SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2)
|_| Definitive Additional Material
|_| Soliciting Material Pursuant to Rule
14a-11 (c) or Rule 14a-12
- --------------------------------------------------------------------------------
[LOGO] HAGLER BAILLY, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|X| Fee paid previously with preliminary materials:
|X| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid: $1,014
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.: Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party: Hagler Bailly, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed: July 2, 1998
- --------------------------------------------------------------------------------
<PAGE>
Putnam, Hayes & Bartlett, Inc.
One Memorial Drive
Cambridge, Massachusetts 02142
July 27, 1998
To the Stockholders of
Putnam, Hayes & Bartlett, Inc.:
You are cordially invited to attend a special meeting of stockholders of
Putnam, Hayes & Bartlett, Inc. ("PHB") to be held on August 27, 1998, at 10:00
a.m. at PHB's offices located at 1776 I "Eye" Street, N.W., Washington, D.C.
20006.
PHB has entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Hagler Bailly, Inc. The Merger Agreement provides for the
combination of Hagler Bailly and PHB in a merger of equals (the "Merger"). At
the PHB special meeting, you will be asked to consider and approve the Merger
Agreement and the Merger provided for therein.
Under the Merger Agreement, each share of PHB common stock, except those
shares of PHB common stock as to which dissenters' rights of appraisal are
properly asserted, will be converted into the right to receive a number of
shares of Hagler Bailly common stock equal to 6,600,000 divided by the number of
shares of PHB common stock issued and outstanding immediately prior to the
Merger's effective time (approximately 1.2759 shares of Hagler Bailly for each
PHB share as of July 27, 1998), plus cash to be paid in lieu of fractional
shares. If the Merger is completed, former PHB stockholders will have
approximately 40% of the outstanding shares of Hagler Bailly. After the
consummation of the Merger, a number of PHB directors and officers will assume
management and director positions with Hagler Bailly and/or its subsidiaries.
You are urged to read the accompanying Joint Proxy Statement/Private Placement
Memorandum which describes more fully the proposal relating to the Merger
Agreement and the Merger.
The sale of the Hagler Bailly common stock that current PHB common stock
holders will receive in connection with the Merger will not be registered under
the Securities Act of 1933 or applicable securities law. Accordingly, these
shares of Hagler Bailly common stock will be subject to restrictions on
transferability and resale. If the Merger closes, you may be required to bear
the financial risks of an investment in Hagler Bailly common stock for an
indefinite period of time.
After careful consideration, PHB's Board of Directors has approved the
Merger Agreement and the Merger provided for therein and recommends that you
vote FOR the approval and adoption of the Merger Agreement and the Merger. The
Board of Directors of PHB believes the Merger offers PHB and its stockholders a
number of important benefits, including the strategic fit between PHB's and
Hagler Bailly's businesses, long-term administrative and operational economies
of scale, and the opportunity to enjoy any appreciation in the market price of
Hagler Bailly common stock which may occur in the future.
All stockholders are invited to attend the meeting in person. The
affirmative vote of holders of at least two-thirds of the shares of PHB common
stock outstanding as of the record date will be
<PAGE>
necessary under Massachusetts law for approval and adoption of the Merger
Agreement, the Merger and the transactions contemplated therein. All of PHB's
directors, who beneficially own 4,392,500 shares, or 85%, of the outstanding PHB
common stock, have agreed to vote their shares in favor of the Merger Agreement
and the Merger.
However, as provided in the Merger Agreement, the Merger will not take
place if the holders of more than 10% of the PHB common stock outstanding at the
closing demand appraisal rights as they are entitled under Massachusetts law.
Whether or not you expect to attend the PHB special meeting in person,
please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. Your
prompt cooperation will be appreciated.
Sincerely,
Howard W. Pifer III
Chairman
William E. Dickenson
President and Chief Executive Officer
YOUR PROXY IS IMPORTANT. PLEASE VOTE PROMPTLY. YOU SHOULD NOT SURRENDER OR
OTHERWISE ATTEMPT TO EXCHANGE PHB STOCK CERTIFICATES FOR HAGLER BAILLY STOCK
CERTIFICATES UNLESS AND UNTIL YOU HAVE RECEIVED APPROPRIATE NOTICE AND
INSTRUCTIONS FOR EXCHANGE.
<PAGE>
Putnam, Hayes & Bartlett, Inc.
One Memorial Drive
Cambridge, Massachusetts 02142
-------------------
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON
AUGUST 27, 1998
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Putnam,
Hayes & Bartlett, Inc. ("PHB") will be held on August 27, 1998, at 10:00 a.m. at
PHB's offices located at 1776 I "Eye" Street, N.W., Washington, D.C. 20006 for
the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of June 11, 1998 (the "Merger
Agreement"), by and among PHB, Hagler Bailly, Inc. ("Hagler Bailly")
and a Hagler Bailly subsidiary. Under the Merger Agreement, PHB will
become a wholly owned subsidiary of Hagler Bailly in a merger
transaction (the "Merger") and each of the outstanding shares of PHB
common stock, par value $0.01 per share, except those shares as to
which dissenters' rights of appraisal have been asserted properly,
will be converted into the right to receive a number of shares of
Hagler Bailly common stock, par value $0.01 per share, equal to
6,600,000 divided by the number of shares of PHB common stock issued
and outstanding immediately prior to the Merger's effective time
(approximately 1.2759 Hagler Bailly shares for each PHB share as of
July 27, 1998), plus cash to be paid in lieu of fractional shares; and
2. To transact such other business as may properly come before the PHB
special meeting, or any adjournments or postponements thereof.
The Board of Directors of PHB has fixed the close of business on July 20,
1998 as the record date for the determination of stockholders of PHB entitled to
notice of and to vote at the PHB special meeting. Only holders of record of PHB
common stock at the close of business on that date will be entitled to notice of
and to vote at the PHB special meeting or any adjournments or postponements
thereof. Under Massachusetts law, approval and adoption of the Merger Agreement
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of PHB common stock. All of PHB's directors, who beneficially
own approximately 85% of the PHB common stock outstanding, have agreed to vote
their shares in favor of the Merger Agreement and the Merger.
If the Merger and the Merger Agreement are approved by the holders of PHB
common stock at the special meeting and the Merger occurs, any stockholder: (i)
who files with PHB, before the taking of the vote on the approval of the Merger
and the Merger Agreement, written objection to the proposed actions stating that
such stockholder intends to demand payment for his or her shares if the Merger
is consummated and (ii) whose shares are not voted in favor of such action, has
or may have the right to demand in writing from Putnam, Hayes & Bartlett, Inc.,
which will survive the Merger as a wholly owned subsidiary of Hagler Bailly (the
"Surviving Corporation"), within 20 days after the date written notice that the
Merger has become effective is mailed to such stockholder, payment for such
stockholder's shares and an appraisal of the value thereof. The Surviving
Corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedures set forth in Sections 88 to 98,
inclusive, of Chapter 156B of the General Laws of Massachusetts. The Merger
Agreement provides that the Merger will not take place if the holders of more
than 10% of the PHB common stock demand their appraisal rights under
Massachusetts law.
The Board of Directors of PHB has determined that the Merger is fair to,
and in the best interests of, the stockholders of PHB, has approved the Merger
Agreement and the Merger, and recommends that stockholders adopt the Merger
Agreement.
By Order of the Board of Directors
Howard W. Pifer III William E. Dickenson
Chairman President and Chief Executive Officer
July 27, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE PHB SPECIAL MEETING, PLEASE DATE, SIGN
AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. A STOCKHOLDER
WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS EXERCISED BY GIVING
WRITTEN NOTICE OF REVOCATION TO THE CORPORATE CLERK OF PHB BY SUBSEQUENTLY
FILING ANOTHER PROXY OR BY ATTENDING THE PHB SPECIAL MEETING AND VOTING IN
PERSON. STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WHEN RETURNING
THEIR PROXIES.
<PAGE>
Hagler Bailly, Inc.
1530 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
July 27, 1998
To the Stockholders of
Hagler Bailly, Inc.:
You are cordially invited to attend a special meeting of stockholders of
Hagler Bailly, Inc. to be held on August 27, 1998, at 2:00 p.m. at 1530 Wilson
Boulevard, Suite 400, Arlington, Virginia 22209.
Hagler Bailly has entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Putnam, Hayes & Bartlett, Inc. ("PHB"). The Merger Agreement
provides for the combination of Hagler Bailly and PHB in a merger of equals (the
"Merger"). At the Hagler Bailly special meeting, you will be asked to consider
and approve a proposal to authorize the issuance of 6,600,000 shares of common
stock, par value $0.01 per share of Hagler Bailly, to the holders of PHB common
stock, par value $0.01 per share, in connection with the Merger (the "Share
Issuance").
Under the Merger Agreement, each share of PHB common stock, except those
shares of PHB common stock as to which dissenters' rights of appraisal are
properly asserted ("Dissenting Shares"), will be converted into the right to
receive a number of shares of Hagler Bailly common stock equal to 6,600,000
divided by the number of shares of PHB common stock issued and outstanding
immediately prior to the Merger's effective time (approximately 1.2759 Hagler
Bailly shares for each PHB share as of July 27, 1998), plus cash to be paid in
lieu of fractional shares. If the Merger is completed, former PHB stockholders
will have approximately 40% of the outstanding shares of Hagler Bailly. The
shares of Hagler Bailly common stock held by Hagler Bailly stockholders
immediately prior to the Merger will remain unchanged by the Merger. After the
consummation of the Merger, a number of PHB directors and officers will assume
management and director positions with Hagler Bailly and/or its subsidiaries.
The accompanying Joint Proxy Statement/Private Placement Memorandum describes
more fully the proposal relating to the Merger.
After careful consideration, Hagler Bailly's Board of Directors has
approved unanimously the Merger Agreement and the Merger provided for therein
and recommends that you vote FOR the Share Issuance in connection with the
Merger. The Board of Directors of Hagler Bailly believes the Merger offers
Hagler Bailly and its stockholders a number of important benefits, including the
strategic fit between Hagler Bailly's and PHB's businesses and long-term
administrative and operational economies of scale.
Donaldson, Lufkin & Jenrette, Inc. ("DLJ") has delivered an opinion to the
Board of Directors of Hagler Bailly that the consideration Hagler Bailly is
paying in the Merger is fair, from a financial point of view, to the Hagler
Bailly stockholders. DLJ's opinion describes the matters it considered and the
scope of its review undertaken in rendering the opinion. DLJ's opinion and
presentations to the Hagler Bailly directors, together with a review by the
Hagler Bailly directors of the assumptions used by DLJ, were among the factors
the Hagler Bailly Board of Directors considered in reaching its
<PAGE>
determination to approve the Merger Agreement and the Merger. A copy of the DLJ
opinion is attached to the accompanying proxy statement as Annex B.
At the Hagler Bailly special meeting, you will also be asked to consider
and in separate votes approve: (i) a proposed amendment to Hagler Bailly's
Certificate of Incorporation to increase the authorized number of shares of
Hagler Bailly common stock from 20,000,000 to 50,000,000 shares and (ii) a
proposed amendment to the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan to increase the number of
shares authorized to be issued under the plan from 3,200,000 to 5,000,000. After
careful consideration, Hagler Bailly's Board of Directors has approved both of
these amendments and recommends that you vote FOR their approval. The Merger is
not conditioned upon the approval of either of these amendments.
All stockholders are invited to attend the meeting in person. Approval of
the Share Issuance and the amendment to the option plan each require the
affirmative vote of the majority of the total votes cast regarding each such
proposal. Approval of the amendment to the Certificate of Incorporation requires
the affirmative vote of a majority of the outstanding shares of Hagler Bailly
common stock. Stockholders are urged to review carefully the information
contained in the accompanying proxy statement.
The directors and certain officers of Hagler Bailly have agreed to vote
their respective shares of Hagler Bailly common stock in favor of the Share
Issuance. These Hagler Bailly stockholders beneficially owned, as of the Hagler
Bailly record date, an aggregate of 2,624,824 shares, or approximately 27%, of
the outstanding Hagler Bailly common stock entitled to vote at the Hagler Bailly
special meeting. It is expected that each of these Hagler Bailly stockholders
will also vote his shares of Hagler Bailly common stock for approval of the
respective amendments to the Certificate of Incorporation and the stock plan.
Whether or not you expect to attend the Hagler Bailly special meeting in
person, please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the meeting you may vote in person even if you have previously returned your
proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ Henri-Claude Bailly
Henri-Claude Bailly
President, Chief Executive
Officer and Chairman
YOUR PROXY IS IMPORTANT-PLEASE VOTE PROMPTLY.
<PAGE>
Hagler Bailly, Inc.
1530 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
-------------------
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON
AUGUST 27, 1998
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Hagler
Bailly, Inc. will be held on August 27, 1998 at 2:00 p.m. at 1530 Wilson
Boulevard, Suite 400, Arlington, Virginia 22209 for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
6,600,000 shares of Hagler Bailly common stock, par value $0.01,
pursuant to the Agreement and Plan of Merger, dated as of June 11,
1998 (the "Merger Agreement"), by and among Hagler Bailly, Putnam,
Hayes and Bartlett, Inc. ("PHB") and a wholly owned subsidiary of
Hagler Bailly. Under the Merger Agreement, PHB will become a wholly
owned subsidiary of Hagler Bailly in a merger transaction (the
"Merger"), and each of the outstanding shares of PHB common stock, par
value $0.01 per share, except those shares as to which dissenters'
rights of appraisal have been asserted properly, will be converted
into the right to receive a number of shares of Hagler Bailly common
stock equal to 6,600,000 divided by the number of shares of PHB common
stock issued and outstanding immediately prior to the Merger's
effective time (approximately 1.2759 Hagler Bailly shares for each PHB
share as of July 27, 1998), plus cash to be paid in lieu of fractional
shares, subject to adjustment;
2. To consider and vote upon a proposed amendment to Hagler Bailly's
Certificate of Incorporation to increase the authorized number of
shares of Hagler Bailly common stock from 20,000,000 to 50,000,000
shares;
3. To consider and vote upon a proposed amendment to the Hagler
Bailly, Inc. Employee Incentive and Non-Qualified Stock Option and
Restricted Stock Plan to increase the number of shares authorized to
be issued under the plan from 3,200,000 to 5,000,000; and
4. To transact such other business as may properly come before the
Hagler Bailly special meeting, or any adjournments or postponements
thereof.
The Board of Directors of Hagler Bailly has fixed the close of business on
July 15, 1998 as the record date for the determination of stockholders of
Hagler Bailly entitled to notice of and to vote at the Hagler Bailly
special meeting. Only holders of record of Hagler Bailly common stock at
the close of business on that date will be entitled to notice of and to
vote at the Hagler Bailly special meeting or any adjournments or
postponements thereof.
By Order of the Board of Directors
Henri-Claude A. Bailly
President, Chief Executive Officer and Chairman
July 27, 1998
WE URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS
SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN
TO ATTEND THE HAGLER BAILLY SPECIAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED
IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE
IT IS VOTED AT THE HAGLER BAILLY SPECIAL MEETING.
<PAGE>
JOINT PROXY STATEMENT
of
HAGLER BAILLY, INC.
and
PUTNAM, HAYES & BARTLETT, INC.
----------------------
PRIVATE PLACEMENT MEMORANDUM
of
HAGLER BAILLY, INC.
----------------------
This Joint Proxy Statement/Private Placement Memorandum ("Joint Proxy
Statement/PPM") is being furnished to stockholders of Hagler Bailly, Inc.
("Hagler Bailly"). It relates to the special meeting of Hagler Bailly
stockholders to be held on August 27, 1998, at 2:00 p.m. at 1530 Wilson
Boulevard, Suite 400, Arlington, Virginia 22209, and to any adjournments or
postponements of the Hagler Bailly special meeting. This Joint Proxy
Statement/PPM is first being mailed to Hagler Bailly stockholders on or about
July 27, 1998.
In addition, this Joint Proxy Statement/PPM is being furnished to
stockholders of Putnam, Hayes & Bartlett, Inc. ("PHB"). It relates to the
special meeting of PHB stockholders to be held on August 27, 1998, at 10:00 a.m.
at PHB's offices located at 1776 I "Eye" Street, N.W., Washington, D.C. 20006,
and to any adjournments or postponements of the PHB special meeting. This Joint
Proxy Statement/PPM also serves as a private placement memorandum regarding
shares of Hagler Bailly common stock, par value $0.01, to be issued as part of
the Merger (as defined below) and is first being mailed to PHB stockholders on
or about July 27, 1998.
At the PHB special meeting, the principal item of business will be a vote
on the Agreement and Plan of Merger, dated as of June 11, 1998 (the "Merger
Agreement"), by and between Hagler Bailly, PHB and a wholly owned subsidiary of
Hagler Bailly ("Merger Sub") under which PHB will become a wholly owned
subsidiary of Hagler Bailly in a merger transaction (the "Merger"). At the
Hagler Bailly special meeting, the Hagler Bailly stockholders will be asked to
approve, in separate votes, the issuance of up to 6,600,000 shares of Hagler
Bailly common stock in connection with the Merger (the "Share Issuance"), an
amendment to Hagler Bailly's Certificate of Incorporation that would increase
the maximum number of authorized shares of Hagler Bailly common stock from
20,000,000 to 50,000,000 shares (the "Certificate Amendment") and an amendment
to the Hagler Bailly, Inc. Employee Incentive and Non-Qualified Stock Option and
Restricted Stock Plan to increase the number of shares authorized to be issued
under the plan from 3,200,000 to 5,000,000 (the "Stock Option Plan Amendment").
Neither the approval of the Certificate Amendment nor the Stock Option Plan
Amendment is a condition to the Merger.
The Merger Agreement provides for a merger of equals of Hagler Bailly and
PHB whereby Merger Sub will be merged with and into PHB, with PHB continuing as
the surviving corporation and as a wholly owned subsidiary of Hagler Bailly (the
"Surviving Corporation"). As part of the Merger, each issued and outstanding
share of PHB common stock par value $0.01 per share, except treasury stock and
those shares of PHB common stock as to which dissenters' rights of appraisal
have been properly asserted ("Dissenting Shares"), will be converted into the
right to receive a number of shares of Hagler Bailly common stock, equal to
6,600,000 divided by the number of shares of PHB common stock issued and
outstanding immediately prior to the Effective Time (as defined below). Based on
the 5,172,500 outstanding shares of PHB common stock on July 27, 1998,
approximately 1.2759 shares of Hagler Bailly common stock would be issued in
exchange for each share of PHB common stock outstanding in connection with the
Merger, excluding treasury stock (the "Exchange Ratio"). Cash will be paid in
lieu of fractional shares. The Merger Agreement provides that any outstanding
stock option to purchase PHB common stock will be terminated before the
Effective Time, and that Hagler Bailly will withhold and deposit in escrow
150,000 shares of Hagler Bailly common stock issued to PHB stockholders in the
Merger to cover the tax
<PAGE>
indemnification obligations of the PHB stockholders under the Merger Agreement
(the "Escrow Shares").
The Merger is subject to various conditions, including approval of the
Merger and the Merger Agreement by PHB stockholders, approval of the Share
Issuance by Hagler Bailly stockholders and that the aggregate number of
Dissenting Shares be no more than 10% of the PHB common stock outstanding at the
closing. The directors and certain officers of Hagler Bailly, who beneficially
owned, as of the Hagler Bailly record date, an aggregate of 2,624,824 shares, or
approximately 27%, of the outstanding Hagler Bailly common stock entitled to
vote at the Hagler Bailly special meeting, have agreed to vote their respective
shares of Hagler Bailly common stock in favor of the Share Issuance. It is
expected that each of these Hagler Bailly stockholders will also vote his shares
of Hagler Bailly common stock for approval of the Certificate Amendment and the
Stock Option Plan Amendment. Also, all of PHB's directors who owned, as of the
PHB record date, an aggregate of 4,392,500 shares, or approximately 85%, of the
outstanding PHB common stock entitled to vote at the PHB special meeting, have
agreed to vote their respective shares of PHB common stock in favor of the
Merger Agreement and the Merger provided for therein. Hagler Bailly and PHB
expect that the Merger will be consummated immediately after all stockholder
approvals are obtained. If the Merger is not consummated by October 31, 1998,
either party, subject to certain exceptions, may terminate the Merger Agreement.
For a more detailed description of the Merger and the Merger Agreement, see "THE
MERGER."
This Joint Proxy Statement/PPM also relates to the private offer and sale
of the up to 6,600,000 shares of Hagler Bailly common stock which will be issued
in connection with the Merger. The shares of Hagler Bailly common stock are
offered pursuant to an exemption from registration under the Securities Act of
1933, as amended (the "Securities Act"), and certain state securities acts, and
rules and regulations promulgated thereunder. The Hagler Bailly common stock
issued in connection with the Merger may not be transferred in the absence of an
effective registration statement under the Securities Act and applicable state
securities laws or exemptions therefrom. However, if the Merger is consummated,
PHB stockholders will receive certain registration and "tag along" rights. See
"THE MERGER -- The Registration Rights Agreement."
The information set forth in this Joint Proxy Statement/PPM concerning
Hagler Bailly and Merger Sub has been furnished by Hagler Bailly. The
information concerning PHB has been furnished by PHB. The descriptions of the
Merger Agreement, the Escrow Agreement, the Registration Rights Agreement and
the Affiliate Agreements (as defined below) are summaries which are qualified in
their entirety by reference to the text of those documents, which are
incorporated herein by reference and attached to this Joint Proxy Statement/PPM
as Annex A.
For certain considerations relative to an investment in Hagler Bailly
common stock, see "Risk Factors."
----------------------
In making an investment decision, PHB stockholders must rely on their own
examination of Hagler Bailly and the terms of the Merger, including the merits
and risks involved. The securities to be issued in the Merger have not been
approved or disapproved by the Securities and Exchange Commission (the "SEC") or
any state securities commission nor has the SEC or any state securities
commission passed upon the accuracy or adequacy of this Joint Proxy
Statement/PPM. Any representation to the contrary is a criminal offense.
----------------------
No person is authorized by Hagler Bailly or PHB to give any information or
to make any representation, other than those contained in this Joint Proxy
Statement/PPM, in connection with the offering of Hagler Bailly common stock to
the PHB stockholders pursuant to the Merger and, if given or made, such
information or representations should not be relied upon as having been
authorized. This Joint Proxy Statement/PPM does not
-ii-
<PAGE>
constitute an offer to sell, or a solicitation of an offer to purchase, Hagler
Bailly common stock to any PHB stockholder in any jurisdiction in which such
offering may not be made lawfully.
----------------------
Neither the delivery of this Joint Proxy Statement/PPM to the PHB
stockholders or the Hagler Bailly stockholders nor any distribution of Hagler
Bailly common stock to the PHB stockholders pursuant to the Merger shall imply
that there has been no change in the information set forth herein or in the
affairs of Hagler Bailly or PHB since the date hereof.
----------------------
In making an investment decision with respect to the Merger, PHB
stockholders must rely on their own examination of Hagler Bailly and the terms
of the Merger, including the merits and risks involved. PHB stockholders should
not construe the contents of this Joint Proxy Statement/PPM as investment, tax
or legal advice. This Joint Proxy Statement/PPM and the documents incorporated
by reference herein, as well as the nature of an investment in the Hagler Bailly
common stock, should be reviewed by each PHB stockholder, his or her investment,
tax or other advisors, and his or her accountants or legal counsel.
----------------------
Any PHB or Hagler Bailly stockholder may ask questions and receive answers
concerning the terms and conditions of the Merger or request additional
information to verify the Hagler Bailly information contained herein by calling
Stephen V. R. Whitman, Vice President and General Counsel of Hagler Bailly, at
(703) 351-0300 during normal business hours or by writing to Hagler Bailly at
1530 Wilson Boulevard, Suite 400, Arlington, Virginia 22209. To request
additional information to verify the PHB information contained herein, any PHB
or Hagler Bailly stockholder may call Barbara J. Levine, Corporate Counsel of
PHB, at (617) 225-2700 during normal business hours or write to PHB at One
Memorial Drive, Cambridge, Massachusetts 02142.
----------------------
HAGLER BAILLY, INC. PUTNAM, HAYES & BARTLETT, INC.
1530 Wilson Boulevard, Suite 400 One Memorial Drive
Arlington, Virginia 22209 Cambridge, Massachusetts 02142
----------------------
The date of this Joint Proxy Statement/PPM is July 27, 1998.
----------------------
-iii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY...........................................................................................................1
The Hagler Bailly Special Meeting...........................................................................1
The PHB Special Meeting.....................................................................................1
The Merger..................................................................................................2
The Certificate Amendment...................................................................................6
The Stock Option Plan Amendment.............................................................................6
THE HAGLER BAILLY SPECIAL MEETING.................................................................................7
General.....................................................................................................7
Matters to be Considered....................................................................................7
Record Date and Voting......................................................................................7
Vote Required; Revocability of Proxies......................................................................7
Solicitation of Proxies.....................................................................................8
THE PHB SPECIAL MEETING...........................................................................................9
Matters to be Considered....................................................................................9
Record Date and Voting......................................................................................9
Vote Required; Revocability of Proxies......................................................................9
Solicitation of Proxies....................................................................................10
RISK FACTORS.....................................................................................................11
Fixed Number of Hagler Bailly Shares.......................................................................11
Challenge of Successful Integration of Two Businesses......................................................11
Restrictions on Transfer of Merger Consideration...........................................................11
Client Conflicts...........................................................................................11
Attraction, Retention and Management of Professional and Administrative Staff..............................11
Concentration of Revenues..................................................................................12
Ability to Sustain and Manage Growth.......................................................................12
Dependence on Key Clients..................................................................................12
Professional and Other Liability...........................................................................13
Partnering Arrangements....................................................................................13
Public Sector Market and Contracting Risks.................................................................13
Intense Competition........................................................................................13
Risk of International Operations...........................................................................14
Dependence on Key Employees................................................................................14
Concentration of Ownership.................................................................................14
Need to Develop New Offerings..............................................................................14
Project Risks..............................................................................................14
Intellectual Property Rights...............................................................................15
Government Regulation of Immigration.......................................................................15
Fluctuations of Operating Results..........................................................................15
Fluctuations in the General Economy........................................................................15
Employment Liability Risks.................................................................................16
Certain Anti-takeover Effects..............................................................................16
Fluctuations in Stock Price................................................................................16
THE MERGER.......................................................................................................17
The Parties................................................................................................17
Background of the Merger...................................................................................17
Purpose and Effects of the Merger..........................................................................20
Structure..................................................................................................21
Recommendation of the Hagler Bailly Board of Directors and Reasons for the Merger..........................22
Opinion of Hagler Bailly's Financial Advisor...............................................................23
Recommendation of the PHB Board of Directors and Reasons for the Merger....................................27
Closing and Effective Time.................................................................................28
Exchange of PHB Common Stock Certificates..................................................................29
Conditions to the Merger...................................................................................29
Conduct of Business Pending The Merger.....................................................................30
</TABLE>
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<TABLE>
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Expenses ..................................................................................................31
Representations and Warranties.............................................................................31
Nonsurvival of Representations, Warranties and Agreements..................................................31
Other Agreements...........................................................................................32
The Support Agreements.....................................................................................32
The Affiliate Agreements...................................................................................32
The Escrow Agreement.......................................................................................33
The Employment Agreements..................................................................................33
The Registration Rights Agreement..........................................................................34
Post-Merger Management of Hagler Bailly and the Surviving Corporation......................................35
Post-Merger Boards of Directors of Hagler Bailly and the Surviving Corporation.............................35
Post-Merger Organizational Designations....................................................................35
Termination and Amendment of the Merger Agreement..........................................................36
Federal Income Tax Consequences............................................................................37
Accounting Treatment.......................................................................................37
Dissenters'Appraisal Rights................................................................................38
Interests of Certain Persons in the Merger.................................................................39
SELECTED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA..........................................................40
Comparative Per Share Data.................................................................................41
HAGLER BAILLY SELECTED CONSOLIDATED FINANCIAL DATA...............................................................42
HAGLER BAILLY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............44
Overview ..................................................................................................44
Management Buy-Out.........................................................................................45
Compensation Charges.......................................................................................45
Recent Acquisitions........................................................................................45
Results of Operations......................................................................................46
1997 Compared to 1996......................................................................................47
1996 Compared to 1995......................................................................................48
Liquidity and Capital Resources............................................................................49
New Accounting Pronouncements..............................................................................50
Year 2000..................................................................................................50
Recent Events..............................................................................................51
HAGLER BAILLY BUSINESS...........................................................................................52
Overview ..................................................................................................52
Business Model.............................................................................................52
Services ..................................................................................................52
Marketing and Sales........................................................................................53
Client and Representative Services.........................................................................53
Competition................................................................................................54
Employees..................................................................................................54
Properties.................................................................................................55
Legal Proceedings..........................................................................................55
DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY................................................................56
HAGLER BAILLY EXECUTIVE COMPENSATION.............................................................................60
Executive Compensation Summary Table.......................................................................60
Stock Option Grants During 1997............................................................................61
Stock Option Exercises and Values in 1997..................................................................62
Employment Arrangements....................................................................................62
Director Compensation......................................................................................63
Committees of the Board of Directors.......................................................................63
Compensation Interlocks and Insider Participation..........................................................63
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.............................................................63
PHB SELECTED CONSOLIDATED FINANCIAL DATA.........................................................................65
</TABLE>
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<TABLE>
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PHB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................67
Overview ..................................................................................................67
Compensation Charges.......................................................................................67
Three Months ended March 31, 1998 Compared to Three Months ended March 31, 1997............................68
1997 Compared to 1996......................................................................................69
1996 Compared to 1995......................................................................................70
Liquidity and Capital Resources............................................................................71
New Accounting Pronouncements..............................................................................72
Year 2000..................................................................................................72
PHB BUSINESS.....................................................................................................73
Overview ..................................................................................................73
Practice Areas.............................................................................................73
Services ..................................................................................................73
Marketing and Sales........................................................................................74
Client and Representative Services.........................................................................74
Employees..................................................................................................74
Properties.................................................................................................75
Legal Proceedings..........................................................................................75
HAGLER BAILLY COMMON STOCK MARKET PRICE DATA AND DIVIDEND POLICY.................................................76
Dividends..................................................................................................76
Holders of Record of Hagler Bailly Common Stock............................................................76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HAGLER BAILLY COMMON STOCK.....................77
DESCRIPTION OF HAGLER BAILLY CAPITAL STOCK AND COMPARISON OF STOCKHOLDER RIGHTS..................................78
Hagler Bailly Capital Stock................................................................................78
Common Stock...............................................................................................78
Preferred Stock............................................................................................78
Comparison of Stockholder Rights...........................................................................78
THE CERTIFICATE AMENDMENT........................................................................................83
THE STOCK OPTION PLAN AMENDMENT..................................................................................84
INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................85
HAGLER BAILLY STOCKHOLDER PROPOSALS..............................................................................85
</TABLE>
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/PPM. This summary is not intended to be a complete
description and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Joint Proxy Statement/PPM. Stockholders
of Hagler Bailly and PHB are urged before voting to give careful consideration
to all of the information contained in or incorporated by reference into this
Joint Proxy Statement/PPM.
The Hagler Bailly Special Meeting
The Hagler Bailly special meeting will be held on August 27, 1998 at 2:00
p.m. at 1530 Wilson Boulevard, Suite 400, Arlington, Virginia 22209, at which
time Hagler Bailly stockholders of record at the close of business on the Hagler
Bailly record date (described below) will be asked to consider and vote upon:
(i) a proposal to approve the Share Issuance; (ii) a proposal to approve and
adopt the Certificate Amendment; (iii) a proposal to approve and adopt the Stock
Option Plan Amendment and (iv) such other matters as may be brought properly
before the Hagler Bailly special meeting. Approval of the Share Issuance by
Hagler Bailly stockholders is a condition to the Merger, while approval of the
Certificate Amendment and approval of the Stock Option Plan Amendment are not.
Approval of the Share Issuance and approval of the Stock Option Plan Amendment
each requires the affirmative vote of the majority of the total votes cast
regarding the respective proposals. Approval of the Certificate Amendment
requires the affirmative vote of a majority of the issued and outstanding shares
of Hagler Bailly common stock.
The directors and certain officers of Hagler Bailly have agreed to vote
their respective shares of Hagler Bailly common stock in favor of the Share
Issuance. See "THE MERGER -- The Support Agreements." These Hagler Bailly
stockholders beneficially owned, as of the Hagler Bailly record date, an
aggregate of 2,624,824 shares, or approximately 27%, of the outstanding Hagler
Bailly common stock entitled to vote at the Hagler Bailly special meeting. It is
expected that each of these Hagler Bailly stockholders will also vote his shares
of Hagler Bailly common stock for approval of the Certificate Amendment and
approval of the Stock Option Plan Amendment.
The PHB Special Meeting
The PHB special meeting will be held on August 27, 1998 at 10:00 a.m. at
PHB's offices located at 1776 I "Eye" Street, N.W., Washington, D.C. 20006 at
which time PHB stockholders of record at the close of business on the PHB record
date (described below) will be asked to consider and vote upon: (i) a proposal
to approve and adopt the Merger Agreement and the Merger provided for therein
and (ii) such other matters as may be brought properly before the PHB special
meeting or any adjournments or postponements thereof. The affirmative vote of
the holders of two-thirds of the issued and outstanding shares of PHB common
stock entitled to vote at the PHB special meeting is required under
Massachusetts law to approve and adopt the Merger Agreement and the Merger
provided for therein. It is a condition to the Merger, however, that the
aggregate number of Dissenting Shares be no more than 10% of the PHB common
stock outstanding at the closing.
The directors of PHB have agreed to vote their respective shares of PHB
common stock in favor of the Merger Agreement and the Merger provided for
therein. These PHB stockholders owned, as of the PHB record date, an aggregate
of 4,392,500 shares, or approximately 85%, of the outstanding PHB common stock
entitled to vote at the PHB special meeting. See "THE MERGER -- The Support
Agreements."
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The Merger
The Parties
Hagler Bailly. Hagler Bailly is a worldwide provider of consulting,
research and other professional services to corporations and governments on
energy, telecommunication, transportation and the environment. During the fiscal
year ended December 31, 1997 and the three-month period ended March 31, 1998,
Hagler Bailly had total revenues of $96.1 million and $23.6 million,
respectively, operating profits of $10.2 million and $2.6 million, respectively,
and net income of $7.8 million and $1.6 million, respectively. Sales of Hagler
Bailly common stock are quoted on the National Association of Securities Dealers
Automated Quotation System's National Market System (the "Nasdaq Stock Market")
under the symbol "HBIX." The address of Hagler Bailly's principal executive
offices is Hagler Bailly, Inc., 1530 Wilson Boulevard, Suite 400, Arlington,
Virginia 22209 and its telephone number is (703) 351-0300.
PHB. PHB is an international economic and management consulting firm
providing its clients with strategic advice and analysis to support the
development and execution of economically sound strategies in business,
litigation, regulatory and policy matters. PHB's clients are principally
companies and firms involved in the telecommunications, utility and energy
industries. During the fiscal year ended December 31, 1997 and the three-month
period ended March 31, 1998, PHB had total revenues of $62.8 million and $15.6
million, respectively, and, after certain non-recurring non-cash stock
compensation charges described below, an operating loss of $9.1 million and an
operating profit of $0.5 million, respectively, and net losses of $10.0 million
and $0.7 million, respectively. PHB common stock is not publicly traded. The
address of PHB's principal executive offices is Putnam, Hayes & Bartlett, Inc.,
One Memorial Drive, Cambridge, Massachusetts 02142 and its telephone number is
(617) 225-2700.
Merger Sub. Merger Sub is a wholly owned subsidiary of Hagler Bailly
created to facilitate the Merger. Merger Sub has no operations.
Structure
The Merger Agreement provides for a merger of equals to be facilitated by
the merger of Merger Sub with and into PHB, with PHB as the Surviving
Corporation. If the Merger is completed, the Surviving Corporation will be a
wholly owned subsidiary of Hagler Bailly and will continue to do business under
the name Putnam, Hayes & Bartlett, Inc.
At the Effective Time (as defined below), each issued and outstanding share
of PHB common stock, except for treasury stock and any Dissenting Shares, will
be converted into the right to receive a number of shares of Hagler Bailly
common stock, equal to 6,600,000 divided by the number of shares of PHB common
stock issued and outstanding immediately prior to the Effective Time. Based on
the 5,172,500 outstanding shares of PHB common stock on July 27, 1998,
approximately 1.2759 shares of Hagler Bailly common stock would be issued in
exchange for each share of PHB common stock in connection with the Merger. Cash
will be paid in lieu of fractional shares. The Merger Agreement provides that
all outstanding stock options to purchase PHB common stock ("PHB Options") will
be terminated before the Effective Time. All shares of PHB common stock held as
treasury stock will be canceled. The Merger Agreement also provides that at the
Effective Time, Hagler Bailly will withhold and deposit in escrow for up to one
year, the Escrow Shares to indemnify Hagler Bailly and certain persons
affiliated with Hagler Bailly as to certain taxation matters. See "THE MERGER --
The Escrow Agreement." Upon and after the consummation of the Merger, a number
of PHB directors and officers will assume management and director positions with
Hagler Bailly and/or its subsidiaries. See "THE MERGER - Post-Merger Management
of Hagler Bailly and the Surviving Corporation" and "THE MERGER - Post-Merger
Board of Directors of Hagler Bailly."
The Merger will result in an expansion of Hagler Bailly's consulting
business and is consistent with Hagler Bailly's overall growth strategy. Hagler
Bailly and PHB will strengthen
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considerably each other's consulting capabilities and expand substantially the
combined company's presence in the corporate sector in the United States and
abroad. Together, the parties will be the largest publicly held management and
economic consulting firm specializing in energy, network industries and the
environment with combined revenues of nearly $159 million in 1997 and a
worldwide staff of more than 700.
Recommendation of the Hagler Bailly Board of Directors
The Board of Directors of Hagler Bailly believes that the terms of the
Merger Agreement and the Merger are fair to, and in the best interests of,
Hagler Bailly and its stockholders. The Board of Directors of Hagler Bailly has
unanimously approved the Merger Agreement and the Merger and recommends that
holders of Hagler Bailly common stock vote "FOR" approval of the Share Issuance.
For a discussion of the factors considered by the Board of Directors in reaching
its decision, see "The Merger -- Background of the Merger" and "THE MERGER--
Recommendation of the Hagler Bailly Board of Directors and Reasons for the
Merger."
Opinion of Hagler Bailly's Financial Advisor
On June 8, 1998, Donaldson, Lufkin & Jenrette, Inc. ("DLJ") delivered an
opinion to the Board of Directors of Hagler Bailly that the consideration Hagler
Bailly is paying in the Merger is fair, from a financial point of view, to the
Hagler Bailly stockholders. DLJ's opinion describes the matters it considered
and the scope of its review undertaken in rendering the opinion. DLJ's opinion
and presentations to the Hagler Bailly directors, together with a review by the
Hagler Bailly directors of the assumptions used by DLJ, were among the factors
the Hagler Bailly Board of Directors considered in reaching its determination to
approve the Merger Agreement and the Merger. See "The Merger -- Opinion of
Hagler Bailly's Financial Advisor." A copy of DLJ's opinion letter dated June 8,
1998, is attached as Annex B to this Joint Proxy Statement/PPM and should be
read by Hagler Bailly stockholders in its entirety.
Recommendation of the PHB Board of Directors
The Board of Directors of PHB believes that the terms of the Merger
Agreement are fair to, and in the best interests of, PHB and its stockholders.
The Board of Directors of PHB approved the Merger Agreement and the Merger and
recommends that holders of PHB common stock vote "FOR" approval and adoption of
the Merger Agreement and the Merger. For a discussion of the factors considered
by the Board of Directors in reaching its decision, see "The Merger --
Background of the Merger" and "THE MERGER -- Recommendation of the PHB Board of
Directors and Reasons for the Merger."
Effective Time and Conditions to Closing
The Merger will become effective when the articles of merger are filed with
the Secretary of State of the Commonwealth of Massachusetts and the Secretary of
State of the State of Delaware in accordance with applicable law (the "Effective
Time"). The articles of merger will be filed as promptly as possible after the
parties receive all reasonable assurances or opinions, as applicable, as to the
tax and accounting treatment of the Merger, certain documents, opinions,
consents and certificates are received, certain agreements are entered into and
Hagler Bailly stockholders have approved the Share Issuance and PHB stockholders
have approved the Merger Agreement and the Merger, provided the aggregate number
of Dissenting Shares is 10% or less of the outstanding shares of PHB common
stock. PHB and Hagler Bailly expect that the Merger will be consummated as soon
as possible after all stockholder approvals are obtained, but in no event later
than October 31, 1998.
Exchange of PHB Common Stock Certificates
Upon the Effective Time, each holder of a certificate representing PHB
common stock issued and outstanding immediately prior to the Merger will, upon
the surrender thereof to Hagler Bailly's transfer agent (the "Exchange Agent"),
be entitled to receive a certificate representing the number of whole shares of
Hagler Bailly common stock into which such PHB common stock will have been
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<PAGE>
automatically converted as part of the Merger (less a certificate representing
such holder's pro rata portion of the Escrow Shares). The Exchange Agent will
mail a letter of transmittal with instructions to all holders of record of PHB
common stock immediately after the Effective Time for use in surrendering their
certificates of PHB common stock in exchange for new certificates representing
Hagler Bailly common stock and cash in lieu of fractional shares. Certificates
should not be surrendered by PHB stockholders until the letter of transmittal
and instructions are received. See "The Merger -- Exchange of PHB Common Stock
Certificates."
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of PHB and Hagler Bailly and by either of them
individually under certain specified circumstances, including by either PHB or
Hagler Bailly if: (a) the other party breaches certain of the Merger Agreement's
terms and does not cure such breach within a specified time; (b) closing of the
Merger is prevented or prohibited by law; (c) the Effective Time has not
occurred on or prior to October 31, 1998 or (d) the Share Issuance or the Merger
Agreement and the Merger are not approved by Hagler Bailly or PHB stockholders,
respectively. Also, either PHB or Hagler Bailly may terminate the Merger
Agreement if it provides proper notice to the other after receiving a Superior
Proposal (as defined below). If one of the parties terminates the Merger
Agreement after receiving a Superior Proposal or under certain circumstances
involving a Competing Transaction (as defined below), the other party will be
entitled to a termination fee equal to $10 million. See "The Merger --
Termination and Amendment of the Merger Agreement."
Affiliate Agreements
Each of PHB's and Hagler Bailly's affiliates have or will enter into
agreements not to dispose of or encumber their shares for a period of time after
the Effective Time. See "The Merger -- The Affiliate Agreement."
Employment Agreements
Certain members of the Board of Directors of PHB have entered into
employment agreements with Hagler Bailly which will become effective after the
Effective Time (the "Employment Agreements"). See "THE MERGER - The Employment
Agreements."
Registration Rights Agreement
Hagler Bailly and PHB stockholders who will receive Hagler Bailly common
stock pursuant to the Merger will execute an agreement (the "Registration Rights
Agreement") which will give them, among other things, certain registration and
other rights with respect to the Hagler Bailly common stock they receive in
connection with the Merger. See "THE MERGER - The Registration Rights
Agreement."
Post-Merger Management and Board of Directors
As part of the Merger Agreement certain PHB and Hagler Bailly personnel
will assume certain management positions with Hagler Bailly and/or the Surviving
Corporation. The Merger Agreement also provides for the elections of two new
members to the Hagler Bailly Board of Directors. See "THE MERGER -- Post-Merger
Management of Hagler Bailly and the Surviving Corporation" and "THE MERGER -
Post-Merger Board of Directors of Hagler Bailly."
Tax Treatment
It is intended that the Merger will qualify as a tax free reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the Merger Agreement shall constitute a "plan of
reorganization" for the purposes of the Code. See "THE MERGER -- Federal Income
Tax Consequences."
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Accounting Treatment
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. One of the closing conditions to the Merger is
that Hagler Bailly and PHB shall have received a letter from Ernst & Young LLP,
independent public accountants to both parties, in form and substance reasonably
satisfactory to Hagler Bailly and PHB, to the effect that the transactions
contemplated by the Merger Agreement will qualify for pooling-of-interests
accounting treatment. Hagler Bailly and PHB anticipate that Ernst & Young LLP
will deliver letters indicating, among other things, its concurrence in Hagler
Bailly's management's conclusions that no conditions exist that would preclude
Hagler Bailly from accounting for the Merger as a pooling-of-interests. See "The
Merger -- Accounting Treatment."
Dissenters' Appraisal Rights
Under the Massachusetts Business Corporation Law ("Massachusetts
Corporation Law") in connection with the Merger, PHB stockholders are entitled
to appraisal rights for the value of their shares of PHB common stock, provided
they follow certain procedures. The failure of a dissenting stockholder to
follow these procedures may result in the termination or waiver of dissenters'
rights. See "THE MERGER -- Dissenters' Appraisal Rights." The Hagler Bailly
stockholders do not have any dissenters' rights of appraisal in connection with
the Merger.
Interests of Certain Persons in the Merger
Certain PHB personnel have entered into employment agreements with Hagler
Bailly which will become binding after the Effective Time. These employment
agreements provide these persons with contractual rights to employment with
Hagler Bailly or its subsidiaries for certain specified periods after the
Effective Time. Also, certain PHB and Hagler Bailly officers and/or directors
will become directors and/or officers, or be nominated to become directors in
the future, of Hagler Bailly or its subsidiaries. See "THE MERGER -- The
Employment Agreements" and "The Merger -- Interests of Certain Persons in the
Merger."
Description of Hagler Bailly Capital Stock and Comparison of Stockholder
Rights
If the Merger is consummated, PHB stockholders will become holders of
Hagler Bailly common stock. There are certain differences between the rights of
Hagler Bailly stockholders and PHB stockholders that stem from differences in
the organizational documents, bylaws and the laws of respective states of
incorporation of Hagler Bailly and PHB. For instance, unlike PHB, the Board of
Directors of Hagler Bailly has three classes with staggered terms. In addition,
the Hagler Bailly Certificate of Incorporation authorizes issuance of up to
5,000,000 shares of preferred stock. For a description of the capital stock of
Hagler Bailly and a summary of these and other differences in stockholder
rights, see "DESCRIPTION OF HAGLER BAILLY CAPITAL STOCK AND COMPARISON OF
STOCKHOLDER RIGHTS."
Market Prices of Common Stock
Hagler Bailly common stock is traded on the Nasdaq Stock Market. The symbol
for Hagler Bailly common stock is "HBIX." PHB common stock is not publicly
traded.
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The following table sets forth per share closing prices of the Hagler
Bailly common stock on the Nasdaq Stock Market as of the dates specified. See
"MARKET PRICES AND DIVIDENDS."
Last Reported Sale Price
of Hagler Bailly Common Stock
-----------------------------
December 31, 1997................................ $ 22.50
March 20, 1998 (a)............................... 23.00
July 21, 1998 (b)................................ 29.81
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(a) Last trading date prior to announcement of the Merger negotiations.
(b) The most recent practicable date prior to the date of this Joint Proxy
Statement/PPM.
Risk Factors
Because the market price of Hagler Bailly common stock may fluctuate and
the number of shares of Hagler Bailly common stock to be issued in the Merger is
fixed, the market value of the shares of Hagler Bailly common stock that PHB
stockholders will receive in the Merger may increase or decrease materially
prior to the Effective Time. No assurance can be given as to the market price of
Hagler Bailly common stock at the time of the Merger. Also, there will be
limitations on the transferability of shares of Hagler Bailly common stock
received by PHB stockholders in the Merger. PHB stockholders should consider
these and other factors concerning the business of Hagler Bailly and Hagler
Bailly common stock in determining how to vote on the Merger. See "RISK
FACTORS."
The Certificate Amendment
Hagler Bailly stockholders are also being asked to approve the Certificate
Amendment, which would increase the authorized number of shares of Hagler Bailly
common stock from 20,000,000 to 50,000,000. The Board of Directors of Hagler
Bailly believes that the Certificate Amendment is in the best interests of
Hagler Bailly and its stockholders. The Board of Directors of Hagler Bailly has
approved the Certificate Amendment and recommends that holders of Hagler Bailly
common stock vote "FOR" its approval. See "The CERTIFICATE AMENDMENT."
The Stock Option Plan Amendment
Hagler Bailly Stockholders are also being asked to approve the Stock Option
Plan Amendment, which would increase the number of shares authorized to be
issued under the Hagler Bailly, Inc. Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan (the "Stock Option Plan") from 3,200,000 to
5,000,000. The Board of Directors of Hagler Bailly believes that the Stock
Option Plan Amendment is in the best interests of Hagler Bailly and its
stockholders. The Board of Directors of Hagler Bailly has approved the Stock
Option Plan Amendment and recommends that holders of Hagler Bailly common stock
vote "FOR" its approval. See "THE STOCK OPTION PLAN AMENDMENT."
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THE HAGLER BAILLY SPECIAL MEETING
General
This Joint Proxy Statement/PPM is first being mailed to Hagler Bailly
stockholders on or about July 27, 1998 and is accompanied by the Notice of
Special Meeting and a form of proxy that is solicited by the Hagler Bailly Board
of Directors for use at the Hagler Bailly special meeting to be held on August
27, 1998, at 2:00 p.m., local time, at 1530 Wilson Boulevard, Suite 400,
Arlington, Virginia 22209.
Matters to be Considered
At the Hagler Bailly special meeting, Hagler Bailly stockholders will be
asked in separate votes, to consider and approve: (i) in accordance with the
requirements of the Nasdaq Stock Market, the Share Issuance; (ii) in accordance
with the requirements of Delaware General Corporation Law ("Delaware Corporation
Law"), the Certificate Amendment and (iii) the Stock Option Plan Amendment.
Approval of the Share Issuance by Hagler Bailly stockholders is a condition to
the Merger, while approvals of the Certificate Amendment and the Stock Option
Plan Amendment are not.
Record Date and Voting
The Board of Directors has fixed July 15, 1998 as the record date for
determination of holders of Hagler Bailly common stock entitled to notice of and
to vote at the Hagler Bailly special meeting. Accordingly, only holders of
record at the close of business on the Hagler Bailly record date will be
entitled to notice of and to vote at the Hagler Bailly special meeting. The
number of shares of Hagler Bailly common stock entitled to vote at the Hagler
Bailly special meeting is 9,627,503, held by 111 stockholders of record. Each
share of Hagler Bailly common stock entitles its holder to one vote. No shares
of Hagler Bailly preferred stock are issued and outstanding.
If the enclosed proxy card is executed properly and received by Hagler
Bailly in time to be voted at the special meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed proxies with no instructions indicated thereon will be voted "FOR" the
Share Issuance, the Certificate Amendment and the Stock Option Plan Amendment.
The Board of Directors of Hagler Bailly is not aware of any matters other
than the Share Issuance, the Certificate Amendment and the Stock Option Plan
Amendment that may be brought properly before the Hagler Bailly special meeting.
If any other matters properly come before the Hagler Bailly special meeting, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in such manner as shall be determined
by a majority of the Board of Directors of Hagler Bailly.
Vote Required; Revocability of Proxies
The presence, in person or by proxy, of the holders of a majority of the
shares of Hagler Bailly common stock issued and outstanding and entitled to be
voted at the Hagler Bailly special meeting is necessary to constitute a quorum.
Abstentions and broker non-votes will be included in the calculation of the
number of shares represented at the Hagler Bailly special meeting for purposes
of determining whether a quorum has been achieved. Approval of the Share
Issuance and the Stock Option Plan Amendment each requires the affirmative vote
of a majority of all shares of Hagler Bailly common stock represented, in person
or by proxy, and voting at the meeting and the presence of a quorum of at least
a majority of the issued and outstanding shares of Hagler Bailly common stock.
Abstentions and broker non-votes will not count as votes for or against the
Share Issuance or the Stock Option Plan Amendment. Approval of the Certificate
Amendment requires the affirmative
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vote of the holders of at least a majority of the issued and outstanding shares
of Hagler Bailly common stock entitled to be voted at the Hagler Bailly special
meeting. Abstentions and broker non-votes will have the same effect as votes
against the Certificate Amendment.
The directors and certain officers of Hagler Bailly have agreed to vote
their respective shares of Hagler Bailly common stock in favor of the Share
Issuance. These Hagler Bailly stockholders beneficially owned, as of the Hagler
Bailly record date, an aggregate of 2,624,824 shares, or approximately 27%, of
Hagler Bailly common stock entitled to vote at the Hagler Bailly special
meeting. See "THE MERGER -- The Support Agreements." It is expected that each of
these Hagler Bailly stockholders will vote his shares of Hagler Bailly common
stock for approval of both the Certificate Amendment and the Stock Option Plan
Amendment.
The accompanying form of proxy is for use at the meeting if a holder of
Hagler Bailly common stock is unable to attend in person. The presence of a
stockholder at the Hagler Bailly special meeting will not automatically revoke
such stockholder's proxy. However, a stockholder may revoke a proxy at any time
prior to its exercise by (a) delivering to Daniel M. Rouse, Corporate Secretary,
Hagler Bailly, Inc., 1530 Wilson Boulevard, Suite 400, Arlington, Virginia
22209, a written notice of revocation prior to the special meeting or a duly
executed proxy bearing a later date or (b) attending the Hagler Bailly special
meeting and voting in person. All shares represented by valid proxies received
pursuant to this solicitation, and not revoked before they are exercised, will
be voted in the manner specified therein.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
Hagler Bailly may solicit proxies for the Hagler Bailly special meeting from
Hagler Bailly stockholders personally or by telephone or telegram without
additional remuneration therefor. Hagler Bailly will pay the cost of soliciting
proxies. In addition, Hagler Bailly has retained Corporate Investor
Communications, Inc., a proxy solicitation firm, to assist in such solicitation.
The fee to be paid by Hagler Bailly to such firm is $5,000, plus reasonable
out-of-pocket expenses. Hagler Bailly will also make arrangements with brokerage
firms and other custodians, nominees and fiduciaries to send proxy materials to
their principals and will reimburse such parties for their expenses in doing so.
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THE PHB SPECIAL MEETING
Matters to be Considered
This Joint Proxy Statement/PPM is first being mailed to PHB stockholders on
or about July 27, 1998, and is accompanied by a proxy card furnished in
connection with the solicitation of proxies by the PHB Board of Directors for
use at the PHB special meeting. The PHB special meeting is scheduled to be held
on August 27, 1998, at 10:00 a.m., at PHB's offices located at 1776 I "Eye"
Street, N.W., Washington, D.C. 20006. At the PHB special meeting, the PHB
stockholders will consider and vote upon: (i) the proposal to approve and adopt
the Merger Agreement and the Merger provided for therein and (ii) such other
business as may come properly before the PHB special meeting, or any
adjournments or postponements thereof including, without limitation, a motion to
adjourn the PHB special meeting to another time and/or place for the purpose of
soliciting additional proxies in order to approve the Merger Agreement and the
Merger or otherwise.
Record Date and Voting
The record date for determining the holders of PHB common stock entitled to
receive notice of and to vote at the PHB special meeting is July 20, 1998.
Accordingly, only holders of record of PHB common stock at the close of business
on the PHB record date will be entitled to vote at the PHB special meeting or at
any adjournment or postponement thereof. At the close of business on the PHB
record date, there were 5,172,500 shares of PHB common stock outstanding and
entitled to vote at the PHB special meeting, held by approximately 76
stockholders of record. Each holder of PHB common stock on the PHB record date
will be entitled to one vote for each share held of record upon each matter
properly submitted at the PHB special meeting or at any adjournment or
postponement thereof. No shares of preferred stock of PHB are issued and
outstanding.
If the enclosed proxy card is properly executed and received by PHB in time
to be voted at the PHB special meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. Executed proxies with
no instructions indicated thereon will be voted "FOR" the proposal to approve
and adopt the Merger Agreement and the Merger provided for therein.
The Board of Directors of PHB is not aware of any matters other than the
proposal to approve and adopt the Merger Agreement and the Merger (or a proposal
to adjourn or postpone the PHB special meeting as necessary) that may be brought
properly before the PHB special meeting. If any other matters properly come
before the PHB special meeting, the persons named in the accompanying proxy will
vote the shares represented by all properly executed proxies on such matters in
such manner as shall be determined by a majority of the Board of Directors of
PHB.
PHB stockholders should not forward any PHB common stock certificates with
their proxy cards. If the merger is consummated, stock certificates should be
delivered in accordance with instructions set forth in a letter of transmittal
which would be sent to PHB stockholders by the Exchange Agent promptly after the
effective time.
Vote Required; Revocability of Proxies
The affirmative vote of at least two-thirds of the issued and outstanding
shares of PHB common stock entitled to be voted at the PHB special meeting is
required in order to approve and adopt the Merger Agreement and the Merger
provided for therein. Abstentions will have the same effect as votes against the
Merger Agreement. The Merger is conditioned upon, among other things, the
aggregate number of Dissenting Shares being no more than 10% of the PHB common
stock outstanding at the closing.
All of the directors of PHB, who beneficially owned, as of the PHB record
date, an aggregate of 4,392,500 shares, or approximately 85%, of the outstanding
shares of PHB common stock, have
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agreed, among other things, to vote all their shares of PHB common stock in
favor of the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement. See "THE MERGER -- The Support
Agreements."
The accompanying form of proxy is for use at the meeting if a holder of PHB
common stock is unable to attend in person. The presence of a stockholder at the
PHB Special Meeting will not automatically revoke such stockholder's proxy.
However, a stockholder may revoke a proxy at any time prior to its exercise by
(a) delivering to Barbara Levine, Clerk, Putnam, Hayes & Bartlett, Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, a written notice of revocation
prior to the special meeting or a duly executed proxy bearing a later date or
(b) attending the PHB special meeting and voting in person. All shares
represented by valid proxies received pursuant to this solicitation, and not
revoked before they are exercised, will be voted in the manner specified
therein.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
PHB may solicit proxies for the PHB special meeting from stockholders personally
or by telephone or telegram without additional remuneration therefor. PHB will
pay the cost of soliciting proxies.
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RISK FACTORS
This Joint Proxy Statement/PPM contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors including, but not limited to, those set forth in the following risk
factors.
Fixed Number of Hagler Bailly Shares
Because the number of shares of Hagler Bailly common stock to be issued in
the Merger is fixed, the market value of the Hagler Bailly common stock to be
received by holders of PHB common stock in the Merger may change materially
between the date of this Joint Proxy Statement/PPM and the closing of the
Merger.
Challenge of Successful Integration of Two Businesses
There can be no assurance that Hagler Bailly and PHB will be able to
profitably manage or successfully integrate their businesses without substantial
expenses, delays or other operational or financial problems. Further, the Merger
and integration of the two companies may divert management's attention, increase
costs to improve managerial, operational, financial and administrative systems,
cause unanticipated events or circumstances, legal liabilities, increase
interest expense and amortization of acquired intangible assets, some or all of
which could have a materially adverse impact on Hagler Bailly's business,
operating results and financial condition. To the extent that the integration of
the businesses results in reduced performance under ongoing contracts, such
performance problems and any associated client dissatisfaction could have a
materially adverse impact on the reputation of the combined company as a whole.
In addition, there can be no assurance that the combined company will achieve
anticipated revenues and earnings. The failure of Hagler Bailly and PHB to
manage the Merger successfully could have a material adverse effect on Hagler
Bailly's business, operating results and financial condition.
Restrictions on Transfer of Merger Consideration
If the Merger is consummated, the sale of the Hagler Bailly common stock
that PHB stockholders will receive in connection with the Merger will not be
registered under the Securities Act or otherwise. Accordingly, these shares of
Hagler Bailly common stock may not be transferred or resold, except as permitted
under the Securities Act and applicable state securities laws, pursuant to
registration or exemption therefrom. If the Merger closes, PHB stockholders may
be required to bear the financial risks of an investment in Hagler Bailly common
stock for an indefinite period of time.
Client Conflicts
The parties have identified certain conflicts of interest in their
respective environmental practices. If the Merger is consummated, Hagler Bailly
will exit segments of the U.S. public sector environmental consulting business
that conflict with the assignments of the combined company. This will require
Hagler Bailly to terminate Natural Resources Damage Assessment consulting and
expert testimony for U.S. Federal and State governmental agencies. This business
accounted for approximately $5 million in revenues in 1997. After the Merger,
the parties plan to create a committee to eliminate any other conflicts. Other
conflicts of interest between the parties' businesses may currently exist or
exist in the future, although the parties have not identified any such conflicts
at this time.
Attraction, Retention and Management of Professional and Administrative Staff
Both Hagler Bailly's and PHB's businesses involve the delivery of
professional services and are labor intensive. The combined company's future
performance depends in large part upon its ability to attract, develop, motivate
and retain highly skilled consultants, research associates and
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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 Hagler Bailly and PHB, which they may use to attract and
compensate qualified personnel. There can be no assurance that the combined
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 combined company's business, operating results
and financial condition, including its ability to secure and complete
engagements.
Concentration of Revenues
Substantially all of the revenues of Hagler Bailly are derived from private
and institutional clients involved in the energy, telecommunications,
transportation and environmental industries. A substantial majority of PHB's
revenues is derived from clients in the energy and network and environmental
industries. As a result of this focus, each of Hagler Bailly's and PHB's
business, financial condition and results of operations are, and after the
Merger should continue to be, influenced by factors affecting these industries,
including changing political, economic and regulatory influences that may affect
the procurement practices and operation of energy, network industry 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 combined company and may also create conflicts of interest between clients.
In addition, these consolidations and alliances may result in the acquisition of
certain of Hagler Bailly's and PHB's key clients, and such clients may scale
back or terminate their relationship with Hagler Bailly and/or PHB following
their acquisition. Similarly, cutbacks in the energy, telecommunications,
transportation and/or environmental budgets of the United States and other
governments could result in the scale back or termination of some of Hagler
Bailly's public sector contracts. The impact of such developments is difficult
to predict and could have a material adverse effect on the combined company's
business, financial condition and results of operations.
Ability to Sustain and Manage Growth
Hagler Bailly has experienced rapid growth in recent years, including two
acquisitions and an initial public offering ("IPO") of its securities. Hagler
Bailly believes that its continued growth places a strain on operational, human
and financial resources. In order to manage its growth, Hagler Bailly must
continue to improve its operating and administrative systems and to attract and
retain qualified management and professional, scientific and technical operating
personnel. Foreign operations also may involve the additional risks of
assimilating differences in foreign business practices, hiring and retaining
qualified personnel, and overcoming language barriers. Failure to manage growth
effectively could have a material adverse effect on the combined company's
business, financial condition and results of operations.
Dependence on Key Clients
Hagler Bailly derives, and after the Merger is likely to continue to
derive, a significant portion of its revenues from a relatively limited number
of clients. For example, revenues from Hagler Bailly's 10 most significant
clients accounted for 51.7%, 61.0%, and 50.1% of its total revenues in 1995,
1996 and 1997, respectively. A U.S. government agency, USAID, is Hagler Bailly's
largest client, accounting for 27.5%, 34.9%, and 33.0% of Hagler Bailly's total
revenues in 1995, 1996 and 1997, respectively. In 1996 and 1997, revenues from
PHB's largest 10 clients represented 38.0% and 37.0% of PHB's total revenues,
respectively. Clients typically retain Hagler Bailly and PHB 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 Hagler Bailly's or PHB's existing
clients will continue to use the combined company
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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 combined
company's business, results of operations and financial condition. In addition,
the level of the combined company's consulting services required by an
individual client can diminish over the life of its relationship with the
combined company, and there can be no assurance that the combined company will
be successful in establishing relationships with new clients as this occurs.
Professional and Other Liability
Both Hagler Bailly's and PHB's services involve risks of professional and
other liability. If either company were found to have been negligent or to have
breached its obligations to its clients, it could be exposed to significant
liabilities and its reputation could be adversely affected. In connection with
many of its public sector engagements, Hagler Bailly 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 combined company. Hagler Bailly maintains
professional liability insurance to an aggregate maximum of $10.0 million. PHB
does not maintain any professional liability insurance.
Partnering Arrangements
Historically, Hagler Bailly's and PHB's revenues have been generated either
on a standard hourly or daily rate basis or a cost plus fixed-fee basis. Hagler
Bailly 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, Hagler Bailly is pursuing, 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, telecommunications, transportation and
environmental industries. Hagler Bailly has limited prior experience investing
its own funds in external ventures. 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.
Public Sector Market and Contracting Risks
Revenues from contracts or subcontracts with public sector clients
accounted for 47.7% and 52.8% of Hagler Bailly's total revenues in 1996 and
1997, respectively. Providing consulting services 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 combined company's business, results of operations and financial condition.
Intense Competition
The market for consulting services in the energy, telecommunications,
transportation 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 Hagler Bailly's and PHB's competitors have
greater personnel, financial, technical and marketing resources than Hagler
Bailly or PHB. Hagler Bailly 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 combined company will be able to compete successfully with
its existing competitors or with any new competitors.
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Risk of International Operations
Hagler Bailly operates either permanent or project offices in a total of 27
foreign countries. PHB operates offices in two foreign countries. Hagler Bailly
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 Hagler Bailly's near-term results
of operations. Hagler Bailly's and PHB's international operations are subject to
numerous potential challenges and risks, including war, civil disturbances,
other political and economic conditions in various jurisdictions such as tariffs
and other trade barriers, longer accounts receivable collection cycles,
fluctuations in currency and potentially adverse tax consequences. There can be
no assurance that such international factors will not have a material adverse
effect on the combined company's business, results of operations and financial
condition.
Dependence on Key Employees
The success of Hagler Bailly and PHB are highly dependent upon the efforts,
abilities, business generation capabilities and project execution of its
officers and those of its subsidiaries. The loss of the services of any of these
individuals for any reason, could have a material adverse effect upon the
combined company's business, operating results and financial condition,
including its ability to secure and complete engagements.
Concentration of Ownership
After giving effect to the Merger, the directors and officers of Hagler
Bailly (including officers of subsidiaries) beneficially will own 10,504,780, or
approximately 65%, of Hagler Bailly's outstanding shares of common stock. As a
result, these stockholders will have substantial influence over the outcome of
matters requiring a stockholder vote, including the election of the members of
the Board of Directors. Such control could adversely affect the market price of
Hagler Bailly's common stock or delay or prevent a change of control of Hagler
Bailly at a price, which might represent a premium over the market price of its
common stock.
Need to Develop New Offerings
The combined company's future success will depend in significant part on
its ability to develop and introduce successful new service offerings and
improved versions of existing service offerings. There can be no assurance that
the combined company will be successful in developing, introducing on a timely
basis and marketing such service offerings, or that any service offerings will
be accepted in the market. Moreover, services offered by others may render the
combined company's services non-competitive or obsolete.
Project Risks
Many of Hagler Bailly's and PHB's engagements involve projects which are
critical to the operations of their customers' businesses and which provide
benefits that may be difficult to quantify. The combined company's failure or
inability to meet a customer's expectations in the performance of its services
could result in the incurrence of a financial loss and could damage the combined
company's reputation and adversely affect its ability to attract new business.
In addition, an unanticipated difficulty in completing a project could have an
adverse effect on the combined company's business and results of operations.
Fees for Hagler Bailly's and PHB's engagements typically are based on the
project schedule, staffing requirements, the level of customer involvement and
the scope of the project as agreed upon with the customer at the project's
inception. Hagler Bailly and PHB generally seek to obtain adjustments in fees in
the event of any significant change in any of the assumptions upon which the
original estimate was based. However, there can be no assurance that Hagler
Bailly or PHB will be successful in obtaining any such adjustment in the future.
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Intellectual Property Rights
Both Hagler Bailly's and PHB's performance is in part dependent upon
internal information and communication systems, databases, tools, and the
methods and procedures that have been developed specifically to serve clients.
Hagler Bailly and PHB each rely 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 Hagler Bailly or PHB to protect its
proprietary rights will be adequate to prevent misappropriation of such rights
or that Hagler Bailly or PHB will be able to detect unauthorized use and take
appropriate steps to enforce its proprietary rights. Hagler Bailly and PHB each
believe that their 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 Hagler Bailly or
PHB in the future or that any such claims will not require Hagler Bailly or PHB
to enter into costly litigation or materially adverse settlements to litigation,
regardless of the merits of such claims.
Government Regulation of Immigration
Certain of Hagler Bailly's employees are foreign nationals working in the
United States under U.S. visas or work permits. Congress and administrative
agencies with jurisdiction over immigration matters have periodically expressed
concerns over the levels of legal and illegal immigration into the U.S. These
concerns have often resulted in proposed legislation, rules and regulations
aimed at reducing the number of work permits that may be issued. Any changes in
such laws making it more difficult to hire foreign nationals or limiting the
ability of Hagler Bailly to retain foreign employees could require Hagler Bailly
to incur additional unexpected labor costs and expenses.
Fluctuations of Operating Results
Hagler Bailly's future operating results will continue to be subject to
quarterly fluctuations based upon a wide variety of factors, including 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 the general economy, such as recessionary periods, political instability,
changes in trade policies, fluctuations in interest or currency exchange rates
and other competitive factors. Seasonality also affects Hagler Bailly's
operating results, particularly in the third quarter of each fiscal year. In
addition, Hagler Bailly's operating expenses are increasing as Hagler Bailly
continues to expand its operations, and future operating results will be
adversely affected if revenues do not increase accordingly. Additionally, Hagler
Bailly plans to continue to evaluate and, when appropriate, make acquisitions of
complementary businesses. As part of this process Hagler Bailly will continue to
evaluate the changing value of its assets, and when necessary, make adjustments
thereto. While Hagler Bailly cannot predict what effect these various factors
may have on its financial results, the aggregate effect of these and other
factors could result in significant volatility in Hagler Bailly's future
performance and stock price.
Fluctuations in the General Economy
The general level of economic activity significantly affects demand for
Hagler Bailly's and PHB's professional services. When economic activity slows,
clients may delay or cancel plans that involve the hiring of consultants. Hagler
Bailly and PHB are both unable to predict the level of economic activity at any
particular time, and fluctuations in the general economy could adversely affect
the combined company's business, operating results and financial condition.
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Employment Liability Risks
Hagler Bailly and PHB, as providers of professional services, employ and
place individuals in the workplace of other businesses. Inherent risks of such
activity include possible claims of errors and omissions, misuse of client
proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and other
claims. Although historically neither Hagler Bailly nor PHB has experienced any
material claims of these types, there can be no assurance that the combined
company will not experience such claims in the future.
Certain Anti-takeover Effects
Hagler Bailly's Certificate of Incorporation, By-laws, and Delaware
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 President, a
majority of the Board of Directors or stockholders owning at least 50% of Hagler
Bailly's capital stock may call meetings of the stockholders. Also, the Board of
Directors of Hagler Bailly 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 Hagler Bailly by means of a tender offer, merger,
proxy contest or otherwise. Furthermore, Hagler Bailly is subject to the
anti-takeover provisions of Section 203 of Delaware Corporation Law that
prohibits Hagler Bailly 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 Hagler Bailly, which could adversely affect
the market price of its common stock. See "DESCRIPTION OF HAGLER BAILLY CAPITAL
STOCK AND COMPARISON OF STOCKHOLDER RIGHTS -- Anti-Takeover Statutes and
Provisions."
Fluctuations in Stock Price
The market price of Hagler Bailly's 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 Hagler Bailly or its
competitors, as well as changes in the market conditions in the energy,
telecommunications, transportation and environmental industries, changes in
earnings estimates by analysts, changes in accounting principles, sales of
Hagler Bailly's common stock by existing holders, loss of key personnel and
other factors. The stock market has from time to time experienced extreme price
and volume fluctuations, which have particularly affected the market price for
many companies and which, on occasion, have been unrelated to operating
performance. To the extent Hagler Bailly's performance may not meet expectations
published by external sources, public reaction could result in a sudden and
significantly adverse impact on the market price of Hagler Bailly's securities,
particularly on a short-term basis. In addition, such stock price volatility may
provoke the initiation of securities litigation, which may divert substantial
management resources and may have an adverse effect on the management of
business operations. Any of these results could have a material adverse effect
on Hagler Bailly's business, operating results and financial condition.
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THE MERGER
The Parties
Hagler Bailly
Hagler Bailly, a Delaware corporation, is headquartered in the Commonwealth
of Virginia. Hagler Bailly is a worldwide provider of consulting, research and
other professional services to corporations and governments on energy,
telecommunication, transportation and the environment. The Company offers
corporate clients strategy and business operations consulting, economic counsel
and litigation support, market research and survey analysis, information
technology, and financial advisory services. The Company also advises
governments on energy, telecommunication, transportation, water and
environmental public policy.
During the fiscal year ended December 31, 1997 and the three-month period
ended March 31, 1998, Hagler Bailly had total revenues of $96.1 million and
$23.6 million, respectively, operating profits of $10.2 million and $2.6
million, respectively, and net income of $7.8 million and $1.6 million,
respectively. Sales of Hagler Bailly common stock are quoted on the Nasdaq Stock
Market under the symbol "HBIX." The address of Hagler Bailly's principal
executive offices is Hagler Bailly, Inc., 1530 Wilson Boulevard, Suite 400,
Arlington, Virginia 22209 and its telephone number is (703) 351-0300. See
"HAGLER BAILLY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "HAGLER BAILLY BUSINESS."
PHB
PHB is headquartered and incorporated in the Commonwealth of Massachusetts.
PHB is an international economic and management consulting firm providing its
clients with strategic advice and analysis to support the development and
execution of economically sound strategies in business, litigation, regulatory
and policy matters. PHB's clients are principally companies and firms involved
in the telecommunications, utility and energy industries.
During the fiscal year ended December 31, 1997 and the three-month period
ended March 31, 1998, PHB had total revenues of $62.8 million and $15.6 million,
respectively, an operating loss of $9.1 million and an operating profit of $0.5
million, respectively, and net losses of $10.0 million and $0.7 million,
respectively. PHB common stock is not publicly traded. The address of PHB's
principal executive offices is Putnam, Hayes & Bartlett, Inc., One Memorial
Drive, Cambridge, Massachusetts 02142, and its telephone number is (617)
225-2700. See "PHB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and "PHB BUSINESS."
Merger Sub
Merger Sub, a Delaware corporation, is a wholly owned subsidiary of Hagler
Bailly created to facilitate the Merger. Merger Sub has no business or
operations.
Background of the Merger
During the second half of 1997, PHB had a number of internal discussions at
the Executive Committee level to consider the possibility of a public offering
of PHB stock. These discussions arose following the successful public offerings
by certain of PHB's competitors. One of these was Hagler Bailly, which completed
an IPO of its common stock in July 1997. On one or more occasions during this
period, Howard W. Pifer III, the Chairman of PHB, spoke with Henri-Claude
Bailly, the Chairman, Chief Executive Officer and President of Hagler Bailly,
about Hagler Bailly's experience with the going public process.
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During January 1998, PHB's management, while continuing to consider the
possibility of a public offering, also discussed a potential merger with another
consulting company. This transaction did not occur but served to develop an
expanded sense of possible corporate financing objectives for PHB.
In early February 1998, Mr. Pifer telephoned Mr. Bailly to discuss the
public offering experience and process again. Messrs. Bailly and Pifer
tentatively agreed to meet in Los Angeles, California, on February 18.
On February 16 and 17, PHB's Executive Committee met to discuss various
restructuring options available to PHB. At the end of these meetings, it was
resolved that both Messrs. Pifer and William E. Dickenson, the President and
Chief Executive Officer of PHB, would meet with Mr. Bailly in Los Angeles on
February 18, to discuss a possible public offering of PHB or a possible
combination with Hagler Bailly.
At the meeting on February 18, Messrs. Pifer and Dickenson explained PHB's
considerations of various corporate financing alternatives, and the three
executives discussed a conceptual framework for merging PHB with Hagler Bailly
in which Hagler Bailly would purchase the outstanding stock of PHB for 7,000,000
shares of Hagler Bailly common stock. That afternoon, Mr. Bailly forwarded a
draft confidentiality agreement to Mr. Dickenson. On February 20, the two
companies entered into the confidentiality agreement, following which PHB
forwarded to Mr. Bailly confidential financial information about PHB's
operations and future business plans.
The following week, Mr. Bailly and Alex Steinbergh, the Chief Executive
Officer of a subsidiary of Hagler Bailly (HB Capital, Inc.), spoke by telephone
with Messrs. Pifer and Dickenson. During this call there was further discussion
of the valuation of PHB as well the significance of merging as "equals." Mr.
Pifer suggested that Mr. Dickenson meet with Mr. Bailly to discuss in more
detail how the business and management of the two firms would be integrated.
On March 2, Mr. Dickenson met with Mr. Bailly at the latter's office. They
addressed and reached a preliminary agreement on such matters as the combined
operating company's name (PHB Hagler Bailly), the roles of various members of
PHB's senior management and the desired integration steps and schedule.
On March 3, at a regularly scheduled meeting, the Hagler Bailly Board of
Directors discussed the implications, and was supportive, of a merger with PHB.
By memorandum dated that same day, Mr. Dickenson advised the principals of PHB
as to Mr. Pifer's and his progress in their exploration of financing and
restructuring options available to PHB. He noted that given the recent
announcement of another competitor's IPO, it would be harder to sustain a
competitive edge if PHB itself was not a public company.
On March 5 and 6, Messrs. Bailly, Steinbergh, Pifer and Dickenson again
discussed (by telephone) the valuation of PHB. These discussions came to an
agreement as to the framework of a possible business combination transaction and
the two sides began negotiating a written letter of intent. Mr. Dickenson
convened a telephonic meeting with the Executive Committee of PHB on March 7.
During that meeting, it was decided that a meeting of all the principals of PHB
(including current stockholders and other individuals who were scheduled under
PHB's stock purchase program to buy stock in 1998) would be held to discuss the
proposed merger.
For the next two weeks, the management teams of Hagler Bailly and PHB
worked together, with the assistance of their respective outside counsel (Hogan
& Hartson L.L.P. and McDermott, Will & Emery) and the public accountants for
both Hagler Bailly and PHB, to prepare a draft letter of intent that represented
a proposed merger of equals, as well as other merger-related documents,
including a due diligence agreement. In addition to the aforementioned parties,
Hagler Bailly engaged DLJ to provide an opinion regarding the fairness, from a
financial point of view, of the consideration Hagler Bailly would pay in
connection with a Merger with PHB. Accordingly, DLJ
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began to review the information PHB was providing to Hagler Bailly as part of
the due diligence exchange of information and commenced its own inquiry into the
business operations and financial condition of PHB.
During this period, the purchase price of the transaction was revised from
7,000,000 to 6,800,000 shares of Hagler Bailly common stock in recognition of
the value of the aggregate 370,000 share options that Hagler Bailly had agreed
to grant to certain of the PHB Managing Directors as part of their employment
agreements.
On March 20, the Board of Directors of Hagler Bailly voted in favor of
signing a non-binding preliminary agreement with PHB for a business combination
transaction on the terms that had been agreed upon by the management teams of
the two companies during the last two weeks.
On March 21, PHB convened its principals to discuss the proposed
preliminary agreement. This meeting resulted in a consensus in favor of
continuing the negotiations and signing the preliminary agreement with Hagler
Bailly, after which Messrs. Dickenson and Bailly signed the preliminary
agreement. It was agreed that the parties would attempt to complete due
diligence and preparation of definitive merger documents by April 30.
On March 23, Hagler Bailly and PHB issued a joint press release announcing
the signing of the preliminary agreement. On March 24, Messrs. Bailly and
Dickenson participated in a telephone conference call with analysts to discuss
the proposed merger.
During the month of April, Messrs. Bailly and Dickenson made various
presentations at Hagler Bailly and PHB offices to explain the proposed
transaction to employees of the two companies. In addition, during this month,
the parties, with assistance from counsel and independent auditors, negotiated a
plan of merger and merger-related documents and conducted due diligence of each
other's business information. As part of this process, various key personnel in
the practice areas of both companies met to discuss and compare details of their
practices.
On April 20, Messrs. Pifer, Dickenson and R. Gene Brown (an outside PHB
Director) met with seven of the executive officers and outside directors of
Hagler Bailly at Hagler Bailly's Arlington, Virginia office to discuss progress
in the due diligence process and the integration of the two companies. On April
24, several senior level PHB consultants, along with PHB's chief financial
officer, made a presentation to DLJ regarding PHB's future business plans. Also
in attendance were several Hagler Bailly representatives who were heavily
involved in Hagler Bailly's due diligence activities.
On April 27, the PHB Executive Committee met in PHB's Palo Alto office. The
purpose of this meeting was to review the results of the due diligence
activities and the progress of the merger negotiations. At the end of the same
day, Messrs. Bailly, Steinbergh, Pifer and Dickenson and the two other HB
Capital principals who were performing the financial due diligence of PHB had a
telephone conference call to review due diligence findings and move the merger
negotiations along. On April 28, Messrs. Bailly and Steinbergh briefed a number
of Hagler Bailly executive officers on the merger negotiation.
On April 29, Mr. Bailly visited Mr. Dickenson in his Washington, D.C.
office. They discussed various aspects of the proposed combination, including
management styles and the valuation of PHB. Later, during a telephone conference
call that included Messrs. Bailly, Pifer, Dickenson and Steinbergh, Messrs.
Bailly and Steinbergh went through a list of outstanding issues, including a
possible accounting issue relating to compensation expense. The parties settled
on a revised valuation for PHB (which reduced the share exchange by 200,000 to
6,600,000 shares of Hagler Bailly common stock) and also agreed to place 150,000
of these shares in an escrow account for one year to cover potential tax
obligations of PHB, if any, predating the merger.
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As a result of the issues discussed on this conference, the parties agreed
that the original April 30 target date for the signing of a definitive merger
agreement would be extended.
The following week, on May 7, the Hagler Bailly Board of Directors met to
consider the current progress of the merger negotiations, the due diligence
process and a draft of the merger documents. Representatives from Hogan &
Hartson L.L.P. and Hagler Bailly's independent public accountants attended part
of the meeting to brief the Board on fiduciary, accounting and other matters
regarding the proposed transaction. DLJ also presented its preliminary report on
the fairness of the price to be paid by Hagler Bailly. Mr. Pifer (by telephone
from Australia) and Mr. Dickenson also attended part of the meeting and were
interviewed by the Hagler Bailly Board about themselves and PHB.
Following this meeting, the parties agreed to continue to extend the time
for signing a definitive merger agreement in order to resolve certain due
diligence issues, to complete documentation of the transaction, to allow Ernst &
Young LLP additional time to complete its audit of PHB's financial statements
for the 1997 fiscal year, including its review of certain compensation charge
issues with respect to PHB stock sales in 1997 and 1998. In this regard, on May
8, PHB engaged the services of Howard Lawson & Co. to provide a valuation of PHB
common stock on certain given dates.
Starting on May 18, the parties conducted negotiations of the terms of
employment agreements for Messrs. Dickenson and Pifer, which culminated on May
23 when Messrs. Bailly, Dickenson, Pifer and their respective in-house counsel
met in Washington, D.C. to finalize the agreements. At this time, the parties
agreed that there would be a revision to Mr. Bailly's employment agreement and
that they would resolve outstanding issues in the ancillary merger documents.
The valuations of PHB common stock were completed on June 8, 1998, and
Ernst & Young LLP delivered its audit opinion of PHB's financial statements for
1997 on June 10, 1998.
Hagler Bailly sent a notice to its Board of Directors on May 29, including
a resolution to approve the proposed merger. PHB sent a similar notice to its
Board on June 1. On June 8, the Board of Directors of Hagler Bailly met to
consider the final merger documents. At this meeting DLJ presented its fairness
opinion, and the Board was advised as to its fiduciary duties and other matters
regarding the Merger. The Board unanimously approved the Merger and directed its
officers to sign the Merger Agreement on behalf of Hagler Bailly and to finalize
and file this Joint Proxy Statement/PPM for solicitation of stockholder approval
of the Share Issuance. On June 9, the Board of Directors of PHB met to consider
the final merger documents and approved the Merger and directed its officers to
sign the Merger Agreement on behalf of PHB and solicit necessary stockholder
approval. The parties signed the Agreement and Plan of Merger and issued a joint
press release on June 11. Hagler Bailly filed this Joint Proxy Statement/PPM
with the SEC on a preliminary basis on July 2 and on a definitive basis on July
24.
Purpose and Effects of the Merger
The purpose of the Merger is to enable Hagler Bailly and PHB to merge their
businesses. If the transactions contemplated by the Merger Agreement are
completed, Merger Sub will be merged with and into PHB. As a result of the
Merger, Merger Sub will cease to exist, and PHB will be the Surviving
Corporation and will continue as a wholly owned subsidiary of Hagler Bailly.
Hagler Bailly and PHB have identified several effects of the Merger that
they believe will contribute to the success of both companies, including:
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Complementary Products and Services
The combined company will have a broader range of products and services to
offer its clients. For example, Hagler Bailly brings a variety of proprietary
data bases and programs that will be useful to the strategic consulting services
PHB offers its clients in the energy industry. PHB brings its experience in the
field of litigation consulting, which reaches a wide range of clients, both
within and outside of the energy industry.
Geographic Presence
The Merger will create a company with a stronger geographic presence, both
domestically and internationally. Within the United States, the Merger will
expand the firm's resources and visibility in four key metropolitan areas where
both firms currently have offices: Boston, Massachusetts; Washington, D.C.; San
Francisco/Palo Alto, California; and Los Angeles, California. Internationally,
PHB's presence in Australia and New Zealand will be added to Hagler Bailly's
network of principal international offices in Argentina, Brazil, Canada, France,
Indonesia and Ireland.
Growth and Vertical Integration
The Merger will result in a combined company with a greater depth of
consulting service offerings, cross-marketing opportunities and operating
resources. In particular, the combined company will benefit from the diverse
experience of a broader pool of consultants. This depth and breadth of expertise
will further enhance the quality of services available to clients.
Improved Competitive Position in Consulting Industry
The consulting industry has been undergoing a period of consolidation. The
combined company will be better positioned to compete in this environment, which
will include an enhanced ability to attract and retain senior level consultants,
increased resources and a larger client base.
Structure
The Merger will be effected by merging Merger Sub with and into PHB, with
PHB being the Surviving Corporation. Each share of Merger Sub common stock, par
value $0.01 per share, issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one share of common stock of the
Surviving Corporation. As a result of the Merger, Merger Sub will cease to exist
and the Surviving Corporation will be a wholly owned subsidiary of Hagler
Bailly. The Surviving Corporation's articles of organization and bylaws will be
substantially the same as PHB's immediately prior to the Effective Time.
At the Effective Time, except as discussed below, each issued and
outstanding share of PHB common stock, except for any Dissenting Shares, will be
converted automatically into the right to receive a number of shares of Hagler
Bailly common stock equal to 6,600,000 divided by the number of shares of PHB
common stock issued and outstanding immediately prior to the Effective Time.
Cash will be paid in lieu of fractional shares. Shares held as treasury stock
will be canceled. Under the Merger Agreement, PHB must terminate any and all of
its stock option plans under which PHB stockholders or employees have a right to
purchase PHB common stock and each of the PHB Options, if any, as of the
Effective Time. At or after the Effective Time, no one, by virtue of being a
holder of an option or right to purchase PHB common stock or a participant or
former participant in any PHB stock option plan, will have any right to purchase
shares of PHB common stock or any other equity interest in PHB, the Surviving
Corporation or Hagler Bailly.
All of the shares of PHB common stock converted to Hagler Bailly common
stock will be canceled automatically and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
PHB common stock shall thereafter represent the right to receive:
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(i) the number of whole shares of Hagler Bailly common stock and (ii) cash in
lieu of fractional shares into which the shares of PHB common stock represented
by such Certificate have been converted (less the proportionate amount of Escrow
Stock). Pursuant to the Merger Agreement and the Escrow Agreement (as defined
below), Hagler Bailly shall withhold and deposit in escrow from PHB
stockholders, on a pro rata basis, the 150,000 Escrow Shares. See "--The Escrow
Agreement."
Subject to the terms and conditions of the Merger Agreement, the closing of
the Merger will take place: (a) as promptly as practicable after satisfaction or
waiver of all closing conditions to the Merger or (b) such other date as the
parties may agree. If the Merger is not consummated by October 31, 1998, either
Hagler Bailly or PHB may terminate the Merger Agreement. However, a party will
not be able to terminate the Merger Agreement if it has breached any
representations, warranties, covenants or agreements contained in the Merger
Agreement and the breach has caused the Merger's consummation to be delayed past
October 31, 1998.
The parties may elect to modify the structure of the Merger. However, after
the PHB stockholders approve the Merger Agreement and Merger and Hagler Bailly
stockholders approve the Share Issuance, the parties cannot amend the Merger
Agreement to reduce the amount or change the type of consideration to be paid to
the PHB stockholders. As of the date of this Joint Proxy Statement/PPM, neither
Hagler Bailly nor PHB intend to modify the structure of the Merger or the Merger
Agreement described herein.
Recommendation of the Hagler Bailly Board of Directors and Reasons for the
Merger
The Hagler Bailly Board has approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, Hagler
Bailly and its stockholders. THE HAGLER BAILLY BOARD RECOMMENDS THAT HOLDERS OF
HAGLER BAILLY COMMON STOCK VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE. In
reaching its decision to approve the Merger Agreement, the Hagler Bailly Board
of Directors consulted with its outside counsel (regarding the legal terms of
the Merger Agreement and the Board's fiduciary obligations in its consideration
of the Merger), its independent auditors (regarding accounting and tax
considerations), its financial advisor (regarding the financial aspects and
fairness, from a financial point of view, of the proposed Merger) and Hagler
Bailly's management, and considered the following:
(i) the Merger will create the largest publicly held management and
economic consulting firm in the world specializing in the energy and
network industries, enabling Hagler Bailly to compete more effectively
against larger, integrated management consulting firms;
(ii) the Merger will combine the particular strengths of each of Hagler
Bailly and PHB in strategic and economic analysis and implementation
and will provide opportunities for significant cross-selling of
services to existing Hagler Bailly and PHB clients and for generating
significant incremental revenues and improved margins;
(iii) the Merger is expected to be accretive to the earnings of Hagler
Bailly;
(iv) the Merger adds talent and depth to Hagler Bailly management and
creates a plan for management succession at Hagler Bailly;
(v) the Merger will substantially expand Hagler Bailly's presence in
private sector work;
(vi) the Merger will expand Hagler Bailly operations internationally,
adding offices in Australia and New Zealand, and broaden the scope of
Hagler Bailly's international practice;
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(vii) the Merger is expected to result in the elimination of some
duplicative costs and the achievement of some operating and revenue
efficiencies; and
(viii) the Merger consideration to be paid by Hagler Bailly is fair to its
stockholders from a financial point of view.
The foregoing discussion of the information and factors considered by the
Hagler Bailly Board is not intended to be exhaustive but is believed to include
all material factors considered by the Hagler Bailly Board. In reaching its
determination to approve and recommend the Merger, the Hagler Bailly Board did
not assign any relative or specific weights to the factors considered, and
individual directors may have given differing weights to different factors.
After deliberating with respect to the Merger and the other transactions
contemplated by the Merger Agreement, considering, among other things, the
matters discussed above and the opinion of DLJ referred to above, the Hagler
Bailly Board unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby including the Registration Rights Agreement
and the Employment Agreements as being fair to and in the best interests of
Hagler Bailly and its stockholders.
Opinion of Hagler Bailly's Financial Advisor
Hagler Bailly selected DLJ as its exclusive financial advisor with respect
to the Merger because DLJ is a nationally recognized investment banking firm
that has substantial experience in the consulting industry and is familiar with
Hagler Bailly, PHB and their respective businesses. As part of its investment
banking business, DLJ is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
As part of its role as financial advisor to Hagler Bailly, DLJ was asked to
render an opinion to the Board of Directors of Hagler Bailly as to the fairness
to the stockholders of Hagler Bailly of the Exchange Ratio. On June 8, 1998, DLJ
delivered to the Board of Directors of Hagler Bailly its written opinion (the
"DLJ Opinion") that, as of the date of such opinion and based upon and subject
to the assumptions, limitations and qualifications set forth in such opinion,
the Exchange Ratio was fair to the stockholders of Hagler Bailly from a
financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX B. HOLDERS OF HAGLER
BAILLY COMMON STOCK ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR THE
ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW MADE BY
DLJ IN CONNECTION WITH SUCH OPINION.
The DLJ Opinion was prepared for the Hagler Bailly Board of Directors and
is directed only to the fairness to the stockholders of Hagler Bailly of the
Exchange Ratio from a financial point of view. The DLJ Opinion does not
constitute a recommendation to any stockholder as to how to vote on the Share
Issuance in connection with the Merger at the Hagler Bailly stockholders
meeting. DLJ did not make any recommendation as to the form or amount of
consideration to be paid by Hagler Bailly pursuant to the transactions
contemplated by the Merger Agreement. Such consideration was determined in
negotiations between Hagler Bailly and PHB. DLJ's opinion does not constitute an
opinion as to the prices at which Hagler Bailly common stock will actually trade
at any time. No restrictions or limitations were imposed by Hagler Bailly upon
DLJ with respect to the investigations made or the procedures followed by DLJ in
rendering the DLJ Opinion.
In arriving at its opinion, DLJ reviewed a draft dated June 5, 1998 of the
Merger Agreement. DLJ also reviewed financial and other information that was
publicly available or furnished to it by Hagler Bailly and PHB, including
information provided during discussions with their respective managements.
Included in such information provided to DLJ were (1) preliminary unaudited
financial statements of PHB for the year ended December 31, 1997 and the quarter
ended March 31, 1998 prepared by the management of PHB, (2) certain financial
projections of PHB for the period
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beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of PHB and (3) certain financial projections of Hagler Bailly for the
period beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of Hagler Bailly. In addition, DLJ compared certain financial and
securities data of Hagler Bailly and PHB with various other companies whose
securities are traded in the public markets, reviewed the historical stock
prices and trading volumes of Hagler Bailly common stock and conducted other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of its opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by Hagler Bailly and PHB or
their respective representatives or that was otherwise reviewed by DLJ. DLJ also
assumed that (1) the financial projections, including estimates of synergies,
supplied to it were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Hagler Bailly and PHB as
to the future operating and financial performance of Hagler Bailly and PHB,
respectively, (2) the final audited financial statements of PHB for the year
ended December 31, 1997 and the final unaudited financial statements of PHB for
the quarter ended March 31, 1998 will not differ materially from the preliminary
unaudited statements furnished to DLJ, with the exception of any changes as the
result of the non-recurring, non-cash stock compensation charges and (3) the
Merger will qualify as a tax-free reorganization and for pooling-of-interests
accounting treatment. Subsequent to the delivery of the DLJ Opinion, DLJ
reviewed the final audited financial statements of PHB for the year ended
December 31, 1997 and the final unaudited financial statements of PHB for the
quarter ended March 31, 1998 and determined that they did not differ materially
from the preliminary unaudited statements furnished to DLJ prior to the delivery
of the DLJ Opinion, with the exception of changes as the result of the
non-recurring, non-cash stock compensation charges. DLJ has not assumed any
responsibility for making any independent evaluation or appraisal of the assets
or liabilities of Hagler Bailly or PHB or for making any independent
verification of any information reviewed by it. DLJ relied as to certain legal
matters on advice of counsel to Hagler Bailly.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of the DLJ Opinion. Although subsequent developments may affect
its opinion, DLJ does not have any obligation to update, revise or reaffirm its
opinion.
The following is a summary of the material analyses presented by DLJ to the
Hagler Bailly Board of Directors at its June 8, 1998 meeting in connection with
rendering the DLJ Opinion. All market information used in the analyses is as of
the close of business on June 4, 1998. All financial information for PHB used in
the analyses are pro forma to back out incentive compensation (bonus above
standard levels) that will not be paid post-Merger and non-recurring, non-cash
stock compensation charges. All financial information for Hagler Bailly used in
the analyses are pro forma to back out non-recurring, non-cash compensation
charges.
Earnings per Share Impact Analysis
Using the financial information and projections provided to DLJ by PHB's
and Hagler Bailly's respective managements, DLJ reviewed the impact on Hagler
Bailly's 1998, 1999, 2000 and 2001 projected earnings per share resulting from
the Merger. DLJ's analysis separately considered accretion/dilution (i) without
giving effect to the synergies estimated by Hagler Bailly's management and (ii)
giving effect to the synergies. The amounts of incremental revenue from
synergies estimated by Hagler Bailly, and assumed by DLJ, were $3.8 million,
$23.8 million, $38.3 million and $46.1 million for 1998, 1999, 2000 and 2001,
respectively. Actual results achieved by the combined companies may vary from
the amounts used and the variations may be material. This analysis indicated
that the Merger would be accretive to 1998, 1999, 2000 and 2001 projected
earnings per share with or without synergies. Assuming no synergies, the
accretive effect of the Merger on projected earnings per share ("EPS") was an
estimated 24.2%, 15.2%, 12.9% and 8.6%, for 1998, 1999, 2000 and 2001,
respectively.
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Analysis of Certain Publicly Traded Companies for PHB
To provide contextual data and comparative market information, DLJ compared
selected historical earnings and operating and financial ratios for PHB to
corresponding data and ratios of certain business services companies whose
securities are publicly traded. In conducting its analysis, DLJ compared the
ratios implied by the Exchange Ratio to the ratios implied from the market
valuation of publicly traded companies selected by DLJ (the "Business Services
Companies") based upon quantitative factors which DLJ deemed relevant based upon
its experience in the business services industry. The Business Services
Companies were separated into information technology ("IT") and non-IT companies
based upon their business focus. The non-IT Business Services Companies
included: Hagler Bailly, Inc., Charles River Associates Incorporated and LECG,
Inc. The IT Business Services Companies included: The Metzler Group, Inc.,
Forrester Research, Inc., and Superior Consultant Holdings Corporation. Although
DLJ used these companies for comparison purposes, none of such companies is
directly comparable to PHB. Accordingly, a complete analysis of the results
cannot be limited to a quantitative review and involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the Business Services Companies and other factors which could affect the
public trading value of the Business Services Companies as well as that of PHB.
All financial information for the Business Services Companies used in this
analysis are pro forma to exclude certain non-recurring charges and for certain
other adjustments. Data and ratios considered by DLJ included: the ratio of
enterprise value to (i) latest 12 months ("LTM") revenues, (ii) LTM earnings
before interest expense, income taxes, depreciation and amortization ("EBITDA")
and (iii) LTM earnings before interest expense and income taxes ("EBIT") and the
ratio of market price to (i) LTM EPS, (ii) 1998 estimated median EPS as reported
by I/B/E/S International, Inc. ("I/B/E/S") and (iii) 1999 estimated median EPS
as reported by I/B/E/S. Enterprise value is defined as the sum of the principal
amount of a company's long-term debt and minority interests in consolidated
subsidiaries plus the market value of its equity securities less excess cash.
For non-IT Business Services Companies, the ratio of enterprise value to
LTM revenues ranged from 2.8x to 4.3x, and was 3.1x for PHB at the Exchange
Ratio. The ratio of enterprise value to LTM EBITDA ranged from 18.0x to 31.5x,
and was 20.3x for PHB at the Exchange Ratio. The ratio of enterprise value to
LTM EBIT ranged from 19.6x to 36.3x, and was 23.3x for PHB at the Exchange
Ratio. The ratio of market price to LTM EPS ranged from 27.8x to 43.8x, and was
35.7x for PHB at the Exchange Ratio. The ratio of market price to 1998 estimated
EPS ranged from 27.3x to 31.4x, and was 20.5x for PHB at the Exchange Ratio. The
ratio of market price to 1999 estimated EPS ranged from 21.9x to 25.8x, and was
16.8x for PHB at the Exchange Ratio.
For IT Business Services Companies, the ratio of enterprise value to LTM
revenues ranged from 4.9x to 6.5x, and was 3.1x for PHB at the Exchange Ratio.
The ratio of enterprise value to LTM EBITDA ranged from 29.5x to 45.8x, and was
20.3x for PHB at the Exchange Ratio. The ratio of enterprise value to LTM EBIT
ranged from 31.0x to 55.9x, and was 23.3x for PHB at the Exchange Ratio. The
ratio of market price of LTM EPS ranged from 43.1x to 60.6x, and was 35.7x for
PHB at the Exchange Ratio. The ratio of market price to 1998 estimated EPS
ranged from 35.8x to 44.6x, and was 20.5x for PHB at the Exchange Ratio. The
ratio of market price to 1999 estimated EPS ranged from 27.1x to 33.9x, and was
16.8x for PHB at the Exchange Ratio.
Discounted Cash Flow Analysis
DLJ performed a discounted cash flow analysis of Hagler Bailly and PHB,
using their respective management's estimates of future performance and future
results of operations including and excluding synergies.
For Hagler Bailly, DLJ selected a range of terminal multiples of 11.0x to
13.0x EBITDA and a range of weighted average cost of capital of 12.9% to 16.9%
based upon its subjective judgments about, among other things, the capital
markets, Hagler Bailly's prospects and the business services industry. The
terminal multiple represents an estimate of the value of Hagler Bailly's future
free
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cash flows at December 31, 2002. Assuming a terminal multiple of 12.0x EBITDA in
2002 and a weighted average cost of capital of 14.9%, this analysis implied a
per share value of Hagler Bailly of $29.71.
For PHB, DLJ selected a range of terminal multiples of 11.0x to 13.0x
EBITDA and a range of weighted average cost of capital of 12.9% to 16.9% based
upon its subjective judgments about, among other things, the capital markets,
PHB's prospects and the business services industry. The terminal multiple
represents an estimate of the value of PHB's future free cash flows at December
31, 2002. Assuming a terminal multiple of 12.0x EBITDA in 2002 and a weighted
average cost of capital of 14.9%, this analysis implied a per share value of PHB
of $43.62 and an implied Exchange Ratio of 1.47x without synergies. With
synergies, this analysis implied a per share value of PHB of $53.96 and an
implied Exchange Ratio of 1.82x.
Contribution Analysis
DLJ reviewed the relative contribution to the combined company of Hagler
Bailly and PHB with respect to total revenues, EBITDA, EBIT and net income
without giving effect to synergies. At the Exchange Ratio, shareholders of
Hagler Bailly and PHB will own approximately 59.8% and 40.2%, respectively, of
the fully diluted common stock of the combined company. The projections made by
PHB's and Hagler Bailly's managements indicate, for the years 1998-2002, that
Hagler Bailly would provide from 61.4% to 71.0% of combined revenues; from 47.1%
to 58.5% of combined EBITDA; from 47.1% to 58.6% of combined EBIT; and from
48.3% to 59.0% of combined net income. On a corresponding basis, PHB would
provide from 29.0% to 38.6% of combined revenues; from 41.5% to 52.9% of
combined EBITDA; from 41.4% to 52.9% of combined EBIT; and from 41.0% to 51.7%
of combined net income.
Analysis of Certain Other Publicly Traded Companies for Hagler Bailly
To provide contextual data and comparative market information on whether
Hagler Bailly common stock is fairly valued by the market, DLJ compared selected
historical earnings and operating and financial ratios for Hagler Bailly to
corresponding data and ratios of certain business services companies whose
securities are publicly traded. In conducting its analysis, DLJ compared the
ratios implied from the market valuation of Hagler Bailly to the ratios implied
from the market valuation of the Business Services Companies. The Business
Services Companies were separated into IT and non-IT companies based upon their
business focus. The non-IT Business Services Companies included: Charles River
Associates Incorporated and LECG, Inc. The IT Business Services Companies
included: The Metzler Group, Inc., Forrester Research, Inc., and Superior
Consultant Holdings Corporation. Although DLJ used these companies for
comparison purposes, none of such companies is directly comparable to Hagler
Bailly. Accordingly, a complete analysis of the results cannot be limited to a
quantitative review and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the Business Services
Companies and other factors which could affect the public trading value of the
Business Services Companies as well as that of Hagler Bailly. All financial
information for the Business Services Companies used in this analysis is pro
forma to exclude certain non-recurring charges and for certain other
adjustments. Data and ratios considered by DLJ included: the ratio of enterprise
value to (i) LTM revenues, (ii) LTM EBITDA and (iii) LTM EBIT and the ratio of
market price to (i) LTM EPS, (ii) 1998 estimated median EPS as reported by
I/B/E/S and (iii) 1999 estimated median EPS as reported by I/B/E/S. Enterprise
value is defined as the sum of the principal amount of a company's long-term
debt and minority interests in consolidated subsidiaries plus the market value
of its equity securities less excess cash.
For non-IT Business Services Companies, the ratio of enterprise value to
LTM revenues ranged from 3.6x to 4.3x, and was 2.8x for Hagler Bailly. The ratio
of enterprise value to LTM EBITDA ranged from 18.0x to 31.5x, and was 23.4x for
Hagler Bailly. The ratio of enterprise value to LTM EBIT ranged from 19.6x to
36.3x, and was 27.7x for Hagler Bailly. The ratio of market price to LTM EPS
ranged from 27.8x to 43.8x, and was 36.4x for Hagler Bailly. The ratio of market
price
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to 1998 estimated EPS ranged from 27.3x to 31.4x, and was 30.6x for Hagler
Bailly. The ratio of market price to 1999 estimated EPS ranged from 21.9x to
25.8x, and was 23.6x for Hagler Bailly.
For IT Business Services Companies, the ratio of enterprise value to LTM
revenues ranged from 4.9x to 6.5x, and was 2.8x for Hagler Bailly. The ratio of
enterprise value to LTM EBITDA ranged from 29.5x to 45.8x, and was 23.4x for
Hagler Bailly. The ratio of enterprise value to LTM EBIT ranged from 31.0x to
55.9x, and was 27.7x for Hagler Bailly. The ratio of market price to LTM EPS
ranged from 43.1x to 60.6x, and was 36.4x for Hagler Bailly. The ratio of market
price to 1998 estimated EPS ranged from 35.8x to 44.6x, and was 30.6x for Hagler
Bailly. The ratio of market price to 1999 estimated EPS ranged from 27.1x to
33.9x, and was 23.6x for Hagler Bailly.
The summary set forth above describes the material analyses presented by
DLJ to the Hagler Bailly Board of Directors on June 8, 1998 in connection with
the DLJ Opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Each of the analyses conducted by DLJ was carried out in order to
provide a different perspective on the Merger and to add to the total mix of
information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Rather, in reaching its
conclusion, DLJ considered the results of the analyses in light of each other
and ultimately reached its opinion based on the results of all analyses taken as
a whole, without placing particular reliance or weight on any individual
analysis. Accordingly, notwithstanding the separate factors summarized above,
DLJ believes that its analysis must be considered as a whole and that selecting
portions of its analysis and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the evaluation
process underlying its opinions. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter, Hagler Bailly has agreed to
pay DLJ a fee of $350,000 for rendering its fairness opinion. Hagler Bailly has
also agreed to reimburse DLJ for certain out-of-pocket expenses (including the
reasonable fees and expenses of DLJ's counsel) in connection with its
engagement, and to indemnify DLJ and certain of its related persons against
certain liabilities in connection with its engagement, including liabilities
under the federal securities laws. The terms of the fee arrangement with DLJ,
which DLJ and Hagler Bailly believe are customary in transactions of this
nature, were negotiated at arm's length between Hagler Bailly and DLJ. DLJ has
performed investment banking and other services for Hagler Bailly in the past
and has been compensated for such services. DLJ was the lead manager for Hagler
Bailly's July 1997 IPO. Pursuant to the terms of the engagement letter between
the Company and DLJ, DLJ shall have the right to act as lead managing
underwriter to the Company in connection with any public equity financing by the
Company which is effected within 12 months following consummation of the Merger.
In the ordinary course of business, DLJ actively trades the equity
securities of Hagler Bailly for its own account and for the accounts of its
customers and accordingly, may at any time hold a long or short position in such
securities.
Recommendation of the PHB Board of Directors and Reasons for the Merger
The Board of Directors of PHB has approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, PHB and its
stockholders. THE PHB BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF PHB COMMON
STOCK VOTE "FOR" THE MERGER AGREEMENT AND THE MERGER PROVIDED FOR THEREIN. The
PHB Board of Directors believes that the Merger will enable holders of PHB
common stock to realize increased value due to the premium over price, net
income per share and book value per share of PHB common stock. The PHB Board of
Directors also believes that the Merger may enable PHB
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stockholders to participate in opportunities for appreciation of Hagler Bailly
common stock. In reaching its decision to approve the Merger Agreement, the PHB
Board consulted with its outside counsel (regarding the legal terms of the
Merger and the PHB Board's fiduciary obligations in its consideration of the
Merger) as well as with the management of PHB and considered the following,
which are all of the material factors considered, both from a short-term and
long-term perspective:
(i) the combined company will have an improved competitive position in the
consulting industry;
(ii) the Merger will create a more diverse geographic presence;
(iii) the combined company will offer a broader range of products and
services; and
(iv) the Merger will result in a combined company with a greater depth of
service offerings, marketing opportunities and resources.
The foregoing discussion of the information and factors considered by the
PHB Board is not intended to be exhaustive but is believed to include all
material factors considered by the PHB Board, from both a short-term and
long-term perspective. In reaching its determination to approve and recommend
the Merger, the PHB Board did not assign any relative or specific weights to the
factors considered, and individual directors may have given differing weights to
different factors. After deliberating with respect to the Merger and the other
transactions contemplated by the Merger Agreement and considering, among other
things, the matters discussed above, the PHB Board approved and adopted the
Merger Agreement and the transactions contemplated thereby as being fair to and
in the best interests of PHB and its stockholders.
Closing and Effective Time
The Merger will become effective when the articles of merger are filed with
the Secretary of State of the Commonwealth of Massachusetts and the Secretary of
State of Delaware in accordance with applicable law. The articles of merger will
be filed as promptly as possible after the parties receive all reasonable
assurances as to the tax and accounting treatment of the Merger, certain
documents, opinions, consents and certificates are received, certain agreements
are entered, and Hagler Bailly stockholders have approved the Share Issuance and
PHB stockholders have approved the Merger Agreement and the Merger, provided the
aggregate number of Dissenting Shares is 10% or less. PHB and Hagler Bailly
expect that the Merger will be consummated in the summer of 1998, or as soon as
possible after all stockholder approvals are obtained.
The Merger Agreement provides that at the Effective Time, each issued and
outstanding share of PHB common stock (excluding PHB treasury stock and
Dissenting Shares) will be converted automatically into the right to receive a
number of shares of Hagler Bailly common stock equal to (i) 6,600,000 divided by
(ii) the number of shares of PHB common stock issued and outstanding immediately
prior to the Effective Time. All shares of PHB capital stock held as treasury
stock by PHB immediately prior to the Effective Time will be canceled and
extinguished without any conversion.
Because the market price of Hagler Bailly common stock and the number of
outstanding shares of PHB common stock are subject to change, the market value
of the shares of Hagler Bailly common stock that PHB stockholders will receive
in the Merger may materially increase or decrease prior to the Merger. No
assurance can be given as to the market price of Hagler Bailly common stock at
the time of the Merger or the number of shares of PHB common stock outstanding
at the Effective Time. See "MARKET PRICES AND DIVIDENDS."
Certificates representing fractions of shares of Hagler Bailly common stock
will not be issued. Under the Merger Agreement, in lieu of a fractional share of
Hagler Bailly common stock, each PHB stockholder will be entitled to receive an
amount of cash equal to the product of (i) such fractional
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part of Hagler Bailly common stock multiplied by (ii) the reported closing price
of a share of Hagler Bailly common stock on the Nasdaq Stock Market on the last
business day prior to the closing date.
The conversion of PHB common stock held by stockholders of PHB into the
right to receive shares of Hagler Bailly common stock (and cash in lieu of
fractional shares) will occur automatically upon consummation of the Merger.
Pursuant to the Merger Agreement, at or prior to the Effective Time, Hagler
Bailly will deposit or cause to be deposited with the Exchange Agent, for the
benefit of the holders of the certificates representing shares of PHB common
stock to be exchanged pursuant to the Merger, certificates representing the
shares of Hagler Bailly common stock to be issued (less certificates
representing the Escrow Shares) and the cash in lieu of fractional shares to be
paid in the Merger.
Exchange of PHB Common Stock Certificates
Promptly after the Effective Time, certificates representing PHB common
stock shall be canceled, and, simultaneously with such cancellation, Hagler
Bailly shall issue certificates with respect to the canceled PHB common stock
for each PHB stockholder. All such certificates (the "Merger Stock
Certificates") shall be registered in the name of each PHB stockholder and shall
represent the total number of shares of Hagler Bailly common stock issuable
pursuant to the Merger in respect of shares of PHB common stock held by such PHB
stockholder (less the PHB stockholder's proportionate interest in the Escrow
Shares). A separate certificate, representing the Escrow Shares (the "Escrow
Stock Certificate"), shall be issued in the name of the Escrow Agent (as defined
below) as nominee of each PHB stockholder.
Prior to or promptly after the Effective Time, the Exchange Agent will mail
to each holder of record of PHB common stock a form letter of transmittal and
instructions for use in surrendering the Certificates in exchange for
certificates representing the shares of Hagler Bailly common stock and the cash
in lieu of fractional shares into which the shares of PHB common stock
represented by such Certificate or Certificates will have been converted
pursuant to the Merger Agreement. Upon the surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with the letter of
transmittal, duly executed, the holder of such Certificate will be entitled to
receive in exchange for such Certificate: (i) a certificate representing that
number of whole shares of Hagler Bailly common stock to which such PHB
stockholder will have become entitled pursuant to the Merger Agreement (less the
holder's pro rata share of the Escrow Shares) and (ii) a check representing the
amount of cash in lieu of fractional shares, if any, that such PHB stockholder
has the right to receive in respect of the Certificate surrendered pursuant to
the Merger Agreement. The Certificate surrendered will be canceled. At the
Effective Time, Hagler Bailly will issue and transfer to the Escrow Agent the
Escrow Stock Certificate to be held in escrow. As to Hagler Bailly common stock
received in the Merger, a PHB stockholder will not be entitled to any dividend
or other distribution payable to Hagler Bailly common stock record holders on
any date after the Effective Time, unless and until the PHB stockholder
surrenders a Certificate in exchange for such shares of Hagler Bailly common
stock. No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to holders of
Certificates.
Certificates should not be returned to PHB with the enclosed proxy card and
should be forwarded to the Exchange Agent only after receipt of the letter of
transmittal.
Conditions to the Merger
The respective obligations of Hagler Bailly, PHB and Merger Sub to close
the Merger are conditioned upon the satisfaction at or prior to the Effective
Time of each of the following: (i) the approval of the stockholders of each of
Hagler Bailly and PHB; (ii) no matter shall have been instituted or threatened
before any government entity (and not subsequently terminated) which is
reasonably expected to restrain, prohibit or invalidate the Merger or the other
transactions contemplated by Merger Agreement, unless the matter is instituted
or threatened by one of the parties to the Merger Agreement; (iii) Hagler Bailly
and PHB shall have received a letter from Ernst
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& Young LLP that the Merger will qualify as a pooling-of-interests and
reasonable assurances that the Merger will constitute a reorganization under
Section 368 of the Code and (iv) the Employment Agreements must be binding and
enforceable legal obligations on the parties thereto.
In addition, the respective obligations of Hagler Bailly and Merger Sub to
close the Merger are conditioned upon the satisfaction at or prior to the
Effective Time of each of the following: (i) Hagler Bailly shall have received
certification from PHB that PHB's representations and warranties in the Merger
Agreement are true and correct in all material respects and that PHB's
agreements and covenants have been performed in all material respects; (ii) the
aggregate number of Dissenting Shares is no more than 10% of the PHB common
stock outstanding on the closing date; (iii) no PHB Material Adverse Effect (as
defined below) shall have occurred and be continuing; (iv) PHB shall have
delivered to Hagler Bailly all required consents or notices; (v) the Escrow
Agreement shall have been entered into; (vi) Hagler Bailly shall have received
an executed PHB Affiliate Agreement (defined below) for each PHB affiliate;
(vii) PHB shall have furnished Hagler Bailly with a legal opinion on certain
issues, a capitalization certificate and any additional documents Hagler Bailly
may reasonably request; (viii) all PHB Options and stock option plans shall have
been terminated; (ix) PHB shall have certified that no shares of PHB common
stock are subject to repurchase by PHB as of the Effective Time and (x) no PHB
director who voted to approve the Merger Agreement and Merger at the PHB Board
meeting held June 9, 1998 shall have objected to the Merger in writing or
demanded dissenters' rights of appraisal.
Finally, the obligations of PHB to close the Merger are conditioned upon
the satisfaction at or prior to the Effective Time of each of the following: (i)
PHB's receipt of certification from Hagler Bailly that Hagler Bailly's and
Merger Sub's representations and warranties in the Merger Agreement are true and
correct in all material respects and that Hagler Bailly's and Merger Sub's
agreements and covenants have been performed in all material respects; (ii) no
Hagler Bailly Material Adverse Effect (defined below) shall have occurred and be
continuing; (iii) Hagler Bailly shall have delivered to PHB all required
consents; (iv) PHB shall have received an executed Hagler Bailly Affiliate
Agreement (defined below) for each Hagler Bailly affiliate; (v) Hagler Bailly
shall have furnished PHB with a legal opinion on certain issues, a
capitalization certificate and any additional documents PHB may reasonably
request and (vi) Hagler Bailly shall have signed the Registration Rights
Agreement.
A Material Adverse Effect as to Hagler Bailly or PHB means, as the case may
be, any material adverse effect on the assets or the business, financial
condition or results of operations of Hagler Bailly or PHB and their respective
subsidiaries taken as a whole.
Conduct of Business Pending The Merger
The Merger Agreement contains certain restrictions on the operations of
Hagler Bailly, PHB and their respective subsidiaries prior to the Effective
Time. In general, the Merger Agreement obligates each of Hagler Bailly and PHB
and their subsidiaries, respectively to: (i) operate their businesses in the
ordinary course consistent with past practices and preserve their business
organizations, maintain their rights and contracts, retain the services of their
personnel and maintain relationships with suppliers, contractors, customers and
others; (ii) keep their property in good repair and (iii) maintain substantially
their current insurance levels. If a party requests from the other permission to
deviate from any of the above restrictions, the other party must consider such a
request in good faith and not unreasonably withhold or delay its consent to
deviate.
The Merger Agreement provides that until the closing, Hagler Bailly, PHB
and their respective subsidiaries shall not, without permission of the other
party, or unless the proposed transaction was disclosed or contemplated by the
Merger Agreement: (a) increase director, officer or employee compensation or
grant severance or termination pay other than as currently obligated by existing
severance contracts or enter into or modify severance or employment agreements,
except in the ordinary course of business and consistent with past practice; (b)
adopt or amend any employee benefit plan or arrangement, except as may be
required by law; (c) declare or pay any dividend on, or
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make any other distribution in respect of, any of its capital stock; (d) effect
any reorganization or recapitalization; (e) redeem, repurchase or reacquire any
of its capital stock or effect certain changes pertaining to or issuances of its
capital stock or other securities, with certain exceptions; (f) acquire or merge
with another entity or acquire another entity's assets unless in the ordinary
course of business and consistent with past practice or make extraordinary
capital expenditures, except acquisitions, mergers or other alliances involving
Hagler Bailly for which the valuation is less than $20.0 million; (g) dispose of
or encumber material assets unless in the ordinary course and consistent with
past practice; (h) propose or adopt any amendments to its charter documents or
bylaws (other than the Certificate Amendment); (i) change its accounting method;
(j) take certain action relating to, or make certain changes regarding, taxes
(except as may be required by law or generally accepted accounting principles);
(k) prepay certain debt or trade payables; (l) enter into or modify materially
certain material contracts; (m) take action that would cause or be expected to
cause any representations or warranties to be untrue or conditions to the Merger
not to be satisfied or (n) agree to do any of the foregoing. Hagler Bailly and
PHB have also agreed, that unless they agree otherwise, for a period of one year
from the date of the Merger Agreement neither will solicit the other's employees
for employment if the Merger does not close.
Expenses
Each party shall pay all costs and expenses incurred by such party in
connection with the Merger.
Representations and Warranties
Under the Merger Agreement, Hagler Bailly and PHB have made certain
representations and warranties to one another, including those with regard to:
(i) their organization, existence, good standing and status and that of their
significant subsidiaries; (ii) their respective charter documents and bylaws;
(iii) capital stock and capitalization; (iv) the existence of the necessary
corporate power and authority required to enter into the Merger Agreement and
the ancillary agreements thereto; (v) obtaining required filings and consents;
(vi) the veracity of their financial statements, and in Hagler Bailly's case
confirmation that certain items have been filed with the SEC; (vii) the absence
of certain changes or events; (viii) legal proceedings and material contracts;
(ix) environmental matters; (x) employee matters, benefit plans and ERISA; (xi)
compliance with applicable laws; (xii) the possession of certain licenses and
permits; (xiii) properties and assets; (xiv) insurance matters; (xv)
intellectual property rights; (xvi) investment company status; (xvii) tax
matters; (xviii) the veracity of the information supplied for inclusion in this
Joint Proxy Statement/PPM and certain other material information, including
certain books and records; (xix) transactions with related parties; (xx)
approval of the transactions contemplated by Merger Agreement by their
respective Boards and stockholder approval and (xxi) broker's fees and
commissions. PHB has also represented and warranted that there are no more than
35 PHB stockholders who are not "accredited" as such term is defined in Rule 501
of Regulation D under the Securities Act.
Nonsurvival of Representations, Warranties and Agreements
The representations, warranties, covenants and agreements in the Merger
Agreement (and in any certificate delivered in connection with the Closing) have
been deemed to be conditions to the Merger and will not survive the Effective
Time or termination of the Merger Agreement. However, the agreements in the
Merger Agreement relating to the mechanics, consideration and procedures for the
Merger, the conversion of securities and the exchange of certificates (Articles
I and II) and the equal treatment of PHB employees after the Merger (Section
7.8) will survive the Effective Time indefinitely. Also, provisions relating to
special tax indemnification (Section 10.2) will survive for a period of one year
after the Effective Time, and agreements relating to non-solicitation and
confidentiality as they relate to the other provisions surviving termination of
the Merger Agreement (Section 11.7) and fees and expenses (Section 11.12) will
survive termination of the Merger Agreement indefinitely.
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Other Agreements
Pursuant to the Merger Agreement, Hagler Bailly and PHB have reached
agreement with respect to various other matters, including, but not limited to:
(i) providing information, access to information and confidentiality; (ii)
taking all steps necessary to duly call, give notice of, convene and hold
meetings of PHB's and Hagler Bailly's respective stockholders and recommend the
approval of the proposals in connection with the Merger; (iii) causing the
Surviving Corporation to maintain the indemnification obligations of PHB as to
its officers and directors; (iv) using their reasonable best efforts to take
action to consummate the Merger; (v) making public announcements; (vi)
restrictions on furnishing certain information to third parties and the
solicitation and response to indications of interest regarding mergers,
consolidations or other transactions (with certain exceptions for Hagler
Bailly); (vii) the equal treatment of PHB and Hagler Bailly employees after the
Merger regarding the elimination of positions and for 1998, the continuation of
benefits to PHB employees by the Surviving Corporation; (viii) causing
affiliates not to take action which would jeopardize the Merger being treated as
a pooling-of-interests for financial accounting purposes; (ix) PHB's delivery to
Hagler Bailly of certain certificates obtained from PHB stockholders; (x) using
their reasonable best efforts to cause the Merger to be accounted for as a
pooling-of-interests and (xi) execution of the Registration Rights Agreement.
The Support Agreements
In connection with the Merger, Hagler Bailly, Merger Sub and certain
directors and executive officers of Hagler Bailly, who beneficially own in the
aggregate approximately 27% of the outstanding shares of Hagler Bailly common
stock, have entered into the Hagler Bailly Support Agreement, and PHB and all of
PHB's directors, who beneficially own in the aggregate approximately 85% of the
PHB common stock, have entered into the PHB Support Agreement (together the
"Support Agreements"). The Support Agreements provide, among other things, that
the stockholders who have signed them have agreed to vote their shares of common
stock of: (i) Hagler Bailly in favor of the Share Issuance and (ii) PHB in favor
of the Merger Agreement, the Merger and the other transactions contemplated by
the Merger Agreement. See "THE HAGLER BAILLY SPECIAL MEETING" and "THE PHB
SPECIAL MEETING."
The Support Agreements also provide that the signing stockholders will not
encumber or dispose of or enter any contract to encumber or dispose of their
Hagler Bailly common stock or PHB common stock, as the case may be, or any such
stock they may acquire in the future. The Support Agreements also provide that
the signing stockholders will vote against: (a) approval or adoption of any
extraordinary corporate transactions that are not contemplated by the Merger
Agreement; (b) resolutions which would prevent, delay or frustrate the
transactions or Hagler Bailly's or PHB's, as the case may be, obligations
contemplated by the Merger Agreement and (c) any action which would constitute a
material breach of the Merger Agreement. The Support Agreements also restrict
the signing stockholders' ability to solicit or respond favorably to indications
of interest or negotiate with third parties concerning extraordinary corporate
transactions or furnish nonpublic information in connection therewith.
The Affiliate Agreements
Each of Hagler Bailly and PHB must deliver to the other, on or before the
Effective Time, from each of its affiliates, a written agreement relating to
future sales of Hagler Bailly common stock after the Merger is closed (the
"Hagler Bailly Affiliate Agreement" or the "PHB Affiliate Agreement," as the
case may be; collectively, the "Affiliate Agreements"). Pursuant to the
Affiliate Agreements, the affiliates have agreed not to dispose of or encumber
any of their shares of Hagler Bailly common stock until financial results
covering at least 30 days of post-Merger combined operations of Hagler Bailly
and PHB are publicly reported. The parties to the Merger have required that the
affiliates enter the Affiliate Agreements in order to help ensure that the
Merger qualifies as for pooling-of-interests accounting treatment. See "--
Accounting Treatment."
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The Escrow Agreement
Under a separate escrow agreement to be signed at or before the Effective
Time (the "Escrow Agreement"), Hagler Bailly will deposit with an escrow agent
150,000 shares of Hagler Bailly common stock issuable to PHB stockholders in
connection with the Merger. The Merger Agreement provides that each PHB
stockholder who receives Hagler Bailly common stock in the Merger will indemnify
and hold harmless Hagler Bailly, the Surviving Corporation and any entity that
is a member of an "affiliated group", as defined in the Code, with respect to
certain losses of PHB imposed upon or incurred by such entities or members of
such affiliated group relating to certain taxation obligations with respect to
periods ending on or prior to December 31, 1997. Each PHB stockholder's
liability under this provision is capped at the value of the PHB stockholder's
pro rata share of the Escrow Shares.
William E. Dickenson, President and Chief Executive Officer of PHB, will
serve as a representative for the PHB stockholders under the Escrow Agreement.
The Escrow Agreement provides that if any of the indemnified parties mentioned
above asserts a claim for indemnification regarding certain taxation
obligations, a portion of the Escrow Shares equal in value to the amount of the
claim will be released to the indemnified party, provided Mr. Dickenson does not
object. If Mr. Dickenson, as representative of the PHB stockholders, objects,
the portion of the Escrow Shares will be released only if a court of competent
jurisdiction or arbitrator so orders, or Mr. Dickenson later consents to the
release. No Escrow Shares shall be distributed to Hagler Bailly until losses
have been incurred by Hagler Bailly.
The Escrow Shares will remain in escrow for one year after the Effective
Time. During this one year period, the PHB stockholders will be able to vote the
Escrow Shares in proportion to their respective pro rata interests. Also, Hagler
Bailly will pay any cash dividends or other distributions payable to Hagler
Bailly stockholders to the PHB stockholders on a pro rata basis. After the one
year period has elapsed and any claims are resolved, any remaining shares of
Escrow Shares will be released to the PHB stockholders on a pro rata basis.
The Employment Agreements
Hagler Bailly has entered into employment agreements with Messrs. Bailly,
Dickenson and Pifer which will become effective one day after the Effective
Time. Mr. Bailly's employment agreement will replace his existing employment
contract with Hagler Bailly. See "HAGLER BAILLY EXECUTIVE COMPENSATION --
Employment Arrangements." Each agreement specifies the various positions that
each of the respective parties will hold with Hagler Bailly or PHB, as
applicable, after the Merger. See "--Post-Merger Management of Hagler Bailly and
the Surviving Corporation" and "--Post-Merger Boards of Directors of Hagler
Bailly and the Surviving Corporation." The agreements' terms end on July 3, 2000
in the case of Mr. Bailly, and three years after the Effective Time in the case
of Messrs. Dickenson and Pifer. Under these agreements, each of Messrs. Bailly,
Dickenson and Pifer will receive for their respective services, initial annual
base salaries of: (i) $393,750 in the case of Mr. Bailly and (ii) $345,592 in
the case of Messrs. Dickenson and Pifer. Base salaries will be subject to
increase each January 1 by an amount that is no less than the greater of five
percent over the annual rate of base salary in effect for the preceding year and
the increase in the Consumer Price Index for the year. Each of Messrs. Bailly,
Dickenson and Pifer is entitled to a bonus for each calendar year equal to an
amount determined by the Executive Compensation Committee of the Hagler Bailly
Board. As part of the employment agreements, Messrs. Dickenson and Pifer will
each be granted options to purchase 92,000 shares of Hagler Bailly common stock
at fair market value as of the Effective Time. Each of the parties is entitled
to receive, from time to time, options to purchase Hagler Bailly common stock
pursuant to Hagler Bailly's option plans as determined by the Stock Option
Committee of the Hagler Bailly Board and is entitled to participate in all of
the benefit programs which are presently or may in the future be provided by
Hagler Bailly, in the case of Mr. Bailly, and Hagler Bailly subsidiaries, in the
case of Messrs. Dickenson and Pifer.
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Each agreement provides that if Hagler Bailly materially breaches the
agreement or upon termination of the employee by Hagler Bailly without cause or
upon change in control (as defined in the agreements), the employee will be
entitled to an immediate lump sum payment equal to four times his annual base
salary and payment of his annual base salary over the three years following the
termination. Each of the agreements also contain certain non-competition and
non-solicitation provisions which will be in effect during the term of each of
the agreements.
PHB has entered into employment agreements with 37 of its current Managing
Directors and Directors which will become the obligation of the Surviving
Corporation or its subsidiaries at the Effective Time. PHB will enter into a
senior advisor agreement with one current Managing Director. The agreements are
for a term of three years in the case of PHB Managing Directors, and two years
in the case of PHB Directors. Under these agreements, each of the PHB Managing
Directors and PHB Directors will receive initial base salaries of between
$230,256 and $287,664 in the case of PHB Managing Directors, between $172,536
and $201,240 in the case of PHB Directors, and discretionary bonuses. As part of
these agreements, certain of the Managing Directors will receive, in the
aggregate, options to purchase 186,000 shares of Hagler Bailly common stock at
fair market value at the Effective Time.
Each of these employment agreements may be terminated by the Surviving
Corporation (a) upon death, (b) for permanent disability or (c) for cause, and
by the employee (d) upon a material breach by the Surviving Corporation or (e)
at the will of the employee. The agreements provide that if termination occurs
under (a), (c) or (e), then the employee is not entitled to any compensation
that would accrue after the termination date. The agreements also provide that
if an employee is terminated under (b) or (d), the employee will be entitled to
payment of compensation and benefits for a period equal to six months of service
or the remaining term of the agreement, whichever is longer. The agreements also
contain non-solicitation and other restrictive covenants.
The Registration Rights Agreement
The shares of Hagler Bailly common stock to be issued in the Merger will
not be registered under the Securities Act and will not be freely transferable
under the Securities Act. Accordingly, current holders of PHB common stock who
receive shares of Hagler Bailly common stock in the Merger may not sell such
shares, except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with an exemption from the
registration requirements of the Securities Act. Such stockholders must also
comply with all applicable state securities laws.
At or before the Effective Time, Hagler Bailly and the PHB stockholders
will enter into the Registration Rights Agreement. Pursuant to the terms of the
Registration Rights Agreement, the PHB stockholders will be entitled to certain
piggyback registration rights under the Securities Act with respect to the
shares of Hagler Bailly common stock that they receive in the Merger. In the
event that Hagler Bailly proposes to register shares of Hagler Bailly common
stock under the Securities Act (except on certain SEC registration forms),
either for its account or for the account of other security holders, the PHB
stockholders will be entitled to receive notice of and include their shares in
such registration. These piggyback registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares of Hagler Bailly common stock held by
Hagler Bailly stockholders with registration rights, including the PHB
stockholders, to be included in such registration. Also, if at any time Hagler
Bailly arranges for a sale of Hagler Bailly common stock by security holders in
a private placement transaction, then Hagler Bailly shall provide the PHB
stockholders with notice of and an opportunity to participate in such intended
sale on a pro rata basis with the other selling security holders.
The Registration Rights Agreement also provides that if, during the 12
months following the Merger, Hagler Bailly has not made a registered public
offering which is a piggyback registration under the Registration Rights
Agreement, then the PHB stockholders collectively will be entitled to one
request for registration of their Hagler Bailly common stock under the
Securities Act (a "Demand
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Registration"). Hagler Bailly will only be obligated to effect a Demand
Registration if PHB stockholders owning at least 50% of the securities covered
by the Registration Rights Agreement have so requested.
Post-Merger Management of Hagler Bailly and the Surviving Corporation
The Merger Agreement and the Employment Agreements provide that certain PHB
and Hagler Bailly personnel will assume the following positions after the
Merger.
Mr. Dickenson will become Executive Vice President and Chief Operating
Officer of Hagler Bailly one day after the Effective Time. He will have overall
responsibility for all Hagler Bailly operations and specific responsibility for
all the combined United States and Canadian operations of PHB and Hagler Bailly
and for the integration of PHB and Hagler Bailly. Mr. Dickenson will become a
member of the Management Committee of Hagler Bailly Consulting, Inc., a
subsidiary of Hagler Bailly. Mr. Dickenson will hold the position of Chief
Executive Officer of PHB until its full integration with Hagler Bailly
Consulting at which time he will hold the position of Chief Executive Officer of
PHB Hagler Bailly (as defined below). Mr. Dickenson will become President and
Chief Executive Officer of Hagler Bailly as of January 1, 2000.
Alain Streicher, currently a director and Senior Vice President and Acting
Chief Operating Officer of Hagler Bailly and a director and the Chief Executive
Officer of Hagler Bailly Services, Inc., a subsidiary of Hagler Bailly, will
hold the position of Executive Vice President of Hagler Bailly as of the
Effective Time and will have specific responsibility for all international
(other than Canada) operations of Hagler Bailly and PHB. Messrs. Pifer,
Dickenson, Fred Baird, Neill Freeman, and James Speyer (all current directors of
PHB) will each hold the position of executive officer of Hagler Bailly one day
after the Effective Time.
After the Effective Time, Hagler Bailly and PHB anticipate the following
management designations: (i) Jassi Cheema, currently Chief Executive Officer of
Hagler Bailly Consulting and President of TB&A Group, Inc. ("TB&A"), a Hagler
Bailly subsidiary, will become a member of PHB's Executive Committee and (ii)
Hagler Bailly will create an Executive Management Committee of no more than six
executive officers to provide strategic advice to the Chief Executive Officer of
Hagler Bailly. See "HAGLER BAILLY -- Directors and Executive Officers."
Post-Merger Boards of Directors of Hagler Bailly and the Surviving Corporation
The Merger Agreement also provides for the following as to the Board of
Directors of Hagler Bailly.
At the Effective Time, the number of members of the Board of Directors of
Hagler Bailly shall be increased by two members. One day after the Effective
Time, Howard Pifer will become a director of Hagler Bailly in the class of
directors the term for which expires in 2001 and Chairman of the Board of
Directors of Hagler Bailly until December 31, 1999. In addition, one day after
the effective time, R. Gene Brown will become a director of Hagler Bailly in the
class of directors the term for which expires in 2000.
After the Effective Time, Mr. Dickenson will be elected by the Hagler
Bailly Board of Directors to fill any vacancy on the Board that arises and, in
any event, will be nominated by the Hagler Bailly Board of Directors not later
than the 1999 annual meeting of stockholders of Hagler Bailly to serve in the
class of directors the term for which expires in 2002. Mr. Bailly will become
Chairman of the Board of Hagler Bailly on January 1, 2000. See "HAGLER BAILLY --
Directors and Executive Officers."
Post-Merger Organizational Designations
At the Effective Time, Hagler Bailly and PHB anticipate the following other
organizational designations. The Strategy and Economics practices of Hagler
Bailly Consulting and TB&A and the
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practices of PHB will be coordinated and integrated, and Hagler Bailly
Consulting and TB&A will be merged with and into PHB, on or after January 1,
1999, but no later than April 1, 1999. The surviving corporation of such merger
will be named PHB Hagler Bailly, Inc. ("PHB Hagler Bailly"). Also, after the
Effective Time, the existing offices of Hagler Bailly and PHB will be identified
both as Hagler Bailly (the main name of the company) and PHB Hagler Bailly.
Hagler Bailly and PHB have agreed that research and information-based services
and information technology services can be managed and go to market under
separate Hagler Bailly units such as Hagler Bailly Research and Hagler Bailly
Solutions. The parties have also reached an understanding regarding the
elimination of Hagler Bailly's public sector environmental practice that is in
conflict with the combined entity's environmental consulting practice as well as
the creation of a conflicts committee to review any actual or perceived
conflicts among future and existing clients in the environmental consulting
practice area.
Termination and Amendment of the Merger Agreement
Hagler Bailly or PHB may terminate the Merger Agreement at any time prior
to the Effective Time, and the Merger may be abandoned: (a) by the mutual
consent of PHB and Hagler Bailly; (b) by Hagler Bailly if any of PHB's
representations, warranties, covenants or agreements becomes materially untrue
such that the conditions precedent to the obligations of Hagler Bailly to close
will not be satisfied and PHB has not cured within 30 days following receipt of
written notice of such breach; (c) by PHB if any of Hagler Bailly's or Merger
Sub's representations, warranties, covenants or agreements becomes materially
untrue such that the conditions precedent to the obligations of PHB to close
will not be satisfied and either Hagler Bailly or Merger Sub, as the case may
be, has not cured within 30 days following receipt by Hagler Bailly of written
notice of such breach; (d) by either Hagler Bailly or PHB if any decree,
permanent injunction, judgment, order or other action by any court of competent
jurisdiction or any government entity preventing or prohibiting consummation of
the Merger shall have become final and nonappealable; (e) by either Hagler
Bailly or PHB if the Effective Time has not occurred on or prior to October 31,
1998, upon giving notice to the other party (unless such date shall be extended
by the mutual written consent of the parties); provided, that the right to
terminate under this provision shall not be available to any party whose breach
of representations, warranties, covenants or agreements has been the cause of
the failure of the Effective Time to occur by such date or the inability of such
condition to be satisfied; or (f) by either Hagler Bailly or PHB if either
party's stockholders fail to give their respective required approvals. For any
breach of a representation or warranty set forth in the Merger Agreement, the
sole remedy shall be termination of the Merger Agreement, by the non-breaching
party. For any breach of any other covenant or agreement in the Merger
Agreement, the non-breaching party will be entitled to terminate the Merger
Agreement and seek any available remedies at law or in equity for such breach.
If a party terminates the Merger Agreement pursuant to (f) above, and the other
party enters into certain transactions with another party, then such party will
be obligated to pay the other party an alternative transaction fee of $10
million.
Under certain circumstances, either Hagler Bailly or PHB may terminate the
Merger Agreement, upon five business days' prior notice to the other, if, as a
result of a Superior Proposal (as defined below) received by such party from a
person other than a party to the Merger Agreement or any of its affiliates, the
Board of Directors of such party determines in good faith that its fiduciary
obligations under applicable law require that such Superior Proposal be
accepted. Such a determination must be made in good faith and on the basis of
advice of counsel that such action is necessary for such Board of Directors to
act in a manner consistent with its fiduciary duties under applicable laws.
Also, prior to any such termination, the terminating party must negotiate with
the other party to the Merger Agreement to make such adjustments in the terms
and conditions of the Merger Agreement as would enable such party to proceed
with the Merger. Termination for a Superior Proposal will obligate the
terminating party to pay an alternative transaction fee of $10 million to the
non-terminating party. Under the Merger Agreement, a Superior Proposal is an
acquisition proposal the Board of Directors of Hagler Bailly or PHB, as the case
may be, concludes in good faith (after consultation with its financial advisors)
is reasonably capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the proposal and the person
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making the proposal, and would, if consummated, result in a transaction more
favorable to Hagler Bailly's or PHB's stockholders, as the case may be, from a
financial and strategic point of view than the transaction contemplated by the
Merger Agreement. A Superior Proposal shall not include any acquisition
involving Hagler Bailly for which the valuation is less than $20 million or any
other transaction disclosed by Hagler Bailly to PHB pursuant to the Merger
Agreement.
The parties may amend the Merger Agreement by mutual agreement at any time
prior to the Effective Time. However, after PHB and Hagler Bailly stockholders
approve the Merger Agreement and Share Issuance, respectively, no amendment may
be made which would reduce the amount or change the type of consideration into
which each share of PHB common stock shall be converted in the Merger.
Federal Income Tax Consequences
It is intended that the Merger will qualify as a tax-free reorganization
within the meaning of Code Section 368 for federal income tax purposes. PHB
stockholders generally should not recognize gain or loss for federal income tax
purposes as a result of exchanging their PHB common stock for the Hagler Bailly
common stock issued in the Merger. Consummation of the Merger is conditioned
upon Ernst & Young LLP furnishing Hagler Bailly and PHB with reasonable
assurances that the Merger will so qualify. The Merger Agreement does not
require either party to obtain a ruling from the Internal Revenue Service as to
the tax consequences of the Merger.
If the Merger qualifies as a tax-free reorganization within the meaning of
Section 368 of the Code, then: (i) except as discussed in (iv) below with
respect to cash received in lieu of a fractional share of Hagler Bailly common
stock, a PHB stockholder should recognize no gain or loss upon the exchange of
PHB common stock for Hagler Bailly common stock pursuant to the Merger; (ii) the
tax basis of the Hagler Bailly common stock received by a PHB stockholder in the
Merger should be the same as the stockholder's tax basis in the PHB common stock
surrendered in exchange therefor; (iii) the holding period of the Hagler Bailly
common stock received by a PHB stockholder in the Merger should include the
holding period of the PHB common stock surrendered in exchange therefor
(assuming the PHB common stock was held as a capital asset); (iv) the receipt by
a PHB stockholder of cash in lieu of fractional shares of Hagler Bailly common
stock should be treated as if the fractional shares were distributed as part of
the Merger and then were redeemed by Hagler Bailly, with these cash payments
treated as distributions in full payment in exchange for the stock redeemed, as
provided in Section 302(a) of the Code and (v) neither Hagler Bailly nor PHB
should recognize any gain or loss as a result of the Merger.
The Merger Agreement provides that each PHB stockholder will indemnify and
hold harmless Hagler Bailly, Surviving Corporation and any entity that is a
member of an "affiliated group", as defined in the Code, with respect to certain
losses of PHB imposed upon or incurred by such entities or members of such
affiliated group relating to certain PHB tax liabilities. Each PHB stockholder's
liability under this provision is capped at the PHB stockholder's pro rata share
of the Escrow Shares.
The preceding discussion is intended only as a summary of certain federal
income tax consequences of the Merger and does not purport to be a complete
analysis or discussion of all potential tax effects relevant thereto. Holders of
PHB common stock are urged to consult their own tax advisors as to the specific
tax consequences to them of the Merger, including tax return reporting
requirements, the applicability and effect of federal, state, local, and other
applicable tax laws and any proposed changes of the tax law.
Accounting Treatment
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. One of the closing conditions to the Merger is
that Hagler Bailly and PHB shall
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have received a letter from Ernst & Young LLP, independent public accountants to
both parties, in form and substance reasonably satisfactory to Hagler Bailly and
PHB, to the effect that the transactions contemplated by the Merger Agreement
will qualify for pooling-of-interests accounting treatment. Hagler Bailly and
PHB anticipate that Ernst & Young LLP will deliver letters at Closing
indicating, among other things, its concurrence in Hagler Bailly's management's
conclusion that no conditions exist that would preclude Hagler Bailly from
accounting for the Merger as a pooling-of-interests. Under the
pooling-of-interests method of accounting, the recorded assets and liabilities
of PHB will be carried forward to the Surviving Corporation at their recorded
amounts. Revenues and expenses of the Surviving Corporation and therefore Hagler
Bailly will include revenues and expenses of PHB for the entire fiscal year of
the Surviving Corporation and Hagler Bailly in which the Merger occurs, and the
reported revenues and expenses of PHB for prior periods will be combined with
those of Hagler Bailly, whose financial statements will then be restated. Each
of PHB and Hagler Bailly must deliver to the other on or before the Effective
Time, the Affiliate Agreements. The Affiliate Agreements restrict sales by
affiliates after the Merger is consummated in order to help assure that the
Merger qualifies as a pooling-of-interests. See "-- The Affiliate Agreements."
Dissenters' Appraisal Rights
If the Merger closes, a PHB stockholder who does not vote in favor of the
Merger and the Merger Agreement and who follows the procedures prescribed under
Massachusetts law may require the Surviving Corporation to pay for the "fair
value," as determined in accordance with Massachusetts Corporation Law, for the
PHB common stock held by such stockholder. The following is a summary of certain
features of the relevant sections of Massachusetts Corporation Law, the
provisions of which are set forth in full in Annex E hereto, and such summary is
subject to and qualified in its entirety by reference to such law. In order to
exercise such statutory appraisal rights, strict compliance with the statutory
provisions is required. Each PHB stockholder who wants to exercise such rights
should carefully review and comply with such provisions.
A PHB stockholder who desires to pursue his or her appraisal rights must:
(i) file a written objection to the Merger with PHB in accordance with Section
86 of Massachusetts Corporation Law before the taking of the stockholders' vote
on the Merger and the Merger Agreement, stating that such PHB stockholder
intends to demand payment for his or her shares if the Merger and the Merger
Agreement are approved and the Merger is consummated; (ii) refrain from voting
in favor of the Merger and the Merger Agreement and (iii) make written demand
(the "Demand") to the Surviving Corporation for payment for his or her shares
within 20 days of the date of mailing of a notice by the Surviving Corporation
to objecting stockholders that the Merger has become effective (which notice
will be sent within 10 days of the Effective Date). The written objection
described in clause (i) above should be delivered to Barbara Levine, Clerk of
PHB. It is recommended that such objection be sent by registered or certified
mail, return receipt requested.
A stockholder who files the required written objection with PHB prior to
the stockholder vote need not vote against the Merger, but a vote in favor of
the Merger will constitute a waiver of such stockholders' statutory appraisal
rights. If a stockholder returns a proxy which is signed but on which no vote is
specified as to the proposal on the Merger Agreement, and thereafter does not
revoke such proxy, it will be voted for the Merger, and the stockholder will
have waived his or her appraisal rights. In addition, a vote against the Merger
does not by itself constitute a written objection.
The value of the PHB common stock will be determined initially by the
Surviving Corporation and the dissenting stockholder. If, during the period of
30 days after the expiration of the period during which the Demand may be made,
the Surviving Corporation and the dissenting stockholder fail to agree on the
value of the PHB common stock, either of them may file a bill in equity in the
Superior Court of Middlesex County, Massachusetts, asking that the Court
determine the value. The bill in equity must be filed within four months after
the date of expiration of the foregoing 30-day period. If the bill in equity is
timely filed, the Court or an appointed special master
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will hold a hearing. After the hearing, the Court shall enter a decree
determining the fair value of the PHB common stock with respect to all of the
dissenting stockholders and shall order the Surviving Corporation to make
payment of such value, with interest, from the date of the vote approving the
Merger and the Merger Agreement, if any, to all of the stockholders entitled to
said payment, upon transfer by them to the Surviving Corporation of the
certificates representing the PHB common stock held by said stockholders.
The "fair value" of the PHB common stock could be more than, the same as or
less than the Merger consideration. For appraisal proceeding purposes, value is
determined as of the day before the approval of the Merger and the Merger
Agreement by the stockholders, excluding any element of value arising from the
expectation or accomplishment of the Merger.
The enforcement by a stockholder of the request to receive payment for
shares of PHB common stock as provided under the applicable statutory provisions
is an exclusive remedy except that such remedy does not exclude the right of
stockholders to bring or maintain an appropriate proceeding to obtain relief on
the ground that said corporate action will be or is illegal or fraudulent as to
said stockholder. In Coggins v. New England Patriots Football Club, Inc., 397
Mass. 525 (1986), however, the Massachusetts Supreme Judicial Court held that
dissenting stockholders are not limited to the statutory remedy of judicial
appraisal where violations of fiduciary duty exist.
A final judgment by the Court or a special master determining the fair
value of the PHB common stock could be binding on and enforceable by PHB
stockholders who have perfected their statutory appraisal rights, even if such
fair value were determined to be less than the Merger consideration. A
stockholder who perfects rights as a dissenting stockholder will not, after the
Effective Date, be entitled to notices of meetings, to vote or to receive
dividends.
Each share of PHB common stock held by stockholders who seek to exercise
appraisal rights and, after the Effective Time, fail to perfect or lose any such
right to appraisal, shall be treated as a share that had been converted as of
the Effective Time into the right to receive Hagler Bailly common stock as
provided in the Merger Agreement.
The respective obligations of Hagler Bailly and PHB to consummate the
Merger are conditioned upon, among other things, that the aggregate number of
Dissenting Shares be no more than 10% of the PHB common stock outstanding at the
closing.
Interests of Certain Persons in the Merger
After the Effective Time, Dr. Brown and Mr. Pifer will become Hagler Bailly
directors. See "--Post Merger Boards of Directors of Hagler Bailly and the
Surviving Corporation." As an outside director, Dr. Brown will be entitled to
stock option grants under Hagler Bailly's stock option plan. See
"MANAGEMENT--Director Compensation." The Employment Agreements provide that
after the Merger, Messrs. Pifer and Bailly will hold various positions with the
combined company, receive certain compensation, and be eligible for lump sum and
severance payments in certain circumstances, and that Mr. Pifer will receive an
option to purchase 92,000 shares of Hagler Bailly common stock. See "--The
Employment Agreements." Also, under the Merger Agreement, Messrs. Cheema and
Streicher will hold various positions with the combined company. See
"--Post-Merger Management of Hagler Bailly and the Surviving Corporation."
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SELECTED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
Set forth below are certain selected unaudited pro forma combined
consolidated financial data with respect to Hagler Bailly and PHB, which data
should be read in conjunction with the Pro Forma Combined Consolidated Financial
Data contained in Annex E of this Joint Proxy Statement/PPM.
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
--------------------------------------- ---------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- -----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues ....................................... $ 101,333 $ 142,221 $ 158,907 $ 37,149 $ 39,246
Cost of services ............................... 78,549 110,039 119,402 28,590 28,768
---------- ----------- ----------- ----------- -----------
Gross profit .................................. 22,784 32,182 39,505 8,559 10,478
Liquidation of subsidiary (1) .................. -- 662 328 -- --
Selling, general and administrative
expenses ..................................... 19,271 26,037 28,073 5,527 5,251
Stock and stock option compensa
- tion (2) ................................... -- 6,172 9,965 65 2,165
---------- ----------- ----------- ----------- -----------
Income (loss) from operations .................. 3,513 (689) 1,139 2,967 3,062
Other income (expense) ......................... (783) (857) (402) (342) (47)
---------- ----------- ----------- ----------- -----------
Income (loss) before income tax expense ........ 2,730 (1,546) 737 2,625 3,015
Income tax expense ............................. 1,445 1,625 5,282 1,082 2,074
---------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary
gain ......................................... 1,285 (3,171) (4,545) 1,543 941
Extraordinary gain, net of income tax
expense ...................................... 829 146 2,336 -- --
---------- ----------- ----------- ----------- -----------
Net income (loss) (3) .......................... $ 2,114 $ (3,025) $ (2,209) $ 1,543 $ 941
========== =========== =========== =========== ===========
Net income (loss) per share:
Basic ........................................ $0.24 $(0.27) $(0.17) $0.14 $0.06
Diluted ...................................... $0.23 $(0.27) $(0.16) $0.13 $0.06
Weighted average shares outstanding:
Basic ........................................ 8,776,180 11,181,756 13,209,199 11,265,027 15,472,875
Diluted ...................................... 9,303,106 11,181,756 14,042,679 12,373,127 16,284,082
</TABLE>
March 31, 1998
Balance Sheet Data: (In thousands)
--------------
Cash and cash equivalents................................ $ 4,995
Working capital.......................................... 41,854
Total assets............................................. 83,762
Total debt............................................... 4,240
Total stockholders' equity............................... $ 51,365
- ----------
(1) On December 31, 1996, PHB liquidated its wholly owned subsidiary in the
U.K. Of PHB's loss of $662,609 in 1996, $548,757 represented cumulative
foreign currency translation losses which had previously been recorded as a
separate component of the PHB's shareholders' equity. In 1997, $328,070 was
recorded as management's estimate of the uncollectable net proceeds
resulting from the liquidation.
(2) In connection with an amendment to the Stock Option Plan and a
reclassification of its common stock, each effective December 31, 1996,
Hagler Bailly incurred non-recurring, non-cash charges to operations
amounting to $4.6 million for options and $1.6 million for stock,
respectively, in 1996. In connection with a stock bonus to an employee, the
Company incurred a non-cash compensation charge to operations in the first
quarter of 1997 of $65,000. PHB common stock issued or subject to issuance
under subscriptions receivable entered into within 12 months preceding the
closing of the Merger are presumed to have been issued in contemplation of
the proposed transaction and are required to be accounted for at their fair
market value at date of issuance. Accordingly, PHB has recognized noncash,
nontax-deductible compensation charges as of December 31, 1997 and March
31, 1998 of $9,884,800 and $2,164,800, respectively, representing the
difference between fair value and the book value of shares of common stock
then issuable.
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<PAGE>
(3) The statement of operations data for the years ended December 31 and the
three months ended March 31, 1997 include performance incentive
compensation PHB paid to its senior staff members in excess of a standard
bonus set for their respective staff levels. The excess performance
incentive compensation was included in PHB's Cost of services and Selling,
general and administrative and was $39,000, $2,931,000, $6,260,000,
$9,588,000 and $7,294,000 for the years ended 1993, 1994, 1995, 1996 and
1997, respectively, and $1,823,000 for the three months ended March 31,
1997.
Comparative Per Share Data
The following table sets forth certain historical per share data of Hagler
Bailly and PHB and combined per share data on a pro forma basis, after giving
effect to the Merger on a pooling-of-interests basis (and assuming the issuance
of 1.2759 shares of Hagler Bailly common stock in the Merger in exchange for
each share of PHB common stock). This data should be read in conjunction with
the selected consolidated financial data and the pro forma combined consolidated
financial data and the separate historical financial statements of Hagler Bailly
and PHB included elsewhere in this Joint Proxy Statement/PPM. The pro forma
combined consolidated data are not necessarily indicative of the operating
results or financial position that would have been achieved if the Merger had
been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial positions of
Hagler Bailly and PHB.
Neither Hagler Bailly nor PHB paid dividends during the three-year period
ended December 31, 1997 or the three-month period ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
---------------------------------- ---------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share:
Net income (loss) per share,
historical Hagler Bailly:
Basic............................... $ 0.44 $(0.61) $ 1.04 $ 0.18
Diluted............................. 0.38 (0.61) 0.93 0.17
Net income (loss) per share,
historical PHB:
Basic............................... 0.15 0.07 (2.22) (0.13)
Diluted............................. 0.15 0.07 (2.22) (0.13)
Net income (loss) per share, pro
forma combined:
Basic............................... 0.24 (0.27) (0.17) 0.06
Diluted............................. 0.23 (0.27) (0.16) 0.06
<CAPTION>
December 31, 1997 March 31, 1998
Book Value Per Share: ----------------- --------------
<S> <C> <C>
Hagler Bailly, per share of common
stock, historical.................... $ 5.06 $ 5.22
PHB, per share of common stock,
historical........................... 0.79 0.98
Pro forma combined..................... 3.14 3.32
</TABLE>
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<PAGE>
HAGLER BAILLY
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data as of
December 31 in each of the years 1993 through 1997 and for each of the years in
the five-year period ended December 31, 1997. The selected consolidated
financial data for the years ended December 31, 1993 and 1994 have been derived
from the audited financial statements of Hagler Bailly's predecessor company
described below in the section entitled, "HAGLER BAILLY MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The selected
consolidated financial data for the year ended December 31, 1995 include the
combined financial data of the predecessor company derived from audited
financial statements from January 1, 1995 to May 25, 1995 and the consolidated
financial data of Hagler Bailly from May 26, 1995 to December 31, 1995, derived
from Hagler Bailly's audited consolidated financial statements. The selected
consolidated financial data as of December 31, 1996 and 1997 have been derived
from the audited consolidated financial statements of Hagler Bailly. Hagler
Bailly's prior years have been restated to include the acquisition of Apogee
Research, Inc. and TB&A Group, Inc. The selected financial data presented below
as of March 31, 1998 and for the three-month periods ended March 31, 1997 and
1998, are derived from the unaudited financial statements of Hagler Bailly
which, in the opinion of Hagler Bailly management, have been prepared on the
same basis as Hagler Bailly's audited consolidated financial statements and
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results of operations and financial
position for and as of such periods. The results of operations for prior periods
are not necessarily indicative of the results that may be expected for future
periods. The historical financial data should be read in conjunction with
"HAGLER BAILLY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and the consolidated financial statements of Hagler
Bailly included elsewhere in this Joint Proxy Statement/PPM.
<TABLE>
<CAPTION>
The Predecessor(1) The Company (1)
---------------------------- --------------------------------------------------------
Jan. 1, May 26,
Year ended 1995 to 1995 to Year ended Three Months
December 31, May 25, Dec. 31, December 31, ended March 31,
--------------- ------- ------- ----------------- -----------------
1993 1994 1995 1995 1996(2) 1997 1997 1998
---- ---- ---- ---- ------- ---- ---- ----
(In thousands, except share and per share data)
Statements of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................ $41,263 $50,063 $27,768 $35,791 $ 74,475 $ 96,099 $ 21,127 $ 23,642
Cost of services ................ 31,280 38,379 22,295 29,670 59,284 71,922 16,310 18,754
------- ------- ------- ------- ---------- ---------- ---------- ----------
Gross profit ................... 9,983 11,684 5,473 6,121 15,191 24,177 4,817 4,888
Selling, general and
administrative .................. 7,063 8,812 4,013 4,381 10,389 13,870 2,507 2,303
expenses
Stock and stock option
compensation (3) .............. 710 360 -- -- 6,172 80 65 --
------- ------- ------- ------- ---------- ---------- ---------- ----------
Income (loss) from operations ... 2,210 2,512 1,460 1,740 (1,370) 10,227 2,245 2,585
Other income (expense), net ..... (548) (311) 596 (1,475) (1,144) (128) (296) 34
------- ------- ------- ------- ---------- ---------- ---------- ----------
Income (loss) before income tax
expense ....................... 1,662 2,201 2,056 265 (2,514) 10,099 1,949 2,619
Income tax expense .............. 729 1,002 834 398 961 4,677 761 1,021
------- ------- ------- ------- ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary gain ............ 934 1,199 1,222 (133) (3,475) 5,422 1,188 1,598
Extraordinary gain, net of income
tax expense ................... -- -- -- 1,055 146 2,336 -- --
------- ------- ------- ------- ---------- ---------- ---------- ----------
Net income (loss) ............... $ 934 $ 1,199 $ 1,222 $ 922 $ (3,329) $ 7,758 $ 1,188 $ 1,598
======= ======= ======= ======= ========== ========== ========== ==========
Net income (loss) per share:
Basic ........................ --* --* --* --* $ (0.61) $ 1.04 $ 0.20 $ 0.18
Diluted ...................... --* --* --* --* $ (0.61) $ 0.93 $ 0.17 $ 0.17
Weighted average shares
outstanding:
Basic ........................ --* --* --* --* 5,441,534 7,479,944 5,955,746 8,869,844
Diluted ...................... --* --* --* --* 5,441,534 8,313,424 7,063,846 9,681,251
</TABLE>
- ----------
* Due to the acquisition on May 25, 1995, and the change in capital
structure, earnings per share information for this period is not meaningful
and accordingly is not presented.
-42-
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------------------- --------------------------------------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
Balance Sheet Data: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 1,414 $ 1,177 $ 1,377 $ 2,009 $ 3,961 $ 2,995
Working capital ......................... (72) 941 2,379 2,356 30,739 34,434
Total assets ............................ 16,600 20,095 30,577 33,011 60,910 57,835
Total debt .............................. 4,316 4,053 17,347 14,831 800 3,269
Total stockholders' equity .............. 352 1,870 1,158 6,286 44,861 46,339
</TABLE>
(1) Effective May 25, 1995, the management of RCG/Hagler Bailly, Inc.
("RCG/Hagler Bailly"), a wholly-owned subsidiary of RCG International, Inc.
("RCG"), acquired all of the voting stock of RCG/Hagler Bailly. The
statements of operations data include the operations of Apogee Research,
Inc. and TB&A for all periods presented.
(2) The statements of operations data for the year ended December 31, 1996
includes the following expenses: (i) $0.5 million of Cost of services,
representing that portion of officer compensation that exceeded the
compensation that would have been paid had the compensation plan adopted in
January 1997 been in effect for all of 1996; (ii) $6.2 million of Stock and
stock option compensation representing the non-recurring, non-cash
compensation expense in connection with the amendment to the Stock Option
Plan and (iii) a reclassification of Hagler Bailly's common stock described
in footnote 3 below. The net impact of the foregoing on Hagler Bailly's
Statement of Operations for the year ended December 31, 1996 was to
decrease Income before income tax expense by $7.7 million and Net income by
$6.6 million, with Income tax expense calculated at a combined federal and
state income tax rate of 40.0%. Excluding the foregoing, Income before
income tax expense for the year ended December 31, 1996 would have been
$4.9 million and Net income would have been $2.9 million.
(3) In connection with an amendment to the Stock Option Plan and a
reclassification of its common stock, each effective December 31, 1996,
Hagler Bailly incurred non-recurring, non-cash charges to operations
amounting to $4.6 million for options and $1.6 million for stock,
respectively, in 1996. In connection with a stock bonus to an employee,
Hagler Bailly incurred a non-cash compensation charge to operations in the
first quarter of 1997 of $65,000.
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<PAGE>
HAGLER BAILLY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements included in the Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as "forward-looking
statements" for the purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended by Public Law 104-67.
Forward-looking statements may be identified by words including "anticipate,"
"believe," "estimate," "expect" and similar expressions. Hagler Bailly cautions
readers that forward-looking statements, including without limitation, those
relating to Hagler Bailly's future business prospects, revenues, working
capital, liquidity and income are subject to certain risks and uncertainties
that would cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important risk factors, some of which
are identified in this Joint Proxy Statement/PPM. Hagler Bailly undertakes no
obligation to release publicly any revisions to these forward-looking statements
that may be made to reflect future events or circumstances.
Overview
Hagler Bailly is a worldwide provider of consulting, research and other
professional services to corporations and governments on energy,
telecommunication, transportation and the environment. The predecessor of Hagler
Bailly was founded in February 1980 as Hagler Bailly & Company, Inc. In July,
1984 it was acquired by RCG International, Inc. ("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/Hagler Bailly completed the purchase of
RCG/Hagler Bailly from RCG (the "Management Buy-Out"), and the successor to
RCG/Hagler Bailly became a wholly-owned subsidiary of Hagler Bailly. In July
1997, Hagler Bailly completed an IPO of shares of its common stock.
Hagler Bailly's 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 Hagler Bailly'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.
Hagler Bailly derives substantially all of its revenues from fees for
professional services. Clients are typically invoiced on a monthly basis. The
majority of revenues are billed at standard daily rates or cost-plus fixed-fees.
Revenues from standard daily rate contracts are recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred. 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. The remainder of the revenues are billed on a
fixed-bid basis. 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. Hagler Bailly'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 Hagler Bailly, although Hagler Bailly often
supplements its professional project staff through the use of subcontractors and
independent consultants, predominantly for public sector work. Hagler Bailly
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.
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<PAGE>
Management Buy-Out
From 1984 to May 1995, when the management of Hagler Bailly completed the
Management Buy-Out, Hagler Bailly was a wholly-owned subsidiary of RCG. The
results of operations since May 25, 1995 have been affected by a 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 Hagler Bailly
subsequent thereto have been affected by the amortization of $9.0 million of
certain intangibles, including goodwill, which were recorded in connection with
the Management Buy-Out. The data for 1995 in the period to period discussions
below reflects the results of operations of Hagler Bailly for the period May 26,
1995 through December 31, 1995, and the restatement for the pooling-of-interests
as described below, under "-- Recent Acquisitions."
Compensation Charges
Prior to December 31, 1996, the Stock Option Plan was formula based,
pursuant to which the exercise prices 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,
Hagler Bailly adopted an amendment to its Stock Option Plan which changed the
exercise price of future options to be granted thereunder to the market value of
the underlying common stock. In addition, in connection with the
reclassification of its common stock, Hagler Bailly substituted 0.9 shares of
Class A common stock for each share of Class B common stock underlying 971,963
options vesting on January 1, 1997. At the same time, options to purchase
971,963 shares of Class B common stock vesting on January 1, 1998, were
canceled. As a result, Hagler Bailly recorded a non-recurring, non-cash charge
to operations of $6.2 million in December 1996 of which $4.6 million was for
options to purchase common stock and $1.6 million was for 394,160 shares of
common stock sold to employees during 1996. These charges represent the
aggregate difference between the exercise price of such outstanding options or
the issuance price of common stock sold to employees during 1996, as the case
may be, and the appraised market value of the underlying common stock at
December 31, 1996.
Recent Acquisitions
On December 1, 1997, Hagler Bailly completed the acquisition of Apogee
Research, Inc. ("Apogee"), which became a wholly-owned subsidiary of Hagler
Bailly. Apogee is a consulting firm specializing in the economic and financial
analysis of infrastructure, including all aspects of transportation and
environment. Total consideration for the acquisition was approximately $8.3
million, in the form of an aggregate of 409,985 shares of Hagler Bailly common
stock. The acquisition was accounted for as a pooling-of-interests under
generally accepted accounting principles. On February 23, 1998, Hagler Bailly
completed the acquisition of TB&A and its wholly-owned subsidiary, Theodore
Barry & Associates. TB&A, which became a wholly-owned subsidiary of Hagler
Bailly, is a management consulting firm to electric, gas and telecommunication
companies. Total consideration for the acquisition was approximately $10.9
million in the form of an aggregate of 454,994 shares of Hagler Bailly common
stock. The business combination was accounted for as a pooling-of-interests.
Hagler Bailly's financial statements have been restated to reflect the
acquisitions of Apogee and TB&A on a historical basis. In connection with these
and other transactions, Hagler Bailly incurred business combination related
costs of approximately $1.2 million in 1997.
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<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the relative
composition of revenues and selected statements of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
------------------------------------ --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ............................................. 100% 100% 100% 100% 100%
---- ---- ---- ---- ----
Cost of services ..................................... 82 80 75 77 79
Gross profit ........................................ 18 20 25 23 21
Selling, general and
administrative expenses ........................... 13 14 14 12 10
Stock and stock option
compensation ...................................... -- 8 -- -- --
Income (loss) from operations ........................ 5 (2) 11 11 11
Other income (expense), net .......................... (2) (2) -- (1) --
Income (loss) before income tax
expense ........................................... 3 (3) 11 9 11
Income tax expense ................................... 2 1 5 4 4
Net income (loss) before
extraordinary gain ................................ 1 (5) 6 6 7
Extraordinary gain, net of
income tax expense ................................ 2 -- 2 -- --
Net income (loss) .................................... 3 (4) 8 6 7
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Revenues. Revenues increased 11.9% to $23.6 million in the three months
ended March 31, 1998 from $21.1 million in the three months ended March 31,
1997. Consulting revenues increased 6.9% to $22.3 million in the three months
ended March 31, 1998 compared to $20.9 million in the comparable period in 1997
primarily due to increased client demand and increased capacity from Hagler
Bailly's recent acquisitions. However, overall growth rate was constrained by
management's focus on merger and acquisition-related activities and the strategy
of deploying core-consulting staff to create and initiate sales of
information-based products and services.
Cost of Services. Cost of services increased 15.0% to $18.8 million for the
three months ended March 31, 1998 from $16.3 million for the three months ended
March 31, 1997. Cost of services generally increased in proportion to the 11.9%
increase in revenue. This increase is also attributable to the increased costs
associated with the overall decrease in utilization rates due to management's
focus on mergers and acquisitions, the marketing of software products, and
increased staffing of high-level consultants in anticipation of business
development in the private sector.
Gross Profit. Gross profit increased 1.5% to $4.9 million for the three
months ended March 31, 1998 from $4.8 million for the three months ended March
31, 1997 due to the increased revenue. Gross profit as a percentage of revenues
was 20.7% for the first three months of 1998 as compared to 22.8% in the first
three months of 1997, which is the result of the relative increase in costs of
services mentioned above and the deployment of core consulting staff mentioned
above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (which excluded merger related costs) decreased to $1.9
million for the three months ended March 31, 1998 compared to $2.5 million for
the three months ended March 31, 1997, due primarily to the preparation of and
management focus on the IPO occurring in 1997 and the delay of planned marketing
efforts in 1998.
-46-
<PAGE>
Income from Operations. Income from operations was $2.6 million for the
three months ended March 31, 1998 compared to $2.2 million for the three months
ended March 31, 1997. This increase in income from operations is primarily due
to the decrease in selling, general and administrative expenses detailed above.
Other Income (Expense), Net. Other income (expense), net was $0.03 million
income for the three months ended March 31, 1998 and $0.3 million expense for
the three months ended March 31, 1997. The net change is due to the interest
income earned from the investment of IPO funds and the reduction of Hagler
Bailly's debt.
Income Tax Expense. Income tax expense was $1.0 million for the three
months ended March 31, 1998 compared to $0.8 million for the three months ended
March 31, 1997. For the three months ended March 31, 1998 and 1997, income tax
expense as a percentage of income before income tax expense was 39.0%.
Net Income. Net income for the three months ended March 31, 1998 was $1.6
million compared to $1.2 million for the three months ended March 31, 1997. Net
income as a percentage of revenues increased to 6.8% from 5.6% or 21.4% over the
same period in the prior year.
1997 Compared to 1996
Revenues. Hagler Bailly's revenues increased 29.0% to $96.1 million in 1997
from $74.5 million in 1996. A significant cause of this increase was the
increased demand for management consulting services associated with the
restructuring and deregulation of the electric and gas sectors outside the
United States. Consulting revenues increased 28.0% to $94.8 million in 1997 from
$74.0 million in 1996 due primarily to significant growth in consulting revenues
for existing institutional clients.
Cost of Services. Cost of services increased 21.3% to $71.9 million in 1997
from $59.3 million in 1996. Hagler Bailly attributes the increase in cost of
services to the proportional increase in revenue and the increase in the number
of in-house professional staff and related other direct costs.
Gross Profit. Gross profit increased 59.1% to $24.2 million in 1997 from
$15.2 million in 1996. Gross profit as a percentage of revenues increased to
25.2% in 1997 from 20.4% in 1996. The improvement in the margins is due
primarily to higher growth in institutional client revenues and a continued
increase in higher margin private revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 33.5% to $13.9 million in 1997 from $10.4
million in 1996. This increase is primarily attributable to merger related costs
of $1.2 million with the remainder due to the relative increase in revenues and
management's strategy of deploying core consulting staff to create and initiate
sales of information-based products and services.
Income (Loss) from Operations. Income from operations was $10.2 million for
1997 compared to a loss of $1.4 million for 1996. The increase in income from
operation in 1997 is due primarily to the increased margins mentioned above. The
loss from operations in 1996 is primarily attributable to the approximately $6.7
million non-recurring, non-cash stock and stock option compensation charge and
that portion of officer compensation that exceeded the compensation that would
have been paid had the compensation plan adopted on January 17, 1997 been in
effect for all of 1996.
Other Income (Expense), Net. Other income (expense), net decreased to $0.1
million expense for 1997 due to the interest income earned from reduction of
debt and the investment of IPO funds compared to $1.1 million expense for 1996
attributable to the interest expense related to the debt incurred in connection
with the Management Buy-Out.
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<PAGE>
Income Tax Expense. Income tax expense was $4.7 million, or 46% of income
before tax expense, in 1997 compared to $1.0 million, or 38% of loss before tax
expense, in 1996.
Extraordinary Gain. Extraordinary gain was $2.3 million in 1997 and $0.1
million in 1996. These gains were primarily due to settlements of notes payable
at more favorable terms to Hagler Bailly and consisted of significant notes
payable to a financial institution in 1997 and several smaller notes payable to
related parties, primarily employees and directors, in 1997 and 1996.
Net Income (Loss). As a result of the preceding, net income for 1997 was
$7.8 million, compared to a $3.3 million loss for 1996, (excluding the one-time,
non-cash, compensatory item of $6.2 million for stock and stock option
compensation net income for 1996 was $2.8 million).
1996 Compared to 1995
Revenues. Hagler Bailly's revenues increased to $74.5 million in 1996 from
$44.7 million in 1995 ($64.6 million adjusting for months reported). Consulting
revenues increased to $74.0 million in 1996 from $44.5 million in 1995 ($55.5
million adjusting for months reported). These revenue increases can be
attributed principally to the difference in months reported, strong growth in
consulting to the U.S. utility sector and the introduction of several new
corporate strategy consulting services.
Cost of Services. Cost of services increased by $ 22.8 million in 1996
compared with 1995. The increase is primarily due to corresponding increases in
revenues. Cost of services decreased in relation to total revenues to 79.6% of
total revenues in 1996 from 81.6% of total revenues in 1995 due to higher
margins. Of this amount, $0.5 million represents that portion of officer
compensation that exceeded the compensation that would have been paid had the
compensation plan adopted in January 1997 been in place for all of 1996.
Gross Profit. Gross profit increased to $15.2 million in 1996 from $8.2
million in 1995. Gross profit as a percentage of revenues increased to 20.4% in
1996 from 18.4% in 1995. This can be principally attributed to the difference in
months reported and an increase in consulting to the U.S. utility sector and
increased utilization rates resulting, in part, from productivity gains
associated with technology improvements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.4 million in 1996 from $5.9 million in
1995. As a percentage of revenues, selling, general and administrative expenses
increased to 13.9% in 1996 from 13.1% in 1995. This increase was due primarily
to the difference in months reported and increases in certain overhead costs
associated with the Management Buy-Out, increases in loss reserves and increases
in proposal development expenses.
Income (Loss) from Operations. Loss from operations was $1.4 million in
1996 compared to income from operations of $2.4 million in 1995. The loss from
operations in 1996 is primarily attributable to the $6.7 million non-recurring,
non-cash stock and stock option compensation charge and that portion of officer
compensation that exceeded the compensation that would have been paid had the
compensation plan adopted on January 17, 1997 been in effect for all of 1996.
These expenses negatively impacted income from operations by $6.2 million in
1996. Excluding the foregoing, income from operations for 1996 would have been
approximately $4.8 million, a 100.9% increase from 1995, and would have been
6.4% of revenues in 1996, as compared to 5.3% in 1995. Such improvement is
primarily attributable to the difference in months reported and increased
revenues and the decrease in the cost of services (as a percentage of total
revenues), partially offset by the selling, general and administrative expenses.
Other Income (Expense), Net. Other income (expense), net was $1.1 million
expense in 1996 compared to $0.9 million expense for 1995. The increase is
attributable to a full year of interest
-48-
<PAGE>
expense in 1996, related to debt incurred in connection with the Management
Buy-Out versus seven months of interest expense in 1995. The debt was repaid
with the proceeds from the IPO.
Income Tax Expense. The Management Buy-Out in 1995 provided Hagler Bailly
with the opportunity to make a tax election to be treated as a cash basis
taxpayer. For financial reporting purposes, Hagler Bailly 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 $1.0 million for 1996 compared to $0.9 for 1995. Hagler
Bailly 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.
Extraordinary Gain. Extraordinary gain was $0.1 million in 1996 and $0.8
million in 1995. These gains were primarily due to the settlement of notes
payable at more favorable terms to Hagler Bailly and consisted of notes payable
to related parties, primarily employees and directors. The 1996 gains were
substantially lower due to the timing of the settlements.
Net Income (Loss). As a result of the preceding, net loss was $3.3 million
in 1996 as compared to net income of $1.5 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 revenues was 4.5% loss in 1996 as compared
to 3.3% income in 1995. Excluding expenses related to: (i) the excess officer
compensation described above; (ii) the interest expense described above and
(iii) the non-recurring, non-cash compensation charge described above, net
income would have been approximately $2.8 million with income tax expense
calculated at a combined federal and state income tax rate of 38.3%.
Liquidity and Capital Resources
In July 1997, Hagler Bailly completed an IPO of its common stock, which
raised net proceeds of $30.3 million, $12.5 million of which were used to repay
borrowings from RCG and under Hagler Bailly's credit facility. Prior to the IPO,
Hagler Bailly's primary source of liquidity has been cash flows from operations,
periodically supplemented by borrowings under a bank line of credit. During the
year, ended December 31, 1997, Hagler Bailly, through two of its subsidiaries,
established a new $15 million revolving credit facility and began borrowing
under the facility. All such borrowings were repaid at year-end.
At December 31, 1996 and 1997, and March 31, 1998, Hagler Bailly had
working capital of $2.4 million, $30.7 million and $34.4 million, respectively.
Working capital at March 31, 1998 represents an increase of $3.7 million from
December 31, 1997. The increase during the first three months of 1998 is
primarily due to the change in accounts receivable partially offset by the use
of the net proceeds received from the IPO of common stock, the internal
financing of Hagler Bailly's continued growth and increased internal investments
in product development and infrastructure. Working capital at December 31, 1997
represents an increase of $28.4 million from December 31, 1996. The increase in
1997 is primarily due to net proceeds received from the IPO. The increase was
partially offset by purchases of property and equipment, and merger related
costs.
Net cash used in operations consists primarily of net income plus elements
of cash flows related to accounts receivable and related billings, accounts
payable and accrued compensation adjusted for non-cash items including
depreciation and provision for possible losses. The use of funds in operations
of $7.1 million for the three-month period ended March 31, 1998 can primarily be
attributed to the payment of bonuses, the funding of the profit sharing and
401(K) matching plans, and the growth in accounts receivable. The use of funds
by operations of $5.7 million for the year ended December 31, 1997 can be
attributed to the growth in accounts receivable due to increased sales volume,
increased tax payments due to the change from cash basis to accrual basis, and
other changes in Hagler Bailly's working capital. Operating activities provided
$3.3 million of Hagler Bailly's cash resources for the year ended December 31,
1996, compared to $1.8 million in the year ended December 31, 1995. Hagler
Bailly realized a cash flow benefit from deferred federal and state
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income taxes for the two years ended December 31, 1996 and 1995. Since the IPO,
Hagler Bailly was required to change from the cash method of income tax
reporting to the accrual method which resulted in a recapture of deferred
federal and state income taxes in 1996 and 1995.
Investment activities provided Hagler Bailly with $3.8 million and ($0.9)
million for the three-month periods ended March 31, 1998 and 1997, respectively.
Investment expenditures for the three-month period ended 1998 have primarily
been the use of the IPO proceeds to fund the increase in working capital needs,
merger and acquisition related activities, software development, capital
expenditures for information technology and other resources necessary for the
growth of the Company.
Hagler Bailly used $11.3 million, $1.1 million and $12.6 million for
investing activities for the years ended December 31, 1997, 1996 and 1995,
respectively. The Management Buy-Out used $11.8 million of cash from investing
activities in 1995. Investment activities for the year ended December 31, 1997
have primarily been capital expenditures for information technology and other
resources necessary for growth of Hagler Bailly.
Financing activities provided $2.5 million and $1.4 million for the
three-month periods ended March 31, 1998 and 1997, respectively. The funds were
provided primarily through the use of the Company's credit facility. Net cash
provided by financing activities of $18.9 million for the year ended December
31, 1997 was principally the result of the proceeds received from the issuance
of common stock in connection with the IPO. Net cash used by financing
activities for the year ended December 31, 1996 of $1.1 million was principally
the result of payment of long term debt. During 1995, cash provided by financing
activities of $11.0 million was primarily attributable to the issuance of stock
and the debt incurred in conjunction with the Management Buy-Out.
Hagler Bailly believes the net proceeds from its IPO, together with funds
generated by operations and funds provided under the credit facility, will
provide adequate cash to fund its anticipated cash needs, which may include
future acquisitions of complementary businesses, for at least the next 12
months. Hagler Bailly, depending on market conditions, may consider other
sources of financing, including equity financing. Pending such uses, the net
proceeds are invested in short-term, interest-bearing investment grade
securities. Hagler Bailly currently anticipates that it will retain all of its
earnings for development of Hagler Bailly's business and does not anticipate
paying any cash dividends in the foreseeable future.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
establishes standards for reporting comprehensive income and its components in
the consolidated financial statements. SFAS 131 establishes standards for
reporting information on operating segments in interim and annual financial
statements. SFAS 130 and SFAS 131 will become effective for Hagler Bailly
beginning in 1998. SFAS 130 and SFAS 131 require disclosure only and will not
have a material impact on Hagler Bailly's consolidated financial position and
results of operations.
Year 2000
Hagler Bailly relies on software technology to deliver its services and has
taken actions to evaluate the nature and extent of the work required to make its
systems and infrastructure "Year 2000" compliant. Hagler Bailly management
believes that the costs associated with the Year 2000 issue should not have a
material adverse effect on the results of operations or financial position of
Hagler Bailly in future periods. However, despite Hagler Bailly's efforts to
address the Year 2000 impacts on its internal systems, Hagler Bailly is not
certain that it has fully identified all such impacts or that it can resolve
them without disruption of its business and without
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incurring significant expenses. In addition, even if the internal systems of
Hagler Bailly are not materially affected by the Year 2000 issue, Hagler Bailly
could be affected as a result of any disruption in the operation of the various
third-party enterprises with which Hagler Bailly interacts.
Recent Events
On June 30, 1998, Hagler Bailly acquired all of the stock of Izsak Grapin
et Associes SARL, a French limited liability company that provides management
consulting services to corporate clients, for approximately $5.0 million, paid
in 183,550 shares of Hagler Bailly common stock. The acquisition is non-material
and is intended to be accounted for under the pooling-of-interests method of
accounting.
On June 11, 1998, Hagler Bailly, Inc. entered into an exclusive joint
venture with Cap Gemini America, Inc. to deliver information technology
consulting services and solutions to electric, gas and water utilities in the
United States and Canada. The joint venture, Cap Gemini Hagler Bailly L.L.C., is
owned equally by the two companies. On June 16, 1998, Cap Gemini purchased from
Hagler Bailly 470,975 shares of Hagler Bailly common stock for total
consideration of $12,455,876.
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HAGLER BAILLY
BUSINESS
Overview
Hagler Bailly is a worldwide provider of consulting, research and other
professional services to corporate and government clients on energy,
telecommunications, transportation and the environment. Hagler Bailly's primary
wholly owned subsidiaries are Hagler Bailly Services, Inc. ("Hagler Bailly
Services"), Hagler Bailly Consulting, Inc. ("Hagler Bailly Consulting"), HB
Capital, Inc. ("HB Capital"), Apogee and as of February 23, 1998, TB&A. Hagler
Bailly also operates through several foreign wholly owned subsidiaries.
Revenues from Hagler Bailly's consulting business are derived from
management consulting services provided through Hagler Bailly's specialized
practices. Hagler Bailly's 280 consultants typically work on engagements lasting
from a few weeks to many years. In 1997, Hagler Bailly provided consultants to
447 clients in both the private and public sectors. Financial information about
Hagler Bailly is incorporated herein by reference to the Consolidated Financial
Statements and accompanying notes, which form a part of this Joint Proxy
Statement/PPM.
Business Model
Hagler Bailly is a worldwide provider of consulting, research and other
professional services to corporations and governments. Hagler Bailly offers
corporate clients strategy and business operations consulting, economic counsel
and litigation support, market research and survey analysis, information
technology and financial advisory services. Hagler Bailly also advises
governments on energy, telecommuncation, transportation, water and environmental
public policy.
Hagler Bailly provides solutions custom-tailored to the client's needs,
delivering tangible value through its unique, three-pronged "CPR" approach. This
fully integrated approach provides Content, including proprietary databases and
years of cumulative industry knowledge. These data are combined with consulting
Processes to develop appropriate customized solutions. Most importantly, Hagler
Bailly offers Resource platforms, including management, information technologies
or financial support that help clients to implement the recommended solutions.
Services
Hagler Bailly offers its clients a broad 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. Hagler
Bailly's services are designed to provide tangible value to clients. This
strategy entails less reliance on formulaic approaches and concepts, and more on
custom-tailored solutions based on an assessment of the client's unique
situation and needs. Hagler Bailly's services are delivered to clients worldwide
through seven main practices focused on the energy and network industries:
electric and gas utilities, water, telecommunications and transportation:
o Enhancing enterprise value by repositioning and reinventing
businesses, and creating new revenue streams and assets through the
Strategy practice.
o Strengthening asset and organizational value by improving business
processes and practices through the Management and Operations
practice.
o Counseling clients on public policy, regulatory economics and
antitrust strategy, conducting asset valuation and providing expert
testimony through the Economics and Analytics practice.
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o Advising governments on ways and means to restructure and privatize
public services to improve economic and environmental efficiency
through the Energy Sector Reform practice.
o Offering environmental economics, scientific, managerial and technical
research and services through the Environmental Management practice.
o Delivering insights on customers, technologies, competitors, and
changing market dynamics using quantitative and qualitative data
collection and analyses through the Market Research practice.
o Leveraging information technologies and financial and management
resources to help clients implement and sustain recommended solutions
through the Applications practice.
These practice areas are designed to work together synergistically to
provide clients the full range of services and capabilities of Hagler Bailly.
From an operational standpoint, Hagler Bailly regularly reviews and, as
appropriate, restructures these practice areas and services to address the
changing business problems, strategic alternatives and policy issues of its
public and private clients.
Marketing and Sales
Hagler Bailly's client development activities are a mixture of marketing
efforts, client acquisition techniques and the development of repeat business.
Marketing efforts are accomplished through brand development and brand
management. Hagler Bailly 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.
Hagler Bailly establishes a client development goal for each of its
consulting officers and principals and systematically reviews individual and
group performance against these goals. Hagler Bailly's compensation system,
particularly in the award of bonuses and stock options, is weighted towards
success in meeting these client development goals.
o 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. Presentations generally focus on
opportunities in the market segments most relevant to the prospective
clients, examples of Hagler Bailly's previous work in related
industries and Hagler Bailly's international capabilities.
o Public Sector. In the public sector, contracts are awarded primarily
on the basis of competitive solicitation. Hagler Bailly 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. Hagler
Bailly 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, Hagler Bailly
regularly holds training seminars to ensure compliance with applicable
government regulations and uses a sophisticated computer-based
accounting system that allows it to track costs in adherence to
government standards. Hagler Bailly also meets public sector clients'
cost guidelines through competitive pricing.
Client and Representative Services
In 1997, Hagler Bailly performed over 1,360 assignments for 447 clients in
over 22 countries. Because of the nature and scope of many of Hagler Bailly's
projects, Hagler Bailly derives a
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significant portion of its revenues from a relatively limited number of clients
that operate exclusively in the energy, telecommunications, transportation and
environment sectors. Revenues from Hagler Bailly's 10 most significant clients
accounted for approximately 51.7%, 61.0% and 50.1% of its revenues for the years
ended December 31, 1995, 1996 and 1997, respectively. In the past 18 years,
Hagler Bailly has grown from a single office to a worldwide network of
operations with principal offices in nine cities in the United States and seven
other countries.
Competition
The market for consulting services in the fields of energy,
telecommunications, transportation 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 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 Hagler Bailly. In the private sector, Hagler Bailly
believes the key competitive factors are quality and service, followed by price,
while in the public sector Hagler Bailly believes the key competitive factors
are price and service. Hagler Bailly 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.
Employees
As of March 2, 1998, Hagler Bailly's personnel consisted of 418 full-time
employees, including 280 consultants and 138 support personnel, and 59 part-time
employees. The two largest offices of Hagler Bailly are Arlington, Virginia and
Boulder, Colorado with 155 and 78 full-time employees, respectively. Eighty-nine
full-time employees are stationed outside the United States. This number
excludes the personnel of Hagler Bailly's affiliates in Argentina, Indonesia and
Pakistan which have, respectively, 8, 12 and 28 full-time employees. It also
excludes locally hired independent contractors. Hagler Bailly 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.
Hagler Bailly's 36 consulting officers average 16 years of management
consulting experience, most of which has been in the energy, utility,
transportation and environmental industries. Several of its most experienced
consultants have worked together for over ten years. Hagler Bailly believes that
this long-term experience of working together as a team enables Hagler Bailly to
respond quickly to changing market conditions and consistently deliver high
quality consulting services in response to the complex demands of its clients.
Hagler Bailly believes its success depends in large part on attracting,
retaining and motivating talented, creative and professional employees at all
levels. Hagler Bailly 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. Hagler Bailly also hires professionals with senior
executive experience directly from industry.
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 Hagler Bailly's income before bonuses and taxes is
distributed as bonuses to its staff, the majority of which is targeted towards
Hagler Bailly's top performers -- usually its consulting officers, 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
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vested interest in Hagler Bailly's overall success and performance while still
promoting individual initiative and excellence. Hagler Bailly 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.
Properties
In aggregate, Hagler Bailly leases approximately 186,586 square feet of
office space in the following principal offices: Arlington, Virginia
(headquarters); Boston, Massachusetts; Boulder, Colorado; Chicago, Illinois;
Houston, Texas; Los Angeles, California; Madison, Wisconsin; New York, New York;
and San Francisco, California. Hagler Bailly also leases an aggregate of
approximately 6,590 square feet of office space in the following principal
foreign offices: Buenos Aires, Argentina; Dublin, Ireland; Islamabad, Pakistan;
Jakarta, Indonesia; Paris, France; Sao Paulo, Brazil; and Toronto, Canada. In
addition, Hagler Bailly leases minimal space in other foreign and domestic
cities. Each principal office represents a permanent location servicing multiple
clients which is run by a member of Hagler Bailly's senior management. From time
to time Hagler Bailly leases a project office to enable it to service a specific
international project involving a particular individual client, in which case
the office is paid for directly by the client. Hagler Bailly currently has
project offices in 17 foreign locations totaling approximately 25,696 square
feet. All of Hagler Bailly's principal, branch and project offices are
electronically linked together and have access to all of Hagler Bailly's
capabilities and core consulting tools. Hagler Bailly believes that its
facilities are adequate for its current needs and that additional facilities can
be leased to meet future needs.
Legal Proceedings
Hagler Bailly's indirect subsidiary, Theodore Barry & Associates, is a
defendant in a lawsuit brought in the United States District Court for the
Northern District of Illinois, Michael A. Laros v. Theodore Barry & Associates,
No. 95-C4175, by one of its former executives seeking payment of a bonus and
salary allegedly due him and payment of principal and interest on a subordinated
note of TB&A held by Mr. Laros, prejudgment interest and costs and fees. TB&A is
defending the suit. Hagler Bailly does not believe that the resolution of this
lawsuit will have a material adverse effect on its business, financial condition
or results of operations.
Apogee, one of Hagler Bailly's wholly-owned subsidiaries, has received a
subpoena from the Office of the Inspector General of the Environmental
Protection Agency (the "EPA") requesting records from April 1993 through October
1995 pertaining to a contract between Apogee and the EPA. The work under this
contract has been completed. The subpoena was served in connection with an EPA
investigation relating to the submission of potential false statements and false
claims under the contract. Hagler Bailly and Apogee are cooperating fully with
the EPA. At this time Hagler Bailly is unable to determine what effect, if any,
the investigation will have on its business, financial condition or results of
operations.
Hagler Bailly and its subsidiaries are from time to time parties to
litigation arising in the ordinary course of business. Neither Hagler Bailly nor
any of its subsidiaries is a party to any pending material litigation nor are
any of them aware of any pending or threatened litigation that would have a
material adverse effect on Hagler Bailly or its business.
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DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY
The ages, positions and other information for all current and chosen Hagler
Bailly directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Henri-Claude Bailly (1) 51 Chairman of the Board (term expiring 1999), President and Chief
Executive Officer.
Jassi S. Cheema 54 Chief Executive Officer of Hagler Bailly Consulting, Inc. and
President and Chief Executive Officer of TB&A Group, Inc., both
wholly owned subsidiaries of Hagler Bailly.
Vinod K. Dar 47 Director (term expiring 2001); Senior Vice President and Managing
Director of Hagler Bailly Consulting, Inc., a wholly owned
subsidiary of Hagler Bailly.
Daniel M. Rouse 47 Vice President, Chief Financial Officer and Treasurer.
Alex M. Steinbergh 58 Chief Executive Officer, HB Capital, Inc., a wholly owned subsidiary
of Hagler Bailly.
Alain M. Streicher 49 Director (term expiring 2000) and Senior Vice President and Acting
Chief Operating Officer; Chief Executive Officer of Hagler Bailly
Services, Inc., a wholly owned subsidiary of Hagler Bailly.
Stephen V.R. Whitman 51 Vice President and General Counsel.
Michael D. Yokell 51 Director (term expiring 1999); Senior Vice President and Managing
Director of Hagler Bailly Consulting, Inc., a wholly owned
subsidiary of Hagler Bailly.
Robert W. Fri (1)(2)(3) 61 Director (term expiring 1999).
Richard H. O'Toole 51 Director (term expiring 2000).
Fred M. Schriever (1)(2)(3) 67 Director (term expiring 2001).
William E. Dickenson (4) 50 Executive Vice President; Chief Operating Officer; Chief Executive
Officer, PHB; President and Chief Executive Officer of Hagler
Bailly as of January 1, 2000.
Howard W. Pifer, III (4) 56 Director (term expiring 2001) and Chairman of the Board effective one
day after the Merger.
R. Gene Brown (4) 65 Director effective one day after the Merger (term expiring 2000).
Frederick T. Baird (4) 49 Director, Putnam, Hayes & Bartlett-Asia Pacific Ltd.
Neill W. Freeman, III (4) 53 Managing Director, PHB.
James M. Speyer (4) 53 Managing Director, PHB.
</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.
(4) Designated as a future director or executive officer in connection with the
Merger.
Henri-Claude Bailly has served as Hagler Bailly's Chief Executive Officer
since Hagler Bailly was founded in 1980, as President of Hagler Bailly 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/Hagler Bailly, Inc. 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 serves on the Board of Directors of the United
States Energy Association, the Alliance to Save Energy and is a member of the
National Coal Council.
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Jassi S. Cheema has been employed by TB&A Group, Inc. in various positions
since 1980. Mr. Cheema currently serves as the President of TB&A and as of
February 23, 1998, the Chief Executive Officer of Hagler Bailly Consulting, Inc.
Prior to joining TB&A, Mr. Cheema worked for Getty Oil Co. as a Manager of its
Corporate Technical Applications group.
Vinod K. Dar is one of the original founders of Hagler Bailly. He rejoined
Hagler Bailly in 1995 and leads its corporate strategy and management consulting
practice. After leaving Hagler Bailly 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
Hagler Bailly. From 1978 to 1980, Mr. Dar was a Senior Associate with Resource
Planning Associates. 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.
Daniel M. Rouse has been employed as Hagler Bailly's Chief Financial
Officer and Treasurer since he joined Hagler Bailly 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 is a Certified Public Accountant.
Alex M. Steinbergh has been employed by Hagler Bailly in various management
positions since 1992 and currently serves as the Chief Executive Officer of HB
Capital, Inc., a wholly owned subsidiary of Hagler Bailly. Mr. Steinbergh leads
Hagler Bailly's acquisitions activities. 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 held successive positions from Associate to
Managing Director at Resource Planning Associates. From 1969 to 1972, Mr.
Steinbergh was an Associate of McKinsey & Company.
Alain M. Streicher has been employed by Hagler Bailly in various management
positions since it was founded in 1980. Since October 1997, Mr. Streicher has
served as Senior Vice President and Acting Chief Operating Officer of Hagler
Bailly. Since January 1997, he has served as the Chief Executive Officer of
Hagler Bailly Services, Inc. and leads Hagler Bailly's energy and infrastructure
planning and development practice. Mr. Streicher has served as a member of the
Board of Directors of Hagler Bailly since May 1995. From 1976 to 1980, Mr.
Streicher was Chief Energy Analyst at the CEREN in Paris.
Stephen V.R. Whitman has been Vice President and General Counsel of Hagler
Bailly since July 1, 1997. Mr. Whitman was in private law practice in his own
firm from May 1993 until July 1997. From 1984 through May 1993 he was associated
with the law firm of Kelley Drye and Warren. From 1979 to 1984, he was a lawyer
in the Office of the General Counsel of the United States Agency for
International Development ("USAID") and served as the USAID Regional Legal
Advisor in Lima, Peru. From 1975 through 1978 Mr. Whitman was associated with
the law firm of White & Case.
Michael D. Yokell has been employed by Hagler Bailly in various positions
since 1987, and currently leads Hagler Bailly's economic analysis and litigation
support practice and is a Senior Vice President of Hagler Bailly Consulting,
Inc. Mr. Yokell served as President of Hagler Bailly's predecessor, RCG/Hagler
Bailly, Inc., from 1988 to 1995. Mr. Yokell was the President of Energy and
Resource Consultants, a corporation acquired by Hagler Bailly 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 serves on the Board of
Directors of the Keystone Energy Center.
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Robert W. Fri has served as a member of the Board of Directors of Hagler
Bailly 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 the 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.
Richard H. O'Toole is currently a Director of ABB Europe Limited. Mr.
O'Toole has extensive international experience on trade, investment and
regulatory issues and has also acted as advisor and consultant to a variety of
public and private sector organizations. A former diplomat, Mr. O'Toole has
served in posts in Paris, Geneva and Brussels. From 1976 to 1979, Mr. O'Toole
was Special Assistant in the Office of Executive Director of the OECD's
International Energy Agency. From 1979 to 1982, Mr. O'Toole was European
Correspondent in the Political Division of the Irish Foreign Ministry. He was
Irish Deputy Permanent Representative to the United Nations in Geneva from 1983
to 1984. In 1985, Mr. O'Toole was nominated Chef de Cabinet in the European
Commission with responsibilities in the areas of competition policy,
institutional issues and social policy. In 1989 he joined GPA Group plc and
became Managing Director of its GPA Technologies Division. From 1993 to 1995 he
was appointed Assistant Director General of the General Agreement on Tariffs and
Trade (GATT) where he was a leading member of the Secretariat team supervising
the conclusion of the Uruguay Round of trade negotiations and the creation of
the World Trade Organization (WTO) as a successor to the GATT arrangements.
Fred M. 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 Allen & Hamilton. Since 1996, Mr. Schriever has been a consultant to
various industry groups. Mr. Schriever is a Fellow of both the Institute of
Directors and the Institute of Management Consultants in the United Kingdom, and
a member of the United States Institute of Management Consultants, the American
Society of Mechanical Engineers and is a Certified Management Consultant.
William E. Dickenson has served as PHB's President and Chief Executive
Officer since 1992, and was the Managing Director responsible for PHB's
litigation support practice area from 1983 through 1992. From 1978 to 1983, Mr.
Dickenson managed major antitrust litigation and consulting assignments at
Dickenson, O'Brien & Associates, which he founded. Prior to that he was employed
at Cambridge Research Institute and also served in a variety of positions at the
Tennessee Valley Authority.
Howard W. Pifer III has served as PHB's Chairman since 1991, having
previously served as PHB's President and Chief Executive Officer. Mr. Pifer
leads PHB's energy and network industries practice area, in which he specializes
in rigorous analysis of corporate strategies and public policies. Prior to
founding PHB in 1976, Mr. Pifer was a member of the Harvard Business School
faculty, where he taught courses in managerial economics, finance, public policy
and strategic planning. From 1973 to 1976, Mr. Pifer was Vice President, Energy
& Environment Group at Temple, Barker & Sloane, Inc., a management consulting
firm.
R. Gene Brown has been a member of the board of directors of PHB since
1986. A founding investor of Advanced Micro Devices, Inc., Dr. Brown remains on
its board and chairs its audit committee. From 1974 to 1976, Dr. Brown was
President and Chief Executive Officer of Berkeley Bio Engineering, Inc. as well
as President and Vice Chairman of Monterey Life Systems, Inc. (the majority
shareholder of Berkeley Bioengineering). From 1968 to 1974, he was vice
president of corporate development for Syntex Corporation. Prior to those
corporate positions, Dr. Brown served
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<PAGE>
on the faculties of the graduate schools of business administration at Harvard
and Stanford universities. Dr. Brown is a Certified Public Accountant.
Frederick T. Baird has been employed by Putnam, Hayes & Bartlett - Asia
Pacific Ltd, the New Zealand subsidiary of PHB since 1996. Prior to joining PHB,
Mr. Baird was Managing Director of CORE Management Systems Ltd., which
specializes in the design and development of complex computer-based business
models using optimization and simulation and which is now part of Putnam, Hayes
& Bartlett - Asia Pacific Ltd. Mr. Baird established CORE following his joint
venture with Ernst & Young LLP in which he headed a management science practice.
From 1982 to 1988, Mr. Baird was a member of the Faculty of Commerce at the
University of Canterbury.
Neill W. Freeman III has been employed by, and has been a member of the
board of directors of PHB since 1994, when the consulting firm he founded and in
which he was a principal, Freeman & Mills, combined its consulting practice with
PHB. Prior to founding Freeman & Mills in 1978, Mr. Freeman was an auditor
consultant at several accounting firms. From 1966 to 1969, Mr. Freeman was
employed by Price Waterhouse & Co.; from 1969 - 1974, Mr. Freeman was employed
by BDO Seidman; from 1974 - 1978, he was employed by Coopers and Lybrand. Mr.
Freeman was also a founder of the 1st Business Bank of Los Angeles.
James M. Speyer has been employed by, and has been a member of the board of
directors of, PHB since 1982. Prior to joining PHB, Mr. Speyer was a principal
with ICF Inc. from 1979 to 1982. Prior to working at ICF, Mr. Speyer held
various positions in the federal government, including working on President
Carter's White House Energy Staff and at the Department of Energy and the
Environmental Protection Agency.
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<PAGE>
HAGLER BAILLY EXECUTIVE COMPENSATION
Executive Compensation Summary Table
The following table sets forth certain information with respect to the
annual and long-term compensation paid to the President and Chief Executive
Officer and the four other most highly paid executive officers of Hagler Bailly
during the year ended December 31, 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long-Term
Compensation Compensation All Other
Salary Bonus Options/SARs Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Henri-Claude Bailly ................................. 1997 $375,000 $125,000 172,876 $ 64,357(1)
President, Chief Executive 1996 325,000 606,954 51,863 107,126
Officer and Chairman of the
Board of Hagler Bailly
Daniel M. Rouse ..................................... 1997 175,945 62,500 20,745 26,025(2)
Vice President, Chief Financial 1996 134,335 110,683 -- 13,931
Officer and Treasurer of Hagler
Bailly
Vinod K. Dar ........................................ 1997 352,694 140,000 -- 13,357(3)
Senior Vice President and 1996 308,753 -- -- 467,931
Managing Director of Hagler
Bailly Consulting, Inc.
Alain M. Streicher .................................. 1997 225,880 115,000 -- 14,357(3)
Acting Chief Operating Officer 1996 176,357 270,245 -- 13,931
of Hagler Bailly, Chief
Executive Officer and
Managing Director of Hagler
Bailly Services, Inc.
Alex M. Steinbergh .................................. 1997 210,543 59,474 -- --
Chief Executive Officer of 1996 -- -- -- --
HB Capital, Inc.
</TABLE>
- ----------
(1) Represents $50,000 paid pursuant to Mr. Bailly's employment agreement and
$14,357 in matching payments and profit sharing under Hagler Bailly's
401(k) Profit Sharing Plan. See "--Employment Arrangements."
(2) Represents $11,668 paid for as compensation deducted from accrued paid
leave hours and $14,347 in matching payments and profit sharing under
Hagler Bailly's 401(k) Profit Sharing Plan.
(3) Represents matching payments and profit sharing under Hagler Bailly's
401(k) Profit Sharing Plan.
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<PAGE>
Stock Option Grants During 1997
The following table presents information with respect to stock option
grants during the year ended December 31, 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential
Number of Realizable Value
Securities at Assumed Annual
Underlying % of Total Rate of Stock
Option/SAR Options/SARs Exercise Price Appreciation
Granted Granted to or Base Expira- for Option Term(1)
---------- Employees Price tion ---------------------
Name (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ----------------------------------- ---------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly ............ 97,509(2) 14% $6.10 01/17/07 $374,070 $947,966
75,367(3) 11 6.71 01/17/02 139,719 308,743
Daniel M. Rouse ................... 20,745 3 6.10 01/17/07 79,583 201,679
Vinod K. Dar ...................... -- -- -- -- -- --
Alain M. Streicher ................ -- -- -- -- -- --
Alex M. Steinbergh ................ -- -- -- -- -- --
</TABLE>
- ----------
(1) The potential realizable value is calculated based on the five-year term
for Mr. Bailly's option to purchase 75,367 shares, and on the ten-year term
for Mr. Bailly's and Mr. Rouse's options to purchase 97,509 and 20,745
shares, respectively. It is calculated by assuming that the stock price on
the date of grant appreciates from the exercise price at the indicated
annual rate, compounded annually for the entire term of the option.
(2) Non-qualified options granted pursuant to Hagler Bailly's Stock Option
Plan, with an exercise price based on fair market value as determined by an
independent third party appraisal.
(3) Incentive stock options granted pursuant to Hagler Bailly's Stock Option
Plan, with an exercise price based on 110% of the fair market value as
determined by an independent third party appraisal.
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<PAGE>
Stock Option Exercises and Values in 1997
The following table sets forth the number of shares covered by exercisable
and unexercisable options held by the Named Executive Officers on December 31,
1997 and the aggregate gains that would have been realized had these options
been exercised on December 31, 1997, even though the options were not exercised,
and the unexercisable options could not have been exercised on December 31,
1997. A total of 72,213 stock options were exercised by the Named Executive
Officers during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Options/SARs at FY-End at FY-End
on (#) ($)(1)
Exercise Value ----------------------------- ------------------------------
Name (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly.. 17,000 $356,065(2) 269,117 138,301 $5,796,032 $2,228,138
34,575 174,258(3)
17,288 85,403(3)
Daniel M. Rouse......... - - 12,087 20,745 270,024 340,218
Vinod K. Dar............ - - - - - -
Alain M. Streicher...... 3,350 74,839(4) 117,580 - 2,626,737 -
Alex M. Steinbergh...... - - - - - -
</TABLE>
- ----------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. Value is calculated based on
fair market value of common stock at December 31, 1997 of $22.50 (as
reported on the Nasdaq Stock Market), less the exercise price.
(2) Value is calculated based on fair market value of common stock at December
22, 1997 (date of exercise) of $21.125 (as reported on the Nasdaq Stock
Market), less the exercise price.
(3) Value is calculated based on fair market value of common stock at January
23, 1997 (date of exercise) of $6.10 (as determined by an independent third
party appraisal), less the exercise price.
(4) Value is calculated based on the fair market value of the common stock at
December 31, 1997 (date of exercise) of $22.50 (as reported on the Nasdaq
Stock Market), less the exercise price.
Employment Arrangements
Hagler Bailly currently has an employment agreement with Mr. Bailly under
which Mr. Bailly serves as Chairman of the Board and Chief Executive Officer of
Hagler Bailly and Hagler Bailly Consulting, Inc. until July 9, 2000 and for his
services receives a base salary ($375,000 in 1997), subject to increase each
January 1 by an amount that is no less than greater of 5.0% over the annual rate
of base salary in effect the preceding year, and the increase in the Consumer
Price 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. Mr. Bailly is also entitled to receive, from time to time, options to
purchase Hagler Bailly common stock pursuant to the Stock Option Plan as
determined by the Stock Option Committee of the Board. Mr. Bailly is entitled to
participate in benefit programs provided by Hagler Bailly. In addition, Mr.
Bailly is also entitled to a bonus equal to the average bonus percentage
received during the term of the agreement multiplied by his then current base
salary if his employment is terminated without cause or upon change in control
(as defined in the agreement). This agreement will be replaced by a new
employment agreement if the Merger is consummated. See "THE MERGER -- The
Employment Agreements."
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<PAGE>
Director Compensation
Directors who are not executive officers of Hagler Bailly are paid a fee of
$1,000 for each Board meeting attended in person and all directors are
reimbursed for travel expenses incurred in connection with attending board and
committee meetings. Directors are not entitled to additional fees for serving on
committees of the Board of Directors. Messrs. Schriever, Fri and O'Toole, each
non-employee directors of Hagler Bailly, were granted options to purchase 8,186,
8,186, and 3,000 shares of common stock, respectively, in 1997. Pursuant to the
terms of the Stock Option Plan, subsequent to Hagler Bailly's IPO, each director
of Hagler Bailly who is not otherwise employed by Hagler Bailly is granted an
option to purchase 3,000 shares of common stock at the time of each annual
election of directors.
Committees of the Board of Directors
The Audit Committee consists of two members, both of whom are independent,
non-employee directors. Members of the committee are Messrs. Schriever and Fri.
The Audit Committee met once in 1997. The Audit Committee reviews the
qualifications of Hagler Bailly'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 consists of three members, two of whom
are independent, non-employee directors. Members of the committee are Messrs.
Bailly, Schriever and Fri. The Executive Compensation Committee met twice during
1997. This 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, including bonuses, and also reviews and approves the
compensation, including bonus awards, for officers of Hagler Bailly's five
operating subsidiaries.
The Stock Option Committee has two members, both of whom are independent,
non-employee directors. Members of the committee are Messrs. Schriever and Fri.
The Stock Option Committee did not meet during 1997. This committee administers
the Stock Option Plan.
During 1997, the Board of Directors met eight times and no incumbent
director attended fewer than 75% of the total number of meetings of the Board of
Directors and the committees of which he was a member.
Compensation Interlocks and Insider Participation
The Executive Compensation Committee of Hagler Bailly is composed of two
independent, non-employee directors and Mr. Bailly, the Chairman of the Board,
President and Chief Executive Officer.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Daniel M. Rouse, Vice President and Chief Financial Officer of Hagler
Bailly, was indebted to Hagler Bailly in the amount of $287,427.14 at December
31, 1997. This amount consisted of $74,496.63 constituting the outstanding
balance on a personal loan incurred prior to 1997. Interest was payable on this
loan at the rate of 8.5%. The remainder consisted of $5,315.14 in accrued
interest and $206,930.51 of bonus advances and charges to Mr. Rouse's personal
account made in the course of 1997, on which no interest was paid during 1997.
The largest aggregate amount of Mr. Rouse's debt outstanding to Hagler Bailly
during 1997 was $287,427.14. Mr. Rouse has repaid this loan in full.
Alain M. Streicher, a director and Senior Vice President of Hagler Bailly,
was indebted to Hagler Bailly in the amount of $103,422.26 on December 31, 1997.
This amount consisted of an
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<PAGE>
outstanding balance of $21,295.26 on a loan established in 1995 with an interest
rate of 9.0% per year and accrued interest of $7,109. The remainder of $75,000
constituted an advance on a bonus, bore no interest and was for an indeterminate
term. The largest aggregate amount of Mr. Streicher's debt to Hagler Bailly
during 1997 was $181,809. The outstanding amount of Mr. Streicher's indebtedness
is currently $100,571.54.
Michael D. Yokell, a director and Senior Vice President of Hagler Bailly's
wholly owned subsidiary, Hagler Bailly Consulting, Inc., obtained a loan of
$500,000 from Hagler Bailly in April 1997. The loan had an interest rate of
8.45% and was repaid in full in June 1997. The largest aggregate amount of Mr.
Yokell's debt to Hagler Bailly during 1997 was $500,000.
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<PAGE>
PHB
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data as of
December 31 in each of the years 1993 through 1997 and for each of the years in
the five-year period ended December 31, 1997. The selected financial data for
each of the years in the five-year period ended December 31, 1997 have been
derived from the audited consolidated financial statements of PHB. The selected
consolidated financial data presented below as of March 31, 1998 and for the
three-month periods ended March 31, 1997 and 1998 are derived from the unaudited
financial statements of PHB which, in the opinion of PHB management, have been
prepared on the same basis as the audited consolidated financial statements of
PHB and include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for and as of such periods.
The results of operations for prior periods are not necessarily indicative
of the results that may be expected for future periods. The historical financial
data should be read in conjunction with "PHB MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the consolidated
financial statements of PHB included elsewhere in this Joint Proxy
Statement/PPM.
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
---------------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues ........................... $ 33,384 $ 47,091 $ 56,610 $ 67,745 $ 62,808 $ 16,022 $ 15,604
Costs of services .................. 22,707 33,743 42,074 50,754 47,479 12,280 10,013
---------- ---------- ----------- ----------- ----------- ----------- -----------
Gross profit ..................... 10,677 13,348 14,536 16,991 15,329 3,742 5,591
Liquidation of subsidiary (1) ...... -- -- -- 663 328 -- --
Selling, general and administrative 9,820 11,290 13,413 15,647 14,203 3,020 2,948
Compensation in connection with
subscriptions for issuance of
common stock (2) ................. -- -- -- -- 9,885 -- 2,165
Provision for note receivable from
related party .................... -- 1,802 -- -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations ...... 857 256 1,123 681 (9,087) 722 478
Other income (expense), net ........ (258) (95) 78 286 (273) (46) (82)
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes .. 599 161 1,201 967 (9,360) 676 396
Income tax expense ................. 299 160 575 664 606 321 1,052
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income (loss) (3) .............. $ 300 $ 1 $ 626 $ 303 $ (9,966) $ 355 $ (656)
========== ========== =========== =========== =========== =========== ===========
Net income (loss) per share:
Basic ............................ $ 0.20 $ 0.00 $ 0.15 $ 0.07 $ (2.22) $ 0.09 $ (0.13)
Diluted .......................... $ 0.20 $ 0.00 $ 0.15 $ 0.07 $ (2.22) $ 0.09 $ (0.13)
Weighted average shares outstanding:
Basic ............................ 1,529,767 3,669,808 4,197,781 4,498,684 4,490,089 4,160,950 5,174,722
Diluted .......................... 1,529,767 3,669,808 4,197,781 4,498,684 4,490,089 4,160,950 5,174,722
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------------------------------------------- ---------
1993 1994 1995 1996 1997 1998
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............... $ 275 $ 90 $ 263 $ 1,107 $ 1,070 $ 2,000
Working capital (deficit) ............... (2,305) 703 2,503 4,740 4,917 7,420
Total assets ............................ 14,841 18,089 21,794 22,309 23,936 25,926
Total debt .............................. 2,939 2,417 3,258 1,955 1,931 972
Total stockholders' equity .............. 608 1,668 2,434 3,334 3,531 5,027
</TABLE>
- ----------
(1) On December 31, 1996, PHB liquidated its wholly owned subsidiary in the
U.K. Of PHB's loss of $662,609 in 1996, $548,757 represented cumulative
foreign currency translation losses which had previously been recorded as a
separate component of PHB's stockholders' equity. In 1997, $328,070 was
recorded as management's estimate of the uncollectable net proceeds
resulting from the liquidation.
(2) Stock issued or subject to issuance under subscriptions receivable entered
into within 12 months preceding the closing of the Merger is presumed to
have been issued in contemplation of the proposed transaction and is
required to be accounted for at its fair market value on the date of
issuance. Accordingly, PHB has recognized noncash, nontaxable deductible
compensation charges for the year ended December 31, 1997 and the three
months ended March 31, 1998 of $9,884,800 and $2,164,800, respectively,
representing the difference between the fair value and the book value of
shares of common stock then issuable.
(3) The statement of operations data for the years ended December 31 and the
three months ended March 31, 1997 include performance incentive
compensation paid to senior staff members in excess of a standard bonus set
for their respective staff levels. The excess performance incentive
compensation was included in Cost of services and Selling, general and
administrative and was $39,000, $2,931,000, $6,260,000, $9,588,000 and
$7,294,000 for the years ended December 31, 1993, 1994, 1995, 1996 and
1997, respectively, and $1,823,000 for the three months ended March 31,
1997. If PHB had not paid the excess incentive compensation, net income
would have been $376,000, $1,821,000, $4,394,000, $6,217,000 and
$4,605,000, for the years ended December 31, 1993, 1994, 1995, 1996 and
1997, respectively, and $1,472,000 for the three months ended March 31,
1997, assuming a statutory taxation rate of 41.1%.
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<PAGE>
PHB
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
PHB is an international economic and management consulting firm, providing
its clients with strategic advice and analysis to support the development and
execution of economically sound strategies in business, litigation, regulatory,
and policy matters. PHB's staff of 185 economists, business experts, accountants
and other professionals have assisted corporations, governments and public
agencies on thousands of client assignments in a wide range of industries. PHB
consultants apply advanced analytical techniques to provide comprehensive
strategic advice for clients. PHB advises leaders in business, government and
the legal profession throughout the world.
Total revenues represent the total of all revenues related to client
engagements, including revenues associated with professional staff,
subcontractors, independent consultants and use of computer technology.
Consulting revenues represent the amount of engagement revenue associated with
billings by PHB's professional staff. Subcontractor and other revenues represent
revenues associated with subcontractors and independent consultants engaged by
PHB on its assignments, as well as travel and per diem reimbursements and
computer technology use charges to clients.
PHB derives substantially all of its revenues from fees for professional
services. Clients are typically invoiced on a monthly basis. The substantial
majority of fees are billed at standard hourly rates. Revenues from standard
hourly rate engagements are recognized as hours are recorded. Costs are
recognized as they are incurred. Revenues from cost-plus fixed-fee contracts,
which have not been material to date, are recognized as costs are incurred on
the basis of direct costs plus allowable indirect costs and a pro rata portion
of estimated fees. The remainder of the revenues are based on lump sum fee
arrangements. A loss, if any, on an engagement is recognized when it becomes
known and the amount of the loss is reasonably determinable. PHB's most
significant expenses relate to the direct cost of providing client services.
These costs consist of consultant salaries and benefits (including bonuses) and
travel-related project expenses. Project personnel are typically full-time
professionals employed by PHB, although PHB often supplements its professional
project staff through the use of subcontractors and independent consultants.
Compensation Charges
In anticipation of the Merger, PHB recognized a non-recurring, non-cash
charge to operations of $10.0 million and $2.2 million for the 12 months ended
December 31, 1997 and the three months ended March 31, 1998, respectively. This
charge is required under generally accepted accounting principles for stock
issued, or obligated to be issued, during the 12 months preceding the closing of
the pending merger based on the presumption that such issuances were in
contemplation of the Merger. The charge represents the aggregate difference
between the book value of PHB common stock sold or committed to PHB employees
during 1997 and 1998 and the appraised market value of the PHB common stock. The
employee purchases, or obligations to purchase shares of common stock in 1997,
were part of PHB's long-standing policy of requiring newly promoted senior level
consultants to purchase a specified number of shares of PHB common stock based
on their respective staff level. This policy provides PHB with additional
capitalization and working capital. New senior level personnel joining PHB
during 1997, consistent with its long-standing practice, were also obligated to
buy a specified number of shares based on their staff level. The shares
purchased or obligated to be purchased by these employees are also included in
the 1997 compensation charge. During the three months ended March 31, 1998,
similar stock purchase obligations arose for which a compensation was recorded.
The statement of operations data for the years ended December 31 includes
performance incentive compensation paid to senior staff in excess of a standard
bonus set for their respective staff
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<PAGE>
level. The excess performance incentive compensation was included in Cost of
services and Selling, general and administrative and was $39,000, $2,931,000,
$6,260,000, $9,588,000 and $7,294,000 for the years ended December 31, 1993,
1994, 1995, 1996 and 1997, respectively.
Results of Operations
The following table sets forth, for the periods indicated, the revenues and
selected operations data as a percentage of revenues for the periods given:
<TABLE>
<CAPTION>
Three Months
Year ended ended
December 31, March 31,
---------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ............................................................. 100% 100% 100% 100% 100%
--- --- --- --- ---
Cost of services ..................................................... 74 75 76 77 64
Gross profit ........................................................ 26 25 24 23 36
Selling, general and administrative .................................. 24 23 23 19 19
Liquidation of subsidiary ............................................ 0 1 0 0 0
Compensation in connection with subscriptions for issuance
of common stock ................................................... 0 0 16 0 14
Income (loss) from operations ........................................ 2 1 (15) 5 3
Other income (expense), net .......................................... 0 0 0 0 (1)
Income (loss) before taxes ........................................... 2 1 (15) 4 3
Income tax expense ................................................... 1 1 1 2 7
Net income (loss) .................................................... 1 0 (16) 2 (4)
</TABLE>
Three Months ended March 31, 1998 Compared to Three Months ended
March 31, 1997
Revenues. Revenues of PHB decreased 2.6% to $15.6 million in the three
months ended March 31, 1998 from $16.0 million in the three months ended March
31, 1997. The revenue reduction related primarily to reduced subcontractor
activity. Consulting revenues of PHB increased 0.6% to $13.5 million in the
three months ended March 31, 1998 compared to $13.4 million in the comparable
period in 1997.
Cost of Services. Cost of services of PHB decreased 18.5% to $10.0 million
for the three months ended March 31, 1998 from $12.3 million for the three
months ended March 31, 1997. The reduction is primarily due to lower performance
incentive compensation for senior consulting staff working on client
engagements. Also, during the three months ended March 31, 1998, subcontractor
costs were lower and consulting labor resources were more heavily applied to
business development activities rather than providing client services.
Gross Profit. Gross profit increased 49.4% to $5.6 million for the three
months ended March 31, 1998 from $3.7 million for the three months ended March
31, 1997. Gross profit as a percentage of revenues was 35.8% for the first three
months of 1998 as compared to 23.4% in the first three months of 1997. This
increase is principally a result of the lower performance incentive compensation
previously mentioned. Billing rates in 1998 were higher over the previous year.
There was virtually no gross profit impact related to the reduction in
subcontractor revenues since such revenues carry little or no gross profit.
Selling, General and Administrative. Selling, general and administrative
expenses decreased 2.4% to $2.9 million for the three months ended March 31,
1998 compared to $3.0 million for the three months ended March 31, 1997. Lower
performance incentive compensation for executive staff accounted for $0.5
million of the reduction. However, this reduction was substantially offset
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<PAGE>
since consulting staff devoted more labor resources to developing proposals and
negotiating new engagements.
Income from Operations. Income from operations, excluding the effect of the
Compensation in connection with subscriptions for issuance of common stock, was
up 266% to $2.6 million for the three months ended March 31, 1998 compared to
$722,000 for the three months ended March 31, 1997. This increase is due to
lower performance incentive awards effective January 1, 1998. Performance
incentive compensation earned by senior consultants in excess of the standard
target bonus for their level has been terminated in connection with the pending
merger.
Other Income (Expense), Net. Other income (expense), net was $82,000
expense for the three months ended March 31, 1998 and $46,000 expense for the
three months ended March 31, 1997. The change is principally due to slightly
higher foreign exchange losses related to PHB's New Zealand subsidiary in 1998.
Income Tax Expense. Income tax expense was $1.0 million for the three
months ended March 31, 1998 compared to $321,000 for the three months ended
March 31, 1997. The 1998 expense is higher than the expected statutory rate of
41.1% due to the nondeductibility of the $2.2 million compensation charge for
tax reporting purposes. The 1997 tax expense reflects the proportional share of
the total 1997 expense which is higher than the statutory rate of 41.1%.
Net Income (Loss). Net income (loss) for the three months ended March 31,
1998 was ($656,000) compared to $355,000 for the three months ended March 31,
1997. Net income, excluding the effect of the compensation charge for
subscriptions for the issuance of common stock, increased to 9.7% from 2.2% in
the prior year as a percentage of revenues. This increase is primarily the
result of the change in performance incentive compensation previously mentioned.
See "--Compensation Charges."
1997 Compared to 1996
Revenues. PHB's revenues decreased 7.3% to $62.8 million in 1997 from $67.7
million in 1996. Consulting revenues decreased 1.9% to $52.1 million in 1997
from $53.1 million in 1996. Consulting revenues for PHB's Energy and Network
Industries practice grew by 41%, reflecting the increased demand for consulting
services associated with the restructuring and deregulation of the electric
utility industry. However, consulting revenues for PHB's Litigation practice
decreased 38% primarily as a result of declining revenues generated from one
litigation case which represented approximately 16% of PHB's total revenues in
1996 and approximately 3% of PHB's total revenues in 1997. Also, PHB reduced its
pricing for computing technology used by its clients due to competitive industry
trends. This price reduction resulted in a $1.3 million decrease in revenues
between 1997 and 1996.
Cost of Services. Cost of services decreased 6.5% to $47.5 million in 1997
from $50.8 million in 1996. The decrease reflects the decrease in total revenues
and the redeployment of consulting labor resources to marketing and selling
activities. Liquidation of the U.K. subsidiary in December 1996 also reduced
PHB's costs of services in 1997. Cost of services as a percentage of total
revenues increased to 75.6% in 1997 from 74.9% in 1996. The percentage increase
principally results from the reduction in pricing for computer technology use
charged to clients.
Gross Profit. Gross profit decreased 9.8% to $15.3 million in 1997 from
$17.0 million in 1996. Gross profit as a percentage of revenues decreased to
24.4% in 1997 from 25.1% in 1996. Approximately $1.3 million of this decrease is
a result of the reduction in computer technology use pricing for PHB's clients.
Adjusting for this reduction, gross profit as a percentage of revenues in 1996
would have been 24.0%.
Selling, General and Administrative. Selling, general and administrative
expenses decreased 9.2% to $14.2 million in 1997 from $15.6 million in 1996.
Although more consulting labor
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was deployed to marketing and selling in 1997, this was offset as a result of
lower out-of-pocket business development expenses.
Income from Operations. Income from operations, excluding the compensation
charge of $9.9 million in connection with subscriptions for the issuance of
common stock, was $798,000 for 1997 compared to $681,000 for 1996. As a
percentage of total revenues, income from operations before the compensation
charge increased to 1.3% in 1997 from 1.0% in 1996.
Other Income (Expense), Net. Other income (expense), net increased to
$273,000 in expense for 1997, due principally to a foreign exchange loss related
to the New Zealand subsidiary, compared to $286,000 in income in 1996, as a
result of a foreign exchange gain related to the U.K. subsidiary.
Income Tax Expense. The 1997 provision for tax is higher than the expected
statutory rate of 41.1% due to the nondeductibility for tax reporting purposes
of the compensation charge in connection with subscriptions for the issuance of
common stock and also due to a loss provision on an equity investment in an U.K.
affiliate for which an ordinary income deduction is not available.
Net Income (Loss). Net income (loss), excluding the compensation charge,
for 1997 was ($82,000) compared to $303,000 for 1996. Excluding the performance
incentive compensation in excess of standard target bonuses and the non-cash
compensation charges, net income for 1997 would have been approximately $4.6
million based on a combined federal and state income tax of 41.1%, compared to
$6.2 million in 1996. See "--Compensation Charges."
1996 Compared to 1995
Revenues. PHB's revenues increased 19.7% to $67.7 million in 1996 from
$56.6 million in 1995. Consulting revenues increased 16.5% to $53.1 million in
1996 from $45.6 million in 1995. Consulting revenues for the Energy and Network
Industries and Litigation practices grew 13% and 21%, respectively, as PHB
continued to participate in the growth of consulting services to the utility
industry. The environmental sector of PHB's Litigation practice increased 28%
over 1995, primarily due to increased work for insurance companies. There was
further growth in the Litigation practice due to a significant pharmaceutical
case. Other revenue increased $1.0 million as a result of billing clients for
computer technology usage.
Cost of Services. Cost of services increased by $8.7 million in 1996
compared to 1995. The increase reflects the increase in total revenues. Cost of
services increased as a percentage of revenues to 74.9% in 1996 from 74.3% in
1995 primarily due to proportionally higher subcontractor activity in 1996
compared to 1995.
Gross Profit. Gross profit increased 16.9% to $17.0 million in 1996 from
$14.5 million in 1995. The increase is primarily the result of increased
computer technology revenues billed to clients in 1996. Gross profit as a
percentage of total revenues decreased to 25.1% in 1996 from 25.7% in 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased 16.7% to $15.6 million in 1996 from $13.4 million in 1995.
Commensurate with the volume increase in PHB's revenues, this increase is
primarily a result of an increase in business development activity in 1996 and
an increase in the provision for doubtful accounts related to the higher
business volume.
Income from Operations. Income from operations decreased 39.3% to $681,000
in 1996 compared to Income from operations of $1.1 million in 1995. This
decrease is due principally to a $663,000 charge recognized in 1996 in
connection with the liquidation of PHB's U.K. subsidiary.
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Other Income (Expense), Net. Other income (expense), net increased 264% to
$286,000 in income in 1996 compared to $78,000 in income for 1995, primarily as
a result of PHB's foreign exchange gain in 1996 related to the U.K. subsidiary.
Income Tax Expense. The effective income tax rate of 68.6% for 1996 was
substantially higher than the expected statutory rate of 41.1% due to the level
of permanent differences related to unallowable deductions. The effective income
rate of 47.9% for 1995 was slightly higher than the statutory rate due to less
nondeductible permanent differences principally related to travel, meals, and
entertainment expenses.
Net Income (Loss). Excluding the performance incentive compensation charge
in excess of standard target bonuses, net income for 1996 would have been $6.2
million compared to $4.4 million in 1995. See "--Compensation Charges."
Liquidity and Capital Resources
PHB's primary source of liquidity has been and is expected to continue to
be cash flow from operations, periodically supplemented by borrowings under a
bank line of credit. PHB maintains a revolving line of credit of $4.0 million
with a bank. At March 31, 1998, borrowings outstanding under this line of credit
were $550,000 at an interest rate of prime plus 0.5%. At March 31, 1998,
December 31, 1997 and December 31, 1996, PHB had working capital of $7.4
million, $4.9 million and $4.7 million, respectively. The increase in working
capital reflects increases in the cash position of PHB primarily due to accounts
receivable collections and from increases in receivables and unbilled services.
PHB had net cash provided by operations of $2.1 million for the three-month
period ended March 31, 1998 which consisted primarily of net income of $1.5
million, excluding the compensation charge for subscriptions in connection with
the issuance of common stock, and deferred income taxes of $1.1 million. This
was offset in part by cash flows related to accounts receivable and unbilled
services. Net cash provided by operations were $393,000, $5.7 million, and
$679,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The
year over year differences are primarily due to the changes in accounts
receivable and unbilled services which was a source of cash in 1996 but not the
other years.
Investment activities resulted in cash flows of ($228,000) and $698,000 for
the three-month periods ended March 31, 1998 and 1997, respectively. Investments
for the three-month period ended March 31, 1998 were primarily to fund capital
expenditures for information technology. In 1997, proceeds from the collections
of receivables were received in connection with the liquidation of PHB's U.K.
subsidiary. PHB used $766,000, $3.3 million and $735,000 for investing
activities for the years ended December 31, 1997, 1996 and 1995, respectively.
Investment activities have primarily related to capital expenditures for
information technology although in 1996 approximately $2.2 million was due in
connection with the liquidation of the U.K. subsidiary ($1.7 million of this
amount was received in 1997).
Financing activities used $960,000 and $822,000 for the three-month periods
ended March 31, 1998 and 1997, respectively. The funds were used to pay down
short term borrowings outstanding at the respective prior year-end periods. Net
cash provided by financing activities of $234,000 for the year ended December
31, 1997 was principally the result of stock purchased by senior consultants.
Net cash used by financing activities for the year ended December 31, 1996 was
$1.5 million principally due to repayment of borrowing under the bank line of
credit. During 1995, net cash provided by financing activities of $206,000 was
primarily attributable to short term bank borrowings offset by the reduction in
capital lease obligations.
PHB believes that current projected levels of cash flows and the
availability of financing, including borrowings under PHB's credit facility,
will be adequate to fund its operations throughout the period preceding the
Merger.
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New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
establishes standards for reporting comprehensive income and its components in
the consolidated financial statements. SFAS 131 establishes standards for
reporting information on operating segments in interim and annual financial
statements. SFAS 130 and SFAS 131 will become effective for PHB beginning in
1998. SFAS 130 and SFAS 131 require disclosure only and will have no impact on
PHB's consolidated financial position and results of operations.
Year 2000
PHB relies on software technology to deliver its services. PHB is currently
in the process of evaluating the potential impact of the Year 2000 issue on its
business and the related expenses that would foreseeably be incurred in
attempting to remedy such impact (including testing and implementation of
remedial action). Management believes that the costs associated with the Year
2000 issue should not have a material adverse effect on the results of
operations or financial position of PHB in future periods. However, despite
PHB's efforts to address the Year 2000 impacts on its internal systems, PHB is
not certain that it has fully identified all such impacts or that it can resolve
them without disruption of its business and without incurring significant
expenses. In addition, even if the internal systems of PHB are not materially
affected by the Year 2000 issue, PHB could be affected as a result of any
disruption in the operation of the various third-party enterprises with which
PHB interacts.
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PHB
BUSINESS
Overview
PHB is an international economic and management consulting firm providing
its clients with strategic advice and analysis to support the development and
execution of economically sound strategies in business, litigation, regulatory
and policy matters. PHB's staff of 185 economists, business experts, accountants
and other professionals have assisted corporations, governments, and public
agencies on thousands of client assignments in a wide range of industries. PHB
consultants apply advanced analytical techniques to provide comprehensive
strategic advice for clients. PHB advises leaders in business, government and
the legal profession throughout the world.
Since the firm's inception in 1976, PHB has established offices in
Cambridge, Massachusetts; Washington, DC; and Palo Alto and Los Angeles,
California. In addition, PHB has two wholly-owned international subsidiaries --
Putnam, Hayes & Bartlett - Asia Pacific Ltd, which began operations in Auckland
and Wellington, New Zealand, in 1996, and Putnam, Hayes & Bartlett - Asia
Pacific Pty Ltd, which began operations in Melbourne and Sydney, Australia, in
1997. PHB also has an international corporate affiliate, Putnam, Hayes &
Bartlett Ltd, located in London, England.
Practice Areas
PHB divides its consulting services into two primary practice areas: Energy
and Network Industries, and Litigation. PHB's Energy and Network Industries
practice has helped shape competitive markets in the United States and around
the world. PHB assists telecommunications companies, utilities, energy firms and
energy users in developing and executing sustainable business strategies. PHB's
Litigation practice provides general commercial litigation support as well as
environmental consulting services. In this practice, PHB assists clients in
litigation, mediation, arbitration and settlement negotiations. PHB's commercial
litigation consulting experience includes work in such areas as antitrust,
bankruptcy, contracts, fraud, intellectual property infringement, international
trade, labor, product liability and securities disputes. PHB's environmental
consulting services consist of assisting clients in valuing, allocating and
managing environmental liabilities and in developing environmental strategies.
PHB provides expert analysis and testimony in the context of environmental
litigation and related settlement negotiations.
Services
In addition to management and business strategy services, PHB offers
support in such areas as network industries, litigation, intellectual property,
antitrust and the environment.
o Management strategy. PHB helps clients design and implement business
strategies to maximize the value of their enterprise, with a special
focus on assisting those that face large infrastructure investments,
changing regulatory environments or difficult operating issues.
o Business strategy. PHB specializes in assisting senior management
developing and evaluating resource commitments such as labor, energy
and raw material contracts; new capacity commitments; major
acquisitions or divestitures; and other forms of financial
restructuring.
o Network industries. PHB assists utilities, energy firms,
intensive-energy users and telecom firms to develop and execute
business strategies that are sustainable in the face of changing
economic, regulatory and market forces, both in the United States and
around the world.
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<PAGE>
o Litigation. PHB assists law firms and corporate counsel in litigation,
mediation and arbitration of all kinds. In virtually every area of
litigation and regulation, PHB has provided economic or business
expert testimony and has been instrumental in achieving settlements
for its clients.
o Environment. PHB assists corporations and their representatives in
valuing, allocating and managing environmental liabilities, as well as
in developing environmental strategies.
Marketing and Sales
PHB engages in a variety of client development activities. PHB's
fundamental business development strategy is to offer clients consistent and
quality service. This strategy has resulted in numerous long-term client
relationships and a loyal client base. In addition to developing ongoing
relationships with clients, PHB actively maintains name recognition through
marketing. The firm advertises in industry journals; PHB's staff frequently
address industry, legal and business associations; and PHB acts as sponsor to
select forums and conferences. PHB also benefits from its affiliation with its
senior advisors, who broaden PHB's expertise and identify opportunities for the
firm. Several of PHB's senior advisors are affiliated with top universities,
which has the added benefit of attracting excellent recruits to PHB.
Client and Representative Services
In the past 22 years, PHB has grown from one office in Cambridge,
Massachusetts, to a worldwide network of talented professionals who support
client needs related to its various practice areas. Since 1976, PHB has
completed thousands of client engagements. In 1997, PHB handled approximately
750 projects for more than 450 clients, with approximately 93% of the firm's
total revenues derived from projects undertaken in the United States. In 1996
and 1997 revenues for PHB's largest 10 clients represented 38% and 37%,
respectively, of PHB's revenues.
Within PHB's Energy and Network Industries practice group, clients include
large and small energy companies (including electric, natural gas and oil
companies), telecom companies, other regulated businesses, law firms, industry
associations, governments and government-related agencies. PHB assists utilities
and governments worldwide with major policy issues such as industry
restructuring and privatization, regulatory approaches and structures, corporate
strategy and other analyses to support strategic decision making.
PHB's Litigation practice has provided economic and business analysis and
expert testimony in what PHB believes to be some of the largest and most
important civil litigation cases of recent decades. PHB performs liability
assessment and damage measurement in the context of both commercial and
regulatory litigation. PHB provides expert testimony as well as support to
counsel and other experts through research and case management activities. PHB
has provided support to over 100 law firms involving thousands of disputes.
Within its environmental practice, PHB has been involved in the evaluation of
more than 1,000 hazardous waste sites, over 60 environmental coverage disputes
since the early 1980's and more than 80 civil penalty matters. PHB's clients
include the world's largest industrial corporations, trade associations,
individual potentially responsible parties ("PRPs"), PRP steering committees,
law firms and government agencies.
Employees
As of March 31, 1998, PHB employed 273 people, including 185 client
engagement staff and 88 support staff. PHB's Cambridge office employs 91 people;
its Washington, DC, office employs 83 people; its Los Angeles office employs 43
people; its Palo Alto office employs 27 people; and its Australian and New
Zealand offices employ a total of 29 people.
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PHB recruits staff from the country's top graduate and business schools and
provides its staff with extensive training in order to meet clients' needs. Most
of PHB's staff hold graduate degrees in either economics or business; a number
also hold advanced degrees in such fields as chemical and mechanical
engineering, environmental science, public policy and law.
As a group, PHB's domestic senior staff members have broad yet diverse
experience. PHB has consultants who specialize in energy, environment, regulated
industry, litigation and telecommunications. In its overseas offices, PHB's
consultants tend to specialize in the Energy and Network Industries practice.
The dynamic synergy between its offices enables PHB to offer its clients
multi-office project teams, ideally suited to the needs of each project.
PHB maintains its high caliber of staff by challenging each individual's
creativity and by offering competitive compensation packages, which include a
bonus and profit-sharing plan and generous medical benefits. Bonuses and
promotions are awarded based on personal performance in reaching and exceeding
targets, and those targets are determined based on level of experience and each
individual's past performance. As they gain experience, employees progress to
increasing levels of project conceptualization, management, and client
relationships.
Properties
Domestically, PHB leases approximately 131,000 square feet of office space:
55,763 square feet in Cambridge; 45,116 square feet in Washington, DC; 13,540
square feet in Palo Alto; and 16,681 in Los Angeles. All of PHB's offices are
electronically connected and have e-mail and file transfer capabilities. PHB
continually upgrades its systems to meet project and staff needs.
Legal Proceedings
Although PHB is occasionally a party to litigation arising in the normal
course of business, the firm is neither party to any pending material litigation
nor aware of any pending or threatened litigation that would have a material
adverse effect on PHB or its business.
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HAGLER BAILLY COMMON STOCK MARKET PRICE DATA AND DIVIDEND POLICY
Hagler Bailly's common stock was first offered to the public on July 3,
1997 and since that time has been traded on the Nasdaq Stock Market under the
symbol "HBIX". The following table sets forth, during the period indicated, high
and low closing prices as reported by Nasdaq for the last fiscal year.
Period High Low
January - March 1997................................... N/A N/A
April - June 1997...................................... N/A N/A
July 3 - September 1997................................ $25.250 $17.000
October - December 1997................................ $26.375 $18.250
January - March 1998................................... $26.750 $17.938
April - June 1998...................................... $30.000 $22.500
On March 20, 1998, the last trading day prior to the public announcement of
the Merger negotiations, the closing price of Hagler Bailly common stock on the
Nasdaq Stock Market was $23.00. On July 21, 1998 (the most recent practicable
date prior to the printing of this Joint Proxy Statement/PPM), the closing price
of Hagler Bailly common stock on the Nasdaq Stock Market was $29.813.
Dividends
Hagler Bailly has never paid a cash dividend on Hagler Bailly common stock
and does not expect to pay a cash dividend on its Hagler Bailly common stock in
the foreseeable future.
Holders of Record of Hagler Bailly Common Stock
Hagler Bailly had 111 holders of record of its common stock as of July 15,
1998 and approximately 800 beneficial owners.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF HAGLER BAILLY COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Hagler Bailly common stock at July 15, 1998, by: (i) each person or
group of persons known by Hagler Bailly to own beneficially more than five
percent of the outstanding shares of Hagler Bailly's common stock; (ii) each
director, person nominated to be a director and Named Executive Officer and
(iii) all executive officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name Ownership Class
- -------------------------------------------------- ------------------ ----------
<S> <C> <C>
FMR Corp. (1)..................................... 787,500 8.18
Henri-Claude Bailly (2)(3)....................... 845,121 8.78
Vinod K. Dar (2)(4).............................. 468,631 4.87
Robert W. Fri (2)(5).............................. 18,700 *
Richard H. O'Toole (2)(6)......................... 6,000 *
Daniel M. Rouse (2)(7)............................ 17,273 *
Fred M. Schriever (2)(8).......................... 77,398 *
Alex M. Steinbergh (9)............................ 7,206 *
Alain M. Streicher (2)(10)........................ 490,677 5.10
Michael D. Yokell (2)(11)......................... 716,206 7.44
Howard W. Pifer III (12).......................... - *
William E. Dickenson (12)......................... - *
R. Gene Brown (12)................................ - *
All directors and executive officers as a
group (11 persons).............................. 2,624,824 27.26
</TABLE>
- ----------
* Less than one percent of the outstanding common stock.
(1) On February 10, 1998, FMR Corp. filed a Schedule 13G with the Securities
and Exchange Commission reporting beneficial ownership of 787,500 shares of
Hagler Bailly's common stock. FMR Corp.'s address is 82 Devonshire Street,
Boston, Massachusetts 02109.
(2) The address of Messrs. Bailly, Dar, Fri, O'Toole, Rouse, Schriever,
Streicher and Yokell is c/o Hagler Bailly, Inc., 1530 Wilson Boulevard,
Arlington, Virginia 22209.
(3) Includes 72,500 shares of common stock held in trust by Messrs. Bailly and
Streicher on behalf of Mr. Streicher's children, and options to purchase
288,649 shares of Hagler Bailly's common stock which are currently
exercisable or exercisable within 60 days of July 15, 1998.
(4) Includes 345,754 shares of common stock held in the Hagler Bailly, Inc.
Deferred Compensation Plan Trust for Mr. Dar's benefit.
(5) Consists of options to purchase 14,644 shares of common stock which are
currently exercisable or exercisable within 60 days of July 15, 1998.
(6) Consists of options to purchase 6,000 shares of common stock which are
currently exercisable or exercisable within 60 days of July 15, 1998.
(7) Consists of options to purchase 17,273 shares of common stock which are
currently exercisable or exercisable within 60 days of July 15, 1998.
(8) Excludes 50,000 shares of common stock held by Mr. Schriever's spouse, as
to which Mr. Schriever disclaims beneficial ownership. Includes options to
purchase 11,186 shares of common stock which are currently exercisable or
exercisable within 60 days of July 15, 1998.
(9) Mr. Steinbergh's address is c/o HB Capital, Inc., 77 Franklin Street,
Boston, Massachusetts 02110.
(10) Includes 72,500 shares of common stock held jointly in trust on behalf of
Mr. Streicher's children. Includes options to purchase 117,580 shares of
common stock which are currently exercisable or exercisable within 60 days
of July 15, 1998.
(11) Includes 29,389 shares of common stock held by Mr. Yokell in trust on
behalf of his children.
(12) The address of Messrs. Pifer, Dickenson and Brown is c/o Putnam, Hayes &
Bartlett, Inc., One Memorial Drive, Cambridge, Massachusetts 02142.
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DESCRIPTION OF HAGLER BAILLY CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
Hagler Bailly Capital Stock
Hagler Bailly's Certificate of Incorporation authorizes two classes of
capital stock: common and preferred. The terms of these classes are described
below.
Common Stock
Hagler Bailly is authorized currently to issue 20,000,000 shares of Hagler
Bailly common stock and will be authorized to issue 50,000,000 shares if the
Certificate Amendment is approved. As of the Hagler Bailly record date,
9,627,503 shares of Hagler Bailly common stock were issued and outstanding and
Hagler Bailly had outstanding stock options granted to directors, officers and
other employees for 2,039,736 shares of Hagler Bailly common stock. Each share
of Hagler Bailly common stock has the same relative rights and is identical in
all respects to each other share of Hagler Bailly common stock.
Holders of Hagler Bailly common stock are entitled to one vote per share on
each matter properly submitted to stockholders for their vote, including the
election of directors. Holders of Hagler Bailly common stock do not have the
right to cumulate their votes for the election of directors, and they have no
preemptive or conversion rights with respect to any shares that may be issued.
Hagler Bailly common stock is not subject to additional calls or assessments by
Hagler Bailly, and all shares of Hagler Bailly common stock currently
outstanding are fully paid and non-assessable.
Holders of Hagler Bailly common stock are entitled to receive dividends
when and as declared by the Board of Directors of Hagler Bailly out of any
assets legally available for distribution. No such dividends or other
distributions may be declared or paid, however, unless all accumulated dividends
and any sinking fund, retirement fund or other retirement payments have been
satisfied on classes of stock having preference as to such payments over common
stock. In the unlikely event of any liquidation, dissolution or winding up of
Hagler Bailly, assets of Hagler Bailly would be distributed, in cash or in kind,
to the holders of Hagler Bailly common stock, but only after satisfaction of all
debts and other liquidation preferences of Hagler Bailly.
Preferred Stock
Hagler Bailly's Certificate of Incorporation authorizes its Board of
Directors, without further stockholder approval, to issue up to 5,000,000 shares
of preferred stock for any proper corporate purpose. The Board of Directors has
broad authority to determine the rights and preferences of the preferred stock,
which may be issued in one or more series. These rights and preferences may
include voting, dividend, conversion and liquidation rights that may be senior
to the Hagler Bailly common stock. The Hagler Bailly Board of Directors has not
authorized any classes of preferred stock. The issuance of preferred shares
having special rights or preferences could have the effect of delaying or
preventing a change in control of Hagler Bailly even if such a change in control
would be in the best interest of the holders of Hagler Bailly common stock.
Comparison of Stockholder Rights
If the Merger is consummated, the holders of PHB common stock will become
holders of Hagler Bailly common stock. As a result, Hagler Bailly's Certificate
of Incorporation and Bylaws, and the applicable provisions of Delaware
Corporation Law, will govern the rights of current holders of PHB common stock.
The following is a comparison of the rights of holders of common stock of Hagler
Bailly and PHB based on the terms of the governing documents of Hagler Bailly
and PHB, Delaware Corporation Law and Massachusetts Corporation Law. The
discussion is intended to highlight important similarities and differences.
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Authorized Capital
As indicated above, Hagler Bailly is authorized to issue up to 20,000,000
(50,000,000, if the Certificate Amendment is approved) shares of common stock
and 5,000,000 shares of preferred stock. PHB is authorized to issue 8,000,000
shares of PHB common stock.
Directors
Hagler Bailly's Certificate of Incorporation provides that the Hagler
Bailly Board of Directors will be divided into three classes, with directors in
each class elected for three-year staggered terms. The Hagler Bailly Certificate
of Incorporation further provides that the size of the Board of Directors shall
be fixed by the Board of Directors and initially fixes the number of directors
at seven. The Hagler Bailly Bylaws provide that the number of directors may be
determined by a resolution of the Board or the stockholders at an annual
meeting. The number of Hagler Bailly directors will be increased by two if the
Merger closes. The Bylaws of PHB provide that the number of PHB directors shall
be between one and 50 and may be changed by a majority of the directors then in
office or by the stockholders by a vote of the majority of the shares
outstanding and entitled to vote. PHB does not have a classified Board.
Board Vacancies and the Removal of Directors
Under Delaware Corporation Law, vacancies and newly created directorships
may be filled by a majority of directors then in office, unless otherwise
provided in the corporation's certificate of incorporation or by-laws. Hagler
Bailly's Certificate of Incorporation and Bylaws provide that a vacancy
occurring in the Board of Directors, including a vacancy created by any increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office, though less than a
quorum. Both Delaware Corporation Law and Hagler Bailly's Bylaws provide that if
at the time of filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the entire board as
constituted immediately prior to any increase, stockholders owning at least 10%
of the outstanding shares may request the Delaware Court of Chancery to order an
election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office.
Under Massachusetts Corporation Law, unless the articles of organization
provide otherwise, any vacancy in the board of directors, however occurring,
including a vacancy resulting from enlargement of the board and any vacancy in
any other office, may be filled in the manner prescribed in the by-laws, or, in
the absence of any such provision in the by-laws, by the directors. PHB's Bylaws
provide that a vacancy occurring in the Board of Directors, including a vacancy
resulting from the enlargement of the Board of Directors, may be filled by the
stockholders or a majority of the directors then in office.
Under Delaware Corporation Law, in the case of a Delaware corporation
having a classified board, stockholders may remove a director only for cause
unless the certificate of incorporation otherwise provides. Hagler Bailly's
Certificate of Incorporation provides that a director may be removed only for
cause and then only by the affirmative vote of at least two-thirds of the total
votes eligible to be voted at a duly constituted meeting of stockholders and
with 30 days' written notice to the director whose removal is to be considered.
Under Massachusetts Corporation Law, any director or the entire board of
directors may be removed, except as otherwise provided in the articles of
organization or by-laws, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors. PHB's Bylaws provide
that a director may be removed, (a) with or without cause by a vote of a
majority in interest of the stock issued and outstanding and entitled to vote at
an election of directors or (b) with cause by the Board, by a vote of the
majority of those directors then in office. A PHB director may be removed for
cause only after reasonable notice and opportunity to be heard.
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Interested Directors and Other Transactions
Delaware Corporation Law provides that no transaction between a corporation
and a director or officer, or any entity in which any of them has an interest,
is void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the board or committee
which authorizes the contract or transaction, or solely because of his or their
votes are counted for such purpose if: (a) after full disclosure the transaction
is approved by the disinterested directors, which may be less than a quorum, or
the stockholders or (b) the transaction is fair to the corporation at the time
it is approved. Massachusetts Corporation Law provides that directors who vote
for and officers who knowingly participate in loans to officers or directors are
jointly and severally liable to the corporation for any part of the loan which
is not repaid, unless: (a) a majority of the directors who are not direct or
indirect recipients of such loans or (b) the holders of a majority of the shares
entitled to vote for such directors, have approved or ratified the loan as one
which in the judgment of such directors or stockholders, as the case may be, may
reasonably be expected to benefit the corporation. PHB's Articles of
Organization provide that any transaction entered into by PHB shall, in the
absence of fraud, not be affected by a director's pecuniary or other interest in
such transaction provided that such interest is disclosed to the Board of
Directors prior to its approval of the transaction.
Indemnification and Limitation of Liability
Delaware Corporation Law generally permits broader indemnification of
directors and officers than does Massachusetts Corporation Law. Although
Delaware Corporation Law and Massachusetts Corporation Law permit corporations
to adopt charter provisions limiting the liability of directors to the
corporation and its stockholders under certain circumstances, the permitted
limitations under Delaware Corporation Law are somewhat more beneficial to
directors than those under Massachusetts Corporation Law.
Delaware Corporation Law generally permits indemnification of officers,
directors, employees and agents of a Delaware corporation against expenses
(including attorneys' fees) incurred in connection with a derivative action and
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlements incurred in connection with a third party action, provided there
is a determination by a majority vote of disinterested directors, independent
legal counsel or the stockholders that the person seeking indemnification acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation (and, with respect to any third party
criminal action or proceeding, had no reasonable cause to believe this conduct
was unlawful). Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable to
the corporation. Massachusetts Corporation Law similarly permits indemnification
of expenses in a derivative or third-party action, except that no
indemnification shall be provided for any person with respect to any matter as
to which he shall have been adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation
or, to the extent that such matter relates to service with respect to any
employee benefit plan, in the best interests of the participants or
beneficiaries of such benefit plan.
Delaware Corporation Law requires indemnification when the individual being
indemnified has successfully defended the action on the merits or otherwise.
Massachusetts Corporation Law merely permits indemnification to the extent
authorized in the corporation's articles of organization or its by-laws or as
set forth in a vote of stockholders.
Expenses incurred by an officer or director in defending an action may be
paid in advance under Delaware and Massachusetts Corporation Law if such officer
or director undertakes to repay such amounts should it be determined ultimately
that he is not entitled to indemnification. Delaware Corporation Law also
permits the advancement of expenses to employees and agents of the corporation
without such an undertaking to repay such amounts. In addition, both Delaware
and Massachusetts Corporation Law permit a corporation to purchase indemnity
insurance for the
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benefit of its officers, directors, employees and agents whether or not the
corporation would have the power to indemnify against the liability covered by
the policy.
Hagler Bailly's Certificate of Incorporation requires indemnification of
directors, officers, employees and agents of Hagler Bailly to the full extent
authorized by Delaware Corporation Law. Hagler Bailly's Bylaws and PHB's
Articles of Organization provide that each of the corporations will indemnify an
officer or director (or an employee and other persons in the case of Hagler
Bailly), if he or she acts in good faith and in a manner he or she believes to
be in the best interests of Hagler Bailly or PHB, as applicable, and, with
respect to a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Hagler Bailly's Certificate of Incorporation provides that
no director shall be personally liable to the corporation or any stockholder for
monetary damages for breach of fiduciary duty as a director other than
liability: (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) for any
payment of a dividend or approval of a stock repurchase that is illegal under
Section 174 of Delaware Corporation Law or (d) for any transaction from which a
director derived an improper personal benefit. Also, PHB's Articles and Hagler
Bailly's Bylaws provide that the respective corporations may obtain insurance on
behalf of directors, officers, employees and other persons.
After the Merger, the indemnification and limitation of liability
provisions of: (i) Massachusetts Corporation Law will apply to the Surviving
Corporation and (ii) Delaware Corporation Law will continue to apply to Hagler
Bailly.
Inspection Rights
Inspection rights under Delaware Corporation Law are more extensive than
under Massachusetts Corporation Law. Under Delaware Corporation Law,
stockholders have the right to inspect a corporation's stock ledger, stockholder
lists and other books and records for a proper purpose. Under Massachusetts
Corporation Law, a corporation's stockholders have a right to inspect only the
corporation's charter, by-laws, records of all meetings of incorporators and
stockholders and transfer records.
Special Meetings of Stockholders
The Hagler Bailly Bylaws provide that the president or the secretary, at
the request of a majority of the Board or stockholders owning a majority in
amount of the capital stock entitled to vote, may call a special meeting. Under
PHB's Bylaws, a special meeting of stockholders of PHB may be called by
stockholders entitled to vote 10% or more of the votes of the stockholders
entitled to vote at the meeting or by the president or a majority of the
directors then in office.
Action by Consent of the Stockholders
Under Delaware Corporation Law and Hagler Bailly's Bylaws, any action to be
taken by the stockholders of Hagler Bailly may be taken without a meeting,
without prior notice and without a vote, if the stockholders having the number
of votes that would be necessary to take such action at a meeting at which all
of the stockholders were present and voted consent to the action in writing.
Under Massachusetts Corporation Law, any action to be taken by stockholders of
PHB may be taken without a meeting only if all stockholders entitled to vote on
the matter consent to the action in writing.
Amendment of Certificate, Articles or Bylaws
Pursuant to Delaware Corporation Law and Hagler Bailly's Certificate of
Incorporation, Hagler Bailly's Certificate may be amended by a Board resolution
and the approval of a majority of the outstanding stock entitled to vote on the
amendment. Hagler Bailly's Bylaws provide that they may be amended by either the
Board or the stockholders.
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Pursuant to Massachusetts Corporation Law, amendments to a corporation's
articles of organization relating to certain changes in capital or in the
corporate name require the vote of at least a majority of each class of stock
outstanding and entitled to vote thereon. Amendments relating to other matters
require a vote of at least two-thirds of each class outstanding and entitled to
vote thereon or, if the articles of organization so provide, a greater or lesser
proportion but not less than a majority of the outstanding shares of each class.
The PHB Articles do not alter the required vote.
Massachusetts Corporation Law provides that by-laws may be made, amended or
repealed by stockholders, provided that, if authorized by the articles of
organization, the by-laws may provide that the directors may also make, amend,
or repeal the by-laws in whole or in part, except with respect to any provision
thereof which by law, or in accordance with the articles of organization or the
by-laws, requires action by the stockholders. PHB's Articles provide that its
Bylaws may be amended or repealed by the Board to the extent permitted by law.
PHB's Bylaws provide that they may be amended by the Board or by a vote of the
majority of all stock issued, outstanding and entitled to vote at a meeting or
by unanimous written consent of all stockholders entitled to vote.
Proxies
Delaware Corporation Law permits a proxy to be valid for up to three years
unless the proxy provides for a longer period. Massachusetts Corporation Law
permits the authorization by a stockholder to vote by proxy to be valid for no
more than six months.
Approval of Business Combinations and Asset Sales
Under Delaware Corporation Law, the affirmative vote of a majority of the
shares of stock outstanding and entitled to vote is necessary to approve a
merger or asset sale. Generally, under Massachusetts Corporation Law, the
affirmative vote of two-thirds of the shares of each class of stock outstanding
and entitled to vote or which would be adversely affected by a merger or asset
sale is necessary to approve a merger or a sale of all or substantially all of
the corporation's assets unless the articles of organization provide for a
lesser proportion of each class entitled to vote, but not less than a majority.
The PHB Articles do not provide for such a lesser proportion, so that the
approval of any such merger or sale, including the Merger, requires a two-thirds
vote of each class entitled to vote.
Dissenters' Rights
Under Massachusetts Corporation Law, dissenting stockholders who follow
prescribed statutory procedures are entitled to dissenters' rights in connection
with any merger or sale of substantially all the assets of a corporation and in
connection with certain mergers, reclassifications and other transactions which
may adversely affect the rights or preferences of stockholders. See "THE MERGER
- -- Dissenters' Rights of Appraisal" and Annex E. Delaware Corporation Law
provides similar rights in the case of a merger or consolidation of a
corporation except that such rights are not provided as to shares of a
corporation listed on a national securities exchange or designated as a national
market system security on an interdealer quotation systems by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders where such stockholders are required to accept in such a merger
only: (a) shares of the surviving or resulting corporation; (b) shares of a
corporation listed on a national securities exchange or held of record by more
than 2,000 holders; (c) cash in lieu of fractional shares or (d) any combination
thereof. Delaware Corporation Law does not provide dissenters' rights in
connection with sales of substantially all of the assets of a corporation,
reclassifications of stock or other amendments to the certificate of
incorporation which adversely affect a class of stock; provided, however, that a
corporation may provide in its certificate of incorporation that appraisal
rights shall be available as a result of an amendment to its certificate of
incorporation, a merger or a sale of all or substantially all of its assets. The
Hagler Bailly Certificate of Incorporation, however, does not contain any
provisions as to appraisal rights.
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Payment of Dividends
Delaware Corporation Law permits the payment of dividends out of paid-in
and earned surplus or out of net profits for the current and preceding fiscal
year. There are no restrictions on authorized dividend payments under
Massachusetts Corporation Law.
Anti-takeover Statutes and Provisions
Section 203 of Delaware Corporation Law (the "Delaware Takeover Statute")
applies to Delaware corporations with a class of voting stock listed on a
national securities exchange, authorized for quotation on the Nasdaq Stock
Market, or held of record by 2,000 or more persons, and restricts transactions
which may be entered into by such a corporation and certain of its stockholders.
The Delaware Takeover Statute provides, in essence, that a stockholder acquiring
more than 15%, but less than 85%, of the outstanding voting stock of a
corporation subject to the statute and such person's affiliates and associates
(each, an "Interested Person") may not engage in certain "Business Combinations"
(as defined therein) with the corporation for a period of three years subsequent
to the date on which the stockholder became an Interested Person unless: (a)
prior to such date the corporation's board of directors approved either the
Business Combination or the transaction in which the stockholder became an
Interested Person or (b) the Business Combination is approved by the
corporation's board of directors and authorized by a vote of at least two-thirds
of the outstanding voting stock of the corporation not owned by the Interested
Person. The Delaware Takeover Statute defines the term "Business Combination" to
include a wide variety of transactions with or caused by an Interested Person in
which the Interested Person receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Person, transactions
with the corporation which increase the proportionate interest of the Interested
Person or transactions in which the Interested Person receives certain other
benefits.
Massachusetts Corporation Law contains an analogous anti-takeover law which
is set forth in Chapter 110F of the General Laws of Massachusetts. Chapter 110F
does not apply to the Merger because the transaction has been approved by the
PHB Board.
THE CERTIFICATE AMENDMENT
The Hagler Bailly Board of Directors has unanimously approved the
Certificate Amendment. The Hagler Bailly Board of Directors has determined that
the proposed amendment to Hagler Bailly's Certificate of Incorporation is
advisable and in the best interests of Hagler Bailly and its stockholders, and
unanimously recommends that the holders of Hagler Bailly common stock vote to
approve the amendment. Approval of the Certificate Amendment is not a condition
to the Merger.
Hagler Bailly's Certificate of Incorporation currently provides that the
total number of shares of all classes of capital stock that Hagler Bailly has
authority to issue is 25,000,000, consisting of 20,000,000 shares of Hagler
Bailly common stock and 5,000,000 shares of preferred stock, par value $0.01 per
share. The Certificate Amendment's purpose is to increase the number of
authorized shares of Hagler Bailly common stock from 20,000,000 to 50,000,000,
resulting in an increase in the number of authorized shares of capital stock
from 25,000,000 to 55,000,000. The increase will be effected by amending the
relevant part of Article 4 of Hagler Bailly's Amended and Restated Certificate
of Incorporation to read as follows:
"4. Capital Stock. The total number of shares of all classes of the capital
stock which the corporation shall have authority to issue is:
50,000,000 shares, par value one cent ($0.01) per share of common stock"
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Of the 20,000,000 presently authorized shares of Hagler Bailly common
stock, 9,627,503 shares were issued and outstanding as of July 15, 1998 and
3,200,000 shares were reserved for issuance with respect to the Hagler Bailly's
stock option plans. As of July 15, 1998, no shares of preferred stock were
outstanding. Under the terms of the Merger Agreement, Hagler Bailly will issue
6,600,000 shares of Hagler Bailly common stock, subject to adjustment, to the
holders of PHB common stock. Accordingly, if the Merger closes, only 790,264
shares of authorized but not outstanding and unreserved shares of Hagler Bailly
common stock will remain available for future issuance.
The Board of Directors has determined that the Certificate Amendment is
advisable and in the best interests of Hagler Bailly and its stockholders, and
unanimously recommends that stockholders approve it. Other than securities that
would be issued in connection with the Merger, Hagler Bailly has no present
intention of issuing any other authorized but unissued and unreserved shares of
Hagler Bailly capital stock. The Board of Directors believes that the increased
number of shares of Hagler Bailly common stock, regardless of whether the Merger
is consummated or not, will benefit Hagler Bailly and its stockholders. It will
make a sufficient number of shares available in the future for use in connection
with possible stock dividends or splits, raising additional capital through
public offerings or private placements, possible future mergers or acquisitions,
or under employee option or stock ownership plans.
The unissued and unreserved shares of Hagler Bailly common stock will be
available for any proper corporate purpose, as authorized by the Board of
Directors, without further approval by the Hagler Bailly stockholders, except as
otherwise required by law or the rules of the Nasdaq Stock Market. Hagler Bailly
stockholders do not have any preemptive or other rights to purchase additional
shares of Hagler Bailly common stock. Issuances of additional shares of Hagler
Bailly common stock or securities convertible into Hagler Bailly common stock,
therefore, may have a dilutive effect on existing stockholders of Hagler Bailly.
In the event of a proposed merger, tender offer or other attempt to gain
control of Hagler Bailly, it may be possible for the Board of Directors to
approve the issuance of shares of Hagler Bailly common stock or preferred stock
in a transaction that could have the effect of frustrating or impeding such
takeover attempt. The Board of Directors has no current intention to issue
authorized but unissued shares for such purpose. The Board of Directors is not
aware of any specific effort to accumulate Hagler Bailly common stock in order
to obtain control of Hagler Bailly by means of merger, tender offer or
otherwise.
THE STOCK OPTION PLAN AMENDMENT
The Hagler Bailly Board of Directors has approved and is proposing for
stockholder approval, the Stock Option Plan Amendment which would increase the
number of shares of Hagler Bailly common stock reserved for issuance under the
Stock Option Plan by 1,800,000 shares (from 3,200,000 to 5,000,000 shares). As
of July 20, 1998, options with respect to 1,384,713 shares of Hagler Bailly
common stock were outstanding under the Stock Option Plan. Hagler Bailly
management believes that stock options have been and will continue to be one of
the most important methods of attracting and retaining key personnel responsible
for the development and growth of Hagler Bailly's business. In order to permit
Hagler Bailly to continue to use stock options as an incentive to its officers
and key personnel and as a means to promote increased stockholder value, the
Board believes that the Stock Option Plan needs to be amended to increase the
number of shares reserved for issuance. The Board of Directors has determined
that the Stock Option Plan Amendment is advisable and in the best interests of
Hagler Bailly and its stockholders, and recommends that stockholders approve it.
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INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Ernst & Young LLP, independent public accountants to
Hagler Bailly, are expected to be present at the Hagler Bailly special meeting
and will have the opportunity to make a statement and are expected to be
available to respond to appropriate questions.
HAGLER BAILLY STOCKHOLDER PROPOSALS
Any proposal submitted under SEC Rule 14a-8 for inclusion in the proxy
materials for Hagler Bailly's 1999 Annual Meeting must be received by Hagler
Bailly at its principal executive offices at 1530 Wilson Boulevard, Suite 400,
Arlington, Virginia 22209, no later than December 4, 1998. Any other proposal
for consideration by stockholders at next year's annual meeting must be received
by Hagler Bailly by February 24, 1999.
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ANNEX LIST
(documents incorporated by reference)
Annex A - Agreement and Plan of Merger and Certain Exhibits
Annex B - Opinion of Hagler Bailly's Financial Advisor
Annex C - Consolidated Financial Statements of Hagler Bailly
Annex D - Consolidated Financial Statements of PHB
Annex E - Pro Forma Combined Consolidated Financial Statements
Annex F - Massachusetts Law Concerning Dissenters' Rights
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Annex A - Agreement and Plan of Merger and Certain Exhibits
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HAGLER BAILLY, INC.
PHB MERGER CORP.
and
PUTNAM, HAYES & BARTLETT, INC.
DATED AS OF JUNE 11, 1998
<PAGE>
TABLE OF CONTENTS
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ARTICLE I THE MERGER.............................................................................................2
SECTION 1.1. The Merger.................................................................................2
SECTION 1.2. Effective Time.............................................................................3
SECTION 1.3. Effect of the Merger.......................................................................3
SECTION 1.4. Articles of Organization; Bylaws...........................................................3
SECTION 1.5. Directors and Officers.....................................................................3
SECTION 1.6. Merger Deliveries..........................................................................4
SECTION 1.7. Subsequent Actions.........................................................................4
SECTION 1.8. Tax and Accounting Treatment of the Merger.................................................4
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES....................................................5
SECTION 2.1. Conversion of Securities...................................................................5
SECTION 2.2. Escrowed Merger Stock; Stockholders'Representative.........................................6
SECTION 2.3. PHB Options................................................................................7
SECTION 2.4. Exchange of Certificates...................................................................8
SECTION 2.5. Dissenting Shares..........................................................................9
SECTION 2.6. Stock Transfer Books......................................................................10
SECTION 2.7. Transferability of HAGLER BAILLY Common Stock.............................................10
SECTION 2.8. Certain Adjustments.......................................................................11
SECTION 2.9. Legend; Subsequent Transfer...............................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PHB...............................................................11
SECTION 3.1. PHB's Organization and Qualification; Subsidiaries........................................12
SECTION 3.2. Articles of Organization and Bylaws.......................................................12
SECTION 3.3. Capitalization............................................................................12
SECTION 3.4. Authority.................................................................................13
SECTION 3.5. No Conflict; Required Filings and Consents................................................13
SECTION 3.6. Financial Statements......................................................................14
SECTION 3.7. Absence of Certain Changes or Events......................................................14
SECTION 3.8. Legal Proceedings.........................................................................15
SECTION 3.9. Material Contracts........................................................................15
SECTION 3.10. Environmental Matters....................................................................16
SECTION 3.11. Employee Matters; ERISA..................................................................17
SECTION 3.12. Employee Benefit Plans...................................................................18
SECTION 3.13. Licenses and Permits; Compliance with Laws...............................................20
SECTION 3.14. Assets, Real Property and Leases.........................................................20
SECTION 3.15. Insurance................................................................................20
SECTION 3.16. Intellectual Property....................................................................21
SECTION 3.17. Investment Company.......................................................................21
SECTION 3.18. Taxes....................................................................................21
SECTION 3.19. Joint Proxy Statement....................................................................22
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SECTION 3.20. Books and Records........................................................................22
SECTION 3.21. Transactions with Related Parties........................................................22
SECTION 3.22. Board Approval; Vote Required............................................................22
SECTION 3.23. Brokers..................................................................................23
SECTION 3.24. Status of PHB Stockholders...............................................................23
SECTION 3.25. Material Information.....................................................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HAGLER BAILLY......................................................23
SECTION 4.1. HAGLER BAILLY's Organization
and Qualification; Subsidiaries........................................................23
SECTION 4.2. Articles of Organization and Bylaws.......................................................24
SECTION 4.3. Capitalization............................................................................24
SECTION 4.4. Authority.................................................................................25
SECTION 4.5. No Conflict; Required Filings and Consents................................................25
SECTION 4.6. Financial Statements......................................................................26
SECTION 4.7. Absence of Certain Changes or Events......................................................27
SECTION 4.8. Legal Proceedings.........................................................................27
SECTION 4.9. Material Contracts........................................................................27
SECTION 4.10. Environmental Matters....................................................................29
SECTION 4.11. Employee Matters; ERISA..................................................................29
SECTION 4.12. Employee Benefit Plans...................................................................30
SECTION 4.13. Licenses and Permits; Compliance with Laws...............................................32
SECTION 4.14. Assets, Real Property and Leases.........................................................32
SECTION 4.15. Insurance................................................................................33
SECTION 4.16. Intellectual Property....................................................................33
SECTION 4.17. Investment Company.......................................................................34
SECTION 4.18. Taxes....................................................................................34
SECTION 4.19. Joint Proxy Statement....................................................................34
SECTION 4.20. Books and Records........................................................................34
SECTION 4.21. Transactions with Related Parties.......................................................35
SECTION 4.22. Board Approval; Vote Required............................................................35
SECTION 4.23. Brokers..................................................................................35
SECTION 4.24. Material Information.....................................................................35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB..........................................................36
SECTION 5.1. Organization and Qualification............................................................36
SECTION 5.2. Articles of Organization and Bylaws.......................................................36
SECTION 5.3. Authority.................................................................................36
SECTION 5.4. No Conflict; Required Filings and Consents................................................37
SECTION 5.5. Material Information......................................................................38
ARTICLE VI COVENANTS............................................................................................38
SECTION 6.1. Affirmative Covenants of PHB and HAGLER BAILLY............................................38
SECTION 6.2. Negative Covenants of PHB and HAGLER BAILLY...............................................39
SECTION 6.3. Non-Solicitation Covenant of PHB and HAGLER BAILLY........................................41
ARTICLE VII ADDITIONAL AGREEMENTS...............................................................................42
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SECTION 7.1. Access and Information....................................................................42
SECTION 7.2. Confidentiality...........................................................................42
SECTION 7.3. PHB and HAGLER BAILLY Stockholders'Meetings...............................................43
SECTION 7.4. Joint Proxy Statement.....................................................................44
SECTION 7.5. Further Action; Best Efforts..............................................................45
SECTION 7.6. Public Announcements......................................................................45
SECTION 7.7. No Solicitation...........................................................................45
SECTION 7.8. Employees.................................................................................48
SECTION 7.9. Affiliate Agreements......................................................................48
SECTION 7.10. PHB Stockholders'Certificate.............................................................49
SECTION 7.11. Pooling Accounting.......................................................................49
SECTION 7.12. Registration Rights and Tag Along Agreement..............................................49
SECTION 7.13. Post-Merger Management of HAGLER BAILLY and PHB..........................................49
SECTION 7.14. Post-Merger Board of Directors of HAGLER BAILLY..........................................51
ARTICLE VIII CLOSING CONDITIONS.................................................................................52
SECTION 8.1. Conditions to Obligations of
HAGLER BAILLY, Merger Sub and PHB to Effect the Merger.................................52
SECTION 8.2. Additional Conditions to Obligations of HAGLER BAILLY.....................................53
SECTION 8.3. Additional Conditions to Obligations of PHB...............................................55
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER....................................................................56
SECTION 9.1. Termination...............................................................................56
SECTION 9.2. Effect of Termination.....................................................................57
SECTION 9.3. Amendment.................................................................................58
SECTION 9.4. Waiver....................................................................................58
ARTICLE X SPECIAL TAX INDEMNITY AGREEMENT; ESCROW ARRANGEMENTS; REMEDIES........................................59
SECTION 10.1. Survival of Special Tax Indemnity........................................................59
SECTION 10.2. Special Tax Indemnification; Escrow Arrangements.........................................59
ARTICLE XI GENERAL PROVISIONS...................................................................................60
SECTION 11.1. Nonsurvival of Representations, Warranties and Agreements................................60
SECTION 11.2. Notices..................................................................................61
SECTION 11.3. Certain Definitions......................................................................62
SECTION 11.4. Headings.................................................................................63
SECTION 11.5. Severability.............................................................................64
SECTION 11.6. Entire Agreement.........................................................................64
SECTION 11.7. Specific Performance.....................................................................64
SECTION 11.8. Assignment...............................................................................64
SECTION 11.9. Third Party Beneficiaries................................................................64
SECTION 11.10. Governing Law...........................................................................65
SECTION 11.11. Counterparts............................................................................65
SECTION 11.12. Fees and Expenses.......................................................................65
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
11th day of June, 1998, by and among HAGLER BAILLY, INC., a Delaware corporation
("HAGLER BAILLY"), PHB MERGER CORP., a Delaware corporation and a wholly-owned
subsidiary of HAGLER BAILLY ("Merger Sub"), and PUTNAM, HAYES & BARTLETT, INC.,
a Massachusetts corporation ("PHB").
WHEREAS, the Boards of Directors of HAGLER BAILLY and PHB have each
determined that it is in the best interests of their respective stockholders
that HAGLER BAILLY and PHB enter into a business combination under which Merger
Sub, a wholly-owned subsidiary of HAGLER BAILLY, will merge with and into PHB
pursuant to the Merger (as defined below) and HAGLER BAILLY and PHB desire to
enter into the "merger of equals" transaction contemplated hereby, and, in
connection therewith, to make certain representations, warranties and agreements
in connection with the Merger;
WHEREAS, the Boards of Directors of HAGLER BAILLY and PHB have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals and have each approved the Merger upon the terms and conditions set forth
herein;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to the parties to enter into this Agreement, HAGLER BAILLY, PHB,
Merger Sub and certain stockholders of HAGLER BAILLY have entered into a support
agreement (the "HAGLER BAILLY Support Agreement"), pursuant to which, among
other things, certain stockholders of HAGLER BAILLY have agreed to vote their
respective shares of common stock of HAGLER BAILLY in favor of the issuance of
shares of common stock of HAGLER BAILLY in connection with this Agreement, the
Merger and the other transactions contemplated by this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to the parties to enter into this Agreement, PHB, HAGLER BAILLY,
Merger Sub and certain stockholders of PHB have entered into a support agreement
(the "PHB Support Agreement"), pursuant to which, among other things, certain
stockholders of PHB have agreed to vote their respective shares of common stock
of PHB in favor of this Agreement, the Merger and the other transactions
contemplated by this Agreement;
WHEREAS, as an inducement to PHB to enter into this Agreement and the PHB
Stockholders to vote in favor of the Merger and this Agreement, Hagler Bailly
has agreed to uphold the indemnification obligations set forth in PHB's Articles
of Incorporation and By-laws, enter into the Registration Rights Agreements (as
<PAGE>
defined below) and agree to the Post-Merger Management of Hagler Bailly and PHB
set forth in Section 7.13 below.
WHEREAS, in connection with the transactions contemplated by this Agreement
and as an inducement to HAGLER BAILLY and Merger Sub to enter into this
Agreement, certain directors of PHB have entered into employment agreements with
HAGLER BAILLY (the "Employment Agreements"), the effectiveness of which is
conditioned upon the consummation of the Merger;
WHEREAS, in connection with the transactions contemplated by this Agreement
and as a condition to consummation of the Merger, HAGLER BAILLY, Merger Sub, the
Stockholders' Representative (as defined in Section 2.2(b) hereof) and State
Street Bank and Trust Company, a Massachusetts banking corporation, as escrow
agent (the "Escrow Agent"), shall enter into an escrow agreement as of the
Merger Date, in the form attached hereto as Exhibit A (the "Escrow Agreement"),
pursuant to which a certain number of the shares of common stock, par value $.01
per share, of HAGLER BAILLY (the "HAGLER BAILLY Common Stock"), to be issued as
consideration in the Merger will be retained in escrow;
WHEREAS, at Closing, HAGLER BAILLY shall execute a Registration Rights
Agreement in the form attached hereto as Exhibit B (the "Registration Rights
Agreement" and, together with the HAGLER BAILLY Support Agreement, the PHB
Support Agreement, the Escrow Agreement and the Employment Agreements, the
"Related Agreements"), pursuant to which stockholders of PHB who execute the
Registration Rights Agreement will obtain "piggyback" registration and
"tag-along" rights;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Massachusetts Business Corporation Law (the "MBCL")
and the Delaware General Corporation Law ("DGCL"), at the Effective Time (as
defined in Section 1.2), Merger Sub shall be merged with and into PHB (the
"Merger"). As a result of the Merger, the separate corporate existence of Merger
Sub shall cease, and PHB shall continue as the surviving corporation of the
Merger (sometimes referred to herein as the "Surviving Corporation") as a
wholly-owned subsidiary of
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HAGLER BAILLY. The name of the Surviving Corporation shall be Putnam, Hayes &
Bartlett, Inc.
SECTION 1.2. Effective Time.
At the Closing (as defined in Section 1.6), the parties hereto shall cause
the Merger to be consummated by filing (a) articles of merger with the Secretary
of State of the Commonwealth of Massachusetts (the "Massachusetts Articles of
Merger") in such form as required by, and executed in accordance with the
relevant provisions of the MBCL, and (b) articles of merger with the Secretary
of State of the State of Delaware (the "Delaware Articles of Merger") in such
form as required by, and executed in accordance with the relevant provisions of
the DGCL (the Massachusetts Articles of Merger and the Delaware Articles of
Merger being collectively known as the "Articles of Merger"). The Articles of
Merger shall be filed in such form as reasonably approved by PHB and HAGLER
BAILLY prior to such filing, and the date and time of the filing of the latter
of the two Articles of Merger (or such subsequent date or time specified
therein) shall be the "Effective Time".
SECTION 1.3. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in
this Agreement and the applicable provisions of the MBCL and DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Merger Sub and PHB shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Merger Sub and PHB shall
become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. Articles of Organization; Bylaws.
At the Effective Time:
(a) the articles of organization of PHB, as in effect immediately
prior to the Effective Time and as amended by the Articles of Merger, shall
be the articles of organization of the Surviving Corporation; and
(b) the bylaws of the Surviving Corporation shall be as set forth in
Exhibit H hereto.
SECTION 1.5. Directors and Officers.
Henri-Claude Bailly and Howard W. Pifer, III shall be the sole directors of
the Surviving Corporation, to hold office in accordance with the articles of
organization and bylaws of the Surviving Corporation; and the officers of PHB
shall continue as the officers of the Surviving Corporation, in each case until
their
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respective successors are duly elected or appointed and qualified. HAGLER BAILLY
shall take all action necessary so that the indemnification obligations set
forth in PHB's Articles of Incorporation and By-laws, in each case as of the
date of this Agreement, shall survive the Merger and shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of the
individuals who on or prior to the Effective Time were directors or officers of
PHB or the PHB Subsidiaries with respect to occurrences prior to the Effective
Time.
SECTION 1.6. Merger Deliveries.
Subject to the terms and conditions of this Agreement, the Merger will take
place as promptly as practicable after satisfaction of the latest to occur or,
if permissible, waiver, of the conditions set forth in Article VIII hereof (the
"Merger Date"). All deliveries required as a condition to, or upon the
effectiveness of, the Merger shall be made at the offices of Hogan & Hartson
L.L.P., 555 Thirteenth Street, N.W., Washington, D.C. 20004, unless another date
or place is agreed to by the parties hereto.
SECTION 1.7. Subsequent Actions.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to continue in, vest,
perfect or confirm of record or otherwise in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties,
privileges, franchises or Assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be directed and
authorized to execute and deliver, in the name and on behalf of either of such
constituent corporations, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties, privileges, franchises or Assets in
the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.8. Tax and Accounting Treatment of the Merger.
It is intended by the parties hereto that the Merger shall:
(a) constitute a reorganization of Merger Sub and PHB within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"); and
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(b) qualify for accounting treatment as a pooling of interests.
The parties hereby adopt this Agreement as a "plan or reorganization" of
Merger Sub and PHB within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any action on
the part of HAGLER BAILLY, Merger Sub, PHB or the holders of the following
securities:
(a) PHB Common Stock. Subject to the provisions hereof, each share of
common stock, par value $0.01 per share, of PHB (the "PHB Common Stock")
issued and outstanding immediately prior to the Effective Time shall,
except as otherwise provided in Section 2.1(b), be converted into and
exchangeable for, and immediately after the Effective Time HAGLER BAILLY
shall be required to deliver certificates pursuant to Section 2.4 hereof, a
number of shares of HAGLER BAILLY Common Stock (the "Merger Stock") equal
to:
(i) 6,600,000, divided by
(ii) the number of shares of PHB Common Stock issued and
outstanding immediately prior to the Effective Time.
All such shares of PHB Common Stock shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each certificate (the "PHB Certificate") previously evidencing any such
shares shall thereafter represent only the right to receive the HAGLER
BAILLY Common Stock. The holders of certificates previously evidencing such
shares of PHB Common Stock outstanding immediately prior to the Effective
Time (the "PHB Stockholders") shall cease to have any rights with respect
to such shares of PHB Common Stock, except as otherwise provided herein.
After the Merger Date, there will be no adjustment to the number of shares
of Merger Stock into which the PHB Common Stock is convertible. For
purposes of this Agreement, the parties agree and acknowledge that the term
"Merger Stock" shall include the Escrow Stock.
(b) Treasury Stock. All shares of capital stock of PHB held in the
treasury of PHB immediately prior to the Effective Time shall be canceled
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and extinguished without any conversion thereof and no HAGLER BAILLY Common
Stock or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Merger Sub Stock. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) No Fractional Shares. No fraction of a share of HAGLER BAILLY
Common Stock shall be issued in connection with the Merger. In lieu of any
such fractional share, the holder of PHB Common Stock that would be
entitled to a fractional share shall have the right to receive an amount in
cash, without interest, equal to the product of such fractional part of
HAGLER BAILLY Common Stock multiplied by the reported closing price of a
share of HAGLER BAILLY Common Stock on the Nasdaq Stock Market on the last
business day prior to the Merger Date.
SECTION 2.2. Escrowed Merger Stock; Stockholders' Representative.
(a) When making the issuances of shares of HAGLER BAILLY Common Stock
required by Section 2.1(a) and pursuant to the Escrow Agreement, HAGLER
BAILLY shall withhold and deposit in escrow from the PHB Stockholders One
Hundred Fifty Thousand (150,000) shares of HAGLER BAILLY Common Stock
issuable pursuant to Sections 2.1(a) (the "Escrow Stock"). The Escrow Stock
will be placed in escrow pursuant to the Escrow Agreement as security for
the faithful performance of the indemnity obligations of the PHB
Stockholders under Article X of this Agreement. The Escrow Stock shall be
registered in the name of the Escrow Agent as nominee for the PHB
Stockholders. The Merger Stock otherwise distributable as of the Effective
Time to each PHB Stockholder in connection with the Merger as provided in
Sections 2.1(a) shall be proportionally reduced to reflect the deposit in
escrow of those portions of the aggregate Merger Stock required to be
deposited in escrow as described in this Section 2.2, and such Escrow Stock
shall be released to the PHB Stockholders or HAGLER BAILLY, as the case may
be, only in accordance with the terms of the Escrow Agreement and this
Agreement.
(b) William Dickenson shall, by virtue of the Merger, be authorized
and empowered to act, for and on behalf of any or all of the PHB
Stockholders (with full power of substitution in the premises), in
connection with the indemnity provisions of Article X as they relate to PHB
generally and such other matters as are reasonably necessary for the
consummation of
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the transactions contemplated hereby including, without limitation, (i) to
review all claims for indemnification asserted by any HAGLER BAILLY
Indemnified Person, and, to the extent deemed appropriate, dispute,
question the accuracy of, compromise, settle or otherwise resolve any and
all such claims, (ii) to compromise on their behalf with HAGLER BAILLY any
claims asserted thereunder, (iii) to authorize payments to be made with
respect to any such claims for indemnification, (iv) to execute and deliver
on behalf of the PHB Stockholders any document or agreement contemplated by
or necessary or desirable in connection with this Agreement, the Escrow
Agreement and the transactions contemplated hereby and thereby, and (v) to
take such further actions including coordinating and administering
post-closing matters related to the rights and obligations of the PHB
Stockholders as are authorized in this Agreement (the above named
representative, as well as any subsequent representative of the PHB
Stockholders appointed by the PHB Stockholders being referred to herein as
the "Stockholders' Representative"). The Stockholders' Representative shall
not be liable to any PHB Stockholder, HAGLER BAILLY, the Surviving
Corporation or their respective affiliates or any other person with respect
to any action taken or omitted to be taken by the Stockholders'
Representative in his role as Stockholders' Representative under or in
connection with this Agreement unless such action or omission results from
or arises out of fraud or intentional misconduct on the part of the
Stockholders' Representative; provided, however, that the Stockholders'
Representative shall not be liable to any PHB Stockholder in the event that
in the exercise of his reasonable judgment, the Stockholders'
Representative believes there will not be adequate resources available to
cover potential costs and expenses to contest a claim made by HAGLER BAILLY
against the Escrow Stock. HAGLER BAILLY and Merger Sub shall be entitled to
rely on such appointment and treat such Stockholders' Representative as the
duly appointed attorney-in-fact of each PHB Stockholder.
SECTION 2.3. PHB Options.
PHB shall terminate the 1992 Non-Qualified Stock Option Plan or any other
stock option plan or agreement of PHB by which employees or PHB Stockholders of
PHB are permitted to purchase PHB Common Stock (collectively, the "PHB Stock
Option Plans") as of the Effective Time and shall take all such action as is
necessary to terminate each outstanding option or right to purchase shares of
PHB Common Stock, if any (collectively, the "PHB Options") so that on or after
the Effective Time no holder of a PHB Option or participant or former
participant in the PHB Stock Option Plans shall have any right to purchase
shares of PHB Common Stock or any other equity interest in PHB or the Surviving
Corporation.
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SECTION 2.4. Exchange of Certificates.
(a) Exchange Agent. Prior to the Merger Date, HAGLER BAILLY and PHB
shall jointly designate a bank or trust company to act as exchange agent
hereunder (the "Exchange Agent") to effect the exchange of PHB Common Stock
for HAGLER BAILLY Common Stock. At the Effective Time, HAGLER BAILLY shall,
on behalf of Merger Sub, deposit with or for the account of the Exchange
Agent (i) stock certificates representing the Merger Stock issuable
pursuant to Section 2.1(a) (less certificates representing the shares of
Escrow Stock to be deposited in escrow pursuant to this Agreement and the
Escrow Agreement), which shares of Merger Stock shall be deemed to have
been issued at the Effective Time and (ii) sufficient cash to pay for
fractional shares contemplated to be paid pursuant to Section 2.1(d).
(b) Exchange Procedures. Promptly after the Effective Time,
certificates representing PHB Common Stock shall be canceled, and,
simultaneously with such cancellation, HAGLER BAILLY shall issue
certificates with respect to the canceled PHB Common Stock for each PHB
Stockholder. All such certificates (the "Merger Stock Certificates") shall
be registered in the name of each PHB Stockholder and shall represent the
total number of shares of HAGLER BAILLY Common Stock issuable pursuant to
the Merger in respect of shares of PHB Common Stock held by such PHB
Stockholder (less the PHB Stockholder's proportionate interest in the
Escrow Stock) and the second certificate, representing the shares of Escrow
Stock (the "Escrow Stock Certificate"), shall be issued in the name of the
Escrow Agent as nominee of each PHB Stockholder.
Prior to or promptly after the Effective Time, HAGLER BAILLY shall cause
the Exchange Agent to mail to each PHB Stockholder (i) instructions for use in
surrendering such PHB Certificates in exchange for certificates representing
HAGLER BAILLY Common Stock and (ii) a form of letter of transmittal specifying
that delivery shall be effected, and risk of loss and title to the PHB
Certificates shall pass, only upon proper delivery of the PHB Certificates to
the Exchange Agent. Upon surrender of a PHB Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal duly executed, the
holder of such PHB Certificate shall be entitled to receive in exchange therefor
the Merger Stock Certificate, plus cash in lieu of fractional shares in
accordance with Section 2.1(d), and the PHB Certificate so surrendered shall
forthwith be canceled. At the Effective Time, HAGLER BAILLY shall issue the
Escrow Stock Certificate and transfer the Escrow Stock Certificate to the Escrow
Agent to be held in escrow. Until so surrendered, each PHB Certificate shall be
deemed at any time after the Effective Time for all corporate purposes of HAGLER
BAILLY, other than the payment of dividends and other distributions, if any, to
evidence ownership of the number of full shares of HAGLER BAILLY Common Stock
into which the shares of PHB Common Stock theretofore represented thereby shall
have been converted at
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the Effective Time. Unless and until any such PHB Certificate theretofore
representing PHB Common Stock is so surrendered, no dividend or other
distribution, if any, payable to the holders of record of HAGLER BAILLY Common
Stock as of any date subsequent to the Effective Time shall be paid to the
holder of such PHB Certificate in respect thereof. Upon the surrender of any
such PHB Certificate, however, the record holder of the certificate or
certificates representing shares of HAGLER BAILLY Common Stock issued in
exchange therefor shall receive from the Exchange Agent or from HAGLER BAILLY,
as the case may be, payment of the amount of dividends and other distributions,
if any, which as of any date subsequent to the Effective Time and until such
surrender shall have become payable with respect to such number of shares of
HAGLER BAILLY Common Stock ("Pre-Surrender Dividends"). No interest shall be
payable with respect to the payment of Pre-Surrender Dividends upon the
surrender of PHB Certificates.
SECTION 2.5. Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, shares of PHB Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by PHB
Stockholders who shall not have voted in favor of the Merger and who shall
have objected to the Merger in writing, stating that such PHB Stockholders
intend to demand payment for the PHB Common Stock held by such PHB
Stockholders in accordance with Section 156B ss. 86 of the MBCL
(collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive HAGLER BAILLY Common Stock pursuant to
Section 2.1(a). Such PHB Stockholders shall be entitled to receive payment
of the appraisal value of such shares of PHB Common Stock held by them in
accordance with the provisions of Sections 156B ss.ss. 86-98 of the MBCL,
except that all Dissenting Shares held by PHB Stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of PHB Common Stock under such Sections
156B ss.ss. 86-98 shall thereupon be deemed to have been converted into and
to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the HAGLER BAILLY Common Stock, upon
surrender of the certificate or certificates that formerly evidenced such
shares of PHB Common Stock.
(b) PHB shall give HAGLER BAILLY:
(i) prompt notice of any written objections to the Merger and any
written demands for payment and appraisal for any shares of PHB Common
Stock, withdrawals of such objections or demands, and any other
instruments served pursuant to the MBCL and received by PHB, and
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(ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for payment and appraisal under
the MBCL.
PHB shall not, except with the prior written consent of HAGLER
BAILLY, voluntarily provide any consideration with respect to any
demands for payment or appraisal of PHB Common Stock or offer to
settle or settle any such demands.
SECTION 2.6. Stock Transfer Books.
At the Effective Time, the stock transfer books of PHB with respect to all
shares of capital stock of PHB shall be closed, and no further registration of
transfers of such shares of capital stock shall thereafter be made on the
records of PHB. In the event of a transfer of ownership of PHB Common Stock that
is not registered in the stock transfer records of PHB at the Effective Time, a
certificate or certificates representing the number of full shares of HAGLER
BAILLY Common Stock into which such shares of PHB Common Stock shall have been
converted shall be issued to the transferee together with a cash payment in lieu
of fractional shares, if any, in accordance with Section 2.1(d) hereof, and a
cash payment in the amount of Pre-Surrender Dividends, if any, in accordance
with Section 2.4 hereof, if the PHB Certificate or PHB Certificates is or are
surrendered to the Exchange Agent as provided in Section 2.4 hereof, accompanied
by all documents required to evidence and effect such transfer and by evidence
of payment of any applicable stock transfer tax.
SECTION 2.7. Transferability of HAGLER BAILLY Common Stock.
The shares of HAGLER BAILLY Common Stock to be issued and delivered to PHB
Stockholders in the Merger in accordance with the provisions of Section 2.1 will
not have been registered under the Securities Act of 1933, as amended (the
"Securities Act") or under the securities laws of any state as of the Closing.
Accordingly, those shares of HAGLER BAILLY Common Stock (together with any other
shares with respect to these shares received pursuant to Section 2.8) will have
restrictions on transferability under the Securities Act, state securities laws,
the rules, regulations and other administrative regulations promulgated under
the Securities Act and state securities laws and shall bear appropriate legends
to this effect as set forth in Section 2.9. In addition, where applicable, the
legend shall provide notice as to the restrictions on transfer pursuant to the
Affiliate Agreements (as defined in Section 7.9).
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SECTION 2.8. Certain Adjustments.
If between the date hereof and the Effective Time the outstanding shares of
HAGLER BAILLY Common Stock shall be changed into a different number of shares by
reason of any reclassification, stock dividend or stock split with a record date
within such period, the number of shares of Merger Stock shall be adjusted
accordingly to provide to PHB Stockholders the same economic effect as
contemplated by this Agreement prior to such reclassification, stock dividend or
stock split.
SECTION 2.9. Legend; Subsequent Transfer.
Each certificate representing HAGLER BAILLY Common Stock issued to PHB
Stockholders hereunder shall be stamped or otherwise imprinted with a legend
(the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
UNDER THE SECURITIES LAW OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE ACT; OR (B)(i) PURSUANT TO A VALID EXEMPTION FROM SUCH REGISTRATION
UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, AND (ii) UPON
RECEIPT BY HAGLER BAILLY OF AN OPINION OF COUNSEL FOR THE HOLDER, WHICH
OPINION SHALL BE SATISFACTORY IN FORM AND SUBSTANCE TO HAGLER BAILLY, THAT
SUCH SALE IS IN COMPLIANCE WITH THE ACT AND SUCH STATE SECURITIES LAW.
HAGLER BAILLY agrees to remove such Legend upon the earlier of the
registration under the Securities Act of the HAGLER BAILLY Common Stock received
by PHB Stockholders or the second anniversary of the Effective Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHB
PHB represents and warrants to HAGLER BAILLY and Merger Sub as follows:
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SECTION 3.1. PHB's Organization and Qualification; Subsidiaries.
PHB and each of PHB's significant subsidiaries as defined in Rule 1-02(w)
of Regulation S-X (the "PHB Subsidiaries") has been duly incorporated, is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as it is currently being conducted and to own, lease and operate
its properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a PHB
Material Adverse Effect. Except as set forth on Section 1.1 of the PHB
Disclosure, PHB has no Subsidiaries or any equity interest or other investment
in any entity.
SECTION 3.2. Articles of Organization and Bylaws.
PHB has made available to HAGLER BAILLY a complete and correct copy of the
articles of organization and bylaws of PHB and each PHB Subsidiary, each as
amended to date. Each such articles of organization and bylaws is in full force
and effect. Neither PHB nor any of the PHB Subsidiaries is in violation of any
of the provisions of its respective articles of organization or bylaws.
SECTION 3.3. Capitalization.
(a) The authorized capital stock of PHB consists, as of the date of
this Agreement, of 8,000,000 shares of PHB Common Stock, of which 4,482,500
shares are issued and outstanding. Section 2.2 of the PHB Disclosure
includes a list of all PHB Stockholders, the number of shares of
outstanding capital stock of PHB owned beneficially and of record by each
PHB Stockholder, all of which are owned free and clear of all Encumbrances.
Except as disclosed in Section 2.6 of the PHB Disclosure, there are no
options, warrants or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock of PHB or
obligating PHB to issue or sell any shares of capital stock of, or other
equity interests in PHB, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or
other equity securities of PHB. Except as disclosed in Sections 2.5 and 2.6
of the PHB Disclosure, there are no outstanding obligations of PHB to
repurchase, redeem or otherwise acquire any shares of its capital stock or
make any investment (in the form of a loan, capital contribution or
otherwise) in any other person. All of the issued and outstanding shares of
PHB Common Stock have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to preemptive or similar rights which
have not
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been waived. No shares of capital stock of PHB have been reserved for any
purpose.
(b) All of the outstanding shares of capital stock of each PHB
Subsidiary are (i) duly authorized and validly issued and are fully paid
and non-assessable and not subject to preemptive rights, and (ii) owned
beneficially and of record by PHB, free and clear of all Encumbrances.
There are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital
stock of the PHB Subsidiaries or obligating the PHB Subsidiaries to issue
or sell any shares of capital stock of, or other equity interests in the
PHB Subsidiaries, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or
other equity securities of the PHB Subsidiaries. There are no outstanding
obligations of the PHB Subsidiaries to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any investment (in the form
of a loan, capital contribution or otherwise) in any other person.
SECTION 3.4. Authority.
PHB has the necessary corporate power and authority to enter into this
Agreement and the Related Agreements to which PHB is a party and, subject to
obtaining any necessary stockholder approval of the Merger, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Related Agreements by PHB and the consummation by PHB of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of PHB
are necessary to authorize this Agreement and the Related Agreements to which
PHB is a party or to consummate the transactions contemplated hereby and
thereby, other than the approval of this Agreement by the stockholders of PHB in
accordance with the MBCL. This Agreement and the Related Agreements to which PHB
is a party have been duly executed and delivered by PHB and, assuming the due
authorization, execution and delivery by HAGLER BAILLY and Merger Sub,
constitute legal, valid and binding obligations of PHB, enforceable in
accordance with their terms.
SECTION 3.5. No Conflict; Required Filings and Consents.
Except as disclosed in Section 14.8 of the PHB Disclosure, the execution
and delivery of this Agreement by PHB, the compliance by PHB with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not
(a) require any consent, approval, authorization or other order of, or
filing with, any court, regulatory body, administrative agency or other
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governmental body which has not been obtained or made (except as such may
be required under the state securities or "blue sky" laws (the "Blue Sky
Laws") and
(b) will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the articles of organization or
bylaws of PHB or any of the PHB Subsidiaries or any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence
of indebtedness or in any other agreement, indenture or instrument material
to the conduct of the business of PHB and the PHB Subsidiaries, to which
PHB or any of the PHB Subsidiaries is a party or by which PHB or any of the
PHB Subsidiaries or their respective property is bound except for such
defaults which have been waived or which would not, individually or in the
aggregate, have a PHB Material Adverse Effect, or violate or conflict with
any Laws, administrative regulations or rulings or court decrees applicable
to PHB, any of the PHB Subsidiaries or their respective property.
SECTION 3.6. Financial Statements.
Section 3.1 of the PHB Disclosure includes (a) the audited balance sheets
of PHB as of December 31, 1995, 1996 and 1997, and the related audited
statements of income and cash flows for the fiscal years then ended (such
audited financial statements, including the schedules and notes thereto,
collectively, the "Audited Financial Statements"); and (b) the unaudited balance
sheet of PHB and the PHB Subsidiaries as of March 31, 1998, and the unaudited
statements of income and cash flows for the three (3) months then ended (such
unaudited financial statements, collectively, the "Unaudited Financial
Statements" and together with the Audited Financial Statements, the "Financial
Statements"). The Financial Statements, together with the related schedules and
notes, present fairly the consolidated or unconsolidated, as the case may be,
the financial condition of PHB and the PHB Subsidiaries as of their respective
dates and the results of operations and cash flows for the respective periods
indicated and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. Since December 31, 1997
(the "Balance Sheet Date"), PHB has incurred no liabilities, contingent or
absolute, matured or unmatured, known or unknown, that would have a PHB Material
Adverse Effect.
SECTION 3.7. Absence of Certain Changes or Events.
Except as disclosed in Section 14.8 of the PHB Disclosure, since December
31, 1997, (a) PHB and the PHB Subsidiaries have not incurred any material
liability, except in the ordinary course of their businesses consistent with
their past practices, (b) there has not been any change, or any event involving
a prospective change in the business, financial condition or results of
operations of PHB or any of the PHB Subsidiaries or the occurrence of any other
event, which has had, or is
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reasonably likely to have, a PHB Material Adverse Effect, and (c) PHB and the
PHB Subsidiaries have conducted their respective businesses in the ordinary
course of their businesses consistent with their past practices.
SECTION 3.8. Legal Proceedings.
Except as disclosed in Sections 4(f) and 12 of the PHB Disclosure, there
are (a) no actions, suits, claims, arbitrations, proceedings or investigations
pending, or, to PHB's knowledge, threatened against or involving PHB or any of
the PHB Subsidiaries or their respective businesses or Assets, at law or in
equity or admiralty, or before or by any court, administrative, governmental,
arbitral, mediation or regulatory authority or body, domestic or foreign, that
would be reasonably likely to have a PHB Material Adverse Effect, or that
challenge or seek to prevent, enjoin, alter or materially delay the transactions
contemplated hereby, and (b) no judgments, decrees, injunctions or orders of any
Government Entity or arbitrator outstanding against PHB or any of the PHB
Subsidiaries or any of their respective businesses or Assets that would
reasonably be likely to have a PHB Material Adverse Effect. Neither PHB nor any
of the PHB Subsidiaries is operating under, subject to or in default with
respect to any order, award, writ, injunction, decree or judgment of any court,
arbitrator or governmental authority.
SECTION 3.9. Material Contracts.
(a) Sections 6.1, 7.2, 7.4, 10.1, 11 and 14.7 of the PHB Disclosure
set forth a complete and correct list, as of the date of this Agreement, of
all agreements of the following types to which PHB or any PHB Subsidiary is
a party or may be bound (collectively, the "PHB Material Contracts"): (i)
employment, severance, termination, consulting and retirement agreements
that (y) are not terminable "at will" or (z) if terminated would trigger an
obligation of PHB to pay additional compensation in excess of that
contemplated by PHB's standard policies; (ii) agreements which involve
payment by PHB of more than $250,000 or which are not cancelable without
penalty by PHB in less than 60 days, (iii) royalty and licensing agreements
of PHB acting as a licensor; (iv) agreements with any labor organization or
other collective bargaining unit; (v) agreements for the purchase, sale or
lease of any real estate; (vi) agreements for the sale of assets material
to the operation of PHB's business other than in the ordinary course of
business or the grant of any preferential rights to purchase any such
material assets; (vii) agreements which contain provisions requiring PHB or
any PHB Subsidiary to indemnify any person not entered into in the ordinary
course of business consistent with past practice; (viii) joint venture
agreements or other agreements involving the sharing of profits; (ix)
outstanding loans to any persons or entities or receivables due to PHB from
any PHB Stockholders or any stockholders of the PHB Subsidiaries or any
affiliates of PHB or the
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PHB Subsidiaries; (x) client engagement agreements, service agreements and
other agreements with the top twenty-five PHB clients generating the
highest amounts of aggregate revenue during fiscal years 1996 and 1997; or
(xi) agreements (including, without limitation, agreements not to compete
and exclusivity agreements) that reasonably could be interpreted to impose
any restriction on any business operations of PHB or the PHB Subsidiaries,
except for agreements containing restrictions that would not have a PHB
Material Adverse Effect.
(b) All the PHB Material Contracts are valid and in full force and
effect on the date hereof (except to the extent they have previously
expired in accordance with their terms) and constitute legal, valid and
binding obligations of, and are legally enforceable against, PHB or any PHB
Subsidiary which is a party thereto, and to the knowledge of PHB, the other
party or respective parties thereto. All necessary governmental approvals
with respect thereto required to be obtained by PHB or any PHB Subsidiary,
as applicable, have been obtained, all necessary filings or registrations
therefor required to be made by PHB or any PHB Subsidiary, as applicable,
have been made, and, to the knowledge of PHB, there have been no threatened
cancellations thereof and no outstanding disputes thereunder, except such
that would not have a PHB Material Adverse Effect. Each of PHB and the PHB
Subsidiaries has in all material respects performed all the obligations
under the PHB Material Contracts required to be performed by PHB and the
PHB Subsidiaries to date. PHB is not in default, and to PHB's knowledge, no
party is in default, in any material respect under any of the PHB Material
Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default, except for defaults which would not
in the aggregate reasonably be expected to have a PHB Material Adverse
Effect. True and complete copies of all PHB Material Contracts have been
delivered to HAGLER BAILLY or made available for inspection.
SECTION 3.10. Environmental Matters.
(a) Each of PHB and the PHB Subsidiaries has complied and is in
compliance in all material respects with all Environmental Laws (as defined
below). There are no pending or, to the knowledge of PHB and the PHB
Subsidiaries, threatened actions, suits, claims, legal proceedings or other
proceedings based on, and PHB and the PHB Subsidiaries have not directly or
indirectly received any notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Government Entity or any other person arising
out of or attributable to: (i) the current or past presence at any part of
the PHB Real Property (as defined below) of Hazardous Materials (as defined
below) or any substances that pose a hazard to human health or an
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impediment to working conditions; (ii) the current or past release or
threatened release into the environment from the PHB Real Property
(including, without limitation, into any storm drain, sewer, septic system
or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating
on or from the PHB Real Property; or (iv) any violation of Environmental
Laws at any part of the PHB Real Property or otherwise arising from PHB's
activities involving Hazardous Materials.
(b) As used herein, these terms shall have the following meanings:
(i) "Environmental Laws" means all applicable federal, state and
local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations
relating to releases of Hazardous Materials, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials or relating to
management of asbestos in buildings.
(ii) "Hazardous Materials" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances
defined as "hazardous substances", "toxic substances", "radioactive
materials", or other similar designations in, or otherwise subject to
regulation under, any Environmental Laws.
SECTION 3.11. Employee Matters; ERISA.
(a) Sections 1.2 and 10.6 of the PHB Disclosure contain a true and
complete list of names and positions of all current directors, officers and
employees of PHB and the PHB Subsidiaries. With respect to any persons
employed by PHB and the PHB Subsidiaries, PHB and the PHB Subsidiaries are
in compliance in all material respects with all Laws respecting employment
conditions and practices, have withheld all amounts required by any
applicable Laws to be withheld from wages or any Taxes or penalties for
failure to comply with any of the foregoing.
(b) There are no collective bargaining agreements applicable to any
PHB or any PHB Subsidiary employees and none of PHB or the PHB Subsidiaries
has a duty to bargain with any labor organization with respect to any such
persons. There is not pending any demand for recognition or any
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other request or demand from a labor organization for representative status
with respect to any persons employed by PHB and the PHB Subsidiaries.
(c) With respect to any persons employed by PHB and the PHB
Subsidiaries, (i) each of PHB and the PHB Subsidiaries has not engaged in
any unfair labor practice within the meaning of the National Labor
Relations Act and has not violated any legal requirement prohibiting
discrimination on the basis of race, color, national origin, sex, religion,
age, marital status, or handicap in its employment conditions or practices;
(ii) except as set forth in Section 12.1 of the PHB Disclosure, there are
no pending or, to the knowledge of PHB or the PHB Subsidiaries, threatened
unfair labor practice charges or discrimination complaints relating to
race, color, national origin, sex, religion, age, marital status, or
handicap against PHB or the PHB Subsidiaries before any Government Entity.
SECTION 3.12. Employee Benefit Plans.
(a) Section 10.2 of the PHB Disclosure sets forth a list of all of the
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, sabbatical, vacation, bonus,
loans, medical, dental, vision care, disability, life insurance or other
employee programs, arrangements or agreements and all other material
employee benefit plans or fringe benefit plans, including, without
limitation, all "employee benefit plans" as that term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently adopted, maintained by, sponsored in whole or in part
by, or contributed to by PHB or any PHB Subsidiary or for which PHB could
incur a liability or any entity required to be aggregated with PHB (each, a
"PHB Commonly Controlled Entity") pursuant to Section 414 of the Code for
the benefit of present and former employees or directors of PHB and of each
PHB Subsidiary or their beneficiaries, or providing benefits to such
persons in respect of services provided to any such entity (collectively,
the "PHB Benefit Plans"). Any of the PHB Benefit Plans which is an
"employee pension benefit plan", as that term is defined in Section 3(2) of
ERISA, is referred to herein as an "PHB ERISA Plan".
(b) Each of the PHB Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) or 501 of the Code has been determined by the
Internal Revenue Service to be so qualified and to PHB's knowledge, no
circumstances exist that could reasonably be expected by PHB to result in
the revocation of any such determination. Each of the PHB Benefit Plans is
in compliance with their terms and the applicable terms of ERISA and the
Code and any other applicable laws, rules and regulations the breach or
violation of which could result in a material liability to PHB or any PHB
Commonly Controlled Entity.
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(c) No PHB ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability", as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of
any such plan equals or exceeds the plan's "benefit liabilities", as that
term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if the plan terminated in accordance
with all applicable legal requirements. All contributions, premiums and
other payments with respect to each PHB ERISA Plan which have become due
and payable have been paid.
(d) No PHB Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither PHB nor
any PHB Commonly Controlled Entity has completely or partially withdrawn
from any Multiemployer Plan. No termination liability to the Pension
Benefit Guaranty Corporation or withdrawal liability to any Multiemployer
Plan that is material in the aggregate has been or is reasonably expected
to be incurred with respect to any Multiemployer Plan by PHB or any PHB
Commonly Controlled Entity.
(e) PHB has made available to HAGLER BAILLY complete copies, as of the
date hereof, of all of the PHB Benefit Plans that have been reduced to
writing, together with all documents establishing or constituting any
related trust, annuity contract, insurance contract or other funding
instrument. PHB has made available to HAGLER BAILLY complete copies of
current plan summaries, employee booklets, personnel manuals and other
material documents or written materials concerning the PHB Benefit Plans
that are in the possession of PHB as of the date hereof.
(f) No claim, lawsuit, arbitration or other action has been threatened
or instituted against any PHB Benefit Plan.
(g) Except as disclosed in Section 10 of the PHB Disclosure or as
otherwise contemplated by the terms of this Agreement, the consummation of
the transactions contemplated by this Agreement will not give rise to any
liability, including, without limitation, liability for severance pay or
termination pay, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any employee, director or
stockholder of PHB (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts payable
under any PHB Benefit Plan will fail to be deductible for federal income
tax purposes by virtue of Section 280G or 162(m) of the Code.
(h) Neither PHB nor any PHB Subsidiary maintains, contributes to, or
in any way provides for any benefits of any kind (other than under Section
4980B of the Code, the Federal Social Security Act, or a plan
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qualified under Section 401(a) of the Code) to any current or future
retiree or terminee.
(i) Neither PHB, any PHB Subsidiary nor any PHB Commonly Controlled
Entity has (or could incur) any liability under Title IV of ERISA.
SECTION 3.13. Licenses and Permits; Compliance with Laws.
PHB and each of the PHB Subsidiaries has such permits, licenses, franchises
and authorizations from all Governmental Entities (collectively, the "PHB
Permits"), including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease and operate its respective properties and
to conduct their respective businesses as now being conducted, except for the
PHB Permits for which the failure to obtain would not have a PHB Material
Adverse Effect. PHB and each of the PHB Subsidiaries has fulfilled and performed
all of its material obligations with respect to such PHB Permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such PHB Permit. The businesses of PHB and the
PHB Subsidiaries are not being conducted in violation of any applicable law,
statute, ordinance, regulation, judgment, PHB Permit, order, decree, concession,
grant or other authorization of any Government Entity, except for violations
that would not be reasonably likely to have a PHB Material Adverse Effect.
SECTION 3.14. Assets, Real Property and Leases.
Section 7 of the PHB Disclosure sets forth all real property (the "PHB Real
Property") owned by PHB and the PHB Subsidiaries that is material to the
business, prospects, financial condition or results of operation of PHB and the
PHB Subsidiaries. PHB and the PHB Subsidiaries have good and marketable title,
free and clear of all Encumbrances except liens for taxes not yet due and
payable to the PHB Real Property and to the assets owned by PHB and the PHB
Subsidiaries. All leases to which PHB or any of the PHB Subsidiaries is a party
are valid and binding and no default has occurred or is continuing thereunder
which might result in a PHB Material Adverse Effect, and PHB and the PHB
Subsidiaries enjoy peaceful and undisturbed possession under all such leases to
which any of them is a party as lessee with such exceptions as do not have a PHB
Material Adverse Effect on the use made by PHB or any PHB Subsidiary.
SECTION 3.15. Insurance.
Except as set forth in Section 8 of the PHB Disclosure, PHB and each of the
PHB Subsidiaries maintains adequate insurance coverage for the assets, business
and operations of PHB and the PHB Subsidiaries, in such amounts and against
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such risks and losses as are customary for companies conducting the business as
conducted by PHB and the PHB Subsidiaries. Except as set forth in Section 14.8
of the PHB Disclosure, neither PHB nor any of the PHB Subsidiaries has received
notice of cancellation or termination with respect to any material insurance
policy of PHB or the PHB Subsidiaries and there are no pending claims under any
such insurance policies that would be reasonably likely to have a PHB Material
Adverse Effect. The insurance policies of PHB and the PHB Subsidiaries are valid
and enforceable policies.
SECTION 3.16. Intellectual Property.
PHB owns or possesses adequate rights with respect to the use of all trade
secrets, know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, copyrights, patents, patent rights, and
inventions (collectively, "PHB Intellectual Property") which are necessary for
the conduct of PHB or an PHB Subsidiary's business, other than PHB Intellectual
Property the lack of which would not reasonably be expected to have a PHB
Material Adverse Effect on the business, prospects, financial condition or
results of operation of PHB or any PHB Subsidiary. No rights to use PHB
Intellectual Property that is material to the business and prospects of PHB or
any PHB Subsidiary expire or are subject to termination at the election of
another party without cause or PHB's consent at a time or under circumstances
which would result in a PHB Material Adverse Effect. PHB has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any PHB Intellectual Property which would result in a PHB Material
Adverse Effect.
SECTION 3.17. Investment Company.
PHB is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 3.18. Taxes.
Each of PHB and the PHB Subsidiaries has (a) duly and timely paid all Taxes
(as defined below) which have become due and payable by it; (b) none of PHB or
the PHB Subsidiaries has received notice of, nor does PHB and the PHB
Subsidiaries have any knowledge of, any notice of deficiency or assessment or
proposed deficiency or assessment from any taxing Government Entity; and (c) to
PHB and the PHB Subsidiaries' knowledge, there are no audits pending and there
are no outstanding agreements or waivers by PHB or any PHB Subsidiary that
extend the statutory period of limitations applicable to any federal, state,
local, or foreign tax returns or Taxes.
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SECTION 3.19. Joint Proxy Statement.
The information supplied by PHB for inclusion in the Joint Proxy Statement
(as defined below) to be sent to the stockholders of HAGLER BAILLY and PHB
complies in all material respects with the requirements of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder, and does not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 3.20. Books and Records.
The books of account, stock records, minute books and other records of PHB
are true and complete in all material respects, and the matters contained
therein are appropriately and accurately reflected in the Financial Statements
to the extent required to be reflected therein. The minute books of PHB and the
PHB Subsidiaries made available to HAGLER BAILLY contain a complete and accurate
summary of all meetings of directors and shareholders or actions by written
consent since the time of incorporation of PHB and the PHB Subsidiaries through
the date of this Agreement, and reflect all transactions referred to in such
minutes accurately in all material respects.
SECTION 3.21. Transactions with Related Parties.
Except as set forth in Section 14.8 of the PHB Disclosure, no present or
former officer, director, stockholder or person known by PHB to be an affiliate
of PHB or any PHB Subsidiary, nor any person known by PHB or any PHB Subsidiary
to be an affiliate of any such person, is currently a party to any transaction
or agreement with PHB or any PHB Subsidiary, including any agreement providing
for any loans, the employment of, furnishing of services by, rental of their
respective Assets from or to, or otherwise requiring payments to, any such
officer, director, stockholder or affiliate.
SECTION 3.22. Board Approval; Vote Required.
The Board of Directors of PHB has determined that the transactions
contemplated by this Agreement are in the best interests of PHB and PHB
Stockholders and has resolved to recommend to such PHB Stockholders that they
vote in favor thereof. The affirmative vote of two-thirds of the votes entitled
to be cast by the holders of outstanding shares of PHB Common Stock is the only
vote of any class or series of capital stock of PHB necessary under the MBCL,
the articles of organization and bylaws of PHB to approve this Agreement, the
Merger and the transactions contemplated hereby.
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SECTION 3.23. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
PHB.
SECTION 3.24. Status of PHB Stockholders.
PHB represents and warrants that there are no more than thirty-five (35)
PHB Stockholders who are not "accredited" as such term is defined in Rule 501 of
Regulation D under the Securities Act.
SECTION 3.25. Material Information.
No representations or warranties by PHB in this Agreement and no statements
or information contained in the PHB Disclosure hereto, or in any certificate
furnished or to be furnished by PHB to HAGLER BAILLY pursuant to the provisions
of this Agreement in connection with the transactions contemplated by this
Agreement, contain or will contain any untrue statement of a material fact or
omit or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HAGLER BAILLY
HAGLER BAILLY represents and warrants to PHB as follows:
SECTION 4.1. HAGLER BAILLY's Organization and Qualification; Subsidiaries.
HAGLER BAILLY and each of HAGLER BAILLY's significant subsidiaries as
defined in Rule 1-02(w) of Regulation S-X (the "HAGLER BAILLY Subsidiaries") has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted and to
own, lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a HAGLER BAILLY Material Adverse Effect. Except as set forth on Section
1.1 of the HAGLER BAILLY Disclosure, HAGLER BAILLY has no Subsidiaries or any
equity interest or other investment in any entity.
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SECTION 4.2. Articles of Organization and Bylaws.
HAGLER BAILLY has made available to PHB a complete and correct copy of the
articles of organization and bylaws of HAGLER BAILLY and each HAGLER BAILLY
Subsidiary, each as amended to date. Each such articles of organization and
bylaws is in full force and effect. Neither HAGLER BAILLY nor any of the HAGLER
BAILLY Subsidiaries is in violation of any of the provisions of its respective
articles of organization or bylaws.
SECTION 4.3. Capitalization.
(a) The authorized capital stock of HAGLER BAILLY consists of: (a)
20,000,000 shares of common stock, par value $.01 per share, of which
8,948,597 shares are issued and outstanding as of the date hereof; and (b)
5,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding. Section 2.3 of the HAGLER BAILLY
Disclosure sets forth a list of all option holders, the number of shares
issuable upon exercise of options held by each option holder, the exercise
price and the dates upon which each option becomes exercisable or
terminates. 3,200,000 shares of HAGLER BAILLY Common Stock have been
reserved for issuance upon the exercise of HAGLER BAILLY options
outstanding under the HAGLER BAILLY, INC. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan ("HAGLER BAILLY Stock
Option Plan") and 1,398,669 shares (as of June 10, 1998) are issuable upon
the exercise of HAGLER BAILLY Options outstanding under the HAGLER BAILLY
Stock Option Plan. Except as set forth in Section 2 of the HAGLER BAILLY
Disclosure, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of HAGLER BAILLY or obligating HAGLER BAILLY to
issue or sell any shares of capital stock of, or other equity interests in
HAGLER BAILLY, including any securities directly or indirectly convertible
into or exercisable or exchangeable for any capital stock or other equity
securities of HAGLER BAILLY. There are no outstanding obligations of HAGLER
BAILLY to repurchase, redeem or otherwise acquire any shares of its capital
stock or make any investment (in the form of a loan, capital contribution
or otherwise) in any other person. All of the issued and outstanding shares
of HAGLER BAILLY Common Stock have been duly authorized and validly issued
and are fully paid, non-assessable and not subject to preemptive or similar
rights which have not been waived. Except as set forth in Section 2.7 of
the HAGLER BAILLY Disclosure, no shares of capital stock of HAGLER BAILLY
have been reserved for any purpose.
(b) All of the outstanding shares of capital stock of each HAGLER
BAILLY Subsidiary are (i) duly authorized and validly issued and are fully
paid and non-assessable and not subject to preemptive rights, and (ii)
owned
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beneficially and of record by HAGLER BAILLY, free and clear of all
Encumbrances. There are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of the HAGLER BAILLY Subsidiaries or obligating the
HAGLER BAILLY Subsidiaries to issue or sell any shares of capital stock of,
or other equity interests in the HAGLER BAILLY Subsidiaries, including any
securities directly or indirectly convertible into or exercisable or
exchangeable for any capital stock or other equity securities of the HAGLER
BAILLY Subsidiaries. There are no outstanding obligations of the HAGLER
BAILLY Subsidiaries to repurchase, redeem or otherwise acquire any shares
of its capital stock or make any investment (in the form of a loan, capital
contribution or otherwise) in any other person.
SECTION 4.4. Authority.
HAGLER BAILLY has the necessary corporate power and authority to enter into
this Agreement and the Related Agreements to which HAGLER BAILLY is a party and,
subject to obtaining any necessary stockholder approval of the Merger, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Related Agreements by HAGLER BAILLY and the consummation by
HAGLER BAILLY of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of HAGLER BAILLY are necessary to authorize this Agreement and the
Related Agreements to which HAGLER BAILLY is a party or to consummate the
transactions contemplated hereby and thereby, other than the approval of this
Agreement by the stockholders of HAGLER BAILLY in accordance with the DGCL. This
Agreement and the Related Agreements to which HAGLER BAILLY is a party have been
duly executed and delivered by HAGLER BAILLY and, assuming the due
authorization, execution and delivery by PHB and Merger Sub, constitute legal,
valid and binding obligations of HAGLER BAILLY, enforceable in accordance with
their terms.
SECTION 4.5. No Conflict; Required Filings and Consents.
Except as disclosed in Section 14.8 of the HAGLER BAILLY Disclosure, the
execution and delivery of this Agreement by HAGLER BAILLY, the compliance by
HAGLER BAILLY with all the provisions hereof and the consummation of the
transactions contemplated hereby will not
(a) require any consent, approval, authorization or other order of, or
filing with, any court, regulatory body, administrative agency or other
governmental body which has not been obtained or made (except as such may
be required under the Blue Sky Laws) and
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(b) will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the articles of organization or
by-laws of HAGLER BAILLY or any of the HAGLER BAILLY Subsidiaries or any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of HAGLER BAILLY and
the HAGLER BAILLY Subsidiaries, to which HAGLER BAILLY or any of the HAGLER
BAILLY Subsidiaries is a party or by which HAGLER BAILLY or any of the
HAGLER BAILLY Subsidiaries or their respective property is bound except for
such defaults which have been waived or which would not, individually or in
the aggregate, have a HAGLER BAILLY Material Adverse Effect, or violate or
conflict with any Laws, administrative regulations or rulings or court
decrees applicable to HAGLER BAILLY, any of the HAGLER BAILLY Subsidiaries
or their respective property.
SECTION 4.6. Financial Statements.
(a) HAGLER BAILLY has filed all forms, reports, statements and other
documents required to be filed with the Securities and Exchange Commission
(the "SEC") since July 2, 1997, and has heretofore made available to PHB,
in the form filed with the SEC since such date, together with any
amendments thereto, its (i) prospectus relating to its initial public
offering in July 1997, (ii) its Quarterly Reports on Form 10-Q, and (iii)
any other reports or registration statements filed by HAGLER BAILLY with
the SEC (collectively, the "HAGLER BAILLY SEC Reports"). As of their
respective filing dates the HAGLER BAILLY SEC Reports (i) complied as to
form in all material respects with the requirements of the Exchange Act or
the Securities Act, as applicable and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including the related schedules and
notes, contained in the HAGLER BAILLY SEC Reports (or incorporated by
reference therein) present fairly the consolidated financial position of
HAGLER BAILLY as of their respective dates and the consolidated results of
operations and cash flows of HAGLER BAILLY for the periods indicated and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as otherwise noted in the
notes thereto) and subject in the case of interim financial statements to
normal year-end adjustments). Except as reflected in the audited financial
statements of HAGLER BAILLY as of December 31, 1997, HAGLER BAILLY has no
liabilities, contingent or absolute, matured or unmatured, known or
unknown, except for liabilities that would not have a HAGLER BAILLY
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Material Adverse Effect incurred in the ordinary course of business since
December 31, 1997.
SECTION 4.7. Absence of Certain Changes or Events.
Except as disclosed in Section 14.8 of the HAGLER BAILLY Disclosure, since
December 31, 1997, (a) HAGLER BAILLY and the HAGLER BAILLY Subsidiaries have not
incurred any material liability, except in the ordinary course of their
businesses consistent with their past practices, (b) there has not been any
change, or any event involving a prospective change, in the business, financial
condition or results of operations of HAGLER BAILLY or any of the HAGLER BAILLY
Subsidiaries or the occurrence of any other event, which has had, or is
reasonably likely to have, a HAGLER BAILLY Material Adverse Effect, and (c)
HAGLER BAILLY and the HAGLER BAILLY Subsidiaries have conducted their respective
businesses in the ordinary course of their business consistent with their past
practices.
SECTION 4.8. Legal Proceedings.
Except as disclosed in Section 12.1 of the HAGLER BAILLY Disclosure, there
are (a) no actions, suits, claims, arbitrations, proceedings or investigations
pending, or, to HAGLER BAILLY's knowledge, threatened against or involving
HAGLER BAILLY or any of the HAGLER BAILLY Subsidiaries or their respective
businesses or Assets, at law or in equity or admiralty, or before or by any
court, administrative, governmental, arbitral, mediation or regulatory authority
or body, domestic or foreign, that would be reasonably likely to have a HAGLER
BAILLY Material Adverse Effect, or that challenge or seek to prevent, enjoin,
alter or materially delay the transactions contemplated hereby, and (b) no
judgments, decrees, injunctions or orders of any Government Entity or arbitrator
outstanding against HAGLER BAILLY or any of the HAGLER BAILLY Subsidiaries or
any of their respective businesses or Assets that would reasonably be likely to
have a HAGLER BAILLY Material Adverse Effect. Neither HAGLER BAILLY or any of
the HAGLER BAILLY Subsidiaries is operating under, subject to or in default with
respect to any order, award, writ, injunction, decree or judgment of any court,
arbitrator or governmental authority.
SECTION 4.9. Material Contracts.
(a) Sections 1.1, 7.2, 8, 10.1, 10.2, 11.1, 11.2, 11.4 and 11.6 of the
HAGLER BAILLY Disclosure set forth a complete and correct list, as of the
date of this Agreement, of all agreements of the following types to which
HAGLER BAILLY or any HAGLER BAILLY Subsidiary is a party or may be bound
(collectively, the "HAGLER BAILLY Material Contracts"): (i) employment,
severance, termination, consulting and retirement
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agreements that (y) are not terminable "at will" or (z) if terminated would
trigger an obligation of HAGLER BAILLY to pay additional compensation in
excess of that contemplated by HAGLER BAILLY's standard policies; (ii)
agreements which involve payment by HAGLER BAILLY of more than $250,000 or
which are not cancelable without penalty by HAGLER BAILLY in less than 60
days; (iii) royalty and licensing agreements of HAGLER BAILLY acting as a
licensor; (iv) agreements with any labor organization or other collective
bargaining unit; (v) agreements for the purchase, sale or lease of any real
estate or other Assets; (vi) agreements for the sale of assets material to
the operation of HAGLER BAILLY's business other than in the ordinary course
of business or the grant of any preferential rights to purchase any such
material assets; (vii) agreements which contain provisions requiring HAGLER
BAILLY or any HAGLER BAILLY Subsidiary to indemnify any person not entered
into in the ordinary course of business consistent with past practice;
(viii) joint venture agreements or other agreements involving the sharing
of profits; (ix) outstanding loans to any persons or entities or
receivables due to HAGLER BAILLY from any HAGLER BAILLY Stockholders or any
stockholders of the HAGLER BAILLY Subsidiaries or any affiliates of HAGLER
BAILLY or the HAGLER BAILLY Subsidiaries; (x) client engagement agreements,
service agreements and other agreements with the top twenty-five HAGLER
BAILLY clients generating the highest amounts of aggregate revenue during
fiscal years 1996 and 1997; or (xi) agreements (including, without
limitation, agreements not to compete and exclusivity agreements) that
reasonably could be interpreted to impose any restriction on any business
operations of HAGLER BAILLY or the HAGLER BAILLY Subsidiaries, except for
agreements containing restrictions that would not have a HAGLER BAILLY
Material Adverse Effect.
(b) All the HAGLER BAILLY Material Contracts are valid and in full
force and effect on the date hereof (except to the extent they have
previously expired in accordance with their terms) and constitute legal,
valid and binding obligations of, and are legally enforceable against,
HAGLER BAILLY or any HAGLER BAILLY Subsidiary which is a party thereto, and
to the knowledge of HAGLER BAILLY, the other party or respective parties
thereto. All necessary governmental approvals with respect thereto required
to be obtained by HAGLER BAILLY or any HAGLER BAILLY Subsidiary, as
applicable, have been obtained, all necessary filings or registrations
therefor required to be made by HAGLER BAILLY or any HAGLER BAILLY
Subsidiary, as applicable, have been made, and, to the knowledge of HAGLER
BAILLY, there have been no threatened cancellations thereof and no
outstanding disputes thereunder, except such that would not have a HAGLER
BAILLY Material Adverse Effect. Each of HAGLER BAILLY and the HAGLER BAILLY
Subsidiaries has in all material respects performed all the obligations
under the HAGLER BAILLY Material Contracts required to
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be performed by HAGLER BAILLY and the HAGLER BAILLY Subsidiaries to date.
HAGLER BAILLY is not in default, and to HAGLER BAILLY's knowledge, no party
is in default in any material respect under any of the HAGLER BAILLY
Material Contracts, and there has not occurred any event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default, except for defaults which
would not in the aggregate reasonably be expected to have a HAGLER BAILLY
Material Adverse Effect. True and complete copies of all HAGLER BAILLY
Material Contracts have been delivered to PHB or made available for
inspection.
SECTION 4.10. Environmental Matters.
(a) Each of HAGLER BAILLY and the HAGLER BAILLY Subsidiaries has
complied and is in compliance in all material respects with all
Environmental Laws. There are no pending or, to the knowledge of HAGLER
BAILLY and the HAGLER BAILLY Subsidiaries, threatened actions, suits,
claims, legal proceedings or other proceedings based on, and HAGLER BAILLY
and the HAGLER BAILLY Subsidiaries have not directly or indirectly received
any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request
from any Government Entity or any other person arising out of or
attributable to: (i) the current or past presence at any part of the HAGLER
BAILLY Real Property (as defined below) of Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (ii) the current or past release or threatened release into the
environment from the HAGLER BAILLY Real Property (including, without
limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a
hazard to human health or an impediment to working conditions; (iii) the
off-site disposal of Hazardous Materials originating on or from the HAGLER
BAILLY Real Property; or (iv) any violation of Environmental Laws at any
part of the HAGLER BAILLY Real Property or otherwise arising from HAGLER
BAILLY's activities involving Hazardous Materials.
SECTION 4.11. Employee Matters; ERISA.
(a) Sections 1.2 and 10.6 of the HAGLER BAILLY Disclosure contain a
true and complete list of names and positions of all current directors,
officers and employees of HAGLER BAILLY and the HAGLER BAILLY Subsidiaries.
With respect to any persons employed by HAGLER BAILLY and the HAGLER BAILLY
Subsidiaries, HAGLER BAILLY and the HAGLER BAILLY Subsidiaries are in
compliance in all material respects with all Laws respecting employment
conditions and practices, have withheld all amounts
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required by any applicable Laws to be withheld from wages or any Taxes or
penalties for failure to comply with any of the foregoing.
(b) There are no collective bargaining agreements applicable to any
HAGLER BAILLY or any HAGLER BAILLY Subsidiary employees and none of HAGLER
BAILLY or the HAGLER BAILLY Subsidiaries has a duty to bargain with any
labor organization with respect to any such persons. There is not pending
any demand for recognition or any other request or demand from a labor
organization for representative status with respect to any persons employed
by HAGLER BAILLY and the HAGLER BAILLY Subsidiaries.
(c) With respect to any persons employed by HAGLER BAILLY and the
HAGLER BAILLY Subsidiaries, (i) each of HAGLER BAILLY and the HAGLER BAILLY
Subsidiaries has not engaged in any unfair labor practice within the
meaning of the National Labor Relations Act and has not violated any legal
requirement prohibiting discrimination on the basis of race, color,
national origin, sex, religion, age, marital status, or handicap in its
employment conditions or practices; and (ii) there are no pending or, to
the knowledge of HAGLER BAILLY or the HAGLER BAILLY Subsidiaries,
threatened unfair labor practice charges or discrimination complaints
relating to race, color, national origin, sex, religion, age, marital
status, or handicap against HAGLER BAILLY or the HAGLER BAILLY Subsidiaries
before any Government Entity.
SECTION 4.12. Employee Benefit Plans.
(a) Sections 10.1, 10.2 and 10.3 of the HAGLER BAILLY Disclosure set
forth a list of all of the pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay,
sabbatical, vacation, bonus, loans, medical, dental, vision care,
disability, life insurance or other employee programs, arrangements or
agreements and all other material employee benefit plans or fringe benefit
plans, including, without limitation, all "employee benefit plans" as that
term is defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by HAGLER BAILLY or any
HAGLER BAILLY Subsidiary or for which HAGLER BAILLY could incur a liability
or any entity required to be aggregated with HAGLER BAILLY (each, a "HAGLER
BAILLY Commonly Controlled Entity") pursuant to Section 414 of the Code for
the benefit of present and former employees or directors of HAGLER BAILLY
and of each HAGLER BAILLY Subsidiary or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity
(collectively, the "HAGLER BAILLY Benefit Plans"). Any of the Benefit Plans
which is an "employee pension benefit
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plan", as that term is defined in Section 3(2) of ERISA, is referred to
herein as an "HAGLER BAILLY ERISA Plan".
(b) Each of the HAGLER BAILLY Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) or 501 of the Code has been determined
by the Internal Revenue Service to be so qualified and to HAGLER BAILLY's
knowledge, no circumstances exist that could reasonably be expected by
HAGLER BAILLY to result in the revocation of any such determination. Each
of the HAGLER BAILLY Benefit Plans is in compliance with their terms and
the applicable terms of ERISA and the Code and any other applicable laws,
rules and regulations the breach or violation of which could result in a
material liability to HAGLER BAILLY or any HAGLER BAILLY Commonly
Controlled Entity.
(c) No HAGLER BAILLY ERISA Plan which is a defined benefit pension
plan has any "unfunded current liability", as that term is defined in
Section 302(d)(8)(A) of ERISA, and the present fair market value of the
assets of any such plan equals or exceeds the plan's "benefit liabilities",
as that term is defined in Section 4001(a)(16) of ERISA, when determined
under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. All contributions,
premiums and other payments with respect to each HAGLER BAILLY ERISA Plan
which have become due and payable have been paid.
(d) No HAGLER BAILLY Benefit Plan is or has been a Multiemployer Plan.
Neither HAGLER BAILLY nor any HAGLER BAILLY Commonly Controlled Entity has
completely or partially withdrawn from any Multiemployer Plan. No
termination liability to the Pension Benefit Guaranty Corporation or
withdrawal liability to any Multiemployer Plan that is material in the
aggregate has been or is reasonably expected to be incurred with respect to
any Multiemployer Plan by HAGLER BAILLY or any HAGLER BAILLY Commonly
Controlled Entity. (e) HAGLER BAILLY has made available to PHB complete
copies, as of the date hereof, of all of the HAGLER BAILLY Benefit Plans
that have been reduced to writing, together with all documents establishing
or constituting any related trust, annuity contract, insurance contract or
other funding instrument. HAGLER BAILLY has made available to PHB complete
copies of current plan summaries, employee booklets, personnel manuals and
other material documents or written materials concerning the HAGLER BAILLY
Benefit Plans that are in the possession of HAGLER BAILLY as of the date
hereof.
(f) No claim, lawsuit, arbitration or other action has been threatened
or instituted against any HAGLER BAILLY Benefit Plan.
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(g) Except as disclosed in Section 10 of the HAGLER BAILLY Disclosure
or as otherwise contemplated by the terms of this Agreement, the
consummation of the transactions contemplated by this Agreement will not
give rise to any liability, including, without limitation, liability for
severance pay or termination pay, or accelerate the time of payment or
vesting or increase the amount of compensation or benefits due to any
employee, director or stockholder of HAGLER BAILLY (whether current,
former, or retired) or their beneficiaries solely by reason of such
transactions. No amounts payable under any Benefit Plan will fail to be
deductible for federal income tax purposes by virtue of Section 280G or
162(m) of the Code.
(h) Neither HAGLER BAILLY nor any HAGLER BAILLY Subsidiary maintains,
contributes to, or in any way provides for any benefits of any kind (other
than under Section 4980B of the Code, the Federal Social Security Act, or a
plan qualified under Section 401(a) of the Code) to any current or future
retiree or terminee.
(i) Neither HAGLER BAILLY, any HAGLER BAILLY Subsidiary nor any HAGLER
BAILLY Commonly Controlled Entity has (or could incur) any liability under
Title IV of ERISA.
SECTION 4.13. Licenses and Permits; Compliance with Laws.
HAGLER BAILLY and each of the HAGLER BAILLY Subsidiaries has such permits,
licenses, franchises and authorizations from all Governmental Entities
(collectively, the "HAGLER BAILLY Permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct their respective businesses as
now being conducted, except for the HAGLER BAILLY Permits for which the failure
to obtain would not have a HAGLER BAILLY Material Adverse Effect. HAGLER BAILLY
and each of the HAGLER BAILLY Subsidiaries has fulfilled and performed all of
its material obligations with respect to such HAGLER BAILLY Permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such HAGLER BAILLY Permit. The businesses of
HAGLER BAILLY and the HAGLER BAILLY Subsidiaries are not being conducted in
violation of any applicable law, statute, ordinance, regulation, judgment,
HAGLER BAILLY Permit, order, decree, concession, grant or other authorization of
any Government Entity, except for violations that would not be reasonably likely
to have a HAGLER BAILLY Material Adverse Effect.
SECTION 4.14. Assets, Real Property and Leases.
Section 7 of the HAGLER BAILLY Disclosure sets forth all real property (the
"HAGLER BAILLY Real Property") owned by HAGLER BAILLY and the HAGLER
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BAILLY Subsidiaries that is material to the business, prospects, financial
condition or results of operation of HAGLER BAILLY and the HAGLER BAILLY
Subsidiaries. HAGLER BAILLY and the HAGLER BAILLY Subsidiaries have good and
marketable title, free and clear of all Encumbrances except liens for taxes not
yet due and payable to the HAGLER BAILLY Real Property and the assets owned by
HAGLER BAILLY and the HAGLER BAILLY Subsidiaries. All leases to which HAGLER
BAILLY or any of the HAGLER BAILLY Subsidiaries is a party are valid and binding
and no default has occurred or is continuing thereunder which might result in a
HAGLER BAILLY Material Adverse Effect, and HAGLER BAILLY and the HAGLER BAILLY
Subsidiaries enjoy peaceful and undisturbed possession under all such leases to
which any of them is a party as lessee with such exceptions as do not have a
HAGLER BAILLY Material Adverse Effect on the use made by HAGLER BAILLY or any
HAGLER BAILLY Subsidiary.
SECTION 4.15. Insurance.
Except as set forth in Section 8 of the HAGLER BAILLY Disclosure, HAGLER
BAILLY and each of the HAGLER BAILLY Subsidiaries maintains adequate insurance
coverage for the assets, business and operations of HAGLER BAILLY and the HAGLER
BAILLY Subsidiaries, in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by HAGLER BAILLY
and the HAGLER BAILLY Subsidiaries. Except as set forth in Section 14.8 of the
HAGLER BAILLY Disclosure, neither HAGLER BAILLY nor any of the HAGLER BAILLY
Subsidiaries has received notice of cancellation or termination with respect to
any material insurance policy of HAGLER BAILLY or the HAGLER BAILLY Subsidiaries
and there are no pending claims under any such insurance policies that would be
reasonably likely to have a HAGLER BAILLY Material Adverse Effect. The insurance
policies of HAGLER BAILLY and the HAGLER BAILLY Subsidiaries are valid and
enforceable policies.
SECTION 4.16. Intellectual Property.
HAGLER BAILLY owns or possesses adequate rights with respect to the use of
all trade secrets, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names, copyrights, patents, patent
rights, and inventions (collectively, "HAGLER BAILLY Intellectual Property")
which are necessary for the conduct of HAGLER BAILLY or an HAGLER BAILLY
Subsidiary's business, other than HAGLER BAILLY Intellectual Property the lack
of which would not reasonably be expected to have a HAGLER BAILLY Material
Adverse Effect on the business, prospects, financial condition or results of
operation of HAGLER BAILLY or any HAGLER BAILLY Subsidiary. No rights to use
HAGLER BAILLY Intellectual Property that is material to the business and
prospects of HAGLER BAILLY or any HAGLER BAILLY Subsidiary expire or are subject
to termination at the election of another party without cause or HAGLER
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BAILLY's consent at a time or under circumstances which would result in a HAGLER
BAILLY Material Adverse Effect. HAGLER BAILLY has not received any notice of
infringement of or conflict with asserted rights of others with respect to any
HAGLER BAILLY Intellectual Property which would result in a HAGLER BAILLY
Material Adverse Effect.
SECTION 4.17. Investment Company.
HAGLER BAILLY is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.18. Taxes.
Each of HAGLER BAILLY and the HAGLER BAILLY Subsidiaries has (a) duly and
timely paid all Taxes (as defined below) which have become due and payable by
it; (b) none of HAGLER BAILLY or the HAGLER BAILLY Subsidiaries has received
notice of, nor does HAGLER BAILLY and the HAGLER BAILLY Subsidiaries have any
knowledge of, any notice of deficiency or assessment or proposed deficiency or
assessment from any taxing Government Entity; and (c) to HAGLER BAILLY and the
HAGLER BAILLY Subsidiaries' knowledge, there are no audits pending and there are
no outstanding agreements or waivers by HAGLER BAILLY or any HAGLER BAILLY
Subsidiary that extend the statutory period of limitations applicable to any
federal, state, local, or foreign tax returns or Taxes.
SECTION 4.19. Joint Proxy Statement.
The information supplied by HAGLER BAILLY for inclusion in the Joint Proxy
Statement (as defined below) to be sent to the Stockholders of HAGLER BAILLY and
PHB complies in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder, and does not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
SECTION 4.20. Books and Records.
The books of account, stock records, minute books and other records of
HAGLER BAILLY are true and complete in all material respects, and the matters
contained therein are appropriately and accurately reflected in the Financial
Statements to the extent required to be reflected therein. The minute books of
HAGLER BAILLY and the HAGLER BAILLY Subsidiaries made available to PHB contain a
complete and accurate summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of
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HAGLER BAILLY and the HAGLER BAILLY Subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
SECTION 4.21. Transactions with Related Parties.
Except as set forth in Section 11.10 of the HAGLER BAILLY Disclosure, no
present or former officer, director, stockholder or person known by HAGLER
BAILLY to be an affiliate of HAGLER BAILLY or any HAGLER BAILLY Subsidiary, nor
any person known by HAGLER BAILLY or any HAGLER BAILLY Subsidiary to be an
affiliate of any such person, is currently a party to any transaction or
agreement with HAGLER BAILLY or any HAGLER BAILLY Subsidiary, including any
agreement providing for any loans, the employment of, furnishing of services by,
rental of their respective Assets from or to, or otherwise requiring payments
to, any such officer, director, stockholder or affiliate.
SECTION 4.22. Board Approval; Vote Required.
The Board of Directors of HAGLER BAILLY has determined that the
transactions contemplated by this Agreement are in the best interests of HAGLER
BAILLY and HAGLER BAILLY stockholders and has resolved to recommend to such
HAGLER BAILLY stockholders that they vote in favor thereof. The affirmative vote
of a majority of the votes cast by the holders of outstanding shares of HAGLER
BAILLY Common Stock at the HAGLER BAILLY Stockholders' Meeting is the only vote
of any class or series of capital stock of HAGLER BAILLY necessary under the
NASDAQ National Market Issuer Designation Requirements, the DGCL and the
certificate of incorporation and bylaws of HAGLER BAILLY to approve the issuance
of shares of HAGLER BAILLY Common Stock in connection with this Agreement, the
Merger and the transactions contemplated hereby.
SECTION 4.23. Brokers.
Except as set forth in Section 14.8 of the HAGLER BAILLY Disclosure, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of HAGLER BAILLY.
SECTION 4.24. Material Information.
No representations or warranties by HAGLER BAILLY in this Agreement and no
statements or information contained in the HAGLER BAILLY Disclosure hereto, or
in any certificate furnished or to be furnished by HAGLER BAILLY to PHB pursuant
to the provisions of this Agreement in connection with the transactions
contemplated by this Agreement, contain or will contain any untrue statement of
a material fact or omit or will omit to state any material fact
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necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
HAGLER BAILLY and Merger Sub jointly and severally represent and warrant to
PHB as follows:
SECTION 5.1. Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement.
As of the date of this Agreement, except for obligations or liabilities incurred
in connection with its incorporation or organization and the transactions
contemplated by this Agreement, Merger Sub has not incurred, directly or
indirectly, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any person.
SECTION 5.2. Articles of Organization and Bylaws.
Merger Sub has heretofore made available to PHB a complete and correct copy
of the articles of organization and the bylaws of Merger Sub, each as amended to
date. Such articles of organization and bylaws are in full force and effect.
Merger Sub is not in violation of any of the provisions of its articles of
organization or bylaws.
SECTION 5.3. Authority.
Merger Sub has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery by PHB
and HAGLER BAILLY, constitutes a legal, valid and binding obligation of Merger
Sub, enforceable in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws of
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general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 5.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do not,
and the performance by Merger Sub of its obligations under this Agreement
will not:
(i) conflict with or violate the articles of organization and
bylaws of the Merger Sub,
(ii) conflict with or violate any Laws applicable to the Merger
Sub or to its Assets, or
(iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation
of an Encumbrance on any of the Assets of Merger Sub pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Merger
Sub is a party or by which Merger Sub is bound or to which any of its
Assets is subject,
except, in the case of clauses (ii) and (iii) above, for any such
conflicts, violations, breaches, defaults or other alterations or
occurrences that would not prevent or delay consummation of the Merger in
any material respect, or otherwise prevent Merger Sub from performing its
obligations under this Agreement in any material respect.
(b) Merger Sub's execution and delivery of this Agreement does not,
and Merger Sub's performance of this Agreement will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any third party or any court, arbitral tribunal,
administrative agency or commission, whether national or foreign, or
Government Entity, except:
(i) for:
(A) applicable requirements, if any, of the Exchange Act,
the Securities Act, the Blue Sky Laws, state takeover laws,
(B) applicable requirements, if any, of the consents,
approvals, authorizations or permits described in Section 4.5 of
the HAGLER BAILLY Disclosure,
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(C) filing and recordation of appropriate merger documents
as required by the DGCL; and
(ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger in any material
respect.
SECTION 5.5. Material Information.
No representations or warranties by Merger Sub in this Agreement or any
certificate furnished or to be furnished by Merger Sub to PHB pursuant to the
provisions of this Agreement, contain or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
ARTICLE VI
COVENANTS
SECTION 6.1. Affirmative Covenants of PHB and HAGLER BAILLY.
PHB and HAGLER BAILLY each hereby covenants and agrees that, prior to the
Merger Date, unless otherwise expressly contemplated by this Agreement or
consented to in writing by the other party, PHB and HAGLER BAILLY each shall,
and shall cause each respective PHB Subsidiary and HAGLER BAILLY Subsidiary to:
(a) operate its business in the usual and ordinary course consistent
with past practices;
(b) use its reasonable efforts to preserve substantially intact its
business organization, maintain its rights and contracts, retain the
services of its respective principal officers and key employees and
maintain its relationship with its respective suppliers, contractors,
distributors, customers and others having business relationships with it;
(c) use its reasonable efforts to keep its tangible property in as
good repair and condition as at present, ordinary wear and tear excepted;
and
(d) use its reasonable efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to that currently
maintained;
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provided, however, that in the event PHB or any of the PHB Subsidiaries or
HAGLER BAILLY or any of the HAGLER BAILLY Subsidiaries, as applicable, deems it
necessary to take certain actions that would otherwise be prohibited by clauses
(a)-(d) of this Section 6.1, PHB or HAGLER BAILLY shall each consult with the
other and shall consider in good faith the other party's request to take such
action and not unreasonably withhold or delay its consent for such action.
SECTION 6.2. Negative Covenants of PHB and HAGLER BAILLY.
Except as expressly contemplated by this Agreement or otherwise consented
to in writing by the other party, or except as otherwise set forth in Section
14.8 of the PHB Disclosure or the HAGLER BAILLY Disclosure, as the case may be,
from the date hereof until the Merger Date, PHB and HAGLER BAILLY each shall
not, and shall cause each respective PHB Subsidiary and HAGLER BAILLY
Subsidiary, as applicable, not to, do any of the following:
(a) increase the compensation payable to or to become payable to any
of its directors, officers or employees, except for increases in salary,
wages or bonuses payable or to become payable in the ordinary course of
business and consistent with past practice;
(b) grant any severance or termination pay (other than pursuant to
existing severance arrangements or policies as in effect on the date of
this Agreement) to, or enter into or modify any employment or severance
agreement with, any of its directors, officers or employees, except in the
ordinary course of business and consistent with past practice; or
(c) adopt or amend any employee benefit plan or arrangement, except as
may be required by applicable Law;
(d) declare, set aside or pay any dividend on, or make any other
distribution in respect of, any of its capital stock;
(e) redeem, repurchase or otherwise reacquire any share of its capital
stock or any securities or obligations convertible into or exchangeable for
any share of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such
securities or obligations, except for stock repurchases by PHB from PHB
Stockholders on termination of their employment with PHB;
(f) effect any reorganization or recapitalization;
(g) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of its capital stock;
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(h) except as a result of a transaction described in Section 6.2(j)
below, issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including
shares held in treasury) or other equity securities, any securities or
obligations directly or indirectly convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire, any such shares or securities or any rights, warrants or options
directly or indirectly to acquire any such shares or securities; provided,
however, that this Section 6.2(h) shall not restrict HAGLER BAILLY from (i)
issuing stock pursuant to the exercise of any outstanding option to
purchase HAGLER BAILLY Common Stock set forth in Section 2 of the Hagler
Bailly Disclosure, or (ii) granting an option to purchase HAGLER BAILLY
Common Stock in accordance with the terms of the HAGLER BAILLY Stock Option
Plan;
(i) amend or otherwise modify the terms of any such securities,
obligations, rights, warrants or options in a manner inconsistent with the
provisions of this Agreement or the effect of which shall be to make such
terms more favorable to the holders thereof;
(j) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the Assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any Assets of any other person (other than (i) the
purchase of inventory in the ordinary course of business and consistent
with past practice, (ii) acquisitions or mergers, investments, joint
ventures or alliances involving HAGLER BAILLY for which the valuation for
each transaction is less than $20,000,000, (iii) acquisitions or mergers,
investments, joint ventures or alliances disclosed in Section 14.8 of the
HAGLER BAILLY Disclosure, or (iv) any discussions disclosed in Section 14.8
of the PHB Disclosure), make or commit to make any capital expenditures
other than capital expenditures in the ordinary course of business
consistent with past practice;
(k) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any of its material Assets except for dispositions
in the ordinary course of business and consistent with past practice;
(l) propose or adopt any amendments to its charter document or bylaws
(other than an amendment to the certificate of incorporation of HAGLER
BAILLY to increase the number of authorized shares of HAGLER BAILLY Common
Stock from twenty million (20,000,000) to fifty million (50,000,000));
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(m) change any of its methods of accounting in effect at January 1,
1998;
(n) make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending December 31, 1997, except as
may be required by law or generally accepted accounting principles,
consistently applied;
(o) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, other than
trade payables incurred in the ordinary course of business consistent with
past practices, except as may be required by law or generally accepted
accounting principles, consistently applied;
(p) enter into or modify in any material respect any contract which
(i) if in effect as of the date hereof, would have been required to be
disclosed by PHB in accordance with Sections 3.9 or 3.12 of this Agreement
or by HAGLER BAILLY in accordance with Sections 4.9 or 4.12 of this
Agreement, as applicable; (ii) is not entered into in the ordinary course
of business, consistent with its past business practice, and (iii) is
expected to generate, or require, payments of more than $250,000 annually;
(q) take any action that would or could reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being untrue or in any of the conditions to the Merger set forth
in Article VIII not being satisfied; or
(r) agree, in writing or otherwise, to do any of the foregoing.
SECTION 6.3. Non-Solicitation Covenant of PHB and HAGLER BAILLY.
Except as expressly contemplated by this Agreement, until the earlier to
occur of (a) the Effective Time or (b) one year from termination of this
Agreement, neither PHB or any PHB Subsidiary, nor HAGLER BAILLY or any HAGLER
BAILLY Subsidiary shall solicit the employees engaged in the other's business.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. Access and Information.
From the date hereof to the Effective Time, each of PHB and the PHB
Subsidiaries and HAGLER BAILLY and the HAGLER BAILLY Subsidiaries shall afford
to the officers, employees, accountants, consultants, counsel and other
representatives of the other party reasonable access during normal business
hours (and at such other times as the parties may mutually agree) to the
properties, executive personnel and all information concerning the business,
properties, contracts, records and personnel of PHB and the PHB Subsidiaries or
HAGLER BAILLY and the HAGLER BAILLY Subsidiaries, as the case may be for the
sole purpose of:
(a) verifying the accuracy of the other parties representations and
warranties set forth herein or compliance with the provisions of this
Agreement; or
(b) planning for the integration of their respective businesses
following the Merger.
In the event of the termination of this Agreement, each of HAGLER BAILLY or
any HAGLER BAILLY Subsidiary and PHB or any PHB Subsidiary, as applicable, and
their respective officers, directors, employees, representatives, advisors and
agents shall destroy or deliver to PHB or HAGLER BAILLY, as applicable, all
documents, work papers and other materials, and all copies thereof, obtained by
PHB or HAGLER BAILLY, as applicable, or on their respective behalf, as
applicable, from either party as a result of this Agreement or in connection
herewith, whether obtained before or after the execution and delivery of this
Agreement.
SECTION 7.2. Confidentiality.
Each of the parties hereto hereby agrees to keep confidential any
information or knowledge obtained pursuant to Section 7.1, the Confidentiality
Agreement dated February 20, 1998 (the "Confidentiality Agreement"), the
Preliminary Agreement dated March 22, 1998 (the "Preliminary Agreement"), or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby; provided, however, that the foregoing
shall not apply to information or knowledge which:
(a) is or becomes publicly available without breach of this Agreement
by either party;
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(b) is released by the disclosing party to any other person, firm or
entity (including governmental agencies or bureaus) without any
restriction;
(c) is within, or later falls within, the public domain without breach
of this Agreement by the recipient;
(d) is rightfully obtained by the receiving party from third parties
without any restriction;
(e) becomes available to the receiving party by inspection or analysis
of products available in the market;
(f) is disclosed by the party providing the same to others on a
nonrestricted basis;
(g) is released by the receiving party or the disclosing party in
response to a subpoena, court order or other legal process and is not
subject to a protective order; provided, that if disclosure is purportedly
required by law, the receiving party will (i) use reasonable efforts to
give the other party notice immediately and (ii) will not take any action
to interfere with any efforts of the other party to pursue legal remedies
which may prevent or limit disclosure; or
(h) is rightfully already known to or is independently developed by
the receiving party.
The confidentiality provisions of the Confidentiality Agreement and the
Preliminary Agreement are incorporated herein by reference with the same effect
as if fully set forth herein.
SECTION 7.3. PHB and HAGLER BAILLY Stockholders' Meetings.
At the earliest reasonably practicable time following the execution and
delivery of this Agreement, each of PHB and HAGLER BAILLY shall promptly take
all action necessary in accordance with:
(a) the MBCL and its articles of organization and bylaws with respect
to PHB, and
(b) the DGCL and its certificate of incorporation and bylaws with
respect to HAGLER BAILLY
to convene the PHB stockholders' meeting (the "PHB Stockholders' Meeting") and
the HAGLER BAILLY stockholders' meeting (the "HAGLER BAILLY Stockholders'
Meeting"), respectively, to approve and adopt this Agreement and the Merger.
Each of PHB and HAGLER BAILLY shall use its respective reasonable best efforts
to
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solicit from its respective stockholders proxies to be voted at its
stockholders' meeting in favor of this Agreement and the Merger pursuant to the
proxy statement, in definitive form, relating to the PHB Stockholders' Meeting
and the HAGLER BAILLY Stockholders' Meeting to be held in connection with the
Merger, or in the related proxy and notice of meeting, or soliciting material
used in connection therewith (referred to herein collectively as the "Joint
Proxy Statement"). Each of PHB and HAGLER BAILLY shall take all other action
necessary or, in the opinion of the other party, advisable to promptly and
expeditiously secure any vote or consent of stockholders required by the MBCL
and the DGCL, as applicable, the applicable requirements of Nasdaq, and such
party's charter document and bylaws to effect the Merger.
SECTION 7.4. Joint Proxy Statement.
As promptly as practicable following the execution and delivery of this
Agreement, HAGLER BAILLY shall file the Joint Proxy Statement in connection with
the matters to be considered at the HAGLER BAILLY Stockholders' Meeting. Each of
HAGLER BAILLY and PHB shall use its reasonable best efforts to cause the Joint
Proxy Statement to be "cleared" by the SEC for mailing to the stockholders of
HAGLER BAILLY and PHB as promptly as practicable, and each of HAGLER BAILLY and
PHB shall mail the Joint Proxy Statement to their respective stockholders as
promptly as practicable thereafter. PHB shall furnish all information concerning
it and the holders of its capital stock as HAGLER BAILLY may reasonably request
in connection with such actions. The Joint Proxy Statement shall include the
recommendation of the Board of Directors of each of HAGLER BAILLY and PHB in
favor of approval and adoption of this Agreement and the Merger (unless
otherwise required by applicable fiduciary duties of the directors of each of
HAGLER BAILLY and PHB, as determined by such directors in good faith after
consultation with independent legal counsel).
None of the information supplied or to be supplied by or on behalf of PHB
for inclusion or incorporation by reference in the Joint Proxy Statement will,
at the dates mailed to stockholders and at the times of the PHB Stockholders'
Meeting and the HAGLER BAILLY Stockholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the PHB Stockholders' Meeting any event or circumstance relating to PHB
or any of its affiliates, or its or their respective officers or directors
should be discovered by PHB that should be set forth in a supplement to the
Joint Proxy Statement, PHB shall promptly inform HAGLER BAILLY.
None of the information supplied or to be supplied by or on behalf of
HAGLER BAILLY for inclusion or incorporation by reference in the Joint Proxy
Statement will, at the dates mailed to stockholders and at the times of the
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HAGLER BAILLY Stockholders' Meeting and the PHB Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the HAGLER BAILLY Stockholders' Meeting any
event or circumstance relating to HAGLER BAILLY or any of its affiliates, or its
or their respective officers or directors, should be discovered by HAGLER BAILLY
that should be set forth in a supplement to the Joint Proxy Statement, HAGLER
BAILLY shall promptly inform PHB.
SECTION 7.5. Further Action; Best Efforts.
(a) Each of the parties shall use reasonable best efforts to take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Laws or otherwise to
consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable, including using its reasonable best
efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Government Entities and
parties to contracts with PHB and HAGLER BAILLY as are necessary for the
transactions contemplated herein.
(b) Each party shall use its reasonable best efforts to refrain from
taking any action, or entering into any transaction, which would cause any
of its representations or warranties contained in this Agreement to be
untrue or result in a breach of any covenant made by it in this Agreement.
(c) Each of the parties to this Agreement shall use reasonable best
efforts to consummate and effect this Agreement and the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions
to closing under this Agreement.
SECTION 7.6. Public Announcements.
HAGLER BAILLY and PHB shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated hereunder and shall not issue any such press release
or make any such public statement prior to such consultation; provided that,
either HAGLER BAILLY or PHB may issue a news release or public announcement
without the consent of the other party if required by law after providing a copy
and the opportunity to comment to the other party.
SECTION 7.7. No Solicitation.
From and after the date hereof:
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(a) Neither PHB nor HAGLER BAILLY, or any of their respective
affiliates or any person acting on their behalf shall, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate (including
by way of furnishing information) any inquiries or the making of any
proposal, or offer with respect to a merger, reorganization, share
exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase
or sale of all or any significant portion of the Assets, or 20% or more of
the equity securities of, it or any of its Subsidiaries, except: (i)
discussions or other transactions disclosed in Section 14.8 of the PHB
Disclosure or the HAGLER BAILLY Disclosure and (ii) discussions or other
transactions relating to acquisitions or mergers, investments, joint
ventures or alliances involving HAGLER BAILLY for which the valuation for
such transaction is less than $20,000,000. Any such inquiry, proposal or
offer (other than acquisitions or mergers, investments, joint ventures or
alliances (i) involving HAGLER BAILLY for which the valuation for such
transaction is less than $20,000,000 or (ii) disclosed in Section 14.8 of
the PHB Disclosure or the HAGLER BAILLY Disclosure) being hereinafter
referred to as an "Acquisition Proposal"). HAGLER BAILLY and PHB each
further agrees that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that it shall
direct and use its reasonable best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any person relating to an
Acquisition Proposal or engage in any negotiations concerning an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal or accept an Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent
either HAGLER BAILLY or PHB or either of their Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to
an Acquisition Proposal; (B) engaging in any discussion or negotiations
with, or providing any information to, any person in response to an
unsolicited bona fide written Acquisition Proposal by any such person; or
(C) recommending such an unsolicited bona fide written Acquisition Proposal
to the stockholders of HAGLER BAILLY or PHB, as the case may be, if and
only to the extent that, in any such case as is referred to in clause (B)
or (C), (i) the Board of Directors of HAGLER BAILLY or PHB, as the case may
be, concludes in good faith (after consultation with its financial
advisors) that such Acquisition Proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal, and would, if
consummated, result in a transaction more favorable to HAGLER BAILLY's or
PHB's stockholders, as the case may be, from a financial and strategic
point of view than the transaction contemplated by this Agreement (any such
more favorable Acquisition
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Proposal being referred to in this Agreement as a "Superior Proposal"),
(ii) the Board of Directors of HAGLER BAILLY or PHB, as the case may be,
determines in good faith after consultation with legal counsel that such
action is necessary for its Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law, (iii) prior to
providing any information or data to any person in connection with an
Acquisition Proposal by any such person, such Board of Directors receives
from such person an executed confidentiality agreement on terms
substantially similar to those contained in the confidentiality agreement
previously entered into between HAGLER BAILLY and PHB in connection with
their consideration of the Merger and (iv) prior to providing any
information or data to any person or entering into discussions or
negotiations with any person, the Board of Directors of HAGLER BAILLY or
PHB, as the case may be, notifies the other party, immediately of such
inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with(including notification of any changes in the status of such
inquiries, proposals, offers, negotiations or discussions), any of its
representatives indicating, in connection with such notice, the name of
such person, the nature of the discussions and negotiations, and the terms
and conditions of any proposals or offers. HAGLER BAILLY and PHB each
agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. HAGLER BAILLY and PHB
each agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 7.7. HAGLER BAILLY and PHB each
agrees that it shall keep the other informed, on a current basis, of the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations.
(b) Except in connection with any potential change in the terms of
this Agreement in response to any Acquisition Proposal as contemplated by
Section 7.7(a) and Section 9.1(g), neither HAGLER BAILLY nor PHB will take
any initiatives involving the other party that would otherwise require such
other party to make a public announcement, make any public comment or
proposal with respect to any Acquisition Proposal with respect to such
other party, become a member of a "group" within the meaning of Section
13(d) of the Exchange Act, enter into any discussions, negotiations,
arrangements or understanding with any third party with respect to any of
the foregoing or otherwise seek to control or influence the other party, in
all cases except as expressly contemplated by this Agreement. HAGLER BAILLY
and PHB agree that each will notify the other immediately if any inquiries
or proposals are received by, any information is requested from, or any
negotiations or discussions are sought to be initiated or continued with,
either HAGLER BAILLY or PHB or any of their respective affiliates or
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representatives regarding any Acquisition Proposal with respect to such
other party.
SECTION 7.8. Employees.
In the event that after the Merger, the management of PHB and HAGLER BAILLY
deem the elimination of certain positions to be necessary, the employees of PHB
and HAGLER BAILLY shall be treated equally in effecting the elimination of such
positions. HAGLER BAILLY agrees to continue all base compensation and employee
benefit plans maintained by PHB for employees of the Surviving Corporation
generally on the terms and conditions as currently in effect at least until
December 31, 1998. HAGLER BAILLY agrees to treat the full period of services
rendered by employees of PHB at PHB, any PHB Subsidiary, Dickenson & O'Brien and
Freeman & Mills as if it had been service with the Surviving Corporation for
purposes of the employee benefit plans of HAGLER BAILLY. HAGLER BAILLY agrees to
cause the Surviving Corporation to pay bonuses in 1998 as determined in
accordance with the bonus structure set forth in Section 14.8 of the PHB
Disclosure.
SECTION 7.9. Affiliate Agreements.
Section 14.8 of the PHB Disclosure and the HAGLER BAILLY Disclosure set
forth those persons who may be deemed to be "affiliates" of each of PHB and
HAGLER BAILLY, as applicable, as such term is used in SEC Accounting Series
Release Number 130 and Release Number 135 and Rule 145 under the Securities Act
(collectively, the "Affiliates"). Each of PHB and HAGLER BAILLY shall deliver or
cause to be delivered to the other party, on or before the Effective Time, from
each of the Affiliates, a written agreement in the form attached hereto as
Exhibit C-1 (the "HAGLER BAILLY Affiliate Agreement") or Exhibit C-2 (the "PHB
Affiliate Agreement", and together with the HAGLER BAILLY Affiliate Agreement,
the "Affiliate Agreements"), as applicable. If any Affiliate refuses to execute
the applicable Affiliate Agreement, HAGLER BAILLY shall be entitled to place
appropriate legends on the certificates evidencing the HAGLER BAILLY Common
Stock to be received by such Affiliate pursuant to the terms of this Agreement,
and to issue appropriate stock transfer instructions to the transfer agent for
HAGLER BAILLY Common Stock, to the effect that the shares received or to be
received by such Affiliate pursuant to this Agreement may only be sold,
transferred or otherwise conveyed, and the holder thereof may only reduce his
interest in or risks relating to such shares, pursuant to the requirements set
forth in the applicable Affiliate Agreement.
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SECTION 7.10. PHB Stockholders' Certificate.
Prior to the PHB Stockholders' Meeting, PHB shall have obtained from each
of the PHB Stockholders, and shall have provided to HAGLER BAILLY, a certificate
in the form set forth as Exhibit D hereto (the "PHB Stockholder's Certificate").
SECTION 7.11. Pooling Accounting.
HAGLER BAILLY and PHB shall each use its reasonable best efforts to cause
the business combination to be effected by the Merger to be accounted for as a
pooling of interests. Each of HAGLER BAILLY and PHB shall use its reasonable
best efforts to cause its Affiliates not to take any action that would adversely
affect the ability of HAGLER BAILLY to account for the business combination to
be effected by the Merger as a pooling of interests.
SECTION 7.12. Registration Rights and Tag Along Agreement.
HAGLER BAILLY shall execute at or before the Effective Time an agreement in
form substantially as set forth in Exhibit B providing, among other things, that
the PHB Stockholders shall have certain registration and "tag-along" rights with
respect to the HAGLER BAILLY Common Stock.
SECTION 7.13. Post-Merger Management of HAGLER BAILLY and PHB.
(a) Pursuant to the terms of their respective Employment Agreements:
(i) William Dickenson ("Dickenson") shall report directly to the
Chief Executive Officer of HAGLER BAILLY and hold the
position of Executive Vice President and Chief Operating
Officer of HAGLER BAILLY as of the date immediately
following the Effective Time. Dickenson shall have overall
responsibility for all HAGLER BAILLY operations and shall
have specific responsibility for all United States and
Canadian operations of the Surviving Corporation and HAGLER
BAILLY and for the integration of PHB and HAGLER BAILLY;
(ii) Dickenson shall become a member of the Management Committee
of Hagler Bailly Consulting, Inc. ("HAGLER BAILLY
Consulting");
(iii) Dickenson shall hold the position of Chief Executive
Officer of the Surviving Corporation until the full
integration of the Surviving Corporation and HAGLER BAILLY
Consulting at
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which time he shall hold the position of Chief Executive
Officer of PHB HAGLER BAILLY (as defined below);
(iv) Dickenson shall become President and Chief Executive Officer
of HAGLER BAILLY as of January 1, 2000;
(v) Alain Streicher shall hold the position of Executive Vice
President of HAGLER BAILLY as of the date immediately
following the Effective Time and shall have specific
responsibility for all international (other than Canada)
operations of HAGLER BAILLY and the Surviving Corporation;
and
(vi) Howard Pifer ("Pifer"), Dickenson, Fred Baird, Neill
Freeman, and James Speyer shall each hold the position of
Section 16 Executive Officer of HAGLER BAILLY as of the date
immediately following the Effective Time with reporting
obligations to the Chief Executive Officer of HAGLER BAILLY.
(b) After the Effective Time, HAGLER BAILLY and PHB anticipate the
following management designations:
(i) Jassi Cheema shall become a member of the Surviving
Corporation's Executive Committee; and
(ii) HAGLER BAILLY shall create an Executive Management Committee
of no more than six Executive Officers to provide high level
strategic advice to the Chief Executive Officer of HAGLER
BAILLY.
(c) After the Effective Time, HAGLER BAILLY and PHB anticipate the
following organizational designations:
(i) The Strategy and Economics practices of HAGLER BAILLY
Consulting, the practices of TB&A Group, Inc. ("TBA"), and
the practices of the Surviving Corporation will be carefully
coordinated and integrated, and HAGLER BAILLY Consulting and
TB&A will be merged with and into the Surviving Corporation,
on or after January 1, 1999, but no later than April 1,
1999. The surviving corporation of such merger shall be
named PHB HAGLER BAILLY, INC. ("PHB HAGLER BAILLY"); and
(ii) The existing offices of HAGLER BAILLY and PHB will be
identified both as HAGLER BAILLY (the main name of the
company) and PHB HAGLER BAILLY. HAGLER BAILLY and
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PHB agree that research and information-based services and
information technology services can be managed and go to
market under separate HAGLER BAILLY units such as HAGLER
BAILLY RESEARCH and HAGLER BAILLY SOLUTIONS.
(d) PHB and HAGLER BAILLY acknowledge and agree that by January 31,
1999 HAGLER BAILLY shall use its reasonable best efforts, to the
extent legally and contractually permitted, to eliminate
operations or divest HAGLER BAILLY's public sector environmental
practice that is in conflict with the combined PHB and HAGLER
BAILLY private sector consulting business. PHB and HAGLER BAILLY
will set up an Environmental Conflict Review Committee (the "ECR
Committee"), to include John Butler, Ken Rubin and Jay Stanford,
to review actual or perceived conflicts in existing and proposed
future contracts in the environmental consulting area and develop
solutions to conflict issues. The ECR Committee will act by
consensus, if possible, with appeal to the Chief Executive
Officer of HAGLER BAILLY when the ECR Committee does not reach
consensus. It is agreed that those contracts listed on Schedule A
will be subject to review. Prior to the elimination of operations
or any divestiture, HAGLER BAILLY and PHB will use their
reasonable best efforts to reduce the impact of any conflicts in
their environmental practices. Contemporaneously with the
execution of the Agreement, HAGLER BAILLY and PHB will announce
their intention to eliminate environmental practice conflicts.
SECTION 7.14. Post-Merger Board of Directors of HAGLER BAILLY.
(a) On the date immediately following the Effective Time:
(i) the number of members of the Board of Directors of HAGLER
BAILLY shall be increased by two (2);
(ii) Pifer shall become a director of HAGLER BAILLY in the class
of directors the term for which expires in 2001 and Chairman
of the Board of Directors of HAGLER BAILLY until December
31, 1999; and
(iii) R. Gene Brown shall become a director of HAGLER BAILLY in
the class of directors the term for which expires in 2000.
(b) After the Effective Time:
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(i) Dickenson will be elected to the Board of Directors of
HAGLER BAILLY to fill any vacancy that arises and, in any
event, shall be nominated to the Board of Directors of
HAGLER BAILLY not later than the Annual Meeting of
Stockholders of HAGLER BAILLY in 1999 to serve in the class
of directors the term for which expires in 2002; and
(ii) Henri-Claude Bailly shall become Chairman of the Board of
HAGLER BAILLY on January 1, 2000.
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.1. Conditions to Obligations of HAGLER BAILLY, Merger Sub and PHB
to Effect the Merger.
The respective obligations of HAGLER BAILLY, Merger Sub and PHB to effect
the Merger and the other transactions contemplated herein shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent permitted
by applicable law:
(a) Legal Proceedings. No action or proceeding before any Government
Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected
to restrain, prohibit or invalidate the Merger or other transactions
contemplated by this Agreement other than an action or proceeding
instituted or threatened by HAGLER BAILLY, Merger Sub or PHB, as
applicable.
(b) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of PHB Stockholders and the
HAGLER BAILLY Stockholders in accordance with applicable law.
(c) Pooling of Interests. Each of HAGLER BAILLY and PHB shall have
received a letter from Ernst & Young L.L.P., in form and substance
reasonably satisfactory to HAGLER BAILLY and PHB, to the effect that the
transactions contemplated hereby will qualify for "pooling of interests"
accounting.
(d) Tax-free Reorganization. HAGLER BAILLY and PHB shall have received
reasonable assurances from Ernst & Young L.L.P., in form and substance
reasonably satisfactory to HAGLER BAILLY and PHB, that the
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Merger will constitute a "reorganization" of Merger Sub and PHB within the
meaning of Section 368 of the Code.
(e) Employment Agreements. The Employment Agreements shall remain
binding and enforceable legal obligations of the parties thereto.
SECTION 8.2. Additional Conditions to Obligations of HAGLER BAILLY.
The obligations of HAGLER BAILLY and Merger Sub to effect the Merger and
the other transactions contemplated in this Agreement are also subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. The representations and warranties
of PHB made in this Agreement shall be true and correct in all material
respects on and as of the Effective Time with the same effect as though
such representations and warranties had been made on and as of the
Effective Time, except for representations and warranties that speak as of
a specific date or time (which need only be true and correct in all
material respects as of such date or time). HAGLER BAILLY shall have
received a certificate signed on behalf of PHB by the chief executive
officer of PHB to that effect.
(b) Agreements and Covenants. The agreements and covenants of PHB
required to be performed on or before the Effective Time shall have been
performed in all material respects. HAGLER BAILLY shall have received a
certificate signed on behalf of PHB by the chief executive officer of PHB
to that effect.
(c) Dissenting Shares. The aggregate number of Dissenting Shares shall
not constitute more than ten percent (10%) of PHB Common Stock outstanding
on the Merger Date.
(d) No PHB Material Adverse Effect. Since the date of this Agreement,
no PHB Material Adverse Effect shall have occurred and be continuing.
(e) Required Consents. PHB shall have delivered to HAGLER BAILLY at or
before Closing all consents or notices necessary to be obtained or made by
PHB in connection with the transactions contemplated by this Agreement.
(f) Escrow Agreement. HAGLER BAILLY, Merger Sub, the Escrow Agent and
the Stockholders' Representative shall enter into the Escrow Agreement at
or before the Effective Time in a form substantially similar to
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Exhibit A, pursuant to which the Escrow Stock shall have been retained in
escrow.
(g) Affiliate Agreement. HAGLER BAILLY shall have received from each
of the Affiliates of PHB an executed PHB Affiliate Agreement in the form
set forth as Exhibit C-2 which shall be in full force and effect.
(h) Legal Opinion. HAGLER BAILLY shall have received an opinion from
the Corporate Counsel of PHB, substantially in the form of Exhibit E
hereto.
(i) Capitalization Certificate. HAGLER BAILLY shall have received a
capitalization certificate in the form set forth as Exhibit G from the
Clerk of PHB relating to, among other things, capitalization of PHB.
(j) Termination of Stock Purchase Agreement and Stock Option Plans.
PHB shall have terminated the PHB Stock Purchase Agreement dated October 1,
1984, as amended and the PHB Stock Option Plans.
(k) Option Exercises and Cancellations. PHB shall provide evidence
reasonably satisfactory to HAGLER BAILLY that all outstanding PHB Options
shall have been terminated by exercise or cancellation on or before the
Effective Time such that no holder of a PHB Option or participant or former
participant in the PHB Stock Option Plans shall have any right to purchase
shares of PHB Common Stock or any other equity interest in PHB or the
Surviving Corporation.
(l) Stock Repurchase Certificate. HAGLER BAILLY shall have received a
certificate from the President of PHB certifying that no shares of PHB
Common Stock are subject to repurchase by PHB as of the Effective Time.
(m) Certain Directors Shall Not Dissent. None of the directors of PHB
who shall have voted to approve this Agreement, the Merger and the
transactions contemplated hereby at the meeting of the Board of Directors
of PHB held on June 9, 1998, shall have objected to the Merger in writing
or demanded payment for any shares of PHB Common Stock in accordance with
Section 156B ss. 86 of the MBCL prior to the Effective Time.
(n) Other Closing Documents. PHB shall have executed and/or delivered
to Hagler Bailly such additional documents, certificates, opinions and
agreements as Hagler Bailly may reasonably request.
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SECTION 8.3. Additional Conditions to Obligations of PHB.
The obligations of PHB to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the fulfillment at or prior
to the Effective Time of the following conditions any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) Representations and Warranties. The representations and warranties
of HAGLER BAILLY and Merger Sub made in this Agreement shall be true and
correct in all material respects on and as of the Effective Time with the
same effect as though such representations and warranties had been made on
and as of the Effective Time, except for representations and warranties
that speak as of a specific date or time other than the Effective Time
(which need only be true and correct in all material respects as of such
date or time). PHB shall have received a certificate of the chief executive
officer of HAGLER BAILLY to that effect.
(b) Agreements and Covenants. The agreements and covenants of HAGLER
BAILLY and Merger Sub required to be performed on or before the Effective
Time shall have been performed in all material respects. PHB shall have
received a certificate of the chief executive officer of HAGLER BAILLY to
that effect.
(c) No HAGLER BAILLY Material Adverse Effect. Since the date of this
Agreement, no HAGLER BAILLY Material Adverse Effect shall have occurred and
be continuing.
(d) Required Consents. HAGLER BAILLY shall have delivered to PHB at or
before Closing all consents or notices necessary to be obtained or made by
HAGLER BAILLY in connection with the transactions contemplated by this
Agreement.
(e) Affiliate Agreement. PHB shall have received from each of the
Affiliates of HAGLER BAILLY an executed HAGLER BAILLY Affiliate Agreement
in the form set forth as Exhibit C-1 which shall be in full force and
effect.
(f) Legal Opinion. PHB shall have received an opinion from the General
Counsel of HAGLER BAILLY, substantially in the form of Exhibit F hereto.
(g) Registration Rights Agreement. HAGLER BAILLY shall execute at or
before Closing an agreement in form substantially as set forth in Exhibit B
providing, among other things, that the PHB Stockholders shall have certain
"piggy-back" registration rights with respect to the HAGLER BAILLY Common
Stock issued pursuant to the Merger.
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(h) Other Closing Documents. HAGLER BAILLY shall have executed and/or
delivered to PHB such additional documents, certificates, opinions and
agreements as PHB may reasonably request.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination.
This Agreement may be terminated at any time prior to the Effective Time:
(a) by mutual written consent of each of HAGLER BAILLY and PHB;
(b) by HAGLER BAILLY if PHB shall have materially breached any of its
representations, warranties, covenants or agreements contained in this
Agreement, or any such representation or warranty shall have become
materially untrue, in any such case such that the conditions precedent to
the obligations of HAGLER BAILLY to close specified in Section 8.2 will not
be satisfied and such breach has not been promptly cured within thirty (30)
days following receipt by PHB of written notice of such breach;
(c) by PHB if HAGLER BAILLY or Merger Sub shall have materially
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or warranty shall
have become materially untrue, in any such case such that the conditions
precedent to the obligation of PHB to close specified in Section 8.3, will
not be satisfied and such breach has not been promptly cured within thirty
(30) days following receipt by HAGLER BAILLY of written notice of such
breach;
(d) by either HAGLER BAILLY or PHB if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Government Entity preventing or prohibiting
consummation of the Merger shall have become final and nonappealable; or
(e) by either HAGLER BAILLY or PHB if the Effective Time has not
occurred on or prior to October 31, 1998 upon giving written notice of such
termination to the other party (unless such date shall be extended by the
mutual written consent of the parties); provided, that the right to
terminate this Agreement under this Section 9.1(e) shall not be available
to any party whose breach of representations, warranties, covenants or
agreements contained in this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur by such date or the
inability of such condition to be satisfied.
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(f) by HAGLER BAILLY if the Agreement shall fail to receive the
requisite vote for approval and adoption by the stockholders of PHB at the
PHB Stockholders' Meeting or by PHB if the issuance of shares of HAGLER
BAILLY Common Stock in connection with the Merger shall fail to receive the
requisite vote for approval by the stockholders of HAGLER BAILLY at the
HAGLER BAILLY Stockholders' Meeting;
(g) by either HAGLER BAILLY or PHB, upon five business days' prior
notice to the other, if, as a result of a Superior Proposal received by
such party from a person other than a party to this Agreement or any of its
affiliates, the Board of Directors of such party determines in good faith
that their fiduciary obligations under applicable law require that such
Superior Proposal be accepted; provided, however, that (i) the Board of
Directors of such party shall have concluded in good faith, after
considering applicable provisions of law and after giving effect to all
concessions which may be offered by the other party pursuant to clause (ii)
below, on the basis of advice of counsel, that such action is necessary for
such Board of Directors to act in a manner consistent with its fiduciary
duties under applicable laws and (ii) prior to any such termination, such
party shall, and shall cause its respective financial and legal advisors
to, negotiate with the other party to this Agreement to make such
adjustments in the terms and conditions of this Agreement as would enable
such party to proceed with the transactions contemplated hereby; provided,
however, that it shall be a condition to termination by either party
pursuant to this Section 9.1(g) that the terminating party shall have made
the payment of the Alternative Transaction Fee to the non-terminating party
required by Section 9.2(b).
SECTION 9.2. Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except that the provisions of
Sections 6.3, 7.2, 9.2 and 11.12 shall not be extinguished but shall
survive such termination. For any breach of a representation or warranty
set forth in this Agreement, the sole remedy shall be termination of this
Agreement by the non-breaching party in accordance with Sections 9.1(b) or
9.1(c), as applicable. For any breach of any other covenant or agreement in
this Agreement, each party shall be entitled to terminate this Agreement,
as applicable, and shall be entitled to any remedies at law or in equity
for such breach.
(b) HAGLER BAILLY and PHB agree that if either party shall terminate
this Agreement pursuant to (i) Section 9.1(f) and a Competing Transaction
shall have been proposed publicly or been otherwise made available to at
least a majority of the stockholders of HAGLER BAILLY or
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PHB, or (ii) Section 9.1(g), then the party who is the subject of the
Superior Proposal or Competing Transaction shall pay to the other party an
amount equal to the sum of $10,000,000 (the "Alternative Transaction Fee").
A "Competing Transaction" means any of the following other than the Merger:
any proposed (i) merger, consolidation, share exchange, business combination or
other similar transaction involving HAGLER BAILLY or PHB, (ii) sale, lease,
exchange transfer or other disposition directly or indirectly of 50% or more of
the consolidated assets of HAGLER BAILLY or PHB and their respective
subsidiaries, taken as a whole, or (iii) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Securities Exchange Act of 1934, as amended)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 50% or more of the outstanding voting capital stock of
HAGLER BAILLY or PHB.
SECTION 9.3. Amendment.
This Agreement may be amended by the parties hereto by action taken by or
on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of this Agreement and
the Merger by the stockholders of each of PHB and HAGLER BAILLY, no amendment
may be made which would reduce the amount or change the type of consideration
into which each share of PHB Common Stock shall be converted pursuant to this
Agreement upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 9.4. Waiver.
At any time prior to the Effective Time, one party may:
(a) extend the time for the performance of any of the obligations or
other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement of the other parties; and
(c) waive compliance by the other party with any of the agreements or
conditions contained in this Agreement.
Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. No delay or failure on the
part of any party hereto in exercising any right, power or privilege under this
Agreement or under any other instrument or document given in connection with or
pursuant to
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this Agreement shall impair any such right, power or privilege or be construed
as a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege, or the exercise of any other right,
power or privilege.
ARTICLE X
SPECIAL TAX INDEMNITY AGREEMENT; ESCROW ARRANGEMENTS; REMEDIES
SECTION 10.1. Survival of Special Tax Indemnity.
The tax indemnity agreement set forth below in Section 10.2 shall survive
for a period of one year after the Effective Time (the "Claims Deadline").
Notwithstanding anything herein to the contrary, (a) any indemnity which is the
subject of a Permitted Claim (as defined below) which is asserted in writing
prior to the Claims Deadline shall survive with respect to such Permitted Claim
until the final resolution thereof and (b) the parties acknowledge and agree
that HAGLER BAILLY shall have the right to assert a claim pursuant to Section
10.2 prior to the actual incurrence of any Losses by any HAGLER BAILLY
Indemnified Person as long as such claim otherwise complies with Section
10.2(a).
SECTION 10.2. Special Tax Indemnification; Escrow Arrangements.
Each PHB Stockholder hereby agrees to indemnify and hold HAGLER BAILLY, the
Surviving Corporation, and any entity that is a member of an "affiliated group"
(as defined in Section 1504 of the Internal Revenue Code) that includes the
Surviving Corporation (collectively, the "HAGLER BAILLY Indemnified Persons")
harmless (but only to the extent of such PHB Stockholder's pro rata share of the
Escrow Stock) with respect to any Losses imposed upon or incurred by any HAGLER
BAILLY Indemnified Person, computed and discharged as follows:
(a) The only Losses for which indemnification is provided pursuant to
this Article X, and the only claims which shall constitute Permitted
Claims, shall be those which:
(i) are specifically attributable to Taxes of PHB and its
Subsidiaries during any periods ending on or prior to December 31,
1997 in excess of the Taxes actually paid by PHB and its Subsidiaries
with respect to such periods,
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(ii) which result from any audit or other examination, or any
judicial or administrative proceeding, relating to liability or
adjustments with respect to Taxes (each referred to herein as a
"Proceeding"):
(A) which is commenced prior to the Claims Deadline, or
(B) with respect to which the HAGLER BAILLY Indemnified
Person receives specific notice, whether written or oral, from
any agent or representative of a state or federal authority prior
to the Claims Deadline, and
(iii) for which notice is properly given by a HAGLER BAILLY
Indemnified Person prior to the Claims Deadline in accordance with the
provisions of Section 2.1 of the Escrow Agreement.
(b) For the purposes of Article X, any Losses shall be reduced by any
net tax benefit received or realized by the HAGLER BAILLY Indemnified
Person resulting from the payment of the Taxes (and associated Losses)
being indemnified hereunder.
(c) The indemnification obligation of each PHB Stockholder pursuant to
this Article X shall be several, and not joint, and the sole and exclusive
remedy of each and every HAGLER BAILLY Indemnified Person under this
Article X shall be to seek compensation for any and all Losses solely from
the Escrow Stock pursuant to the terms and conditions of the Escrow
Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1. Nonsurvival of Representations, Warranties and Agreements.
The representations, warranties, covenants and agreements in this Agreement
(and in any certificate delivered in connection with the Closing) shall be
deemed to be conditions to the Merger and shall not survive the Effective Time
or termination of this Agreement, except for the agreements set forth in
Articles I (the Merger) and II (Conversion of Securities; Exchange of
Certificates), and Section 7.8 (Employees), each of which shall survive the
Effective Time indefinitely; Section 10.2 (Special Tax Indemnification), which
shall survive for a period of one year after the Effective Time; and Sections
6.3 (Non-Solicitation Covenant of PHB and HAGLER BAILLY), 7.2 (Confidentiality),
9.2 (Effect of Termination), 11.7 (Specific Performance) as it relates to the
other provisions surviving termination of this Agreement and 11.12 (Fees and
Expenses), each of which shall survive termination of
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this Agreement indefinitely.
SECTION 11.2. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon receipt, if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address) or
sent by electronic transmission to the telecopier number specified below:
(a) If to HAGLER BAILLY:
HAGLER BAILLY, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Telecopier No.: (703) 528-8573
Attention: Stephen V.R. Whitman
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr.
(b) If to PHB:
Putnam, Hayes & Bartlett, Inc.
One Memorial Drive
Cambridge, MA 02142
Telecopier No.: (617) 225-0218
Attention: Barbara Levine
With a copy (which shall not constitute notice) to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Telecopier No.: (312) 984-7700
Attention: William J. McGrath
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SECTION 11.3. Certain Definitions.
For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, is controlled by or is under common control
with the first mentioned person.
(b) "Assets" shall mean the assets, rights and properties, whether
owned, leased or licensed, real, personal or mixed, tangible or intangible,
that are used, or held for use in connection with the business of an
entity.
(c) "business day" shall mean any day other than a day on which banks
in the District of Columbia are authorized or obligated to be closed.
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock
or as trustee or executor, by contract or credit arrangement or otherwise.
(e) "Encumbrances" means mortgages, liens, pledges, encumbrances,
security interests, deeds of trust, options, encroachments, reservations,
orders, decrees, judgments, restrictions, charges, contract rights or
claims of any kind.
(f) "Government Entity" means any United States or other national,
state, municipal or local government, domestic or foreign, any subdivision,
agency, entity, commission or authority thereof, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority.
(g) "HAGLER BAILLY Disclosure" shall mean the HAGLER BAILLY Disclosure
Index and underlying documents provided to PHB pursuant to the Due
Diligence Request Agreement dated March 22, 1998 between HAGLER BAILLY and
PHB (the "Due Diligence Agreement").
(h) "HAGLER BAILLY Material Adverse Effect" means any material adverse
effect on the Assets or the business, financial condition or results of
operations of HAGLER BAILLY and the HAGLER BAILLY Subsidiaries taken as a
whole.
(i) "including" means "including but not limited to."
(j) "Laws" means all foreign, federal, state and local laws, statutes,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
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injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified persons or
entities.
(k) "Losses" means all losses, causes of action, assessments, damages,
liabilities, including, without limitation, interest, penalties, costs and
expenses, and reasonable attorneys' fees and disbursements.
(l) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act).
(m) "PHB Disclosure" shall mean the PHB Disclosure Index and
underlying documents provided to HAGLER BAILLY pursuant to the Due
Diligence Agreement.
(n) "PHB Material Adverse Effect" means any material adverse effect on
the Assets or the business, financial condition or results of operations of
PHB and the PHB Subsidiaries taken as a whole.
(o) "Subsidiary" means any corporation, partnership, joint venture or
other legal entity of which such person (either alone or through or
together with any other Subsidiary) (i) owns, directly or indirectly, fifty
percent (50%) or more of the stock, partnership interests or other equity
interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation, partnership, joint venture or other legal entity; or (ii)
possesses, directly or indirectly, control over the direction of management
or policies of such corporation, partnership, joint venture or other legal
entity (whether through ownership of voting securities, by agreement or
otherwise).
(p) "Taxes" shall mean all federal, state, local and foreign taxes
(including income, profit, franchise, sales, use, real property, personal
property, ad valorem, excise, employment, social security and wage
withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration, fees,
withholdings or other similar charges of every kind, character or
description imposed by any governmental authorities, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
SECTION 11.4. Headings.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
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SECTION 11.5. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 11.6. Entire Agreement.
This Agreement (together with the Exhibits, the Schedules and the other
documents delivered pursuant hereto), together with the Related Agreements,
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 11.7. Specific Performance.
The transactions contemplated by this Agreement are unique. Accordingly,
each of the parties acknowledges and agrees that, in addition to all other
remedies to which it may be entitled, each of the parties hereto is entitled to
a decree of specific performance, provided such party is not in material default
hereunder.
SECTION 11.8. Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
SECTION 11.9. Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
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SECTION 11.10. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
SECTION 11.11. Counterparts.
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 11.12. Fees and Expenses.
Except as otherwise provided for in this Agreement, each party hereto shall
pay its own fees, costs and expenses incurred in connection with this Agreement
and in the preparation for and consummation of the transactions provided for
herein.
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IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT AND PLAN
OF MERGER to be executed and delivered as of the date first written above.
HAGLER BAILLY, INC.
By: /s/ Henri-Claude Bailly
------------------------------------
Name: Henri-Claude Bailly
Title: President and Chief Executive Officer
PHB MERGER CORP.
By: /s/ Henri-Claude Bailly
------------------------------------
Name: Henri-Claude Bailly
Title: President, Secretary and Treasurer
PUTNAM, HAYES & BARTLETT, INC.
By: /s/ William Dickenson
------------------------------------
Name: William Dickenson
Title: President and Chief Executive Officer
<PAGE>
Schedules
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Schedule A Contracts for Review
Exhibits
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Exhibit A Escrow Agreement
Exhibit B Registration Rights Agreement
Exhibit C-1 Form of HAGLER BAILLY Affiliate Agreement
Exhibit C-2 Form of PHB Affiliate Agreement
Exhibit D Form of PHB Stockholder's Certificate
Exhibit E Form of Legal Opinion of PHB's Corporate Counsel
Exhibit F Form of Legal Opinion of HAGLER BAILLY's General Counsel
Exhibit G Form of PHB Capitalization Certificate
Exhibit H PHB Bylaws
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Index of Defined Terms
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Section
-------
Acquisition Proposal...................................... 7.7(a)
Affiliate Agreements...................................... 7.9
Affiliate and/or Affiliate................................ 7.9; 11.3(a)
Agreement ................................................ PREAMBLE
Alternative Transaction Fee............................... 9.2(b)
Articles of Merger........................................ 1.2
Assets.................................................... 11.3(b)
Audited Financial Statements.............................. 3.6
Balance Sheet Date........................................ 3.6
Blue Sky Laws............................................. 3.5(a)
Business day.............................................. 11.3(c)
Claims Deadline........................................... 10.2
Code...................................................... 1.8
Competing Transaction..................................... 9.2
Confidentiality Agreement................................. 7.2
Control, controlled by, under common control with......... 11.3(d)
Delaware Articles of Merger............................... 1.2
DGCL...................................................... 1.1
Dickenson................................................. 7.12(a)
Dissenting Shares......................................... 2.5
Due Diligence Agreement................................... 11.3(g)
ECR Committee............................................. 7.13(d)
Effective Time............................................ 1.2
Employment Agreements..................................... PREAMBLE
Encumbrances.............................................. 11.3(e)
Environmental Laws........................................ 3.10(b)
ERISA..................................................... 3.12(a)
Escrow Agent.............................................. PREAMBLE
Escrow Agreement.......................................... PREAMBLE
Escrow Stock.............................................. 2.2(a)
Escrow Stock Certificate.................................. 2.4(b)
Exchange Act.............................................. 3.22
Exchange Agent............................................ 2.3(a)
Financial Statements...................................... 3.6
Government Entity......................................... 11.3(f)
HAGLER BAILLY............................................. PREAMBLE
HAGLER BAILLY Affiliate Agreement......................... 7.11
HAGLER BAILLY Benefit Plan................................ 4.12
HAGLER BAILLY Common Stock................................ PREAMBLE
HAGLER BAILLY Commonly Controlled Entity.................. 4.12
HAGLER BAILLY Consulting, Inc............................. 7.12(a)
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Section
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HAGLER BAILLY Disclosure.................................. 11.3(g)
HAGLER BAILLY ERISA Plan.................................. 4.12
HAGLER BAILLY Indemnified Person.......................... 10.2
HAGLER BAILLY Intellectual Property....................... 4.16
HAGLER BAILLY Material Adverse Effect..................... 11.3(h)
HAGLER BAILLY Material Contracts.......................... 4.9
HAGLER BAILLY Permits..................................... 4.13
HAGLER BAILLY Real Property............................... 4.14
HAGLER BAILLY SEC Reports................................. 4.6(a)
HAGLER BAILLY Stock Option Plan........................... 4.3
HAGLER BAILLY Stockholders' Meeting....................... 7.3
HAGLER BAILLY Subsidiary.................................. 4.1
HAGLER BAILLY Support Agreement........................... PREAMBLE
Hazardous Materials....................................... 3.10(b)
Including................................................. 11.3(i)
Joint Proxy Statement..................................... 7.3
Laws...................................................... 11.3(j)
Legend.................................................... 2.9
Losses.................................................... 11.3(k)
Massachusetts Articles of Merger.......................... 1.2
MBCL...................................................... 1.1
Merger.................................................... 1.1
Merger Date............................................... 1.6
Merger Stock.............................................. 2.1(a)
Merger Stock Certificate.................................. 2.4(b)
Merger Sub................................................ PREAMBLE
Multiemployer Plan........................................ 3.12(d)
Permitted Claims.......................................... 10.2
Person.................................................... 11.3(l)
PHB....................................................... PREAMBLE
PHB Affiliate Agreement................................... 7.9
PHB Benefit Plan.......................................... 3.12
PHB Certificate........................................... 2.1(a)
PHB Common Stock.......................................... 2.1(a)
PHB Commonly Controlled Entity............................ 3.12
PHB Disclosure............................................ 11.3(m)
PHB ERISA Plan............................................ 3.12
PHB HAGLER CONSULTING..................................... 7.12(b)
PHB Intellectual Property................................. 3.16
PHB Material Adverse Effect............................... 11.3(n)
PHB Material Contracts.................................... 3.9
PHB Options............................................... 2.2
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Section
-------
PHB Permits............................................... 3.13
PHB Real Property......................................... 3.14
PHB Stock Option Plans.................................... 2.2
PHB Stockholder's Certificate............................. 7.10
PHB Stockholders.......................................... 2.1(a)
PHB Stockholders' Meeting................................. 7.3
PHB Subsidiary............................................ 3.1
PHB Support Agreement..................................... PREAMBLE
Pifer..................................................... 7.12(a)
Preliminary Agreement..................................... 7.2
Pre-Surrender Dividends................................... 2.4
Proceeding................................................ 10.2
Real Property............................................. 3.11
Related Agreements........................................ PREAMBLE
SEC....................................................... 4.6
Securities Act............................................ 2.7
Stockholders' Representative.............................. 2.2(b)
Subsidiary................................................ 11.3(o)
Superior Proposal......................................... 7.7(a)
Surviving Corporation..................................... 1.1
Taxes..................................................... 11.3(p)
Unaudited Financial Statements............................ 3.6
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EXHIBIT A
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is entered into this ______ day of
_____________, 1998, by and among HAGLER BAILLY, INC., a Delaware corporation
("Hagler Bailly"); PHB MERGER CORP., a Delaware corporation and a wholly-owned
subsidiary of Hagler Bailly ("Merger Sub"), William Dickenson, acting by virtue
of the Merger Agreement (as hereinafter defined) as the representative (the
"Stockholders' Representative") of the stockholders (the "Company Stockholders")
of Putnam Hayes & Bartlett, Inc., a Massachusetts corporation (the "Company")
and State Street Bank and Trust Company, a Massachusetts banking corporation, as
escrow agent (the "Escrow Agent").
WHEREAS, Hagler Bailly, Merger Sub and the Company have entered into an
Agreement and Plan of Merger, dated as of May __, 1998 (the "Merger Agreement"),
providing for the merger of the Company with and into Merger Sub, pursuant to
which the outstanding shares of common stock, par value $.01 per share, of the
Company ("Company Common Stock") will be exchanged for shares of common stock,
par value $0.01 per share, of Hagler Bailly ("Hagler Bailly Common Stock");
WHEREAS, capitalized terms used but not defined herein have the meanings
assigned to such terms in the Merger Agreement;
WHEREAS, Section 2.2(a) of the Merger Agreement provides that at the
Effective Time, Hagler Bailly shall deposit with the Escrow Agent One Hundred
Fifty Thousand (150,000) of the aggregate number of shares of Hagler Bailly
Common Stock issuable to the Company Stockholders in connection with the Merger
("Merger Stock");
WHEREAS, as contemplated by Section 2.2(b) of the Merger Agreement, the
Stockholders' Representative has been designated by the Company Stockholders as
their attorney-in-fact and authorized and empowered to act, for and on behalf of
any or all of the Company Stockholders (with full power of substitution in the
premises), in connection with the indemnity provisions of the Merger Agreement,
this Escrow Agreement, and such other matters as are reasonably necessary for
the consummation of the transactions contemplated hereby and thereby; and
WHEREAS, the Escrow Agent is willing to act in the capacity of Escrow Agent
hereunder, subject to and upon the terms and conditions of this Agreement.
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
<PAGE>
ARTICLE I
DESIGNATION OF ESCROW AGENT AND ESCROW STOCK
1.1 Appointment of Escrow Agent. Hagler Bailly and the Stockholders'
Representative hereby designate and appoint the Escrow Agent as escrow agent to
receive, hold and disburse the Escrow Stock (as hereinafter defined), and the
Escrow Agent hereby accepts such appointment and agrees to act in furtherance of
the provisions of the Merger Agreement, but only upon the terms and conditions
provided in this Agreement.
1.2 Escrow Deposit. Hagler Bailly hereby delivers to the Escrow Agent, and
the Escrow Agent hereby confirms receipt of one share certificate in the name of
the Escrow Agent, representing the One Hundred Fifty Thousand (150,000) shares
of Hagler Bailly Common Stock issuable in accordance with Section 2.2 of the
Merger Agreement (the "Escrow Stock"). Schedule A hereto identifies the name,
address and the percentage interest in the Escrow Stock of each Company
Stockholder.
1.3 Non-Taxable Stock Splits/Stock Dividends. Any and all securities,
property or cash that would have been distributed to the holders of such Escrow
Stock as a result of any non-taxable stock dividend, stock split,
reclassification, recapitalization, merger, business combination, consolidation,
sale of assets or similar transaction shall be deemed to be Escrow Stock and
shall be subject to the terms hereof to the same extent as the original Escrow
Stock.
1.4 Voting Rights of Escrow Stock. All voting rights with respect to Escrow
Stock shall be exercised by the Company Stockholders in accordance with their
proportionate interests therein, and the Escrow Agent shall from time to time
execute and deliver to the Company Stockholders such proxies, consents or other
documents as may be necessary to enable such Company Stockholders to exercise
such rights and which are delivered to the Escrow Agent for execution.
1.5 Taxable Dividends and Distributions. Any cash dividends and any taxable
stock dividends paid with respect to the Escrow Stock shall be paid by Hagler
Bailly to the Company Stockholders in accordance with their respective interests
in the Escrow Stock and shall not be subject to the terms of this Agreement.
1.6 Value of Escrow Stock. For all purposes of this Agreement, including
without limitation the distribution of Escrow Stock, the value of each share of
Escrow Stock shall be equal to the reported closing price of a share of Hagler
Bailly Common Stock on the Nasdaq National Market on the day prior to the Merger
Date (the "Hagler Bailly Closing Price"), as such Hagler Bailly Closing Price is
certified to the Escrow Agent by the Stockholder Representative and the
authorized representative of the Hagler Bailly.
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1.7 Liabilities Covered. The Agreement has been executed and the deposit of
the Escrow Stock hereunder has been made pursuant to Section 2.2 and Section 10
of the Merger Agreement. The deposit of the Escrow Stock has been made for the
purpose of funding and securing, to the extent of the value of the Escrow Stock,
the indemnities set forth in Article X of the Merger Agreement until the
expiration of the Claims Deadline or as otherwise provided herein.
ARTICLE II
DELIVERY OF ESCROW STOCK FOR CLAIMS
2.1 Claims Against Escrow Stock.
(a) If at any time on or prior to 5:00 p.m., Arlington, Virginia time, on
the first anniversary of the Effective Time (as defined in the Merger Agreement)
(the "Claims Deadline"), Hagler Bailly (on its own behalf or on behalf of any
other Hagler Bailly Indemnified Person) shall assert a claim for indemnification
pursuant to Article X of the Merger Agreement for Losses, then Hagler Bailly may
submit to the Escrow Agent and to the Stockholders' Representative a written
claim (a "Claim Notice") signed by an executive officer of Hagler Bailly
stating: (i) that a claim for indemnification has been made by Hagler Bailly in
accordance with Article X of the Merger Agreement; (ii) the number of shares of
Escrow Stock to which such Hagler Bailly Indemnified Person is entitled with
respect to such Losses determined by dividing the amount of Losses specified
therein by the Hagler Bailly Share Price; and (iii) that a copy of such Claim
Notice has been delivered to the Stockholders' Representative in accordance with
Section 6.4 of this Agreement. In no event shall any Escrow Stock be distributed
to Hagler Bailly (i) until the Claim Notice has been resolved in accordance with
Section 2.2 below and (ii) Losses related to the Claim Notice have been incurred
by a Hagler Bailly Indemnified Person.
(b) Upon receipt of a Claim Notice, the Escrow Agent shall send a copy
thereof by a nationally recognized overnight delivery service to the
Stockholders' Representative at the address for notices set forth in Section 6.4
of this Agreement.
2.2 Resolution of Asserted Claims. If the Stockholders' Representative does
not deliver to the Escrow Agent a written notice (a "Response Notice") objecting
to the delivery of all or any portion of the Escrow Stock to Hagler Bailly as
specified in a Claim Notice within twenty (20) days after the Stockholders'
Representative's receipt of such Claim Notice, then the Escrow Agent shall,
after the expiration of such twenty (20) day period, immediately deliver to
Hagler Bailly the number of shares of Escrow Stock specified in such Claim
Notice with respect to which the Stockholders' Representative did not submit a
Response Notice. Each Response Notice shall state in reasonable detail the basis
upon which the Company Stockholders dispute the Claim Notice and the number of
shares of Escrow Stock
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stated in the Claim Notice that the Company Stockholders object to being
delivered to Hagler Bailly.
2.3 Resolution of Disputed Claims Against Escrow Stock. If the
Stockholders' Representative delivers to the Escrow Agent a Response Notice at
any time on or prior to twenty (20) days after the Escrow Agent's receipt of a
Claims Notice, then the Escrow Agent shall not make any payment or distribution
of the Escrow Stock contested in such Response Notice unless and until the
Escrow Agent shall have received either: (a) a certificate signed on behalf of
the Hagler Bailly and the Stockholders' Representative certifying the resolution
of the amount of the asserted claim for Losses and directing the delivery of a
specified number of shares of Escrow Stock to which the Hagler Bailly
Indemnified Person is entitled with respect to such amount; (b) a certified copy
of a final, binding and nonappealable judgment of a court of competent
jurisdiction determining the amount of the asserted claim for Losses in dispute
and directing delivery of shares of Escrow Stock to the Hagler Bailly
Indemnified Person; or (c) a certified copy of an award of an arbitrator, under
an arrangement providing for no appeal, determining the amount of the asserted
claim for Losses in dispute. Upon receipt of any such certification, the claim
for Losses shall be treated as a resolved undisputed claim and the Escrow Agent
shall present to the Hagler Bailly's transfer agent (the "Transfer Agent") the
Escrow Certificate and shall obtain from the Transfer Agent in replacement
thereof certificates (a) in the name of the Hagler Bailly Indemnified Person and
(b) in the name of the Escrow Agent and shall deliver to the Hagler Bailly
Indemnified Person the certificate representing the number of shares of Escrow
Stock to which the Hagler Bailly Indemnified Person is entitled with respect to
such Losses in accordance with and pursuant to such certification (in all cases,
to be determined by dividing the amount of such Losses by the Hagler Bailly
Closing Price (subject to the provisions of Section 2.1)).
ARTICLE III
DISTRIBUTION OF ESCROW STOCK
UPON TERMINATION OF THE AGREEMENT
3.1 Deadline for Claims and Termination. Hagler Bailly or any other Hagler
Bailly Indemnified Person shall not be entitled to assert any claim against the
Escrow Stock after the Claims Deadline; provided, however, that any claim made
in writing on or prior to the Claims Deadline (whether or not formal legal
action shall yet have been commenced based upon such claim and whether or not
Losses have actually been incurred) shall continue, subject to final resolution
as provided herein and in the Merger Agreement. This Agreement shall terminate
upon complete distribution of the Escrow Stock in accordance with this
Agreement.
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3.2 Distribution of the Escrow Stock upon Termination.
(a) On the first business day after the Claims Deadline, the Escrow Agent
shall deliver to the Transfer Agent the certificate representing the shares of
Escrow Stock and a notice designating the number of shares of Escrow Stock not
previously distributed or otherwise subject to claims pursuant to Section 2
hereof and each Company Stockholder's interest in that portion of the Escrow
Stock in accordance with the percentages set forth in Schedule A. The Escrow
Agent shall obtain from the Transfer Agent in replacement thereof stock
certificates in the name of each Company Stockholder duly endorsed by Hagler
Bailly, representing each Company Stockholder's interest in such Escrow Stock,
and a certificate in the name of the Escrow Agent representing the balance of
Escrow Stock to be held in escrow, if any, duly endorsed by Hagler Bailly. Upon
receipt of the replacement stock certificates, the Escrow Agent shall deliver
the stock certificates to the Stockholders' Representative for distribution to
each Company Stockholder. Thereafter, the balance of the Escrow Stock shall
continue to be held by the Escrow Agent in accordance with the terms of this
Agreement until all claims asserted against the Escrow Stock have been finally
resolved in accordance with Section 2 hereof, whereupon the balance of the
Escrow Stock (remaining after satisfaction of such claims) shall be distributed
to the Company Stockholders as provided in this Section 3.2(a) in full discharge
of the Escrow Agent's obligations under this Agreement.
(b) Notwithstanding the foregoing, in the event that, under any of the
provisions contained herein, the Escrow Agent would be required to deliver
fractional interests in shares of Hagler Bailly Common Stock to the Company
Stockholders, Hagler Bailly shall purchase from the Escrow Agent that number of
shares of Escrow Stock (or fractional interests therein) as shall be necessary
to eliminate such fractional interests, at a purchase price equal to the Hagler
Bailly Closing Price. In such event, the Escrow Agent shall distribute to the
Company Stockholders who would otherwise have been entitled to fractional
interests in shares of Hagler Bailly Common Stock, the cash equivalent of such
fractional shares based on a purchase price equal to the Hagler Bailly Closing
Price. Any such cash received shall not be invested by the Escrow Agent.
ARTICLE IV
RESPONSIBILITIES AND DUTIES OF ESCROW AGENT
4.1 Rights, Duties, Liabilities and Immunities of Escrow Agent. The duties
and obligations of the Escrow Agent shall be determined solely by the provisions
of this Agreement, and the Escrow Agent shall be under no obligation to refer to
any other documents between or among the parties related in any way to this
Agreement except for any documents referenced herein, it being specifically
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understood that the following provisions of this Article IV are accepted by all
parties hereto.
(a) The Escrow Agent shall be entitled to rely upon any order, judgment,
certificate, demand, notice, instrument, opinion or other writing delivered to
it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein, any signature thereon or the propriety
or validity of the service thereof (and claims made therein).
(b) The Escrow Agent may act in reliance upon any instrument or signature
believed by it to be genuine and may assume that any person purporting to give
notice or receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.
(c) The Escrow Agent shall not be liable for any error of judgment or for
any act done or step taken or omitted by it in good faith or for any mistake of
fact or law or for any thing which it may do or refrain from doing in connection
herewith, except due to the Escrow Agent's own gross negligence or willful
misconduct.
(d) The Escrow Agent may consult with and obtain advice from legal counsel
(which may be in-house counsel) in the event of any question as to any of the
provisions of this Agreement or its duties hereunder, and the Escrow Agent shall
incur no liability and shall be fully protected in acting in good faith in
accordance with the opinion and instructions of such counsel. Subject to the
provisions of Section 4.3 hereof, the cost of such services shall be added to
and shall become a part of the Escrow Agent's compensation hereunder.
(e) The Escrow Agent shall have no duties except those expressly set forth
herein, and shall not be bound by any notice of a claim or demand with respect
thereto, or any waiver, modification, amendment, termination or rescission of
this Agreement, unless in a writing received by it, and, if its duties herein
are affected, unless it shall have given its prior written consent thereto.
(f) The Escrow Agent is not a party to and is not bound by the Merger
Agreement, nor is it a party to or bound by or charged with notice of any other
agreement (other than this Agreement) out of which the Escrow Stock might arise
or to which they may relate. The Escrow Agent is not responsible for the
recitals appearing in this Agreement. The recitals shall be deemed to be
statements of the Hagler Bailly and the Company.
(g) In the event of any disagreement between any of the parties to this
Agreement or between them or any one of them and any other person, resulting in
adverse claims or demands being made in connection with the subject matter of
this Agreement, or in the event the Escrow Agent in good faith shall be in doubt
as to what action it should take hereunder, the Escrow Agent shall thereupon
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have the right (i) to refrain from complying with any claims or demands asserted
on it as the Escrow Agent or (ii) to refuse to take any other action hereunder,
so long as such disagreement continues or exists, and in either such event, the
Escrow Agent shall not be or become liable in any way to any person for the
Escrow Agent's failure to act, and the Escrow Agent shall be entitled to
continue to refrain from acting, until the rights of all parties shall have been
fully and finally resolved and the Escrow Agent shall have been notified thereof
by a writing signed by all such persons. The rights of the Escrow Agent under
this subsection (g) are cumulative of all other rights which it may have by law
or otherwise. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to the Escrow Fund.
(h) Hagler Bailly hereby agrees to indemnify the Escrow Agent and its
officers, directors, employees and agents for, and hold them harmless against,
any loss, liability or expense incurred without gross negligence or willful
misconduct on the part of the Escrow Agent arising out of or in connection with
its entering into this Agreement and carrying out its duties hereunder,
including costs and expenses of defending itself from any claims of liability
with respect thereto. This Section 4.1(h) shall survive the termination of this
Agreement and the resignation of the Escrow Agent.
4.2 Copies of Certifications, Notices and Other Documentation. Promptly
after receipt by the Escrow Agent from the Stockholders' Representative or
Hagler Bailly of any written certificate, notice, request, waiver, consent,
receipt or other document (other than a Claims Notice or Response Notice), the
Escrow Agent shall furnish a copy of any of such items to the Stockholders'
Representative or Hagler Bailly, as the case may be. Upon receipt by the Escrow
Agent of the Escrow Stock to be held in escrow pursuant to this Agreement, the
Escrow Agent shall deliver a written receipt therefor to Hagler Bailly and
Stockholders' Representative.
4.3 Compensation. The Escrow Agent undertakes to perform all duties which
are expressly set forth herein for the fee set forth in Schedule B attached
hereto. The fee shall be payable upon execution of this Agreement. The Escrow
Agent shall also be entitled to reimbursement for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in accordance
with any of the provisions of this Agreement (including the reasonable
compensation and the expenses and disbursements of its counsel (other than
in-house legal counsel) and of all persons not regularly in its employ),
exclusive of any such expense, disbursement or advance that may arise from its
own gross negligence or willful misconduct. All such compensation and
reimbursement of the Escrow Agent under the provisions of this Section 4.3 shall
be paid by Hagler Bailly.
4.4 Successor Escrow Agent. The Escrow Agent (and any successor Escrow
Agent) may at any time resign by giving notice in writing to the Stockholders'
Representative and the Hagler Bailly, and the Escrow Agent shall be discharged
from
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its duties hereunder upon the appointment of a successor Escrow Agent as
hereinafter provided. In the event of any such resignation, a successor Escrow
Agent shall be appointed by written consent of the Stockholders' Representative
and the Hagler Bailly; provided if no such successor is so appointed within
thirty (30) days of the Escrow Agent's resignation, the Escrow Agent may apply
to a court of competent jurisdiction for appointment of a successor. Any
successor Escrow Agent shall deliver to the Stockholders' Representative and
Hagler Bailly a written instrument accepting the appointment hereunder, and
thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder and shall be entitled to receive all assets then held by the
predecessor Escrow Agent hereunder.
ARTICLE V
THE STOCKHOLDERS' REPRESENTATIVE
5.1. Appointment and Successor Stockholders' Representative. The
Stockholders' Representative has been appointed as the initial Stockholders'
Representative and in such capacity shall act as representative and agent of
each of the Company Stockholders in connection with this Agreement. If such
Stockholders' Representative shall resign, become disabled or die, a successor
Stockholders' Representative (and, if necessary, further successor Stockholders'
Representatives), shall be appointed by a majority vote of the Company
Stockholders.
5.2. Responsibility; Indemnification. The Stockholders' Representative
shall have no liability to the Company Stockholders with respect to any action
taken by him or her under this Agreement, except with respect to the
Stockholders' Representative's fraud or intentional misconduct. The
Stockholders' Representative shall not be liable to any Company Stockholder in
the event that in the exercise of the Stockholders' Representative's reasonable
judgment he believes there will not be adequate resources available to cover his
potential costs and expenses to contest a claim made by an Hagler Bailly
Indemnified Person hereunder. The Stockholders' Representative may act in
reliance upon the advice of counsel in reference to any matter in connection
with this Agreement and shall not incur any liability to the other Company
Stockholders or any one of them, for any action taken in good faith in
accordance with such advice. The Company Stockholders hereby agree to indemnify
the Stockholders' Representative, ratably according to their proportionate
interests in the Escrow Stock, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against any Stockholders' Representative in any way
relating to or arising out of this Agreement, or any action taken or omitted to
be taken by any Stockholders' Representative under this Agreement; provided,
however, that no Company Stockholder shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,
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<PAGE>
expenses or disbursements if the same results from the Stockholders'
Representative's fraud or intentional misconduct.
5.3 Indemnification of Stockholders' Representative. Hagler Bailly hereby
agrees to indemnify and hold the Stockholders' Representative harmless from and
against any and all liabilities and Losses of the Stockholders' Representative
arising out of or incurred in connection with any claims, demands or suits by
any Company Stockholder, whether asserted, unasserted, absolute, contingent,
known or unknown, against the Stockholders' Representative resulting from his
duties as Stockholders' Representative, except for any liabilities and Losses
that result from the Stockholders' Representative's fraud or intentional
misconduct.
ARTICLE VI
MISCELLANEOUS
6.1 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company Stockholders (by and through the
Stockholders' Representative), Hagler Bailly, Merger Sub and the Escrow Agent,
and their respective successors and assigns, whether so expressed or not.
6.2 Modification; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms or conditions hereof may be waived,
only by a written instrument executed by each party hereto, or in the case of a
waiver, by the party waiving compliance. No failure or delay on the part of any
party hereto in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the parties hereunder are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. No modification or waiver of any provision of this Agreement,
nor consent to any departure by any party therefrom, shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any party in any case shall entitle such party
to any other or further notice or demand in similar or other circumstances.
6.3 Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight
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<PAGE>
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Hagler Bailly, to:
Hagler Bailly, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Telecopier No.: (703) 351-0352
Attention: Stephen V.R. Whitman, Esq.
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr., Esq.
If to the Escrow Agent, to:
State Street Bank and Trust Company
Corporate Trust Department
2 International Place, 5th Floor
Boston, Massachusetts 02110
Telecopier No.: (617) 664-5365
Attention:
If to the Stockholders' Representative, to:
Putnam, Hayes & Bartlett, Inc.
1776 Eye Street, N.W.
Washington, D.C. 20006
Telecopier No.: (202) 296-3531
Attention: William Dickenson
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<PAGE>
With a copy (which shall not constitute notice) to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Telecopier No.: (312) 984-7700
Attention: William J. McGrath
6.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6.6 Governing Law. The interpretation and construction of this Agreement,
and all matters relating thereto, shall be governed by the laws of the
Commonwealth of Massachusetts, without regard to the choice of law provisions
thereof. The non-prevailing party in any dispute arising hereunder shall bear
and pay the costs and expenses (including without limitation reasonable
attorneys' fees and expenses) incurred by the prevailing party or parties in
connection with resolving such dispute.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
6.8 No Right of Set-Off. The Escrow Agent agrees that it will not assert
any right of set-off or similar right it may have with respect to the Escrow
Stock or any portion thereof.
6.9 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties in respect to this escrow transaction and
supersedes all prior agreements, arrangements and understandings relating to the
subject matter hereof.
6.10 Force Majeure. The Escrow Agent shall not be responsible for delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed and delivered
this Escrow Agreement, or caused this Escrow Agreement to be duly executed and
delivered in its name and on its behalf, as of the day and year first
hereinabove set forth.
HAGLER BAILLY, INC.
By: _____________________________________
Name: Henri-Claude Bailly
Title: President and Chief Executive Officer
PHB MERGER CORP.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
STOCKHOLDERS' REPRESENTATIVE
By: _____________________________________
Name: William Dickenson
ESCROW AGENT
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
<PAGE>
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into this
_____ day of _________, 1998, by and between HAGLER BAILLY, INC., a Delaware
corporation ("HAGLER BAILLY"), and the undersigned stockholders (the "PHB
Stockholders") of PUTNAM, HAYES & BARTLETT, INC., a Massachusetts corporation
("PHB").
WHEREAS, on or about the date hereof, the PHB Stockholders have or will
have become the owners of shares of HAGLER BAILLY's common stock, par value
$0.01 per share ("HAGLER BAILLY Common Stock");
WHEREAS, as part of the inducement for the parties hereto to enter into and
perform the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
June ___, 1998, the parties hereto have agreed to enter into this Agreement in
order to provide, among other things, for certain registration and "tag-along"
rights;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. Term. This Agreement shall terminate on the date on which the PHB
Stockholders could sell all of their Registerable Securities to the public
in a single transaction pursuant to the provisions of Rule 144 under the
Securities Act, provided, however, the indemnification provisions of
Section 6 hereof shall survive the termination of this Agreement.
2. Piggyback Registration Rights.
(a) If at any time or times HAGLER BAILLY proposes to make a
registered public offering of any of its securities (whether for its own
account or for the account of others) under the Securities Act, HAGLER
BAILLY shall (i) promptly give written notice of the proposed registration
to each of the PHB Stockholders (such notice to include the number of
shares HAGLER BAILLY or other security holders propose to register and, if
known, the name of the proposed underwriter) and (ii) use its best efforts
to include in such registration (and any related qualification under Blue
Sky laws and/or other compliance) all the Registerable Securities specified
in a written request or requests made by any PHB Stockholder within 30 days
after the receipt of such notice from HAGLER BAILLY (a "Piggyback
Registration"). Such written request may specify all or a part of a
<PAGE>
holder's Registerable Securities, provided, however, that (x) HAGLER BAILLY
will not be required to effect a Piggyback Registration if it is
registering securities on Forms S-8 or S-4 (or any successor forms) or
another SEC registration form not suitable for inclusion of shares of
selling stockholders for offer to the public, and (y) HAGLER BAILLY may
withdraw any proposed registration statement or offering of securities
under this Section 2 at any time without liability to any PHB Stockholder,
in which case HAGLER BAILLY will not be required to effect a registration.
(b) If a Piggyback Registration is an underwritten primary
registration on behalf of HAGLER BAILLY, and the managing underwriter
advises HAGLER BAILLY in writing that in the managing underwriter's opinion
the number of securities requested to be included in such registration
exceeds the number that can be sold in such offering without adversely
affecting the marketability of the offering, HAGLER BAILLY shall include in
such offering first, the securities of HAGLER BAILLY proposed to be sold by
HAGLER BAILLY and second, all other securities held by security holders,
including the Registerable Securities, requested to be included in such
registration by all other security holders (including the PHB
Stockholders), pro rata among such security holders, based upon the number
of shares requested by each to be included in such registration. If a
Piggyback Registration is an underwritten primary registration on behalf of
HAGLER BAILLY, the selling PHB Stockholders agree to sell their HAGLER
BAILLY Common Stock, if HAGLER BAILLY so requests, on the same basis as the
other securities included in such registration are being sold and the
underwriter or underwriters for such registration shall be selected by
HAGLER BAILLY. If a Piggyback Registration is an underwritten secondary
registration on behalf of selling stockholders, and the managing
underwriter advises HAGLER BAILLY in writing that in the managing
underwriter's opinion the number of securities requested to be included in
such registration exceeds the number that can be sold in such offering
without adversely affecting the marketability of the offering, then HAGLER
BAILLY shall include in such offering the securities of HAGLER BAILLY
proposed to be sold by such selling stockholders and all other securities
held by security holders (including the Registerable Securities) requested
to be included in such registration by all other security holders
(including the PHB Stockholders), pro rata among all such selling
stockholders and other security holders, based upon the number of shares
requested to be included in such registration.
3. Demand Registration Rights.
(a) At any time after one (1) year from the effective date of the
Merger, if HAGLER BAILLY has not made a registered public offering of any
of its securities which is a Piggyback Registration under this Agreement,
then the PHB Stockholders shall collectively be entitled to request
registration for sale under the Securities Act of their Registrable
Securities (a "Demand Registration"), and
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HAGLER BAILLY agrees to keep effective for two (2) years, a registration
statement on Form S-1 or S-3; provided, however, that HAGLER BAILLY shall
(i) not be obligated to effect a Demand Registration unless the holders of
at least fifty percent (50%) of the Registerable Securities shall have
requested such demand registration and (ii) only be obligated to effect one
(1) Demand Registration.
(b) A Demand Registration shall be deemed to occur when such
registration becomes effective under the Securities Act, except that if,
after it becomes effective, such Demand Registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or any
other governmental authority, such registration shall not be deemed to have
been effected unless such stop order, injunction or other order shall have
been subsequently vacated or removed.
(c) HAGLER BAILLY may postpone a Demand Registration for one or more
periods not to exceed six (6) months in aggregate if (i) such Demand
Registration would require an audit of HAGLER BAILLY's financial statements
at a time such audit would not otherwise be required pursuant to the
Exchange Act; (ii) the Board of Directors of HAGLER BAILLY determines in
good faith that HAGLER BAILLY would be required to disclose in such
registration statement information which HAGLER BAILLY has not otherwise
made public and would not otherwise be required to make public at that time
pursuant to the Exchange Act, and that it is in the best interests of
HAGLER BAILLY not to disclose such information at such time; (iii) the
Board of Directors of HAGLER BAILLY determines in good faith that the
Demand Registration would interfere with any pending financing,
acquisition, corporate reorganization or any other corporate development
involving HAGLER BAILLY or any of its subsidiaries; (iv) within the last
360 days (180 days if HAGLER BAILLY is eligible to file a registration
statement with the SEC on Form S-3) HAGLER BAILLY has effected a
registration of its securities pursuant to which the PHB Stockholders
requesting the registration could have exercised Piggyback Registration
rights to sell their Registrable Securities; or (v) within the 90 days
immediately preceding a request for a Demand Registration, HAGLER BAILLY
has effected any other registration of its securities.
(d) In the event that a Demand Registration is an underwritten
registration, HAGLER BAILLY shall select a managing underwriter or
underwriters for such Demand Registration reasonably satisfactory to the
holders of a majority of the Registrable Securities to be included in a
Demand Registration pursuant to this Section 3.
(e) Once HAGLER BAILLY files a registration statement with respect to
Registrable Securities pursuant to this Section 3, so long as such
registration has not been withdrawn or abandoned at the request of the PHB
Stockholders, HAGLER BAILLY will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable
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<PAGE>
into or exercisable for its equity securities under the Securities Act
(except on Form S-8 or Form S-4 or any successor form), whether on its own
behalf or at the request of any holder or holders of such securities, until
a period of at least 90 days after the earlier of (i) the date such
registration statement filed pursuant to this Section 3 ceases to be
effective or (ii) the date that all shares registered therein have been
sold.
4. Registration Procedures.
(a) HAGLER BAILLY shall have no obligation to file a registration
statement for a Demand Registration, or to include Registerable Securities
owned by the PHB Stockholders in a registration statement for a Piggyback
Registration, unless and until the PHB Stockholders have furnished to
HAGLER BAILLY all information and statements about or pertaining to the PHB
Stockholders in such reasonable detail and on such timely basis as is
reasonably deemed by HAGLER BAILLY to be necessary or appropriate for the
preparation of the registration statement.
(b) Whenever the PHB Stockholders have requested that Registerable
Securities be registered in a Demand Registration or Piggyback
Registration, HAGLER BAILLY shall keep each PHB Stockholder advised in
writing as to the initiation of each registration and as to the completion
thereof. As expeditiously as reasonably possible, HAGLER BAILLY shall:
(1) prepare and file with the SEC a registration statement with
respect to such Registerable Securities and use its reasonable best
efforts, (subject to Section 2(a)(y) with respect to a Piggyback
Registration) to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, HAGLER BAILLY will furnish to
one counsel selected by the holders of a majority of the Registerable
Securities covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the
review of such counsel);
(2) keep such registration statement effective for a period of
not less than two (2) years or until the PHB Stockholders have
completed the distribution described in such registration statement,
whichever occurs first, and amend or supplement such registration
statement and the prospectus contained therein from time to time to
the extent necessary to comply with the provisions of the Securities
Act and applicable state securities laws with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(3) furnish to the PHB Stockholders the number of copies of such
registration statement, each amendment and supplement thereto, the
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prospectus contained in such registration statement (including each
preliminary prospectus), and such other documents as the PHB
Stockholders from time to time may reasonably request;
(4) use its best efforts to register or qualify such shares under
the state blue sky or securities ("Blue Sky") laws of such
jurisdictions as any PHB Stockholder reasonably requests, and to do
any and all other acts and things that may be reasonably necessary or
advisable to enable the PHB Stockholders to consummate the disposition
of such shares in such jurisdictions; provided, however, that HAGLER
BAILLY will not be required to do any of the following: (i) qualify
generally to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified but for this
Section 4(b), or (ii) take any action which would subject it to the
service of process in actions other than those arising out of such
registration;
(5) notify the PHB Stockholders, at any time when a prospectus
relating to the Registerable Securities is required to be delivered
under the Securities Act, of the occurrence of any event as a result
of which the prospectus included in any such registration statement
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they
were made, not misleading, and prepare and furnish to such PHB
Stockholders a reasonable number of copies of a supplement or
amendment to the prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, the prospectus will not
contain an untrue statement of a material fact or omit to state any
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances then existing, not
misleading;
(6) cause all such Registerable Securities to be listed on each
securities exchange on which similar securities issued by HAGLER
BAILLY are then listed and, if not so listed, to be listed on the
National Association of Securities Dealers ("NASD") Automated
Quotation ("Nasdaq") system and, if listed on the Nasdaq system, use
its reasonable best efforts to secure designation of all such
Registerable Securities covered by such registration statement as a
Nasdaq "national market system security" within the meaning of Rule
11Aa2-1 of the SEC or, failing that, to secure Nasdaq authorization
for such Registerable Securities;
(7) provide a transfer agent and registrar for all such
Registerable Securities (if HAGLER BAILLY does not already have such
an agent) not later than the effective date of such registration
statement;
(8) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
holders of a majority of the Registerable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such
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Registerable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(9) make available all financial and other records, pertinent
corporate documents and properties of HAGLER BAILLY for inspection by,
and cause HAGLER BAILLY's officers, directors, employees and
independent accountants to supply all information reasonably requested
by, any seller of Registerable Securities, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such seller or underwriter in connection with such registration
statement who executes any reasonable confidentiality agreement that
may be reasonably requested by HAGLER BAILLY or who is bound by
fiduciary duty or professional responsibility to preserve the
confidentiality thereof;
(10) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months beginning with the
first day of HAGLER BAILLY's first full calendar quarter after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder; and
(11) use its reasonable best efforts to cause such Registerable
Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as
may be necessary to enable the sellers thereof to consummate the
disposition of such Registerable Securities.
5. Holdback Agreements.
(a) Each holder of Registerable Securities who is included in the
Registration Statement agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of HAGLER
BAILLY, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 90-day period
beginning on the effective date of any underwritten Demand Registration or
any underwritten Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) HAGLER BAILLY agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, during the seven days
prior to and during the 90-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant
to registrations on Form S-8 or Form S-4 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and
(ii) to use all reasonable efforts to cause each Person
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<PAGE>
that, during the 30-day period prior to the effective date of such Demand
Registration or Piggyback Registration, holds shares of HAGLER BAILLY
Common Stock (or securities convertible into or exercisable or exchangeable
for HAGLER BAILLY Common Stock) received from HAGLER BAILLY in an amount
which, on a fully diluted basis, exceeds 1% of HAGLER BAILLY Common Stock
then outstanding (on a fully diluted basis), to agree not to effect any
public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
6. Tag-Along Rights.
If at any time HAGLER BAILLY arranges for a sale of HAGLER BAILLY
Common Stock by security holders in a private placement transaction, then
HAGLER BAILLY shall provide the PHB Stockholders with notice and an
opportunity to participate in such intended sale on a pro rata basis with
the other selling security holders.
7. Registration Expenses.
(a) If Registerable Securities are included in a registration
statement for a Demand Registration or Piggyback Registration, then each
selling PHB Stockholder shall pay all transfer taxes, if any, relating to
the sale of its shares, the fees and expenses of its own counsel, and its
pro rata portion of any underwriting discounts or commissions or the
equivalent thereof.
(b) If Registerable Securities are included in a registration
statement for a Demand Registration or Piggyback Registration, then except
for the fees and expenses specified in Section 7(a) hereof and except as
provided below in this Section 7(b), regardless of whether any registration
statement becomes effective, HAGLER BAILLY shall pay all expenses incident
to a Demand Registration or Piggyback Registration, including, without
limitation, all registration, qualification and filing fees, fees and
expenses of compliance with Blue Sky laws, underwriting discounts, fees,
and expenses (other than the PHB Stockholders' pro rata portion of any
underwriting discounts or commissions or the equivalent thereof), printing
expenses, messenger and delivery expenses, and fees and expenses of counsel
for HAGLER BAILLY and all independent certified public accountants and
other persons retained by HAGLER BAILLY.
8. Indemnification.
(a) HAGLER BAILLY agrees to indemnify, to the extent permitted by law,
each holder of Registerable Securities, each Person who controls such
holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and their respective officers, directors, partners,
employees, agents
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and representatives, against all losses, claims, damages, liabilities and
expenses ("Losses") arising out of or based upon any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus, or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to HAGLER BAILLY by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after
HAGLER BAILLY has furnished such holder with a sufficient number of copies
of the same and except insofar as the same are caused by or contained in
any prospectus if such holder failed to send or deliver a copy of any
subsequent prospectus or prospectus supplement which would have corrected
such untrue or alleged untrue statement of material fact or such omission
or alleged omission of a material fact with or prior to the delivery of
written confirmation of the sale by such holder after HAGLER BAILLY has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, HAGLER BAILLY will indemnify such
underwriters, each Person who controls such underwriters (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and their respective officers, directors, partners, employees, agents
and representatives to the same extent as provided above with respect to
the indemnification of the holders of Registerable Securities.
(b) In connection with any registration statement in which holders of
Registerable Securities are participating, each such holder will furnish to
HAGLER BAILLY in writing such information and affidavits as HAGLER BAILLY
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
HAGLER BAILLY, each Person who controls HAGLER BAILLY (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) and
their respective officers, directors, partners, employees, agents and
representatives against any Losses arising out of or based upon any untrue
or alleged untrue statement of a material fact contained in any
registration statement, prospectus, or form of prospectus, or arising out
of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
to the extent, but only to the extent, that such untrue or alleged untrue
statement is contained in, or such omission or alleged omission is required
to be contained in, any information so furnished in writing by such holder
to HAGLER BAILLY expressly for use in such registration statement or
prospectus and that such statement or omission was relied upon by HAGLER
BAILLY in preparation of such registration statement, prospectus or form of
prospectus; provided, however, that such holder of Registerable Securities
shall not be liable in any such case to the extent that the holder has
furnished in writing to HAGLER BAILLY prior to the filing of any such
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registration statement or prospectus or amendment or supplement thereto
information expressly for use in such registration statement or prospectus
or any amendment or supplement thereto which corrected or made not
misleading information previously furnished to HAGLER BAILLY, and HAGLER
BAILLY failed to include such information therein. In no event shall the
liability of any selling holder of Registerable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of
all expenses) received by such holder upon the sale of the Registerable
Securities giving rise to such indemnification obligation. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of such indemnified party.
(c) If any Person shall be entitled to indemnity hereunder, such
indemnified party shall give prompt notice to the party or parties from
which such indemnity is sought of the commencement of any action, suit,
proceeding or investigation or written threat thereof ("Proceeding") with
respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; provided, however, that the failure to so
notify the indemnifying parties shall not relieve the indemnifying parties
from any obligation or liability hereunder except to the extent that the
indemnifying parties have been prejudiced by such failure. The indemnifying
parties shall have the right, exercisable by giving written notice to an
indemnified party promptly after the receipt of written notice from such
indemnified party of such Proceeding, to assume, at the indemnifying
parties' expense, the defense of any such Proceeding, with counsel
reasonably satisfactory to such indemnified party; provided, however, that
an indemnified party or parties (if more than one such indemnified party is
named in any Proceeding) shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless the parties to such Proceeding include both the
indemnified party or parties and the indemnifying party or parties, and
there exists, in the opinion of the parties' counsel, a conflict between
one or more indemnifying parties and one or more indemnified parties, in
which case the indemnifying parties shall, in connection with any one such
Proceeding or separate but substantially similar or related Proceedings in
the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of not more than one
separate firm of attorneys (together with appropriate local counsel) at any
time for such indemnified party or parties. If an indemnifying party
assumes the defense of such Proceeding, the indemnifying parties will not
be subject to any liability for any settlement made by the indemnified
party without its or their consent (such consent not to be unreasonably
withheld).
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which this Section
8 would otherwise apply by its terms, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall have a joint
and several obligation to contribute to the
- 9 -
<PAGE>
amount paid or payable by such indemnified party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such indemnifying party, on the one
hand, and indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be
deemed to include any legal or other fees or expenses incurred by such
party in connection with any Proceeding, to the extent such party would
have been indemnified for such expenses under Section 8(c) if the
indemnification provided for in Section 8(a) or 8(b) was available to such
party. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provision of this Section 8(d), an
indemnifying party that is a selling holder of Registerable Securities
shall not be required to contribute any amount in excess of the amount by
which the net proceeds received by such indemnifying party exceeds the
amount of any damages that such indemnifying party has otherwise been
required to pay by reasons of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
9. Information by Holder. Each holder of Registerable Securities shall
furnish to HAGLER BAILLY and to the managing underwriter such information
regarding such holder and the distribution proposed by such holder as
HAGLER BAILLY or the managing underwriter may reasonably request in writing
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in Section 3.
10. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the SEC which may permit the sale of
restricted securities (as that term is defined in Rule 144(a)(3) under the
Securities Act) to the public without registration, HAGLER BAILLY agrees
to:
(a) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of HAGLER BAILLY under the
Securities Act and the Exchange Act; and
- 10 -
<PAGE>
(b) so long as any holder of Registerable Securities owns any
restricted securities, furnish to such holder upon request a written
statement by HAGLER BAILLY as to its compliance with the reporting
requirements of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of HAGLER BAILLY, and such
other reports and documents so filed as a holder may reasonably
request in availing itself of any rule or regulation of the SEC
allowing such holder to sell any such securities without registration.
11. Definitions. The following terms shall have the following meanings
for purposes of this Agreement:
"Affiliate" means, with respect to a specified Person, any Person
controlling, controlled by or under common control with such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"PHB Stockholders" means all of the stockholders of PHB who have
signed this Agreement and any successor or permitted assignee of any
of their rights hereunder that holds Registerable Securities.
"Registerable Securities" means all shares of HAGLER BAILLY
Common Stock held at the relevant time by a PHB Stockholder, and any
other issued or issuable shares of HAGLER BAILLY Common Stock issued
in connection with the Merger held by a PHB Stockholder at the
relevant time, either at the time of initial issuance or subsequently,
by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
other reorganization. As to any particular Registerable Securities,
such securities will cease to be Registerable Securities when they
have been transferred in a public offering registered under the
Securities Act or in a sale made through a broker, dealer or
market-maker pursuant to Rule 144 under the Securities Act. For
purposes of this Agreement, a PHB Stockholder will be deemed to be a
holder of Registerable Securities whenever such PHB Stockholder has
the right to acquire directly or indirectly such Registerable
Securities (upon conversion or exercise in connection with a transfer
of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such
acquisition has actually been effected.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
- 11 -
<PAGE>
"SEC" means the Securities and Exchange Commission.
12. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given without the written consent of HAGLER BAILLY and
the PHB Stockholders holding a majority in amount of the outstanding
Registerable Securities.
13. Notices. All notices, requests, claims, demands, and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(i) if to HAGLER BAILLY, to
HAGLER BAILLY, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Telecopier No.: (703) 528-8573
Attention: Stephen V.R. Whitman, Esq.
with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr., Esq.
(ii) if to a PHB Stockholder, to
Such Stockholder's address or telephone
number as set forth on Schedule 1 attached
hereto.
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Telecopier No.: (312) 984-7700
Attention: William J. McGrath, Esq.
- 12 -
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three (3)
business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt is acknowledged, if
telecopied; or at the time delivered, if delivered by an air courier
guaranteeing overnight delivery.
14. Other Registration Rights. Except as provided in this Agreement,
HAGLER BAILLY will not grant to any Persons the right to request HAGLER
BAILLY to register any equity securities of HAGLER BAILLY, or any
securities convertible or exchangeable into or exercisable for such
securities, which are materially more favorable to such Persons than the
rights granted to the holders of Registerable Securities hereunder without
the prior written consent of the holders of at least a majority of the
Registerable Securities, unless HAGLER BAILLY agrees to amend this
Agreement to grant such more favorable rights to the holders of
Registerable Securities, in lieu of the rights granted hereunder.
15. Transfer of Registration Rights; Successors and Assigns. A PHB
Stockholder may not transfer or assign its rights hereunder, in whole or in
part, to a purchaser or other transferee of its Registerable Securities
without the prior approval of HAGLER BAILLY, except to an Affiliate of a
PHB Stockholder.
16. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties, including, without limitation and without the need for an express
assignment, Affiliates of the PHB Stockholders. If any PHB Stockholder
shall acquire Registerable Securities, in any manner, whether by operation
of law or otherwise, such Registerable Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such
Registerable Securities such Person shall be entitled to receive the
benefits hereof and shall be conclusively deemed to have agreed to be bound
by all of the terms and provisions hereof.
17. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
18. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
19. Headings. The headings in this Agreement are for convenience
reference only and shall not limit or otherwise affect the meaning hereof.
- 13 -
<PAGE>
20. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without giving
effect to the conflicts of laws provisions thereof.
21. Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition
to any other remedy to which it may be entitled at law or in equity, shall
be entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of
this Agreement in any court of the United States or any State thereof
having jurisdiction.
22. Entire Agreement. This Agreement is intended by the parties as a
final expression or their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
- 14 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Registration
Rights Agreement, or caused this Registration Rights Agreement to be duly
executed on its behalf, as of the date first written above.
HAGLER BAILLY, INC.
By:
-----------------------------------------
Name: Henri-Claude Bailly
Title: President and Chief Executive Officer
PHB STOCKHOLDERS
By:
-----------------------------------------
Name: William E. Dickenson
By:
-----------------------------------------
Name: Howard W. Pifer III
By:
-----------------------------------------
Name: William H. Babcock
By:
-----------------------------------------
Name: Julian Bagwell
By:
-----------------------------------------
Name: Frederick T. Baird
By:
-----------------------------------------
Name: Laurie D. Baker
By:
-----------------------------------------
Name: Lee M. Bauman
By:
-----------------------------------------
Name: Thomas H. Birdsall
By:
-----------------------------------------
Name: Colin C. Blaydon
- 15 -
<PAGE>
By:
-----------------------------------------
Name: Robert Borlick
By:
-----------------------------------------
Name: R. Gene Brown
By:
-----------------------------------------
Name: Michael E. Burton
By:
-----------------------------------------
Name: John C. Butler III
By:
-----------------------------------------
Name: James A. Dalton
By:
-----------------------------------------
Name: Timothy W. Devitt
By:
-----------------------------------------
Name: Graeme L. Dillon
By:
-----------------------------------------
Name: Lisa Fitzgibbon
By:
-----------------------------------------
Name: Ilene S. Friedland
By:
-----------------------------------------
Name: Neill W. Freeman
By:
-----------------------------------------
Name: Kenneth D. Gartrell
By:
-----------------------------------------
Name: Alan G. Goedde
By:
-----------------------------------------
Name: Stephen S. George
By:
-----------------------------------------
Name: Bonnie J. Goldsmith
By:
-----------------------------------------
Name: W. Robson Googins
- 16 -
<PAGE>
By:
-----------------------------------------
Name: Joseph S. Graves
By:
-----------------------------------------
Name: George R. Hall
By:
-----------------------------------------
Name: Scott M. Harvey
By:
-----------------------------------------
Name: J. Stephen Henderson
By:
-----------------------------------------
Name: William H. Hieronymus
By:
-----------------------------------------
Name: William W. Hogan
By:
-----------------------------------------
Name: D. Roger Jenkins
By:
-----------------------------------------
Name: Sharon B. Johnson
By:
-----------------------------------------
Name: Edward D. Kee
By:
-----------------------------------------
Name: Robert A. Leone
By:
-----------------------------------------
Name: Barbara J. Levine
By:
-----------------------------------------
Name: William W. Lindsay
By:
-----------------------------------------
Name: Ralph L. Luciani
By:
-----------------------------------------
Name: James A. Martens
- 17 -
<PAGE>
By:
-----------------------------------------
Name: Bruce McFarlane
By:
-----------------------------------------
Name: William J. Michiels
By:
-----------------------------------------
Name: Laurence A. Mills
By:
-----------------------------------------
Name: William G. Moss
By:
-----------------------------------------
Name: Larry S. Murphy
By:
-----------------------------------------
Name: J. Kevin Neels
By:
-----------------------------------------
Name: Paul D. O'Rourke
By:
-----------------------------------------
Name: Kirby C. Owen
By:
-----------------------------------------
Name: John R. Phillips
By:
-----------------------------------------
Name: Wilbert A. Pinkerton, Jr.
By:
-----------------------------------------
Name: Charles J. Queenan III
By:
-----------------------------------------
Name: Larry E. Ruff
By:
-----------------------------------------
Name: Ira Shavel
By:
-----------------------------------------
Name: Eric D. Shimabukuro
By:
-----------------------------------------
Name: Julie R. Solomon
- 18 -
<PAGE>
By:
-----------------------------------------
Name: James M. Speyer
By:
-----------------------------------------
Name: John C. Staines, Jr.
By:
-----------------------------------------
Name: Hoff Stauffer
By:
-----------------------------------------
Name: Michael T. Thomas
By:
-----------------------------------------
Name: Walter H. Vandaele
By:
-----------------------------------------
Name: Michael J. Wagner
By:
-----------------------------------------
Name: Richard Lane White
By:
-----------------------------------------
Name: Marcia E. Williams
By:
-----------------------------------------
Name: Jeffrey Zelikson
- 19 -
<PAGE>
EXHIBIT C-1
FORM OF HAGLER BAILLY AFFILIATE AGREEMENT
__________, 1998
Hagler Bailly, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Re: Affiliate Agreement
Ladies and Gentlemen:
The undersigned is a stockholder of HAGLER BAILLY, INC., a Delaware
corporation ("HAGLER BAILLY"). The undersigned is providing this Affiliate
Agreement in connection with the transactions described in the Agreement and
Plan of Merger, dated as of June __, 1998 (the "Merger Agreement"), by and among
PUTNAM, HAYES & BARTLETT, INC., a Massachusetts corporation ("PHB"), HAGLER
BAILLY, and PHB MERGER CORP., a Delaware corporation ("Merger Sub") and a
wholly-owned subsidiary of HAGLER BAILLY. Under the terms of the Merger
Agreement, Merger Sub will be merged with and into PHB (the "Merger") and the
shares of common stock of PHB, $0.01 par value per share (the "PHB Common
Stock") will be converted into and exchanged for the shares of common stock of
HAGLER BAILLY, par value $0.01 per share ("HAGLER BAILLY Common Stock"). This
Affiliate's Agreement represents an agreement between the undersigned and HAGLER
BAILLY regarding certain rights and obligations of the undersigned in connection
with the shares of HAGLER BAILLY Common Stock beneficially owned by the
undersigned. Unless otherwise indicated, capitalized terms not defined herein
have the meanings set forth in the Merger Agreement.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and HAGLER BAILLY hereby agree as follows:
1. Affiliate status. The undersigned understands and agrees that as to
HAGLER BAILLY he or she may be deemed to be an "affiliate" as that term is used
in SEC Accounting Series Release Nos. 130 and 135 and Rule 145 of the rules and
regulations of the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "1933 Act").
2. Restriction on Disposition. The undersigned agrees that from the date
that is 30 days prior to the Effective Time he or she will not sell, transfer,
or otherwise dispose of his or her interests in, or reduce his or her risk
relative to, any of the shares of HAGLER BAILLY Common Stock over which the
undersigned
<PAGE>
has or shares voting or dispositive power until such time as financial results
covering at least 30 days of post-Merger combined operations of HAGLER BAILLY
and PHB have been published, whether by issuance of a quarterly earnings report
on Form 10-K, 10-Q or other public issuance (such as a press release) that
includes such information. The undersigned understands that reducing his or her
risk relative to such shares of HAGLER BAILLY Common Stock includes, but is not
limited to, using such shares to secure a non-recourse loan, purchasing a put
option to sell such shares or otherwise entering a put agreement with respect to
such shares.
3. Restrictions on Transfer. The undersigned understands and agrees that
HAGLER BAILLY, at its discretion, may cause stop transfer instructions with
respect to the shares of HAGLER BAILLY Common Stock to be given to the HAGLER
BAILLY transfer agent.
4. Understanding of Restrictions on Dispositions. The undersigned has
carefully read this Affiliate's Agreement and discussed its requirements and
impact upon his or her ability to sell, transfer, or otherwise dispose of the
shares of HAGLER BAILLY Common Stock held by the undersigned, to the extent he
or she believes necessary, with his or her counsel.
5. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also may apply to (i) the undersigned's spouse, if that
spouse has the same home as the undersigned, (ii) any relative of the
undersigned who has the same home as the undersigned, (iii) any trust or estate
in which the undersigned, such spouse, and any such relative collectively own at
least a 10% beneficial interest or of which any of the foregoing serves as
trustee, executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, such spouse, and any such relative
collectively own at least 10% of any class of equity securities or of the equity
interest.
6. Miscellaneous. This Affiliate's Agreement is the complete agreement
between HAGLER BAILLY and the undersigned concerning the subject matter hereof.
Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the addresses set
forth herein or such other address as shall be furnished in writing by the
parties. This Affiliate's Agreement shall be governed by the laws of the State
of Delaware.
-2-
<PAGE>
This Affiliate's Agreement is executed as of the _____ day of ___________,
1998.
Very truly yours,
______________________________________
Signature
Name:_________________________________
Date:_________________________________
Address:
______________________________________
______________________________________
AGREED TO AND ACCEPTED as of
________________, 1998
HAGLER BAILLY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
-3-
<PAGE>
EXHIBIT C-2
FORM OF PHB AFFILIATE AGREEMENT
__________, 1998
Hagler Bailly, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Re: Affiliate Agreement
Ladies and Gentlemen:
The undersigned is a stockholder of PUTNAM, HAYES & BARTLETT, INC., a
Massachusetts corporation ("PHB"), and may become a stockholder of HAGLER
BAILLY, INC., a Delaware corporation ("HAGLER BAILLY"), pursuant to the
transactions described in the Agreement and Plan of Merger, dated as of June
___, 1998 (the "Merger Agreement"), by and among PHB, HAGLER BAILLY, and PHB
MERGER CORP., a Delaware corporation ("Merger Sub") and a wholly-owned
subsidiary of HAGLER BAILLY. Under the terms of the Merger Agreement, Merger Sub
will be merged with and into PHB (the "Merger") and the shares of common stock
of PHB, $0.01 par value per share (the "PHB Common Stock") will be converted
into and exchanged for the shares of common stock of HAGLER BAILLY, par value
$0.01 per share ("HAGLER BAILLY Common Stock"). This Affiliate's Agreement
represents an agreement between the undersigned and HAGLER BAILLY regarding
certain rights and obligations of the undersigned in connection with the (i)
shares of PHB Common Stock beneficially owned by the undersigned and (ii) shares
of HAGLER BAILLY Common Stock into which such shares of PHB Common Stock are
converted as a result of the Merger. Unless otherwise indicated, capitalized
terms not defined herein have the meanings set forth in the Merger Agreement.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and HAGLER BAILLY hereby agree as follows:
1. Affiliate status. The undersigned understands and agrees that as to PHB
he or she may be deemed to be an "affiliate" as that term is used in SEC
Accounting Series Release Nos. 130 and 135 and Rule 145 of the rules and
regulations of the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "1933 Act").
2. Restriction on Disposition. The undersigned agrees that from the date
that is 30 days prior to the Effective Time he or she will not sell,
<PAGE>
transfer, or otherwise dispose of his or her interests in, or reduce his or her
risk relative to, any of the (a) shares of PHB Common Stock over which the
undersigned has or shares voting or dispositive power or, if applicable, (b) any
of the shares of HAGLER BAILLY Common Stock into which such shares of PHB Common
Stock are converted upon consummation of the Merger or upon the exercise of any
HAGLER BAILLY options, until such time as financial results covering at least 30
days of post-Merger combined operations of HAGLER BAILLY and PHB have been
published, whether by issuance of a quarterly earnings report on Form 10-K, 10-Q
or other public issuance (such as a press release) that includes such
information. The undersigned understands that reducing his or her risk relative
to such shares of PHB Common Stock or HAGLER BAILLY Common Stock includes, but
is not limited to, using such shares to secure a non-recourse loan, purchasing a
put option to sell such shares or otherwise entering a put agreement with
respect to such shares.
3. Covenants and Warranties of Undersigned. The undersigned represents,
warrants and agrees that:
(a) HAGLER BAILLY has advised the undersigned that the HAGLER BAILLY Common
Stock has not been registered under the 1933 Act and that shares of HAGLER
BAILLY Common Stock received pursuant to the Merger can only by sold by the
undersigned (1) following registration under the 1933 Act, or (2) pursuant to a
valid exemption from registration under the 1933 Act and upon receipt by HAGLER
BAILLY of an opinion of counsel satisfactory to HAGLER BAILLY that such sale is
in compliance with the 1933 Act and state securities laws.
(b) The undersigned is aware that HAGLER BAILLY, PHB, and Merger Sub intend
to treat the merger as a tax-free reorganization under Section 368 of the
Internal Revenue Code (the "Code") for federal income tax purposes. The
undersigned agrees to treat the transaction in the same manner as HAGLER BAILLY,
PHB, and Merger Sub for federal income tax purposes. The undersigned
acknowledges that Section 1.368-1(b) of the Income Tax Regulations requires
"continuity of interest" in order for the Merger to be treated as a tax-free
reorganization under Section 368 of the Code. This requirement is satisfied if,
taking into account those of the PHB stockholders who receive cash in lieu of
fractional shares, or who dissent from the Merger, there is no plan or intention
on the part of PHB stockholders to sell or otherwise dispose of the HAGLER
BAILLY Common Stock that may be received in the Merger that will reduce such
stockholders' ownership to a number of shares having, in the aggregate, a value
at the time of the Merger of less than 50% of the total fair market value of PHB
Common Stock outstanding immediately prior to the Merger. The undersigned (i)
has no present plan or intention to sell or otherwise dispose of his or her
HAGLER BAILLY Common Stock to be received in the Merger, and (ii) is not aware
of, or participating in, any plan or intent on the part of holders of PHB Common
Stock to engage in sales or other dispositions of HAGLER BAILLY Common Stock
received
-2-
<PAGE>
in the Merger, such that the aggregate fair market value, as of the effective
time of the Merger, of the shares of HAGLER BAILLY Common Stock subject to such
sales or other dispositions would exceed fifty percent (50%) of the aggregate
fair market value of all outstanding PHB Common Stock immediately prior to the
Merger. The undersigned acknowledges that he or she is giving this
representation and covenant to enable Ernst & Young L.L.P. to provide reasonable
assurances that the Merger constitutes a tax-free reorganization within the
meaning of Section 368 of the Tax Code and further recognizes that significant
adverse tax consequences might result if this representation is not true.
4. Restrictions on Transfer.
(a) The undersigned understands and agrees that stop transfer instructions
with respect to the shares of HAGLER BAILLY Common Stock received by the
undersigned pursuant to the Merger will be given to the HAGLER BAILLY transfer
agent.
(b) The undersigned understands that there will be placed on the
certificates for such shares, or shares issued in substitution thereof, a
"pooling of interests" legend stating substantially as follows:
"The shares represented by this certificate were issued pursuant
to a business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce
his risks relative thereto in any way, until such time as HAGLER
BAILLY, Inc. ("HAGLER BAILLY") has published the financial
results covering at least 30 days of combined operations after
the effective date of the merger through which the business
combination was effected."
Upon the request of the undersigned, HAGLER BAILLY shall cause the certificates
representing the shares of HAGLER BAILLY Common Stock issued to the undersigned
in connection with the Merger to be reissued free of any legend relating to
restrictions on transfer by virtue of ASR 130 and 135 as soon as practicable
after the requirements of ASR 130 and 135 have been met.
(c) In addition, the undersigned understands that there will be placed on
the certificates for such shares, or shares issued in substitution thereof, a
securities law legend stating substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR UNDER THE SECURITIES LAW OF ANY STATE. SUCH SECURITIES
MAY NOT
-3-
<PAGE>
BE SOLD OR OFFERED FOR SALE OR OTHERWISE HYPOTHECATED OR
DISTRIBUTED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT; OR (B)(i) PURSUANT
TO A VALID EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, AND (ii) UPON RECEIPT BY
HAGLER BAILLY OF AN OPINION OF COUNSEL FOR THE HOLDER, WHICH
OPINION SHALL BE SATISFACTORY IN FORM AND SUBSTANCE TO HAGLER
BAILLY, THAT SUCH SALE IS IN COMPLIANCE WITH THE ACT AND SUCH
STATE SECURITIES LAW."
Such legend will also be placed on any certificate representing HAGLER BAILLY
securities issued subsequent to the original issuance of the HAGLER BAILLY
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other recapitalization as long as the HAGLER BAILLY Common Stock
issued to the undersigned pursuant to the Merger has not been transferred in
such manner to justify the removal of the legend therefrom. In addition, if the
provisions of Rules 144 and 145 are amended to eliminate restrictions applicable
to the HAGLER BAILLY Common Stock received by the undersigned pursuant to the
Merger, or at the expiration of the restrictive period set forth in Rule 145(d),
HAGLER BAILLY, upon the request of the undersigned, will cause the certificates
representing the shares of HAGLER BAILLY Common Stock issued to the undersigned
in connection with the Merger to be reissued free of any legend relating to the
restrictions set forth in Rules 144 and 145(d) upon receipt by HAGLER BAILLY of
an opinion of its counsel to the effect that such legend may be removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Merger Agreement and this Affiliate's Agreement and discussed
their requirements and impact upon his or her ability to sell, transfer, or
otherwise dispose of the shares of HAGLER BAILLY Common Stock received by the
undersigned, to the extent he or she believes necessary, with his or her
counsel.
6. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of HAGLER BAILLY Common Stock that may be received
by him or her in connection with the Merger at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for HAGLER BAILLY Common Stock
together with such additional information as the transfer agent may reasonably
request. If counsel to HAGLER BAILLY concludes that such proposed sale or
transfer complies with the requirements of Rule 145(d), HAGLER BAILLY shall
cause such counsel to provide such opinions as may be necessary to the
-4-
<PAGE>
HAGLER BAILLY transfer agent so that the undersigned may complete the proposed
sale or transfer.
7. Reports. From and after the effective time of the Merger and for so long
as necessary in order to permit the undersigned to sell his or her HAGLER BAILLY
Common Stock pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the 1933 Act, HAGLER BAILLY will use its reasonable best efforts to file on a
timely basis all reports required to be filed by it pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, referred to in paragraph (c)(1) of
Rule 144 under the 1933 Act (or, if applicable, HAGLER BAILLY will use its
reasonable best efforts to make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
undersigned to sell, pursuant to the terms and conditions of Rule 145 and the
applicable provisions of Rule 144, his or her HAGLER BAILLY Common Stock.
8. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also may apply to (i) the undersigned's spouse, if that
spouse has the same home as the undersigned, (ii) any relative of the
undersigned who has the same home as the undersigned, (iii) any trust or estate
in which the undersigned, such spouse, and any such relative collectively own at
least a 10% beneficial interest or of which any of the foregoing serves as
trustee, executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, such spouse, and any such relative
collectively own at least 10% of any class of equity securities or of the equity
interest. HAGLER BAILLY represents that the board of directors of HAGLER BAILLY
has approved the acquisition of the HAGLER BAILLY Common Stock by the
undersigned.
9. Miscellaneous. This Affiliate's Agreement is the complete agreement
between HAGLER BAILLY and the undersigned concerning the subject matter hereof.
Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the addresses set
forth herein or such other address as shall be furnished in writing by the
parties. This Affiliate's Agreement shall be governed by the laws of the State
of Delaware.
-5-
<PAGE>
This Affiliate's Agreement is executed as of the _____ day of ___________,
1998.
Very truly yours,
________________________________________
Signature
Name:___________________________________
Date:___________________________________
Address:
________________________________________
________________________________________
AGREED TO AND ACCEPTED as of
________________, 1998
HAGLER BAILLY, INC.
By:________________________________
Name:______________________________
Title:_____________________________
-6-
<PAGE>
Annex B - Opinion of Hagler Bailly's Financial Advisor
<PAGE>
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 o (212) 892-3000
June 8, 1998
Board of Directors
Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 400
Arlington, VA 22209-2409
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Hagler Bailly, Inc. (the "Company") of the Exchange
Ratio (as defined below) pursuant to the terms of the Agreement and Plan of
Merger, to be dated as of June 9, 1998 (the "Agreement"), by and among the
Company, PHB Merger Corp. ("Merger Sub"), a wholly-owned subsidiary of the
Company, and Putnam, Hayes & Bartlett, Inc. ("PHB") pursuant to which Merger Sub
will be merged (the "Merger") with and into PHB.
Pursuant to the Agreement, each share of common stock, par value $0.01 per
share, of PHB ("PHB Common Stock") will be converted into and exchangeable for,
subject to certain exceptions, a number of shares of common stock, par value
$0.01 per share, of the Company ("Company Common Stock") equal to 6,600,000
divided by the number of shares of PHB Common Stock issued and outstanding
immediately prior to consummation of the Merger (the "Exchange Ratio").
In arriving at our opinion, we have reviewed the draft dated June 5,
1998 of the Agreement. We have also reviewed financial and other information
that was publicly available or furnished to us by the Company and PHB including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were (1) preliminary unaudited financial statements of PHB for the
year ended December 31, 1997 and the quarter ended March 31, 1998 prepared by
the management of PHB, (2) certain financial projections of PHB for the period
beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of PHB and (3) certain financial projections of the Company for the
period beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of the Company. In addition, we have compared certain financial and
securities data of the Company and PHB with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of Company Common Stock and conducted such other financial
studies, analyses and investigations as we deemed appropriate for purposes of
this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to
<PAGE>
us by the Company and PHB or their respective representatives, or that was
otherwise reviewed by us. With respect to the financial information supplied to
us, we have assumed that (1) the financial projections have been reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the managements of the Company and PHB as to the future operating
and financial performance of the Company and PHB and (2) the final audited
financial statements of PHB for the year ended December 31, 1997 and the final
unaudited financial statements of PHB for the quarter ended March 31, 1998 will
not differ materially from the preliminary unaudited statements furnished to us,
with the exception of any changes as the result of the stock compensation
charge. We have not assumed any responsibility for making any independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have relied as to
certain legal matters on advice of counsel to the Company. Our opinion assumes
that the Merger qualifies as a tax-free reorganization and for pooling of
interests accounting treatment.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which the Company Common Stock will actually trade at any
time. Our opinion does not address the relative merits of the Merger and the
other business strategies being considered by the Company's Board of Directors,
nor does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any holder of Company Common Stock as to
how such holder should vote on the proposed transaction.
Donaldson, Lutkin & Jenrette Securities Corporation ("DLJ"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ lead
managed the Company's $50.7 million initial public offering in July 1997 and
received usual and customary underwriter's compensation for such services.
Pursuant to the terms of the engagement letter between the Company and DLJ, DLJ
shall have the right to act as lead managing underwriter to the Company in
connection with any public equity financing by the Company which is effected
within 12 months following consummation of the Merger.
Based upon the foregoing and such other factors as we deem relevant,
we are of the opinion that the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ JANE SADOWSKY
-----------------------
Jane Sadowsky
Senior Vice President
<PAGE>
Annex C - Consolidated Financial Statements of Hagler Bailly
<PAGE>
Hagler Bailly, Inc. and Subsidiaries
Consolidated Financial Statements
Contents
Years ended December 31, 1995, 1996 and 1997
Report of Independent Auditors............................................. C-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................ C-2
Consolidated Statements of Operations...................................... C-3
Consolidated Statements of Stockholders' Equity............................ C-4
Consolidated Statements of Cash Flows...................................... C-5
Notes to the Consolidated Financial Statements............................. C-6
Three months ended March 31, 1997 and 1998
Unaudited Consolidated Financial Statements
Consolidated Balance Sheet................................................. C-20
Consolidated Statements of Operations...................................... C-21
Consolidated Statements of Cash Flows...................................... C-22
Notes to the Consolidated Financial Statements............................. C-23
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Hagler Bailly, Inc.
We have audited the accompanying consolidated balance sheets of Hagler
Bailly, Inc. (the "Company") and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of Hagler Bailly's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Apogee Research,
Inc., a wholly owned subsidiary, as of December 31, 1996, and for each of the
two years ended December 31, 1996, which statements reflect total assets of $3.0
million at December 31, 1996, and total revenues of $6.6 million and $6.4
million for the two years then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Apogee Research, Inc., is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Hagler Bailly, Inc.
and its subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
April 28, 1998
Vienna, Virginia /s/ Ernst & Young LLP
C-1
<PAGE>
Hagler Bailly, Inc.
Consolidated Balance Sheets
December 31,
----------------------------
1996 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents .................... $ 2,009,343 $ 3,960,598
Investments .................................. -- 6,551,446
Accounts receivable, net ..................... 19,044,281 32,687,925
Note receivable .............................. -- 1,000,000
Prepaid expenses ............................. 464,432 719,914
Other current assets ......................... 234,490 1,867,444
------------ ------------
Total current assets ..................... 21,752,546 46,787,327
Property and equipment, net ..................... 2,839,968 2,852,679
Software development costs, net ................. -- 2,463,174
Intangible assets, net .......................... 7,661,092 6,925,960
Other assets .................................... 757,820 1,279,466
Deferred income taxes ........................... -- 601,002
------------ ------------
Total assets .................................... $ 33,011,426 $ 60,909,608
============ ============
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit .......................... $ 2,600,000 $ --
Accounts payable and accrued expenses ........ 3,501,508 5,058,623
Accrued compensation and benefits ............ 4,426,740 5,096,818
Billings in excess of cost ................... 2,367,441 1,757,208
Notes payable - financial institution ........ 1,107,542 180,000
Notes payable - related party ................ 2,456,788 620,417
Current portion of long-term debt ............ 1,337,466 --
Deferred income taxes ........................ 1,554,600 1,383,689
Income taxes payable ......................... 44,305 1,951,897
------------ ------------
Total current liabilities ....................... 19,396,390 16,048,652
Long-term debt, net of current portion .......... 7,329,280 --
------------ ------------
Total liabilities ............................... 26,725,670 16,048,652
Stockholders' equity:
Common stock:
Class A, par value $0.01, 20,000,000 shares
authorized: 5,888,152 and 8,867,843
issued and outstanding at December 31,
1996 and 1997 ............................ 58,881 88,677
Additional capital ......................... 10,608,741 41,396,385
Retained (deficit) earnings ................ (4,381,866) 3,375,894
------------ ------------
Total stockholders' equity ...................... 6,285,756 44,860,956
Total liabilities and stockholders' equity ...... $ 33,011,426 $ 60,909,608
============ ============
See accompanying notes.
C-2
<PAGE>
Hagler Bailly, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ......................................................... $ 44,722,616 $ 74,475,376 $ 96,099,443
Cost of services ................................................. 36,473,953 59,284,033 71,922,597
------------ ------------ ------------
Gross profit .................................................... 8,248,663 15,191,343 24,176,846
Selling, general and administrative expenses ..................... 5,858,180 10,388,858 13,869,907
Stock and stock option compensation .............................. -- 6,172,000 79,869
------------ ------------ ------------
Income (loss) from operations .................................... 2,390,483 (1,369,515) 10,227,070
------------ ------------ ------------
Other income (expense):
Interest income ............................................... 95,740 160,660 969,054
Interest expense .............................................. (957,004) (1,304,368) (1,097,037)
------------ ------------ ------------
Income (loss) before income tax expense .......................... 1,529,219 (2,513,223) 10,099,087
Income tax expense ............................................... 869,900 961,319 4,676,925
------------ ------------ ------------
Net income (loss) before extraordinary gain ...................... 659,319 (3,474,542) 5,422,162
Extraordinary gain, net of income tax expense
of $0, $0, and $177,000 in 1995, 1996, and
1997, respectively (Note 10) ................................... 829,280 145,904 2,335,598
------------ ------------ ------------
Net income (loss) ................................................ $ 1,488,599 $ (3,328,638) $ 7,757,760
============ ============ ============
Net income (loss) per share:
Basic:
Net income (loss) before extraordinary gain .................. $0.19 $(0.64) $0.72
Extraordinary gain, net of income tax expense ................ $0.24 $ 0.03 $0.31
Net income (loss) ............................................ $0.44 $(0.61) $1.04
Diluted:
Net income (loss) before extraordinary gain .................. $0.17 $(0.64) $0.65
Extraordinary gain, net of income tax expense ................ $0.21 $ 0.03 $0.28
Net income (loss) ............................................ $0.38 $(0.61) $0.93
Weighted average shares outstanding:
Basic ......................................................... 3,419,904 5,441,534 7,479,944
Diluted ....................................................... 3,946,830 5,441,534 8,313,424
</TABLE>
See accompanying notes.
C-3
<PAGE>
Hagler Bailly, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Shares Retained Total
---------------------------- Additional Earnings Stockholders
Class A Class B Amount Capital (Deficit) Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ....... 701,506 -- $ 7,015 $ 472,649 $ (2,959,128) $ (2,479,464)
Reduction of ESOP debt ........... -- -- -- -- 560,943 560,943
Issuance of Common Stock at MBO .. 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 ......... 295,120 103,726 3,988 334,021 -- 338,009
Repurchase of Common Stock ....... (32,061) (320) (63,791) (119,148) (183,259)
Net income ....................... -- -- -- -- 1,488,599 1,488,599
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ....... 5,113,605 103,726 52,173 3,603,942 (1,028,734) 2,627,381
Common Stock ..................... -- -- -- -- -- --
Repayment of notes receivable for
Common Stock .................. -- -- -- 97,447 -- 97,447
Issuance of Common Stock ......... 1,027,390 -- 10,274 1,066,212 -- 1,076,486
Repurchase of Common Stock ....... (346,196) -- (3,462) (331,235) (24,494) (359,191)
Substitution and issuance of
compensatory stock
and options (Note 13) ......... 93,353 (103,726) (104) 6,172,375 -- 6,172,271
Net loss ......................... -- -- -- -- (3,328,638) (3,328,638)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 ....... 5,888,152 -- 58,881 10,608,741 (4,381,866) 6,285,756
Issuance of Common Stock (IPO) ... 2,500,000 -- 25,000 30,240,031 -- 30,265,031
Compensatory stock and options ... -- -- -- 79,869 -- 79,869
Issuance of Common Stock (options) 484,701 -- 4,847 132,879 -- 137,726
Repurchase of Common Stock ....... (76,087) -- (761) (49,735) -- (50,496)
Issuance of Common Stock ......... 71,077 -- 710 384,600 -- 385,310
Net Income ....................... -- -- -- -- 7,757,760 7,757,760
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 ....... 8,867,843 -- $ 88,677 $ 41,396,385 $ 3,375,894 $ 44,860,956
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
C-4
<PAGE>
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ...................................................... $ 1,488,599 $ (3,328,638) $ 7,757,760
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization ..................................... 897,232 1,435,438 1,970,806
Accrued interest .................................................. -- 125,350 --
Gain on disposition of equipment .................................. (70,889) -- --
Extraordinary gain ................................................ (829,280) (145,904) (2,335,598)
Provision for possible losses ..................................... 129,484 1,092,713 503,460
Provision for deferred income taxes ............................... 723,300 816,100 (948,913)
Stock and stock option compensation ............................... -- 6,172,000 79,869
Changes in operating assets and liabilities: ...................... --
Accounts receivable ............................................. (1,492,410) (3,613,096) (14,147,104)
Prepaid expenses ................................................ 88,741 (173,521) (255,482)
Other current assets ............................................ (269,003) 330,999 (1,632,954)
Other assets .................................................... (230,197) (340,191) (521,646)
Accounts payable and accrued expenses ........................... (2,191,057) (774,716) 1,868,447
Accrued compensation and benefits ............................... 2,387,559 738,646 670,078
Income taxes payable ............................................ (102,641) 15,934 1,907,592
Billings in excess of cost ...................................... 1,264,370 933,851 (610,233)
------------- ------------- -------------
Net cash provided by (used in) operating activities .................... 1,793,808 3,284,965 (5,693,918)
------------- ------------- -------------
Investing activities:
Proceeds from disposition of equipment ................................. 74,850 -- --
Acquisition of property and equipment .................................. (855,639) (1,131,251) (1,199,385)
Note receivable ........................................................ -- -- (1,000,000)
Purchase of investments ................................................ -- -- (161,850,846)
Sale of investments .................................................... -- -- 155,299,400
Purchase of RCG/Hagler Bailly, Inc. (net of $1,126,873 cash
received) ........................................................... (11,802,250) -- --
Expenditures for software development .................................. -- -- (2,512,174)
------------- ------------- -------------
Net cash used by investing activities .................................. (12,583,039) (1,131,251) (11,263,005)
------------- ------------- -------------
Financing activities:
Issuance of Common Stock, net .......................................... 3,251,013 1,076,486 30,788,067
Retirement of Common Stock ............................................. (178,606) -- --
Repurchase of Common Stock ............................................. (4,653) (214,280) (50,496)
Repayment of notes receivable for Common Stock ......................... -- 97,447 --
Net borrowing (payments) on bank line of credit ........................ 1,420,328 433,701 (2,600,000)
Proceeds from long-term debt financing ................................. 7,100,000 266,750 --
Principal payments on debt ............................................. (589,251) (2,738,649) (9,229,393)
------------- ------------- -------------
Net cash provided by (used in) financing activities .................... 10,998,831 (1,078,545) 18,908,178
------------- ------------- -------------
Net increase in cash and cash equivalents .............................. 209,600 1,075,169 1,951,255
Cash and cash equivalents, beginning of year ........................... 724,574 934,174 2,009,343
------------- ------------- -------------
Cash and cash equivalents, end of year ................................. $ 934,174 $ 2,009,343 $ 3,960,598
============= ============= =============
</TABLE>
See accompanying notes.
C-5
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements
December 31, 1996 and 1997
1. Organization
Hagler Bailly, Inc. ("Hagler Bailly" or the "Company") is a worldwide provider
of management consulting and other advisory services 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.
On July 3, 1997 the Company consummated an initial public offering of 2,500,000
shares at an offering price of $14 per share. The offering netted the Company
$30.3 million to be used to pay off all debt then outstanding, fund
acquisitions, and provide ongoing working capital needs.
On December 1, 1997, the Company acquired all of the outstanding common stock of
Apogee Research, Inc. ("Apogee") (see Note 17). On February 23, 1998 the Company
completed the acquisition of TB&A Group, Inc. and its wholly-owned subsidiary,
Theodore Barry & Associates ("TB&A") (see Note 17). Both business combinations
were accounted for as a pooling-of-interests. Accordingly, the consolidated
financial statements include the accounts of the Company, its subsidiaries,
Apogee and TB&A for all periods presented.
2. Summary of Significant Accounting Policies
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.
C-6
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
Marketable Securities
Marketable securities are classified as available-for-sale and are recorded at
fair market value with unrealized gains and losses, net of taxes, reported as a
separate component of shareholders' equity, if material.
Realized gains and losses and declines in market value judged to be other than
temporary are included in investment income. Interest and dividends are included
in investment income (see Note 3).
Property and Equipment
Property and equipment are recorded at original cost and depreciated using
primarily the straight line method over their estimated useful lives of three to
seven years. Leasehold improvements are recorded at cost and amortized over the
shorter of their useful lives or the term of the related leases by use of the
straight-line method.
Revenue Recognition
Consulting revenue represents revenue generated by professional staff of the
Company. Subcontractor and other revenue represents revenue principally
generated through the use of subcontractors and independent consultants.
Revenue from cost-plus fixed-fee contracts is recognized as costs are incurred
on the basis of direct costs plus allowable indirect costs and a pro rata
portion of estimated fee.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
Revenue from standard daily rate contracts is recognized at amounts represented
by the agreed-upon billing amounts and costs are recognized as incurred.
Amounts billed or received in excess of revenue recognized in accordance with
the Company's revenue recognition policy are classified as billings in excess of
cost in the accompanying balance sheets.
Income Taxes
The Company provides for income taxes in accordance with the liability method.
Under this method, deferred tax assets and liabilities are determined based on
temporary differences between financial and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share". Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is computed very similarly to the previously reported fully
diluted earnings per share. All
C-7
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary gain ...................... $ 659,319 $(3,474,542) $ 5,422,162
=========== =========== ===========
Extraordinary gain, net of income tax expense .................... $ 829,280 $ 145,904 $ 2,335,598
=========== =========== ===========
Net income (loss) ................................................ $ 1,488,599 $(3,328,638) $ 7,757,760
=========== =========== ===========
Denominator:
Denominator for basic net income (loss) per
share - weighted average shares .............................. 3,419,904 5,441,534 7,479,944
Effect of dilutive securities:
Stock options ............................................... 526,926 -- 833,480
----------- ----------- -----------
Denominator for diluted net income (loss) per
share - adjusted weighted average shares
and assumed conversions ...................................... 3,946,830 5,441,534 8,313,424
=========== =========== ===========
</TABLE>
Recent Pronouncements
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. This statement is effective for fiscal
years beginning after December 15, 1997.
The Company believes that the adoption of this statement will not have a
material impact on its financial position or results of operations.
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments of
an Enterprise and Related Information" which established standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas and major customers. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The financial information
is required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997. The Company believes that the
adoption of this statement will not have a material impact on its financial
position or results of operations.
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition,"
which changes the requirements for revenue recognition effective for
transactions that the Company will enter into
C-8
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
beginning January 1, 1998. The Company believes that the impact of the adoption
of the SOP will not be material to the 1998 financial statements.
3. Investments
The composition of investments are as follows:
December 31, 1997
-----------------
Municipal debt security ................................. $1,000,569
----------
Mortgage backed debt security ........................... 5,406,522
----------
Equity securities ....................................... 51,116
Cash equivalents ........................................ 93,239
----------
Total ................................................... $6,551,446
==========
All investment securities have maturities of 12 months or less. Interest income
for the year ended December 31, 1997 was $347,000.
4. Accounts Receivable
At December 31, 1996 and 1997, the components of accounts receivable are:
1996 1997
------------ ------------
Billed amounts ......................... $ 14,686,556 $ 22,091,828
Unbilled amounts currently billable .... 5,148,209 11,562,266
Retention not currently billable ....... 256,306 287,377
Allowance for possible losses .......... (1,046,790) (1,253,546)
------------ ------------
Total .................................. $ 19,044,281 $ 32,687,925
============ ============
The activity in the allowance for possible losses for years ended December 31 is
as follows:
1996 1997
----------- -----------
Balance at beginning of year ........... $ 503,164 $ 1,046,790
Provision for losses charged to expense 1,117,715 560,310
Charge-offs, net of recoveries ......... (574,089) (353,554)
----------- -----------
Balance at end of year ................. $ 1,046,790 $ 1,253,546
=========== ===========
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.
C-9
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
5. Property and Equipment
Components of property and equipment at December 31, 1996 and 1997 are as
follows:
1996 1997
----------- -----------
Office equipment and furniture ......... $ 4,307,426 $ 5,560,520
Leasehold improvements ................. 373,025 353,868
----------- -----------
4,680,451 5,914,388
Accumulated depreciated and amortization (1,840,483) (3,061,709)
----------- -----------
$ 2,839,968 $ 2,852,679
=========== ===========
Depreciation expense for the years ended December 31, 1995, 1996 and 1997 was
$537,854, $918,893 and $1,221,226, respectively. Costs of repairs and
maintenance of property and equipment are charged to expense as incurred.
6. Software Development Costs
At December 31, 1997, the Company had recorded $2,463,174 of capitalized
software development costs net of $49,000 of accumulated amortization. The
Company accounts for these development costs in accordance with FASB 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed".
Capitalized development costs are amortized on a product by product basis
starting when the product is available for general release to customers.
Amortization is calculated using the straight-line method over the remaining
estimated economic life of the product. The Company periodically evaluates the
net realizable value of all unamortized capitalized costs. At December 31, 1997
the Company believes there has been no impairment of net realizable value of
these recorded amounts.
7. 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, 1996
and 1997 are net of accumulated amortization of $1,017,000 and $1,753,000,
respectively. Amortization expense for the years ended December 31, 1995, 1996
and 1997 was $334,000, $683,000 and $736,000, respectively.
The Company periodically reviews the value of its net intangible assets to
determine if an impairment has occurred. Based on its review, the Company does
not believe that an impairment of net intangible assets has occurred at December
31, 1997.
C-10
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
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 .................................... $ 64,597,974
Pro forma net income ................................. 1,594,371
Pro forma income per share:
Basic ........................................... 0.47
Diluted ......................................... 0.40
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 occurred on January 1, 1995, or of the future results of
operations of the consolidated entities.
8. Note Receivable
During 1997 the Company entered into a bridge loan agreement for $1,000,000 with
another company. The loan is due in six equal installments beginning June 1,
1998. The loan pays interest at 15% and is secured by all of the assets of the
borrower. The loan agreement allows the Company to purchase an ownership
interest of this company as defined in the loan agreement.
9. Bank Line of Credit
At December 31, 1996 and 1997, the Company had a line of credit arrangement with
a bank which provides funds up to $5,750,000 and $15,000,000, respectively,
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. There is an annual fee
equal to 1/4 of 1% of 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. At December 31, 1996 and 1997 the Company had available borrowing
capacity of $3,150,000 and $15,000,000, respectively, under the line of credit.
10. Notes Payable
Notes payable to financial institution
The Company has notes payable to a financial institution of $1.1 million and
$180,000 at December 31, 1996 and 1997, respectively. At December 31, 1996 the
$1.1 million note consists of $650,000 principal plus accrued interest at the
prime rate plus 2% with a floor of 10% and a cap of 15%. During 1996 the Company
was engaged in negotiations to refinance the note under more favorable terms.
During 1997 a refinance agreement was reached which consisted of cash payments
of $360,000 in 1997 to settle the original note and the issuance of a new note
in the amount of $180,000. The new note is due in twelve equal interest free
monthly installments of $15,000. The settlement resulted in an extraordinary
gain to the Company in 1997. The Company used working capital to finance the
settlement.
Notes payable to related-parties
The Company has notes payable to related-parties, primarily employees and
directors, of $2,456,788 and $620,417 at December 31, 1996 and 1997,
respectively. These notes are unsecured, due on
C-11
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
demand and accrue interest at rates which approximate 10%. The Company has
actively pursued the settlement of many of these notes at favorable terms. Such
settlements have resulted in extraordinary gains for the Company. The Company
used working capital to finance all settlements.
11. Long-term Debt
Long-term debt consisted of the following at December 31, 1996:
Senior term loan from a bank, in the original amount of
$7,000,000, interest payable at the bank's 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 ...................................... $3,913,000
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
Other notes and equipment loans; interest at rates
approximating prime; maturities through June 30, 1999 ...... 104,000
----------
Total long-term debt .......................................... 8,667,000
Less: current portion ........................................ 1,337,000
----------
Long-term debt, net of current portion ........................ $7,330,000
==========
Cash paid for interest for the years ended December 31, 1995, 1996 and 1997 was
approximately $606,144, $1,178,513 and $926,185, respectively.
The Company used a portion of the proceeds from its initial public offering to
pay off all outstanding long-term debt in July 1997.
12. Income Taxes
The Company has historically filed its consolidated federal income tax return on
the cash basis, whereby for tax purposes, revenue was recognized when received
and expenses were recognized when paid. The timing of certain transactions,
primarily the collections of accounts receivable and the payments of accounts
payable and accrued expenses were applied to different periods for financial
statement and income tax reporting purposes. Deferred federal and state income
taxes were provided for these temporary differences. Upon consummation of the
IPO of the Company's Common Stock during 1997, the Company was required to
change to the accrual method for income tax reporting.
C-12
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
Components of income tax expense consisted of the following:
Year Ended December 31,
----------------------------------------------
1995 1996 1997
----------- ----------- -----------
Current:
Federal ................. $ 118,000 $ 115,000 $ 4,481,000
State ................... 29,000 30,000 1,098,000
----------- ----------- -----------
147,000 145,000 5,579,000
Deferred:
Federal ................. 578,000 654,000 (723,000)
State ................... 145,000 162,000 (179,000)
----------- ----------- -----------
723,000 816,000 (902,000)
----------- ----------- -----------
Income tax expense ........ $ 870,000 $ 961,000 $ 4,677,000
=========== =========== ===========
The Company paid income taxes of $265,000, $86,000, and $2,939,000 during 1995,
1996 and 1997, respectively.
Income tax expense for each of the years ended December 31, 1995, 1996 and 1997,
varies from the amount computed using the statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tax computed at the Federal statutory rate .............. $ 520,000 $ (855,000) $ 3,434,000
State income taxes, net of Federal income tax
benefit ............................................... 92,000 151,000 606,000
Non-deductible charge for stock option
compensation .......................................... -- 1,661,000 31,000
Allowance for TB&A exposure ............................. 536,000
Other ................................................... 258,000 4,000 70,000
----------- ----------- -----------
Income tax expense ...................................... $ 870,000 $ 961,000 $ 4,677,000
=========== =========== ===========
</TABLE>
The components of temporary differences are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accounts receivable ...................................... $6,015,000 $1,421,000
Cash to accrual adjustment ............................... -- 821,000
Other .................................................... 179,000 126,000
---------- ----------
Total deferred tax liabilities .............................. 6,194,000 2,368,000
Deferred tax assets:
Accounts payable and accrued expenses .................... 967,000 --
Accrued compensation and benefits ........................ 1,617,000 1,226,000
Billings in excess of cost ............................... 811,000 --
Deferred compensation .................................... 762,000 --
Provisions for possible accounts receivable losses ....... -- 359,000
Net operating loss carry-forwards ........................ 482,000 --
---------- ----------
Total deferred tax assets ................................... 4,639,000 1,585,000
---------- ----------
Net deferred tax liability .................................. $1,555,000 $ 783,000
========== ==========
</TABLE>
C-13
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
As a result of historical losses, TB&A, which merged with Hagler Bailly on
February 23, 1998, had net operating loss carryforwards at December 31, 1995 and
1996. The deferred tax assets generated by these loss carryforwards were fully
reserved for by the Company in the years that they were generated. The Company
utilized all of its carryforwards during 1997.
13. 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 had certain restrictions on ownership and were 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: (i) adopted an amendment to its
Stock Plan which changed the exercise price of future options to be granted
thereunder to the fair value of the underlying Common Stock; and (ii) in
connection with a reclassification of its Common Stock amended all outstanding
options to purchase 971,963 Class B shares vesting on January 1, 1997 to
substitute 0.9 of a Class A share for each Class B share underlying such
options. In addition, a remaining total of 971,963 options to purchase Class B
shares vesting on January 1, 1998 were canceled. As a result, the Company
recorded a non-recurring, non-cash charge to operations of $6,172,000 of which
$4,618,000 was for options to purchase Common Stock and $1,554,000 was for
394,160 shares of Common Stock sold to employees during 1996. These charges
represent the aggregate difference between the exercise price of such
outstanding options or the issuance price of Common Stock sold to employees
during 1996, as the case may be, and the appraised market value of the
underlying Common Stock at December 31, 1996.
Options granted after 1996 vest over periods ranging from immediately to four
years and are generally exercisable up to ten 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 up to ten years from the
grant date.
Pro forma information regarding net income (loss) and per share data, is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method therein. The fair
value for options granted from May 25, 1997 to July 9, 1997 was estimated at the
date of grant using a minimal valuation method with the following
weighted-average assumptions, risk free interest rate of 5.25%, no expected
dividends and an average expected life of the options of 5 years.
For all options issued subsequent to July 9, 1997, in accordance with SFAS 123,
the fair value of options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: Risk-free interest rate of 5.25%; no dividends; a
volatility factor of the expected market price of the Company's common stock of
.40 and a weighted-average expected life of the options of approximately 5
years.
C-14
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss) ...................... $1,488,599 $(3,365,294) $7,540,780
Net income (loss) per share:
Basic ............................. $0.44 $(0.62) $1.01
Diluted ........................... $0.38 $(0.62) $0.91
</TABLE>
The following summarizes option activity:
<TABLE>
<CAPTION>
Class A Class B Weighted Average
Options Options Exercise Price
------- ------- --------------
<S> <C> <C> <C>
1995
Granted .............................. -- 2,074,524 $0.16
Exercised ............................ -- (103,726) 0.16
---------- ---------
Outstanding at December 31, 1995 ..... -- 1,970,798 0.16
1996
Granted .............................. 62,236 -- 1.06
Canceled ............................. -- (971,963) 0.16
Forfeited ............................ -- (26,872) 0.16
Substituted .......................... 874,707 (971,963) 0.16
---------- ---------
Outstanding at December 31, 1996 ..... 936,943 -- 0.22
=========
1997
Granted .............................. 677,135 8.34
Exercised ............................ (484,701) 0.20
Canceled ............................. (15,000) 10.00
----------
Outstanding at December 31, 1997 ..... 1,114,377 5.21
==========
Exercisable at December 31, 1997 ..... 470,909 $1.05
==========
</TABLE>
The grant date weighted average fair value of options granted in 1995, 1996, and
1997 were $2.12, $0.74, and $1.98, respectively.
C-15
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
At December 31, 1997 the price range of options outstanding are as follows:
<TABLE>
<CAPTION>
Weighted Average
Average Remaining
Options Exercise Contractual
Outstanding Per Share Life
----------- --------- ----
<S> <C> <C> <C>
Less than $1.00 ................... 420,420 $0.18 7.4
$1.00-$10.00 ...................... 562,938 6.29 9.0
Over $10.00 ....................... 131,019 16.73 9.7
---------
Total .......................... 1,114,377 $5.21 8.5
=========
</TABLE>
14. 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 rate
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.
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, 1997:
Year ended December 31,
1998 ............................................. $3,382,000
1999 ............................................. 3,681,000
2000 ............................................. 3,477,000
2001 ............................................. 3,142,000
2002 ............................................. 512,000
-----------
Total minimum rental payments ........................... $14,194,000
===========
Total rental expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $2,033,000, $2,782,000 and $2,907,000, respectively.
15. Retirement Plan
The Company maintains tax-deferred savings plans under Section 401(k) of the
Internal Revenue Code to provide retirement benefits for all eligible employees
(the "Plan"). Employees may voluntarily contribute a percentage 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 1996 and 1997 were $1,384,000 and $1,528,000, 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.
C-16
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
16. 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 and 1997.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in many different
countries throughout the world, and the Company's policy is designed to limit
exposure with any one institution. As part of its cash management process, the
company performs periodic evaluations of the relative credit standing of these
financial institutions.
At December 31, 1996 and 1997, respectively, cash of approximately $1,004,000
and $1,425,000 was located in foreign bank accounts.
Major Customers
At December 31, 1996 and 1997, included in accounts receivable was $6,824,000
and $9,143,000, 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 1995, 1996 and
1997, the Company recognized approximately, $12,313,000, $25,997,000 and
$31,792,000, respectively, of its revenue from the United States Agency for
International Development ("USAID"), a U.S. government agency, and a major
public utility. Revenues earned from foreign customers, both commercial and
governmental, were approximately $713,000, $1,314,000 and $6,831,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
17. Pooling of Interests
In November of 1997, the Company acquired Apogee. In connection with this
transaction, Apogee shareholders received 1.2689 shares of the Company's stock
for each Apogee share. The Company
C-17
<PAGE>
Hagler Bailly, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and 1997
issued 409,985 shares of its stock of all of outstanding shares and stock
options of Apogee. Apogee was founded in 1986, and provides consulting services
to the transportation and the environmental sectors. The merger qualified as a
tax-free reorganization and was accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of Apogee for all periods presented. As Hagler Bailly began
operations on May 26, 1995, the financial statements for all periods prior to
May 26, 1995 will be those of Apogee and TB&A.
On February 23, 1998, the Company completed the acquisition of TB&A Group,
Inc., and it's wholly-owned subsidiary, Theodore Barry and Associates ("TB&A").
The Company issued 454,994 shares of common stock in connection with the
business combination. The business combination will be accounted for as a
pooling of interests. Accordingly, the Company's financial statements have been
restated to include the results of TB&A for all periods presented. As Hagler
Bailly began operations on May 26, 1995, the financial statements for all
periods prior to May 26, 1995, will be those of Apogee and TB&A.
Combined and separate results of Hagler Bailly, Apogee and TB&A during the
periods preceding the merger were as follows (in millions):
Hagler Bailly Apogee TB&A Combined
----------------------------------------------
Year ended December 31, 1995
Revenues...................... $29.3 $6.6 $8.8 $44.7
Net income.................... 0.9 0.1 0.5 1.5
Year ended December 31, 1996
Revenues...................... 61.6 6.3 6.6 74.5
Net income (loss)............. (3.6) 0.2 0.1 (3.3)
The combined financial results presented above include adjustments made to
conform accounting policies of the three companies.
C-18
<PAGE>
Hagler Bailly, Inc.
Consolidated Balance Sheet
March 31,
1998
------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents ................................... $ 2,995,236
Investments ................................................. 2,191,774
Accounts receivable, net .................................... 34,148,980
Note receivable ............................................. 1,000,000
Prepaid expenses ............................................ 2,418,685
Other current assets ........................................ 1,907,375
------------
Total current assets ........................................... 44,662,050
Property and equipment, net .................................... 2,648,809
Software development costs, net ................................ 2,379,841
Intangible assets, net ......................................... 7,182,177
Other assets ................................................... 962,390
Deferred income taxes .......................................... --
------------
Total assets ................................................... 57,835,267
============
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit ......................................... 2,640,000
Accounts payable and accrued expenses ....................... 3,128,257
Accrued compensation and benefits ........................... 1,223,671
Billings in excess of cost .................................. 1,325,769
Notes payable ............................................... 485,838
Deferred income taxes ....................................... 471,964
Income taxes payable ........................................ 953,067
------------
Total current liabilities ...................................... 10,228,566
Deferred income taxes .......................................... 1,125,083
Long-term debt, net of current portion ......................... 142,723
------------
Total liabilities .............................................. 11,496,372
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding ................... --
Common stock, $0.01 par value, 20,000,000 shares
authorized, 8,884,241 issued and outstanding .............. 88,842
Additional capital .......................................... 41,418,649
Retained (deficit) earnings ................................. 4,973,909
Foreign currency fluctuation ................................ (142,505)
------------
Total stockholders' equity ..................................... 46,338,895
------------
Total liabilities and stockholders' equity ..................... $ 57,835,267
============
C-19
<PAGE>
Hagler Bailly, Inc.
Consolidated Statements of Operations
Three months ended
March 31,
1997 1998
----------- -----------
(unaudited)
Revenues
Consulting revenues .......................... $20,884,430 $22,327,078
Other revenues ............................... 242,811 1,315,142
----------- -----------
Total revenues .................................. 21,127,241 23,642,220
Cost of services ................................ 16,310,494 18,754,380
----------- -----------
Gross profit .................................... 4,816,747 4,887,840
Merger related costs ............................ -- 367,258
Selling, general and administrative expenses .... 2,506,649 1,935,430
Stock and stock option compensation ............. 64,869 --
----------- -----------
Income from operations .......................... 2,245,229 2,585,152
----------- -----------
Other (income) expense, net ..................... 296,048 (34,289)
----------- -----------
Income before income tax expense ................ 1,949,181 2,619,441
Income tax expense .............................. 761,049 1,021,426
----------- -----------
Net income ...................................... $ 1,188,132 $ 1,598,015
=========== ===========
Other comprehensive income:
Foreign currency translation adjustment, net
of $55,577 tax ............................. -- (86,928)
----------- -----------
Comprehensive income ............................ $ 1,188,132 $ 1,511,087
=========== ===========
Net income per share:
Basic ........................................ $ 0.20 $ 0.18
=========== ===========
Diluted ...................................... $ 0.17 $ 0.17
=========== ===========
Weighted average shares outstanding:
Basic ........................................ 5,955,746 8,869,844
=========== ===========
Diluted ...................................... 7,063,846 9,681,251
=========== ===========
See accompanying notes.
C-20
<PAGE>
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
Three months ended
March 31,
--------------------------
1997 1998
----------- -----------
(unaudited)
Operating activities
Net income ....................................... $ 1,188,132 $ 1,598,015
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .................. 815,866 568,168
Provision for deferred income taxes ............ 573,262 702,257
Provision for possible losses .................. 184,665 39,929
Amortization of deferred stock compensation .... 64,869 --
Changes in operating assets and liabilities:
Accounts receivable ....................... (3,742,029) (2,393,484)
Prepaid expenses .......................... (76,018) (1,698,771)
Other current assets ...................... (813,997) (39,931)
Other assets .............................. (715,366) 317,076
Accounts payable and accrued expenses ..... 2,018,020 (1,037,866)
Accrued compensation and benefits ......... (541,399) (3,873,147)
Billings in excess of cost ................ (249,644) (431,439)
Income taxes payable ...................... 153,183 (886,727)
----------- -----------
Net cash used in operating activities ............ (1,140,456) (7,135,920)
Investing activities
Sale of investments .............................. -- 4,359,672
Purchase of investments .......................... (169,397) --
Investment in stock of subsidiaries .............. (149,515) (440,000)
Acquisition of property and equipment ............ (596,941) (97,182)
----------- -----------
Net cash provided by (used in)
investing activities ............................ (915,853) 3,822,490
Financing activities
Issuance of common stock ......................... 125,575 22,429
Net borrowings from bank line of credit .......... 2,350,000 2,640,000
Proceeds from long-term debt ..................... -- 142,723
Principal payments on debt ....................... (1,072,645) (314,579)
----------- -----------
Net cash provided by financing activities ........ 1,402,930 2,490,573
Net decrease in cash and cash equivalents ........ (653,379) (822,857)
Foreign currency gain (loss) ..................... -- (142,505)
Cash and cash equivalents, beginning of period ... 2,009,343 3,960,598
----------- -----------
Cash and cash equivalents, end of period ......... $ 1,355,964 $ 2,995,236
=========== ===========
See accompanying notes.
C-21
<PAGE>
HAGLER BAILLY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Hagler
Bailly, Inc. (the "Company") have been prepared pursuant to the rules of the
Securities and Exchange Commission ("SEC") and do not include all of the
information and note disclosures required by generally accepted accounting
principles. The information furnished herein reflects all adjustments, of a
normal recurring nature, which are, in the opinion of management, necessary for
a fair presentation of results for these interim periods.
The interim results of operations are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31, 1998.
As a result of the pooling of interests transaction completed in the first
quarter, as described in Note 3 below, all consolidated financial statements and
related schedules presented for the three month period ended March 31, 1998 and
1997 and as of December 31, 1997 have been restated to include the results of
operations and financial position of TB&A Group, Inc. These financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 1997 included
herein.
Note 2. Earnings per Share
Basic earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the respective periods. Diluted
earnings per share is inclusive of the dilutive effect of unexercised stock
options using the treasury stock method.
Note 3. Pooling of Interests
On February 23, 1998, the Company completed the merger of one of its
wholly-owned subsidiaries with TB&A Group, Inc. and its wholly-owned subsidiary,
Theodore Barry & Associates (collectively "TB&A"). The Company issued 454,994
shares of its common stock in connection with the merger and the merger was
accounted for as a pooling-of-interests. Accordingly, the Company's financial
statements have been restated to include the results of TB&A for all periods
presented.
C-22
<PAGE>
Annex D - Consolidated Financial Statements of PHB
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Financial Statements
Contents
Years ended December 31, 1997, 1996 and 1995
Report of Independent Auditors..............................................D-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................D-2
Consolidated Statements of Operations.......................................D-3
Consolidated Statements of Shareholders' Equity.............................D-4
Consolidated Statements of Cash Flows.......................................D-5
Notes to Consolidated Financial Statements..................................D-7
Three Months Ended March 31, 1998 and 1997
Unaudited Consolidated Financial Information
Unaudited Consolidated Balance Sheets......................................D-22
Unaudited Consolidated Statements of Operations............................D-23
Unaudited Consolidated Statements of Cash Flows............................D-24
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Putnam, Hayes &
Bartlett, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position of Putnam, Hayes &
Bartlett, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
May 1, 1998, except for Note 9,
as to which the date is June 8, 1998
D-1
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,070,209 $ 1,107,299
Accounts receivable, less allowance for
doubtful accounts of $2,619,157 and
$1,853,926 at December 31, 1997 and 1996,
respectively 17,393,493 14,584,198
Unbilled services 968,418 1,219,908
Prepaid expenses and other assets 770,380 711,922
Due in connection with liquidation of
subsidiary, less allowance of $328,070 at
December 31, 1997 (Note 2) 159,715 2,171,701
--------------------------------------
Total current assets 20,362,215 19,795,028
Equipment and improvements:
Furniture and fixtures 3,377,465 2,849,012
Leasehold improvements 2,010,114 1,319,934
Computer equipment 3,857,931 3,353,639
Communications equipment 680,424 636,404
Computer software 648,326 517,135
--------------------------------------
10,574,260 8,676,124
Less accumulated depreciation and
amortization (7,978,499) (7,062,326)
--------------------------------------
2,595,761 1,613,798
Other assets:
Cash surrender value of life insurance, net
of loans of $7,326 and $19,413 at December
31, 1997 and 1996, respectively 154,980 139,092
Deposits 154,082 263,254
Deferred income taxes (Note 7) 668,682 497,457
--------------------------------------
977,744 899,803
--------------------------------------
Total assets $ 23,935,720 $ 22,308,629
======================================
<CAPTION>
December 31
1997 1996
--------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Bank line of credit (Note 3) $ 1,500,000 $ 1,400,000
Accounts payable and accrued expenses (Note 4) 2,903,546 2,314,689
Advance billings 1,368,530 1,192,844
Accrued compensation and benefits 8,370,604 9,534,406
Current portion of long-term debt (Note 5) 146,950 194,906
Deferred income taxes 1,156,049 418,632
--------------------------------------
Total current liabilities 15,445,679 15,055,477
Long-term liabilities:
Long-term debt, net of current portion (Note 5) 284,410 360,083
Deferred rent (Note 6) 1,108,506 1,026,175
Deferred compensation (Note 11) 3,565,875 2,532,493
--------------------------------------
Total long-term liabilities 4,958,791 3,918,751
Commitments and contingencies
Shareholders' equity (Note 9):
Common stock, $.01 par value--authorized
8,000,000 shares, 5,130,000 shares and
4,768,450 shares issued at December 31,
1997 and 1996, respectively 51,300 47,685
Additional paid-in capital 13,217,585 2,758,301
Retained earnings (deficit) (8,952,573) 1,013,818
Foreign currency translation adjustment 18,363 (2,838)
--------------------------------------
4,334,675 3,816,966
Subscriptions receivable for common stock (466,100) (177,240)
Less cost of shares held in treasury 647,500
and 607,500 shares at December 31, 1997
and 1996, respectively (337,325) (305,325)
--------------------------------------
Total shareholders' equity 3,531,250 3,334,401
--------------------------------------
Total liabilities and shareholders' equity $ 23,935,720 $ 22,308,629
======================================
</TABLE>
See accompanying notes.
D-2
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Consulting $ 52,117,036 $ 53,138,168 $ 45,622,448
Subcontractor and other 10,690,599 14,606,997 10,987,580
-----------------------------------------------------------
62,807,635 67,745,165 56,610,028
Cost of services: 47,479,012 50,754,463 42,074,469
-----------------------------------------------------------
Gross margin 15,328,623 16,990,702 14,535,559
Selling, general and administrative 14,202,753 15,646,826 13,413,311
Liquidation of subsidiary (Note 2) 328,070 662,609
Compensation in connection with subscriptions
for issuance of common stock (Note 9) 9,884,800
-----------------------------------------------------------
Income (loss) from operations (9,087,000) 681,267 1,122,248
Other income (expense):
Interest income 222,854 173,565 208,500
Interest expense (203,728) (146,379) (113,505)
Other income (expense) (292,599) 258,549 (16,527)
-----------------------------------------------------------
Income (loss) before income taxes (9,360,473) 967,002 1,200,716
Income tax expense (Note 7) 605,918 663,640 575,152
-----------------------------------------------------------
Net income (loss) $ (9,966,391) $ 303,362 $ 625,564
===========================================================
Earnings (loss) per share:
Basic and diluted $ (2.22) $ 0.07 $ 0.15
===========================================================
Shares used in computing earnings (loss) per share:
Basic and diluted 4,490,089 4,498,684 4,197,781
===========================================================
</TABLE>
See accompanying notes.
D-3
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Subscriptions
------------------------- Paid-in Retained Receivable for
Shares Amount Capital Earnings Common Stock
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,825,700 $38,257 $2,287,075 $84,892 $(177,892)
Purchase of common stock
Issuance of common stock 499,450 4,995 61,734 153,030
Subscription receivable for common
stock 155,000 (155,000)
Translation adjustment
Net income 625,564
------------------------------------------------------------------------------
Balance at December 31, 1995 4,325,150 43,252 2,503,809 710,456 (179,862)
Purchase of common stock
Issuance of common stock 443,300 4,433 86,492 170,622
Subscription receivable for common
stock 168,000 (168,000)
Translation adjustment (Note 2)
Net income 303,362
------------------------------------------------------------------------------
Balance at December 31, 1996 4,768,450 47,685 2,758,301 1,013,818 (177,240)
Purchase of common stock
Issuance of common stock 361,550 3,615 108,384 177,240
Subscription receivable for common
stock 466,100 (466,100)
Compensation in connection with
subscriptions for issuance of
common stock 9,884,800
Translation adjustment
Net loss (9,966,391)
------------------------------------------------------------------------------
Balance at December 31, 1997 5,130,000 $51,300 $13,217,585 $(8,952,573) $(466,100)
==============================================================================
<CAPTION>
Treasury Stock
Translation -----------------------
Adjustment Shares Amount Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $(564,025) $1,668,307
Purchase of common stock 210,000 $(92,400) (92,400)
Issuance of common stock 219,759
Subscription receivable for common
stock
Translation adjustment 12,430 12,430
Net income 625,564
-----------------------------------------------------------
Balance at December 31, 1995 (551,595) 210,000 (92,400) 2,433,660
Purchase of common stock 397,500 (212,925) (212,925)
Issuance of common stock 261,547
Subscription receivable for common
stock
Translation adjustment (Note 2) 548,757 548,757
Net income 303,362
-----------------------------------------------------------
Balance at December 31, 1996 (2,838) 607,500 (305,325) 3,334,401
Purchase of common stock 40,000 (32,000) (32,000)
Issuance of common stock 289,239
Subscription receivable for common
stock
Compensation in connection with
subscriptions for issuance of
common stock 9,884,800
Translation adjustment 21,201 21,201
Net loss (9,966,391)
-----------------------------------------------------------
Balance at December 31, 1997 $18,363 647,500 $(337,325) $3,531,250
===========================================================
</TABLE>
See accompanying notes
D-4
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $(9,966,391) $303,362 $625,564
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 956,175 977,150 746,412
Deferred income taxes 566,192 658,699 572,773
Provision for uncollectible amounts 2,692,034 1,628,250 1,122,687
Deferred rent 82,332 (364,897) (420,258)
Deferred compensation 1,049,569 801,061 944,602
Gain on sale of equipment (9,713)
Liquidation of subsidiary 328,070 662,609
Compensation in connection with
subscriptions receivable for
issuance of common stock 9,884,800
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable and unbilled services (4,933,774) 815,207 (5,232,751)
Prepaid expenses and other assets (64,588) 158,113 (183,020)
Accounts payable, accrued expenses and accrued
compensation and benefits (402,968) 288,462 1,705,474
Advance billings 201,063 (179,250) 661,133
Federal and state income taxes 5,219 136,748
-----------------------------------------------------
Net cash provided by operating activities 392,514 5,744,272 679,364
Investing activities
Investment in equipment and improvements (2,009,830) (1,089,564) (731,673)
Deposits 107,699 (213,753) 15,657
Cash surrender value of life insurance, net (15,888) (17,345) (18,593)
Proceeds from sale of equipment 108,621
Amounts received (due) in connection with liquidation
of subsidiary 1,683,916 (2,171,701)
Cash acquired in connection with business acquisition 54,898
Minority investment in consulting business (531,432)
-----------------------------------------------------
Net cash used in investing activities (765,535) (3,328,844) (734,609)
</TABLE>
D-5
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Financing activities
Bank line of credit borrowings (repayments) $ 100,000 $(1,600,000) $ 1,127,100
Payments of long-term debt (155,629) (110,102) (378,591)
Repayment of capital lease obligations (762,258)
Issuance of common stock 289,239 173,047 219,759
-----------------------------------------------
Net cash provided by (used in) financing activities 233,610 (1,537,055) 206,010
Effect of exchange rate changes on cash 102,321 (34,431) 22,285
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents (37,090) 843,942 173,050
Cash and cash equivalents at beginning of year 1,107,299 263,357 90,307
-----------------------------------------------
Cash and cash equivalents at end of year $ 1,070,209 $ 1,107,299 $ 263,357
===============================================
Supplemental cash flow information
Income taxes paid $ 2,016 $ 1,416 $ 523
===============================================
Cash paid for interest $ 71,208 $ 55,124 $ 97,695
===============================================
Noncash financing and investing activities:
Subscriptions receivable for issuance of common stock $ 466,100 $ 168,000 $ 147,500
Issuance of promissory notes for the
purchase of common stock 32,000 212,925 92,000
Issuance of promissory notes in payment of deferred
compensation
39,276 194,363 16,834
Issuance of 150,000 shares of common stock in
connection with acquisition 88,500
Transfer of certain liabilities and sale
of certain equipment in connection with
liquidation of subsidiary 101,584
</TABLE>
See accompanying notes.
D-6
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Organization and Nature of Business
Putnam, Hayes & Bartlett, Inc. (the Company) is a Massachusetts corporation
which renders consulting services to private and public clients on a worldwide
basis. The Company provides management consulting, advisory and economic
analysis services in the areas of business strategy, litigation support and
expert testimony and public policy. The Company's headquarters are located in
Cambridge, Massachusetts with offices in Washington DC, and California, and
subsidiary offices in New Zealand and Australia.
Principles of Consolidation
The consolidated financial statements include the accounts of Putnam, Hayes &
Bartlett, Inc. and its wholly-owned subsidiaries, Putnam, Hayes & Bartlett-Asia
Pacific Limited acquired in April 1996 and Putnam, Hayes & Bartlett-Asia Pacific
Pty Ltd established in September 1997. The consolidated statements of income for
1996 and 1995 also include the accounts of Putnam, Hayes & Bartlett Limited
which was liquidated in December 1996 (see Note 2). All intercompany services
accounts and transactions are eliminated in consolidation.
In 1997, the Company acquired a 7.8% minority ownership interest in a consulting
business in the United Kingdom for cash of $531,432. Due to the uncertainty of
recovery, the Company has provided in selling, general and administrative
expense a full valuation allowance on this investment as of December 31, 1997.
During 1997, the Company provided services to, and purchased consulting services
from, this consulting business of $37,767 and $287,850, respectively. At
December 31, 1997, the accounts receivable from this consulting business
amounted to $135,078.
Revenue Recognition
Consulting revenue is derived from services provided by professional staff of
the Company. Subcontractor and other revenue represent revenue principally
related to services provided by subcontractors and billed by the Company to its
clients and also includes other reimbursable costs billed to clients. Consulting
services are principally provided under time and material contracts. Revenues
under these contracts are recognized in the period the work is performed.
Estimated losses on consulting contracts are provided for at the time such
losses become known.
D-7
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company provides it services to customers in a variety of industries. The
Company performs continuing credit evaluations of its customers and generally
does not require collateral. Historically, the Company's losses related to
receivables from individual customers or groups of customers have been
consistent with its estimates. During 1997, the Company derived 12% of its
revenues from two customers, and for 1996 and 1995, 20% and 19%, respectively,
of its total revenues from two different customers.
The Company maintains its excess cash balances in highly-rated short-term
investment instruments. The Company has not experienced any losses from these
investments.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Financial Instruments
The Company's financial instruments principally include accounts receivable and
unbilled services, accounts payable, notes payable to bank under its line of
credit and long-term debt. The fair value of these instruments approximate their
carrying value based upon their short-term nature and variable rates on interest
bearing instruments.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation is provided based on
the estimated useful lives of the assets using a combination of straight-line
and accelerated methods. Furniture and fixtures, computer equipment and software
and communications equipment are depreciated over periods ranging from three to
seven years and leasehold improvements are amortized over the lesser of the
useful life or term of the lease. Expenditures for repairs and maintenance are
charged to operations as incurred.
Income Taxes
The Company provides for income taxes under the liability method. Under this
method, deferred taxes are based on the future income tax effect of temporary
differences between the book and tax bases of the Company's assets and
liabilities, assuming they will be realized and settled, respectively, at the
amount reported in the Company's financial statements.
D-8
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
The Company uses the cash basis of accounting for income tax purposes. The
Company does not provide for income taxes on undistributed earnings of
subsidiaries, as such taxes are expected to be offset by foreign tax credits.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars using exchange rates at the balance sheet dates. Income and
expense items are translated at average exchange rates for the respective
periods. The effect of translating these amounts at different rates is included
in the foreign currency translation adjustment account in shareholders' equity.
Transactions gains and losses are charged to operations and are included in
other income (expense). Transaction losses in 1997 amounted to $299,800.
Transaction gains in 1996 amounted to $240,200. In 1995, these amounts were not
material.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management believes that estimates, including the amount due in connection with
the liquidation of Putnam, Hayes & Bartlett Limited, and normal recurring
provisions and allowances made in preparation of the financial statements are
fairly presented. However, actual results could differ from estimates.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of". SFAS No. 121 requires recognition of impairment losses on long-lived assets
when indicators of impairment losses on long-lived assets are present and future
undiscounted cash flows are insufficient to support the assets' recovery.
Adoption of SFAS No. 121 did not have a material impact on the Company's
financial statements.
D-9
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Earnings Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings per Share". SFAS No. 128,
which is applicable only to public companies, simplifies the calculation of
earnings per share (EPS) and makes it comparable to the new international EPS
standard. It replaces the presentation primary EPS with a presentation of basic
EPS. Unlike primary EPS, basic EPS excludes options, warrants, and other
potentially dilutive securities from the calculation. The Company had no
dilutive securities outstanding during 1997, 1996 or 1995.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS.
Recent Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued which
established standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. This statement is effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
this statement will not materially impact its financial position or results of
operations.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued which established standards for public business
enterprises to report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes the standards for related disclosures about products and service,
geographic areas and major customers.
D-10
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
This Statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. The financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997. The Company believes that the
adoption of this statement will not materially impact its financial position or
results of operations.
The Company intends to adopt Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pension and Other Postretirement Benefits" in
1998. This standard will require additional disclosure, but will not have a
material effect on the Company's financial position or results of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) rather than the alternative fair value accounting method provided for under
SFAS No. 123, "Accounting for Stock Based Compensation". Under APB 25, when the
exercise price of options granted to employees and outside directors equals or
exceeds the market value of the underlying stock on the date of grant, no
compensation is required. No options were granted in 1997, 1996 or 1995 and
accordingly, the disclosures required by SFAS No. 123 are not presented.
2. Acquisition and Divestiture
On April 5, 1996, the Company acquired all of the outstanding stock of Putnam,
Hayes & Bartlett-Asia Pacific Limited (PHB-AP) in exchange for 150,000 shares of
the Company's common stock and cash of $10,100. At that time PHB-AP had a
wholly-owned subsidiary, CORE Management Systems Limited, which was amalgamated
into PHB-AP as of December 31, 1997. PHB-AP, located in New Zealand provides
consulting services to private and public clients. The acquisition has been
accounted for under the purchase method and, accordingly, the assets and
liabilities of PHB-AP at the
D-11
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Acquisition and Divestiture (continued)
acquisition date have been stated at their fair value. In accordance with the
purchase method, the Company's consolidated statement of income includes the
operations of PHB-AP from April 5, 1996, the acquisition date. Had the
acquisition occurred on January 1, 1996 the Company's consolidated results of
operations for the year ended December 31, 1996 would not have been materially
different.
On December 23, 1996, the Company caused Putnam, Hayes & Bartlett Limited (PHB
Ltd), the Company's U.K. subsidiary, to cease operations and appointed a
liquidator to wind up PHB Ltd's affairs. The operating results of PHB Ltd have
been included in the Company's consolidated statement of income until the
liquidation date. The Company recognized the net amount due as of December 31,
1996 in connection with the liquidation of PHB Ltd as a current asset of
$2,171,701. This amount represented management's estimate of the net proceeds
ultimately expected to be recovered upon collection of accounts receivable from
clients and payment of obligations to creditors. As of December 31, 1997, the
Company estimates that $328,070 of the $2,171,701 is not collectible. Of the
Company's loss of $662,609 recognized in 1996 in connection with the liquidation
of its UK subsidiary, $548,757 represented cumulative foreign currency
translation losses which had previously been recorded as a separate component of
the Company's shareholders' equity.
3. Bank Line of Credit
The Company has entered into a revolving credit agreement (Agreement) with a
bank which enables the Company to borrow up to $4,000,000, subject to certain
restrictions which limit the borrowing base to 70% of eligible accounts
receivable, plus 50% of the eligible unbilled accounts receivable, less the US
dollar equivalent of (pound)150,000. The Agreement requires the Company among
other things to maintain certain operating covenants. At December 31, 1997, the
Company was in violation of these covenants for which waivers were obtained. The
Agreement expires on May 31, 1998. Interest is charged at the greater of the
bank's Base Rate or the Federal Funds Effective Rate plus 0.5%, as defined by
the Agreement. The Company's accounts receivable are assigned as security under
the Agreement. The Agreement requires a commitment fee of 0.5% on the average
daily amount of the unborrowed portion of the commitment, payable quarterly in
arrears. At December 31, 1997 and 1996, $2,500,000 and $2,600,000, respectively,
was unused on the revolving line of credit.
D-12
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Bank Line of Credit (continued)
Interest expense under this agreement amounted to $24,830 in 1997, $18,142 in
1996 and $23,936 in 1995.
4. Accounts Payable and Accrued Expenses
This balance is comprised as follows:
December 31
1997 1996
-------------------- -------------------
Trade accounts payable $ 906,581 $1,086,559
Other accruals 1,996,965 1,228,130
-------------------- -------------------
$2,903,546 $2,314,689
==================== ===================
5. Long-Term Debt
In 1997 and 1996, the Company issued $32,000 and $212,925, respectively, in
promissory notes to former employees in conjunction with the re-purchase of
common stock from those employees. Also in 1997 and 1996, the Company issued
$39,276 and $194,363, respectively, in promissory notes to certain former
employees in conjunction with payment of deferred compensation. These notes and
previously issued notes are payable in annual installments of principal and
interest, calculated at the prime rate (8.5% at December 31, 1997).
Aggregate annual principal maturities of long-term debt to former shareholders
at December 31, 1997 are as follows:
Year ending December 31, 1998 $146,950
1999 146,950
2000 119,641
2001 17,819
--------------------
431,360
Less current portion (146,950)
Long-term debt at --------------------
December 31, 1997 $284,410
====================
Interest expense under these notes amounted to $46,378 in 1997, $37,534 in 1996
and $33,102 in 1995.
D-13
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Leases
The Company leases all of its office space under operating leases with various
terms and renewal options. Future minimum commitments under all leases with
noncancelable terms of one year or more are as follows:
Year ending December 31, 1998 $ 4,610,882
1999 4,701,361
2000 4,704,856
2001 4,749,298
2002 4,672,609
Thereafter 24,795,704
--------------------
$48,234,710
====================
In connection with the lease agreement entered into for its headquarters in
Cambridge, the Company was provided a cash incentive of $1,500,000. This cash
incentive is being amortized over the ten-year lease term. At December 31, 1997
and 1996, the unamortized balance of the cash incentive included in deferred
rent amounted to $215,156 and $329,906, respectively. This lease agreement
expires in 2009 with two five-year renewal options. This lease and others also
include periodic escalation provisions. At December 31, 1997 and 1996, deferred
rent attributable to these escalations amounted to $893,350 and $696,269,
respectively.
Rent expense amounted to $4,524,510, $4,853,193 and $4,978,500 for the years
ended December 31, 1997, 1996 and 1995, respectively.
D-14
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
The Company's provision for income taxes is as follows:
<TABLE>
Year ended December 31
1997 1996 1995
----------------- ------------------- -----------------
<S> <C> <C> <C>
Current:
Federal and state $ 2,500 $ 4,941 $ 2,379
Foreign 37,226
----------------- ------------------- -----------------
39,726 4,941 2,379
Deferred provision:
Federal 482,328 560,969 488,074
State 83,864 97,730 84,699
----------------- ------------------- -----------------
566,192 658,699 572,773
----------------- ------------------- -----------------
$605,918 $663,640 $575,152
================= =================== =================
</TABLE>
A reconciliation of the federal statutory rate to the effective income tax rate
is as follows:
<TABLE>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Tax at federal statutory rate $(3,182,560) $338,450 $420,249
State taxes, net of federal benefit (570,989) 58,987 73,243
Valuation allowance 218,000
Permanent nondeductible U.S. items 133,594 89,413 92,671
Permanent nondeductible foreign items 19,855 73,497
Permanent nondeductible compensation in
connection with subscriptions for
issuance of common stock 3,969,047
Other 18,971 103,293 (11,011)
------------------ ------------------ ------------------
$ 605,918 $663,640 $575,152
================== ================== ==================
</TABLE>
The effective tax rates in 1997, 1996 and 1995 are higher than the statutory
rates due principally to permanent non-deductible US items for certain business
travel, meals and entertainment expenses included in the statement of operations
for which the Company is not entitled to a tax deduction.
D-15
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statments (continued)
7. Income Taxes (continued)
The 1997 effective tax rate also includes the effect of non deductible
compensation of $9,884,000 (see Note 9) for tax reporting purposes as well as a
valuation allowance established for a loss provision included in the statement
of operations which, for tax reporting purposes, is deductible only when
realized and to the extent of the availability of capital gains income.
Significant components of the Company's deferred income tax assets and
liabilities at December 31 are as follows:
<TABLE>
1997 1996
------------------ -------------------
<S> <C> <C>
Deferred income tax assets:
Advance billings $ 342,136 $ 343,183
Net operating loss carryforwards 131,266 200,942
Deferred incentive from lessor 88,429 135,591
Accrued rent 367,167 286,167
Leasehold amortization 265,616 224,687
Depreciation of computer equipment 101,041 74,802
Other 33,838 7,940
------------------ ------------------
Total deferred income tax assets 1,329,493 1,273,312
Deferred tax liabilities:
Cash basis adjustment (1,598,860) (1,194,487)
Valuation allowance (218,000)
------------------ ------------------
Total deferred income tax liabilities (1,816,860) (1,194,487)
------------------ ------------------
Net deferred income tax asset (liability) $ (487,367) $ 78,825
=====================================
</TABLE>
The Company has a federal net operating loss carryforward of approximately
$319,000 which expires at various times between 2005 and 2013.
8. Nonqualified Stock Option Plan
As of December 31, 1996 and 1995, options to acquire 30,000 shares of the
Company's common stock at an exercise price of $2.00 per share were outstanding
and fully vested. These options expired in February 1997.
D-16
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Employee Stock Arrangements
Since October 1, 1984, all of the Company's common stock has been subject to the
terms and conditions of a Stock Purchase Agreement (Agreement) between the
Company and each of its shareholders. A premise of the Agreement is to assure
that all outstanding stock of the Company remains in the hands and under the
control of persons actively engaged in the business of the Company.
The Company sells shares of its common stock to senior level employees who are
required to purchase specified amounts of shares based upon the employees'
respective positions. The price of the stock is the book value per share
determined by the Company's most recently issued annual audited financial
statements. Sale of stock to these individuals generally occurs shortly after
the issuance of the Company's annual audited financial statements, typically
within 120 days after year end. The Agreement provides that upon termination of
employment or death the Company is required to purchase all shares owned by the
former employee at the book value per share of the Company based upon the most
recently available audited financial statements. The Agreement also provides
that if a shareholder has received an offer to sell or desires to transfer
shares the Company has a right of first refusal to purchase those shares at book
value. The Agreement provides for the purchase of shares by the Company to be
made in the form of cash, promissory notes or a combination thereof. Such
purchases of stock by the Company occur periodically during the year as a result
of employment terminations.
Until August 1997, the Company has accounted for the sale and purchase of its
common stock under the arrangements described above as capital transactions. In
connection with the proposed transaction described in Note 13, under generally
accepted accounting principles, stock issued or subject to issuance under
subscriptions receivable entered into within the 12 months preceding the closing
of the transaction are presumed to have been issued in contemplation of the
proposed transaction and are required to be accounted for at their fair value at
the date of issuance. Accordingly, the Company has recognized a noncash, nontax
deductible compensation charge as of December 31, 1997 of $9,884,800,
representing the difference between the fair value and the book value of shares
of common stock issuable through December 31, 1997.
D-17
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Employee Retirement Benefit Plans
The Company sponsors two defined contribution plans for Putnam, Hayes &
Bartlett, Inc. employees: the Putnam, Hayes & Bartlett, Inc. Profit Sharing Plan
(the Profit Sharing Plan) and the Putnam, Hayes & Bartlett, Inc. 401(k) Plan.
The plans, as more fully described below, cover all employees of the Company who
meet the eligibility requirements. The Company, on behalf of employees of
PHB-Ltd, approved contributions to the personal pension schemes of the
employees' choosing in accordance with the Board of Directors election in 1996
and 1995.
Profit Sharing Plan
The Profit Sharing Plan permits only employer discretionary profit sharing
contributions. The Board of Directors elected to contribute up to $1,110,000,
$1,228,000 and $1,247,000 to the Profit Sharing Plan for the years ended
December 31, 1997, 1996 and 1995, respectively. The cost of administering the
Profit Sharing Plan is paid by the Company and amounted to $13,200 for 1997 and
$12,000 for 1996 and 1995, respectively.
401(k) Plan
Effective August 1, 1994, the Company established a voluntary 401(k) savings
plan (the 401(k) Plan) for eligible employees. Participants may elect to
contribute up to 15% of their qualified compensation annually, subject to
federal limitations. The cost of administering the 401(k) Plan is paid by the
Company and amounted to $6,300 for 1997, $6,000 for 1996 and $5,075 for 1995.
Personal Pension Scheme Contributions for Subsidiary Employees
The Board of Directors approved the payment of $40,693 and $97,238 for 1996 and
1995, respectively, into the Personal Pension Schemes of the employees of
PHB-Ltd in accordance with coverage requirements. No such payments were made in
1997.
D-18
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Compensation Arrangements
The Company's compensation arrangements for senior level employees includes a
base salary, a standard bonus based upon the achievement of specific operating
objectives and performance incentive compensation for achievement of
profitability in excess of these specific operating objectives. These amounts
are accrued as earned and paid in cash or deferred under the arrangements
described below.
The Company has a Deferred Compensation Plan (the Plan) under which eligible
principals, directors and officers of the Company may, and in certain
circumstances are required to defer receipt of certain bonus amounts (otherwise
payable to them in cash) by so electing in accordance with the provisions of the
Plan. Deferred compensation under the Plan is converted along with accrued
interest to a non-transferable interest bearing promissory note upon the
participant's separation from the Company. Interest is calculated at the prime
rate (8.5% at December 31, 1997). All deferred bonuses have been accrued and are
classified as long-term on the balance sheet. Interest expense related to
deferred compensation has been accrued and amounted to $162,758, $90,702 and
$27,533 for the years ended December 31, 1997, 1996 and 1995, respectively.
D-19
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Segment, Geographic and Customer Information
The Company operates in one industry segment, providing management consulting,
advisory and economic analysis services to public and private clients on a
worldwide basis.
Geographic information for 1997, 1996 and 1995 is as follows:
<TABLE>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
United States $ 57,316,260 $ 59,570,848 $ 49,575,465
Intercompany 1,371,112 878,146 1,000,510
------------------ ------------------ ------------------
Total 58,687,372 60,448,994 50,575,975
United Kingdom 6,114,679 7,034,564
Intercompany 353,200 430,975
------------------ ------------------ ------------------
Total 6,467,879 7,465,539
Asia Pacific 5,491,375 2,059,637
Intercompany 247,675 89,732
------------------ ------------------ ------------------
Total 5,739,050 2,149,369
Eliminations (1,618,787) (1,321,077) (1,431,486)
------------------ ------------------ ------------------
Total revenues $ 62,807,635 $ 67,745,165 $ 56,610,028
================== ================== ==================
Income (loss) from operations:
United States $ (9,328,121) $ 2,041,065 $ 2,486,799
United Kingdom (1,283,881) (1,364,551)
Asia Pacific 241,121 (75,917)
------------------ ------------------ ------------------
Total income (loss) from operations $ (9,087,000) $ 681,267 $ 1,122,248
================== ================== ==================
</TABLE>
D-20
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Segment, Geographic and Customer Information (continued)
<TABLE>
1997 1996 1995
----------------- ----------------- -------------------
<S> <C> <C> <C>
Assets:
United States $22,698,846 $20,953,076 $20,497,945
United Kingdom 4,089,385
Asia Pacific 2,530,453 1,444,053
Eliminations (1,293,579) (88,500) (2,793,643)
----------------- ----------------- -------------------
Total assets $23,935,720 $22,308,629 $21,793,687
================= ================= ===================
</TABLE>
Revenues for the United States include $1,148,185, $1,039,328 and $1,389,064 in
1997, 1996 and 1995, respectively, for services provided to foreign based
clients.
13. Proposed Transaction
On March 22, 1998, the Company entered into a nonbinding preliminary agreement
which anticipates the execution of a definitive merger agreement between the
Company and Hagler Bailly, Inc., pursuant to which the Company's shareholders
are to exchange all outstanding shares in exchange for shares of Hagler Bailly,
Inc. common stock.
D-21
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
March 31,
1998
-----------
Assets
Current assets:
Cash and cash equivalents $ 1,999,934
Accounts receivable, less allowance 10,083,390
Unbilled services 9,182,113
Prepaid expenses and other assets 970,422
-----------
Total current assets 22,235,859
Equipment and improvements:
Furniture and fixtures 3,509,972
Leasehold improvements 2,006,684
Computer equipment 4,043,515
Communications equipment 683,781
Computer software 664,586
-----------
10,908,538
Less accumulated depreciation and 8,222,770
-----------
amortization 2,685,768
Other assets:
Cash surrender value of life insurance, net 160,059
of loans
Deposits 175,931
Deferred income taxes 668,682
-----------
1,004,672
-----------
Total assets $25,926,299
March 31,
1998
-----------
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit $ 550,000
Accounts payable and accrued expenses 2,901,030
Advance billings 1,817,620
Accrued compensation and benefits 8,243,731
Current portion of long-term debt 146,950
Deferred income taxes 1,156,049
-----------
Total current liabilities 14,815,380
Long-term liabilities:
Long-term debt, net of current portion 274,591
Deferred rent 1,151,269
Long term deferred income tax 1,052,263
Deferred compensation 3,606,255
-----------
Total long-term liabilities 6,084,378
Stockholders' equity:
Common stock 51,300
Additional paid-in capital 15,477,185
Retained earnings (deficit) (9,609,533)
Foreign currency translation adjustment 5,814
-----------
5,924,766
Subscriptions receivable for common stock (560,900)
Less cost of shares held in treasury
(647,500 shares) (337,325)
-----------
Total stockholders' equity 5,026,541
-----------
Total liabilities and stockholders' equity $25,926,299
D-22
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Consulting $ 13,533,020 $ 13,449,096
Subcontractor and other 2,070,855 2,572,520
------------ ------------
15,603,875 16,021,616
Cost of services 10,013,364 12,279,641
------------ ------------
Gross profit 5,590,511 3,741,975
Selling, general and administrative 2,948,477 3,020,016
Compensation in connection with subscriptions
for issuance of common stock 2,164,800
------------ ------------
Income from operations 477,234 721,959
Other income (expense):
Interest income 15,895 12,495
Interest expense (54,731) (43,442)
Other income (expense) (43,095) (15,364)
------------ ------------
Income before income taxes 395,303 675,648
Income tax expense 1,052,263 320,796
------------ ------------
Net income (loss) $ (656,960) $ 354,852
============ ============
Net income (loss) per share:
Basic and diluted $ (0.13) $ 0.09
============ ============
Shares used in computing net income (loss) per share:
Basic and diluted 5,174,722 4,160,950
============ ============
</TABLE>
D-23
<PAGE>
Putnam, Hayes & Bartlett, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ (656,960) $ 354,852
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 254,702 185,208
Provision for uncollectible amounts (50,000) 393,399
Deferred rent 42,763 1,767
Deferred compensation 45,721 31,290
Deferred Income Taxes 1,052,263
Compensation in connection with subscriptions receivable for
issuance of common stock 2,164,800
Changes in operating assets and liabilities, net of effects
of acquisition:
Accounts receivable and unbilled services (1,057,888) (4,844,295)
Prepaid expenses and other assets (202,444) 288,782
Accounts payable, accrued expenses 217,376 27,794
Accrued compensation and benefits (185,483) 2,517,405
Advance billings 461,759 300,067
----------------------------
Net cash provided by (used in) operating activities 2,086,609 (743,731)
Investing activities
Investment in equipment and improvements (360,896) (73,750)
Deposits (21,879) 145,030
Cash surrender value of life insurance, net (5,079)
Minority interest in consulting business (337,236)
Amounts received (due) in connection with liquidation
of subsidiary 159,715 963,699
----------------------------
Net cash provided by (used in) investing activities (228,139) 697,743
Financing activities
Bank line of credit borrowings (repayments) $ (950,000) (750,000)
Payments of long-term debt (9,819) (72,415)
----------------------------
Net cash provided by (used in) financing activities (959,819) (822,415)
Effect of exchange rate changes on cash 31,074 9,995
----------------------------
Net increase (decrease) in cash and cash equivalents 929,725 (858,408)
Cash and cash equivalents at beginning of period 1,070,209 1,107,299
----------------------------
Cash and cash equivalents at end of period $ 1,999,934 $ 248,891
============================
</TABLE>
See accompanying notes.
D-24
<PAGE>
Annex E - Pro Forma Combined Consolidated Financial Data
<PAGE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated financial
statements assume a business combination between Hagler Bailly and PHB accounted
for on a pooling-of-interest basis and are based on, and should be read in
conjunction with, the respective historical consolidated financial statements
and the notes thereto of Hagler Bailly and PHB, which are included as annexes to
this Joint Proxy Statement/PPM.
For purposes of the preparation of the unaudited pro forma combined
consolidated balance sheet, no estimate is used for the sum of the
merger-related expenses (which the companies anticipate will be approximately
$2.0 million) and no deferred tax benefit relating to these expenses is
included.
The pro forma combined consolidated financial statements are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have been achieved if the Merger had
been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
Hagler Bailly/PHB. The pro forma combined consolidated financial information
does not give effect to any cost savings which may result from the integration
of Hagler Bailly's and PHB's operations.
E-1
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 2,995,236 $ 1,999,934 $ -- $ 4,995,170
Investments .......................................... 2,191,774 -- -- 2,191,774
Accounts receivable, net ............................. 34,148,980 19,265,503 -- 53,414,483
Note receivable ...................................... 1,000,000 -- -- 1,000,000
Prepaid expenses ..................................... 2,418,685 970,422 -- 3,389,107
Other current assets ................................. 1,907,375 -- -- 1,907,375
------------ ----------- ------------ -------------
Total current assets .................................... 44,662,050 22,235,859 -- 66,897,909
Property and equipment, net ............................. 2,648,809 2,685,768 -- 5,334,577
Software development costs, net ......................... 2,379,841 -- -- 2,379,841
Intangible, net ......................................... 7,182,177 -- -- 7,182,177
Other assets ............................................ 962,390 335,990 -- 1,298,380
Deferred income taxes ................................... -- 668,682 -- 668,682
------------ ----------- ------------ -------------
Total assets ............................................ $ 57,835,267 $ 25,926,299 $ -- $ 83,761,566
============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank line of credit .................................. $ 2,640,000 $ 550,000 $ -- $ 3,190,000
Accounts payable and accrued expenses ................ 3,128,257 2,901,030 -- 6,029,287
Accrued compensation and benefits .................... 1,223,671 8,243,731 -- 9,467,402
Billings in excess of costs .......................... 1,325,769 1,817,620 -- 3,143,389
Current portion of long-term debt .................... 485,838 146,950 -- 632,788
Deferred income taxes ................................ 471,964 1,156,049 -- 1,628,013
Income taxes payable ................................. 953,067 -- -- 953,067
----------- ----------- ------------ -------------
Total current liabilities ............................... 10,228,566 14,815,380 -- 25,043,946
Long-term debt, net of current portion .................. 142,723 274,591 -- 417,314
Deferred rent ........................................... -- 1,151,269 -- 1,151,269
Deferred income taxes ................................... 1,125,083 1,052,263 -- 2,177,346
Deferred compensation ................................... -- 3,606,255 -- 3,606,255
----------- ----------- ------------ -------------
Total liabilities ....................................... 11,496,372 20,899,758 -- 32,396,130
----------- ----------- ------------ -------------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized; none issued and
outstanding ........................................ -- -- -- --
Common stock, $0.01 par value--8,000,000
shares authorized; 5,130,000 issued and
outstanding ........................................ -- 51,300 (51,300)(1) --
Common stock, $0.01 par value--20,000,000
shares authorized: 8,884,241 issued and
outstanding in 1998 and 6,600,000 additional
shares for the business combination ................ 88,842 -- 65,458(1) 154,300
Additional paid-in capital ........................... 41,418,649 15,477,185 (912,383)(1) 55,983,451
Subscriptions receivable for common stock ............ -- (560,900) 560,900(1) --
Retained earnings (deficit) .......................... 4,973,909 (9,609,533) -- (4,635,624)
Foreign currency fluctuation ......................... (142,505) 5,814 -- (136,691)
Less cost of shares held in treasury 647,500
shares at March 31, 1998 ........................... -- (337,325) 337,325(1) --
----------- ----------- ------------ -------------
Total stockholders' equity .............................. 46,338,895 5,026,541 -- 51,365,436
----------- ----------- ------------ -------------
Total liabilities and stockholders' equity .............. $ 57,835,267 $ 25,926,299 $ -- $ 83,761,566
============ ============ ============ ============
</TABLE>
E-2
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Revenues ............................................ $ 44,722,616 $ 56,610,028 $ -- $ 101,332,644
Cost of services .................................... 36,473,953 42,074,469 -- 78,548,422
----------- ----------- -----------
Gross profit ....................................... 8,248,663 14,535,559 -- 22,784,222
Selling, general and administrative expenses ........ 5,858,180 13,413,311 -- 19,271,491
----------- ----------- -----------
Stock and stock option compensation ................. -- -- -- --
Income from operations .............................. 2,390,483 1,122,248 -- 3,512,731
Other income (expense):
Interest income .................................. 95,740 208,500 -- 304,240
Interest expense ................................. (957,004) (113,505) -- (1,070,509)
Other ............................................ -- (16,527) -- (16,527)
----------- ----------- -----------
Income before income tax expense .................... 1,529,219 1,200,716 -- 2,729,935
Income tax expense .................................. 869,900 575,152 -- 1,445,052
----------- ----------- -----------
Net income before extraordinary gain ................ 659,319 625,564 -- 1,284,883
Extraordinary gain .................................. 829,280 -- -- 829,280
----------- ----------- -----------
Net income .......................................... $ 1,488,599 $ 625,564 $ -- $ 2,114,163
=========== =========== ============ ===========
Net income per share:
Basic:
Net income before extraordinary gain ........... $ 0.19 $ 0.15 $ $0.15
Extraordinary gain ............................. 0.24 -- 0.09
Net income ..................................... 0.44 0.15 0.24
Diluted:
Net income before extraordinary gain ........... $ 0.17 $ 0.15 $0.14
Extraordinary gain ............................. 0.21 -- 0.09
Net income ..................................... 0.38 0.15 0.23
Weighted average shares outstanding:
Basic ............................................ 3,419,904 4,197,781 8,776,180
Diluted .......................................... 3,946,830 4,197,781 9,303,106
</TABLE>
E-3
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Total revenues ........................................ $74,475,376 $67,745,165 $ -- $142,220,541
Cost of services ...................................... 59,284,033 50,754,463 -- 110,038,496
---------- ---------- ------------ -----------
Gross profit ......................................... 15,191,343 16,990,702 -- 32,182,045
Liquidation of subsidiary ............................. -- 662,609 -- 662,609
Selling, general and administrative expenses .......... 10,388,858 15,646,826 -- 26,035,684
Stock and stock option compensation ................... 6,172,000 -- -- 6,172,000
---------- ---------- ------------ -----------
Income from operations ................................ (1,369,515) 681,267 -- (688,248)
Other income (expense):
Interest income .................................... 160,660 173,565 -- 334,225
Interest expense ................................... (1,304,368) (146,379) -- (1,450,747)
Other .............................................. -- 258,549 -- 258,549
---------- ---------- ------------ -----------
Income (loss) before income tax expense ............... (2,513,223) 967,002 -- (1,546,221)
Income tax expense .................................... 961,319 663,640 -- 1,624,959
---------- ---------- ------------ -----------
Net income (loss) before extraordinary gain ........... (3,474,542) 303,362 -- (3,171,180)
Extraordinary gain .................................... 145,904 -- -- 145,904
---------- ---------- ------------ -----------
Net income (loss) ..................................... $(3,328,638) $ 303,362 $ -- $ (3,025,276)
=========== ========== ============== ============
Net income (loss) per share:
Basic:
Net income (loss) before extraordinary gain ...... $(0.64) $0.07 $(0.28)
Extraordinary gain ............................... 0.03 -- 0.01
Net income (loss) ................................ (0.61) 0.07 (0.27)
Diluted:
Net income (loss) before extraordinary gain ...... (0.64) 0.07 (0.28)
Extraordinary gain ............................... 0.03 -- 0.01
Net income (loss) ................................ (0.61) 0.07 (0.27)
Weighted average shares outstanding:
Basic .............................................. 5,441,534 4,498,684 11,181,756
Diluted ............................................ 5,441,534 4,498,684 11,181,756
</TABLE>
E-4
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Revenues .................................................. $96,099,443 $62,807,635 $ -- $158,907,078
Cost of services .......................................... 71,922,597 47,479,012 -- 119,401,609
---------- ---------- ------------ -----------
Gross profit ............................................. 24,176,846 15,328,623 -- 39,505,469
Liquidation of subsidiary ................................. -- 328,070 -- 328,070
Selling, general and administrative expenses .............. 13,869,907 14,202,753 -- 28,072,660
Stock and stock option compensation ....................... 79,869 9,884,800 -- 9,964,669
---------- ---------- ------------ -----------
Income from operations .................................... 10,227,070 (9,087,000) -- 1,140,070
Other income (expense):
Interest income ........................................ 969,054 222,854 -- 1,191,908
Interest expense ....................................... (1,097,037) (203,728) -- (1,300,765)
Other .................................................. -- (292,599) -- (292,599)
---------- ---------- ------------ -----------
Income (loss) before income tax expense ................... 10,099,087 (9,360,473) -- 738,614
Income tax expense ........................................ 4,676,925 605,918 -- 5,282,843
---------- ---------- ------------ -----------
Net income (loss) before extraordinary gain ............... 5,422,162 (9,966,391) -- (4,544,229)
Extraordinary gain, net of income tax expense
of $177,000 ............................................ 2,335,598 -- -- 2,335,598
---------- ---------- ------------ -----------
Net income (loss) ......................................... $ 7,757,760 $(9,966,391) $ -- $ (2,208,631)
========== =========== ============ ===========
Net income (loss) per share:
Basic:
Net income (loss) before extraordinary gain .......... $0.72 $(2.22) $ $(0.34)
Extraordinary gain, net of income tax expense ........ 0.31 -- 0.18
Net income (loss) .................................... 1.04 (2.22) (0.17)
Diluted:
Net income (loss) before extraordinary gain .......... 0.65 (2.22) (0.32)
Extraordinary gain, net of income tax expense ........ 0.28 -- 0.17
Net income (loss) .................................... 0.93 (2.22) (0.16)
Weighted average shares outstanding:
Basic .................................................. 7,479,944 4,490,089 13,209,199
Diluted ................................................ 8,313,424 4,490,089 14,042,679
</TABLE>
E-5
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Statement of Operations
Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Revenues .............................................. $21,127,241 $16,021,616 $ -- $37,148,857
Cost of services ...................................... 16,310,494 12,279,641 -- 28,590,135
---------- ---------- ------------ ----------
Gross profit ......................................... 4,816,747 3,741,975 -- 8,558,722
Selling, general and administrative expenses .......... 2,506,649 3,020,016 -- 5,526,665
Stock and stock option compensation ................... 64,869 -- -- 64,869
---------- ---------- ------------ ----------
Income from operations ................................ 2,245,229 721,959 -- 2,967,188
Other income (expense):
Interest income .................................... -- 12,495 -- 12,495
Interest expense ................................... (259,369) (43,442) -- (302,811)
Other .............................................. (36,679) (15,364) -- (52,043)
---------- ---------- ------------ ----------
Income before income tax expense ...................... 1,949,181 675,648 -- 2,624,829
Income tax expense .................................... 761,049 320,796 -- 1,081,845
---------- ---------- ------------ ----------
Net income ........................................... $1,188,132 $354,852 $ -- $1,542,984
========== ========== ============= ==========
Net income per share:
Basic .............................................. $0.20 $0.09 $0.14
Diluted ............................................ 0.17 0.09 0.13
Weighted average shares outstanding:
Basic .............................................. 5,955,746 4,160,950 11,265,027
Diluted ............................................ 7,063,846 4,160,950 12,373,127
</TABLE>
E-6
<PAGE>
Hagler Bailly, Inc.
Pro Forma Combined Consolidated Statement of Operations
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
Hagler Bailly PHB Adjustments Combined
------------- --- ----------- --------
<S> <C> <C> <C> <C>
Revenues ............................................. $23,642,220 $15,603,875 $ -- $39,246,095
Cost of services ..................................... 18,754,380 10,013,364 -- 28,767,744
---------- ---------- ------------ -----------
Gross profit ........................................ 4,887,840 5,590,511 -- 10,478,351
Selling, general and administrative expenses ......... 2,302,688 2,948,477 -- 5,251,165
Stock and stock option compensation .................. -- 2,164,800 -- 2,164,800
---------- ---------- ------------ -----------
Income from operations ............................... 2,585,152 477,234 -- 3,062,386
Other income (expense):
Interest income ................................... 71,353 15,895 -- 87,248
Interest expense .................................. (37,064) (54,731) -- (91,795)
Other ............................................. -- (43,095) -- (43,095)
---------- ---------- ------------ -----------
Income before income tax expense ..................... 2,619,441 395,303 -- 3,014,744
Income tax expense ................................... 1,021,426 1,052,263 -- 2,073,689
---------- ---------- ------------ -----------
Net income (loss) .................................... $1,598,015 $(656,960) -- $941,055
========== ========== ============ ===========
Net income (loss) per share:
Basic ............................................. $0.18 $(0.13) $0.06
Diluted ........................................... 0.17 (0.13) 0.06
Weighted average shares outstanding:
Basic ............................................. 8,869,844 5,174,722 15,472,675
Diluted ........................................... 9,681,251 5,174,722 16,284,082
</TABLE>
E-7
<PAGE>
HAGLER BAILLY, INC. AND PUTNAM, HAYES & BARTLETT, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Stockholders' Equity
Stockholders' equity has been adjusted to reflect the following:
I. Common stock - common stock has been adjusted to reflect the exchange
of 5,172,500 shares of PHB common stock for 6,600,000 shares of Hagler
Bailly common stock.
II. Additional paid-in capital - Adjustments to additional paid in capital
are limited to those necessary to offset the adjustments to the par
value of common stock.
E-8
<PAGE>
Annex F - Massachusetts Law Concerning Dissenters' Rights
<PAGE>
Massachusetts Law Concerning Dissenters' Rights
87 NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL
RIGHTS.--The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the right and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
88 NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME
EFFECTIVE.--The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection 1 meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
89 DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER.--If within twenty days after the
date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight any stockholder
to whom the corporation was required to give such notice shall demand in writing
from the corporation taking such action, or in the case of a consolidation or
merger from the resulting or surviving corporation, payment for his stock, the
corporation upon which such demand is made shall pay to him the fair value of
his stock within thirty days after the expiration of the period during which
such demand may be made.
90 DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT.--If during the period of
thirty days provided for in section eighty-nine the corporation upon which such
demand is made and any such objecting stockholder fail to agree as to the value
of such stock, such corporation or any such stockholder may within four months
after the expiration of such thirty-day period demand a determination of the
value of the stock of all such objecting stockholders by a bill in equity filed
in the superior court in the county where the corporation in which such
objecting stockholder held stock had or has its principal office in the
commonwealth.
91 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF ETC; PARTIES TO BILL ETC; SERVICE OF BILL ON
CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC.--If the bill is filed by the
corporation, it shall name as parties respondent all
F-1
<PAGE>
stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
92 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED.--After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders who
have become entitled to the valuation of and payment for their shares, and shall
order the corporation to make payment of such value, together with interest, if
any, as hereinafter provided, to the stockholders entitled thereto upon the
transfer by them to the corporation of the certificates representing such stock
if certificated or if uncertificated, upon receipt of an instruction
transferring such stock to the corporation. For this purpose, the value of the
shares shall be determined as of the day preceding the date of the vote
approving the proposed corporate action and shall be exclusive of any element of
value arising from the expectation or accomplishment of the proposed corporate
action.
93 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; COURT MAY REFER BILL, ETC., TO SPECIAL
MASTER TO HEAR PARTIES, ETC.--The court in its discretion may refer the bill or
any question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.
94 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED TO
SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL,
ETC.--On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON
AWARD, ETC.--The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court
F-2
<PAGE>
may on application of any interested party determine the amount of interest to
be paid in the case of any stockholder.
96 STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS.--Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless: (1) A
bill shall not be filed within the time provided in section ninety; (2) A bill,
if filed, shall be dismissed as to such stockholder; or (3) Such stockholder
shall with the written approval of the corporation, or in the case of a
consolidation or merger, the resulting or surviving corporation, deliver to it a
written withdrawal of his objections to and an acceptance of such corporate
action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97 CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY STOCK,
ETC.--The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
98 ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES TO BE
EXCLUSIVE REMEDY; EXCEPTION.--The enforcement by a stockholder of his right to
receive payment for his shares in the manner provided in this chapter shall be
an exclusive remedy except that this chapter shall not exclude the right of such
stockholder to bring or maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
him.
F-3
<PAGE>
REVOCABLE PROXY
Putnam, Hayes & Bartlett, Inc.
This Proxy is Solicited on Behalf of The Board of Directors
The undersigned stockholder of Putnam, Hayes & Bartlett, Inc. ("PHB")
hereby appoints Howard W. Pifer III and William E. Dickenson, or any of them,
with full power of substitution in each, as proxies to cast all votes which the
undersigned stockholder is entitled to cast at the special meeting of
stockholders (the "PHB Meeting") to be held at 10:00 a.m. on August 27, 1998 at
PHB's offices located at 1776 I "Eye" Street, N.W., Washington, D.C. 20006 and
at any adjournments thereof, upon the following matters. The undersigned
stockholder hereby revokes any proxy or proxies heretofore given.
This proxy will be voted as directed by the undersigned stockholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED: (1) TO APPROVE AND ADOPT
AN AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 11, 1998, AND THE MERGER
PROVIDED FOR THEREIN, AMONG HAGLER BAILLY, INC. ("HAGLER BAILLY"), PHB MERGER
CORP. AND PHB, PURSUANT TO WHICH (i) PHB MERGER CORP., A WHOLLY OWNED SUBSIDIARY
OF HAGLER BAILLY, WILL BE MERGED WITH AND INTO PHB, WITH PHB SURVIVING THE
MERGER AS A WHOLLY OWNED SUBSIDIARY OF HAGLER BAILLY AND (ii) EACH SHARE OF PHB
COMMON STOCK WILL BE CONVERTED INTO THE RIGHT TO RECEIVE A NUMBER OF SHARES OF
HAGLER BAILLY COMMON STOCK EQUAL TO 6,600,000 DIVIDED BY THE OUTSTANDING SHARES
OF PHB COMMON STOCK, AND (2) IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY
OF THE BOARD OF DIRECTORS OF PHB AS TO ANY OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING, OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. The
undersigned stockholder may revoke this proxy at any time before it is voted by
(i) delivering to the Corporate Clerk of PHB a written notice of revocation
prior to the PHB Meeting, (ii) delivery to PHB prior to the PHB Meeting a duly
executed proxy bearing a later date, or (iii) attending the PHB Meeting and
voting in person. The undersigned stockholder hereby acknowledges receipt of
PHB's Notice of Special Meeting and Joint Proxy Statement/PPM.
If you receive more than one proxy card, please sign and return all cards
in the accompanying envelope.
(continued and to be signed and dated on reverse side)
----------------
See
Reverse Side
----------------
<PAGE>
------------
X
------------
Please mark your
votes as this.
-------------
Shares of Common Stock
Proposal: To approve and adopt the Agreement and Plan of Merger, dated as
of June 11, 1998, among Hagler Bailly, PHB Merger Corp. and PHB,
and the Merger provided for therein, pursuant to which (i) PHB
Merger Corp. will be merged with and into PHB, with PHB as the
surviving corporation and a wholly owned subsidiary of Hagler
Bailly, and (ii) each share of PHB Common Stock will be converted
into the right to receive a number of shares of Hagler Bailly
Common Stock equal to 6,600,000 divided by the outstanding shares
of PHB Common Stock.
FOR AGAINST ABSTAIN
|_| |_| |_|
Other Matters: The proxies are authorized to vote upon such other business as
may properly come before the meeting, or any adjournments or
postponements thereof, in accordance with the determination of a
majority of PHB's Board of Directors.
Date: _____________________________
_____________________________
_____________________________
Signature of Stockholder or
Authorized Representative
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary
should sign and indicate his or her full title. When stock has been issued
in the name of two or more persons, all should sign.
<PAGE>
REVOCABLE PROXY
HAGLER BAILLY, INC.
This Proxy is Solicited on Behalf of The Board of Directors
The undersigned stockholder of Hagler Bailly, Inc. ("Hagler Bailly") hereby
appoints Daniel M. Rouse and Stephen V.R. Whitman, or any of them, with full
power of substitution in each, as proxies to cast all votes which the
undersigned stockholder is entitled to cast at the special meeting of
stockholders (the "Hagler Bailly Meeting") to be held at 2:00 p.m. on August 27,
1998, at 1530 Wilson Boulevard, Suite 400, Arlington, Virginia 22209 and at any
adjournments thereof, upon the following matters. The undersigned stockholder
hereby revokes any proxy or proxies heretofore given.
This proxy will be voted as directed by the undersigned stockholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED: (1) TO APPROVE THE
ISSUANCE OF ADDITIONAL SHARES OF HAGLER BAILLY COMMON STOCK TO STOCKHOLDERS OF
PUTNAM, HAYES & BARTLETT, INC. ("PHB") AS PART OF HAGLER BAILLY'S ACQUISITION OF
PHB, (2) TO APPROVE THE AMENDMENT OF HAGLER BAILLY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF HAGLER BAILLY
COMMON STOCK FROM 20,000,000 TO 50,000,000; (3) TO APPROVE THE AMENDMENT TO THE
HAGLER BAILLY, INC. EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK OPTION AND
RESTRICTED STOCK PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED TO BE ISSUED
UNDER THE PLAN FROM 3,200,000 TO 5,000,000; AND (4) IN ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS OF HAGLER BAILLY AS TO
OTHER MATTERS. The undersigned stockholder may revoke this proxy at any time
before it is voted by (i) delivering to the Corporate Secretary of Hagler Bailly
a written notice of revocation prior to the Hagler Bailly Meeting, (ii) delivery
to Hagler Bailly prior to the Hagler Bailly Meeting a duly executed proxy
bearing a later date, or (iii) attending the Hagler Bailly Meeting and voting in
person. The undersigned stockholder hereby acknowledges receipt of Hagler
Bailly's Notice of Special Meeting and Joint Proxy Statement/PPM.
If you receive more than one proxy card, please sign and return all cards
in the accompanying envelope.
(continued and to be signed and dated on reverse side)
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See
Reverse Side
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<PAGE>
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X
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Please mark your
votes as this.
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Shares of Common Stock
Proposal 1: To approve the issuance of additional shares of Hagler Bailly
Common Stock to stockholders of PHB as part of Hagler Bailly's
acquisition of PHB.
FOR AGAINST ABSTAIN
|_| |_| |_|
Proposal 2: To approve the amendment of Hagler Bailly's Certificate of
Incorporation to increase the number of authorized shares of
Hagler Bailly common stock from 20,000,000 to 50,000,000.
FOR AGAINST ABSTAIN
|_| |_| |_|
Proposal 3: To approve the amendment to the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock
Plan to increase the number of shares authorized to be issued
under the plan from 3,200,000 to 5,000,000.
FOR AGAINST ABSTAIN
|_| |_| |_|
Other Matters: The proxies are authorized to vote upon such other business as
may properly come before the Hagler Bailly Meeting, or any
adjournments or postponements thereof, in accordance with the
determination of a majority of Hagler Bailly's Board of
Directors.
Date: _____________________________
_____________________________
_____________________________
Signature of Stockholder or
Authorized Representative
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary
should sign and indicate his or her full title. When stock has been issued
in the name of two or more persons, all should sign.
