging
economists to assist in evaluating mergers and acquisitions, establishing
deregulatory principles, designing complex auctions and implementing transfer
pricing rules. In turn, affected private sector parties are compelled to
commission similar economic studies to represent their interests in the
shaping of regulatory and deregulatory processes, privatization outcomes and
legislative changes. In addition, economic analysis is increasingly used to
help determine liability and damages in private litigation or alternative
dispute resolution forums.
LECG believes that micro-economic analysis directed by leading experts is
especially useful where there is considerable complex or contention as a
result of profound change due to technological innovation or major legal or
policy shifts. This complex and contention have affected organizations (i) in
those industries undergoing fundamental transition, (ii) directly affected by
competition policy and antitrust laws, (iii) confronted with complex valuation
problems, (iv) requiring damage analysis and (v) formulating corporate
strategy.
Industries in Fundamental Transition. Regulatory initiatives typically lead
governments and affected parties to engage consultants to perform economic
analyses. Cost benefit, comparative cost, cost allocation and price impact
studies are frequently commissioned and can yield important findings which can
shape policy. Economic analysis is especially important where governments or
regulators are endeavoring to deregulate industries. Deregulation begets
further regulations as governments increasingly rely on competition policy
rather than price, entry and rates of return regulation.
Recent deregulation in the telecommunications, electric and gas utility and
agribusiness industries as well as the legislative and market turmoil
affecting the United States healthcare system have led to greater use and
application of economic analyses in those industries.
. Telecommunications. The telecommunications industries are undergoing
fundamental restructuring as they move from public control to more market
based methods of governance or control. These developments are already
substantially accomplished in New Zealand and Chile, in progress in the
United States, the United Kingdom and Australia and being initiated or
contemplated in many other countries including continental European
countries. Greater reliance on competition rather than regulation
requires detailed market, cost and financial analyses by the major
industry participants as well as by potential new entrants.
. Electric and Gas Utilities. Deregulation and industry consolidation often
requires sophisticated economic analysis. Where vertical divestiture has
occurred, pricing issues are especially important with respect to
intermediate "products" including wholesale electricity and
transmission/pipeline services, particularly if control of the basic
infrastructure (e.g., transmission/pipelines) remains concentrated. Also,
when integrated providers compete with new entrants that are not
integrated, complex competition policy issues arise with respect to the
terms and conditions under which the integrated provider can self supply.
Organizational design and access issues frequently need to be analyzed
from an economic perspective.
. Agribusiness. With deregulation and the phased reduction of government
subsidies occurring in industrialized countries as a result of the GATT
Uruguay round, and the forthcoming negotiation rounds under the auspices
of the World Trade Organization, greater flexibility and market
sensitivity are being introduced to the agricultural sectors of many
countries. Moreover, environmental issues, water rights and technological
innovation in agricultural machinery, hybrid seeds, engineered plants and
species raise important policy issues requiring economic analyses.
. Healthcare. Policy issues arise in many contexts, including hospital
mergers, physician/hospital relations and pharmaceutical pricing. Because
the sale of pharmaceutical products and medical devices are often heavily
regulated, and involve significant levels of intellectual property, they
too involve complex issues which frequently require economic analysis.
Furthermore, pharmaceutical and medical products are frequently supplied
on a global basis, raising important intercountry pricing issues.
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<PAGE>
Competition Policy and Antitrust Analysis. Competition policy issues
frequently involve detailed analysis of markets, market entry conditions and
the market positions of incumbents. Such analyses are required not only in
mature markets, but also in the new high technology sectors where the role of
innovation, network externalities, installed base effects and standards are of
great importance. The role of pricing policies and licensing strategies must
frequently be assessed. Antitrust analysis is frequently required before
merging firms can achieve clearance from antitrust and other regulatory bodies
in the United States, Europe and elsewhere. In addition, private antitrust
litigation frequently requires analysis of markets, firm behavior and damages.
Complex Valuation Problems. The growth and expansion of markets has led to
increases in the variety of assets which are traded and the frequency with
which restructuring occurs. In many cases, there may not be organized markets
where the prices of certain assets are readily ascertained. Yet there is often
a need for value to be determined or for asset sales to be organized. Economic
analysis and advanced statistics and econometrics can assist in valuation,
including:
. Financial Securities. Valuation engines and sophisticated mathematical
modeling are frequently needed to value complex derivatives and exotic
securities. These advanced techniques are employed in litigation, as well
as by companies assessing their exposure to risk and seeking to value
their portfolios.
. Intellectual Property and Intangible Assets. Many firms recognize the
need to build and protect brand equity, intangible assets and
intellectual property. Patents, trade secrets, copyrights and trademarks
frequently need to be valued for managerial, licensing, transfer pricing
and litigation purposes. Economic and market analysis is frequently
fundamental to such valuations.
. Auction of Public Assets and Stranded Assets. Governments have recently
auctioned assets in the electromagnetic spectrum, railroad, oil and gas,
forestry and mineral industries. Private parties wishing to sell large
fixed investments have likewise been attracted to the notion of designing
complex auctions. The architecture of market design principles depends
heavily on modern game theory, which is an important analytical tool in
modern micro-economic analysis.
. Contract Rights. Complex contract rights are often analyzed and valued in
the context of litigation, insurance coverage, mergers and acquisitions
and joint ventures.
Damages Analysis. Damages analysis often requires, or benefits from, the
analysis of large data sets and the construction of economic models. Damages
analysis frequently forms the foundation for understandable expert testimony
for litigation and alternative dispute resolution.
. Environmental Damages. Sophisticated economic analysis is frequently
required to quantify damages from hazardous waste contamination,
including estimation of loss of prospective economic gain, diminution in
property value and residual price risk attached to remediated properties.
Economics also is used to analyze hedonic and economic damages resulting
from loss of life.
. Intellectual Property Damages. Intellectual property is increasing in
value, in part because of the new patent regime caused by the
centralization of the Court of Appeals in Washington, D.C. Accordingly,
the stakes involved in patent disputes have also increased. Infringement
damages frequently require the exploration of the cost of non-infringing
alternatives or "invent around" opportunities as well as future market
and alternative technologies calculations.
. Mass Torts. The United States has witnessed a growing number of class
action product liability cases, including cases involving silicone breast
implants, cigarettes, dangerous chemicals and pharmaceuticals producing
unintended side effects. Both plaintiffs and defendants increasingly rely
on sophisticated economic analysis to quantify exposure, adverse health
effects and damages and to allocate damages among defendants.
. Securities Fraud. Securities products have become increasingly complex
with the growth of sophisticated derivative products. As securities
products have become more complex, the calculation of damages in
securities fraud cases has also become more complex, often requiring
sophisticated computer modeling and analysis of extensive data sets.
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Corporate Strategy. Economic analytic techniques are also used to examine
the interplay between asset structure, organizational structure and processes
and competitive advantage. Areas where economic analysis is useful include the
analysis of difficult to replicate intangible assets used in supporting
competitive advantage, the choice of organizational structure, decisions
regarding outsourcing, transfer pricing and technology acquisitions.
The LECG Business Model. LECG's business model attracts and motivates
renowned experts who provide high quality economic analyses and testimony on
behalf of companies and government agencies. LECG believes that several
factors distinguish it from other industry participants. These factors include
the following:
Renowned Experts. LECG has the ability to access and productively utilize
renowned scholars and experts from government and the private sector able to
conduct, present and defend authoritative studies. The Experts who perform
these services include nationally recognized and highly credentialed faculty
and former faculty from many top universities. Many of these Experts have
valuable hands-on industry experience or experience in working in or with
government agencies such as the Department of Justice, the Federal Trade
Commission and the Federal Communications Commission. The Experts and
Professional Staff are major contributors to the academic and professional
literature in economics and finance, public policy and intellectual capital
management.
Highly Educated Professional Staff. LECG employs a staff of highly
credentialed and experienced economists and other analysts to support the
Experts. Many of LECG's Professional Staff hold advanced degrees in economics,
finance or related disciplines. LECG believes that its highly educated
Professional Staff enables the Experts to leverage their expertise allowing
LECG to deliver high quality work product to its clients. In addition, many of
the Professional Staff have become experts in their own right, testifying,
authoring studies and designing sophisticated models.
Attractive Support Infrastructure. LECG believes that Experts desire to
associate with LECG in part because of its support infrastructure which (i)
relieves the Experts of administrative tasks and enables them to focus on
their analytic work, (ii) allows them to retain their autonomy and
intellectual freedom and (iii) provides a collegial environment that advances
creativity and cooperation. LECG has designed its infrastructure to maximize
Expert efficiency. As part of this strategy, LECG opens offices in proximity
to the universities at which its Experts are faculty in order to provide
convenient support. Marketing, contract negotiation, accounting, billing and
collecting receivables are handled at LECG's executive offices. This support
infrastructure ensures the Expert focuses on analysis rather than project
administration.
Focused Project Management. LECG treats each client engagement as a separate
project, assigning one or more Experts and a Professional Staff team
consisting of one or more senior economists and analysts. Once assembled,
these teams become virtual organizations using inside and outside resources to
achieve performance in exacting time frames. LECG makes extensive use of
advanced computer hardware and software in executing its projects.
Authoritative Studies. LECG is committed to providing the most sophisticated
and authoritative studies and expert testimony based upon advanced economic
and statistical analysis. The Experts' credentials command the attention of
decision makers, thereby enabling analytical and authoritative approaches to
problems to receive proper recognition.
Investment in Databases, Models and Methodologies. LECG has developed
proprietary databases consisting of economic data and studies. In addition,
LECG has developed proprietary computer models used in cost modeling, auctions
and the valuation of complex derivatives. LECG's Experts and Professional
Staff are further aided by access to LECG's network of contacts and
affiliations, internal databases and prior non-confidential studies.
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Areas of Expertise. LECG offers its clients leading economic expertise in a
number of industries across a variety of service areas including the
following:
FINANCIAL INDUSTRIES
AGRIBUSINESS Insurance
Merger analysis Banking/savings and loan
"Fair" pricing of agricultural Real estate
products Financial networks
Intellectual property
Valuation of biotechnology FUTURES MARKETS
Strategy and complementary asset CFTC regulations
ownership vs. control assessments Futures contracts and markets
Market surveys Computerized hedging models
Price forecasting Decision support systems
Application of information Statistical analysis of trading and
technology investment strategies
ANTITRUST HEALTH CARE
Market definition Antitrust analysis
Analysis of market power Cost benefit analysis
Assessment of business practices Merger analysis
Mergers and acquisitions Damages analysis
Cooperative activities Intellectual property
Market surveys
AUCTIONS
Auction design INTELLECTUAL PROPERTY
Auction execution/software Patent and copyright infringement
implementation Trade secrets and trademarks
Bidding strategies Management of technology
Patent misuse
DAMAGES ANALYSIS Licensing
Compensatory and punitive theories Competitive analysis of high
Lost profits and unjust enrichment technology industry
Patent and copyright infringement
Valuation INTERNATIONAL STRATEGY AND POLICY
Breach of contract/fiduciary duty Negotiations
Product liability Country studies
Business torts Industry studies
European community regulations
ELECTRIC UTILITIES Asian market analysis
Rate design and cost of service Eastern Europe and NIS market
Market-based rates and contracts analysis
Promotional practices NAFTA and World Trade Organization
Transmission rates and access dispute settlement panels
Performance-based regulation
Retail wheeling/industry INTERNATIONAL TRADE
restructuring International Trade Commission
Competitive strategies/stranded injury and causation analysis
investment Commerce Department margins
Qualified facility bidding/contract analysis
renegotiation Trade pricing
Trade policy
ENVIRONMENTAL AND NATURAL RESOURCE Customs valuations
ECONOMICS Export controls
CERCLA and state superfund Environmental regulation trade
Cost allocation modeling and effects
dispute resolution National security issues
Natural resource damages and
diminution of value
Air and water quality
Toxic substances and pesticides
Land and water use
Forestry, mining and public lands
Deregulation and water market
pricing
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FINANCIAL SERVICES AND INSURANCE
Bankers Trust New York Corp.
RISK MANAGEMENT
LEGAL AND REGULATORY INFRASTRUCTURE Commercial Union Insurance Co.
Derivatives
Design of property rights Kemper Financial Services, Inc.
Portfolio valuation
Judicial reform Steinhardt Management Co.
Regulatory policies Transamerica Life Insurance &
Annuity Co.
SECURITIES FRAUD
Anti-monopolization policies Class actions
Tax, trade and foreign investment Limited partnerships
policies Valuation
Sequencing of reforms Damage estimation
NATURAL GAS AND OIL STRATEGIC MANAGEMENT
Market-based rates Management of technology and
Bypass issues intellectual property
Pipeline expansion pricing Corporate strategy and structure
Performance-based regulation Defense reconversion
Take or pay contracts
Pricing and energy modeling TAXATION
Refinery economics International transfer pricing
Oil product supply and demand Advanced pricing agreements
Mergers and acquisitions Economics of transaction costs
Depreciation policy
PRIVATIZATION Optimal organization of
Government strategy multinational enterprises
Benefits/cost analysis Public policy analysis
Decentralized process design
Investment feasibility studies TELECOMMUNICATIONS
Telephone, cellular, CATV, and
RAILROADS broadcast
Merger analysis and competitive State and federal rate design and
conditions price regulation
Maximum rate reasonableness Interconnection and competition
Shipper contract negotiations policy
Train derailments and health risk Pricing of new services
hazards Cost allocation
International privatization and
liberalization
R&D and technology policy and
management
PRINCIPAL CLIENTS AND REPRESENTATIVE ENGAGEMENTS
Principal Clients. Since its incorporation in 1988, LECG has advised over
900 clients and conducted more than 1,400 engagements in 13 countries. In
1997, LECG performed over 500 assignments for more than 300 clients in 8
countries. No single client has represented more than ten percent of LECG's
revenues in any year, and the ten largest clients typically represent
approximately one-third of LECG's revenues in any year. Although in many cases
LECG's work for a client must be kept confidential, set forth below is a
partial list of those clients for whom LECG's engagement was publicly
disclosed:
AGRIBUSINESS
Conagra, Inc.
Dow Chemical Co.
E.I. DuPont de Nemours
E&J Gallo Winery, Inc.
Georgia-Pacific Corp.
H. J. Heinz Co.
Kraft General Foods, Inc.
Monsanto Company
Tri-Valley Corp.
Well-Pict, Inc.
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GOVERNMENT-RELATED
Department of Justice TELECOMMUNICATIONS
Federal Communications Commission Ameritech Corp.
Federal Deposit Insurance Bell Atlantic Corp.
Corporation Bellsouth Corp.
Federal Trade Commission Grupo Iusacell, S.A. de C.V.
Resolution Trust Corporation Indiana Bell Telephone Co.
Governments of Argentina, Colombia, Nevada Bell
El Salvador, Guatemala, Japan, NYNEX Corp.
South Korea, New Zealand Pacific Bell
Pacific Telesis Group
MANUFACTURING SBC Technologies, Inc.
Hansen Industries, Ltd. Southern New England Telephone Co.
Siemens Nixdorf Information Systeme Stentor Communications
AG TCI International, Inc.
Ssangyong Cement Industrial Co., Time Warner Inc.
Ltd. United States Telephone Association
Teledyne, Inc. West Communications Group, Inc.
OIL AND GAS TRANSPORTATION
Amoco Corporation American Airlines, Inc.
Chevron Corp. APL Limited
Conoco Inc. Continental Airlines, Inc.
Exxon Corp. Northwest Airlines, Inc.
Humboldt Petroleum, Inc. Southern Pacific Rail Corp.
Liquid Carbonic Union Pacific Corp.
Mobil Corp.
Shell Oil Co. UTILITIES
Texaco Inc. Edison Electric Institute Inc.
Unocal Corp. New England Power Co.
Niagara Mohawk Power Corp.
PHARMACEUTICALS Northern States Power Co.
Abbott Laboratories Pacific Gas and Electric Co.
Ciba-Geigy Corp. Potomac Electric Power Co.
Glaxo Wellcome P.L.C. Wisconsin Electric Power Co.
Johnson & Johnson
Merck & Co., Inc.
Pfizer Inc.
Rhone-Poulenc Rorer Inc.
Sandoz Corp.
SmithKline Beecham Corp.
TECHNOLOGY
Advanced Fiber Communications
Advanced Micro Devices, Inc.
Analog Devices, Inc.
Apple Computer, Inc.
Ascend Communications
Atari Corp. (acquired by JTS Corp.)
IBM DSC Communications Corp.
Intel Corporation
Northern Telecom Ltd.
Novell, Inc.
Packard Bell NEC, Inc.
Texas Instruments, Inc.
W. L. Gore & Associates, Inc.
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Law Firms. In the last three years, LECG has worked with the following 60 of
the largest 100 U.S. law firms (ranked by revenue in 1996 by The American
Lawyer):
Akin, Gump, Strauss, Hauer & Feld, L.L.P. Kaye, Scholer, Fierman, Hays &
Alston & Bird LLP Handler, LLP
Arnold & Porter Kelley Drye & Warren LLP
Baker & Hostetler LLP King & Spalding
Baker & McKenzie Kirkland & Ellis
Baker & Botts L.L.P. Latham & Watkins
Brobeck, Phleger & Harrison LLP Mayer, Brown & Platt
Cahill Gordon & Reindel McDermott, Will & Emery
Chadbourne & Parke LLP Morgan, Lewis & Bockius LLP
Cooley Godward LLP Morrison & Foerster LLP
Coudert Brothers O'Melveny & Myers LLP
Covington & Burling Orrick, Herrington & Sutcliffe LLP
Cravath, Swaine & Moore Paul, Weiss, Rifkind, Wharton &
Davis Polk & Wardwell Garrison
Debevoise & Plimpton Perkins Coie
Dechert Price & Rhoads Pillsbury Madison & Sutro LLP
Dewey Ballantine Rogers & Wells
Dorsey & Whitney LLP Schulte Roth & Zabel LLP
Fried, Frank, Harris, Shriver & Jacobson Shearman & Sterling
Fulbright & Jaworski L.L.P. Sheppard, Mullin, Richter & Hampton
Gibson, Dunn & Crutcher LLP LLP
Graham & James LLP Sidley & Austin
Gray Cary Ware & Freidenrich, P.C. Skadden, Arps, Slate, Meagher & Flom
Hale and Dorr LLP LLP
Heller Ehrman White & McAuliffe Sonnenschein Nath & Rosenthal
Hogan & Hartson L.L.P. Steptoe & Johnson LLP
Howrey & Simon Stroock & Stroock & Lavan LLP
Hunton & Williams Vinson & Elkins L.L.P.
Jenner & Block Wachtell, Lipton, Rosen & Katz
Jones, Day, Reavis & Pogue Weil, Gotshal & Manges LLP
White & Case
Wilmer, Cutler & Pickering
Wilson Sonsini Goodrich & Rosati,
P.C.
Representative Engagements. Examples of LECG's engagements, which LECG
believes are representative of the nature of its services, are set forth
below:
Winston & Strawn
. Mergers and Acquisitions. LECG provides sophisticated economic analysis
to support and advise clients who are pursuing major mergers,
acquisitions or joint ventures, which often require approval by antitrust
authorities in the United States and abroad. This analysis entails
detailed evaluations of the competitive conditions in the markets in
which the firms operate, the potential for new entry into those markets,
and the environment for technological change that can alter the
boundaries of competition in those markets. Examples include:
The mergers of SBC Technologies, Inc. and Pacific Telesis Group and of
Bell Atlantic Corp. and NYNEX Corp.: LECG was engaged in connection with
the mergers of these regional bell operating companies. LECG conducted
detailed analyses of the extent of competition in telecommunications
services in each company's home territory, and the prospects for future
competition in local telephone, long distance and other
telecommunications services. The regulatory authorities allowed both
mergers to proceed.
Monsanto's acquisition of Holden, Corp., a manufacturer of germ plasma:
LECG evaluated the extent to which the assets of the two firms were
complementary and promoted the development of innovative products.
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Freightliner's acquisition of Ford's heavy truck division: LECG's
analysis helped the merging partners negotiate a favorable termination of
the Department of Justice's review.
. Complex Antitrust Litigation. LECG has been jointly engaged by
manufacturers of branded pharmaceutical products in connection with
nationwide antitrust litigation challenging industry pricing and
distribution practices. For this project, LECG is analyzing the state of
competition in markets for the manufacture and sale of pharmaceutical
products, including the effects of managed care on the performance of the
health care industry and specifically on the prices of pharmaceutical
products. The analysis is national in scope, encompassing most of the
manufacturers of branded pharmaceutical products.
. Deregulation and Competition Policy. The largest twelve local United
States exchange telecommunications companies ("LECs") engaged LECG to
analyze the possible financial impacts of policy alternatives under
consideration by the Federal Communications Commission ("FCC"). LECG's
financial simulation model enabled these companies to assess effects of
revenues, operating incomes, cash flow and equity values under current
market expectations and alternate scenarios that depicted possible FCC
policy decisions. LECG was also engaged by one of the largest LECs to
build a model to simulate entry by multiple competitors to assess the
financial viability of multiple local exchange entrants and determine the
impact that this might have on local exchanges service prices.
. Intellectual Property Valuation. In the context of an international tax
case, LECG was asked to evaluate a complex license agreement between a
United States company and its joint venture subsidiary in Japan. The firm
was asked to analyze the nature of the bargaining environment in which
the license agreement was formulated, the nature of corporate control in
Japan and the value of the technology which was transferred to the United
States company under the grant back provision of the license agreement.
LECG's analysis and presentation enabled LECG's position to prevail on
this important tax matter.
. Environmental. LECG has pioneered the use of economic analysis as the
basis for the equitable allocation of clean up costs at multi-party
superfund sites. The traditional approach to cost allocation at these
sites has been based on the volume of waste that each party generated.
However, at many sites there is only one generator of waste and the
responsible parties are defined by their economic or contractual
relationship to one another. For instance, at a single site there may be
an owner and an operator as well as one or more parties who arranged for
the waste generating activities to be undertaken. All are responsible for
clean up costs under the superfund laws. Recognizing that these contracts
are merely a means for joint risk and reward sharing, LECG has advocated
the allocation of clean up costs among the parties according to the
economic benefits that each party received under the relevant contracts
or economic relationship. This approach fits with mainstream economic
thinking on efficient contract information and enforcement, as well as
commonly accepted notions of fairness. LECG has been able to apply this
benefits-based approach to cost allocation to several superfund sites.
. Corporate Strategy. LECG was engaged by a major manufacturer of computer
equipment and supplier of software services to explore the impact of the
Internet, and network computing more generally, on business processes and
business organization in the insurance industry worldwide. The Experts
and Professional Staff advised the client over a four month period. LECG
mapped the conceptual issues, sought relevant data, and conducted
interviews of information technology managers on four continents. The
study produced insights into the business opportunities presented by the
Internet, and identified the new business models which may be possible in
the life insurance industry in the near future.
Growth Strategy. In addition to growth through additional engagements
performed by LECG's current Experts, LECG believes that there are additional
growth opportunities through (i) attracting additional Experts, (ii) expanding
geographically in the United States and abroad, and (iii) acquiring economic
consulting organizations on a select basis.
Expand Base of Experts. LECG believes that its continued success and growth
will require it to expand its base of Experts. LECG will continue its efforts
to attract renowned academics from universities throughout the world and from
the government agencies and the private sector and to train and promote its
own Professional
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Staff. LECG offers Experts the support of the Professional Staff, an
intellectual environment, the opportunity to work with other leading experts
and an attractive compensation structure. LECG also believes that operating as
a public company will aid in recruiting, retaining and incenting current and
future employees.
Geographic Expansion. LECG intends to expand geographically by establishing
offices in proximity to major universities, think tanks, financial markets and
government centers in additional United States locations and abroad. LECG
believes that offices will need to be established in various continental
European countries, Latin America and the Asia Pacific region. LECG recently
opened offices in London, United Kingdom; Wellington, New Zealand; Brussels,
Belgium; and Toulouse, France.
Selective Acquisitions. Given the highly fragmented nature of the economic
consulting industry, LECG believes that smaller consulting organizations are
potential acquisition opportunities. LECG expects to continue to evaluate and
meet with potential acquisition candidates that have the potential to increase
capacity or add complementary capabilities. At the date of this Joint Proxy
Statement-Prospectus, LECG has no specific acquisition plans.
Human Resources. LECG believes that is has developed a unique model for a
professional services firm. LECG believes that the model is capable of
attracting and incenting the best and the brightest thought leaders and
experts from universities, think tanks and corporations. As a firm, LECG
offers high compensation to its Experts, a collegial atmosphere, high
autonomy, and transparency of rewards. High compensation is, however, coupled
with high accountability because the Experts' compensation on each project is
linked to LECG's collections on that project. To its Professional Staff, LECG
offers a learning environment, the opportunity to work with highly
credentialed Experts, competitive compensation and entrepreneurial
opportunities.
In most cases, the Principals and Affiliates execute agreements with LECG.
The agreements with the Principals provide for the Principal to consult
exclusively for LECG in consideration for consulting fees determined by the
time billed by the Principal and actually collected by LECG as well as project
origination fees for work secured or managed by the Principal. The agreements
with the Affiliates are substantially the same as the agreements with the
Principals except they do not include an exclusivity provision and provide
slightly reduced fees to the Affiliates. The agreements with the Principals
are terminable at will and do not restrict competition with LECG following
termination. From time to time, LECG also engages experts not otherwise
associated with LECG to work on a particular matter.
LECG has experienced low turnover with respect to its Principals. Since LECG
was founded in 1988, only four Principals have ceased providing services to
LECG.
The ability to draw on relevant expertise either within LECG or through its
connections with leading universities enables LECG to assign a project to an
Expert who is a leader in the particular field and who does not require
additional time to learn the fundamentals of the relevant area. The Expert can
rely on competent Professional Staff to organize and analyze large quantities
of data and institutional details to support its thorough analysis. LECG
believes that clients see value in having studies performed by independent
experts with recognized credentials and communication capabilities likely to
be able to author studies and provide testimony that informs regulators,
legislators, judges and juries.
Experts. LECG endeavors to attract renowned scholars who are faculty or
former faculty members at leading universities as well as experts from the
private sector and former government officials. LECG believes that these
highly credentialed individuals seek work environments different from
traditional corporate environments and which allow them to retain their
autonomy and intellectual freedom. In order to attract such individuals, LECG
has created a business environment characterized by high autonomy within the
corporate structure, high incentive compensation and a superior support
system.
Professional Staff. LECG's goal is to provide multiple and diverse career
opportunities that merge the interests, abilities and aspirations of each
individual with the objectives and interests of LECG. LECG's program
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offers structure to the career development process including (i) wide
flexibility for professional growth, (ii) defined responsibilities,
consistency and opportunities for advancement, (iii) recognition of individual
contributions to LECG and (iv) participation in national and international
projects.
LECG is committed to hiring the necessary senior economists, associates and
research analysts each year to staff LECG's growth. LECG seeks the brightest
graduates from the top national and international economics programs as well
as individuals with substantial experience. All of LECG's senior level staff
have advanced degrees or professional certificates, and the majority have a
Ph.D. in either economics or finance. On average, LECG's new hires have five
to six years of relevant experience. As a group, LECG's senior level
Professional Staff average about ten years of experience.
LECG encourages the professional growth of its staff and has established a
mentor program to facilitate this growth process. The aim of the mentor
program is to ensure excellence and consistency throughout the entire
organization while increasing individual and team productivity and
facilitating professional advancement. LECG conducts training sessions that
emphasize its consulting core values, development of consulting products and
business development techniques.
LECG's Professional Staff play significant roles in client case work. Their
management responsibilities include involvement with clients, Experts, other
staff, budgets and the quality and content of work product. Professional Staff
work closely with the Experts to conceptualize practical approaches to
clients' economic issues, and then direct professional resources to complete
necessary analyses in support of the Experts' report or testimony.
Administrative Staff. The rapid growth of LECG has increased the need for
sound management principles and programs. Recognizing this need, LECG has
strengthened its administrative management team by attracting experienced
personnel in several functional disciplines and encouraging internal growth in
many others. Members of LECG's administrative team encompass all offices and
work very closely with one another. LECG believes that its management style
enables individuals to grow professionally and offers great autonomy for
individuals to focus on the needs of clients.
Compensation. LECG believes that its success depends in large part on
attracting, retaining and motivating talented, creative and experienced
professionals at all levels. LECG attracts and motivates its professional and
administrative staff by a variable compensation system based on attractive
incentives and strong accountability. Experts are paid in relation to their
hours worked and fees collected and also receive additional compensation based
on projects they secure and manage. Although Experts are well compensated,
they do not receive any remuneration until LECG collects the fees associated
with the Expert's work. Professional Staff receive salaries, options and
bonuses commensurate with their performance, skills and degrees. Bonuses
provide a significant portion of the Professional Staff's compensation and are
paid at the end of the year.
Marketing. LECG markets its services directly through corporate efforts and
through the individual efforts of its Principals. LECG relies heavily on its
externally recognized expertise and credentials and publications by its
Experts and Professional Staff in academic and professional journals and in
the trade and business press.
The reputation for academic and professional excellence and independence of
the Experts are the most important factors in LECG's business development
efforts. LECG maintains and enhances its name and reputation through speeches,
presentations, articles in industry, business, economic, legal and scientific
journals and through other publications by the Experts. LECG also organizes
conferences on current issues in economics at which the Experts lecture,
present studies, lead seminars and meet with invitees. In LECG's experience,
these conferences have been well attended by decision makers from a wide range
of industries who, LECG believes, are particularly interested in listening to
and retaining the Experts.
LECG also maintains relationships with law firms whose clients need economic
analyses across the broad range of services provided by LECG. In the last
three years, LECG has worked with 60 of the 100 largest U.S. law firms (ranked
by revenue in 1996 by The American Lawyer).
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LECG is selective in its client development targets and as to the
engagements it accepts. The pursuit of specific markets, clients and bids on
specific requests for proposals are carefully considered. As part of this
process, a conflict check is performed against an up-to-date internal client
data base and verified by LECG's administrative staff prior to accepting an
engagement in order to avoid a conflict of interest. In addition, LECG
declines projects which conflict with its ethical or professional standards.
Competition. The market for economic consulting services 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 economic consulting firms, general management consulting firms, the
consulting practices of the "Big Six" accounting firms, technical and economic
advisory firms, regional and specialty consulting firms, small "niche"
consulting companies and individual academics. Many of these companies are
national and international in scope and have significantly greater personnel,
financial, technical and marketing resources than LECG, generate greater
revenues and have greater name recognition than LECG. There are relatively low
barriers to entry into LECG's markets and LECG has faced and expects to
continue to face additional competition from new entrants into the economic
consulting industry.
Property. LECG's executive offices are located in Emeryville, California
where LECG leases 47,883 square feet of office space. LECG's other current
offices are located in Washington, D.C.; New York, New York; Evanston,
Illinois; College Station, Texas; Sacramento, California; Salt Lake City,
Utah; Cambridge, Massachusetts; Los Angeles, California; Toronto, Canada;
Wellington, New Zealand; London, United Kingdom; Brussels, Belgium; and
Toulouse, France. LECG believes that its facilities are adequate for its
current needs and that additional facilities can be leased to meet future
needs.
Legal Proceedings. LECG is not party to any material pending legal
proceedings.
LECG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF LECG
Statements included in this LECG Management's Discussion and Analysis of
Financial Condition and Results of Operations of LECG which are not historical
in nature are intended to be, and are hereby identified as, "forward-looking
statements" for purposes of the safe harbor provided by Section 27A of the
Securities Act and Section 21E of the Exchange Act. When used in this section,
the words "anticipate," "believe," "intends," "estimate," and "expect" and
similar expressions as they relate to LECG or its management are intended to
identify such forward-looking statements. LECG's actual results, performance
or achievements could differ materially from the results expressed in, or
implied by, these forward-looking statements.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations relates to the Consolidated Financial Statements included in
this Joint Proxy Statement-Prospectus.
Overview. LECG is an economic consulting services firm that provides
sophisticated economic and financial analysis, expert testimony, litigation
support and strategic management consulting to a broad range of public and
private enterprises. LECG's areas of expertise include antitrust, industry
deregulation, damages analyses, economic and financial modeling, intellectual
property valuation, environmental economics and public policy. Services are
provided by Experts who are supported by Professional Staff. The Experts
include Principals and Affiliates. The role of the Professional Staff is
critical as it enables the Experts to leverage their expertise allowing LECG
to deliver high quality work product to its clients. LECG believes that its
structure enables its Experts to provide sophisticated economic consulting
services efficiently and effectively to clients throughout the world. In 1997
alone, LECG performed over 500 assignments for more than 300 clients in eight
countries.
LECG derives revenues almost exclusively from professional service fees
which are billed at standard hourly rates. Projects are generally billed
monthly on a time and expense basis. Professional Staff compensation ranges
from about 70% of billing rates for senior Professional Staff to about 25% for
junior Professional Staff. Professional Staff are compensated on a salary plus
bonus basis or based on an hourly rate plus overtime. Experts
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are generally paid 100% of their collected fees and receive project
origination fees for projects they secure. Project origination fees average
approximately 15% but can be up to 19.5% of collected revenues on non-Expert
professional fees.
LECG's most significant expense is personnel costs, which consist of fees
paid to Experts and salaries and benefits for Professional Staff and other
employees. The number of professionals assigned to a project will vary
depending on the size and duration of each engagement. Project terminations,
completion and scheduling delays may result in periods where personnel are not
assigned to active projects. LECG manages its personnel costs by closely
monitoring client needs and utilization of the Professional Staff.
Since its organization in 1988 and up to its initial public offering in
1997, LECG has been an S Corporation for tax purposes. As an S Corporation,
the net income of LECG is taxable for federal (and some state) income tax
purposes directly to LECG's shareholders. Accordingly, the statements of
income presented for 1995 and 1996 do not include a provision for federal or
certain state income taxes. All of LECG's tax basis net income will be
distributed to its shareholders and included in their personal taxable income.
LECG's S Corporation status terminated on December 18, 1997.
During the fourth quarter in which the initial public offering was
completed, LECG recognized a significant charge against income resulting from
the termination of LECG's S Corporation status. As a result, LECG recorded a
one-time charge to operations of $2.7 million.
Results of Operations. The following table sets forth, for the periods
indicated, selected consolidated statements of income data as a percentage of
revenues:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED
------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services................ 66.3 66.5 63.3 67.1 63.7
----- ----- ----- ----- -----
Gross profit.................... 33.7 33.5 36.7 32.9 36.3
Selling, general and
administrative expenses........ 16.3 16.8 18.4 14.3 18.2
Other (income).................. 0.0 0.0 (1.9) 0.0 (1.2)
----- ----- ----- ----- -----
Income before income taxes...... 17.4 16.7 20.2 18.6 19.3
Income taxes.................... 0.3 0.6 7.1 0.7 7.9
----- ----- ----- ----- -----
Net income.................... 17.1% 16.1% 13.1% 17.9% 11.4%
===== ===== ===== ===== =====
</TABLE>
First Quarter 1998 Compared to First Quarter 1997
Revenues. Revenues increased 59.4% to $15.8 million in the three months
ended March 31, 1998, from $9.9 million in the three months ended March 31,
1997. This growth in revenues was primarily attributable to additional
services provided to existing clients and engagements with new clients. LECG
expanded the number of projects billed from 277 through the first three months
of 1997 to 338 through the same period in 1998. Additionally, revenues
increased due to an increased number of senior Professional Staff relative to
junior Professional Staff.
Gross Profit. Gross profit consists of revenues less cost of services, which
includes Expert fees, Professional Staff salaries and benefits, project
origination fees and other direct project expenses. Gross profit increased
76.0% to $5.7 million in the first three months of 1998 from $3.3 million in
the comparable period in 1997. Gross profit as a percentage of revenues was
36.3% in the first three months of 1998 compared to 32.9% in 1997. To service
additional client projects, LECG increased the number of Principals and
employees, including Professional Staff to 277 at March 31, 1998 from 170 at
March 31, 1997. LECG's Experts leveraged Professional Staff resources more
effectively which resulted in a higher contribution to LECG margins.
84
<PAGE>
General and Administrative. General and administrative includes salaries and
benefits of management and the administrative staff, facilities costs,
supplies, outside professional fees not billed to clients and all other
corporate costs. General and administrative increased 102.6% to $2.9 million
in the three month period ended March 31, 1998 from $1.4 million in the prior
year period. As a percentage of revenues, general and administrative increased
to 18.2% in the first three months of 1998 from 14.3% in the first three
months of 1997. This increase is the result of investments made in recruiting
and office infrastructure to support growth.
Income before income taxes. Income before income taxes for the three months
ended March 31, 1998 was $3.1 million, compared with $1.8 million for the
three months ended March 31, 1997. The improvement is attributable to
increased revenues while maintaining profit margins.
Pro forma Results. The pro forma presentation in the Consolidated Statements
of Income for the three months ended March 31, 1997 assumes LECG had been
operating as a C Corporation and reflects an effective tax rate of 41.0%.
1997 Compared to 1996
Revenues. Revenues increased 40.5% to $44.1 million in 1997 from $31.4
million in 1996. This growth in revenues was primarily attributable to
additional services provided to existing clients and engagements with new
clients. LECG expanded the number of projects billed from 516 in 1996 to 581
in 1997. Additionally, revenues increased due to an increased number of senior
Professional Staff relative to junior Professional Staff.
Gross Profit. Gross profit increased 53.9% to $16.2 million in 1997 from
$10.5 million in 1996. Gross profit as a percentage of revenues was 36.7% in
1997 compared to 33.5% in 1996. To service additional client projects, LECG
increased the number of Principals and employees, including Professional
Staff, to 240 at December 31, 1997 from 175 at December 31, 1996. LECG's
Experts leveraged Professional Staff resources more effectively which resulted
in a higher contribution to Company margins.
General and Administrative. General and administrative increased 54.3% to
$8.1 million in 1997 from $5.3 million in the prior year. As a percentage of
revenues, general and administrative increased to 18.4% in 1997 from 16.8% in
1996. This expense is due to additional facilities charges for moving an
existing office, expanding three existing offices and opening four new offices
to accommodate planned growth.
Other Expense (Income). LECG recognized other income of $851,862 in 1997
related to the expiration of an option agreement entered into in 1993. The
agreement called for the purchase of all LECG's assets or outstanding Common
Stock. The income recognized represents a $1,000,000 payment for the asset
option net of applicable expenses to arrange the transaction.
Income Before Income Taxes. Income before income taxes for 1997 was $8.9
million, compared with $5.3 million for 1996. The improvement is attributable
to increased revenues while maintaining profit margins as well as the gain on
the expiration of the option as discussed above.
Pro Forma Results. The pro forma presentation in Selected Financial Data for
the year ended December 31, 1997 assumes LECG had been operating as a C
Corporation and reflects an effective tax rate of 41.0%.
1996 Compared to 1995
Revenues. Revenues increased 26.4% to $31.4 million in 1996 from $24.8
million in 1995. The increase in revenues was attributable to increasing the
number of projects billed by 8.6% while increasing the average billings per
project by 16.3%. LECG worked on several large projects for existing clients.
Gross Profit. Gross profit increased 25.6% to $10.5 million in 1996 from
$8.4 million in 1995. Gross profit as a percentage of revenues decreased
slightly to 33.5% in 1996 from 33.7% in 1995. This decrease is attributable to
increased expenses for project origination fees earned by certain Experts
eligible for a higher percent of such fees. This is offset by an increase in
staff utilization rates of 7% over the prior year.
85
<PAGE>
General and Administrative. General and administrative increased 29.9% to
$5.3 million in 1996 from $4.0 million in 1995. This is attributable to
expenses proportionately increasing in relation to revenues as well as
increased recruiting and business development costs associated with expanding
LECG. General and administrative, as a percentage of revenues, increased to
16.8% in 1996 from 16.3% in 1995.
Liquidity and Capital Resources. LECG's primary source of liquidity has been
cash flow from operations, periodically supplemented by borrowings under a
bank line of credit and by loans from shareholders. Cash flows provided by
operations was $1.9 million and $2.5 million for the three months ended March
31, 1998 and 1997, respectively. A large component of the decrease is due to
LECG now being taxed as a C Corporation.
Cash flows used in investing activities was $1.0 million and $.3 million for
the three months ended March 31, 1998 and 1997, respectively. This increase is
the result of the significant increase in the number of individuals employed
by the firm which has required LECG to invest in equipment to support staff.
Cash flows used in financing activities was $3.2 million and $1.8 million
for the three months ended March 31, 1998 and 1997, respectively. Concurrent
with the consummation of the initial public offering in 1997, LECG declared a
Subchapter S Corporation distribution of $5.4 million. During the first
quarter of 1998, LECG paid $3.7 million of this distribution to shareholders
and the remaining $1.7 million was applied to notes receivable from
shareholders. The distributions paid was partially funded by the net proceeds
from the sale of common stock. During the first quarter of 1997, the Company
paid $1.9 million in Subchapter S Corporation distributions to its
shareholders which was partially funded by LECG's line of credit. The line
expires May 31, 2000 and provides maximum borrowings of $3.0 million.
Borrowings are limited to working capital requirements and bear interest at
the bank's prime rate (8.5% at March 31, 1998). Borrowings are secured by
accounts receivable and fixed assets.
Operations provided funds of $6.8 million for the year ended December 31,
1997 as compared to $5.6 million for the year ended December 31, 1996. Cash
flow from operations amounted to $4.2 million and $5.6 million for 1995 and
1996, respectively. Net income before income taxes and net income increased
each year during this three year period.
Investing activities historically have not required significant cash flows.
Cash flow provided by financing activities was $20.0 million for 1997.
During this period, LECG offered 3,060,000 common shares to the public which
provided $24.4 million in 1997. In addition, LECG paid $4.1 million in S
Corporation Distributions which were partially funded by LECG's line of
credit. The line expires on May 31, 2000 and provides for maximum borrowings
of $3.0 million. Borrowings are limited to working capital requirements and
bear interest at the bank's prime rate (8.5% at December 31, 1997). Borrowings
are secured by accounts receivable and fixed assets. Cash flow used in
(provided by) financing activities amounted to $3.4 million, $5.1 million and
($20.0) million for 1995, 1996 and 1997, respectively.
LECG believes the net proceeds from the sale of common stock in 1997,
together with funds generated by operations, will provide adequate cash to
fund its anticipated cash needs, at least through the next twelve months.
Pending such uses, the net proceeds will be invested in short-term, interest-
bearing investment grade securities. LECG currently anticipates that it will
retain all of its earnings from development of LECG's business and does not
anticipate paying any cash dividends in the foreseeable future.
86
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT OF
LECG
The following table sets forth certain information regarding the beneficial
ownership of LECG's Common Stock as of the LECG Record Date by: (i) each
persons (or group of affiliated persons) known to LECG to be the beneficial
owner of more than 5% of Common Stock, (ii) each director of LECG, (iii) each
of LECG's five most highly compensated executive officers in 1997 and (iv) all
directors and executive officers of LECG as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-------------------
BENEFICIAL OWNER NUMBER PERCENT(2)
---------------- --------- ---------
<S> <C> <C>
David J. Teece(3)................................... 1,322,954 10.2%
Gordon C. Rausser(4)................................ 1,279,835 9.8%
Thomas M. Jorde(5).................................. 769,980 5.9%
Robert G. Harris(6)................................. 926,816 7.1%
Richard J. Gilbert(7)............................... 647,830 5.0%
Kimberly D. Gilmour................................. 73,133 *
Donald A. Bunch..................................... 42,845 *
Mario M. Rosati..................................... -- *
William J. Spencer.................................. -- *
All Directors and Executive Officers as a group (9
persons)........................................... 5,063,372 38.9%
</TABLE>
- --------
*Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The persons and entities named in the
table have represented to LECG that they have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. The address of each of the
individuals listed in the table is c/o LECG, Inc., 2000 Powell Street,
Emeryville, California 94608.
(2) Percent Ownership is based on 13,027,867 shares of Common Stock
outstanding as of the LECG Record Date. Shares of Common Stock subject to
options that are exercisable currently or within 60 days of the Record
Date are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(3) Excludes 1,081,306 shares held by two family trusts, of which Mr. Teece
disclaims beneficial ownership.
(4) Includes 177,602 shares held by a family trust.
(5) Excludes 501,286 shares held by three family trusts, of which Mr. Jorde
disclaims beneficial ownership.
(6) Excludes 78,770 shares held by two family trusts, of which Mr. Harris
disclaims beneficial ownership.
(7) Excludes 347,044 shares held by three family trusts, of which Mr. Gilbert
disclaims beneficial ownership.
87
<PAGE>
DESCRIPTION OF METZLER SECURITIES
GENERAL
The authorized capital stock of Metzler consists of 75,000,000 shares of
common stock, par value $.001 per share, and 3,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock").
COMMON STOCK
Holders of Metzler Common Stock are entitled to one vote per share for the
election of directors and all other matters submitted for stockholder vote,
except matters submitted to the vote of another class or series of shares.
Holders of Metzler Common Stock are not entitled to cumulative voting rights.
Therefore, the holders of a majority of the shares voting for the election of
directors can elect all of the directors if they choose to do so. The holders
of Metzler Common Stock are entitled to dividends in such amounts and at such
times, if any, as may be declared by the Board of Directors out of funds
legally available therefor. Metzler has not paid any dividends on its Metzler
Common Stock and does not anticipate paying any cash dividends on such stock
in the foreseeable future. Upon liquidation, dissolution or winding up of
Metzler, the holders of Metzler Common Stock are entitled to share ratably in
all net assets available for distribution to stockholders after payments to
creditors. The Metzler Common Stock is not redeemable and has no preemptive or
conversion rights.
The rights of the holders of Metzler Common Stock are subject to the rights
of the holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Metzler Common Stock are, and the shares of Metzler
Common Stock to be sold by Metzler in connection with the Merger when issued
will be, duly authorized, validly issued, fully paid and nonassessable.
Dividends. Metzler has not since its initial public offering paid cash
dividends on its Common Stock. Metzler currently anticipates that all of its
earnings will be retained for development of Metzler's business and does not
anticipate paying any cash dividends in the foreseeable future.
PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Metzler without further action
by the stockholders and may adversely affect the voting and other rights of
the holders of Metzler Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Metzler Common Stock, including the loss of voting control to
others.
LEGAL MATTERS
The validity of the shares of the Metzler Common Stock to be issued pursuant
to the Merger Agreement has been passed upon for Metzler by Sachnoff & Weaver,
Ltd., Chicago, Illinois. Certain legal matters including certain federal
income tax consequences of the Merger have been passed upon for LECG by Wilson
Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The consolidated financial statements of The Metzler Group, Inc. as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been included in this Joint Proxy Statement-
Prospectus in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in KPMG Peat Marwick LLP's report
thereon appearing elsewhere herein, given upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP is
based partially upon the reports of Coopers & Lybrand L.L.P.
88
<PAGE>
The consolidated financial statements of LECG, Inc., as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December
31, 1997, have been included in this Joint Proxy Statement-Prospectus in
reliance on the report of Arthur Andersen LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
given upon the authority of said firm as experts in giving said report.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Metzler stockholders may
present proper proposals for inclusion in Metzler's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting
such proposals to Metzler in a timely manner. As noted in Metzler's proxy
statement relating to its 1998 Annual Meeting of Stockholders, in order to be
so included for the 1999 annual meeting, stockholder proposals must be
received by Metzler no later than December 20, 1998, and must otherwise comply
with the requirements of Rule 14a-8.
If the Merger is not consummated, LECG shareholders may, pursuant to Rule
14a-8 under the Exchange Act, present proper proposals for inclusion in LECG's
proxy statement and for consideration at the next annual meeting of its
shareholders by submitting such proposals to LECG in a timely manner. As noted
in LECG's proxy statement relating to its 1998 Annual Meeting of Stockholders,
in order to be so included for the 1999 annual meeting, stockholder proposals
must be received by LECG no later than December 25, 1999, and must otherwise
comply with the requirements of Rule 14a-8.
89
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
THE METZLER GROUP, INC.
<TABLE>
<S> <C>
Audited Consolidated Financial Statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31,
1997
Independent Auditor's Report........................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
Unaudited Condensed Consolidated Financial Statements and related Notes
thereto as of March 31, 1998 and December 31, 1997 and for the three
month periods ended March 31, 1998 and 1997
Consolidated Balance Sheets............................................ F-16
Consolidated Statements of Operations.................................. F-17
Consolidated Statements of Cash Flows.................................. F-18
Notes to Consolidated Financial Statements............................. F-19
LECG, INC.
Audited Consolidated Financial Statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31,
1997
Report of Independent Public Accountants............................... F-20
Consolidated Balance Sheets............................................ F-21
Consolidated Statements of Income...................................... F-22
Consolidated Statements of Shareholders' Equity........................ F-23
Consolidated Statements of Cash Flows.................................. F-24
Notes to Consolidated Financial Statements............................. F-25
Unaudited Condensed Consolidated Financial Statements and related Notes
thereto as of March 31, 1998 and December 31, 1997 and for the three
month periods ended March 31, 1998 and 1997
Consolidated Balance Sheets............................................ F-34
Consolidated Statements of Income...................................... F-35
Consolidated Statements of Cash Flows.................................. F-36
Notes to Consolidated Financial Statements............................. F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Metzler Group, Inc.:
We have audited the consolidated balance sheets of The Metzler Group, Inc.
and subsidiaries as of December 31, 1997 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, 1997. 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 27 percent and 24
percent as of December 31, 1997 and 1996, respectively, and total revenues
constituting 53 percent, 56 percent and 67 percent for each of the years in
the three-year period ended December 31, 1997, 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, 1997 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, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
February 11, 1998, except for Note 14, as
to which the date is March 5, 1998
Chicago, Illinois
F-2
<PAGE>
THE METZLER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $21,572,740 $33,536,265
Accounts receivable, net of the allowance for
doubtful accounts of $1,254,238 and $706,000 in
1997 and 1996, respectively....................... 23,629,870 14,184,458
Prepaid and other current assets................... 1,359,304 655,168
----------- -----------
Total current assets............................. 46,561,914 48,375,891
Net property and equipment, net of accumulation
depreciation of $7,164,824 and $6,343,404 in 1997
and 1996, respectively.............................. 2,885,256 2,713,793
Other assets......................................... 1,316,803 1,179,421
----------- -----------
Total assets..................................... $50,763,973 $52,269,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit.................................... $ 1,062,179 $ 1,685,133
Notes payable to related parties, current portion.. -- 1,734,580
Long-term debt, current portion.................... 208,309 606,621
Accounts payable................................... 3,760,853 3,341,799
Accrued liabilities................................ 1,658,271 749,947
Accrued compensation and related costs............. 2,608,983 1,797,676
Income taxes payable............................... 3,537,585 771,157
Deferred income taxes.............................. 585,335 711,626
Other current liabilities.......................... 1,574,841 548,493
----------- -----------
Total current liabilities........................ 14,996,356 11,947,032
Notes payable to related parties, less current
portion............................................. -- 88,725
Long-term debt, less current portion................. 318,757 1,400,553
Deferred income taxes................................ 2,162,944 2,305,639
Other non-current liabilities........................ 378,813 577,782
----------- -----------
Total liabilities................................ 17,856,870 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; 20,557,359 and 20,201,637 shares
issued and outstanding in 1997 and 1996,
respectively...................................... 20,557 20,202
Additional paid-in capital......................... 20,724,661 30,007,556
Cumulative translation adjustment.................. (56,612) 6,066
Retained earnings.................................. 12,218,497 5,915,550
----------- -----------
Total stockholders' equity....................... 32,907,103 35,949,374
----------- -----------
Total liabilities and stockholders' equity....... $50,763,973 $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,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $83,661,306 $63,553,337 $55,817,351
Cost of services........................ 49,567,507 42,315,400 37,085,413
----------- ----------- -----------
Gross profit.......................... 34,093,799 21,237,937 18,731,938
Merger related costs.................... 1,311,959 -- --
Selling, general and administrative
expenses............................... 18,107,760 15,609,906 17,811,846
----------- ----------- -----------
Operating income...................... 14,674,080 5,628,031 920,092
----------- ----------- -----------
Other expense (income):
Interest expense...................... 44,374 578,642 247,971
Interest income....................... (1,114,759) (370,750) (27,125)
Other, net............................ 270,890 (134,614) 19,973
----------- ----------- -----------
Total other expense................. (799,495) 73,278 240,819
----------- ----------- -----------
Income before income tax expense
(benefit).............................. 15,473,575 5,554,753 679,273
Income tax expense (benefit).......... 5,786,148 (180,351) 392,908
----------- ----------- -----------
Net income ............................. $ 9,687,427 $ 5,735,104 $ 286,365
=========== =========== ===========
Pro forma income data (unaudited):
Net income as reported................ $ 5,735,104 $ 286,365
Pro forma adjustments to executive
compensation expense................. (1,019,460) 2,775,293
Pro forma adjustments to income tax
expense.............................. (1,799,403) (1,110,117)
----------- -----------
Pro forma net income................ 2,916,241 1,951,541
=========== ===========
Pro forma or net income per basic
share.............................. $ 0.48 $ 0.15 $ 0.10
=========== =========== ===========
Pro forma or net income per dilutive
share.............................. $ 0.47 $ 0.15 $ 0.10
=========== =========== ===========
Basic shares used in computing pro forma
or net income
per share.............................. 19,982,028 19,259,046 19,032,677
Diluted shares used in computing pro
forma or net income
per share.............................. 20,468,571 19,445,210 19,032,677
</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,
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
Retroactive restatement
for a three-for-two
common stock split
effective April 1,
1998................... -- -- 6,379,729 6,380 (6,380) -- -- --
------- ------- ---------- ------- ----------- -------- ----------- -----------
Balance at December 31,
1995................... -- -- 19,139,187 19,140 851,126 -- 2,775,746 3,646,012
Net income.............. -- -- -- -- -- -- 5,735,104 5,735,104
Purchase and retirement
of common stock........ -- -- (2,899,059) (2,899) (8,156,963) -- (395,300) (8,555,162)
Issuance of common
stock.................. -- -- 3,961,509 3,961 37,313,393 -- -- 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................... -- -- 20,201,637 20,202 30,007,556 6,066 5,915,550 35,949,374
Net income.............. -- -- -- -- -- -- 9,687,427 9,687,427
Purchase and retirement
of common stock........ -- -- (377,733) (378) (9,678,701) -- -- (9,679,079)
Issuance of common
stock.................. -- -- 733,455 733 395,806 -- 102,520 499,059
S-corporation
distributions.......... -- -- -- -- -- -- (3,487,000) (3,487,000)
Foreign currency
translation adjustment. -- -- -- -- -- (62,678) -- (62,678)
------- ------- ---------- ------- ----------- -------- ----------- -----------
Balance at December 31,
1997................... -- -- 20,557,359 $20,557 $20,724,661 $(56,612) $12,218,497 $32,907,103
======= ======= ========== ======= =========== ======== =========== ===========
</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,
--------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 9,687,427 $ 5,735,104 $ 286,365
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 917,268 1,063,986 1,071,984
Loss on sale of property and
equipment.......................... -- 71,225 93,115
Provision for bad debts............. 548,238 253,306 815,860
Deferred income taxes............... (268,986) (952,213) 194,394
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable............... (9,993,650) (1,768,689) (1,997,479)
Prepaid expenses and other assets. (458,832) (135,395) (229,546)
Accounts payable and accrued
liabilities...................... 1,327,378 1,517,756 140,046
Accrued compensation and related
costs............................ 811,307 (840,873) 662,592
Income taxes payable.............. 2,766,428 553,072 208,676
Other current liabilities......... 1,026,348 392,066 (28,287)
------------ ----------- -----------
Net cash provided by operating
activities........................... 6,362,926 5,889,345 1,217,720
------------ ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.. (992,883) (1,284,156) (620,359)
Sale of property and equipment...... -- 46,743 5,183
Cash paid for acquisitions.......... -- (313,000) (80,000)
Other, net.......................... (678,427) (285,156) (56,210)
------------ ----------- -----------
Net cash used in investing activities. (1,671,310) (1,835,569) (751,386)
------------ ----------- -----------
Cash flows from financing activities:
Purchase of common stock............ -- (8,555,162) (49,873)
Issuance of common stock............ 499,059 37,317,354 235,806
Repayment of notes payable.......... (1,823,305) (648,449) (22,043)
Proceeds from notes payable......... -- 1,799,581 23,724
Repayment of long-term debt......... (1,480,108) (826,449) (691,445)
Proceeds from long-term debt........ -- 1,458,333 226,552
Net borrowings (repayments) on lines
of credit.......................... (622,954) 479,393 255,000
Purchase of dissenting shares issued
in business combinations........... (9,679,079) -- --
Distributions to former S-
corporation stockholders........... (3,487,000) (2,200,000) --
Payments for obligations under
capital lease...................... (61,754) (43,318) (21,277)
------------ ----------- -----------
Net cash provided by (used in)
financing activities................. (16,655,141) 28,781,283 (43,556)
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... (11,963,525) 32,835,059 422,778
Cash and cash equivalents at beginning
of year.............................. 33,536,265 701,206 278,428
------------ ----------- -----------
Cash and cash equivalents at end of
year................................. $ 21,572,740 $33,536,265 $ 701,206
============ =========== ===========
Supplemental information:
Interest payments................... $ 287,288 $ 532,383 $ 252,797
Income tax payments................. $ 3,228,706 $ 228,010 $ 17,469
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
THE METZLER GROUP, INC.
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 Burgess Consulting, Inc. ("Burgess"), Metzler &
Associates, Inc. ("Metzler & Associates"), Reed Consulting Group, Inc.
("Reed"), Resource Management International, Inc. ("RMI") and Sterling
Consulting Group, Inc ("Sterling"). The Company is headquartered in Chicago,
Illinois and has regional offices in various cities within the United States,
and international offices in Denmark, Australia, Czechoslovakia Republic 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. All significant intercompany transactions have been
eliminated in consolidation.
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.
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 is computed using
the straight-line method based on the estimated useful lives, ranging from
three to forty years, of the various classes of property and equipment.
Amortization of leasehold improvements is computed over the shorter of the
lease term or the estimated useful life of the asset.
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.
F-7
<PAGE>
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.
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 the asset and liability method. 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 Adjustments (unaudited)
The pro forma adjustments during the years 1996 and 1995 reflect the impact
of a Metzler & Associates compensation plan effective July 1, 1996. The pro
forma adjustments for 1996 include an increase to officer compensation expense
of $1,019,460. The pro forma adjustments for 1995 include a decrease to
officer compensation expense of $2,775,293.
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. 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.
Earnings per Share
For the years ended December 31, 1997, 1996 and 1995, earnings per share was
computed in accordance with Statement of Financial Accounting Standards No.
128 "Earnings Per Share", which the Company adopted during the fourth quarter
of 1997. Weighted-average and equivalent shares outstanding include the
dilutive effect of common stock options aggregating 486,543, 186,164 and 0 for
the years ended December 31, 1997, 1996 and 1995, respectively.
F-8
<PAGE>
Foreign Currency Translation
The balance sheets of the Company's foreign subsidiaries are translated into
U.S. dollars using the year-end exchange rate, and sales and expenses are
translated using the average exchange rate for the year. The resulting
translation gains or losses are recorded as a separate component of
stockholders' equity as a cumulative translation adjustment.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with the
1997 presentation.
3. BUSINESS COMBINATIONS
In January 1997, the Company issued 63,272 shares of common stock for all of
the outstanding common stock of Burgess. 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 period statements of
operations to reflect the pooling-of-interest combination.
On July 31, 1997, the Company issued 3,205,767 shares of common stock for
substantially all the outstanding common stock of RMI. Additionally, on August
15, 1997, the Company issued 777,600 shares of common stock for substantially
all of the outstanding common stock of Reed. Each of the transactions was
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 Company's consolidated statement of operations for the year
ended December 31, 1997 includes revenues and net income from RMI and Reed
totaling $28,906,082 and $1,528,688, respectively, through the dates of
acquisition. The consolidated statements of operations for years ended
December 31, 1996 and 1995 have been restated to reflect revenues of
$41,460,368 and $42,357,626, respectively. The consolidated statement of
operations for the year ended December 31, 1996 has been restated to reflect a
net loss from RMI and Reed totaling $1,119,045. The consolidated statement of
operations for the year ended December 31, 1995 has been restated to reflect
net income from RMI and Reed totaling $759,597.
In December 1997, the Company issued 578,727 shares of common stock for
substantially all of the outstanding common stock of Sterling. Additionally,
in December 1997, the Company issued 45,000 shares of common stock for
substantially all of the outstanding common stock of Reed-Stowe. The Company
contributed all of the Reed-Stowe stock to the Company's Reed subsidiary. Each
of these transactions was accounted for using the pooling of interest method
of accounting. The consolidated financial statements have not been restated
since these acquisitions were deemed immaterial.
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. 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.
F-9
<PAGE>
4. INITIAL PUBLIC OFFERING
On October 4, 1996 the Company completed an initial public offering of its
common stock in which 3,450,000 shares were sold by the Company, along with an
additional over-allotment of 427,500 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 2,571,428 shares of the
founding shareholder's common stock and issued to the shareholder a promissory
note for $7,975,000. See Note 12 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>
1997 1996
----------- -----------
<S> <C> <C>
Land and buildings.............................. $ 370,000 $ 370,000
Furniture, fixtures and equipment............... 8,532,226 7,647,076
Leasehold improvements.......................... 1,147,854 1,040,121
----------- -----------
10,050,080 9,057,197
Less: accumulated depreciation and
amortization................................. (7,164,824) (6,343,404)
----------- -----------
$ 2,885,256 $ 2,713,793
=========== ===========
</TABLE>
6. LINES OF CREDIT
The Company had $1,772,500 and $4,900,000 available under lines of credit at
December 31, 1997 and 1996, respectively. Amounts outstanding at December 31
are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$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, paid in 1997...................................... $ -- $ 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, paid in 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, paid in 1997..... -- 95,000
$800,000 line of credit, interest payable quarterly at
the bank's prime rate (9.5% at December 31, 1997) plus
1.0% guaranteed by officers of Sterling, due April 1,
1998................................................... 620,000 --
$400,000 line of credit, interest payable quarterly at
the bank's prime rate (9.5% at December 31, 1997) plus
1.0%, guaranteed by officers of Sterling, due April 1,
1998................................................... 400,000 --
$72,500 in lines of credit, interest payable 12.5% to
15.0%, guaranteed by officers of Reed-Stowe,
outstanding balance due on demand...................... 42,179 --
---------- ----------
$1,062,179 $1,685,133
========== ==========
</TABLE>
At December 31, 1997, the Company had letters of credit available of
$1,500,000 of which $606,653 has been utilized. The letters of credit expire
at various dates through December 31, 2000.
F-10
<PAGE>
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.
Future minimum annual lease payments, for the years subsequent to 1997 and
in the aggregate, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- -----------
<S> <C>
1998......................................................... $ 3,772,044
1999......................................................... 2,825,115
2000......................................................... 2,519,408
2001......................................................... 2,175,657
2002......................................................... 233,592
-----------
$11,525,816
===========
</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 for the year
ending December 31, 1998, is $77,020.
Rent expense for operating leases entered into by the Company and charged to
operations amounted to $3,417,639, $3,072,500 and $2,660,513 for the years
ended December 31, 1997, 1996, and 1995, 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>
1998............................................................ $ 74,060
1999............................................................ 61,614
2000............................................................ 25,673
--------
Net minimum rentals............................................. 161,347
Less interest portion........................................... (19,115)
--------
Present value of net minimum rentals at December 31, 1997....... $142,232
========
</TABLE>
F-11
<PAGE>
8. INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Federal:
Current...................................... $5,000,637 $ 477,323 $168,171
Deferred..................................... (262,756) (574,015) 146,215
---------- --------- --------
Total........................................ 4,737,881 (96,692) 314,386
---------- --------- --------
State:
Current...................................... 1,054,497 219,806 43,626
Deferred..................................... (6,230) (303,465) 34,896
---------- --------- --------
Total........................................ 1,048,267 (83,659) 78,522
---------- --------- --------
Total federal and state income tax expense
(benefit)..................................... $5,786,148 $(180,351) $392,908
========== ========= ========
</TABLE>
Income tax expense (benefit) differs from the amounts estimated by applying
the statutory income tax rates to income before income tax expense (benefit)
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Federal tax at statutory rate............................... 35.0% 34.0% 34.0%
State tax at statutory rate, net of federal tax benefits.... 4.8 4.7 7.8
Effect of nontaxable interest and dividends................. (1.6) (1.6) --
Effect of S-corporation election............................ -- (40.7) 12.0
Other....................................................... (.8) .3 4.1
---- ----- ----
37.4% (3.3)% 57.9%
==== ===== ====
</TABLE>
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,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
State income taxes..................................... $ 154,773 $ 157,076
Accrued rent........................................... 110,024 201,240
Allowance for uncollectible receivables................ 340,000 --
Reorganization cost.................................... 382,032 --
Other.................................................. 126,465 50,724
---------- ----------
Total deferred tax assets................................ $1,113,294 $ 409,040
---------- ----------
Deferred tax liabilities:
Adjustment resulting from changes in the method of
accounting used for tax purposes...................... $3,548,074 $3,104,306
Investments in partnerships............................ 213,598 200,532
Other.................................................. 99,901 121,467
---------- ----------
Deferred tax liabilities................................. 3,861,573 3,426,305
---------- ----------
Net deferred tax liabilities............................. $2,748,279 $3,017,265
========== ==========
</TABLE>
F-12
<PAGE>
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 3,000,000 shares. As of
December 31, 1997, the Company has 2,246,115 options outstanding at a weighted
average exercise price of $16.79 per share which was equal to the estimated
fair market value of common stock at the dates of grant. As of December 31,
1997, 13,500 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 years ended December 31, 1997 and 1996 would have
been increased by $1,113,000 and $102,000, respectively, 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>
1997 1996
---------- ----------
<S> <C> <C>
Pro forma earnings per common and common equivalent
share:
As reported........................................... $9,687,427 $2,916,241
Pro forma--fair value method.......................... $8,574,427 $2,814,241
Pro forma net earnings available to common stockholders:
As reported........................................... $ 0.48 $ 0.15
Pro forma--fair value method.......................... $ 0.43 $ 0.15
</TABLE>
The weighted average fair value of options granted in 1997 and 1996 was
$4.07 and $2.00 respectively. 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 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Expected volatility................................... 45% 40%
Risk free interest rate............................... 5.7% 6.5%
Dividend yield........................................ 0% 0%
Expected lives........................................ 2.6 years 3.0 years
</TABLE>
Additional information on the shares subject to options is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year.......... 689,387 $ 10.67 -- $ --
Granted..................... 1,795,365 19.06 724,888 10.00
Exercised................... (3,000) (8.00) -- --
Forfeited................... (235,637) (16.35) (35,501) 8.00
--------- ------- -------
Options outstanding at end
of year.................... 2,246,115 $ 16.79 689,387 10.37
========= ======= ======= =======
Options exercisable at year
end........................ 13,500 $ 18.45 -- $ --
========= ======= ======= =======
</TABLE>
F-13
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ ------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
WEIGHTED- REMAINING WEIGHTED- REMAINING
NUMBER OF AVERAGE CONTRACTUAL NUMBER OF AVERAGE CONTRACTUAL
RANGE OF EXERCISE PRICES SHARES EXERCISE PRICE LIFE SHARES EXERCISE PRICE LIFE
- ------------------------ --------- -------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 6 to $13.............. 462,369 $ 7.79 1.47 years 512,138 $ 8.03 2.46 years
$13 to $17.............. 694,998 14.50 1.02 years 12,000 16.21 .65 years
$17 to $21.............. 230,748 18.00 2.39 years 165,249 17.21 3.30 years
$21 to $23.............. 345,000 22.15 2.33 years -- -- --
$23 to $27.............. 513,000 24.00 2.47 years -- -- --
--------- ------ ---------- ------- ------ ----------
2,246,115 $16.79 1.80 years 689,387 $10.37 2.60 years
========= ====== ========== ======= ====== ==========
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company maintains three profit sharing and pension plans (Metzler &
Associates Profit Sharing and Savings Plan and Trust, RMI, Inc. 401(k) and
Profit Sharing Plan, and RMI Utility Purchase Pension Plan).
The Metzler & Associates 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, makes profit sharing contributions.
Under the RMI, Inc. 401(k) and Profit Sharing Plan, eligible employees may
contribute up to 12% of their compensation to this plan 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 RMI Utility Money Purchase Pension Plan was amended prior to January 1,
1997, to freeze entry into the plan and benefits accruals. Participants are
not allowed to make contributions to this plan.
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 the 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, 1995.............................................. $1,384,083
December 31, 1996.............................................. 1,356,014
December 31, 1997.............................................. 25,255
</TABLE>
11. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Term loans, variable interest at the prime rate (8.25%
through 10.0% at December 31, 1997) plus 1.0% through
2.0%, with due dates 1998 though 2001..................... $145,297 $1,458,333
Mortgage payable, interest at 10.0%, collateralized by land
and building, payable in equal monthly installments of
principal and interest, payable through 2001.............. 78,366 94,771
Covenants not to compete, payable through July 2001........ 303,403 454,070
-------- ----------
527,066 2,007,174
Less portion due within one year........................... 208,309 606,621
-------- ----------
$318,757 $1,400,553
======== ==========
</TABLE>
F-14
<PAGE>
Future aggregate annual maturities of long-term debt as of December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998............................................................. $208,309
1999............................................................. 128,525
2000............................................................. 111,775
2001............................................................. 78,457
--------
$527,066
========
</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 had 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, whom, at that time, was the beneficial owner of 15% of the
Company's common stock, to redeem 2,571,428 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.
13. SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES AND CASH FLOW
INFORMATION
During 1996, RMI recorded equipment under capital leases of $207,484 and
recorded an obligation under capital lease of the same amount in connection
with acquisition of SRC and SRC Group (Note 3).
14. SUBSEQUENT EVENTS
On February 11, 1998, the Company completed a registration statement on Form
S-3 for a secondary offering of its common stock, par value $.001. At the
completion of the offering on March 2, 1998, the Company issued an additional
1,500,000 shares of its common stock which yielded net proceeds to the Company
of approximately $37 million.
On March 5, 1998, the Board of Directors authorized a three-for-two stock
split to be distributed on April 1, 1998, to shareholders of record on March
18, 1998. All references in the consolidated financial statements to number of
shares and per share amounts of the Company's common stock have been
retroactively restated to reflect the increased number of common shares
outstanding.
F-15
<PAGE>
THE METZLER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $53,702 $21,573
Accounts receivable................................. 24,676 23,630
Prepaid expenses and other.......................... 1,776 1,359
------- -------
Total current assets.............................. 80,154 46,562
Property and equipment, net........................... 4,902 2,885
Other non-current assets, net......................... 1,237 1,317
------- -------
Total assets...................................... $86,293 $50,764
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit...................................... $ -- $ 1,062
Accounts payable.................................... 3,559 3,761
Accrued liabilities................................. 1,578 1,658
Accrued compensation and related costs.............. 2,006 2,609
Income taxes payable................................ 2,991 3,538
Deferred income taxes............................... 585 585
Other current liabilities........................... 399 1,783
------- -------
Total current liabilities......................... 11,118 14,996
Deferred income taxes................................. 980 2,163
Other non-current liabilities......................... 308 698
------- -------
Total liabilities................................. 12,406 17,857
------- -------
Stockholders' equity:
Preferred stock, $.001 par value; 3,000 shares
authorized; no shares issued or outstanding........ -- --
Common stock, $.001 par value, 75,000 shares
authorized; 22,142 and 20,557 shares issued and
outstanding in 1998 and 1997....................... 22 21
Additional paid-in capital.......................... 57,861 20,725
Retained earnings................................... 16,075 12,218
Accumulated other comprehensive income.............. (71) (57)
------- -------
Total stockholders' equity........................ 73,887 32,907
------- -------
Total liabilities and stockholders' equity........ $86,293 $50,764
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues.................................................. $ 25,487 $ 18,084
Cost of services.......................................... 14,506 11,154
--------- ---------
Gross profit ........................................... 10,981 6,930
Selling, general and administrative expenses.............. 5,066 4,256
--------- ---------
Operating income........................................ 5,915 2,674
Other expense (income), net............................... (481) (220)
--------- ---------
Income before income tax expense.......................... 6,396 2,894
Income tax expense........................................ 2,539 1,088
--------- ---------
Net income................................................ $ 3,857 $ 1,806
========= =========
Net income per basic share................................ $ 0.18 $ 0.09
========= =========
Net income per diluted share.............................. $ 0.18 $ 0.09
========= =========
Basic shares used in computing net income per share....... 21,087 19,924
========= =========
Diluted shares used in computing net income per share..... 22,022 20,216
========= =========
Other comprehensive income:
Foreign currency translation adjustments................ $ (14) $ 4
Comprehensive income.................................... $ 3,843 $ 1,810
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
THE METZLER GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 3,857 $ 1,806
Adjustments to reconcile net income to net cash used in
operating activities, net of acquisition:
Depreciation and amortization........................ 297 211
Gain on sale of property............................. (106) --
Deferred income taxes................................ (1,183) --
Changes in assets and liabilities:
Accounts receivable................................ (1,046) (3,902)
Prepaid expenses................................... (417) 47
Accounts payable and accrued liabilities........... (283) 305
Accrued compensation and related costs............. (603) 610
Income taxes payable............................... (546) 32
Other current liabilities.......................... (1,384) 388
--------- ---------
Net cash provided by (used in) operating activities...... (1,414) (503)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment..................... (2,585) (224)
Proceeds from sale of property......................... 402 --
Other, net............................................. (350) 364
--------- ---------
Net cash provided by (used in) investing activities...... (2,533) 140
--------- ---------
Cash flows from financing activities:
Issuance of common stock............................... 37,138 97
Payment of notes payable............................... -- (1,480)
Repayments on lines of credits......................... (1,062) (170)
Distributions to former S-corporation stockholders..... -- (3,000)
--------- ---------
Net cash provided by (used in) financing activities...... 36,076 (4,553)
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 32,129 (4,916)
Cash and cash equivalents at beginning of period......... 21,573 33,536
--------- ---------
Cash and cash equivalents at end of period............... $ 53,702 $ 28,620
========= =========
Supplemental information:
Interest payments...................................... $ 20 $ 97
Income tax payments.................................... $ 3,701 $ 730
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
THE METZLER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
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 for quarterly reports on Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
includes all 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 three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1998.
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, 1997, included elsewhere herein.
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" for the quarter ended March 31, 1997.
Required changes are reported in the Consolidated Statements of Operations and
Comprehensive Income and Consolidated Balance Sheets.
NOTE 2. BUSINESS COMBINATIONS
On July 31, 1997, the Company issued 3,206 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 778 shares of common stock for substantially all of the outstanding
common stock of 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. The Company's consolidated statements of
operations and comprehensive income for the three months ended March 31, 1997
have been restated to reflect revenues and net income of $11,826 and $1,806,
respectively for the combined operations of RMI and Reed.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF LECG, INC.:
We have audited the accompanying consolidated balance sheets of LECG, Inc.
(a California corporation) and Subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These financials 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LECG, Inc. and
Subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
January 30, 1998
F-20
<PAGE>
LECG, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 2,889 $24,164,635
Accounts receivable, net........................... 11,128,887 16,280,006
Prepaid expenses................................... 144,714 840,939
----------- -----------
Total current assets............................. 11,276,490 41,285,580
Security deposits................................... 114,326 186,349
Property and equipment, net......................... 1,806,888 3,584,277
----------- -----------
Total assets..................................... $13,197,704 $45,056,206
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities........... $ 630,442 $ 2,216,127
Accrued expert and project origination fees:
Related party..................................... 2,944,438 3,553,428
Other............................................. 1,732,727 2,953,065
Client retainers................................... 497,876 550,960
Deferred purchase option deposit................... 851,862 0
Income taxes payable............................... 105,375 261,693
Deferred tax liability............................. 0 915,295
Distribution payable............................... 0 5,356,566
Other current liabilities.......................... 171,374 824,150
----------- -----------
Total current liabilities........................ 6,934,094 16,631,284
Deferred tax liability............................. 0 1,787,910
----------- -----------
Total liabilities................................ 6,934,094 18,419,194
Shareholders' equity:
Common shares, $.001 par value; authorized
40,000,000 shares; issued and outstanding,
10,014,996 and 13,027,867 shares as of December
31, 1996 and 1997, respectively................... 10,014 13,028
Additional paid-in capital......................... 5,101,219 29,176,449
Notes receivable from shareholders................. (3,045,169) (2,754,726)
Retained earnings.................................. 4,197,546 202,261
----------- -----------
Total shareholders' equity....................... 6,263,610 26,637,012
----------- -----------
Total liabilities and shareholders' equity....... $13,197,704 $45,056,206
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
LECG, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES.................................. $24,835,188 $31,391,870 $44,110,167
COST OF SERVICES:
Related party........................... 6,440,823 7,329,346 9,073,377
Other................................... 10,024,540 13,551,511 18,862,063
----------- ----------- -----------
Total cost of services................ 16,465,363 20,880,857 27,935,440
----------- ----------- -----------
Gross profit.......................... 8,369,825 10,511,013 16,174,727
GENERAL AND ADMINISTRATIVE EXPENSES....... 4,047,524 5,258,389 8,113,780
OTHER EXPENSE (INCOME).................... 0 0 (851,862)
----------- ----------- -----------
Income before income taxes.............. 4,322,301 5,252,624 8,912,809
INCOME TAXES.............................. 83,005 188,650 3,148,343
----------- ----------- -----------
Net income.............................. $ 4,239,296 $ 5,063,974 $ 5,764,466
=========== =========== ===========
PRO FORMA INCOME DATA (UNAUDITED):
Net income as reported.................. $ 5,063,974 $ 5,764,466
Pro forma adjustments................... (1,964,926) (505,909)
----------- -----------
Pro forma net income.................. $ 3,099,048 $ 5,258,557
=========== ===========
PRO FORMA BASIC EARNINGS PER SHARE........ $ 0.31 $ 0.52
=========== ===========
PRO FORMA DILUTED EARNINGS PER SHARE...... $ 0.30 $ 0.51
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE>
LECG, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
NOTES AND
INTEREST
COMMON STOCK ADDITIONAL RECEIVABLE
------------------- PAID-IN FROM RETAINED
SHARES AMOUNT CAPITAL SHAREHOLDERS EARNINGS TOTAL
---------- ------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 9,083,119 $ 9,083 $ 981,933 $ (642,667) $5,191,000 $ 5,539,349
Net Income............. 4,239,296 4,239,296
Distributions to
shareholders.......... (3,344,644) (3,344,644)
Sale of common shares.. 1,435,304 1,435 1,572,378 (982,930) 590,883
Repurchase of common
shares................ (599,828) (600) (3,400) (800,268) (804,268)
Accrued interest on
notes receivable from
shareholders.......... 77,957 (77,957)
Collection of notes
receivable from
shareholders.......... 127,562 127,562
---------- ------- ----------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1995................... 9,918,595 9,918 2,628,868 (1,575,992) 5,285,384 6,348,178
Net income............. 5,063,974 5,063,974
Distributions to
shareholders.......... (4,901,995) (4,901,995)
Sale of common shares.. 985,433 985 2,318,130 (1,619,174) 699,941
Repurchase of common
shares................ (889,032) (889) (519) (1,249,817) (1,251,225)
Accrued interest on
notes receivable from
shareholders.......... 154,740 (154,740)
Collection of notes
receivable from
shareholders.......... 466,926 466,926
Shareholder advances... (162,189) (162,189)
---------- ------- ----------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1996................... 10,014,996 10,014 5,101,219 (3,045,169) 4,197,546 6,263,610
Net income............. 5,764,466 5,764,466
Distributions to
shareholders.......... (4,851,343) (4,851,343)
S corporation
distribution declared. (5,356,566) (5,356,566)
Sale of common shares
before IPO............ 214,224 214 466,336 (87,014) 379,536
Proceeds from sale of
common shares, net of
IPO costs and
adjustments........... 3,060,000 3,060 23,725,030 676,588 24,404,678
Repurchase of common
shares................ (261,353) (260) (311,236) 43,860 (228,430) (496,066)
Accrued interest on
notes receivable from
shareholders.......... 195,100 (195,100)
Collection of notes
receivable from
shareholders.......... 879,420 879,420
Shareholder advances... (350,723) (350,723)
---------- ------- ----------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1997................... 13,027,867 $13,028 $29,176,449 $(2,754,726) $ 202,261 $26,637,012
========== ======= =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
LECG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $4,239,296 $ 5,063,974 $ 5,764,466
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 340,245 435,163 687,204
Bad debt expense...................... 100,584 358,374 198,782
Expiration of deferred purchase
option............................... 0 0 (851,862)
Deferred income taxes................. 0 0 2,703,205
Loss on disposal of property and
equipment............................ 15,335 26,186 127,443
Decrease (increase) in accounts
receivable........................... 61,759 (1,882,338) (5,349,901)
Decrease (increase) in prepaid
expenses and security deposits....... 15,347 (90,114) (768,248)
Increase (decrease) in accounts
payable and accrued liabilities...... (110,077) 311,635 1,585,685
Increase (decrease) in accrued expert
and project origination fees......... (572,888) 1,130,449 1,829,328
Increase in client retainers.......... 73,065 138,311 53,084
Increase (decrease) in income taxes
payable.............................. 9,353 (4,218) 156,318
Increase in other liabilities......... 10,069 140,091 652,776
---------- ----------- -----------
Net cash provided by operating
activities.......................... 4,182,088 5,627,513 6,788,280
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...... (563,358) (1,080,333) (2,606,796)
Proceeds from disposal of property and
equipment.............................. 2,700 6,323 14,760
---------- ----------- -----------
Net cash used in investing
activities.......................... (560,658) (1,074,010) (2,592,036)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit......... 0 2,206,380 4,527,632
Repayments on line of credit............ 0 (2,206,380) (4,527,632)
Sale of common shares................... 590,883 699,941 24,784,214
Repurchase of common shares............. (804,268) (1,251,225) (496,066)
Shareholder advances.................... 0 (162,189) (350,723)
Collection of notes receivable from
shareholders........................... 0 121,923 175,289
Distributions to shareholders........... (3,217,082) (4,556,992) (4,147,212)
---------- ----------- -----------
Net cash provided by (used in)
financing activities................ (3,430,467) (5,148,542) 19,965,502
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.......... 190,963 (595,039) 24,161,746
CASH AT BEGINNING OF PERIOD.............. 406,965 597,928 2,889
---------- ----------- -----------
CASH AT END OF PERIOD.................... $ 597,928 $ 2,889 $24,164,635
========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................. $ 2,535 $ 12,008 $ 17,603
========== =========== ===========
Cash paid for state income taxes........ $ 73,652 $ 200,488 $ 280,620
========== =========== ===========
NONCASH FINANCING ACTIVITIES:
Sale of common stock through issuance of
notes.................................. $ 982,930 $ 1,619,174 $ 87,014
========== =========== ===========
Collection of notes receivable through
application of distributions........... $ 127,562 $ 345,003 $ 704,131
========== =========== ===========
S corporation distribution declared..... $ 0 $ 0 $ 5,356,566
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS:
The accompanying consolidated financial statements present the consolidated
financial position and results of operations of LECG, Inc. (the "Company")
(formerly Law and Economics Consulting Group, Inc.), a California corporation
formed in March 1988, and its wholly owned subsidiaries: LECG Limited (United
Kingdom) and LECG Limited (also known as Law and Economics Consulting Group,
Limited), (New Zealand).
The Company is a provider of economic consulting services in matters related
to complex litigation, regulation, public policy and strategic management and
derives its revenues almost exclusively therefrom. The Company provides its
economic consulting services to a broad client base, which includes national
governments, regulatory agencies, and development institutes and agencies in
the United States and abroad. Services are provided by academics, industry
leaders and former high-level government officials (Experts), who are
supported by professional staff. The Company has offices in the United States
in California, Washington, D.C., Illinois, New York, Texas, Utah and
Massachusetts, as well as Toronto, Canada; Wellington, New Zealand; London,
United Kingdom; Brussels, Belgium; and Toulouse, France.
On December 18, 1997, the Company completed an initial public offering of
its common stock in which 3,060,000 shares were sold by the Company, resulting
in net proceeds of approximately $24.4 million, net of underwriters' discounts
and issuance costs of approximately $3.1 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RISKS AND UNCERTAINTIES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
The Company's ability to retain current business and to attract new business
is highly dependent on the business generation capabilities and consulting
reputation of its Experts and Professional Staff and on the quality of their
work performed for the Company. There is no assurance that these individuals
will perform at previous levels, or that they will remain with the Company. In
the event that these individuals do not perform at previous levels or do not
remain with the Company, the Company's business, operating results and
financial condition could be materially and adversely affected. Additionally,
the Company's future performance depends in large part on its ability to
attract, develop and motivate highly-skilled Experts and Professional Staff.
The failure to recruit a significant number of Experts or qualified
Professional Staff could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's services involve risks of professional and other liability. If
the Company were found to have been negligent or to have breached its
obligations to its clients, the Company could be exposed to significant
liabilities and its reputation could be adversely affected.
REVENUE RECOGNITION
Revenue is recognized when services are provided. An allowance is provided
for any amounts considered uncollectible. Amounts collected in advance of
providing services are recorded as client retainers.
The Company bills clients for hourly fees as well as reimbursable expenses.
Reimbursable expenses consist of direct out-of-pocket costs, telecommunication
charges and in-house reproduction services. In providing consulting services
to its clients, the Company engages Experts on both an exclusive and
nonexclusive basis. Once billings related to a specific job are collected,
these Experts are generally paid consulting fees for Expert services provided.
F-25
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Project origination fees are paid to Experts (some of whom are related
parties) for securing projects. These project origination fees approximate 15
percent of all collected Professional Staff fees (other than Expert fees) and
depend on project profitability. These project origination fees are recorded
on an accrual basis, but are paid to the Experts only upon collection of the
project receivables.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of furniture,
fixtures and equipment is calculated using the straight-line method over the
estimated useful lives of the assets, generally five to seven years. Leasehold
improvements are amortized over the estimated useful lives of the assets or
the lease term, whichever is shorter.
INCOME TAXES
Prior to its initial public offering, the Company elected to be taxed under
Subchapter S of the Internal Revenue Code of 1986, as amended (S Corporation)
for income tax purposes. Accordingly, the income of the Company was reported
on the individual income tax returns of its shareholders. Therefore, the
financial statements do not include a provision for federal (and some state)
income taxes prior to the closing of the public offering.
The Company's S Corporation status terminated in connection with the
Company's initial public offering, thereby subjecting the Company's income to
federal and certain other state income taxes at the corporate level.
Accordingly, the Company has applied the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and has
converted from a cash basis to accrual basis for tax purposes. Due to
temporary differences in recognition of revenue and expenses, income for
financial reporting purposes has exceeded income for income tax purposes. The
conversion to accrual basis along with these temporary differences resulted in
the recognition of a net deferred tax liability (and a corresponding one-time
charge to expense) of $2,703,205 as of December 31, 1997.
Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the consolidated 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.
Concurrent with the consummation of the initial public offering, the Company
declared a Subchapter S Corporation distribution of $5,356,566 to its existing
shareholders. A total of $1,726,225 of this distribution will be used to
reduce notes receivable from shareholders.
YEAR 2000 ISSUE
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are short-term and are carried at amounts
approximating their fair value.
F-26
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, USEFUL
--------------------- LIVES
1996 1997 (YEARS)
---------- ---------- ---------
<S> <C> <C> <C>
Furniture and fixtures...................... $ 674,396 $1,136,508 7
Equipment................................... 1,976,878 3,334,260 5
Leasehold improvements...................... 439,007 1,033,166 5-10
---------- ----------
3,090,281 5,503,934
Less: Accumulated depreciation and
amortization............................... 1,283,393 1,919,657
---------- ----------
$1,806,888 $3,584,277
========== ==========
</TABLE>
Depreciation and amortization expense was $340,245, $435,163 and $687,204
for the years ended December 31, 1995, 1996 and 1997, respectively. Costs of
repairs and maintenance of property and equipment are expensed as incurred.
4. ACCOUNTS RECEIVABLE:
At December 31, 1996 and 1997, the components of accounts receivable were as
follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Billed amounts..................................... $ 8,882,499 $12,347,736
Unbilled amounts................................... 2,546,388 4,391,687
Allowance for uncollectable accounts............... (300,000) (459,417)
----------- -----------
Total............................................ $11,128,887 $16,280,006
=========== ===========
</TABLE>
Unbilled amounts represent balances accrued by the Company for services that
have been performed but have not been billed to the customer. Billings are
generally done on a monthly basis for the prior month's services.
The activity in the allowance for uncollectable accounts for the years ended
December 31, 1995, 1996 and 1997, was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of period............... $ 200,000 $ 200,000 $300,000
Bad debt expense........................... 100,584 358,374 198,782
Charge-offs, net of recoveries............. (100,584) (258,374) (39,365)
--------- --------- --------
Balance at end of period..................... $ 200,000 $ 300,000 $459,417
========= ========= ========
</TABLE>
F-27
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LINE OF CREDIT:
The Company has a commercial line of credit with a bank that allows
borrowings up to $3,000,000, all of which was available at December 31, 1997.
The line is secured by receivables and fixed assets. The line expires May 31,
2000, and bears interest at the bank's prime rate, which was 8.5 percent at
December 31, 1997. The weighted average interest rate of borrowings under the
line of credit for the year ended December 31, 1996 and 1997, was 8.37 percent
and 8.49 percent, respectively. During 1995, no amounts were borrowed. The
line of credit agreement contains certain restrictive covenants, including
maintaining a ratio of liabilities to tangible net worth (as defined), among
other restrictions. The Company is currently in compliance with all
restrictive covenants.
The Company had outstanding letters of credit of $334,500 at December 31,
1997.
6. RETIREMENT BENEFITS:
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code. All employees with at least 90 days of employment are
eligible to participate. The Company has the option of matching a portion of
employee contributions to the plan on a current or retroactive basis. In 1997,
the Company matched 100 percent of employee contributions for the first 3
percent of salary, and 50 percent of employee contributions between 3 percent
and 5 percent of salary. A liability for matching contributions of $244,200 is
included in accounts payable and accrued liabilities at December 31, 1997.
7. SHAREHOLDERS' EQUITY:
STOCK PLANS PRIOR TO THE INITIAL PUBLIC OFFERING
Prior to the initial public offering, share sales were executed in
accordance with the First Amended Shareholders' Buy-Sell Agreement (the Buy-
Sell Agreement). At the discretion of the Board of Directors, new shares could
also be sold subject to the Policy for Option Program for High Performing LECG
Shareholder Principals (the Agreement).
Under the terms of the Buy-Sell Agreement, individuals were offered shares
by the Board of Directors at a formula price based on a multiple of earnings
plus equity. The Company financed up to 80 percent of the purchase price with
notes receivable. The notes were repaid out of subsequent distributions to the
shareholder. The interest rate charged on these notes was 7 percent for all
periods. Principal balances due to the Company under these notes were
$2,866,357 and $2,711,255 at December 31, 1996 and 1997, respectively. The
principal and interest earned on these notes were offset against shareholders'
equity in the consolidated statements of shareholders' equity.
At the discretion of the Board of Directors and under the terms of the Buy-
Sell Agreement, shareholders were sometimes required to sell shares back to
the Company. The Company had the right of first refusal for any shares offered
for sale by a selling shareholder. Any repurchases were made at a formula
price specified in either the Buy-Sell Agreement or the Agreement. Balances
due on notes receivable were offset against the repurchase proceeds and the
remainder is remitted to the selling shareholder.
These agreements were terminated prior to the initial public offering of the
Company's shares.
F-28
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK TRADING RESTRICTIONS
All shareholders prior to the initial public offering have entered into
contractual "lock-up" agreements providing that they will not offer, sell,
contract to sell, or grant any option to purchase or otherwise dispose of the
shares of common stock owned by them for a period of 180 days after the date
of the initial public offering. In addition, the Company and its shareholders
(immediately prior to this offering) are parties to the Amended and Restated
Shareholders' Agreement, dated as of December 18, 1997, which provides, in
part, (i) that each such shareholder will not transfer such shareholders'
shares of common stock to an unaffiliated third party without the Company's
consent and (ii) the Company has the right to repurchase each such
shareholder's shares of common stock at one-half of the then current market
price of the shares if such shareholder ceases to provide services on a
regular basis to the Company. The Company's repurchase right lapses ratably
(at 20% per year) over a period of five years starting on December 18, 1998.
SHARE SPLIT
During October 1997, the Company amended its articles of incorporation,
effecting a 2,142.2451-for-one share split of the Company's common shares,
assigning a par value of $.001 per common share, and increasing the number of
authorized common shares to 40,000,000. The Company also authorized 5,000,000
preferred shares. The accompanying financial statements and notes thereto have
been adjusted retroactively to give effect to the aforementioned actions.
STOCK OPTIONS
In April 1994, the Company granted options to the chairman of the Board of
Directors to purchase up to 342,759 common shares at $2.09 per share, which
was estimated fair value at the time. Of these options, 171,380 were
exercisable upon grant, with the remaining shares exercisable in April 1997.
Any unexercised options would expire at that time. During 1996, 171,379 of
these options were exercised. The remaining options were exercised in April
1997.
In October 1997, the Board of Directors and shareholders approved the
Company's 1997 Stock Option Plan (the Option Plan). The Option Plan provides
for the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code), and for the granting to employees, directors and consultants of
nonstatutory stock options and stock purchase rights (SPRs). Unless terminated
sooner, the Option Plan will terminate automatically in 2007. A total of
1,500,000 shares of common stock are currently authorized pursuant to the
Option Plan. During December 1997, 629,000 stock options were granted under
the Option Plan to employees and members of the Board of Directors with an
exercise price of $9, the initial public offering price. Twenty-five percent
of these options vest on July 1, 1998, six months after the commencement date,
with an additional 25 percent vesting at the end of each 12-month period
thereafter, subject to the optionee's continuing to be an employee on such
dates. All of the options expire in five years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations in accounting for its employee stock options. Under APB No.
25, because the exercise price of employee stock options equals the market
price of the underlying stock at the date of grant, no compensation expense is
recorded. The Company has adopted the disclosure-only provisions of SFAS No.
123.
F-29
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the transactions of the Company's Option
Plan:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
NUMBER AVERAGE FAIR
OF EXERCISE VALUE AT
SHARES PRICE GRANT
------- -------- --------
<S> <C> <C> <C>
Options outstanding December 31, 1996.............. 0
Options granted.................................. 629,000 $ 9 $13.05
Options exercised................................ 0
Options forfeited................................ 0
-------
Options outstanding December 31, 1997.............. 629,000
=======
</TABLE>
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS
VESTINGS IN
----------------
1998-99 2000-01
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.69% 5.74%
Dividend yield............................................. 0 0
Volatility factor.......................................... 55.2% 55.2%
Weighted average expected life............................. 3 years 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma
information is as follows:
<TABLE>
<CAPTION>
PRO FORMA WITH
COMPENSATION
PRO FORMA AS EXPENSE FROM FAIR
REPORTED VALUE OPTIONS
------------ -----------------
<S> <C> <C>
Net income.................................... $5,258,557 $5,233,491
Basic earnings per share...................... $ 0.52 $ 0.51
Diluted earnings per share.................... $ 0.51 $ 0.51
</TABLE>
Because SFAS No. 123 provides for the amortization of compensation expense
for options, pro forma expense will likely increase in future years as new
option grants are made by the Company and become subject to the disclosure
requirements of SFAS No. 123.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was adopted by the Board of Directors and the shareholders in October 1997. A
total of 500,000 shares of common stock have been reserved for issuance under
the Stock Purchase Plan. The Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. The Stock Purchase Plan is
administered by the Board of Directors or by a committee appointed by the
Board. The price of shares purchased under the Stock Purchase Plan is 85
percent of the lower of the fair market value of the common shares at the
beginning of the offering period or at the end of the relevant purchase
period. The Stock Purchase Plan will terminate in October 2007. No shares were
issued under the Stock Purchase Plan in 1997, and $41,133 was collected from
employees for future purchases.
F-30
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTY TRANSACTIONS:
Included in shareholders' equity are notes receivable from shareholders
arising from the sale of common shares prior to the initial public offering
(see Note 7), as well as other advances to shareholders. These amounts are
unsecured and due on or before December 31, 2002. The notes bear interest at 7
percent.
Related party cost of services and accrued Expert and project origination
fees represent Expert fees, project origination fees and other amounts paid or
owed to shareholders. These amounts are paid when the related project
receivables have been collected.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and certain equipment under
operating leases through the year 2007.
Future minimum rental payments under these noncancellable leases with
initial or remaining lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 2,269,000
1999............................................................ 2,281,422
2000............................................................ 2,389,478
2001............................................................ 2,510,740
2002............................................................ 1,906,816
Thereafter...................................................... 2,479,500
-----------
Total minimum lease payments.................................. $13,836,956
===========
</TABLE>
Rent expense was $978,113, $1,077,530 and $1,843,839 for the years ended
December 31, 1995, 1996 and 1997, respectively.
10. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
PRO FORMA ADJUSTMENTS TO CONSOLIDATED FINANCIAL STATEMENTS
The pro forma consolidated statements of income have been adjusted to
reflect a provision for income taxes assuming an effective tax rate of 41
percent that would have been recorded had the Company been a C Corporation for
all periods presented.
Other income in 1997 (see Note 12) is not expected to be recurring, although
it is included in pro forma net income and pro forma earnings per share. If
this item had not occurred, pro forma net income would be $4,755,959 and pro
forma basic and pro forma diluted earnings per share would be $0.47 and $0.46,
respectively.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share (EPS) are computed using the weighted average
common shares outstanding at each reporting date. In accordance with
Securities and Exchange Commission requirements, stock issued within a one-
year period prior to the initial filing of the registration relating to the
initial public offering has been treated as outstanding for all reporting
periods, using the treasury stock method.
F-31
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table reconciles the numerators and denominators of the basic
and diluted EPS computations:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
1996 1997
----------------------------------- -----------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS: pro forma
income available to
common shareholders... $3,099,048 10,006,036 $0.31 $5,258,557 10,210,783 $0.52
========== ========== ===== ========== ========== =====
Effect of dilutive
securities: stock
options............... 0 238,599 0 37,865
Diluted EPS: income
available to common
shareholders assumed
conversions........... $3,099,048 10,244,635 $0.30 $5,258,557 10,248,648 $0.51
========== ========== ===== ========== ========== =====
</TABLE>
Options to purchase 629,000 shares of common stock at $9 per share were
granted in the last quarter of 1997 but were not included in the computation
of diluted EPS because the options' exercise price was equal to or greater
than the average market price (and IPO price) of the common shares. The
options expire on December 31, 2002.
11. INCOME TAXES:
The Company's S Corporation status terminated in connection with the
Company's initial public offering, thereby subjecting the Company's income to
federal income taxes at the corporate level. The Company accounts for income
taxes in accordance with the provisions of SFAS No. 109. Except for the effect
of the reversal of net deductible temporary differences, the Company is not
aware of any significant differences between book and taxable income in future
years.
Prior to the initial public offering, the Company elected Subchapter S
Corporation status for income tax purposes. Accordingly, the income of the
Company was reported on the individual income tax returns of its shareholders.
The financial statements, therefore, do not include a provision for income
taxes prior to the closing of the public offering.
The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes follows:
<TABLE>
<S> <C>
C Corporation income before taxes for the 14-day period ended
December 31, 1997............................................. $ 342,811
Net taxable temporary differences.............................. (27,206)
----------
Book taxable income as a C Corporation......................... $ 315,605
----------
C Corporation income taxes at the statutory rate............... $107,306
C Corporation state taxes, net of federal benefit.............. 22,092
Deferred tax provision for C Corporation....................... 11,154
S Corporation income taxes..................................... 315,740
Provision for change in tax status to C Corporation............ 2,692,051
----------
Provision for income taxes..................................... $3,148,343
==========
</TABLE>
F-32
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The provision for income taxes as shown in the accompanying consolidated
statements of income include the following components:
<TABLE>
<S> <C>
Current provision:
Federal........................................................ $ 107,306
State.......................................................... 337,832
----------
Total current provision...................................... 445,138
Deferred taxes for C Corporation................................. 11,154
Termination of S Corporation status.............................. 2,692,051
----------
Total provision for income taxes............................. $3,148,343
==========
</TABLE>
The components of the deferred tax liability are as follows:
<TABLE>
<CAPTION>
NON-
CURRENT CURRENT TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Depreciation.................................. $171,340 -- $ 171,340
481(a) Adjustment............................. 743,955 1,787,910 2,531,865
-------- ---------- ----------
$915,295 $1,787,910 $2,703,205
======== ========== ==========
</TABLE>
The 481(a) Adjustment represents the cumulative timing differences resulting
from the Company's conversion from cash basis to accrual basis of accounting
for tax purposes concurrent with its conversion of S Corporation to C
Corporation status.
12. OTHER INCOME-DEFERRED PURCHASE OPTION DEPOSIT:
In June 1993, another major consulting firm purchased from the Company an
option to buy all of the Company's assets at a formula price based on a
multiple of earnings and equity. The Company received $1,000,000 for granting
this option, which was deferred in the consolidated balance sheet, net of
applicable expenses. During 1997, the option agreement expired and the Company
recognized the $851,862 as other income in 1997.
F-33
<PAGE>
LECG, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $21,865 $24,165
Accounts receivable, net............................ 20,870 16,280
Prepaid expenses.................................... 1,081 841
------- -------
Total current assets.......................... 43,816 41,286
Security deposits..................................... 246 186
Property and equipment, net........................... 4,336 3,584
------- -------
Total assets.................................. $48,398 $45,056
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities.......... $ 2,105 $ 2,216
Accrued expert and project origination fees:
Related party................................... 5,388 3,553
Other........................................... 4,866 2,953
Client retainers.................................. 619 551
Income taxes payable.............................. 1,454 262
Deferred tax liability............................ 703 915
Distribution payable.............................. 0 5,357
Other current liabilities......................... 877 824
------- -------
Total current liabilities..................... 16,012 16,631
Deferred tax liability............................ 1,788 1,788
------- -------
Total liabilities............................. 17,800 18,419
Shareholders' equity:
Common shares, $.001 par value; authorized
40,000,000 shares; issued and outstanding,
13,027,867 shares as of March 31, 1998 and December
31, 1997........................................... 13 13
Additional paid-in capital.......................... 29,193 29,177
Notes receivable from shareholders.................. (611) (2,755)
Retained earnings................................... 2,003 202
------- -------
Total shareholders' equity.................... 30,598 26,637
------- -------
Total liabilities and shareholders' equity.... $48,398 $45,056
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-34
<PAGE>
LECG, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues.................................................... $ 15,780 $ 9,901
Cost of services:
Related party............................................. 2,489 2,206
Other..................................................... 7,563 4,440
--------- --------
Total cost of services.................................. 10,052 6,646
Gross profit............................................ 5,728 3,255
General and administrative expenses......................... 2,868 1,415
Interest income............................................. 193 0
--------- --------
Income before income taxes.............................. 3,053 1,840
Income taxes................................................ 1,252 64
--------- --------
Net income.............................................. $ 1,801 $ 1,776
========= ========
Pro forma income data:
Net income as reported.................................... $ 1,801 $ 1,776
Pro forma adjustments..................................... 0 (690)
--------- --------
Pro forma net income.................................... $ 1,801 $ 1,086
========= ========
Pro forma basic earnings per share.......................... $ 0.14 $ 0.11
========= ========
Pro forma diluted earnings per share........................ $ 0.14 $ 0.11
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE>
LECG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,801 $ 1,776
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 236 136
Bad debt expense......................................... 12 0
Loss on disposal of property and equipment............... 1 0
Increase in accounts receivable.......................... (4,602) (1,175)
Increase in prepaid expenses and security deposits....... (300) (12)
(Decrease) increase in accounts payable and accrued
liabilities............................................. (111) 346
Increase in accrued expert and project origination fees.. 3,748 1,432
Increase in client retainers............................. 68 54
Decrease in deferred tax liability....................... (212) 0
Increase (decrease) in income taxes payable.............. 1,192 (39)
Increase in other current liabilities.................... 53 4
------- -------
Net cash provided by operating activities.............. 1,886 2,522
Cash flows from investing activities:
Purchase of property and equipment......................... (990) (276)
Proceeds from the disposal of property and equipment....... 1 1
------- -------
Net cash used in investing activities.................. (989) (275)
Cash flows from financing activities:
Borrowing under line of credit............................. 0 297
Repayments on line of credit............................... 0 (297)
Sale of common shares...................................... 0 22
Shareholder advances....................................... (168) 0
Collection of notes receivable from shareholders........... 664 120
Distributions to shareholders.............................. (3,693) (1,937)
------- -------
Net cash used in financing activities.................. (3,197) (1,795)
------- -------
Net (decrease) increase in cash.............................. (2,300) 452
Cash at beginning of period.................................. 24,165 3
------- -------
Cash at end of period........................................ $21,865 $ 455
======= =======
Supplemental cash flow information:..........................
Cash paid for interest..................................... $ 1 $ 1
======= =======
Cash paid for income taxes................................. $ 272 $ 95
======= =======
Noncash financing activities:
Sale of common shares through issuance of notes............ $ 0 $ 87
======= =======
Collection of notes through application of distributions... $ 1,664 $ 305
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE>
LECG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL INFORMATION
The accompanying Consolidated Financial Statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in management's opinion, include all adjustments
necessary for a fair statement of results for such interim periods. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules or
regulations; however, the Company believes that the disclosures made are
adequate to make the information presented not misleading.
The interim results for the three months ended March 31, 1998 and 1997 are
not necessarily indicative of results for the full year. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1997 included elsewhere herein.
2. PRO FORMA FINANCIAL INFORMATION:
Pro Forma Adjustments To Consolidated Financial Statements
The pro forma consolidated statements of income have been adjusted to
reflect a provision for income taxes assuming an effective tax rate of 41
percent that would have been recorded had the Company been a C Corporation for
all periods presented.
Pro Forma Earning Per Share
Pro forma earnings per share (EPS) are computed using the weighted average
common shares outstanding at each reporting date. The following table
reconciles numerators and denominators of the basic and diluted EPS
computations:
<TABLE>
<CAPTION>
EFFECT OF DILUTIVE
----------------------------------
SECURITIES--
BASIC OPTIONS DILUTED
---------- ------------ ----------
<S> <C> <C> <C> <C>
Three Months Ended: March 31, 1998 13,027,867 94,884 13,122,751
March 31, 1997 10,057,841 131,626 10,189,467
</TABLE>
3. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and certain equipment under
operating leases through the year 2007.
Future minimum rental payments under noncancellable leases with initial or
remaining lease terms in excess of one year are $2,444,214, $2,581,788,
$2,689,844, $2,811,106, $2,207,182 and $2,604,653 in 1998, 1999, 2000, 2001,
2002 and thereafter.
F-37
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE METZLER GROUP, INC.
A DELAWARE CORPORATION,
MGI ACQUISITION CORP.
A DELAWARE CORPORATION,
AND
LECG, INC.
A CALIFORNIA CORPORATION
DATED AS OF JULY 1, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
DEFINITIONS............................................................... 1
1. THE MERGER............................................................ 4
1.1. EFFECTIVE TIME OF THE MERGER................................... 4
1.2. CLOSING........................................................ 4
1.3. EFFECTS OF THE MERGER.......................................... 4
1.4. DIRECTORS AND OFFICERS......................................... 5
2. CONVERSION OF SECURITIES.............................................. 5
2.1. CONVERSION OF CAPITAL STOCK.................................... 6
2.2. EXCHANGE OF CERTIFICATES....................................... 6
2.3. DISSENTERS' RIGHTS............................................. 8
3. REPRESENTATIONS AND WARRANTIES OF LECG................................ 8
3.1. ORGANIZATION................................................... 8
3.2. LECG CAPITAL STRUCTURE......................................... 8
3.3. AUTHORITY AND STATUS........................................... 9
3.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS..................... 10
3.5. SEC FILINGS; FINANCIAL STATEMENTS.............................. 10
3.6. INTENTIONALLY OMITTED.......................................... 11
3.7. ABSENCE OF CERTAIN CHANGES OR EVENTS........................... 11
3.8. RESTRICTIONS ON BUSINESS ACTIVITIES............................ 11
3.9. TAXES.......................................................... 11
3.10. INTELLECTUAL PROPERTY.......................................... 12
3.11. AGREEMENTS, CONTRACTS AND COMMITMENTS.......................... 13
3.12. OWNERSHIP OF ASSETS............................................ 14
3.13. LITIGATION..................................................... 15
3.14. INTENTIONALLY OMITTED.......................................... 15
3.15. EMPLOYEES; EMPLOYMENT MATTERS.................................. 15
3.16. EMPLOYEE BENEFIT PLANS......................................... 16
3.17. LICENSES AND PERMITS; COMPLIANCE WITH LAW...................... 16
3.18. INTENTIONALLY OMITTED.......................................... 16
3.19. RELATED PARTIES................................................ 16
3.20. POOLING OF INTERESTS........................................... 16
3.21. COMPLETE DISCLOSURE............................................ 16
3.22. NO SPECIAL STOCKHOLDER RIGHTS.................................. 17
3.23. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS............. 17
3.24. INTENTIONALLY OMITTED.......................................... 17
3.25. INTENTIONALLY OMITTED.......................................... 17
3.26. SUPPLIERS AND CLIENTS.......................................... 17
3.27. WARRANTY; UNBILLABLE WORK...................................... 17
3.28. YEAR 2000 COMPLIANCE........................................... 17
4. REPRESENTATIONS AND WARRANTIES OF METZLER AND SUB..................... 18
4.1. ORGANIZATION................................................... 18
4.2. METZLER CAPITAL STRUCTURE...................................... 18
4.3. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.......... 19
4.4. SEC FILINGS; FINANCIAL STATEMENTS.............................. 19
4.5. ABSENCE OF CERTAIN CHANGES OR EVENTS........................... 20
4.6. LITIGATION..................................................... 20
</TABLE>
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4.7. LICENSES AND PERMITS; COMPLIANCE WITH LAW...................... 20
4.8. POOLING OF INTERESTS........................................... 20
4.9. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS............. 20
4.10. COMPLETE DISCLOSURE............................................ 21
5. CONDUCT OF BUSINESS................................................... 21
5.1. COVENANTS OF LECG.............................................. 21
5.2. COOPERATION.................................................... 22
5.3. POOLING TREATMENT.............................................. 22
6. ADDITIONAL AGREEMENTS................................................. 23
6.1. NO SOLICITATION................................................ 23
6.2. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT............. 23
6.3. CONSENTS....................................................... 24
6.4. ACCESS TO INFORMATION.......................................... 24
6.5. STOCKHOLDERS MEETINGS.......................................... 24
6.6. LEGAL CONDITIONS TO MERGER..................................... 24
6.7. PUBLIC DISCLOSURE.............................................. 24
6.8. TAX-FREE REORGANIZATION........................................ 25
6.9. POOLING ACCOUNTING............................................. 25
6.10. LETTERS FROM ACCOUNTANTS....................................... 25
6.11. UPDATE DISCLOSURE; BREACHES.................................... 25
6.12. AFFILIATE LETTER............................................... 25
6.13. NASDAQ QUOTATION............................................... 26
6.14. EMPLOYEES...................................................... 26
6.15. BROKERS OR FINDERS............................................. 26
6.16. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 26
6.17. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS...................... 26
6.18. STOCK OPTION AGREEMENTS........................................ 27
6.19. TRADING PROHIBITIONS........................................... 27
6.20. VOTING AGREEMENT AND REGISTRATION RIGHTS AGREEMENT............. 27
6.21. RESERVING OF METZLER COMMON STOCK.............................. 27
6.22. DELIVERY OF LECG DISCLOSURE SCHEDULE........................... 27
7. CONDITIONS TO MERGER.................................................. 27
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..... 27
7.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF METZLER................ 28
7.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF LECG................... 28
7.4. CLOSING........................................................ 29
8. TERMINATION AND AMENDMENT 30
8.1. TERMINATION.................................................... 30
8.2. EFFECT OF TERMINATION.......................................... 31
8.3. FEES AND EXPENSES.............................................. 31
8.4. AMENDMENT...................................................... 32
8.5. EXTENSION; WAIVER.............................................. 32
9. MISCELLANEOUS......................................................... 32
9.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...... 32
9.2. NOTICES........................................................ 33
9.3. INTERPRETATION................................................. 33
</TABLE>
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9.4. COUNTERPARTS................................................... 33
9.5. GOVERNING LAW.................................................. 34
9.6. ASSIGNMENT..................................................... 34
9.7. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES................. 34
9.8. NO AGREEMENT UNTIL EXECUTED.................................... 34
9.9. SEVERABILITY................................................... 34
9.10. EXHIBITS AND SCHEDULES INCORPORATED............................ 34
9.11. TIME OF ESSENCE................................................ 34
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-- Form of Affiliates Letter
Exhibit B-- Form of Metzler Tax Representation Letter
Exhibit C-- Form of LECG Tax Representation Letter
Schedule 1.4 -- Officers of LECG after the Consummation of the Merger
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 1, 1998 (this "AGREEMENT") by
and among The Metzler Group, Inc., a Delaware Corporation ("METZLER"), MGI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Metzler ("SUB"), and LECG, Inc. a California corporation ("LECG").
RECITALS
A. The Boards of Directors of Metzler, Sub and LECG deem it advisable and in
the best interests of each corporation and its respective stockholders or
shareholders, as applicable, that Metzler and LECG combine in order to advance
the long-term business strategies, goals and interests of Metzler and LECG;
B. The combination of Metzler and LECG shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
LECG, LECG will be the surviving corporation and will become a wholly-owned
subsidiary of Metzler, and the shareholders of LECG will become shareholders
of Metzler (the "MERGER");
C. The parties mutually intend that this Agreement will constitute a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE"), and mutually intend for the Merger to
qualify as a reorganization under the provisions of Section 368 of the Code;
and
D. The parties intend to cause the Merger to be accounted for as a pooling
of interests pursuant to APB Opinion No. 16, Staff Accounting Series Releases
130, 135 and 146 and Staff Accounting Bulletins Topic Two.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
DEFINITIONS
"BUSINESS DAY" means a Monday through Friday on which banks are generally
open for business in Illinois and California.
"ERISA AFFILIATE" shall mean any corporation or other business entity that
is included in a controlled group of corporations within which LECG is also
included, as provided in Section 414(b) of the Code; or which is a trade or
business under common control with LECG, as provided in Section 414(c) of the
Code; or which constitutes a member of an affiliated service group within
which LECG is also included, as provided in Section 414(m) of the Code; or
which is required to be aggregated with LECG pursuant to regulations issued
under Section 414(o) of the Code. All ERISA Affiliates are listed in the LECG
Disclosure Schedule.
"GAAP" means generally accepted accounting principles as in effect from time
to time, applied consistently with the principles used in preparing financial
statements of the respective party.
"INDEBTEDNESS" of any Person means all obligations of such Person which in
accordance with GAAP should be classified upon a balance sheet of such Person
as liabilities of such Person, and in any event, regardless of how classified
in accordance with GAAP, shall include: (i) all obligations of such Person for
borrowed money or which have been incurred in connection with the purchase of
property or assets; (ii) obligations secured by any Security Interest upon
property or assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations; (iii)
obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the seller, lender or
lessor under such agreement in the event of default are limited to
repossession or sale of the property; and (iv) that portion of capitalized
lease obligations properly classified as a liability on a balance sheet in
accordance with GAAP.
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"LECG MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, employee or client relations, properties, assets
(including intangible assets), liabilities (contingent or otherwise),
financial condition or results of operations of LECG and its Subsidiaries
taken as a whole.
"LIABILITY" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to
become due), obligation or Indebtedness, including, any liability for Taxes.
"METZLER MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, employee or client relations, properties, assets
(including intangible assets), liabilities (contingent or otherwise),
financial condition or results of operations of Metzler.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of LECG
and its Subsidiaries, consistent with past custom and practice of LECG and its
Subsidiaries (including with respect to quantity and frequency).
"PERSON" means any individual, trust, corporation, partnership, limited
partnership, limited liability company or other business association or
entity, court, governmental body or governmental agency.
"PLANS" means: (i) all employee benefit plans as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) all other severance pay, deferred compensation, excess benefit, vacation,
stock, stock option, fringe benefit and incentive plans, contracts, schemes,
programs, funds, commitments, or arrangements of any kind; and (iii) all other
plans, contracts, schemes, programs, funds, commitments, or arrangements
providing money, services, property, or other benefits, whether written or
oral, formal or informal, qualified or nonqualified, funded or unfunded, and
including any that have been frozen or terminated, which pertain to any
employee, former employee, director, officer, shareholder, consultant, or
independent contractor of LECG or any ERISA Affiliate of LECG and (i) to which
LECG or any ERISA Affiliate of LECG is or has been a party or by which any of
them is or has been bound or (ii) with respect to which LECG or any ERISA
Affiliate of LECG has made any payments or contributions since December 31,
1987 or (iii) to which LECG or any ERISA Affiliate of LECG may otherwise have
any Liability (including any such plan or arrangement formerly maintained by
LECG or any ERISA Affiliate of LECG).
"SECURITY INTEREST" means any mortgage, pledge, security interest, charge,
lien or other encumbrance or right of any third party.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity, whether incorporated or unincorporated, of which (i) such Person or
any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person
or any Subsidiary of such Person do not have a majority of the voting interest
in such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries.
"TAX" or "TAXES" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any Liability for taxes of a predecessor entity.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----- ---------------
<S> <C>
Affiliate....................................................... Section 6.12
Affiliate Letter ............................................... Section 6.12
Alternative Transaction......................................... Article 8
Approval........................................................ Section 6.6
Assumed Option.................................................. Section 2.1(d)
California Department........................................... Section 1.1
Certificate(s).................................................. Section 2.2(b)
Certificates of Merger.......................................... Section 1.1
CGCL............................................................ Section 1.1
Closing......................................................... Section 1.2
Closing Date.................................................... Section 1.2
Cobra........................................................... Article 3
Competing Offer................................................. Section 6.1
Confidentiality Agreement....................................... Section 6.1
Constituent Corporations........................................ Section 1.3
Delaware Department............................................. Section 1.1
DGCL............................................................ Section 1.1
Dissenters' Shares.............................................. Section 2.3
Dissenting Shareholders......................................... Section 2.3
Effective Time.................................................. Section 1.1
Exchange Act.................................................... Section 3.4(b)
Exchange Agent.................................................. Section 2.2(a)
Exchange Fund................................................... Section 2.2(a)
Existing Option................................................. Section 2.1(d)
Final LECG Purchase Date........................................ Article 2
Government Entity............................................... Section 3.4(b)
Include......................................................... Section 9.3
Include without Limitation...................................... Section 9.3
Indemnified Parties............................................. Section 6.16
Latest Balance Sheet............................................ Section 3.5(c)
LECG Balance Sheet.............................................. Section 3.5(b)
LECG Common Stock............................................... Section 3.2(a)
LECG Disclosure Schedule........................................ Article 3
LECG Expenses................................................... Section 8.3(d)
LECG Insiders................................................... Section 6.20
LECG Intellectual Property Rights............................... 3.10(a)
LECG Preferred Stock............................................ Section 3.2(a)
LECG SEC Reports................................................ Section 3.5(a)
LECG Shareholders Meeting....................................... Section 3.23
LECG Stock Option Plan.......................................... Section 2.1(d)
LECG Stock Purchase Plan........................................ Article 2
Made Available.................................................. Section 9.3
Material Contracts.............................................. Article 3
Material Fix-Rate Engagements................................... Article 3
Metzler Balance Sheet........................................... Section 4.4(b)
Metzler Common Stock............................................ Section 4.2
Metzler Disclosure Schedule..................................... Article 4
Metzler Expenses................................................ Section 8.3(c)
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----- ---------------
<S> <C>
Metzler Option Plans............................................ Section 4.2
Metzler Preferred Stock......................................... Section 4.2
Metzler SEC Reports............................................. Section 4.4(a)
Metzler Stockholders Meeting.................................... Section 3.23
Preferred Proposal.............................................. Section 6.1
Proxy Statement................................................. Section 3.23
Registration Statement.......................................... Section 3.23
Rule 145........................................................ Section 6.12
SEC............................................................. Section 3.4(b)
Securities Act.................................................. Section 3.2(b)
Stockholders Meetings........................................... Section 3.23
Surviving Corporation........................................... Section 1.3
Systems......................................................... Section 3.28
The Date hereof................................................. Section 9.3
The Date of this Agreement...................................... Section 9.3
Third Party..................................................... Article 8
Y-2000 Compliant................................................ Section 3.28
</TABLE>
ARTICLE 1.
The Merger
1.1. Effective Time of The Merger. Subject to the provisions of this
Agreement, an abbreviated version of this Agreement meeting the requirements
of Section 1101 of the California General Corporation Law ("CGCL"), certified
by the president or any vice president and the secretary or assistant
secretary of each of Sub and LECG in accordance with Section 1103 of the CGCL,
and a certificate of merger prepared in accordance with Section 252 of the
Delaware General Corporation Law ("DGCL") (collectively, the "CERTIFICATES OF
MERGER") shall be duly prepared, executed and acknowledged by the Surviving
Corporation, (as defined in Section 1.3), Sub and such other parties as may be
appropriate, and thereafter the applicable Certificate of Merger shall be
delivered to the Secretary of State of the State of California (the
"CALIFORNIA DEPARTMENT"), as provided in Section 1103 of the CGCL, and the
Secretary of State of the State of Delaware ("DELAWARE DEPARTMENT"), in each
case for filing as soon as practicable on or after the date on which the
Closing (as defined in Section 1.2) occurs. The Merger shall become effective
on the date and at the time of the acceptance of the respective Certificates
of Merger by the California Department and the Delaware Department or at such
time thereafter as is provided in the Certificate of Merger (the "EFFECTIVE
TIME").
1.2. Closing. The closing of the Merger (the "CLOSING") will take place at
10:00 a.m., Central Time, on a date to be specified by Metzler and LECG, which
shall be no later than August 31, 1998 (the "CLOSING DATE"), at the offices of
Sachnoff & Weaver, Ltd., 30 South Wacker Drive, Suite 2900, Chicago, Illinois
60606, unless another date or place is agreed to in writing by Metzler and
LECG.
1.3. Effects of the Merger.
(a) At the Effective Time, (i) the separate existence of Sub shall cease
and Sub shall be merged with and into LECG (Sub and LECG are sometimes
referred to herein as the "CONSTITUENT CORPORATIONS" and LECG is sometimes
referred to herein as the "SURVIVING CORPORATION"), (ii) the Articles of
Incorporation of LECG as in effect immediately prior to the Effective Time
shall remain the Articles of Incorporation of the Surviving Corporation,
and (iii) the Bylaws of LECG as in effect immediately prior to the
Effective Time shall remain the Bylaws of the Surviving Corporation.
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(b) At and after the Effective Time, the effects of the Merger shall be
as provided in the applicable provisions of the CGCL and the DGCL. Without
limiting the generality of the foregoing, and subject thereto, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to
all the restrictions, disabilities and duties of each of the Constituent
Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent
Corporations on whatever account, as well as for stock subscriptions and
all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all
property, rights, privileges, powers and franchises, and all and every
other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations, shall not revert or be in any way impaired; but
all rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thereafter
attach to the Surviving Corporation, and may be enforced against it to the
same extent as if such debts and liabilities had been incurred by it.
1.4. Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation, and the officers of the Surviving
Corporation shall initially be the persons set forth on Schedule 1.4 hereto,
and all other officers of the Surviving Corporation as of the Effective Time,
in each case until their respective successors are duly elected or appointed.
ARTICLE 2.
Conversion of Securities
2.1. Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any shares of LECG
Common Stock (as defined in Section 3.2) or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock, $.01 per share, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Metzler-Owned Stock. Any shares of
LECG Common Stock that are owned by Metzler, Sub or any other wholly-owned
Subsidiary of Metzler shall be canceled and retired and shall cease to
exist and no stock of Metzler or other consideration shall be delivered in
exchange therefor.
(c) Conversion of LECG Common Stock. Subject to Section 2.3, each issued
and outstanding share of LECG Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the
right to receive 0.6 fully paid and nonassessable shares of Metzler Common
Stock (as defined in Section 4.2) (adjusted for any stock split or stock
dividend effected between the date of this Agreement and the Effective
Time). All shares of LECG Common Stock, when converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to
receive the shares of Metzler Common Stock and any cash in lieu of
fractional shares of Metzler Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance
with Section 2.2, without interest.
(d) LECG Stock Plans and Options. At the Effective Time, Metzler shall
assume LECG's rights and obligations under each of the outstanding options
previously granted under the stock option plan of LECG, as amended and
dated as of October, 1997 (the "LECG STOCK OPTION PLAN") (each such option
existing immediately prior to the Effective Time being called an "EXISTING
OPTION," and each such option so
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assumed by Metzler being called an "ASSUMED OPTION"), by which assumption
the optionee shall have the right to purchase that number of shares of
Metzler Common Stock (with any fractional share to be rounded down to the
nearest whole share) into which the number of shares of LECG Stock subject
to purchase under the Existing Option would be converted pursuant to the
terms of the Merger as described in Section 2.1(c) hereof. Each Assumed
Option shall constitute a continuation of the Existing Option, substituting
Metzler for LECG as issuer. The aggregate exercise price for the total
number of shares of Metzler Common Stock subject to the Assumed Option
shall be the aggregate exercise price at which the Existing Option was
exercisable for the total number of shares of LECG Common Stock, and the
purchase price per share of Metzler Common Stock thereunder shall be such
aggregate exercise price divided by the total number of whole shares of
Metzler Common Stock covered thereby (with any fraction of a cent to be
rounded up to the nearest whole cent); provided, however, that in the case
of any Existing Option to which Section 422 of the Code applies, the option
price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code. The assumption of the
Assumed Options by Metzler as provided in this Section 2.1(d) shall not,
except as provided herein, provide the holders thereof additional benefits
which they did not have immediately prior to the Effective Time or relieve
the holders thereof of any obligations or restrictions applicable to the
Assumed Options or the shares of Metzler Common Stock obtainable upon
exercise of the Assumed Options. Metzler shall take all corporate action
necessary to reserve and make available for issuance a sufficient number of
shares of Metzler Common Stock for delivery under the Assumed Options.
LECG shall take such action as is necessary to cause the ending date of the
then current offering period under the LECG Stock Purchase Plan (the "LECG
STOCK PURCHASE PLAN") to be the last trading day on which the LECG Common
Stock is traded on The New York Stock Exchange immediately prior to the
Effective Time (the "FINAL LECG PURCHASE DATE"); provided, that, such change
in the offering period shall be conditioned upon the consummation of the
Merger. On the Final LECG Purchase Date, LECG shall apply the funds credited
as of such date under the LECG Stock Purchase Plan within each participant's
payroll withholding account to the purchase of whole shares of LECG Common
Stock in accordance with the terms of the LECG Stock Purchase Plan.
Employees of LECG as of the Effective Time shall be permitted to participate
in the Metzler Stock Purchase Plan commencing on the first enrollment date of
such plan following the Effective Time, subject to the eligibility provisions
of such plan (with employees receiving credit, for purposes of such
eligibility provisions, for service with LECG or Sub).
2.2. Exchange of Certificates. The procedures for exchanging outstanding
shares of LECG Common Stock for Metzler Common Stock pursuant to the Merger
shall be as follows:
(a) Exchange Agent. As of the Effective Time, Metzler shall deposit with
American Stock Transfer and Trust Company (the "EXCHANGE AGENT"), for the
benefit of the holders of shares of LECG Common Stock, certificates
representing the shares of Metzler Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding shares of LECG Common Stock (such
shares of Metzler Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"EXCHANGE FUND").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of LECG Common Stock (each a "CERTIFICATE"
and, collectively, the "CERTIFICATES") and which shares were converted
pursuant to Section 2.1 into the right to receive shares of Metzler Common
Stock (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Metzler and LECG may
reasonably specify), (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of
Metzler Common Stock and (iii) the notice of approval of the Merger and
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accompanying statutory materials, information and instruction as required
by Section 1301(a) of the CGCL). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Metzler, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Metzler Common Stock which such holder has the right to receive pursuant to
the provisions of this Section 2.2(b), and the Certificate so surrendered
shall immediately be canceled. In the event of a transfer of ownership of
LECG Common Stock which is not registered in the transfer records of LECG,
a certificate representing the proper number of shares of Metzler Common
Stock may be issued to a transferee if the Certificate representing such
LECG Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon such surrender the certificate representing shares of Metzler Common
Stock and cash in lieu of any fractional shares of Metzler Common Stock as
contemplated by this Section 2.2. The instructions for effecting the
surrender of the Certificates shall set forth procedures that must be taken
by the holder of any Certificate that has been lost, destroyed or stolen.
It shall be a condition to the right of such holder to receive a
certificate representing shares of Metzler Common Stock that the Exchange
Agent shall have received, along with the letter of transmittal, a duly
executed lost certificate affidavit, including an agreement to indemnify
Metzler, signed exactly as the name or names of the registered holder or
holders appeared on the books of LECG immediately prior to the Effective
Time, together with a customary bond and such other documents as Metzler or
the Exchange Agent may reasonably require in connection therewith.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Metzler Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Metzler Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
subsection (e) below until the holder of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Metzler Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Metzler Common
Stock to which such holder is entitled pursuant to subsection (e) below and
the amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Metzler
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Metzler Common Stock.
(d) No Further Ownership Rights in LECG Common Stock. All shares of
Metzler Common Stock issued upon the surrender for exchange of shares of
LECG Common Stock in accordance with the terms hereof (including any cash
paid pursuant to subsection (c) or (e) of this Section 2.2) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of LECG Common Stock, subject, however to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by LECG on such shares of LECG Common Stock in
accordance with the terms of this Agreement on or prior to the date hereof
and which remain unpaid at the Effective Time and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of LECG Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing fractional
shares of Metzler Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to exercise any rights of a
stockholder of Metzler. Notwithstanding any other provision of this
Agreement, each holder of shares of LECG Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of
a share
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of Metzler Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Metzler
Common Stock multiplied by the last reported sale price of Metzler Common
Stock, as reported on the Nasdaq National Market, on the trading day
immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the shareholders of LECG for one year after the
Effective Time shall be delivered to Metzler, and any shareholders of LECG
who have not previously complied with this Section 2.2 shall thereafter
look only to Metzler for payment of their claim for Metzler Common Stock,
any cash in lieu of fractional shares of Metzler Common Stock, and any
dividends or distributions with respect to LECG Common Stock or Metzler
Common Stock.
(g) No Liability. Neither Metzler nor LECG shall be liable to any holder
of shares of LECG Common Stock or Metzler Common Stock, as the case may be,
for such shares (or dividends or distributions with respect thereto)
delivered to a public official as required by any applicable abandoned
property, escheat or similar law.
2.3. Dissenters' Rights. The shares of LECG Common Stock ("DISSENTERS'
SHARES") held by any shareholder of LECG who has exercised dissenters' rights
pursuant to the CGCL (a "DISSENTING SHAREHOLDER") shall not be converted
pursuant to the Merger unless and until the holder thereof shall have failed
to perfect or shall have effectively withdrawn or lost such holder's rights to
dissent from the Merger under the CGCL, and shall be entitled to receive only
the payment provided for by the CGCL. If any such holder shall fail to perfect
or shall have effectively withdrawn or lost the right to dissent, the
Dissenters' Shares held by such Dissenting Shareholder shall thereupon be
treated as though such shares had been converted into shares of Metzler Common
Stock pursuant to the terms hereof.
ARTICLE 3.
Representations and Warranties of LECG
LECG represents and warrants to Metzler and Sub that the statements
contained in this Article 3 are true and correct, except as set forth in the
disclosure schedule delivered by LECG to Metzler (the "LECG DISCLOSURE
SCHEDULE"). The LECG Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Article 3, and the disclosure in any paragraph shall qualify only the
corresponding paragraph in this Article 3.
3.1. Organization. Each of LECG and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
respective jurisdiction of its incorporation, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted and as proposed to be conducted, and is duly qualified
and/or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a LECG Material Adverse Effect. Except as set forth on the LECG
Disclosure Schedule, neither LECG nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by LECG and comprising less than
one percent (1%) of the outstanding stock of such company.
3.2. LECG Capital Structure.
(a) The authorized capital stock of LECG consists of 40,000,000 shares of
common stock, par value $0.001 per share ("LECG COMMON STOCK"), and
5,000,000 shares of Preferred Stock, par value $0.001 per share ("LECG
PREFERRED STOCK"). As of June 30, 1998, (i) 13,027,867 shares of LECG
Common Stock were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, (ii) there were options
outstanding under the LECG Stock Option Plans, entitling the
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optionees thereunder upon valid exercise to acquire in the aggregate
608,300 shares of LECG Common Stock at a weighted average exercise price of
$9.00 per share and (iii) no shares of LECG Common Stock were held by any
Subsidiary of LECG. No change in such capitalization has occurred since
such date other than the exercise and termination of stock options
outstanding. No shares of LECG Preferred Stock were issued and outstanding.
All shares of LECG Common Stock subject to issuance as specified above,
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, shall be duly authorized, validly
issued, fully paid and nonassessable. There are no obligations, contingent
or otherwise, of LECG or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of LECG Common Stock or the capital stock of
any LECG Subsidiary or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity. All
of the outstanding shares of capital stock of each of LECG's Subsidiaries
are duly authorized, validly issued, fully paid and nonassessable and all
such shares are owned by LECG free and clear of all Security Interests,
agreements, preemptive rights, and/or limitations in LECG's voting rights,
charges or other restrictions of any nature.
(b) Except as set forth in this Section 3.2 or as reserved for future
grants of options under the LECG Stock Option Plan or reserved for issuance
pursuant to LECG's Stock Purchase Plan, there are no equity securities of
any class of LECG or any of its Subsidiaries, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding. Except as set forth in this Section 3.2, there are
no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which LECG or any of its Subsidiaries is a
party or by which any of them are bound obligating LECG or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of LECG or any of its Subsidiaries
or obligating LECG or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security,
call, right, commitment or agreement. None of the Existing Options that are
not currently exercisable shall become exercisable as a result of the
consummation of the Merger. To the knowledge of LECG, there are no voting
trusts, proxies or other agreements or understandings with respect to the
shares of capital stock of LECG. All of the outstanding LECG Common Stock,
options or warrants were either registered under the Securities Act of
1933, as amended (the "SECURITIES ACT") or were issued pursuant to valid
exemptions from registration. LECG has taken all actions necessary such
that after the Effective Time there will not exist any rights of any nature
granting any Person a right to acquire the securities of LECG and/or its
Subsidiaries.
3.3. Authority and Status.
(a) The execution, delivery and performance by LECG of this Agreement and
each and every other agreement, document and instrument provided for herein
have been duly authorized and approved by the Board of Directors of LECG
subject only to the approval of the Merger by LECG's shareholders under
applicable provisions of LECG's Articles of Incorporation and the CGCL. The
Board of Directors of LECG has (i) determined that the Merger is fair to
and in the best interests of the shareholders of LECG and (ii) resolved to
submit the Merger to and recommend approval of the Merger by the
shareholders of LECG.
(b) LECG has the corporate power and authority to execute and deliver
this Agreement, to perform hereunder and, upon approval of the transactions
provided for herein by the shareholders of LECG, to consummate the
transactions contemplated hereby without any other corporate or shareholder
approval. Assuming this Agreement and each and every agreement, document or
instrument to be executed, delivered and performed by LECG in connection
herewith are valid and legally binding obligations of Metzler and Sub, this
Agreement and each and every agreement, document and instrument to be
executed, delivered and performed by LECG in connection herewith constitute
or will, when executed and delivered, constitute the valid and legally
binding obligation of LECG enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally. Attached hereto on the LECG
Disclosure Schedule are true, correct and complete copies of the current
Articles of Incorporation and Bylaws of LECG and each of its Subsidiaries.
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3.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by LECG does not, and
the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any
provision of the Articles of Incorporation or Bylaws of LECG; (ii) result
in any violation or breach of, require any consent or approval under, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to which LECG
or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound; or (iii) subject to the consents,
approvals, orders, authorizations, filings and registrations specified in
Section 3.4(b), conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to LECG or any of its Subsidiaries or any of their
properties or assets.
(b) Based on the representation of Metzler that neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby would require Metzler to file a pre-merger notification
report under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended, no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality ("GOVERNMENTAL ENTITY")
is required by or with respect to LECG or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing and declaration of effectiveness of the Registration Statement (as
defined in Section 3.23) with the Securities and Exchange Commission (the
"SEC") in accordance with the Securities Act; (ii) the filing of the
applicable Certificates of Merger with the California Department and the
Delaware Department; (iii) the filing of the Proxy Statement (as defined in
Section 3.23) with the SEC in accordance with the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"); and (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable federal and state securities laws.
3.5. SEC Filings; Financial Statements.
(a) LECG has filed and made available to Metzler all forms, each
registration statement, schedule, report, proxy statement and document
required to be filed by LECG with the SEC since October 16, 1997
(collectively, the "LECG SEC REPORTS"). The LECG SEC Reports (i) at the
time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may
be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated in the LECG SEC Reports
or necessary in order to make the statements in the LECG SEC Reports, in
the light of the circumstances under which they were made, not misleading.
None of LECG's Subsidiaries is required to file any forms, reports or other
documents with the SEC. Since October 16, 1997, LECG has made all filings
with the SEC in a timely manner as required by law and no event has
occurred that requires an additional filing or any amendment to a prior
filing.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the LECG SEC Reports, including any
LECG SEC Reports filed after the date of this Agreement until the Closing,
complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto,
was or will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such financial statements or,
in the case of unaudited statements, as permitted for presentation in
Quarterly Reports on Form 10-Q), and fairly presented or will fairly
present the consolidated financial position of LECG and its Subsidiaries as
at the respective dates and the consolidated results of their operations
and cash flows for the periods indicated, except that the unaudited interim
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financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not material in amount. The audited
balance sheet of LECG as of December 31, 1997 is referred to herein as the
"LECG BALANCE SHEET."
(c) LECG has provided Metzler with a consolidated balance sheet and
related statements of income, changes in shareholder's equity and cash
flows for LECG and each of its Subsidiaries as of and for the three month
period ended March 31, 1998 ("LATEST BALANCE SHEET"). The Latest Balance
Sheet and the related statement of income and cash flows are consistent
with the accounting policies used in preparing the consolidated financial
statements attached to the LECG SEC Reports and fairly present the results
for the interim period presented thereby, except that such financial
statements are subject to normal and recurring year-end adjustments which
are not material in amount.
3.6. Intentionally Omitted.
3.7. Absence of Certain Changes or Events. Since the date of the LECG
Balance Sheet, LECG and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any material damage, destruction or
loss (whether or not covered by insurance) with respect to LECG or any of its
Subsidiaries; (ii) any change by LECG in its accounting methods, principles or
practices; (iii) any increase in dividends or employee compensation or
benefits payable by LECG, except for normal increases in compensation
consistent, in amounts and timing, with historical practices; (iv) any
revaluation by LECG of any of its assets, including, without limitation,
writing down the value of capitalized software or inventory or writing off
notes or accounts receivable other than in the Ordinary Course of Business;
(v) any change in any material respect in which the business of LECG and its
Subsidiaries has been conducted, including, without limitation, billing of
clients or collection of accounts receivable, purchases of goods and services
or payment of accounts payable; (vi) any agreement and/or understanding
entered into which alters or amends any licensing or contractual arrangements
with respect to any LECG Intellectual Property Rights, other than in the
Ordinary Course of Business; (vii) any loss or change in the relationships
with any client, contractor or supplier that would constitute a LECG Material
Adverse Effect; or (viii) any other transaction, commitment, dispute, or any
other action or event or condition that would be reasonably likely to have a
LECG Material Adverse Effect.
3.8. Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon LECG or any of its Subsidiaries which
has the effect of prohibiting or materially impairing any current or future
business practice of LECG or any of its Subsidiaries, any acquisition of
property by LECG or any of its Subsidiaries or the conduct of business by LECG
or any of its Subsidiaries as currently conducted or as proposed to be
conducted by LECG or any of its Subsidiaries.
3.9. Taxes.
(a) LECG and its Subsidiaries have, as of the date hereof, and will prior
to the Effective Time have, timely and accurately filed all federal, state,
foreign and local income, franchise, sales, real and personal property and
other tax returns and reports required to be filed by them prior to such
dates and have timely paid, or will prior to the Effective Time timely pay,
all taxes shown on such returns as owed for the periods of such returns,
including all withholding or other payroll related taxes shown on such
returns. The tax basis of all assets of LECG and the Subsidiaries as
reflected on their books and records is correct and accurate in all
material aspects. Except as described on the LECG Disclosure Schedule,
neither LECG nor any Subsidiary is, nor will any of them become, subject to
any additional taxes, interest, penalties or other similar charges with
respect to the tax returns and reports referred to in the first sentence of
this Section 3.9(a) that would individually or in the aggregate have a LECG
Material Adverse Effect. No assessments or notices of deficiency or other
communications have been received by LECG, nor have any been threatened,
with respect to any such tax return that has not been paid, discharged or
fully reserved on the LECG Balance Sheet, and no amendments or applications
for refund have been filed or are planned with respect to any such return.
LECG does not have any material liabilities for Taxes that have not been
accrued for or reserved on the LECG Balance Sheet, whether asserted or
unasserted, contingent or otherwise. Except as
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set forth on the LECG Disclosure Schedule, there are no agreements between
LECG or any Subsidiary and any taxing authority, including, without
limitation, the IRS, waiving or extending any statute of limitations with
respect to any tax return, and neither LECG nor any of its Subsidiaries has
filed any consent or election under the Code, including, without
limitation, any election under Section 341(f) of the Code.
(b) Neither LECG nor any of its Subsidiaries has made any payments and
none of them is obligated to make any payments, and none of them is a party
to any agreement that under certain circumstances could obligate it, or any
successor in interest, to make any parachute payments that will not be
deductible under Section 280G of the Code.
(c) LECG and its Subsidiaries (i) have withheld proper and accurate
amounts in compliance with the tax withholding provisions of all applicable
laws for all compensation paid to the officers and employees of LECG and
its Subsidiaries, (ii) have correctly and properly prepared and duly and
timely filed all returns and reports relating to those amounts withheld
from their officers and employees and to their employer liability for
employment taxes under the Tax Code and applicable state and local laws and
(iii) have duly and timely paid and remitted to the appropriate taxing
authorities the amounts withheld from their officers and employees and any
additional amounts that represent their employer liability under applicable
law for employment taxes.
(d) To the knowledge of LECG, no issue has been raised by the IRS, any
state or local taxing authority, or any other investigation or audit, that
will have, or can be expected to have, a LECG Material Adverse Effect.
(e) Neither LECG nor any of its Subsidiaries is a "United States real
property holding corporation" as defined in Section 897(c)(2) of the Code.
3.10. Intellectual Property.
(a) LECG and its Subsidiaries own or use under valid fully paid licenses
all patents, trademarks, trade names, service marks, copyrights and mask
works, all applications for and registrations of such patents, trademarks,
trade names, service marks, copyrights and mask works, and all processes,
formulae, methods, schematics, technology, know-how, computer software
programs or applications, algorithms, routines, and source code, and
tangible or intangible proprietary information or material that are
necessary to conduct the business of LECG and its Subsidiaries as currently
conducted or planned to be conducted, excluding commercially available
"shrink-wrap" and office automation software (the "LECG INTELLECTUAL
PROPERTY RIGHTS").
(b) There are no claims or demands, and to the knowledge of LECG no
reasonable basis for any such claim or demand, of any Person that any of
the LECG Intellectual Property Rights, or any processes or equipment used
by LECG, any of the services of LECG or its Subsidiaries or any of the
software or other proprietary rights or intellectual property developed by
LECG or its Subsidiaries, infringes or conflicts in any way with any
copyright, patent, trademark, service mark, trade name, trade secret,
license, application or other proprietary right or intellectual property of
any other Person, or makes unauthorized use of any secret process, formula,
method, information, know-how or any other proprietary confidential
information, including, without limitation, any software or software
documentation, of any other Person. LECG or its Subsidiaries own all right,
title and interest in and to the LECG Intellectual Property Rights, other
than the items expressly identified as such on the LECG Disclosure
Schedule, as to which LECG or its Subsidiaries has a valid, assignable
license. Each of LECG's and its Subsidiaries' rights in and to such LECG
Intellectual Property Rights are freely assignable in their respective own
names, as applicable, including the right to create derivatives, and
neither LECG nor any of its Subsidiaries is under any obligation to pay any
royalty or other compensation to any third party or to obtain any approval
or consent for use of licensing of any of the LECG Intellectual Property
Rights. All of the interests of LECG and its Subsidiaries in the LECG
Intellectual Property Rights are free and clear of all Security Interests,
and are not currently being challenged or, to the knowledge of LECG
infringed in any way or involved in any pending legal or
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administrative proceedings before any court or governmental agency. Except
for licenses to clients in the Ordinary Course of Business, no current
licenses for the use of any such rights have been granted by LECG or its
Subsidiaries to any third parties, and to the knowledge of LECG none of the
LECG Intellectual Property Rights is being used by any other Person.
(c) It is the policy of LECG and its Subsidiaries to have each of their
employees sign an employee nondisclosure and work-for-hire agreements
substantially in the form attached to the LECG Disclosure Schedule. No
employees or independent contractors of either LECG or any of its
Subsidiaries have any valid claims or rights to any of the LECG
Intellectual Property Rights. To the knowledge of LECG and its
Subsidiaries, no employee of either LECG or any of its Subsidiaries is a
party to or otherwise bound by any agreement with or obligated to any other
Person (including, any former employer) which in any respect conflicts with
any obligation, commitment or job responsibility of such employee to LECG
or its Subsidiaries under any agreement to which currently he or she is a
party or otherwise.
(d) Neither LECG nor any of its Subsidiaries is or will be, as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the LECG Intellectual Property Rights or any
license, sublicense or other agreement pursuant to which LECG or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are used in the manufacture of,
incorporated in, or form a part of any product of LECG or any of its
Subsidiaries.
(e) All patents, trademarks, service marks, copyrights, trade secrets and
other proprietary rights held by LECG or any of its Subsidiaries which LECG
considers to be material to its business are valid and enforceable. Neither
LECG nor any of its Subsidiaries (i) is a party to any suit, action or
proceeding which involves a claim of infringement of any patent, trademark,
service mark or copyright or the violation of any trade secret or other
proprietary right of any third party; or (ii) has any knowledge that the
marketing, licensing, sale, offer for sale, or use of any of its services
or products infringes any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party.
3.11. Agreements, Contracts and Commitments. The LECG Disclosure Schedule
contains a true and complete list of all contracts, agreements, commitments
and other instruments (identified by title, date and parties) (whether oral or
written), excluding customer engagement contracts that are terminable by
either party upon reasonable notice, to which LECG or its Subsidiaries is a
party that involve a receipt or an expenditure by LECG or its Subsidiaries or
require the performance of services or delivery of goods to, by, through, on
behalf of or for the benefit of LECG or its Subsidiaries, which in each case
relates to a contract, agreement, commitment or instrument that requires
payments in excess of $100,000 per year or provides for receipts in excess of
$100,000 per year. The LECG Disclosure Schedule also identifies (identified by
title, date and parties) (whether oral or written) all:
(a) leases, rental agreements or other contracts or commitments affecting
the ownership or leasing of, title to or use of any interest in real or
personal property with payments equal to or greater than $8,000 per month
and all maintenance or service agreements relating to any real or personal
property with payments equal to or greater than $8,000 per month;
(b) contracts or commitments providing for payments by LECG or its
Subsidiaries based in any manner upon the sales, purchases, receipts,
income or profits of LECG or its Subsidiaries other than those entered into
in the Ordinary Course of Business between LECG and the principals and
experts servicing LECG clients;
(c) franchise agreements, marketing agreements or royalty agreements;
(d) employment contracts or commitments regarding employees or
independent contractors (except to the extent listed pursuant to Section
3.15) (including without limitation any standard form contracts such as
employee nondisclosure agreements, provided that to the extent
substantially all employees have executed any such standard form, a copy of
such form is attached in lieu of each individual contract and LECG
represents and warrants that substantially all employees have executed such
form), and any other contracts,
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plans or commitments providing for any continuing payment of any type or
nature, including, without limitation, any severance, termination,
parachute, or other payments (whether due to a change in control,
termination or otherwise) and bonuses and vested commissions.
(e) instruments or arrangements evidencing or related to Indebtedness for
money borrowed or to be borrowed, whether directly or indirectly, by way of
purchase-money obligation, guaranty, subordination, conditional sale,
lease-purchase or otherwise;
(f) joint product development agreements with any party other than
Metzler;
(g) any written arrangement concerning non-competition;
(h) written arrangements not disclosed on the LECG Disclosure Schedule
pursuant to any other provision in this Section 3.11 under which the
consequences of a default or termination could have a LECG Material Adverse
Effect;
(i) agreements with any employee, the benefits of which are contingent
on, or the terms of which are materially altered upon, the occurrence of a
transaction of the nature contemplated by this Agreement involving LECG or
its Subsidiaries; and
(j) agreements or Plans the benefits of which will be increased or
accelerated by the occurrence of the transactions contemplated by this
Agreement.
The contracts, agreements, commitments and other instruments listed or
required to be listed on the LECG Disclosure Schedule are herein referred to
as the "MATERIAL CONTRACTS."
All the Material Contracts are valid and binding upon LECG or the applicable
Subsidiary and upon the other parties thereto and are in full force and effect
and enforceable in accordance with their terms, except as enforceability may
be affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors rights generally and general principles of equity relating to the
availability of equitable remedies. Except as set forth on the LECG Disclosure
Schedule, none of LECG, the applicable Subsidiary and any other party to any
such contract, commitment or arrangement has breached any provision of, or is
in default under, the terms thereof; and except as set forth on the LECG
Disclosure Schedule, there are no existing facts or circumstances that would
prevent the work in process of LECG or its Subsidiaries or their contracts and
agreements from maturing upon performance by LECG or its Subsidiaries into
accounts receivable collectible in the aggregate in amounts consistent in all
material respects with historical experience. Except as set forth on the LECG
Disclosure Schedule, there are no material contracts or commitments that
require the performance of services or provision of products by LECG at a
direct cost for each such contract or commitment reasonably expected to be in
excess of the revenue to be derived pursuant to the terms of such contract or
commitment. Except for terms specifically described on the LECG Disclosure
Schedule, neither LECG nor any Subsidiary has received any payment from any
contracting party in connection with or as an inducement for entering into any
contract, agreement, policy or instrument except for payment for actual
services rendered or to be rendered by LECG or its Subsidiaries consistent
with amounts historically charged for such services. Except for those Material
Contracts set forth on the LECG Disclosure Schedule and identified as "Fixed-
Rate Engagements" (the "MATERIAL FIXED-RATE ENGAGEMENTS"), neither LECG nor
its Subsidiaries is a party to any fixed fee or capped price contracts or
engagement arrangements involving work which if billed at LECG's normal hourly
rates would exceed $250,000 in annual revenues, nor does LECG or its
Subsidiaries have any outstanding offers, bids or proposals to perform any
services on a fixed fee or capped basis exceeding such amount. The LECG
Disclosure Schedule identifies each Material Fixed-Rate Engagement and sets
forth the number of hours remaining to complete the work required thereunder
and the amount of fees uncollected with respect thereto. The LECG Disclosure
Schedule also sets forth the amount of client payments to LECG or its
Subsidiaries through the date hereof with respect to services not yet
performed by LECG or its Subsidiaries, which payments individually or in the
aggregate exceed $100,000.
3.12. Ownership of Assets. LECG and its Subsidiaries have title to all of
their respective properties and assets used or useful in their respective
businesses, other than leased property, licensed property and immaterial items
of personal property, in each case free and clear of any liens or Security
Interests, except as disclosed or
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reserved against in the Latest Balance Sheet and except for liens arising from
current taxes not yet due and payable and other immaterial liens. Except as
disclosed on the LECG Disclosure Schedule, all material assets owned or leased
by LECG or any Subsidiary are in good operating condition and reasonable state
of repair, subject only to ordinary wear and tear. Neither LECG nor any
Subsidiary has received any notice of violation of any applicable zoning
regulation, ordinance or other law, regulation or requirement relating to
their operations and properties, whether owned or leased. All of the accounts
receivable of LECG and its Subsidiaries as of the Effective Time will reflect
actual transactions and will have arisen in the Ordinary Course of Business.
3.13. Litigation. The LECG Disclosure Schedule sets forth each instance in
which LECG or any of its Subsidiaries (i) is subject to any unsatisfied
judgment, order, decree, stipulation, injunction or charge or (ii) is a party
to or, is threatened to be made a party to, any charge, complaint, action,
suit, proceeding, hearing, or investigation of or in any court or quasi-
judicial or administrative agency of any Federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the charges, complaints,
actions, suits, proceedings, hearings, and investigations set forth on the
LECG Disclosure Schedule could reasonably be expected to result in any LECG
Material Adverse Effect. LECG has no knowledge of any basis on which such
charge, complaint, action, suit, proceeding, hearing, or investigation may be
brought or threatened against LECG or its Subsidiaries.
3.14. Intentionally Omitted.
3.15. Employees; Employment Matters.
(a) Except as disclosed on the LECG Disclosure Schedule, neither LECG nor
its Subsidiaries have any unsatisfied Liability to any previously
terminated employee or independent contractor. LECG and its Subsidiaries
have disclosed all written employee handbooks, policies, programs and
arrangements to Metzler.
(b) No key employee or group of employees has informed LECG and its
Subsidiaries of any plans to terminate their employment with LECG or its
Subsidiaries as a result of the transactions contemplated hereby or
otherwise. Neither LECG nor its Subsidiaries are a party to or bound by any
collective bargaining agreement and neither LECG nor its Subsidiaries have
experienced any strikes, grievances, other collective bargaining disputes
or claims of unfair labor practices. Neither LECG nor its Subsidiaries have
any knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
LECG and its Subsidiaries.
(c) All persons employed by LECG and its Subsidiaries are employees at
will or otherwise employed such that LECG and its Subsidiaries may
terminate their employment at any time, with or without cause, without
creating any material cause of action against LECG and its Subsidiaries or
otherwise giving rise to any material liability of LECG and its
Subsidiaries for wrongful discharge, breach of contract or tort.
(d) Except as disclosed on the LECG Disclosure Schedule, LECG and its
Subsidiaries have complied in all material respects with all applicable
laws relating to labor, including, without limitation, any requirements of
the Immigration and Nationalization Act of 1952, as amended by the
Immigration Reform and Control Act of 1986 and the regulations promulgated
thereunder, any provisions thereof relating to wages, termination pay,
vacation pay, fringe benefits, collective bargaining and the payment and/or
accrual of the same and all insurance and all other costs and expenses
applicable thereto, and neither LECG nor its Subsidiaries are liable for
any arrearage, or any costs or penalties for failure to comply with any of
the foregoing. Without limiting the generality of the foregoing, neither
LECG nor its Subsidiaries have incurred a violation of Part 6 of Subtitle B
of Title I of ERISA ("COBRA") or other applicable state insurance
continuation law. No COBRA or other state insurance continuation law
violation exists or will exist with respect to any employees of either LECG
and its Subsidiaries prior to and including the Effective Time, nor will
any such violation occur as a result of the transactions contemplated
hereby.
(e) Each Person whom LECG or its Subsidiaries has retained as an
independent contractor during the past three years qualifies as an
independent contractor and not as an employee of LECG or its Subsidiaries
under the Code and all applicable state laws. Neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby
shall cause LECG or its Subsidiaries to be in breach of any
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agreement with any employment, contractor or consultant or cause LECG or
its Subsidiaries to be liable to pay any severance or other amount to any
employee, contractor or consultant of LECG or its Subsidiaries.
3.16. Employee Benefit Plans. LECG and each of its Plans have at all times
complied in all material respects with all applicable laws relating to labor
and employee benefits, including without limitation, all applicable provisions
of ERISA and the Code, any laws relating to wages, termination pay, vacation
pay, fringe benefits, collective bargaining and the payment and/or accrual of
the same and all taxes, insurance and all other costs and expenses applicable
thereto.
3.17. Licenses and Permits; Compliance with Law. LECG and its Subsidiaries
hold all licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the
conduct of their respective businesses and the use of their respective assets,
except for such licenses, certificates, permits, franchises and rights the
absence of which would not individually or in the aggregate have a LECG
Material Adverse Effect. Except for any matters which will not have a LECG
Material Adverse Effect, LECG and its Subsidiaries presently are conducting
their respective businesses so as to comply with all applicable statutes,
ordinances, rules, regulations and orders of any governmental authority.
Further, LECG and its Subsidiaries are not presently charged with, or under
governmental investigation with respect to, any actual or alleged violation of
any statute, ordinance, rule or regulation, or presently the subject of any
pending or, to the knowledge of LECG, threatened adverse proceeding by any
regulatory authority having jurisdiction over their respective businesses,
properties or operations. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will result in
the termination of any license, certificate, permit, franchise or right held
by LECG or any of its Subsidiaries, and all such licenses, certificates,
permits, franchises and rights will inure to the benefit of the Surviving
Corporation after the consummation of the transactions contemplated by this
Agreement.
3.18. Intentionally Omitted.
3.19. Related Parties.
(a) Except as set forth on the LECG Disclosure Schedule or in the LECG
SEC Reports, to the knowledge of LECG, no shareholder owning greater than a
five-percent (5%) interest in LECG, no Affiliate or member of the immediate
family of any such shareholder, and no officer or director or member of the
immediate family of such officer or director of LECG or any Subsidiary
possesses, directly or indirectly, any beneficial interest in, or is a
director, officer or employee of, or member of the immediate family of a
director, officer or employee of, any corporation, partnership, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee, lender, creditor, borrower, debtor or contracting party
with or of LECG or any Subsidiary (except as a shareholder holding less
than a one-percent (1%) interest in a corporation whose shares are traded
on a national or regional securities exchange or in the over-the-counter
market), other than arrangements with LECG principals and experts in the
Ordinary Course of Business.
(b) LECG has provided to each of its "Affiliates" as identified in
Section 6.12 a copy of the Affiliates Letter and has obtained their
agreement to execute and provide the Affiliates Letter to Metzler 31 days
prior to the date of the LECG Shareholder Meeting.
3.20. Pooling of Interests. LECG is not aware of any facts or circumstances
in respect of it or its accounting procedures, or transactions in its capital
stock, which would have the effect of precluding accounting for the
transactions contemplated hereby as a "pooling of interests."
3.21. Complete Disclosure. No statement contained herein or in any
certificate, schedule, list, exhibit or other instrument furnished or required
to be furnished to Metzler pursuant to the provisions hereof contains, or will
at the time it is furnished contain, any untrue statement of any material fact
or omits or will omit to state any fact necessary to make the statements
herein or therein not false or misleading. As used in this Section, "material"
means material to the financial condition, business, properties, rights or
operations of LECG and its Subsidiaries, taken as a whole.
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3.22. No Special Shareholder Rights. Except as disclosed on the LECG
Disclosure Schedule, LECG has no agreement with any individual or entity that
grants such person any rights as a shareholder of LECG Common Stock that are
in addition to such holder's rights under LECG's Articles of Incorporation or
Bylaws (including, without limitation, registration rights, preemptive rights,
put rights, rights of co-sale or rights to Board representation).
3.23. Registration Statement; Proxy Statement/Prospectus. The information
supplied by LECG for inclusion in the registration statement on Form S-4
pursuant to which shares of Metzler Common Stock issuable in the Merger will
be registered with the SEC (the "REGISTRATION STATEMENT") shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact
required to be stated in the Registration Statement or necessary in order to
make the statements in the Registration Statement, not misleading. The
information supplied by LECG for inclusion in the joint proxy
statement/prospectus (the "PROXY STATEMENT") to be sent to the shareholders of
LECG and the stockholders of Metzler in connection with the meetings of their
shareholders and stockholders, respectively, to consider this Agreement and
the Merger (the "LECG SHAREHOLDERS MEETING" and the "METZLER STOCKHOLDERS
MEETING," respectively, and, collectively, the "STOCKHOLDERS MEETINGS") shall
not, on the date the Proxy Statement is first mailed to shareholders of LECG
and the stockholders of Metzler, at the time of the Stockholders Meetings and
at the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it was made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made in the Proxy Statement not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meetings which has become false or misleading. If
at any time prior to the Effective Time any event relating to LECG or any of
its Affiliates, officers or directors should be discovered by LECG which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, LECG shall promptly inform Metzler.
3.24. Intentionally Omitted.
3.25. Intentionally Omitted.
3.26. Suppliers and Clients. LECG shall provide Metzler with a true and
accurate list of (i) all of the clients that generated at least $250,000 in
revenues to LECG in any of the last three calendar years with whom LECG and
its Subsidiaries have had engagements since December 31, 1995 and (ii) a list
of all LECG clients with billings in 1998 in excess of $100,000. Since the
date of the LECG Latest Balance Sheet, no client of LECG and its Subsidiaries
accounting for more than 5% of LECG's revenues in fiscal 1997, has canceled,
materially reduced the scope of, or otherwise adversely modified its
relationship with LECG or its Subsidiaries and, no such Person has any
intention to do so, and there are no disputes or problems or notices of
dissatisfaction with or from any such client of LECG or its Subsidiaries and
the consummation of the transactions contemplated hereby will not, to the
knowledge of LECG, adversely affect any relationships with such clients.
3.27. Warranty; Unbillable Work. All services rendered by LECG and its
Subsidiaries have been in material conformity with all applicable contractual
commitments and all warranties, and LECG and its Subsidiaries have no
Liability for damages in connection therewith, subject to the reserve for
client claims set forth on the face of the LECG Balance Sheet. LECG and its
Subsidiaries are not obligated to perform nonbillable client service work
(under the terms of the client agreement or necessary in order to maintain the
client relationship), in order to correct work previously performed that was
incorrect or deficient, to complete work in excess of the fixed rate limit
with respect to a particular project or otherwise, other than reasonable and
customary efforts to maintain client satisfaction consistent with the size and
scope of a particular project and consistent with maintaining the reasonable
profitability of such project.
3.28. Year 2000 Compliance. LECG and its Subsidiaries have conducted a
reasonable review of all operating codes, programs, utilities and other
software as well as all hardware and systems utilized by LECG and its
Subsidiaries (collectively, "SYSTEMS") to determine whether such Systems are
designed to record, store,
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process, and present calendar dates falling on or after January 1, 2000 in the
same manner, and with the same functionality, as provided on or before
December 31, 1999, and are designed to not lose functionality or degrade in
performance as a consequence of such software operating at a date later than
December 31, 1999 (such design and performance being referred to as "Y-2000
COMPLIANT"). To the extent such review identified Systems that are not Y-2000
Compliant, LECG and its Subsidiaries have taken, or are planning to take,
appropriate corrective action with respect to such Systems, and the costs of
such corrective action will not exceed, in the aggregate, $250,000.
ARTICLE 4.
Representations and Warranties of Metzler and Sub
Metzler and Sub represent and warrant to LECG that the statements contained
in this Article 4 are true and correct, except as set forth in the disclosure
schedule delivered by Metzler to LECG (the "METZLER DISCLOSURE SCHEDULE"). The
Metzler Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article 4, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article 4.
4.1. Organization. Each of Metzler, Sub and Metzler's other Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted and as proposed to be conducted, and is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a Metzler
Material Adverse Effect. Except as set forth in the Metzler SEC Reports (as
defined in Section 4.4) or the Metzler Disclosure Schedule, neither Metzler
nor any of its Subsidiaries directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any corporation, partnership, joint venture or other business association
or entity, excluding securities in any publicly traded company held for
investment by Metzler or any of its Subsidiaries and comprising less than one
percent (1%) of the outstanding stock of such company.
4.2. Metzler Capital Structure.
(a) The authorized capital stock of Metzler consists of 75,000,000 shares of
Metzler Common Stock $0.001 par value ("METZLER COMMON STOCK") and 3,000,000
shares of Preferred Stock, $0.001 par value ("METZLER PREFERRED STOCK"). As of
June 30, 1998, (i) approximately 22,450,000 shares of Metzler Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of Metzler Common Stock were held in the
treasury of Metzler or by Subsidiaries of Metzler and (iii) an amount equal to
25% of the outstanding shares of Metzler Common Stock were reserved for future
issuance pursuant to stock options granted and outstanding under Metzler's
stock option plans (the "METZLER OPTION PLANS"). As of the date of this
Agreement, no shares of Metzler Preferred Stock are issued and outstanding.
All shares of Metzler Common Stock subject to issuance as specified above,
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. There are no obligations, contingent or
otherwise, of Metzler or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Metzler Common Stock or the capital stock of
any Metzler Subsidiary. All of the outstanding shares of capital stock of each
of Metzler's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Metzler or a Subsidiary of
Metzler free and clear of all Security Interests, agreements, limitations in
Metzler's voting rights, charges or other restrictions of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future grants
of options under the Metzler Option Plans or future sales under the Metzler
Purchase Plan, there are no equity securities of any class of Metzler or any
of its respective Subsidiaries, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 4.2 or in the Metzler
Disclosure
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Schedule, there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Metzler or any of its
respective Subsidiaries is a party or by which any of them are bound
obligating Metzler or any of its respective Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Metzler or any of its respective Subsidiaries or obligating Metzler
or any of its respective Subsidiaries to grant, extend, accelerate the vesting
of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. To the knowledge of Metzler, there are no voting
trusts, proxies or other agreements or understandings with respect to the
shares of capital stock of Metzler.
4.3. Authority; No Conflict; Required Filings and Consents.
(a) Metzler and Sub have all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Metzler and Sub,
subject only to the approval of the shares to be issued in the Merger by
Metzler's shareholders under applicable provisions of the By-Laws of the
National Association of Securities Dealers, as amended. This Agreement has
been duly executed and delivered by Metzler and Sub and constitutes the valid
and binding obligation of Metzler and Sub, enforceable in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
(b) The execution and delivery of this Agreement by Metzler and Sub does
not, and the consummation of the transactions contemplated by this Agreement
will not, (i) conflict with, or result in any violation or breach of any
provision of the Certificate of Incorporation or Bylaws of Metzler or
certificate or Bylaws of Sub, (ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Metzler or any of its respective
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) subject to the consents, approvals, orders,
authorizations, filings and registrations specified in Section 4.3.(c),
conflict with or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Metzler or any of its respective Subsidiaries or any of their properties or
assets, except in the case of clause (ii) for any such violations, breaches,
defaults, terminations, cancellations or accelerations which in the aggregate
would not be reasonably likely to have a Metzler Material Adverse Effect, or a
material adverse effect on the ability of Metzler or Sub to consummate the
transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Metzler or any of its Subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Registration Statement
with the SEC in accordance with the Securities Act, (ii) the filing of the
Certificates of Merger with the California Department and the Delaware
Department, (iii) the filing of the Proxy Statement with the SEC in accordance
with the Exchange Act, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country, (v)
applicable Blue Sky laws and (vi) such other consents, authorizations,
filings, approvals and registrations which in the aggregate, if not obtained
or made, would not be reasonably likely to have a Metzler Material Adverse
Effect or a material adverse effect on the parties' ability to consummate the
transactions contemplated by this Agreement.
4.4. Sec Filings; Financial Statements.
(a) Metzler has filed and made available to LECG all forms, reports and
documents required to be filed by Metzler with the SEC since July 26, 1996,
(collectively, the "METZLER SEC REPORTS"). The Metzler SEC Reports (i) at the
time filed, complied in all material respects with the applicable requirements
of the Securities
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Act and the Exchange Act, as the case may be, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
the Metzler SEC Reports or necessary in order to make the statements in the
Metzler SEC Reports, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Metzler SEC Reports, including any Metzler
SEC Reports filed after the date of this Agreement until the Closing, complied
or will comply as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was or will
be prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted for presentation in Quarterly Reports on
Form 10-Q), and fairly presented or will fairly present the consolidated
financial position of Metzler and its Subsidiaries as at the respective dates
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount. The audited balance sheet of Metzler as of
December 31, 1997 is referred to herein as the "METZLER BALANCE SHEET."
4.5. Absence of Certain Changes or Events. Since the date of the Metzler SEC
Reports there has not been any transaction, commitment, dispute or any other
event or condition that individually or in the aggregate constitutes a Metzler
Material Adverse Effect.
4.6. Litigation. Except as described in the Metzler Disclosure Schedule,
there is no action, suit or proceeding, claim, arbitration or, to the
knowledge of Metzler, investigation against Metzler or any of its Subsidiaries
pending or as to which Metzler or any Subsidiary has received any written
notice of assertion. Except as disclosed in the Metzler Disclosure Schedule,
neither Metzler nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably
foreseen, individually or in the aggregate, would have a Metzler Material
Adverse Effect.
4.7. Licenses and Permits; Compliance with Law. Metzler and its Subsidiaries
hold all licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the
conduct of their respective businesses and the use of their respective assets,
except for such licenses, certificates, permits, franchises and rights the
absence of which would not individually or in the aggregate have a Metzler
Material Adverse Effect. Except for any matters which will not have a Metzler
Material Adverse Effect, Metzler and its Subsidiaries presently are conducting
their respective businesses so as to comply with all applicable statutes,
ordinances, rules, regulations and orders of any governmental authority.
Further, Metzler and its Subsidiaries are not presently charged with, or under
governmental investigation with respect to, any actual or alleged violation of
any statute, ordinance, rule or regulation, or presently the subject of any
pending or, to the knowledge of Metzler, threatened adverse proceeding by any
regulatory authority having jurisdiction over their respective businesses,
properties or operations. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will result in
the termination of any license, certificate, permit, franchise or right held
by Metzler or any of its Subsidiaries, and all such licenses, certificates,
permits, franchises and rights will inure to the benefit of the Surviving
Corporation after the consummation of the transactions contemplated by this
Agreement.
4.8. Pooling of Interests. Metzler is not aware of any facts or
circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby
as a "pooling of interests."
4.9. Registration Statement; Proxy Statement/Prospectus. The information
supplied by Metzler (including information concerning Sub) for inclusion in
the Registration Statement shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in
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the Registration Statement, not misleading. The information supplied by
Metzler (including information concerning Sub) for inclusion in the Proxy
Statement shall not, on the date the Proxy Statement is first mailed to the
shareholders of LECG and the stockholders of Metzler, at the time of the
Stockholders' Meetings and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it was made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Stockholders' Meetings which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Metzler or any of its Affiliates, officers or directors should be
discovered by Metzler which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Metzler shall
promptly inform LECG.
4.10. Complete Disclosure. No statement contained herein or in any
certificate, schedule, list, exhibit or other instrument furnished or required
to be furnished to LECG pursuant to the provisions hereof contains, or will at
the time it is furnished contain, any untrue statement of any material fact or
omits or omit to state any fact necessary to make the statements herein or
there not false or misleading. As used in this Section, "material" means
material to the financial condition, business, properties, rights or
operations of Metzler and its Subsidiaries, taken as a whole.
ARTICLE 5.
Conduct of Business
5.1. Covenants of LECG. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, LECG agrees as to itself and its Subsidiaries (except to the
extent that Metzler shall otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted, to pay its debts and taxes when due, subject
to good faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees, (iii) maintain its
properties, (iv) keep its insurance in force, and (v) preserve its
relationships with clients, suppliers, distributors, licensors, licensees, and
others having business dealings with it. LECG shall promptly notify Metzler of
any event or occurrence not in the Ordinary Course of Business of LECG or its
Subsidiaries, where such event or occurrence would result in a breach of any
covenant of LECG or its Subsidiaries, set forth in this Agreement or cause any
representation or warranty of LECG, set forth in this Agreement to be untrue
as of the date of, or giving effect to, such event or occurrence. Except as
expressly contemplated by this Agreement, LECG shall not, without the prior
written consent of Metzler which shall not be unreasonably withheld:
(a) Accelerate, amend or change the period of exercisability of options
or restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(b) Transfer or license to any Person or otherwise extend, amend or
modify any material rights to the LECG Intellectual Property Rights, other
than the grant of non-exclusive licenses in the Ordinary Course of Business
substantially consistent with past practices; issue any shares of LECG
capital stock or capital stock of any Subsidiary, or any securities which
may be exchanged or exercised for or converted into LECG capital stock or
the capital stock of any Subsidiary (including, without limitation, any
options or warrants) other than shares of LECG Common Stock issuable upon
exercise of Existing Options;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of
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its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, provided however that LECG may
grant options under the terms of its existing plans to newly hired or newly
promoted employees in the Ordinary Course of Business;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or assets of, or by any other manner, any
business or any corporation, partnership or other business organization or
division, or otherwise acquire or agree to acquire any assets;
(e) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to its
business and that of its Subsidiaries, taken as a whole, except for
transactions entered into in the Ordinary Course of Business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in the ordinary course in accordance with past
practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, officers, (iii)
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any employee, except in settlement of dispute
with terminated employees, (iv) enter into any collective bargaining
agreement, or (v) establish, adopt, enter into or amend in any material
respect any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, trust, fund, policy or arrangement
for the benefit of any directors, officers or employees;
(g) Revalue any material amount of its assets, including writing down the
value of inventory or writing off notes or accounts receivable other than
in the Ordinary Course of Business;
(h) Incur any Indebtedness for borrowed money or guarantee any such
Indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than Indebtedness incurred under outstanding lines of credit in the
Ordinary Course of Business;
(i) Incur or commit to incur aggregate capital expenditures in an amount
in excess of $1,000,000;
(j) Change or take any action with respect to accounting policies or
procedures, other than actions in the Ordinary Course of Business and
consistent with past practice;
(k) Waive, release, assign, settle or compromise any material claims or
litigation;
(l) Change the amortization or capitalization policies or otherwise make
any changes in the accounting policies of LECG and its Subsidiaries;
(m) Except as described on the LECG Disclosure Schedule, make any tax
election or settle or compromise any material federal, state, local or
foreign tax liability; or
(n) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (m) above, or any action which is
reasonably likely to make any of such party's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
5.2. Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Metzler and LECG shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations and shall promptly provide the other party or its counsel with
copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
5.3. Pooling Treatment. Neither Metzler nor LECG, nor any of their
respective Subsidiaries, shall take any action that would adversely affect the
ability of the parties hereto to account for the business combination to be
effected by the Merger as a pooling of interests.
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ARTICLE 6.
Additional Agreements
6.1. No Solicitation.
(a) LECG shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, through any officer, director, employee,
representative, agent or affiliate, (i) solicit, initiate, or encourage
(including by way of furnishing information) any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a
tender offer) or similar transactions involving LECG, other than the
transactions contemplated or permitted by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as a "COMPETING
OFFER"), (ii) engage in negotiations or discussions concerning, or provide any
non-public information to any Person relating to, any Competing Offer, or
(iii) agree to, approve or recommend any Competing Offer. Neither the Board of
Directors of LECG, nor any committee thereof, shall (a) withdraw or modify, or
propose to withdraw or modify, in any manner adverse to Metzler, the approval
or recommendation of the Board of Directors of LECG of the Merger or this
Agreement, or (b) approve or recommend, or propose to approve or recommend,
any Competing Offer or any other acquisition of outstanding shares of LECG,
other than pursuant to the Merger or this Agreement. Notwithstanding the
foregoing, nothing contained in this Agreement shall prevent LECG or its Board
of Directors from (A) furnishing non-public information to, or entering into
discussions or negotiations with, any Person in connection with an unsolicited
bona fide written Competing Offer by such Person (including a new and
unsolicited Competing Offer received by LECG after the execution of this
Agreement from a Person whose initial contact with LECG may have been
solicited by such party prior to the execution of this Agreement) or
recommending such an unsolicited bona fide written Competing Offer to its
shareholders, if and only to the extent that (1) (x) the LECG Board of
Directors determines in good faith (after consultation with and based upon the
written advice of its financial advisor, if any) that such Competing Offer
would, if consummated, result in a transaction more favorable to LECG's
shareholders than the transaction contemplated by this Agreement and that the
Person making such Preferred Proposal has the financial means, or the ability
to obtain the necessary financing, to conclude such transaction, and (y) the
Board of Directors of LECG determines in good faith (after consultation with
and based upon the written advice of its outside legal counsel) that the
failure to take such action would be inconsistent with the fiduciary duties of
the Board of Directors to its shareholders under applicable law (any such more
favorable Competing Offer being referred to in this Agreement as a "PREFERRED
PROPOSAL"); and (2) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such Person, the Board of
Directors receives from such Person an executed confidentiality agreement with
confidentiality provisions not materially less favorable to such Person than
those contained in the Confidentiality Agreement dated as of May 15, 1998
between Metzler and LECG (the "CONFIDENTIALITY AGREEMENT") or (B) complying
with Rule 14e-2 promulgated under the Exchange Act with regard to a Competing
Offer. LECG shall take no action with respect to the Competing Offer until 48
hours after notice is received by Metzler as required under Section 6.1(b)
below.
(b) LECG shall notify Metzler orally and in writing no later than 24 hours
after receipt by LECG (or its advisors) of any Competing Offer or any request
for nonpublic information in connection with a Competing Offer or for access
to the properties, books or records of such party by any Person that informs
such party that it is considering making, or has made, a Competing Offer. Such
notice to Metzler shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact.
6.2. Proxy Statement/Prospectus; Registration Statement
(a) As promptly as practicable after the execution of this Agreement,
Metzler and LECG shall prepare and file with the SEC the Proxy Statement, and
Metzler shall prepare and file with the SEC the Registration Statement in
which the Proxy Statement will be included. Metzler and LECG shall use their
best efforts to cause the Registration Statement to become effective as soon
after such filing as practicable, and the parties shall promptly
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furnish a copy of the Proxy Statement/prospectus included in the Registration
Statement to each of its shareholders or stockholders, as applicable, after
the Registration Statement has become effective.
(b) Metzler and LECG shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.
6.3. Consents. Each of Metzler and LECG shall use all reasonable efforts to
obtain all necessary consents, waivers and approvals under their respective
material agreements, contracts, licenses or leases as may be necessary or
advisable to consummate the Merger and the other transactions contemplated by
this Agreement.
6.4. Access to Information. Upon reasonable notice and subject to applicable
law and other legal obligations, LECG shall afford to the officers, employees,
accountants, counsel and other representatives of Metzler, access, during
normal business hours during the period prior to the Effective Time, to all
its properties, books, contracts, commitments, personnel and records and,
during such period, LECG shall furnish promptly to Metzler (a) a copy of each
report, schedule, registration statement and other document filed or received
by it during such period pursuant to the requirements of federal securities
laws and (b) all other information concerning its business, properties and
personnel as Metzler may reasonably request. Unless otherwise required by law,
the parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.4 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
6.5. Stockholders Meetings. LECG and Metzler shall each call a meeting of
their respective shareholders and stockholders, as applicable, to be held as
promptly as practicable for the purpose of voting upon this Agreement and the
Merger, with respect to LECG, and the issuance of the shares of Metzler Common
Stock contemplated hereunder, with respect to Metzler. Subject to Sections 6.1
and 6.2, LECG and Metzler will, through their respective Boards of Directors,
recommend to their respective shareholders and stockholders, as applicable,
approval of such matters and will coordinate and cooperate with respect to the
timing of such meetings and shall use their best efforts to hold such meetings
on the same day and as soon as practicable after the date hereof.
6.6. Legal Conditions to Merger. Each of Metzler and LECG will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on itself with respect to the Merger (which actions shall
include, without limitation, furnishing all information required in connection
with approvals of or filings with any Governmental Entity) and will promptly
cooperate with and will use their best efforts to furnish information to each
other in connection with any such requirements imposed upon any of them in
connection with the Merger. Each of Metzler and LECG will: (i) take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other third party, required to be obtained or
made by LECG or Metzler in connection with the Merger (any of the foregoing an
"APPROVAL") or the taking of any action contemplated thereby or by this
Agreement; (ii) diligently oppose or pursue any rehearing, appeal or other
challenge which may be available to it of any refusal to issue any Approval or
of any order or ruling of any Governmental Entity which may adversely affect
the ability of the parties hereto to consummate the Merger or to take any
action contemplated by any Approval or by this Agreement until such time as
such refusal to issue any Approval or any order or ruling has become final and
non-appealable; and (iii) diligently oppose any objections to, appeals from or
petitions to reconsider or reopen any Approval or the taking of any action
contemplated thereby or by this Agreement.
6.7. Public Disclosure. In the event that either party proposes to issue,
make or distribute any press release, public announcement or other written
publicity or disclosure prior to the Closing Date that refers to the
transactions contemplated herein, the party proposing to make such disclosure
shall provide a copy of such disclosure to the other parties and shall afford
the other parties reasonable opportunity (subject to any legal obligation of
prompt disclosure) to comment on such disclosure or the portion thereof which
refers to the transactions contemplated herein prior to making such
disclosure.
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6.8. Tax-Free Reorganization. Metzler and LECG shall each use its best
efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code and in connection therewith shall
deliver at the Closing the Tax Representation Letters (as defined in Section
7.3(d), required for the opinion of counsel contemplated by Sections 7.2(d)
and 7.3(d), respectively. For federal and state tax purposes, Metzler and LECG
shall report the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Tax Code and similar state laws.
6.9. Pooling Accounting. Metzler and LECG shall each use its best efforts to
cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. Each of Metzler and LECG shall use its best
efforts to cause its respective Affiliates (as defined in Section 6.12) to
avoid any action that would adversely affect the ability of Metzler to account
for the business combination to be effected by the Merger as a pooling of
interests.
6.10. Letters from Accountants.
(a) LECG shall use its best efforts to cause to be delivered to Metzler
"cold comfort" letters of Arthur Andersen LLP, its independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, respectively, and addressed to
Metzler, in form and substance reasonably satisfactory to Metzler, and
comparable in scope and substance to letters customarily delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and transactions such as those
contemplated by this Agreement.
(b) Metzler shall use its best efforts to cause to be delivered to LECG
"cold comfort" letters of KPMG Peat Marwick LLP, its independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, respectively, and addressed to LECG in
form and substance reasonably satisfactory to LECG and comparable in scope and
substance to letters customarily delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement and transactions such as those contemplated by this Agreement.
6.11. Update Disclosure; Breaches. From and after the date of this Agreement
until the Effective Time, each party hereto shall promptly notify the other
party, by written update to its Disclosure Schedule, of (i) the occurrence or
non-occurrence of any event which would be likely to cause any condition to
the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of
Metzler or LECG to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it pursuant to this Agreement which would
be likely to result in any condition to the obligations of any party to effect
the Merger and the other transactions contemplated by this Agreement not to be
satisfied. The delivery of any notice pursuant to this Section 6.11 shall not
cure any breach of any representation or warranty requiring disclosure of such
matter prior to the date of this Agreement or otherwise limit or affect the
remedies available hereunder to the party receiving such notice, provided that
such party, within ten (10) Business Days after receipt of such notice,
advises the other party of its objection to the matter disclosed in such
notice and the nature of such objection.
6.12. Affiliate Letter. Upon the execution of this agreement, Metzler and
LECG will provide each other with a list of those persons who are, in
Metzler's or LECG's respective reasonable judgment, "affiliates" of Metzler or
LECG, respectively, within the meaning of Rule 145 under the Securities Act
("RULE 145"). Each such person who is an "affiliate" of Metzler or LECG within
the meaning of Rule 145 is referred to herein as an "AFFILIATE." Metzler and
LECG shall provide each other such information and documents as LECG or
Metzler shall reasonably request for purposes of reviewing such list and shall
notify the other party in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. LECG shall use its best efforts to
deliver or cause to be delivered to Metzler by July 30, 1998 from each of the
Affiliates of LECG, an executed agreement, in the form attached hereto as
Exhibit A ("AFFILIATE LETTER"). Metzler shall be entitled to place appropriate
legends on the certificates evidencing any Metzler Common Stock to be received
by Affiliates of LECG pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Metzler
Common Stock, consistent with the terms of the Affiliate Letter.
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6.13. NASDAQ Quotation. Metzler shall use its best efforts to cause the
shares of Metzler Common Stock to be issued in the Merger to be listed or
approved for listing on The Nasdaq National Market, subject to official notice
of issuance, prior to the Closing Date.
6.14. Employees. Upon the request of Metzler, LECG shall provide Metzler,
within three (3) business days of such request, a true, correct and complete
list setting forth the names and current salaries or rates of compensation and
current bonus plans and bonus compensation structure of all current employees
of LECG and its Subsidiaries and current independent contractors who render
services to LECG and its Subsidiaries on more than a single occasion.
6.15. Brokers or Finders. Each of Metzler and LECG represents, as to itself,
its Subsidiaries and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except Legg Mason
Wood Walker, whose fees and expenses (not to exceed $255,000) will be paid by
LECG in accordance with LECG's agreement with such firm (a copy of which has
been delivered by LECG to Metzler prior to the date of this Agreement), and
Donaldson Lufkin & Jenrette Securities Corporation, whose fees and expenses
will be paid by Metzler in accordance with Metzler's agreement with such firm
(a copy of which has been delivered by Metzler prior to the date of this
Agreement), and each of Metzler and LECG agrees to indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other fees, commissions or expenses asserted by any person
on the basis of any act or statement alleged to have been made by such party
or its Affiliate.
6.16. Indemnification of Directors and Officers.
(a) After the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless,
each present and former director or officer of LECG and each Subsidiary of
LECG (collectively, the "INDEMNIFIED PARTIES") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, administrative or investigative, arising out
of or pertaining to any action or omission in their capacity as an officer or
director to whom this Section 6.16 applies, in each case occurring before the
Effective Time (including the transactions contemplated by this Agreement).
(b) In the event the Surviving Corporation or its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger
or (ii) transfers all or substantially all its properties and assets to any
Person, then, and in each case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation, as the case may be, honor
the indemnification obligations set forth in this Section 6.16.
(c) The Surviving Corporation shall, for a period of at least three (3)
years from the Effective Time, retain LECG's existing Director and Officer
insurance or obtain "claims made" tail coverage with respect to LECG's
existing Director and Officer insurance.
(d) The provisions contained in this Section 6.16 shall not limit any of the
rights that an Indemnified Party may have under any current indemnification
agreement between the Indemnified Party and LECG. The Indemnified Parties
shall be considered to be third party beneficiaries with respect to this
Section 6.16.
6.17. Additional Agreements; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the appropriate vote of the
shareholders of LECG and the stockholders of Metzler described in Section 6.5,
including cooperating fully with the other party. In case at any time after
the Effective Time any further action is necessary or desirable to carry
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out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary
action.
6.18. Stock Option Agreements. LECG and Metzler agree to fully perform their
respective obligations under the Stock Option Agreements.
6.19. Trading Prohibitions. Each of Metzler, Sub and LECG hereby
acknowledges that as a result of disclosures by Metzler, Sub and LECG
contemplated under this Agreement, Metzler, Sub, LECG and its Subsidiaries and
their respective Affiliates may, from time to time, have material, non-public
information concerning each other. Each of Metzler, Sub and LECG confirms that
it and its respective Affiliates are aware, and that it has advised such
persons that, (i) the United States securities laws may prohibit a Person who
has material, non-public information from purchasing or selling securities of
any company to which such information relates, and (ii) material non-public
information shall not be communicated to any other Person except as permitted
herein.
6.20. Voting Agreement and Registration Rights Agreement. Contemporaneously
with the execution of this Agreement David J. Teece, Thomas M. Jorde, Robert
G. Harris and Richard J. Gilbert have executed, and LECG will use its best
efforts to cause Gordon C. Rausser (collectively "LECG INSIDERS") to execute a
voting agreement whereby each party to such agreement has agreed to vote in
favor of the Merger. In addition, Metzler has entered into a Registration
Rights Agreement with the LECG Insiders, contemporaneously with this
Agreement.
6.21. Reserving of Metzler Common Stock. Metzler agrees to reserve, in the
aggregate, 1,200,000 shares of Metzler Common Stock for issuance (i) pursuant
to the Assumed Options under Section 2.1(d) of this Agreement and (ii)
pursuant to options granted under The Metzler Group, Inc. Long-Term Incentive
Plan, as amended, specifically for current and future employees of LECG.
6.22. Delivery of LECG Disclosure Schedule. LECG shall deliver the LECG
Disclosure Schedule to Metzler by no later than the 5:00 p.m., Central
Daylight Time, on July 2, 1998 or such later date agreed to by the parties. If
either (i) LECG fails to deliver the LECG Disclosure Schedule to Metzler by
such time, or (ii) Metzler objects in writing to the matters disclosed on the
LECG Disclosure Schedule within three (3) business days of its receipt of the
LECG Disclosure Schedule and the Parties do not reach a mutually acceptable
resolution with respect to such objections within three (3) business days
thereafter, then, notwithstanding any other provision of this Agreement to the
contrary, either Party may terminate this Agreement by written notice without
further obligation.
ARTICLE 7.
Conditions to Merger
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved by the affirmative vote of the holders of a majority of the
outstanding shares of LECG Common Stock entitled to vote thereon and the
issuance of the shares of Metzler Common Stock pursuant to this Agreement
shall have been approved by the affirmative vote of the holders of a
majority of the outstanding shares of Metzler Common Stock, entitled to
vote thereon, present at a meeting at which a quorum is present in person
or by proxy.
(b) Intentionally Omitted.
(c) Approvals. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the absence or nonoccurrence of which would be
reasonably likely to have a LECG
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Material Adverse Effect or a Metzler Material Adverse Effect shall have
been filed, occurred or been obtained.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting the conduct or operation by Metzler of the business of Metzler
or the Surviving Corporation after the Merger shall have been issued,
except for any such order, injunction restraint or prohibition which would
not be reasonably likely to have a material adverse effect on Metzler; nor
shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger by any
Governmental Entity which makes the consummation of the Merger illegal.
(f) Pooling Letters. Metzler and LECG shall have received letters from
KPMG Peat Marwick LLP and Arthur Andersen LLP, respectively, each dated the
date of the Proxy Statement and confirmed in writing as of the Closing Date
and addressed to Metzler and LECG, respectively, stating that the Merger
may be accounted for as a pooling of interests transaction.
(g) NASDAQ Approval. The shares of Metzler Common Stock to be issued in
the Merger shall have been listed or approved for listing on The Nasdaq
National Market.
(h) Appraisal Rights. The holders of the issued and outstanding shares of
LECG Common Stock shall not have effectively exercised dissenters' rights
pursuant to the CGCL in an amount that would cause the Merger, after taking
into consideration all other elements of consideration which may be deemed
payable, to not be eligible for accounting as a pooling-of-interest
transaction.
7.2. Additional Conditions to Obligations of Metzler. The obligations of
Metzler to effect the Merger are subject to the satisfaction of each of the
following conditions, any of which may be waived in writing exclusively by
Metzler:
(a) Representations and Warranties. The representations and warranties of
LECG set forth in this Agreement shall be (i) true and correct as of the
date of this Agreement; and (ii) true and correct as of the Closing Date as
though made on and as of the Closing Date, except in the case of this
clause (ii) to the extent such representations and warranties speak as of
an earlier date, and except (with respect to all representations and
warranties other than those in Section 3.23) for such inaccuracies which
would not reasonably be expected to result in a LECG Material Adverse
Effect (reading all such representations and warranties without giving
effect to qualifications based on materiality therein); and Metzler shall
have received a certificate signed on behalf of LECG by the chief executive
officer and the chief financial officer of LECG to such effect.
(b) Performance of Obligations of LECG. LECG shall have performed in all
material respects all material obligations required to be performed by it
under this Agreement at or prior to the Closing Date; and Metzler shall
have received a certificate signed on behalf of LECG by the chief executive
officer and the chief financial officer of LECG to such effect.
(c) Opinion of LECG's Counsel. Metzler and Sub shall have received an
opinion of counsel for LECG covering such matters as is customary in a
transaction of this type and in form and substance reasonably satisfactory
to Metzler and Sub.
7.3. Additional Conditions to Obligations of LECG. The obligation of LECG to
effect the Merger is subject to the satisfaction of each of the following
conditions, any of which may be waived, in writing, exclusively by LECG:
(a) Representations and Warranties. The representations and warranties of
Metzler set forth in this Agreement shall be (i) true and correct in all
material respects as of the date of this Agreement; and (ii) true and
correct as of the Closing Date as though made on and as of the Closing
Date, except in the clause of
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this clause (ii) to the extent such representations and warranties speak as
of an earlier date, and except (with respect to all representations and
warranties other than those in Section 4.9) for such inaccuracies which
would not reasonably be expected to result in a Metzler Material Adverse
Effect (reading all such representations and warranties without giving
effect to qualifications based on materiality therein); and LECG shall have
received a certificate signed on behalf of Metzler by the chief executive
officer and the chief financial officer of Metzler to such effect
(b) Performance of Obligations of Metzler. Metzler shall have performed
in all material respects all material obligations required to be performed
by them under this Agreement at or prior to the Closing Date; and LECG
shall have received a certificate signed on behalf of Metzler by the chief
executive officer and the chief financial officer of Metzler to such
effect.
(c) Opinion of Metzler's Counsel. LECG shall have received an opinion of
counsel for Metzler and Sub covering such matters as is customary in a
transaction of this type and in form and substance reasonably satisfactory
to LECG.
(d) Tax Opinion. LECG shall have received the opinion of Wilson Sonsini
Goodrich & Rosati, P.C., counsel to LECG, to the effect that the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code. In rendering such opinions, such
counsel may rely upon the representations contained in the certificates of
Metzler and LECG in substantially the form attached hereto as Exhibits B
and C, respectively (the "Tax Representation Letters") and Metzler; and
LECG and Metzler will make, and each of them agrees to use reasonable
efforts to cause such of its respective shareholders and stockholders, as
applicable, to make, such representations and deliver such certificates.
7.4. Closing.
(a) Transactions at Closing. At the Closing, each of the following
transactions shall occur:
(b) LECG's Performance. At the Closing, LECG shall deliver to Metzler the
following:
(i) copies of the consents described in Section 3.4(b);
(ii) satisfactory evidences of the approvals described in Section 7.1(a);
(iii) the certificate described in Section 7.2(a) and (b);
(iv) certificates of compliance or certificates of good standing of LECG
and its Subsidiaries, as of the most recent practicable date, from the
appropriate governmental authority of the jurisdiction of their respective
incorporation and any other jurisdiction that is set forth on the LECG
Disclosure Schedule;
(v) certified copies of resolutions of the Board of Directors and
shareholders of LECG approving the transactions set forth in this
Agreement;
(vi) certificates of incumbency for the officers of LECG;
(vii) Certificates of Merger, each in form and content that complies with
the CGCL and the DGCL, executed by LECG;
(viii) the opinion of counsel for LECG, referenced in Section 7.2(c);
(ix) the Affiliate Letter and Voting and Registration Rights Agreements
described in Sections 6.12 and 6.20, respectively;
(x) the letters described in Section 6.8;
(xi) such other evidence of the performance of all covenants and
satisfaction of all conditions required of LECG by this Agreement, at or
prior to the Closing, as Metzler or its counsel may reasonably require.
(c) Performance by Metzler. At the Closing, Metzler shall deliver to LECG
the following:
(i) the certificate described in Section 7.3 (a) and (b);
(ii) certificates of incumbency of the officers of Metzler who are
executing this Agreement and the other documents contemplated hereunder;
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(iii) certified copies of resolutions of the Boards of Directors of
Metzler approving the transactions set forth in this Agreement;
(iv) Certificates of Merger, each in form and content that complies with
the CGCL and the DGCL, executed by Metzler;
(v) the opinion of counsel for Metzler referenced in Section 7.3(c); and
(vi) such other evidence of the performance of all the covenants and
satisfaction of all of the conditions required of Metzler by this Agreement
at or before the Closing as LECG or its counsel may reasonably require.
ARTICLE 8.
Termination and Amendment
8.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 8.1(b) through 8.1(h), by written
notice by the terminating party to the other party), whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Metzler or the shareholders of LECG, as follows:
(a) by mutual written consent of Metzler and LECG; or
(b) by either Metzler or LECG if the Merger shall not have been
consummated by October 31, 1998 (provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date; or
(c) by either Metzler or LECG if a court of competent jurisdiction or
other Governmental Entity shall have issued a final order, decree or
ruling, or taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, and all appeals
with respect to such order or action have been exhausted or the time for
appeal of such order, decree, ruling or action shall have expired; or
(d) by either Metzler or LECG if, at the LECG Shareholders' Meeting or
the Metzler Stockholders Meeting to be held in due course (including any
adjournment or postponement thereof), the requisite vote of shareholders of
LECG or stockholders of Metzler in favor of this Agreement and the Merger
shall not have been obtained (provided, that the right to terminate this
Agreement under this Section 8.1(d) shall not be available to any party
which has not complied with its obligations hereunder in all material
respects; or
(e) by Metzler if (i) the Board of Directors of LECG shall have withdrawn
or modified its recommendation of this Agreement or the Merger in a manner
adverse to Metzler or shall have resolved or publicly announced or
disclosed to any third party its intention to do so; (ii) an Alternative
Transaction (as defined below) involving LECG shall have taken place or the
Board of Directors of LECG shall have recommended such an Alternative
Transaction to the shareholders of LECG or shall have resolved or publicly
announced its intention to recommend or engage in such an Alternative
Transaction; or (iii) a tender offer or exchange offer for forty percent
(40%) or more of the outstanding shares of LECG Common Stock shall have
been commenced or a registration statement with respect thereto shall have
been filed (other than by Metzler or an affiliate thereof), and the Board
of Directors of LECG shall have (A) recommended (or shall have resolved or
publicly announced its intention to recommend) that the shareholders of
LECG tender their shares in such tender or exchange offer or (B) resolved
or publicly announced its intention to take no position with respect to
such tender or exchange offer; or
(f) by Metzler if a breach of any representation, warranty, covenant or
agreement on the part of LECG set forth in this Agreement shall have
occurred which would cause the conditions set forth in Sections 7.2(a) or
7.2(b) not to be satisfied, and, that with respect to any breach of a
covenant or agreement hereunder, such covenant or agreement is incapable of
being cured or, if capable of being cured, shall not have been cured within
twenty (20) Business Days following receipt by LECG of written notice of
such breach from Metzler; or
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(g) by LECG, (i) the Board of Directors of Metzler shall have withdrawn
or modified its recommendation of this Agreement or the Merger in a manner
adverse to LECG or shall have resolved or publicly announced or disclosed
to any third party its intention to do so, or (ii) if the Board of
Directors of LECG shall have determined to recommend a Competing Offer to
its shareholders after determining, pursuant to Section 6.1, that such
Competing Offer constitutes a Preferred Proposal, provided, however, that
the Board of Directors of LECG shall provide Metzler with 48 hours prior
written notice before recommending such Competing Offers to its
shareholders; or
(h) by LECG, if a breach of any representation, warranty, covenant or
agreement on the part of Metzler set forth in this Agreement shall have
occurred which would cause the conditions set forth Sections 7.3(a) or
7.3(b) not to be satisfied, and, with respect to any breach of a covenant
or agreement hereunder, such covenant or agreement is incapable of being
cured or, if capable of being cured, shall not have been cured within
twenty (20) Business Days following receipt by LECG of written notice of
such breach from Metzler; or
(i) by Metzler if LECG's revenues, margins and earnings per share, as
reported for the three months ended June 30, 1998, shall be less than the
estimates for such period previously provided to Metzler by LECG, or by
LECG if Metzler's revenues, margins and earnings per share, as reported for
the three months ended June 30, 1998, shall be less than the estimates for
such period previously provided to LECG by Metzler. Metzler or LECG must
exercise their respective right to terminate this Agreement pursuant to
this Section 8.1(i), if at all, within the ten (10) business days following
the public disclosure of other party's second quarter financial results.
For purposes of this Section 8.1, an "ALTERNATIVE TRANSACTION" involving a
specified party to this Agreement means: (i) a transaction or series of
transactions pursuant to which any person or group (as such term is defined
under the Exchange Act) other than Metzler, LECG or Sub, or any affiliate
thereof, (a "THIRD PARTY") acquires or would acquire (upon completion of such
transaction or series of transactions) shares (or securities exercisable for
or convertible into shares) representing more than forty percent (40%) of the
outstanding shares of LECG's common stock, pursuant to a tender offer or
exchange offer or otherwise; (ii) a merger, consolidation, share exchange or
other business combination involving LECG or any of its material Subsidiaries
if, upon consummation of such merger, consolidation, share exchange or other
business combination such Third Party owns or would own more than forty
percent (40%) of the outstanding equity securities of LECG or any of its
material Subsidiaries or the entity surviving such merger or business
combination or resulting from such consolidation; (iii) any other transaction
or series of transactions pursuant to which any Third Party acquires or would
acquire (upon completion of such transaction or series of transactions)
control of assets of LECG or any of its material Subsidiaries (including, for
this purpose, outstanding equity securities of Subsidiaries of such party)
having a fair market value equal to more than forty percent (40%) of the fair
market value of all the consolidated assets of such party immediately prior to
such transaction or series of transactions; or (iv) any transaction or series
of transactions pursuant to which any Third Party acquires or would acquire
(upon completion of such transaction or series of transactions) control of the
Board of Directors of LECG or by which nominees of any Third Party are (or
would be) elected or appointed to a majority of the seats on the Board of
Directors of LECG.
8.2. Effect of Termination. In the event of termination of this Agreement
pursuant to Section 8.1, there shall be no Liability or obligation on the part
of Metzler, LECG, or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 8.3 and further except to the
extent that such termination results from the willful breach by a party of any
of its representations, warranties, covenants or agreements in this Agreement;
and provided, that the provisions of Section 8.3 of this Agreement and the
Confidentiality Agreement shall remain in full force and effect and survive
any termination of this Agreement.
8.3. Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that Metzler and LECG shall share equally
all fees and expenses,
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other than attorneys', financial advisors and accounting fees and expenses,
incurred in relation to the printing and filing of the Proxy Statement
(including any related preliminary materials) and the Registration Statement
(including financial statements and exhibits) and any amendments or
supplements thereto in connection with the transactions contemplated by this
Agreement.
(b) Intentionally Omitted.
(c) If this Agreement is terminated (i) by Metzler pursuant to Section
8.1(e), (ii) by LECG pursuant to Section 8.1(d) as a result of the failure to
receive the requisite vote for approval of this Agreement and the Merger by
the shareholders of LECG at the LECG Shareholders' Meeting, (iii) by LECG
pursuant to Section 8.1(g), (iv) by Metzler pursuant to Section 8.1(f) as a
result of a breach by LECG of any of its representations, warranties or
covenants, or (v) by Metzler pursuant to Section (8.1(i), LECG shall pay to
Metzler all fees and expenses incurred by Metzler relating to this Agreement
and the transactions contemplated hereby ("METZLER EXPENSES") within five
business days after receipt of such request.
(d) If this Agreement is terminated (i) by LECG if the Board of Directors of
Metzler shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Metzler or shall have resolved or
publicly announced or disclosed to any third party its intention to do so,
(ii) by Metzler pursuant to Section 8.1(d) as a result of the failure to
receive the requisite vote for approval of this Agreement and the Merger by
the stockholders of Metzler at the Metzler Stockholders' Meeting, (iii) by
LECG pursuant to Section 8.1(h), or (iv) by LECG pursuant to Section 8.1(i),
Metzler shall pay to LECG all fees and expenses incurred by LECG relating to
this Agreement and the transactions contemplated hereby ("LECG EXPENSES")
within five business days after receipt of such request.
(e) Intentionally Omitted.
(f) If LECG fails to promptly pay to Metzler any fee or expense due
hereunder, LECG shall pay the costs and expenses (including reasonable legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate
as reported in the Wall Street Journal from the date such fee was required to
be paid.
8.4. Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the shareholders of LECG or the stockholders of Metzler, but, after
any such approval, no amendment shall be made which by law requires further
approval by such shareholders or stockholders, as applicable, without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.5. Extension; Waiver. At any time prior to the Effective Time, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE 9.
Miscellaneous
9.1. Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing and
the Effective Time, except for covenants and agreements which, by their terms,
are to be performed after the Effective Time and the agreements of the
Affiliates of LECG delivered pursuant hereto. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement.
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9.2. Notices. All notices, requests and demands, and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or mailed by registered or
certified mail (return receipt requested), or sent by Federal Express or
similar overnight delivery service, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Metzler or Sub, to: The Metzler Group, Inc. 615 N. Wabash,
Chicago, Illinois, 60611, Attention: Robert P. Maher, Facsimile No.: (312)
573-5676, with a copy to Sachnoff & Weaver, Ltd., 30 South Wacker Drive,
Suite 2900, Chicago, IL 60606, Attention: Douglas R. Newkirk, Facsimile
No.: (312) 207-6400; and
(b) if to LECG, Inc. to: LECG 2000 Powell Street, Emeryville, California
94608, Attention: Thomas M. Jorde, Facsimile No.: (510)653-9693, with a
copy to Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650
Page Mill Road, Palo Alto, California 94304, Attention: Michael J. Danaher,
Facsimile No.: (650) 493-6811.
If delivered personally, the date on which a notice, request, instruction or
document is delivered shall be the date on which such delivery is made and, if
delivered by mail or by overnight delivery service, the date on which such
notice, request, instruction or document is received shall be the date of
delivery. In the event any such notice, request, instruction or document is
mailed or shipped by overnight delivery service to a party in accordance with
this Section 9.2 and is returned to the sender as nondeliverable, then such
notice, request, instruction or document shall be deemed to have been
delivered or received on the fifth day following the deposit of such notice,
request, instruction or document in the United States mails or the delivery to
the overnight delivery service.
Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 9.2.
9.3. Interpretation. The parties have jointly participated in the
negotiation and drafting of this Agreement. In the event of an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumptions or burdens of proof
shall arise favoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any Federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
parties intend that each representation, warranty and covenant contained
herein shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which
the party has not breached shall not detract from or mitigate the fact that
the party is in breach of the first representation, warranty, or covenant.
Each defined term used in this Agreement has a comparable meaning when used in
its plural or singular form. Each gender-specific term used herein has a
comparable meaning whether used in a masculine, feminine or gender-neutral
form. The term "INCLUDE" and its derivatives shall have the same construction
as the phrase "INCLUDE, WITHOUT LIMITATION," and its derivatives. The section
headings contained in this Agreement are inserted for convenience or reference
only and shall not affect in any way the meaning or interpretation of this
Agreement. When a reference is made in this Agreement to a section, such
reference shall be to a Section of this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The phrase "MADE AVAILABLE" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.
The phrases "THE DATE OF THIS AGREEMENT", "THE DATE HEREOF," and terms of
similar import, unless otherwise specified, shall be deemed to refer to July
1, 1998, and all representations made herein, unless otherwise specified.
9.4. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
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9.5. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules. If any provision of this Agreement is held
to be unenforceable for any reason, it shall be modified rather than voided,
if possible, in order to achieve the intent of the parties to the extent
possible. In any event, all other provisions of this Agreement shall be deemed
valid and enforceable to the extent possible.
9.6. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties, and any attempted assignment thereof without such consent shall
be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
9.7. Entire Agreement; No Third Party Beneficiaries. This Agreement and all
agreements referenced specifically in this Agreement and executed as required
by this Agreement constitute the entire agreement among the parties hereto and
supersede and cancel any prior agreements, representations, warranties, or
communications, whether oral or written, among the parties hereto relating to
the transactions contemplated hereby or the subject matter herein. Neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought. This Agreement is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
9.8. No Agreement Until Executed. This Agreement shall not constitute or be
deemed to evidence a contract or agreement among the parties hereto unless and
until executed by all parties hereto, irrespective, of negotiations among the
parties or the exchanging of drafts of this Agreement.
9.9. Severability. In the event that any court or any governmental authority
or agency declares all or any part of any Section of this Agreement to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any other Section of this Agreement, and in the event that only a
portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
9.10. Exhibits and Schedules Incorporated. All Exhibits and Schedules
attached hereto are an integral part of this Agreement.
9.11. Time of Essence. Time is of the essence in this Agreement.
In Witness Whereof, Metzler, Sub and LECG have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
The Metzler Group, Inc.
LECG, Inc.
/s/ Robert P. Maher
/s/ Thomas M. Jorde By: _________________________________
By: _________________________________ Chief Executive Officer and
President President
Title: ______________________________ Title: ______________________________
MGI Acquisition Corp.
/s/ Robert P. Maher
By: _________________________________
Chief Executive Officer and
President
Title: ______________________________
[Signature page to the Agreement and plan of Merger by and among Metzler, Sub
and LECG]
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ANNEX B
DISSENTERS' RIGHTS UNDER CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW
(S) 1300. Reorganization or short form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S) 1301. Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The
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statement of price constitutes an offer by the corporation to purchase at the
price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
(S) 1302. Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S) 1303. Payment of agreed price with interest; agreement fixing fair market
value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S) 1304. Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
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<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S) 1306. Prevention of immediate payment; status as creditors; interest
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S) 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
(S) 1308. Rights of dissenting shareholders pending valuation; withdrawal of
demand for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
B-3
<PAGE>
(S) 1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
(S) 1312. Right of dissenting shareholder to attack, set aside or rescind
merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short form merger, or to have the reorganization or short form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short
form merger or to have the reorganization or short form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short form
merger or to have the reorganization or short form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that
B-4
<PAGE>
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short form merger, in any action to attack the
validity of the reorganization or short form merger or to have the
reorganization or short form merger set aside or rescinded, (1) a party to a
reorganization or short form merger which controls another party to the
reorganization or short form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
B-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article XIII of The
Registrant's Amended and Restated Certificate of Incorporation provides that
no director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability except
for liability: (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
under Section 174 of the DGCL, as the same exists or hereafter may be amended;
or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination
or limitation of liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by a amended DGCL.
Any repeal or modification of this Article XIII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
The Registrant's Certificate of Incorporation contains provisions that
require The Registrant to indemnify its directors and officers to the fullest
extent permitted by Delaware law.
The Registrant has entered into indemnification agreements with each of its
Executive officers and directors in which The Registrant agrees to indemnify
and hold harmless the officer or director to the fullest extent permitted by
applicable law against any and all reasonable attorneys' fees and all other
reasonable expense, cost, liability and loss (including a mandatory obligation
by The Registrant to advance reimbursement of legal fees and expenses) paid or
reasonably incurred by such officer or director or on his or her behalf in
connection with any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation not initiated by the officer or
director that he or she believes in good faith might lead to a proceeding,
inquiry or investigation (a "Proceeding"), relating to the fact that the
officer or director is or was a director, officer, employee or agent of The
Registrant, or is or was serving at the request of The Registrant as a
director, officer, employee, trustee, agent or fiduciary of another
Corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of any action or inaction by the officer or director
in such capacity. However, the Registrant's obligation to indemnify the
officer or director is subject to a determination by: (i) the Registrant's
Board of Directors, by vote of the majority of disinterested directors; (ii)
under certain circumstances, independent legal counsel appointed by the Board
of Directors in a written opinion; (iii) stockholders of the Registrant; or
(iv) a Court of competent jurisdiction in a final, nonappealable adjudication,
that the officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal Proceeding, the officer or
director acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Registrant, and with respect
to any criminal Proceeding, the officer or director had no reasonable cause to
believe that his or her conduct was unlawful.
II-1
<PAGE>
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
<C> <S> <C>
2.1 Agreement and Plan of Merger (included as Annex A to the Proxy
Statement/Prospectus contained in Part I of this Registration
Statement)
2.2 Form of Voting Agreement
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amendment No. 1 to Amended and Restated Certificate of
Incorporation (2)
3.3 Amended and Restated By-Laws (3)
4 Form of Registration Agreement between the Registrant and certain
LECG shareholders
5 Opinion of Sachnoff & Weaver, Ltd.
10.1 Form of Indemnification Agreement between Metzler and each of its
directors and officers (4)
10.2 The Metzler Group, Inc. Long-Term Incentive Plan (1)
10.3 Amendment No. 1 to The Metzler Group, Inc. Long-Term Incentive
Plan, dated November 1, 1997. (3)
10.4 The Metzler Group, Inc. Employee Stock Purchase Plan (5)
10.5 Amendment No. 1 to The Metzler Group, Inc. Employee Stock
Purchase Plan (6)
10.6 Amendment No. 2 to The Metzler Group, Inc. Employee Stock
Purchase Plan (6)
10.7 Plan and Agreement of Merger and Purchase Agreement as of July
31, 1997 by and among The Metzler Group, Inc., a Delaware
corporation, RMI Acquisition Co., a Delaware corporation,
Resource Management International, Inc., a California
corporation, and each of the shareholders of Resource Management
International, Inc. (7)
21 Significant Subsidiaries of Metzler (4)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Sachnoff & Weaver, Ltd. (included in Exhibit 5)
24 Powers of Attorney (included on signature page)
</TABLE>
- --------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-9019) filed with the SEC on July 26, 1996.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
1997.
II-2
<PAGE>
(3) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 (Registration No. 333-40489) filed with
the SEC on February 12, 1998.
(4) Incorporated by reference from Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-9019) filed with
the SEC on September 20, 1996.
(5) Incorporated by reference from the Registrant's Statement on Form S-8
(Registration No. 333-30265) filed with the SEC on June 27, 1997.
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed with the SEC on April 1, 1998.
(7) Incorporated by reference from the Registrant's Registration Statement on
Form 8-K filed with the SEC on August 14, 1997.
(b) Financial Statement Schedules
Included in the Joint Proxy Statement--Prospectus contained in Part I of
this Registration Statement
(c) Not Applicable
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment 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.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired, involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the
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 Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS ON JULY 21, 1998.
The Metzler Group, Inc.
/s/ Robert P. Maher
By: _________________________________
Robert P. Maher
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
THE UNDERSIGNED DIRECTORS AND OFFICERS OF THE METZLER GROUP, INC. DO HEREBY
CONSTITUTE AND APPOINT ROBERT P. MAHER AND CHARLES A. DEMIRJIAN, AND EACH OF
THEM, WITH FULL POWER OF SUBSTITUTION, OUR TRUE AND LAWFUL ATTORNEYS-IN-FACT
AND AGENTS TO DO ANY AND ALL ACTS AND THINGS IN OUR NAME AND BEHALF IN OUR
CAPACITIES AS DIRECTORS AND OFFICERS, AND TO EXECUTE ANY AND ALL INSTRUMENTS
FOR US AND IN OUR NAMES IN THE CAPACITIES INDICATED BELOW WHICH SUCH PERSON
MAY DEEM NECESSARY OR ADVISABLE TO ENABLE THE METZLER GROUP, INC. TO COMPLY
WITH THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ANY
RULES, REGULATIONS AND REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION,
IN CONNECTION WITH THIS REGISTRATION STATEMENT, INCLUDING SPECIFICALLY, BUT
NOT LIMITED TO, POWER AND AUTHORITY TO SIGN FOR US, OR ANY OF US, IN THE
CAPACITIES INDICATED BELOW AND ANY AND ALL AMENDMENTS (INCLUDING PRE-EFFECTIVE
AND POST-EFFECTIVE AMENDMENTS OR ANY OTHER REGISTRATION STATEMENT FILED
PURSUANT TO THE PROVISIONS OF RULE 462(B) UNDER THE SECURITIES ACT) HERETO;
AND WE DO HEREBY RATIFY AND CONFIRM ALL THAT SUCH PERSON OR PERSONS SHALL DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, 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 Director, President and July 21, 1998
____________________________________ Chief
Robert P. Maher Executive Officer
(Principal Executive
Officer)
/s/ James F. Hillman Chief Financial Officer July 21, 1998
____________________________________ (Principal
James F. Hillman Financial and Accounting
Officer)
/s/ Barry S. Cain Director July 21, 1998
____________________________________
Barry S. Cain
/s/ Peter B. Pond Director July 21, 1998
____________________________________
Peter B. Pond
/s/ James T. Ruprecht Director July 21, 1998
____________________________________
James T. Ruprecht
/s/ Mitchell H. Saranow Director July 21, 1998
____________________________________
Mitchell H. Saranow
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger (included as Annex A to the Proxy
Statement/Prospectus contained in Part I of this Registration
Statement)
2.2 Form of Voting Agreement
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amendment No. 1 to Amended and Restated Certificate of
Incorporation (2)
3.3 Amended and Restated By-Laws (3)
4 Form of Registration Agreement between the Registrant and
certain LECG shareholders
5 Opinion of Sachnoff & Weaver, Ltd.
10.1 Form of Indemnification Agreement between Metzler and each of
its directors and officers (4)
10.2 The Metzler Group, Inc. Long-Term Incentive Plan (1)
10.3 Amendment No. 1 to The Metzler Group, Inc. Long-Term Incentive
Plan, dated November 1, 1997. (3)
10.4 The Metzler Group, Inc. Employee Stock Purchase Plan (5)
10.5 Amendment No. 1 to The Metzler Group, Inc. Employee Stock
Purchase Plan (6)
10.6 Amendment No. 2 to The Metzler Group, Inc. Employee Stock
Purchase Plan (6)
10.7 Plan and Agreement of Merger and Purchase Agreement as of July
31, 1997 by and among The Metzler Group, Inc., a Delaware
corporation, RMI Acquisition Co., a Delaware corporation,
Resource Management International, Inc., a California
corporation, and each of the shareholders of Resource
Management International, Inc. (7)
21 Significant Subsidiaries of Metzler (4)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Sachnoff & Weaver, Ltd. (included in Exhibit 5)
24 Powers of Attorney (included on signature page)
</TABLE>
<PAGE>
- --------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-9019) filed with the SEC on July 26, 1996.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
1997.
(3) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 (Registration No. 333-40489) filed with
the SEC on February 12, 1998.
(4) Incorporated by reference from Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-9019) filed with
the SEC on September 20, 1996.
(5) Incorporated by reference from the Registrant's Statement on Form S-8
(Registration No. 333-30265) filed with the SEC on June 27, 1997.
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
filed with the SEC on April 1, 1998.
(7) Incorporated by reference from the Registrant's Registration Statement on
Form 8-K filed with the SEC on August 14, 1997.
2
<PAGE>
THE METZLER GROUP, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS AUGUST 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE METZLER
GROUP, INC.
The undersigned hereby appoints Robert P. Maher and Charles A. Demirjian, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent the undersigned at the Special Meeting of
Stockholders of The Metzler Group, Inc. (the "Company") to be held at 4:00 p.m.
Chicago time on Wednesday, August 19, 1998 at the Mid-America Club located at
200 E. Randolph Dr., Chicago, Illinois, and at any adjournments or
postponements thereof, and to vote, as designated on the reverse side, the
number of shares the undersigned would be entitled to vote if personally
present at the meeting on the following matters set forth on the reverse side:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. WHEN NO CHOICE
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL. In their discretion,
the proxy holders are authorized to vote upon such other business as may
properly come before the meeting or any adjournments or postponements thereof
to the extent authorized by Rule 14a-4(c) promulgated under the Securities
Exchange Act of 1934, as amended.
The Board of Directors recommends that you vote FOR The Proposal.
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
SEE REVERSE
SIDE
----
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
X
FOR
AGAINST
ABSTAIN
1. Issuance of Shares of Metzler Common Stock to the Shareholders of LECG Inc.,
in connection with the Merger.
Whether or not you plan to attend the Meeting in Person, you are urged to
complete, date, sign and promptly mail this proxy in the enclosed return
envelope so that your shares may be represented at the meeting.
SIGNATURE(S) __________________________DATE ___________________________________
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
<PAGE>
LOGO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LECG, INC.
SPECIAL MEETING OF SHAREHOLDERS
The undersigned Shareholder of LECG, Inc., a California corporation (the
"Company"), hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and the Prospectus-Joint Proxy Statement relating to the Special
Meeting of Shareholders of the Company, to be held on August 19, 1998 and
hereby appoints Thomas M. Jorde and David J. Teece, or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and
in the name of the undersigned, to represent the undersigned at the Special
Meeting and at any adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matter set forth on the reverse side, and in their discretion
on any other matters that may properly come before the Special Meeting, as
provided in the Prospectus-Joint Proxy Statement.
Continued and to be signed on reverse side.
LOGO
1. APPROVAL OF THE MERGER AGREEMENT AND THE MERGER:
To approve the Merger Agreement and the Merger, as defined and described in
the Prospectus-Joint Proxy Statement.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER.
Dated: _____________________, 1998
__________________________________
Signature
__________________________________
Signature
(This Proxy should be marked,
dated and signed by the
Shareholder(s) exactly as his or
her name appears hereon, and
returned promptly in the
accompanying envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign.)
<PAGE>
EXHIBIT 2.2
FORM OF VOTING AGREEMENT
VOTING AGREEMENT (the "Agreement"), dated as of July 1, 1998, by and
between The Metzler Group, Inc., a Delaware corporation ("Metzler") and the
persons who execute this document (each a "Holder", and collectively the
"Holders").
W I T N E S S E T H:
WHEREAS, Metzler, LECG, Inc., a California corporation ("LECG"), and MGI
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Metzler ("Sub"), have entered into an Agreement and Plan of Merger dated as of
July 1, 1998 (the "Merger Agreement") pursuant to which Sub shall be merged with
and into LECG (the "Merger");
WHEREAS, the Holders are the beneficial and record owners of shares
(collectively, the "Shares") of common stock, $ .001 par value per share, of
LECG ("Common Stock"); and
WHEREAS, as a condition to Metzler's obligations under the Merger Agreement
and in consideration for Metzler entering into the Merger Agreement and agreeing
to acquire all of the stock of LECG, including all of the Shares, in accordance
with the transaction contemplated by such Merger Agreement, Metzler has required
and the Holders have agreed to make certain covenants and to grant to Metzler
certain voting rights relating to the Shares upon the terms and subject to the
conditions hereof;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Irrevocable Proxy.
(a) Each Holder hereby designates, constitutes and appoints Metzler
(through any officer hereafter designated by Metzler for such purpose)
during the term of this Agreement as such Holder's true and lawful proxy
and attorney-in-fact, with full power of substitution, to vote all of the
Shares for and in the name, place and stead of the Holder, at any annual,
special or other meeting of the shareholders of LECG, and at any
adjournment or adjournments thereof, or to grant consent pursuant to any
consent in lieu of a meeting or otherwise, in favor of any proposal to
approve the Merger Agreement and the Merger and any transactions
contemplated thereby and, in addition, to vote against or withhold consent
to, any proposals for any merger agreement or merger (other than the Merger
or any agreement in respect thereof), consolidation, sale of stock, sale or
purchase of any assets, reorganization, recapitalization, liquidation or
winding up of or by LECG. All power and authority hereby conferred pursuant
to this proxy is coupled with an interest and is irrevocable, subject to
Section 14 of this Agreement.
(b) The proxy granted in this Section 1 is specifically granted in
consideration of the execution and delivery of this Voting Agreement (this
"Agreement") and the Merger Agreement by Metzler, consummation by Metzler
of the transactions contemplated thereby and the benefits to be derived by
the Holders thereunder. Each Holder, subject to Section 14 of this
Agreement, agrees that such proxy is coupled with an interest sufficient in
law to support an irrevocable power and shall not be terminated
<PAGE>
by any act of any Holder, by lack of appropriate authority or by the
occurrence of any other event or events, provided however that this proxy
shall be revocable upon the occurrence of a material change affecting
Metzler. This proxy shall also survive the death, divorce, dissolution,
incapacity, bankruptcy, insolvency or liquidation of any Holder.
(c) In the event that Metzler is unable to exercise such power and
authority for any reason during the term of this Agreement, each Holder
agrees that it will vote all the Shares, at any annual, special or other
meeting of the shareholders of LECG, and at any adjournment or adjournments
thereof, or to grant consent pursuant to any consent in lieu of a meeting
or otherwise, in favor of any proposal to approve the Merger Agreement and
the Merger and any transactions contemplated thereby and, in addition, to
vote against or withhold consent to, any proposals for any merger agreement
or merger (other than the Merger or any agreement in respect thereof),
consolidation, sale of stock, sale or purchase of any assets,
reorganization, recapitalization, liquidation or winding up of or by LECG,
or provide its written consent thereto.
2. Representations and Warranties of the Holder. Each Holder severally
represents and warrants to Metzler that: (a) such Holder has the requisite power
and authority to enter into and perform this Agreement; (b) the execution and
delivery of this Agreement by such Holder and the consummation by it of the
transactions contemplated hereby and this Agreement has been duly executed and
delivered by such Holder and constitutes a valid and binding obligation of such
Holder, enforceable against such Holder in accordance with its terms; (c) the
execution and delivery of this Agreement by such Holder and the consummation by
such Holder of the transactions contemplated hereby do not require the consent,
waiver, approval, license or authorization of or any filing with any person or
public authority and will not violate, result in a breach of or the acceleration
of any obligation under, or constitute a default (or an event which with notice
or lapse of time or both would become a default), or give rise to rights of
termination, amendment or cancellation of, or result in the creation of a lien
or encumbrance of any of the property or assets of such Holder under, any
provision of any partnership agreement, certificate or articles of
incorporation, bylaws or other governing instruments of such Holder, or
agreement, indenture, mortgage, lien, lease, agreement, contract, instrument,
order, judgment, ordinance, regulation or decree or restriction by which such
Holder or any of such Holder's properties or assets is bound; (d) the Shares set
forth below such Holder's name on the signature page hereto are all of the
securities of LECG owned of record or beneficially by the Holder; (e) each
Holder owns such Holder's Shares free and clear of all liens, charges, claims,
encumbrances and security interests of any nature whatsoever; and (f) such
Holder has not granted any proxy or interest in or with respect to such Holder's
Shares, deposited the Shares into any voting trust or entered into any voting
agreement or other arrangement with respect to the Shares.
3. Representations and Warranties of Metzler. Metzler represents and
warrants to the Holders that (a) Metzler is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to enter into and perform
this Agreement and (b) the execution and delivery of this Agreement by Metzler
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Metzler and
this Agreement has been duly executed and delivered and constitutes a valid and
binding obligation of Metzler, enforceable against Metzler in accordance with
its terms.
<PAGE>
4. Covenants of the Holder.
(a) Each Holder hereby covenants and agrees that until this Agreement
is terminated in accordance with the terms of Section 14 below, such Holder
will not, and will not agree to (except with the prior written consent of
Metzler), directly or indirectly, sell, transfer, assign, pledge,
hypothecate, cause to be redeemed or otherwise dispose of any of the
Shares, or grant any proxy or interest in or with respect to such Shares,
or deposit such Shares into a voting trust or enter into a voting agreement
or arrangement with respect to such Shares except with the prior written
consent of Metzler, which may be withheld in Metzler's sole and absolute
discretion (except in the case of a gift of Shares if the transferee agrees
in writing to be bound by this Agreement, in which case Metzler shall not
withhold its consent). Each Holder further covenants and agrees that until
this Agreement is terminated in accordance with the terms of Section 14
below, such Holder will not initiate or solicit, directly or indirectly,
any inquiries or the making of any proposal with respect to, or engage in
negotiations concerning, provide any confidential information or data to,
or have any discussions with, any person relating to, any acquisition,
merger, business combination or purchase of all or any significant portion
of the assets of, or any equity interest in LECG or any subsidiary thereof,
except to the extent permitted by Section 6.1 of the Merger Agreement.
(b) Each Holder covenants and agrees not to engage in any action or
omit to take any action which would have the effect of preventing or
disabling (i) such Holder from performing such Holder's obligations under
this Agreement, (ii) Metzler from exercising its rights hereunder, or (iii)
LECG from performing any of its obligations under the Merger Agreement.
Notwithstanding anything to the contrary contained in this Agreement, the
exercise by LECG's board of directors, or any Holder acting in his capacity
as an LECG director, of LECG's rights pursuant to Section 8.1(g) of the
Merger Agreement shall not be deemed or construed to be a violation of this
Section 4.
5. Specific Performance. Each Holder acknowledges that Metzler will have
no adequate remedy at law and that irreparable injury to Metzler would occur if
any Holder fails to perform any of their respective obligations under this
Agreement. In such event, each Holder agrees that Metzler shall have the right,
in addition to any other rights it may have at law or in equity (and without the
requirement to post a bond or establish inadequate legal remedies), to specific
performance of this Agreement and that such Holder will not take any action to
impede Metzler's efforts to enforce such right of specific performance.
6. Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom such notice is intended or
if sent by telex or telecopier (and also confirmed in writing), upon receipt of
the correct answer-back, to Metzler at the address set forth below, and to a
Holder at such Holder's address as set forth on the signature page hereof, or
such other address as may be designated in writing hereafter, in the same
manner, by such person:
<PAGE>
If to Metzler: Metzler Group. Inc.
615 N. Wabash
Chicago, Illinois 60611
Attn: Mr. Robert P. Maher
Fax: (312) 573-5676
7. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended
to confer upon any Person other than the Holders or Metzler, or their successors
or permitted assigns, any rights or remedies under or by reason of this
Agreement.
8. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto with respect to Subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings, oral or
written, with respect to such transactions. This Agreement may not be changed,
amended or modified orally, but only by an agreement in writing signed by the
party against whom any waiver, change, amendment, modification or discharge may
be sought.
9. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
parties hereto, except that Metzler may assign its rights and obligations
hereunder to any of its direct or indirect subsidiaries or Affiliates, but no
such transfer shall relieve Metzler of its obligations hereunder if such
transferee does not perform such obligations.
10. Headings. The section heading herein are for convenience only and
shall not affect the construction of this Agreement.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document. This
Agreement will become effective as between Metzler and each Holder upon
execution by such Holder, without regard to whether this Agreement is executed
by any other Holder.
12. Definitions. For purposes of this Agreement, the terms "affiliate,"
"group" and "beneficial ownership" shall have the meanings assigned thereto in
Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to the
choice of law principles thereof.
14. Termination. This Agreement shall terminate at the earliest of (i)
termination of the Merger Agreement in accordance with its terms or (ii) the
consummation the Merger. This Agreement may be terminated by a Holder with
respect to such Holder in the event a material event regarding Metzler occurs.
<PAGE>
15. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, such provision shall be deemed modified to the minimum extent
necessary in order that such provision shall be valid and enforceable and the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Metzler and each Holder have caused this Agreement to
be duly executed and delivered on the day and year first above written.
METZLER GROUP, INC.
By:_______________________________ By:___________________________________
Name:__________________________
Title:_________________________ Address:_____________________
_____________________
FAX:_________________________
Shares:____________________________
By:___________________________________
Address:_____________________
_____________________
FAX:_________________________
Shares:_______________________________
By:___________________________________
Address:_____________________
_____________________
FAX:_________________________
Shares:_______________________________
By:___________________________________
Address:_____________________
_____________________
FAX:_________________________
Shares:_______________________________
By:___________________________________
Address:_____________________
_____________________
FAX:_________________________
Shares:_______________________________
<PAGE>
EXHIBIT 4
FORM OF REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement") is made as of July ___,
1998, between The Metzler Group, Inc., a Delaware corporation (the "Company"),
and David Teece, Thomas M. Jorde, Gordon C. Rausser, Robert G. Harris and
Richard J. Gilbert (each, a "Holder" and collectively, the "Holders").
WHEREAS, pursuant to the terms of that certain Agreement and Plan of Merger
dated as of July 1, 1998 (the "Merger Agreement"), among the Company, MGI
Acquisition Corporation, a Delaware corporation ("Sub"), and LECG, Inc., a
California corporation ("LECG"), and the merger contemplated thereby
(the "Merger"), the Holders are acquiring shares of Metzler Common Stock, $.001
par value per share, in exchange for their shares of LECG Common Stock, $.001
par value per share. Pursuant to the terms of the Merger Agreement, the Company
has agreed to enter into this agreement with the Holders. Unless otherwise
provided in this Agreement, capitalized terms used herein shall have the
meanings set forth in Section 6 hereof.
NOW, THEREFORE, the parties hereto agree as follows:
1. Piggyback Registrations.
(a) Right to Piggyback. Upon the first time following the date hereof
the Company proposes to register any of its Common Stock under the Securities
Act in an underwritten public offering, other than pursuant to a registration on
Form S-8, Form S-4 or any similar forms then in effect (a "Piggyback
Registration"), the Company will give prompt written notice to all Holders of
its intention to effect such a registration (the "Registration Notice") and
will, subject to the terms of this Agreement, include in such registration all
Registrable Securities of the Holders with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice in an amount not to exceed a mutually agreeable amount.
The Holder's rights to participate in a Piggyback Registration shall cease (A)
after the first underwritten public offering completed by the Company following
the date hereof or (B) when the Registrable Securities become eligible for
resale under Rule 145 (or any similar rule then in force) under the Securities
Act without any volume or manner of sale limitation, to be confirmed in a
written opinion of Counsel to the Company addressed to the Holder.
(b) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriter or underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without materially adversely
affecting the marketability of the offering, the Company will include in such
registration, (i) first, the securities the Company proposes to sell and (ii)
second, the Registrable Securities requested to be included in such registration
and all other Common Stock requested to be included in such registration (the
"Other Common Stock"), to be included pro rata on the basis of the number of
shares of such securities for which the Company has been given written requests
for inclusion therein by each such holder thereof.
(c) Priority on Secondary Registrations. If a Piggyback Registration
is an
<PAGE>
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration, (ii) second, the Registrable
Securities requested to be included in such registration and all Other Common
Stock requested to be included in such registration, to be included pro rata on
the basis of the number of shares of such securities for which the Company has
been given written requests for inclusion therein by each such holder thereof.
2. Holdback Agreements. Each Holder agrees not to effect any public sale
or distribution (including sales pursuant to Rule 145) of equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 90-day period
beginning on the effective date of any Piggyback Registration in which
Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
3. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, listing fees,
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Company and all independent certified public accountants, and
other Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne by the Company; provided, that
Registration Expenses shall not include, and the holders of Registrable
Securities shall pay, all underwriting discounts and commissions applicable to
Registrable Securities sold by them pursuant to this Agreement.
4. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless, to the fullest
extent permitted by law, the Holders against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and legal
expenses) resulting from any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any amendment
or supplement thereto, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except in
each case insofar as the same arises out of or is based upon an untrue statement
or alleged untrue statement of a material fact or an omission or alleged
omission to state a material fact in such Registration Statement, Prospectus,
amendment or supplement, as the case may be, made or omitted, as the case may
be, in reliance upon and in conformity with information furnished to the Company
by the Holders for use therein or by the Holders' failure to deliver a copy of
the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished the Holders with a sufficient number of
copies of the same.
(b) Each Holder, solely with respect to itself, shall indemnify and
hold
2
<PAGE>
harmless, to the fullest extent permitted by law, the Company, its officers,
directors, employees, representatives and agents, and each Person who controls
(within the meaning of the Securities Act) the Company, against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and legal expenses) resulting from any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any amendment or supplement thereto, and any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, to the extent the same arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact or any omission
or alleged omission to state a material fact in such Registration Statement,
Prospectus, amendment or supplement, as the case may be, made or omitted, as the
case may be, in reliance upon and in conformity with information furnished to
the Company by such Holder for use therein.
(c) Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, is approved by
the Indemnified Party (whose approval will not be unreasonably withheld or
delayed); and provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations except to the extent that its defense of the claim or litigation
involved is prejudiced by such failure. The Indemnified Party may participate
in such defense at such party's expense. No Indemnifying Party, in the defense
of any such claim or litigation, except with the consent of each Indemnified
Party, shall consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of any claim or litigation, and no Indemnified Party will consent to entry of
any judgment or settle any claim or litigation without the prior written consent
of the Indemnifying Party. Each Indemnified Party shall furnish such
information regarding himself, herself or itself and the claim in question as
the Indemnifying Party may reasonably request and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If for any reason the indemnification provided for in this Section
4 from an Indemnifying Party, although otherwise applicable by its terms, is
determined by a court of competent jurisdiction to be unavailable to an
Indemnified Party hereunder, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Parties as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of such Indemnifying Party and the Indemnified Parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and the Indemnified Parties shall
be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact,
has been made by, or relates to information
3
<PAGE>
supplied by, such Indemnifying Party or the Indemnified Parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 4(c), any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
5. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Company and other Person or Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
6. Definitions.
"Common Stock" means the Company's Common Stock, par value $0.001 per
share.
"Person" means any natural person and any corporation, partnership,
limited liability company or other business entity.
"Registrable Securities" means (i) the Payment Shares (as defined in
the Merger Agreement) issued to the Holders and trusts for the benefit of
members of their family pursuant to the Merger Agreement, and (ii) any Common
Stock or other equity securities issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Securities Act" means the Securities Act of 1933, as amended.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which violates the rights
granted to the holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
4
<PAGE>
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and permitted assigns. Each Holder may
assign his rights hereunder to a trust formed for the benefit of members of such
Holder's family; provided, however, that such trust shall be deemed to be a
Holder hereunder and shall be subject to and agree to be bound by the terms and
provisions hereof; provided, further, that for purposes of determining the
number of shares eligible to be included in such any Registration Statement, the
transferring Holder and the transferee trust shall be treated as one Holder.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of Illinois.
(i) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) three (3)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid; (ii) one day after receipt is electronically
confirmed, if sent by fax (provided that a hard copy shall be promptly sent by
first class mail); or (iii) one (1) business day following deposit with a
recognized national overnight courier service for next day delivery, charges
prepaid, and, in each case, addressed to the intended recipient as set forth
below:
5
<PAGE>
If to Metzler: With a copy to:
The Metzler Group, Inc. Sachnoff & Weaver, Ltd.
615 N. Wabash 30 South Wacker Drive
Chicago, Illinois 60611 Suite 2900
Attn: Robert P. Maher Chicago, Illinois 60606
Fax: 312/573-5675 Attn: J. Todd Arkebauer
Fax: 312/207-6400
If to a Holder: With a copy to:
Such Holder's address as Wilson Sonsini Goodrich & Rosati
set forth below his name 650 Page Mill Road
on the signature page hereto Palo Alto, CA 94304-1050
Attn: ______________________________
Fax: 650/493-6811
Any party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is delivered to the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE COMPANY:
-----------
THE METZLER GROUP, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
HOLDERS:
-------
__________________________________
David Teece
Address:__________________________
__________________________
__________________________________
Thomas M. Jorde
Address:__________________________
__________________________
__________________________________
Gordon C. Rausser
Address:__________________________
__________________________
__________________________________
Robert G. Harris
Address:__________________________
__________________________
__________________________________
Richard J. Gilbert
Address:__________________________
__________________________
[Signature Page to Registration Agreement]
<PAGE>
EXHIBIT 5
SACHNOFF & WEAVER, LTD.
30 South Wacker Drive, 29th Floor
Chicago, Illinois 60606
July 21, 1998
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-4 (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 issuance of 7,816,721 shares (the "Shares") of
the Company's Common Stock, par value $.001 per share. We have examined the
Registration Statement, and 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 August
19, 1998, the Shares will be duly authorized by the Company and 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 inclusion in the registration statement on Form S-4 of the
Metzler Group, Inc. of our report dated February 11, 1998, except for Note 14,
as to which the date is March 5, 1998, relating to the consolidated balance
sheets of the Metzler Group, Inc. and its subsidiaries as of December 31, 1997
and 1996, 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, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of the Metzler Group, Inc. and to the references to our firm under
the headings "Experts", "Accounting Treatment", and "Selected Metzler
Consolidated Financial Data" 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
July 21, 1998
<PAGE>
ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this Form S-4
registration statement.
/s/ Arthur Andersen LLP
San Francisco, California
July 21, 1998
