HAGLER BAILLY INC, S-1, 1997-02-21

HAGLER BAILLY INC
S-1, 1997-02-21

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As filed with the Securities and Exchange Commission on February 21, 1997
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------------

FORM S-1

Registration Statement Under
The Securities Act of 1933

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HAGLER BAILLY, INC.
(Exact name of Registrant as specified in its charter)

Delaware 8742 54-1759180
<S> <C> <C>
(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. / /

<PAGE>

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
Title of Each
Class of Proposed Maximum Proposed Maximum
Securities Amount to Offering Price Aggregate Amount of
to be Registered be Registered (1) Per Share (2) Offering Price (2) Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $.01 3,622,500 $16.00 $57,960,000 $17,564
Shares
- --------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 472,500 shares of Common Stock subject to the over-allotment
option granted by the Selling Stockholders to the Underwriters.

(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.

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.

-2-

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1997

PROSPECTUS
, 1997

[LOGO]
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 $_____ and $_____ 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," subject to official notice of issuance.

--------------------

See "Risk Factors" beginning on page 7 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.

- --------------------------------------------------------------------------------
Price Underwriting Proceeds Proceeds to
to the Discounts and to the the Selling
Public Commissions(1) Company(2) Stockholders
- --------------------------------------------------------------------------------
Per Share........ $ $ $ $
Total(3)......... $ $ $ $
- --------------------------------------------------------------------------------

(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 $ , 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

<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."

-----------------------

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.

-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 6.915067
for-one stock split effected prior to the consummation of the Offering (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 leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utilities 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 over 100 countries. In 1996, the
Company performed over 220 assignments for more than 125 clients in over 30
countries. 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 fiscal 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 succeed in the consulting
practice in the future, it must be equipped to package functional expertise,
industry insight and information with management, technology and capital
resources to create significant value. The Company may, from time to time,
invest capital and other resources in energy related technologies or projects,
either directly or through third parties, that are becoming critical components
for clients as they implement market-based strategies.

As a result of powerful regulatory, economic and technological forces,
the energy, utilities 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 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 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 rapidly growing demand for
consulting services in the energy, utilities and environmental markets
worldwide, including: (i) industry focus in these target markets; (ii) full
service capabilities; (iii) 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.

-3-

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<PAGE>

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Hagler Bailly's overall growth strategy includes the following
elements: (i) retaining its focus on energy, utilities and the environment;
(ii) leveraging its existing global infrastructure and consulting platforms;
(iii) focusing on solving mission-critical problems for clients; (iv) attracting
and retaining world-class intellectual capital; (v) pursuing strategic
acquisitions; (vi) using creative compensation agreements with clients; and
(vii) utilizing existing relationships to combine capital and consulting
services.

-4-

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<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------

The Offering
<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..... 7,541,663 shares (1)
Use of proceeds....................................... To repay all outstanding debt and fund general
corporate purposes, including working capital and
possible acquisitions of complementary businesses.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol................ HBIX
</TABLE>

- --------------------------

(1) Excludes 1,458,337 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."

Summary Financial Data

The Predecessor (1) The Company (1)
-------------------------------------------- ------------------------------------------------
Years Ended December 31,
------------------------------
Years Ended December 31, Jan. 1, May 26, 1995
------------------------------- 1995 to to Pro Forma, As
1992 May 25, December 31, 1996 Adjusted 1996 (2)
(Unaudited) 1993 1994 1995 1995 (Unaudited) (Unaudited)
----------- ---- ---- ------- ------------ ----------- -----------------
(In thousands, except per share data)
<S> <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 $38,762
Subcontractor and other revenues 7,869 8,796 13,437 8,897 11,119 22,821 22,821
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 22,951 26,849 35,968 19,875 29,313 61,583 61,583
Cost of services.............. 18,460 21,653 29,122 16,529 23,811 48,786 48,236
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 4,491 5,196 6,846 3,346 5,502 12,797 13,347
Selling, general and administrative 3,167 3,679 4,836 2,452 3,230 8,583 8,583
Stock and stock option
compensation (3)............ -- -- -- -- -- 6,172 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations. 1,324 1,517 2,010 894 2,272 (1,958) 4,764
Other income (expense), net.. (56) (9) 12 (20) (637) (904) 117
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax
expense..................... 1,268 1,508 2,022 874 1,635 (2,862) 4,881
Income tax expense............ 453 620 843 362 725 797 1,952
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 815 $ 888 $ 1,179 $ 512 $ 910 $(3,659) $ 2,929
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share.. * * * * $ $ $
======= ======= =======
Weighted average shares
outstanding (4)............. * * * *
</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.

-5-

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<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

The Predecessor(1) The Company (1)
------------------------------------- -----------------------------

As of December 31, As Adjusted
--------------------------------------------------------------------- December 31,
1992 1993 1994 1995 1996 1996 (5)
(Unaudited) (Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $1,240 $ 950 $ 566 $ 671 $ 1,433

Working capital............... 1,278 1,798 2,992 2,538 3,821

Total assets.................. 11,144 11,707 14,801 24,500 27,747
Total debt.................... -- -- -- 12,050 10,312

Total stockholders' equity.... 3,362 4,250 5,429 3,978 7,238
</TABLE>
- --------------------------
(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 pro forma, as adjusted, statement of operations data for the year
ended December 31, 1996, have been computed by (a) eliminating from
cost of services 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; (b)
eliminating interest expense of approximately $1.0 million related to
the Company's outstanding debt that would have been repaid with
proceeds from the Offering; and (c) eliminating the non-recurring,
non-cash compensation expense described in footnote 3 below. The pro
forma, as adjusted, income tax provision is calculated at a combined
federal and state income tax rate of 40.0%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Management-Executive Compensation."

(3) Stock and stock option compensation expense in 1996 is comprised of a
non-recurring, non-cash charge to operations amounting to $4.6 million
for options and $1.6 million for stock. See Note 10 to Consolidated
Financial Statements and "Certain Transactions."

(4) The pro forma, as adjusted, weighted average shares outstanding have
been adjusted for the dilutive effect of Common Stock equivalents and
reflect the sale by the Company of 2,500,000 shares of Common Stock
offered hereby as if the shares were outstanding for the entire year
ended December 31, 1996.

(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 $____ per share) and the application of the net proceeds as
set forth in "Use of Proceeds."

-6-

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<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, utilities and environmental
industries. As a result of the Company's focus on energy, utilities 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, utilities 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, utilities 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."

-7-

<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 73.1%, 68.9% and 70.9%
of its total revenues in 1996, 1995 and 1994, respectively. A U.S. government
agency is the Company's single largest client, accounting for approximately
42.2%, 53.1% and 52.2% of the Company's total revenues in 1996, 1995 and 1994,
respectively (approximately 26.9%, 39.4% and 40.5% of consulting revenues in
1996, 1995 and 1994, respectively). As of January 1, 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 a U.S. electric
utility company accounted for approximately 12.3% of the Company's total
revenues in 1996 (approximately 17.1% 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. 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% of Hagler Bailly's total revenues in 1996, and
64.8% in 1995 (approximately 37.2% and 48.7% 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 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 permanent or project offices in a total
of 13 foreign countries. 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.

-8-

<PAGE>

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, utilities 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. 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

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.
Results of any one quarter are not necessarily indicative of any succeeding
quarter or of the year in question. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Unaudited Quarterly Results."

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

-9-

<PAGE>

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."

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 $_____ per share, after
deduction of underwriting discounts and commissions, the aggregate realized gain
as a result of the Offering by the Selling Stockholders will be approximately
$____ million ($____ 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 58.2% of the Company's outstanding shares of
Common Stock (approximately 52.0% 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

-10-

<PAGE>

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 $_____ in the pro forma net tangible book
value per share of Common Stock. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."

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
7,541,663 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, 1,458,337 shares of Common
Stock are issuable upon the exercise of outstanding stock options (of which
options to acquire 874,707 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 4,391,663 shares of Common Stock upon
consummation of the Offering or 3,919,163 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").

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<PAGE>

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."

-12-

<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, after deducting estimated underwriting discounts and commissions
and other estimated offering expenses are estimated to be $__ million, all of
which are payable by the Company. 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 $4.7 million of the 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 $3.9 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 December 31, 1996) and matures in May
1999. See Notes 8 and 14 to Consolidated Financial Statements. The Company will
also use a portion of the net proceeds to repay all amounts outstanding under
the Company's bank line of credit with State Street Bank and Trust Company
(approximately $1.8 million at December 31, 1996), which bears interest at a
rate of 0.875% above the lender's prime rate (9.5% at December 31, 1996). Hagler
Bailly intends to use the remainder of the 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."

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."

-13-

<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 December 31, 1996, 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 $_____ 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.

As of December 31, 1996
-----------------------------
Actual As Adjusted (1)
------ ---------------
(In thousands)

<S> <C> <C>
Cash and cash equivalents..................................... $ 1,433 $
----------
Bank line of credit........................................... $ 1,750 --
Current portion of long-term debt............................. 1,289 --
----------- -------
Total short-term borrowings................................... $ 3,039 --
=========== =======
Long-term debt, net of current portion........................ $ 7,273 --
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, 6,915,067 shares authorized,
4,978,150 shares issued and outstanding, actual; and
20,000,000 shares authorized and 7,541,663 shares
issued and outstanding, as adjusted (2).............. 50
Additional paid-in capital................................. 9,938
Retained deficit .......................................... (2,749)
------- -------

Total stockholders' equity.............................. 7,238

Total capitalization............................ $ 14,511 $
=========== =======
</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
$_____ 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 1,458,337 shares of Common Stock issuable upon the exercise of
outstanding options. In addition, at the date of this Prospectus, there
were 1,741,663 shares of Common Stock reserved for future issuance under
the Company's Stock Plan. See "Management -- Long-Term Incentive Plan."

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<PAGE>

DILUTION

As of December 31, 1996, the net tangible book value (deficit) value of
the Company was ($422,977) or ($0.09) per share. Net tangible book value
(deficit) 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 and the application of the net proceeds therefrom, the pro forma
net tangible adjusted book value of the Company at December 31, 1996 would have
been approximately $_______ million, or $____ per share. This amount represents
an immediate increase in pro forma net tangible book value of $____ per share to
existing owners of the Company and an immediate dilution in pro forma net
tangible book value of $____ 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>
Assumed initial public offering price per share............... $_____

Net tangible book value (deficit)
per share before the Offering.................... $(0.09)
Pro forma increase in net tangible book
value per share attributable to new
stockholders..................................... ______

Pro forma net tangible book value per share after the
Offering ................................................. ______
Pro forma dilution in net tangible book value per share to new
stockholders .............................................. $
======
</TABLE>

The following table summarizes, as of January 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.

Shares Purchased Total Consideration
-------------------------- ---------------------------- Average Price
Number % Amount % Per Share
------ -------- ------ -------- -------------

<S> <C> <C> <C> <C> <C>
Existing stockholders (1)........... 5,041,663 67% $ 3,823,075 % $ 0.76
New investors (1)................... 2,500,000 33 %
--------- ----- ----------- ---- ------
Total.......................... 7,541,663 100% $ 100% $
========= ===== ============ ==== ======
</TABLE>
- --------------------

(1) Assumes no exercise of options outstanding as of January 31, 1997 to
purchase 1,458,337 shares of Common Stock at exercise prices of $0.14 to
$6.71 and a weighted average exercise price of $2.58 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 4,391,663, or approximately 58.2% of the total shares of Common
Stock outstanding after the Offering (3,919,163 shares, or approximately
52.0%, of the total shares if the Underwriters' over-allotment option is
exercised in full).

-15-

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data as of December 31, 1993,
1994 and for the periods 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 and for
the period from May 26, 1995 to December 31, 1995 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 December 31,
1996 and for the year 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 (except for the $6.2 million stock and
stock option compensation charge in December 1996), 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 RCG/HB Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

The Predecessor (1) The Company (1)
-------------------------------------------- ---------------------------------------------
Years Ended December 31,
Years Ended December 31, Jan. 1, May 26, 1995 ------------------------
------------------------ 1995 to to Pro Forma, As
1992 May 25, December 31, 1996 Adjusted 1996 (2)
(Unaudited) 1993 1994 1995 1995 (Unaudited) (Unaudited)

(In thousands, except per share data)
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Consulting revenues......... $15,082 $18,053 $22,531 $10,978 $18,194 $38,762 $38,762
Subcontractor and other
revenues.................. 7,869 8,796 13,437 8,897 11,119 22,821 22,821
------- ------- ------- ------- ------- ------- -------
Total revenues........ 22,951 26,849 35,968 19,875 29,313 61,583 61,583
Cost of services.............. 18,460 21,653 29,122 16,529 23,811 48,786 48,236
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 4,491 5,196 6,846 3,346 5,502 12,797 13,347
Selling, general and
administrative expenses..... 3,167 3,679 4,836 2,452 3,230 8,583 8,583
Stock and stock option
compensation (3)............ -- -- -- -- -- 6,172 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations.................. 1,324 1,517 2,010 894 2,272 (1,958) 4,764
Other income (expense),
net......................... (56) (9) 12 (20) (637) (904) 117
---- --- -- ---- ----- ---
Income (loss) before income
tax expense................. 1,268 1,508 2,022 874 1,635 (2,862) 4,881
Income tax expense............ 453 620 843 362 725 797 1,952
--- --- --- --- --- --- -----
Net income (loss)............. $815 $888 $1,179 $512 $910 $(3,659) $2,929
==== ==== ====== ==== ==== ======= ======
Net income (loss) per share... * * * * $ $ $
==== ======= ======
Weighted average shares
outstanding (4)............. * * * *
</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.

-16-

<PAGE>

The Predecessor(1) The Company(1)
--------------------------------- ---------------------------------------------

As of December 31,
----------------------------------------------------------------
As Adjusted
1992 1996 December 31,
(Unaudited) 1993 1994 1995 (Unaudited) 1996 (5)

Balance Sheet Data: (In thousands)

<S> <C> <C> <C> <C> <C>
Cash and cash equivalents..... $1,240 $ 950 $ 566 $ 671 $ 1,433

Working capital............... 1,278 1,798 2,992 2,538 3,821

Total assets.................. 11,144 11,707 14,801 24,500 27,747

Total debt.................... -- -- -- 12,050 10,312

Total stockholders' equity.... 3,362 4,250 5,429 3,978 7,238
</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 pro forma, as adjusted, statement of operations data for the year ended
December 31, 1996, have been computed by (a) eliminating from cost of
services 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; (b) eliminating interest
expense of approximately $1.0 million related to the Company's outstanding
debt that would have been repaid with proceeds from the Offering; and
(c) eliminating the non-recurring, non-cash compensation expense described
in footnote 3 below. The pro forma, as adjusted, income tax provision is
calculated at a combined federal and state income tax rate of 40.0%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management-Executive Compensation."

(3) Stock and stock option compensation expense in 1996 is comprised of a
non-recurring, non-cash charge to operations amounting to $4.6 million for
options and $1.6 million for stock. See Note 10 to Consolidated Financial
Statements and "Certain Transactions."

(4) The pro forma, as adjusted, weighted average shares outstanding have been
adjusted for the dilutive effect of Common Stock equivalents and reflect
the sale of 2,500,000 shares of Common Stock offered hereby as if the
shares were outstanding for the entire year ended December 31, 1996.

(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
$____ per share and application of the net proceeds as set forth in "Use of
Proceeds."

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section of the Prospectus, Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this section, the words "anticipate," "believe," "estimate," and
"expect" and similar expressions as they relate to the Company or its management
are intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in "Risk
Factors."

Overview

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 fiscal years ended 1994, 1995 and 1996, revenues from
standard daily rate engagements comprised approximately 64.6%, 74.6% and 79.4%
of the Company's total revenues, respectively (62.3%, 71.2% and 73.3% 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
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

-18-

<PAGE>

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 the
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
of a share of Class A Common Stock for each share of Class B Common Stock
underlying the 971,961 options vesting on January 1, 1997. In addition, the
remaining total of 971,961 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
394,158 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 will result in a non-cash
compensation charge to operations in the first quarter of 1997 of approximately
$50,000.

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:

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<PAGE>

Years Ended December 31, (1) Pro Forma,
----------------------------------------------------------------- As Adjusted
1992 1996 1996(3)
(Unaudited) 1993 1994 1995 (2) (Unaudited) (Unaudited)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Consulting revenues ................... 65.7% 67.2% 62.6% 59.3% 62.9% 62.9%
Subcontractor and other
revenues ............................ 34.3 32.8 37.4 40.7 37.1 37.1
----- ----- ----- ----- ----- -----
Total revenues .................... 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 78.3
----- ----- ----- ----- ----- -----
Gross profit ............................... 19.6 19.4 19.0 18.0 20.9 21.7
Selling, general, and administrative
expenses .............................. 13.8 13.7 13.4 11.6 13.9 13.9

Stock and stock option compensation(4) ..... -- -- -- -- 10.0 --
----- ----- ----- ----- ----- -----
(4)
Income (loss) from operations .............. 5.8 5.7 5.6 6.4 (3.2) 7.7
Other income (expense), net ................ (0.2) * * (1.3) (1.5) 0.2
----- ----- ----- ----- ----- -----
Income (loss) before income tax expense .... 5.5 5.6 5.6 5.1 (4.6) 7.9

Income tax expense ......................... 2.0 2.3 2.3 2.2 1.3 3.2
----- ----- ----- ----- ----- -----
Net income (loss) as % of total
revenues .............................. 3.6 3.3 3.3 2.9 (5.9) 4.8

Net income (loss) as % of consulting
revenues .............................. 5.4 4.9 5.2 4.9 (9.4) 7.6
</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 pro forma, as adjusted, statement of operations data for the year ended
December 31, 1996, have been computed by (a) eliminating from cost of
services 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; (b) eliminating interest
expense of approximately $1.0 million related to the Company's outstanding
debt that would have been repaid with proceeds from the Offering; and
(c) eliminating the non-recurring, non-cash

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<PAGE>

compensation expense described in footnote 4 below. The pro forma, as
adjusted, income tax provision is calculated at a combined federal and
state income tax rate of 40.0%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and
"Management--Executive Compensation."

(4) In December 1996, the Company recorded a non-recurring, non-cash
compensation charge of $6.2 million related to stock and stock options. See
Note 10 to Consolidated Financial Statements.

1996 (Unaudited) 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 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).

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 51.0% 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 for the same period
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. See "--Compensation Charges" above and Note 10 to
Consolidated Financial Statements Income from operations on a pro forma basis in
1996 (computed by (a) eliminating from cost of services 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 and
(b) eliminating the non-recurring, non-cash stock and stock option compensation
charge) would have been $4.8 million in 1996, an increase of 50.5% over income
from operations in 1995 of $3.2 million. In addition, pro forma income from
operations in 1996 as a percentage of total revenues would have been 7.7%,
compared to 6.4% in 1995. The 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.

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<PAGE>

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 related to debt incurred in connection with the
Management Buy-Out in 1996 versus seven months of interest expense in 1995.

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 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. Net income (loss) on a pro forma
basis in 1996 (computed by: (a) eliminating from cost of services 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; (b) eliminating interest expense of approximately $1.0 million related to
the Company's outstanding debt that would have been repaid with proceeds from
the Offering; (c) eliminating the non-recurring, non-cash compensation charge
described in "--Income (Loss) From Operations" above; and (d) using a combined
federal and state income tax rate of 40.0% to calculate the pro forma income tax
provision) would have been $2.9 million, an increase of 106.0% compared to net
income of $1.4 million in 1995. Pro forma 1996 net income as a percentage of
total revenues would have been 4.8% as compared to 2.9% in 1995, and as a
percentage of consulting revenues would have been 7.6% as compared to 4.9% in
1995.

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

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<PAGE>

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% 1994.

Unaudited Quarterly Results

The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending December 31, 1996. 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.

Quarters Ended(1)
---------------------------------------------------------------------------------------------

March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996

(In thousands)

Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consulting revenues........... $ 6,780 $ 6,879 $ 7,089 $ 8,424 $ 9,378 $ 9,730 $10,090 $ 9,564
Subcontractor and other
revenues................. 5,009 5,065 4,798 5,145 5,635 5,569 5,514 6,103
------- ------- ------- ------- ------- ------- ------- --------
Total revenues........ 11,789 11,944 11,887 13,569 15,013 15,299 15,604 15,667
Cost of services................ 9,824 9,960 9,340 11,216 11,802 11,907 12,240 12,837
------- ------- ------- ------- ------- ------- ------- --------
Gross profit.................... 1,965 1,984 2,547 2,353 3,211 3,392 3,364 2,830
Selling, general and administrative
expenses..................... 1,410 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... 555 618 1,147 847 1,225 1,083 1,348 (5,614)
Other income (expense), net..... 2 (122) (282) (256) (253) (198) (228) (225)
Income tax expense.............. 242 215 374 256 519 373 421 (516)
--- --- --- --- --- --- --- ----
Net Income (loss)............... $315 $281 $491 $335 $453 $512 $699 ($5,323)
==== ==== ==== ==== ==== ==== ==== =======
</TABLE>

<PAGE>

- --------------------
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) Stock and stock option compensation expense in the quarter ended December 31,
1996 is comprised of a non-recurring, non-cash charge to operations amounting to
$4.6 million for options and $1.6 million for stock. 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 December 31, 1996, the Company's outstanding indebtedness consisted of
(i) $3.9 million outstanding under the Secured Senior Term Loan with remaining
scheduled principal payments of $1.3, $1.4 and $1.2 million for the years 1997,
1998 and 1999, respectively, (ii) $4.7 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 $1.8 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 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 indemnify RCG for remaining a guarantor on a lease for the
Company's headquarters. At December 31, 1996 the Company had an escrow balance
of $350,000. The Company is required to effect the release of RCG from such
guarantee within fourteen (14) days after the closing of this Offering (or in
the event this Offering is not consummated prior to April 15, 1997, to use its
best efforts to effect such a release by April 30, 1997). 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 $4.2 million at December 31,1996). In the event this
Offering is not consummated prior to April 15, 1997 and the Company is unable to
obtain such release, RCG has the right to require the Company to increase the
escrow described above to $550,000. See Notes 6 and 14 to Consolidated Financial
Statements.

The Company provided cash from operations of $2.9, $2.5 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. Net
cash provided by or used in operations for 1996, 1995, 1994 and 1993, 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 Company used cash in investing activities of $1.1, $12.3, 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 information technology and
other resources necessary for the growth of the Company.

Cash flows provided by (used in) financing activities were ($1.0),
$10.5 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.

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<PAGE>

The Company realized a cash flow benefit from deferred federal and
state income taxes of $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 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, 31.7% and 7.6%,
respectively, were funded. The Company expects $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 over 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 December 31, 1996. 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 are not materially different than the amounts recorded in the
Company's consolidated financial statements pursuant to APB No. 25. See Note 10
to Consolidated Financial Statements.

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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<PAGE>

BUSINESS

Hagler Bailly 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, utilities 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 over 100 countries. In 1996, the
Company performed over 220 assignments for more than 125 clients in over 30
countries. 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 fiscal 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 energy, utilities 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's industry focus, full
service capabilities, 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, 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 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, 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. Industry restructuring, combined with more competitive
markets and new regulations, such as continuous emission monitoring in the
United States and the new international environmental standard ISO 14000,

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<PAGE>

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, utilities (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's broad-based capabilities and proven track record in
this area position it to advise clients through the strategy definition and
implementation process.

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's substantial experience, superior analytical
capabilities and knowledge base enable it to assist clients and their legal
advisors in contract renegotiations and litigation.

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 transform the retailing of
energy and utility services, particularly in how utilities interface with their
customers. The Company's knowledge base and full service capabilities position
it to help clients define and evaluate their options and to give them access to
unique computing platforms.

Responding to Globalization. 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's international track record
and ability to work effectively on a global scale enable it to assist clients in
responding to these challenges.

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<PAGE>

Identifying and Closing Enabling 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's 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.

Managing Environmental Constraints. 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's 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.

Competitive Strengths

Hagler Bailly believes that it is in a strong position to take advantage
of these consulting opportunities. 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,
utilities 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.

Global Infrastructure. On December 31, 1996, the Company had a staff of
244 full-time employees, of which 150 were consultants, and 71 part-time
employees. 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) and five principal offices
abroad (Buenos Aires, Argentina; Dublin, Ireland; Islamabad, Pakistan; Jakarta,
Indonesia; and Paris, France). The Company also operates several branch and
project offices, including Philadelphia, Pennsylvania; Cairo, Egypt; Kiev,
Ukraine; and Moscow, Russia.

Established Client Relationships. In each of the last two fiscal years,
the revenues from clients served in the previous year were at least 50.0% of the
Company's total revenues. 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. 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.

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

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<PAGE>

and software packages -- OPEC and NPE, two nuclear power plant operations
databases, IPP, a worldwide information base on independent power producers, and
75Check(TM), a software program licensed to 91 of the largest U.S. utilities to
monitor compliance with the amendments to the Clean Air Act of 1990. The Company
has recently developed a new proprietary database, Ramp-up(TM), 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(TM)"), 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, utilities 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 ten years. This consistency of
leadership and teamwork, combined with training provided by the Company, has
fostered a strong company culture and employee loyalty.

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 has emerged as
one of the leading management consulting firms focused on the energy, utilities
and environmental industries. Since its founding, the Company has advised over
750 clients and conducted more than 1,900 engagements in over 100 countries. In
1996 alone, the Company performed over 220 assignments for more than 125 clients
in over 30 countries. In the last three fiscal 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, Utilities 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, utilities 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 and Consulting Platforms.
Hagler Bailly has developed a network of strategically located offices and
subsidiaries 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 core tools 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. This combination of facilities, consulting
platforms and tools provides leverage for the Company's senior talent with
respect to both client acquisition and engagement management.

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 is well positioned to

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<PAGE>

address, are: industry consolidation; corporate repositioning; stranded cost
recovery; global expansion; global climate change; and information technology.

Attract and Retain World-Class Intellectual Capital. 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 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, utilities and
environmental companies in raising equity and debt capital.

Major Practice Areas

The Company offers services in five practice areas: corporate strategy
and management; economic analysis and litigation support; infrastructure
planning and development; financial advisory; and environmental management.
These practice areas work together synergistically to provide clients the full
range of services and capabilities of the Company as shown on the table set
forth below.

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<PAGE>

Lines of Services Services
- ---------------------------------------------------------------------------------------------------
<S> <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>

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.

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<PAGE>

Each of the Company's engagements is led by one of its consulting
directors. 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 fiscal years, at least 50.0% of the Company's
total revenues originated from prior client engagements. Repeat business is
generated through 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 over 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

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<PAGE>

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 73.1%, 68.9% and 70.9% of its total revenues in 1996, 1995 and
1994, respectively. Several offices of the USAID collectively form the Company's
single largest client, accounting for approximately 42.2%, 53.1% and 52.2% of
the Company's total revenues in 1996, 1995 and 1994, respectively (approximately
26.9%, 39.4% and 40.5% of consulting revenues in 1996, 1995 and 1994,
respectively). As of January 1, 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). See Note 13 to Consolidated Financial Statements.

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 clients to which the
Company has provided services over this period include:

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
Pacific Gas & Electric Co.

Industry Associations Governmental
--------------------- ------------

American Waterworks Association (AWWA) European Commission Energy Technology Directorate
Edison Electric Institute (EEI) State of Wisconsin, Energy Center of Wisconsin
Electric Power Research Institute (EPRI) State of Florida, Department of Environmental
Gas Research Institute (GRI) Protection
INGAA (Interstate Natural Gas Association USAID
of America) Foundation United States Fish and Wildlife Service
United States Environmental Protection Agency

Others International Public Organizations
------ ----------------------------------

Ansaldo AST (Italy)
Asea Brown Boveri Sulsa African Development Bank
Chem-Nuclear Systems Inc. Asian Development Bank
Mitsubishi International (Japan) European Bank for Reconstruction and Development
Westinghouse Electric International Energy Agency
The World Bank

</TABLE>

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<PAGE>

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>

Examples of the Company's recent engagements, which are representative
of the nature of the Company's 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.

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

-34-

<PAGE>

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.
Further, public sector contract awards are also subject to protest by
competitors. The termination or substantial modification of any of 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 December 31, 1996, the Company's personnel consisted of 244
full-time employees, including 150 consultants and 94 support and
administrative personnel, and 71 part-time employees. The consulting staff is
composed of MBAs, economists, engineers, and scientists and lawyers, in nearly
equal proportions. Approximately 80.0% of the 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, utilities 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's 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.

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<PAGE>

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 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 1,458,337 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 12 locations: Arlington, Virginia (headquarters);
Boston, Massachusetts; Boulder, Colorado; Buenos Aires, Argentina; Dublin,
Ireland; Houston, Texas; Islamabad, Pakistan; Jakarta, Indonesia; Madison,
Wisconsin; Paris, France; Philadelphia, Pennsylvania; and San Francisco,
California. In addition, the Company leases, from time to time, office space for
specific international projects which is paid for directly by the projects. The
Company has project offices in eight foreign locations totaling approximately
12,000 square feet. 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 and directors and their respective
ages and positions are as follows:

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

Vinod K. Dar 45 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) 66 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.

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. 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

-37-

<PAGE>

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. 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.

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 Booz(bullet)Allen & Hamilton. Since 1995, Mr. Schriever has
been a director of Eurosat Holdings, Inc., a private company providing hardware
and software packages for satellite broadcast reception. 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 and Chief Financial Officer (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 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.

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<PAGE>

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 and 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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<PAGE>

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

Long-Term
Annual Compensation Compensation
---------------------- ------------
All other
Salary Bonus Options/ Compensation (1)
Name and Principal Position ($) ($) SARs (#) ($)
- --------------------------- ----- ----- -------- ---------------
<S> <C> <C> <C> <C>
Henri-Claude A. Bailly.................. $325,000 $606,954 -- $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 amended and restated
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

-40-

<PAGE>

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

Potential Realizable
Value at Assumed
Individual Grants Annual Rates of Stock
-------------------------------------------- Price Appreciation for
% of Total Option Terms
Options Granted Exercise or -----------------------
Options to Employees in Base Price Expiration
Name Granted(1) Fiscal Year Per Share Date 5%(2) 10%(2)
---- ---------- ------------ ----------- ---------- ---- -----

Henri-Claude A. Bailly .... 34,575 22% $1.06 6/30/01 $10,126 $22,375
17,288 11% $1.16 6/30/01 3,334 9,459

Daniel M. Rouse ........... -- -- -- -- -- --

Vinod K. Dar .............. -- -- -- -- -- --

Alain M. Streicher ........ -- -- -- -- -- --

Michael D. Yokell ......... -- -- -- -- -- --
</TABLE>

- ------------------------
(1) Granted pursuant to the Company's Stock Plan, all which are immediately
vested on the date of grant.
(2) These are hypothetical values using assumed growth as prescribed by the
Commission.

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<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, 34,575 options 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:

Name and Position Number of Options
----------------- -----------------

Henri-Claude A. Bailly, President, Chief 172,876
Executive Officer and Chairman of the
Board

Daniel M. Rouse, Vice President Finance, 20,745
Chief Financial Officer and Treasurer

Fred M. Schriever, Director 5,186

Robert W. Fri, Director 5,186

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 equal approximately to 49.0% of its consolidated IBBT
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 Consulting 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
on January 17, 1997 (the "Bailly Agreement"). Mr. Bailly will serve as Chairman
of the Board, President and Chief Executive Officer of the Company, 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 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

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<PAGE>

the Bailly Agreement). Mr. Bailly is also entitled to additional compensation,
with an annual accrual of no less than 10% of his total income.

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 February 10, 1997, Awards under the Stock Plan to employees and
consultants to purchase an aggregate of 1,458,337 shares of the Company's Common
Stock were outstanding at exercise prices per share ranging from $0.15 to $6.71.

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 distribution of the vested interest in their accounts upon
retirement, death, permanent disability or termination of employment. See Note
12 to Consolidated Financial Statements.

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<PAGE>

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 345,743 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 345,753 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 term bank loan and a $4.65 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.

Plan of Recapitalization

Effective December 31, 1996, the Company effected a plan of
recapitalization pursuant to which each outstanding share of Class B Common
Stock was exchanged for 0.9 of a share 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 345,743 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 345,753 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 February 10, 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.

Shares Beneficially Shares Being Shares Beneficially
Names Owned Prior to Offering(1) Offered Owned After Offering
----- -------------------------- ------- --------------------

Number Number Number
Of Shares % of Shares of Shares %
--------- ---- --------- --------- ----

<S> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly(2) 1,029,486 19.3
Daniel M. Rouse(3) 115,813 2.3
Vinod K. Dar(4) 518,630 10.3
Michael D. Yokell(5) 884,997 16.9
Alain M. Streicher(6) 604,985 11.7
Fred M. Schriever(7) 88,167 1.8
Robert W. Fri(8) 8,643 *
Robert E. Ciliano(9) 279,244 5.5
Niels O. de Terra(10) 119,672 2.4
David A. Keith(11)) 159,565 3.2
Jean-Louis Poirier(12) 359,030 7.1
John R. Armstrong(13) 279,244 5.5
Steven A. Mitnick(14) 115,813 2.3
Robert D. Rowe(15) 456,110 8.9
Elizabeth S. Marcotte 70,851 1.4
Alex M. Steinbergh(16) 170,698 3.2
Robin C. Calhoun(17) 159,565 3.2
Joshua Lipton(18) 115,813 2.3
Robert S. Raucher(19) 119,672 2.4
Kent D. Van Liere(20) 92,766 1.8
Dan M. Violette(21) 141,703 2.8
Carlos A. Yermoli(22) 70,851 1.4
All executive officers
and directors
as a group (7 persons)(23) 3,250,721 57.4
</TABLE>

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<PAGE>

- --------------------

* Represents less than 1.0% of the outstanding shares of Common Stock.

(1) Includes 874,707 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 February 10, 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 February 10, 1997. Includes 650,085 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 251,542 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 February 10, 1997. Includes 23,573 shares of Common Stock held in an
IRA account on Mr. Rouse's behalf and exercisable options to purchase
12,087 shares of Common Stock.

(4) Includes 345,753 shares of Common Stock held in the Hagler Bailly, Inc.
Deferred Compensation Plan Trust for Mr. Dar's benefit.

(5) Includes 662,118 shares of Common Stock held in IRA accounts on Mr.
Yokell's behalf. Also includes exercisable options to purchase 193,490
shares of Common Stock.

(6) Includes 297,424 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.

(7) Includes exercisable options to purchase 5,186 shares of Common Stock.

(8) 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 February 10, 1997. Includes exercisable options to purchase 5,186
shares of Common Stock.

(9) Includes 174,004 shares of Common Stock held in an IRA account on Mr.
Ciliano's behalf and exercisable options to purchase 37,216 shares of
Common Stock.

(10) 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.

(11) 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 February 10, 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.

(12) Includes 246,854 shares of Common Stock held in an IRA account on Mr.
Poirier's behalf and exercisable options to purchase 47,852 shares of
Common Stock.

(13) Includes 217,742 shares of Common Stock held in IRA accounts on Mr.
Armstrong's behalf and exercisable options to purchase 37,216 shares of
Common Stock.

-48-

<PAGE>

(14) 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.

(15) Includes 255,664 shares of Common Stock held in IRA accounts on Mr.
Rowe's behalf and exercisable options to purchase 75,782 shares of
Common Stock.

(16) 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.

(17) Includes 138,301 shares of Common Stock held in IRA accounts on Mr.
Calhoun's behalf and exercisable options to purchase 21,263 shares of
Common Stock.

(18) 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 February 10, 1997. Includes 55,321 shares of Common Stock held in an
IRA account on Mr. Lipton's behalf and exercisable options to purchase
12,087 shares of Common Stock.

(19) Includes 103,726 shares of Common Stock held in an IRA account on Mr.
Raucher's behalf and exercisable options to purchase 15,946 shares of
Common Stock.

(20) 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 February 10, 1997. Includes 69,151 shares of Common Stock held in an
IRA account on Mr. Van Liere's behalf.

(21) Includes 141,703 shares of Common Stock held in an IRA account on Mr.
Violette's behalf.

(22) Includes 70,852 shares of Common Stock held in an IRA account on Mr.
Yermoli's behalf.

(23) Excludes 167,864 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days
of February 10, 1997.

-49-

<PAGE>

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 5,041,663 shares
of Common Stock and no shares of Preferred Stock. Upon completion of the
Offering, the Company will have outstanding 7,541,663 shares of Common Stock and
no shares of Preferred Stock. As of February 10, 1997, there were 22 record
holders of Common Stock.

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

-50-

<PAGE>

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 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.

-51-

<PAGE>

Transfer Agent and Registrar

The transfer agent and registrar for the Common Stock is StockTrans,
Inc.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 7,541,663 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 4,391,663 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. Until ________ 1997, no 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 two
years, 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 (75,416 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 three 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.

-52-

<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."

-53-

<PAGE>

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's Common Stock has been approved for quotation and trading
on the Nasdaq National Market under the symbol "HBIX", subject to official
notice of issuance.

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 for the period from May 26, 1995 to December 31, 1995,
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 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.

-54-

<PAGE>

ADDITIONAL INFORMATION

The Company is not currently subject to the information requirements of
the Securities and Exchange Act (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. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein 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.

-55-

<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-23
Balance Sheet.............................................................. F-24
Statements of Income....................................................... F-25
Statements of Stockholder's Equity......................................... F-26
Statements of Cash Flows................................................... F-27
Notes to Financial Statements.............................................. F-28

F-1

<PAGE>

Report of Ernst & Young LLP, Independent Auditors

Board of Directors
Hagler Bailly, Inc.

We have audited the accompanying consolidated balance sheet of Hagler Bailly,
Inc., and its subsidiaries, as of December 31, 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
May 26, 1995 to December 31, 1995. 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 audit.

We conducted our audit 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 audit provides 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 the results of their
operations and their cash flows for the period May 26, 1995 to December 31, 1995
in conformity with generally accepted accounting principles.

Ernst & Young LLP

Washington, D.C.
March 15, 1996, except Note 14
as to which the date is
February 21, 1997

- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon a determination of
the proposed price range to be included in the filing of the offered common
stock of Hagler Bailly, Inc. and consummation of the stock split discussed in
Note 14.

/s/ Ernst & Young LLP

Washington, D.C.
February 21, 1997

F-2

<PAGE>

Hagler Bailly, Inc.

Consolidated Balance Sheets

December 31, 1995 and 1996

1995 1996
---- ------
Unaudited
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 671,281 $ 1,432,882
Accounts receivable, net (Note 3) 12,733,590 15,038,797
Prepaid expenses 175,905 368,282
Other current assets 417,552 216,922
----------- -----------
Total current assets 13,998,328 17,056,883

Property and equipment, net (Note 4) 2,049,439 2,414,449

Intangible assets, net (Note 5) 8,177,406 7,661,092

Other assets (Note 6) 274,926 614,694

=========== ===========
Total assets $24,500,099 $27,747,118
=========== ===========
</TABLE>

See accompanying notes

1995 1996
---- ----
Unaudited
Liabilities and stockholders' equity
Current liabilities:
<S> <C> <C>
Bank line of credit (Note 7) $ 900,000 $ 1,750,000
Accounts payable and accrued expenses 2,967,843 2,417,510
Accrued compensation and benefits 3,461,800 4,227,524
Billings in excess of cost 1,317,675 2,029,636
Current portion of long-term debt (Note 8) 2,088,000 1,289,000
Deferred income taxes (Note 9) 725,000 1,522,000
----------- -----------
Total current liabilities 11,460,318 13,235,670

Long-term debt, net of current portion (Note 8) 9,062,000 7,273,333
----------- -----------
Total liabilities 20,522,318 20,509,003

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, 6,915,067 shares authorized, 4,321,917
and 4,978,150 issued and outstanding, at 1995 and 1996 43,219 49,781

Class B par value $.01, 2,074,521 shares authorized,
103,726 issued and outstanding, at 1995, none outstanding
at 1996 1,037 -
Additional paid-in capital 3,023,297 9,937,565
Retained earnings (deficit) 910,228 (2,749,231)
----------- -----------
Total stockholders' equity 3,977,781 7,238,115
----------- -----------

Total liabilities and stockholders' equity $24,500,099 $27,747,118
=========== ===========
</TABLE>

See accompanying notes.

F-3

<PAGE>

Hagler Bailly, Inc.

Consolidated Statements of Operations

Period from May 26, 1995 to December 31, 1995
and for the year ended December 31, 1996

1995 1996
---- ----
Unaudited
Revenues:
<S> <C> <C>
Consulting revenues $18,194,121 $38,762,508
Subcontractor and other revenues 11,119,479 22,820,829
----------- -----------
Total revenues 29,313,600 61,583,337

Cost of services 23,811,123 48,785,854
----------- -----------

Gross profit 5,502,477 12,797,483
----------- -----------

Selling, general and administrative expenses 3,230,227 8,583,896
Stock and stock option compensation -- 6,172,000
----------- -----------

Income (loss) from operations 2,272,250 (1,958,413)
----------- -----------

Other income (expense):
Interest income 21,681 117,200
Interest expense (658,703) (1,021,246)
----------- -----------
(637,022) (904,046)

Income (loss) before income tax expense 1,635,228 (2,862,459)
Income tax expense (Note 9) 725,000 797,000
----------- -----------
Net income (loss) $ 910,228 $(3,659,459)
=========== ===========

Net income (loss) per share (Note 2) $ $
=========== ===========

Weighted average shares outstanding
=========== ===========
</TABLE>

See accompanying notes.

F-4

<PAGE>

Hagler Bailly, Inc.

Consolidated Statements of Stockholders' Equity

Period from May 26, 1995 to December 31, 1995
and for the year ended December 31, 1996

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) 4,149,040 -- $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 4,321,917 103,726 44,256 3,023,297 910,228 3,977,781

Repayment of Notes receivable
for Common Stock (unaudited)
-- -- 97,447 -- 97,447

Issuance of Common Stock (unaudited) 748,425 -- 7,484 856,516 -- 864,000

Repurchase of Common Stock
(unaudited) (185,545) -- (1,855) (212,070) -- (213,925)

Substitution and issuance of
compensatory stock and options
(unaudited) (Note10) 93,353 (103,726) (104) 6,172,375 -- 6,172,271

Net loss (unaudited) -- -- -- -- (3,659,459) (3,659,459)

--------- -------- ------- ---------- ----------- ----------
Balance, December 31, 1996
(unaudited) 4,978,150 -- $49,781 $9,937,565 $(2,749,231) $7,238,115
========= ======== ======= ========== =========== ==========
</TABLE>

See accompanying notes.

F-5

<PAGE>

Hagler Bailly, Inc.

Consolidated Statements of Cash Flows

Period from May 26, 1995 to December 31, 1995 and
for the year ended December 31, 1996

1995 1996
---- ----
Unaudited
Operating activities
<S> <C> <C>
Net income (loss) $ 910,228 $(3,659,459)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 734,494 1,265,606
Provision for possible losses 129,484 1,092,713
Provision for deferred income taxes 725,000 797,000
Stock and stock option compensation -- 6,172,000
Changes in operating assets and liabilities:
Accounts receivable (1,651,314) (3,397,920)
Prepaid expenses 59,664 (192,377)
Other current assets (138,634) 200,630
Other assets (204,235) (339,768)
Accounts payable and accrued expenses (1,705,848) (550,333)
Accrued compensation and benefits 2,499,276 765,724
Billings in excess of cost 1,148,455 711,961
----------- ----------
Net cash provided by operating activities 2,506,570 2,865,777
----------- ----------

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)
----------- ----------
Net cash used by investing activities (12,303,289) (1,114,031)
----------- ----------

Financing activities
Issuance of Common Stock 3,068,000 864,000
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
Proceeds from long-term debt financing 7,000,000 --
Principal payments on long-term debt (500,000) (2,587,667)
----------- ----------
Net cash provided by (used in) financing activities 10,468,000 (990,145)
----------- ----------

Net increase in cash and cash equivalents 671,281 761,601
Cash and cash equivalents, beginning of period -- 671,281
=========== ==========
Cash and cash equivalents, end of period $ 671,281 $1,432,882
=========== ==========
</TABLE>

See accompanying notes.

F-6

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements

December 31, 1995 and 1996
(Information as of and for the year ended December 31, 1996 is unaudited)

1. Organization

Hagler Bailly, Inc. ("Hagler Bailly" or the "Company") is a leading worldwide
provider of management consulting and other advisory services in the fields of
energy, utilities, and the environment to the private and public sectors. 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

1996 Financial Information

The consolidated financial statements and related notes thereto as of and for
the year ended December 31, 1996 are unaudited and have been prepared on the
same basis as the audited consolidated financial statements included herein. In
the opinion of management, such unaudited information includes all adjustments
consisting only of normal recurring items, except for the $6,127,000 stock and
stock option compensation charge in December 1996, necessary to present fairly
the financial information set forth herein.

F-7

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

2. Summary of Significant Accounting Policies (continued)

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 cost used in the earnings recognition process. Actual results could
differ from those estimates.

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.

F-8

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

2. Summary of Significant Accounting Policies (continued)

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.

F-9

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

2. Summary of Significant Accounting Policies (continued)

Earnings Per Share

Net income (loss) per share is calculated using the weighted average number of
common shares outstanding during each period. Net income per share is adjusted
for the dilutive effect of common stock equivalents, however, net loss per share
is not adjusted for common stock equivalents because they are antidilutive.
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 (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).

F-10

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

3. Accounts Receivable

At December 31, 1995 and 1996, the components of accounts receivable are:

1995 1996
---- ----

Billed amounts $ 8,665,372 $10,794,670
Unbilled amounts currently billable 4,148,455 4,914,425
Retention not currently billable 278,547 214,492
Allowance for possible losses (358,784) (884,790)
----------- -----------
Total $12,733,590 $15,038,797
=========== ===========

The activity in the allowance for possible losses for the period ended December
31, 1995 and the year ended December 31, 1996 is as follows:

1995 1996
---- ----

Beginning of period $ 314,025 $ 358,784
Provision for losses charged to expense 129,484 1,092,713
Charge-offs, net of recoveries (84,725) (566,707)
---------- -----------
Balance at December 31 $ 358,784 $ 884,790
========== ===========

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-11

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

4. Property and Equipment

Components of property and equipment at December 31, 1995 and 1996 are as
follows:

1995 1996
---- ----

Office equipment and furniture $2,339,208 $ 3,361,916
Leasehold improvements 84,995 176,318
---------- -----------
2,424,203 3,538,234
Accumulated depreciation and amortization (374,764) (1,123,785)
---------- -----------
$2,049,439 $ 2,414,449
========== ===========

Depreciation expense for the period ended December 31, 1995 and the year ended
December 31, 1996 was $375,000 and $749,000, 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 is net of accumulated amortization of $334,000 and $1,017,000
respectively. Amortization expense for the period ended December 31, 1995 and
the year ended December 31, 1996 was $334,000 and $683,000, respectively.

F-12

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

5. Management Buy-Out (continued)

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

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.

6. Other Assets

As a part of the Management Buy-Out (Note 5), the Company was required to place
a deposit in escrow to indemnify RCG for remaining a guarantor on a lease. At
December 31, 1996, the Company has an escrow balance of $350,000. The Company is
required to increase the balance to $450,000 on January 31, 1998 and to further
increase the balance to $550,000 on December 31, 1998, unless RCG is released
from the lease guarantee.

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.

F-13

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

8. Long-term Debt

At December 31, 1995 and 1996, long-term debt consisted of the following:

1995 1996
---- ----

<S> <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

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
----------- -----------

Total long-term debt 11,150,000 8,562,333
Less: current portion 2,088,000 1,289,000
----------- -----------

Long-term debt, net of current portion $ 9,062,000 $ 7,273,333
=========== ===========

</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.

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.

F-14

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

8. Long-Term Debt (continued)

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 1,215,000
2000 --
2001 4,650,000
----------
Total $8,562,000
==========

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.

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:

1995 1996
---- ----

Deferred
Federal $580,000 $639,000
State 145,000 158,000
-------- --------
Income tax expense $725,000 $797,000
======== ========

F-15

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

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:

1995 1996
----- ----

<S> <C> <C>
Tax computed at the Federal statutory rate $572,000 $ (999,000)
State income taxes, net of Federal income
tax benefit 85,000 107,000
Non-deductible charge for stock option compensation -- 1,661,000
Other 68,000 28,000
-------- ----------

Income tax expense $725,000 $ 797,000
========= ==========
</TABLE>

The components of temporary differences including available net operating loss
carry-forwards at December 31, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
---- ----

Deferred tax liabilities:
<S> <C> <C>
Accounts receivable $5,118,000 $6,015,000
Other 237,000 146,000
---------- ----------
Total 5,355,000 6,161,000
---------- ----------

Deferred tax assets:
Accounts payable and accrued expenses 1,187,000 967,000
Accrued compensation and benefits 1,385,000 1,617,000
Billings in excess of cost 530,000 811,000
Deferred compensation -- 762,000
Net operating loss carryforwards available for
income tax purposes 1,528,000 482,000
---------- ----------
Total 4,630,000 4,639,000

Valuation allowance -- --
---------- ----------
Net deferred tax liability $ 725,000 $1,522,000
========== ==========
</TABLE>

F-16

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

10. Stockholders' Equity

The Company was authorized at inception to issue 6,915,067 shares of $.01 par
value Class A common stock and 2,074,521 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 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 market value of the underlying Common Stock; and (b) in
connection with a reclassification of its Common Stock amended all outstanding
options to purchase 971,961 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 971,961 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
394,158 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.

F-17

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

10. Stockholders' Equity (continued)

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.

The following summarizes option activity for the periods ended December 31, 1995
and 1996:

Class A Class B Option Price
Options Options per Share
-------- ------- ------------
1995
<S> <C> <C> <C>
Granted -- 2,074,521 $0.14 - 0.16
Exercised -- (103,726) 0.14
-------- --------- ------------
Outstanding at December 31, 1995 -- 1,970,795 0.14 - 0.16

1996 (Unaudited)
Granted 62,236 -- 0.87 - 1.16
Canceled -- (971,961) 0.14 - 0.16
Forfeited -- (26,873) 0.14
Substituted 874,714 (971,961) 0.14 - 0.16
-------- --------- ------------
Outstanding at December 31, 1996 936,950 -- $0.14 - 1.16
========= ========= ============

Exercisable at December 31, 1996 930,028 -- $0.14 - 1.16
========= ========= ============
</TABLE>

F-18

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

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 5) 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.

F-19

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

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.
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.

F-20

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

Financial Instruments and Risk Management (continued)

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 and 1996, respectively, cash of approximately $465,000 and
$1,004,000 was located in foreign bank accounts.

Major Customers

At December 31, 1995 and 1996, included in accounts receivable was $7,654,726
and $6,823,898, 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. 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.

F-21

<PAGE>

Hagler Bailly, Inc.

Notes to Consolidated Financial Statements (continued)
(Information as of and for the year ended December 31, 1996 is unaudited)

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 6,915,067 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 6.915067 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 576,711
shares of Common Stock to employees pursuant to the Stock Plan at an exercise
price of $6.10 per share which represents fair market value at date of grant.

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 effect the release of RCG from the
guarantee described in Note 6 within fourteen days after the closing of the IPO
(or in the event the IPO is not consummated prior to April 15, 1997, to use its
best efforts to effect such a release by April 30, 1997). 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 $4.2 million at December 31, 1996). In the event the IPO is not
consummated prior to April 15, 1997 and the Company is unable to obtain such
release, RCG has the right to require the Company to increase the escrow
described above to $550,000.

F-22

<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-23
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Balance Sheet

December 31, 1994

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
===========

See accompanying notes.

F-24
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Statements of Income

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-25

<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> <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-26
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Statements of Cash Flows

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-27
<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 management consulting
and other advisory services in the fields of energy, utilities, and the
environment to the private and public sectors. 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.

F-28
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

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

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.

F-29
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

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.

F-30
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

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

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.

F-31
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

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:

Period from
Year ended December 31, January 1
----------------------- 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:

Period from
Year ended December 31, January 1
------------------------ 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.

F-32
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

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.

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-33
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (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.

F-34
<PAGE>

RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.)

Notes to Financial Statements (continued)

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-35
<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....................................................
Risk Factors..........................................................
The Company...........................................................
Use of Proceeds.......................................................
Dividend Policy.......................................................
Capitalization........................................................
Dilution..............................................................
Selected Consolidated Financial Data..................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................
Business..............................................................
Management............................................................
Certain Transactions..................................................
Principal and Selling Stockholders....................................
Description of Capital Stock..........................................
Shares Eligible for Future Sale.......................................
Underwriting..........................................................
Legal Matters.........................................................
Experts...............................................................
Additional Information................................................
Index to Financial Statements......................................... F-

--------------------

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

- Logo -

Hagler Bailly, Inc.

Common Stock

----------

PROSPECTUS

----------

Donaldson, Lufkin & Jenrette
Securities Corporation

Montgomery Securities

, 1997

===============================================================================

-56-

<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:

Nature of Expense Amount
----------------- ------
SEC Registration Fee.......................................... $17,564
Nasdaq National Market Listing Fee............................ 20,750
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 $ **
=======

- -----------------------------------
* 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.

II-1

<PAGE>

The Company's 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.

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 pre-split basis, unless
otherwise indicated):

(i) In May 1995, in connection with its initial
capitalization, the Company issued an aggregate of 600,000 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 281,114 shares of Class B Common Stock under
the Stock Plan. 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 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 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 December 1995, the Company issued 25,000 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 30,731
shares of Common Stock to three 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 20,492 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 shares of Class A Common Stock at an exercise price of
$7.32 per share and an option to purchase 2,500 shares of Class A Common Stock
at an exercise price of $8.05 per 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 shares of Class A Common Stock
at an exercise price of $6.00 per share. As of January 24, 1997, an option to
purchase 500 of these shares had been exercised.

II-2

<PAGE>

(viii) In October 1996, the Company issued 50,000 shares of
Common Stock to a trust. The shares were issued for $454,000 of consideration.
In addition, the Company issued 7,000 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 576,713 (post-split) shares of Common Stock which have not yet
been exercised (the "January 1997 Options") at exercise prices of $6.10
(post-split) and $6.71 (post-split). The Company intends to grant certain of its
employees and directors options to purchase an aggregate of 3,200,000
(post-split) (including the January 1997 Options) 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 (post-split) shares of Common Stock.

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:

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.*
3.1 - Restated Certificate of Incorporation of the Company*
3.2 - Restated By-Laws of the Company*
4.1 - Specimen Stock Certificate*
5.1 - Opinion of Pepper, Hamilton & Scheetz*
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)*
10.2 - Non-Compete, Confidentiality and Registration Rights Agreement between the
Company and Henri-Claude A. Bailly (identical Non-Compete, Confidentiality and
Registration Rights Agreements, except as to the signator, were entered into with
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 Poirier, John R.
Armstrong, Steven A. Mitnick, Robert D. Rowe, Elizabeth S. Marcotte, Alex M.
Steinbergh, Robin C. Calhoun, Joshua Lipton, Robert S. Raucher, Kent D. Van Liere,
Dan M. Violette and Carlos A. Yermoli)*
10.3 - Form of Agreement between the Company and each employee*
10.4 - Amended 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.*
10.6 - First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated
February 1993.*
</TABLE>

II-3

<PAGE>

Exhibit
No. Description
- ------- -----------

<S> <C> <C>
10.7 - Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated December 12, 1994.*
10.8 - Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8, 1996.*
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.*
10.11 - Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated May 17, 1995*
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.*
10.13 - Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated as of August 1, 1996.*
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.*
10.15 - Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
May 26, 1995.*
10.16 - Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
May 26, 1995.*
10.17 - 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International, Inc., dated
May 25, 1995.*
11.1 - Earnings Per Share Calculation*
21 - Subsidiaries
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 (included in Exhibit 5.1)*
24 - Powers of Attorney (included on Signature Pages)
27 - Financial Data Schedule
</TABLE>

- -------------
* To be filed by Amendment.

(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.

(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

II-4

<PAGE>

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-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 consolidated financial statements of Hagler Bailly,
Inc., dated March 15, 1996, except Note 14 as to which the date is February 21,
1997, in the Registration Statement (Form S-1 No. 333-00000) and related
Prospectus of Hagler Bailly, Inc. for the registration of shares of its common
stock.

Ernst & Young LLP

Washington, D.C.
February 21, 1997

- ------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon a determination of
the proposed price range to be included in the filing of the offered common
stock of Hagler Bailly, Inc. and consummation of the stock split discussed in
Note 14.

/s/ Ernst & Young LLP

Washington, D.C.
February 21, 1997

II-6

<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 the
Registration Statement (Form S-1 No. 333-00000) and related Prospectus of Hagler
Bailly, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Washington, D.C.
February 21, 1997

II-7

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 20th day of February, 1997.

HAGLER BAILLY, INC.

By: /s/ Henri-Claude Bailly
----------------------------------
Henri-Claude Bailly
President, Chief Executive Officer and
Chairman of the Board

POWER OF ATTORNEY
-----------------

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Henri-Claude Bailly and Daniel M. Rouse,
and each or any of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their, his or her substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

Signature Title Date
- --------- ----- ----

<S> <C> <C>
/s/ Henri-Claude Bailly Chief Executive Officer February 20, 1997
- ------------------------------ and President; Director (principal
Henri-Claude Bailly executive officer)

/s/ Daniel M. Rouse Vice President, Chief Financial Officer February 20, 1997
- ------------------------ and Treasurer (principal financial officer
Daniel M. Rouse and principal accounting officer)

/s/ Vinod K. Dar Director February 20, 1997
- ------------------------
Vinod K. Dar

/s/ Alan Streicher Director February 20, 1997
- ------------------------
Alain Streicher

/s/ Michael Yokell Director February 20, 1997
- ------------------------
Michael Yokell

/s/ Fred Schriever Director February 20, 1997
- ------------------------
Fred Schriever

/s/ Robert Fri Director February 20, 1997
- ------------------------
Robert Fri
</TABLE>

II-8

<PAGE>

Exhibit Index

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*.........
3.1 - Restated Certificate of Incorporation of the Company*.....................................
3.2 - Restated By-Laws of the Company*..........................................................
4.1 - Specimen Stock Certificate*...............................................................
5.1 - Opinion of Pepper, Hamilton & Scheetz*....................................................
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)*..
10.2 - Non-Compete, Confidentiality and Registration Rights Agreement between the
Company and Henri-Claude A. Bailly (identical Non-Compete, Confidentiality and
Registration Rights Agreements, except as to the signator, were entered into with
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 Poirier, John R.
Armstrong, Steven A. Mitnick, Robert D. Rowe, Elizabeth S. Marcotte, Alex M.
Steinbergh, Robin C. Calhoun, Joshua Lipton, Robert S. Raucher, Kent D. Van Liere,
Dan M. Violette and Carlos A. Yermoli)*
10.3 - Form of Agreement between the Company and each employee*
10.4 - Amended 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.*
10.6 - First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated February, 1993.*
10.7 - Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly,
Inc. dated December 12, 1994.*
10.8 - Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8, 1996.*
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.*
10.11 - Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated May 17, 1995*
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.*
10.13 - Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated as of August 1, 1996.*
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.*
10.15 - Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
May 26, 1995.*
10.16 - Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
May 26, 1995.*
10.17 - 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International, Inc., dated
May 25, 1995.*
11.1 - Earnings Per Share Calculation*
21 - Subsidiaries..............................................................................
23.1 - Consents of Ernst & Young LLP, independent auditors (included on pages II-6 and II-7 of the
Registration Statement)...................................................................
24.1 - Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5.1)*..........................
25 - Powers of Attorney (included on Signature Pages)..........................................
27 - Financial Data Schedule
</TABLE>

- -------------
* To be filed by Amendment.

Exhibit 21

SUBSIDIARIES

The following corporations are subsidiaries of Hagler Bailly, Inc.:

Hagler Bailly Services, Inc. -- a Delaware Corporation

Hagler Bailly Consulting, Inc. -- a Delaware Corporation

HB Capital, Inc. -- a Delaware Corporation

Hagler Bailly Texas, Inc. -- a Texas Corporation (a subsidiary
of Hagler Bailly Consulting, Inc.)

<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
<EPS-DILUTED> 0

</TABLE>