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
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
- - - - - [ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or 14a-12
GILBERT ASSOCIATES, 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):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies:
Class B Common Stock
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(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: /1/
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] 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:
--------------------
(2) Form, schedule or registration statement no.:
--------------------
(3) Filing party:
--------------------
(4) Date filed:
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/1/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
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GILBERT ASSOCIATES, INC.
P.O. BOX 1498
READING, PENNSYLVANIA 19603
May 26, 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Gilbert Associates, Inc. (the "Company") to be held at the Company's Green Hills
Building, Morgantown Road, Green Hills, Pennsylvania 19607, on June 16, 1995, at
9:00 a.m., local time.
At the meeting, you will be asked to consider and vote on a proposal to
approve the sale by the Company of all of the stock of the Company's principal
subsidiary, Gilbert/Commonwealth, Inc., to The Parsons Corporation.
The Notice of Special Meeting of Stockholders and the Proxy Statement
accompanying this letter more fully describe the matters to be considered at the
Special Meeting. We urge you to read the enclosed materials carefully.
YOUR BOARD OF DIRECTORS HAS APPROVED THE SALE OF GILBERT/
COMMONWEALTH, INC. AND RECOMMENDS A VOTE "FOR" THE SALE.
Approval of the sale requires the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Class B Common Stock
entitled to vote thereon.
Whether or not you plan to attend the Special Meeting, we urge you to sign,
date and return the enclosed proxy card in the envelope provided so that as many
shares as possible may be represented at the meeting. The vote of each
stockholder is important and your cooperation in returning your executed proxy
card will be appreciated. Should you desire to attend the meeting and vote in
person, you may do so even though you have previously returned your proxy card.
I encourage you to review the enclosed proxy materials closely before voting.
Thank you.
Sincerely,
ALEXANDER F. SMITH
Chairman of the Board
<PAGE>
GILBERT ASSOCIATES, INC.
P.O. BOX 1498
READING, PENNSYLVANIA 19603
NOTICE OF SPECIAL MEETING OF HOLDERS OF CLASS B COMMON STOCK
TO BE HELD JUNE 16, 1995
Dear Stockholder:
Notice is hereby given that a Special Meeting of holders of Class B Common
Stock of GILBERT ASSOCIATES, INC. (the "Company") will be held at the Company's
Green Hills Building, Morgantown Road, Green Hills, Pennsylvania 19607, on June
16, 1995 at 9:00 a.m., local time:
1. To consider and vote upon a proposal to approve the Company's sale of
all of the stock of Gilbert/Commonwealth, Inc. to The Parsons Corporation
pursuant to the terms of a stock purchase agreement; and
2. For the transaction of such other business as may properly come
before the meeting or any adjournment or adjournments thereof.
Only holders of record of issued and outstanding shares of Class B Common
Stock of the Company at the close of business on May 1, 1995 are entitled to
notice of, and to vote at, the meeting. Such stockholders may vote in person or
by proxy. The stock transfer books of the Company will not be closed.
EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO SIGN, DATE
AND MAIL THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. THE PROXY IS
REVOCABLE AT ANY TIME BY A WRITTEN INSTRUMENT SIGNED IN THE SAME MANNER AS THE
PROXY AND RECEIVED BY THE SECRETARY OF THE COMPANY AT OR BEFORE THE MEETING. IF
YOU ATTEND THE MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR PROXY BY VOTING IN
PERSON.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSED SALE OF GILBERT/COMMONWEALTH.
By order of the Board of Directors
THOMAS F. HAFER
Secretary
Dated: Reading, Pennsylvania
May 26, 1995
<PAGE>
GILBERT ASSOCIATES, INC.
P.O. BOX 1498
READING, PENNSYLVANIA 19603
(610) 775-5900
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Gilbert Associates, Inc. (the "Company")
for use at a Special Meeting of holders of Class B Common Stock of the Company
to be held at the Company's Green Hills Building, Morgantown Road, Green Hills,
Pennsylvania 19607, at 9:00 a.m. on June 16, 1995, and at any adjournment or
adjournments thereof.
The purpose of the Special Meeting is to consider the Board's proposal to
approve the Company's sale (the "Sale") of all of the common stock of
Gilbert/Commonwealth, Inc. ("G/C"), a wholly owned subsidiary of the Company, to
The Parsons Corporation ("Parsons"), pursuant to the terms and conditions of a
Stock Purchase Agreement dated as of March 30, 1995 (the "Stock Purchase
Agreement"). Parsons has agreed to pay the Company a cash purchase price for the
G/C common stock (the "G/C Stock") of $46 million, subject to adjustment as
described herein. Parsons is a diversified international engineering and
construction company with approximately 9,500 employees and total assets of over
$580 million as of December 31, 1994.
BY UNANIMOUS VOTE, THE BOARD OF DIRECTORS HAS DETERMINED THAT THE SALE OF
G/C BY THE COMPANY TO PARSONS PURSUANT TO THE STOCK PURCHASE AGREEMENT IS FAIR
TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE SALE.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOU
ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY
REVOKING YOUR PROXY AT ANY TIME PRIOR TO THE VOTING THEREON.
The Proxy Statement and form of Proxy were first sent or given to Class B
stockholders on or about May 26, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROXY STATEMENT...................................................................... 1
SUMMARY.............................................................................. 3
QUORUM AND VOTING RIGHTS............................................................. 5
PROPOSED SALE OF GILBERT/COMMONWEALTH, INC........................................... 5
Background and Purposes...................................................... 5
Recommendation of the Board of Directors..................................... 7
Fairness Opinion............................................................. 8
Use of Proceeds.............................................................. 11
Tax and Regulatory Matters................................................... 11
Effect of Sale on Shareholdings of G/C Employees............................. 12
Pro Forma Unaudited Consolidated Financial Information....................... 13
THE STOCK PURCHASE AGREEMENT......................................................... 18
General...................................................................... 18
Closing...................................................................... 18
Purchase Price............................................................... 18
Items Excluded from Sale..................................................... 18
Representations and Warranties............................................... 19
Covenants.................................................................... 19
Lease........................................................................ 19
Employee Benefit Plans....................................................... 19
Conditions to Closing........................................................ 19
Termination or Amendment of Stock Purchase Agreement......................... 20
Expenses..................................................................... 20
Indemnification.............................................................. 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................... 21
SELECTED FINANCIAL INFORMATION OF GILBERT ASSOCIATES, INC. AND SUBSIDIARIES.......... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OF GILBERT ASSOCIATES, INC. AND SUBSIDIARIES....................................... 23
Three Months Ended March 31, 1995 and 1994................................... 23
Fiscal Years 1994, 1993 and 1992............................................. 24
CERTAIN INFORMATION ABOUT THE COMPANY................................................ 26
Professional Services........................................................ 26
Communication Equipment...................................................... 28
CERTAIN INFORMATION ABOUT PARSONS.................................................... 28
MARKET PRICES FOR THE COMMON STOCK................................................... 29
APPRAISAL RIGHTS..................................................................... 29
INDEPENDENT PUBLIC ACCOUNTANTS....................................................... 29
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... 30
STOCKHOLDER PROPOSALS................................................................ 30
OTHER MATTERS........................................................................ 30
FINANCIAL STATEMENTS................................................................. F-1
Report of Independent Accountants............................................ F-1
Audited Consolidated Financial Statements of the Company..................... F-2
Unaudited Consolidated Financial Statements of the Company for the first
quarter of 1995 and 1994..................................................... F-25
Unaudited Financial Statements of Gilbert/Commonwealth, Inc.................. F-29
Annex A: Stock Purchase Agreement
Annex B: Dillon, Read & Co., Inc. Fairness Opinion
</TABLE>
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. The summary is qualified in its entirety by reference
to the full text of this Proxy Statement, including the exhibits and documents
incorporated herein by reference.
<TABLE>
<S> <C>
General Information
Date, Time and Place of Special Meeting...... June 16, 1995 at 9:00 a.m., local time, at
the Company's Green Hills Building,
Morgantown Road, Green Hills, Pennsylvania
19607.
Purpose...................................... To consider and act upon a proposal to
approve the sale by the Company of the G/C
Stock to Parsons pursuant to the Stock
Purchase Agreement.
Record Date.................................. May 1, 1995.
Vote Required................................ The affirmative vote of a majority of the
outstanding shares of the Company's Class B
Common Stock.
Parsons...................................... Parsons is a diversified international
engineering and construction company with
over $580 million in assets and
approximately 9,500 employees as of
December 31, 1994. See "Certain Information
About Parsons" below.
Ownership.................................... The Company's executive officers and
directors own 174,860 shares (or 13.12%) of
the total shares of Class B Common Stock
outstanding as of May 1, 1995, and have
indicated that they will vote their shares
in favor of the Sale.
Recommendation............................... By unanimous vote, the Board of Directors of
the Company has determined that the Sale is
fair to and in the best interests of the
Company's stockholders. The Board
recommends that stockholders vote to
approve the Sale.
The Sale of G/C
Terms; Price................................. Parsons will acquire all of the G/C Stock
(but will not purchase certain excluded
assets and liabilities), and will guarantee
G/C's obligations under a ten year lease to
be entered into with Green Hills Management
for 200,000 square feet of office space.
The purchase price is $46,000,000 in cash,
subject to adjustment. See "The Stock
Purchase Agreement--Purchase Price."
Conditions to the Sale....................... The closing of the Sale is subject to certain
conditions, including the approval of the
Sale by a majority of the Company's Class B
stockholders at the Special Meeting. See
"Stock Purchase Agreement--Conditions to
Closing."
Closing Date of the Sale..................... Subject to the terms and conditions of the
Stock Purchase Agreement, the closing date of
the Sale is expected to occur promptly
after the date of the Special Meeting.
</TABLE>
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<TABLE>
<S> <C>
Effect of Sale on Shareholdings
of G/C Employees........................... Under the Company's Certificate of
Incorporation, the Class B (voting) Common
Stock may only be held by directors or
"active employees" of the Company or a
subsidiary of the Company, or trusts for
the benefit of active employees. Following
the Sale, G/C will cease to be a subsidiary
of the Company. Consequently, shares of
Class B Common Stock of the Company owned
by G/C employees will then automatically
convert into shares of Class A (non-voting)
Common Stock. See "Proposed Sale of
Gilbert/Commonwealth, Inc.--Effect of Sale
on Shareholdings of G/C Employees." The
percentage interests in the Company's Class
B Stock of the Company's remaining
directors, officers and employees will
accordingly increase. See "Security
Ownership of Certain Beneficial Owners and
Management."
Termination of the Sale...................... The Stock Purchase Agreement may be
terminated by mutual written consent of the
Company and Parsons and in other specific
circumstances. See "The Stock Purchase
Agreement--Termination or Amendment."
</TABLE>
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QUORUM AND VOTING RIGHTS
Only holders of record at the close of business on May 1, 1995 of the
outstanding shares of the Company's Class B Common Stock are entitled to vote at
the Special Meeting. Only directors and "active employees" of the Company and of
its subsidiaries in which it owns, directly or indirectly, 100% of the voting
shares, and certain trusts for the benefit of such employees, are entitled to
hold Class B Common Stock. (On May 1, 1995, there were outstanding 1,290,269
shares of the Company's Class B Common Stock.) Such eligible stockholders are
entitled to cast one vote for each share held of record. In addition, there were
outstanding on such date 5,669,369 shares of the Company's Class A Common Stock,
excluding treasury shares. Holders of Class A Common Stock are not eligible to
vote at the Special Meeting.
If the enclosed Proxy is appropriately marked, signed and returned in time
to be voted at the Special Meeting, the shares represented by the Proxy will be
voted in accordance with the instructions marked thereon. Signed Proxies not
marked to the contrary will be voted (i) for the proposal to approve the Sale
and (ii) as the proxy holders may in their discretion determine, on any other
matter which may properly come before the Special Meeting or any adjournment or
adjournments thereof.
The Delaware General Corporation Law ("DGCL"), under which the Company is
incorporated, requires that the Sale of the G/C Stock be approved by the holders
of a majority of the outstanding shares of Class B Common Stock entitled to vote
at the Special Meeting. Since the affirmative vote of a majority of the
outstanding shares of Class B Common Stock is required for approval of the Sale,
abstentions, broker non-votes and withheld votes will have the effect of a
negative vote.
Dissenter's rights of appraisal are not available under the DGCL to Class B
stockholders of the Company with respect to the Sale of the G/C Stock to
Parsons. In addition, stockholders voting in favor of the Sale may be precluded
from later seeking redress against the Company under the DGCL with respect to
the Sale, and the Company intends to assert that a stockholder's vote for,
abstention or signed proxy with no choice indicated would preclude such
stockholder from seeking redress against the Company in such cases.
PROPOSED SALE OF GILBERT/COMMONWEALTH, INC.
BACKGROUND AND PURPOSES
General. The Company is engaged in the business of providing professional
services and the manufacture and sale of communication equipment. The Company
has six main operating subsidiaries which include G/C, United Energy Services
Corporation, Resource Consultants, Inc., SRA Technologies, Inc., GAI-Tronics
Corporation and Green Hills Management Company. See "Certain Information about
the Company" below.
The Company's largest subsidiary, G/C, based in Reading, Pennsylvania,
provides a wide range of engineering services, including electrical, mechanical,
structural and nuclear engineering, construction management and procurement,
primarily to the power generating industry. G/C's major services are the design,
engineering and supervision of the construction of electric power generating
stations and electric transmission and distribution systems as well as upgrading
and retrofitting existing power plants. G/C itself does not construct power
plants. It also renders services to industrial clients and various governmental
agencies.
Over the last several years, the engineering and consulting market within
the electric power industry has changed dramatically. These changes stem from
several reasons including deregulation of the electric utility industry, demand
side management programs, and excess generating capacity which has led to a
substantial decline in utility construction of large base load generating
plants. With the shrinking market for these services, competition has become
more intense. Compounding this situation
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is that an increasing number of engineering contracts are for fixed price,
"turnkey" type projects which carry greater risks and require larger financial
resources and capabilities. The interplay of these factors has had an adverse
impact on G/C's business and future prospects, as evidenced by the fact that
revenue and profitability levels have steadily declined over the last several
years. For example, in 1985 G/C's gross revenues exceeded $175,000,000; in 1994,
however, revenues had declined by 36% to $111,862,000. Moreover, the Company
anticipates that these trends will continue. The Company believes that financial
and other resources considerably greater than G/C now possesses will be needed
to successfully compete in the coming years.
While the U.S. domestic power industry has been suffering from the effects
of deregulation and over capacity, the international power market has been
expanding and is anticipated to be an area of greater growth in the future,
particularly for turnkey projects. The Company believes that G/C does not have a
significant foreign presence or the financial resources and capabilities to
compete successfully in this marketplace.
The Sale of G/C to Parsons. In light of these and other factors, the
Company's Board of Directors has from time to time reviewed the Company's
long-term corporate strategy. As part of this effort, on October 6, 1994, the
Company retained Dillon, Read & Co. Inc. ("Dillon Read") as its financial
advisor to assist the Company in analyzing alternative business strategies,
including potential acquisitions, joint ventures and divestments, designed to
enhance stockholder value.
In October 1994, the Board determined that it was unlikely that the
Company's financial and business objectives of expanding G/C's business and
maintaining competitive operating subsidiaries, without excessive additional
investment, could be achieved through an acquisition or joint venture. In
particular, the Board believed that the Company did not possess the financial
resources which would be required to enable G/C to expand its operations--either
through acquisitions or joint ventures, or direct capital contributions--to
compete effectively, including by assuming the greater financial risks in fixed
priced, turnkey contracts. While the Board recognized that divesting G/C would
substantially change the Company's business, it ultimately concluded that it
would not be in the Company's interest to continue to operate G/C in the face of
a declining market and revenues. Rather, the Board believed that the Company
should concentrate its efforts and resources on expanding its communications
subsidiaries, which have generally been profitable since they were acquired,
including through internal growth, further acquisitions and joint ventures.
Accordingly, the Board decided that it would be consistent with the Company's
objectives and in the best interests of stockholders for management, with the
assistance of Dillon Read, to investigate possible divestment opportunities. The
Company therefore solicited indications of interest to purchase G/C from a
limited number of prospective purchasers who management, with the advice of
Dillon Read, had determined would likely be interested in such an opportunity
(the "Limited Auction"). In January 1995, Parsons preliminarily expressed an
interest in acquiring G/C for $46 million, and on January 23, 1995 Dillon Read
advised the Company that based upon the terms of the offer by Parsons as
outlined to them, upon the Company's request Dillon Read was prepared to render
an opinion as to the fairness to the stockholders from a financial point of view
of the consideration to be received from Parsons under the Parsons' offer.
On March 1, 1995, the Company's Board held a special meeting to review with
senior management the status of the ongoing discussions and negotiations with
Parsons. At that time, the Board was also informed that Parsons was expected to
make a formal offer to purchase the G/C Stock for $46 million. Following further
discussion, the Board unanimously adopted resolutions authorizing management to
accept Parsons' offer and carry out the sale. On March 6, 1995, Dillon Read
again advised the Company that based upon the terms of the offer by Parsons as
outlined to them, upon the Company's request Dillon Read was prepared to render
an opinion as to the fairness to the stockholders from a financial point of view
of the consideration to be received under the Parsons' offer. On March 10, 1995,
the Board unanimously adopted resolutions determining that the sale of G/C to
Parsons is in the best interests of the stockholders of the Company and
represents the best value available under the
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circumstances to the Company's stockholders; authorizing the execution and
delivery of a stock purchase agreement; and recommending that the Class B
stockholders approve the sale of G/C to Parsons pursuant to that stock purchase
agreement.
On March 30, 1995, the Company and Parsons entered into the Stock Purchase
Agreement, which sets forth the definitive terms and conditions of the Sale. On
April 5, 1995, the Company requested from Dillon Read and Dillon Read provided
an oral opinion (confirmed in writing on April 10, 1995) that the consideration
to be received by the Company from Parsons for the Sale of the G/C Stock is fair
to the stockholders from a financial point of view (the "Dillon Read Opinion").
Impact of Sale on the Company; the Company's Operations Following the
Sale. As illustrated below under Pro Forma Unaudited Consolidated Financial
Information, the Sale of G/C, which has been the Company's principal subsidiary
for many years, will significantly impact the Company. In 1994, G/C accounted
for approximately $110 million in revenues, or 40% of the Company's total
revenues. And at December 30, 1994, G/C accounted for approximately $25 million,
or 17%, of consolidated assets excluding subsidiaries not included in the Sale.
Thus, the Company will be a considerably smaller Company with lower revenues,
and against which to allocate corporate overhead. The Company believes that this
loss of revenues will be mitigated somewhat by the $3,000,000 in annual revenues
under the lease to be executed by G/C, future reductions in corporate overhead,
and, potentially, revenues associated with any future acquisition or, in the
interim, earnings on the purchase price payable by Parsons for the G/C Stock.
The Sale of G/C will also result in a loss of synergy with United Energy
Services, a wholly-owned subsidiary of the Company which provides operations and
engineering consulting services primarily to the nuclear power market. In
addition, the Company will not be positioned to benefit from any future recovery
of the construction and service business in the domestic power industry.
The employees of G/C owned an aggregate of 783,208 shares of the 1,209,269
total outstanding shares of the Company's Class B (voting) Stock as of May 1,
1995. As a result of the Sale, all of these shares will either be automatically
converted into Class A (non-voting) Stock or, at the option of the stockholder,
repurchased by the Company. These transactions will have several effects. First,
the percentage voting interest of Class B shares held by the executive officers
of the Company will increase from 13.1% to 31.8%. In addition, the net proceeds
from the purchase price payable by Parsons for the G/C Stock which will be
available to the Company for future acquisitions and other general corporate
purposes will be reduced to the extent G/C employees elect to receive cash in
lieu of Class A shares. See Note H to the Pro Forma Unaudited Financial
Statements below.
Following the Sale of G/C, the Company's primary future focus will be in the
manufacture and sale of communication equipment and in professional service
firms which complement the Company's existing professional service businesses.
While the Company is actively seeking acquisitions and joint venture
opportunities, it has not identified any specific prospects, and there can be no
assurances that the Company will succeed in identifying any such opportunities
or that any acquisitions or joint ventures will be successful. In addition,
while the Company currently intends to focus on the communications and
professional service industries, the Company may effect an acquisition in other
industries if the Board determines that it is in the interest of the Company and
stockholders to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors has unanimously determined that the Sale is
fair to and in the best interests of the Company's stockholders, and recommends
that the Class B stockholders approve the Sale.
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In determining to accept Parsons' offer and to recommend that the Class B
stockholders approve the sale of G/C, the Board considered a number of factors,
including the following:
(i) The Board's understanding of the options available to the Company in
light of the market for G/C's traditional engineering, design and services
business, which options included, in lieu of divesting G/C, (i)
significantly expanding the resources of G/C through acquisitions, joint
ventures or capital infusions, in order to enhance G/C's competitiveness, or
(ii) continuing to operate G/C in substantially the same manner. For the
reasons discussed above under "The Sale of G/C to Parsons", the Board
rejected these alternatives;
(ii) The Board's review of presentations from, and discussion of the
terms and conditions of the Sale with, senior executive officers of the
Company;
(iii) The Board's consideration of, among other things, information with
respect to the financial condition, results of operations and business of
the Company and G/C, on both an historical and a prospective basis;
(iv) The fact that only one other formal offer to purchase G/C was
received by the Company after the agreement in principle with Parsons was
signed and that that offer was in any case inferior to the Parsons offer
with respect to price and other material terms;
(v) The Board's understanding that Dillon Read would be prepared to
render an opinion as to the fairness to the stockholders from a financial
point of view of the consideration to be received by the Company under the
Parsons' offer; and
(vi) The willingness by Parsons to maintain a substantial G/C presence
in Reading as evidenced by its agreement to guarantee G/C's obligations
under a long term lease with the Company's Green Hills Management subsidiary
for 200,000 square feet of office space.
The Board did not assign relative weights to the factors discussed above.
FAIRNESS OPINION
On January 23, 1995 and March 6, 1995, Dillon Read advised the Company that
based upon the terms of the Parsons' offer as outlined to them, upon the
Company's request Dillon Read was prepared to render an opinion as to the
fairness to the stockholders from a financial point of view of the consideration
to be received by the Company from Parsons under the Parsons' offer. On April 5,
1995, the Company requested from Dillon Read and Dillon Read provided the Dillon
Read Opinion (confirmed in writing on April 10, 1995) that the consideration to
be received by the Company from Parsons for the Sale of the G/C Stock is fair to
the stockholders from a financial point of view. The full text of the Dillon
Read Opinion is attached hereto as Annex B and stockholders are encouraged to
read it in its entirety for information with respect to the procedures followed,
assumptions made and matters considered by Dillon Read in arriving at its
opinion. In rendering the Dillon Read Opinion, Dillon Read did not render any
opinion as to the value of the Company, express a view as to the range of values
at which the Class A Common Stock may trade following consummation of the Sale
nor make any recommendation to stockholders with respect to the advisability of
disposing or retaining shares held in the Company. The opinion does not address
the fairness of the Sale to the stockholders in any capacity, including without
limitation, as employees, other than as holders of common stock. In addition,
the Dillon Read Opinion does not constitute a recommendation regarding whether
or not it is advisable for Class B stockholders to vote in favor of the Sale.
In arriving at its opinion, Dillon Read, among other things, (i) reviewed
the Stock Purchase Agreement and exhibits thereto, (ii) reviewed a draft of the
Proxy Statement, (iii) reviewed certain publicly available business and
financial information relating to the Company, (iv) reviewed the reported price
and trading activity for the common stock, (v) reviewed certain internal
financial
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information and other data provided by the Company relating to the business and
prospects of G/C, including financial projections prepared by management of the
Company and G/C, (vi) conducted discussions with members of senior management of
the Company and G/C, (vii) reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which Dillon Read considered
relevant, (viii) reviewed publicly available financial and securities market
data pertaining to publicly held companies in lines of business Dillon Read
believed to be similar to those of G/C, (ix) considered the results of the
Limited Auction of G/C conducted at the Company's request by Dillon Read and (x)
conducted such other financial studies, analyses and investigations, and
considered such other information, as Dillon Read deemed necessary or
appropriate.
In connection with its review, Dillon Read did not assume any responsibility
for independent verification of any of the foregoing information and relied on
its being complete and accurate in all material respects. In addition, Dillon
Read did not make any independent evaluation or appraisal of any of the assets
or liabilities (contingent or otherwise) of the Company or any of its
subsidiaries nor was Dillon Read furnished with any such evaluation or
appraisal. Dillon Read assumed that all of the information, including the
projections, provided to them by the Company's management was prepared in good
faith and was reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of G/C, and was based upon the historical performance of
G/C and certain estimates and assumptions which were reasonable at the time
made. Further, the Dillon Read Opinion is based on economic, monetary and market
conditions as they existed and could be evaluated at the time.
In rendering its opinion, Dillon Read considered a variety of valuation
methods which are summarized below:
Public Company Analysis. Using publicly available information, Dillon Read
compared, based upon market trading values at the time, multiples of certain
financial criteria of G/C to certain other companies in the engineering and/or
engineering consulting businesses that were comparable to G/C for purposes of
this analysis. The group of companies used in the comparison consisted of Dames
& Moore, Inc., The Failure Group, Inc., Fluor Corp., Foster Wheeler Corporation,
Jacobs Engineering Group, Inc., Morrison Knudsen Corp., Stone & Webster
Incorporated, Tenera Corp. and Vectra Corp. (collectively, the "Comparison
Companies").
Dillon Read analyzed the unlevered market value (equity market value plus
debt, minus cash) of the Comparison Companies as multiples of revenues,
operating income, and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the latest twelve month period ("LTM"), and the
equity market value of the Comparison Companies as multiples of LTM net income
and latest fiscal quarter ("LFQ") ended book value.
An analysis of unlevered market value to LTM revenues yielded ranges of
0.23x to 0.91x with a mean of 0.47 for the Comparison Companies, which compares
with an implied ratio of 0.41x for the proposed Sale based on the purchase price
of $46 million.
An analysis of the unlevered market value to LTM EBITDA yield ranges of 5.6x
to 10.7x with a mean of 8.3x for the Comparison Companies, which compares with
an implied ratio of 6.0x for the proposed Sale based on the purchase price of
$46 million.
An analysis of the unlevered market value to LTM operating income yielded
ranges of 6.8x to 23.6x, with a mean of 13.5x for the Comparison Companies,
which compares with an implied ratio of 7.9x for the proposed Sale based on the
purchase price of $46 million.
An analysis of the equity market value to LTM net income yielded ranges of
14.5x to 26.0x, with a mean of 20.0x for the Comparison Companies, which
compares with an implied ratio of 13.1x for the proposed Sale based on the
purchase price of $46 million.
9
<PAGE>
An analysis of the equity market value to LFQ book value yielded ranges of
0.76x to 3.32x, with a mean ratio of 1.72x for the Comparison Companies, which
compares with an implied ratio of 3.71x for the proposed Sale based on the
purchase price of $46 million.
Dillon Read believes that these multiples, in the aggregate, supported
Dillon Read's view that the consideration to be received by the Company is fair,
from a financial point of view, to the stockholders because, taken as a whole,
the implied ratios were within the range of selected multiples of the Comparison
Companies.
Discounted Cash Flow Analysis. Dillon Read performed a discounted cash flow
evaluation of G/C based upon three sets of projections furnished by the
management of the Company and G/C; an upside, mid-range, and downside case.
Utilizing these projections, Dillon Read discounted to present value, under
varying assumed discount rates, estimated future unlevered cash flows. Such
analysis indicated that assuming terminal value multiples ranging from 6.0x to
8.0x EBITDA and discount rates ranging from 14% to 15%, the net present value of
G/C's unlevered future after-tax cash flows ranged from $65.0 million to $85.3
million in the upside case, $40.8 million to $52.3 million in the mid-range
case, and $31.3 million to $39.7 million in the downside case. Dillon Read
believes that the discounted cash flow analysis supported Dillon Read's opinion
that the consideration to be received by the Company is fair, from a financial
point of view, to the stockholders because the purchase price for G/C was within
the range of present values, considered as a whole, of G/C's future cash flows.
Acquisition Analysis. Using publicly available information, Dillon Read
compared, based upon the total transaction values price multiples of certain
financial criteria of G/C to certain completed acquisitions which Dillon Read
deemed relevant. The acquisitions which were analyzed included eight
transactions: Raytheon Corp.'s acquisition of EBASCO Services, Inc., Jacobs
Engineering Group Inc.'s acquisition of CRS Sirrine Engineers, Pacific Nuclear
Systems' acquisition of certain assets of ABB Impell, Thermo Electron Corp.'s
acquisitions of Coleman Research Corp., Odgen Corp.'s acquisition of ERC
International Inc., Hadson Corp.'s acquisition of UltraSystems, Incorporated,
R-C Holding Co.'s acquisition of Research Cottrell, Inc., and Raytheon Company's
acquisition of Stearns Catalytic World.
For these acquisitions, Dillon Read analyzed the adjusted aggregate purchase
price (equity value plus debt less cash, where available) of the acquired
company as multiples of the acquired company's LTM revenues, operating income,
and EBITDA, and the aggregate purchase price of the acquired company as
multiples of the acquired company's LTM net income and LFQ book value.
Based upon the analysis of these transactions, the multiples of adjusted
purchase price LTM revenues yielded ranges of 0.22x to 1.11x with a mean of
0.60x, which compares with an implied ratio of 0.41x for the proposed Sale based
on the purchase price of $46 million.
An analysis of the unlevered market value to LTM EBITDA yielded ranges of
3.3x to 10.3x with a mean of 8.0x for these transactions, which compares with an
implied ratio of 6.0x for the proposed Sale based on the purchase price of $46
million.
An analysis of the unlevered market value to LTM operating income yielded
ranges of 3.8x to 24.0x, with a mean of 12.4x for these transactions, which
compares with an implied ratio of 7.9x for the proposed Sale based on the
purchase price of $46 million.
An analysis of the equity market value to LTM net income yielded ranges of
12.3x to 38.6x, with a mean of 23.7x for these transactions, which compares with
an implied ratio of 13.1x for the Sale based on the purchase price of $46
million.
An analysis of the equity market value to LFQ book value yielded ranges of
1.00x to 2.20x, with a mean ratio of 1.53x for these transactions, which
compares with an implied ratio of 3.71x for the proposed Sale based on the
purchase price of $46 million.
10
<PAGE>
Dillon Read believes that these multiples supported Dillon Read's view that
the consideration to be received by the Company is fair, from a financial point
of view, to the stockholders because the ratios described above, based upon the
purchase price of G/C, equalled or exceeded the ranges of selected acquisition
multiples.
Dillon Read believes that its analyses must be considered as a whole and
that selecting portions of its analyses and other factors considered by it,
without considering all factors and analyses, could create a misleading or
incomplete view of the valuation process underlying the Dillon Read Opinion.
Dillon Read did not quantify the effect of each factor upon its valuation.
Dillon Read made numerous assumptions with respect to G/C's historical financial
performance, industry performance, general business and economic conditions and
the other matters discussed herein, many of which are beyond the Company's and
Dillon Read's control. Any assumed estimates contained in Dillon Read's analyses
are not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth herein. Such estimates of the financial
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies actually may be sold.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The Board selected Dillon Read on the basis of the
firm's expertise and reputation.
Pursuant to the terms of an engagement letter dated October 6, 1994, Dillon
Read has acted as exclusive financial advisor to the Company in the Sale. To
date, Dillon Read has been paid fees of $75,000. Dillon Read will also receive a
fee of $657,500 upon the consummation of the Sale. Pursuant to a letter
agreement dated April 5, 1995, Dillon Read will receive a fee of $300,000 for
services rendered in connection with providing the Dillon Read Opinion. The
Company has also agreed to indemnify Dillon Read and its officers, directors,
employees, agents and controlling persons against certain liabilities arising in
connection with its engagement. In the ordinary course of its business, Dillon
Read may trade the securities of the Company for its own account and for the
account of its customers, and accordingly, may at any time hold a long or short
position in such securities.
USE OF PROCEEDS
The Sale is expected to result in net proceeds (after giving effect to taxes
and transaction expenses) to the Company of approximately $38,494,000, although
the adjustments to the purchase price at closing could increase or decrease this
amount. The Company will use a portion of the Sale proceeds to repurchase shares
of its Class A and Class B Common Stock, including shares held by G/C employees
who are participants in the Company's Stock Purchase Program and make the
election referred to below under "Effect of Sale on Shareholdings of G/C
Employees." As previously announced, on March 10, 1995, the Board authorized the
repurchase of up to $15 million of its Class A and B Common Stock in open market
transactions and directly from employees. The repurchase program supersedes the
Company's existing $6 million stock repurchase program. The balance of the Sale
proceeds will be used by the Company for general corporate purposes, including
future acquisitions or joint ventures. While the Company is actively seeking
acquisitions and joint venture opportunities, it has not yet identified any
specific prospects.
TAX AND REGULATORY MATTERS
The Sale of the G/C Stock will have no federal income tax consequences for
holders of Class A or Class B Common Stock.
11
<PAGE>
The Company and Parsons will elect, under Section 338(h)(10) of the Internal
Revenue Code, to treat the Sale of the G/C Stock as a sale of assets of G/C and
certain of its subsidiaries for federal tax purposes. The Company anticipates
that the Sale will result in a significant gain for tax purposes, which will be
treated principally as a long-term capital gain, a portion of which may be
offset by an existing capital loss carryover. The Company will be responsible
for any such tax liability resulting from the Sale. The agreement of the Company
and Parsons to make the Section 338(h)(10) election was a negotiated term of the
transaction. The election will enable Parsons to obtain a "stepped-up" basis in
the assets of G/C. The election will not have a material impact on the Company's
tax liability and will not increase the amount of capital gain which the Company
would otherwise recognize on the sale of G/C.
The Sale will be treated as a sale of assets and liabilities for accounting
purposes. As a result, a gain will be recognized in the statement of operations,
and the related balance sheet accounts will be removed from the Company's
consolidated balance sheet. See "Pro Forma Unaudited Consolidated Financial
Information."
The Company and Parsons have jointly filed with the Federal Trade Commission
and the United States Department of Justice the notification required by the
Hart-Scott-Rodino Anti-trust Improvements Act. The "waiting period" under that
Act during which the Sale may not be consummated while the Federal Trade
Commission and Department of Justice consider the applicability of the antitrust
laws to the Sale has been terminated.
EFFECT OF SALE ON SHAREHOLDINGS OF G/C EMPLOYEES
As described above, the Company has two classes of Common Stock--Class A
Common Stock, which is publicly traded on the NASDAQ National Market System, but
which is non-voting, and Class B Common Stock, which is voting stock but which
is not publicly traded. Under the Company's Certificate of Incorporation, only
directors of the Company, "active employees" of the Company, or any of its
subsidiaries, and certain trusts for the benefit of employees, are entitled to
hold Class B Common Stock. With respect to Class B Common Stock held under the
Retirement Savings Plan of Gilbert Associates, Inc. ("RSP") and the Stock
Purchase Program for Employees of Gilbert Associates, Inc. and its Subsidiaries
("SPP"), the trustee of the RSP and SPP, respectively, will vote in accordance
with instructions received from each participant who has Class B Common Stock
allocated to his account, as required by the terms of those plans. The Class B
Common Stock owned by participants who do not provide voting instructions will
be voted by the trustee in the same proportion as those shares voted by the
trustee in accordance with the direction of the plan participants.
Following the Sale of the G/C Stock to Parsons, G/C and its subsidiaries
(except for Excluded Subsidiaries, as defined below) will cease to be
subsidiaries of the Company and, therefore, the Class B Common Stock owned by
employees of G/C or those subsidiaries will automatically convert into shares of
Class A Common Stock. However, the Company is providing G/C employees who are
participants in the SPP the opportunity to elect, at any time prior to the
closing of the Sale, but contingent on the closing, to receive a cash
distribution from the SPP following the closing in lieu of shares of Class A
Common Stock which they would otherwise receive under the SPP. (Stockholders who
make such election prior to the date of the Special Meeting will not forfeit
their right to vote their Class B shares at the Special Meeting.) The amount of
cash to be distributed will be determined based on the average closing prices
reported for Class A Common Stock on the NASDAQ National Market System for the
five trading days preceding the election date. If requested by G/C employees at
any time prior to the closing of the Sale (and in accordance with the Company's
past practice of repurchasing Class B shares from any of its employees when
requested), the Company will also repurchase their shares of Class B Common
Stock owned otherwise than through the SPP, on the same terms as described
above. Under the Company's Certificate of Incorporation, all shares of Class B
Common Stock held by G/C employees who do not elect to receive a cash
distribution under the SPP will automatically be converted
12
<PAGE>
into shares of Class A Common Stock following the Sale. At May 1, 1995,
employees of G/C owned an aggregate of 783,208 shares of Class B Common Stock,
of which 576,613 shares were held for their account in the SPP.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Unaudited Consolidated Statements of Operations for
the year ended December 30, 1994 and the three months ended March 31, 1995 and
Pro Forma Unaudited Consolidated Balance Sheet as of March 31, 1995 are
presented to give effect to the Sale of G/C. Pro Forma adjustments made for the
Pro Forma Unaudited Consolidated Statements of Operations assume the Sale was
consummated on January 1, 1994 and December 31, 1994, respectively, and the Pro
Forma Unaudited Consolidated Balance Sheet assumes the Sale was consummated on
March 31, 1995. No pro forma adjustments have been made to reflect any interest
income that may be earned on the $38,494,000 in estimated net proceeds received
on the Sale or to reflect potential resulting reductions in corporate overhead
expenses.
The pro forma financial information does not purport to be indicative of the
results which would actually have been obtained had the Sale been completed as
of the date and for the period presented or which may be obtained in the future.
Consolidated historical financial data used to prepare the pro forma
unaudited consolidated financial statements were derived from the audited
financial statements for the year ended December 30, 1994 and the unaudited
financial statements for the three month period ended March 31, 1995, and
attached to this Proxy Statement as pages F-1 to F-28. The pro forma financial
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" below.
13
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1994
<TABLE>
<CAPTION>
CONSOLIDATED PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Revenue:
Professional services revenue............ $229,887,000 $(109,741,000)(A) $123,843,000
3,697,000 (B)
Communication equipment sales............ 46,045,000 46,045,000
Other income............................. 6,563,000 (2,121,000)(A) 7,442,000
3,000,000 (C)
------------ ------------- ------------
282,495,000 (105,165,000) 177,330,000
------------ ------------- ------------
Costs and expenses:
Professional services costs.............. 179,216,000 (79,173,000)(A) 103,740,000
3,697,000 (B)
Communication equipment costs............ 31,215,000 31,215,000
Selling, general and administrative
expenses............................... 76,116,000 (27,211,000)(A) 52,130,000
3,225,000 (B)
Depreciation and amortization............ 6,922,000 (1,898,000)(A) 5,024,000
Interest expense......................... 186,000 186,000
------------ ------------- ------------
293,655,000 (101,360,000) 192,295,000
------------ ------------- ------------
Loss before provision for taxes on loss.... (11,160,000) (3,805,000) (14,965,000)
Provision for taxes on loss................ 460,000 (1,636,000)(D) (1,176,000)
------------ ------------- ------------
Net Loss................................... $(11,620,000) $ (2,169,000) $(13,789,000)
------------ ------------- ------------
------------ ------------- ------------
Net loss per average number of Class A and
Class B shares outstanding............... $ (1.66) $ (0.31) $ (1.97)
------------ ------------- ------------
------------ ------------- ------------
Average shares outstanding................. 7,002,834 7,002,834 7,002,834
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
14
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
CONSOLIDATED PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Professional service revenue................. $ 50,636,000 $(23,264,000)(A) $ 28,040,000
668,000 (B)
Communication equipment sales................ 11,849,000 11,849,000
Other income................................. 2,099,000 (862,000)(A) 1,987,000
750,000 (C)
0
------------ ------------ ------------
64,584,000 (22,708,000) 41,876,000
------------ ------------ ------------
Costs & expenses:
Professional service costs................... 39,488,000 (16,510,000)(A) 23,646,000
668,000 (B)
Communication equipment costs................ 7,722,000 7,722,000
Selling, general and administrative
expenses................................... 13,703,000 (6,193,000)(A) 8,003,000
493,000 (B)
Depreciation and amortization................ 1,606,000 (426,000)(A) 1,180,000
Interest expenses............................ 46,000 46,000
------------ ------------ ------------
62,565,000 (21,968,000) 40,597,000
------------ ------------ ------------
Income (loss) before provision for taxes on
income....................................... 2,019,000 (740,000) 1,279,000
Provision for taxes on income.................. 885,000 (324,000)(D) 561,000
------------ ------------ ------------
Net Income(loss)............................... $ 1,134,000 $ (416,000) $ 718,000
------------ ------------ ------------
------------ ------------ ------------
Net income(loss) per average number of Class A
and Class B shares outstanding............... $ 0.16 $ (0.06) $ 0.10
------------ ------------ ------------
------------ ------------ ------------
Average shares outstanding..................... $ 6,956,124 $ 6,956,124 $ 6,956,124
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
15
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
CONSOLIDATED PRO FORMA CONSOLIDATED
CONSOLIDATED HISTORICAL ADJUSTMENTS PRO FORMA
- ----------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents...................... $ 5,305,000 $ 38,494,000 (E) $ 43,799,000
Accounts receivable.......................... 32,508,000 (10,901,000)(F) 21,607,000
Allowance for doubtful accounts.............. (2,603,000) 900,000 (F) (1,703,000)
Unbilled revenue............................. 21,604,000 (9,577,000)(F) 12,027,000
Inventories.................................. 6,846,000 0 6,846,000
Deferred income taxes........................ 4,420,000 (1,435,000)(F) 2,985,000
Other current assets......................... 5,731,000 (1,172,000)(F) 4,559,000
------------ ------------ ------------
Total current assets......................... 73,811,000 16,309,000 90,120,000
------------ ------------ ------------
Property, plant and equipment at cost:
Land......................................... 3,693,000 0 3,693,000
Buildings.................................... 43,081,000 0 43,081,000
Furniture & equipment........................ 36,416,000 (14,024,000)(F) 22,392,000
------------ ------------ ------------
83,190,000 (14,024,000) 69,166,000
Less accumulated depreciation and
amortization................................... 41,281,000 (9,127,000)(F) 32,154,000
------------ ------------ ------------
41,909,000 (4,897,000)(F) 37,012,000
Deferred income taxes.......................... 1,610,000 (630,000)(F) 980,000
Other assets................................... 2,607,000 0 2,607,000
Goodwill....................................... 23,254,000 0 23,254,000
------------ ------------ ------------
Total Assets................................... $143,191,000 $ 10,782,000 $153,973,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES
Current liabilities:
Note payable................................. $ 0 $ $ 0
Accounts payable............................. 4,246,000 (1,777,000)(F) 2,469,000
Salaries and wages........................... 8,361,000 (3,400,000)(F) 4,961,000
Income taxes, current payable................ 2,212,000 (315,000)(F) 1,897,000
Estimated liability for contract losses...... 3,716,000 3,716,000
Other accrued liabilities.................... 10,762,000 10,762,000
Contractual billings in excess of recognized
revenue.................................... 1,859,000 (1,374,000)(F) 485,000
------------ ------------ ------------
Total current liabilities.................... 31,156,000 (6,866,000) 24,290,000
------------ ------------ ------------
Long-term debt................................. 842,000 842,000
Other long-term liabilities.................... 6,597,000 6,597,000
Self-insured retention......................... 5,481,000 (2,500,000)(F) 2,981,000
Commitment and contingencies................... 0 0
STOCKHOLDERS' EQUITY
Capital stock:
Class A common stock, nonvoting, par value $1
per share Issued: 1995, 7,706,048 shares... 7,706,000 7,706,000
Class B common stock, voting, par value $1
per share Issued and outstanding: 1995,
1,279,252 shares........................... 1,279,000 1,279,000
Capital in excess of par value................. 38,673,000 38,673,000
Retained earnings.............................. 83,598,000 20,148,000 (G) 103,746,000
Class A common stock held in treasury, at cost:
1995, 2,034,571 shares..................... (32,141,000) (32,141,000)
------------ ------------ ------------
99,115,000 20,148,000 119,263,000
------------ ------------ ------------
Total liabilities and Stockholders' Equity..... $143,191,000 $ 10,782,000 $153,973,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
16
<PAGE>
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(A) To reflect the removal of G/C's operations.
(B) To reflect the restoration of amounts eliminated in consolidation
prior to Sale.
(C) To reflect rental income under long-term lease of office space. See
"Stock Purchase Agreement--Lease."
(D) To reflect the tax benefit associated with the aforementioned pro
forma adjustments.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
(E) To reflect cash proceeds of Sale, net of transaction expenses and
income taxes.
(F) To reflect the removal of account balances as a result of the Sale.
(G) To recognize the net gain on Sale.
OTHER NOTES
(H) Of the 783,208 shares of Class B Common Stock held by employees of
G/C at May 1, 1995, 576,613 shares are held for their account in the
Company's Stock Purchase Program. As described under "Proposed Sale
of Gilbert Commonwealth, Inc.--Effect of Sale on Shareholdings of G/C
Employees," the Company has offered to repurchase these 576,613 Class
B shares, and, if requested by G/C employees, will also repurchase on
the same terms their Class B shares held otherwise than through the
SPP. If G/C employees tender all such 783,208 shares, the Company
will expend approximately $10,181,704 which is based upon a closing
share price of $13 on the NASDAQ National Market System as of May 4,
1995. (All Class B shares held by G/C employees which are not
repurchased by the Company will convert to Class A shares at the
Closing.) As a result of the repurchase, the Company's average Class
A and B shares outstanding would decline approximately 11%.
A $1 increase in the share repurchase price will result in an
additional $783,208 aggregate payment to the G/C shareholders.
Conversely, a $1 decline in the share price will result in a $783,208
decrease in such payments. Any Class B shares not repurchased by the
Company pursuant to the Stock Purchase Program or otherwise, and held
by G/C employees, will automatically convert to Class A shares
following the Closing.
17
<PAGE>
THE STOCK PURCHASE AGREEMENT
GENERAL
The Stock Purchase Agreement provides for the sale by the Company of all of
the G/C Stock to Parsons, subject to the terms and conditions therein contained.
Following the closing of the Sale (the "Closing"), G/C will cease to be a
subsidiary of the Company and will become a wholly-owned subsidiary of Parsons.
The following summary is qualified in its entirety by the terms of the Stock
Purchase Agreement which is attached as Annex A to this Proxy Statement.
CLOSING
The Company anticipates that the Closing will, subject to the terms and
conditions of the Stock Purchase Agreement, occur promptly following the Special
Meeting. At the Closing, among other things the Company will deliver to Parsons
the G/C Stock, Parsons will pay to the Company the purchase price in cash and
G/C will enter into the Lease, as described below.
PURCHASE PRICE
The cash purchase price for the G/C Stock payable by Parsons is $46,000,000,
provided, however, that the purchase price is subject to increase or decrease on
a dollar-for-dollar basis to the extent that the consolidated stockholders'
equity of G/C as of March 31, 1995, as shown on an adjusted balance sheet of G/C
as of that date, exceeds or is less than $15,000,000. Such adjustments to the
March 31, 1995 balance sheet will include, among other things, the adjustments
necessary to reflect the exclusion of the items not included in the Sale as
described under "Items Excluded from Sale" below. G/C's stockholders' equity as
of March 31, 1995 as shown on its preliminary adjusted March 31, 1995 balance
sheet is $16,159,000 which, if accepted by Parsons, will result in a purchase
price of $47,159,000.
Under the terms of the Stock Purchase Agreement, Parsons may object to the
adjusted March 31, 1995 balance sheet at any time on or before June 18, 1995. If
Parsons so objects, the parties will have 30 days to resolve any differences;
failing agreement within that period, the March 31, 1995 adjusted balance sheet
will be determined finally by independent public accountants mutually acceptable
to the Company and Parsons. (If such agreement is not reached by the Closing,
Parsons will pay $46,000,000 at Closing, with any balance to be paid by the
appropriate party as a post-closing adjustment.)
The Stock Purchase Agreement also provides that, within 45 days following
the Closing, (i) G/C will pay to the Company an amount equal to 40% of the
pre-tax book income of G/C and its subsidiaries (other than those subsidiaries
excluded from the Sale, as described below), or, alternatively, (ii) the Company
will pay to G/C an amount equal to 40% of the pre-tax book loss of G/C and such
subsidiaries, in either case, from March 31, 1995 through the Closing. The
foregoing adjustment is intended to compensate the Company or Parsons, as the
case may be, for the income tax liability or benefit associated with G/C's
operations for the period between March 31, 1995 and the Closing. The Company
expects that any such payment would not materially affect the purchase price.
ITEMS EXCLUDED FROM SALE
The Stock Purchase Agreement provides that certain assets and liabilities of
G/C and G/C's subsidiaries will not be included in the Sale and will be
transferred to and/or assumed by the Company on or before the Closing. These
items include all real estate owned by G/C, the stock of the Excluded
Subsidiaries (as defined below), liability for certain pre-closing litigation,
and liabilities, reserves and assets relating to certain pension and other
benefit plans. The Company estimates the amount of these assumed liabilities to
be approximately $7 million. In addition, certain intercompany debt and advances
owed to or by G/C will be settled by Closing. "Excluded Subsidiaries" are Green
Hills Management Company, a real estate development and management subsidiary,
GAI, Inc., a finance subsidiary, and Gilbert Associates (Europe) Limited, which
is inactive.
18
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Stock Purchase Agreement contains various representations and warranties
by each of the Company and G/C, on the one hand, and Parsons, on the other hand,
relating to, among other things: (a) corporate organization, existence, good
standing and, in the case of G/C, the corporate power and authority to own,
lease and operate its properties and carry out its business; (b) corporate power
and authority to enter into and perform the Stock Purchase Agreement; (c) due
authorization, execution, delivery and performance of the Stock Purchase
Agreement (subject, in the case of the Company and G/C, to approval thereof by
the Company's Class B stockholders); (d) the validity and binding effect of the
Stock Purchase Agreement; (e) the Sale not conflicting with the terms of the
charter documents or resulting in a breach of third-party agreements; and (f)
receipt of required consents or approvals of governmental bodies or any third
parties to consummate the Sale. Additionally, with respect to G/C, the Stock
Purchase Agreement contains representations and warranties relating to, among
other things, capital structure, litigation, compliance with applicable laws and
contracts, accuracy of documents filed with the Securities and Exchange
Commission, and environmental compliance.
The representations and warranties set forth in the Stock Purchase Agreement
will, subject to certain exceptions, terminate two years after the Closing.
COVENANTS
G/C and the Company have agreed that from the date of the Stock Purchase
Agreement until the Closing, G/C will, and will cause each of its subsidiaries
to, conduct its business and operations in the ordinary course consistent with
past practices and not engage in any activity or material transaction outside of
its ordinary and usual course of business. In addition, G/C has agreed that it
will not, without the prior consent of Parsons, take certain actions including
amendments to its charter or by-laws, and declaration or payment of dividends on
the G/C Stock to the Company.
LEASE
As mentioned above, all real estate, including the office building located
at the Green Hills Corporate Center in Reading, Pennsylvania, will be excluded
from the Sale. However, Parsons has agreed to cause G/C to enter into a lease
agreement ("Lease") with Green Hills Management pursuant to which G/C will lease
200,000 square feet of office space in the Green Hills Corporate Center for a
term of ten years. G/C's obligations under the Lease will be guaranteed by
Parsons. The Lease provides for an annual rental of $3 million, which is subject
to escalation at the rate of 3% annually, and requires Green Hills Management to
provide utilities and other significant services and to pay real estate taxes.
G/C will have the right to extend the Lease for two additional five-year periods
for a rental negotiated at that time. In addition, beginning in the sixth year
of the Lease, G/C has the right to surrender 10,000 square feet annually (with
rent to be reduced proportionately).
EMPLOYEE BENEFIT PLANS
Following the Closing, Parsons will not sponsor or become responsible for
any existing G/C employee benefit plans, which plans include the SPP, RSP, Stock
Bonus Purchase Plan, Direct Stock Purchase Plan and Stock Option Plans. Parsons
has agreed in the Stock Purchase Agreement, however, to enroll each eligible
employee of G/C (i) effective as of the Closing, in its Employee Stock Ownership
Plan, (ii) as soon as practicable following the Closing, in its Retirement
Savings Plan and (iii) effective not later than January 1, 1996, in the welfare
benefit plans maintained for Parsons employees. Although it is not obligated to
do so, Parsons has advised the Company that it intends to maintain G/C's
existing welfare benefit plans in effect until G/C's employees are enrolled in
Parson's welfare benefit plans.
CONDITIONS TO CLOSING
The obligation of Parsons to consummate the Sale is subject to the
satisfaction or waiver of certain conditions, including, (a) approval of the
Sale by the requisite vote of Class B stockholders, (b) receipt
19
<PAGE>
by the Company of all third party and governmental consents, approvals and
orders required to effect the contemplated transactions, (c) receipt at the
Closing of a favorable legal opinion of counsel to the Company regarding certain
matters, (d) absence of certain pending or threatened litigation by any
governmental authority or third person, and (e) the accuracy in all material
respects of the representations and warranties of the Company and G/C contained
in the Stock Purchase Agreement as of the date of the Agreement and as of the
Closing, and the performance and compliance by the Company and G/C in all
material respects of their obligations under the Stock Purchase Agreement.
The obligation of the Company to consummate the Sale is subject to the
satisfaction or waiver of certain conditions including, (a) approval of the Sale
by the requisite vote of the Company's Class B stockholders, (b) receipt by the
Company of all third party and governmental consents, approvals and orders
required to effect the contemplated transactions, (c) absence of certain pending
or threatened litigation by any governmental authority, and (d) the accuracy in
all material respects of the representations and warranties of Parsons contained
in the Stock Purchase Agreement as of the date of the Agreement and as of the
Closing, and the performance by Parsons in all material respects of its
obligations under the Stock Purchase Agreement.
The Company and Parsons are not aware of any third party or governmental
consents, approvals or orders required to effect the Sale and which have not
been obtained. In addition, the Company and Parsons are not aware of any pending
or threatened litigation by any governmental agency or third party which could
cause the applicable conditions described in (b) above not to be satisfied at
the Closing.
TERMINATION OR AMENDMENT OF STOCK PURCHASE AGREEMENT
At any time prior to the Closing, the Stock Purchase Agreement may be
terminated by mutual consent of the Boards of Directors of the Company and
Parsons, notwithstanding approval by the Class B stockholders. In addition, if
the Closing does not occur on or prior to August 31, 1995, either the Company or
Parsons may terminate the Stock Purchase Agreement without liability unless the
failure to close resulted from a default under the Stock Purchase Agreement.
The Stock Purchase Agreement may be amended by the mutual consent of the
Company and Parsons. In addition, either the Company or Parsons may waive any
condition (other than approval of the Sale by the Class B stockholders and any
required governmental or regulatory approvals) to its obligation to consummate
the Sale. The Company will not, however, waive a material condition to Closing
following the approval of the Sale by the Class B stockholders without obtaining
approval of the Class B stockholders.
EXPENSES
Whether or not the sale is consummated, the Company and Parsons will each
bear their own costs and expenses incurred in connection with the Stock Purchase
Agreement. Expenses incurred in connection with preparing and printing the proxy
materials will be borne by the Company.
INDEMNIFICATION
The Company has agreed to indemnify Parsons and its affiliates with respect
to certain matters, including a breach of a representation, warranty or covenant
by the Company or G/C in the Stock Purchase Agreement, any tax imposed on G/C
relating to the period prior to the Closing, and environmental matters, up to a
maximum aggregate indemnity obligation of $46 million.
Parsons has agreed to indemnify the Company and its affiliates with respect
to certain matters, including a breach of a representation, warranty or covenant
by Parsons in the Stock Purchase Agreement, and matters relating to the
operation of G/C after the Closing.
20
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1995, the beneficial ownership
of Common Stock of each person known to the Company to be the beneficial owner
of more than 5% of the outstanding shares of Class B Common Stock (based on the
records of the Company's stock transfer agent), each director, each executive
officer and all executive officers and directors of the Company, as a group. The
table also sets forth the beneficial ownership of Common Stock by each such
person immediately after giving effect to the Sale on a pro forma basis assuming
the conversion of all shares of Class B Common Stock now held by G/C employees
into shares of Class A Common Stock. See "Proposed Sale of Gilbert Commonwealth,
Inc.--Effect of Sale on Shareholdings of G/C Employees".
<TABLE>
<CAPTION>
ACTUAL
--------------------------------------------------
CLASS
CLASS B PERCENTAGE A PERCENTAGE
COMMON OF COMMON OF
IDENTITY STOCK CLASS(1) STOCK CLASS(1)
- ----------------------------------------------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C>
J.W. Boyer, Jr................................. -- -- 1,500 *
T.S. Cobb...................................... 28,951(2)(3) 2.22% -- --
J.R. Itin(4)................................... 68,611(2)(3) 5.21% -- --
D.E. Lyons..................................... 1,700 * -- --
A.F. Smith..................................... 73,477 5.69% 5,426 (5) *
J.W. Stratton.................................. -- -- 2,500 *
J.A. Sutton.................................... 1,296 * 266 *
D.K. Wilson, Jr................................ 825 * -- --
All executive officers and directors as a
group........................................ 174,860(2)(3) 13.12% 9,692 *
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------
CLASS
CLASS B PERCENTAGE A PERCENTAGE
COMMON OF COMMON OF
IDENTITY STOCK CLASS(1) STOCK CLASS(1)
- ----------------------------------------------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C>
J.W. Boyer, Jr................................. -- -- 1,500 *
T.S. Cobb...................................... 28,951(2)(3) 5.53% -- --
J.R. Itin(4)................................... 68,611(2)(3) 12.88% -- --
D.E. Lyons..................................... 1,700 * -- --
A.F. Smith..................................... 73,477 14.49% 5,426 (5) *
J.W. Stratton.................................. -- -- 2,500 *
J.A. Sutton.................................... 1,296 * 266 *
D.K. Wilson, Jr................................ 825 * -- --
All executive officers and directors as a
group........................................ 174,860(2)(3) 31.84% 9,692 *
</TABLE>
- ------------
(1) Asterisks indicate beneficial ownership of less than 1% of the outstanding
shares of the class.
(2) Includes options held by Messrs. Cobb and Itin to purchase 16,375 shares,
and 25,750 shares, respectively, of Class B Common Stock exercisable within
60 days.
(3) Includes shares purchased on his behalf under the Company's Stock Purchase
Program from contributions (and dividends thereon) made through March 31,
1995 and the Payroll Stock Ownership portion of the Retirement Savings Plan.
(4) As previously reported, on April 19, 1995, Mr. Itin, 62, elected to take
early retirement and resigned as a member of the board and Chief Financial
Officer of the Company. He will be a consultant to the Company for two
years. Mr. Itin's decision to elect early retirement is not due to a
disagreement with management regarding the sale of G/C or otherwise. The
Company anticipates that it will take approximately four months to retain a
successor. In the interim, Mr. Cobb has assumed Mr. Itin's duties as Chief
Financial Officer.
(5) Includes 468 shares owned of record and beneficially by Mr. Smith's wife, as
to which shares he disclaims beneficial ownership.
Bankers Trust Company, 280 Park Avenue, New York, New York 10017 has advised
the Company that at May 1, 1995 it held through controlled nominees 945,612
shares of the Company's Class B Common Stock, or 73.29% of the class then
outstanding, as trustee on behalf of employees pursuant to various employee
benefit plans of the Company.
21
<PAGE>
SELECTED FINANCIAL INFORMATION
OF GILBERT ASSOCIATES INC. AND SUBSIDIARIES
The following tables set forth certain financial data for the Company for
the five years 1994, 1993, 1992, 1991, and 1990, derived from the Company's
audited consolidated financial statements for such periods, and for the three
months ended March 31, 1995, derived from the Company's unaudited consolidated
financial statement for such period. The pro forma amounts reflect estimated
results and financial position of the Company as if the sale of G/C had occurred
as described under "Pro Forma Unaudited Consolidated Financial Information". All
amounts are in thousands, except for share data.
<TABLE>
<CAPTION>
PRO FORMA ACTUAL
THREE MONTHS THREE MONTHS
ENDED MARCH 31, 1995 ENDED MARCH 31, 1995
-------------------- --------------------
<S> <C> <C>
SUMMARY OF OPERATIONS:
Total Revenue........................................ $ 41,876 $ 64,584
Net Income........................................... 718 1,134
Per share of Class A & Class B Common Stock:
Net Income........................................... $ 0.10 $ 0.16
Dividends to stockholders............................ 0.20 0.20
SUMMARY OF FINANCIAL POSITION:
Total assets......................................... $153,973 $143,191
Long-term debt....................................... 842 842
Stockholders' equity................................. 119,263 99,115
Stockholders' equity per share....................... 17.16 14.26
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED
PRO FORMA 1994 1994 1993 1992 1991 1990
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS:
Total Revenue........ $177,330 $282,495 $291,606 $301,209 $277,428 $260,633
Net Income (Loss).... (13,789) (11,620)(1) 6,452(2) 9,057 3,252(3) 11,664
Per Share of Class A
and Class B Common
Stock:
Net Income (Loss).. $ (1.97) $ (1.66) $ .87 $ 1.19 $ .42 $ 1.48
Dividends to
Stockholders..... .80 .80 .76 .72 .72 .68
SUMMARY OF FINANCIAL
POSITION:
Total Assets......... $147,085 $170,247 $165,424 $169,155 $159,247
Long-Term Debt....... 871 1,066 1,097 4,330 228
Stockholders'
Equity............... 99,514 118,114 124,042 125,268 129,808
Stockholders' Equity
Per Share.......... 14.30 16.82 16.65 16.25 16.66
</TABLE>
- ------------
(1) Decreased by $15,800,000 for expenses associated with the nuclear service
business, including a goodwill write-off, severance and idled leased
facility costs, and the increase of reserves to cover contractual issues on
contracts completed in prior years and increased by $75,000 for closure of
foreign subsidiaries and settlement of certain contractual issues (Note 9).
(References to "Notes" refer to the notes included in the Company's
financial statements included on pages F-1-F-24 to this Proxy Statement.)
(2) Decreased by $1,320,000 to increase reserves for costs associated with
resolving a series of claims filed by former employees of a subsidiary which
was closed in 1988 (Note 9) and $200,000 for changes in accounting
principles (Notes 3 and 6).
(3) Decreased by $4,920,000 for expenses associated with the realizability of
certain assets, anticipated losses on certain contracts and restructuring
charges.
Per share amounts and average shares outstanding have been adjusted for the
effect of a five-for-four stock split effective May 4, 1990.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OF GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
The following Management's Discussion and Analysis of Results of Operations
and Financial Condition should be read in conjunction with the Company's
financial statements attached as pages F-1 to F-28 to this Proxy Statement.
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Results of Operations. Net income declined $33,000 and earnings per share
decreased by $.01 in the first quarter of 1995 as compared to the first quarter
of 1994. The slight decline in earnings relates primarily to lower operating
results within the professional services segment offset in part by improvements
within the communication equipment segment.
The professional services segment reported an 18% decrease in revenue in the
first quarter of 1995 as compared to the same period in 1994. The decline is
primarily due to large decreases in services provided to the nuclear power
industry and public utility clients. The gross profit percentage decreased from
23% to 22% in the current quarter due primarily to lower margins realized on
services provided to the U.S. Government.
The communication equipment segment revenue increased 2% in the first
quarter of 1995 as compared to the same period in 1994 due primarily to higher
international sales and increased revenue from the Instrument Associates, Inc.
("IAI") division. The gross profit percentage increased from 32% in the first
quarter of 1994 to 35% in the current quarter. The increase is due primarily to
the benefits realized as a result of consolidating operations and sales of
higher margin products.
Other income increased 32% in the first quarter of 1995 compared to the same
period last year due primarily to higher income derived from a joint venture
within the professional services segment. The joint venture is comprised of G/C,
Union Boiler and Morrison Knudson Company, and was specifically established to
service one contract. Each company has equal voting rights and G/C receives 51%
of the joint venture's profits, if any. The contract expires at the end of 1996
and has an option for two additional years.
Selling, general and administrative expenses declined 13% in the current
quarter compared to the first quarter of 1994. The decline is primarily due to
the lower business activity within the power industry. Depreciation and
amortization decreased 6% in the first quarter of 1995 compared to the same
period last year due primarily to lower goodwill amortization as a result of the
1994 third quarter goodwill write-off.
Income before provision for taxes on income increased 2% in the first
quarter of 1995 compared to the same period in 1994 due primarily to higher
results within the communication equipment segment, which was offset in part by
a decline within the professional services segment.
The effective tax rate increased from 41% to 44% from the first quarter of
1994 to the first quarter of 1995 due to a higher effective state income tax
rate, which in part is due to limitation in loss carrybacks and carryforwards in
certain jurisdictions.
Deregulation in the domestic power utility industry, excess power generation
capacity, demand side management programs and aversion to nuclear power will
continue to put downward pressures on the level of services provided by the
Company, particularly to nuclear power related customers, until additional power
generation capacity is needed. If G/C is divested, the Company's reliance on the
power industry will be reduced greatly, and any future negative impact as a
result of changes in the power market should not therefore be significant to the
Company.
23
<PAGE>
The Sale of G/C, if approved by the Class B stockholders, and subject to the
satisfaction of the other Closing conditions, will be consummated effective
April 1, 1995. As a result, the Company's results of operations will exclude G/C
beginning April 1, 1995. The immediate impact to the Company's operations
following the sale of G/C will be an approximately 37% decline in total revenue
based upon the financial information for the year ended December 30, 1994 and
the three months ended March 31, 1995. This assumes additional annual rental
revenue of $3,000,000 as a result of G/C signing a ten year lease, but excludes
any revenue resulting from interest income earned on the sale proceeds. Net
income may decline slightly from the first quarter of 1995. This assumes
interest income earned on sale proceeds only partially offsets net income
derived from G/C and the corporate overhead expense that it absorbed. It is,
however, difficult to project the impact to net income and earnings per share
given the uncertainties regarding the amount, if any, of repurchases of common
stock and the price per share thereof, operations of the Company's remaining
units, the extent to which corporate overhead expenses are reduced and possible
future acquisitions. At this time, no acquisitions are imminent.
After the sale of G/C, the Company's primary future focus will be in the
manufacture and sale of communication equipment and professional service firms
which may complement the Company's existing professional services businesses.
The Company, as a result of the sale, has reduced its reliance on the power
market and does not consider this to be an area of major focus in the future.
Liquidity and Capital Resources. Working capital decreased $228,000 and cash
and cash equivalents declined $2,122,000 in the first three months of 1995. The
decline in cash and cash equivalents is largely due to the repayment of a
$2,000,000 note payable, which was outstanding under the Company's line of
credit with Meridian Bank for four days at an interest rate of 7.38% per annum.
The Company does not anticipate requiring outside long-term financing during the
next year. Amounts generated from operations, combined with available cash and
cash equivalents and short-term lines of credit, should provide adequate working
capital to satisfy operating requirements, contractual and lease obligations
related to the third quarter 1994 charge and the contingent payment to former
IAI principals. The anticipated cash proceeds from the disposition of G/C, as
discussed in Note 5 (References to "Notes" in this section refer to the notes
included in the Company's unaudited financial statements for the three months
ended March 31, 1995 and 1994 attached as pages F-25 to F-28 to this Proxy
Statement), will provide sufficient cash to fund the $15,000,000 stock
repurchase program as described in Note 6.
Unused lines of credit with three banks aggregating $16,500,000 are also
available for short-term cash needs. The short-term lines of credit consist of
the following: Meridian Bank, $10 million, which expires April 30, 1996;
Chemical Bank, $5 million, which expires June 30, 1995; and The Chase Manhattan
Bank, N.A., $3 million, which expires June 30, 1995. At March 31, 1995, the
entire Chase line was available, and $9 million and $4.5 million, respectively,
were available under the Meridian and Chemical lines. Outstanding borrowings
under these lines bear interest at a function of the prime rate. The Chemical
and Chase lines are used primarily to secure letters of credit posted by the
Company; the Meridian line is used to fund short-term working capital
requirements. No restrictions on cash transfers between the Company and its
subsidiaries exist.
The Company estimates that capital expenditures in 1995 will be
approximately $3,000,000, assuming G/C is sold, and $5,000,000 if the sale does
not occur.
FISCAL YEARS 1994, 1993 AND 1992
Results of Operations. Excluding all adjustments, the Company's net income
decreased $3,867,000 and earnings per share decreased $.49, or 49% and 45%,
respectively, in 1994 as compared to 1993. Prior to adjustments, net income for
1993 decreased $1,085,000, or 12% from 1992, and earnings per share decreased
$.11 or 9% in the same period. The decreases relate primarily to lower
24
<PAGE>
operating results within the professional services segment, formerly called the
engineering and consulting segment. The decline in net income was greater than
the decline in earnings per share due to fewer shares outstanding. Revenue
declined 3% in both 1994 and 1993 due to declines within the professional
services segment, offset in part by higher revenue within the communication
equipment segment. Adjustments for 1994 included a third quarter charge to
income of $15,800,000 (net of $2,000,000 income tax benefit) or $2.26 per share,
associated with the nuclear operations (Note 9) (References to "Notes" refer to
the notes included in the Company's audited financial statements included on
pages F-1 to F-24 to this Proxy Statement). This charge will not have a
significant impact on future operations. Adjustments also included a $75,000
increase in net income, or $.01 per share, in the second quarter of 1994
relative to closing foreign subsidiaries and settlement of certain contractual
issues (Note 9). Adjustments for 1993 included a $1,320,000 reduction in net
income or $.18 per share in the second quarter of 1993 to increase reserves for
claims filed by former employees (Note 9), and a $200,000 reduction in net
income or $.03 per share in the first quarter of 1993 for changes in accounting
principles (Notes 3 and 6).
The professional services segment, renamed to more accurately reflect the
revenue stream, reported a 6% decrease in revenue in 1994 as compared to 1993.
The decrease is due primarily to large declines in volume of services provided
to the nuclear power market, offset largely by revenue derived from SRA
Technologies, Inc. ("SRA"), which was acquired on December 10, 1993. Nuclear
power related revenue declined approximately $36,000,000 in 1994 compared to
1993 which was largely offset by $19,000,000 of additional revenue from SRA. The
decline in nuclear power related revenue relates primarily to lower revenues
from United Energy Services Corporation ("UESC"). The gross profit percentage
was 22% in 1994, a decrease from 24% in the prior year. The decrease is due
primarily to competitive pressures within the nuclear market and the
professional services segment in general. Revenue decreased 8% in 1993 as
compared to 1992, due primarily to declines in the volume of services provided
to the nuclear power market, offset by increases in U.S. defense related
revenue. Nuclear power related revenue declined approximately $29,000,000 which
was partially offset by higher revenue from non nuclear power customers and U.S.
defense related revenue. The decline in nuclear power related revenue relates
primarily to UESC. The gross profit percentage was 24% in 1993 and 1992.
The communication equipment segment revenue increased 10% in 1994 as
compared to 1993. The increase relates primarily to revenue derived from IAI,
which was acquired on December 28, 1993. The gross profit percentage decreased
to 32% in 1994 from 34% in 1993 due primarily to IAI, and to a lesser extent,
costs associated with consolidating manufacturing operations. IAI is structured
to operate on lower margins than other operations within this segment, but has
lower selling, general and administrative expenses which more than offset the
impact of lower gross profit. Revenue volume increased 30% in 1993 as compared
to 1992 due primarily to revenue derived from the acquisition of the Femco
Division of Mark IV Industries in late 1992. The gross profit margin decreased
2% in 1993 to 34% due primarily to sales of lower margin products.
Other income increased 6% in 1994 as compared to 1993, and 31% in 1993 as
compared to 1992. The increases relate primarily to income derived from a joint
venture within the professional services segment which has earned income, prior
to income taxes, of $2,080,000, $1,406,000 and $715,000 in 1994, 1993 and 1992,
respectively.
Selling, general and administrative expenses decreased 1% in 1994 as
compared to 1993 after excluding the adjustments mentioned above. Selling,
general and administrative expenses relative to the recent acquisitions of SRA
and IAI were offset by lower expenses within the professional services segment.
Also excluding the above adjustments, these expenses were substantially
unchanged in 1993 from 1992. Depreciation and amortization increased 8% in 1994
as compared to 1993 due primarily to amortization associated with the recent
acquisitions. Depreciation and amortization increased 12% in 1993 compared to
1992 due primarily to depreciation on the office facility completed in late
1992. Interest expense was not significant in 1994, 1993 or 1992.
25
<PAGE>
Income before provision for taxes on income and cumulative effect of changes
in accounting principles decreased 46% from 1993 to 1994, excluding the
adjustments mentioned above. The decrease relates primarily to lower operating
results within the professional services segment, particularly the nuclear power
market. Income before provision for taxes on income and cumulative effect of
changes in accounting principles in 1993 decreased 11% compared to 1992 after
excluding the aforementioned adjustments. The decrease relates primarily to
lower operating results within the professional services segment, particularly
the nuclear power market, offset in part by higher operating results within the
communication equipment segment.
The provision for taxes on income, prior to all adjustments, increased to an
effective tax rate of 43% in 1994 from 40% in 1993. The increase is due
primarily to a higher effective state tax rate, which in part is due to
limitations in loss carrybacks and carryforwards in certain jurisdictions. In
1993, the effective tax rate increased to 40% from 39% in 1992 due primarily to
the enacted increase in the statutory federal income tax rate to 35%.
Liquidity and Capital Resources. Working capital decreased $6,829,000, or
14% in 1994. The decline relates primarily to lower operating results. Cash and
cash equivalents declined $3,289,000 during the year due primarily to lower
borrowings. Capital expenditures declined $7,600,000 in 1993 compared to 1992
largely due to a $6,273,000 reduction in expenditures for an office facility,
which was substantially completed by the end of 1992. Reference is made to
"Liquidity and Capital Resources" under "Three Months Ended March 31, 1995 and
1994" above.
CERTAIN INFORMATION ABOUT THE COMPANY
The Company was organized as a holding company in 1984. Through its
operating subsidiaries, the largest of which is G/C, the Company is engaged in
the businesses of providing professional services and the manufacture and sale
of communication equipment. G/C, formerly known as "Gilbert Associates, Inc.,"
was organized in 1942. The Company and its subsidiaries are sometimes referred
to below as the "Gilbert companies." The Company's principal executive offices
are located at
P.O. Box 1498, Reading, Pennsylvania 19603, telephone number (610) 775-5900.
PROFESSIONAL SERVICES
The professional services business segment consists of the Company's largest
subsidiary, G/C, and its subsidiaries, together with UESC, Resource Consultants,
Inc. ("RCI") and SRA, which are wholly-owned subsidiaries of the Company.
G/C, based in Reading, Pennsylvania, provides a wide range of engineering
and consulting services, including electrical, mechanical, structural and
nuclear engineering, construction management, procurement, and consulting
services. G/C's major services are the design, engineering and supervision of
the construction of electric power generating stations and electric transmission
and distribution systems as well as upgrading and retrofitting existing power
plants. It also renders services to industrial clients and various governmental
agencies. UESC, based in Atlanta, Georgia, primarily provides operations and
engineering consulting services to the nuclear power industry. RCI, based in
Vienna, Virginia, provides engineering, outplacement services, technical and
other program support services to U.S. defense agencies, principally the U.S.
Navy and Army, and other U.S. Government agencies. SRA, based in Falls Church,
Virginia, provides research and consulting services in life and environmental
sciences, engineering and related technical areas, principally to U.S.
Government agencies.
26
<PAGE>
The following table sets forth for the past three fiscal years the revenues
derived from the listed categories of professional services rendered.
<TABLE>
<CAPTION>
PROFESSIONAL SERVICES REVENUES
(IN THOUSANDS OF DOLLARS)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Design and Related Services................................. $111,359* $123,945* $127,844*
Operations Services......................................... 34,921 61,834 85,351
Defense Related Services.................................... 63,092 57,624 51,027
Life and Environmental Sciences Services.................... 20,515
</TABLE>
- ------------
* G/C operations accounted for $109,741, $123,101 and $127,755 in 1994, 1993 and
1992, respectively, of these amounts. G/C operations did not account for
revenues in any other categories of services.
The following table sets forth the approximate percentage of operating
revenues derived from the principal markets served by the professional services
segment during 1994 and the approximate percentage of backlog as of December 30,
1994 represented by work arrangements with clients in such markets:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF BACKLOG
MARKET FOR SERVICES 1994 REVENUE AS OF DECEMBER 30, 1994
- ---------------------------------------------------------- ------------- -----------------------
<S> <C> <C>
U.S. Private Industry..................................... 39% 16%
U.S. Federal, State and Local Governments and Agencies.... 58% 82%
Foreign Governments and Businesses........................ 3% 2%
</TABLE>
The work arrangements of this segment, while varying, are essentially either
"cost-plus" or "fixed-price". Under a cost-plus arrangement, the Company is
reimbursed for its costs plus an agreed-upon fee, whereas under a fixed-price
arrangement, the entire price to be paid to the Company is established at the
beginning of the job. G/C, UESC, RCI and SRA have limited the number and extent
of their fixed-price commitments in light of their experience that extended
periods of performance and changes in governmental requirements tend to make it
difficult to make adequate allowance for escalation and contingencies in
fixed-price quotations. The majority of the Gilbert companies' professional
services revenue was attributable to contracts other than fixed-price
arrangements in each of the last three years. In addition, fixed-price contracts
represent less than a majority of the backlog attributable to such segment at
December 30, 1994. The ability to continue to sell services on a basis other
than fixed-price will, however, depend upon a number of factors including the
state of the national economy, the level of actual and planned capital and
operating expenditures by prospective clients, and the trend of contracting
practices in the markets in which such services are rendered.
The subsidiaries comprising the Gilbert companies' professional services
segment own various patents and trademarks and have pending applications for
other patents. However, such patents and trademarks are not individually or
cumulatively significant to the business of such segment.
Although the professional services segment is not dependent upon a single
client, its five largest clients have generally accounted for approximately
three-fifths of its total revenues. During 1994, the United States Government
and the Tennessee Valley Authority ("TVA") accounted for 34% and 13%,
respectively, of total professional services revenues. During 1993, the United
States Government and TVA accounted for 24% and 16%, respectively, of total
professional services revenues. These amounts represent revenue earned by the
Company as prime contractor. No other client or its affiliate accounted for 10%
or more of such revenues in 1994 or 1993.
On December 30, 1994, the professional services segment had a total of 3,033
employees, of which 2,126 employees were professional and technical personnel.
In comparison, such segment had a total of 3,428 employees on December 31, 1993,
of which 2,459 employees were professional and technical personnel.
27
<PAGE>
COMMUNICATION EQUIPMENT
The communication equipment segment of the business of the Gilbert companies
consists of the sale and customizing of communications equipment and related
systems by GAI-Tronics Corporation ("GAI-Tronics"), a wholly-owned subsidiary of
the Company.
GAI-Tronics is principally engaged in the development, assembly and
marketing of communication systems for industrial operations. In serving such
customers, GAI-Tronics provides custom services by adapting communication
systems to operate under extraordinary plant conditions such as excessive dust
and explosive atmospheres. GAI-Tronics also designs and manufactures land mobile
radio communication devices.
GAI-Tronics' significant class of products or services is the design and
assembly of communication systems.
The approximate percentage of GAI-Tronics' sales derived from the principal
markets for its products during 1994 and the approximate percentage of its
backlog as of December 30, 1994 represented by contracts with clients in such
markets, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF BACKLOG
MARKET FOR PRODUCTS 1994 REVENUE AS OF DECEMBER 30, 1994
- ---------------------------------------------------------- ------------- -----------------------
<S> <C> <C>
U.S. Private Industry..................................... 79% 53%
Foreign Governments and Businesses........................ 21% 47%
</TABLE>
GAI-Tronics is continually modifying its products and attempting to further
expand its product line. GAI-Tronics manufactures relatively few of the basic
components employed in its equipment; instead, it primarily designs and
assembles its equipment and systems by use of standard or special components
manufactured by others. Several sources of supply exist for such components so
that GAI-Tronics is not dependent upon any single supplier.
GAI-Tronics owns various patents and trademarks. However, such patents and
trademarks are of less significance to GAI-Tronics' operations than its
experience and reputation.
GAI-Tronics' business is not dependent upon a single customer or a very few
customers. An insubstantial amount of GAI-Tronics' sales in 1994 were made for
installation in projects or to customers for which subsidiaries comprising the
professional services segment had served as consulting engineer. (See
"Professional Services," above).
On December 30, 1994, GAI-Tronics had a total of 394 employees, of which 169
employees were professional and technical personnel. In comparison, GAI-Tronics
had a total of 420 employees on December 31, 1993, of which 174 were
professional and technical personnel.
CERTAIN INFORMATION ABOUT PARSONS
The Parsons Corporation is an engineering and construction organization
serving the transportation, aviation, petroleum and chemical, environmental,
power, and pulp and paper industries. Additional markets served include
infrastructure (such as highway and bridge projects), government, industrial and
community development.
Parsons designs highways, bridges, rail and transit systems, aviation
facilities, ports and harbors, and intelligent transportation systems. Petroleum
and chemical projects include facilities for petroleum refining, sulfur
management, oil and gas production, gas processing, and chemical and
petrochemical production. Environmental services include water and wastewater
treatment; hazardous, mixed and nuclear waste; environmental planning; air
quality; and decontamination and decommissioning.
Power projects include thermal and hydroelectric power plants, and
transmission and distribution systems. Industrial services include facilities
engineering, and systems for printing and pulp and paper
28
<PAGE>
processing. Parsons also provides design and construction services for major
infrastructure, water supply facilities, commercial development, and community
and recreational facilities. Demilitarization, and research, development and
test facility design services are provided to government agencies.
Parsons was a publicly-held company from 1969 to 1984. In 1984 and 1985, all
of Parsons' outstanding common shares were purchased by an employee stock
ownership plan. Parson's business activities are conducted through a number of
wholly-owned subsidiaries.
Parson's principal executive offices are located at 100 West Walnut Street,
Pasadena, California 91124, telephone no. (818) 440-2630.
MARKET PRICES FOR THE COMMON STOCK
The Company's Class A Common Stock is traded in the over-the-counter market.
Price quotations are available through the NASDAQ National Market System under
the symbol GILBA. The following table sets forth the high and low price
quotations by quarter as reported by the NASDAQ National Market System and cash
dividends declared on each share of Class A and Class B Common Stock. Prices
quoted represent high and low closing sale prices on the NASDAQ National Market
System.
<TABLE>
<CAPTION>
DIVIDENDS 1994 1993
------------ ---------------- ----------------
1994 1993 HIGH LOW HIGH LOW
---- ---- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter............................... $.20 $.18 $ 18 3/4 $ 16 1/2 $ 21 1/2 $ 19 1/4
Second Quarter.............................. .20 .18 17 3/4 14 3/4 21 3/4 20 1/4
Third Quarter............................... .20 .20 15 1/2 14 21 1/2 16 1/4
Fourth Quarter.............................. .20 .20 15 12 17 14 1/2
</TABLE>
On May 11, 1995, the reported high and low sale prices for Class A Common
Stock were $13 and $13, respectively.
On March 1, 1995, the date preceding the public announcement by the Company
of the proposed Sale, the reported high and low sales prices for the Class A
Common Stock were $13 and $12 1/2, respectively.
At May 1, 1995, there were 3,301 record holders of Class A Common Stock and
255 record holders of Class B Common Stock.
The Company is not in arrears in the payment of any dividends on its Common
Stock, nor is the Company in default in the payment of any principal or interest
on its outstanding indebtedness.
APPRAISAL RIGHTS
Dissenter's rights of appraisal are not available under the DGCL to Class B
Stockholders of the Company with respect to the Sale of G/C Stock to Parsons.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. served as independent auditors to the Company for
the fiscal year ended December 30, 1994. Representatives of Coopers & Lybrand
L.L.P. are not expected to be present to take questions at the Special Meeting,
nor is it contemplated that any statement by Coopers & Lybrand L.L.P. will be
issued either before or after the meeting.
29
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have previously been filed by the Company
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, are incorporated in this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1994;
2. The Company's Form 10-K/A filed on May 1, 1995 and Form 10-K/A No. 2
filed on May 24, 1995;
3. The Company's Current Reports on Form 8-K dated March 2, 1995, March
13, 1995 and April 19, 1995, and Form 8-K/A filed on March 2, 1995; and
4. The Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1994, Form 10-Q/A filed on May 24, 1995, and Form 10-Q/A No. 2
filed on May 25, 1995.
STOCKHOLDER PROPOSALS
The Proxy Statement relating to the Company's 1995 Annual Meeting of
Stockholders will set forth the date by which the Company must receive any
proposal which a holder of Class B Common Stock intends to present at the 1996
Annual Meeting. Stockholder proposals should be submitted to Thomas F. Hafer,
Secretary of the Company, at the address indicated on the first page of this
Proxy Statement.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before the
Special Meeting and is not informed of any other business which others may bring
before the meeting. However, if any other matters should properly come before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying Proxy to vote on such matters as they, in their
discretion, may determine.
The Company will pay all costs of soliciting Proxies in the accompanying
form. Solicitation will be made by mail, and officers and regular employees of
the Company may also solicit Proxies by telephone, telecopy or personal
interview. The Company has also retained Bankers Trust Company to aid in the
solicitation of Proxies, at an estimated cost of $2,500, plus reimbursement of
expenses.
By order of the Board of Directors
THOMAS F. HAFER,
Secretary
May 26, 1995
30
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors, Gilbert Associates, Inc.:
We have audited the accompanying consolidated balance sheets of
Gilbert Associates, Inc. and Subsidiaries as of December 30, 1994 and
December 31, 1993, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 30, 1994. 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 Gilbert Associates, Inc. and Subsidiaries as of December 30, 1994
and December 31, 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 30, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 3 and 6 to the consolidated financial
statements, the Company changed its method of accounting for income
taxes and postretirement benefits other than pensions in 1993.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995 COOPERS & LYBRAND L.L.P.
F-1
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenue:
Professional services revenue $229,887,000 $243,403,000 $264,222,000
Communication equipment sales 46,045,000 41,987,000 32,233,000
Other income 6,563,000 6,216,000 4,754,000
----------- ----------- -----------
282,495,000 291,606,000 301,209,000
----------- ----------- -----------
Costs and expenses:
Professional services costs 179,216,000 185,233,000 200,892,000
Communication equipment costs 31,215,000 27,632,000 20,490,000
Selling, general and administrative
expenses 76,116,000 60,958,000 59,041,000
Depreciation and amortization 6,922,000 6,416,000 5,725,000
Interest expense 186,000 205,000 95,000
----------- ----------- -----------
293,655,000 280,444,000 286,243,000
----------- ----------- -----------
Income(Loss) before provision for taxes
on income(loss) and cumulative effect
of changes in accounting principles (11,160,000) 11,162,000 14,966,000
Provision for taxes on income(loss) 460,000 4,510,000 5,909,000
----------- ----------- -----------
Income(Loss) before cumulative effect
of changes in accounting principles (11,620,000) 6,652,000 9,057,000
Cumulative effect of changes in
accounting principles - (200,000) -
----------- ----------- -----------
Net income(loss) $(11,620,000) $ 6,452,000 $ 9,057,000
=========== =========== ===========
Net income(loss) per average number of
Class A and Class B shares
outstanding:
Income(Loss) before cumulative effect
of changes in accounting principles $(1.66) $.90 $1.19
Cumulative effect of changes in
accounting principles - (.03) -
----------- ----------- -----------
Net income(loss) $(1.66) $.87 $1.19
=========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income(loss) $(11,620,000) $ 6,452,000 $ 9,057,000
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation and amortization 6,922,000 6,416,000 5,725,000
Goodwill write-off 12,200,000 - -
Provision for doubtful accounts, net (164,000) 810,000 121,000
Provision for estimated liability for
contract losses, net 3,700,000 223,000 135,000
Provision for self-insured retention 825,000 1,018,000 978,000
Benefit from deferred income taxes (725,000) (1,000,000) (1,505,000)
Cumulative effect of changes in accounting
principles - 200,000 -
Gain on sale of short-term investments - (20,000) (155,000)
Changes in current assets and current
liabilities, net of effects from
acquisitions:
Accounts receivable and unbilled revenue 9,148,000 9,542,000 4,094,000
Inventories (359,000) 482,000 2,097,000
Other current assets (287,000) (183,000) 310,000
Accounts payable and salaries and wages (3,039,000) (1,401,000) (649,000)
Other accrued liabilities (862,000) 290,000 3,300,000
Income taxes, currently payable 68,000 (505,000) 1,544,000
Estimated liability for contract losses (1,241,000) (572,000) (617,000)
Contractual billings in excess of
recognized revenue 280,000 61,000 21,000
Other, net (492,000) 601,000 (168,000)
---------- ---------- ----------
Net cash provided by operating activities 14,354,000 22,414,000 24,288,000
---------- ---------- ----------
Cash flows from investing activities:
Payments for acquisitions, net of cash
acquired (1,500,000) (14,161,000) (9,782,000)
Net decrease in short-term investments - 6,149,000 15,354,000
Payments for property, plant and equipment (5,513,000) (4,441,000) (12,041,000)
Proceeds from sale of property, plant
and equipment 202,000 1,263,000 169,000
---------- ---------- ----------
Net cash used for investing activities (6,811,000) (11,190,000) (6,300,000)
---------- ---------- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1994, 1993 and 1992 (continued)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Payments of long-term debt (364,000) (545,000) (7,582,000)
Net (repayments)borrowings under note payable (3,000,000) 5,000,000 -
Issuance of treasury stock in connection
with stock option, award and purchase
plans 916,000 543,000 509,000
Payments to acquire treasury stock (2,206,000) (7,262,000) (5,138,000)
Cash dividends paid (5,607,000) (5,650,000) (5,480,000)
Other, net (571,000) 454,000 34,000
---------- ---------- ----------
Net cash used for financing activities (10,832,000) (7,460,000) (17,657,000)
---------- ---------- ----------
Net increase(decrease) in cash and
cash equivalents (3,289,000) 3,764,000 331,000
Cash and cash equivalents at beginning
of year 10,716,000 6,952,000 6,621,000
---------- ---------- ----------
Cash and cash equivalents at end of year $ 7,427,000 $10,716,000 $ 6,952,000
========== ========== ==========
Supplemental cash flow disclosures:
Interest paid, net of interest capitalized $ 103,000 $ 122,000 $ 91,000
Income taxes paid, net of refunds received $ 1,117,000 $ 6,015,000 $ 5,870,000
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-4
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1994 and December 31, 1993
ASSETS December 30, December 31,
1994 1993
Current assets:
Cash and cash equivalents $ 7,427,000 $ 10,716,000
Accounts receivable, net of allowance
for doubtful accounts of $2,677,000 in 1994
and $3,427,000 in 1993 33,452,000 38,526,000
Unbilled revenue 19,570,000 23,480,000
Inventories 6,761,000 6,402,000
Deferred income taxes 4,420,000 4,205,000
Other current assets 5,918,000 5,751,000
----------- -----------
Total current assets 77,548,000 89,080,000
----------- -----------
Property, plant and equipment, at cost:
Land 3,693,000 3,702,000
Buildings 43,002,000 41,885,000
Furniture and equipment 46,907,000 43,888,000
----------- -----------
93,602,000 89,475,000
Less accumulated depreciation and
amortization 51,534,000 46,924,000
----------- -----------
42,068,000 42,551,000
----------- -----------
Deferred income taxes 1,610,000 1,100,000
Other assets 2,441,000 2,117,000
Goodwill 23,418,000 35,399,000
----------- -----------
Total Assets $147,085,000 $170,247,000
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
December 30, 1994 and December 31, 1993
<CAPTION>
LIABILITIES December 30, December 31,
1994 1993
<S> <C> <C>
Current liabilities:
Note payable $ 2,000,000 $ 5,000,000
Accounts payable 3,784,000 5,593,000
Salaries and wages 8,239,000 9,469,000
Income taxes, currently payable 1,496,000 1,868,000
Estimated liability for contract losses 5,272,000 2,813,000
Other accrued liabilities 11,400,000 12,431,000
Contractual billings in excess of
recognized revenue 2,474,000 2,194,000
----------- -----------
Total current liabilities 34,665,000 39,368,000
----------- -----------
Long-term debt 871,000 1,066,000
Other long-term liabilities 6,704,000 7,036,000
Self-insured retention 5,331,000 4,663,000
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Capital stock:
Class A common stock, nonvoting, par value $1 per share
Issued: 1994, 7,698,484 shares;
1993, 7,625,566 shares 7,698,000 7,625,000
Class B common stock, voting, par value $1 per share
Issued and outstanding: 1994, 1,286,816 shares;
1993, 1,359,734 shares 1,287,000 1,360,000
Capital in excess of par value 38,707,000 38,932,000
Retained earnings 83,854,000 101,081,000
Foreign currency translation adjustments - 83,000
Class A common stock held in treasury, at cost:
1994, 2,024,396 shares; 1993, 1,961,474 shares (32,032,000) (30,967,000)
----------- -----------
99,514,000 118,114,000
----------- -----------
Total Liabilities and Stockholders' Equity $147,085,000 $170,247,000
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1994, 1993 and 1992
<CAPTION>
Common Stock
--------------------
Class A Class B
------- -------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances at January 3, 1992 7,844,026 $7,844,000 1,141,274 $1,141,000
Conversion from Class A to
Class B, net (144,394) (145,000) 144,394 145,000
--------- --------- --------- ---------
Balances at January 1, 1993 7,699,632 7,699,000 1,285,668 1,286,000
Conversion from Class A to
Class B, net (74,066) (74,000) 74,066 74,000
--------- --------- --------- ---------
Balances at December 31, 1993 7,625,566 7,625,000 1,359,734 1,360,000
Conversion from Class B to
Class A, net 72,918 73,000 (72,918) (73,000)
--------- --------- --------- ---------
Balances at December 30, 1994 7,698,484 $7,698,000 1,286,816 $1,287,000
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1994, 1993 and 1992
<CAPTION>
Foreign Class A
Capital in Currency Treasury Stock
Excess of Retained Translation --------------
Par Value Earnings Adjustments Shares Amount
--------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Balances at January 3, 1992 $38,888,000 $ 96,702,000 $ 268,000 1,275,066 $(19,575,000)
Net Income 9,057,000
Cash dividends paid, $.72 per
share (5,480,000)
Translation adjustments (174,000)
Purchase of treasury stock 290,682 (5,138,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans 11,000 (32,130) 498,000
---------- ----------- ------- --------- ----------
Balances at January 1, 1993 38,899,000 100,279,000 94,000 1,533,618 (24,215,000)
Net income 6,452,000
Cash dividends paid, $.76 per
share (5,650,000)
Translation adjustments (11,000)
Purchase of treasury stock 459,947 (7,262,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans 33,000 (32,091) 510,000
---------- ----------- ------- --------- -----------
Balances at December 31, 1993 38,932,000 101,081,000 83,000 1,961,474 (30,967,000)
Net income(loss) (11,620,000)
Cash dividends paid, $.80 per
share (5,607,000)
Translation adjustments (83,000)
Purchase of treasury stock (8,000) 134,624 (2,198,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (217,000) (71,702) 1,133,000
---------- ----------- ------- --------- -----------
Balances at December 30, 1994 $38,707,000 $ 83,854,000 $ - 2,024,396 $(32,032,000)
========== =========== ======= ========= ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-8
<PAGE>
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR: The company uses a 52-53 week fiscal year ending on the
Friday nearest December 31. The 1994, 1993 and 1992 fiscal years
comprised 52 weeks each and ended on December 30, 1994, December 31,
1993 and January 1, 1993, respectively.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the company and its subsidiaries. All
material intercompany transactions have been eliminated. Investments
in joint ventures where the company does not have a controlling
interest are accounted for under the equity method.
RECOGNITION OF REVENUE: The company recognizes revenue on contracts
entered into for professional services as the work is performed.
Costs and expenses are charged to operations as incurred. Losses,
estimated to be sustained upon completion of contracts, are charged to
income in the year such estimates are determinable.
INSURANCE PROGRAMS: The company's overall insurance coverages,
excluding professional liability, contain provisions for large
deductibles and funding on a claims paid basis. Necessary accruals,
which relate primarily to health care and workers' compensation,
aggregate $3,494,000 and $3,262,000 at December 30, 1994 and December
31, 1993, respectively, and are included in other accrued liabilities
on the consolidated balance sheets.
The accrual for reported claims and for claims incurred but not yet
reported relating to professional liability insurance is estimated on
the basis of historical claims experience. This accrual is reflected
on the consolidated balance sheets as self-insured retention.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND
AMORTIZATION: For financial reporting purposes, the company provides
for depreciation and amortization of property, plant and equipment,
including assets under capital leases, on the straight-line method
over the estimated useful lives of the various classes of assets. For
income tax purposes, the company uses accelerated depreciation where
permitted.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other
disposition of items of plant and equipment, cost of the item and
related accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
Interest cost capitalized in 1992 amounted to $420,000.
F-9
<PAGE>
GOODWILL: Substantially all of the goodwill is being amortized by
charges to operations on a straight-line basis over 40 years, and such
amortization amounted to $842,000 in 1994, $778,000 in 1993 and
$605,000 in 1992. Accumulated amortization amounted to $3,264,000 at
December 30, 1994 and $4,775,000 at December 31, 1993.
The company periodically reviews goodwill to assess recoverability,
and impairments would be recognized in operating results if a
permanent diminution in value were to occur. The company's primary
financial indicator for assessing recoverability of goodwill is
whether the subsidiaries are generating a sufficient amount of income
and cashflow on an undiscounted basis.
INVENTORIES: Inventory values are determined on the first-in, first-
out (FIFO) method and are stated at the lower of cost or market.
INCOME TAXES: The company utilizes the liability method of accounting
for income taxes. Under this method, deferred income taxes are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements
of cash flows, the company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be
cash equivalents.
RECLASSIFICATION: The consolidated balance sheets and consolidated
statements of cash flows have been reclassified to conform with
current year presentation.
2. ACQUISITIONS:
On December 10, 1993, the company acquired all of the outstanding
capital stock of SRA Technologies, Inc. (SRA) for $6,500,000 in cash.
The company also paid $1,500,000 in cash for other intangible assets,
which resulted in a total purchase price of $8,000,000. On December
28, 1993, the company acquired the net assets of Instrument
Associates, Inc. (IAI) for $5,704,000 in cash plus an additional
amount not to exceed $1,000,000, to be paid if the business acquired
from IAI earns, prior to income taxes, $1,655,000 in a consecutive
four month period. The contingency payment period remains in effect
indefinitely and when made, will increase goodwill.
On December 21, 1992, the company acquired the net assets of the Femco
Division of Mark IV Industries, Inc. (Femco) for $8,782,000 in cash.
During the first quarter of 1994, the company paid the former
stockholders of GENSYS Corporation $1,500,000 in cash as part of the
April 1, 1991 purchase agreement, which resulted in an increase in
goodwill.
All acquisitions were accounted for as purchases, and goodwill was
determined based upon the fair values of assets acquired and
liabilities assumed. At the dates of acquisition, such liabilities
aggregated $6,336,000 and $1,342,000 in 1993 and 1992, respectively.
Goodwill for SRA, IAI and Femco was $3,563,000, $5,639,000 and
$5,752,000, respectively, which is being amortized on a straight-line
basis over 40 years. The company's consolidated statements of
operations include the results of operations of the acquired
businesses since the dates of acquisition.
F-10
<PAGE>
3. INCOME TAXES:
In the first quarter of 1993, the company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). As a result of this change, net income increased $700,000
or $.09 per share due to the recording of deferred income tax assets
not previously recognized. This adjustment was recorded as a
cumulative effect of change in accounting principles.
Income tax provisions consist of the following:
1994 1993 1992
---- ---- ----
Current:
Federal $ 790,000 $ 5,035,000 $ 6,585,000
State and
foreign 395,000 475,000 829,000
---------- ---------- ----------
1,185,000 5,510,000 7,414,000
---------- ---------- ----------
Deferred:
Federal (620,000) (900,000) (1,285,000)
State (105,000) (100,000) (220,000)
---------- ---------- ----------
(725,000) (1,000,000) (1,505,000)
---------- ---------- ----------
$ 460,000 $ 4,510,000 $5,909,000
========== ========== ==========
The components of the net deferred income tax asset are as follows:
December 30, December 31,
1994 1993
------------ ------------
Net current deferred income tax asset $ 4,420,000 $ 4,205,000
Net non-current deferred income tax asset 1,610,000 1,100,000
---------- ---------
Net deferred income tax asset $ 6,030,000 $ 5,305,000
========== =========
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
December 30, December 31,
1994 1993
Deferred income tax assets: ------------ ------------
Reserves for contract disallowances
and bad debts $ 3,295,000 $ 2,540,000
Retirement liabilities 2,634,000 2,366,000
Self-insured retention 2,239,000 1,865,000
Vacation accrual 995,000 1,276,000
Legal claims reserves 934,000 950,000
Workers' compensation reserves 898,000 682,000
Other 1,971,000 2,596,000
---------- ----------
12,966,000 12,275,000
---------- ----------
F-11
<PAGE>
December 30, December 31,
1994 1993
Deferred income tax liabilities: ------------ ------------
Depreciation $ 2,936,000 $ 2,937,000
Contract retention 2,214,000 2,509,000
Other 1,786,000 1,524,000
---------- ----------
6,936,000 6,970,000
---------- ----------
Net deferred income tax asset $ 6,030,000 $ 5,305,000
========== ==========
A reconciliation of the statutory income tax rate to the effective tax
rate follows:
1994 1993 1992
---- ---- ----
Federal statutory tax rate (34.0)% 35.0% 34.0%
Closure of foreign subsidiaries (4.1) - -
State and foreign taxes 2.1 2.2 2.7
Amortization and write-off of goodwill 39.0 2.1 1.4
Other, net 1.1 1.1 1.4
---- ---- ----
Effective tax rate 4.1% 40.4% 39.5%
==== ==== ====
The 1991 sale of stock of Gilbert/Commonwealth Inc. of Michigan
resulted in a capital loss for federal income tax purposes of
$10,225,000. As of December 30, 1994, $8,758,000 of capital loss
remains available to offset future capital gains before its expiration
in 1996. Due to the uncertainty of future utilization of this capital
loss, no deferred income tax asset has been recorded.
4. LONG-TERM DEBT:
Long-term debt consists of the following obligations:
December 30, December 31,
1994 1993
--------- ---------
Note payable, $15,000 due monthly
including interest at 7.15% $ - $ 248,000
Note payable, $6,000 due monthly to
1996, including interest at 8% 111,000 171,000
Capital lease obligation, with principal
payments not exceeding $9,000
due monthly to 2007, plus interest
at variable rates not exceeding
prime + 1/2%. 871,000 927,000
-------- ---------
982,000 1,346,000
Less current maturities (111,000) (280,000)
-------- ---------
$ 871,000 $1,066,000
======== =========
F-12
<PAGE>
The aggregate maturities of long-term debt, including the capital
lease obligation, in each of the five years subsequent to 1994 are as
follows:
1995 $111,000
1996 81,000
1997 48,000
1998 53,000
1999 58,000
The company leases a building under a noncancelable capital lease
which expires in 2007. The agreement includes an option to purchase
the building for a nominal amount upon expiration of the lease.
In connection with the aforementioned capital lease, the company has
pledged as collateral the following:
December 30,
1994
-----------
Land and building $ 980,000
Less accumulated depreciation (227,000)
---------
$ 753,000
=========
At December 30, 1994, minimum future lease payments under the capital
lease and the present value of minimum lease payments are as follows:
1995 $ 117,000
1996 117,000
1997 117,000
1998 117,000
1999 117,000
2000 and thereafter 862,000
---------
Total minimum lease payments 1,447,000
Less amount representing interest (576,000)
---------
Present value of minimum lease payments $ 871,000
=========
The company and its subsidiaries have arrangements with several banks
whereby unused lines of credit aggregating $14,205,000 are available
at December 30, 1994 for short-term financing, with interest charges
based upon the banks' prime lending rates.
F-13
<PAGE>
5. INVENTORIES:
Inventories consist of the following:
December 30, December 31,
1994 1993
---------- ----------
Raw materials $3,278,000 $2,985,000
Work in process and
finished goods 3,483,000 3,417,000
--------- ---------
$6,761,000 $6,402,000
========= =========
6. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the company and its
subsidiaries are participants in various defined contribution
retirement plans. Employer contributions under these plans are
generally at the discretion of the company, based upon profits and
employees' voluntary contributions to the plans. Company
contributions charged to operations in 1994, 1993 and 1992 totaled
$4,231,000, $4,369,000 and $5,121,000, respectively.
In the first quarter of 1993, the company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). As a result,
a $900,000 charge (net of $600,000 income tax benefit) or $.12 per
share was recorded by the company as a cumulative effect of a change
in accounting principles. This statement requires an accrual of the
cost of providing postretirement benefits during the active service
period of employees. Certain subsidiaries of the company currently
provide life insurance benefits for retirees. The company is self-
insured for these benefits, which consist primarily of $5,000
policies. Under the current program, the accumulated benefit
obligation related to the life insurance policies is approximately
$1,800,000 as of December 30, 1994. The accumulated benefit
obligation is primarily unfunded. The discount factor used in
computing the accumulated benefit obligation is 6%. The adoption of
SFAS 106 did not have a material impact on current operations.
7. CAPITAL STOCK:
Except for voting privileges, shares of Class A and Class B common
stock are identical. Class B stockholders must be either directors of
the company, or active employees of the company or its subsidiaries.
They may not sell or transfer such stock without having first extended
an offer of sale to the company. There were 12,000,000 authorized
shares of Class A and Class B common stock as of December 30, 1994 and
December 31, 1993.
F-14
<PAGE>
8. STOCK OPTION, AWARD AND PURCHASE PLANS:
Under the 1989 Gilbert Stock Option Plan, the company may grant to
officers and other key management employees, incentive or non-
qualified stock options to purchase an aggregate of 250,000 shares of
Class B common stock at a price not less than seventy-five percent of the fair
market value at the date of grant. Fair market value of the Class B shares
is deemed to be the closing price, as quoted on the NASDAQ National Market
System, of the Class A common stock on the date of the grant. The term within
which each option may be exercised is at the discretion of the company. In no
case shall this term exceed ten years. Options to purchase 63,550 Class B
shares were granted at fair market value during 1994 and are exercisable
between March 18, 1996 and March 18, 1999 at $17.50 per share. At
December 30, 1994, 77,150 shares remain available for future grants.
A summary of stock option activity related to this plan and the 1982
and 1987 stock option plans which are no longer granting options is as
follows:
Number of
Number of Option Price Shares
Shares Per Share Exercisable
--------- ------------ -----------
Outstanding at
Jan. 3, 1992 295,345 $ 8.16-$26.50 213,137
Granted 52,050 $20.00
Exercised (12,500) $ 8.16-$17.20
Expired (8,375) $17.20-$26.50
-------
Outstanding at
Jan. 1, 1993 326,520 $11.84-$26.50 240,321
Granted 57,000 $21.00
Exercised (18,375) $11.84-$17.20
Expired (32,424) $17.20-$26.50
-------
Outstanding at
Dec. 31, 1993 332,721 $11.84-$26.50 237,172
Granted 63,550 $17.50
Exercised (62,500) $11.84-$17.20
Expired (54,824) $17.50-$26.50
-------
Outstanding at
Dec. 30, 1994 278,947 $12.00-$26.50 178,098
=======
The company has an Equity Award Plan whereby the company may grant to
officers and other key management employees, awards to purchase an
aggregate of 234,375 shares of common stock at a price equal to fair
market value on the date of purchase. Unless accepted, the awards
expire fifteen days from the date of grant. To date, awards to
purchase 195,331 shares of the company's common stock have been
granted and accepted at prices ranging from $11.04 to $22.20 per
share. As a result of subsequent sales by participants, 72,495 of
these shares remain outstanding at December 30, 1994. For a period of
ten years subsequent to the date of purchase, the company is required,
if requested by the participant, to repurchase shares under the plan
for an amount equal to 90% of the original purchase price.
F-15
<PAGE>
Under the Stock Bonus Purchase Plan, employees may use up to 50% of
their annual incentive compensation to purchase shares of common stock
at fair market value. Employees purchasing shares will receive a
stock bonus as determined by the Board of Directors each year. The
company may grant an aggregate of 200,000 shares under this plan.
During 1994, 6,202 shares were issued under this plan. To date,
41,104 shares have been issued, and 158,896 shares remain available
for future grants as of December 30, 1994.
9. SPECIAL CHARGES:
In the third quarter of 1994, the company recorded a charge to income
of $15,800,000 (net of $2,000,000 income tax benefit) or $2.26 per
share, associated with its nuclear service business. The charge is
comprised of a $12,200,000 or $1.74 per share goodwill write-off and
$1,025,000 or $.15 per share for severance and idled leased facility
costs to reflect the current market conditions. The charge also
includes $2,575,000 or $.37 per share to increase reserves to cover
contractual issues on contracts completed in prior years. The majority
of this charge related to a specific audit issue for a contract completed
in 1991. The audit issue was not known by the company until the third
quarter of 1994. The total charge is included in selling, general and
administrative expenses. The entire charge, including the goodwill write-off,
will not have a material impact on future results of operations.
The $12,200,000 goodwill write-off represents the entire goodwill
amount associated with United Energy Services Corporation (UESC) and
its subsidiaries. UESC provides consulting services principally to
the nuclear power industry.
The goodwill write-off stems primarily from the deterioration in the
commercial nuclear power market. Market forces, including
deregulation of the electric utility industry, the emergence of
independent power producers and technological advances making fossil
plants more efficient, have particularly affected the commercial
nuclear industry, resulting in a dramatic decline in the demand and
pricing of services. These changing market conditions have resulted
in increased competition on those services typically provided by UESC.
UESC incurred substantial losses late in 1993 and continued to operate
at a loss through 1994. For these reasons, and the continued
uncertainty surrounding UESC's nuclear business returning to a level
of profitability sufficient to recover the carrying values of
goodwill, it became apparent to management that UESC's goodwill is
permanently impaired and no longer has any value.
During the second quarter of 1994, the company closed foreign
subsidiaries and settled certain contractual issues which had been
previously reserved. The combination of these two events increased
net income by $75,000 or $.01 per share. Income(Loss) before
provision for taxes on income(loss) and cumulative effect of changes
in accounting principles was reduced by $525,000. Of this amount,
$1,100,000 related primarily to a reserve for a lease obligation and
severance costs, which was partially offset by a $700,000 favorable
outcome on the aforementioned contract settlement. These amounts were
recorded in selling, general and administrative expenses. The
provision for taxes on income(loss) was reduced by $600,000 primarily
due to a federal income tax deduction associated with the closure of
foreign subsidiaries.
F-16
<PAGE>
In the second quarter of 1993, the company recorded a charge to income
of $2,200,000 to increase reserves for costs associated with resolving
a series of claims filed by former employees of a subsidiary which was
closed in 1988. This reserve is recorded in other accrued liabilities
on the consolidated balance sheet. After the income tax benefit of
$880,000, net income was reduced by $1,320,000 or $.18 per share. The
company is contesting these matters vigorously and is in the process
of pursuing various legal actions. The timing of the final resolution
is not yet known.
10. OPERATING LEASES:
The company leases, as lessee, facilities, data processing equipment,
office equipment, automobiles and aircraft charter services under
leases expiring during the next eleven years. Total rental expense
under operating lease agreements amounted to $7,000,000 in 1994,
$5,900,000 in 1993 and $5,700,000 in 1992. Minimum future rentals
under noncancelable operating leases with initial or remaining terms
in excess of one year at December 30, 1994 are as follows:
1995 $ 5,999,000
1996 4,488,000
1997 2,576,000
1998 2,019,000
1999 1,754,000
2000 and thereafter 6,256,000
----------
Total minimum rentals $23,092,000
==========
The company leases, as lessor, office space to unrelated parties under
leases expiring between 1995 and 2004. Minimum future rentals under
noncancelable operating leases at December 30, 1994 are as follows:
1995 $ 2,714,000
1996 2,531,000
1997 2,461,000
1998 2,520,000
1999 2,492,000
2000 and thereafter 11,108,000
----------
Total minimum rentals $23,826,000
==========
11. FINANCIAL INSTRUMENTS:
Letters of credit and performance bonds are issued by the company
during the ordinary course of business through major domestic banks
and insurance companies. The company has outstanding letters of
credit and performance bonds, not reflected in the consolidated
financial statements, in the amount of $5,814,000 at December 30, 1994
and $5,369,000 at December 31, 1993.
F-17
<PAGE>
Financial instruments which potentially subject the company to the
concentration of credit risk, as defined by SFAS No. 105, consist
principally of accounts receivable. Concentration of credit risk with
respect to receivables is limited due to the majority of customers
being comprised of either public utilities or the U.S. Government.
12. CONTINGENCIES:
Various lawsuits, claims and other contingent liabilities arise in the
ordinary course of the company's business. While the ultimate
disposition of these contingencies is not determinable at this time,
management believes that any liability resulting therefrom will not
materially affect the consolidated financial statements of the
company.
F-18
<PAGE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
The following is a tabulation of the unaudited quarterly financial
data for each of the four quarters of the years 1994 and 1993:
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
April 1, 1994 July 1, 1994 Sept. 30, 1994 Dec. 30, 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $74,852,000 $74,058,000 $67,919,000 $65,666,000
Income(Loss) before provision for
taxes on income(loss) 1,977,000 1,330,000 (15,940,000) 1,473,000
Net income(loss) 1,167,000 1,130,000 (14,750,000) 833,000
Net income(loss) per share
of common stock $.17 $.16 $(2.11) $.12
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
April 2, 1993 July 2, 1993 Oct. 1, 1993 Dec. 31, 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $75,295,000 $74,274,000 $70,825,000 $71,212,000
Income before provision for taxes
on income and cumulative effect
of changes in accounting principles 3,704,000 1,221,000 3,323,000 2,914,000
Income before cumulative effect of
changes in accounting principles 2,223,000 751,000 1,925,000 1,753,000
Cumulative effect of changes in
accounting principles (200,000) - - -
Net income 2,023,000 751,000 1,925,000 1,753,000
Per share of common stock:
Income before cumulative effect
of changes in accounting
principles $.30 $.10 $.26 $.24
Cumulative effect of changes in
accounting principles (.03) - - -
Net income $.27 $.10 $.26 $.24
</TABLE>
F-19
<PAGE>
NOTES:
The results of operations for the quarter ended September 30, 1994 includes
a charge to income of $15,800,000 (net of $2,000,000 income tax benefit) or
$2.26 per share, associated with the nuclear service business.
Results of operations for the quarter ended July 1, 1994 was increased by
$75,000 or $.01 per share due to the closure of foreign subsidiaries and
the settlement of certain contractual issues.
Results of operations for the quarter ended July 2, 1993 includes a charge
to income of $1,320,000 (net of $880,000 income tax benefit), or $.18 per
share, for costs associated with resolving a series of claims filed by
former employees.
The changes in accounting principles result from the company's
adoption of Statements of Financial Accounting Standards for Income
Taxes and Postretirement Benefits Other Than Pensions.
F-20
<PAGE>
14. SEGMENT INFORMATION:
The company and its subsidiaries are primarily engaged in providing
professional services to public utilities, governmental agencies and a
variety of other customers. GAI-Tronics Corporation, a subsidiary, is
engaged in the development, assembly and marketing of communication
equipment. Information about the company's operations by segment for
the years 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
- ---------------------------------------------------------------------------------------------------------------
Year ended December 30, 1994:
<S> <C> <C> <C>
Revenue $229,887,000 $ 46,045,000 $275,932,000
=========== =========== ===========
Operating profit(loss) $(13,686,000) $ 4,872,000 $ (8,814,000)
=========== ===========
Interest expense (186,000)
General corporate expenses (6,643,000)
Other income 4,483,000
-----------
Income(Loss) before income taxes
and cumulative effect of
changes in accounting
principles $(11,160,000)
===========
Identifiable assets $ 83,028,000 $ 32,534,000 $115,562,000
=========== ===========
Corporate assets 31,523,000
-----------
Total assets, December 30, 1994 $147,085,000
===========
Depreciation and amortization $ 5,081,000 $ 1,222,000
=========== ===========
Capital expenditures $ 4,244,000 $ 876,000
=========== ===========
</TABLE>
F-21
<PAGE>
14. SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
- --------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
<S> <C> <C> <C>
Revenue $243,403,000 $ 41,987,000 $285,390,000
=========== =========== ===========
Operating profit $ 9,389,000 $ 3,914,000 $ 13,303,000
=========== ===========
Interest expense (205,000)
General corporate expenses (6,746,000)
Other income 4,810,000
-----------
Income before income taxes and
cumulative effect of changes
in accounting principles $ 11,162,000
===========
Identifiable assets $101,472,000 $ 34,062,000 $135,534,000
=========== ===========
Corporate assets 34,713,000
-----------
Total assets, December 31, 1993 $170,247,000
===========
Depreciation and amortization $ 4,651,000 $ 1,167,000
=========== ===========
Capital expenditures $ 2,916,000 $ 694,000
=========== ===========
</TABLE>
F-22
<PAGE>
14. SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
- --------------------------------------------------------------------------------------------------------------
Year Ended January 1, 1993:
<S> <C> <C> <C>
Revenue $264,222,000 $ 32,233,000 $296,455,000
=========== =========== ===========
Operating profit $ 14,154,000 $ 3,348,000 $ 17,502,000
=========== ===========
Interest expense (95,000)
General corporate expenses (6,480,000)
Other income 4,039,000
-----------
Income before income taxes and
cumulative effect of changes
in accounting principles $ 14,966,000
===========
Identifiable assets $100,977,000 $ 28,614,000 $129,591,000
=========== ===========
Corporate assets 35,833,000
-----------
Total assets, January 1, 1993 $165,424,000
===========
Depreciation and amortization $ 4,592,000 $ 969,000
=========== ===========
Capital expenditures $ 3,113,000 $ 639,000
=========== ===========
</TABLE>
F-23
<PAGE>
14. SEGMENT INFORMATION (continued)
Revenue by segment consists of sales to unaffiliated customers;
intersegment sales are not significant. Operating profit(loss) is
total revenue less operating expenses, and excludes interest expense,
general corporate expenses and other income. Other income excludes
$2,080,000, $1,406,000 and $715,000 in 1994, 1993 and 1992,
respectively, relative to a joint venture, which is reflected in the
professional services operating profit. Prior year segment
information has been restated to be consistent with current year
presentation. Although the company receives professional services
revenue from many customers, two major customers accounted for
revenues of $107,000,000, $98,000,000 and $79,000,000 in 1994, 1993
and 1992, respectively. Of these amounts, approximately $77,000,000,
$58,000,000 and $54,000,000 was received from several United States
governmental agencies in 1994, 1993 and 1992, respectively.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets are those assets not
used in the operations of a specific segment and consist primarily of
cash and cash equivalents, an office facility and in prior years,
short-term investments. Capital expenditures for the office facility
were $393,000, $831,000 and $7,104,000 in 1994, 1993 and 1992,
respectively, and are excluded from the capital expenditures above.
Depreciation on the office facility amounted to $619,000, $598,000 and
$164,000 in 1994, 1993 and 1992, respectively, and is also excluded
from the depreciation and amortization above.
F-24
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS Mar. 31, 1995 Dec. 30, 1994
- ------ ------------- -------------
Current assets:
Cash and cash equivalents $ 5,305,000 $ 7,427,000
Accounts receivable, net of allowance
for doubtful accounts of $2,603,000 and
$2,677,000, respectively 29,905,000 33,452,000
Unbilled revenue 21,604,000 19,570,000
Inventories 6,846,000 6,761,000
Deferred income taxes 4,420,000 4,420,000
Other current assets 5,731,000 5,918,000
------------ ------------
Total current assets 73,811,000 77,548,000
------------ ------------
Property, plant and equipment 83,190,000 93,602,000
Less accumulated depreciation and amortization 41,281,000 51,534,000
------------ ------------
41,909,000 42,068,000
Deferred income taxes 1,610,000 1,610,000
Other Assets 2,607,000 2,441,000
Goodwill 23,254,000 23,418,000
------------ ------------
TOTAL ASSETS $143,191,000 $147,085,000
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Note payable $ - $ 2,000,000
Accounts payable 4,246,000 3,784,000
Salaries and wages 8,361,000 8,239,000
Income taxes 2,212,000 1,496,000
Estimated liability for contract losses 3,716,000 5,272,000
Contractual billings in excess of
recognized revenue 1,859,000 2,474,000
Other accrued liabilities 10,762,000 11,400,000
------------ ------------
Total current liabilities 31,156,000 34,665,000
------------ ------------
Long-term debt 842,000 871,000
Self-insured retention 5,481,000 5,331,000
Other long-term liabilities 6,597,000 6,704,000
Commitments and contingencies - -
Stockholders' equity:
Common stock 8,985,000 8,985,000
Capital in excess of par value 38,673,000 38,707,000
Retained earnings 83,598,000 83,854,000
Treasury stock (32,141,000) (32,032,000)
------------ ------------
Total stockholders' equity 99,115,000 99,514,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,191,000 $147,085,000
============ ============
See accompanying notes to consolidated condensed financial statements.
F-25
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------------------
Mar. 31, 1995 Apr. 1, 1994
------------- ------------
Revenue:
Professional services revenue $ 50,636,000 $ 61,636,000
Communication equipment sales 11,849,000 11,629,000
Other income 2,099,000 1,587,000
------------ ------------
64,584,000 74,852,000
------------ ------------
Costs and expenses:
Professional services costs 39,488,000 47,396,000
Communication equipment costs 7,722,000 7,949,000
Selling, general and administrative
expenses 13,703,000 15,770,000
Depreciation and amortization 1,606,000 1,704,000
Interest expense 46,000 56,000
------------ ------------
62,565,000 72,875,000
------------ ------------
Income before provision
for taxes on income 2,019,000 1,977,000
Provision for taxes on income 885,000 810,000
------------ ------------
Net income $ 1,134,000 $ 1,167,000
============ ============
Per share of common stock:
Net Income $.16 $.17
Cash dividends $.20 $.20
Average number of shares of common
stock outstanding 6,956,124 7,028,261
See accompanying notes to consolidated condensed financial statements.
F-26
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
------------------------------
Mar. 31, 1995 Apr. 1, 1994
------------- ------------
Cash flows from operating activities:
Net income $ 1,134,000 $ 1,167,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Items not affecting cash 1,877,000 2,049,000
Changes in current assets and
current liabilities (45,000) (2,491,000)
Other, net (241,000) (486,000)
---------- -----------
Net cash provided by operating
activities 2,725,000 239,000
---------- -----------
Cash flows from investing activities:
Payment for acquisition of GENSYS Corporation - (1,500,000)
Payments for property, plant and equipment (1,178,000) (1,270,000)
---------- -----------
Net cash used for investing
activities (1,178,000) (2,770,000)
---------- -----------
Cash flows from financing activities:
Payments under note payable (2,000,000) (5,000,000)
Issuance of treasury stock in connection
with stock option, award and
purchase plans 99,000 431,000
Payments to acquire treasury stock (242,000) (520,000)
Cash dividends paid (1,391,000) (1,407,000)
Long-term debt payments (29,000) (286,000)
Other, net (106,000) (412,000)
---------- -----------
Net cash used for financing
activities (3,669,000) (7,194,000)
---------- -----------
Net decrease in cash and cash equivalents (2,122,000) (9,725,000)
Cash and cash equivalents at beginning of period 7,427,000 10,716,000
---------- -----------
Cash and cash equivalents at end of period $ 5,305,000 $ 991,000
========== ===========
Supplemental cash flow disclosures:
Income taxes paid, net of refunds received $ 170,000 $ (449,000)
See accompanying notes to consolidated condensed financial statements.
F-27
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The financial statements furnished herein reflect all adjustments
which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations for the
interim periods. Such adjustments are of a normal recurring nature.
The consolidated condensed statement of cash flow
has been restated to conform with the current period presentation.
2. Net income per share of common stock was determined using the
average number of Class A and Class B shares outstanding. The
effect on net income per share resulting from dilution upon exercise
of outstanding stock options is not material, and therefore is not
shown.
3. During the first quarter of 1994, the company paid the former
stockholders of GENSYS $1,500,000 as part of the April 1, 1991
purchase agreement, which resulted in an increase in goodwill of
$1,360,000, net of an income tax benefit of $140,000.
4. Other accrued liabilities as of March 31, 1995 and December 30, 1994
include a $2,200,000 reserve for costs associated with resolving a
series of claims filed by former employees of a subsidiary which was
closed in 1988. Also included in other accrued liabilities are
accruals relating primarily to health care and workers' compensation
which amounted to $3,530,000 and $3,494,000 at March 31, 1995 and
December 30, 1994, respectively.
5. On March 2, 1995, the company announced that it signed an agreement
in principle to sell its largest subsidiary, Gilbert/Commonwealth,
Inc. (G/C), to The Parsons Corporation for $46,000,000 subject to
certain adjustments. On March 30, 1995, a formal agreement to
purchase G/C was signed. As part of the agreement, the buyer will
sign a 10 year lease for 200,000 square feet of office space from
the company. The agreement is contingent upon a favorable
shareholder vote of the company's Class B shareholders, which is
anticipated to occur late in the second quarter of 1995. Assuming
this transaction is approved by the shareholders, the operations of
G/C beginning April 1, 1995, will be excluded from the company's
results of operations. The company anticipates recognizing a gain,
after income taxes, of approximately $20,000,000 or $2.88 per share.
The purchase price will increase or decrease on a dollar-for-dollar
basis to the extent that the agreed upon stockholders' equity of G/C
as of March 31, 1995 exceeds or is less than $15,000,000.
6. On March 13, 1995, the company announced that the Board of Directors
authorized the repurchase of up to $15,000,000 worth of its common
stock. The repurchases will be made from time to time in the open
market as well as from the company employees. The $15,000,000
program replaces the previously announced $6,000,000 Class A common
stock repurchase program.
F-28
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Financial Statements
The unaudited G/C condensed balance sheets as of March 31,
1995 and December 30, 1994 and the unaudited condensed statement of
operations and cash flows for the three months ended March 31, 1995
and April 1, 1994; and the G/C unaudited balance sheets, statement
of operations and cash flows for the three year periods ended 1994,
1993 and 1992 are set forth below. The financial statements
include liabilities associated with the TVA Sequoyah contract
settlement, dividend unit award accrual, former employee age
discrimination claim, open window pension, and post retirement
obligations, which are specifically excluded from the sale of G/C,
and reflect corporate overhead charges. The financial statements
do, however, exclude intercompany balances and real property
specifically excluded from the sales transaction.
F-29
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Condensed Balance Sheets as of March 31, 1995
and December 30, 1994
<TABLE><CAPTION>
March 31, 1995 December 30, 1994
-------------- -----------------
<S> <C> <C>
Assets
Current Assets:
Accounts receivable $ 10,901,000 $ 11,659,000
Allowance for bad debts (1,750,000) (1,738,000)
Unbilled revenue 9,577,000 8,488,000
Deferred income taxes 2,670,000 2,670,000
Other current assets 1,172,000 728,000
------------- -------------
Total current assets 22,570,000 21,807,000
Furniture and equipment at cost 11,475,000 22,197,000
Less accumulated depreciation and amortization (7,626,000) 1,055,276,824
------------- -------------
3,849,000 3,732,000
Deferred income taxes 1,370,000 1,370,000
------------- -------------
Total Assets $ 27,789,000 $ 26,909,000
============= =============
Liabilities
Current Liabilities:
Accounts Payable $ 1,777,000 $ 1,460,000
Salaries and wages 3,400,000 4,247,000
Accrued income taxes 627,000 679,000
Accrued health care costs 596,000 815,000
Accrued defined contribution retirement plan 214,000 743,000
Estimated liability for contract losses 1,098,000 2,700,000
Contractual billings in excess of recognized revenue 1,374,000 1,921,000
Accrued former employee claims 2,200,000 2,200,000
Other current liabilities 1,927,000 1,436,000
------------- -------------
Total current liabilities 13,213,000 16,201,000
Other non current liabilities 3,406,000 3,440,000
Stockholders' Equity 11,170,000 7,268,000
----------- -------------
Total Liabilities & Stockholders' Equity $ 27,789,000 $ 26,909,000
============= =============
</TABLE>
F-30
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Condensed Statement of Operations
for the Three Months Ended March 31, 1995 and April 1, 1994
<TABLE><CAPTION>
March 31, 1995 April 1, 1994
-------------- ---------------
<S> <C> <C>
Revenue:
Professional service revenue $ 23,301,000 $ 28,448,000
Other Income 862,000 488,000
--------------- ---------------
24,163,000 28,936,000
--------------- ---------------
Costs & Expenses:
Professional service costs 16,547,000 20,115,000
Selling, general and administrative expenses 6,818,000 7,360,000
Depreciation and amortization 426,000 452,000
--------------- ---------------
23,791,000 27,927,000
--------------- ---------------
Income before provision for taxes on income 372,000 1,009,000
Provision for taxes on income 163,000 414,000
--------------- ---------------
Net Income $ 209,000 $ 595,000
=============== ===============
</TABLE>
F-31
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Condensed Statement of Cash Flows
for the Three Months Ended March 31, 1995 and April 1, 1994
<TABLE><CAPTION>
March 31, 1995 April 1, 1994
--------------- --------------
<S> <C> <C>
Net Income $ 209,000 $ 595,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Items not affecting cash 438,000 452,000
Changes in current assets and current liabilities (3,797,000) 1,068,206,824
--------------- --------------
Net cash used for operating activities (3,150,000) (4,488,000)
--------------- --------------
Payments for furniture and equipment (543,000) (700,000)
--------------- --------------
Transfer from parent 3,693,000 5,188,000
--------------- --------------
Cash and cash equivalent at end of period $ 0 $ 0
</TABLE>
F-32
<PAGE>
Gilbert/Commonwealth, Inc.
Note to Consolidated Condensed Financial Statements
for Three Months Ended March 31, 1995
Note 1. The financial statements furnished reflect all
adjustments which are in the opinion of management, necessary for
a fair presentation of financial position and results of operations
for the interim periods. Such adjustments are of a normal
recurring nature.
F-33
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Financial Statements
For the Years Ended 1994, 1993 and 1992
<TABLE><CAPTION>
Balance Sheets
December 30, 1994 December 31, 1993 January 1, 1993
----------------- ----------------- ---------------
<S> <C> <C> <C>
Assets
Current Assets:
Accounts receivable $ 11,659,000 $ 14,741,000 $ 17,715,000
Allowance for bad debts (1,738,000) (2,402,000) (2,341,000)
Unbilled revenue 8,488,000 10,590,000 11,396,000
Deferred income taxes 2,670,000 2,500,000 1,900,000
Other current assets 728,000 755,000 1,296,000
----------------- ----------------- ---------------
Total current assets 21,807,000 26,184,000 29,966,000
Furniture and equipment at cost 22,197,000 22,968,000 21,417,000
Less accumulated depreciation and amortization (18,465,000) (19,379,000) (17,753,000)
----------------- ----------------- ---------------
3,732,000 3,589,000 3,664,000
Deferred income taxes 1,370,000 1,500,000 755,000
----------------- ----------------- ---------------
Total Assets $ 26,909,000 $ 31,273,000 $ 34,385,000
================= ================= ===============
Liabilities
Current Liabilities:
Accounts Payable $ 1,460,000 $ 1,760,000 $ 2,660,000
Salaries and wages 4,247,000 5,095,000 4,979,000
Accrued income taxes 679,000 1,051,000 1,068,000
Accrued health care costs 815,000 869,000 1,263,000
Accrued defined contribution retirement plan 743,000 1,214,000 1,734,000
Estimated liability for contract losses 2,700,000 1,253,000 1,525,000
Contractual billings in excess of recognized revenue 1,921,000 1,956,000 2,030,000
Accrued former employee claims 2,200,000 2,200,000 0
Other current liabilities 1,436,000 2,224,000 2,396,000
----------------- ----------------- ---------------
Total current liabilities 16,201,000 17,622,000 17,655,000
Other non current liabilities 3,440,000 3,374,000 1,914,000
Stockholders' Equity 7,268,000 10,277,000 14,816,000
----------------- ----------------- ---------------
Total Liabilities & Stockholders' Equity $ 26,909,000 $ 31,273,000 $ 34,385,000
================= ================= ===============
</TABLE>
F-34
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Financial Statements
Unaudited Statements of Operations
- ----------------------------------
<TABLE><CAPTION>
December 30, 1994 December 31, 1993 January 1, 1993
----------------- ----------------- ---------------
<S> <C> <C> <C>
Revenue:
Professional service revenue $ 109,741,000 $ 123,101,000 $ 127,755,000
Other Income 2,121,000 1,525,000 681,000
----------------- ----------------- ---------------
111,862,000 124,626,000 128,436,000
----------------- ----------------- ---------------
Costs & Expenses:
Professional service costs 79,173,000 88,510,000 91,751,000
Selling, general and administrative expenses 29,561,000 32,568,000 29,469,000
Depreciation and amortization 1,898,000 1,828,000 1,891,000
----------------- ----------------- ---------------
110,632,000 122,906,000 123,111,000
----------------- ----------------- ---------------
Income before provision for taxes on income 1,230,000 1,720,000 5,325,000
Provision for taxes on income 529,000 695,000 2,103,000
----------------- ----------------- ---------------
Net Income $ 701,000 $ 1,025,000 $ 3,222,000
================= ================= ===============
</TABLE>
F-35
<PAGE>
Gilbert/Commonwealth, Inc.
Unaudited Financial Statements
Statements of Cash Flows
- ------------------------
<TABLE><CAPTION>
December 30, 1994 December 31, 1993 January 1, 1993
----------------- ----------------- ---------------
<S> <C> <C> <C>
Net Income $ 701,000 $ 1,025,000 $ 3,222,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,898,000 1,828,000 1,891,000
Provision(benefit) for doubtful accounts (664,000) 61,000 84,000
Provision for estimated liability for contract losses 2,700,000 0 32,000
Provision(Benefit) from deferred income taxes (40,000) (1,345,000) 510,000
Provision for postretirement benefits 0 1,380,000 0
Changes in current assets and current liabilities:
Accounts receivable and unbilled revenue 5,184,000 3,780,000 4,062,000
Other current assets 27,000 541,000 28,000
Acccounts payable (300,000) (900,000) (1,252,000)
Salaries and wages (848,000) 116,000 276,000
Accrued defined contribution retirement plan (471,000) (520,000) 1,296,000
Estimated liability for contract losses (1,253,000) (272,000) (413,000)
Accrued former employee claims 0 2,200,000 0
Other current liabilities (1,249,000) (657,000) (71,000)
Other, net 66,000 80,000 (113,000)
----------------- ----------------- ---------------
Net cash provided by operating activities 5,751,000 7,317,000 9,552,000
----------------- ----------------- ---------------
Payments for furniture & equipment (2,041,000) (1,753,000) (1,857,000)
----------------- ----------------- ---------------
Long-term debt payment 0 0 1,066,416,824
----------------- ----------------- ---------------
Transfer to parent (3,710,000) (5,564,000) (370,000)
----------------- ----------------- ---------------
Cash and cash equivalents at end of period $ 0 $ 0 $ 0
</TABLE>
F-36
<PAGE>
GILBERT/COMMONWEALTH, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years 1994, 1993 and 1992
Note 1. Significant Accounting Policies:
Fiscal Year: The company uses a 52-53 week fiscal year ending
on the Friday nearest December 31. The 1994, 1993 and 1992 fiscal
years comprised 52 weeks each and ended on December 30, 1994,
December 31, 1993 and January 1, 1993, respectively.
Recognition of Revenue: The company recognizes revenue on
contracts entered into for professional services as the work is
performed. Costs and expenses are charged to operations as
incurred. Losses, estimated to be sustained upon completion of
contracts, are charged to income in the year such estimates are
determinable.
Allocation of Costs: The company's statement of operations
include corporate charges from Gilbert Associates, Inc. (GAI).
Management believes these charges are reasonable and would have
been incurred if the company was a stand alone company.
Property, Plant and Equipment and Accumulated Depreciation and
Amortization: For financial reporting purposes, the company
provides for depreciation and amortization of property, plant and
equipment, including assets under capital leases, on the straight-
line method over the estimated useful lives of the various classes
of assets. For income tax purposes, the company uses accelerated
depreciation where permitted.
Cost of maintenance and repairs is charged to expense as
incurred. Renewals and improvements are capitalized. Upon
retirement or other disposition of items of plant and equipment,
cost of the item and related accumulated depreciation are removed
from the accounts and any gain or loss is included in income.
Income Taxes: The company utilizes the liability method of
accounting for income taxes. Under this method, deferred income
taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax
rates. Provision for taxes on income was allocated based upon
GAI's overall effective income tax rate, prior to adjustments,
which management believes to be proper and a reasonable allocation
method as if the company was a stand alone company.
Statements of Cash Flows: For purposes of the consolidated
statements of cash flows, the company considers all highly liquid
F-37
<PAGE>
investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Note 2. Joint Venture:
The company is a partner in a joint venture with two unrelated
companies. The joint venture was established to service one
contract. The contract expires at the end of 1996 and has an
option for two additional years. Each company has one-third equal
voting rights and, therefore, the company's investment is accounted
for under the equity method. The company receives 51% of the joint
venture's profit, if any. For the years ended 1994, 1993 and 1992,
the company has earned income, prior to taxes, of $2,080,000,
$1,406,000 and $715,000, respectively. These amounts are recorded
in other income on the statement of operations.
Note 3. Postretirement Benefits:
Substantially all regular, full-time employees of the company
are participants in a defined contribution retirement plan.
Employer contributions under this plan are generally at the
discretion of the company, based upon profits and employees'
voluntary contributions to the plan. Company contributions charged
to operations in 1994, 1993 and 1992 totaled $2,561,000, $3,004,000
and $3,568,000, respectively.
The company currently provides life insurance benefits to
retirees. The company is self-insured for these benefits, which
consist primarily of $5,000 policies. The accumulated benefit
obligation was $1,727,000 and $1,607,000 at December 30, 1994 and
December 31, 1993, respectively. These amounts are recorded in
other non-current liabilities on the balance sheet. The
accumulated benefit obligation is primarily unfunded and was
determined using a 6% discount factor.
Note 4. Special Charges:
In the third quarter of 1994, the company recorded a charge to
income of $2,200,000 associated with its nuclear service business.
The charge is comprised of $400,000 for severance and idled leased
facility costs to reflect the current market conditions. The
charge also includes $1,800,000 to increase reserves to cover a
specific audit issue for a contract completed in 1991. The audit
issue was not known by the company until the third quarter of 1994.
The total charge is included in selling, general and administrative
expenses. The entire charge will not have a material impact on
future results of operations.
In the second quarter of 1993, the company recorded a charge
to income of $2,200,000 to increase reserves for costs associated
with resolving a series of claims filed by former employees of a
subsidiary which was closed in 1988. After the income tax benefit
of $880,000, net income was reduced by $1,320,000. The company is
contesting these matters vigorously and is in the process of
F-38
<PAGE>
pursuing various legal actions. The timing of the final resolution
is not yet known.
Note 5. Operating Leases:
The company leases, as lessee, facilities, data processing
equipment, office equipment and automobiles under leases expiring
during the next three years. Total rental expense under operating
lease agreements amounted to $4,425,000 in 1994, $4,992,000 in 1993
and $4,989,000 in 1992. Minimum future rentals under noncancelable
operating leases with initial or remaining terms in excess of one
year at December 30, 1994 are as follows:
1995 $ 752,000
1996 426,000
1997 199,000
----------
Total minimum rentals $1,377,000
==========
Note 6. Contingencies:
Various lawsuits, claims and other contingent liabilities
arise in the ordinary course of the company's business. While the
ultimate disposition of these contingencies is not determinable at
this time, management believes that any liability resulting
therefrom will not materially affect the consolidated financial
statements of the company.
F-39
<PAGE>
Annex A
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement"), dated as of March 30, 1995, is
among The Parsons Corporation, a Delaware corporation ("PARSONS"),
Gilbert/Commonwealth, Inc., a Delaware corporation ("G/C"), and Gilbert
Associates, Inc., a Delaware corporation and the holder of all the outstanding
shares of G/C ("SHAREHOLDER").
A. At the date of this Agreement, G/C is authorized to have outstanding
1,000 common shares, $1.00 par value ("Common Shares"), all of which are
currently outstanding and are owned by SHAREHOLDER.
B. PARSONS and SHAREHOLDER have heretofore entered into an Agreement in
Principle dated March 2, 1995 ("Agreement in Principle"), which Agreement in
Principle contemplates that PARSONS will purchase and SHAREHOLDER will sell, at
the Closing Date (as hereinafter defined), all of the outstanding Common Shares
of G/C for cash in the amount of Forty-Six Million Dollars ($46,000,000),
subject to the terms and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, PARSONS, G/C and SHAREHOLDER agree as follows:
ARTICLE 1. THE PURCHASE OF COMMON SHARES
1.1. The closing on the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 a.m. on the second business day after the
conditions and obligations set forth in Sections 5.1, 5.2, 6.4 and 6.7 hereof to
be satisfied prior to Closing have been met, or on such other date as may be
agreed upon in writing by the parties (the "Closing Date"), subject to the terms
and conditions set forth in this Agreement, PARSONS agrees to purchase from
SHAREHOLDER and SHAREHOLDER agrees to sell, assign, transfer and convey to
PARSONS, all of the outstanding Common Shares on the terms set forth below. On
the Closing Date, SHAREHOLDER will deliver to PARSONS a certificate or
certificates evidencing all of the outstanding Common Shares, together with duly
executed stock transfer powers relating thereto, against
<PAGE>
payment by PARSONS in the amount contemplated by Section 1.2 hereof. The
closing will take place at the offices of G/C, at 10:00 a.m. local time or at
such other time and place as may be agreed upon by the parties.
1.2. Subject to the terms and conditions set forth in this Agreement, as
payment of the purchase price for the Common Shares, PARSONS will pay, by wire
transfer, to such bank account as SHAREHOLDER shall advise PARSONS in writing,
Forty-Six Million Dollars ($46,000,000). The purchase price shall be adjusted
as follows:
1.2.1. As soon as reasonably practical after March 31, 1995,
SHAREHOLDER and G/C shall prepare and deliver to PARSONS an adjusted
consolidated balance sheet of G/C as of March 31, 1995 (the "Adjusted March
Balance Sheet"). Such Adjusted March Balance Sheet shall be prepared in
accordance with generally accepted accounting principles, except as noted
thereon, using the same historic practices, methods and criteria employed by G/C
in connection with its preparation of the adjusted consolidated balance sheet of
G/C as of December 30, 1994, as reviewed and accepted by PARSONS and attached
hereto as Exhibit A (the "G/C Balance Sheet"), to the extent such practices,
methods and criteria are consistent with generally accepted accounting
principles. All expenses incurred in connection with the preparation of the
Adjusted March Balance Sheet shall be the responsibility of SHAREHOLDER.
1.2.2. The Adjusted March Balance Sheet shall become final and
binding upon the parties unless within 60 days following its submittal to
PARSONS, PARSONS notifies SHAREHOLDER of its objection thereto. If PARSONS
notifies SHAREHOLDER of any objection to the Adjusted March Balance Sheet,
PARSONS, SHAREHOLDER and G/C shall negotiate in good faith to resolve any
differences. If within 30 days following the receipt of such notice by
SHAREHOLDER any of such differences have not been resolved, they shall be
resolved by a certified public accounting firm mutually acceptable to PARSONS
and SHAREHOLDER whose opinion thereon and the resulting Adjusted March Balance
Sheet shall be final, binding and not subject to any appeal. The fees and
expenses of such certified public accounting firm shall be paid one-half by
PARSONS and one-half by SHAREHOLDER. If resolution is not reached prior to the
Closing Date, a post-Closing Date adjustment to the Purchase Price shall be
made.
-2-
<PAGE>
1.2.3. After the Adjusted March Balance Sheet has been finally
determined, either (i) the purchase price for the Common Shares shall be
increased, on a dollar-for-dollar basis, by the amount, if any, by which G/C's
Stockholder's Equity as of March 31, 1995, as set forth on the final Adjusted
March Balance Sheet, exceeds $15,000,000, or (ii) the purchase price for the
Common Shares shall be reduced by the amount, if any, by which $15,000,000
exceeds G/C's Stockholder's Equity as of March 31, 1995, as set forth on the
final Adjusted March Balance Sheet, as the case may be. If the Closing Date
does not occur prior to May 1, 1995, PARSONS agrees to pay interest at the IBOR
rate plus 75 basis points, calculated on the basis of actual days elapsed, on
the purchase price, as adjusted pursuant to this Section 1.2.3, from May 1, 1995
until the earlier of the Closing Date or the termination of this Agreement in
accordance with its provisions.
1.2.4. Nothing in this Section 1.2 shall preclude any party from
exercising, or shall adversely affect or otherwise limit in any respect the
exercise of, any right or remedy available to it hereunder or otherwise for any
misrepresentation or breach of warranty hereunder, but neither PARSONS,
SHAREHOLDER nor G/C shall have any right to dispute the Adjusted March Balance
Sheet or any portion thereof once it has been finally determined in accordance
with Section 1.2.2 hereof.
1.2.5. The Purchase Price for the Common Shares shall be subject to
further adjustment as set forth in Section 3.1.9.
1.3. SHAREHOLDER shall submit this Agreement to the holders of its Class B
Voting Common Stock (the "Class B Stockholders") for approval at a special
meeting to be held as soon as practicable and will use its reasonable best
efforts to hold such meeting as soon as possible in accordance with Sections 4.2
and 4.3 hereof.
1.4. SHAREHOLDER represents and warrants that its board of directors has
determined that the sale of the Common Shares pursuant to this Agreement is fair
to and in the best interests of SHAREHOLDER's stockholders, has approved this
Agreement and has resolved to recommend approval of this Agreement by its
stockholders. SHAREHOLDER further represents and warrants that Dillon, Read &
Co. Inc., SHAREHOLDER's financial advisor, has advised its board of directors
that the price to be paid to SHAREHOLDER for the outstanding Common Shares is
fair to SHAREHOLDER and its stockholders from a
-3-
<PAGE>
financial point of view. In addition, SHAREHOLDER represents and warrants that,
to the best of its knowledge, each of its directors and executive officers
intends to vote his or her shares of SHAREHOLDER common stock in favor of
approval of this Agreement.
ARTICLE 2. RELATED TRANSACTIONS
2.1. It is understood that the names "Gilbert" and "Gilbert/Commonwealth"
have value in the market place. All rights to the name, "Gilbert/Commonwealth"
will become the property of PARSONS upon Closing hereunder. After the Closing
Date SHAREHOLDER shall have no continuing right to use the name "Gilbert" in
combination with the word "Commonwealth" and/or the name of PARSONS or any of
its affiliates. SHAREHOLDER shall however, have the continuing right to use the
name "Gilbert" in any combination, other than with the word "Commonwealth"
and/or the name of PARSONS or any of its affiliates, and the abbreviation "GAI"
in the name of its Subsidiary corporation "GAI - Tronics Inc." and its products
and services or any other use. Additionally, SHAREHOLDER shall have the limited
right to use the name, "Gilbert/Commonwealth" for the 12 months immediately
following Closing, for the sole purpose of allowing a transition period for
SHAREHOLDER to identify itself as the former owner of G/C.
2.2. The parties specifically acknowledge and agree that ownership of
certain real estate, personal property, inter-company note and intercompany
advances and indebtedness and stock in Subsidiary corporations shall prior to
the Closing Date be transferred to the SHAREHOLDER and shall not be part of the
sale to PARSONS contemplated hereunder, all as more specifically described in
Exhibit B hereto.
2.3. SHAREHOLDER shall retain responsibility for certain liabilities after
Closing hereunder, including the TVA Sequoyah Contract Settlement, liability
relative to the Mazur Case, payments under the Dividend Unit Plan, open window
pensions, post retirement life insurance policies, and post retirement medical
benefits to the individuals listed on Exhibit E all as more specifically
described in Exhibit B hereto. PARSONS shall, however, assume responsibility
for any bonds, guarantees and the like which have been issued or granted by
SHAREHOLDER in support of G/C's operations.
-4-
<PAGE>
2.4. The parties specifically acknowledge that PARSONS will not be
obligated to become responsible for any existing welfare or retirement benefit
plans in which G/C employees participate. SHAREHOLDER shall be solely
responsible for any expenses associated with the termination of any such plans
not continued by PARSONS subsequent to the Closing Date. Should PARSONS
continue any such welfare benefit plans after the Closing Date, to the extent
that continued participation therein by SHAREHOLDER and its Subsidiaries can be
achieved at no cost to PARSONS, SHAREHOLDER and its Subsidiaries shall be
allowed continued participation. SHAREHOLDER shall retain participant accounts
under the Retirement Savings Plan for Employees of Gilbert Associates, Inc. and
The Gilbert Associates, Inc. Stock Purchase Program for the benefit of employees
of G/C and the Included Subsidiaries who participated in such plans prior to the
Closing Date and shall continue to administer, modify or terminate such
accounts, at its cost and expense, in accordance with the terms of the plans.
2.5. The parties specifically acknowledge and agree that G/C and
SHAREHOLDER share many operating facilities and systems. PARSONS hereby agrees
that SHAREHOLDER shall be allowed to share joint use and access to such
facilities and systems for the time periods and under such arrangements as more
specifically described in Exhibit C hereto.
2.6. PARSONS and G/C shall execute a lease agreement, substantially in the
form of Exhibit D hereto, providing for the lease from SHAREHOLDER of not less
than 200,000 square feet of space for a term of not less than 10 years. Said
Lease shall become effective upon the Closing Date.
2.7. The Parties specifically agree that March 31, 1995 shall be the date
that the Parties shall use to identify the effective transfer of operations of
G/C from SHAREHOLDER to PARSONS (the "Deal Date"). From this date forward, G/C
shall be operated for the account of PARSONS as if the Closing Date had actually
occurred.
2.8. PARSONS and SHAREHOLDER will jointly elect to treat the purchase of
the outstanding Common Shares of G/C, and the deemed purchases of the
outstanding stock of Gilbert/Commonwealth of Ohio, a Ohio corporation, Gilbert
Investment Company, a Delaware corporation, and GAICO Corporation, a Delaware
corporation, as a purchase of assets under Section 338(h)(10) of the Internal
Revenue Code of 1986,
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as amended (the "Code") pursuant to the regulations thereunder, and will treat
each such corporation as a section 338(h)(10) target, and will each timely file
IRS Form 8023 and any other forms required by law or regulation. Subsequent to
the transactions contemplated by this Agreement, neither PARSONS, G/C or
SHAREHOLDER will take any actions inconsistent with this election. The parties
will additionally, after the Closing, use their best efforts to jointly prepare
a schedule setting forth the fair market value of each category of assets
transferred hereunder in order to allow computation of gain on the sale and
establish the cost of the assets purchased.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
3.1. SHAREHOLDER and G/C, jointly and severally, represent, warrant and
covenant that the following statements and representations are true and correct.
3.1.1. G/C is a Delaware corporation duly organized, validly
existing and in good standing under the laws thereof. The information set forth
in Recital A to this Agreement is true and correct as of the date hereof and
will be true and correct as of the Closing Date. All of the outstanding Common
Shares are, and will be as of the Closing Date, duly authorized, validly issued,
fully paid and nonassessable, were not issued in violation of the terms of any
agreement or understanding binding upon G/C and were issued in compliance with
all applicable charter documents of G/C and all applicable federal, state and
foreign securities laws, rules and regulations. There are, and have been, no
preemptive rights with respect to the issuance of the Common Shares or any other
capital shares of G/C.
3.1.2. Except as set forth in the Schedule entitled "Corporate
Data," separately provided to PARSONS prior to the date hereof, (a) G/C has no
Subsidiary corporation and has no interest in any partnership, firm or
corporation; (b) no shareholder, and to the best of Shareholder's knowledge, no
director or officer of G/C or any Subsidiary (as hereinafter defined) has any
interest in any partnership, firm or corporation, which was or is doing
business, directly or indirectly, as professional engineers, other than
shareholder and guardianships interests of less than one percent of the
outstanding shares of publicly held corporations; (c) each Subsidiary is duly
organized, validly existing and in good standing under the laws of its
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jurisdiction of incorporation, and the outstanding shares of capital stock of
each such Subsidiary are duly authorized, validly issued, fully paid and
nonassessable; (d) G/C holds beneficially and of record all of the issued and
outstanding shares of capital stock and the entire voting power of each
Subsidiary; and (e) all shares of capital stock of Subsidiaries shown to be held
beneficially or of record by G/C or one of its Subsidiaries in the
aforementioned Schedule at the Closing Date will be free and clear of all liens,
encumbrances, claims, restrictions and other charges of every kind except as
disclosed on the aforementioned Schedule. All partnerships, firms or
corporations set forth on such Schedule as subsidiaries are herein collectively
referred to as the "Subsidiaries" and individually referred to as a
"Subsidiary."
3.1.3. Except as set forth in the Schedule entitled "Corporate
Data," separately provided to PARSONS prior to the date hereof, neither
SHAREHOLDER, G/C nor any Subsidiary has any commitment or obligation, either
firm or conditional, to issue, sell or purchase, whether under offers, rights of
first refusal, stock option agreements, stock bonus agreements, warrants,
conversion rights, partnership or joint venture agreements or otherwise, any
shares of capital stock or other securities or interests of G/C or any
Subsidiary. SHAREHOLDER has full right, power and authority to execute and
deliver and, subject only to the requisite approval of its stockholders and
compliance with the Hart-Scott-Rodino Antitrust Improvements Act (the "H-S-R
Act"), to perform this Agreement. This Agreement has been duly executed and
delivered by SHAREHOLDER and constitutes the legal, valid and binding obligation
of SHAREHOLDER and is enforceable against SHAREHOLDER in accordance with its
terms. Except as set forth in such Schedule, SHAREHOLDER has no claim, either
accrued, absolute, contingent or otherwise and whether known or unknown, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, against G/C or any Subsidiary for any reason. SHAREHOLDER holds
beneficially and of record, and on the Closing Date will convey to PARSONS, all
of the issued and outstanding shares of capital stock and the entire voting
power of G/C, and all shares of capital stock of G/C are free and clear of all
liens, encumbrances, claims restrictions and other charges of every kind except
as disclosed in the aforementioned Schedule and approved in writing by PARSONS.
All outstanding Common Shares are duly authorized, validly issued, fully paid
and nonassessable
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and held of record and beneficially by SHAREHOLDER, free and clear of all liens,
encumbrances, claims, restrictions or other charges of every kind.
3.1.4. G/C and each Subsidiary have power and authority to own
their properties and to carry on their businesses as they are presently
conducted in all jurisdictions in which such businesses are being conducted.
G/C and each Subsidiary are qualified to do business as a foreign corporation
and licensed to do business as professional engineers in each jurisdiction in
which G/C or any such Subsidiary, as the case may be, is required under
applicable laws to be so qualified and licensed, except where the failure to be
so qualified or licensed would not result in a material liability or disability
to G/C and its Subsidiaries, and G/C and each such Subsidiary are doing business
as professional engineers in such jurisdictions in accordance with the laws
applicable thereto, in all material respects, and in a form of business entity
permitted thereby, and each of the businesses of G/C and each Subsidiary is
currently being conducted in all material respects in compliance with all
applicable laws and other requirements of governmental authorities, including
without limitation Environmental Laws (as hereinafter defined); labor and safety
laws, statutes, ordinances and regulations; the Foreign Corrupt Practices Act;
and the Export Administration Act.
3.1.5. At the date of the G/C Balance Sheet, there were no material
liabilities, whether absolute, accrued, contingent or otherwise, and whether due
or to become due, that were of a type customarily reflected in the balance
sheets prepared by or on behalf of G/C and notes thereto and that are not so
reflected in the G/C Balance Sheet or notes thereto and all material liabilities
which have arisen since the date of the G/C Balance Sheet were incurred in the
ordinary course of business.
3.1.6. Since the date of the G/C Balance Sheet, (a) G/C and each
Subsidiary has conducted its businesses only in the ordinary and usual course,
and there has been no material adverse change in the condition, financial or
other, of G/C and any of its Subsidiaries, and (b) the businesses, properties
and assets of G/C and the Subsidiaries have not been materially and adversely
affected as the result of any strike, fire, explosion, earthquake, disaster,
accident or other catastrophic event or casualty. Neither G/C nor any
Subsidiary is liable for or subject to any material liability as of the date
hereof except for (i) those liabilities and obligations adequately and
specifically disclosed on the G/C Balance Sheet and not heretofore paid or
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discharged; (ii) those liabilities and obligations arising in the ordinary
course of its business consistent with past practice under any contract,
commitment or agreement specifically disclosed on any Schedule to this Agreement
or not required to be disclosed thereon because of the term or amount involved
or otherwise; and (iii) those liabilities and obligations incurred, consistent
with its past practice, in the ordinary course of its business and either not
required to be shown on the G/C Balance Sheet or arising since the date of the
G/C Balance Sheet, which liabilities and obligations in the aggregate are of a
character and magnitude consistent with its past practice.
3.1.7. Except for property acquired or disposed of in the ordinary
course of business since the date of the G/C Balance Sheet, and for property,
real or personal, leased by G/C or any Subsidiary, the G/C Balance Sheet
reflects all of the property owned or leased by G/C and each Subsidiary in their
businesses, and G/C or one or more of its Subsidiaries has good title, free and
clear of any imperfections of title, lien, claim, encumbrance, restriction,
charge or equity of any nature whatsoever, to all property (real and personal)
owned by G/C or any Subsidiary having a value in excess of $50,000, except for
(i) such assets which are not material to the conduct of the business of G/C or
any Subsidiary; (ii) assets being leased under capitalized leases; (iii) minor
imperfections of title which do not materially restrict the use of such assets;
or (iv) those items disclosed in the Schedule entitled "Liens" provided
separately to PARSONS prior to the date hereof. All of the tangible properties
owned or leased by G/C or any Subsidiary, having a value in excess of $25,000,
are in satisfactory operating condition except for ordinary wear and tear.
3.1.8. Since the date of the G/C Balance Sheet, except as
contemplated by this Agreement, neither G/C nor any Subsidiary has: (a) issued
any stocks, bonds, notes, or other securities or instruments convertible into
equity securities or warrants, options or other rights to acquire equity
securities; (b) voluntarily incurred any material obligation or liability
(absolute or contingent) except in the ordinary course of business; (c)
discharged or satisfied any lien or encumbrance or paid any obligation or
liability (absolute or contingent) other than current liabilities shown on the
G/C Balance Sheet, current liabilities incurred since the date of the G/C
Balance Sheet in the ordinary course of business, liabilities shown on the
Schedules entitled "Contracts for Services of G/C" and "Commitments of G/C"
attached hereto, and obligations incurred and due
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under contracts entered into in the ordinary course of business; (d) declared or
made any payment, dividend, or distribution to the shareholders or holders of
beneficial interest of G/C or any Subsidiary as such, or purchased or redeemed
any of the capital stock or beneficial interests of G/C or any Subsidiary; (e)
mortgaged, pledged, or subjected to lien or any other encumbrance any of the
assets, tangible or intangible, having a value exceeding $50,000, of G/C or any
Subsidiary, except in connection with surety and bonding contracts made in the
ordinary course of business; (f) sold or transferred any of the assets of G/C or
any Subsidiary except in the ordinary course of business; (g) suffered any
extraordinary damage, destruction or loss, whether or not covered by insurance,
or waived any right of substantial value; (h) entered into any transactions
other than in the ordinary course of business, except transactions in connection
with the making and performing of this Agreement and transactions expressly
permitted hereby or approved in writing by PARSONS; (i) paid or committed
itself to pay to or for the benefit of any of the directors, officers,
shareholders, holders of beneficial interest or employees of G/C or any
Subsidiary any compensation of any kind other than wages and salaries at rates
then in effect or agreed to in writing by PARSONS and normal fringe benefits and
bonuses paid in the normal course; (j) made any capital expenditure or capital
addition or betterment except for such as may be involved in the ordinary
repair, maintenance and replacement of their assets; or (k) made or suffered any
amendment to or termination of any material contract or commitment to which they
are or were a party or by which they or any of their properties are or were
bound.
3.1.9. SHAREHOLDER shall be responsible for reporting and paying
all income taxes and all franchise or excise taxes based on income or net worth
of G/C and its Subsidiaries for all periods, partial periods, and dates ending
on or before the Closing Date (collectively, Pre-closing IFE Taxes or Tax
Returns). Any Pre-closing IFE Tax overpayments shall be refunded to
SHAREHOLDER. G/C or its successor shall execute all documents and take all
actions, in each case reasonably necessary to facilitate SHAREHOLDER's receipt
and negotiation of checks refunding such tax overpayments.
SHAREHOLDER shall be responsible for scheduling, conducting and resolving
all audits, examinations or reviews by taxing authorities of Pre-closing IFE Tax
Returns and waiving or extending the applicable statutes of limitation with
respect to such returns; provided, however, that SHAREHOLDER shall secure the
prior
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written consent of G/C (which shall not be unreasonably withheld) before
disposing or otherwise resolving any issues which could affect the tax liability
of G/C or any of its Subsidiaries for any period or partial period after the
Closing Date. G/C or its successors shall provide SHAREHOLDER's designated
employees or other representative and tax auditors reasonable access to data and
information relevant to the preparation and audit of Pre-closing IFE Tax Returns
during normal business hours as long as the applicable statute of limitation for
any such return remains open. Any amounts owing as the result of such audits
shall be the sole responsibility of SHAREHOLDER.
As an adjustment to the purchase price set forth in Section 1.2 hereof, G/C
shall pay SHAREHOLDER within 45 days following the Closing Date an amount equal
to 40% of the pre-tax book income of G/C and its Subsidiaries (excluding Green
Hills Management Company) for the period commencing April 1, 1995 and ending on
the Closing Date (periods of less than one accounting month will be prorated on
a daily basis).
As an adjustment to the purchase price set forth in Section 1.2 hereof,
SHAREHOLDER shall pay G/C within 45 days following the Closing Date an amount
equal to 40% of the pre-tax book loss of G/C and its Subsidiaries for the period
commencing April 1, 1995 and ending on the Closing Date (periods of less than
one accounting month will be prorated on a daily basis).
Except as set forth in the Schedule entitled "Tax Matters", separately
provided to PARSONS prior to the date hereof, G/C and its Subsidiaries have
filed all federal, foreign, state, county and local income, excise, property and
other tax returns or statements ("Returns") which are required to be filed by
law on or before the Closing Date and all such Returns are complete and correct
in all material respects and correctly reflect the liability of G/C and its
Subsidiaries for Taxes (as hereinafter defined) for the periods, properties or
events covered thereby. Except as set forth on such Schedule, all Taxes shown
as due on the Returns or otherwise due thereunder, and all Taxes accruable or
otherwise attributable to events occurring on or prior to the Closing Date,
including all liability for taxes from the Section 338(h)(10) election described
in Section 2.8 hereof, whether disputed or not, whether or not shown on any
Return, and whether or not currently due or payable, have been paid or will have
been paid in full prior to the Closing Date. The federal income tax returns of
G/C for its fiscal years through December 31, 1990 have been examined by the
Internal Revenue Service ("IRS"),
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and all assessments asserted have been paid. No issue has been raised by the
IRS which can reasonably be expected to result in a material deficiency for any
fiscal year not so examined that has not been recorded on an accrual basis on
the G/C Balance Sheet. The G/C Balance Sheet includes adequate provision, on an
accrual basis under generally accepted accounting principles, for all unpaid
Taxes other than income and franchise or excise taxes based on income or net
worth for which SHAREHOLDER is responsible hereunder with respect thereto for
all periods through the date of the G/C Balance Sheet, whether or not currently
payable. All payroll taxes and other Taxes required to be withheld by G/C and
its Subsidiaries from its employees, creditors or third parties have been
withheld, deposited with the proper authorities without material delays, or
shown as a liability in the G/C Balance Sheet if not yet due for deposit, and
accounted for in accordance with generally accepted accounting principles. No
deficiency in respect of any Taxes which has been assessed against G/C or any
Subsidiary remains unpaid and neither SHAREHOLDER nor G/C has any knowledge of
any unassessed Tax deficiencies or of any audits or investigations pending or
threatened against G/C or any Subsidiary with respect to any Taxes. Except for
income tax returns and franchise or excise tax returns based on income or net
worth due in 1995 prior to the Closing Date, there is in effect no extension for
the filing of any Tax Return and neither G/C nor any Subsidiary has extended or
waived the application of any statute of limitations of any jurisdiction
regarding the assessment or collection of any Tax. No claim has ever been made
by any Tax authority in a jurisdiction in which G/C or any Subsidiary does not
file Tax returns that it is or may be subject to taxation by that jurisdiction.
There are no liens for Taxes upon any asset of G/C or any Subsidiary except for
liens for current Taxes not yet due. No issues have been raised in any
examination by any Tax authority with respect to G/C or any Subsidiary which, by
application of similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. Neither G/C nor any
Subsidiary is a party to any Tax allocation or sharing agreement or otherwise
under any obligation to indemnify any person with respect to any Taxes.
For purposes of this Agreement, "Taxes" means any taxes, duties,
assessments, fees, levies or similar governmental charges, together with any
interest, penalties and additions to tax, imposed by any taxing authority,
wherever located (i.e. whether federal, state, local, municipal or foreign),
----
including without
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limitation all net income, gross income, gross receipts, net receipts, sales,
use, transfer, franchise, privilege, profits, social security, disability,
withholding, payroll, unemployment, employment, excise, severance, property,
windfall profits, value added, ad valorem, occupation or any other similar
-- -------
governmental charge or imposition.
3.1.10. Except as disclosed in the Schedule entitled "Claims,"
separately provided to PARSONS prior to the date hereof, there is no litigation,
action, suit, government investigation, claim or proceeding pending against, or
to the best knowledge of SHAREHOLDER, G/C and each Subsidiary threatened against
or affecting, G/C or any Subsidiary, at law or in equity or before any federal,
foreign, state, municipal, local or other governmental authority or any
arbitration panel, nor is there any known basis for any such litigation, action,
suit, investigation, claim or proceeding in the future, and neither G/C nor any
Subsidiary (a) is subject to or in default under any judgment, order, writ,
injunction or decree of any court or any federal, foreign, state, municipal,
local or other governmental authority or any arbitration panel, or (b) to the
best knowledge of SHAREHOLDER, G/C and each Subsidiary, has been cited for or
become aware of the existence of any material violation of any federal, state,
municipal, local or other governmental law, rule or ordinance with regard to the
environment, occupational health and safety or discrimination on the basis of
race, sex, age, national origin, marital status, handicap or veteran status or
(c) is a direct party to any labor dispute or union organization attempt.
3.1.11. The Schedule entitled "Contracts for Services of G/C,"
separately provided to PARSONS prior to the date hereof, is a full and complete
list of each partially or wholly executory contract or agreement for the
performance of services by G/C or any Subsidiary which has resulted in or is
expected to result in revenues to G/C exceeding $100,000, such Schedule being as
of the date recorded in the headings thereof. To the best knowledge of
SHAREHOLDER, G/C and each Subsidiary, no such contracts are subject to
renegotiation or other possible reduction of fees or other payments to G/C or
any Subsidiary. No such contract is reasonably expected, to the best knowledge
and belief of SHAREHOLDER, G/C and each Subsidiary, to result in any material
loss which has not been recorded in G/C's financial statements. Except as may
be disclosed on the aforementioned Schedule, each of the agreements, contracts,
commitments, arrangements,
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leases and other instruments, documents and undertakings listed on the
aforementioned Schedule hereto, to the best knowledge of SHAREHOLDER, G/C and
each Subsidiary, is valid and enforceable in accordance with its terms, and the
parties thereto are in compliance with the material provisions thereof, no party
is in default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained therein, and no event has occurred
which with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder; furthermore, except as may be disclosed on the
aforementioned Schedule, no such agreement, contract, commitment, arrangement,
lease or other instrument, document or undertaking, in the reasonable opinion of
SHAREHOLDER or G/C, contains any contractual requirement with which there is a
reasonable likelihood G/C, any Subsidiary or any other party thereto will be
unable to comply, provided that no representation or warranty is made with
respect to the future profitability of any such agreement, contract, commitment,
arrangement, lease or other instrument, document or undertaking.
3.1.12. The Schedule entitled "Commitments of G/C," separately
provided to PARSONS prior to the date hereof, constitutes a full and complete
list (except as otherwise indicated thereon) of each partially or totally
executory contract or agreement obligating G/C or any Subsidiary to pay or
provide services in the amount of $75,000 or more such Schedules being as of the
date recorded in the headings thereof, other than such contracts or agreements
listed in the Schedule entitled "Contracts for Services of G/C," including,
without limiting the generality of the foregoing, (a) all contracts for
consulting, engineering or other professional services rendered to G/C or any
Subsidiary; (b) all notes, mortgages, loan agreements, security agreements,
guarantees, credit agreements and other evidences of indebtedness; (c) all
contracts and agreements with employees, directors, officers, consultants,
holders of beneficial interest or shareholders, including without limitation
those relating to salary, bonus and other remuneration or reimbursement
arrangements; (d) all leases, subleases and other agreements relating to real or
personal property used or occupied by or intended to be used or occupied by G/C
or any Subsidiary, except for those that are terminable at the option of G/C or
any Subsidiary on 30 days or less notice; (e) all agreements and contracts
relating to ownership of the Common Shares or the ownership by G/C or any
Subsidiary or any third party of securities in Subsidiaries that are
corporations, or partnership or other interests in Subsidiaries that are not
corporations; (f) all licenses,
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sublicenses and other contracts and agreements to which G/C or any Subsidiary is
party or otherwise subject relating to patents, trademarks, trade names or
copyrights or applications for any thereof, inventions, trade secrets or other
proprietary know-how or technical assistance; and (g) all contracts and
agreements between labor unions and G/C or any Subsidiary. As used in this
Section 3.1.12 the terms "contract" and "agreement" mean and include every
contract, agreement and promise, whether written or oral, if enforceable against
G/C or any Subsidiary. Except as may be disclosed on the aforementioned
Schedule, each of the agreements, contracts, commitments, arrangements, leases
and other instruments, documents and undertakings listed on the aforementioned
Schedule hereto, to the best knowledge of SHAREHOLDER, G/C and each Subsidiary,
is valid and enforceable in accordance with its terms, and the parties thereto
are in compliance with the provisions thereof, no party is in default in the
performance, observance or fulfillment of any material obligation, covenant or
condition contained therein, and no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute a default
thereunder; furthermore, except as may be disclosed on the aforementioned
Schedule, no such agreement, contract, commitment, arrangement, lease or other
instrument, document or undertaking, in the reasonable opinion of SHAREHOLDER or
G/C, contains any contractual requirement with which there is a reasonable
likelihood G/C, any Subsidiary or any other party thereto will be unable to
comply, provided that no representation or warranty is made with respect to the
future profitability of any such agreement, contract, commitment, arrangement,
lease or other instrument, document or undertaking.
3.1.13. G/C and its Subsidiaries have in full force and effect, with
all billed premiums thereon paid, the policies of insurance set forth in the
Schedule entitled "Insurance," separately provided to PARSONS prior to the date
hereof, which Schedule constitutes a full and complete list of all policies of
insurance to which G/C or any Subsidiary is a party, other than life insurance
policies and insurance policies related to employee benefit plans shown on the
Schedule entitled "Employee Benefits," separately provided to PARSONS prior to
the date hereof. No notice of cancellation or termination has been received
with respect to any such policy, and neither SHAREHOLDER, G/C nor any Subsidiary
has any knowledge of any act or omission which could reasonably be expected to
result in cancellation of any such policy prior to its scheduled expiration
date. Neither G/C nor any Subsidiary has been refused any insurance with
respect to any
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aspect of the operations of its business nor has its coverage been limited by
any insurance carrier to which it has applied for insurance or with which it has
carried insurance during the last three years. G/C and each Subsidiary have
duly and timely made all claims they have been entitled to make under each
policy of insurance. Since January 1, 1990, all general liability policies
maintained by or for the benefit of G/C and each Subsidiary have been
"occurrence-based" policies, and all professional and umbrella liability
policies maintained by or for the benefit of G/C and each Subsidiary have been
"claims made" policies. Except as may be disclosed in the Schedule entitled
"Claims" separately provided to PARSONS prior to the dater hereof, there is no
claim by G/C or any Subsidiary pending under any such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies, and neither SHAREHOLDER, G/C nor any Subsidiary knows of any basis for
denial of any claim under any such policy. Such policies are sufficient in all
material respects for compliance by G/C and the Subsidiaries with all
requirements of law and with the requirements of all material contracts to which
they are parties.
3.1.14. The Schedule entitled "Corporate Data," separately provided
to PARSONS prior to the date hereof, contains a full and complete list of (a)
all direct and indirect Subsidiary corporations of G/C, all partnerships, firms
and corporations in which G/C has any interest, and all partnerships, firms or
corporations which were or are doing business, directly or indirectly, as
professional engineers and in which any director or officer of G/C has any
interest other than interests of less than one percent in publicly held
corporations; (b) all states or equivalent governmental entities, including
without limitation foreign countries, in which G/C or any Subsidiary is
qualified as a foreign corporation or is licensed to do business and the manner
in which licensed (e.g., engineer, etc.); (c) all states or equivalent
governmental entities, including without limitation foreign countries, in which
G/C or any Subsidiary is obligated to register as an employer or pay taxes,
during the last two years; (d) all investments of G/C and each Subsidiary in
debt securities having a maturity in excess of 90 days, and equity securities;
(e) the jurisdictions, domestic and foreign, in which G/C and each Subsidiary
currently is doing business and it is necessary for an individual to be licensed
as a professional engineer or otherwise in order for G/C or any Subsidiary to
conduct its business in such jurisdiction, including without limitation the name
and position held with G/C or any Subsidiary of each such
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individual except where the failure to be so qualified or licensed would not
result in a material liability or disability to G/C and its Subsidiaries; and
(f) all SHAREHOLDER guarantees or bonds issued on behalf of G/C which are to be
assumed, reissued or guaranteed by PARSONS.
3.1.15. There are no receivables of G/C or any Subsidiary owing by
directors, officers, employees, holders of beneficial interest or shareholders
of G/C or any Subsidiary or, to the best knowledge of SHAREHOLDER, G/C and each
Subsidiary, owing by corporations, partnerships, firms and organizations in
which directors, officers, employees, holders of beneficial interest or
shareholders of G/C or any Subsidiary have any interest, other than advances in
the ordinary and usual course of business to officers and employees for
reimbursable business expenses.
3.1.16. For purposes of this Agreement, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life (including without limitation any individual life insurance policy under
which any employee of G/C or any Subsidiary is the named insured and as to which
G/C or any Subsidiary makes premium payments, whether or not G/C or such
Subsidiary is the owner, beneficiary or both of such policy), death benefit,
group insurance, profit-sharing, deferred compensation, stock option, bonus,
incentive, vacation pay, severance pay, or other employee benefit plan, trust,
arrangement, contract, agreement, policy or commitment (including without
limitation any pension plan as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("Pension Plan"), and any
welfare plan as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("Welfare Plan")), whether or not any of the
foregoing is funded or insured and whether written or oral, which is intended to
provide or does in fact provide benefits to any or all employees of G/C or any
Subsidiary, and (i) to which G/C or any Subsidiary is a party or by which G/C or
any Subsidiary (or any of the rights, properties or assets of G/C or any
Subsidiary) is bound, or (ii) with respect to which G/C or any Subsidiary has
any liability or potential liability (whether or not G/C or any Subsidiary still
maintains or ever maintained such plan, trust, arrangement, contract, agreement,
policy or commitment). With respect to the Employee Plans:
(i) There are no Employee Plans other than those
disclosed in the Schedule entitled "Employee Benefits," separately provided to
PARSONS prior to the date hereof.
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(ii) No Pension Plan is a "multiemployer pension plan"
within the meaning of Section 3(37) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), nor has G/C or any ERISA Affiliate at any
time after January 1, 1986 contributed, or had any obligation to contribute, to
a multiemployer pension plan. An "ERISA Affiliate" is any entity that is or has
been at any time during the five years preceding the Closing Date (i) a member
of a controlled group of corporations, within the meaning of Section 414(b) of
the Code, of which G/C or any Subsidiary is or was a member; (ii) a trade or
business under common control with G/C or any Subsidiary, within the meaning of
Section 414(c) of the Code; (iii) a member of an affiliated service group with
G/C or any Subsidiary, within the meaning of Section 414(m) of the Code; or (iv)
related to G/C or any Subsidiary within the meaning of Section 414(o) of the
Code or the proposed regulations thereunder.
(iii) Each Employee Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the IRS stating that the plan meets the requirements of the Code, including
without limitation the requirements of the Tax Equity and Fiscal Responsibility
Act of 1982, the Retirement Equity Act of 1984 and the Deficit Reduction Act of
1984, and that the trust associated with the plan is tax-exempt under Section
501(a) of the Code, copies of which determination letters have been furnished to
PARSONS. Each such Employee Plan has been operated and administered in material
compliance with all applicable requirements under Section 401(a) of the Code and
(i) has received a favorable determination from the IRS that the plan meets the
requirements of the Tax Reform Act of 1986 and all applicable legislation and
regulatory requirements for tax qualification that become effective for the plan
prior to January 1, 1995 ("TRA 86 letter"); or (ii) has been submitted to the
IRS with an application for a TRA 86 letter but no determination has yet been
made by the IRS; or (iii) will be submitted to the IRS with an application for a
TRA 86 letter before the end of the applicable remedial amendment period under
Section 401(b) of the Code.
(iv) To the best knowledge of SHAREHOLDER, G/C and each
Subsidiary, no facts exist that could be reasonably expected to affect adversely
the tax-qualified status of any Employee Plan that has received a favorable
determination letter from the Internal Revenue Service.
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(v) No lawsuits, claims (other than routine claims for
benefits) or complaints to, or by, any person or governmental entity have been
filed, are pending or, to the best knowledge of SHAREHOLDER, G/C or any
Subsidiary, have been threatened, and no facts or contemplated event exist that
could be expected to give rise to any such lawsuit, claim (other than a routine
claim for benefits) or complaint, with respect to any Employee Plan where G/C or
any Subsidiary may be either (i) liable directly on such lawsuit, claim or
complaint, or (ii) obligated to indemnify any person, group or persons, or
entity with respect to such lawsuit, claim or complaint.
(vi) Each Employee Plan, the administrator and fiduciaries
of each Employee Plan, and G/C, its Subsidiaries and SHAREHOLDER have complied
in all material respects with the applicable requirements of ERISA (including
without limitation the fiduciary responsibilities imposed by Part 4 of Title I,
Subtitle B of ERISA), the Code and any other applicable law (including without
limitation regulations and rulings thereunder) governing each Employee Plan, and
each Employee Plan has at all times been properly administered in all material
respects in accordance with all such requirements of law, and in accordance with
its terms to the extent consistent with all such requirements of law.
(vii) Neither G/C nor any Subsidiary has made, or committed
to make, any payment, contribution or award into, or under, any Employee Plan
except in accordance with the terms of such Employee Plan.
(viii) Neither G/C nor any Subsidiary is delinquent as to
contributions or payments to or in respect of any Employee Plan as to which G/C
or any Subsidiary is in any way obligated, directly or indirectly, to make
contributions or payments, nor has G/C or any Subsidiary failed to pay any
assessments made with respect to any such Employee Plan by any governmental
authority or the fiduciaries of such Employee Plan. All contributions and
payments with respect to Employee Plans that are required to be made by G/C or
any Subsidiary with respect to periods ending on or before the Closing Date
(including without limitation periods from the first day of the then current
plan or policy year to and including the Closing Date) have been made or will be
accrued before the Closing Date by G/C or such Subsidiary in accordance with the
appropriate accounting standards or insurance contracts or arrangements.
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(ix) With respect to each Employee Plan, there has not
occurred, nor is any person or entity contractually bound to enter into, any
non-exempt "prohibited transaction" within the meaning of Section 4975 of the
Code or Section 406 of ERISA which would result in the imposition of any
liability to G/C or any Subsidiary.
(x) Neither G/C nor any ERISA Affiliate does currently or
has at any time since September 2, 1974, sponsored, adopted, contributed,
maintained or been obligated to contribute to any single employer plan (as
defined in Section 4001(15) of ERISA, including without limitation a plan
described in Section 4063 and 4064 of ERISA) which is or was subject to Title IV
of ERISA.
(xi) Neither G/C nor any Subsidiary has engaged in any
transaction, failed to make required contributions, committed any act or
omission, or otherwise incurred any liability for any excise tax under Section
4971 through 4980B of the Code, inclusive, other than excise taxes that have
heretofore been paid and fully reflected in the G/C Balance Sheet, which would
result in the imposition of any liability to G/C or any Subsidiary.
(xii) As of the Closing Date, there will be no accumulated
funding deficiency within the meaning of Section 302 of ERISA or Section 412 of
the Code, with respect to any Pension Plan or any pension plan (as defined in
Section 3(2) of ERISA) sponsored, maintained or contributed by any ERISA
Affiliate.
(xiii) Neither SHAREHOLDER, G/C nor any Subsidiary has
knowledge of any investigative proceedings, administrative review or other
administrative agency process which could result in imposition on G/C or any
Subsidiary of any penalty or other assessment in connection with any Employee
Plan.
(xiv) Neither G/C nor any Subsidiary has any obligation to
provide health care, life insurance or death benefits to or with respect to any
former employee, except for statutory obligations and such obligations that
SHAREHOLDER has assumed hereunder, including the obligation to provide health
care benefits to the individuals listed on Exhibit E hereto.
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3.1.17. Neither SHAREHOLDER, GILBERT nor any Subsidiary or holder of
beneficial interest of GILBERT or any Subsidiary has incurred, or will incur,
directly or indirectly, any liability for brokerage, finder's, financial
advisor's or agent's fees or commissions in connection with this Agreement or
any transaction contemplated hereby, except for SHAREHOLDER's engagement of
Dillon, Read & Co. Inc., whose fees and expenses are the sole responsibility of
SHAREHOLDER.
3.1.18. Except as set forth in the Schedule entitled "Liens,"
separately provided to PARSONS prior to the date hereof, the execution of this
Agreement and, subject only to the requisite approval of SHAREHOLDER's
stockholders, the performance of its obligations under this Agreement will not
(a) conflict with or constitute a default under the articles of organization and
by-laws of SHAREHOLDER, G/C or of any Subsidiary that is a corporation, or under
the partnership agreement or other organic document of any Subsidiary that is
not a corporation, or under any note, debt instrument, security agreement or
mortgage, or any other agreement or commitment, binding upon G/C or any
Subsidiary or any of their properties; (b) result in the creation or imposition
of any lien, possibility of lien, encumbrance, equity or restriction on G/C or
any Subsidiaries; (c) contravene or violate any law, rule or regulation to which
SHAREHOLDER or G/C is subject; (d) contravene or violate any judgment, order,
writ, injunction or decree of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to SHAREHOLDER or
G/C; or (e) violate, be in conflict with or result in the breach (with or
without the giving of notice or lapse of time, or both) of any term, condition
or provision of, or require the consent which has not been obtained of any other
party to, any contract, commitment, agreement, lease, license, permit,
authorization, document or other understanding, oral or written, to or by which
SHAREHOLDER or G/C is a party or otherwise bound or affected. Except for (i)
filings pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, (ii) the running of the waiting period under
the H-S-R Act, and (iii) such consents or approvals as may be required under the
state securities or anti-takeover laws, no notice to nor consent or approval of
any governmental authority or third party is required to be obtained in order
for SHAREHOLDER and G/C to carry out the transactions contemplated hereby which
will not have been obtained prior to Closing.
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3.1.19. G/C and each Subsidiary has in all respects performed, or is
now performing, the obligations of and is not in default (and would not by the
lapse of time and/or the giving of notice be in default) in respect of, any
note, debt instrument, security agreement or mortgage, or any other financing
agreement or commitment binding upon it. Each of the instruments, commitments
and obligations shown on the Schedules referred to in this Agreement is a legal,
binding and enforceable obligation by or against G/C or a Subsidiary, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by applicable law that may affect the availability of remedies
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
3.1.20. Except as set forth in the Schedule entitled "Directors and
Officers Interests," separately provided to PARSONS prior to the date hereof, to
the best knowledge of SHAREHOLDER, G/C and each Subsidiary no officer or
director or G/C or any Subsidiary has a direct or indirect financial interest
in, or receives any compensation or other benefits from, any individual or
business firm (i) from which G/C or any Subsidiary purchases supplies, materials
or property; (ii) which renders any service to G/C or any Subsidiary; (iii)
which is a party to leases or assignments to or from G/C or any Subsidiary; (iv)
to which G/C or any Subsidiary sells or leases any of its services, facilities
or properties; or (v) which has any other contractual relations or business
dealings with G/C or any Subsidiary; provided that ownership of one percent or
less of the outstanding shares of a publicly held corporation need not be
disclosed hereunder. No officer or director of G/C or any Subsidiary has any
contractual relations or business dealings (except for his employment by G/C or
any Subsidiary) with G/C or any Subsidiary, except as set forth on such
Schedule.
3.1.21. (i) G/C and each Subsidiary are in compliance in all
material aspects with all Environmental Laws; there is no Environmental Claim
pending against G/C or any Subsidiary; and, to the best knowledge of
SHAREHOLDER, G/C and each Subsidiary there are no past or present events,
conditions, circumstances, activities, investigations, inquiries, practices,
incidents, notices, actions, omissions or plans which could reasonably be
expected to result in noncompliance by G/C or any Subsidiary with any
Environmental Law, or which could reasonably be expected to give rise to
liability under any Environmental
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Law, or otherwise form the basis of any Environmental Claim, including without
limitation Environmental Claims against G/C, any Subsidiary or any person whose
liability for such Environmental Claims G/C or any Subsidiary has retained,
assumed or incurred, whether contractually or by operation of law.
(ii) G/C and each Subsidiary has obtained all material
Permits which are required under the Environmental Laws for operation of its
business, delivery of professional engineering or consulting services, and use
of G/C's and each Subsidiary's assets or leased properties, including without
limitation those for the storage, treatment, recycle, transportation, release,
emission or disposal of Hazardous Materials used or produced by or otherwise
relating to the G/C's or any Subsidiary's business, assets or properties, and
G/C and each Subsidiary is in compliance in all material respects with the
requirements of said Permits. For purposes of this Section 3.1.21, "Permit"
means any permit, approval, authorization, license, variance, permission,
agreement or similar item required pursuant to or under any of the Environmental
Laws.
(iii) To the extent that G/C or any Subsidiary is subject
to or is required to comply with, or has responsibility for compliance with,
Permits, orders, decrees or judgements of others for whom G/C or any Subsidiary
provides services or has in the past provided services, G/C and each Subsidiary
is now and has been in compliance in all material respects with the requirements
of such Permits, orders, decrees and judgements.
(iv) To the best knowledge of G/C, SHAREHOLDER and each
Subsidiary, there are no Environmental Claims pending or threatened against any
person whose liability for such Environmental Claims G/C or any Subsidiary has
or may have retained, assumed or incurred, whether contractually or by operation
of law, including without limitation claims arising under CERCLA.
(v) Neither G/C nor any Subsidiary has reported (a) any
actual or threatened or suspected releases, discharges, emissions, spilling,
leaking or dumping of Hazardous Materials into the environment (including
without limitation ambient air, surface water, groundwater or land) or (b) any
violation of any Permit term or other requirement of any Environmental Law
within the past five years.
(vi) Other than the normal costs of performing existing
Agreements for Professional Services which are recoverable from the other
contracting party, to the best knowledge of
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SHAREHOLDER, G/C and each Subsidiary, neither G/C nor any Subsidiary has any
obligation or liability with respect to the cleanup of any site or facility with
respect to any Hazardous Materials.
(vii) To the best knowledge SHAREHOLDER, G/C and each
Subsidiary, there is no site or facility under investigation by any federal,
state, local or foreign court, governmental, public or self-regulatory body,
agency or other authority, at which G/C or any Subsidiary has disposed or
treated or arranged for disposal or treatment (with a transporter or otherwise)
of any Hazardous Material.
(viii) During the past three years, neither G/C nor any
Subsidiary has received a governmental request under any of the Environmental
Laws for information or to take any action relating to any activities,
operation, business, assets or properties of G/C or any Subsidiary, including
without limitation activities conducted at the properties of other persons for
whom for it has in the past or currently provides professional services.
(ix) None of the properties owned by G/C or any Subsidiary
and, to the best knowledge of SHAREHOLDER, G/C and each Subsidiary, none of the
properties leased by G/C or any Subsidiary at any time, are now, or were in the
past, listed on the National Priorities list of Superfund Sites (the "NPL"), the
CERCLA Information System ("CERCLIS") or any other comparable state or local
environmental database.
(x) The sale, purchase and transfer of stock that is the
subject of this Agreement will not require any governmental approvals under the
Environmental Laws.
(xi) SHAREHOLDER and G/C agree to cooperate with PARSONS
in connection with the PARSONS's application for the transfer, renewal or
issuance of any Permits necessary to satisfy any regulatory requirements in
connection with the assets, leased properties, operations or business of G/C or
any Subsidiary.
(xii) G/C's and each Subsidiary's operations in conducting
its business do not now involve (and have not in the past involved direct
responsibility for) the generation, transportation, treatment, recycle or
disposal of hazardous waste, as defined under 40 CFR Parts 260-270, or of any
waste
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regulated under Environmental Laws pertaining to radioactive materials or the
nuclear power industry, including without limitation requirements under Volume
10 of the Code of Federal Regulations.
(xiii) Without in any way limiting the foregoing, to the
best knowledge of SHAREHOLDER, G/C and each Subsidiary, (a) all onsite and
offsite locations where G/C or any Subsidiary has stored, disposed or arranged
for the disposal of Hazardous Materials are identified in the Schedule entitled
"Environmental Matters," separately provided to PARSONS prior to the date
hereof, (ii) all underground storage tanks or storage impoundments, and the
contents of such tanks or impoundments, known to exist on property now operated,
managed or leased by G/C or any Subsidiary are identified in the such Schedule,
and (iii) to the best of knowledge of SHAREHOLDER, G/C and each Subsidiary, no
polychlorinated byphenyls ("PCBs") are used or stored at any property operated,
managed or leased by G/C or any Subsidiary.
(xiv) "Hazardous Material(s)" shall mean those substances,
whether waste materials, raw materials, finished products, coproducts,
byproducts or any other material or article, that are regulated by, form the
basis of liability, or are defined as, hazardous, extremely hazardous or toxic,
under any of the Environmental Laws, including without limitation petroleum or
any byproducts or fractions thereof, any form of natural gas, asbestos,
polychlorinated biphenyls ("PCBs"), radon or other radioactive substances
(including without limitation source, special nuclear and byproduct material as
defined by the Atomic Energy Act, as amended, 42 U.S.C. Sec.Sec. 2011 et seq.
-- ---
and special nuclear material), infectious, carcinogenic, mutagenic or etiologic
agents, pesticides, defoliants, explosives, flammables, corrosives or any other
material or substance which constitutes a health, safety or environmental hazard
to any person, property or natural resource.
(xv) "Environmental Law(s) shall mean, without limitation,
any and all federal, state, local and foreign laws, regulations or requirements
relating to health, safety or pollution or protection of the environment,
including without limitation those relating to emissions, discharges, releases
or threatened releases of Hazardous Materials into or impacting the environment
or natural resources (including without limitation ambient air, surface water,
groundwater or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, recycle, storage, disposal, transport or handling
of Hazardous Materials. Such Environmental Laws shall include without
limitation the Comprehensive Environmental
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Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (42 U.S.C. Sec.Sec. 9601 et seq.) ("CERCLA"),
-- ---
the Hazardous Materials Transportation Act (49 U.S.C. Sec.Sec. 1801 et seq.),
-- ---
the Resource Conservation and Recovery Act (42 U.S.C. Sec.Sec. 6901 et seq.),
-- ---
the Clean Water Act (33 U.S.C. Sec.Sec. 1251 et seq.), the Clean Air Act
-- ---
(42 U.S.C. Sec.Sec. 7401 et seq.), the Federal Insecticide, Fungicide, and
-- ---
Rodenticide Act (7 U.S.C. Sec.Sec. 136 et seq.), the Emergency Planning and
-- ---
Community Right-to-Know Act (42 U.S.C. 11001 et seq.), the Safe Drinking
-- ---
Water Act (42 U.S.C. Sec.Sec. 300(f) et seq.), the Toxic Substances Control
-- ---
Act (15 U.S.C. Sec.Sec. 2601 et seq.), the Atomic Energy Act (42 U.S.C.
-- ---
Sec.Sec. 2011 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
-- ---
Sec.Sec. 651 et seq.), as such laws have heretofore been and hereafter may be
-- ---
amended or supplemented, and any analogous state, local or foreign laws, and
all rules, orders, regulations and requirements promulgated pursuant to any
of such federal, state, local or foreign laws, and any common law cause of
action relating to the environment, natural resources, safety, health, or the
management of Hazardous Materials as defined herein.
(xvi) "Environmental Claim" shall mean any investigative,
enforcement, cleanup, removal, containment, remedial or other private or
governmental or regulatory action, at any time instituted pursuant to any
applicable Environmental Law, against G/C or any Subsidiary, and any claim at
any time, made by any person against G/C or against any Subsidiary, relating to
damage (including without limitation natural resource damage), contribution,
cost recovery, compensation, loss, injury, fine or penalty resulting from any
Hazardous Material or any Environmental Law.
3.1.22. Information furnished by G/C and contained in the Schedules
referred to in this Agreement is not, and will not be, false or misleading in
any material respect, and does not and will not omit any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not misleading, it being
understood that representations relating to the G/C Balance Sheet are made on
the basis set forth in Section 3.1.5 hereof and that all representations and
warranties and all statements furnished on Schedules are correct and complete
except as otherwise indicated on such Schedules, and any underlying documents
incorporated in the Schedules referred to in this Agreement or otherwise
furnished to PARSONS by G/C are true and correct copies, and there are no
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amendments or modifications thereto except as set forth in Schedules in which
such documents are incorporated or as otherwise noted on any such document.
3.1.23. None of the statements included in the Proxy Statement will,
(a) at the time the Proxy Statement is mailed to SHAREHOLDER's Class B
Stockholders or (b) at the time of the meeting of stockholders to which the
Proxy Statement relates, be false or misleading with respect to any material
fact in light of the circumstances under which they were made or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Proxy Statement will comply in all
material respects, as to form and otherwise, with the requirements of the
Exchange Act and the applicable rules and regulations promulgated by the SEC
thereunder. No representation is made with respect to any information supplied
by PARSONS for inclusion in the Proxy Statement.
3.1.24. The representations and warranties of Shareholder and G/C in
Article 3 are the only representations and warranties made by such parties with
respect to the purchase and sale of the Common Stock. SHAREHOLDER and G/C
disclaim any liability or responsibility for any representation or warranty that
may have otherwise been made or alleged to have otherwise been made or
communicated to PARSONS, including but not limited to, any opinion, information
or advice provided to PARSONS by any director, officer, employee, agent,
consultant or representative of SHAREHOLDER or G/C (or any of their affiliates)
in respect of any future cash flows or projections of G/C and its Subsidiaries.
3.1.25. As used herein, knowledge and best knowledge of SHAREHOLDER,
G/C or G/C Subsidiaries shall mean the knowledge or best knowledge of directors,
officers and key personnel of the entity to whom the representation applies.
3.2. PARSONS represents, warrants and covenants that:
3.2.1. PARSONS has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
3.2.2. PARSONS has, and at all relevant times had, the corporate
power and authority to enter into and perform this Agreement and all
transactions contemplated herein. This Agreement
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has been duly executed by PARSONS and constitutes the legal, valid and binding
obligation of PARSONS and is enforceable against PARSONS in accordance with its
terms.
3.2.3. PARSONS has taken all necessary corporate action to
authorize this Agreement, its execution, delivery and performance and all
transactions contemplated herein, and except for the running of the waiting
period under the H-S-R Act, and such consents or approvals as may be required
under state securities or anti-takeover laws, no consent or approval of any
domestic governmental agency or authority is required to be obtained in order
for PARSONS to carry out the transactions contemplated hereby.
3.2.4. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein will not conflict
with or result in a breach of any contractual obligation of PARSONS, or a
default under (a) the certificate of incorporation or bylaws of PARSONS, (b) any
law, rule or regulation to which PARSONS is subject, (c) any judgment, order,
writ, injunction or decree of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to PARSONS, or (d)
any term, condition or provision of, or require the consent, which has not been
obtained, of any other party to, any contract, commitment, agreement, lease,
license, permit, authorization, document or other understanding, oral or
written, to or by which PARSONS is a party or otherwise bound or affected.
3.2.5. None of the statements relating to PARSONS that is supplied
by PARSONS for inclusion in the Proxy Statement will, (a) at the time the Proxy
Statement is mailed to SHAREHOLDER's Class B Stockholders or (b) at the time of
the meeting of stockholders to which the Proxy Statement relates, be false or
misleading, in light of the circumstances under which such statements are made,
with respect to any material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, except that no representation or warranty is otherwise made by
PARSONS with respect to the Proxy Statement.
3.2.6. PARSONS has not retained any broker, finder or agent in
connection with the purchase of the Common Shares.
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3.2.7. PARSONS acknowledges that: (a) it had the opportunity to
visit with SHAREHOLDER and G/C and meet with their respective officers and other
representatives to discuss the business and the assets, liabilities, financial
condition, cash flow and operations of G/C and its Subsidiary; and (b) all
materials and information requested by PARSONS have been provided to PARSONS's
reasonable satisfaction.
3.2.8. PARSONS acknowledges that it has made its own independent
examination, investigation, analysis and evaluation of G/C and its Subsidiaries,
including its own estimate of the value of the Common Shares.
3.2.9. PARSONS acknowledges that it has undertaken such due
diligence (including a review of the assets, liabilities, books, records and
services of G/C and its Subsidiaries) as PARSONS deems adequate, including that
described in Sections 3.2.7 and 3.2.8 hereof. To the best of PARSON's
knowledge, based upon such due diligence none of the representations of
SHAREHOLDER or G/C herein are inaccurate in any material respect.
3.2.10. PARSONS is purchasing the Common Shares for investment, for
its own account and not wit a view to distribute the Common Shares within the
meaning of applicable securities laws.
ARTICLE 4. CERTAIN AGREEMENTS
4.1. From the date hereof until the Closing Date:
4.1.1. Except for matters expressly required or permitted by this
Agreement and such other matters, if any, as may be consented to by PARSONS in
writing, G/C will, and will cause each Subsidiary to, conduct its business and
affairs only in the ordinary and usual course and will not engage in any
activity or enter into any material transaction outside the ordinary and usual
course of business.
4.1.2. Except as contemplated by this Agreement, G/C will not, and
will not permit any Subsidiary to, without PARSONS' prior written consent, (a)
declare or make any payment of dividends or distributions to the stockholders of
or holders of beneficial interest in G/C or any Subsidiary as such (other than
by a Subsidiary to its parent corporation or to G/C), or purchase or redeem any
of the Common Shares, or (b) issue or sell, whether under offers, stock option
agreements, stock bonus agreements, warrants, conversion
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rights or otherwise, any shares of capital stock or other securities of G/C or
any Subsidiary, or enter into any commitments or obligations, either firm or
conditional, so to issue or sell any shares of capital stock or other such
securities.
4.1.3. G/C will use its reasonable best efforts to preserve its own
and each Subsidiary's business organization intact and to preserve the goodwill
of G/C and each Subsidiary as to clients and others having business relations
with them.
4.1.4. G/C will promptly correct any statement in any earlier
information furnished by it under this Agreement which has become false or
misleading in any material respect.
4.1.5. G/C will use its reasonable best efforts to keep, and to
cause each Subsidiary to keep, their respective properties and operations
protected by insurance for the risks they customarily cover and in the amounts
of coverage they customarily carry; provided that PARSONS will reimburse
SHAREHOLDER for the pro rata portion of premiums paid by SHAREHOLDER
attributable to G/C's operations for the period from the Deal Date through and
including the Closing Date. Any deductibles, self-insured retentions or other
amounts which are not covered by SHAREHOLDER's insurance during the period from
the Deal Date through and including the Closing Date shall be paid by PARSONS as
soon as practical after the Closing Date.
4.1.6. G/C will permit PARSONS and its officers, attorneys,
accountants and representatives to examine the property, books and records of
G/C and its subsidiaries and such officers, attorneys, accountants and
representatives shall be afforded reasonable access during normal business hours
to such property, books and records, and G/C and its Subsidiaries will upon
request furnish PARSONS with any information reasonably required in respect to
their property, assets and business.
4.1.7. Except as stated on the Schedule entitled "Officers'
Salaries," separately provided to PARSONS prior to the date hereof, G/C will
maintain the salary and benefit structure in effect on December 31, 1994 subject
to annual increases in accordance with G/C's standard business practice
effective January 1, 1995 until the Closing Date, PARSONS acknowledges that G/C
anticipates that it will enter into employment contracts with certain officers
listed in the aforementioned Schedule in the form attached hereto as
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Exhibit F. No new senior officers will be appointed after the date hereof, nor
will the compensation of any officer except as set forth above be modified after
the date hereof, without PARSONS' prior consent.
4.1.8. The Parties will cooperate with one another in the
preparation and filing of all notices and reports required pursuant to the H-S-R
Act and will comply with the requirements for providing information made
pursuant thereto.
4.2. As soon as reasonably practicable following the date of this
Agreement, SHAREHOLDER shall take all action necessary in accordance with the
Exchange Act, the laws of the State of Delaware and its Certificate of
Incorporation and By-laws to call, give notice of and convene a meeting (the
"Meeting") of its stockholders to consider and vote upon the approval of this
Agreement and for such other purposes as may be necessary or desirable. The
board of directors of SHAREHOLDER shall, subject to its fiduciary duties and
responsibilities, recommend without qualification of any nature that
SHAREHOLDER's stockholders vote to approve this Agreement and any other matters
to be submitted to SHAREHOLDER's stockholders in connection therewith. The
board of directors of SHAREHOLDER shall, subject to its fiduciary duties and
responsibilities, use its reasonable best efforts to solicit and secure from
Class B Stockholders of SHAREHOLDER such approval, which efforts shall include
without limitation causing SHAREHOLDER to diligently solicit stockholder proxies
therefor and to advise PARSONS promptly upon its request from time to time as to
the status of the stockholder vote then tabulated.
4.3. Promptly following the date of this Agreement, SHAREHOLDER shall
prepare and file with the SEC under the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, a preliminary draft of the Proxy
Statement. PARSONS shall cooperate fully with SHAREHOLDER in the preparation
and filing of the Proxy Statement and any amendments and supplements thereto.
The Proxy Statement shall not be filed, and no amendment or supplement thereto
shall be made by SHAREHOLDER, and no material communication with the SEC shall
be had with respect to any matters relating to PARSONS or the transactions
contemplated by this Agreement without in each case prior consultation with
PARSONS and its counsel. SHAREHOLDER shall cause to be mailed a definitive
Proxy Statement to its Class B Stockholders
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entitled to vote at the Meeting as promptly as possible following completion of
any review by, or in the absence of such review, the termination of any
applicable waiting period of, the SEC.
4.4. Effective as of the Closing Date in respect of The Parsons
Corporation Employee Stock Ownership Plan, or as soon thereafter as is
practicable, in respect of The Parsons Corporation Retirement Savings Plan,
PARSONS shall enroll in such plans each employee of G/C and the Included
Subsidiaries who are eligible to participate in such plans in accordance with
the terms thereof. PARSONS shall enroll employees of G/C and the Included
Subsidiaries in welfare benefit plans it maintains for its employees no later
than January 1, 1996. PARSONS acknowledges that SHAREHOLDER will not be
responsible for continuing to maintain any employee welfare or retirement
benefit plans for employees of G/C or any Included Subsidiary except as set
forth in Sections 2.3 and 2.4 hereof.
4.5. From the date of this Agreement until the Deal Date, SHAREHOLDER and
G/C shall take all reasonable effort to establish G/C as an independent
corporation. From the Deal Date forward, there will be no further capital
contributions by SHAREHOLDER to G/C nor any cash distributions from G/C to
SHAREHOLDER. All inter-company transactions between G/C and the SHAREHOLDER or
subsidiaries of SHAREHOLDER shall from the Deal Date forward be treated as arm-
length transactions and handled within the ordinary scope of G/C's business.
This shall include, but not limited to, implementation of the Leasing
Arrangement provided in Exhibit D to the Stock Purchase Agreement, reimbursement
by PARSONS for the pro rata portion of premiums paid by SHAREHOLDER attributable
to G/C's operations from the Deal Date to the Closing Date and of deductibles,
self-insured retentions and other amounts not covered by SHAREHOLDER's insurance
during that period and any other expenses or costs incurred by SHAREHOLDER or
its Subsidiaries to the extent that such costs and expenses are for the benefit
of G/C and truly a cost of the operation of G/C.
4.6. Should G/C require capital beyond that generated by its normal
operations during the period from the Deal Date to the Closing Date, G/C will
either request advances from the separate line of credit arranged for G/C by
SHAREHOLDER or obtain such advances from PARSONS. After the Deal Date, the
SHAREHOLDER shall no longer have any obligation to make such advances, and any
advances made under the separate line of credit arranged by SHAREHOLDER shall be
repaid by PARSONS within three business days
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after the Closing Date. G/C shall invest all surplus capital, if any, in
interest bearing accounts, which shall become the property of PARSONS at the
Closing Date.
4.7. Should G/C in the ordinary course of business be required to obtain
parent company guarantees, bonds, or the like, SHAREHOLDER shall provide such
guarantees subject to the approval of PARSONS (not to be unreasonably withheld
or delayed), and with the understanding that any such guarantees would be
assumed by and become the obligation of the PARSONS at the Closing Date.
ARTICLE 5. CONDITIONS ON OBLIGATIONS OF SHAREHOLDER
The obligations of SHAREHOLDER to consummate the transactions contemplated
by this Agreement and thus to cause the Closing Date to occur shall be subject
to the following conditions, except as SHAREHOLDER may waive the same in writing
in accordance with Section 9.1 below:
5.1. The waiting period under the H-S-R Act shall have expired; no action
or proceeding brought by or on behalf of any governmental body or regulatory
authority shall be pending or threatened questioning the validity of this
Agreement or seeking to restrain the consummation of the transactions
contemplated by this Agreement.
5.2. This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of SHAREHOLDER's stockholders.
5.3. Those transactions that are identified in Exhibit B hereto shall have
been consummated in a manner reasonably satisfactory to SHAREHOLDER and G/C and
consistent with the terms of this Agreement.
5.4. The parties shall have entered into a Lease substantially in the form
of Exhibit D hereto.
5.5. The representations and warranties of PARSONS set forth in Article 3
hereof shall be correct in all material respects on the date of this Agreement
and at the Closing Date as if made again at and as of such time, and PARSONS
shall have delivered to SHAREHOLDER a certificate in form and substance
satisfactory to SHAREHOLDER dated the Closing Date to such effect.
5.6. All notices, approvals, consents and waivers that are required to
effect the transactions contemplated hereby shall have been given or received,
as the case may be.
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5.7. SHAREHOLDER shall have received from Dillon Reed a written opinion,
for inclusion in the definitive Proxy Statement and dated the date thereof
satisfactory in form and substance to SHAREHOLDER, to the effect that the price
to be paid by PARSONS for the Common Stock is fair from a financial point of
view, and such opinion shall not have been withdrawn prior to the Closing Date.
ARTICLES 6. CONDITIONS ON OBLIGATIONS OF PARSONS
The obligations of PARSONS to consummate the transactions contemplated by
this Agreement and thus to cause the Closing Date to occur shall be subject to
the following conditions, except as PARSONS may waive the same in writing in
accordance with Section 9.1 below:
6.1. G/C shall have performed and complied in all material respects with
all agreements and conditions required by this Agreement to be performed or
satisfied by G/C on or prior to the Closing Date, including without limitation
the agreements contained in Sections 4.2 and 4.3 hereof.
6.2. The representations and warranties of SHAREHOLDER and G/C set forth
in Article 3 hereof shall be correct in all material respects on the date of
this Agreement and at the Closing Date as if made again at and as of such time,
subject to any transactions or changes which may have taken place after the date
of this Agreement and which are contemplated or expressly permitted by this
Agreement, and SHAREHOLDER and G/C shall have delivered to PARSONS a certificate
in form and substance satisfactory to PARSONS dated the Closing date to all such
effects.
6.3. From the date of the G/C Balance Sheet to the Deal Date, there shall
have been no material adverse change in the financial condition or results of
operations or business of G/C or any of its Subsidiaries.
6.4. The waiting period under the H-S-R Act shall have expired; no action
or proceeding brought by or on behalf of any governmental body or regulatory
authority shall be pending or threatened questioning the validity of this
Agreement or seeking to restrain the consummation of the transactions
contemplated by this Agreement or to materially frustrate the ability of PARSONS
to control and operate G/C after the Closing Date and no action or proceeding
brought by or on behalf of any other person or entity (including without
limitation any action or proceeding pending or threatened on the date of this
Agreement) shall be pending, which in the
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judgment of counsel for PARSONS may reasonably be expected to result in any
order, judgment or decree (other than a judgment for money damages) that would
materially frustrate the ability of PARSONS to control and operate G/C or any
Subsidiary after the Closing Date.
6.5. All notices, approvals, consents and waivers that are required to
effect the transactions contemplated hereby shall have been given or received,
as the case may be, and sufficient evidence thereof shall have been delivered to
PARSONS.
6.6. Berlack, Israels & Liberman, counsel for SHAREHOLDER and G/C, shall,
on the Closing Date, deliver to PARSONS their opinion, dated the Closing Date
and addressed to PARSONS, in form and substance reasonably satisfactory to
counsel for PARSONS, to the following effect: (a) G/C is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
full power and authority to own its property and assets and to conduct its
business as it is presently being conducted; (b) Gilbert/Commonwealth of Ohio,
Gilbert Investment Company and GAICO Corporation are corporations validly
existing and (in the case of corporations) in good standing under the laws of
their respective jurisdictions of incorporation or organization and each of them
has full power and authority to own its property and assets and to conduct its
business as it is presently being conducted; (c) the information as to the
capital stock of G/C set forth in Recital A to this Agreement is true and
correct as of the Closing Date and, to the best of their knowledge, neither G/C
nor any Subsidiary has any commitment, firm or conditional, to issue or sell any
of its capital stock or other securities of G/C or any Subsidiary or other
interest therein; (d) all Common Shares which are issued and outstanding are
duly authorized, validly issued, fully paid and nonassessable and owned of
record by SHAREHOLDER; (e) all shares of capital stock of Gilbert/Commonwealth
of Ohio, Gilbert Investment Company and GAICO Corporation which are issued and
outstanding are duly authorized, validly issued, fully paid and nonassessable,
and the ownership of all shares of or interests in such Subsidiaries is to the
best of their knowledge, as shown on the Schedule entitled "Corporate Data"; (f)
this Agreement and the transactions contemplated hereby have been duly
authorized on behalf of SHAREHOLDER and G/C by all requisite corporate and
shareholder action; (g) this Agreement constitutes a legal, valid and binding
obligation of SHAREHOLDER and G/C enforceable in accordance with its terms,
except as enforcement thereof may be
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limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally and by applicable law that may affect the availability of remedies
(regardless of whether enforcement is sought in a proceeding in equity or at
law); (h) the Proxy Statement, as of the date of mailing and the date of the
Meeting, complied in all material respects with the requirements of the Exchange
Act and the applicable rules and regulations of the SEC thereunder as to form;
and (i) with respect to information relating to SHAREHOLDER or G/C and their
businesses, properties, management, stockholders or securities, as to which
counsel has made no independent investigation, such counsel has participated in
the preparation of the Proxy Statement and no facts have come to their attention
to lead such counsel to believe that the Proxy Statement on the date of mailing
or the date of the Meeting contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
6.7. This Agreement shall have been approved by the requisite vote of
SHAREHOLDER's Class B Stockholders.
6.8. Those transactions that are identified in Exhibit B hereto shall have
been consummated in a manner reasonably satisfactory to PARSONS and consistent
with the terms of this Agreement.
6.9. The parties shall have entered into a Lease substantially in the form
of Exhibit D hereto.
6.10. SHAREHOLDER and G/C shall furnish to PARSONS on the Closing Date
certificates dated the Closing Date to the effect that, to the best of their
knowledge and belief, the conditions set forth in Sections 6.1, 6.2, 6.3, 6.4,
6.5, 6.6, 6.7, 6.8 and 6.9 hereof have been satisfied.
ARTICLE 7. INDEMNIFICATION
7.1. Subject to the terms and conditions of this Article 7, SHAREHOLDER
hereby agrees to indemnify, defend and hold harmless PARSONS, its officers,
directors, employees, agents and controlled (including without limitation after
the Closing, G/C and the Subsidiaries) and controlling persons (hereinafter
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"Affiliates") from and against all Claims asserted against, resulting to,
imposed upon, or incurred by PARSONS or any Affiliate, directly or indirectly,
by reason of, arising out of, in connection with or resulting from:
(i) the inaccuracy or breach of any representation or warranty
of SHAREHOLDER or G/C contained in or made pursuant to this Agreement (including
without limitation any omission from any Schedule),
(ii) the breach of any covenant or agreement of SHAREHOLDER or
G/C contained in this Agreement,
(iii) any Employee Benefit Plan liability arising out of acts or
omissions of SHAREHOLDER or G/C which occur prior to the Closing Date,
(iv) Claims asserted, relating to or arising out of occurrences
prior to the Closing Date relating to or arising out of the business, operations
or assets of G/C or the Subsidiaries or the actions of G/C's or the
Subsidiaries' directors, officers, shareholders, employees or agents, to the
extent SHAREHOLDER actually recovers proceeds or reimbursement from insurance
coverage applicable to such claims,
(v) Claims by past or present shareholders, officers, directors
or employees of G/C for indemnification arising out of or in any way related to
any act, error or omission on or prior to the Closing Date,
(vi) any Tax of any affiliated group of corporations asserted
against G/C pursuant to Treas. Reg. Sec.1.1502-6, or any similar or successor
provision thereto under federal, state, local or foreign law relating to any
taxable period ending on or before the Closing Date,
(vii) any liability or obligation of any kind, whether absolute,
accrued, contingent or otherwise, concerning the Environmental Laws (including
without limitation violations thereof and common law claims), arising out of the
operation or conduct of the business of G/C or any Subsidiary or any product
supplied or service performed by G/C or any Subsidiary, or the use, operation or
condition of the properties or assets of G/C or any Subsidiary prior to or on
the Closing Date and
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(viii) the imposition or assertion against PARSONS or any Affiliate
of any liability, demand or obligation under CERCLA or equivalent state or local
law arising out of or in connection with (i) Contaminated Properties previously
owned, operated or leased by G/C or any Subsidiary, where such contamination was
caused by actions of G/C or any Subsidiary prior to or on the Closing Date, or
was part of the existing condition of the Contaminated Properties prior to or on
the Closing Date (whether the source or cause of that condition be located on or
from G/C's or any Subsidiary's properties or elsewhere), (ii) G/C's or any
Subsidiary's performance of services to other persons in the course of their
business operations or (iii) G/C's or any Subsidiary's actions in arranging for
disposal or treatment, or arranging with a transporter for disposal or
treatment, of Hazardous Materials at properties owned by other parties.
As used in this Article 7, the term "Claim" shall include (i) all debts,
liabilities, taxes and obligations; (ii) all losses, damages (including without
limitation consequential damages), judgments, awards, settlements, costs and
expenses (including without limitation interest (including without limitation
prejudgment interest in any litigated matter)), penalties, fines, court costs
and attorneys fees and expenses); and (iii) all demands, claims, suits, actions,
costs of investigation (including without limitation consultants, contractors,
experts and laboratories), causes of action, proceedings and assessments of any
and every kind or character, contingent or otherwise, matured or unmatured,
known or unknown, foreseeable or unforeseeable, whether or not ultimately
determined to be valid. As used in this Article 7, "Contaminated Properties"
refers to properties, assets, facilities, improvements or vessels from which
there has been or is a release or threatened release of Hazardous Materials.
7.2. Subject to the terms and conditions of this Article 7, PARSONS hereby
agrees to indemnify, defend and hold harmless SHAREHOLDER and its Affiliates
from and against all Claims asserted against, resulting to, imposed upon or
incurred by SHAREHOLDER or any Affiliate, directly or indirectly, by reason of,
arising out of, in connection with or resulting from:
(i) the inaccuracy or breach of any representation or warranty of
PARSONS contained in or made pursuant to this Agreement;
(ii) the breach of any covenant or agreement of PARSONS contained in
this Agreement;
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(iii) any additional tax interest, penalties, legal or accounting
fees incurred because of statements, actions, or failures to act by any
employees or agents of PARSONS or G/C after the Closing Date including,
without limitation any additional tax, interest, penalty or other amount
resulting from the failure of the transactions contemplated by this
Agreement to be taxed as a sale and purchase of assets under Section
338(h)(10) of the Code.
(iv) any litigation, claim or judgment brought or continued (except
for matters that are being defended by SHAREHOLDER's insurers) against
SHAREHOLDER after the Closing Date, arising out of the activities or
operation of G/C unless specifically retained by SHAREHOLDER as set forth
in Exhibit B.
(v) any claim attributable to the operation of G/C and its
Subsidiaries after the Closing Date.
7.3. The obligations and liabilities of SHAREHOLDER to indemnify PARSONS
and its Affiliates and PARSONS to indemnify SHAREHOLDER under this Article 7
with respect to Claims relating to third parties shall be subject to the
following terms and conditions:
7.3.1. The party or parties to be indemnified (whether one or more,
the "Indemnified Party") will give SHAREHOLDER or PARSONS, as the case may be
(the "Indemnifying Party") prompt written notice of any such Claim, and the
Indemnifying Party will undertake the defense thereof by representatives chosen
by it. Failure to give such notice shall not affect the Indemnifying Party's
duty or obligations under this Article 7, except to the extent the Indemnifying
Party is prejudiced thereby. So long as the Indemnifying Party is defending any
such Claim actively and in good faith, the Indemnified Party shall not settle
such Claim. The Indemnified party shall make available to the Indemnifying
Party or its representatives all records and other materials required by them
and in the possession or under the control of the Indemnified Party, for the use
of the Indemnifying Party and its representatives in defending any such Claim,
and shall in other respects give reasonable cooperation in such defense.
7.3.2. If the Indemnifying Party, within a reasonable time after
notice of any such Claim, fails to defend such Claim actively and in good faith,
the Indemnified Party will (upon further notice)
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have the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf of
and for the account and risk of the Indemnifying Party, and the Indemnifying
Party shall thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment therein, provided,
however, that no such failure to defend shall be deemed an admission that such
claim is subject to indemnification hereunder.
7.3.3. Anything in this Section 7.3 to the contrary
notwithstanding, (i) if there is a reasonable probability that a Claim may
materially and adversely affect the Indemnified Party other than as a result of
money damages or other money payments, the Indemnified Party shall have the
right to defend, compromise or settle such Claim, and (ii) the Indemnifying
Party shall not, without the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such Claim;
7.4. Except for any willful or knowing breach or fraud, as to which claims
may be brought without limitation as to time or amount, no claim or action shall
be brought under this Article 7 or otherwise under this Agreement for breach of
a representation or warranty after the lapse of two years following the Closing
Date. Regardless of the foregoing, however, or any other provision of this
Agreement:
7.4.1. Claims or actions brought for breach of any representation
or warranty made by SHAREHOLDER or G/C in or pursuant to Section 3.1.1, 3.1.2,
3.1.3, 3.1.17 or 3.1.21 hereof shall be brought in accordance with all
applicable statutory limitation periods with respect thereto.
7.4.2. Any claim or action brought for breach of any representation
or warranty made by SHAREHOLDER or G/C in or pursuant to Section 3.1.9 hereof
may be brought at any time until the underlying Tax is barred by the applicable
period of limitation under federal and state laws relating thereto (as such
period may be extended by waiver).
7.4.3. Any claim made by a party hereunder for breach of a
representation or warranty prior to the termination of the survival period for
such claim shall be preserved despite the subsequent termination of such
survival period.
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7.4.4. If any act, omission, disclosure or failure to disclose
shall form the basis for a claim for breach of more than one representation or
warranty, and such claims have different periods of survival hereunder, the
termination of the survival period of one claim shall not affect a party's right
to make a claim based on the breach of representation or warranty still
surviving.
7.4.5. Notwithstanding any investigation or audit conducted before
or after the Closing Date or the decision of any party to complete the Closing,
each party shall be entitled to rely upon the representations and warranties of
the other party or parties set forth herein, unless the party relying upon such
representation or warranty had actual knowledge that it was false prior to the
date hereof.
7.4.6. SHAREHOLDER shall not be liable to PARSONS or any Affiliate
under Section 7.1 hereof or otherwise under this Agreement nor shall PARSONS be
liable to SHAREHOLDER under Section 7.2 hereof or otherwise under this Agreement
(a) for any misrepresentation or breach of warranty until the aggregate amount
for which they would otherwise (but for this provision) be liable to any or all
such parties for all such misrepresentations and breaches of warranty exceeds in
the aggregate $50,000, or (b) for any amount in excess of $46,000,000 in the
aggregate.
7.4.7. Nothing herein shall be deemed to prevent the Indemnified
Party from making a claim hereunder for potential or contingent claims or
demands provided the claim notice sets forth the specific basis for any such
potential or contingent claim or demand to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made.
ARTICLE 8. TERMINATION
8.1. This Agreement may be terminated prior to the Closing Date: (a) by
mutual written consent of SHAREHOLDER and PARSONS, authorized by their
respective directors; or (b) by written notice from SHAREHOLDER to PARSONS, if
the conditions provided in Article 5 shall not be satisfied by August 31, 1995,
or the date of such notice, whichever is later; or (c) by written notice from
PARSONS to SHAREHOLDER, if the conditions provided in Article 6 shall not be
satisfied by August 31, 1995, or the date of such notice, whichever is later.
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8.2. In the event of the termination and abandonment hereof pursuant to
the provisions of this Article 8, this Agreement shall become void and have no
effect (except for Articles 7 and 8 hereof and Sections 9.3, 9.4 and the last
sentence of Section 9.6 hereof with respect to governing law), without any
liability on the part of PARSONS, SHAREHOLDER or G/C or the directors, officers
or shareholders of PARSONS, SHAREHOLDER or G/C in respect of this Agreement.
Notwithstanding the foregoing, if such termination is due to the intentional
nonfulfillment of any covenant or agreement hereunder or the fraud on the part
of either party hereto, such party shall be liable to the other party hereto (i)
to the extent of the expenses incurred by such other party in connection with
this Agreement and the transactions contemplated hereby and (ii) in the case of
a fraud or intentional non-fulfillment of a covenant or an agreement, for
damages.
ARTICLE 9. MISCELLANEOUS
9.1. Any of the provisions of this Agreement may be waived at any time
prior to the Closing Date by PARSONS or Shareholder, whichever is or are
entitled to the benefit thereof. Any of the provisions of this Agreement may be
modified at any time prior to the Closing Date by agreement in writing between
the parties and executed in the same manner, but not necessarily by the same
persons, as this Agreement.
9.2. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if sent by
telefax (with confirming telefax receipt) or delivered by recognized courier
service (with receipt acknowledged) addressed as follows (or addressed in such
other manner as the party or parties receiving such notice may specify by notice
to the other parties):
If to SHAREHOLDER: GILBERT ASSOCIATES, INC.
Attn.: President and Chief Executive Officer
P.O. Box 1498 (19603)
Route 10 and Pheasant Road
Reading, PA 19607
Telefax: 610-856-5399
with a required copy to:
Berlack, Israels & Liberman
Attn: Douglas Davidson, Esq.
120 West 45th Street
New York, NY 10036
Telefax: 212-704-0196
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If to PARSONS: THE PARSONS CORPORATION
Attn: Senior Vice President and
Chief Financial Officer
100 West Walnut Street
Pasadena, CA 91124
Telefax: 818-440-2630
with a required copy to:
Morgan, Lewis & Bockius
Attn: Timothy Maxwell, Esq.
2000 One Logan Square
Philadelphia, PA 19103
Telefax: 215-963-5299
or to such other address as any party shall furnish to the other by notice given
in accordance with this Section 9.2. Each such notice, request, demand,
application, service of process and other communication shall be deemed to have
been given as of the date telefaxed, delivered or mailed, or, if given by any
other means, shall be deemed given only when actually received by the addressee.
9.3. All information disclosed heretofore or hereafter by any party to any
other party in connection with this Agreement shall be kept confidential by such
other party, and shall not be used by such other party otherwise than for use in
connection with this Agreement, except to the extent as was known to such other
party when received or as it is or hereafter becomes lawfully obtainable from
other sources, or to the extent such duty as to confidentiality and non-use is
waived by such disclosing party. Such obligation as to confidentiality and non-
use shall survive termination of this Agreement. In the event of termination of
this Agreement each party shall use its reasonable best efforts to return to the
other parties all documents (and reproductions thereof) received from such other
parties (and, in the case of reproductions, all such reproductions made by the
receiving party) that include information not within the exception contained in
the first sentence of this Section 9.3.
9.4. If this Agreement is terminated pursuant to Article 8 hereof, or for
any other reason, PARSONS, on the one hand, and SHAREHOLDER and G/C, on the
other hand, shall bear their respective expenses incurred in connection with or
arising out of this Agreement or its termination.
9.5. All Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement. This Agreement sets
forth the entire understanding of the parties hereto with
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respect to the transactions contemplated hereby. This Agreement may be amended
only by instrument in writing executed and authorized as provided herein. Any
and all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, including without
limitation the Agreement in Principle, are superseded by this Agreement.
9.6. Nothing expressed or implied in this Agreement is intended, or shall
be construed, to confer upon or give any person, firm or corporation other than
the parties hereto and their respective shareholders any rights or remedies
under or by reason of this Agreement. The captions on this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance
with the local law of the State of Delaware.
IN WITNESS WHEREOF, PARSONS, G/C and SHAREHOLDER, each intending to be
legally bound, have caused this Agreement to be signed by their respective
officers hereunto duly authorized, all as of the day and year first above
written.
THE PARSONS CORPORATION
BY:_____________________________________
GILBERT/COMMONWEALTH, INC.
BY:_____________________________________
GILBERT ASSOCIATES, INC.
BY:_____________________________________
-44-
<PAGE>
EXHIBIT A
G/C Balance Sheet
Gilbert/Commonwealth
Balance Sheet
(000's)
<TABLE><CAPTION>
Adjusted
Per Operating Trial Bal. Sheet
Balance 12/30/94 Adjustments @12/30/94
<S> <C> <C> <C>
Accounts Receivable 11,659 (A) 11,659
Bad debt reserve (1,738) 1,338(B) (400)
Unbilled Revenue 8,488 8,488
Deferred Income Taxes 220 (220)(I) 0
Other Current Assets 728 (302)(C) 473
------------ ------------ ------------
Total Current Assets 19,357 863 20,220
Deferred Income Taxes 170 (170)(I) 0
Equipment & Furniture 22,197 2,506(D) 24,703
Accumulated Depreciation (18,465) (2,116)(D) (20,581)
------------ ------------ ------------
Net Book Value 3,732 390 4,122
------------ ------------ ------------
Total Assets 23,259 1,083 24,342
============ ============ ============
Accounts Payable 1,460 1,460
Accrued Salaries and Wages 4,247 4,247
Accrued Income Taxes 679 (679)(E) 0
Billing in Excess of
Recognized Revenue 1,921 1,921
Accrued medical & dental 816 816
Accrued 401K match 743 743
Reserve for contract
disallowances 0 0
Other Accrued Liabilities 1,436 212(F) 1,570
(78)(K)
Total Current Liabilities 11,302 (545) 10,757
------------ ------------ ------------
Postretirement benefits 528 (528)(G) 0
Open window pension accrual 1,387 (1,387)(G) 0
Other Long Term Obligations 326 (326)(H) 0
Deferred Income Taxes 0 0
------------ ------------ ------------
Total liabilities 13,543 (2,786) 10,757
Stockholders' Equity 9,716 3,869 13,585
------------ ------------ ------------
Total Liabilities &
Stockholders' Equity 23,259 1,083 24,342
============ ============ ============
</TABLE>
<PAGE>
Gilbert/Commonwealth(G/C)
Adjustments to the 12/30/94 Balance Sheet
(000's)
(A) To remove miscellaneous accounts receivables relative to GHMC
activities which are not part of the transaction.
(B) To reduce the bad debt reserve to $400.
(C) To remove prepaid real estate taxes.
(D) Add reprographics and communication equipment:
Costs Acc. Dep NBV
------------- ------------ ----------
Reprographics 1,576 1,442 134
Communications 930 674 256
------------- ------------ ----------
2,506 2,116 390
============= ============ ===========
(E) To remove state income tax accrual.
(F) To remove debit balance relative to legal bills for the age
discrimination case.
(G) To remove retirement liabilities not assumed.
(H) To remove dividend unit award accrual.
(I) To remove state deferred taxes.
(J) To add prepaid maintenance agreement relative to the phone switch.
(K) To remove Pennsylvania and Tennessee franchise tax liabilities.
NOTE: The above operating trial balance does not reflect the TVA
settlement, age discrimination case and intercompany and equity
accounts. The balance sheet will have to be adjusted for other
GHMC related accounts, if any, in G/C's operating trial balance
which are excluded from the transactions.
<PAGE>
EXHIBIT B
Pre-Closing Transactions
As contemplated by Sections 2.2 and 2.3 of the Agreement, the following
assets and liabilities of G/C and its Subsidiaries are excluded from the sale
and shall be transferred to Shareholder in a manner reasonably satisfactory to
shareholder, G/C and Parsons on or before the Closing Date (in accordance with
Sections 5.3 and 6.8 of the Agreement):
The G/C Balance Sheet attached as Exhibit A excludes, and the Adjusted
March Balance sheet prepared in accordance with Section 1.21 will exclude, the
following items.
1.) Stock of Excluded Subsidiaries and all assets and liabilities of Excluded
Subsidiaries.
2.) All real property owned by G/C and the Excluded Subsidiaries and all assets
related to such real property, including but not limited to prepaid real estate
taxes, prepaid insurance and expenses, deferred rental income and all assets
used in the real estate management business conducted by GHMC and all
liabilities related to such assets and business except for telecommunication and
reprographics.
3.) All intercompany advances and indebtedness owed by Shareholder to Gilbert
Investment Company.
4.) All intercompany advances and indebtedness owed to or by G/C and its
Included Subsidiaries by or to Shareholder and any of its subsidiaries other
than G/C and its Included Subsidiaries.
5.) All assets and liabilities associated with taxes of G/C and its Subsidiaries
relating to income, franchise or excise taxes based on the income or net worth
of G/C and the Included Subsidiaries for any period ending on or before the
closing date.
6.) Accrued liabilities, reserves and assets relating to TVA Sequoyah Contract
Settlement, G/C Inc. of Michigan v. Stanley F. Mazur(Age Discrimination Case),
Dividend Unit Award Plan, Open Window Pension, Post retirement Life Insurance
Program and post retirement medical benefits.
7.) The amount by which the bad debt reserve recorded by G/C and its Included
Subsidiaries exceeds $400,000.
8.) Any workers compensation claims made on or before March 31, 1995 against G/C
and Included Subsidiaries.
For workers compensation insurance specifically provided to GAICO's customer
(Delmarva) prior to closing, the Shareholder shall be permitted to charge G/C or
will be required to reimburse G/C for worker compensation costs, as finally
determined in a manner consistent with prior years, to the extent permitted in
the Delmarva's contract. The final determination of worker compensation will be
completed once the policy years have been closed.
<PAGE>
A more detailed listing of the items set worth above will be supplied by
SHAREHOLDER on or before Shareholder's submittal of the Adjusted March Balance
Sheet to Parsons as provided for in Section 1.2.2.
As used herein, "Excluded Subsidiaries" shall mean Green Hills
Management Company (GHMC), GAI Inc., Gilbert Associates (Europe) Limited and
"Included Subsidiaries" shall mean G/C Subsidiaries other than Excluded
Subsidiaries. Included Subsidiaries are as follows:
GAICO, Inc.
Gilbert Architectural Company
Gilbert Construction Company
Gilbert Investment Company
Gilbert Associates of VA, Inc.
Gilbert/Commonwealth Inc. of Ohio
Gilbert Associates (Australia) Pty., LTD
Gilbert/Commonwealth Overseas Ltd.
Gilbert Associates - S.A.E. Engineers and Consultants
P/G Investments, Inc.
<PAGE>
EXHIBIT C
Use of Operating Systems
Continued Use of Systems and Services
- -------------------------------------
For a period up to six months following the date of closing, G/C will
continue to provide the following services:
1.) Accounting system - G/C will continue to allow the Shareholder
and GHMC to use the accounting system and will continue to process
all accounting transactions for the Shareholder and GHMC. These
transactions include, but are not limited to, monthly financial
closing, preparation of journal entries, generation of monthly
financial reports and other related accounting duties. The monthly
close will continue to be completed by the fifth business day
following the Shareholder's month end.
2.) Use of the telecommunication switch, network and other related
services.
3.) Computer Network and Services - G/C will continue to allow the
Shareholder and GHMC the use of the computer network and provide
both hardware and software support.
<PAGE>
OFFICE LEASE
BETWEEN
GREEN HILLS MANAGEMENT COMPANY (GHMC)
and
GILBERT/COMMONWEALTH, INC. (Lessee)
Premises:
Green Hills Corporate Center
Rt. 10 & Pheasant Road
Phase I
Green Hills, Reading, PA 19607
<PAGE>
COMMERCIAL OFFICE LEASE
THIS AGREEMENT OF LEASE, entered into as of the day of , 1995,
----------
by and between GREEN HILLS MANAGEMENT CO., a corporation
authorized to do business in the Commonwealth of Pennsylvania,
P.O. Box 1498, Reading, Pennsylvania, 19603, Lessor, hereinafter
referred to as "GHMC" and GILBERT/COMMONWEALTH, INC., Route 10 &
Pheasant Road, Reading, Pennsylvania, 19607, a corporation
authorized to do business in the Commonwealth of Pennsylvania,
hereinafter referred to as "Lessee".
W I T N E S S E T H:
GHMC does hereby lease to Lessee, 200,000 rentable square feet
of office space located in Green Hills Corporate Center, Reading,
Pennsylvania, the Demised Premises. See Schedule "A" attached.
This Lease is made upon the following terms and conditions:
1. Term
----
This Lease is made for an initial term of 120 months
commencing on the date of closing pursuant to the Stock
Purchase Agreement between Lessee and Gilbert Associates,
Inc., and expiring 120 months later . Lessee shall have the
option to extend this lease for two additional 60 month
periods by giving GHMC written notice at least six (6)
months prior to the expiration date set out herein.
2. Rental
------
a. Base Rental
The initial base rental shall be Fifteen Dollars
($15.00) per office rentable square foot per year and
Four Dollars ($4.00) per storage rentable square foot
per year. Said rental shall be payable in advance on
or before the fifth day of each and every month during
the term hereof, in equal monthly installments of
$250,000.00, provided, however, that said rental shall
be prorated for partial months at the beginning and end
of the term. Escalation of the aforementioned rental
shall be calculated at three percent (3%) per annum on
lease anniversary date. Schedule "B" (attached)
defines the existing rental stream of this agreement.
<PAGE>
b. Renewal Rental
In the event that Lessee desires to exercise its option
to renew for an additional 60 month term, the base
rental shall be negotiated based on the then existing
market conditions.
c. Late Payment
Any installment of rent accruing hereunder and any
other sum payable hereunder, if not paid when due shall
bear interest at the highest rate authorized by law
until paid.
3. Use of Demised Premises
-----------------------
Lessee shall, during standard business hours (7:00 A.M.
through 7:00 P.M., Monday through Friday) use the Demised
Premises for general office purposes, and for no other use
or purpose, or at other times, without the prior written
consent of GHMC. Lessee shall not conduct significant
operations within the Demised Premises at other than
standard business hours , but nothing contained herein shall
prevent Lessee from casual, not routinely scheduled,
overtime work at other than standard business hours as may
be required. This limitation shall, however, not apply to
Lessee's operation of a print or reproduction facility in
the Demised Premises, which shall be permitted. Any costs
incurred by GHMC, over and above the costs experienced by
GHMC elsewhere in the Demised Premises for general office
purpose operation shall, however, be added to the Base
Rental provided hereunder and treated as additional rent.
Such cost shall include but not be limited to high
electrical consuming machinery and equipment ,environmental
compliance and excessive water and sewer usage.
4. Parking
-------
Lessee shall be entitled to the use 115 reserved parking
spaces in GHMC's parking areas (See Schedule "C" attached).
General parking is represented in Schedule "C" as parking
available on a first come-first served basis by all clients
at Green Hills
<PAGE>
Corporate Center. From time to time maintenance is required
on parking facilities. Cooperation is requested of all GHMC
clients while preventive maintenance is accomplished.
5. Services and Utilities
----------------------
GHMC covenants and agrees so long as the Lessee is not in
default under any of the covenants of this Lease to
furnish:
a. Heat and air conditioning, in season, during normal
business hours, in such amounts and at such
temperatures as are considered by GHMC to be
reasonable, consistent with those supplied in the past
to the Premises and at substantially the same
temperatures maintained throughout the building
(excluding special air conditioning for any electronic
data processing machines, computers or similar machines
of high electrical consumption, the use of which has
not been expressly approved by GHMC);
b. Hot and cold water and sewage removal at those points
of supply or removal provided for general use of
tenancy (excluding high water and sewage usage by the
reproduction and print shop unless such additional
costs are paid for by Lessee);
c. Automatic elevator service;
d. Electric current for ordinary office use, and
additionally, as required for any normal office
machines, excluding electronic data processing
machines, computers or similar machines of high
electrical consumption, the use of which has not been
expressly approved by GHMC. Extraordinary use of
electrical services shall require separate metering by
GHMC for direct payment by Lessee.
e. Janitorial services for cleaning of the Demised
Premises five (5) days weekly in the manner and to the
extent provided by GHMC for itself elsewhere in the
building;
<PAGE>
f. Electric lighting service in the manner and
to the extent provided by GHMC for itself elsewhere in
the building;
g. Use of the reception area of the building;
h. Electronic security services in the manner and to the
extent provided for by GHMC itself elsewhere in the
building;
i. Trash and snow removal to the same extent provided by
GHMC for itself in other areas of the building.
j. Repairs and maintenance to building and grounds
throughout Green Hills Corporate Center. Not included
but fee available:
- Tenant improvement services,
- Architectural space design services,
- Move and change planning and implementation,
- Conference room setup services; conference center
services,
- Computer setup services
- Security guard services
GHMC reserves the right to stop the above-defined services
at any time when necessary or desirable in the judgment of
GHMC by reason of accident or emergency or for repairs,
maintenance, alterations, replacements or improvements.
GHMC shall use reasonable diligence to repair, maintain,
alter, replace, or improve same promptly, but Lessee shall
have no claim for rebate or reduction of rent or for damages
on account of any interruptions in said services occasioned
thereby or resulting therefrom.
If the Demised Premises are rendered totally or partly
untenable for a period of twenty (20) consecutive days,
Lessee is permitted to reduce its monthly base rental in
exact proportion to the rental space made untenable. The
rent abatement shall be calculated in exact proportion to
the number of days that the Demised Premises were made
untenable. For purposes of this Lease, and the rental
abatement period,
<PAGE>
even though Lessee must wait twenty (20) days before abating
the rent, once the twenty (20) days are up, the rent
abatement shall include the twenty (20) days' period.
The term untenable shall include floods to the premises, the
need for structural repairs affecting Lessee's demised
premises, or any other situations where Lessee cannot
physically gain access to its premises during a regular
business day.
6. Preparation of Demised Premises
-------------------------------
Demised premises, as occupied by Lessee is considered an "as
is" lease.
Lessee shall make no changes in or to the Demised Premises.
In the event that Lessee may from time to time require
electrical supply hook-ups for its equipment in the Demised
Premises or shall require other modifications of the Demised
Premises or installation of other equipment within the
Demised Premises, it shall so inform GHMC. If approved by
GHMC, GHMC will, on a mutually agreed upon schedule, provide
the necessary service. GHMC shall charge Lessee for service
on a time and material basis, at GHMC's scheduled rates.
GHMC shall bill Lessee for such service and Lessee shall
reimburse GHMC for the cost of such service within thirty
(30) days of the receipt of billing.
Should Lessee believe that GHMC's scheduled rates and
estimated time to complete any task requested by Lessee
hereunder, not be competitively priced; Lessee shall have
the right to obtain competitive bid or bids from qualified
outside contractors to perform the specified task. Should
such outside contractor or contractors provide a lower total
bid to complete such task, GHMC will, at its discretion,
either reduce its price to equal the lowest qualified bid or
authorize the outside contractor to perform the specified
task directly for Lessee.
7. Security
---------
Security will be provided either by GHMC's standard security
force and / or electronic security. Lessee agrees that its
employees assigned to work within the Demised Premises and
any of its visitors to the Demised Premises shall observe
all
<PAGE>
GHMC security procedures which may from time to time be in
effect and that such procedures may include, without
limitation, the wearing of identification badges, signing of
building registers, photographing, and all other procedures
which GHMC may deem necessary or desirable.
8. Care of Premises
----------------
Lessee agrees that it will take good care of the Demised
Premises, fixtures and appurtenances, and suffer no waste or
injury; that it will be responsible to pay for all repairs
to the Demised Premises, fixtures and appurtenances
necessitated by the negligence or willful acts of Lessee,
its agents, employees or guests; that in its use of the
Premises it will conform to all laws, orders and regulations
of the Federal, State and County authorities or any of their
departments, and will not through its act or neglect cause
any situation to exist in or about the Leased Premises which
would constitute a violation of any Federal, State, or
County code, regulation or ordinance governing use,
occupancy, health, sanitation or fire (but nothing herein
shall make Lessee liable for any repairs or alterations to
the Premises or the building necessitated by the fault of
Lessor, its agents, employees, guests, or other tenants).
Lessee further agrees that it will not do, or permit
anything to be done, in the Premises which will in any way
increase the fire insurance premium on the building, or
conflict with the fire insurance policies on the building.
Lessee will defend and save harmless GHMC from any liability
arising from injury to person or property caused by any
negligence or willful act or omission of Lessee, its agents,
employees, or guests. Lessee will surrender the Leased
Premises at the expiration of the term (or the sooner
termination thereof for any reason) in as good condition as
they were at the beginning of the term, ordinary wear and
tear excepted. Should Lessee fail to occupy the premises
for sixty (60) days due to any cause other than breach by
the Lessor, all alterations, additions, renovations or
improvements to the premises made by Lessee shall become, at
GHMC's option, a part of the real estate and belong to GHMC
without payment of any consideration and shall remain in and
be surrendered with the premises as part thereof at the
expiration or sooner termination of the lease. If GHMC
elects not to have ownership of the alterations made to its
property, Lessee shall be obligated to restore the premises,
at its costs and expense, to the condition at the time of
leasing.
<PAGE>
9. Insurance
---------
It is understood that GHMC insures the building of which the
Demised Premises are a part for its own protection and that
it shall have no obligation to carry insurance on any of the
property of Lessee or its employees assigned to work in the
building. Lessee further agrees to procure and maintain at
Lessee's expense throughout the continuance of this Lease,
comprehensive general liability insurance with a minimum of
One Million Dollars ($1,000,000) per occurrence for bodily
injury including death and property damage, from a reputable
company. Such comprehensive general liability insurance
shall include, but not be limited to, contractual liability
insurance covering the hold harmless agreements contained in
Paragraphs entitled "Indemnification" and "Care of Premises"
of this Lease. Lessee also agrees to procure and maintain
fire legal liability insurance, either by endorsement to the
afore-mentioned comprehensive general liability policy or by
a separate policy, with a minimum of Two Million Dollars
($2,000,000) covering Lessee's legal liability for damages
to the leased Premises. Evidence of insurance coverage and
providing for thirty (30) days prior written notice to GHMC
of any material change in or cancellation of the foregoing
policy(ies) shall be furnished to GHMC promptly after the
date of execution of this Lease.
10. Damage, Destruction, or Eminent Domain
--------------------------------------
In the event that the Demised Premises or the building of
which they are a part shall be materially damaged or if the
said building of any material part thereof be taken in any
eminent domain proceedings and if, as a result thereof,
Lessee shall be substantially prevented from conducting its
operations within the Demised Premises for a period of
thirty (30) consecutive days, Lessee may thereupon terminate
this Lease by written notice to GHMC. Should only a portion
of the Demised Premises be unavailable for Lessee's use then
the rent on such space or spaces shall abate proportionately
on such space which was rendered unusable until such time
as such space can be repaired, restored or replaced, after
which the full amount of rent shall once again be payable as
herein set forth.
<PAGE>
11. Notices
-------
Any notice required or permitted to be given hereunder shall
be in writing and mailed, postage prepaid, by certified or
registered U.S. mail, return receipt requested, to the
address set forth herein for each notice. Notices shall be
deemed to have been given when mailed, as evidenced by
receipt for said mailing.
12. Signs and Advertising
---------------------
No sign, advertising or notice shall be inscribed, affixed
or displayed on any part of the outside or inside of the
building, nor shall any advertising medium be used within
the Demised Premises, except as approved in writing in
advance by GHMC. Lessee shall obtain and pay for all
permits and licenses, if any, required in connection with
any approved sign and shall be responsible for the proper
installation and maintenance thereof. Copies of all such
required permits and licenses in connection with any
approved sign shall be delivered to GHMC within a reasonable
time after they are issued.
If any sign, advertisement or notice is improperly
exhibited, GHMC shall have the right to remove the same, and
Lessee shall be liable for any and all expenses incurred by
GHMC in said removal. Any such permitted use, including
directories and name plates, shall be at the sole expense
and cost of the Lessee, except as otherwise provided. GHMC
shall have the right to prohibit any advertisement of Lessee
which in its option tends to impair the reputation of the
building or its desirability as a high-quality office
building, and, upon written notice from GHMC, Lessee shall
immediately refrain from and discontinue any such
advertisement.
13. Inspection of Premises
----------------------
Lessee agrees it will allow GHMC, its agents or employees,
to enter the Demised Premises at all reasonable times, but
only after giving Lessee advance notice, without charge
therefore to GHMC and without diminution of the rent payable
to Lessee, to examine, inspect or to protect the same, or to
prevent damage or injury to the same, or to make such
alterations and repairs as GHMC may deem necessary or to
exhibit the same to prospective tenants. The above
referenced advance notice
<PAGE>
requirement shall not apply to security, maintenance, or
janitorial personnel or emergency situations.
14. Assignment - Subleasing
-----------------------
The Lessee shall not assign or sublet the whole or any part
of the leased Premises without GHMC's prior written consent,
which consent shall not be unreasonably withheld. Lessee
shall not, however, be required to obtain GHMC's written
consent to sublease to any company owned by Lessee or which
is owned by The Parsons Corporation. These related party
subleases shall be effective on notice to GHMC.
Notwithstanding such consent or notice, Lessee shall remain
liable to GHMC for the payment of all rent and for the full
performance of the covenants and conditions of this Lease,
unless GHMC specifically agrees in writing to release Lessee
from such obligations.
15. Default and Bankruptcy
----------------------
In the event that:
a. Lessee shall default in the payment of any installment
of rent or other sum herein specified and such default
shall continue for ten (10) days after written notice
thereof; or
b. Lessee shall default in the observance or performance
of any other of the Lessee's covenants, agreements or
obligations hereunder and such default shall not be
corrected within thirty (30) days after written notice
thereof; or
c. Lessee shall be declared bankrupt or insolvent
according to law, or if any assignment shall be made of
Lessee's property for the benefit of creditors, then
GHMC shall have the right thereafter, while such
default continues, to re-enter and take complete
possession of the leased Premises, to declare the term
of this Lease ended, and remove Lessee's effects,
without prejudice to any remedies which might be
otherwise used for arrears of rent or other default.
The Lessee shall indemnify GHMC against all loss of
rent and other payments which GHMC may incur by reason
of such termination during the
<PAGE>
residue of the term. If the Lessee shall default,
after reasonable notice thereof, in the observance or
performance of any conditions or covenants on Lessee's
part to be observed or performed under or by virtue of
any of the provisions in any article of this Lease,
GHMC, without being under any obligation to do so and
without thereby waiving such default, may remedy such
default for the account and at the expense of the
Lessee.
16. Subordination
-------------
This Lease shall be subject to and subordinate at all times
to the lien of any mortgages and/or deeds of trust now or
hereafter made on the Demised Premises, and to all advances
made or hereafter to be made thereunder. This subordination
provision shall be self-operative and no further instrument
of subordination shall be required.
Lessee shall, at any time during the term of this Lease,
within twenty (20) days after written request by GHMC,
certify by written instrument, the form of which shall be
furnished by GHMC, duly executed and acknowledged, to any
lender or proposed lender of the property containing the
Demised Premises: (a) as to whether this Lease has been
supplemented or amended and if so, the substance and manner
of such supplement or amendment; (b) as to the validity and
force and effect of this Lease in accordance with its tenor
as then constituted; (c) as to the existence, to Lessee's
knowledge, of any default hereunder; (d) as to the
commencement and expiration dates of the term of this Lease;
and (e) as to any other matters as may be reasonably so
requested.
17. Indemnification
---------------
Lessee will hold GHMC exempt and harmless for and on account
of any damage or injury to any person, or to the goods,
wares and merchandise, of any person, arising from the use
of the Premises or common areas of the building by Lessee,
or arising from the failure of Lessee to keep the Premises
in good condition as herein provided. Lessee agrees to
protect, indemnify, and save harmless GHMC on account of any
injury or damage to persons or their property, whether on
the Premises or in the common areas of the building, caused
or resulting from Lessee's
<PAGE>
occupancy of the Premises and the building. GHMC shall not
be liable to Lessee for any damage by or from any act or
negligence of any other occupant of the same building.
Lessee agrees to pay for all damage to the building, and to
defend, indemnify and hold GHMC harmless with respect to
damage to tenants or occupants thereof to the extent such
damage is caused by Lessee's negligence or willful act on
said Premises, its apparatus or appurtenances.
18. Expansion / Surrender of Space
------------------------------
Lessee shall have the right of first refusal on any space
adjacent to the Demised Premises that may become available
during the terms of this lease, provided that at least
twenty-four (24) months remain on the term, and that such
right has not been granted to Penske (Penske has already
been granted a right of first refusal on space in the
existing complex, but has only exercised such right on space
contigious to their existing space). GHMC will, however,
exert all reasonable effort to meet Lessee's space needs,
including where possible relocation of existing tenants.
Such space to be rented "as-is". GHMC shall notify Lessee
in writing of the availability of any such space and Lessee
shall have ten (10) days to respond to such offering.
Beginning after Lessee has paid GHMC 60 monthly rental
payments, hereunder, and continuing through the remainder of
the original term, Lessee shall have the right, upon six (6)
months advance written notice to GHMC to surrender up to
10,000 rentable square feet of office space per annum to
GHMC. Such space shall be in contiguous units of not less
than 5,000 rentable square feet of office space and shall be
situated in such a fashion as to allow for re-rental by GHMC
to third party or parties. The maximum square footage which
may be returned under this Paragraph shall not exceed 10,000
square feet per year and 50,000 square feet over the term of
this Agreement.
19. Lessee's Covenants
------------------
Lessee agrees that it will keep the Demised Premises and the
fixtures therein in good order and condition, and will, at
the expiration or other termination of the term hereof,
surrender and deliver up the same in like good order and
condition as the same now is or shall be at the commencement
of the term hereof, ordinary wear
<PAGE>
and tear, and damage by the elements, fire and other
unavoidable casualty not due to the negligence of Lessee,
excepted. The Lessee further agrees not to make any
additions or alterations, structural or otherwise, in or
upon the Demised Premises, or the building of which they are
a part, without first having obtained GHMC's written
consent; and that any such additions or alterations much
conform to any and all applicable building code standards,
as well as any and all other applicable requirements of the
federal, state and local government. It is distinctly
understood that any and all additions, alterations,
installations, changes, replacements or improvements upon
the Demised Premises shall remain upon the Demised Premises,
and be surrendered with the Demised Premises at the
expiration or other termination of this Lease without
disturbance, molestation or injury.
Should GHMC elect that certain alterations, installations,
changes, replacements, additions to or improvements upon the
Demised Premises be removed upon expiration or other
termination of this Lease, or any renewal period hereof,
Lessee hereby agrees to cause the same to be removed at
Lessee's sole cost and expense, and to repair any damage to
the Demised Premises arising from the installation of or the
removal of same, and should Lessee fail to remove the same,
then and in such event, GHMC shall cause same to be removed
at Lessee's sole risk and expense, and Lessee hereby agrees
to reimburse GHMC for the cost of such removal, together
with any and all damages which GHMC may suffer and sustain
by reason of the failure of Lessee to remove the same.
20. Notices
-------
All notices under this Lease shall be in writing and sent by
registered or certified mail as follows:
To Tenant: Green Hills Corporate Center
Rt. 10 and Pheasant Road
Reading, PA 19607
<PAGE>
To Landlord: Green Hills Management Company
Attention: Director, Real Estate Services
P. O. Box 1498
Reading, PA 19603-1498
IN WITNESS WHEREOF, the parties hereto have caused this Lease to
be executed by their duly authorized representatives as of the
date and year first above written.
WITNESS: GREEN HILLS MANAGEMENT CO.
By: By:
--------------------------
Title:
-----------------------
WITNESS: GILBERT/COMMONWEALTH, INC.
By: By:
--------------------------
Title:
-----------------------
GUARANTY OF LEASE
In partial consideration of the covenants, conditions and
obligations contained in the Stock Purchase Agreement, to which
this Lease is attached as an Exhibit. The Parsons Corporation
hereby guarantees to GHMC and its successors and assigns the full
and punctual performance and observation by Lessee of all of the
material terms, covenants and conditions of this Lease. This
guaranty shall include any liability of Lessee or any related
company which may be occupying space pursuant to Section 14 of
the Lease. If, at any time, default shall be made by Lessee or
such related company, in the performance or observance of any of
the material terms, covenants or conditions, The Parsons
Corporation will keep, perform, and observe the same, as the case
may be, in their place and stead upon written notice from GHMC.
WITNESS: THE PARSONS CORPORATION
By:_________________________________ By:________________________________
<PAGE>
EXHIBIT E
Health Care Benefits
Robert Hagenbaugh
Sally Magner
Mary Ann Shaw
Eunice Smith
Russell Smith
Richard A. Stoudt
Mike Tokolics
La Var Winsor
Shirley Adams
Peter L. Bretz
Janice M. Dobrosky
<PAGE>
EXHIBIT F
Employment Agreement
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the date of Closing, pursuant to the
Stock Purchase Agreement between Gilbert Associates, Inc. and The
Parsons Corporation, between Gilbert/Commonwealth, Inc. a
Delaware corporation (the "Company") and _________________ ["the
Employee").
WITNESSETH:
WHEREAS, the Company desires to retain the services of
Employee and Employee desires to be employed by Company upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and
Employee hereby agrees to serve in such position as shall be
assigned to Employee by the Company, for the period hereinafter
defined. Employee agrees to perform such services as shall from
time to time be assigned to him by the Company and, in the absence
of such assignment, such services customary to such position as
are necessary to the operations of Company. Employee further
agrees to use his best efforts to promote the interests of the
Company and to devote his full time, attention and energies to the
duties of his position and the business and affairs of the Company
during the Term of Employment (as hereinafter defined).
2. TERM OF EMPLOYMENT. The employment hereunder shall be
for a period of two [2] years (the "Term of Employment") which
shall commence on the effective date hereof and shall end twenty
four [24] months later unless earlier terminated (i) upon the
death of Employee, (ii) at the option of the Company upon 30 days'
prior written notice to Employee, in the event of the inability of
the Employee to perform his duties hereunder, whether by reason of
injury (physical or mental), illness or otherwise, incapacitating
Employee for a continuous period exceeding 180 days or (iii) upon
the discharge of Employee by the Company for cause as determined
by the Company. For purposes of this paragraph 2(iii), "discharge
for cause" shall mean:
a. willful or intentional violation of Company policies or
procedures, dereliction of Employee's duties or responsibilities,
insubordination, or any other actions knowingly taken in conflict
with the Company's interest and objectives;
b. commission of any grossly negligent, fraudulent or
dishonest act by Employee in connection with his employment with
the Company; or
c. the commission of any felony or act of moral turpitude.
3. COMPENSATION.
(a) Base Salary. As compensation for services hereunder,
the Company shall pay Employee an annual salary of $___________,
or such greater amount as may be established by Company, which
shall be payable in appropriate installments to conform with the
regular payroll dates for salaried personnel of the Company. The
salary rate for the Employee shall be periodically adjusted in
accordance with the salary administration policy of the Company,
but in no event shall such salary rate be decreased below the
salary rate in effect as of the date hereof.
<PAGE>
(b) Vacation and Benefits. Employee shall receive paid
vacation days each year in accordance with prevailing Company
policies and shall participate on the same basis as other
employees of the Company in any other Company employee benefit
programs. The period of Employee's employment with Company prior
to the date hereof shall be credited in full to determine the
Employee's years of service for purposes of determining
eligibility for vacation and benefits.
(c) Payment Upon Early Termination. In the event of early
termination of employment for any reason specified in paragraph
2(i), (ii) or (iii) hereof, the Company shall no longer be
obligated to make any further compensation payments of any kind
under this Agreement to Employee or his estate. In particular,
the Employee shall not be entitled to any bonus payment for any
portion of the year in which his employment so terminates or for
any succeeding year except that in the case of death, the
Employee's estate shall be entitled to a pro rated bonus, if so
earned, for the portion of the year worked by the Employee prior
to his death. Any base salary payments earned but not yet paid
shall be made by the Company to Employee or his estate.
4. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY;
CONFIDENTIALITY
(a) Covenant Not To Compete. Until one [1] year after
Closing Date, Employee shall not without the Company's prior
written consent, directly or indirectly own, manage, operate,
control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner
with, any business of a type and character engaged in and
competitive with that conducted by the Company. For these
purposes, Employee's ownership of securities of a public company
not in excess of 1% of any class of such securities shall not be
considered to be engaging in competition with the Company.
For the period set forth in the immediately preceding
paragraph, Employee agrees to refrain from interfering with the
employment relationship between the Company and its other
employees by soliciting any such individuals to participate in
independent business ventures or to accept other employment and
agrees to refrain from soliciting business from any client of the
Company for himself or for any entity in which Employee has an
interest.
It is the desire and intent of the parties that the
provisions of this paragraph 4(a) shall be enforced to the fullest
extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. If any
particular provision or portion of this paragraph 4(a) shall be
adjudicated to be invalid or unenforceable, this paragraph 4(a)
shall be deemed amended to delete therefrom such provision or
portion adjudicated to be invalid or unenforceable, such amendment
to apply only with respect to the operation of this paragraph in
the particular jurisdiction in which such adjudication is made.
Employee acknowledges and agrees that these provisions are
necessary for the Company's protection and are not unreasonable
because (i) his means of livelihood is not materially affected by
his abiding by the provisions hereof, and (ii) he is able to
obtain employment with companies whose businesses are not
competitive with those of the Company.
(b) Intellectual Property. During the Term of Employment,
Employee will disclose to the Company all ideas, inventions and
business plans developed by him during such period which relate
directly or indirectly to the business of the Company or its
subsidiaries or affiliates, including, without limitation, any
process, operation, product or improvement which may be patentable
or copyrightable. Employee agrees that such will be the property
of the Company and that he will at the Company's request and cost
do whatever is necessary to secure the rights thereto by patent,
copyright or otherwise to the Company.
(c) Confidentiality. Employee agrees that without the prior
written consent of the Company, such consent to be given only by
the Board of Directors of the Company, he will not use, publish or
otherwise divulge to anyone (other than the Company or any persons
employed or designated by the Company) any knowledge of or
information of any type whatsoever of a confidential nature
relating to the
<PAGE>
business of the Company or any of its subsidiaries or affiliates,
including, without limitation, all types of trade secrets (unless
readily ascertainable from public or published information or
trade sources).
(d) Survival. Employee agrees that it is necessary for the
protection of the Company that paragraphs 4(a), 4(b) and 4(c)
shall survive the Term of Employment until the date set out in
paragraph 4(a).
5. REIMBURSEMENT OF EXPENSES. Employee shall be entitled
to be reimbursed for reasonable travel and other expenses incurred
in connection with the services to the Company pursuant to and
during the term of this Agreement upon a basis consistent with the
policies of the Company.
6. BREACH BY EMPLOYEE. Both parties recognize that the
services to be rendered under this Agreement by Employee are
special, unique and extraordinary in character, and that in the
event of a breach by Employee of the terms and conditions of this
Agreement to be performed by him, including, but not limited to
the obligations in paragraph 4 herein, the Company shall be
entitled, if it so elects, to institute and prosecute proceedings
in any court of competent jurisdiction, either in law or in
equity, to obtain damages for any breach of this Agreement, or to
enforce the specific performance thereof by Employee, or to enjoin
Employee from performing services for any such other person, firm
or corporation.
7. ASSIGNMENT. This Agreement is a personal contract and,
except as specifically set forth herein, the rights and interests
of Employee herein may not be sold, transferred, assigned, pledged
or hypothecated. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors
and assigns of the Company. In the event of any attempted
assignment or transfer of rights hereunder by Employee, contrary
to the provisions hereof, the Company shall have no further
liability for payments hereunder.
8. GOVERNING LAW; CAPTIONS. This Agreement contains the
entire Agreement between the parties and shall be governed by the
laws of the Commonwealth of Pennsylvania except with respect to
the Commonwealth of Pennsylvania's laws concerning the conflict of
laws. This Agreement may not be changed orally, but only by
agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Paragraph headings are for convenience of reference only and shall
not be considered a part of this Agreement.
9. PRIOR AGREEMENTS. This Agreement supersedes and
terminates all prior agreements between the parties relating to
the subject matter herein addressed, including, without
limitation, any executive benefits, incentives, severance,
deferred compensation, salary continuation, retirement, pensions,
etc. which are not made generally available to Company employees
under the Company's standard employee and management benefit
plans.
10. NOTICES. Any notices or other communications required
or permitted hereunder shall be in writing and shall be deemed
effective when mailed by Certified Mail, Return Receipt
Requested, to the party at his or its address as follows (or at
such other address as the party may specify by written notice to
the other):
If to the Company: Gilbert/Commonwealth, Inc.
2675 Morgantown Road
Reading, Pennsylvania 19607
With copies to President
<PAGE>
If to the Employee
11. CONDITIONS OF EMPLOYMENT. The Company acknowledges
that it is the Employee's understanding that his principal place of
employment will initially be in the area of his current
employment, but that Company retains the right to require the
Employee to accept assignments at other locations from time to
time. Employee additionally acknowledges that he will be expected
to work reasonable business hours and engage in travel away from
his principal place of employment in accordance with the Company's
business practices.
12. ACKNOWLEDGMENT. Employee hereby acknowledges that he
has been given the opportunity to review the terms and conditions
of this Agreement with any legal or other advisor of his choice
and that he fully understands and knowingly consents to the terms
and conditions thereof.
IN WITNESS WHEREOF, the Company has, by its appropriate
officer, signed this Agreement and Employee has signed this
Agreement, on and as of the day and year set forth below.
DATE EMPLOYEE
-----------------
----------------------------
DATE GILBERT/COMMONWEALTH, INC.
-------------------
By:
-------------------------------
Title:
-------------------------------
<PAGE>
ANNEX B
DILLON, READ & CO. INC.
535 Madison Avenue
New York, New York 10022
(212) 906-7000
April 10, 1995
The Board of Directors
Gilbert Associates, Inc.
Green Hills Corporate Center
Morgantown Road
Reading, Pennsylvania 19603
Gentlemen:
You have advised us that Gilbert Associates, Inc. (the "Company")
has entered into a Stock Purchase Agreement (the "Agreement") with
The Parsons Corporation ("Parsons") dated as of March 30, 1995,
whereby Parsons would acquire all of the outstanding shares of
common stock of Gilbert/Commonwealth, Inc. (the "Business"), a
wholly-owned subsidiary of the Company, for an aggregate purchase
price of $46 million in cash, subject to certain adjustments, as
more fully described in the Agreement (the "Transaction").
You have requested our opinion as to whether the consideration to
be paid by Parsons, as set forth in the Agreement, is fair to the
holders of the common stock of the Company (the "Stockholders")
from a financial point of view, as of the date hereof.
Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment
banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Dillon
Read is acting as financial advisor to the Company in connection
with the Transaction and will receive a fee upon consummation
thereof in addition to the fee Dillon Read is receiving for
rendering this opinion. In the ordinary course of business, we
have traded securities of the Company for our own account and for
the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
<PAGE>
In arriving at our opinion, we have, among other things: (i)
reviewed the Agreement and the exhibits thereto, (ii) reviewed a
draft of the Proxy Statement dated April 10, 1995, relating to the
Special Meeting of Stockholders to be held in connection with the
Agreement; (iii) reviewed certain publicly available business and
financial information relating to the Company; (iv) reviewed the
reported price and trading activity for the Common Stock of the
Company; (v) reviewed certain internal financial information and
other data provided to us by the Company relating to the business
and prospects of the Business, including financial projections
prepared by the management of the Company and the Business, (vi)
conducted discussions with members of the senior management of the
Company and the Business, (vii) reviewed the financial terms, to
the extent publicly available, of certain acquisition transactions
which we considered relevant; (viii) reviewed publicly available
financial and securities market data pertaining to certain
publicly-held companies in lines of business similar to those of
the Business; (ix) considered the results of the limited auction of
the Business conducted at the Company's request by Dillon Read; and
(x) conducted such other financial studies, analyses and
investigations, and considered such other information as we deemed
necessary and appropriate.
In connection with our review, with your consent, we have not
assumed any responsibility for independent verification of any of
the foregoing information and have relied upon its being complete
and accurate in all material respects. We have not been requested
to and have not made an independent evaluation or appraisal of any
assets or liabilities (contingent or otherwise) of the Company or
any of its subsidiaries, nor have we been furnished with any such
evaluation or appraisal. Further, we have assumed, with your
consent, that all of the information, including the projections,
provided to us by the Company's management was prepared in good
faith and was reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company's
management as to the future financial performance of the Business,
and was based upon the historical performance of the Business and
certain estimates and assumptions which were reasonable at the time
made. In addition, our opinion is based on economic, monetary and
market conditions existing on the date hereof.
In rendering this opinion, we are not rendering any opinion as to
the value of the Company or making any recommendation to the
Stockholders with respect to the advisability of disposing of or
retaining shares held in the Company. This opinion does not
address the fairness of the Transaction to the Stockholders in any
capacity, including, without limitation, as employees, other than
as holders of the Company's common stock. In addition, we are not
making any recommendation regarding whether or not it is advisable
for Stockholders to vote in favor of the Transaction.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion
that, as of the date hereof, the consideration to be paid by
Parsons in connection with the Transaction is fair to the
Stockholders from a financial point of view.
Very truly yours,
DILLON, READ & CO. INC.
By: /s/ Aaron C. Hill
Aaron C. Hill
Vice President
<PAGE>
GILBERT ASSOCIATES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING--JUNE 16, 1995
The undersigned hereby appoints ALEXANDER F. SMITH and TIMOTHY S. COBB, and
each of them, with full power of substitution, attorneys and proxies to
represent the undersigned at a Special Meeting of Class B stockholders of
Gilbert Associates, Inc. to be held on Friday, June 16, 1995, and at any
adjournment or adjournments thereof, and thereat to vote all shares of Class B
Common Stock that the undersigned would possess if personally present:
(INSTRUCTION: PLEASE MAKE YOUR CHOICE IN /X/ DARK INK.)
1. Sale of the common stock of Gilbert/Commonwealth, Inc. to The Parsons
Corporation;
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion upon such other matters as may properly come before
the meeting; all as set forth in the Notice of Special Meeting and Proxy
Statement, dated May 26, 1995, receipt of which is hereby acknowledged.
(continued and to be signed on reverse side)
<PAGE>
UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR THE SALE OF THE COMMON
STOCK OF GILBERT/COMMONWEALTH, INC. TO THE PARSONS CORPORATION.
Dated......................., 1995
.................................
(Signature of Stockholder)
.................................
Please sign above exactly as your
name appears on the certificate
representing your shares of Class
B Common Stock.
.................................
(Print Name as Signed Above)
