AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1997
REGISTRATION NO. 333-22207
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
HAGLER BAILLY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 54-1759180
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1530 WILSON BOULEVARD
SUITE 900
ARLINGTON, VA 22209
(703) 351-0300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
HENRI-CLAUDE A. BAILLY
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
HAGLER BAILLY, INC.
1530 WILSON BOULEVARD
SUITE 900
ARLINGTON, VA 22209
(703) 351-0300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies to:
BARRY M. ABELSON, ESQUIRE JOHN J. SCHUSTER, ESQUIRE
MICHAEL P. GALLAGHER, ESQUIRE CAHILL GORDON & REINDEL
BRIAN M. KATZ, ESQUIRE EIGHTY PINE STREET
PEPPER, HAMILTON & SCHEETZ LLP NEW YORK, NY 10005-1702
3000 TWO LOGAN SQUARE (212) 701-3000
EIGHTEENTH AND ARCH STREETS
PHILADELPHIA, PA 19103-2799
(215) 981-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1997
PROSPECTUS
, 1997
3,150,000 SHARES
HAGLER BAILLY, INC.
COMMON STOCK
Of the 3,150,000 shares of Common Stock being offered hereby, 2,500,000
shares are being sold by the Company and 650,000 shares are being sold by the
Selling Stockholders. The Company will not receive any part of the proceeds from
the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $12.00 and $14.00 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price.
The Company has applied for the Common Stock to be listed on the Nasdaq
National Market under the symbol "HBIX."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.... $ $ $ $
Total (3).... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses estimated at $1,125,000, which will be paid by the
Company.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option to
purchase up to 472,500 additional shares of Common Stock at the Price to the
Public less Underwriting Discounts and Commissions for the purpose of
covering over-allotments, if any. If the Underwriters exercise such option
in full, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Stockholders will be $ , $ , $ and $ ,
respectively. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders pursuant to the
Underwriters' over-allotment, if exercised. See "Underwriting " and
"Principal and Selling Stockholders."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of the share
certificates will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE MONTGOMERY SECURITIES
SECURITIES CORPORATION
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.
<PAGE>
1. Map With Location of Company's Headquarters, Principal Offices and Branch and
Project Offices
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
data appearing elsewhere in this Prospectus. Except as otherwise specified, all
information in this Prospectus assumes (i) an adjustment to reflect a 6.915081
for-one stock split effected on April 14, 1997 (the "Recapitalization"); and
(ii) no exercise of the Underwriters' over-allotment option. See "Underwriting."
Unless otherwise indicated, all references to "Hagler Bailly" or the "Company"
include the Company and its subsidiaries.
THE COMPANY
Hagler Bailly is a worldwide provider of a broad array of management
consulting and other advisory services to the private and public sectors of the
energy, utility and environmental industries. The Company offers a wide range of
management consulting, litigation support and specialized financial advisory
services to corporations, primarily electric and gas utilities and independent
power producers, worldwide. The Company also advises government institutions in
the United States and abroad on a broad range of energy, utility and
environmental infrastructure and public policy issues. Since its inception in
1980, Hagler Bailly has performed in excess of 1,900 consulting assignments for
more than 750 clients in approximately 100 countries. In 1996, the Company
performed over 220 assignments for more than 125 clients in over 30 countries.
Revenues from the Company's ten most significant clients accounted for
approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues for the three
months ended March 31, 1997, and for the years ended December 31, 1996, 1995 and
1994, respectively. In the past 16 years, the Company has grown from a single
office to a worldwide network of operations with principal offices in six cities
in the United States and five other countries. Over the past three years, the
Company's total revenues and consulting revenues have grown at a compound annual
rate of 30.8% and 31.2%, respectively, and have grown 25.2% and 32.9%,
respectively, from 1995 to 1996.
Hagler Bailly offers its clients a comprehensive array of consulting
services, from assisting the client to shape its vision to strategic planning,
selection of appropriate solutions, implementation, financing and on-going
management. These services are offered in five practice areas: corporate
strategy and management; economic analysis and litigation support;
infrastructure planning and development; financial advisory; and environmental
management. These practices work together synergistically to provide clients
with the full range of services and capabilities of the Company. The Company's
services are designed to provide tangible value to clients. This implies relying
less on formulaic approaches and concepts, and more on custom-tailored solutions
based on an assessment of the client's unique situation and needs. In
particular, the Company believes that in order to create tangible value for its
clients in the future, it must be equipped to package traditional consulting
capabilities such as functional expertise (e.g., in marketing, energy supply and
logistics), industry insight and information with management, technology and
capital resources. In this respect, the Company may, from time to time, invest
its own capital (either directly or through third parties) and other resources
in technologies or projects that are becoming critical components for clients
implementing market-based strategies.
As a result of powerful regulatory, economic and technological forces, the
Company believes the energy, utility and environmental industries, in particular
the electric and gas utility sector, are undergoing rapid and profound changes.
Hagler Bailly believes that both in the private and public sectors, the trends
toward globalization, restructuring and digitalization (i.e., developments in
information systems and related technologies) are creating an increasing demand
for the traditional management consulting and related services offered by the
Company, such as planning, cost control, business process re-engineering,
organizational development and public policy analysis. In the private sector,
the Company has developed, is currently offering and will market aggressively,
six integrated consulting solutions for clients trying to adapt to this evolving
market: (i) growing the revenue stream; (ii) reforming and restructuring
contracts; (iii) building the technological spine; (iv) responding to
globalization; (v) identifying and closing enabling transactions; and
(vi) managing environmental constraints. In the public sector, the Company will
continue to focus on selective opportunities both in the United States and
abroad, including the restructuring and
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3
<PAGE>
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privatization of electric, gas and water utilities, energy and water efficiency,
global climate change management and environmental management.
Hagler Bailly believes that several factors distinguish it from its
competitors and position it to capitalize on this growing demand for consulting
services in the energy, utility and environmental markets worldwide, including:
(i) industry focus in these target markets; (ii) full service capabilities;
(iii) existing global infrastructure; (iv) established client relationships;
(v) public sector insight; (vi) knowledge base; (vii) experienced team of
management and consultants; and (viii) established global visibility.
Hagler Bailly's overall growth strategy includes the following elements:
(i) retaining its focus on the energy, utility and environmental markets; (ii)
leveraging its existing global infrastructure; (iii) focusing on solving
mission-critical problems for clients; (iv) attracting and retaining world-class
staff; (v) pursuing strategic acquisitions; (vi) using creative compensation
agreements with clients; and (vii) utilizing existing relationships to combine
capital and consulting services.
Over the past year, the Company's practice has increasingly focused on
providing management consulting services to private sector clients.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...................... 2,500,000 shares
Common Stock offered by the Selling
Stockholders............................................. 650,000 shares
Common Stock to be outstanding after
the Offering............................................. 7,982,516 shares(1)
Use of proceeds.......................................... Approximately $12.5 million to repay all outstanding debt
and approximately $16.6 million to fund general corporate
purposes, including working capital and possible
acquisitions of complementary businesses (at an assumed
initial public offering price of $13.00 per share). See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol................... HBIX
</TABLE>
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(1) Excludes 1,026,565 shares of Common Stock issuable upon the exercise of
outstanding options currently outstanding under the Company's Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan (the
"Stock Plan"). See Note 10 to Consolidated Financial Statements and
"Management -- Long-Term Incentive Plan."
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4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY (1)
---------------------------------------- -------------------
YEARS ENDED JAN. 1, MAY 26, YEAR
DECEMBER 31, 1995 TO 1995 TO ENDED
----------------------------- MAY 25, DEC. 31, DEC. 31,
1992 1993 1994 1995 1995 1996(2)
------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Consulting revenues........................ $15,082 $18,053 $22,531 $10,978 $18,194 $38,762
Subcontractor and other revenues........... 7,869 8,796 13,437 8,897 11,119 22,821
------- ------- ------- ------- ------- -------
Total revenues......................... 22,951 26,849 35,968 19,875 29,313 61,583
Cost of services............................. 18,460 21,653 29,122 16,529 23,811 48,786
------- ------- ------- ------- ------- -------
Gross profit................................. 4,491 5,196 6,846 3,346 5,502 12,797
Selling, general and administrative.......... 3,167 3,679 4,836 2,452 3,230 8,583
Stock and stock option compensation(4)....... -- -- -- -- -- 6,172
------- ------- ------- ------- ------- -------
Income (loss) from operations................ 1,324 1,517 2,010 894 2,272 (1,958)
Other income (expense), net.................. (56) (9) 12 (20) (637) (904)
------- ------- ------- ------- ------- -------
Income (loss) before income tax expense...... 1,268 1,508 2,022 874 1,635 (2,862)
Income tax expense........................... 453 620 843 362 725 797
------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 815 $ 888 $ 1,179 $ 512 $ 910 $(3,659)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Net income (loss) per share.................. * * * * $ 0.15 $ (0.59)
------- -------
------- -------
Weighted average shares
outstanding................................ * * * * 5,881 6,247
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1996 1997(3)
-------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Consulting revenues........................ $ 9,378 $10,779
Subcontractor and other revenues........... 5,635 5,833
------- -------
Total revenues......................... 15,013 16,612
Cost of services............................. 11,802 13,028
------- -------
Gross profit................................. 3,211 3,584
Selling, general and administrative.......... 1,986 1,984
Stock and stock option compensation(4)....... -- 65
------- -------
Income (loss) from operations................ 1,225 1,535
Other income (expense), net.................. (253) (241)
------- -------
Income (loss) before income tax expense...... 972 1,294
Income tax expense........................... 391 529
------- -------
Net income (loss)............................ $ 581 $ 765
------- -------
------- -------
Net income (loss) per share.................. $ 0.09 $ 0.12
------- -------
------- -------
Weighted average shares
outstanding................................ 6,340 6,209
</TABLE>
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* Due to the acquisition of the Predecessor on May 25, 1995, and the change in
capital structure, earnings per share information for these periods are not
meaningful and accordingly are not presented.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
----------------------------- -----------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31, 1997
----------------------------- ------------------ -------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(5)
------- ------- ------- ------- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 1,240 $ 950 $ 566 $ 671 $ 1,433 $ 752 $ 17,312
Working capital.............................. 1,278 1,798 2,992 2,538 3,821 3,924 26,102
Total assets................................. 11,144 11,707 14,801 24,500 27,747 32,780 49,340
Total debt................................... -- -- -- 12,050 10,312 12,540 --
Total stockholders' equity................... 3,362 4,250 5,429 3,978 7,238 8,202 37,302
Common stock and cash dividends declared..... -- -- -- -- -- -- --
</TABLE>
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(1) Effective May 25, 1995, the management of RCG/Hagler Bailly, Inc. ("RCG/HB"
or the "Predecessor"), a wholly-owned subsidiary of RCG International, Inc.
("RCG"), acquired all of the voting stock of RCG/HB. See "The Company" and
"Certain Transactions."
(2) The statement of operations data for the year ended December 31, 1996
includes the following expenses: (a) approximately $0.5 million of cost of
services, representing that portion of officer compensation that exceeded
the compensation that would have been paid had the compensation plan adopted
in January 1997 been in effect for all of 1996; (b) approximately $1.0
million of interest expense included in other income (expense), net, related
to the Company's outstanding debt that would have been repaid with the
proceeds of the Offering; and (c) approximately $6.2 million in stock and
stock option compensation representing the non-recurring, non-cash
compensation expense in connection with the amendment to the Stock Plan and
a reclassification of the Company's Common Stock described in footnote 4
below. The net impact of the foregoing on the Company's Statement of
Operations for the year ended December 31, 1996 was to decrease income
before income tax expense by approximately $7.7 million and net income by
approximately $6.6 million, with income tax expense calculated at a combined
federal and state income tax rate of 40.0%. Excluding the foregoing, income
before income tax expense for the year ended December 31, 1996 would have
been approximately $4.9 million and net income would have been approximately
$2.9 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Management--Executive
Compensation."
(3) The statement of operations data for the three months ended March 31, 1997
includes approximately $0.3 million of interest expense included in other
income (expense), net, related to the Company's outstanding debt that would
have been repaid with the proceeds of the Offering. The net impact of the
foregoing on the Company's Statement of Operations for the three months
ended March 31, 1997 was to decrease income before income tax expense by
approximately $0.3 million and net income by approximately $0.2 million,
with income tax expense calculated at a combined federal and state income
tax rate of 40.0%. Excluding the foregoing, income before income tax expense
for the three months ended March 31, 1997 would have been approximately $1.6
million and net income would have been approximately $0.9 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management--Executive Compensation."
(4) In connection with an amendment to the Stock Plan and a reclassification of
its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
(5) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$13.00 per share) and the application of the estimated net proceeds as set
forth in "Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
DEPENDENCE ON KEY EMPLOYEES
The success of Hagler Bailly is highly dependent upon the efforts,
abilities, business generation capabilities and project execution of its
Executive Officers and Managing Directors, in particular those of Henri-Claude
A. Bailly, the Company's President, Chief Executive Officer and Chairman of the
Board. The Company does not have an employment agreement with any of these
individuals, with the exception of Mr. Bailly. The loss of the services of any
of these individuals for any reason, in particular Mr. Bailly, could have a
material adverse effect upon the Company's business, operating results and
financial condition, including its ability to secure and complete engagements.
The Company maintains a key-man life insurance policy on Mr. Bailly in the
amount of $2.0 million. The Company has entered into a non-competition agreement
with each of its Executive Officers, Managing Directors and directors which
provides that each will not compete with the Company for a two-year period
following the closing of the Offering. See "Management."
ATTRACTION, RETENTION AND MANAGEMENT OF PROFESSIONAL AND ADMINISTRATIVE STAFF
Hagler Bailly's business involves the delivery of professional services and
is labor-intensive. The Company's future performance depends in large part upon
its ability to attract, develop, motivate and retain highly-skilled consultants,
research associates and administrative staff, particularly senior professionals
with business development skills. Qualified consultants are in great demand and
there is significant competition for employees with these skills from other
consulting and investment banking firms, research firms, energy companies and
many other related enterprises. Many of these firms have substantially greater
financial resources than the Company which they may use to attract and
compensate qualified personnel. There can be no assurance that the Company will
be able to attract and retain sufficient numbers of highly skilled consultants
in the future. The loss of the services of a significant number of consultants,
research associates or administrative personnel could have a material adverse
effect on the Company's business, operating results and financial condition,
including its ability to secure and complete engagements. In addition, if
existing or new employees are unable to achieve anticipated engagement quality
or schedule requirements, utilization levels, billing rates, or other
performance measures to meet such growth, the Company's business, operating
results and financial condition could be materially and adversely affected. See
"Business -- Human Resources."
CONCENTRATION OF REVENUES
Substantially all of the revenues of Hagler Bailly are derived from private
and public clients involved in the energy, utility and environmental industries.
As a result of the Company's focus on energy, utility and environmental
consulting, its business, financial condition and results of operations are
influenced by factors affecting these industries, including changing political,
economic and regulatory influences that may affect the procurement practices and
operation of energy, utility and environmental service providers. In particular,
many electric and gas utilities are consolidating to create larger organizations
or strategic alliances. These consolidations and alliances will reduce the
number of potential customers for the Company's services and may also create
conflicts of interest between clients. In addition, these consolidations and
alliances may result in the acquisition of certain of the Company's key clients,
and such clients may scale back or terminate their relationship with the Company
following their acquisition. Similarly, cutbacks in the energy and/or
environmental budgets of the United States and other governments could result in
the scale back or termination of some of the Company's public sector contracts.
The impact of these developments in the energy, utility and environmental
industries is difficult to predict and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Principal Clients and Representative Engagements."
6
<PAGE>
CLIENT CONCENTRATION
Hagler Bailly derives a significant portion of its revenues from a
relatively limited number of clients. For example, revenues from the Company's
ten most significant clients accounted for approximately 67.3%, 73.1%, 68.9% and
70.9% of its total revenues for the three months ended March 31, 1997, and for
the years ended December 31, 1996, 1995 and 1994, respectively. The United
States Agency for International Development ("USAID") is the Company's single
largest client, accounting for approximately 36.8%, 42.2%, 53.1% and 52.2% of
the Company's total revenues for the three months ended March 31, 1997, and for
the years ended December 31, 1996, 1995 and 1994, respectively (approximately
24.3%, 26.9%, 39.4% and 40.5% of consulting revenues for the three months ended
March 31, 1997, and for the years ended December 31, 1996, 1995 and 1994,
respectively). As of March 31, 1997, the Company has seven separate contracts
with four separate offices of this agency. In addition, revenues from
engagements with three separate business units of Central Illinois Light Company
accounted for approximately 12.3% of the Company's total revenues in 1996
(approximately 17.1% of consulting revenues) and 7.4% for the first three months
of 1997 (approximately 9.9% of consulting revenues). Clients typically retain
the Company as needed on an engagement basis rather than pursuant to long-term
contracts, and a client can usually terminate an engagement at any time without
a significant penalty. Moreover, there can be no assurance that the Company's
existing clients will continue to engage the Company for additional assignments
or do so at the same revenue levels. The loss of any significant client could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the level of the Company's consulting
services required by an individual client can diminish over the life of its
relationship with the Company, and there can be no assurance that the Company
will be successful in establishing relationships with new clients as this
occurs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Principal Clients and Representative
Engagements" and "Business -- Commercial and Public Sector Contracts."
PARTNERING ARRANGEMENTS
Historically, Hagler Bailly's revenues have been generated either on a
standard daily rates basis or a cost plus fixed-fee basis. In the future, the
Company anticipates an increasing portion of its management consulting services
will be billed pursuant to alternative pricing arrangements which may include
incentive and success-based fees (i.e., fees that are based on meeting specific
performance milestones). In addition, the Company anticipates that it will
pursue, in certain select instances, opportunities to invest its own capital and
other resources in partnering arrangements involving early stage energy-related
technologies and projects in the energy, utilities and environmental industries.
The Company has limited prior experience investing its own funds in external
ventures. Since the Company has not yet identified any prospective investment
opportunities, there is no basis to evaluate the possible merits or risks of any
such investments. Such compensation arrangements and investments may result in
significant time delays between the incurrence of costs in delivering services
and the receipt of the related fee or return on invested capital, as the case
may be. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."
PUBLIC SECTOR MARKET AND CONTRACTING RISKS
Approximately 52.3% and 64.8% of Hagler Bailly's total revenues in 1996 and
1995, respectively (approximately 37.2% and 53.2% of consulting revenues in 1996
and 1995, respectively), were derived from contracts or subcontracts with public
sector clients. Consulting to public sector customers is subject to detailed
regulatory requirements and public policies, as well as to funding priorities.
Contracts with public sector customers may be conditioned upon the continuing
availability of public funds, which in turn depends upon lengthy and complex
budgetary procedures, and may be subject to certain pricing constraints.
Moreover, public sector contracts may generally be terminated for a variety of
factors, including when it is in the best interests of the respective
government. There can be no assurance that these factors or others unique to
contracts with governmental entities will not have a
7
<PAGE>
material adverse effect on the Company's future results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Commercial and Public
Sector Contracts."
INTERNATIONAL OPERATIONS
Hagler Bailly operates either principal, branch or project offices in a
total of 16 foreign countries and one office in another foreign country that is
operated by a subsidiary of which the Company owns a minority interest. The
Company expects to continue to expand its international operations and offices.
Expansion into new geographic regions requires considerable management and
financial resources and may negatively impact the Company's near-term results of
operations. The Company's international operations are subject to numerous
potential challenges and risks, including war, civil disturbances, other
political and economic conditions in various jurisdictions such as tariffs and
other trade barriers, longer accounts receivable collection cycles, fluctuations
in currency and potentially adverse tax consequences. There can be no assurance
that such international factors will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Instruments and Risk Management" and "Business --
Principal Clients and Representative Engagements."
INTENSE COMPETITION
The market for consulting services in the energy, utility and environmental
industries is intensely competitive, highly fragmented and subject to rapid
change, and such competition is likely to increase in the future. Many of the
Company's competitors have greater personnel, financial, technical and marketing
resources than the Company. The Company also competes with its clients' internal
resources, particularly where such resources represent a fixed cost to the
client. This source of competition may heighten as consolidation of electric and
gas utility and other energy industry companies creates larger organizations. In
the private sector, the Company believes the key competitive factors are quality
and service, followed by price, while in the public sector the Company believes
the key competitive factors are price and service. There can be no assurance
that the Company will be able to compete successfully with its existing
competitors or with any new competitors. See "Business -- Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; HISTORICAL OPERATIONS AND
PERFORMANCE ARE NOT NECESSARILY INDICATIVE OF FUTURE OPERATIONS AND PERFORMANCE
Variations in Hagler Bailly's revenues and operating results occur from
quarter to quarter as a result of a number of factors, such as the number and
significance of client engagements commenced and completed during a quarter,
delays incurred in connection with an engagement, the number of business days in
a quarter, employee hiring and utilization rates, the ability of clients to
terminate engagements without penalties, the size and scope of engagements, the
nature of the fee arrangement, the seasonality of the spending cycle of public
sector clients (especially that of the United States government), the timing of
new office openings, return on investment capital and general economic and
political conditions. Variation in any of these factors can cause significant
variations in operating results from quarter to quarter and could result in
losses to the Company. To the extent that increases in the number of
professional personnel are not followed by corresponding increases in revenues,
the Company's operating results could be materially and adversely affected.
Further, as a result of these factors, results of any one quarter are not
necessarily indicative of any succeeding quarter or of the year in question and
historical operations and performance are not necessarily indicative of future
operations and performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Unaudited Quarterly Results."
8
<PAGE>
RISKS RELATED TO POSSIBLE ACQUISITIONS
An element of Hagler Bailly's strategy is to expand its operations through
the acquisition of complementary businesses. Although the Company has
successfully acquired firms in the past, it does not have any binding agreement
to acquire any businesses at this time. There can be no assurance that the
Company will be able to identify, acquire, profitably manage or successfully
integrate any acquired businesses into the Company without substantial expenses,
delays or other operational or financial problems. Moreover, competitors of the
Company are also soliciting acquisition candidates, which could result in an
increase in the price of acquisition targets and a decrease in the number of
attractive companies available for acquisition. Further, acquisitions may
involve a number of special risks, including diversion of management's
attention, failure to retain key acquired personnel, increased costs to improve
managerial, operational, financial and administrative systems, unanticipated
events or circumstances, legal liabilities, increased interest expense and
amortization of acquired intangible assets, some or all of which could have a
materially adverse impact on the Company's business, operating results and
financial condition. Client satisfaction or performance problems at a single
acquired firm could have a materially adverse impact on the reputation of the
Company as a whole. In addition, there can be no assurance that acquired
businesses, if any, will achieve anticipated revenues and earnings. The failure
of the Company to manage its acquisition strategy successfully could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Growth Strategy."
LIMITED PROTECTION OF PROPRIETARY SYSTEMS AND PROCEDURES
Hagler Bailly's performance is in part dependent upon its internal
information and communication systems, data bases, tools, and the methods and
procedures that it has developed specifically to serve its clients. The Company
relies on a combination of nondisclosure and other contractual arrangements and
copyright, trademark and trade secret laws to protect its proprietary systems,
information and procedures. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its proprietary rights.
The Company believes that its systems and procedures and other proprietary
rights do not infringe upon the rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not require the
Company to enter into costly litigation or materially adverse settlements to
litigation, regardless of the merits of such claims. See "Business --
Competitive Strengths."
PROFESSIONAL AND OTHER LIABILITY
Hagler Bailly'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. In connection with
many of its public sector engagements, the Company employs the services of local
staff and consultants who are treated as independent contractors. Negligent or
illegal acts or ethical violations by these independent contractors could
adversely affect the Company. The Company maintains professional liability
insurance to an aggregate maximum of $10.0 million. See "Business -- Human
Resources."
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this Offering have
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of the Offering. See "Use of Proceeds."
9
<PAGE>
BENEFITS OF OFFERING TO SELLING STOCKHOLDERS
In connection with the Offering, the Selling Stockholders, some of whom are
officers or directors of the Company, will receive substantial benefits. The
Selling Stockholders will receive substantial proceeds from the Offering and
certain other benefits in connection with the Offering. The Offering will
establish a public market for the Common Stock and provide increased liquidity
to the Selling Stockholders for the shares of Common Stock they will own after
the Offering. At an assumed initial public price of $13.00 per share, after
deduction of estimated underwriting discounts and commissions, the aggregate
realized gain as a result of the Offering by the Selling Stockholders will be
approximately $7.4 million ($12.7 million if the Underwriters' over-allotment
option is exercised in full). See "Use of Proceeds," "Dilution," "Principal and
Selling Stockholders" and "Certain Transactions."
CONTROL BY PRINCIPAL STOCKHOLDERS
After completion of the Offering, the Selling Stockholders will
beneficially own approximately 60.5% of the Company's outstanding shares of
Common Stock (approximately 54.6% if the Underwriters' over-allotment option is
exercised in full), not including outstanding options to purchase Common Stock.
As a result, these stockholders will continue to be able to control the outcome
of matters requiring a stockholder vote, including the election of the members
of the Board of Directors, thereby controlling the affairs and management of the
Company. Such control could adversely affect the market price of the Common
Stock or delay or prevent a change of control of the Company at a price which
might represent a premium over the market price of the Common Stock. See
"Principal and Selling Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock was determined by negotiations among management of the Company, the
Selling Stockholders and the representatives of the Underwriters. See
"Underwriting" for the factors considered in determining the initial public
offering price per share. Although the Common Stock is expected to be approved
for quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained after the Offering. The
market price of the Common Stock may fluctuate substantially due to a variety of
factors, including quarterly fluctuations in results of operations,
announcements or terminations of new services, offices, contracts, acquisitions
or strategic alliances by the Company or its competitors, as well as changes in
the market conditions in the energy, utilities and environmental industries,
changes in earnings estimates by analysts, changes in accounting principles,
sales of Common Stock by existing holders, loss of key personnel and other
factors. In addition, the stock market experiences volatility which affects the
market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. In the past, following
periods of significant volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources. Any
of these results could have a material adverse effect on the Company's business,
operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution of $9.26 in the pro forma net tangible book
value per share of Common Stock (at an assumed initial public offering price of
$13.00 per share). To the extent outstanding options to purchase the Company's
Common Stock are exercised, there will be further dilution. See "Dilution."
10
<PAGE>
DIVIDEND POLICY
Hagler Bailly has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings for the development of its business.
See "Dividend Policy."
CERTAIN ANTI-TAKEOVER EFFECTS
Hagler Bailly's Amended and Restated Certificate of Incorporation and
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. These include
a board of directors which is divided into three classes, each of which is
elected to serve staggered three-year terms, and By-Law provisions under which
only the Chairman of the Board, a majority of the Board of Directors or
stockholders owning at least 50.0% of the Company's capital stock may call
meetings of the stockholders and which require certain advance notice procedures
for nominating candidates for election to the Board of Directors. Also, the
Board of Directors of the Company is authorized to issue up to 5,000,000 shares
of preferred stock and to determine the price, rights, preferences and
privileges of such shares, without any further stockholder action. The existence
of this "blank-check" preferred stock could render more difficult or discourage
an attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. Furthermore, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law
that prohibits the Company from engaging in a "business combination" with an
"interested stockholder" unless the business combination is approved in a
prescribed manner. These provisions could also have the effect of delaying or
preventing a change of control of the Company, which could adversely affect the
market price of the Common Stock. See "Management -- Executive Officers and
Directors" and "Description of Capital Stock -- Anti-takeover Effects of
Provisions of the Amended and Restated Certificate of Incorporation, By-Laws and
Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have
7,982,516 shares of Common Stock outstanding, of which the 3,150,000 shares
(3,622,500 shares if the over-allotment option is exercised in full) sold
pursuant to the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such shares are acquired by "affiliates" of the Company as that
term is defined in Rule 144 of the Securities Act ("Rule 144"). Holders of the
remaining shares will be eligible to sell such shares pursuant to Rule 144 at
prescribed times and subject to the manner of sale, volume, notice and
information restrictions of Rule 144. In addition, 1,026,565 shares of Common
Stock are issuable upon the exercise of outstanding stock options (of which
options to acquire 478,802 shares are currently exercisable), which shares may
be registered by the Company under the Securities Act and become freely
tradeable without restriction. The Company, together with each of its
stockholders (holding in the aggregate 4,832,516 shares of Common Stock upon
consummation of the Offering or 4,360,016 shares if the over-allotment option is
exercised in full), have agreed not to offer, pledge, sell, contract to sell,
grant any option to purchase, grant any right or warrant for the sale of, or
otherwise dispose of, directly or indirectly, any common stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
until 180 days after the date of this Prospectus, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). Sales of
substantial amounts of such shares in the public market or the availability of
such shares for future sale could adversely affect the market price of the
shares of Common Stock and the Company's ability to raise additional capital at
a price favorable to the Company. See "Shares Eligible for Future Sale" and
"Underwriting."
11
<PAGE>
THE COMPANY
The Company was founded in 1980 as Hagler Bailly & Company, Inc. In 1984,
it was acquired by RCG, an indirect subsidiary of Reliance Group Holdings, Inc.
and in 1987 was renamed RCG/Hagler Bailly, Inc. In May 1995, the management of
RCG/HB completed the purchase of the Company from RCG (the "Management
Buy-Out"). The Management Buy-Out was structured as a stock purchase of the
outstanding capital stock of RCG/HB and was principally financed by a secured
senior term bank loan from State Street Bank and Trust Company ("Secured Senior
Bank Loan") and a subordinated loan from RCG ("Subordinated Loan"). The
remainder of the Management Buy-Out was financed by the proceeds of the sale of
Hagler Bailly's common stock to certain employees and directors, all of whom are
Selling Stockholders. The Company currently operates through its three primary
wholly-owned subsidiaries, Hagler Bailly Services, Inc. ("Hagler Bailly
Services"), Hagler Bailly Consulting, Inc. ("Hagler Bailly Consulting") and HB
Capital, Inc. ("HB Capital"), in addition to several foreign wholly-owned
subsidiaries through which its foreign operations are conducted.
The Company was incorporated in Delaware in May 1995. The Company's
headquarters are located at 1530 Wilson Boulevard, Suite 900, Arlington, VA
22209, and its telephone number is (703) 351-0300.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered by the Company
hereby, assuming an initial public offering price of $13.00 per share and after
deducting estimated underwriting discounts and commissions and other offering
expenses, all of which are payable by the Company, are estimated to be
approximately $29.1 million. The Company will not receive any of the net
proceeds from the shares of Common Stock sold by the Selling Stockholders.
The Company will use approximately $4.6 million of the estimated net
proceeds from the Offering to repay all amounts outstanding under the
Subordinated Loan, which bears interest at a fixed rate of 9.5% per annum and
has a balloon payment due in May 2001 which is accelerated in the event the
Company completes this Offering, and approximately $3.6 million to repay all
amounts outstanding under the Secured Senior Bank Loan, which bears interest at
the London Inter-Bank Offering Rate ("LIBOR") plus 2.0% (7.6% at March 31, 1997)
and matures in May 1999. See Notes 8 and 14 to Consolidated Financial
Statements. The Company will also use a portion of the estimated net proceeds to
repay all amounts outstanding under the Company's bank line of credit with State
Street Bank and Trust Company (approximately $4.3 million at March 31, 1997),
which bears interest at a rate of 0.875% above the lender's prime rate (9.4% at
March 31, 1997). In the event the Company is unable to obtain a release of RCG
as guarantor on the lease for the Company's headquarters upon consummation of
the Offering, the Company may use up to $3.1 million of the estimated net
proceeds to fund an increase in an escrow balance required to secure its
indemnity of RCG for remaining a guarantor on such lease. Hagler Bailly intends
to use the remainder of the estimated net proceeds for general corporate
purposes, which may include working capital, future acquisitions of
complementary businesses and investment activities. The Company currently has no
agreements, understandings or commitments regarding any future acquisitions or
investment activities. Pending such uses, the net proceeds of the Offering will
be invested in short-term, investment grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Notes 6 and 14 to
Consolidated Financial Statements.
In addition to the foregoing, the principal purposes of the Offering are to
increase the Company's equity capital and financial flexibility, create a public
market for the Common Stock, facilitate future access by the Company to the
public equity markets, create a currency for potential acquisitions, enhance the
Company's ability to use the Common Stock as a means of attracting, retaining
and providing incentives to senior managers and consultants and provide working
capital to fund the Company's growth strategy. See "Business -- Growth
Strategy."
12
<PAGE>
DIVIDEND POLICY
The Company currently anticipates that it will retain all of its earnings
for development of its business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Board of Directors and will depend upon, among other
things, the Company's future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and such other
factors as the Board of Directors may deem relevant.
CAPITALIZATION
The following table sets forth, as of March 31, 1997, and as adjusted to
reflect the capitalization of the Company after giving effect to the sale of
2,500,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $13.00 per share) and the application of the
estimated net proceeds therefrom. The information set forth below should be read
in conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
-------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................ $ 752 $ 17,312
-------- --------
-------- --------
Bank line of credit.................................................................. $ 4,300 --
Current portion of long-term debt.................................................... 1,319 --
-------- --------
Total short-term borrowings.......................................................... $ 5,619 --
-------- --------
-------- --------
Long-term debt, net of current portion............................................... $ 6,921 --
Stockholders' equity:
Preferred Stock:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,
as adjusted only; none issued and outstanding................................... -- --
Common Stock:
Common Stock, $0.01 par value, 6,915,081 shares authorized,
5,482,516 shares issued and outstanding, actual; and
20,000,000 shares authorized and 7,982,516 shares
issued and outstanding, as adjusted (2)...................................... 55 80
Additional paid-in capital......................................................... 10,131 39,206
Retained deficit................................................................... (1,984) (1,984)
-------- --------
Total stockholders' equity...................................................... 8,202 37,302
-------- --------
Total capitalization...................................................... $ 15,123 $ 37,302
-------- --------
-------- --------
</TABLE>
- ------------------
(1) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$13.00 per share, net of underwriting discounts, commissions and offering
expenses) and the application of the net proceeds as set forth in "Use of
Proceeds."
(2) Excludes 1,026,565 shares of Common Stock issuable upon the exercise of
outstanding options. In addition, at the date of this Prospectus, there were
1,683,204 shares of Common Stock reserved for future issuance under the
Company's Stock Plan. See "Management -- Long-Term Incentive Plan."
13
<PAGE>
DILUTION
As of March 31, 1997, the net tangible book value of the Company was
$725,123 or $0.13 per share. Net tangible book value per share represents the
amount of tangible net assets of the Company, less total liabilities, divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 2,500,000 shares of Common Stock (at an assumed initial
public offering price of $13.00 per share) and the application of the estimated
net proceeds therefrom, the pro forma net tangible adjusted book value of the
Company at March 31, 1997 would have been approximately $29.8 million, or $3.74
per share. This amount represents an immediate increase in pro forma net
tangible book value of $3.61 per share to existing owners of the Company and an
immediate dilution in pro forma net tangible book value of $9.26 per share to
purchasers of Common Stock in this Offering. The following table illustrates
this per share dilution, without giving effect to any exercise of the
Underwriters' over-allotment option:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................................... $ 13.00
Net tangible book value per share before the Offering......................... $ 0.13
Pro forma increase in net tangible book value per share attributable to new
stockholders................................................................ 3.61
---------
Pro forma net tangible book value per share after the Offering..................... 3.74
---------
Pro forma dilution in net tangible book value per share to new stockholders........ $ 9.26
---------
---------
</TABLE>
The following table summarizes, as of March 31, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing stockholders and by new
investors purchasing shares of Common Stock from the Company in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER % AMOUNT % PER SHARE
--------- ------ ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)................... 5,482,516 69% $ 4,013,131 11% $ 0.73
New investors (1)........................... 2,500,000 31% 32,500,000 89% 13.00
--------- ---- ----------- ---- -------
Total.................................. 7,982,516 100% $36,513,131 100% $ 4.57
--------- ---- ----------- ----
--------- ---- ----------- ----
</TABLE>
- ------------------
(1) Assumes no exercise of options outstanding as of March 31, 1997 to purchase
1,026,565 shares of Common Stock at exercise prices ranging from $0.16 to
$10.00 per share and a weighted average exercise price of $5.85 per share.
If any of these options are exercised, there will be further dilution to new
investors. Does not reflect the sale of 650,000 shares by Selling
Stockholders in the Offering. Sales by Selling Stockholders in the Offering
will reduce the number of shares held by existing stockholders of the
Company to 4,832,516, or approximately 60.5% of the total shares of Common
Stock outstanding after the Offering (4,360,016 shares, or approximately
54.6%, of the total shares if the Underwriters' over-allotment option is
exercised in full).
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of December 31, 1993, 1994 and for
the period from January 1, 1995 to May 25, 1995 have been derived from the
audited Financial Statements of the Predecessor included elsewhere herein. The
selected consolidated financial data as of December 31, 1995, 1996 and for the
period from May 26, 1995 to December 31, 1995 and for the year ended 1996 have
been derived from the audited Consolidated Financial Statements of the Company
included elsewhere herein. The selected financial data as of December 31, 1992
and for the year then ended, are derived from the unaudited financial statements
of the Predecessor, and the selected consolidated financial data as of March 31,
1996 and 1997 and for the three months then ended are derived from the unaudited
consolidated financial statements of the Company which in each case includes all
adjustments, consisting of only normal recurring items which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. The results of operations for prior
periods are not necessarily indicative of the results that may be expected for
future years. The information set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto, the
Predecessor Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
------------------------------------- --------------------------------------
MAY 26,
YEARS ENDED JAN. 1, 1995 TO YEAR THREE MONTHS
DECEMBER 31, 1995 TO DEC. ENDED ENDED MARCH 31,
--------------------------- MAY 25, 31, DEC. 31, -----------------
1992 1993 1994 1995 1995 1996(2) 1996 1997(3)
------- ------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Consulting revenues..................... $15,082 $18,053 $22,531 $10,978 $18,194 $ 38,762 $ 9,378 $10,779
Subcontractor and other revenues........ 7,869 8,796 13,437 8,897 11,119 22,821 5,635 5,833
------- ------- ------- ------- ------- -------- ------- -------
Total revenues..................... 22,951 26,849 35,968 19,875 29,313 61,583 15,013 16,612
Cost of services.......................... 18,460 21,653 29,122 16,529 23,811 48,786 11,802 13,028
------- ------- ------- ------- ------- -------- ------- -------
Gross profit.............................. 4,491 5,196 6,846 3,346 5,502 12,797 3,211 3,584
Selling, general and
administrative expenses................. 3,167 3,679 4,836 2,452 3,230 8,583 1,986 1,984
Stock and stock option
compensation (4)........................ -- -- -- -- -- 6,172 -- 65
------- ------- ------- ------- ------- -------- ------- -------
Income (loss) from operations............. 1,324 1,517 2,010 894 2,272 (1,958) 1,225 1,535
Other income (expense), net............... (56) (9) 12 (20) (637) (904) (253) (241)
------- ------- ------- ------- ------- -------- ------- -------
Income (loss) before income tax expense... 1,268 1,508 2,022 874 1,635 (2,862) 972 1,294
Income tax expense........................ 453 620 843 362 725 797 391 529
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)......................... $ 815 $ 888 $ 1,179 $ 512 $ 910 $ (3,659) $ 581 $ 765
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss) per share............... * * * * $ 0.15 $ (0.59) $ 0.09 $ 0.12
------- -------- ------- -------
------- -------- ------- -------
Weighted average shares
outstanding............................. * * * * 5,881 6,247 6,340 6,209
</TABLE>
- ------------------
* Due to the acquisition of the Predecessor on May 25, 1995, and the change in
capital structure, earnings per share information for these periods are not
meaningful and accordingly are not presented.
15
<PAGE>
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
----------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31, 1997
----------------------------- ------------------ -------------------------
<CAPTION>
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(5)
------- ------- ------- ------- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,240 $ 950 $ 566 $ 671 $ 1,433 $ 752 $ 17,312
Working capital.................... 1,278 1,798 2,992 2,538 3,821 3,924 26,102
Total assets....................... 11,144 11,707 14,801 24,500 27,747 32,780 49,340
Total debt......................... -- -- -- 12,050 10,312 12,540 --
Total stockholders' equity......... 3,362 4,250 5,429 3,978 7,238 8,202 37,302
Common stock and cash dividends
declared......................... -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) Effective May 25, 1995, the management of RCG/HB, a wholly-owned subsidiary
of RCG, acquired all of the voting stock of RCG/HB. See "The Company" and
"Certain Transactions."
(2) The statement of operations data for the year ended December 31, 1996
includes the following expenses: (a) approximately $0.5 million of cost of
services, representing that portion of officer compensation that exceeded
the compensation that would have been paid had the compensation plan adopted
in January 1997 been in effect for all of 1996; (b) approximately $1.0
million of interest expense included in other income (expense), net, related
to the Company's outstanding debt that would have been repaid with the
proceeds of the Offering; and (c) approximately $6.2 million in stock and
stock option compensation representing the non-recurring, non-cash
compensation expense in connection with the amendment to the Stock Plan and
a reclassification of the Company's Common Stock described in footnote 4
below. The net impact of the foregoing on the Company's Statement of
Operations for the year ended December 31, 1996 was to decrease income
before income tax expense by approximately $7.7 million and net income by
approximately $6.6 million, with income tax expense calculated at a combined
federal and state income tax rate of 40.0%. Excluding the foregoing, income
before income tax expense for the year ended December 31, 1996 would have
been approximately $4.9 million and net income would have been approximately
$2.9 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Management--Executive
Compensation."
(3) The statement of operations data for the three months ended March 31, 1997
includes approximately $0.3 million of interest expense included in other
income (expense), net, related to the Company's outstanding debt that would
have been repaid with the proceeds of the Offering. The net impact of the
foregoing on the Company's Statement of Operations for the three months
ended March 31, 1997 was to decrease income before income tax expense by
approximately $0.3 million and net income by approximately $0.2 million,
with income tax expense calculated at a combined federal and state income
tax rate of 40.0%. Excluding the foregoing, income before income tax expense
for the three months ended March 31, 1997 would have been approximately $1.6
million and net income would have been approximately $0.9 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management--Executive Compensation."
(4) In connection with an amendment to the Stock Plan and a reclassification of
its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
(5) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$13.00 per share) and application of the estimated net proceeds as set forth
in "Use of Proceeds."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the Prospectus, Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this section, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions as they relate to the Company or its management
are intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in "Risk
Factors."
OVERVIEW
Hagler Bailly is a worldwide provider of a broad array of management
consulting and other advisory services to the private and public sectors of the
energy, utility and environmental industries. The Company offers a wide range of
management consulting, litigation support and specialized financial advisory
services to corporations, primarily electric and gas utilities and independent
power producers, worldwide. The Company also advises government institutions in
the United States and abroad on a broad range of energy, utility and
environmental infrastructure and public policy issues.
Total revenues represent the total of all revenues related to contracts,
including revenues associated with professional staff, subcontractors and
independent consultants. Consulting revenues represent the amount of contract
revenue associated with billings by the Company's professional staff.
Subcontractor and other revenues represent revenues associated with
subcontractors and independent consultants, as well as travel and per diem
reimbursements from clients. Consulting revenues are considered by management to
be the most significant measure of revenues and revenue growth because they
represent the specific income that is generated by the Company's professional
staff. The expenses incurred in connection with subcontractor and other revenues
are generally passed through to the client. Cost of services is comprised of all
direct labor costs and associated benefits (including bonuses), directly
associated subcontractor expenses and other direct costs. Selling, general and
administrative expenses include salaries and benefits of management and support
personnel, facility costs, training, marketing, bid and proposal costs, outside
professional fees related to corporate matters and all other corporate costs.
Other income (expense) is comprised primarily of interest income or expense.
The Company derives substantially all of its revenues from fees for
professional services. The majority of revenues are billed at standard daily
rates or cost-plus fixed-fees. A small percentage of revenues are billed on a
fixed-bid basis. Clients are typically invoiced on a monthly basis. Revenues
from cost-plus fixed-fee contracts are recognized as costs are incurred on the
basis of direct costs plus allowable indirect costs and a pro-rata portion of
the estimated fee. Revenues from fixed-bid type contracts are recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in contract revenues based on the relationship that contract costs
incurred bear to management's estimate of total contract costs. Losses, if any,
are accrued when they become known and the amount of the loss is reasonably
determinable. Revenues from standard daily rate contracts are recognized at
amounts represented by the agreed-upon billing amounts and costs are recognized
as incurred. For the three months ended March 31, 1997, and for the years ended
December 31, 1996, 1995 and 1994, revenues from standard daily rate engagements
comprised approximately 75.3%, 79.6%, 74.6% and 64.6% of the Company's total
revenues, respectively (74.7%, 73.3%, 71.2% and 62.3% of consulting revenues,
respectively). Although currently only a nominal amount, the Company anticipates
an increasing amount of its revenues will be success or performance based in the
future. See "Business -- Growth Strategy."
The Company's most significant expenses are project personnel costs, which
consist of consultant salaries and benefits (including bonuses), and
travel-related direct project expenses. Project personnel are typically
full-time professionals employed by the Company, although the Company often
17
<PAGE>
supplements its professional project staff through the use of subcontractors and
independent consultants, predominantly for public sector work. The Company
retains such subcontractors and independent consultants for specific client
engagements on a task-specific, per diem basis during the period their expertise
or skills are required. The Company believes that retaining subcontractors and
independent consultants on a per-engagement basis provides it with greater
flexibility and reduced risk in adjusting professional staff levels in response
to changes in demand for its services.
Management Buy-Out
From 1984 to May 1995, the Company was a wholly-owned subsidiary of RCG.
The results of operations since May 25, 1995 have been affected by an increase
in overhead as a result of becoming an independent corporation and an increase
in interest expense relating to indebtedness incurred in connection with the
Management Buy-Out. In addition, results of operations of the Company subsequent
thereto have been affected by the amortization of approximately $9.0 million of
certain intangibles, including goodwill, which were recorded in connection with
the Management Buy-Out. Accordingly, the Company's results of operations for the
period prior to May 25, 1995, are not necessarily indicative of what such
results would have been had the Company been unaffiliated with RCG and may not
necessarily be indicative of future results. See Note 5 to Company's
Consolidated Financial Statements. The data for 1995 in the period to period
discussions below reflects the results of operations of the Company for the
period May 26, 1995 through December 31, 1995, combined with the results of
operations of the Predecessor for the period January 1, 1995 through May 25,
1995. See "Certain Transactions."
Compensation Charges
Prior to December 31, 1996, the Company's Stock Plan was formula based,
pursuant to which the exercise price of options granted were based upon the book
value per share as of May 26, 1995, adjusted for accretion of formula value
during any interim period up to the grant date.
Effective at December 31, 1996, the Company: (a) adopted an amendment to
its Stock Plan which changed the exercise price of future options to be granted
thereunder to the market value of the underlying Common Stock; and (b) in
connection with a reclassification of its Common Stock, substituted 0.9 shares
of Class A Common Stock for each share of Class B Common Stock underlying the
971,963 options vesting on January 1, 1997. In addition, the remaining total of
971,963 options to purchase Class B shares vesting on January 1, 1998, were
canceled. As a result, the Company recorded a non-recurring, non-cash charge to
operations of $6.2 million in December 1996 of which $4.6 million was for
options to purchase Common Stock and $1.6 million was for 394,160 shares of
Common Stock sold to employees during 1996. These charges represent the
aggregate difference between the exercise price of such outstanding options or
the issuance price of Common Stock sold to employees during 1996, as the case
may be, and the appraised market value of the underlying Common Stock at
December 31, 1996. See Note 10 to Consolidated Financial Statements.
On January 17, 1997, the Company awarded a one-time stock bonus of 8,194
shares of Common Stock to an employee which resulted in a non-cash compensation
charge to operations in the first quarter of 1997 of $65,000.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
composition of revenues and selected statements of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, (1) MARCH 31,
--------------------------------------------- ----------------
1992 1993 1994 1995(2) 1996(3) 1996 1997(4)
----- ----- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting revenues............................... 65.7% 67.2% 62.6% 59.3% 62.9% 62.5% 64.9%
Subcontractor and other revenues.................. 34.3 32.8 37.4 40.7 37.1 37.5 35.1
----- ----- ----- ----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of services...................................... 80.4 80.6 81.0 82.0 79.2 78.6 78.4
----- ----- ----- ----- ----- ----- -----
Gross profit.......................................... 19.6 19.4 19.0 18.0 20.8 21.4 21.6
Selling, general, and administrative expenses......... 13.8 13.7 13.4 11.6 13.9 13.2 11.9
Stock and stock option compensation(5)................ -- -- -- -- 10.0 -- 0.4
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations......................... 5.8 5.7 5.6 6.4 (3.2) 8.2 9.2
Other income (expense), net........................... (0.2) * * (1.3) (1.5) (1.7) (1.5)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income tax expense............... 5.5 5.6 5.6 5.1 (4.6) 6.5 7.8
Income tax expense.................................... 2.0 2.3 2.3 2.2 1.3 2.6 3.2
----- ----- ----- ----- ----- ----- -----
Net income (loss) as % of total revenues.............. 3.6 3.3 3.3 2.9 (5.9) 3.9 4.6
Net income (loss) as % of consulting revenues......... 5.4 4.9 5.2 4.9 (9.4) 6.2 7.1
</TABLE>
- ------------------
* Less than 0.1%.
(1) All items are stated as a percent of total revenues, unless as otherwise
stated. Some percentages do not total exactly due to rounding.
(2) The data for 1995 in the table and the following period-to-period
discussions reflect the results of operations of the Company for the period
May 26, 1995 through December 31, 1995, combined with the results of
operations of RCG/HB for the period from January 1, 1995 through May 25,
1995. The results of operations for periods prior to May 25, 1995, are not
necessarily indicative of what such results would have been had the Company
been unaffiliated with RCG primarily due to interest expense, amortization
and certain intangibles, including goodwill, and other expenses associated
with being an independent corporation.
(3) The statement of operations data for the year ended December 31, 1996
includes the following expenses: (a) approximately $0.5 million of cost of
services, representing that portion of officer compensation that exceeded
the compensation that would have been paid had the compensation plan adopted
in January 1997 been in effect for all of 1996; (b) approximately $1.0
million of interest expense included in other income (expense), net, related
to the Company's outstanding debt that would have been repaid with the
proceeds of the Offering; and (c) approximately $6.2 million in stock and
stock option compensation representing the non-recurring, non-cash
compensation expense in connection with the amendment to the Stock Plan and
a reclassification of the Company's Common Stock described in footnote 5
below. The net impact of the foregoing on the Company's Statement of
Operations for the year ended December 31, 1996 was to decrease income
before income tax expense by approximately $7.7 million and net income by
approximately $6.6 million, with income tax expense calculated at a combined
federal and state income tax rate of 40.0%. Excluding the foregoing, net
income for the year ended December 31, 1996 as a percentage of total
revenues and consulting revenues would have been 4.8% and 7.6%,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Management -- Executive
Compensation."
(4) The statement of operations data for the three months ended March 31, 1997
includes approximately $0.3 million of interest expense included in other
income (expense), net, related to the Company's outstanding debt that would
have been repaid with the proceeds of the Offering. The net impact of the
foregoing on the Company's Statement of Operations for the three months
ended March 31, 1997 was to decrease income before income tax expense by
approximately $0.3 million and net income by approximately $0.2 million,
with income tax expense calculated at a combined federal and state income
tax rate of 40.0%. Excluding the foregoing, net income for the three months
ended March 31, 1997 as a percentage of total revenues and consulting
revenues would have been 5.6% and 8.6%, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Management -- Executive Compensation."
(5) In connection with an amendment to the Stock Plan effective December 31,
1996, the Company incurred non-recurring, non-cash charges to operations
amounting to $4.6 million for options and $1.6 million for stock,
respectively, in 1996. In connection with a stock bonus to an employee, the
Company incurred a non-cash compensation charge to operations in the first
quarter of 1997 of $65,000. See Note 10 to Consolidated Financial Statements
and "Certain Transactions."
19
<PAGE>
Three Months Ended March 31, 1997 (Unaudited) Compared to Three Months Ended
March 31, 1996 (Unaudited)
Revenues. Revenues increased 10.7% to $16.6 million in the three months
ended March 31, 1997 from $15.0 million in the three months ended March 31,
1996. Consulting revenues increased 14.9% to $10.8 million in the first quarter
of 1997 compared to $9.4 million in the comparable period in 1996. These
increases are the result of the Company's continued focus on the higher margin
private sector engagements particularly in the Company's economic analysis and
litigation support practice area. The Company also realized increases in the
average size of private sector client projects as well as the number of client
projects.
Cost of Services. Cost of services increased 10.4% to $13.0 million for
the three months ended March 31, 1997 from $11.8 million for the three months
ended March 31, 1996. Cost of services as a percentage of revenues was 78.4% in
1997 compared to 78.6% in 1996. The decrease in cost of services as a percentage
of revenue is also attributable to the growth in the Company's higher margin
client mix.
Gross Profit. Gross profit increased 11.6% to $3.6 million in the first
quarter of 1997 compared to $3.2 million in the same period in 1996. The
increase in gross profit is the result of increased revenues and lower costs of
services as a percentage of revenues discussed above. Gross profit as a
percentage of revenues increased slightly to 21.6% in 1997 from 21.4% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained constant at $2.0 million in the three months
ended March 31, 1997 and 1996. As a percentage of total revenues, selling,
general and administrative expenses decreased to 11.9% in 1997 from 13.2% in
1996 as a result of the increase in revenues discussed above.
Income From Operations. Income from operations was $1.5 million for the
three months ended March 31, 1997 compared to $1.2 million for the three months
ended March 31, 1996, an increase of 25.3%.
Other Income (Expense). Other income (expense) was ($0.2) million for the
period ended March 31, 1997 compared to ($0.3) million for the same period in
1996. Of this amount, approximately $0.3 million was related to interest expense
on debt incurred in connection with the Management Buy-Out, which will be repaid
with the proceeds of the Offering.
Income Tax Expense. Income tax expense was $0.5 million for the three
months ended March 31, 1997 and $0.4 million for the three months ended March
31, 1996. Income tax expense as a percentage of income before income tax expense
was 40.9% in 1997 compared to 40.2% in 1996.
Net Income. As a result of the preceding, net income for the first quarter
of 1997 was $0.8 million compared to $0.6 million in the first quarter of 1996.
As a percentage of revenues net income was 4.6% in 1997 compared to 3.9% in
1996. Net income as a percentage of consulting revenues increased to 7.1% in the
first quarter of 1997 from 6.2% in the first quarter of 1996. Excluding the
interest expense described above, net income would have been $0.9 million, with
income tax expense calculated at a combined federal and state income tax rate of
40.0%.
1996 Compared to 1995
Revenues. Total revenues increased 25.2% to $61.6 million in 1996 from
$49.2 million in 1995. Consulting revenues increased 32.9% to $38.8 million in
1996 from $29.2 million in 1995. These revenue increases can be attributed
principally to an increase in revenues in the Company's corporate strategy and
management and the economic analysis and litigation support practice areas.
These practice areas experienced the most significant growth with a greater than
123.5% increase over their respective 1995 consulting revenues on an annualized
basis. This trend results from the Company's growth strategy to place greater
emphasis on the generation of higher margin private sector client engagements in
the U.S. utility sector and the impact of a full year's contribution of revenues
from several new corporate strategy consulting services introduced in mid 1995.
See "Business -- Growth
20
<PAGE>
Strategy" and "Business -- Major Practice Areas." The Company also realized
increases in the average size of private sector client projects, as well as the
number of client projects. The increased growth in consulting revenues also
reflects the increased utilization of full-time professional staff.
Cost of Services. Cost of services increased by $8.4 million in 1996
compared with 1995 but decreased in relation to total revenues from 82.0% of
total revenues in 1995 to 79.2% of total revenues in 1996. This decrease can be
primarily attributed to the increase in the business mix of higher profit margin
private sector engagements resulting from a full year's contribution to revenues
of the corporate strategy consulting services introduced in 1995. (See "Gross
Profit" below). Of this amount, approximately $0.5 million represents that
portion of officer compensation that exceeded the compensation that would have
been paid had the compensation plan adopted in January 1997 been in place for
all of 1996.
Gross Profit. Gross profit increased 44.6% to $12.8 million in 1996 from
$8.8 million in 1995. Gross profit as a percentage of total revenues increased
to 20.8% in 1996 from 18.0% in 1995. This can be principally attributed to the
increase in the business mix of higher gross margin private sector engagements
discussed above and secondarily to increased utilization rates resulting from
productivity gains, in part, associated with technology improvements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 51.1% to $8.6 million in 1996 from $5.7
million in the prior year period. As a percentage of total revenues, selling,
general and administrative expenses increased to 13.9% in 1996 from 11.6% in
1995. This increase was due primarily to increases in certain overhead costs
associated with the Management Buy-Out (including legal, training,
administrative staff, corporate governance, corporate insurance, audit costs,
one-time bank fees and taxes and license fees), increases in the allowance for
possible losses due to the shift in the business mix towards private sector
clients and the overall growth in the Company's operations, as well as a
significant increase in proposal development expenses in the environmental
management practice.
Income (Loss) From Operations. Loss from operations was ($2.0) million in
1996 compared to income from operations of $3.2 million in 1995. The loss from
operations in 1996 is primarily attributable to the approximately $6.2 million
non-recurring, non-cash stock and stock option compensation charge and that
portion of officer compensation that exceeded the compensation that would have
been paid had the compensation plan adopted on January 17, 1997 been in effect
for all of 1996. See "-- Compensation Charges" above and Note 10 to Consolidated
Financial Statements. These expenses negatively impacted income from operations
by approximately $6.7 million in 1996. Excluding the foregoing, income from
operations for 1996 would have been approximately $4.8 million, a 50.5% increase
from 1995, and would have been 7.7% of total revenues in 1996, as compared to
6.4% in 1995. Such improvement is primarily attributable to increased revenues
and business mix, as previously discussed, and the decrease in the cost of
services (as a percentage of total revenues) which was partially offset by the
increased selling, general and administrative expenses.
Other Income (Expense). Other income (expense) was ($0.9) million in 1996
compared to ($0.7) million for 1995. This increase is attributable to a full
year of interest expense in 1996, in the amount of $1.0 million, related to debt
incurred in connection with the Management Buy-Out versus seven months of
interest expense in 1995. Such debt will be repaid with the proceeds from the
Offering.
Income Tax Expense. The Management Buy-Out in 1995 provided the Company
with an opportunity to make a tax election to be treated as a cash basis
taxpayer. For financial reporting purposes, the Company recognizes income tax
expense on an accrual basis. The difference between cash basis and accrual basis
created a deferred income tax liability which represents a temporary difference.
Income tax expense was $0.8 million for 1996 compared to $1.1 million for 1995.
The Company incurred income tax expense in 1996 even with an operating loss
because a portion of the stock and stock option compensation charge was not
deductible for tax purposes.
Net Income (Loss). As a result of the foregoing, the net loss was ($3.7)
million in 1996 as compared to net income of $1.4 million in 1995, primarily as
a result of the non-recurring stock and
21
<PAGE>
stock option compensation charge discussed above. Net income (loss) as a
percentage of total revenues was (5.9%) in 1996 as compared to 2.9% in 1995.
Excluding expenses related to (a) the excess officer compensation described
above, (b) the interest expense described above, and (c) the non-recurring,
non-cash compensation charge described above, net income would have been
approximately $2.9 million, with income tax expense calculated at a combined
federal and state income tax rate of 40.0%.
1995 Compared to 1994
Revenues. Total revenues increased 36.8% to $49.2 million in 1995 from
$36.0 million in 1994. Consulting revenues increased 29.5% to $29.2 million in
1995 from $22.5 million in 1994. The overall increase in revenues and consulting
revenues was primarily attributable to the Company's increased focus on the
corporate strategy and management practice and the introduction of several new
corporate strategy consulting services in mid-1995 which resulted in $2.9
million in additional revenues over a period of approximately six months in
1995. The opening of an office in Madison, Wisconsin and the development of the
Company's survey center therein during April 1995 added $2.1 million to revenues
from consulting and survey center activities. In addition the Company realized a
full year's revenue in 1995 from a public sector contract which represented an
increase in total revenues of $2.0 million ($0.8 million in consulting revenues)
or a 71.4% increase in total revenues (75.3% in consulting revenues) over the
prior year.
Cost of Services. Costs of services increased 38.5% to $40.3 million in
1995 from $29.1 million in 1994. Cost of services as a percent of total revenues
increased from 81.0% of total revenue in 1994 to 82.0% in 1995. This is
primarily attributable to the more significant use of in-house personnel at
standard daily rates.
Gross Profit. Gross profit increased 29.2% to $8.8 million in 1995 from
$6.8 million in 1994. However, gross profit as a percentage of revenues
decreased to 18.0% in 1995 from 19.0% in 1994. This decrease is primarily
attributable to the increased use of in-house personnel discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.5% to $5.7 million in 1995 from $4.8
million in 1994. However, selling, general and administrative expenses,
expressed as a percentage of total revenues, decreased to 11.6% in 1995 from
13.4% in 1994. This decrease was due principally to higher average productivity
and staff utilization levels and a decrease in overall proposal development
costs, partially offset by an increase in administrative costs associated with
the Management Buy-Out.
Income From Operations. Income from operations increased 57.5% to $3.2
million in 1995 from $2.0 million in 1994. This increase can primarily be
attributed to increased revenues and gross profits attributable to the increased
focus and new consulting services in the corporate strategy sector, and lower
relative selling, general and administrative expenses (as a percentage of total
revenues) which were partially offset by increased cost of services. Income from
operations as a percentage of total revenues improved to 6.4% in 1995 as
compared to 5.6% in 1994.
Other Income (Expense). Other income (expense) decreased to ($0.7) million
in 1995 from $12,000 in 1994 as a result of interest expense on the long-term
debt incurred in connection with the Management Buy-Out.
Income Tax Expense. Income tax expense was $1.1 million in 1995 compared
to $0.8 million in 1994. Income tax expense as a percentage of income before
income tax expense was 43.3% in 1995 compared to 41.7% in 1994.
Net Income. As a result of the foregoing, net income increased 20.6% to
$1.4 million in 1995 as compared to $1.2 million in 1994. Net income as a
percentage of total revenues was 2.9% in 1995 compared to 3.3% in 1994.
22
<PAGE>
Unaudited Quarterly Results
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending March 31, 1997. The
information has been prepared by the Company consistent with the audited
consolidated financial statements contained elsewhere in this Prospectus and
include, in management's opinion, all normal recurring adjustments necessary for
the fair presentation of the information for the periods presented, when read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto. The Company's operating results for any quarter are not
necessarily indicative of results for any full year or for any subsequent
period.
<TABLE>
<CAPTION>
QUARTERS ENDED(1)
-----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1996 1996 1996 1996
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting revenues............... $ 6,879 $ 7,089 $ 8,424 $ 9,378 $ 9,730 $10,090 $ 9,564
Subcontractor and other
revenues...................... 5,065 4,798 5,145 5,635 5,569 5,514 6,103
-------- ------- -------- ------- -------- ------- --------
Total revenues................ 11,944 11,887 13,569 15,013 15,299 15,604 15,667
Cost of services.................... 9,960 9,340 11,216 11,802 11,907 12,240 12,837
-------- ------- -------- ------- -------- ------- --------
Gross profit........................ 1,984 2,547 2,353 3,211 3,392 3,364 2,830
Selling, general and administrative
expenses.......................... 1,366 1,400 1,506 1,986 2,309 2,016 2,272
Stock & stock option
compensation (2).................. -- -- -- -- -- -- 6,172
-------- ------- -------- ------- -------- ------- --------
Income (loss) from operations....... 618 1,147 847 1,225 1,083 1,348 (5,614)
Other income (expense), net......... (122) (282) (256) (253) (198) (228) (225)
Income tax expense.................. 215 374 256 391 356 450 (400)
-------- ------- -------- ------- -------- ------- --------
Net Income (loss)................... $ 281 $ 491 $ 335 $ 581 $ 529 $ 670 ($ 5,439)
-------- ------- -------- ------- -------- ------- --------
-------- ------- -------- ------- -------- ------- --------
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Revenues:
Consulting revenues............... $10,779
Subcontractor and other
revenues...................... 5,833
-------
Total revenues................ 16,612
Cost of services.................... 13,028
-------
Gross profit........................ 3,584
Selling, general and administrative
expenses.......................... 1,984
Stock & stock option
compensation (2).................. 65
-------
Income (loss) from operations....... 1,535
Other income (expense), net......... (241)
Income tax expense.................. 529
-------
Net Income (loss)................... $ 765
-------
-------
</TABLE>
- ------------------
(1) The data for 1995 in this table reflect the results of operations of the
Company for the period May 26, 1995 through December 31, 1995, combined with
the results of operations of RCG/HB for the period from January 1, 1995
through May 25, 1995. The results of operations for periods prior to May 25,
1995, are not necessarily indications of what such results would have been
had the Company been unaffiliated with RCG primarily due to interest
expense, amortization of certain intangibles, including goodwill, and other
expenses associated with being an independent corporation.
(2) In connection with an amendment to the Stock Plan and a reclassification of
its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
Revenues and operating results fluctuate from quarter to quarter as a
result of a number of factors, such as the number and significance of client
engagements commenced and completed during a quarter, delays incurred in
connection with an engagement, the number of business days in a quarter,
employee hiring and utilization rates, the ability of clients to terminate
engagements without penalties, the size and scope of engagements, the nature of
the fee arrangement, the seasonality of the spending cycle of public sector
clients (especially that of the United States government), the timing of new
office openings, the timing and size of the return on investment capital and
general economic and political conditions. Variations in any of these factors
can cause significant variations in operating results from quarter to quarter
and could result in losses to the Company. In December 1996, the Company
recorded a non-recurring, non-cash compensation charge of $6.2 million related
to stock and stock options. See "Certain Transactions."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations, periodically supplemented by borrowings under a bank line of credit.
At March 31, 1997, the Company's outstanding indebtedness consisted of (i) $3.6
million outstanding under the Secured Senior Term Loan with remaining scheduled
principal payments of $1.0 million, $1.4 million and $1.2 million for the years
1997, 1998 and 1999, respectively, (ii) $4.6 million outstanding under the
Subordinated Loan due May 2001 which balloon payment is accelerated in the event
the Company completes this Offering and (iii) approximately $4.3 million
outstanding under a $4.5 million line of credit bearing interest at the lender's
prime rate plus 0.875%. See Notes 7, 8 and 14 to Consolidated Financial
Statements. The Company will repay the Subordinated Loan and intends to repay
all such other debt from a portion of
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<PAGE>
the net proceeds of the Offering. As a result of these repayments, the Company
anticipates that its annualized interest expense will be reduced substantially
during 1997. See "Use of Proceeds." The Company anticipates increasing its
short-term borrowing capacity during 1997.
As part of the Management Buy-Out, the Company was required to place a
deposit in escrow to secure its indemnity of RCG for remaining a guarantor on a
lease for the Company's headquarters. At March 31, 1997 the Company had an
escrow balance of $350,000. The Company was required to use its best efforts to
effect the release of RCG from such guarantee by April 30, 1997. To date, the
Company has not obtained such release. As a result, RCG has required the Company
to increase the escrow described above to $550,000. In the event this Offering
is consummated and the Company is unable to obtain such release, RCG has the
right to require the Company to increase the escrow described above to an amount
equal to the present value of all remaining payments under such lease
(approximately $3.6 million at March 31, 1997). The Company believes such
requirement to increase the escrow amount will not have a material adverse
effect on the Company's operations or financial condition. See Notes 6 and 14 to
Consolidated Financial Statements.
Net cash provided by or used in operations consisted primarily of net
income (loss) plus elements of cash flows related to accounts receivable and
related billings, accounts payable and accrued compensation adjusted for
non-cash items including depreciation, provision for possible losses, deferred
income taxes, and stock and stock option compensation. The use of funds by
operations of $2.9 million for the three months ended March 31, 1997 and $1.2
million for the three months ended March 31, 1996 can be attributed primarily to
the growth in accounts receivable and the payment of annual bonuses for both
periods, which was partially offset by an increase in accounts payable in 1997.
Additionally, in the period ended March 31, 1997 operations used funds due to
the capitalization of approximately $622,000 in Offering costs. The Company
provided cash from operations of $2.9 million, $2.5 million and $0.5 million,
for the year ended December 31, 1996, the period from May 26, 1995 to December
31, 1995 and the period from January 1, 1995 through May 25, 1995, respectively.
Cash flows provided by (used in) operations for the years ended December 31,
1994 and 1993 were ($35,000) and $1.5 million, respectively.
Investing activities used funds of $0.2 million for the three months ended
March 31, 1997 and 1996. The Company used cash in investing activities of $1.1
million, $12.3 million, and $0.7 million for the year ended December 31, 1996,
the period from May 26, 1995 to December 31, 1995 and the period from January 1,
1995 through May 25, 1995, respectively. Cash flows used in investing activities
were $0.8 million and $1.2 million for the years ended December 31, 1994 and
1993, respectively. Other than the Management Buy-Out, which utilized $11.8
million in 1995, investing activities have primarily been capital expenditures
for information technology and other resources necessary for the growth of the
Company.
Financing activities provided funds of $2.4 million and $1.4 million for
the periods ended March 31, 1997 and 1996, respectively, principally due to line
of credit borrowings. Cash flows provided by (used in) financing activities were
($1.0) million, $10.5 million and $0.7 million for the year ended December 31,
1996, for the period from May 26, 1995 to December 31, 1995 and the period from
January 1, 1995 through May 25, 1995, respectively. Cash flows provided by (used
in) financing activities amounted to $0.5 million and ($0.6) million for the
years ended December 31, 1994 and 1993, respectively. During 1995, cash provided
by financing activities was primarily attributable to the issuance of stock and
the debt incurred in conjunction with the Management Buy-Out. Cash used in
financing activities during 1996 was primarily related to the reduction of
long-term debt.
The Company realized a cash flow benefit from deferred federal and state
income taxes of $0.5 million and $0.4 million for the three months ended March
31, 1997 and 1996, respectively. This benefit amounted to $0.8 and $0.7 million
in the year ended December 31, 1996 and the period from May 26, 1995 to December
31, 1995, respectively. Upon consummation of the Offering, the Company will be
required to change from the cash method of income tax reporting to the accrual
method which is expected to result in a reclassification of income tax
liabilities from deferred to current.
The Company's contract backlog was approximately $102.0 million on December
31, 1996, compared to approximately $73.0 million on December 31, 1995. Nearly
$96.0 million of the Company's contract backlog at December 31, 1996 (including
amounts relating to option periods) was for public sector clients, primarily the
U.S. government. Many U.S. government contracts, while
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<PAGE>
extending for more than one year, are funded by the procuring agency from fiscal
year to year, resulting in a variance between contract backlog and funded
backlog. Contract backlog represents the maximum amount authorized by the
contracts. Funded backlog is the portion of the contract backlog for which
current year funding has been allocated by the procuring agencies. Funded
backlog generally varies over the course of a year depending upon procurement
and funding cycles. Of the Company's contract backlog on December 31, 1996 and
1995, 31.8% and 7.6%, respectively, were funded. The Company expects
approximately $24.5 million of the contract backlog at December 31, 1996 to be
completed in fiscal 1997. Due to the decreased percentage of the Company's
revenues resulting from public sector clients the Company expects that backlog
will be less meaningful in the future.
The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs, which may include future acquisitions of
complementary businesses, for at least the next twelve months. The Company
currently has no agreements or commitments regarding future acquisitions.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Although the Company has performed engagements in approximately 100
countries since 1980, a substantial portion of the Company's foreign projects
are contracted by U.S. agencies and, therefore, paid in U.S. dollars.
Nevertheless, the Company reduces its exposure to fluctuations in foreign
exchange rates by creating offsetting (hedge) positions through the use of
derivative financial instruments. The Company does not use derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
leveraged derivatives. The Company regularly monitors its foreign currency
exposures to ensure that hedge contract amounts do not exceed the amounts of the
underlying exposure. The Company had no hedge positions as of March 31, 1997. To
date, the Company has not had more than $100,000 at risk at any one time in such
hedge positions. See Note 13 to Consolidated Financial Statements.
RECENTLY ISSUED FINANCIAL STANDARDS
In October 1995 the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's 1996 financial statements. SFAS No. 123 allows companies to either
account for stock based compensation under the new provisions of SFAS No. 123 or
under the provisions of Accounting Principles Board APB No. 25, "Accounting for
Stock Issued to Employees", but requires pro forma disclosures in the footnotes
to the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. The Company intends to continue accounting for its stock-based
compensation in accordance with APB No. 25. The pro forma disclosures required
under SFAS No. 123, while not materially different than the amounts recorded in
the Company's consolidated financial statements pursuant to APB No. 25 are
included in Note 10 to Consolidated Financial Statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which is required to be adopted for the year ended
December 31, 1997. Under the new requirements, the dilutive effect of stock
options will be excluded for purposes of calculating Basic Earnings per share.
For the periods ended March 31, 1996 and March 31, 1997 Basic Earnings per share
would have been $0.09 and $0.15 per share, respectively, while Diluted Earnings
per share would have been $0.09 and $0.12, respectively. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common Stock and options to purchase Common Stock issued at prices below
the estimated initial public offering price during the twelve months immediately
preceding the contemplated initial filing of the registration statement relating
to the Offering, have been included in the computation of net income (loss) per
share as if they were outstanding for all periods presented (using the treasury
method assuming repurchase of common stock at the estimated initial public
offering price, even if antidilutive).
EFFECTS OF INFLATION
The Company has not been adversely affected by inflation. However, there
can be no assurance that the Company's business will not be affected by
inflation in the future.
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BUSINESS
Hagler Bailly is a worldwide provider of a broad array of management
consulting and other advisory services to the private and public sectors of the
energy, utility and environmental industries. The Company offers a wide range of
management consulting, litigation support and specialized financial advisory
services to corporations, primarily electric and gas utilities and independent
power producers, worldwide. The Company also advises government institutions in
the United States and abroad on a broad range of energy, utility and
environmental infrastructure and public policy issues. Since its inception in
1980, Hagler Bailly has performed in excess of 1,900 consulting engagements for
more than 750 clients in approximately 100 countries. In 1996, the Company
performed over 220 assignments for more than 125 clients in over 30 countries.
Revenues from the Company's ten most significant clients accounted for
approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues for the three
months ended March 31, 1997, and for the years ended December 31, 1996, 1995 and
1994, respectively. In the past 16 years, the Company has grown from a single
office to a worldwide network of operations with principal offices in six cities
in the United States and five other countries. Over the past three years, the
Company's total revenues and consulting revenues have grown at a compound annual
rate of 30.8% and 31.2%, respectively, and have grown 25.2% and 32.9% from 1995
to 1996, respectively.
As a result of powerful regulatory, economic and technological forces, the
Company believes the energy, utility and environmental industries, in particular
the electric and gas utility sector, are undergoing rapid and profound changes.
These changes have created a sharp increase in the demand for specialized
consulting services in both the private and public sectors. The Company believes
its industry focus, full service capabilities, existing global infrastructure,
established client relationships, public sector insight, knowledge base,
experienced team of management and consultants and established global presence
have positioned the Company to capitalize on this rapidly growing demand for
consulting services in the energy, utility and environmental markets worldwide.
BUSINESS ENVIRONMENT
Market Trends
According to industry data, the energy industry is one of the largest in
the world with annual sales of approximately $2.0 trillion. At this juncture,
the Company believes a powerful array of forces is converging globally to
profoundly change the structure of this industry. This is especially true in the
electric and gas utility market, one of the largest segments of the energy
industry. The Company believes three industry trends to be most important:
globalization, restructuring and digitalization.
Globalization. Although the United States remains the single largest
energy market, many international markets are growing more rapidly. For example,
industry sources project that 88.0% of all new power generation facilities
through the year 2020 will be constructed outside of North America. In addition,
the electric power and gas industries are being globalized as utilities and
independent power producers move outside their traditional markets. The Company
believes that nearly 100 electric companies are active outside their home
country markets as over 100 countries are now open to non-utility ownership and
operation in the power sector. The Company believes this globalization of the
electric power and gas industries will continue to accelerate.
Restructuring. Worldwide, the Company believes the utility sector is
undergoing a fundamental restructuring driven primarily by an overabundance of
energy in the developed world and a scarcity of energy in the developing world.
In the United States, for example, the Company believes pressure to deregulate
and create "open access" in the electric sector similar to that in the gas and
telecommunications industries is mounting. Already several large energy consumer
states, such as California, Illinois, Massachusetts, Michigan, New York, Ohio
and Pennsylvania, are moving to bring competition to the electric industry and
to permit entry by unregulated wholesalers and retailers. Outside the United
States, a comprehensive reorganization of the electric utility sector is also
underway as many countries move to restructure, corporatize and privatize
traditional public or quasi-public functions and operations. Beginning in Europe
with the privatization of the non-nuclear portion of the United Kingdom's
electric utility sector, this trend has spread to Eastern Europe, the former
Soviet Union and Latin America, and is now expanding throughout Asia.
Digitalization. The Company believes that industry restructuring, combined
with more competitive markets and new regulations, such as continuous emission
monitoring in the United States
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<PAGE>
and the new international environmental standard ISO 14000, requires new
efficiencies in the energy, utilities and environmental industries for companies
to stay competitive. The Company believes that the application of new and more
sophisticated information systems will be the cornerstone of the efficiencies
necessary to succeed in these industries. In addition, the Company believes that
the advances in computing and communication technologies, as well as the
convergence of industries such as telecommunications with electric utilities,
will have profound impacts on the marketing and operations of energy, utility
and environmental companies. The Company refers to these developments as
digitalization.
Consulting Opportunities.
According to industry sources, approximately 100,000 people worldwide work
full-time in management consulting, an industry which generates more than $60.0
billion in annual revenue and is growing by more than 12.0% per annum. The
Company believes that one of the largest and fastest growing segments of the
expanding management consulting industry is the energy, utility (especially the
gas and electric utility sectors) and environmental industries. The Company
estimates that these three industries comprise approximately $5.0 billion of the
aggregate management consulting industry annual revenues.
Hagler Bailly believes that both in the private and public sectors, these
trends toward globalization, restructuring and digitalization are creating an
increasing demand for related services offered by the Company, such as planning,
cost control, business process re-engineering, organizational development and
public policy analysis. In the public sector, the Company will continue to focus
on selective opportunities both in the United States and abroad, including the
restructuring and privatization of electric, gas and water utilities, energy and
water efficiency, global climate change management and environmental management.
In the private sector, the Company has developed, is currently offering and will
market aggressively, six integrated consulting solutions for clients trying to
adapt to this evolving market:
Growing the Revenue Stream. A major challenge for most utilities will
be to grow their revenue streams as competition moves into their
traditional service territories. This requires a complete repositioning of
the corporation, a radical transformation of the organization and the
development of new competencies, for example, in consumer marketing,
product development, state-of-the-art billing and customer care systems. To
accomplish this objective, the Company believes its broad-based
capabilities and proven track record in this area position it to advise
clients through the strategy definition and implementation process.
Globalizing the Enterprise. More and more utilities and independent
power companies are acquiring assets beyond their home country borders in
search for growth, economies of scale, and higher returns. According to
industry sources, from January 1, 1995 to February 17, 1997, there were
approximately 120 cross-border transactions completed between U.S. electric
utilities and independent power companies and non-U.S. electric utilities
and independent power companies, with an aggregate value of approximately
$32.4 billion, with approximately 55 transactions with an aggregate value
of approximately $5.3 billion which have been announced but have not been
completed. The Company believes globalization, together with cross-border
consolidations and alliances, will accelerate in the coming years. The
Company believes its international track record and ability to work
effectively on a global scale enable it to assist clients in responding to
these challenges.
Meeting Environmental Challenges. The Company believes utilities must
carefully evaluate the financial consequences of different compliance
options and integrate environmental management into their overall business
strategies. Investments in new technologies must be weighed against the
opportunities presented by allowance trading schemes, power purchase
arrangements with independent power producers, and other cost saving
measures. The Company believes its environmental, science and economic
experience and capabilities allow it to assist clients in analyzing various
compliance options and making decisions that are both financially and
environmentally sound.
Building the Technological Spine. Hagler Bailly believes, in general,
that gas and electric utilities have been slow to adopt the latest
technological advances particularly in information systems. However, the
Company believes that current and future technological innovations will
27
<PAGE>
transform the retailing of energy and utility services, particularly in how
utilities interface with their customers. The Company believes its
knowledge base and full service capabilities position it to help clients
define and evaluate their options and to give them access to the Company's
computing platforms.
Reforming and Restructuring Contracts. Deregulation of the U.S.
electric utility sector and the concomitant corporate repositioning,
including mergers, acquisitions and functional unbundling at all levels of
the industry (generation, transmission and distribution), necessitate the
restructuring of existing arrangements. The Company believes its
substantial experience, analytical capabilities and knowledge base enable
it to assist clients and their legal advisors in contract renegotiations
and litigation.
Identifying and Closing Strategic Transactions. The execution of a
client's business strategy often requires identifying and completing
enabling transactions. Enabling transactions involve acquisitions,
alliances or blocking investments in third parties. The Company believes
its consulting and financial advisory capabilities and resources enable it
to advise clients in many areas, including: refining an approach to
acquisitions; identifying a set of suitable transactions; performing due
diligence; providing general assistance with evaluation and structuring;
and assisting with closings.
COMPETITIVE STRENGTHS
Hagler Bailly believes that it is in a strong position to take advantage of
these consulting opportunities. The Company believes that several factors
differentiate it from many of its potential competitors in the consulting
industry.
Industry Focus. Since its inception in 1980, the Company has maintained
its focus on providing a broad range of consulting services to the energy,
utility and the environmental industries. This focus differentiates it from both
general management consulting firms that serve multiple industries and firms
with limited skill sets and capabilities. The Company believes that this focus
and the insights gained by working worldwide, allow it to customize leading-edge
consulting concepts and tools to specific situations and thus provide tangible
value, rather than just theories, to its clients.
Full Service Capabilities. Hagler Bailly's strategy is to partner with its
clients in conceptualizing and implementing solutions which significantly
increase enterprise value. To do so, the Company has built a broad range of
consulting platforms enabling it to meet its clients' consulting needs. These
include corporate strategy, marketing and sales, product development, energy
supply and logistics, operations management, information systems and technology,
economic analysis, environmental management and finance. In addition, the
Company conducts its own market research using a state-of-the-art survey center
equipped with 26 CATI (Computer-Assisted Telephone Interview) stations.
Existing Global Infrastructure. The Company operates from six principal
offices in the United States (Arlington, Virginia; Boston, Massachusetts;
Boulder, Colorado; Houston, Texas; Madison, Wisconsin; and San Francisco,
California), four principal offices abroad (Buenos Aires, Argentina; Dublin,
Ireland; Jakarta, Indonesia; and Paris, France) and one principal office in
Islamabad, Pakistan that is operated by a subsidiary of which the Company owns a
minority interest. The Company also operates branch offices in Philadelphia,
Pennsylvania and Manilla, Philippines and several project offices dedicated to
specific projects that are funded by particular clients. The Company believes
each of these offices are adequate, at this time, to meet its needs. See "--
Human Resources" and "-- Facilities."
Established Client Relationships. In each of the last two fiscal years,
the Company received repeat business from approximately 50% of the clients who
had engaged the Company in the prior year. Further, in each of the last two
fiscal years, revenues from clients served in the previous year were
approximately 70% of the Company's total revenues, of which approximately 50%
was derived from work performed for USAID and Central Illinois Light Company.
See "Business -- Principal Clients and Representative Engagements." Over the
past three years, the clients of the Company have included approximately 100
electric or gas utilities located throughout the world and five international
development banks. Business relationships with the Company's clients, many of
which date back over a decade, span various levels within client organizations,
ranging from corporate boards, chief executive officers and other senior
management to functional managers.
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<PAGE>
Public Sector Insight. Hagler Bailly believes that working with a number
of public sector organizations, including the USAID, the European Union ("EU"),
the Asian Development Bank ("ADB") and the World Bank over a period of many
years, gives it unique insights into the energy, utility and environmental
industries and positions the Company for future public and private sector growth
abroad. Over the past three fiscal years, the Company has provided consulting
services to the governments or government agencies of over 25 countries.
Knowledge Base. Over the past 16 years, the Company has developed an
extensive knowledge and information base which is utilized in providing
consulting services to its clients. The Company owns several proprietary
databases and software packages -- OPEC and NPE, two nuclear power plant
operations databases, and IPP, a worldwide information base on independent power
producers. The Company has recently developed a new proprietary database,
Ramp-up(Trademark), to provide clients with unprecedented information on U.S.
utility operations and cost structure. Finally, through the Company's
proprietary Business Information and Knowledge Exchange Intranet
("BIKEnet(Trademark)"), Company personnel have direct access to the Company's
proprietary knowledge and warehouse of information. This system is accessible
from all of the Company's offices.
Experienced Team of Management and Consultants. Hagler Bailly's management
and senior consultants have a wide range of energy, utility and environmental
consulting expertise and experience. In addition, many of the senior management
and consultants have worked extensively with one another. Management's average
tenure with the Company is approximately nine years. This consistency of
leadership and teamwork, combined with training provided by the Company, has
fostered a strong company culture and employee loyalty. On April 1, 1997, the
Company had 115 consultants. The Company also utilizes subcontractor consultants
as needed.
Established Global Visibility. In 1996, the Company's staff published over
15 articles and made invited presentations at over 70 industry gatherings and
conferences. Company staff are also active in several industry groups and
professional associations including elected or appointed positions to the United
States Energy Association (member of the Board of Directors), the National Coal
Council (member), the United States Environmental Protection Agency ("USEPA")
Science Advisory Board Committees (consultant) and the Association of Energy
Services Professionals (member of the Board of Directors).
As a result of these competitive strengths, the Company believes it has
emerged as one of the leading management consulting firms focused on the energy,
utility and environmental industries. Since its founding, the Company has
advised over 750 clients and conducted more than 1,900 engagements in
approximately 100 countries. In 1996 alone, the Company performed over 220
assignments for more than 125 clients in over 30 countries. In the last three
years, the Company's total revenues and consulting revenues have grown at a
compound annual rate of 30.8% and 31.2%, respectively, and have grown 25.2% and
32.9% from 1995 to 1996, respectively.
GROWTH STRATEGY
The Company's goal is to maintain and enhance its international reputation
for excellence in creating value for its clients. To achieve this goal, Hagler
Bailly is pursuing a growth strategy built on seven principles:
Retain the Focus on Energy, Utility and Environmental Industries. The
Company intends to maintain its industry focus and, thus, its reputation as
a leading management consulting firm in this sector. The demand for
management consulting services in the energy, utility and environmental
industries is growing rapidly, and the Company believes this demand will
provide ample opportunity for the Company to grow both in the United States
and abroad.
Leverage the Existing Global Infrastructure. Hagler Bailly has
developed a network of strategically located offices in four key regions of
the world -- North America, Asia, Europe and South America. The Company has
also made substantial investments in the development of several unique
capabilities such as its state-of-the-art survey center and proprietary
data bases, including IPP and Ramp-up. In addition, the Company has
developed several core consulting tools including Omnibus Corporate
Repositioning and Strategic Resource Allocation. These capabilities and
core consulting tools are available throughout the Company's offices and
permit it to standardize its approach to research, analysis, performance
metrics and the systematic assimilation of results while still customizing
and differentiating strategies for different clients.
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This combination of facilities, capabilities and consulting tools provides
leverage for the Company's senior talent with respect to both client
acquisition and engagement management. See "-- Human Resources" and "--
Facilities."
Focus on Solving Mission-Critical Problems. The Company will continue
to focus on solving problems which are of most critical importance to its
clients and, thus, provide opportunities to provide higher value services.
Some of the key problems confronting the industry today, and which the
Company intends to pursue and believes it is well positioned to address,
are: industry consolidation; corporate repositioning; stranded cost
recovery (i.e., costs incurred by electric utilities in the past which may
not be recoverable in the future); global expansion; global climate change;
and information technology.
Attract and Retain World-Class Staff. Hagler Bailly will continue to
seek the best and brightest individuals. It will continue to recruit both
graduates from the leading universities in the world who have had some
level of industry or consulting experience and executives from industry who
bring expertise, insight and client relationships. The Company will
continue to cultivate an environment which fosters creativity, innovation
and excellence. As part of this strategy, the Company will continue to
provide competitive compensation packages for its employees. The Company
also believes that operating as a public company will aid greatly in
recruiting, retaining and providing incentives to current and future
employees.
Pursue Strategic Acquisitions. The Company has successfully acquired
and intends to continue to pursue and complete acquisitions of compatible
organizations. The Company's philosophy, which it has successfully
implemented in the past, is to fully integrate any acquired companies to
maintain its "one-firm" concept. The Company routinely evaluates and from
time to time meets with potential acquisition candidates that have the
potential to increase capacity or add complementary or synergistic
capabilities. At the date of this Prospectus, the Company has no binding
commitments.
Use Creative Compensation Agreements with Clients. The substantial
majority of the Company's revenues have been generated under rates billed
on either a standard daily rates basis or a cost-plus fixed-fee basis. The
Company believes that, as a result of client preferences, success fee and
other performance based compensation models are emerging rapidly.
Management consulting firms that adapt the pricing of their services to
these preferences could be well positioned for success. The Company intends
to use creative compensation agreements to develop lasting "partnerships"
with its clients.
Utilize Existing Relationships to Combine Capital and Consulting
Services. Hagler Bailly will continue to assist certain clients in
implementing mergers and acquisitions, strategic alliances, and asset
acquisition strategies and in raising capital. Further, the Company
increasingly will consider investing its own management resources in
"partnership" with clients to develop niche markets that a client is unable
to explore on its own. The Company, from time to time, may make investments
of its own capital in technologies or projects that are becoming critical
components for clients as they implement market-based strategies. The
Company believes that this will further enhance its position as a leading
provider of consulting services in the energy, utilities and environmental
industries. In connection with these activities, the Company may provide
interim management to clients and assist select energy, utility and
environmental companies in raising equity and debt capital.
MAJOR PRACTICE AREAS
Hagler Bailly offers its clients a comprehensive array of consulting
services, from assisting the client to shape its vision to strategic planning,
selection of appropriate solutions, implementation, financing and on-going
management. The Company's services are designed to provide tangible value to
clients. This strategy entails less reliance on formulaic approaches and
concepts, and more on custom-tailored solutions based on an assessment of the
client's unique situation and needs.
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At this time, the Company offers services in five main practice areas:
corporate strategy and management; economic analysis and litigation support;
infrastructure planning and development; financial advisory; and environmental
management. These practice areas are designed to work together synergistically
to provide clients the full range of services and capabilities of the Company,
each of which was provided by the Company during 1996. From an operational
standpoint, the Company regularly reviews and, as appropriate, restructures
these practice areas and services to address the changing business problems,
strategic alternatives and policy issues of its public and private clients.
<TABLE>
<CAPTION>
PRACTICE AREAS SERVICES
<S> <C> <C>
Corporate Strategy and / / Omnibus Corporate Repositioning
Management / / Strategic Resource Allocation
/ / Omnibus strategy implementation
/ / Value chain definition
/ / Strategic Marketing System
/ / Product design, testing and prototyping
/ / Market research
/ / Supply and logistics and trading
/ / Trading, support systems and back office operations
/ / Business process enhancement and redesign
/ / Customer service improvements
/ / Organizational development
/ / Computing, information and communication
/ / Information technology planning and acquisition
Economic Analysis and / / Antitrust and market power economics
Litigation Support / / Stranded cost recovery
/ / Incentive regulation
/ / Transmission pricing
/ / Independent system operation
/ / Merger policy
/ / Bankruptcy workouts
Infrastructure Planning and / / Electric power system restructuring
Development / / Corporatization and privatization
/ / Regulatory policy development
/ / Independent power development
/ / Infrastructure financing
/ / System planning
Financial Advisory / / Mergers and acquisitions
/ / Project and corporate finance
/ / Joint ventures
/ / Investment analysis and structuring
Environmental Management / / Environment and resource economics
/ / Climate change management
/ / Environmental sciences
/ / Natural resource damage assessments
/ / Institutional strengthening
/ / Policy development and analysis
/ / Implementation support
/ / Pollution prevention
</TABLE>
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<PAGE>
The Company currently conducts these services through three main
subsidiaries, Hagler Bailly Consulting, Hagler Bailly Services, and HB Capital.
Further, the execution of a client's business strategy often requires completing
enabling transactions that involve acquisitions, alliances or blocking
investments in third parties or raising capital. The Company believes that in
order to succeed as a consulting firm in the future, the Company must be
equipped to package functional expertise and industry insight and information
with management, technology and capital resources to create significant value.
Each of the Company's engagements is led by one of its consulting directors
(the senior members of the Company's consulting staff). Engagements vary in
duration from a few months to several years and may be performed on-site or
off-site. The Company has developed systems and procedures to deliver its
services in a consistent manner regardless of the practice or office serving the
client.
CLIENT DEVELOPMENT
Hagler Bailly's client development activities are a mixture of marketing
efforts, client acquisition techniques and development of repeat business. The
Company is very selective in its client development targets. The pursuit of
client development activities are the responsibility of each consulting practice
and are closely monitored firmwide. The pursuit of specific markets and clients
and bids on specific requests for proposals are carefully considered and are
always led by consulting directors. As part of this process, a conflict check is
performed against an up to date internal client database and verified by senior
management prior to accepting an engagement, in order to avoid conflicts of
interest.
Marketing efforts are accomplished through brand development and brand
management. The Company maintains and enhances its name and reputation through
speeches, presentations, articles in industry, business, economic, legal and
scientific journals, and through other publications and press releases. The
Company also maintains a Web Page.
The Company develops a client development plan for each of its consulting
directors and principals and systematically reviews individual and group
performance against these goals. The Company's compensation system, particularly
in the award of bonuses and stock options, is highly weighted towards success in
meeting these client development goals. Further, promotion to higher levels of
responsibility is largely determined by success in client development
activities.
Private Sector. In the private sector, client acquisition techniques
include referrals and focused presentations to boards of directors, chief
executive and operating officers and other executives of prospective client
companies. These presentations generally focus on opportunities in the market
segments most relevant to the prospective clients, examples of the Company's
previous work in related industries and detailing of the Company's international
capabilities.
Public Sector. In the public sector, contracts are awarded primarily on
the basis of competitive solicitation. The Company has developed strong
capabilities to prepare proposals that respond to complex requests and often
require the integration and coordination of the services of several
subcontractors and independent consultants. The Company has also developed a
detailed understanding of government and other institutional procurement
regulations in the United States and internationally. In addition, in order to
obtain government contracts, consultants must adhere to stringent cost,
accounting and regulatory controls. In order to comply with such requirements,
the Company regularly holds training seminars to ensure compliance with
applicable government regulations and utilizes a sophisticated computer-based
accounting system that allows it to track costs in adherence to government
standards. The Company also meets public sector clients' cost guidelines through
competitive pricing.
In each of the last two years, the Company received repeat business from
approximately 50% of the clients who had engaged the Company in the prior year
and approximately 70% of the Company's total revenues originated from prior
clients served in the previous year (of which approximately 50% were derived
from USAID and Central Illinois Light Company). Repeat business is generated
through
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client satisfaction on initial engagements. The Company's abilities in
delivering high quality performance, and extensive auditing of client
satisfaction, generally result in strong client relationships. As additional
issues are identified by the client, the Company's consulting directors,
principals and managers are trained to recognize these opportunities and respond
with a carefully constructed approach and work plan within the client's needs
and budget.
PRINCIPAL CLIENTS AND REPRESENTATIVE ENGAGEMENTS
Since its inception in 1980, Hagler Bailly has advised over 750 clients and
conducted more than 1,900 engagements in approximately 100 countries. In 1996,
the Company performed over 220 assignments for more than 125 clients in over 30
countries. These clients included leading organizations in the public and
private sectors. Nearly all of the Company's total revenues are derived from
private and public clients involved in the energy, utilities and environmental
industries and two-thirds of the Company's total revenues in 1996 were derived
from clients in the gas and electric utility sectors. In 1996, the Company's
private sector clients accounted for approximately 47.7% of total revenues and
approximately 62.8% of consulting revenues.
In the private sector, U.S. and foreign electric and gas utilities are the
largest group of clients of the Company. The Company's clients also include oil
and gas producers, independent power producers, technology suppliers,
telecommunication companies, and law firms. In the public sector, U.S.
governmental agencies are the largest client of the Company. Other public sector
clients of the Company include state and local governments, regulatory
commissions, foreign governments as well as five major international development
banks: the World Bank, ADB, InterAmerican Development Bank, the African
Development Bank and European Bank for Reconstruction and Development ("EBRD").
Hagler Bailly has a number of large-scale contracts and thus derives a
significant portion of its revenues from a relatively limited number of clients.
For example, revenues from the Company's ten most significant clients accounted
for approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues for the
three months ended March 31, 1997, and for the years ended December 31, 1996,
1995 and 1994, respectively. Several offices of the USAID collectively form the
Company's single largest client, accounting for approximately 36.8%, 42.2%,
53.1% and 52.2% of the Company's total revenues for the three months ended March
31, 1997, and for the years ended December 31, 1996, 1995 and 1994, respectively
(approximately 24.3%, 26.9%, 39.4% and 40.5% of consulting revenues for the
three months ended March 31, 1997, and for the years ended December 31, 1996,
1995 and 1994, respectively). As of March 31, 1997, the Company has seven
separate contracts with four separate offices at USAID. In addition, revenues
from engagements with three separate business units of Central Illinois Light
Company accounted for approximately 12.3% of the Company's total revenues in
1996 (approximately 17.1% of consulting revenues) and 7.4% for the first three
months of 1997 (approximately 9.9% of consulting revenues). See Note 13 to
Consolidated Financial Statements.
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Over the past three years, the clients of the Company have included over
100 electric or gas utilities located throughout the world and five
international development banks. A representative list of the categories of
clients to which the Company has provided varying levels of services over this
period include:
<TABLE>
<CAPTION>
UTILITIES (U.S.) UTILITIES (FOREIGN)
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Bell Atlantic Corporation Electricite de France
Central Illinois Light Company Elyo (France)
Duke Power Company Jamaica Public Service Company Ltd.
Houston Industries Energy P.T. Perusaahan Listrik Negara (Indonesia)
New England Electric Services (NEES) Imatran Vioma Oy (Finland)
Pacific Gas & Electric Co.
<CAPTION>
INDUSTRY ASSOCIATIONS GOVERNMENTAL
- -------------------------------------------------- --------------------------------------------------
<S> <C>
American Waterworks Association European Commission Energy Technology
(AWWA) Directorate
Edison Electric Institute (EEI) State of Wisconsin, Energy Center of
Electric Power Research Institute (EPRI) Wisconsin
Gas Research Institute (GRI) State of Florida, Department of
INGAA (Interstate Natural Gas Association Environmental Protection
of America) Foundation USAID
United States Fish and Wildlife Service
United States Environmental Protection
Agency
<CAPTION>
OTHERS INTERNATIONAL PUBLIC ORGANIZATIONS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Ansaldo AST (Italy) African Development Bank
Asea Brown Boveri Sulsa Asian Development Bank
Chem-Nuclear Systems Inc. European Bank for Reconstruction and
Mitsubishi International (Japan) Development
Westinghouse Electric International Energy Agency
The World Bank
<CAPTION>
INDEPENDENT POWER PRODUCERS
- --------------------------------------------------
<S> <C>
Air Products and Chemicals Inc.
BHP Power
NRG Generating U.S. Inc.
Mobil Independent Power Inc.
U.S. Generating Company
</TABLE>
Five of the Company's ten largest engagements in 1996, each of which the
Company believes is representative of the nature of its services and client
relationships are set forth below:
Omnibus Corporate Repositioning. Since May 1995, the Company has been
helping a U.S. electric utility company: (a) articulate a comprehensive
strategic architecture for corporate transformation using consulting
experience, industry insight, regulatory knowledge and proprietary core
tools; (b) reorganize the company and implement a new management structure;
(c) design and implement a plan to increase the asset productivity and cash
flow of the rate base while improving quality of service and positioning it
to function in competitive retail markets for energy; (d) redesign business
processes and embed technology into these business processes; (e) undertake
strategic marketing and product design at the enterprise-wide level to
drive the development of a new business model; (f) launch a new major
non-regulated first-level subsidiary to house two start-ups (one in energy
and one in telecommunications) and a restructured engineering services
company; and (g) rapidly expand the customer base, revenues and operating
margins of the newly created non-regulated subsidiary.
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Lead Economic Advisor in Power Cooperative Bankruptcy Case. The
Company is currently conducting evaluations of the restructuring plans of a
major electric power cooperative for the trustee in the bankruptcy
proceedings. The expert testimony includes detailed financial and
production cost modeling of each of the plans, and analyses of the impact
of creditor recovery and bulk power market competition on the financial
feasibility of the plans and the future rates for the member cooperatives.
Restructuring of the Electric Power Sector of the Ukraine. As part of
a multinational task force of 15 teams from 8 donor countries, the Company
is the lead management consultant assigned to the restructuring of the
Ukrainian power system, one of the largest in the world with over 50,000
megawatts of installed capacity. With a team of 25 full-time local and
foreign consultants, the Company is assisting with the establishment and
development of the National Electricity Regulatory Commission and the four
fossil-fueled generating companies and the corporatization of 12
distribution companies.
Evaluation of Environmental Impacts: A Workbook. The Company prepared
a workbook and conducted training workshops for the Asian Development
Bank's staff and consultants on methods to guide the identification,
quantification and monetization of the environmental impacts of projects
within the ADB's investment portfolio. The project included some of the
world's leading environmental economists, whose input was coordinated into
a format accessible to practitioners and financial analysts. The workbook
was reviewed at other multilateral lending institutions, including the
World Bank, OECD, and EBRD and published by the ADB in 1996.
International Joint Venture Development. Over a four-year period, the
Company has assisted a U.S. based coal products company to define its
international strategy and to select particular countries for market entry.
In the case of Indonesia, the Company's HB Capital subsidiary partnered
with the client and other participants to determine the feasibility of the
first commercial coal beneficiation plant in Sumatra. The feasibility study
having been completed, a joint venture between a large international
resource company and the client have purchased HB Capital's interest in the
project.
COMMERCIAL AND PUBLIC SECTOR CONTRACTS
Hagler Bailly has a diversified client base in both the private and public
sectors. The contractual relationships with the Company's clients vary greatly
from one sector to another as well as within each sector. There are no standard
commercial contracts and clients have different contracting policies. In many
cases, the only contract between the Company and its commercial client is an
engagement letter which specifies the broad scope of work, duration and billing
rates.
The Company's public sector contracts are typically the result of
competitive solicitations conducted under well defined acquisition regulations
specific to each contracting entity, for example, the United States Government,
European Union or World Bank. Many of the Company's public sector procurement
contracts contain base periods of one or more years, as well as one or more
option periods that in many cases cover more than half of the potential contract
duration. Public sector contracts, by their terms, generally can be terminated
at any time by the client, without cause, for the convenience of the client. If
a public sector contract is so terminated, the Company generally would be
entitled to receive compensation for the services provided or costs incurred at
the time of termination and a negotiated amount of the profit on the contract to
the date of termination. In addition, all public sector contracts require
compliance with various contracts provisions and procurement regulations. The
addition of new or modified procurement regulations could adversely affect the
Company or increase its costs of competing for or performing public sector
contracts. Any violation (intentional or otherwise) of these regulations could
result in the termination of the contracts, imposition of fines, and/or
debarment from award of additional public sector contracts. Most public sector
contracts are also subject to modification in the event of changes in funding
and the Company's contractual costs and revenue are subject to adjustment as a
result of government audits. Further, public sector contract awards are also
subject to protest by competitors. The termination or substantial modification
of any of
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the Company's significant contracts or the imposition of fines, damages or
suspension from bidding on additional contracts could have a materially adverse
effect on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HUMAN RESOURCES
On April 1, 1997, the Company's personnel consisted of 254 full-time
employees, including 115 consultants, 47 technical and research personnel and 92
administrative personnel, and 53 part-time employees. The two largest offices of
the Company are Arlington, Virginia and Boulder, Colorado with 116 and 70
full-time employees, respectively. Twelve full-time employees are stationed
outside the United States. This number excludes the personnel of the Company's
non-wholly owned subsidiaries in Argentina, Indonesia and Pakistan which have,
respectively, six, 11, and 28 full-time employees. It also excludes locally
hired independent contractors.
Approximately 83% of the Company's full-time consulting staff have advanced
degrees. Much of the Company's success has been based on its ability to
integrate these different disciplines into effective consulting teams. The
Company's 16 consulting directors average 15 years of management consulting
experience, most of which has been in the energy, utility and environmental
industries. Several of its most experienced consultants have worked together for
over 15 years. Hagler Bailly believes that this long-term experience of working
together as a team enables the Company to respond quickly to changing market
conditions and consistently deliver high quality consulting services in response
to the complex demands of its clients.
Hagler Bailly believes its success depends in large part on attracting,
retaining and motivating talented, creative and professional employees at all
levels. The Company de-emphasizes hiring directly from graduate schools,
instead, seeking graduates from top schools with prior relevant consulting
experience and strong project management, analytic and communications skills in
competitive and regulated industries, especially those with meaningful
international experience. The Company also hires professionals with senior
executive experience directly from industry. The Company supplements its
full-time staff with outside consultants with proven experience in their
respective fields. Several of these outside consultants are well-known
professors at leading universities. In addition, the Company employs part-time
researchers at its survey center in Madison, Wisconsin. Recruiting is
coordinated firmwide.
Training and mentoring are integral parts of the Company's staff
development program. The aim of the program is to ensure excellence and
consistency throughout the entire organization while increasing individual and
team productivity. Training consists of a core and practice-based program. The
core program includes a CD-ROM based general orientation to the Company and
training on firmwide standards. Practice-based programs, which include mentoring
and career counseling, are aimed at developing specific proficiencies in the use
of consulting tools, industry segments or areas of expertise. The Company
conducts a number of training sessions and planning retreats each year that
emphasize its consulting core values, development of consulting products and
business development techniques. The Company maintains professional liability
insurance to an aggregate maximum of $10.0 million.
The Company believes it has developed an environment that encourages open
communication across practice areas and offices that is fostered by a worldwide
electronic network and BIKEnet, continuous learning and intellectual innovation.
Consultants are encouraged to work across practices and geographic regions. The
Company's culture is characterized by team play, ethical conduct, professional
growth and professional integrity.
Hagler Bailly attracts and motivates its professional and administrative
staff by offering competitive packages of base and incentive compensation and
benefits. All full-time and part-time staff members are eligible for bonuses. A
significant percentage of the Company's income before bonuses and taxes is
distributed as bonuses to its staff, the majority of which is targeted towards
the Company's top performers -- usually its consulting directors, principals,
and managers. The bonus awards are the
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<PAGE>
result of measurement of performance against predetermined target compensation
goals that balance individual and team performance. This structure gives senior
staff members a vested interest in the Company's overall success and performance
while still promoting individual initiative and excellence. The Company
appreciates the importance of recognition and a promotion track for its
administrative staff and fully integrates this staff into the conduct of its
business. The performance of all employees is reviewed annually for compensation
and promotion purposes. The Company's environment has resulted in the Company
experiencing voluntary consultant attrition of less than 12.0% over each of the
past three years, predominantly at the junior and mid-level associate levels.
Further, all of the Company's consulting directors own Common Stock and the
Company's key employees are eligible to receive stock options. See "Management
- -- Long-Term Incentive Plan." As of the date hereof, there were options to
purchase 1,026,565 shares of Common Stock outstanding. In addition, the Company
maintains deferred compensation and 401(k) profit sharing plans.
COMPETITION
The market for consulting services in the fields of energy and the
environment is intensely competitive, highly fragmented and subject to rapid
change. The market includes a large number of participants from a variety of
consulting market segments, both in the United States and internationally,
including general management consulting firms, the consulting practices of the
"Big Six" accounting firms, consulting engineering firms, technical and economic
advisory firms and market research firms. Many information technology consulting
firms also maintain significant energy practices and others may enter the field
in the future. Many of these companies are national and international in scope
and have greater financial, technical and marketing resources than the Company.
In the private sector, the Company believes the key competitive factors are
quality and service, followed by price, while in the public sector the Company
believes the key competitive factors are price and service. The Company believes
that its experience, reputation, industry focus, and broad range of services
have and will continue to enable it to compete effectively in the private and
public sector both in the United States and internationally.
FACILITIES
In aggregate, the Company leases approximately 115,000 square feet of
office space in the following 11 principal offices: Arlington, Virginia
(headquarters); Boston, Massachusetts; Boulder, Colorado; Buenos Aires,
Argentina; Dublin, Ireland; Houston, Texas; Islamabad, Pakistan; Jakarta,
Indonesia; Madison, Wisconsin; Paris, France; and San Francisco, California; and
branch offices in Philadelphia, Pennsylvania and Manila, Philippines. Each
principal office represents a permanent location servicing multiple clients
which is run by a member of the Company's senior management. In addition, from
time to time the Company leases a project office to enable it to service a
specific international project involving a particular individual client, in
which case the office is paid for directly by the client. The Company currently
has project offices in eleven foreign locations totaling approximately 15,000
square feet. All of the Company's principal, branch and project offices are
electronically linked together and have access to all of the Company's
capabilities and core consulting tools. The Company believes that its facilities
are adequate for its current needs and that additional facilities can be leased
to meet future needs. See Note 11 to Consolidated Financial Statements.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of its business. The Company is not subject to any pending
material litigation.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's Executive Officers (as defined below) and directors and their
respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- --------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Henri-Claude A. Bailly (1) 50 President, Chief Executive Officer and Chairman of the
Board; Chief Executive Officer of Hagler Bailly
Consulting
Daniel M. Rouse 46 Vice President, Chief Financial Officer and Treasurer
Kathleen J. Murphy 50 Vice President - Corporate Infrastructure
Vinod K. Dar 46 Director and Managing Director of Hagler Bailly Consulting
Alain M. Streicher 48 Director and Chief Executive Officer and Managing Director
of Hagler Bailly Services
Michael D. Yokell 50 Director and Managing Director of Hagler Bailly Consulting
Fred M. Schriever (1)(2)(3) 67 Director
Robert W. Fri (1)(2)(3) 61 Director
</TABLE>
- ------------------
(1) Member of the Executive Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
(3) Member of the Stock Option Committee of the Board of Directors
Henri-Claude A. Bailly has served as the Company's Chief Executive Officer
since the Company was founded in 1980, and as President of the Company from 1984
to 1987 and from May 1995 to date, and as Chairman of the Board from 1984 to
date. From September 1984 to May 1995, Mr. Bailly was also employed by RCG in a
series of management positions, and ended his tenure there as Senior Vice
President and director of RCG and Chairman of the Board and Chief Executive
Officer of RCG/HB. From 1972 to 1980, Mr. Bailly was employed in successive
positions from Associate to Managing Director of Resource Planning Associates,
an international energy, utilities and environmental management consulting firm.
Mr. Bailly holds a Master of Business Administration degree from Harvard
University and Bachelor and Master of Architecture degrees from the University
of Washington. Mr. Bailly serves on the Board of Directors of the United States
Energy Association and was appointed as a member of the National Coal Council.
Daniel M. Rouse has been employed as the Company's Chief Financial Officer
and Treasurer since he joined the Company in 1991. From 1987 to 1991, Mr. Rouse
was employed by Strategic Solutions, Inc. as Chief Financial Officer. From 1984
to 1987, Mr. Rouse was a principal at Loeb and Cohen, P.C. From 1979 to 1984,
Mr. Rouse was employed by Jarrell Oil Company, Inc. as Vice President Finance
and Controller. Mr. Rouse holds a Bachelor of Science degree in Finance and
Accounting from York University (Canada). Mr. Rouse is a Certified Public
Accountant.
Kathleen J. Murphy has been employed as the Company's Vice President -
Corporate Infrastructure since March 1997. From August 1995 to March 1997, Ms.
Murphy worked as an independent consultant. From 1989 to August 1995, Ms. Murphy
was employed by Andersen Consulting. From 1983 to 1989, Ms. Murphy worked as an
independent consultant. From 1973 to 1982, Ms. Murphy was an employee with
McKinsey & Company, Inc. Ms. Murphy holds a Bachelor of Arts degree from
Marymount Manhattan College and a Master of Arts degree from New York
University.
Vinod K. Dar, one of the original founders of the Company, rejoined the
Company in 1995 and leads its corporate strategy and management consulting
practice. After leaving the Company in 1984, Mr. Dar was employed in various
senior executive positions in the energy industry. From 1984 to 1989, Mr. Dar
was Executive Vice President and a director of Hadson Corporation and Chief
Executive Officer of Hadson Gas Systems. In 1990, Mr. Dar was Senior Vice
President of American Exploration Company. From mid 1990 to 1992, Mr. Dar was a
Managing Director of Dar & Company.
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From 1992 to 1994, Mr. Dar was the Chairman of Sunrise Energy Services. From
1994 to 1995, Mr. Dar was Senior Advisor to the Company. From 1978 to 1980,
Mr. Dar was a Senior Associate with Resource Planning Associates. Mr. Dar holds
a Bachelor of Science degree in Engineering and a Master of Science degree in
Management and Finance from the Massachusetts Institute of Technology. Mr. Dar
serves as a director and chairman of the Compensation Committee of HarCor
Energy, an independent oil and gas company traded on the Nasdaq Stock Market.
Alain M. Streicher has been employed by the Company in various management
positions since it was founded in 1980. Since January 1997, Mr. Streicher has
served as the Chief Executive Officer of Hagler Bailly Services and leads the
Company's energy and infrastructure planning and development practice. Mr.
Streicher has served as a member of the Board of Directors of the Company since
May 1995. From 1976 to 1980, Mr. Streicher was Chief Energy Analyst at the CEREN
in Paris. Mr. Streicher holds a Bachelor of Science degree in Physics and
Chemistry from the University of Orleans (France) and a Masters degree in
Physics from the University of Grenoble (France) and a Masters degree in
Industrial Management from the Ecole des Mines in Paris (France).
Michael D. Yokell has been employed by the Company in various positions
since 1987, and currently leads the Company's economic analysis and litigation
support practice. Mr. Yokell has served as a member of the Board of Directors of
the Company since May 1995 and as President of Predecessor from 1988 to 1995.
Mr. Yokell was the President of Energy and Resource Consultants ("ERC"), a
corporation acquired by the Company in 1987. Before entering management
consulting, Mr. Yokell taught Economics at the University of California,
Berkeley and Washington State University and was a Senior Economist at the
United States Department of Energy. Mr. Yokell holds a Ph.D. and Masters degree
in Economics from the University of Colorado and a Bachelor of Science degree in
Physics from the Massachusetts Institute of Technology. Mr. Yokell serves on the
Board of Directors of the Keystone Energy Center.
Fred M. Schriever has served as a member of the Board of Directors of the
Company since May 1995. Mr. Schriever retired in April 1996 from RCG. Mr.
Schriever was employed by RCG in various positions since 1971, most recently as
its Chairman and Chief Executive Officer. Prior to joining RCG, Mr. Schriever
was a partner of BoozoAllen & Hamilton. Since 1996, Mr. Schriever has been a
consultant to various industry groups. Mr. Schriever is a Fellow of both the
Institute of Directors and the Institute of Management Consultants in the United
Kingdom, and a member of the United States Institute of Management Consultants.
Robert W. Fri has served as a member of the Board of Directors of the
Company since May 1995. Mr. Fri is currently director of the National Museum of
Natural History at the Smithsonian Institution, and Senior Fellow Emeritus at
Resources for the Future, where he served as President from 1986 to 1995. Mr.
Fri is a director of American Electric Power Company, a member of the University
of Chicago Board of Governors for the Argonne National Laboratory, and a trustee
of Science Service, Inc., publisher of Science News and organizer of the
Westinghouse Science Talent Search. In 1971, Mr. Fri became the First Deputy
Administrator of the United States Environmental Protection Agency. In 1975,
President Ford appointed Mr. Fri as the Deputy Administrator of the United
States Energy Research and Development Administration. Mr. Fri served as acting
administrator of both agencies for extended periods. From 1978 to 1986, Mr. Fri
operated his own company, Energy Transition Corporation. Mr. Fri began his
career with McKinsey & Company, where he was elected a Principal.
The Company's Chief Executive Officer, Chief Financial Officer and
Vice-President - Corporate Infrastructure (the "Executive Officers") are
appointed annually by, and serve at the discretion of, the Board of Directors.
Each Executive Officer is a full-time employee of the Company. The Board of
Directors currently consists of six members. The Company expects to add a third
independent director to its Board of Directors within 90 days following the
consummation of this Offering. The Board of Director is divided into three
classes, each of whose members serve a staggered three-year term. The Board of
Directors is comprised of two Class I Directors (Messrs. Dar and Schriever), two
Class II Directors (Messrs. Fri and Yokell) and three Class III Directors
(Messrs. Bailly and Streicher and the third independent director expected to be
appointed). At each annual meeting of stockholders the appropriate number of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The initial terms of the Class I
Directors, Class II Directors and Class III Directors will expire upon the
election and qualification of successor directors at the
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annual meetings of stockholders held in calendar years 1998, 1999 and 2000,
respectively. There is no family relationship between any director or executive
officer of the Company.
OTHER MANAGING DIRECTORS
In addition to the above executive officers, the Company depends on two
other key employees.
Robert D. Rowe has been employed by the Company in various positions since
1987, most recently as the Managing Director of the Company's environmental
management consulting practice. From 1982 to 1987, Mr. Rowe was a Senior Vice
President of ERC. From 1979 to 1982, Mr. Rowe was a senior economist with Abt
Associates, Inc., an economic and environmental consulting firm. From 1974 to
1979, Mr. Rowe taught Economics at the University of Wyoming. Mr. Rowe holds a
Bachelor degree in Computer Science from Michigan State University and a Ph.D.
in Economics and Statistics from Texas A&M University. Mr. Rowe is a consultant
to the United States Environmental Protection Science Advisory Board.
Alex M. Steinbergh has been employed by the Company in various management
positions since 1992 and currently serves as the Chief Executive Officer and
Managing Director of HB Capital. Mr. Steinbergh is the co-founder and currently
a general partner of Resource Capital Group, a holding company for real estate
investment, management and development companies in Cambridge, MA. From 1972 to
1980, Mr. Steinbergh was a colleague of Mr. Bailly at Resource Planning
Associates where he held successive positions from Associate to Managing
Director. From 1969 to 1972, Mr. Steinbergh was an Associate of McKinsey &
Company. Mr. Steinbergh holds a Master of Business Administration degree from
Harvard University, a Masters degree in Economics from Case Western Reserve
University and a Bachelor degree in Economics from Cornell University.
BOARD COMMITTEES
On April 26, 1996, the Board of Directors established an Audit Committee
and an Executive Compensation Committee. The Audit Committee reviews the
qualifications of the Company's independent auditors, makes recommendations to
the Board of Directors regarding the selection of independent auditors, reviews
the scope, fees and results of any audit and reviews non-audit services and
related fees provided by the independent auditors.
The Executive Compensation Committee is responsible for the administration
of all salary and incentive compensation plans for the executive officers and
directors who are employees of Hagler Bailly, Inc., including bonuses, and also
reviews and approves the compensation, including bonus awards, for the Managing
Directors of the Company's three operating subsidiaries.
The Stock Option Committee was established in January 1997. The Stock
Option Committee administers the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Plan") on
behalf of the Board of Directors.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors is made by the entire Board of Directors.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $1,000 for
each meeting attended in person and all directors are reimbursed for travel
expenses incurred in connection with attending board and committee meetings.
Directors are not entitled to additional fees for serving on committees of the
Board of Directors. Pursuant to the terms of the Company's Stock Plan, each
director of the Company who is not otherwise employed by the Company
automatically will be granted an option to purchase 3,000 shares of Common Stock
for each year of the term to be served upon his or her initial election or
re-election to the Board of Directors. The options will have an exercise price
equal to the fair market value of the Common Stock on the date of grant, and
will be exercisable in equal annual installments over the term to be served
beginning on the first anniversary of the date of grant.
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EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid to the Company's Chief Executive Officer
and the four most highly compensated executive officers of the Company for the
year ended December 31, 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
SALARY BONUS OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION ($) ($) SARS (#) COMPENSATION (1)
- ------------------------------------------------------ -------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
Henri-Claude A. Bailly................................ $325,000 $606,954 51,863 $107,126(2)
President, Chief Executive Officer and Chairman of
the Board
Daniel M. Rouse....................................... 134,335 110,683 -- 13,931
Vice President, Chief Financial Officer and
Treasurer
Vinod K. Dar.......................................... 308,753 -- -- 467,931(3)
Managing Director of Hagler Bailly Consulting
Alain M. Streicher.................................... 176,357 270,245 -- 13,931
Chief Executive Officer and Managing Director of
Hagler Bailly Services
Michael D. Yokell..................................... 176,357 377,076 -- 13,931
Managing Director of Hagler Bailly Consulting
</TABLE>
- ------------------
(1) Represents deferred compensation and matching payments and profit sharing
under the Company's 401(k) Profit Sharing Plan.
(2) Represents $93,195 paid pursuant to Mr. Bailly's employment agreement and
$13,931 in matching payments and profit sharing under the Company's 401(k)
Profit Sharing Plan. See "-- Employment Related Agreement."
(3) Represents $454,000 paid to the Hagler Bailly, Inc. Deferred Compensation
Plan Trust for Vinod K. Dar and $13,931 in matching payments and profit
sharing under the Company's 401(k) Profit Sharing Plan. See "-- Deferred
Compensation Plan for Vinod K. Dar."
Effective January 1, 1997, the Executive Compensation Committee of the
Board of Directors approved new base salaries for the Named Executive Officers.
The new annual base salaries will range from $175,000 to $375,000. In addition
to the base salaries, the Named Executive Officers may also be awarded bonuses
based on the attainment of certain financial and non-financial performance
criteria. Bonus awards for Executive Officers of the Company, under the Hagler
Bailly Annual Bonus Plan, are determined by the Executive Compensation Committee
of the Board of Directors. In the future, the Executive Compensation Committee
of the Board of Directors will determine the terms of employment for Executive
Officers of the Company on an annual basis. Compensation, including bonus
awards, for the Managing Directors of the Company's three operating subsidiaries
will be determined by the Chief Executive Officer of the Company, and reviewed
and approved by the Executive Compensation Committee.
41
<PAGE>
The following table presents information with respect to grants of stock
options to purchase the Company's Common Stock during the year ended December
31, 1996, to the Named Executive Officers.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE OR OPTION TERMS(3)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5%
- ------------------------------------ ------- --------------- ----------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly.............. 34,575(1) 22% $1.06 6/30/01 $ 10,126
17,288(2) 11% $1.16 6/30/01 3,334
Daniel M. Rouse..................... -- -- -- -- --
Vinod K. Dar........................ -- -- -- -- --
Alain M. Streicher.................. -- -- -- -- --
Michael D. Yokell................... -- -- -- -- --
<CAPTION>
NAME 10%
- ------------------------------------ ----------------------
<S> <C>
Henri-Claude A. Bailly.............. $ 22,375
9,459
Daniel M. Rouse..................... --
Vinod K. Dar........................ --
Alain M. Streicher.................. --
Michael D. Yokell................... --
</TABLE>
- ------------------
(1) Non-qualified options granted pursuant to the Company's Stock Plan, all of
which are immediately vested on the date of grant, with an exercise price
based upon the book value per share as of May 25, 1995, adjusted for
accretion of formula value during the interim period up to the grant date as
set forth in the then existing stockholders' agreement.
(2) Incentive stock options granted pursuant to the Company's Stock Plan, all of
which are immediately vested on the date of grant, with an exercise price
equal to 110% of the fair market value of the Common Stock on the date of
grant as determined by the Board of Directors.
(3) The potential realizable value is calculated based on the five-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates from the exercise price at the
indicated annual rate, compounded annually for the entire term of the
option. The actual realizable value of the options based on the price to
public in the Offering will substantially exceed the potential realizable
value shown in the table.
The following table sets forth the number of shares covered by exercisable
and unexercisable options held by the Named Executive Officers on December 31,
1996 and the aggregate gains that would have been realized had these options
been exercised on December 31, 1996, even though the options were not exercised,
and the unexercisable options could not have been exercised on December 31,
1996. No stock options were exercised by the Named Executive Officers during the
fiscal year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
----------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Henri-Claude A. Bailly............................ 34,575 251,542 $ 142,449 $ 1,001,137
17,288 -- 6,947 --
Daniel M. Rouse................................... -- 12,087 -- 48,348
Vinod K. Dar...................................... -- -- -- --
Alain M. Streicher................................ -- 120,930 -- 483,720
Michael D. Yokell................................. -- 193,490 -- 773,960
</TABLE>
- ------------------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. Value is calculated based on the
fair market value of the Common Stock at December 31, 1996 of $5.18 (as
determined by an independent third party appraisal), less the exercise
price. Such fair market value at December 31, 1996 is lower than the price
to public in the Offering.
42
<PAGE>
1997 OPTION GRANTS
On January 17, 1997, the Company granted options under the Stock Plan at
exercise prices ranging from $6.10 to $6.71 per share to certain individuals,
including directors and Executive Officers of the Company in the amounts set
forth in the table below. Other than options granted to Messrs. Bailly,
Schriever and Fri, such options vest in equal proportions over four years
commencing on July 1, 1998 and continuing on each July 1 thereafter until fully
vested. Of the options granted to Mr. Bailly, options to purchase 34,575 shares
of Common Stock are currently vested and the remaining options vest in equal
amounts over the next four years commencing January 1, 1998. The options granted
to Messrs. Schriever and Fri are immediately exercisable. All options expire on
the tenth anniversary of the date of grant. The following table sets forth
certain information with respect to such grants to directors and officers:
NUMBER
NAME AND POSITION OF OPTIONS
----------------- ----------
Henri-Claude A. Bailly, President, Chief Executive Officer and
Chairman of the Board........................................... 172,876
Daniel M. Rouse, Vice President Finance, Chief Financial Officer
and Treasurer................................................... 20,745
Fred M. Schriever, Director....................................... 5,186
Robert W. Fri, Director........................................... 5,186
On March 11, 1997, the Company granted options to purchase 15,000 shares of
Common Stock to Kathleen J. Murphy -- Vice President - Corporate Infrastructure,
at an exercise price of $10.00 per share which vest ratably over four years
commencing July 1, 1998.
ANNUAL BONUS PLAN
Each year the Company sets aside a percentage of its consolidated income
before bonuses and taxes ("IBBT") to fund a Company-wide bonus pool. All
full-time and part-time regular employees who have at least one year of service
are eligible for a bonus.
Annual cash bonuses are funded from a pool whose size depends on the
overall financial performance of the Company, and management reserves the right
not to award any bonuses in any year. In 1996, the Company contributed
approximately $3.8 million, which is approximately 53% of its consolidated IBBT
(excluding the non-recurring, non-cash compensation expense of $6.2 million), to
the bonus pool. Starting January 1, 1997, the Board of Directors has determined
that a maximum of 40.0% of IBBT will be set aside for bonuses. Except as noted
above for Executive Officers and Managing Directors of the Company, management
determines the extent of any award made to an employee based on certain
performance criteria.
EMPLOYMENT RELATED AGREEMENT
Hagler Bailly and Hagler Bailly Services entered into an employment
agreement with Mr. Bailly on May 25, 1995 in connection with the management
repurchase of the Company from RCG and such agreement was amended and restated
effective upon consummation of the Offering (the "Bailly Agreement"). Mr. Bailly
will serve as Chairman of the Board, President and Chief Executive Officer of
the Company, and Chairman of the Board, President and Chief Executive Officer of
Hagler Bailly Consulting for a term of three (3) years and will receive for his
services an initial base salary of $375,000 per year, subject to increase each
January 1 by an amount that is no less than the greater of 5.0% over the annual
rate of base salary in effect the preceding year, and the increase in the
Consumer Price Index National Index for the year. Mr. Bailly is entitled to a
bonus for each calendar year equal to an amount determined by the Executive
Compensation Committee of the Board of Directors. Mr. Bailly is also entitled to
receive, from time to time, options to purchase common stock pursuant to the
Stock Plan as determined by the Stock Option Committee of the Board of
Directors. Mr. Bailly is entitled to participate in all of the benefit programs
which are presently or may in the future be
43
<PAGE>
provided by the Company. In addition, Mr. Bailly is also entitled to a bonus
equal to the average bonus percentage received during the term of the Bailly
Agreement multiplied by the then current base salary if his employment is
terminated without cause or upon a change in control (as defined in the Bailly
Agreement).
The Company has no written employment contracts with any of its other
Executive Officers.
LONG-TERM INCENTIVE PLAN
The Board of Directors adopted the Hagler Bailly, Inc. Employee Incentive
and Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Plan") on
May 17, 1995 and adopted a restated version of the Stock Plan on December 31,
1996. The Stock Plan is designed to enhance the long-term profitability and
stockholder value of the Company by offering Common Stock to those individuals
who are key to the growth and success of the Company, to attract and retain
executives with experience and ability on a basis competitive with industry
practice and to encourage executives to acquire and maintain stock ownership in
the Company.
The Stock Plan is administered by the Stock Option Committee of the Board
of Directors. The Stock Option Committee has exclusive authority (i) to grant
Awards (as defined below) under the Stock Plan; (ii) to make all interpretations
and determinations affecting the Stock Plan; and (iii) to determine the
individuals to whom Awards are granted, the amount of such Award, any applicable
vesting schedule, and any other terms of an Award.
Participation in the Stock Plan is limited to employees, consultants, and
independent consultants of the Company who are selected from time to time by the
Board of Directors or the Stock Option Committee. Awards under the Stock Plan
may be in the form of incentive stock options that meet the requirements of
Section 422 of the Internal Revenue Code, "nonqualified" stock options, and
restricted stock grants (collectively, "Awards"). Any Award issued under the
Stock Plan that is forfeited, expired, canceled or terminated prior to vesting
or exercise will again become available for grant under the Stock Plan.
The maximum number of shares of Common Stock that may be issued and sold
under the Stock Plan is 3,200,000 shares. In the event of any stock dividend,
stock split, recapitalization, merger, other change in the capitalization of the
Company or similar corporate transaction or event affecting the Common Stock,
the Board or Directors or the Executive Compensation Committee may make
appropriate adjustments to Awards.
As of March 31, 1997, Awards under the Stock Plan to employees and
consultants to purchase an aggregate of 1,026,565 shares of the Company's Common
Stock were outstanding at exercise prices per share ranging from $0.16 to
$10.00.
401(K) SAVINGS PLAN
The Company maintains a tax-qualified defined contribution employee profit
sharing and 401(k) plan (the "Plan"). All employees are eligible to participate
in the Plan once they complete an hour of service with the Company. The Plan
consists of three components: employee pre-tax contributions, Company matching
contributions and Company supplemental contributions. The Plan contains
provisions which are intended to satisfy the tax qualification requirements of
Section 401(k) of the Internal Revenue Code of 1986. Each employee may elect to
defer up to 16.0% of his or her compensation, subject to a maximum, in 1997, of
$9,500. Employee contributions are fully vested and nonforfeitable at all times
and are invested according to the direction of the employee. The Company may,
but has no obligation to, make matching contributions determined, in the
discretion of the Company, prior to the beginning of the plan year for which the
match is to be made. The Company may, in its discretion, make a supplemental
contribution to the Plan for any plan year. Supplemental contributions are
allocated to participants' accounts in proportion to their pay. Matching and
supplemental contributions vest over a four-year period. Plan participants are
entitled to receive a
44
<PAGE>
distribution of the vested interest in their accounts upon retirement, death,
permanent disability or termination of employment. See Note 12 to Consolidated
Financial Statements.
DEFERRED COMPENSATION PLAN FOR VINOD K. DAR
In September 1996, the Company adopted the Hagler Bailly, Inc. Deferred
Compensation Plan Trust for Vinod K. Dar, an individual deferred compensation
plan for Vinod K. Dar, a Managing Director of Hagler Bailly Consulting. Pursuant
to this plan, the Company contributed $454,000 of Mr. Dar's compensation payable
for services performed to a trust created for his benefit. The trust used such
deferred compensation to purchase 345,754 shares of Common Stock from the
Company at a price of $1.31 per share. Subject to the terms of the trust,
including, upon Mr. Dar's termination of employment or in the event of a change
of control, Mr. Dar will receive a distribution of 345,754 shares of Common
Stock from the trust. See Note 10 to Consolidated Financial Statements.
45
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT BUY-OUT
The Company was founded in 1980 as Hagler Bailly & Company, Inc. In 1984,
it was acquired by RCG, an indirect subsidiary of Reliance Group Holdings, Inc.
and in 1985 renamed RCG/HB. In May 1995, the management of RCG/HB completed the
Management Buy-Out. The Management Buy-Out was structured as a stock purchase of
the outstanding capital stock of RCG/HB and was financed by a $7.0 million
Secured Senior Bank Loan and a $4.6 million Subordinated Loan from RCG. The
remainder of the Management Buy-Out was financed by the proceeds of the sale of
Hagler Bailly's common stock to employees and directors, all of whom are Selling
Stockholders.
CLASS B OPTION CANCELLATION AND CONVERSION
Effective December 31, 1996, the Board of Directors approved (i) the
cancellation of all of the options to purchase shares of the Company's Class B
Common Stock vesting January 1, 1998 and (ii) the amendment of all options to
purchase shares of the Company's Class B Common Stock vesting January 1, 1997 to
substitute 0.9 of a share of Class A Common Stock for each share of Class B
Common Stock underlying such option. The holders of such options each consented
to the cancellation and acknowledged the amendment of such options. See Note 10
to Consolidated Financial Statements.
RECAPITALIZATION
Effective December 31, 1996, the Company effected a recapitalization
pursuant to which each outstanding share of Class B Common Stock was exchanged
for 0.9 shares of Class A Common Stock.
DEFERRED COMPENSATION PLAN FOR VINOD K. DAR
In September 1996, the Company adopted the Hagler Bailly, Inc. Deferred
Compensation Plan Trust for Vinod K. Dar. Pursuant to this plan, the Company
contributed $454,000 of Mr. Dar's compensation payable for services performed to
a trust created for his benefit. The trust used such deferred compensation to
purchase 345,754 shares of Common Stock from the Company at a price of $1.31 per
share. Subject to the terms of the trust, including, upon Mr. Dar's termination
of employment or in the event of a change of control, Mr. Dar will receive a
distribution of 345,754 shares of Common Stock from the trust. See Note 10 to
Consolidated Financial Statements.
FUTURE TRANSACTIONS
The Company considers that all transactions with affiliates have been made
on terms at least as favorable to the Company as could have been made for
similar transactions with unrelated third parties. In the future, the Company
will not enter into any transactions with officers, directors or other
affiliates unless the terms are as favorable to the Company as those generally
available from unaffiliated third parties and the transactions are approved by a
majority of disinterested directors.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock at March 31, 1997, by: (i) each director and the Named
Executive Officers; (ii) each person known by the Company to beneficially own
more than 5.0% of the outstanding shares of the Common Stock; (iii) all
Executive Officers and directors as a group and (iv) the Selling Stockholders,
both before and after giving effect to the sale of 3,150,000 shares of Common
Stock in the Offering. Each person named below has an address in care of the
Company's principal executive offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES BEING SHARES BENEFICIALLY
(1) OFFERED OWNED AFTER OFFERING
-------------------------- ------------ --------------------------
NUMBER NUMBER NUMBER
NAMES OF SHARES % OF SHARES OF SHARES %
- ------------------------------------------ --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly (2) 1,029,489 17.85 122,940 906,549 10.96
Daniel M. Rouse (3) 115,813 2.11 14,376 101,437 1.27
Kathleen J. Murphy (4) -- -- -- -- --
Vinod K. Dar (5) 518,631 9.46 54,599 464,032 5.81
Michael D. Yokell (6) 884,998 16.14 93,168 791,830 9.92
Alain M. Streicher (7) 604,985 10.80 63,690 541,295 6.68
Fred M. Schriever (8) 88,166 1.61 9,282 78,884 *
Robert W. Fri (9) 8,643 * 1,638 7,005 *
Robert E. Ciliano (10) 279,243 5.09 29,397 249,846 3.13
Niels O. de Terra (11) 119,672 2.18 12,598 107,074 1.34
David A. Keith (12) 159,564 2.90 18,618 140,946 1.76
Jean-Louis Poirier (13) 359,030 6.55 37,797 321,233 4.02
John R. Armstrong (14) 279,243 5.09 29,397 249,846 3.13
Steven A. Mitnick (15) 115,813 2.11 12,192 103,621 1.30
Robert D. Rowe (16) 456,111 8.32 48,017 408,094 5.11
Elizabeth S. Marcotte 70,851 1.29 7,459 63,392 *
Alex M. Steinbergh (17) 170,698 3.11 17,970 152,728 1.91
Robin C. Calhoun (18) 159,564 2.91 16,798 142,766 1.79
Joshua Lipton (19) 115,813 2.11 13,503 102,310 1.28
Robert S. Raucher (20) 119,672 2.18 12,598 107,074 1.34
Kent D. Van Liere (21) 92,765 1.69 11,586 81,179 1.02
Dan M. Violette (22) 141,703 2.58 14,918 126,785 1.59
Carlos A. Yermoli (23) 70,851 1.29 7,459 63,392 *
All Executive Officers and directors as a
group (8 persons) (24) 3,250,725 54.92 359,693 2,891,032 34.34
</TABLE>
- ------------------
* Represents less than 1.0% of the outstanding shares of Common Stock.
(1) Includes 478,802 shares of Common Stock issuable upon the exercise of stock
options granted under the Company's Stock Plan which are exercisable within
60 days of March 31, 1997. As used in this table, "beneficial ownership"
means the sole or shared power to vote or direct the voting of a security,
or the sole or shared investment power with respect to a security (i.e.,
the power to dispose, or direct the disposition, of a security). A person
is deemed as of any date to have "beneficial ownership" of any security
that such person has the right to acquire within 60 days after such date.
(2) Excludes 138,301 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 650,086 shares of Common Stock held in two IRA
accounts on Mr. Bailly's behalf and 93,284 shares of Common Stock held in
two trusts for the benefit of his children. Also includes exercisable
options to purchase 286,117 shares of Common Stock.
(3) Excludes 20,745 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 23,573 shares of
47
<PAGE>
Common Stock held in an IRA account on Mr. Rouse's behalf and exercisable
options to purchase 12,087 shares of Common Stock.
(4) Excludes 15,000 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997.
(5) Includes 345,754 shares of Common Stock held in the Hagler Bailly, Inc.
Deferred Compensation Plan Trust for Mr. Dar's benefit.
(6) Includes 29,389 shares of Common Stock held in a trust for the benefit of
his children.
(7) Includes 297,425 shares of Common Stock held in IRA accounts on Mr.
Streicher's behalf. Also includes exercisable options to purchase 120,930
shares of Common Stock.
(8) Includes exercisable options to purchase 5,186 shares of Common Stock.
(9) Includes exercisable options to purchase 5,186 shares of Common Stock.
Excludes 6,915 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997.
(10) Includes 174,004 shares of Common Stock held in an IRA account on Mr.
Ciliano's behalf.
(11) Includes 71,204 shares of Common Stock held in an IRA account on Mr. de
Terra's behalf and exercisable options to purchase 15,946 shares of Common
Stock.
(12) Excludes 17,287 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 97,973 shares of Common Stock held in IRA accounts
on Mr. Keith's behalf and exercisable options to purchase 21,263 shares of
Common Stock.
(13) Includes 246,854 shares of Common Stock held in an IRA account on Mr.
Poirier's behalf.
(14) Includes 217,742 shares of Common Stock held in IRA accounts on Mr.
Armstrong's behalf.
(15) Includes 72,615 shares of Common Stock held in an IRA account on Mr.
Mitnick's behalf and exercisable options to purchase 12,087 shares of
Common Stock.
(16) Includes 255,665 shares of Common Stock held in IRA accounts on Mr. Rowe's
behalf.
(17) Includes 61,945 shares of Common Stock held in the Shauna E. Steinbergh
Educational Trust, 93,353 shares of Common Stock held in the Laura Rachel
Bedell Steinbergh Education Trust and 7,206 shares of Common Stock held in
an IRA account on Mr. Steinbergh's behalf.
(18) Includes 138,301 shares of Common Stock held in IRA accounts on Mr.
Calhoun's behalf.
(19) Excludes 12,447 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 83,099 shares of Common Stock held in an IRA
account on Mr. Lipton's behalf.
(20) Includes 103,726 shares of Common Stock held in an IRA account on Mr.
Raucher's behalf.
(21) Excludes 17,287 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 69,151 shares of Common Stock held in an IRA
account on Mr. Van Liere's behalf.
(22) Includes 141,703 shares of Common Stock held in an IRA account on Mr.
Violette's behalf.
(23) Includes 45,460 shares of Common Stock held in an IRA account on Mr.
Yermoli's behalf.
(24) Excludes 165,961 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes exercisable options to purchase 429,506 shares of
Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Prior to the
consummation of the Offering, the Company will have outstanding 5,482,516 shares
of Common Stock and no shares of Preferred Stock. Upon completion of the
Offering, the Company will have outstanding 7,982,516 shares of Common Stock and
no shares of Preferred Stock. As of March 31, 1997, there were 22 record holders
of Common Stock.
48
<PAGE>
COMMON STOCK
Holders of 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
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 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. The
Company has not paid any dividends on its Common Stock and does not anticipate
paying any cash dividends on such stock in the foreseeable future. See "Dividend
Policy." Upon liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payments to creditors. The Common Stock is
not redeemable and has no preemptive or conversion rights.
The rights of the holders of 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 Common Stock are, and the shares of Common Stock to be
sold by the Company in this offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon or after the closing of the Offering, the Company will have the
authority to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix and determine the relative rights, preferences and limitations
of each class or series so authorized without any further vote or action by the
stockholders. The Board of Directors may issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock and have the effect of delaying or preventing a change in the
control of the Company. As of the date of this Prospectus, no shares of
Preferred Stock are outstanding. The Company has no current intention to issue
any shares of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Company's Amended and
Restated Certificate of Incorporation provides that the Board of Directors will
be divided into three classes of directors, each class constituting
approximately one-third of the total number of directors and with the classes
serving staggered three-year terms. The By-Laws provide that the Company's
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50.0% of the Company's capital stock. These
provisions of the Certificate of Incorporation and By-Laws could discourage
potential acquisition proposals and could delay, defer or prevent a change in
control of the Company. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the Board of Directors and in
the policies formulated by the Board of Directors and to discourage certain
types of transactions that may involve an actual or threatened change of control
of the Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors --
Certain Anti-takeover Effects."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the
49
<PAGE>
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85.0% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to such
plans will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10.0% or more of the assets of
the corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15.0% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Amended and Restated Certificate of Incorporation provides
that directors of the Company shall not be personally liable for monetary
damages to the Company for certain breaches of their fiduciary duty as
directors, unless they violated their duty of loyalty to the Company or its
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions, or derived an improper personal
benefit from their action as directors. This provision would have no effect on
the availability of equitable remedies or nonmonetary relief, such as an
injunction or rescission for breach of the duty of care. In addition, the
provision applies only to claims against a director arising out of his or her
role as a director and not in any other capacity (such as an officer or employee
of the Company). Further, liability of a director for violations of the federal
securities laws will not be limited by this provision. Directors will, however,
no longer be liable for monetary damages arising from decisions involving
violations of the duty of care which could be deemed grossly negligent.
Indemnification. The Amended and Restated Certificate of Incorporation
provides that directors and officers of the Company shall be indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The Amended
and Restated Certificate of Incorporation also authorizes the Company to enter
into one or more agreements with any person that provide for indemnification
greater or different from that provided in the Amended and Restated Certificate
of Incorporation. The Company believes that these provisions and agreements are
desirable to attract and retain qualified directors and officers. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,982,516 shares of
Common Stock outstanding. Of these shares, the 3,150,000 shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below.
The remaining 4,832,516 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the effective date of this Offering (the "Lock-Up Period") without the prior
written consent of DLJ. Because of these restrictions, on the date of this
Prospectus, no shares other than the 3,150,000 shares offered hereby will be
eligible for sale. Upon expiration of the Lock-Up Period, substantially all of
the Restricted Shares may become available for sale in the public market subject
to Rule 144 and Rule 701 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least one
year, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1.0% of the then-outstanding shares of
Common Stock (79,825 shares after giving effect to this Offering) or the average
weekly trading volume of the Common Stock as reported through the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales under
Rule 144 of the Securities Act are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
the Company. In addition, under Rule 144(k) of the Securities Act, a person who
is not an Affiliate of the Company at any time 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this Offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period. The Company intends to register on a
registration statement on Form S-8, shortly after the date of this Prospectus, a
total of 3,200,000 shares of Common Stock reserved for issuance under the
Company's Stock Plan.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom DLJ and
Montgomery Securities are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Company and the Selling Stockholders
an aggregate of 3,150,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
Donaldson, Lufkin & Jenrette Securities Corporation..............
Montgomery Securities............................................
----------
Total.................................................... 3,150,000
----------
----------
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept shares of Common Stock are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than in connection with the over-allotment option
described below), if any are taken.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers (who may include the Underwriters) at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, discounts not in excess of $ per share to
any other Underwriter and certain other dealers.
Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the Underwriters an option to purchase up to an aggregate of 472,500
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions solely to cover over-allotments. Such
option may be exercised at any time until 30 days after the date of this
Prospectus. To the extent that the Representatives exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Company, the Selling Stockholders, the executive officers and the
directors of the Company have agreed, subject to certain exceptions, with the
Underwriters not to, directly or indirectly, offer, pledge, sell, contract to
sell, grant any option to purchase, sell any option or contract to purchase,
grant any right or warrant for the sale of or otherwise dispose of, without the
prior written consent of DLJ, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, Common Stock or in any other manner transfer all
or a portion of the economic consequences associated with the ownership of any
Common Stock, or enter into any agreement to do any of the foregoing, for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
In connection with this Offering, the Underwriters have advised the Company
that, pursuant to Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), certain
52
<PAGE>
persons participating in this Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot this Offering, creating a syndicate
short position. In addition, the Underwriters may bid for and purchase shares of
Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions from syndicate members in this offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters have advised the Company that such
transactions may be effected on the Nasdaq Stock Market or otherwise and, if
commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5.0% of the total number of
shares of Common Stock offered by them and the sales to discretionary accounts
by the Representatives will be less than 1.0% of the total number of shares of
Common Stock offered by them.
Prior to the Offering, there has been no established public trading market
for the shares of Common Stock. The initial public offering price for the Common
Stock offered hereby will be determined by negotiation among the Company,
representatives of the Selling Stockholders and the Representatives. Among the
factors to be considered in such negotiations will be the history of and the
prospects for the industry in which the Company competes, the ability of the
Company's management, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of the Offering, and the recent market prices of securities of generally
comparable companies.
The Company has applied for the Common Stock to be listed on the Nasdaq
National Market under the symbol "HBIX."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper, Hamilton & Scheetz LLP, Philadelphia,
Pennsylvania. Certain legal matters will be passed upon for the Underwriters by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
EXPERTS
The consolidated financial statements of Hagler Bailly, Inc. at December
31, 1995 and 1996, and for the period from May 26, 1995 to December 31, 1995,
and for the year ended December 31, 1996, and the financial statements of
RCG/Hagler Bailly, Inc. (the Predecessor to Hagler Bailly, Inc.) at December 31,
1994, and for the years ended December 31, 1993, 1994 and for the period January
1, 1995 through May 25, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
53
<PAGE>
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offering, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the Common Stock,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Although statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein contain all material terms of
such documents, such statements are not necessarily complete, and in each
instance, reference is made to the copy of the document filed as an exhibit to
the Registration Statement. The Registration Statement may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the Registration Statement may be obtained from the
Commission at prescribed rates from the Public Reference Section of the
Commission at such address, and at the Commission's regional offices located at
7 World Trade Center, 13th Floor, New York, New York 10048, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, registration statements and certain other filings made with the
Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
In addition, the Company intends to furnish its stockholders with annual
reports containing audited financial statements examined by an independent
public accounting firm.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
HAGLER BAILLY, INC.
Independent Auditors Report.......................................... F-2
Consolidated Balance Sheets.......................................... F-3
Consolidated Statement of Operations................................. F-4
Consolidated Statement of Stockholders' Equity....................... F-5
Consolidated Statement of Cash Flows................................. F-6
Notes to Consolidated Financial Statements........................... F-7
RCG/HAGLER BAILLY, INC. (PREDECESSOR TO HAGLER BAILLY, INC.)
Independent Auditors Report.......................................... F-18
Balance Sheet........................................................ F-19
Statements of Income................................................. F-20
Statements of Stockholder's Equity................................... F-21
Statements of Cash Flows............................................. F-22
Notes to Financial Statements........................................ F-23
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Hagler Bailly, Inc.
We have audited the accompanying consolidated balance sheets of Hagler Bailly,
Inc., and its subsidiaries, as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period May 26, 1995 to December 31, 1995 and for the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hagler
Bailly, Inc., and its subsidiaries at December 31, 1995 and 1996 and the results
of their operations and their cash flows for the period May 26, 1995 to December
31, 1995 and for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
March 25, 1997
F-2
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
-------------------------- -----------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 671,281 $ 1,432,882 $ 751,835
Accounts receivable, net (Note 3)............................. 12,733,590 15,038,797 19,341,262
Prepaid expenses.............................................. 175,905 368,282 438,811
Other current assets.......................................... 417,552 216,922 1,048,487
----------- ----------- -----------
Total current assets............................................ 13,998,328 17,056,883 21,580,395
Property and equipment, net (Note 4)............................ 2,049,439 2,414,449 2,386,429
Intangible assets, net (Note 5)................................. 8,177,406 7,661,092 7,477,309
Other assets (Note 6)........................................... 274,926 614,694 1,336,340
----------- ----------- -----------
Total assets.................................................... $24,500,099 $27,747,118 $32,780,473
----------- ----------- -----------
----------- ----------- -----------
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit (Note 7).................................. $ 900,000 $ 1,750,000 $ 4,300,000
Accounts payable and accrued expenses......................... 2,967,843 2,417,510 4,367,088
Accrued compensation and benefits............................. 3,461,800 4,227,524 3,647,583
Billings in excess of cost.................................... 1,317,675 2,029,636 1,972,287
Current portion of long-term debt (Note 8).................... 2,088,000 1,289,000 1,318,750
Deferred income taxes (Note 9)................................ 725,000 1,522,000 2,051,000
----------- ----------- -----------
Total current liabilities....................................... 11,460,318 13,235,670 17,656,708
Long-term debt, net of current portion (Note 8)................. 9,062,000 7,273,333 6,921,333
----------- ----------- -----------
Total liabilities............................................... 20,522,318 20,509,003 24,578,041
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity (Note 10):
Preferred stock, par value $.01; 5,000,000 shares authorized;
no shares issued or outstanding............................ -- -- --
Common stock:
Class A par value $.01, 6,915,081 shares authorized,
4,321,926, 4,978,160 and 5,482,516 issued and
outstanding, at 1995, 1996 and March 31, 1997........... 43,219 49,781 54,825
Class B par value $.01, 2,074,524 shares authorized,
103,726 issued and outstanding, at 1995, none
outstanding at 1996 and March 31, 1997.................. 1,037 -- --
Additional paid-in capital................................. 3,023,297 9,937,565 10,131,521
Retained earnings (deficit)................................ 910,228 (2,749,231) (1,983,914)
----------- ----------- -----------
Total stockholders' equity...................................... 3,977,781 7,238,115 8,202,432
----------- ----------- -----------
Total liabilities and stockholders' equity...................... $24,500,099 $27,747,118 $32,780,473
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM YEAR ENDED THREE MONTHS
MAY 26, 1995 DECEMBER ENDED MARCH 31,
TO DECEMBER 31, 31, (UNAUDITED)
-------------------- ----------- --------------------------
1995 1996 1996 1997
-------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Consulting revenues..................... $ 18,194,121 $38,762,508 $ 9,378,229 $10,778,652
Subcontractor and other revenues........ 11,119,479 22,820,829 5,635,150 5,833,633
------------ ----------- ----------- -----------
Total revenues............................ 29,313,600 61,583,337 15,013,379 16,612,285
Cost of services.......................... 23,811,123 48,785,854 11,802,567 13,027,865
------------ ----------- ----------- -----------
Gross profit.............................. 5,502,477 12,797,483 3,210,812 3,584,420
------------ ----------- ----------- -----------
Selling, general and administrative
expenses................................ 3,230,227 8,583,896 1,985,955 1,984,432
Stock and stock option compensation....... -- 6,172,000 -- 64,869
------------ ----------- ----------- -----------
Income (loss) from operations............. 2,272,250 (1,958,413) 1,224,857 1,535,119
------------ ----------- ----------- -----------
Other income (expense):
Interest income......................... 21,681 117,200 5,463 18,567
Interest expense........................ (658,703) (1,021,246) (258,297) (259,369)
------------ ----------- ----------- -----------
(637,022) (904,046) (252,834) (240,802)
------------ ----------- ----------- -----------
Income (loss) before income tax expense... 1,635,228 (2,862,459) 972,023 1,294,317
Income tax expense (Note 9)............... 725,000 797,000 391,000 529,000
------------ ----------- ----------- -----------
Net income (loss)......................... $ 910,228 $(3,659,459) $ 581,023 $ 765,317
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Net income (loss) per share (Note 2)...... $ 0.15 $ (0.59) $ 0.09 $ 0.12
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average shares outstanding....... 5,880,783 6,247,309 6,340,092 6,209,395
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 26, 1995 TO DECEMBER 31, 1995,
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
SHARES ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN- EARNINGS STOCKHOLDERS'
CLASS A CLASS B AMOUNT CAPITAL (DEFICIT) EQUITY
--------- -------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock at inception
(Note 10)........................... 4,149,049 -- $41,490 $ 2,958,510 $ -- $ 3,000,000
Less: Notes receivable for Common
Stock............................... -- -- -- (97,447) -- (97,447)
Issuance of Common Stock.............. 172,877 103,726 2,766 162,234 -- 165,000
Net income............................ -- -- -- -- 910,228 910,228
--------- -------- ------- ----------- ----------- -----------
Balance, December 31, 1995............ 4,321,926 103,726 44,256 3,023,297 910,228 3,977,781
Repayment of Notes receivable for
Common Stock........................ -- -- -- 97,447 -- 97,447
Issuance of Common Stock.............. 748,425 -- 7,484 856,516 -- 864,000
Repurchase of Common Stock............ (185,545) -- (1,855) (212,070) -- (213,925)
Substitution and issuance of
compensatory stock and options
(Note 10)........................... 93,354 (103,726) (104) 6,172,375 -- 6,172,271
Net loss.............................. -- -- -- -- (3,659,459) (3,659,459)
--------- -------- ------- ----------- ----------- -----------
Balance, December 31, 1996............ 4,978,160 -- 49,781 9,937,565 (2,749,231) 7,238,115
Net income (unaudited)................ -- -- -- -- 765,317 765,317
Issuance of Common Stock
(unaudited)......................... 504,356 -- 5,044 129,087 -- 134,131
Compensatory stock and options, net
(unaudited)......................... -- -- -- 64,869 -- 64,869
--------- -------- ------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited)... 5,482,516 -- $54,825 $10,131,521 $(1,983,914) $ 8,202,432
--------- -------- ------- ----------- ----------- -----------
--------- -------- ------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE THREE MONTHS ENDED
MAY 26, 1995 YEAR ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, (UNAUDITED)
-------------------- --------------- --------------------------
1995 1996 1996 1997
-------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss).............................. $ 910,228 $(3,659,459) $ 581,023 $ 765,317
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............ 734,494 1,265,606 282,457 403,292
Provision for possible losses............ 129,484 1,092,713 172,114 98,693
Provision for deferred income taxes...... 725,000 797,000 391,000 529,000
Stock and stock option compensation...... -- 6,172,000 -- 64,869
Changes in operating assets and
liabilities:
Accounts receivable................... (1,651,314) (3,397,920) (1,661,419) (4,401,158)
Prepaid expenses...................... 59,664 (192,377) (290,834) (70,529)
Other current assets.................. (138,634) 200,630 (120,573) (831,565)
Other assets.......................... (204,235) (339,768) (168,864) (721,646)
Accounts payable and accrued
expenses............................ (1,705,848) (550,333) (51,645) 1,949,578
Accrued compensation and benefits..... 2,499,276 765,724 (402,550) (579,941)
Billings in excess of cost............ 1,148,455 711,961 114,620 (57,349)
------------ ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................... 2,506,570 2,865,777 (1,154,671) (2,851,439)
------------ ----------- ----------- -----------
Investing activities
Purchase of RCG/Hagler Bailly, Inc. (net of
$1,126,873 cash
received).................................... (11,802,250) -- -- --
Acquisition of property and equipment.......... (501,039) (1,114,031) (245,395) (191,489)
------------ ----------- ----------- -----------
Net cash used by investing activities.......... (12,303,289) (1,114,031) (245,395) (191,489)
------------ ----------- ----------- -----------
Financing activities
Issuance of Common Stock....................... 3,068,000 864,000 410,000 134,131
Repurchase of Common Stock..................... -- (213,925) -- --
Repayment of notes receivable for Common
Stock........................................ -- 97,447 -- --
Net borrowings from bank line of credit........ 900,000 850,000 1,325,000 2,550,000
Proceeds from long-term debt financing......... 7,000,000 -- -- --
Principal payments on long-term debt........... (500,000) (2,587,667) (295,000) (322,250)
------------ ----------- ----------- -----------
Net cash provided by (used in) financing
activities................................... 10,468,000 (990,145) 1,440,000 2,361,881
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 671,281 761,601 39,934 (681,047)
Cash and cash equivalents, beginning of
period....................................... -- 671,281 671,281 1,432,882
------------ ----------- ----------- -----------
Cash and cash equivalents, end of period....... $ 671,281 $ 1,432,882 $ 711,215 $ 751,835
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND MARCH 31, 1997
1. ORGANIZATION
Hagler Bailly, Inc. ("Hagler Bailly" or the "Company") is a worldwide
provider of a broad array of management consulting and other advisory services
to the private and public sectors of the energy, utility, and environmental
industries. The Company operates in principally one business segment. The firm
is headquartered in the Washington, D.C. metropolitan area and has offices in
the United States, Asia, Europe, and Latin America.
Hagler Bailly was organized under the laws of the state of Delaware and
formed for the primary purpose of facilitating the acquisition of RCG/Hagler
Bailly, Inc. ("Predecessor") by its management. The Predecessor was a
wholly-owned subsidiary of RCG International, Inc. ("RCG"). The date of
inception of the Company was May 5, 1995. The Company had no operations from May
5, 1995 to May 25, 1995. Effective on the close of business on May 25, 1995, the
Company, through a wholly-owned subsidiary, acquired all of the voting stock of
the Predecessor and the Company began operations on May 26, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL INFORMATION
The financial information presented as of any date other than December 31
has been prepared from the books and records of the Company without audit. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's consolidated financial position as of
March 31, 1997, the results of its operations and its cash flows for the periods
ended March 31, 1997 and 1996, and the changes in stockholders' equity for the
period ended March 31, 1997. The results of operations presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes, in particular, estimates of revenues and
contract costs used in the earnings recognition process. Actual results could
differ from those estimates.
F-7
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments which have an
original maturity when acquired of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at original cost and depreciated using
primarily declining balance methods over their estimated useful lives of three
to seven years. Leasehold improvements are recorded at cost and amortized over
the shorter of their useful lives or the term of the related leases by use of
the straight-line method.
REVENUE RECOGNITION
Consulting revenue represents revenue generated by professional staff of
the Company. Subcontractor and other revenue represents revenue principally
generated through the use of subcontractors and independent consultants.
Revenue from cost-plus fixed-fee contracts is recognized as costs are
incurred on the basis of direct costs plus allowable indirect costs and a pro
rata portion of estimated fee.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
Revenue from standard daily rate contracts is recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred.
Amounts billed or received in excess of revenue recognized in accordance
with the Company's revenue recognition policy are classified as billings in
excess of cost in the accompanying balance sheets.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
EARNINGS PER SHARE
Net income (loss) per share is calculated using the weighted average number
of common shares outstanding during each period. In February 1997, the Financial
Accounting Standards Board issued FASB No. 128, "Earnings Per Share," which is
required to be adopted for the year ended December 31, 1997. Under the new
requirements, the dilutive effect of stock options will be excluded for purposes
of calculating Basic Earnings per share. For the periods ended March 31, 1996
and March 31, 1997 Basic Earnings per share would have been $0.09 and $0.15,
respectively, while Diluted Earnings per share would have been $0.09 and $0.12,
respectively. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, Common Stock and options to
purchase Common Stock issued at prices below the estimated initial public
offering ("IPO") of the Company's Common Stock price during the twelve months
immediately preceding the contemplated initial filing of the registration
statement relating to the IPO, have been included in the computation of net
income
F-8
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(loss) per share as if they were outstanding for all periods presented (using
the treasury method assuming repurchase of common stock at the estimated IPO
price, even if antidilutive).
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's 1996 consolidated financial statements. SFAS No. 123 allows companies
to either account for stock based compensation under the new provisions of SFAS
No. 123 or under the provisions of Accounting Principles Board APB No. 25,
"Accounting for Stock Issued to Employees," but requires pro forma disclosures
in the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company intends to continue accounting for
its stock-based compensation in accordance with APB No. 25. The pro forma
disclosures required under SFAS No. 123 are not materially different than the
amounts recorded in the Company's consolidated financial statements pursuant to
APB No. 25 (See Note 10).
3. ACCOUNTS RECEIVABLE
The components of accounts receivable are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- 1997
1995 1996 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Billed amounts....................................... $ 8,665,372 $10,794,670 $10,275,582
Unbilled amounts currently billable.................. 4,148,455 4,914,425 9,767,497
Retention not currently billable..................... 278,547 214,492 367,638
Allowance for possible losses........................ (358,784) (884,790) (1,069,455)
----------- ----------- -----------
Total................................................ $12,733,590 $15,038,797 $19,341,262
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The activity in the allowance for possible losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
PERIOD ENDED DECEMBER MARCH 31,
DECEMBER 31, 31, ----------------------
1995 1996 1996 1997
------------ ----------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning of period.......................... $314,025 $ 358,784 $358,784 $ 884,790
Provision for losses charged to expense...... 129,484 1,092,713 172,114 98,693
Charge-offs, net of recoveries............... (84,725) (566,707) (44,400) 85,972
-------- ----------- -------- ----------
Balance at December 31....................... $358,784 $ 884,790 $486,498 $1,069,455
-------- ----------- -------- ----------
-------- ----------- -------- ----------
</TABLE>
All billed and unbilled receivable amounts are expected to be collected
during the next fiscal year. Management has provided an allowance for amounts
which it believes are doubtful as to their ultimate realization. Substantially
all the retention relates to contracts for which a final invoice is submitted
upon completion of indirect cost audits and contract close-outs; therefore it is
anticipated that the retention amounts will not all be collected within the next
fiscal year.
F-9
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ 1997
1995 1996 (UNAUDITED)
---------- ---------- -----------
<S> <C> <C> <C>
Office equipment and furniture........................... $2,339,208 $3,361,916 $ 3,553,405
Leasehold improvements................................... 84,995 176,318 176,318
---------- ---------- -----------
2,424,203 3,538,234 3,729,723
Accumulated depreciation and amortization................ (374,764) (1,123,785) (1,343,294)
---------- ---------- -----------
$2,049,439 $2,414,449 $ 2,386,429
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Depreciation expense for the period ended December 31, 1995, the year ended
December 31, 1996 and for the three month periods ended March 31, 1996 and 1997
was $375,000, $749,000, $139,000 and $220,000, respectively. Costs of repairs
and maintenance of property and equipment are charged to expense as incurred.
5. MANAGEMENT BUY-OUT
Effective at the close of business on May 25, 1995, the Company purchased
all of the outstanding shares of RCG/Hagler Bailly, Inc. from RCG in an
acquisition accounted for as a purchase. The consolidated financial statements
include the results of operations from the date of acquisition. Under the terms
of the Management Buy-Out, the Company agreed to pay approximately $15,587,000
and assume certain tax obligations of the seller. Acquisition related costs of
approximately $491,000 were incurred. The purchase was funded by capital
contributions, bank debt, and subordinated debt from RCG.
The purchase price was allocated to the assets acquired and the liabilities
assumed based upon their fair values as of the acquisition date. The excess of
the purchase price over the fair value of assets acquired in the purchase was
recorded as intangible assets, including goodwill, and are being amortized over
5 to 20 years on a straight-line basis. Intangible assets at December 31, 1995
and 1996 and March 31, 1997 is net of accumulated amortization of $334,000,
$1,017,000 and $1,201,000 respectively. Amortization expense for the period
ended December 31, 1995 and the year ended December 31, 1996 was $334,000 and
$683,000, respectively, and for the periods ended March 31, 1996 and 1997 was
$143,000 and $184,000, respectively.
The Company periodically reviews the value of its net intangible assets to
determine if an impairment has occurred. Based on its review, the Company does
not believe that an impairment of net intangible assets has occurred at December
31, 1996.
Pro forma unaudited consolidated operating results of the Company for the
year ended December 31, 1995 assuming the acquisition had been made as of
January 1, 1995 are summarized below:
Pro forma Revenue........................................... $49,188,958
Pro forma Net Income........................................ $1,016,000
Pro forma Earnings per Share $0.17
These pro forma results have been prepared for comparative purposes only
and include adjustments such as additional amortization expenses as a result of
goodwill and other intangible assets and increased interest expense related to
debt used to finance the Management Buy-Out. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1995, or of the future results of
operations of the consolidated entities.
F-10
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
As a part of the Management Buy-Out (Note 5), the Company was required to
place a deposit in escrow to secure its indemnification of RCG for remaining a
guarantor on a lease. At December 31, 1996 and March 31, 1997, the Company has
an escrow balance of $350,000. The Company is required to increase the balance
unless RCG is released from the lease guarantee (see Note 14).
7. BANK LINE OF CREDIT
At December 31, 1996, the Company had a line of credit arrangement with a
bank which provides funds up to $4,500,000 subject to sufficient collateral. The
line is secured primarily by the Company's accounts receivable and contract
rights. Under the terms of the line of credit, interest is payable monthly at
the bank's prime rate plus 7/8%. There is an annual fee of 3/8% for the unused
portion of the available line of credit. The line of credit agreement contains
certain covenants which among other things restrict future borrowings and
require the Company to maintain certain financial ratios.
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- 1997
1995 1996 (UNAUDITED)
----------- ---------- -----------
<S> <C> <C> <C>
Senior term loan from a bank, in the original, amount of
$7,000,000, interest payable at the banks prime rate plus 7/8%;
Subject to certain limitations the Company may fix the interest
rate on portions or all of the note, at LIBOR plus 2% for periods
ranging from 30-360 days. The interest rate was 7.6% at December
31, 1996. Principal is due in quarterly installments ranging from
$250,000 to $384,500, plus interest, over the term of the note,
secured by the assets of the Company............................. $ 6,500,000 $3,912,333 $ 3,590,083
Subordinated note payable to RCG in the amount of $4,650,000;
interest at 9.5% payable semiannually; balloon payment due May
2001............................................................. 4,650,000 4,650,000 4,650,000
----------- ---------- -----------
Total long-term debt............................................... 11,150,000 8,562,333 8,240,083
Less: current portion.............................................. 2,088,000 1,289,000 1,318,750
----------- ---------- -----------
Long-term debt, net of current portion............................. $ 9,062,000 $7,273,333 $ 6,921,333
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The senior term loan also provides that if, at the end of the fiscal year,
the Company has cash flow in excess of certain levels, as defined by the credit
agreement, such cash must be applied to scheduled principal installments on the
note. At December 31, 1995, approximately $908,000 was payable in addition to
the scheduled maturities under the note provisions. This excess cash flow
payment was made in 1996. At the Company's discretion, an additional $500,000
was paid in relation to the senior term loan in 1996.
F-11
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
The senior term loan and the subordinated note payable to RCG contain,
among other things, certain financial covenant requirements and restrictions on
future borrowing and investment, and requires the Company to maintain certain
financial ratios. Management believes the carrying amount of the Company's
financial instruments approximates their respective fair value.
The following is a schedule of future principal maturities of long-term
debt at December 31, 1996:
YEAR ENDED DECEMBER 31
- ----------------------
1997................................................. $1,289,000
1998................................................. 1,408,000
1999................................................. 1,215,333
2000................................................. --
2001................................................. 4,650,000
-----------
Total................................................ $8,562,333
-----------
-----------
Cash paid for interest for the period ended December 31, 1995 and the year
ended December 31, 1996 was approximately $468,000 and $1,020,000, respectively,
and for the periods ended March 31, 1996 and 1997 was approximately $219,000 and
$249,000, respectively.
9. INCOME TAXES
The Company has historically filed its consolidated federal income tax
return on the cash basis, whereby for tax purposes, revenue is recognized when
received and expenses are recognized when paid. The timing of certain
transactions, primarily the collections of accounts receivable and the payments
of accounts payable and accrued expenses will be applied to different periods
for financial statement and income tax reporting purposes. Deferred federal and
state income taxes are provided for these temporary differences. Upon
consummation of the contemplated IPO of the Company's Common Stock, the Company
would be required to change to the accrual method for income tax reporting.
Components of income tax expense consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
------------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred
Federal........................................ $ 580,000 $639,000 $313,000 $424,000
State.......................................... 145,000 158,000 78,000 105,000
--------- -------- -------- --------
Income tax expense............................. $ 725,000 $797,000 $391,000 $529,000
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
F-12
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
The Company has paid no income taxes since inception. Income tax expense
for the period ended December 31, 1995 and the year ended December 31, 1996,
varies from the amount which would have been computed using statutory rates as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax computed at the Federal statutory rate..... $572,000 $ (999,000) $340,000 $453,000
State income taxes, net of Federal income tax
benefit...................................... 85,000 107,000 50,000 67,000
Non-deductible charge for stock option
compensation................................. -- 1,661,000 -- --
Other.......................................... 68,000 28,000 1,000 9,000
-------- ---------- -------- --------
Income tax expense............................. $725,000 $ 797,000 $391,000 $529,000
-------- ---------- -------- --------
-------- ---------- -------- --------
</TABLE>
The components of temporary differences including available net operating
loss carry-forwards are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ 1997
1995 1996 (UNAUDITED)
---------- ---------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Accounts receivable...................................... $5,118,000 $6,015,000 $ 7,736,000
Other.................................................... 237,000 146,000 254,000
---------- ---------- -----------
Total.................................................... 5,355,000 6,161,000 7,990,000
---------- ---------- -----------
Deferred tax assets:
Accounts payable and accrued expenses.................. 1,187,000 967,000 1,747,000
Accrued compensation and benefits...................... 1,385,000 1,617,000 1,459,000
Billings in excess of cost............................. 530,000 811,000 789,000
Deferred compensation.................................. -- 762,000 788,000
Net operating loss carryforwards available for income
tax purposes........................................ 1,528,000 482,000 1,156,000
---------- ---------- -----------
Total.................................................... 4,630,000 4,639,000 5,939,000
---------- ---------- -----------
Valuation allowance...................................... -- -- --
Net deferred tax liability............................... $ 725,000 $1,522,000 $ 2,051,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
10. STOCKHOLDERS' EQUITY
The Company was authorized at inception to issue 6,915,081 shares of $.01
par value Class A common stock and 2,074,524 shares of $.01 par value Class B
common stock. Pursuant to a stockholders' agreement, all of the Company's common
stock and options have certain restrictions on ownership and are subject to a
repurchase provision. Class B shares were not eligible for dividends and had no
voting privileges.
The Company may grant qualified and non-qualified stock options to
employees to purchase common stock under the Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Plan"). Prior
to December 31, 1996, the Company's Stock Plan was a formula based
F-13
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY -- (CONTINUED)
plan and was authorized to grant options to purchase Class A and B shares. The
exercise price of options granted were based upon the book value per share at
May 26, 1995, adjusted for accretion of formula value during any interim period
up to the grant date. Under the Stock Plan, options to purchase Class B shares
granted did not accrue value to the option holder until date of exercise.
Options to purchase Class A shares accrued value to the option holder from the
date of grant.
Effective at December 31, 1996, the Company (a) adopted an amendment to its
Stock Plan which changed the exercise price of future options to be granted
thereunder to the fair value of the underlying Common Stock; and (b) in
connection with a reclassification of its Common Stock amended all outstanding
options to purchase 971,963 Class B shares vesting on January 1, 1997 to
substitute 0.9 of a Class A share for each Class B share underlying such
options. In addition, a remaining total of 971,963 options to purchase Class B
shares vesting on January 1, 1998, were canceled. As a result, the Company
recorded a non-recurring, non-cash charge to operations of $6,172,000 of which
$4,618,000 was for options to purchase Common Stock and $1,554,000 was for
394,160 shares of Common Stock sold to employees during 1996. These charges
represent the aggregate difference between the exercise price of such
outstanding options or the issuance price of Common Stock sold to employees
during 1996, as the case may be, and the appraised market value of the
underlying Common Stock at December 31, 1996.
Options granted in 1996 vest over periods ranging from immediately to three
years and are exercisable for five years. Options issued prior to 1996 generally
vest 50% after eighteen months and fully after an additional year. Once vested,
the options are exercisable for ten years.
Pro forma information regarding net income (loss) and per share data, is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method therein. The fair
value for these options was estimated at the date of grant using a minimal
valuation method with the following weighted-average assumptions, risk free
interest rate of 5.25%, no expected dividends and an average expected life of
the options of 5 years.
For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 26, TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Net income (loss)........................................ $910,228 $ (3,696,115) $581,023 $703,613
Earnings (loss) per share................................ $ 0.15 $ (0.59) $ 0.09 $ 0.11
</TABLE>
F-14
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY -- (CONTINUED)
The following summarizes option activity:
<TABLE>
<CAPTION>
CLASS A CLASS B OPTION PRICE
OPTIONS OPTIONS PER SHARE
--------- --------- -------------
<S> <C> <C> <C>
1995
- --------------------------------------------------------------------
Granted............................................................. -- 2,074,524 $ 0.16
Exercised........................................................... -- (103,726)
--------- --------- -------------
Outstanding at December 31, 1995.................................... -- 1,970,798 0.16
1996
- --------------------------------------------------------------------
Granted............................................................. 62,236 -- 0.87 - 1.16
Canceled............................................................ -- (971,963) 0.16
Forfeited........................................................... -- (26,872) 0.16
Substituted......................................................... 874,707 (971,963) 0.16
--------- --------- -------------
Outstanding at December 31, 1996.................................... 936,943 -- 0.87 - 1.16
--------- --------- -------------
Exercisable at December 31, 1996.................................... 930,028 -- 0.87 - 1.16
--------- --------- -------------
1997 (Unaudited)
- --------------------------------------------------------------------
Granted............................................................. 591,715 -- 6.10 - 10.00
Forfeited........................................................... (5,931) -- 6.10
Exercised........................................................... (496,162) -- 0.16 - 1.16
--------- --------- -------------
Outstanding at March 31, 1997....................................... 1,026,565 -- $0.16 - 10.00
--------- ---------
--------- ---------
Exercisable at March 31, 1997....................................... 478,802 -- $0.16 - 6.71
--------- ---------
--------- ---------
</TABLE>
11. OPERATING LEASES
The Company leases office space and equipment located throughout the United
States and worldwide, all of which are under operating leases which expire over
the next seven years. Substantially all office space leases provide for the
Company to pay a pro rata share of annual increases above a stated base amount
of the landlords' related real estate taxes and operating expenses. Management
expects that in the normal course of business, operating leases will be renewed
or replaced by other operating leases. RCG is a guarantor of the office lease
(Note 6) for the Company's headquarters location.
The following is a schedule by years of the future minimum rental payments
required under the operating leases that have an initial or remaining
noncancellable lease term in excess of one year as of December 31, 1996:
YEAR ENDED DECEMBER 31
----------------------
1997.................................................... $1,953,000
1998.................................................... 1,696,000
1999.................................................... 1,591,000
2000.................................................... 1,432,000
2001.................................................... 1,355,000
Thereafter.................................................... 1,185,000
-----------
Total minimum rental payments................................... $9,212,000
-----------
-----------
Total rental expense for the period ended December 31, 1995 and the year
ended December 31, 1996 was approximately $1,065,000 and $1,899,000,
respectively and for the periods ended March 31, 1996 and 1997 was approximately
$528,000 and $637,000, respectively.
F-15
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RETIREMENT PLAN
The Company maintains a tax-deferred savings plan under Section 401(k) of the
Internal Revenue Code to provide retirement benefits for all eligible employees.
Employees may voluntarily contribute up to 16% of their annual compensation to
the Plan, subject to Internal Revenue Service limitations. The Company may, but
has no obligation to, make matching contributions. In addition, the Company may,
but has no obligation to, make a discretionary contribution to the Plan.
Discretionary contributions are allocated to participants' accounts in
proportion to their compensation. The Company's discretionary matching and other
contributions for 1995 and 1996 were $1,011,000 and $1,371,000, respectively,
and for the periods ended March 31, 1996 and 1997 was $508,000 and $716,000,
respectively. Rights to benefits provided by the Company's discretionary
contributions vest as follows: 40% after two years, 70% after three years and
100% after four years of service. Participants are fully vested in their
voluntary contributions.
13. COMMITMENTS AND CONTINGENCIES
COST SUBJECT TO AUDIT
Under its United States government contracts, the Company is subject to
audit by the Defense Contract Audit Agency which could result in adjustments of
amounts previously billed. Management believes that the results of such audits
will not have a material adverse effect on the Company's financial position or
results of operations.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates around the world principally in United States
currency. The Company may reduce any periodic exposures to fluctuations in
foreign exchange rates by creating offsetting ("hedge") positions through the
use of derivative financial instruments. The Company currently does not use
derivative financial instruments for trading or speculative purposes, nor is the
Company a party to leverage derivatives. The Company regularly monitors any
foreign currency exposures and ensures that hedge contract amounts do not exceed
the amounts of the underlying exposures.
The Company had no open hedge positions at December 31, 1996 or March 31,
1997.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in many different
countries throughout the world, and the Company's policy is designed to limit
exposure with any one institution. As part of its cash management process, the
Company performs periodic evaluations of the relative credit standing of these
financial institutions.
At December 31, 1995, 1996 and March 31, 1997, respectively, cash of
approximately $465,000, $1,004,000, and $718,000 was located in foreign bank
accounts.
F-16
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
MAJOR CUSTOMERS
At December 31, 1995, 1996 and March 31, 1997, included in accounts
receivable was $7,654,726, $6,823,898 and $5,087,180, respectively due from
agencies of the United States government. Credit risk with respect to the
remaining trade accounts receivable is generally diversified due to the large
number of entities comprising the Company's customer base and their dispersion
across different industries and countries. The Company performs ongoing credit
evaluations of its customers financial condition.
The Company generates revenues from contracts with governmental agencies
and private companies within the United States and worldwide. During 1996, the
Company recognized approximately, $25,997,000 and $7,555,000 of its revenue from
the United States Agency for International Development ("USAID"), a U.S.
government agency, and a major public utility, respectively. In 1995 revenues
from USAID were approximately $12,313,000. For the periods ended March 31, 1996
and 1997 the Company recognized aggregate revenue of approximately $8,391,000
and $7,360,000, respectively, from USAID and a major public utility. Revenues
earned from foreign customers, both commercial and governmental, were
approximately $713,000 and $1,314,000 for the period ended December 31, 1995 and
the year ended December 31, 1996, respectively and for the periods ended March
31, 1996 and 1997 were approximately $277,000 and $272,000, respectively.
14. SUBSEQUENT EVENTS
On January 17, 1997, the Board of Directors, in consideration of an
authorization to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its Common Stock to the
public, approved resolutions to increase the number of authorized shares of
common stock from 6,915,081 to 20,000,000 and authorize for issuance up to
5,000,000 shares of preferred stock, par value $0.01. Also on January 17, 1997,
the Board of Directors authorized a 6.915081 for 1 split of the Company's Class
A $0.01 par value Common Stock, which will become effective at or prior to the
IPO. All references in the accompanying consolidated financial statements have
been restated to reflect the authorization of preferred stock and the split of
the Company's Common Stock.
On January 17, 1997, the Company granted options for the purchase of
576,715 shares of Common Stock to employees pursuant to the Stock Plan at an
exercise price ranging from $6.10 to $6.71 per share.
On February 21, 1997, the Company entered into an agreement to repay the
$4,650,000 Subordinated Note payable to RCG immediately upon the closing of the
IPO. In addition the Company agreed to use its best efforts to effect the
release of RCG from the guarantee described in Note 6 by April 30, 1997. To
date, the Company has not obtained such release. As a result, RCG has required
the Company to increase the escrow described above to $550,000. In the event the
IPO is consummated and the Company is unable to obtain such release, RCG has the
right to require the Company to increase the escrow described above to an amount
equal to the present value of all remaining payments under such lease
(approximately $3.6 million at March 31, 1997).
On March 11, 1997, the Company granted options for the purchase of 15,000
shares of Common Stock to an employee at an exercise price of $10.00 per share.
F-17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Hagler Bailly, Inc.
We have audited the accompanying balance sheet of RCG/Hagler Bailly, Inc.
(predecessor to Hagler Bailly, Inc.) as of December 31, 1994, and the related
statements of income, stockholder's equity, and cash flows for the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 to May 25,
1995. These financial statements are the responsibility of RCG/Hagler Bailly,
Inc. 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 RCG/Hagler Bailly, Inc. at
December 31, 1994 and the results of its operations and its cash flows for the
years ended December 31, 1993 and 1994, and for the period from January 1, 1995
to May 25, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
February 10, 1997
F-18
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER
31, 1994
-----------
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................................................... $ 565,719
Short-term investments.......................................................................... 81,875
Accounts receivable, net (Note 3)............................................................... 11,328,321
Other current assets............................................................................ 387,457
-----------
Total current assets.............................................................................. 12,363,372
Property and equipment, net (Note 4).............................................................. 1,582,874
Goodwill, net (Note 5)............................................................................ 596,225
Other assets...................................................................................... 258,389
-----------
Total assets...................................................................................... $14,800,860
-----------
-----------
Liabilities and stockholder's equity
Current liabilities:
Amounts due to parent company................................................................... $ 3,365,574
Accounts payable and accrued expenses........................................................... 2,362,284
Accrued compensation and benefits............................................................... 2,765,426
Billings in excess of cost...................................................................... 878,477
-----------
Total current liabilities......................................................................... 9,371,761
-----------
Commitments and contingencies (Note 8)
Stockholder's equity:
Common stock, $.10 par value, 13,650 issued and outstanding..................................... 1,365
Additional paid-in capital...................................................................... 258,189
Retained earnings............................................................................... 5,169,545
-----------
Total stockholder's equity........................................................................ 5,429,099
-----------
Total liabilities and stockholder's equity........................................................ $14,800,860
-----------
-----------
</TABLE>
See accompanying notes.
F-19
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
-------------------------- TO MAY 25,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Consulting revenues........................................... $18,053,000 $22,531,263 $10,978,000
Subcontractor and other revenues.............................. 8,796,239 13,436,809 8,897,358
----------- ----------- -----------
Total revenues.................................................. 26,849,239 35,968,072 19,875,358
Cost of services................................................ 21,653,025 29,122,153 16,529,564
----------- ----------- -----------
Gross profit.................................................... 5,196,214 6,845,919 3,345,794
Selling, general and administrative expenses.................... 3,678,895 4,835,802 2,451,773
----------- ----------- -----------
Income from operations.......................................... 1,517,319 2,010,117 894,021
Other income (expense):
Interest income............................................... 6,095 17,100 3,244
Interest expense.............................................. (15,335) (5,474) (23,503)
----------- ----------- -----------
(9,240) 11,626 (20,259)
----------- ----------- -----------
Income before income taxes...................................... 1,508,079 2,021,743 873,762
Income tax expense (Note 7)..................................... 620,000 843,000 362,000
----------- ----------- -----------
Net income...................................................... $ 888,079 $ 1,178,743 $ 511,762
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992........................ 13,650 $1,365 $258,189 $3,102,723 $ 3,362,277
Net income....................................... -- -- -- 888,079 888,079
------ ------ -------- ---------- -----------
Balance December 31, 1993........................ 13,650 1,365 258,189 3,990,802 4,250,356
Net income....................................... -- -- -- 1,178,743 1,178,743
------ ------ -------- ---------- -----------
Balance December 31, 1994........................ 13,650 1,365 258,189 5,169,545 5,429,099
Net income....................................... -- -- -- 511,762 511,762
------ ------ -------- ---------- -----------
Balance May 25, 1995............................. 13,650 $1,365 $258,189 $5,681,307 $ 5,940,861
------ ------ -------- ---------- -----------
------ ------ -------- ---------- -----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
-------------------------- TO MAY 25,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income........................................................ $ 888,079 $ 1,178,743 $ 511,762
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................ 811,927 779,063 485,719
Provision for possible losses................................ 46,728 163,134 31,120
Changes in operating assets and liabilities:
Accounts receivable....................................... (400,612) (3,455,893) (385,966)
Other assets.............................................. (118,670) (152,472) (472,384)
Accounts payable and accrued expenses..................... (123,592) 678,924 1,028,214
Accrued compensation and benefits......................... 421,888 907,395 (573,824)
Billings in excess of cost................................ (51,495) (133,587) (106,832)
----------- ----------- -----------
Net cash provided by (used in) operating activities............... 1,474,253 (34,693) 517,809
----------- ----------- -----------
Investing activities
Purchase of short-term investments................................ (56,394) (28,731) (3,250)
Sale of short-term investments.................................... -- 3,250 --
Acquisition of property and equipment............................. (1,136,596) (785,473) (649,531)
----------- ----------- -----------
Net cash used in investing activities............................. (1,192,990) (810,954) (652,781)
----------- ----------- -----------
Financing activities
Net borrowings (payments) of amounts due to parent................ (571,787) 461,844 696,126
----------- ----------- -----------
Net cash provided by (used in) financing activities............... (571,787) 461,844 696,126
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.............. (290,524) (383,803) 561,154
Cash and cash equivalents, beginning of period.................... 1,240,046 949,522 565,719
----------- ----------- -----------
Cash and cash equivalents, end of period.......................... $ 949,522 $ 565,719 $ 1,126,873
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-22
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
RCG/Hagler Bailly, Inc. is a leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utility, and the environmental industries. The Company
operates in principally one business segment. The firm is headquartered in the
Washington, D.C. metropolitan area and has offices in the United States, Asia,
Europe, and Latin America.
RCG/Hagler Bailly, Inc. was originally founded in 1980 as Hagler Bailly
Consulting, Inc. In 1984, Hagler Bailly Consulting, Inc. was acquired by RCG
International, Inc. ("RCG"), an indirect subsidiary of Reliance Group Holdings,
Inc. ("Reliance") and renamed RCG/Hagler Bailly Inc. RCG/Hagler Bailly, Inc. is
the predecessor to Hagler Bailly, Inc. Hagler Bailly, Inc. acquired all of the
voting stock of RCG/Hagler Bailly, Inc. effective at the close of business on
May 25, 1995.
The statements of income include allocations of certain corporate expenses
(see note 6) from RCG. Management believes the allocations are reasonable;
however, these allocated expenses are not necessarily indicative of expenses
that would have been incurred by the Company on a stand-alone basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, in particular, estimates of revenues and contract cost used
in the earnings recognition process. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid investments which have an
original maturity when acquired of three months or less. Short-term investments
are recorded at the lower of cost or market and are classified based on the
Company's intent to liquidate those investments within one year. Included on the
Company's balance sheet at December 31, 1994 is $257,666 in cash in foreign bank
accounts.
PROPERTY AND EQUIPMENT
Purchases of property and equipment are recorded at original cost and
depreciated using primarily the straight-line method over their estimated useful
lives of five to seven years.
REVENUE RECOGNITION
Consulting revenue represents revenue generated by professional staff of
the Company. Subcontractor and other revenue represents revenue principally
generated through the use of subcontractors and independent consultants.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
F-23
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue from standard daily rate contracts is recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred.
Amounts billed or received in excess of revenue recognized in accordance
with the Company's revenue recognition policy are classified as billings in
excess of cost in the accompanying balance sheet.
EARNINGS PER SHARE
The Company is a wholly-owned subsidiary and, accordingly, earnings per
share information for the Company is not relevant and is therefore not
presented.
3. ACCOUNTS RECEIVABLE
At December 31, 1994, the components of accounts receivable are as follows:
1994
-----------
Billed amounts................................................ $ 7,213,471
Unbilled amounts currently billable........................... 4,251,175
Retention not currently billable.............................. 177,700
Allowance for possible losses................................. (314,025)
-----------
Total......................................................... $11,328,321
-----------
-----------
The activity in the allowance for possible losses for the year ended
December 31, 1994 is as follows:
1994
--------
Balance at January 1, 1994........................................ $205,294
Provision for losses charged to expense........................... 163,134
Charge-offs, net of recoveries.................................... (54,403)
--------
Balance at December 31, 1994...................................... $314,025
--------
--------
All billed and unbilled receivable amounts are expected to be collected
during the next fiscal year. Management has provided an allowance for amounts
which it believes are doubtful as to their ultimate realization. Substantially
all the retention relates to contracts for which a final invoice is submitted
upon completion of indirect cost audits and contract close-outs; therefore, it
is anticipated that the retention amounts will not all be collected within the
next fiscal year.
4. PROPERTY AND EQUIPMENT
Components of property and equipment at December 31, 1994 are as follows:
Office equipment and furniture.................................. $ 3,157,257
Leasehold improvements.......................................... 123,578
-----------
3,280,835
Accumulated depreciation and amortization....................... (1,697,961)
-----------
$ 1,582,874
-----------
-----------
F-24
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
4. PROPERTY AND EQUIPMENT -- (CONTINUED)
Depreciation expense for the years ended December 31, 1993 and 1994, and
the period January 1, 1995 through May 25, 1995 was $706,692, $600,291 and
$271,025, respectively. Costs of repairs and maintenance of property and
equipment are charged to expense as incurred.
5. GOODWILL
The Company recorded as goodwill the amount in excess of the net assets
acquired related to several asset purchases consummated from 1986 to 1989.
Goodwill is amortized over 15 years and is presented net of accumulated
amortization of $375,395 at December 31, 1994. Amounts charged to amortization
expense were $64,788, $64,788 and $26,995 for the years ended December 31, 1993
and 1994, and for the period from January 1, 1995 to May 25, 1995.
The Company periodically reviews the value of its goodwill to determine if
an impairment has occurred. Based on its review, the Company does not believe
that an impairment of goodwill has occurred at December 31, 1994.
6. RELATED PARTIES
RCG allocated a management fee of $250,000 for both the years ended
December 31, 1993 and 1994. No management fee allocation was made to the Company
for the period from January 1 to May 25, 1995. The management fee charge was
intended to cover corporate support functions performed by RCG such as but not
limited to account maintenance, treasury and cash management functions, benefits
administration and other general corporate support functions.
7. INCOME TAXES
The results of the Company's operations were included in the consolidated
U.S. federal income tax return of Reliance. Such income taxes were settled by
the Company with Reliance through its intercompany account. Included in the
amounts due to Parent Company at December 31, 1994 was approximately $161,000
related to income taxes.
The components of income tax expense consisted of the following:
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY
YEAR ENDED DECEMBER 1
31, TO MAY
-------------------- 25,
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current
Federal....................................................... $497,000 $675,000 $290,000
State......................................................... 123,000 168,000 72,000
-------- -------- --------
$620,000 $843,000 $362,000
-------- -------- --------
-------- -------- --------
</TABLE>
Income tax expense for the years ended December 31, 1993 and 1994 and for
the period from January 1 to May 25, 1995 reflected in the accompanying
financial statements varies from the amount which would have been computed using
statutory rates as follows:
F-25
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
7. INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY
YEAR ENDED DECEMBER 1
31, TO MAY
-------------------- 25,
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Tax computed at the Federal statutory rate...................... $513,000 $687,000 $297,000
State income taxes, net of Federal income tax benefit........... 75,000 101,000 44,000
Other-primarily nondeductible expenses.......................... 32,000 55,000 21,000
-------- -------- --------
Income tax expense.............................................. $620,000 $843,000 $362,000
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred taxes were maintained at the parent company level for temporary
differences between book and tax income. The amounts related to RCG/Hagler
Bailly, Inc. for such temporary differences at December 31, 1994 were not
significant.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment at principal locations, all
of which are under operating leases which expire over the next ten years.
Substantially all leases provide for the Company to pay a pro rata share of
annual increases above a stated base amount of the landlords' related real
estate taxes and operating expenses.
The Company expects that in the normal course of business, operating leases
will be renewed or replaced by other operating leases.
The following is a schedule by years of the future minimum rental payments
required under the operating leases that have an initial or remaining
noncancellable lease term in excess of one year at December 31, 1994:
YEAR ENDED DECEMBER 31
- ----------------------
1995.................................................. $ 1,855,000
1996.................................................. 2,069,000
1997.................................................. 1,953,000
1998.................................................. 1,696,000
1999.................................................. 1,591,000
Thereafter.................................................. 3,972,000
------------
Total future minimum rental payments.......................... $13,136,000
------------
------------
Total rental expense for the years ended December 31, 1993 and 1994 and the
period from January 1 to May 25, 1995 was $1,064,000, $1,267,000 and $745,000,
respectively.
RCG is a guarantor of the lease agreement for the Company's headquarters
location.
F-26
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
COSTS SUBJECT TO AUDIT
Under its United States government contracts, the Company is subject to
audit by the Defense Contract Audit Agency which could result in adjustments of
amounts previously billed. Management believes that the results of such audits
will not have a material effect on the Company's financial position or results
of operations.
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
Cash balances in excess of short-term operating requirements are swept into
the Parent Company accounts. The Company maintains cash and cash equivalents and
short term investments with various financial institutions. As part of its cash
management process, the Company performs periodic evaluations of relative credit
standing of these financial institutions.
At December 31, 1994, included in accounts receivable was $8,678,735 due
from agencies of the United States government. Credit risk with respect to the
remaining trade accounts receivable is generally diversified due to the large
number of entities comprising the Company's customer base and their dispersion
across different industries and countries. The Company performs ongoing credit
evaluations of its customers' financial condition.
The Company generates revenues from contracts with governmental agencies
and private companies within the United States and worldwide. During the years
ended December 31, 1993, 1994, and for the period January 1 to May 25, 1995 the
Company recognized approximately $9,348,000, $18,763,000, and $13,799,000,
respectively, in revenue from the United States Agency for International
Development ("USAID"). USAID revenues are earned under both foreign and domestic
programs. Revenues earned from foreign customers, both commercial and
governmental, were approximately $1,248,000, $1,278,000, and $629,000 for the
years ended December 31, 1993 and 1994, and for the period January 1 to May 25,
1995, respectively.
9. RETIREMENT PLAN
Employees of RCG/Hagler Bailly, Inc. may participate in the Reliance
retirement plan which is a tax-deferred savings plan under Section 401k of the
Internal Revenue Code. Employees may voluntarily contribute up to 16% of their
annual salaries to the Plan. The Company also sponsors a qualified profit
sharing plan to which the Company may elect to make discretionary contributions.
The Company's discretionary contributions for the year ended December 31, 1993
and 1994, and for the period January 1 to May 25, 1995 were $627,521, $745,573
and $500,801 respectively. Rights to benefits provided by the Company's
discretionary contributions vest as follows: 40% after two years and 70% after
three years until full vesting is achieved after four years of service.
Participants are fully vested in their voluntary contributions.
F-27
<PAGE>
1. Picture of a mountain scene with the following text overlay:
Hagler Bailly
A World Ahead
Serving energy, utility and environmental clients -- private and public --
throughout the world . . .
Creating tangible value . . .
o Growing the revenue stream
o Globalizing the enterprise
o Meeting environmental challenges
o Building the technological spine
o Reforming and restructuring contracts
o Identifying and closing strategic transactions
[The Company's address, phone number and Web address]
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary............................... 3
Risk Factors..................................... 6
The Company...................................... 12
Use of Proceeds.................................. 12
Dividend Policy.................................. 13
Capitalization................................... 13
Dilution......................................... 14
Selected Consolidated Financial Data............. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 17
Business......................................... 26
Management....................................... 38
Certain Transactions............................. 46
Principal and Selling Stockholders............... 47
Description of Capital Stock..................... 48
Shares Eligible for Future Sale.................. 51
Underwriting..................................... 52
Legal Matters.................................... 53
Experts.......................................... 53
Additional Information........................... 54
Index to Financial Statements.................... F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,150,000 SHARES
HAGLER BAILLY, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses, all of which will be paid by the Company, in connection with the
issuance and distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ----------
<S> <C>
SEC Registration Fee.................................................................... $ 17,564
Nasdaq National Market Listing Fee...................................................... 36,355
NASD Filing Fee......................................................................... 6,300
Printing and engraving fees............................................................. **
Registrant's counsel fees and expenses.................................................. **
Accounting fees and expenses............................................................ **
Blue Sky filing fees and expenses and counsel fees...................................... **
Transfer agent and registrar fees....................................................... **
[Director & Officer Liability Insurance]................................................ **
Miscellaneous........................................................................... **
----------
TOTAL................................................................................. $1,125,000
----------
----------
</TABLE>
- ------------------
* Estimated, subject to change.
** To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company 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
Company'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 Company's Amended and Restated Certificate of Incorporation contains
provisions that require the Company to indemnify its directors and officers to
the fullest extent permitted by Delaware law.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the Company and its directors and
executive officers in the offering of the Common Stock registered hereby, and
each person, if any, who controls the Company, for certain liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception in May 1995, the registrant has made sales of the following
unregistered securities (all shares are on a post-split basis, unless otherwise
indicated):
(i) In May 1995, in connection with its initial capitalization, the
Company issued an aggregate of 4,149,049 shares of Common Stock to 21
persons. The shares were issued for an aggregate of $3,000,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.
(ii) In May 1995, the Company granted 14 of its employees options to
purchase an aggregate of 300,000 (pre-split) shares of Class B Common Stock
under the Stock Plan, 15,000 (pre-split) of which were subsequently
exercised (see paragraph (iii) below) and 3,886 (pre-split) of which were
subsequently forfeited. One half of these options were terminated effective
December 31, 1996. Effective December 31, 1996, the Company amended the
other half of such options to substitute 0.90 (pre-split) shares of Class A
Common Stocks share for each share of Class B Common Stock thereunder.
(iii) In October 1995, the Company issued 15,000 shares of Class B
Common Stock, which were subsequently exchanged for 13,500 (pre-split)
shares of Common Stock pursuant to the Company's plan of recapitalization
effective December 31, 1996, to one person upon the exercise of an option
granted to him in May 1995. The shares were issued for $15,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the
Securities Act.
(iv) In July 1995, the Company issued 172,877 shares of Common Stock
to one person. The shares were issued for an aggregate of $150,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.
(v) In January 1996, the Company issued an aggregate of 212,562 shares
of Common Stock to four persons. The shares were issued for an aggregate of
$225,000 of consideration. No underwriters were involved and no commissions
were paid. The shares of Common Stock were issued in reliance on the
exemption from registration contained in Section 4(2) of the
Securities Act.
(vi) In March 1996, the Company issued 141,703 shares of Common Stock
to one person. The shares were issued for $150,000 of consideration. No
underwriters were involved and no commissions were paid. The shares of
Common Stock were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act.
(vii) In June 1996, the Company granted its President an option to
purchase 5,000 (pre-split) shares of Class A Common Stock at an exercise
price of $7.32 per (pre-split) share and an option to purchase 2,500
pre-split shares of Class A Common Stock at an exercise price of $8.05 per
(pre-split) share. As of January 24, 1997, all of these options had been
exercised. In addition, in July 1996, the Company granted a non-employee
director an option to purchase 1,500 (pre-split) shares of Class A Common
Stock at an exercise price of $6.00 per (pre-split) share. As of January
24, 1997, an option to purchase 500 of these (pre-split) shares had been
exercised.
(viii) In October 1996, the Company issued 345,754 shares of Common
Stock to a trust. The shares were issued for $454,000 of consideration. In
addition, the Company issued 48,406 shares of Common Stock to one person
for $35,000 of consideration. No underwriters were involved and no
commissions were paid. The shares of Common Stock were issued in reliance
on the exemption from registration contained in Section 4(2) of the
Securities Act.
(ix) In January 1997, the Company granted options to purchase an
aggregate of 576,715 shares of Common Stock which have not yet been
exercised (the "January 1997 Options") at exercise prices of $6.10 and
$6.71. The Company intends to grant certain of its employees and directors
options to purchase an aggregate of 3,200,000 (including the January 1997
Options)
II-2
<PAGE>
shares of Common Stock under the Stock Plan, and intends to file a
registration statement on Form S-8 to register the shares underlying
options granted under the Stock Plan.
(x) In January 1997, the Company awarded an employee a stock bonus of
8,194 shares of Common Stock.
(xi) In January 1997, options for 496,162 shares of Common Stock were
exercised. The shares of Common Stock were issued in reliance on the
exemption from Registration continued in Section 4(2) of the Securities
Act.
(xii) In March 1997, the Company granted an employee options to
purchase an aggregate of 15,000 shares of Common Stock under the Stock
Plan.
The Company believes that the foregoing described issuances of securities,
if they constitute sales, are exempt from registration under the Securities Act
by virtue of the exemption provided by Section 4(2) thereof for transactions not
involving a public offering.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement by and between the Company and the Underwriters
2.1 -- Sale Agreement between RCG International, Inc. and Hagler Bailly Consulting, Inc.(2)
3.1 -- Amended and Restated Certificate of Incorporation of the Company(2)
3.2 -- By-Laws of the Company(2)
4.1 -- Specimen Stock Certificate
5.1 -- Opinion of Pepper, Hamilton & Scheetz LLP
10.1 -- Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock Option and
Restricted Stock Plan (including forms of option agreements)(2)
10.2 -- Form of Non-Compete, Confidentiality and Registration Rights Agreement between the Company and each
stockholder(2)
10.3 -- Form of Employment Agreement between the Company and each employee(2)
10.4 -- Form of Amended and Restated Employment Agreement between the Company and Henri-Claude A. Bailly
10.5 -- Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25, 1991(2)
10.6 -- First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated
February 1993(2)
10.7 -- Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated
December 12, 1994(2)
10.8 -- Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8, 1996(2)
10.9 -- Lease by and between L.C. Fulenwider, Inc. and RCG/Hagler Bailly, Inc. dated December 14, 1994
10.10 -- Lease by and between University Research Park Facilities Corp. and RCG/Hagler Bailly, Inc. dated
April 1, 1995(2)
10.11 -- Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 17, 1995(2)
10.12 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company, dated as of June 20, 1996(2)
10.13 -- Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated as of August 1, 1996(2)
10.14 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company, dated as of November 12, 1996(2)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
10.15 -- Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated May 26, 1995(2)
10.16 -- Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 26, 1995(2)
10.17 -- 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International, Inc.,
dated May 25, 1995(2)
11.1 -- Earnings Per Share Calculation
21 -- Subsidiaries (1)
23.1 -- Consents of Ernst & Young LLP, independent auditors (included on pages II-6 and II-7 of the
Registration Statement)
23.2 -- Consent of Pepper, Hamilton & Scheetz LLP (included in Exhibit 5.1)
24 -- Powers of Attorney (included on Signature Pages)(2)
27.1 -- Financial Data Schedule for December 31, 1996
27.2 -- Financial Data Schedule for March 31, 1997
</TABLE>
- ------------------
(1) Included with the Company's Registration Statement on Form S-1 (No.
333-22207)
(2) Included in Amendment No. 1 to the Company's Registration Statement as Form
S-1 (No. 333-2207).
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Schedule No. Description
- --------------------------------------------------------------------------------
All other schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the underwriting agreement,
certificates in such denomination and registered in such names or required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report on the consolidated financial statements of Hagler Bailly,
Inc., dated March 25, 1997, in Amendment No. 2 to the Registration Statement
(Form S-1 No. 333-22207) and related Prospectus of Hagler Bailly, Inc. for the
registration of shares of its common stock.
/s/ Ernst & Young LLP
Washington, D.C.
June 11, 1997
II-5
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report on the financial statements of RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.), dated February 10, 1997, in Amendment No.
2 to the Registration Statement (Form S-1 No. 333-22207) and related Prospectus
of Hagler Bailly, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Washington, D.C.
June 11, 1997
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Arlington, Virginia, on the 11th day of June, 1997.
HAGLER BAILLY, INC.
By: /s/ Henri-Claude A. Bailly
---------------------------------------
Henri-Claude A. Bailly
President, Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 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/ Henri-Claude A. Bailly Chief Executive Officer and President; June 11, 1997
- ------------------------------------ Director (principal executive officer)
Henri-Claude A. Bailly
/s/ Daniel M. Rouse Vice President, Chief Financial Officer June 11, 1997
- ------------------------------------ and Treasurer (principal financial officer
Daniel M. Rouse and principal accounting officer)
* Director June 11, 1997
- ------------------------------------
Vinod K. Dar
* Director June 11, 1997
- ------------------------------------
Alain M. Streicher
* Director June 11, 1997
- ------------------------------------
Michael D. Yokell
* Director June 11, 1997
- ------------------------------------
Fred M. Schriever
* Director June 11, 1997
- ------------------------------------
Robert W. Fri
*By: /s/ Henri-Claude A. Bailly
-------------------------------
Henri-Claude A. Bailly
Attorney-in-fact
/s/ Daniel M. Rouse
-------------------------------
Daniel M. Rouse
Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement by and between the Company and the Underwriters
2.1 -- Sale Agreement between RCG International, Inc. and Hagler Bailly Consulting, Inc.(2)
3.1 -- Amended and Restated Certificate of Incorporation of the Company(2)
3.2 -- By-Laws of the Company(2)
4.1 -- Specimen Stock Certificate
5.1 -- Opinion of Pepper, Hamilton & Scheetz LLP
10.1 -- Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan (including forms of option agreements)(2)
10.2 -- Form of Non-Compete, Confidentiality and Registration Rights Agreement between the Company
and each stockholder(2)
10.3 -- Form of Employment Agreement between the Company and each employee(2)
10.4 -- Form of Amended and Restated Employment Agreement between the Company and Henri-Claude A.
Bailly
10.5 -- Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25,
1991(2)
10.6 -- First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated February, 1993(2)
10.7 -- Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated December 12, 1994(2)
10.8 -- Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8,
1996(2)
10.9 -- Lease by and between L.C. Fulenwider, Inc. and RCG/Hagler Bailly, Inc. dated December 14,
1994
10.10 -- Lease by and between University Research Park Facilities Corp. and RCG/Hagler Bailly, Inc.
dated April 1, 1995(2)
10.11 -- Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated May 17, 1995(2)
10.12 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of June 20, 1996(2)
10.13 -- Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated as of August 1, 1996(2)
10.14 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of November 12, 1996(2)
10.15 -- Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 26, 1995(2)
10.16 -- Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated May 26, 1995(2)
10.17 -- 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International,
Inc., dated May 25, 1995(2)
11.1 -- Earnings Per Share Calculation
21 -- Subsidiaries (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C> <C>
23.1 -- Consents of Ernst & Young LLP, independent auditors (included on pages II-6 and II-7 of the
Registration Statement)
23.2 -- Consent of Pepper, Hamilton & Scheetz LLP (included in Exhibit 5.1)
24 -- Powers of Attorney (included on Signature Pages)(2)
27.1 -- Financial Data Schedule for December 31, 1996
27.2 -- Financial Data Schedule for March 31, 1997
</TABLE>
- ------------------
(1) Included with the Company's Registration Statement on Form S-1 (No.
333-22207)
(2) Included in Amendment No. 1 to the Company's Registration Statement on Form
S-1 (No. 333-2207).
3,150,000 Shares
HAGLER BAILLY, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
Hagler Bailly, Inc., a Delaware corporation (the "Company"),
and the Selling Stockholders named in Schedule II hereto (collectively, the
"Selling Stockholders"), severally propose to sell an aggregate of 3,150,000
shares of common stock, par value $0.01, of the Company (the "Firm Shares"), to
the several underwriters named in Schedule I hereto (the "Underwriters"). The
Firm Shares consist of 2,500,000 shares to be issued and sold by the Company and
650,000 outstanding shares to be sold by the Selling Stockholders. The Selling
Stockholders also propose to issue and sell to the several Underwriters not more
than 472,500 additional shares of common stock, par value $0.01, of the Company
(the "Additional Shares"), if requested by the Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the "Shares". The shares of common stock of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "Common Stock". The Company and the Selling
Stockholders are hereinafter collectively called the "Sellers".
1. Registration Statement and Prospectus. The Company
has prepared and filed with the Securities and Exchange Commission
DRAFT: June 6, 1997
<PAGE>
(the "Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively called the "Act"), a registration statement on Form S-1 (File No.
333-22207) including a prospectus relating to the Shares, which may be amended.
The registration statement, as amended at the time when it becomes effective,
including a registration statement (if any) filed pursuant to Rule 462(b) under
the Act increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to
as the Registration Statement; and the prospectus in the form first used to
confirm sales of the Shares is hereinafter referred to collectively as the
"Prospectus."
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, (i) the Company agrees to issue and sell 2,500,000 Firm
Shares, (ii) each Selling Stockholder agrees, severally and not jointly, to sell
the number of Firm Shares set forth opposite such Selling Stockholder's name in
Schedule II hereto and (iii) each Underwriter agrees, severally and not jointly,
to purchase from each Seller at a price per share of $______ (the "Purchase
Price"), the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto
bears to the total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, (i) each of the
Selling Stockholders agrees severally and not jointly to issue and sell up to
the number of Additional Shares set forth opposite such Selling Stockholder's
name in Schedule II hereto and (ii) the Underwriters shall have the right to
purchase, severally and not jointly, up to an aggregate of 472,500 Additional
Shares from the Selling Stockholders at the Purchase Price. Additional Shares
may be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. The Underwriters may exercise
their right to purchase Additional Shares in whole or in part from time to time
by giving written notice thereof to the Selling Stockholders within 30 days
after the date of this Agreement. You shall give any such notice on behalf of
the Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof. The date specified in any such notice shall be
DRAFT: June 6, 1997
-2-
<PAGE>
a business day (i) no earlier than the Closing Date (as hereinafter defined),
(ii) no later than ten business days after such notice has been given and (iii)
no earlier than two business days after such notice has been given. The maximum
number of Additional Shares to be purchased from each such Selling Stockholder
is set forth on Schedule II hereto. If less than the maximum number of
Additional Shares are to be purchased hereunder, such Selling Stockholders,
severally and not jointly, agree to sell to the Underwriters the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased by the Underwriters as the maximum number of
Additional Shares to be sold by each of such Selling Stockholders bears to the
total maximum number of Additional Shares. If any Additional Shares are to be
purchased, each Underwriter, severally and not jointly, agrees to purchase from
the Selling Stockholders the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares to be purchased from
such Selling Stockholder as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I bears to the total number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the
Company shall, concurrently with the execution of this Agreement, deliver an
agreement executed by each of the directors and officers of the Company who is
not a Selling Stockholder pursuant to which each such person agrees, not to (a)
directly or indirectly offer, pledge, sell, contract to sell, grant any option
to purchase, sell any option or contract to purchase, grant any warrant for the
sale of or otherwise dispose of any common stock of the Company (including
without limitation, shares of common stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Commission and shares of common stock which may be issued
upon exercise of a stock option or warrant) or any securities convertible into
or exercisable or exchangeable for such common stock or (b) in any other manner
(including by way of swap) transfer all or a portion of the economic
consequences associated with the ownership of any such common stock, except to
the Underwriters pursuant to this Agreement, for a period of 180 days after the
date of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. Notwithstanding the foregoing, during such
period (i) the Company may grant stock options pursuant to the Company's
existing stock option plan and (ii) the Company may issue shares of its common
stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof.
DRAFT: June 6, 1997
-3-
<PAGE>
3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the effective date of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), following the date of the initial public offering (the "Closing
Date"), at the offices of Cahill Gordon & Reindel in New York, New York or at
such other place as you shall designate. The Closing Date and the location of
delivery of and the form of payment for the Firm Shares may be varied by
agreement between you and the Sellers.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the offices of
Cahill Gordon & Reindel in New York, New York or at such other place as you
shall designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of payment for such Additional Shares may be varied by agreement
between you and the Company.
Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or an Option Closing Date, as
the case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment of the Purchase Price therefor by wire
transfer payable in New York Clearing House or similar next day funds to the
order of the Company or the Custodian (as defined herein), as the case may be.
5. Agreements of the Company. The Company agrees with
you:
DRAFT: June 6, 1997
-4-
<PAGE>
(a) To use its best efforts to cause the Registration
Statement to become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment to it becomes
effective, (ii) of the receipt of comments from the Commission relating
to the Registration Statement, (iii) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction,
or the initiation of any proceeding for such purposes, and (v) of the
happening of any event during the period referred to in paragraph (e)
below which makes any statement of a material fact made in the
Registration Statement or the Prospectus untrue or which requires the
making of any additions to or changes in the Registration Statement or
the Prospectus in order to make the statements therein not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make
every reasonable effort to obtain the withdrawal or lifting of such
order at the earliest possible time.
(c) To furnish to you, without charge, three signed copies of
the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits, and to furnish to you and
each Underwriter designated by you such number of conformed copies of
the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or to make any amendment or supplement to the
Prospectus, of which you shall not previously have been advised or to
which you shall have reasonably objected in writing; and to prepare and
file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the Prospectus
which in the opinion of counsel for the Underwriters is necessary or
required in connection with the distribution of the Shares by you, and
to use its best efforts to cause the same to become promptly effective.
DRAFT: June 6, 1997
-5-
<PAGE>
(e) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as in the
reasonable opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an
Underwriter or a dealer, to furnish to each Underwriter and dealer as
many copies of the Prospectus (and of any amendment or supplement to
the Prospectus) as such Underwriter or dealer may reasonably request.
(f) If during the period specified in paragraph (e) any event
shall occur as a result of which, in the reasonable opinion of counsel
for the Underwriters it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus
to comply with any law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented,
will not in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with law, and to
furnish to each Underwriter and to such dealers as you shall specify,
such number of copies thereof as such Underwriter or dealers may
reasonably request.
(g) Prior to any public offering of the Shares, to cooperate
with you and your counsel in connection with the registration or
qualification of the Shares for offer and sale by the several
Underwriters and by dealers under the state securities or Blue Sky laws
of such jurisdictions as you may request, to continue such
qualification in effect so long as required for distribution of the
Shares and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification.
(h) To mail and make generally available to its stockholders
as soon as reasonably practicable an earnings statement covering a
period of at least twelve months after the effective date (as defined
in Rule 158 of the Act) of the Registration Statement (but in no event
commencing later than 90 days after such date) which shall satisfy the
provisions of Section 11(a) of the Act, and to advise you in writing
when such statement has been so made available.
(i) During the period of five years after the date of
this Agreement, (i) to mail as soon as reasonably practicable
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<PAGE>
after the end of each fiscal year to the record holders of its Common
Stock a financial report of the Company and its subsidiaries on a
consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to
include a consolidated balance sheet, a consolidated statement of
operations, a consolidated statement of cash flows and a consolidated
statement of shareholders' equity as of the end of and for such fiscal
year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants,
and (ii) to mail and make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly
period of each fiscal year) to such holders, an unaudited consolidated
balance sheet, an unaudited consolidated statement of operations and an
unaudited consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of
and for such period, and for the period from the beginning of such year
to the close of such quarterly period, together with comparable
information for the corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish
to you as soon as available a copy of each report or other publicly
available information of the Company mailed to the holders of Common
Stock or filed with the Commission and such other publicly available
information concerning the Company and its subsidiaries as you may
reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i)
the preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits),
each preliminary prospectus and all amendments and supplements to any
of them prior to or during the period specified in paragraph (e), (ii)
the printing and delivery of the Prospectus and all amendments or
supplements to it during the period specified in paragraph (e), (iii)
the printing and delivery of this Agreement, the Preliminary and
Supplemental Blue Sky Memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection
with the offering of the Shares (including in each case any
disbursements of counsel for the Underwriters relating to such printing
and delivery), (iv) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several
states (including in each case the fees and disbursements of counsel
for the Underwriters relating to such registration or qualification and
memoranda relating thereto), (v) filings and
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<PAGE>
clearance with the National Association of Securities Dealers, Inc. in
connection with the offering, (vi) the listing of the Shares on the
Nasdaq National Market (the "NNM"), (vii) furnishing such copies of the
Registration Statement, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold and (viii) the performance by the Company of
its other obligations under this Agreement.
(l) To use its best efforts to maintain the inclusion of the
Common Stock on the NNM (or on a national securities exchange) for a
period of five years after the effective date of the Registration
Statement.
(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date or any Option Closing Date, as
the case may be, and to satisfy all conditions precedent to the
delivery of the Shares.
6. Representations and Warranties of the Company. The
Company represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph (b)
do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
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<PAGE>
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, and each
Registration Statement filed pursuant to Rule 462(b) under the Act, if
any, complied when so filed in all material respects with the Act; and
did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Company and each of its significant subsidiaries as
defined in Rule 1-02(w) of Regulation S-X (the "Subsidiaries") has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as it is
currently being conducted and to own, lease and operate its properties,
and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
(e) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's Subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights which have not been
waived; and the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance
of such Shares will not be subject to any preemptive or similar rights.
(g) The authorized capital stock of the Company,
including the Common Stock, conforms as to legal matters in
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<PAGE>
all material respects to the description thereof contained in
the Prospectus.
(h) Neither the Company nor any of its Subsidiaries is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the
business of the Company and its Subsidiaries, taken as a whole, to
which the Company or any of its Subsidiaries is a party or by which it
or any of its Subsidiaries or their respective property is bound except
for such defaults which have been waived or which would not,
individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require
any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body which
has not been obtained (except as such may be required under the
securities or Blue Sky laws of the various states) and will not
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of the Company or any of
its Subsidiaries or any agreement, indenture or other instrument to
which it or any of its Subsidiaries is a party or by which it or any of
its Subsidiaries or their respective property is bound, or violate or
conflict with any laws, administrative regulations or rulings or court
decrees applicable to the Company, any of its Subsidiaries or their
respective property.
(j) Except as otherwise set forth in the Prospectus, there are
no material legal or governmental proceedings pending to which the
Company or any of its Subsidiaries is a party or of which any of their
respective property is the subject, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated. No
contract or document of a character required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement is not so described or filed as required.
(k) Neither the Company nor any of its Subsidiaries has
violated any foreign, federal, state or local law or
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<PAGE>
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees
nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules
and regulations promulgated thereunder, which in each case might result
in any material adverse change in the business, prospects, financial
condition or results of operation of the Company and its Subsidiaries,
taken as a whole.
(l) The Company and each of its Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business; the
Company and each of its Subsidiaries has fulfilled and performed all of
its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except
as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company or any of its
Subsidiaries.
(m) Except as otherwise set forth in the Prospectus or such as
are not material to the business, prospects, financial condition or
results of operation of the Company and its Subsidiaries, taken as a
whole, the Company and each of its Subsidiaries has good and marketable
title, free and clear of all liens, claims, encumbrances and
restrictions except liens for taxes not yet due and payable, to all
property and assets described in the Registration Statement as being
owned by it. All leases to which the Company or any of its Subsidiaries
is a party are valid and binding and no default has occurred or is
continuing thereunder which might result in any material adverse change
in the business, prospects, financial condition or results of operation
of the Company and its Subsidiaries, taken as a whole, and the Company
and its Subsidiaries enjoy peaceful and undisturbed possession under
all such leases to which any of them is a party as lessee with such
exceptions as do not materially interfere with the use made by the
Company or such Subsidiary.
(n) The Company and each of its Subsidiaries maintains
reasonably adequate insurance.
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<PAGE>
(o) Ernst & Young LLP are independent public accountants
with respect to the Company as required by the Act.
(p) The Company owns or possesses adequate rights with respect
to the use of all trade secrets, know-how, propriety techniques,
including processes and substances, trademarks, service marks, trade
names and copyrights (collectively, "Intellectual Property") described
or referred to in the Prospectus as owned or used by it, or which are
necessary for the conduct of its business as described in the
Prospectus, other than Intellectual Property the lack of which would
not reasonably be expected to result in any material adverse change in
the business, prospects, financial condition or results of operation of
the Company and no such rights as are material to the business and
prospects of the Company expire or are subject to termination at the
election of another party without cause or the Company's consent at a
time or under circumstances which would result in any material adverse
change in the business, prospects, financial condition or results of
operation of the Company. The Company has not received any notice of
infringement of or conflict with asserted rights of others with respect
to any patents, patent rights, inventions, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks,
service marks, trade names or copyrights which would result in any
material adverse change in the business, prospects, financial condition
or results of operation of the Company.
(q) Neither the Company nor any of its Subsidiaries is
involved in any labor dispute which, either individually or in the
aggregate, would reasonably be expected to result in any material
adverse change in the business, prospects, financial condition or
results of operation of the Company or any of its Subsidiaries, nor, to
the knowledge of the Company, is any such dispute threatened.
(r) The financial statements, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the
consolidated or unconsolidated, as the case may be, financial position,
results of operations and changes in financial position of the Company
and its Subsidiaries on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as
disclosed therein; and the other financial
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<PAGE>
and statistical information and data set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto)
is, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and
records of the Company. The pro forma financial statements and data set
forth in the Prospectus presents fairly in all material respects the
information shown therein, has been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma
information, has been properly compiled on the pro forma basis
described therein, and in the opinion of the Company the assumptions
used in the preparation thereof are reasonable and the adjustments
therein are appropriate under the circumstances.
(s) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(t) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of
the Company, except the Selling Stockholders with respect to the
Registration Statement.
(u) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(v) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act, to register the Common Stock, has
filed an application to list the Shares on the NNM, and has received
notification that the listing has been approved, subject to notice of
issuance.
(w) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in, the
Company or any Subsidiary thereof except as otherwise disclosed in the
Prospectus.
(x) Each of the Company and its Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with
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<PAGE>
generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(y) All material tax returns required to be filed by each of
the Company and its Subsidiaries in any jurisdiction have been filed,
other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or its Subsidiaries
have been paid, other than those being contested in good faith and for
which adequate reserves have been provided.
7. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder severally and not jointly represents and
warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and
has, and on the Closing Date (and Option Closing Date, if applicable)
will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to
this Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(c) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority to enter into this
Agreement and the Custody Agreement between the Selling Stockholders
and State Street Bank and Trust Company, as Custodian (the "Custody
Agreement"), and to sell, assign, transfer and deliver such Shares in
the manner provided herein and therein, and this Agreement and the
Custody Agreement have been duly authorized, executed and delivered by
such Selling Stockholder and each of this Agreement and the Custody
Agreement is a valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by applicable law.
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<PAGE>
(d) The power of attorney signed by such Selling Stockholder
appointing Henri-Claude A. Bailly and Daniel M. Rouse, or either one of
them, as his attorney-in-fact to the extent set forth therein with
regard to the transactions contemplated hereby and by the Registration
Statement and the Custody Agreement has been duly authorized, executed
and delivered by or on behalf of such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder enforceable in
accordance with its terms, and, pursuant to such power of attorney,
such Selling Stockholder has authorized Henri-Claude A. Bailly and
Daniel M. Rouse, or either one of them, to execute and deliver on his
behalf this Agreement and any other document necessary or desirable in
connection with the transactions contemplated hereby and to deliver the
Shares to be sold by such Selling Stockholder pursuant to this
Agreement.
(e) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement, and other than as permitted by the Act,
such Selling Stockholder has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the Shares.
(f) The execution, delivery and performance of this Agreement
by such Selling Stockholder, compliance by such Selling Stockholder
with all the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be
required under the Act, state securities laws or Blue Sky laws) and
will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of such
Selling Stockholder, if not an individual, or any agreement, indenture
or other instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder or property of such Selling Stockholder
is bound, or violate or conflict with any laws, administrative
regulation or ruling or court decree applicable to such Selling
Stockholder or property of such Selling Stockholder.
(g) Each of the Registration Statement and Prospectus
does not contain an untrue statement of a material fact or
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<PAGE>
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and the
preliminary prospectus does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(h) At any time during the period described in paragraph 5(e)
hereof, if there is any change in the information referred to in
paragraph 7(g) above, such Selling Stockholder will immediately notify
you of such change.
8. Indemnification. (a) The Company and each Selling
Stockholder, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages, liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount equal to the
aggregate purchase price received by such Selling Stockholder from the sale of
such Selling Stockholder's Shares hereunder; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages and liabilities and judgments purchased Shares, or
any person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended and supplemented) would have cured
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<PAGE>
the defect giving rise to such loss, claim, damage, liability or
judgment.
(b) In case any action shall be brought against any
Underwriter or any person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company and the Selling Stockholders, such Underwriter shall
promptly notify the Company and the Selling Stockholders in writing and the
Company and the Selling Stockholders shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses. Any Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the employment of such counsel has been specifically authorized in writing
by the Company, (ii) the Company and the Selling Stockholders shall have failed
to assume the defense and employ counsel or (iii) the named parties to any such
action (including any impleaded parties) include both such Underwriter or such
controlling person and the Company or any Selling Stockholder, as the case may
be, and such Underwriter or such controlling person shall have been advised by
such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Company or the
Selling Stockholders, as the case may be, (in which case the Company and the
Selling Stockholders shall not have the right to assume the defense of such
action on behalf of such Underwriter or such controlling person, it being
understood, however, that the Company and the Selling Stockholders shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
Underwriters and controlling persons, which firm shall be designated in writing
by Donaldson, Lufkin & Jenrette Securities Corporation and shall be Cahill
Gordon & Reindel or another firm reasonably acceptable to the Company and that
all such fees and expenses shall be reimbursed as they are incurred). A Seller
shall not be liable for any settlement of any such action effected without the
written consent of such Seller but if settled with the written consent of such
Seller, such Seller agrees to indemnify and hold harmless any Underwriter and
any such controlling person from and against any loss or liability by reason of
such settlement. Notwithstanding the immediately preceding sentence, if in any
case where the fees and expenses of counsel are
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<PAGE>
at the expense of the indemnifying party and an indemnified party shall have
requested the indemnifying party to reimburse the indemnified party for such
fees and expenses of counsel as incurred, such indemnifying party agrees that it
shall be liable for any settlement of any action effected without its written
consent if (i) such settlement is entered into more than ten business days after
the receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall have failed to reimburse the indemnified party in
accordance with such request for reimbursement prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, controlling such Selling Stockholder within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Sellers to each Underwriter but
only with reference to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In case
any action shall be brought against the Company, any of its directors, any such
officer or any person controlling the Company or any Selling Stockholder or any
person controlling such Selling Stockholder based on the Registration Statement,
the Prospectus or any preliminary prospectus and in respect of which indemnity
may be sought against any Underwriter, the Underwriter shall have the rights and
duties given to the Sellers (except that if any Seller shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and the
Company, its directors, any such officers and any person controlling the Company
and the Selling Stockholders and any person controlling such Selling
Stockholders shall have the rights and duties given to the Underwriter, by
Section 8(b) hereof.
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<PAGE>
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Sellers and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the Sellers
and the Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by the
Sellers, and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
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<PAGE>
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(e) Each Seller hereby designates Hagler Bailly, Inc., 1530
Wilson Boulevard, Suite 900, Arlington, Virginia 22209 (a Delaware corporation)
as its authorized agent, upon which process may be served in any action, suit or
proceeding which may be instituted in any state or federal court in the State of
New York by any Underwriter or person controlling an Underwriter asserting a
claim for indemnification or contribution under or pursuant to this Section 8,
and each Seller will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall be
sent or given to such Seller, at the address for notices specified in Section 13
hereof.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing
Date.
(b) The Registration Statement shall have become effective not
later than 5:00 P.M.(and in the case of a Registration Statement filed
under Rule 462(b) of the Act, not later than 10:00 p.m.), New York City
time, on the date of this Agreement or at such later date and time as
you may approve in writing, and at the Closing Date no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
commenced or shall be pending before or contemplated by the Commission.
(c) (i) Since the date of the latest balance sheet included in
the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any
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<PAGE>
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, affairs or
business, whether or not arising in the ordinary course of business, of
the Company, (ii) since the date of the latest balance sheet included
in the Registration Statement and the Prospectus there shall not have
been any change, or any development involving a prospective material
adverse change, in the capital stock or in the long-term debt of the
Company from that set forth in the Registration Statement and
Prospectus, (iii) the Company and its Subsidiaries shall have no
liability or obligation, direct or contingent, which is material to the
Company and its Subsidiaries, taken as a whole, other than those
reflected in or contemplated by the Registration Statement and the
Prospectus and (iv) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by Henri-Claude A. Bailly
and Daniel M. Rouse, in their capacities as the President, Chief
Executive Officer and Chairman of the Board and Vice President, Chief
Financial Officer and Treasurer of the Company, confirming the matters
set forth in paragraphs (a), (b), and (c) of this Section 9.
(d) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as of
the Closing Date and you shall have received a certificate to such
effect, dated the Closing Date, on behalf of each Selling Stockholder.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the
Closing Date, of Pepper, Hamilton & Scheetz, LLP, counsel for the
Company, to the effect that:
(i) the Company and each of its Subsidiaries has
been duly incorporated, is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority
required to carry on its business as it is currently being
conducted and to own, lease and operate its properties;
(ii) the Company and each of its Subsidiaries is
duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing
of property requires such qualification, except where the
failure to be so
DRAFT: June 6, 1997
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<PAGE>
qualified would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole;
(iii) all of the outstanding shares of capital stock
of, or other ownership interests in, each of the Company's
Subsidiaries have been duly and validly authorized and issued
and are fully paid and non-assessable, and are owned by the
Company, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature;
(iv) all the outstanding shares of Common Stock
(including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any statutory
preemptive rights or, to the knowledge of such counsel not
subject to any contractual preemptive or similar rights which
have not been waived;
(v) the Shares to be issued and sold by the Company
hereunder have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor as
provided by this Agreement, will have been validly issued and
will be fully paid and non-assessable, and the issuance of
such Shares is not subject to any preemptive or similar
rights;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance
with its terms (except as rights to indemnity and contribution
hereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights generally and
by general equitable principles);
(vii) the authorized capital stock of the Company,
including the Common Stock, conforms as to legal matters in
all material respects to the description thereof contained in
the Prospectus;
(viii) such counsel has been advised by the Division
of Corporate Finance of the Commission that the Registration
Statement has become effective under the Act and, to the
knowledge of such counsel, no stop order suspending its
effectiveness has been issued and no
DRAFT: June 6, 1997
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<PAGE>
proceedings for that purpose are pending before or
contemplated by the Commission;
(ix) the statements under the captions "Risk Factors
- Certain Anti-Takeover Effects," "Shares Eligible for Future
Sale," "Description of Capital Stock," "Management - Long-Term
Incentive Plan," "Management - 401K Savings Plan" and
"Underwriting" in the Prospectus and Items 14 and 15 of Part
II of the Registration Statement insofar as such statements
constitute a summary of legal matters documents or proceedings
referred to therein, fairly present in all material respects
the information called for with respect to such legal matters,
documents and proceedings;
(x) neither the Company nor any of its Subsidiaries
is in violation of its respective charter or by-laws and, to
the best of such counsel's knowledge after due inquiry,
neither the Company nor any of its Subsidiaries is in default
in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence
of indebtedness or in any other agreement, indenture or
instrument material to the conduct of the business of the
Company and its Subsidiaries, taken as a whole, to which the
Company or any of its Subsidiaries is a party or by which it
or any of its Subsidiaries or their respective property is
bound except for such violation or default which has been
waived or which would not have a material adverse effect on
the Company and its Subsidiaries, taken as a whole;
(xi) the execution, delivery and performance of this
Agreement by the Company, compliance by the Company with all
the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body which has not
been obtained (except as such may be required under the Act or
other securities or Blue Sky laws) and will not conflict with
or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of the Company or
any of its Subsidiaries or any material agreement, indenture
or other instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries or their respective properties are bound, or to
the knowledge of such counsel violate or conflict with any
laws, administrative regulations or
DRAFT: June 6, 1997
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<PAGE>
rulings or court decrees applicable to the Company or any
of its Subsidiaries or their respective properties;
(xii) after due inquiry, such counsel does not know
of any legal or governmental proceeding pending or threatened
to which the Company or any of its Subsidiaries is a party or
to which any of their respective property is subject which is
required to be described in the Registration Statement or the
Prospectus and is not so described, or of any contract or
other document which is required to be described in the
Registration Statement or the Prospectus or is required to be
filed as an exhibit to the Registration Statement which is not
described or filed as required;
(xiii) to the best of such counsel's knowledge, after
due inquiry, the Company and each of its Subsidiaries has such
permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws,
as are necessary to own, lease and operate its respective
properties and to conduct its business in the manner described
in the Prospectus; to the best of such counsel's knowledge,
after due inquiry, the Company and each of its Subsidiaries
has fulfilled and performed all of its material obligations
with respect to such permits and no event has occurred which
allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be
set forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of its
Subsidiaries;
(xiv) assuming the application of the net proceeds to
the sale of the Shares as described in the Prospectus under
the caption "Use of Proceeds", the Company is not an
"investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(xv) to the best of such counsel's knowledge, after
due inquiry, no holder of any security of the Company has any
right to require registration of shares of Common Stock or any
other security of the Company;
DRAFT: June 6, 1997
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<PAGE>
(xvi) to the best of such counsel's knowledge, after
due inquiry, all leases to which the Company or any of its
Subsidiaries is a party are valid and binding and no default
has occurred or is continuing thereunder, which is reasonably
likely to result in any material adverse change in the
business, prospects, financial condition or results of
operation of the Company and its Subsidiaries taken as a
whole;
(xvii) (1) the Registration Statement (including any
Registration Statement filed under 462(b) of the Act, if any)
and the Prospectus and any supplement or amendment thereto
(except for financial statements, notes or schedules thereto
and other financial or statistical data and supplemental
schedules included therein or omitted therefrom as to which no
opinion need be expressed) comply as to form in all material
respects with the Act, and (2) such counsel shall advise the
Underwriters that they have participated in the preparation of
the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company, and the Underwriters' representatives and
counsel at which the contents of the Registration Statement,
the Prospectus and related matters were discussed and,
although such counsel has not passed upon or assumed any
responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, and although, except as provided in their opinion,
such counsel has not undertaken to verify independently the
accuracy or completeness of the statements in the Registration
Statement and the Prospectus and, therefore, would not
necessarily have become aware of any material misstatement of
fact or omission to state a material fact on the basis of and
subject to the foregoing such counsel does not believe that
either the Registration Statement, as of its effective date,
or the Prospectus, as of its date of issue and as of the date
of such opinion (other than the financial statements, notes or
schedules thereto and other financial or statistical data and
supplemental schedules included therein or omitted therefrom,
as to which such counsel need express no belief), contained or
contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein
or necessary to make the statements
DRAFT: June 6, 1997
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<PAGE>
therein, in light of the circumstances under which they
were made, not misleading.
Such counsel shall also advise the Underwriters that no
attorney currently practicing with such counsel's firm has
been engaged to give substantive legal attention to, or
represent the Company in connection with, the violation of any
law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the
subsidiaries or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of
the subsidiaries which, if adversely determined, would have a
material adverse effect on the operations, business,
properties or assets of the Company and the subsidiaries,
taken as a whole, other than as set forth in the Prospectus.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the
Closing Date of Zuckerman, Spaeder, Goldstein, Taylor & Volker, L.L.P.
and/or Smart & Thevenet, P.C., counsel for the Selling Stockholders, to
the effect that:
(i) this Agreement has been duly authorized,
executed and delivered by the Selling Stockholder and is a
valid and binding agreement of the Selling Stockholder
enforceable in accordance with its terms (except as rights to
indemnity and contribution hereunder may be limited by
applicable law or public policy and except as the enforcement
thereof may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by
general equitable principles);
(ii) the execution, delivery and performance of this
Agreement by the Selling Stockholder, compliance by the
Selling Stockholder with all the provisions hereof and the
consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other
governmental body (except such as may be required under the
Act or other securities or Blue Sky laws) and will not
conflict with or constitute a breach of any material
agreement, indenture or other instrument to which the Selling
Stockholder is a party or other instrument to which the
Selling Stockholder is a party or
DRAFT: June 6, 1997
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<PAGE>
by which the Selling Stockholder or its properties are bound,
or to the knowledge of such counsel violate or conflict with
any laws, administrative regulations or rulings or court
decrees applicable to the Selling Stockholder or its
properties (other than federal or state securities or blue sky
laws, as to which such counsel need not opine);
(iii) the Custody Agreement has been duly authorized,
executed and delivered by each Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally and by general equitable principles;
(iv) each Selling Stockholder has full legal right,
power and authority, and any approval required by law (other
than any approval imposed by the applicable state securities
and Blue Sky laws) to sell, assign, transfer and deliver the
Shares to be sold by him in the manner provided in this
Agreement and the Custody Agreement;
(v) each Selling Stockholder has good and clear
title to the certificates for the Shares to be sold by him and
upon delivery thereof, pursuant hereto and payment therefor,
good and clear title will pass to the Underwriters, severally,
free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever; and
(vi) the power of attorney signed by each Selling
Stockholder appointing Henri-Claude A. Bailly and Daniel M.
Rouse, or either of them, as his attorney-in-fact to the
extent set forth therein with regard to the transactions
contemplated hereby and by the Registration Statement has been
duly authorized, executed and delivered by or on behalf of
each Selling Stockholder and are valid and binding instruments
of such Selling Stockholder enforceable in accordance with its
terms, and pursuant to such power of attorney, each of the
Selling Stockholders has authorized Henri-Claude A. Bailly and
Daniel M. Rouse, or either of them, to execute and deliver on
their behalf this Agreement and any other document necessary
or desirable in connection with
DRAFT: June 6, 1997
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<PAGE>
transactions contemplated hereby and to deliver the Shares to
be sold by them pursuant to this Agreement.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Cahill Gordon & Reindel, counsel for the
Underwriters, as to the matters referred to in clauses (v), (vi),
(vii), (viii), (ix) (but only with respect to the statements under the
captions "Description of Capital Stock" and "Underwriting") and
(xviii)(1). In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the
independent public accountants of the Company and your representatives
at which the contents of the Registration Statement and Prospectus and
related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement and the Prospectus, on the basis of the
foregoing (relying as to materiality to the extent we deemed necessary
upon the opinions of officers and other representatives of the
Company), no facts have come to the attention of such counsel which
lead them to believe that the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as
amended or supplemented, if applicable (in each case except for
financial statements, notes or schedules thereto and other financial or
statistical data and supplemental schedules included therein or omitted
therefrom, as aforesaid), as of its date contained an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(h) You shall have received a letter on and as of the Closing
Date, in form and substance satisfactory to you, from Ernst & Young
LLP, independent public accountants, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus and substantially in the form
and substance of the letter delivered to you by Ernst & Young LLP on
the date of this Agreement.
(i) The Company and the Selling Stockholders shall not
have failed at or prior to the Closing Date to perform or
DRAFT: June 6, 1997
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<PAGE>
comply with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing
Date.
(j) You shall have received on the Closing Date, a certificate
of each Selling Stockholder who is not a U.S. Person to the effect that
such Selling Stockholder is not a U.S. Person (as defined under
applicable U.S. federal tax legislation), which certificate may be in
the form of a properly completed and executed United States Treasury
Department Form W-8 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
10. Effective Date of Agreement and Termination. This
Agreement shall become effective upon the later of (i) execution of
this Agreement and (ii) when notification of the effectiveness of
the Registration Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Sellers if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Company and Subsidiaries, taken as a whole, or
the earnings, affairs, or business of the Company and its Subsidiaries, taken as
a whole, whether or not arising in the ordinary course of business, which would,
in your judgment, make it impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the NNM or limitation on prices for securities on any such
exchange or the NNM, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute,
DRAFT: June 6, 1997
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<PAGE>
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business or operations of the Company or any of its Subsidiaries,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares, or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters and arrangements satisfactory to you and the
applicable Sellers for purchase of such Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the applicable Sellers. In any such case
which does not result in termination of this Agreement, either you or the
Sellers shall have the right to postpone the Closing Date or the applicable
Option Closing Date, as the case may be, but in no event for longer than seven
days, in order that the required changes, if any, in the
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<PAGE>
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
11. Agreements of the Selling Stockholders. Each
Selling Stockholder severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes
with respect to the Shares to be sold by such Selling
Stockholder; and
(b) To take all reasonable actions (i) in cooperation with the
Company and the Underwriters to cause the Registration Statement to
become effective at the earliest possible time, (ii) to do and perform
all things to be done and performed under this Agreement prior to the
Closing Date and (iii) to satisfy all conditions precedent to the
delivery of the Shares pursuant to this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to Hagler
Bailly, Inc., 1530 Wilson Boulevard, Suite 900, Arlington, VA 22209, Attention:
Henri-Claude A. Bailly, (b) if to the Selling Stockholders, to Henri-Claude A.
Bailly and Daniel M. Rouse c/o the Company and (c) if to any Underwriter or to
the Representatives or to you, to you c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 140 Broadway, New York, New York 10005, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Selling Stockholders,
the Company, its officers and directors and of the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter or by or on behalf of the Sellers, the
officers or directors of the Company or any controlling person of the Sellers,
(ii) acceptance of the Shares and payment for them hereunder and (iii)
termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Sellers to
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<PAGE>
comply with the terms or to fulfill any of the conditions of this Agreement, the
Sellers agree to reimburse the several Underwriters for all out-of-pocket
expenses (including the fees and disbursements of counsel) reasonably incurred
by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Sellers, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
HAGLER BAILLY, INC.
By:______________________
Name:
Title:
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE II HERETO
By:____________________________
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Montgomery Securities
---------
Total 3,150,000
=========
DRAFT: June 6, 1997
<PAGE>
SCHEDULE II
Selling Stockholders
Maximum Number of
Number of Firm Additional Shares
Name Shares Being Sold Subject to Sale
---- ----------------- -----------------
Henri-Claude A. Bailly
Daniel M. Rouse
Vinod K. Dar
Michael D. Yokell
Alain M. Streicher
Fred M. Schriever
Robert W. Fri
Robert E. Ciliano
Niels O. de Terra
David A. Keith
Jean-Louis Poirer
John R. Armstrong
Steven A. Mitnick
Robert D. Rowe
Elizabeth S. Marcotte
Alex M. Steinbergh
Robin C. Calhoun
Joshua Lipton
Robert S. Raucher
DRAFT: June 6, 1997
<PAGE>
Kent D. Van Liere
Dan M. Violette
Carlos A. Yermoli
------- -------
Total 650,000 472,500
======= =======
DRAFT: June 6, 1997
-2-
<PAGE>
EXHIBIT 4.1
NUMBER HAGLER BAILLY, INC. SHARES
HB
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS AND LEGENDS
CUSIP 405183 10 4
THIS
CERTIFIES
that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
HAGLER BAILLY, INC.
(hereinafter called the Corporation), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile signatures of the Corporation's duly authorized
officers.
Dated:
/s/ Henri-Claude Bailly /s/ Daniel M. Rouse
- --------------------------- ------------------------------
CHAIRMAN, PRESIDENT AND CEO VICE PRESIDENT, CFO, TREASURER
AND SECRETARY
[SEAL]
[On the lower right corner of the face of this certificate the following
language appears]
Countersigned and Registered:
STATE STREET BANK & TRUST COMPANY
( ) TRANSFER AGENT
AND REGISTRAR
By:
AUTHORIZED OFFICER
<PAGE>
HAGLER BAILLY, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ________ Custodian ________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _______________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
[box]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ______________________ X ___________________________________________
X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATSOEVER.
Signature(s) Guaranteed
_______________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
[PEPPER, HAMILTON & SCHEETZ LLP]
June 10, 1997
Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209
Gentlemen:
We have acted as special counsel to Hagler Bailly, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") of a registration
statement (the "Registration Statement") of the Company on Form S-1 (No.
333-22207) under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the proposed issuance and sale of up to
3,150,000 shares (the "Firm Securities") of the Company's common stock, $0.01
par value per share ("Common Stock"), as well as the issuance and sale of up to
an additional 472,500 shares (the "Option Securities"), of the Company's Common
Stock to cover over-allotments. Of such amount, 2,500,000 shares are being
offered by the Company (the "Company Shares") and 1,122,500 (including all of
the Option Securities) are being offered by certain stockholders of the Company
(collectively, the "Selling Stockholder Shares").
In this connection, we have examined the originals or copies, certified or
otherwise identified to our satisfaction, of the Certificate of Incorporation
and the By-Laws of the Company as amended to date, resolutions of the Company's
Board of Directors and such other documents and corporate records relating to
the Company and the proposed issuance and sale of the Firm Securities and the
Option Securities as we have deemed appropriate. The opinion expressed herein is
based exclusively on the applicable provisions of the Delaware General
Corporation Law ("DGCL") as in effect on the date hereof.
On the basis of the foregoing, we are of the opinion that:
<PAGE>
PEPPER, HAMILTON & SCHEETZ LLP
Hagler Bailly, Inc.
Page 2
June 10, 1997
1. The Company Shares, when issued, delivered and paid for in accordance
with the Underwriting Agreement in the form filed as Exhibit 1.1 to the
Registration Statement, will be legally issued, fully paid and non-assessable
under the DGCL; and
2. The Selling Stockholder Shares have been validly issued, and are fully
paid and non-assessable under the DGCL.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus included in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. Such consent
does not constitute a consent under Section 7 of the Act, since we have not
certified any part of such Registration Statement and we do not otherwise come
within the categories of person whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ PEPPER, HAMILTON & SCHEETZ LLP
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated [to be dated as of closing]
_________, 1997 among HAGLER BAILLY, INC., a Delaware corporation ("Company"),
HAGLER BAILLY CONSULTING, INC., a Delaware corporation ("Consulting"), HAGLER
BAILLY SERVICES, INC., a Delaware corporation ("Services") and HENRI-CLAUDE A.
BAILLY ("Executive").
WHEREAS, the Company, Services and Executive entered into an Employment
Agreement on May 25, 1995 with respect to Executive's employment with Company
and Services; and
WHEREAS, Services was formerly named Hagler Bailly Consulting, Inc. and
upon the name change to Services, Consulting, a new subsidiary of the Company,
was formed; and
WHEREAS, Executive is no longer an officer of Services and was elected
Chairman, Managing Director, President and Chief Executive Officer of
Consulting; and
WHEREAS, the Company, Consulting, Services and Executive mutually desire to
amend and restate the original Employment Agreement pursuant to the terms set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, Company, Consulting and Executive, intending to be legally bound,
agree as follows:
1. Employment and Term. Company agrees to employ Executive and Executive
agrees to serve Company as Chairman, President and Chief Executive Officer of
Company, and Consulting agrees to employ Executive and Executive agrees to serve
Consulting as Chairman, Managing Director, President and Chief Executive Officer
of Consulting, or in such other executive position as may be mutually agreed
upon by Executive and Company or Consulting, during the Term (as defined below).
Subject to the provisions of this Agreement to the contrary, the term of this
Agreement (the "Term") shall commence on the date hereof, and end on the date
which is the third-year anniversary thereof, or such later date to which
Executive's employment may be extended as provided in Section 10.
2. Duties. During the Term, Executive agrees to serve Company and
Consulting faithfully and to the best of his ability; to devote his entire time,
energy and skill during regular business hours (except for illness or incapacity
and except for vacation time as provided herein) to such employment; to use his
best efforts, skills and ability to promote its interests; if elected, to serve
as a director of Company and its subsidiaries or affiliated
<PAGE>
corporations or entities; and to perform such duties as from time to time may be
assigned to him, subject to Section 3 hereof. Notwithstanding the foregoing,
Executive may continue to serve on the Board of Directors of TXN, Inc. and
Resource Capital Associates, Inc., and may engage in charitable and public and
industry service activities so long as such activities do not materially
interfere with the performance of his duties and responsibilities under this
Agreement. During the Term, Executive shall serve as a member of the Board of
Directors of Company (the "Company Board") and the Board of Directors of
Consulting (the "Consulting Board").
3. Responsibilities. Executive's area of responsibility shall be that of
Chairman, President and Chief Executive Officer of Company and as Chairman,
Managing Director, President and Chief Executive Officer of Consulting, or such
other executive position as may be mutually agreed upon by Executive and Company
or Consulting, and during the Term, Company shall not assign any duties to or
remove any duties from Executive inconsistent therewith and, further, Company
and Consulting shall at all times provide Executive with such executive powers
and authority as shall reasonably be required to enable him to discharge such
duties in an efficient manner, together with such facilities and services as are
suitable or customary to such position.
4. Compensation. Company agrees to pay Executive as compensation for all
duties performed by him in any capacity during the period of his employment
under this Agreement:
a. base salary ("Base Salary"), payable in equal bi-weekly installments,
at the rate set forth in Appendix 1 attached to this Agreement and made a part
hereof ("Appendix 1");
b. a bonus (the "Bonus") as set forth in Appendix 1;
c. option to purchase 25,000 shares of Common Stock of the Company the
terms of which (including a vesting schedule) are set forth in resolutions
adopted by the Board of Directors of the Company on January 17, 1997.
d. from time to time, Executive shall also be eligible to receive
options to purchase Common Stock of the Company pursuant to the terms of the
Hagler Bailly, Inc. Employee Incentive Non-Qualified Stock Option and Restricted
Stock Plan of the Company or any successor plan, and in the amounts determined
by, and subject to the terms and conditions of, the Stock Option Committee of
the Board of Directors of the Company.
5. Benefits; Reimbursement of Expenses; Vacation. Executive shall also be
entitled to:
a. participate in all of the benefit programs which are presently or may
hereafter be provided by Company, including, without limitation, all stock
option, pension, thrift, employee stock ownership, incentive, retirement, in
each case to be made without regard to
-2-
<PAGE>
any policy or agreement that would otherwise require the deferral of any bonus,
health insurance and life insurance programs ("benefit programs");
b. reimbursement by Company of all expenses reasonably incurred by him
in connection with the performance of his duties, including, without limitation,
travel and entertainment expenses reasonably related to the business or
interests of Company; upon submission by him of written documentation of such
expenses;
c. a fully-paid annual physical examination; and
d. the other benefits set forth in Appendix 1.
6. Disability or Death.
a. If, during the Term of this Agreement, Executive becomes disabled or
incapacitated for a period of twelve (12) consecutive months to such an extent
that he is unable to perform his duties hereunder ("Permanently Disabled"),
Company shall have the right at any time thereafter, so long as Executive is
then still Permanently Disabled, to terminate this Agreement. If Company elects
to terminate this Agreement by reason of Executive becoming Permanently
Disabled, Company, for the unexpired Term of this Agreement, shall continue to
pay;
(1) to Executive, sixty percent (60%) of his Base Salary (whether
through insurance or otherwise) at the rate in effect on the date of such
termination, such payments to be made as set forth in Section 4;
(2) in the event of Executive's death after such termination for
Permanent Disability, then to the persons and in the manner set forth in
subparagraph (c) of this Section 6, an amount per annum equal to sixty percent
(60%) of Executive's Base Salary (whether through insurance or otherwise) at the
rate in effect on the date this Agreement is terminated by Company, such
payments to be made as set forth in Section 4; or
(3) if, and so long as, Company does not elect to terminate this
Agreement as a result of Executive's Permanent Disability, this Agreement shall
continue in full force and effect and Executive shall be entitled to all
benefits including compensation as set forth herein.
b. If the Executive dies during the Term, this Agreement shall
automatically terminate, except that for the unexpired portion of the Term
Company shall continue to pay to the persons and in the manner set forth in
subparagraph (c) of this Section 6, an amount per annum equal to sixty percent
(60%) of Executive's Base Salary in effect on the date of Executive's death,
such payments to be made as set forth in Section 4.
-3-
<PAGE>
c. Any payments to be made pursuant to subparagraph (a) or (b) of this
Section 6 to persons other than Executive in the event of the death of Executive
shall be made to Executive's designated beneficiaries or, if no such designation
has been made and Executive's spouse survives Executive, then the payments shall
be made to Executive's spouse, and if such spouse subsequently dies before all
such payments are made, the remaining payments shall be made to the estate of
Executive's spouse. If Executive is not survived by a spouse, then the payments
shall be made among Executive's issue who survive Executive, per stirpes, and if
any individual who is issue of Executive and who as of the date of death of
Executive is entitled to receive payments dies after Executive's death, the
payments which such issue would have been entitled to receive shall be made to
his or her estate. If at the date of Executive's death Executive is not survived
by any spouse, or any issue, then the payments shall be made to Executive's
estate.
d. To the extent there is keyman insurance on the life of the Executive
and so long as the Stockholders Agreement between the Company and its
stockholders, dated May 15, 1995 (as amended, the "Stockholders Agreement")
remains in effect, the proceeds shall be dedicated to stock redemption under the
Stockholders Agreement and not to payment of amounts under this Section 6.
7. Termination. In addition to the provisions of Section 1 hereof, this
Agreement may be terminated prior to the expiration of its Term as follows:
a. Automatically upon Executive's death, in which event the provisions
of Section 6 shall continue to be applicable;
b. Upon notice from the Company upon Executive's Permanent Disability,
in the event Company elects to terminate Executive's employment pursuant to the
provisions of Section 6;
c. Upon sixty (60) days' prior written notice from Company for "cause,"
which for purposes hereof shall mean conduct of the Executive involving any type
of disloyalty to Company, including without limitation theft, fraud,
embezzlement, proven dishonesty, physical violence, or the influence of drugs or
alcohol;
d. Upon notice from Executive upon Company's breach of any material
provision of this Agreement. Without limiting the generality of the foregoing,
it is acknowledged and agreed that Sections 2, 3, 4 and 5 of this Agreement are
material provisions of this Agreement;
e. Upon notice from Executive upon Company's failure to pay Executive
amounts under Section 4 when due;
-4-
<PAGE>
f. Upon notice from Executive following a "change in control" (as
defined in Appendix 1).
8. Wrongful Termination; Company Breach; Change in Control. In the event of
the termination of this Agreement by Executive pursuant to paragraph (d), (e) or
(g) of Section 7, or in the event of the termination of this Agreement by
Company other than pursuant to either a notice of non-renewal under Section 10
or a notice of termination under paragraph (b) or (c) of Section 7, Executive
shall be entitled to receive all of the compensation and benefits provided
herein until the later of (i) the date the Term would have expired absent any
termination of this Agreement, or (ii) thirty six (36) months from the effective
date of such termination (such later date being herein referred to as the "Final
Payment Date"). If Company and Executive shall become involved in a dispute
relating to any alleged breach of this Agreement by Company or Executive, and if
Executive prevails (by judgment, settlement or otherwise) in such dispute,
Company shall reimburse Executive for all reasonable costs (including reasonable
fees and disbursements of counsel) incurred by him in connection with such
dispute upon presentation to Company of evidence of such costs.
9. Termination of Prior Agreements. This Agreement expressly supersedes all
agreements and understandings between the parties regarding the subject matter
hereof and any such agreement is terminated as of the date first above written.
10. Renewal/Nonrenewal. This Agreement shall be automatically extended
without further action by the parties for one additional year unless either
party shall, at least 90 days prior to the expiration date or the expiration
date as so extended, have given notice to the other party that this Agreement
shall not be so extended. Upon notification by Company that this Agreement is
not to be extended or renewed, Executive shall be entitled to continue to
receive for a period of twelve (12) months commencing on the expiration of the
Term, all of the compensation and benefits provided for herein.
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives and to any
successor of Company, which successor shall be deemed substituted for company
under the terms of this Agreement. As used in this Agreement, the term
"successor" shall include any person, firm, corporation or other business entity
which at any time, whether by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Company.
12. Waiver of Breach. The waiver by Company of a breach of any provision of
this Agreement by Executive shall not operate or be construed as a waiver of any
subsequent breach.
13. Notices. Any notice required or permitted to be given hereunder shall
be sufficient if in writing and if sent by registered or certified mail to
Executive at his residence or to Company at its principal place of business.
-5-
<PAGE>
14. Entire Agreement. This document contains the entire agreement of the
parties and may not be changed except in a writing signed by both parties.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia as applied to contracts
executed and performed wholly within the State of Virginia.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
HAGLER BAILLY, INC.
[to be signed as of closing]
By:__________________________________
Name:
Title:
HAGLER BAILLY CONSULTING, INC.
[to be signed as of closing]
By:__________________________________
Name:
Title:
HAGLER BAILLY SERVICES, INC.
[to be signed as of closing]
By:__________________________________
Name:
Title:
[to be signed as of closing]
_____________________________________
HENRI-CLAUDE A. BAILLY
-6-
<PAGE>
HB CAPITAL, INC., hereby jointly and severally with Company and Consulting,
guarantees and agrees to act as sureties for the prompt and full performance and
payment by Company and Consulting of all of the obligations of Company and
Consulting under this Agreement as and when due to be paid and performed.
HB CAPITAL, INC.
[to be signed as of closing]
By:__________________________________
Name:
Title:
-7-
<PAGE>
APPENDIX 1 TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
(THE "AGREEMENT")
between
HAGLER BAILLY, INC.
and
HAGLER BAILLY CONSULTING, INC.
and
HAGLER BAILLY SERVICES, INC.
and
HENRI-CLAUDE A. BAILLY
Dated ___________, 1997
As used in this Appendix, all terms not otherwise specifically defined
herein shall have the meanings given in the Agreement. Any reference in this
Appendix or in the Agreement to the term "Agreement," "herein," "hereof" or the
like shall be deemed to refer to the Agreement, including this Appendix.
1. Base Salary. The Base Salary payable to Executive pursuant to Section 4
of the Agreement shall be paid at an initial annual rate of $375,000 commencing
on the date hereof. On January 1 of each year during the Term commencing January
1, 1998, the annual rate of Base Salary shall be increased by no less than the
greater of five percent (5%) over the annual rate of Base Salary in effect for
the preceding year, and the increase in the CPI National Index for the year.
2. Bonus.
a. A Bonus payment shall be made to Executive for each calendar year
during the Term (including the 1997 year) in an amount determined by the
Executive Compensation Committee of the Company Board.
b. In the event of termination of the Agreement pursuant to paragraph
(a) or (b) of Section 7 of the Agreement, then in lieu of a Bonus under Section
4(b) of the
A-1
<PAGE>
Agreement for the year in which such termination occurs ("Termination Year"),
Executive shall be entitled to receive a Termination Bonus (as defined in
paragraph (d) below), payable when Company's management employees have
customarily received their annual bonus payments. The Termination Bonus shall be
reduced on a pro rata basis in the event of termination of the Agreement prior
to the end of the Termination Year.
c. In the event of termination of the Agreement by Executive pursuant to
paragraph (d), (e), (f) or (g) of Section 7 of the Agreement, or in the event of
the termination of the Agreement by Company other than pursuant to paragraph
(a), (b) or (c) of said Section 7, then in lieu of any Bonus for the Termination
Year and any subsequent year until and including the year in which the Final
Payment Date occurs, Company shall pay Executive a Termination Bonus for each
such full or partial year, payable immediately upon such termination. The
Termination Bonus shall be reduced on a pro rata basis for any year in respect
of which such Termination Bonus is being paid which is less than a full year.
d. For purposes hereof, the term "Termination Bonus" shall mean an
amount equal to the "Average Percentage" (as defined below) multiplied by the
Base Salary in effect as of the date of termination of the Agreement. For
purposes hereof, the "Average Percentage" shall mean that number (expressed as a
percentage) derived by dividing (i) the aggregate bonuses paid by Company to
Executive (whether pursuant to this Agreement or otherwise) during the three
calendar years immediately preceding the Termination Year (or such lesser number
of years for which Executive has received bonus compensation from Company) by
(ii) the aggregate Base Salary paid during the same period utilized in clause
(i).
3. Member of Board of Directors. During the Term, unless Executive elects
not to serve as a member of the Company Board the Consulting Board, Company
shall cause all securities entitled to vote in the election of Company's and
Consulting.'s directors to be voted for the election of Executive as a director
of the Company Board and the Consulting Board, respectively. So long as the
Stockholders Agreement remains in effect and so long as Executive has a Common
Equity Percentage (as defined in the Stockholders Agreement) of at least eight
and one-half percent (8-1/2%), Executive shall serve on the Company Board until
1999 or such later date as to which Executive may be nominated. So long as
Executive is a member of the Company Board, the Consulting Board or the board of
directors of any of Company's other subsidiaries or affiliated companies,
Executive shall receive such compensation and other benefits (including
insurance coverage and indemnification) as other similarly situated members of
such board of directors receive for their service in such capacity.
4. Change of Control. For purposes hereof, the term "change in control"
shall mean any of the following events:
a. if any "Person" (as the term person is used for purposes of Sections
13(d) or 14(d) of the 1934 Act) shall have "Beneficial Ownership" (as the term
beneficial ownership is used for purposes of Rule 13d-3 promulgated under the
1934 Act) of thirty three
A-2
<PAGE>
percent (33%) or more of the combined voting power of Company's then outstanding
voting securities ("Voting Securities"), at any time that the Beneficial
Ownership of Voting Securities of Company by such Person exceeds Executive's
Beneficial Ownership of Voting Securities of Company;
b. the approval by stockholders of Company of (A) a merger,
reorganization or consolidation involving Company if the stockholders of Company
immediately before such merger, reorganization or consolidation, do not or will
not own directly or indirectly immediately following such merger, reorganization
or consolidation more than fifty percent (50%) of the combined voting power of
the outstanding voting securities of the corporation resulting from or surviving
such merger, reorganization or consolidation in substantially the same
proportion as their ownership of the Voting Securities of Company immediately
before such merger, reorganization or consolidation or (B) (1) a complete
liquidation or dissolution of Company or (2) an agreement for the sale or other
disposition of all or substantially all of the assets of Company; or
c. the acceptance by stockholders of Company of shares in a share
exchange if the stockholders of Company immediately before such share exchange,
do not or will not own directly or indirectly immediately following such share
exchange more than fifty percent (50%) of the combined voting power of the
outstanding voting securities of the corporation resulting from or surviving
such share exchange in substantially the same proportion as the ownership of the
Voting Securities of Company outstanding immediately before such share exchange.
5. Arbitration. In the event of any dispute between the parties under or
relating to this Agreement or otherwise relating to Executive's employment by
Company, such dispute shall be submitted to and settled by arbitration in
Arlington, Virginia, in accordance with the rules and regulations of the
American Arbitration Association then in effect. The arbitrators shall have the
right and authority to determine how their award or decision as to each issue
and matter in dispute may be implemented or enforced. Any decision or award
shall be final and conclusive on the parties; judgment upon any award or
decision may be entered in any court of competent jurisdiction in the
Commonwealth of Virginia or elsewhere; and the parties hereto consent to the
application by any party in interest to any court of competent jurisdiction for
confirmation or enforcement of such award.
A-3
<PAGE>
CANYON CENTER
OFFICE LEASE
(RCG/Hagler Bailly, Inc.)
In consideration of the rents and covenants hereinafter set forth, L.C.
FULENWIDER, INC., a Colorado corporation ("Landlord") hereby leases to the
Tenant named in Article D of Section I, and Tenant hereby hires from Landlord,
the premises described in Article G of Section I (the "demised premises") upon
the conditions set forth in this Office Lease.
SECTION I
FUNDAMENTAL LEASE PROVISIONS
A. Date of Lease: December 14, 1994.
B. Building Rentable Area: 71,220 square feet.
C. Landlord: L.C. FULENWIDER, INC., a Colorado corporation.
D. Tenant: RCG/Hagler Bailly, Inc., a District of Columbia corporation
E. Trade Name (if any): N/A
F. Guarantor (if any): None
G. Demised Premises:
A portion of Floor 2 and a portion of Floor 3, as shown cross-hatched
in black on the plan attached as Exhibits A-1 and A-2 and made a part
hereof, to be known as Suite 317 in the office building known as Canyon
Center, 1881 9th Street, Boulder, Colorado (the "Building"), together
with the right, subject to the provisions of Section II, Article 38, to
use on an unassigned basis 59 parking spaces in the covered parking
garage adjacent to the Building (the "Parking Garage").
H. Demised Premises Rentable Area:
19,473 square feet as depicted on Exhibit A-1 from Commencement Date
through December 31, 1995 and 24,046 square feet as depicted on
Exhibits A-1, and A-2 from January 1, 1996 through August 31, 2001.
Landlord reserves the right to remeasure the Building and demised
premises from time to time according to applicable BOMA measurement
standards. If measurements are different than the areas originally
contained in the lease, then relevant provisions of the lease will be
adjusted, including but not
-1-
<PAGE>
limited to the following: Building Rentable Area, Demised Premises
Rentable Area, measurement standards. If measurements are different
than the areas originally contained in the lease, then relevant
provisions of the lease will be adjusted, including but not Limited to
the following: Building Rentable Area, Demised Premises Rentable Area,
Tenant's Percentage, Base Annual Rent, Tenant's Percentage of the
Operating Costs, and other terms, rates or provisions affected by
changes in the above.
I. Lease Term:
7 years, beginning January 1, 1995 (the "Commencement Date"), and
ending December 31, 2001 (the "Expiration Date").
J. Base Annual Rent:
(i) From the Commencement Date through August 31, 1995 an
annual rate of $248,280.75, payable in monthly
installments of $20,690.06 (Base Annual Rent being
calculated at $12.75 per square foot of rentable area
per annum);
(ii) From September 1, 1995 through December 31, 1995 an
annual rate of $253,149.00, payable in monthly
installments of $21,095.75 (Base Annual Rent being
calculated at $13.00 per square foot of rentable area
per annum);
(iii) From January 1, 1996 through July 31, 1996 an annual
rate of $336,644.00, payable in monthly installments
of $28,053.67 (Base Annual Rent being calculated at
$14.00 per square foot of rentable area per annum);
(iv) From August 1, 1996 through the Expiration Date an
annual rate of $348,667.00, payable in monthly
installments of $29,055.58 (Base Annual Rent being
calculated at $14.50 per square foot of rentable area
per annum) subject to an annual increase pursuant to
the terms of Section II, Article 36.
K. Use of Demised Premises: General office.
L. Addresses for Notice (Section II, Article 23):
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To Tenant: RCG/Hagler Bailly, Inc.
1881 9th Street, Suite 317
Boulder, CO 80302
To Landlord: L.C. Fulenwider, Inc.
1125 - 17th Street, Suite 2500
Denver, CO 80202
Attn: L. C. Fulenwider, III
M. Security Deposit: None
N. Broker(s): None.
O. Tenant's Percentage:
(i) From Commencement Date through
December 31, 1996 27.34%
(ii) From January 1, 1996 through
August 31, 2001 33.76%
SECTION II
GENERAL LEASE PROVISIONS
1. DEMISED PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the demised premises.
Term
The term of this lease shall be for the term specified in Article I of
Section I unless terminated earlier as provided in this lease.
Rent
Tenant shall pay Landlord the Base Annual Rent specified in Article J
of Section I. Tenant agrees to pay Base Annual Rent in equal monthly
installments as specified in Article J of Section I in advance on the first day
of each calendar month during the term, at the office of Landlord or such other
place as Landlord may designate, without set-off or deduction. Tenant shall pay
the first monthly installment on or before the Commencement Date.
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Time is of the essence of this lease and, in addition to all other
remedies available to Landlord hereunder, all sums not paid when due shall bear
interest at a rate (the "lease rate") equal to 4% over the annual prime rate of
interest announced publicly by Colorado National Bank, N.A. in Denver, Colorado,
or its successor, from time to time from the due date until paid in full;
provided, however, that no interest shall accrue upon monthly installments of
rent paid on or before the expiration of five (5) business days from the date
due.
In addition to Base Annual Rent, Tenant shall pay the amount of any
rental adjustments and additional payments as and when provided in this lease.
All amounts payable by Tenant to Landlord under this lease shall be deemed to be
rent and shall be payable and recoverable as rent in the manner provided, and
the Landlord shall have all rights against Tenant for default in any such
payment as in the case of arrears of Base Annual Rent. Tenant's obligation to
pay rent shall survive the expiration or earlier termination of this lease. Rent
shall be paid to Landlord without set-off or deduction in legal tender. Tenant's
obligation to pay rent shall survive the expiration or earlier termination of
this lease. If the term ends on a day other than the last day of a calendar
month, the installment of Base Annual Rent payable on the first day of the last
calendar month of the term shall be prorated at the rate of one-thirtieth
(1/30th) of the installment of Base Annual Rent per year.
Tenant Improvements
Tenant agrees to accept the demised premises "AS IS" and without any
further improvement or alteration whatsoever. Notwithstanding the foregoing,
Landlord agrees to provide Tenant with an allowance to reimburse Tenant for
costs and expenses incurred by Tenant in constructing improvements upon the
demised premises (the "Tenant Improvements") in the amount of One Hundred
Forty-Four Thousand One Hundred Twenty and No/100 Dollars ($144,120.00) (the
"Tenant Improvement Allowance"). Tenant and Landlord acknowledge that the Tenant
Improvement Allowance includes Twenty-Three Thousand Eight Hundred Ninety and
No/100 Dollars ($23,890.00) which remained available to Tenant under the Prior
Leases (as hereinafter defined). The construction of Tenant Improvements shall
be governed by and subject to the provisions of Article 5. The Tenant
Improvement Allowance shall be provided to Tenant under the following
conditions:
(A) Tenant shall be entitled to submit to Landlord a request
for reimbursement (each a "Request for Reimbursement") from the Tenant
Improvement Allowance not more often than one time in each calendar
month during the term of this lease;
(B) Each Request for Reimbursement shall be in an amount of
not less than Five Thousand and No/100 Dollars ($5,000.00); provided,
however, that the final Request for Reimbursement may be less than Five
Thousand and No/100 Dollars ($5,000.00);
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(C) Each Request for Reimbursement shall be accompanied with
true and correct copies of all invoices, statements and other documents
reasonably evidencing Tenant's incurrence of all amounts included
within such Request for Reimbursement;
(D) Tenant shall not be permitted to request disbursement from
the Tenant Improvement Allowance in excess of Twenty-Three Thousand
Eight Hundred Ninety and No/100 Dollars ($23,890.00) prior to January
1, 1996;
(E) Landlord agrees, within ten (10) days after the
satisfaction of the conditions set forth in paragraph (D) above to pay
to Tenant the amount contained in the Request for Reimbursement;
provided, however, that Landlord shall not be obligated to disburse
funds from the Tenant Improvement Allowance or pay a Request for
Reimbursement at any time Tenant is in default in the performance of
any of its obligations under this Lease. Tenant shall deliver to
Landlord, within ten (10) days after any payment of a Request for
Reimbursement, copies of cancelled checks or other documents reasonably
evidencing Tenant's payment in full of all amounts comprising such
Request for Reimbursement.
2. OPERATING COSTS
Tenant shall pay, as additional rent, Tenant's Percentage of the
Operating Costs, as more fully explained below.
(A) "Operating Costs" means the sum of the following
pertaining to a calendar year:
(1) Taxes and assessments upon or pertaining to the
Building and the land upon which the Building is located
described in Exhibit B (the "real property") and any other
areas used in connection with the operation of the Building,
imposed by federal, state or local governments, but not
including income, franchise, capital stock, estate or
inheritance taxes, but including gross receipts taxes
regarding rentals and other payments under this lease and
other business taxes imposed regarding this lease. If, because
of any change in the method of taxation of real estate, any
tax or assessment is imposed upon Landlord, the Building, the
real property, the areas used in connection with the operation
of the Building, or the rents or income therefrom, in
substitution for or in lieu of any tax or assessment which
would otherwise be a real estate tax or assessment subject
matter, such other tax or assessment shall be included in the
determination of Operating Costs;
(2) Wage and labor costs applicable to the persons
engaged in the management, operation, maintenance, overhaul or
repair of the Building, the real
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property and the areas used in connection with the operation
of the Building, whether they be employed by Landlord or by an
independent contractor with whom Landlord shall have
contracted or may contract for such services;
(3) Cost of utilities, fuel, building supplies
and materials, insurance, and service contracts;
(4) Alterations to the Building, the real property or
the areas used in connection with the operation of the
Building for life safety systems or energy conservation
required by any governmental or quasi-governmental authority
having jurisdiction over the Building (together with all
costs, and interest thereon at a rate equal to the annual
prime rate of interest announced publicly by Colorado National
Bank, N.A. in Denver, Colorado, or its successor, from time to
time plus one percent (1%) incurred in connection with any
such alterations) all amortized over their useful life (as
reasonably determined by Landlord using tax accounting
principles), except that any such costs (and the interest
thereon) incurred in connection with alterations for energy
conservation may, at Landlord's election, be amortized at a
yearly rate equal to the savings realized during such period
as a result of such alteration or replacement. Tenant shall be
liable only for Tenant's Percentage of the annual amortized
cost of such improvements during the term of this lease, and
no liability therefor shall survive the expiration of the
lease term;
(5) Reasonable consultant, management and
professional fees, including reasonable attorneys' fees
associated with the operation, maintenance and repair of the
Building, the real property and the areas used in connection
with the operation of the Building; and
(6) Such other items as are included in the cost to
Landlord of owning, managing, operating, maintaining,
overhauling and repairing the Building, the real property and
the areas used in connection with the operation of the
Building in accordance with accepted accounting or management
principles or practices including, but not limited to, hazard,
liability, flood and rent loss insurance and the replacement
and refitting of building operating components.
Notwithstanding the listing of categories of Operating Costs in this section, it
is agreed and understood that this lease is net to Landlord and that Tenant
shall pay Tenant's Percentage of all costs of any kind properly allocable to the
Building, foreseen or unforeseen. In determining the amount of Operating Costs
for the purpose of this Article, for any calendar year, (i) if less than 95% of
the Building shall have been occupied by tenants and fully used by them at any
time during such Year, Operating Costs shall be increased to an amount equal to
the like Operating Costs which would normally be expected to be incurred had
such occupancy been 95% and had such full utilization been made during the
entire period, and (ii) if Landlord is not furnishing any
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particular work or service (the cost of which if performed by Landlord would
constitute an Operating Cost) to a tenant who has undertaken to perform such
work or service in lieu of the performance thereof by Landlord, Operating Costs
shall be deemed to be increased by an amount equal to the additional Operating
Costs which would reasonably have been incurred during such period by Landlord
if it had at its own expense furnished such work or service to such Tenant.
(B) On or before the 1st day of April in the calendar year
immediately following the calendar year in which the term commences and
on or before that day in each subsequent year, and on or before the 1st
day of April immediately following the expiration or earlier
termination of the term, Landlord will furnish a statement of the
Operating Costs applicable to the calendar Year preceding the Year in
which the statement is submitted, and the amount to be paid as
additional rent. The failure of Landlord to furnish a statement for any
year in accord with this subsection (B) shall be without prejudice to
the right of Landlord to furnish statements in subsequent years.
Landlord further reserves the right to submit additional statements
from time to time in any calendar year as Landlord deems necessary in
its discretion to accurately reflect and timely collect the Tenant's
Percentage of Operating Costs. In the event that Landlord shall, for
any reason, be unable to furnish a statement on or before April 1st of
any year, the Landlord may furnish the statement as soon thereafter as
practicable, with the same force and effect as if timely delivered.
(C) Payment of Tenant's Percentage of Operating Costs.
(1) On the first day of the month following the
furnishing of a statement, Tenant shall forthwith pay to
Landlord a sum equal to one-twelfth (1/12th) of Tenant's
Percentage of Operating Costs, such payment multiplied by the
number of months then elapsed commencing with January 1st of
the preceding calendar year (provided, however, that if the
term commenced in the preceding calendar year, Tenant shall
pay, concurrently with the next monthly installment of rent
due, Landlord a sum equal to one-twelfth (1/12th) of Tenant's
Percentage multiplied by the number of months then elapsed,
commencing with the month in which the term of this lease
commenced), and , in advance, one-twelfth (1/12th) of Tenant's
Percentage with respect to the then current months.
Thereafter, until a different statement is submitted, the
monthly installments of rent payable under this lease shall be
increased by an amount equal to one-twelfth (1/12th) of
Tenant's Percentage of the Operating Costs. In the event a
statement shows an increase in rent, then the rent payable by
Tenant shall be adjusted proportionately consistent with the
foregoing provisions. The rent due to Landlord or the credit
due to Tenant, as disclosed by the statement furnished by
Landlord, shall be paid or given within thirty (30) days after
the receipt of such statement.
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(2) Prior to the determination of the Operating Costs
for any particular calendar year (or portion thereof) during
the term, Landlord may at any time and from time to time
estimate the amount of such operating Costs. If, in the
estimation of Landlord, the Operating Costs for such calendar
year will exceed the Operating Costs for the preceding
calendar year, Landlord will notify Tenant of the amount of
such estimated excess and Tenant shall forthwith (a) pay,
commencing on the first day of each succeeding calendar month,
one-twelfth (1/12th) of Tenant's Percentage of such excess,
calculated in accordance with this Article, and (b) pay to
Landlord a sum equal to one-twelfth (1/12th) of Tenant's
Percentage of such excess multiplied by the number of months
then elapsed commencing with January 1st of such calendar year
through and including the month in which such payment is made.
Landlord agrees to provide Tenant with a description of the
basis and justification for Landlord's estimated increases in
Operating Costs. Upon the determination of the Operating Costs
for such calendar year, as reflected in a statement described
above, appropriate adjustments shall be made with respect to
such increased monthly installments of rent paid by Tenant
based upon Landlord's estimate.
(D) Provided that Tenant is not in default in the payment of
any monthly installments of rent and the payment of any other amounts
due under this lease, Tenant shall have the right, at its sole cost and
expense, to inspect the books of account covering Operating Costs for
any calendar year within four (4) months after Tenant is furnished with
the statement described in subparagraph 2(C)(1). If Tenant does not
exercise its right to audit the books and accounts within such four (4)
month period, Tenant shall have waived its right to dispute the
determination or calculation set forth in the statement. If it is
determined, by certification of an independent certified public
accountant, that the amount previously determined by Landlord was
incorrect, a correction shall be made and either Landlord shall
promptly return to Tenant any overpayment or Tenant shall promptly pay
to Landlord any underpayment. Notwithstanding the pendency of any
dispute hereunder, Tenant shall make payments based upon Landlord's
statement until such statement has been established to be correct.
3. OCCUPANCY
Tenant shall use and occupy the demised premises for the purpose set
forth in Article K of Section I and for no other purpose.
4. ASSIGNMENT, MORTGAGE, SUBLETTING
Neither Tenant nor its legal representatives, successors or assigns
shall voluntarily or involuntarily assign, mortgage or encumber this lease, or
sublet or use or occupy or permit the demised premises or any part thereof to be
used or occupied by others without the written
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consent of Landlord in each instance. Any assignment, encumbrance, or sublease
without Landlord's consent shall be voidable and, at Landlord's option, shall
constitute a default. A transfer of control of Tenant shall be deemed an
assignment under this lease and shall be subject to all the provisions of this
Article. Notwithstanding any provision contained in this Article 4 to the
contrary, none of the following, or any changes, assignments or transfers
resulting from the following shall require Landlord's prior written consent:
(A) a transfer of or change in the ownership interest of
Tenant as long as the new ownership interest continues to operate the
business of the Tenant in the same manner and has a financial net worth
equal to or greater than the transferring owner;
(B) a transfer of stock pursuant to a public offering of the
capital stock of Tenant;
(C) the merger, consolidation or amalgamation of Tenant with a
third party for the sale of all, or substantially all, of the stock or
assets of Tenant as long as the surviving entity continues to operate
the business of the Tenant in the same manner and either (i) has a net
worth equal to or greater than the Tenant or (ii) can reasonably
demonstrate that it has the financial capacity to perform the Tenant's
obligations under this Lease; or
(D) a transfer to (i) Tenant's management group in accordance
with or similar to the proposals described in memorandum the
("Memorandum") dated November 1, 1994 prepared by Resource Capital
Associates, Inc. with R.F. Reilly & Associates, (ii) a parent, (iii)
subsidiary or (iv) affiliate (as hereinafter defined) of Tenant.
For purposes of this Article 4, an "affiliate of Tenant" shall mean any trust,
corporation, limited liability company or partnership; (i) which owns or
"controls" the majority of the ownership interest of Tenant, either directly or
indirectly through other entities, (ii) a majority of whose ownership interest
is owned or controlled by Tenant, (iii) the majority of whose ownership interest
is owned or controlled by an entity described in clause (i) above, or (iv) which
owns or controls a majority of the ownership interest of Tenant. As used in this
Article 4, the phrase "ownership interest" shall mean general partnership
interest if Tenant is a partnership, membership interest if Tenant is a limited
liability company and capital stock if Tenant is a corporation, and the word
"control" shall mean the right or power to direct or cause the direction of the
management policies of the entity in question.
Tenant will notify Landlord in writing of any interest in this lease
which Tenant wishes to assign or any portion of the demised premises which
Tenant wishes to sublet or permit others to occupy. Such notice shall specify
the terms and conditions of such transaction and shall be accompanied by any
information Landlord may require with respect to the proposed assignee,
sublessee or occupant. Upon receipt of such notice and information, Landlord
shall have the
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right to either consent to such assignment, subletting, or occupancy, or refuse
to consent to such subletting or occupancy, provided that said consent shall not
be unreasonably withheld.
Without limitation of the circumstances in which Landlord's withholding
of consent to an assignment or subletting shall not be unreasonable, it shall
not be unreasonable for Landlord to withhold its consent if the reputation,
financial responsibility, or business of the proposed assignee or subtenant is
unsatisfactory to Landlord, or if the intended use by the proposed assignee or
subtenant conflicts with any commitment made by Landlord to any other tenant in
the Building, or if in Landlord's reasonable judgment the assignment or
subletting will have financial consequences adverse to Landlord's interest, or
if the proposed assignee or subtenant shall be (i) of a character or reputation
or engaged in a business which is not consistent with the quality of the
Building, (ii) a government or any subdivision or agency thereof, (iii) former
tenant of the Building or any affiliate or guarantor thereof who defaulted under
any of its lease obligations to Landlord or any affiliate of Landlord, or (v) an
existing tenant of the Building. In the event Landlord consents to such
assignment, subletting or occupancy all rent or other' consideration paid by the
assignee, sublessee or occupant to Tenant in excess of the Base Annual Rental
and additional rent due to Landlord under this lease shall be divided equally
between Landlord and Tenant. If Tenant requests Landlord to consent to a
proposed assignment or subletting, Tenant shall pay to Landlord the reasonable
attorneys' fees incurred in connection with each such request. Landlord agrees
to provide Tenant with an estimate of the attorney's fees the Landlord expects
to incur in connection with any proposed assignment or subletting by Tenant
("Attorney's Fee Estimate"). Tenant shall have the right to withdraw its request
of a proposed assignment or subletting provided such withdrawal is requested in
writing and delivered to Landlord within three (3) days after Tenant's receipt
of the Attorney's Fee Estimate. In the event Landlord incurs attorney's fees in
excess of the Attorney's Fee Estimate in connection with a requested assignment
or subletting, Tenant shall only be responsible for the payment of that portion
of Landlord's attorney's fees which are equal to the sum of the Attorney's Fee
Estimate plus one-half (1/2) of the amount of such attorney's fees in excess of
the Attorney's Fee Estimate incurred by Landlord not to exceed, however, in any
event one hundred ten percent (110%) of the Attorney's Fee Estimate.
5. ALTERATIONS
Subject to the last paragraph of this Article 5, Tenant shall make no
alterations, additions or improvements in or to the demised premises without
first obtaining the written consent of Landlord. Tenant understands that
Landlord's consent will be conditioned on Tenant's compliance with Landlord's
requirements in effect at the time permission is requested, which requirements
will include, without limitation, Landlord's approval of plans, specifications,
contractors, insurance, and hours of construction. Tenant will be required to
pay as additional rent to Landlord a reasonable fee for supervising Tenant's
contractor and for Landlord's related costs, such as, but not limited to, trash
removal and utilities. Prior to the commencement of any work in or to the
demised premises by Tenant's contractors, Tenant shall deliver to Landlord
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certificates issued by applicable insurance companies evidencing that workmen's
compensation and public liability insurance and property damage insurance, all
in amounts and with companies, and on forms satisfactory to Landlord, are in
force and effect and maintained by all contractors and subcontractors engaged by
Tenant to perform such work. Each such certificate shall provide that it may not
be cancelled without ten (10) days, prior written notice to Landlord. Upon
completion of such work, Tenant shall provide Landlord with as-built plans and
specifications and with lien releases from every person who supplied labor or
materials for the work. All work done by Tenant shall be performed in full
compliance with all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental agencies, offices, departments, bureaus and
boards having jurisdiction over the Building.
Before commencing any work with an aggregate cost of Ten Thousand and
No/100 Dollars ($10,000.00) or less, Tenant shall give Landlord at least
forty-eight (48) hours prior verbal notice of the commencement of such work.
Before commencing any work with an aggregate cost in excess of Ten Thousand and
No/100 Dollars ($10,000.00), Tenant shall give Landlord at least five (5) days'
written notice of the commencement of such work; and shall, during the course of
such work, post and keep posted in conspicuous places on the demised premises
such notice as Landlord requires to protect Landlord from having its interest in
the demised premises made subject to a mechanic's lien. Tenant shall secure, at
Tenant's own cost and expense, a completion and lien indemnity bond satisfactory
to Landlord for said work. Any mechanic's lien filed against the demised
premises or against the Building or the land upon which the Building is located
or any of the areas used in connection with the operation of the Building for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, shall be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expense of Tenant.
All alterations, additions or improvements upon the demised premises
made by either Landlord or Tenant including, without limiting the generality of
the foregoing, all paneling, partitions, railings, and the like, unless Landlord
elects otherwise (which election shall be made by giving a notice pursuant to
the provisions of Article 23 below not less than three (3) days prior to the
expiration or other termination of this lease or any renewal or extension
thereof) shall become the property of Landlord, and shall remain upon and be
surrendered with the demised premises at the end of the term of this lease. If
Tenant removes any property from the demised premises, Tenant shall repair or,
at Landlord's option, shall pay to Landlord the cost of repairing any damage
arising from such removal.
Landlord and Tenant agree that alterations, additions and improvements
shall not require the prior written consent of Landlord if the same (i) are not
structural in nature and if they do not affect the structural integrity or
external appearance of the Building; (ii) do not adversely affect the basic
Building systems; (iii) do not affect electrical, life safety, HVAC, mechanical
or plumbing systems or fixtures; (iv) are not visible from any elevator lobby or
public area; and (v) do not include any restrooms. Notwithstanding the
foregoing, Tenant agrees to deliver written
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notice to Landlord advising of any alteration, addition and/or improvement which
do not require Landlord's consent at least three (3) business days prior to
commencement of any work upon the demised premises, and Tenant agrees to comply
with all other requirements of this Article 5 with respect to such alterations,
additions and/or improvements.
6. REPAIRS
Tenant has had sufficient time to examine the Building and the demised
premises, and Tenant accepts the demised premises "as is." Landlord makes no
representation regarding the condition of the Building or the demised premises.
Tenant shall take good care of the demised premises and fixtures therein and,
subject to the provisions of Article 5 above, shall, in a timely fashion, make
all repairs in and about demised premises necessary to preserve them in good
order and condition, except for ordinary wear and tear, which repairs shall be
in quality and class equal to the condition of the demised premises at the
Commencement Date. Tenant shall make, at its sole cost and expense, repairs to
any special equipment or systems installed by Tenant or by Landlord on Tenant's
behalf. All repairs required under this section shall be made only by
contractors and mechanics reasonably approved by Landlord. Landlord, however,
shall repair the Building plumbing, heating, ventilating or air conditioning and
electrical systems and make structural repairs within the demised premises
arising from ordinary wear and tear or through causes over which Tenant has no
control, except as otherwise provided in this lease. Landlord may repair at the
expense of Tenant all damage or injury to the demised premises, or to the
Building or to its fixtures, appurtenances or equipment or to any of the area
used in connection with the operation of the Building, done by Tenant or Tenant
's agents, servants, employees, contractors, visitors or licensees and due to
the carelessness, negligence, or improper conduct of Tenant, Tenant's agents,
servants, employees, contractors, visitors or licensees. Landlord shall have the
right to replace, at the expense of Tenant, any and all plate and other glass
damaged or broken from any cause whatsoever in or about the demised premises
unless caused by or due solely to the negligence of Landlord, Landlord's agents,
servants or employees. Except as provided in Article 11 below, there shall be
no allowance to Tenant for a diminution of rental value, and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from the making of, or the failure to make, any repairs, alterations,
additions or improvements in or to any portion of the Building or any of the
areas used in connection with the operation of the Building, or the demised
premises, or in or to fixtures, appurtenances or equipment, or by reason of the
act or neglect of Tenant or any other tenant or occupant of the Building. In no
event shall Landlord be responsible for any consequential damages arising or
alleged to have arisen from any such event.
7. REQUIREMENTS OF LAW AND INSURANCE
Tenant shall comply with all laws, rules, orders, ordinances,
directions, regulations and requirements of federal, state, county and municipal
authorities pertaining to Tenant's use of the demised premises. Tenant shall not
do or permit to be done any act or thing upon the demised
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premises which will invalidate or be in conflict with any insurance policy
covering the Building or any of the areas used in connection with the Building.
Tenant shall not do or permit to be done any act or thing upon the demised
premises which shall or might subject Landlord to any liability or
responsibility for injury to any person or persons or to any property by reason
of any business or operation being carried on upon the demised premises or for
any other reason, and Tenant hereby indemnities Landlord against any such
liability or responsibility. Tenant shall not place a load upon any floor of the
demised premises exceeding the floor load per square foot area which such floor
was designed to carry and which is allowed by law. Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient in Landlord's judgment to absorb and prevent
vibration, noise and annoyance.
Insurance
Landlord shall maintain public liability insurance, hazard insurance on
the Building and such other insurance coverage as it reasonably deems necessary.
The cost of the insurance shall be included in Operating Costs. Landlord shall
not be responsible for insurance covering any installations or other
improvements made by Tenant to the demised premises or for any personal property
of Tenant located in or about or used in connection with the demised premises,
the Building, or the areas surrounding or used in connection with the Building.
Tenant shall not do, or permit anything to be done, in or upon the demised
premises, or bring or keep anything therein which shall increase the rates of
any insurance on the Building or any of the areas used in connection with the
operation thereof or its fixtures, appurtenances or equipment or on property
located in the Building. If by reason of failure of Tenant to comply with the
provisions of this Article any insurance rate shall increase, then Tenant shall
upon demand reimburse Landlord for the increase.
At all times during the term of this lease, Tenant shall carry and
maintain, at Tenant's expense, the following insurance in the amounts specified
below or such other amounts as Landlord shall from time to time reasonably
request, with insurance companies and on forms satisfactory to Landlord:
(A) Public liability, bodily injury and property damage
liability insurance, with a combined single occurrence limit of not
less than $2,000,000.00. All such insurance will be equivalent to
coverage offered by a Commercial General Liability form including,
without limitation, personal injury, death of persons or damage to
property occurring in, on, or about the demised premises and
contractual liability coverage for the performance by Tenant of the
indemnity agreements set forth in this lease.
(B) Insurance covering all of Tenant's furniture and fixtures,
machinery, equipment, stock, and any other personal property owned and
used in Tenant's business and found in, on, or about the Building, and
any leasehold improvements to the demised premises, in an amount not
less than the full replacement costs. Property forms will
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provide coverage on a broad form basis insuring against "all risks of
direct physical loss." All policy proceeds will be used for the repair
or replacement of such leasehold improvements damaged or destroyed; and
Tenant will be entitled to the remainder; however, if this lease ceases
under the provisions of Article 11, Tenant will in any event be
entitled to any proceeds resulting from damage to Tenant's furniture
and fixtures, machinery and equipment, stock, and any other personal
property.
(C) Workmen's compensation insurance satisfying Tenant's
obligations and liabilities under the workmen's compensation laws of
Colorado.
(D) Any additional insurance reasonably requested by Landlord
to cover any unusual risk created by the nature of Tenant's use of the
demised premises.
All policies of public liability and property damage liability
insurance which Tenant is obligated to maintain according to this lease shall
name Landlord as an additional insured. Tenant shall deliver to Landlord a copy
of all such policies or certificates of insurance (including in any case
documentation naming Landlord as an additional insured) and evidence of payment
of all premiums for any such policies prior to Tenant's occupancy of the demised
premises and from time to time during the lease term, at least thirty (30) days
prior to the expiration of the term of each such policy. All policies of public
liability and property damage liability insurance maintained by Tenant shall
also contain a provision that Landlord, although named as an insured, shall
nevertheless be entitled to recover under such policies for any loss sustained
by Landlord, its agents and employees as a result of the acts or omissions of
Tenant. Such public liability and property damage liability policies shall be
written as primary policies, not contributing with and not in excess of coverage
that Landlord may carry. All policies required to be maintained by Tenant shall
provide that they may not be terminated or amended except after thirty (30)
days' prior notice to Landlord.
Landlord and Tenant each waive any and all rights to recover against
the other for any loss or damage to such waiving party arising from any cause
covered by any insurance required to be carried by such party pursuant to this
Article or any other insurance actually carried by such party. Such waiver of
subrogation shall be effective with respect to loss or damage occurring only
during such time as Landlord's and Tenant's policies shall be in force and
effect with respect to such loss or damage and shall contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair such policies or prejudice the right of the releasing party to recover
under such policies.
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8. SUBORDINATION
It is agreed that this lease may, at the option of Landlord, be made
subordinate to any ground or underlying leases, mortgages, or deeds of trust
which may hereafter affect the real property. This clause shall be
self-operative and no further instrument of subordination shall be required in
order for the same to be effective. However, Tenant will promptly execute and
deliver upon the demand of Landlord any and all instruments desired by Landlord
evidencing this subordination to such lease, mortgage or deed of trust.
In the event of foreclosure or exercise of power of sale under any
mortgage or deed of trust hereafter affecting the real property, the holder of
any such mortgage or deed of trust (or purchaser at any sale pursuant thereto)
shall have the option of (a) supplementing this Article, to require Tenant to
attorn to such holder or purchaser, and to enter into a new lease with such
holder or purchaser (as landlord) for the balance of the term then remaining
under this lease upon the same terms and conditions as those provided in this
lease, or (b) notwithstanding this Article, to elect that this lease become or
remain, as the case may be, superior to said mortgage or deed of trust.
9. RULES AND REGULATIONS
Tenant and Tenant's agents, servants, employees, contractors, visitors
and licensees shall observe faithfully and comply strictly with the Rules and
Regulations attached and made a part of this lease, and such other and further
reasonable Rules and Regulations as Landlord or Landlord's agents may from time
to time adopt. Notice of any additional Rules or Regulations shall be given in
accordance with the provisions of Article 23 below. Landlord agrees to use
reasonable efforts to enforce the Rules and Regulations among all tenants of the
Building in a nondiscriminatory manner. Landlord shall not be liable to Tenant
for violation of any of said Rules and Regulations, or the breach of any term or
covenant in any lease, by any other tenant or other party in the Building.
10. LIABILITY
Neither Landlord nor Landlord's agents shall be liable for any property
entrusted to them, their employees or the Building personnel, or for the loss of
such property by theft or otherwise. Neither Landlord nor Landlord's agents
shall be liable for any injury to or death of persons or for loss of or damage
to property resulting from falling plaster, steam, gas, electricity, water, or
rain which may leak from any part of the Building or from the pipes, appliances
or plumbing works of the same or from the street or sub-surface or from any
other place or resulting from dampness or any other cause of any nature, and
Tenant hereby indemnifies Landlord against any and all claims, losses, damages,
costs, and expenses (including, but not limited to, attorneys' fees and
expenses) arising out of the foregoing, except to the extent caused by the
negligence of Landlord, Landlord's agents, servants or employees. Neither
Landlord nor Landlord's agents shall be liable
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for any such damage caused by other tenants or parties in the Building or any of
the areas used in connection with the operation of the Building, or for
interference with the light or other incorporeal hereditaments, or caused by
construction of any private, public or quasi-public work; nor shall Landlord be
liable for any latent defect in the Building. If known to Tenant, Tenant shall
give immediate notice to Landlord in case of fire or accident to or defect in
the Building or any of its fixtures, appurtenances or equipment.
11. DAMAGE OR DESTRUCTION
If the demised premises shall be partially damaged by fire or other
cause without the fault or neglect of Tenant, Tenant's agents, servants,
employees, contractors, visitors or licensees, the damages shall be repaired by
and at the expense of Landlord, and the rent until such repairs shall be made
shall be apportioned according to the part of the demised premises which is
tenantable or used by Tenant. If such partial damage is due to the fault or
neglect of Tenant or Tenant's agents, servants, employees, contractors, visitors
or licensees, there shall be no apportionment or abatement of rent, and Tenant
shall, at its sole cost, promptly restore the demised premises to their original
condition. No liability shall accrue for reasonable delay which may arise by
reason of adjustment of insurance on the part of Landlord, for reasonable delay
on account of "labor troubles," or any other cause beyond Landlord's control. If
more than twenty-five percent (25%) of the rentable area of the demised premises
is damaged to the extent that Tenant cannot occupy such portion of the rentable
area of the demised premises or such rentable area is rendered wholly
untenantable in Landlord's reasonable judgment by fire or other cause, or if the
Building shall be so damaged that Landlord shall decide to demolish it or to
rebuild it, then in any of such events either party may elect to cancel this
lease by providing written notice thereof to the other party within ninety (90)
days after the occurrence of such fire or other cause, and thereupon the term of
this lease shall expire by lapse of time upon the third day after such notice is
given, and Tenant shall vacate the demised premises and surrender the same to
Landlord. However, if such damage is without the fault or neglect of Tenant,
Tenant's agents, servants, employees, contractors, visitors or licensees and if
the lease is not cancelled pursuant to the terms hereof then rent under this
lease shall be apportioned according to the part of the demised premises which
is tenantable or used by Tenant until the restoration is complete.
12. EMINENT DOMAIN
If the whole or any part of the demised premises shall be taken or
condemned for all or any portion of the term of this lease by any competent
authority for any public or quasi-public use or purpose, or transferred by
agreement in connection with such public or quasi-public use or purpose with or
without any condemnation action or proceeding being instituted (collectively,
"Condemnation Action"), then the term of this lease shall, at the option of
Landlord, terminate as of the date when possession is taken by the condemning
authority. If Landlord chooses not to terminate this lease, this lease shall
remain in full force and effect, but the Base Annual Rent shall be
proportionately reduced to the extent the demised premises are taken pursuant to
the
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condemnation. In the event more than twenty-five percent (25%) of the rentable
area of the demised premises shall be taken or condemned for all or any portion
of the term of this lease as a result of a Condemnation Action, then the term of
this lease shall, at the option of Tenant, terminate as of the date that Tenant
completely vacates the demised premises, provided Tenant delivers written notice
("Tenant's Termination Notice") of its election to terminate within sixty (60)
days after such taking, time being of the essence. Tenant further agrees that in
the event it elects to terminate the term of the lease as provided in this
Article 12 it shall completely vacate the demised premises within sixty (60)
days after the delivery of Tenant's Termination Notice.
Upon such taking or purchase, Landlord shall be entitled to receive and
retain the entire award or consideration for the affected lands and
improvements, and Tenant shall not have nor advance any claim against Landlord
for the value of its property or its leasehold estate or the unexpired term of
this lease, or for cost of removal or relocation, or business interruption
expense or any other damages arising out of such taking or purchase.
13. SERVICES
Landlord shall:
(A) provide automatic elevator facilities at all times;
(B) on Monday through Friday from 8 a.m. to 6 p.m., and on
Saturday from 8 a.m. to 12 noon (and at other times for a reasonable
additional charge to be fixed by Landlord) ventilate the demised
premises and furnish the heating or air conditioning when it may be
required for the comfortable occupancy of the demised premises. Tenant
agrees to keep and cause to be kept closed all doors from the demised
premises and the windows in the demised premises, and Tenant agrees to
cooperate fully at all times with Landlord and to abide by all
regulations and requirements which Landlord may prescribe for the
proper functioning and protection of the heating, ventilating and air
conditioning system. Tenant shall not install or use in the demised
premises any equipment which would generate heat so as to adversely
affect the heating, ventilating and air conditioning system. Throughout
the term of this lease, Landlord shall have free access to any and all
mechanical installations of Tenant, including, but not limited to, air
conditioning, fan, ventilating and machine rooms, telephone rooms and
electrical closets. Tenant agrees that there shall be no construction
of partitions or other obstructions which might interfere with
Landlord' s free access to such areas, or interfere with the moving of
Landlord's equipment to or from the enclosures containing said
installations;
(C) provide electricity for normal and usual lighting and
office business machines only. Tenant agrees not to use any apparatus
or device in the demised premises which may in any way increase the
amount of such electricity usually furnished or supplied to the demised
premises, and Tenant further agrees not to connect any apparatus
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or device to the wires, conduits or pipes, or other means by which such
electricity is supplied for the purpose of using additional or unusual
amount of electricity without the consent of Landlord. If Tenant uses
the same to excess or follows a regular practice of using electricity
beyond the normal business hours as set in paragraph (B) immediately
above, Landlord shall have the right to estimate from time to time
(prospectively) the amount that Tenant should pay on account of such
use, and Tenant, after notice by Landlord of such estimate or revised
estimate, agrees to pay such amount on the first day of each calendar
month thereafter or, if such estimate be made during the last month of
the term or after its expiration, promptly upon demand by Landlord.
Further, if Tenant uses unusual amounts of electricity, in the sole
discretion of Landlord, Landlord may install a meter and thereby
measure Tenant's electricity consumption for all purposes. Landlord
shall be responsible for the cost of the meter and the cost of its
installation, and throughout the duration of Tenant's occupancy Tenant
shall keep the meter in good working order and repair at Tenant's own
cost and expense. Tenant agrees to pay for electricity consumed, as
shown on the meter, concurrently with the next monthly installment of
rent due after receipt of a Statement or invoice from Landlord. At all
times Tenant's use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installation;
(D) furnish water for drinking, shower, kitchen and lavatory
purposes only, but if Tenant requires, uses or consumes water for any
purpose in addition to ordinary drinking and lavatory purposes, then in
Landlord's sole discretion, Landlord may install a water meter and
thereby measure Tenant's water consumption for all purposes. Landlord
shall be responsible for the cost of the meter and the cost of the
installation thereof, and throughout the duration of Tenant's occupancy
Tenant shall keep the meter and installation equipment in good working
order and repair at Tenant's own cost and expense. Tenant agrees to pay
for water consumed, as shown on the meter, within five (5) days after
receipt of a statement or invoice from Landlord; and
(E) cause the demised premises to be kept clean, provided the
same are used exclusively as ordinary desk-type offices, and are kept
reasonably in order by Tenant. If Tenant chooses to provide its own
janitorial service, such services shall be provided only by a
contractor approved in writing in advance by Landlord. Tenant shall pay
to Landlord the cost of removal of any of Tenant's refuse and rubbish
to the extent that the same exceeds the refuse and rubbish usually
attendant upon the use of the demised premises exclusively as ordinary
desk-type offices.
Tenant shall at all times maintain at its own cost and expense all
plumbing facilities and related equipment within the demised premises in good
order, condition and repair. Tenant hereby indemnifies Landlord against any and
all claims, liabilities, losses, damages, costs and expenses whatsoever
(including, but not limited to, attorneys' fees and expenses) whether suffered
by Landlord or other occupants or persons in the Building or any of the areas
used in
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connection with the operation thereof arising out of the foregoing, unless
caused by or due solely to the negligence of Landlord, Landlord's agents,
servants or employees.
Landlord reserves the right to stop service of the elevator, plumbing,
heating, ventilating, air conditioning and electric or other mechanical systems,
or cleaning services, when necessary, by reason of accident or emergency or of
inspection, repairs, alterations, additions or improvements which in the
judgment of Landlord are desirable or necessary to be made, until same shall
have been completed. Landlord agrees to use reasonable efforts to minimize
interference with Tenant's access to and use of the demised premises in the
event of the occurrence of any of the foregoing. Landlord shall have no
responsibility or liability for failure to supply any of such services in such
instance.
Tenant shall take good care of any and all floor and window coverings
installed in the demised premises, and Tenant shall make, as and when needed,
all repairs in and to the coverings and shampoo and/or clean any of the
coverings as necessary to preserve them in good order, condition and appearance;
provided, however, that Landlord agrees, as part of the janitorial services
provided, to shampoo the carpeted traffic areas of the demised premises once
each calendar year during the term of this lease.
Tenant agrees that Landlord shall not be liable for failure to supply
any of the services described in this Article 13 during any period when Landlord
uses reasonable diligence to supply such services. It is understood that
Landlord reserves the right to temporarily discontinue such services, or any of
them, at such time as may be necessary by reason of accident, unavailability of
employees, repairs, alterations or improvements or whenever by reason of
strikes, lockouts, riots, acts of God or any other happening beyond the control
of Landlord. Landlord shall not be liable for damages to persons or property for
any such discontinuance, nor shall such discontinuance in any way be construed
as eviction of or cause an abatement of rent or operate to release Tenant from
any of the Tenant's obligations hereunder. Notwithstanding the foregoing
provisions of this Article 13, Base Annual Rent shall be abated as provided
below in case Landlord fails to provide (other than by reason of Tenant's
default) a service which Landlord has agreed to provide under paragraphs (B),
(C) and (D) of this Article if: (i) the prevention of the interruption of the
service is within the reasonable control of Landlord (ii) if such interruption
continues for five (5) consecutive calendar days and (iii) as a result of such
interruption Tenant is not able to use the demised premises (or the affected
portion thereof) for the operation of Tenant's business. In the event of the
occurrences of the foregoing, the Base Rent for the demised premises (or, if
only a portion of the demised premises is affected, prorated for such portion)
shall be abated commencing on the sixth (6th) consecutive calendar day of such
disruption until the service in question has been restored. In the event such
failure renders more than fifty percent (50%) of the rentable area of the
demised premises unusable for the operation of Tenant's business for over sixty
(60) consecutive days, Tenant shall have the right to terminate this lease upon
delivery of written notice to Landlord, provided that Tenant completely vacates
the demised premises in compliance with the provisions of Article 19 hereof
within sixty (60) days after delivery of such
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notice. Landlord's obligation to furnish services shall be conditioned upon the
availability of adequate energy sources from the public utility companies then
servicing the Boulder, Colorado area.
14. ACCESS TO PREMISES
Tenant shall permit Landlord to use and maintain pipes and conduits in
and through the demised premises. Landlord and Landlord's agents shall have the
right to enter the demised premises at all times, to examine the same and to
make such repairs, alterations, additions and improvements as Landlord may deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon the demised premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part, and, subject to the
provisions of Article 11 above, the rent reserved shall in no way abate while
such repairs, alterations, additions or improvements are being made, by reason
of inconvenience, annoyance or injury to the business of Tenant because of the
prosecution of any such work. Landlord agrees to use reasonable efforts to
minimize the interference with Tenant's use of the demised premises as resulting
from the completion of such repairs, alterations, additions or improvements.
Landlord and Landlord's agents are expressly granted permission to inspect the
demised premises at any reasonable time and to show the demised premises at any
reasonable time to prospective tenants, mortgagees, purchasers, lessees of the
Building and other persons with a business interest therein. If Tenant shall not
be personally present to open and permit an entry into the demised premises at
any time when for any reason an entry shall be necessary or permissible under
this lease, Landlord or Landlord's agents may (after attempting to provide
reasonable verbal notice to Tenant except in an emergency situation in which
event Landlord shall not be required to attempt to provide such notice) enter
the same by a master key, or in the event of emergency may forcibly enter the
demised premises without rendering Landlord or such agents liable therefor (if
during such entry Landlord or Landlord's agents shall accord reasonable care to
Tenant's property), and without in any manner affecting the obligations, terms,
covenants, conditions, provisions or agreements of this lease. Landlord shall
have the right to change the name, number and designation by which the Building
is commonly known; provided, however, that Landlord shall not be permitted to
change Tenant's Sign (as hereinafter defined). Nothing herein contained,
however, shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever for the care, supervision or repair of
the Building or any part thereof, other than as otherwise provided in this
lease.
15. BANKRUPTCY
(A) During Term. If on or prior to the Commencement Date or at
any time during the term there shall be filed by Tenant in any court
pursuant to any statute either of the United States or of any State a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee or conservator of all or a portion
of Tenant's property, or if there shall be filed against Tenant in any
court pursuant
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to any statute either of the United States or of any State an
involuntary petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee or conservator of all
or a portion of Tenant's property which is not dismissed within sixty
(60) days of filing, or if Tenant makes an assignment for the benefit
of creditors, this lease, at the option of Landlord exercised within a
reasonable time after notice of the happening of any one or more of
such events, may be cancelled and terminated. In such event neither
Tenant nor any person claiming through or under Tenant or by virtue of
any statute or of an order of any court shall be entitled to possession
or to remain in possession of the demised premises, but shall forthwith
quit and surrender the demised premises. Landlord, in addition to the
other rights and remedies granted by paragraph (B) of this Article or
by virtue of any other provision in this lease contained or by virtue
of any statute or rule of law, may retain as damages any rent,
security, deposit or moneys received by it from Tenant or others on
behalf of Tenant.
(B) Measure of Damages. In the event of the termination of
this lease pursuant to paragraph (A) of this Article, Landlord shall be
entitled to the same rights and remedies as those set forth in
paragraphs (E) and (F) of Article 16 and in Article 18 of this lease.
(C) In the event of the occurrence of any of the events
specified in this Article, if Landlord shall not choose to exercise, or
by law shall not be able to exercise, its rights hereunder to terminate
this lease, then, in addition to any other rights of Landlord hereunder
or by law, (i) Landlord shall not be obligated to provide Tenant with
any of the services specified in Article 13 above, unless Landlord has
received compensation in advance for such services, and the parties
agree that Landlord's estimate of the compensation required with
respect to such services shall control, and (ii) neither Tenant, as
debtor-in-possession, nor any trustee or other person (hereinafter
collectively called the "Assuming Tenant") shall be entitled to assume
this lease unless, on or before the date of such assumption, the
Assuming Tenant (x) cures, or provides adequate assurance that the
latter will promptly cure, any existing default under this lease, (y)
compensates, or provides adequate assurance that the Assuming Tenant
will promptly compensate, Landlord for any pecuniary loss (including,
without limitation, reasonable attorneys' fees and disbursements)
resulting from such default, and (z) provides adequate assurance of
future performance under this lease. It is agreed by the parties that
any cure or compensation shall be effected by the immediate payment of
any monetary default, the immediate correction or bonding of any
nonmonetary default, and "adequate assurance" of future performance
shall be effected by the establishment of an escrow fund for the amount
at issue or by bonding. It is acknowledged and agreed by Tenant that
the foregoing provision was a material part of the consideration for
this lease.
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16. EVENTS OF DEFAULT AND REMEDIES
(A) It shall, at Landlord's option, be deemed a breach of this
lease if:
(1) Tenant shall fail to pay when due any installment
of Base Annual Rent or any other sum payable by Tenant
pursuant to this lease and the continuation of such failure
without cure for at least five (5) days after Landlord has
given written notice to Tenant stating and identifying the
amount improperly unpaid (provided, however, that as to the
failure to pay Base Annual Rent on a timely basis, Landlord
shall not be required to give Tenant more than two (2) such
written notices of default in any period of twenty-four (24)
consecutive months, so that the third (3rd) or any subsequent
failure to timely pay any installment of Base Annual Rent in
any such twenty-four (24) month period shall constitute an
immediate breach of this lease without the need for any
written notice of that failure;
(2) Tenant shall fail to perform or observe any other
term, covenant, condition, provision or agreement of this
lease and Tenant shall fail to remedy said default within ten
(10) days after written notice specifying said default is
given by Landlord to Tenant (or within such period as may be
reasonably required to cure such default if it is of such a
nature that it cannot be cured within such 10- day period,
provided that Tenant commences to remedy such default within
that 10-day period and proceeds with reasonable diligence
thereafter to cure such default, provided, however, in any
event such default must be cured within ninety (90) days);
(3) In excess of fifty percent (50%) of the rentable
area of the demised premises become vacant or deserted;
(4) Any execution or attachment shall be issued
against Tenant or any of Tenant's property located on the
demised premises and such execution or attachment is not
discharged or released within thirty (30) days;
(5) The demised premises shall be taken or occupied
or attempted to be taken or occupied by someone other than
Tenant without compliance with the provisions of Article 4
above;
(6) Tenant assigns or otherwise transfers
substantially all of the assets used in connection with the
business conducted in the demised premises without compliance
with the provisions of Article 4 above;
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(7) Tenant or any duly authorized agent or officer of
Tenant makes any written statement regarding its financial
condition so as to materially mislead Landlord with regard to
Tenant's financial standing and ability to perform its
covenants and obligations under this lease.
(B) In the event that Landlord elects, pursuant to subsection
(A) of this Article, to declare a breach of this lease, then Landlord
shall have the right to give Tenant three (3) days, notice of intention
to end the term, and thereupon, at the expiration of said three (3)
days the term shall expire as fully and completely as if that day were
the day herein definitely fixed for the expiration of the term. Tenant
shall then quit and surrender the demised premises to Landlord, but
Tenant shall remain liable as hereinafter provided. If Tenant fails to
quit and surrender the demised premises, Landlord shall have the right,
without notice, to re-enter the demised premises either by force or
otherwise and dispossess Tenant and the legal representatives of Tenant
and all other occupants of the demised premises by unlawful detainer or
other summary proceedings, or otherwise, and remove their effects and
regain possession of the demised premises (but Landlord shall not be
obligated to effect such removal).
(C) In the event of any breach of this lease by Tenant (and
regardless of whether Tenant has abandoned the demised premises), this
lease shall not terminate unless Landlord, at Landlord's option, gives
written notice terminating this lease. For as long as this lease
continues in effect, Landlord may enforce all of Landlord's rights and
remedies under this lease, including the right to recover all rent as
it becomes due hereunder. For the purposes of this paragraph (C), the
following shall not constitute termination of this lease: (1) acts of
maintenance or preservation or efforts to relet the demised premises,
or (2) the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this lease, or (3) service of a
statutory notice by Landlord upon Tenant requiring payment of rent or
possession of the demised premises.
(D) In the event Tenant abandons the demised premises,
Landlord may, but shall be under no obligation to, at any time and from
time to time, re-enter and relet the demised premises in whole or in
part without terminating this lease. Such reletting may be either in
its own name or as agent of Tenant, for a term or terms which, at the
option of Landlord, may be for the remainder of the term of this lease,
or for any longer or shorter period, and at its option Landlord may
make such alterations, repairs, and/or decorations in the demised
premises as in its reasonable judgment it considers advisable and
necessary in connection with such reletting, and the making of such
alterations, repairs, and/or decorations shall not operate or be
construed to release Tenant from liability under this lease. Landlord
shall in no event be liable in any way whatsoever for failure to
collect rent under such reletting, and in no event shall Tenant be
entitled to receive any excess of rent under such reletting over the
sums payable by Tenant to Landlord under this lease. In the event of
abandonment and if Landlord elects not to terminate this lease,
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Tenant shall be liable to Landlord for rent (payable as set forth in
this lease and continuing thereafter until the date originally fixed
for the expiration of the term) in an amount or amounts equal to the
excess, if any, of the amount of aggregate expenses paid or incurred by
Landlord during the immediately preceding month (1) for all such items
as, by the terms of this lease, are required to be paid by Tenant and
(2) for reasonable legal expenses, reasonable attorneys' fees, court
costs, expenses of reletting (including without limitation alterations
and repairs as may be made), and all costs (including without
limitation attorneys' and receivers' fees) incurred in connection with
the appointment of and performance by any receiver, plus an amount
equal to the amount of the installment of rent which would have been
payable by Tenant hereunder in respect of such month period had Tenant
not abandoned the demised premises, over the rents, if any, collected
by Landlord in respect of such month period pursuant to any reletting.
Any suit or action brought to collect the amount of the deficiency for
any month or months period shall not prejudice in any way the rights of
Landlord to collect rents from time to time for any month or months
period in subsequent proceedings.
(E) In the event of termination of this lease as a result of
Tenant's breach of this lease or pursuant to Article 15 above, Landlord
shall have the right:
(1) To remove any and all persons and property from
the demised premises, with or without legal process, and
pursuant to such rights and remedies as the laws of the State
of Colorado shall then provide or permit, but Landlord shall
not be obligated to effect such removal. Said property may, at
Landlord's option, be stored or otherwise dealt with as
provided in this lease or as such laws may then provide or
permit, including but not limited to the right of Landlord to
sell or otherwise dispose of the same or to store the same, or
any part thereof, in a warehouse or elsewhere at the expense
and risk of and for the account of Tenant.
(2) To recover from Tenant damages, which shall
include but shall not be limited to: (a) expenses incurred by
Landlord for reasonable legal expenses, reasonable attorneys'
fees, court costs, for reletting (including but not limited to
advertising and brokerage), for putting the demised premises
in good order, condition and repair, for preparing the same
for reletting, and for keeping the demised premises in good
order, condition and repair (before and after Landlord has
prepared the same for reletting), and all costs incurred in
connection with the appointment of and performance by any
receiver, and (b) the equivalent of the amount of rent and
other charges which would be payable under this lease by
Tenant if this lease were still in effect, less the net
proceeds of any reletting, after deducting all Landlord's
expenses in connection with such reletting, including, without
limitation, expenses for advertising, brokerage, putting the
demised premises in good order, condition and repair,
preparing the same for reletting, and keeping the demised
premises in good order, condition and repair (before and
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after Landlord has prepared the same for reletting). Tenant
shall pay the amount of such damages to Landlord monthly on
the days on which the rent would have been payable under this
lease if this lease were still in effect, and which Landlord
shall be entitled to recover from Tenant as each monthly
deficiency shall arise.
(3) In lieu collecting any or further monthly
deficiencies as set forth in subsection (b) of Section (E)(2),
Landlord shall be entitled to recover from Tenant, as
liquidated damages for such breach, in addition to any damages
becoming due under subsection (a) of Section (E)(2), an amount
equal to the difference between the present value of the Base
Annual Rent, additional rent and all other sums due Landlord
hereunder, from the date of such breach to the date of the
expiration of the term and the present reasonable rental value
of the demised premises for the same period, both discounted
to the date of such breach at a rate of 6% per annum.
(4) To enforce, to the extent permitted b the laws of
the State of Colorado then in force and effect, any other
rights or remedies set forth in this lease or otherwise
applicable hereto by operation of law or contract.
(F) In the event of a breach or threatened breach by Tenant of
any of the terms or covenants of this lease, Landlord shall
additionally have the right of injunction, and Tenant agrees to pay the
premium for any bond required in connection with such injunction.
Mention in this lease of any particular remedy shall not preclude
Landlord from any other remedy, at law or in equity.
(G) Tenant acknowledges that late payments cause Landlord to
incur costs not contemplated by this lease, the exact amounts of which
are extremely difficult to ascertain, such as processing and accounting
charges and late charges imposed on Landlord by any mortgage or deed of
trust encumbering the real property or Building. Without any
requirement for notice, for each month rent is not paid within ten (10)
days after due date, Tenant shall pay to Landlord a late charge equal
to the greater of $25.00 or 4% of such amount due for each thirty (30)
day period, or fraction thereof, during which such amount remains
unpaid. This provision for a late charge shall be in addition to all of
Landlord's other rights and remedies available under this lease or at
law.
17. FEES AND EXPENSES
If Tenant defaults in the performance of any of its obligations under
this lease, Landlord may immediately, or at any time thereafter, without notice,
perform the same for the account of Tenant. If Landlord at any time is compelled
to pay or elects to pay any sum of money or do any act which will require the
payment of any sum of money (including but not limited to employment of
attorneys or incurring of costs), by reason of the failure of Tenant to comply
with
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any term or covenant hereof, or, if Landlord is compelled to incur or elects to
incur any expense (including but not limited to reasonable attorneys' fees in
instituting, prosecuting or defending any action or proceeding, regardless of
whether such action or proceeding proceeds to judgment) by reason of any default
of Tenant hereunder, the sums so paid by Landlord with interest at the lease
rate, and costs and damages shall be due from Tenant to Landlord promptly upon
demand by Landlord.
18. NO REPRESENTATIONS BY LANDLORD
Neither Landlord nor Landlord's agents have made any representations or
promises with respect to the real property, Building or the demised premises
except as expressly set forth in this lease. The taking of possession of the
demised premises by Tenant shall be conclusive evidence that Tenant accepts the
same in then "as is" condition and that the demised premises and the Building
were in good and satisfactory condition at the Commencement Date.
19. END OF TERM
Upon the expiration or earlier termination of this lease, Tenant shall
quit and surrender the demised premises to Landlord, broom clean, in as good
order, condition and repair as they now are or may hereafter be placed, ordinary
wear excepted. Tenant shall remove all property of Tenant, as directed by
Landlord. Any property left on the demised premises at the expiration or earlier
termination of this lease, or after the happening of any of the events of
default set forth in Article 16 above, may, at the option of Landlord, either be
deemed abandoned or be placed in storage at a public warehouse in the name of
and for the account of and at the expense and risk of Tenant. If such property
is not claimed by Tenant within ten (10) days after such expiration,
termination, or the happening of an event of default, it may be sold or
otherwise disposed of by Landlord. Tenant expressly releases Landlord of and
from any and all claims and liability for damage to or loss of property left by
Tenant upon the demised premises at the expiration or earlier termination of
this lease, and Tenant hereby indemnifies Landlord against any and all claims
and liability with respect thereto. If Tenant holds over after the said term
with the consent of Landlord, express or implied, such tenancy shall be from
month to month only and shall not be a renewal hereof, and Tenant shall pay the
rent and all the other charges at the same rate as herein provided and also
comply with all of the terms, covenants, conditions, provisions and agreements
of this lease for the time during which Tenant holds over. If Tenant holds over
after the said term without the consent of Landlord, Tenant shall be liable to
Landlord for use and occupancy of the demised premises in an amount agreed to be
one and one-half (1-1/2) the monthly installment of Base Annual Rent and all the
other charges as provided in this lease for the last month of the term
hereunder. In the event Tenant holds over without Landlord's consent for a
period exceeding sixty (60) days beyond the term of this lease, Tenant shall be
additionally responsible to Landlord for all damage (including but not limited
to the loss of rent) which Landlord shall suffer by reason thereof, and Tenant
hereby indemnifies Landlord against all claims made by any succeeding tenant
against Landlord, resulting from delay by Landlord in
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delivering possession of the demised premises to such succeeding tenant. In the
event Tenant holds over after the said term without the consent of Landlord,
Landlord shall be responsible for mitigating its damages to the extent required
by law. Tenant's obligation to observe or perform all of the terms, covenants,
conditions, provisions and agreements of this Article shall survive the
expiration or other termination of this lease.
20. QUIET POSSESSION
Landlord covenants and agrees with Tenant that upon Tenant's paying
said rent and observing and performing all of the terms and covenants of this
lease on Tenant's part to be observed or performed, Tenant shall have quiet
possession of the premises hereby demised, for the term, subject, however, to
the terms of this lease and of any ground leases, underlying leases, mortgages
and deeds of trust affecting all or any portion of the real property, Building
or any of the areas used in connection with the operation of the real property
or Building.
21. TERMINATION, NO WAIVER, NO ORAL CHANGE
In the event that this lease terminates for any reason (including but
not limited to termination by Landlord) prior to its natural expiration date,
such termination will effect the termination of any and all agreements for the
extension of this lease (whether expressed in an option, exercised or not, or
collateral document or otherwise); any right herein contained on the part of
Landlord to terminate this lease shall continue during an extension hereof, any
option on the part of Tenant herein contained for an extension hereof shall not
be deemed to give Tenant any option for a further extension beyond the first
extended term. Interruption or curtailment of any services which could not
reasonably have been avoided by Landlord shall not constitute a constructive or
partial eviction or, except as otherwise provided in Article 13, entitle Tenant
to any abatement of rent or any compensation (including but not limited to
compensation for annoyance, inconvenience or injury to business). No act or
thing done by Landlord or Landlord's agents during the term hereby demised shall
be deemed an acceptance of a surrender of the demised premises, and no agreement
to accept such surrender shall be valid unless in writing signed by Landlord. No
employee of Landlord or of Landlord's agents shall have any power to accept the
keys of the demised premises prior to the termination of this lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of this lease or of surrender of the demised premises.
The failure of Landlord to seek redress for violation of, or to insist upon the
strict performance of, any term, covenant, condition, provision or agreement of
this lease or any of the Rules and Regulations attached to this lease or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all the force and effect of
an original violation. The receipt by Landlord of rent with knowledge of the
breach of any term, covenant, condition, provision or agreement of this lease
shall not be deemed a waiver of such breach. The failure of Landlord to enforce
any of the Rules and Regulations attached to this lease, or hereafter adopted,
against Tenant or any other tenant in the Building shall not be deemed a waiver
of any such Rule and Regulation. No
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provision of this lease shall be deemed to have been waived by Landlord, unless
such waiver be in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this lease provided. This
lease contains the entire agreement between the parties, and recites the entire
consideration given and accepted by the parties. Any agreement hereafter made
shall be ineffective to change, modify, waiver or discharge it in whole or in
part unless such agreement is in writing and signed by the party against whom
enforcement of the change, modification, waiver or discharge is sought.
22. INABILITY TO PERFORM
This lease and the obligation of Tenant to pay rent hereunder and to
keep, observe and perform all of the other terms and covenants of this lease on
the part of Tenant to be kept, observed or performed shall in no way be
affected, impaired or excused because Landlord is unable to fulfill any of its
obligations under this lease or to supply, or is delayed or curtailed in
supplying, any service to be supplied or is unable to make, or is delayed or
curtailed in making, any repairs, alterations, decorations, additions or
improvements, or is unable to supply, or is delayed or curtailed in supplying,
any equipment or fixtures, if Landlord is prevented, delayed or curtailed from
so doing by reason of any cause beyond Landlord's reasonable control, including,
but not limited to, acts of God, strike or labor troubles, fuel or energy
shortages, including, but not limited to, natural gas shortages, governmental
preemption or curtailment in connection with a national emergency or in
connection with any rule, order, guideline or regulation of any department or
governmental agency or by reason of the conditions of supply and demand which
have been or are affected by a war or other emergency. Any such prevention,
delay or curtailment shall be deemed excused and Landlord shall not be subject
to any liability resulting therefrom.
23. BILLS AND NOTICES
A notice or communication which Landlord may desire or be required to
give to Tenant, shall be deemed sufficiently given or rendered if in writing,
delivered to Tenant personally or sent by certified mail addressed to Tenant at
the Building. The receipt of any notice or communication shall be deemed to be
the time when the same is delivered to Tenant or mailed as provided above. Any
notice or communication by Tenant to Landlord must be in writing and served by
certified mail (postage fully prepaid) addressed to Landlord, at the address set
forth in Article L of Section I, or at such other address as Landlord shall
designate by notice given as herein provided, and the time of the giving of such
notice, request, demand or communication shall be deemed to be the time when the
same is mailed as provided above.
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24. SECURITY [Intentionally Omitted]
25. MARGINAL NOTES
The marginal notes are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
lease.
26. BROKERAGE
Tenant represents that Tenant has dealt directly with (and only with)
the broker listed in Article N of Section I as broker in connection with this
lease and that no other broker negotiated this lease or is entitled to any
commission in connection with it.
27. BINDING EFFECT
All of the terms, conditions, provisions and agreements of this lease
shall be deemed to be covenants. The covenants contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective legal
representatives and successors, and, except as otherwise provided in this lease,
their assigns.
28. CERTAIN RIGHTS RESERVED TO THE LANDLORD
Landlord reserves the following rights:
(A) To name the Building and to change the name or street
address of the Building.
(B) To install and maintain a sign or signs on the exterior or
interior of the Building.
(C) To approve all sources furnishing sign painting and
lettering in the demised premises.
29. MISCELLANEOUS
(A) This lease is offered to Tenant for signature by Tenant,
and this lease shall not be binding upon Landlord unless and until such
time as Landlord shall have executed and delivered the same.
(B) If a partnership or more than one legal person is at any
time Tenant, (1) each partner and each legal person is jointly and
severally liable for the keeping, observing and performing of all of
the terms, covenants, conditions, provisions and
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agreements of this lease to be kept, observed or performed by Tenant,
and (2) the term "Tenant" as used in this lease shall mean and include
each of them jointly and severally, and the act of or notice from, or
notice or refund to, or the signature of, any one or more of them, with
respect to the tenancy or this lease, including but not limited to, any
renewal, extension, expiration, termination or modification of this
lease, shall be binding upon each and all of the persons executing this
lease as Tenant with the same force and effect as if each and all of
them had so acted or so given or received such notice or refund or so
signed. Termination of a partnership-Tenant shall be deemed to be an
assignment jointly to all of the partners, who shall thereafter be
governed by the next preceding clauses "(1)" and "(2)" hereof just as
if each and all such former partners had initially signed this lease as
individuals.
(C) In the event any term or covenant of this lease is held to
be invalid or void by any court of competent jurisdiction, the
invalidity of any such term or covenant shall in no way affect any
other term or covenant of this lease.
(D) Landlord shall not be obligated to provide or maintain any
security patrol or security system. However, if the parties hereto
mutually agree that Landlord shall provide such patrol or system, the
cost thereof shall be included in Operating Costs as defined in Article
2 above. Landlord shall not be responsible for the quality of any such
patrol or system which may be provided hereunder or for damage or
injury to Tenant, its employees, invitees or others due to the failure,
action or inaction of such patrol or system.
(E) The maintenance and repair of the parking area shall be an
item of Operating Costs under Article 2 above.
(F) Any basement storage space or other storage space at any
time demised to Tenant hereunder shall be used exclusively for storage.
Notwithstanding any other provision of this lease to the contrary, (1)
only such ventilation and heating will be furnished by Landlord as
will, in Landlord's judgment, be adequate for use of said space for
storage, (2) no cleaning, water or air conditioning will be furnished
therefor, and (3) only such electricity will be furnished hereto as
will, in Landlord's judgment, be adequate to light said space as
storage space.
(G) Time is of the essence with respect to the performance of
each and every provision of this lease. In the event the last day
permitted for the performance of any act required or permitted under
this lease falls on a Saturday, Sunday, or holiday, the time for such
performance will be extended to the next succeeding business day. Each
time period under this lease will exclude the first day and include the
last day of such period.
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(H) Neither this lease, nor any notice nor memorandum
regarding the terms hereof shall be recorded by Tenant. Any such
recording shall give Landlord the right to declare a breach of this
lease and pursue the remedies provided herein.
(I) If the name of Tenant or any successor or assign shall be
changed during the term of this lease, such party shall promptly notify
Landlord thereof, which notice shall be accompanied by a certified copy
of the document effecting such change of name.
(J) Tenant shall at any time and from time to time upon not
less than ten (10) days' prior notice from Landlord execute, deliver to
Landlord a statement in writing certifying to those facts for which
certification has been requested by Landlord or any current or
prospective purchaser, mortgagee (or beneficiary under a deed of trust)
or underlying lessor, including without limitation (1) that this lease
is unmodified and in full force and effect (or, if modified, adequately
identifying such modification and certifying that this lease, as so
modified, is in full force and effect) and (2) the dates to which the
base annual rent, additional rent and other charges are paid and (3)
whether there is any default by Landlord or Tenant in the performance
of any term, covenant, condition, provision or agreement contained in
this lease and further whether there are any set-offs, defenses or
counterclaims against enforcement of the obligations to be performed
under this lease and, if there are, specifying each such default,
set-off, defense or counterclaim. Any such statement may be
conclusively relied upon by any prospective purchaser or lessee or
encumbrancer of the demised premises or of all or any portion of the
Building or the areas used in connection with the operation of the
Building. Tenant's failure to verify such statement within such time
shall be conclusive upon Tenant that this lease is in full force and
effect, without modification except as may be represented by Landlord,
that there are no uncured defaults in Landlord's performance, and that
not more than one month's base annual rent has been paid in advance.
(K) Tenant covenants and agrees not to permit, introduce or
maintain in the future in, on or about any portion of the demised
premises, any asbestos, polychlorinated biphenyls, petroleum products
or any other hazardous or toxic materials, wastes and substances which
are defined, determined or identified as such in any federal, state or
local laws, rules or regulations (whether now or existing or hereafter
enacted or promulgated) or any judicial or administrative
interpretation of such laws, rules or regulations (collectively
"Environmental Laws"). Any such asbestos, polychlorinated biphenyls,
petroleum products and any other materials, wastes and substances are
collectively referred to herein as "Hazardous Materials." Tenant
further covenants and agrees to indemnify and save Landlord harmless
against any and all damages, losses, liabilities, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses of any kind or of any
nature whatsoever (including, without limitation, attorneys' and
experts' fees and disbursements) which may at any time be imposed upon,
incurred by or asserted or awarded against Landlord and
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arising from or out of any Hazardous Materials in all or any portion of
the demised premises or the Building, introduced by, or on behalf of,
Tenant including without limitation (i) the cost of removal of all such
Hazardous Materials from all or any portion of the demised premises or
Building, (ii) additional costs required to take necessary precautions
to protect against the release of Hazardous Materials on, in, under or
affecting the demised premises or Building, into the air, any body of
water, any other public domain or any surrounding areas, and (iii)
costs incurred to comply, in connection with all or any part of the
demised premises or Building, with all applicable laws, orders,
judgments and regulations with respect to Hazardous Materials. The
preceding portions of this paragraph 29(K) do not apply to Hazardous
Materials which may be located in the demised premises or Building at
or prior to the initial commencement of any work, construction, repairs
or alterations therein by Tenant. The provisions of this paragraph
29(K) shall survive the termination or expiration of this lease.
(L) Tenant shall submit to Landlord all advertising, sales
promotion and other publicity matters relating to the demised premises,
this lease and to product(s) furnished or service(s) performed by
Tenant wherein the name of Landlord, its subsidiaries or affiliates are
or may be mentioned or may, in Landlord's judgment, be inferred or
implied. Tenant further agrees not to publish or use such advertising,
sales promotion, or publicity matter without the prior written approval
of Landlord, which consent may be given or withheld in Landlord's
reasonable discretion. It is expressly understood that in the foregoing
obligations, including the confidentiality of information received
subsequent to the termination or expiration of this lease, shall
survive the termination or expiration of this lease.
(M) This lease shall create the relationship of landlord and
tenant between Landlord and Tenant; no estate shall pass out of
Landlord; and Tenant has only a usufruct which is not subject to levy
and sale.
(N) It is mutually agreed by and between Landlord and Tenant
that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of
the parties hereto against the other on any matters whatsoever arising
out of or in any way connected with this lease, the relationship of
landlord or tenant, Tenant's use or occupancy of the demised premises,
and any emergency statutory or any other statutory remedy.
(O) No receipt of money by Landlord from Tenant after the
termination of this lease or after the service of any notice or after
the commencement of any suit, or after final judgment for possession of
the demised premises shall reinstate, continue or extend the term of
this lease or affect any such notice, demand or suit or imply consent
for any action for which Landlord's consent is required.
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(P) The term "Landlord" as used in this lease, so far as
covenants or agreements on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners of Landlord's
interest in this lease at the time in question, and in the event of any
transfer or transfers of such interest Landlord herein named (and in
case of any subsequent transfer, the then transferor) shall be
automatically freed and relieved from and after the date of such
transfer of all personal liability as aspects the performance of any
covenants or agreements on the part of Landlord contained in this lease
thereafter to be performed.
(Q) It is understood that Landlord may occupy portions of the
Building in the conduct of Landlord's business. In such event, all
references herein to other tenants of the Building shall be deemed to
include Landlord as an occupant.
(R) All of the covenants of Tenant hereunder shall be deemed
and construed to be "conditions" as well as "covenants" as though the
words specifically expressing or importing covenants and conditions
were used in each separate instance.
(S) Notwithstanding any provision contained in this lease to
the contrary, Tenant agrees that neither Landlord nor any officer,
director, shareholder or agent of Landlord, nor any other person or
entity having any interest, direct or indirect, immediate or more
removed than immediate, in Landlord, shall have any personal liability
with respect to any of the provisions of this lease and Tenant shall
look solely to the estate and property of Landlord in the real property
for the satisfaction of Tenant's remedies, including without
limitation, the collection of any judgment or the enforcement of other
judicial process requiring the payment or expenditure of money by
Landlord, subject, however, to the prior rights of any holder or
beneficiary of any mortgage or deed of trust encumbering all or any
portion of the real property, and no other assets of Landlord or its
officers, directors, shareholders and agents, or of any other aforesaid
person or entity having any interest in Landlord, shall be subject to
levy, execution or other judicial process for the satisfaction of
Tenant's claims.
(T) Tenant shall have the right, at Tenant's sole cost and
expense, at any time after the Commencement Date, to install a sign
(the "Tenant's Sign") on the Building. The Tenant Sign shall comply
with all applicable laws, rules, regulations and codes. The location,
size, materials, coloring, lettering and lighting of the Tenant Sign
shall be subject to Landlord's prior written approval which approval
shall (1) be conditioned upon the Tenant Sign not adversely affecting
any other tenant of the Building (as reasonably determined by Landlord)
nor any signage located upon the Building as of the date hereof (2) be
conditioned upon the Tenant Sign being consistent and compatible with
the Building's design, architecture, signage and graphics and (3) not
be unreasonably withheld. Tenant shall repair and maintain the Tenant
Sign and the characters and letters thereon in a condition comparable
to the condition of similar signs installed or erected on
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comparable first class office buildings located in Boulder, Colorado.
On or before the expiration of this lease or upon written notice from
Landlord at any time Tenant fails to continuously occupy at least
18,000 square feet of rentable area in the Building, Tenant shall
remove the Tenant Sign and shall repair any damage to the Building
caused by the installation, maintenance or removal of the Tenant Sign.
(U) Landlord represents to Tenant, to the best of its actual
knowledge, that there are no Hazardous Materials (other than office
building equipment and cleaning supplies used in accordance with
industry standards and governmental requirements) in the Building, and
the Landlord shall comply with all statutes, rules, orders, regulations
and requirements the federal, state, county and city governments and
all departments thereof applicable to the presence, storage, use,
maintenance or removal of Hazardous Materials in or about the Building,
which presence, storage, use, maintenance or removal is caused by
Landlord. Notwithstanding the foregoing, Tenant shall have the right to
use office equipment and cleaning supplies that may be Hazardous
Materials, so long as such are used in accordance with industry
standards and governmental requirements. In the event the
representation contained in this paragraph becomes materially untrue or
incorrect, and the existence of such condition (y) violates applicable
Environmental Laws, and (z) materially and adversely affects the
Tenant's use and enjoyment of the demised premises, the Landlord shall
be permitted sixty (60) days after receipt of written notice from the
Tenant to bring the Building into compliance with applicable
Environmental Laws; provided, however, in the event such compliance or
registration cannot reasonably be completed or obtained within such
sixty (60) days, Landlord shall not be in default hereunder provided
the Landlord commences such corrective action within said sixty (60)
days and diligently pursues the same to completion.
30. DELETED
31. DELETED
32. DELETED
33. DELETED
34. DELETED
35. RIGHT OF FIRST OFFER
Before entering into a lease for all or any portion of the third floor space in
the Building other than the demised premises (the "Additional Space") during the
original Lease Term, and so long as Tenant is not then in breach of the Lease at
any time prior to execution of the lease for the additional space as provided
below, Landlord will notify Tenant of the Base Annual Rent and
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rental increases ("Rental Terms") on which it would be willing to lease the
Additional Space to Tenant. The Landlord agrees that the Rental Terms shall be
based upon the Additional Space's reasonable market rental value as reasonably
determined by Landlord.
If within ten (10) days after receipt of Landlord's notice, Tenant agrees in
writing to lease the Additional Space for a term not to exceed the remaining
original Lease Term at the Rental Terms, Landlord and Tenant will execute a
lease for the Additional Space within ten (10) days after Landlord's receipt of
Tenant's notice of intent to lease on all the same terms as the Lease, except
for the Rental Terms, tenant improvement allowance, free parking and other
matters which are dependent upon the rentable area of the demised premises, such
as Tenant's Percentage of Operating Expenses. If Tenant does not deliver its
notice of intent to lease all of the Additional Space offered in Landlord's
notice within such ten (10) day period, or if Landlord and Tenant do not enter
into a fully executed lease for the Additional Space within such ten (10) day
period, then this right of first offer to lease the Additional Space will lapse
and be of no further effect and Landlord will have the right to lease the
Additional Space or any portion of the Additional Space to a third party on the
same or any other terms and conditions, whether or not such terms and conditions
are more or less favorable than those offered to Tenant. This right of first
offer to lease is personal to Tenant and its legal successors and is not
transferable to any permitted assignee or subtenant.
This right of first offer shall be subject and subordinate (i) to any renewal
rights, expansion options, rights of first refusal, rights of first offer and
similar tenant rights previously granted to any tenant of the Building and their
respective successors and assigns, and (ii) to any renewal rights, expansion
options, first refusal, rights of first offer and similar tenant rights granted
by Landlord to any tenant leasing any portion of the Additional Space after the
Tenant declined to exercise its right of first offer.
Time is of the essence with respect to the provisions of this Article.
36. RENT ADJUSTMENT
Commencing January 1, 1997 the Base Annual Rent payable by Tenant shall
be increased on the first day of January during each year remaining in the Lease
Term in accordance with this Article 36.
(A) In this Article,
(1) "base year" means calendar year 1996.
(2) "price index" means the consumer price index
published by the Bureau of Labor Statistics of the United
States Department of Labor, U.S. City
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Average, All Items and Major Group Figures for Urban Wage
Earners and Clerical Workers (1982-84 = 100).
(3) "price index for the base year" means the average
of the monthly price indexes for each of the twelve (12)
months of the base year.
(B) The January 1 increase shall be based on the percentage
difference between the price index for the preceding month of December
and the price index for the base year; provided, however, that Base
Annual Rent shall be increased a minimum of three percent (3%) each
year and in no event shall such increase exceed nine percent (9%) for
any year.
(C) If the price index for December in any calendar year
during the Lease Term is greater than the price index for the base
year, then the Base Annual Rent payable commencing on the next January
1 (without regard to any increase pursuant to this Article) shall be
multiplied by the percentage difference between the price index for
December and the price index for the base year, and the product
(subject to the provisions of paragraph 36(B)) will be added to the
Base Annual Rent effective as of January 1. The adjusted Base Annual
Rent shall be payable in equal monthly installments until it is
readjusted pursuant to the terms of this Article.
(D) If substantial change is made in the methodology used in
preparing the price index, then the price index will be adjusted to the
figure that would have been used had the manner of computing the price
index in effect at the date of this lease not been altered. If the
price index (or a successor or substitute index) is not available, a
reliable governmental or other nonpartisan publication evaluating the
information used in determining the price index will be used.
(E) No adjustments will be made due to any revision that may
be made in the price index for any month.
(F) A statement explaining each annual increase shall be
furnished by Landlord to Tenant as soon as reasonably possible each
year and will consist of data prepared by the Landlord in reference to
published Bureau of Labor Statistics indexes.
(G) Landlord's delay or failure of Landlord, beyond January 1
of any year, in computing or billing for an increase in the Base Annual
Rent will not impair the continuing obligation of Tenant to pay such
increase.
(H) Tenant's obligation to pay Base Annual Rent as increased
pursuant to the terms of this Article will continue through the
Expiration Date and will survive any earlier termination of this lease.
-36-
<PAGE>
37. RENEWAL OPTION
(A) Tenant shall have one (1), six (6) year renewal option
(the "Renewal Option") to extend the Lease Term for a renewal term
("Renewal Term"). The Renewal Term shall commence on the day after the
Expiration Date of the Lease Term and shall expire on the sixth
anniversary of the Expiration Date. The Renewal Option shall be
exercisable by Tenant by written notice to Landlord ("Renewal Notice")
given not later than the date that is twenty-one (21) months prior to
the then Expiration Date. Notwithstanding the foregoing provisions of
this paragraph 37(A), Tenant shall not have the right to exercise the
Renewal Option if Tenant is in default under this lease at the time
such Renewal Option if Tenant is in default under this lease at the
time such Renewal Notice is given or at any time thereafter until the
commencement of such Renewal Term.
(B) The Renewal Term shall be upon the same covenants, terms
and conditions as in this Lease for the original Lease Term, except
that the Base Annual Rent on a per rentable square foot basis during
the Renewal Term shall be an amount (the "Renewal Term Base Annual
Rent") equal to the market rental value of the demised premises as
reasonably determined by Landlord after considering the rental rates
charged for comparable office space located in similar class A office
buildings within the City of Boulder. Landlord shall notify Tenant in
writing ("Notice of Rental Amount") of its determination of the Renewal
Term Annual Rent at least nineteen (19) months prior to the first day
of the Renewal Term. Tenant shall have the right to withdraw its
Renewal Notice at any time within thirty (30) days after Tenant's
receipt of the Notice of Rental Amount upon delivery of written notice
to Landlord. If Tenant fails to withdraw its Renewal Notice within said
thirty (30) day period, Tenant shall be deemed to have accepted
Landlord's determination of the Renewal Term Base Annual Rent and the
Renewal Notice shall be irrevocable.
38. PARKING
Tenant shall be permitted to use free of charge 59 parking permits for
the parking garage from the Commencement Date through August 31, 1996. From
September 1, 1996 through the Expiration Date, Tenant shall be permitted to use
its proportionate number of parking permits in the parking garage ("Tenant's
Proportionate Share of Parking Permits"). Tenant's Proportionate Share of
Parking Permits shall be qual to the product obtained by multiplying Tenant's
Percentage by the number of parking spaces located in the parking garage which
are available to tenants of the building from time to time. The parking permits
shall be made available on an unassigned basis and shall be made available
subject to such reasonable rules and regulations as Landlord may from time to
time establish and amend. Landlord shall provide Tenant 50% of the Tenant's
Proportionate Share of Parking Permits free of charge from August 31, 1996
through the Expiration Date. For each additional Parking Permit Tenant shall pay
Landlord the Building Standard Parking Permit Rate.
-37-
<PAGE>
39. EXISTING LEASE AGREEMENTS
Tenant is in possession of and occupies the demised premises pursuant
to the terms of three lease agreements between Tenant and Landlord's
predecessor, PERA, dated April 6, 1988, August 18, 1989, and August 1, 1993,
respectively (collectively referred to herein together with any amendments
thereto as the "Prior Leases"). Landlord and Tenant hereby agree that the Prior
Leases shall be deemed to have expired at 12:00 midnight, August 31, 1994, it
being the intent of Landlord and Tenant that this lease shall supersede and
replace the Prior Leases in all respects as of the Commencement Date.
Any rider or exhibit annexed hereto is made a part hereof.
LANDLORD:
L.C. FULENWIDER, INC., a Colorado corporation
/s/ L.C. Fulenwider III
By:_______________________________________
L. C. Fulenwider, III, President
TENANT:
RCG/HAGLER BAILLY, INC., a District of
Columbia corporation
/s/ Michael D. Yokell
By:_______________________________________
Michael D. Yokell, President
-38-
<PAGE>
RULES AND REGULATIONS
Tenant covenants that the following rules, regulations and stipulations
and such other further rules and regulations as Landlord may make, being, in
Landlord's judgment, necessary, for the safety, care and cleanliness of the
Building and the demised premises or the comfort of the tenants, shall be
faithfully kept, observed and performed by Tenant, and to the best of Tenant's
efforts by the agents, servants, invitees, guests and visitors of the Tenant,
unless waived in writing by Landlord:
1. Landlord shall have the right to control and operate the public
portions of the Building, as well as facilities furnished for the common use of
tenants, in such manner as it deems best for the benefit of all tenants
generally. No tenant shall invite to the demised premises, or permit the visit
of persons in such numbers or under such conditions as to interfere with the use
and enjoyment of the entrances, corridors, elevators and facilities of the
Building by other tenants.
2. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to any security personnel in charge or
not having a pass issued by a tenant or not properly identified, and may require
all persons admitted to or leaving the Building outside of the ordinary business
hours to register.
3. The plaza, sidewalks, entrances, elevators, stairways and corridors
of the Building shall not be obstructed by any tenant or used by it for any
other purpose than for ingress and egress to and from the demised premises, and
no tenant shall place or allow to be placed in or on the entrance, hallways,
corridors, elevators, washrooms or stairways any waste paper, dust, garbage,
refuse or anything whatever that shall tend to make them appear unclean or
untidy.
4. No awnings or other projections over or around the windows,
entrances or penthouse patio deck area of the demised premises shall be
installed by any tenant.
5. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be ordinarily delivered to and removed from the demised
premises only in the freight elevator or the elevator equipped with the
protective elevator cover, at such times and in such manner as provided by the
Landlord. The Landlord shall have the right to approve or disapprove the movers
or moving company employed by any tenant, and each tenant shall cause said
movers to use only the loading facilities and elevator designated by Landlord.
In the event any tenant's movers damage the elevator or any part of the
Building, such tenant shall forthwith pay to Landlord the amount required to
repair said damage.
6. All entrance doors in the demised premises shall be left locked by
tenant when the demised premises are not in use.
-i-
<PAGE>
7. Canvassing, soliciting or peddling in the Building is prohibited and
each tenant shall cooperate to prevent the same.
8. No tenant shall permit the introduction into the demised premises or
the Building of any machine or mechanical device of any nature whatsoever that
may be liable to cause objectionable noise or vibration or be injurious to the
demised premises or the Building.
9. No tenant shall install or permit the installation or use of any
machine dispensing goods on sale in the demised premises (except for a
reasonable quantity of vending machines for Tenant's employee's use only) or the
Building or permit the delivery of any food or beverage to the demised premises
(except for lunches and dinners for employees and customers in quantities which
are customary for tenant's occupying a first-class office building in the
Boulder, Colorado area without the approval of Landlord. Only persons authorized
by Landlord shall be permitted to deliver or to use the elevators in the
Building for the purposes of delivering food or beverages to the demised
premises.
10. No safe or article, the weight of which may, in the opinion of
Landlord, constitute a hazard or damage to the Building or the Building's
equipment, shall be moved into the demised premises. Safes and other equipment,
the weight of which is not excessive, shall be moved into, from, or about the
Building only during such hours and in such manner as shall be prescribed by
Landlord, and Landlord shall have the right to designate the location of such
articles in the demised premises.
11. No tenant shall do or permit anything to be done in the demised
premises, or bring or keep anything therein which would in any way increase the
rate of fire insurance on the Building or on property kept therein, constitute a
nuisance or waste, or obstruct or interfere with the rights of other tenants, or
in any way injure or annoy them, or conflict with the laws relating to fire, or
with the regulations of the fire department, fire insurance underwriters or with
any insurance policy upon the Building or any part thereof, or conflict with any
of the rules or ordinances of the Department of Health of the City and County of
Boulder, Colorado.
12. No tenant shall permit any cooking in the demised premises without
the written consent of Landlord (excluding preparation of coffee, tea, hot
chocolate and similar items and microwave heating). No tenant shall permit any
objectionable or unusual odors to be produced in the demised premises.
13. Any hand trucks, carryalls or similar appliances used for the
delivery or receipt of merchandise or equipment shall be equipped with rubber
tires, side guards and such other safeguards as Landlord shall require.
-ii-
<PAGE>
14. If any apparatus used or installed by any tenant requires a permit
as a condition for its installation, the tenant must first receive Landlord's
written permission and then file a copy of such permit with Landlord prior to
installation.
15. No tenant shall place any additional locks or bolts upon any doors
of the demised premises or the Building without the written consent of Landlord.
Landlord and any janitor employed by Landlord may at all times keep a passkey to
the demised premises and Landlord and its agents shall be allowed admittance to
the demised premises at all times. Two keys to the demised premises and the
toilet rooms if locked by Landlord will be furnished by Landlord, and neither
tenant, tenant's agents nor employees shall have any duplicate keys made.
Landlord shall supply each tenant with such additional keys as tenant may
require at the tenant's sole cost and expense. At the termination of its
tenancy, the tenant shall promptly return to Landlord all keys to office, toilet
rooms or vaults.
16. No tenant shall install any blinds, curtains or drapes that would
be exposed to view from the exterior of the Building without the written consent
of Landlord.
17. No signs, advertisements or notices sun be inscribed, painted or
affixed on any part of the outside of the Building, whatever, or inside the
Building or on any windows within the exterior walls of the demised premises
unless of color, size and style and in such places, upon or in the Building as
shall be first designated in writing by Landlord, and any tenant on ceasing to
be a tenant of the demised premises shall, before leaving same, cause any sign
as aforesaid to be removed or obliterated at its own expense, and in a
workmanlike manner shall repair any damage caused thereby. Landlord may remove
any nonpermitted signs without notice at the tenant's expense.
18. The directory boards provided by Landlord and the space thereon
allotted to each tenant of the Building for directory listing shall be of such
size and style as Landlord shall decide.
19. No tenant shall drill into, or in any way deface the walls,
ceilings, partitions, floors, wood, stone or ironwork. Boring, cutting or
stringing of wires including electronic, telegraphic or telephonic connections,
or pipes shall not be permitted, except with the prior written consent of
Landlord, and as it may direct.
20. No tenant shall use the demised premises or any part thereof for
sleeping apartments.
21. No tenant shall operate or permit to be operated any musical or
sound producing instrument or device inside or outside the demised premises. No
tenant shall install any radio or television antennae, loud-speakers, sound
amplifiers or similar devices on the roof or exterior walls of the Building
without the written consent of Landlord.
-iii-
<PAGE>
22. No bicycles, vehicles, birds or animals of any kind shall be
allowed into or kept in or about the Building; provided that Tenant's employees
shall be permitted to park bicycles on the demised premises as long as (i)
Tenant complies with all applicable laws, rules, codes and statutes related to
the use and storage of such bicycles, (ii) Landlord is released by Tenant and
its employees from any and all claims, losses, demands and damages relating to
any use or storage of the bicycles upon the demised premises or the Building
(including but not limited to any loss, theft or vandalism to any bicycles, and
(iii) the common areas and the demised premises are kept clean and are not
damaged.
23. Where pad is installed under carpet, tenant, at its expense, shall
use chair pads under all caster chairs for all areas with carpeting to protect
the carpeting in the demised premises.
24. No tenant shall install or operate any steam or gas engine or
boiler, or carry on any mechanical business in the Building. The use of oil, gas
or inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building.
25. No tenant shall employ any person or persons other than the janitor
of Landlord for the purpose of cleaning or taking care of the demised premises,
without the prior written consent of Landlord. Landlord shall be in no way
responsible to any tenant for any loss of property from the demised premises,
however occurring, or for any damage done to any tenant's furniture or equipment
by the janitor or any of the janitor's staff, or by any other person or persons
whomsoever.
26. Water closets and other water fixtures shall not be used for any
purpose other than that for which they are intended, and any damage resulting to
them from misuse on the part of any tenant or any tenant's agents or employees,
shall be paid for by the tenant. No person shall waste water by tying back or
wedging the faucets or in any other manner.
27. No tenant shall allow anything to be placed on the outside of the
Building, nor shall anything be thrown by any tenant, any tenant's agents or
employees, out of the windows or doors, from the penthouse patio deck area or
down the corridors, elevator shafts, or ventilating ducts or shafts of the
Building. No tenant, except in case of fire or other emergency, shall open any
outside window.
28. No air conditioning unit or other similar apparatus shall be
installed or used by any tenant without the prior written consent of Landlord.
Any changes in the system subsequent to installation of initial tenant
improvements that are necessitated by any work done by or special requirements
of any tenant, including rebalancing and relocation of troffers, shall be
approved by Landlord and paid for in full by such tenant.
-iv-
<PAGE>
29. Landlord reserves the right to promulgate, rescind, alter or waive
any rules or regulations at any time prescribed for the Building or parking
areas when it is necessary, desirable or proper for its best interest and, in
the sole discretion of Landlord (not to be exercised capriciously), for the best
interests of the tenants.
-v-
<PAGE>
EXHIBIT A-1
-----------
[EDGAR Note: Please see Appendix for description of omitted graphics]
LEASED SPACE FROM 01/01/1995 -- 12/31/1995
Canyon Center
1881 Ninth Street
Boulder, Colorado
Third Floor
Canyon Center
1881 Ninth Street
Boulder, Colorado
Second Floor
-vi-
<PAGE>
EXHIBIT A-2
-----------
[EDGAR Note: Please see Appendix for description of omitted graphics]
LEASED SPACE FROM 01/01/1996 -- 12/31/2001
Canyon Center
1881 Ninth Street
Boulder, Colorado
Third Floor
Canyon Center
1881 Ninth Street
Boulder, Colorado
Second Floor
-vii-
<PAGE>
EXHIBIT B
---------
[EDGAR Note: Please see Appendix for description of omitted graphics]
(CANYON CENTER)
LEGAL DESCRIPTION OF
COMMERCIAL AREA - LOT 1
1.71 acres, more or less, located in the southeast quarter of
Section 25, Township 1 North, Range 71 west of the 6th Principal Meridian, City
of Boulder, Colorado, described as follows:
Beginning at the intersection of the south line of Walnut Street and
the west line of 9th Street, said point being the northeast corner of
Block 46, WEST BOULDER, a subdivision of the City of Boulder; thence
south 74(0)49'07" west; 304.35 feet, along the south line of Walnut
Street, thence south 15(0)10'53" east, 131.28 feet; thence north
74(0)49'07" east, 72.00 feet; thence south 15(0)10'53" east, 42.17
feet; thence north 74(0)49'07" east, 43.00 feet; thence south
15(0)10'53" east, 130.50 feet to the north line of Canyon Boulevard;
thence north 74(0)47'00" east, 189.08 feet along the north line of
Canyon Boulevard, to the west line of 9th Street; thence north
15(0)07'46" west, 303.83 feet along the west line of 9th Street to the
point of beginning, containing 1.71 acres more or less. EXCEPTING
therefrom, Outlot A, more particularly described as follows:
Beginning at the intersection of the north line of Canyon
Boulevard and the west line of 9th Street; thence north
15(0)07'46" west, 100.00 feet along the west line of 9th
street; thence south 11(0)57'00", east, 90.15 feet; thence
south 29(0)49'38" west, 14.15 feet to the north line of Canyon
Boulevard; thence north 74(0)47'00" east, 15.00 feet along the
north line of Canyon Boulevard to the point of beginning,
containing 0.007 acres, more or less.
-viii-
<PAGE>
ADDENDUM
THIS ADDENDUM, made as of the 10th of July, 1995, is between
L.C. Fulenwider, Inc., a Colorado corporation ("Landlord") and RCG/Hagler
Bailly, Inc., a District of Columbia corporation ("Tenant"). Landlord and Tenant
have executed that certain Canyon Center Office Lease dated December 14, 1994
(the "Lease") pertaining to certain space in the building commonly known as
Canyon Center and located at 1881 9th St., Boulder, Colorado. In the event of
any conflict between the provisions of this Addendum and the provisions of the
other portions of the Lease, the provisions of this Addendum shall control. The
capitalized terms used herein and not defined herein shall have the same
meanings used in the other portions of the Lease. Landlord and Tenant hereby
agree that the Lease is amended and supplemented as follows:
I. Demised Premises
Commencing January 1, 1996 through December 31, 1996, the Demised
Premises shall include Suite 317 (see attached Addendum Exhibit "A").
II. Demised Premises Rentable Area
Commencing January 1, 1996 through December 31, 1996 the Demised
Premises Rentable Area shall be increased by 1,175 square feet to
25,221 square feet (see attached Addendum Exhibit "B").
Commencing January 1, 1997 through December 31, 2001, the Demised
Premises Rentable Area shall be 24,046 square feet (see attached
Addendum Exhibit "C").
III. Base Annual Rent
Base Annual Rent shall be increased above the Lease Base Annual Rent
commencing January 1, 1996 through December 31, 1996 by $11,750.00
annually, payable in monthly installments of $979.17.
IV. Tenant's Percentage
A. From Commencement Date through
December 31, 1995 27.34%
B. From January 1, 1996 through
December 31, 1996 35.41%
C. From January 1, 1997 through
December 31, 2001 33.76%
-ix-
<PAGE>
V. Tenant
The Tenant name has been changed to Hagler Bailly Consulting,
Inc. pursuant to paragraph 4 ASSIGNMENT, MORTGAGE SUBLETTING,
Sub paragraph (D).
All of the terms and provisions of the Lease, as herein
amended and supplemented, are hereby ratified and confirmed, and shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be duly executed as of the day and year first above written.
LANDLORD:
L. C. Fulenwider, Inc., a Colorado
corporation
/s/ L.C. Fulenwider, Inc.
By:________________________________
L. C. Fulenwider, Inc.
8/17/95
Date:______________________
TENANT: Hagler Bailly Consulting, Inc., a District
of Columbia corporation
/s/ Michael D. Yokell
By:__________________________________
Michael D. Yokell, Director
7/27/95
Date:_______________________
-x-
<PAGE>
ADDENDUM EXHIBIT "A"
--------------------
[EDGAR Note: Please see Appendix for description of omitted graphics]
Demised Premises, Suite 317
Floor 3 -- Section 1
-xi-
<PAGE>
ADDENDUM EXHIBIT "B"
--------------------
[EDGAR Note: Please see Appendix for description of omitted graphics]
Canyon Center
1881 Ninth Street
Boulder, Colorado
Third Floor
Canyon Center
1881 Ninth Street
Boulder, Colorado
Second Floor
-xii-
<PAGE>
ADDENDUM EXHIBIT "C"
--------------------
[EDGAR Note: Please see Appendix for description of omitted graphics]
Canyon Center
1881 Ninth Street
Boulder, Colorado
Third Floor
Canyon Center
1881 Ninth Street
Boulder, Colorado
Second Floor
-xiii-
<PAGE>
SECOND ADDENDUM
THIS ADDENDUM, made as of the 12th of December, 1996, is
between L.C. Fulenwider, Inc., a Colorado corporation ("Landlord") and Hagler
Bailly Consulting, Inc., a State of Delaware corporation ("Tenant"). Landlord
and Tenant have executed that certain Canyon Center Office Lease dated December
14, 1994 and associated Addendum dated July 10, 1995 (the "Lease") pertaining to
certain space in the building commonly known as Canyon Center and located at
1881 Ninth Street, Boulder, CO 80302. In the event of any conflict between the
provisions of this Addendum and the provisions of other portions of the Lease,
the provisions of this Addendum shall control. The capitalized terms used herein
and not defined herein shall have the same meanings used in other portions of
the Lease. Landlord and Tenant hereby agree that the Lease is amended and
supplemented as follows:
I. Delete paragraph G. Demised Premises of the lease and replace with the
following:
G. Demised Premises:
A portion of Floor 2 and a portion of Floor 3, as shown cross
hatched in black on the plan attached as Addendum Exhibits A-1
- A-2, B-1 - B-2, C-1 - C-2 and D-1 - D-2 and made a part
hereof, to be known as Suite 317 in the office building known
as Canyon Center, 1881 Ninth Street, Boulder, Colorado 80302
(the "Building"), together with the right, subject to the
provisions of Section II, Article 38, to use on an unassigned
basis 59 parking spaces in the covered garage adjacent to the
Building (the "Parking Garage").
II. Delete paragraph H. Demised Premises Rentable Area and replace with the
following:
H. Demised Premises Rentable Area:
19,473 square feet as depicted on Addendum Exhibit A-1 and A-2
from Commencement Date through December 31, 1995 and 24,046
square feet as depicted on Addendum Exhibit B-1 and B-2 from
January 1, 1996 through December 31, 1996 and 25,422 square
feet as depicted on Addendum Exhibit C-1 and C-2 from January
1, 1997 through January 31, 1997 and 24,446 sf from February
1, 1997 through December 31, 2001 as depicted on Addendum
Exhibit D-1 and D-2. Landlord reserves the right to remeasure
the building and demised premises from time to time according
to applicable BOMA measurement standards. If measurements are
different than the areas originally contained in the lease,
then the relevant provisions of the lease will be adjusted,
including but not limited to the following: Building Rentable
Area, Demised Rentable Area,
-xiv-
<PAGE>
Tenant's Percentage, Base Annual Rent, Tenant's Percentage of
the Operating Costs, and other terms, rates or provisions
affected by changes in the above.
III. Delete paragraph J. Base Annual Rent of the lease and replace with the
following:
J. Base Annual Rent:
(i) From the Commencement Date through August 31, 1995 an
annual rate of $248,280.75, payable in monthly
installments of $20,690.06 (Base Annual Rent being
calculated at $12.75 per square foot of rentable area
per annum);
(ii) From September 1, 1995 through December 31, 1995 an
annual rate of $253,149.00 payable in monthly
installments of $21,095.75 (Base Annual Rent being
calculated at $13.00 per square foot of rentable area
per annum);
(iii) From January 1, 1996 through July 31, 1996 an annual
rate of $336,644.00, payable in monthly installments
of $28,053.67 (Base Annual Rent being calculated at
$14.00 per square foot of rentable area per annum);
(iv) From August 1, 1996 through December 31, 1996 an
annual rate of $348,667.00, payable in monthly
installments of $29,055.58 (Base Annual Rent being
calculated at $14.50 per square foot of rentable are
per annum) subject to an annual increase pursuant to
the terms of Section II, Article 36.
(v) From January 1, 1997 through January 31, 1997 an
annual rate of $368,619.00, payable in monthly
installments of $30,718.25 (Base Annual Rent being
calculated at $14.50 per square foot of rentable area
per annum) subject to an annual increase pursuant to
the terms of Section II, Article 36.
(vi) From February 1, 1997 through the Expiration Date an
annual rate of $354,467.00 payable in monthly
installments of $29,538.92 (Base Annual Rent being
calculated at $14.50 per square foot of rentable area
per annum) subject to an annual increase pursuant to
the terms of Section II, Article 36.
IV. Delete paragraph O. Tenant's Percentage of the lease and replace with
the following:
-xv-
<PAGE>
O. Tenant's Percentage:
<TABLE>
<S> <C> <C> <C>
(i) From Commencement Date through December 31, 1995: 27.3420%
(ii) From January 1, 1996 through December 31, 1996: 33.7629%
(iii) From January 1, 1997 through January 31, 1997: 35.6950%
(iv) From February 1, 1997 through December 31, 2001: 34.3246%
</TABLE>
V. Additional Space
In addition to the above revisions to the Demised Premises,
Demised Premises Rentable Area, Base Annual Rent and Tenant's Percentage, Tenant
shall lease the following spaces under the following terms:
Suite 317
o Demised Premises: Suite 317 (Exhibit E)
o Demised Premises Rentable Area: 1,175 square feet
o Base Annual Rent: From January 1, 1996 through December 31, 1997,
an annual rate of $11,750 payable in monthly
installments of $979.17
o Term: January 1, 1996 through December 31, 1997
o Tenant's Percentage: 1.64982%
All of the terms and provisions of the Lease, as herein
amended and supplemented, are hereby ratified and confirmed, and shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be duly executed as of the day and year first above written.
LANDLORD:
L.C. Fulenwider, Inc., a Colorado
corporation
/s/ L.C. Fulenwider, III
By:______________________________
L.C. Fulenwider, III, President
1/7/97
Date:__________________________
-xvi-
<PAGE>
TENANT:
Hagler Bailly Consulting, Inc., a District
of Columbia corporation
/s/ Robert D. Rowe
By:_______________________________
Director
Its:______________________________
12/20/96
Date:_____________________________
-xvii-
<PAGE>
THIRD ADDENDUM
THIS ADDENDUM, made as of the 20th of January, 1997, is
between L.C. Fulenwider, Inc., a Colorado corporation ("Landlord") and Hagler
Bailly Services, Inc., a State of Delaware corporation ("Tenant"). Landlord and
Tenant have executed that certain Canyon Center Office Lease dated December 14,
1994 and associated Addendum dated July 10, 1995 and Second Addendum Dated
December 12, 1996 (the "Lease") pertaining to certain space in the building
commonly known as Canyon Center and located at 1881 Ninth Street, Boulder, CO
80302. In the event of any conflict between the provisions of this Addendum and
the provisions of other portions of the Lease, the provisions of this Addendum
shall control. The capitalized terms used herein and not defined herein shall
have the same meanings used in other portions of the Lease. Landlord and Tenant
hereby agree that the Lease is amended and supplemented as follows:
I. Commencing January 27, 1997 Tenant shall lease on a month to month
basis suite 320 of Canyon Center Office Building. Suite 320 is
approximately 418 rentable square feet (see Third Addendum Exhibit).
The Base Annual Rent rate for suite 320 shall be equal to the Base
Annual Rent rate paid by Tenant for Suite 317 in the Lease. Tenant
shall pay its proportionate share of Operating Costs for suite 320.
II. Either Tenant or Landlord may terminate this month to month lease by
providing 30 days prior written notice of termination.
III. Landlord shall paint suite 320 prior to Tenant occupancy of suite 320.
All of the terms and provisions of the Lease, as herein
amended and supplemented, are hereby ratified and confirmed, and shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be duly executed as of the day first above written.
LANDLORD:
L.C. Fulenwider, Inc., a Colorado corporation
/s/ Marcia A. Lujan
By:___________________________________
Vice President
Date:_________________________________
-xvii-
<PAGE>
TENANT:
Hagler Bailly Consulting, Inc., a State of Delaware corporation
/s/ Robert D. Rowe
By:____________________________________________
Director
Its:___________________________________________
January 27, 1997
Dated:_________________________________________
-xix-
<PAGE>
THIRD ADDENDUM EXHIBIT
----------------------
[EDGAR Note: Please see Appendix for description of omitted graphics]
THIRD/TOP FLOOR
Suite 320
Approximately 418 Rentable Square Feet
Canyon Center Office Building
1881 Ninth Street
Boulder, CO
-xx-
<PAGE>
EDGAR APPENDIX
Exhibit A-1: Two floorplan diagrams
Exhibit A-2: Two floorplan diagrams
Exhibit B: Lot survey diagram
Addendum Exhibit A: Floorplan diagram
Addendum Exhibit B: Two floorplan diagrams
Addendum Exhibit C: Two floorplan diagrams
Third Addendum Exhibit: Floorplan diagram
-xxi-
<PAGE>
Exhibit 11
Earnings Per Share
(Regulation S-K Item 601)
<TABLE>
<CAPTION>
1995 1996 3/31/96 3/31/97
<S> <C> <C> <C> <C>
Weighted average shares outstanding
Class A Common Stock 4,253,571 4,658,331 4,652,575 5,064,311
Class B Common Stock 43,420 103,726 103,726
Weighted average shares issuable upon
exercise of common stock options,
if dilutive -- -- 1,090,666
Common stock and common stock
equivalents issued at prices below
the IPO price during the twelve
months preceding the initial filing
of the Registration Statement 1,583,792 1,485,252 1,583,791 54,418
---------- ----------- ---------- ----------
Total weighted average shares 5,880,783 6,247,309 6,340,092 6,209,395
========== =========== ========== ==========
Net income (loss) $ 910,228 $(3,659,459) $ 581,023 $ 765,317
========== =========== ========== ==========
Earnings (loss) per share $ 0.15 $ (0.59) $ 0.09 $ 0.12
========== =========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,432,882
<SECURITIES> 0
<RECEIVABLES> 15,923,587
<ALLOWANCES> 884,790
<INVENTORY> 0
<CURRENT-ASSETS> 17,056,883
<PP&E> 3,538,234
<DEPRECIATION> 1,123,785
<TOTAL-ASSETS> 27,747,118
<CURRENT-LIABILITIES> 13,235,670
<BONDS> 0
0
0
<COMMON> 49,781
<OTHER-SE> 7,188,334
<TOTAL-LIABILITY-AND-EQUITY> 27,747,118
<SALES> 61,583,337
<TOTAL-REVENUES> 61,583,337
<CGS> 48,785,854
<TOTAL-COSTS> 48,785,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,021,246)
<INCOME-PRETAX> (2,862,459)
<INCOME-TAX> (797,000)
<INCOME-CONTINUING> (3,659,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,659,459)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 751,835
<SECURITIES> 0
<RECEIVABLES> 20,410,717
<ALLOWANCES> 1,069,455
<INVENTORY> 0
<CURRENT-ASSETS> 21,580,395
<PP&E> 3,729,723
<DEPRECIATION> 1,343,294
<TOTAL-ASSETS> 32,780,473
<CURRENT-LIABILITIES> 17,656,708
<BONDS> 0
0
0
<COMMON> 54,285
<OTHER-SE> 8,147,607
<TOTAL-LIABILITY-AND-EQUITY> 32,780,473
<SALES> 16,612,285
<TOTAL-REVENUES> 16,612,285
<CGS> 13,027,865
<TOTAL-COSTS> 13,027,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (259,369)
<INCOME-PRETAX> 1,294,317
<INCOME-TAX> (529,000)
<INCOME-CONTINUING> 765,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765,317
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
