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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 14D-9
(Amendment No. 1)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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EMCON
(Name of Subject Company)
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EMCON
(Name of Person(s) Filing Statement)
Common Stock, no par value per share
(Title of Classes of Securities)
290843 10 1
(CUSIP Number of Class of Securities)
Eugene M. Herson
President and Chief Executive Officer
EMCON
400 South El Camino Real, Suite 1200
San Mateo, California 94402
(650) 375-1522
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of person(s) filing statement)
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COPY TO:
Paul A. Blumenstein, Esq.
Gerald S. Walters, Esq.
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
(650) 328-6561
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This Amendment No. 1 supplements and amends the Solicitation/Recommendation
Statement on Schedule 14D-9, originally filed on May 17, 1999 (this "Schedule
14D-9" or "Statement"), by EMCON, a California corporation (the "Company"),
with respect to the tender offer by Seismic Acquisition Corporation, a
California corporation ("Purchaser"), and a wholly owned subsidiary of The IT
Group, Inc., a Delaware corporation ("Parent"), to purchase all of the issued
and outstanding Shares at $6.75 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase, dated May 17, 1999 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, together with the Offer to
Purchase or any amendments or supplements thereto, constitute the "Offer
Documents"). The Offer to Purchase is being made pursuant to an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of May 10, 1999, by and
among Parent, Purchaser and the Company. All capitalized terms used but not
defined herein shall have the meanings set forth in the Statement.
Item 4. The Solicitation or Recommendation.
Item 4 is hereby amended and restated in its entirety to provide as follows:
(a) Recommendation of the Company Board.
THE COMPANY BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE
IN THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES HEREUNDER.
(b) Background of the Offer; Opinion of Financial Advisor; Factors Considered
by the Company Board.
Background of the Offer
On January 29, 1997, the Company's Executive Committee met and determined
that the Company should evaluate and consider strategic alternatives,
including a business combination, joint venture or strategic partnership with
a larger company having the critical mass needed to execute the Company's
business plan more effectively. At the conclusion of this meeting, the Company
engaged Raymond James to provide assistance in exploring strategic
alternatives that may be available to the Company and to advise the Company
with respect to opportunities involving a business combination, joint venture
or strategic partnership with a larger company.
On February 22, 1997, a meeting of the Company Board was held during which
representatives from Raymond James presented their assessment of the Company's
current market and competitive position and the benefits that could be
achieved through a strategic business combination. During the period from
February 1997 to April 1997, Raymond James conducted extensive interviews with
senior management, engaged in customary due diligence procedures, analyzed
valuation parameters and reviewed potential candidates for a possible business
combination, joint venture or strategic partnership.
During 1997, Parent was actively exploring possible business combinations
with companies in the solid waste industry, with a view to becoming the
leading global provider of fully integrated solid waste services. In April
1997, Parent informally contacted the Company regarding Parent's possible
interest in a transaction with the Company. Representatives of Parent met with
certain executive officers of the Company to explore further the possibility
of a transaction between Parent and the Company.
From May 1997 to October 1998, Raymond James engaged in preliminary
discussions with several potential strategic partners, including Parent.
During this period, the Company Board periodically met with Raymond James to
review the various strategic alternatives.
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On November 12, 1998, a meeting of the Company Board was held to review the
status of the Company's search for potential strategic business combinations.
At this meeting, members of senior management presented their analysis of the
alternatives currently available to the Company. At the conclusion of this
meeting, the Company Board decided to continue its relationship with Raymond
James and directed senior management to focus its efforts on a discrete group
of potential buyers that might be interested in purchasing the Company. The
Company Board also appointed Douglas P. Crane, Chairman of the Company Board,
and Dr. Franklin J. Agardy, a director of the Company, to a Special Committee
to assist senior management in its review and negotiation of the terms of the
proposed sale of the Company.
From December 1998 to February 1999, Raymond James contacted 16 potential
purchasers. A total of 11 potential buyers, including Parent, executed
confidentiality agreements with the Company and received certain confidential
information about the Company. Potential purchasers were instructed to submit
initial indications of interest to Raymond James by February 26, 1999. Three
parties, including Parent, submitted preliminary indications of interest. The
Company invited all three parties to participate in due diligence and
management presentations at the offices of Gray Cary Ware & Freidenrich LLP
("Gray Cary"), the Company's legal counsel, in Palo Alto, California. Two of
the three interested parties, including Parent, conducted this due diligence.
In the letter submitted to Raymond James by Parent on February 26, 1999 (the
"February Letter"), Parent estimated the enterprise value to acquire 100% of
the Company to be in a range of $55 million to $70 million and requested that
the Company consider accepting a combination of cash and Parent Common Stock
as consideration in an acquisition.
Parent's representatives visited the Company's headquarters on March 9 and
10, 1999, to enable Parent to become better acquainted with the Company's
operations, business and personnel. During the visit, representatives of the
Parent met with certain executive officers of the Company and representatives
of Raymond James, attended a management presentation given by the Company and
conducted limited due diligence with respect to the Company's operations,
business and personnel.
On March 25, 1999, the Company Board received an offer from a company who
had not participated in the due diligence process (the "Unsolicited Bidder").
The Unsolicited Bidder's merger proposal required that the Company issue
between 12 and 18 million shares of Company Common Stock to acquire the
Unsolicited Bidder. Although it was difficult to assign a certain value to
this offer due to its structure as a reverse merger, based on various
assumptions regarding the value of the combined entity and the parties'
ability to successfully integrate the two companies, the Company Board, with
the assistance of Raymond James, estimated that the enterprise value of this
offer was approximately between $56 and $60 million.
On March 26, 1999, Parent and the other interested party that participated
in due diligence and management presentations submitted best and final offers
to Raymond James.
On March 26, 1999, Parent submitted to Raymond James a preliminary, non-
binding indication of value, and best and final offer with the intent of being
invited to conduct further due diligence and negotiate a definitive purchase
agreement on an exclusive basis (the "March Letter"). As set forth in the
March Letter, Parent's estimate of the enterprise value to acquire 100% of the
Company was a range of $65 to $70 million. In the March Letter, Parent
continued to propose that, in addition to cash, the Company accept 50% to 75%
of the purchase price in the form of Parent Common Stock.
On March 30, 1999, at a special meeting of the Company Board, senior
management of the Company and representatives from Raymond James and Gray Cary
reviewed and evaluated the terms of the business combinations proposed by all
interested parties, and representatives of Raymond James reviewed the
methodology used in their financial analyses of the various transactions.
Representatives of Raymond James described the terms and conditions of each of
the bids, the background of the bidders and the status of the due diligence
performed by each of the bidders. The Company Board discussed each of the bids
in detail, focusing on the terms and conditions of the bids and the likelihood
of completing a transaction on the terms and conditions outlined. At the
conclusion of this discussion, the Company Board decided to focus its efforts
on the bids received from Parent and the other interested party that
participated in due diligence and management presentations. The Company Board
determined not to pursue the Unsolicited Bidder's merger proposal due to
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the Company Board's assessment that the proposal was financially inferior to
the other bids for the following reasons: (i) the potential inability of the
Unsolicited Bidder to complete the transaction, (ii) the lack of a strategic
advantage in combining with the Unsolicited Bidder, (iii) substantial
uncertainty regarding the assumed value of the combined entity, and (iv) the
potential negative effect on the market price of Company Common Stock that
could result from the proposed structure of the transaction.
On April 7 and 8, 1999, Parent and the other interested party conducted
additional due diligence.
On April 10, 1999, the other interested party submitted a revised best and
final offer to acquire 100% of the equity of the Company for $58 million.
On April 12, 1999, the Company Board, senior management of the Company and
representatives of Parent and Raymond James met in New York to attend a
presentation by Parent's executive officers and discuss strategic issues
associated with the proposed merger.
On April 16, 1999, Parent submitted to Raymond James a revised version of
the March Letter (the "April Letter"). In the April Letter, Parent estimated
the value to acquire 100% of the equity of the Company, on a fully diluted
basis, to be $62 million, assuming that the total debt reflected on the
Company's December 31, 1998 balance sheet would not materially increase prior
to the consummation of the Merger. The $62 million offer contained in the
April Letter represented an enterprise value of approximately $70 million,
including assumed liabilities. The terms of the April Letter provided that $2
million of the $62 million offer was contingent on the Company achieving
certain financial milestones for the six months ended June 30, 1999 (the
"Contingent Payment").
On April 17, 1999, Raymond James informed the other interested party that
the Company Board had decided not to pursue the other interested party's offer
of $58 million mainly because such offer was financially inferior to Parent's
offer of $62 million.
From April 19 to April 23, 1999, Parent conducted due diligence sessions at
the Company's corporate headquarters and at other regional offices of the
Company and its subsidiaries. Participants in these sessions included
representatives of Parent's management, financial, legal and accounting
advisors. Parent and its representatives continued to conduct off-site due
diligence through May 10, 1999.
On April 20, 1999, Gray Cary distributed a proposed first draft of the
merger agreement to Parent and its legal counsel, Gibson, Dunn & Crutcher LLP
("GD&C"), and each of Gray Cary and GD&C began negotiating the form of a
definitive merger agreement.
From April 20 to May 10, 1999, representatives of the Company, Raymond James
and Gray Cary held discussions with representatives of Parent and GD&C to
negotiate various aspects of the acquisition proposal.
At a scheduled telephonic meeting of Parent's Board of Directors (the
"Parent Board") held on May 4, 1999, a full discussion of the proposed
transaction took place. Following the discussions, the Parent Board approved,
among other things, the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, provided that the final terms of
the Merger Agreement were subsequently reviewed and approved by the Executive
Committee of the Parent Board. Parent informed the Company that it had agreed
to pay approximately $62 million in cash, or $6.75 net per Share, without
interest, for all of the issued and outstanding Shares of the Company, on a
fully diluted basis. The Contingent Payment proposal was eliminated from the
offer.
On May 6, 1999, at a special meeting of the Company Board, members of senior
management and Gray Cary reported on the revised terms of the Merger
Agreement. Representatives of Raymond James reviewed their financial analysis
with respect to the proposed Merger and delivered an oral opinion
(subsequently confirmed in writing) that the terms of the Offer and the Merger
were fair from a financial point of view to the shareholders
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of the Company (the "Fairness Opinion"). Following this presentation, the
Company Board asked the representatives from Raymond James and Gray Cary
various questions about the terms of the transaction and the remaining open
issues, and the Company Board and representatives of Gray Cary discussed the
Company Board's fiduciary duties to the Company's shareholders. At the
conclusion of this discussion, the Company Board (a) unanimously approved the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger and (b) authorized its senior management to complete the
negotiation of the definitive Merger Agreement and to execute and deliver the
Merger Agreement in substantially the form presented to the Company Board,
subject to the receipt of Raymond James' written opinion as to the fairness of
the Offer and the Merger to the Company's shareholders.
On May 10, 1999, Parent advised the Company that it had received the
necessary consent from its lender to enter into the Merger Agreement and to
consummate the Offer.
On May 10, 1999, Gray Cary and GD&C finalized their negotiations of the
Merger Agreement. The Executive Committee of the Parent Board reviewed the
final terms of the Merger Agreement and approved the final terms of the Merger
Agreement by unanimous written consent in lieu of a meeting. Senior management
of the Company reviewed the final terms of the Merger Agreement and notified
representatives of Parent that such terms were acceptable.
The Merger Agreement was executed on the evening of May 10, 1999, and a
joint press release was issued by the parties announcing the execution of the
Merger Agreement on the morning of May 11, 1999.
On May 17, 1999, Purchaser commenced the Offer.
Opinion of Financial Advisor
The Company retained Raymond James to render an opinion to the Company Board
as to the fairness, from a financial point of view, to the Company's
shareholders, of the financial terms and conditions of the Offer and the
Merger, taken as a whole (collectively, the "Transaction"). No limitations
were imposed on Raymond James by the Company Board or Company management with
respect to the investigations made or procedures followed by Raymond James in
preparing and rendering its opinion, and the Company and its management
cooperated fully with Raymond James in connection therewith. Raymond James
rendered its written Fairness Opinion that as of May 7, 1999, the Transaction
was fair, from a financial point of view, to the holders of Company Common
Stock. Raymond James reaffirmed its opinion as of the date of the Offer.
The full text of the Fairness Opinion, dated May 10, 1999, which sets forth
assumptions made, matters considered and limits on the scope of review
undertaken, is attached as Annex B to this Schedule 14D-9 and is incorporated
by reference herein. The Company's shareholders are urged to read the Fairness
Opinion in its entirety. Raymond James' Fairness Opinion, which is addressed
to the Company Board, is directed only to the fairness of the Transaction to
the Company's shareholders from a financial point of view and does not
constitute a recommendation to any Company shareholder as to whether such
shareholder should tender his or her Shares and does not address any other
aspect of the proposed Offer and Merger or any related transaction. The Offer
Price and other terms of the Offer were determined pursuant to negotiations
between the Company and Purchaser and not pursuant to recommendations of
Raymond James. Raymond James merely evaluated the Transaction from a financial
point of view. Raymond James consents to the inclusion of this summary of its
opinion in, and attachment of its opinion to, this Schedule 14D-9. The summary
of the Fairness Opinion set forth in this Schedule 14D-9 is qualified in its
entirety by reference to the full text of such opinion.
In connection with Raymond James' review of the proposed Transaction and the
preparation of its opinion, Raymond James has, among other things:
(1) reviewed the Company's annual report to shareholders on Form 10-K for
the fiscal year ended December 31, 1998, its quarterly reports on Form 10-Q
for the quarters ended June 30, 1998 and September 30, 1998 and other
publicly available financial information of the Company and Parent;
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(2) reviewed certain non-public information prepared by the management of
the Company, including financial statements, financial projections and
other financial and operating data concerning the Company;
(3) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(4) reviewed a draft of the Merger Agreement and the financial terms and
conditions therein;
(5) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business Raymond James
believes to be generally comparable to those of the Company; and
(6) compared the financial terms of the Transaction with the financial
terms of certain other transactions which Raymond James believes to be
generally comparable to the Transaction.
In conducting its investigation and analyses and in arriving at its opinion,
Raymond James took into account such accepted financial and investment banking
procedures and considerations as it deemed relevant, including a review of (i)
historical and projected revenues, operating earnings, net income and
capitalization of the Company and certain other publicly held companies in
businesses it believed to be comparable to the Company; (ii) the current and
projected financial position and results of operations of the Company; and
(iii) the general condition of the securities markets.
As described in its opinion, Raymond James assumed and relied upon the
accuracy and completeness of all information supplied or otherwise made
available to Raymond James by the Company or any other party and did not
attempt to verify independently any such information. In addition, Raymond
James did not make or receive any independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of the Company, nor has
Raymond James been furnished with any such evaluation or appraisal. Raymond
James assumed that the financial forecasts, estimates, projections, and other
information with respect to the Company examined by Raymond James had been
reasonably prepared in good faith on bases reflecting the best currently
available estimates and judgments of the management of the Company, and
Raymond James relied upon each party to advise it promptly if any such
information previously provided to or discussed with Raymond James had become
inaccurate or had been required to be updated during the period of its review.
In addition, Raymond James has assumed the Transaction will be consummated
substantially in accordance with the terms set forth in the Merger Agreement.
The Fairness Opinion was based on economic, market, and other conditions as
in effect on, and the information available to it as of, the date of its
opinion, and Raymond James has undertaken no obligation to reevaluate its
opinion. Raymond James did not express any opinion as to the price range or
range of prices at which the Parent Common Stock might trade subsequent to the
Transaction.
Fairness Opinion Analyses
The following is a summary of the analyses performed by Raymond James in
connection with the preparation of the Fairness Opinion:
Presentation by Raymond James. The following summarizes the material
financial analyses presented telephonically by Raymond James to the Company
Board at its meeting on May 6, 1999 (and subsequently confirmed in writing as
of May 7, 1999), which were considered by Raymond James in rendering the
Fairness Opinion described below. This summary is not a complete description
of the analyses underlying the Fairness Opinion or of information presented at
meetings between Raymond James and representatives of the Company held in
advance of the Company Board's consideration of the Transaction.
Precedent Transaction Analysis. Raymond James presented to the Company Board
a summary of a precedent transaction analysis which compared four key
financial ratios for ten selected precedent environmental engineering and
consulting company combinations announced during the six year period prior to
May 6, 1999 to the same four key financial ratios projected for the proposed
Transaction. The precedent combination transactions consisted of: Dames &
Moore Group combining with URS Corporation; ICF Kaiser's Environmental
Facilities
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Management group combining with Parent; Sverdrup Corp. combining with Jacobs
Engineering Group, Inc.; Fluor Daniel GTI combining with Parent; ATC Group
Services Inc. combing with Weiss, Peck & Greer, LLC; OHM Corp. combining with
Parent; Woodward-Clyde combining with URS Corp.; Fluid Management combining
with Envirogen; Wehran Envirotech Inc. combining with EMCON Associates;
Geraghty & Miller Inc. combining with Heidemji Holdings NV.
Raymond James examined the following four key financial ratios for these ten
selected precedent environmental engineering and consulting company
combinations: target company enterprise value to target company gross sales;
target company enterprise value to target company earnings before interest,
taxes, depreciation and amortization ("EBITDA"); target company enterprise
value to target company earnings before interest and taxes ("EBIT"); and
target company equity value to target company net income. Gross sales, EBITDA,
EBIT and net income were calculated by utilizing the financial statistics for
the trailing twelve month period reported prior to the consummation of the
precedent company combinations.
Comparable Companies Analysis. Raymond James also presented to the Company
Board a summary financial comparison of the Company to nine public engineering
and consulting companies Raymond James deemed to be reasonably comparable to
the Company. The comparable companies consisted of: Foster Wheeler Corp.;
Harding Lawson Associates; Jacobs Engineering Group; Sevenson Environmental
Services; Stone & Webster, Inc.; Tetra Tech, Inc.; ThermoRetec Corp.; TRC
Companies, Inc.; and Roy F. Weston.
Raymond James then compared the following five key financial ratios for
these comparable companies to the same corresponding ratios for the Company
under the proposed Transaction: enterprise value to gross sales; enterprise
value to EBITDA; enterprise value to EBIT; equity value to net income; and
equity value to 1999 projected net income. Gross sales, EBITDA, EBIT and net
income were calculated for the Company and the comparable companies by
utilizing the latest trailing twelve months financial statistics that have
been publicly reported.
Premium Analysis. Raymond James presented to the Company Board an analysis
of the premiums paid over the stock price of acquired companies in selected
merger transactions since the beginning of 1998, based on stock prices one
day, one week and four weeks prior to the announcement of the transaction.
This analysis demonstrated that, on average, the acquired company received a
31.3%, 40.4% and 45.9% premium over its stock price one day, one week and four
weeks prior to the announcement of the transaction, respectively. Raymond
James noted that the $6.75 per share cash consideration offered in the
Transaction represents a premium of 20%, 33% and 69% to the Company's closing
price one day, one week, and four weeks prior to the date (May 11, 1999) that
the Transaction was publicly announced.
EMCON Discounted Cash Flow Analysis. Raymond James presented to the Company
Board the results of a discounted cash flow analysis for fiscal years 1999 to
2001 to estimate the present value of the stand-alone unleveraged free cash
flows that the Company is expected to generate if the Company performs in
accordance with certain internal management forecasts. For purposes of this
analysis, unleveraged free cash flows were defined as unleveraged net income
plus depreciation plus amortization less capital expenditures less investment
in working capital. Raymond James performed its analyses based on financial
forecasts and assumptions provided to it by the Company. Raymond James used
the year 2001 as the terminal year for the analysis and calculated terminal
values for the Company by applying a range of multiples of EBITDA to the
projected fiscal year 2001 EBITDA for the Company. The unleveraged projected
free cash flows and terminal values were then discounted using a range of
discount rates.
Opinion of Raymond James. During the May 6, 1999 telephonic meeting of the
Company Board, Raymond James gave its oral opinion (subsequently confirmed in
writing on May 7, 1999) that, as of such date and based upon and subject to
various qualifications and assumptions described with respect to its Fairness
Opinion, the Transaction was fair from a financial point of view to the
Company's shareholders.
The summary set forth above does not purport to be a complete description of
the analyses of data underlying Raymond James' opinion or its presentation to
the Company Board. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to a partial analysis or summary
description.
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Raymond James believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering the analyses
taken as a whole, would create an incomplete view of the process underlying
the analyses set forth in its opinion. In addition, Raymond James considered
the results of all such analyses and did not assign relative weights to any of
the analyses, so the ranges of valuations resulting from any particular
analysis described above should not be taken to be Raymond James' view of the
actual value of the Company.
In performing its analyses, Raymond James made numerous assumptions with
respect to industry performance, general business, economic and regulatory
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed by Raymond James are not necessarily
indicative of actual values, trading values or actual future results which
might be achieved, all of which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part of
Raymond James' analysis of the fairness of the financial terms and conditions
of the Transaction to the Company's shareholders from a financial point of
view and were provided to the Company Board. The analyses do not purport to be
appraisals or to reflect the prices at which businesses or securities might be
sold. In addition, as described above, the opinion of Raymond James was one of
many factors taken into consideration by the Company Board in making its
determination to approve the Transaction. Consequently, the analyses described
above should not be viewed as determinative of the Company Board or the
Company management's opinion with respect to the value of the Company. The
Company placed no limits of the scope of the analysis performed, or opinion
expressed, by Raymond James.
In connection with the Transaction, the Company contracted with Raymond
James to provide financial advisory and investment banking services, pursuant
to which the Company requested Raymond James to provide the fairness opinion
summarized herein. The Company Board retained Raymond James because of Raymond
James' qualifications, expertise, and reputation, as well as its prior
investment banking relationship with the Company. Raymond James is actively
involved in the investment banking business and regularly undertakes the
valuation of investment securities in connection with public offerings,
private placements, business combinations and similar transactions. Through
negotiation, the Company and Raymond James determined that the Company would
pay Raymond James a fee upon the consummation of the Transaction, which fee is
contingent upon the value of the Transaction. In the ordinary course of
business, Raymond James may trade in the securities of the Company for its own
account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Factors Considered by the Company Board
In approving the Merger Agreement and the transactions contemplated thereby,
and recommending that all shareholders tender their Shares pursuant to the
Offer, the Company Board considered a number of factors, including, but not
limited to:
(1) the financial and other terms of the Offer and the Merger Agreement;
(2) the presentations of Raymond James and its Fairness Opinion to the
effect that, as of May 7, 1999 and based upon and subject to certain
matters stated therein, the Transaction was fair to the shareholders of the
Company, from a financial point of view. THE FULL TEXT OF RAYMOND JAMES'
WRITTEN FAIRNESS OPINION IS ATTACHED AS ANNEX B TO THIS SCHEDULE 14D-9.
SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY;
(3) the fact that the tender offer price of $6.75 per Share represents a
premium of approximately 32% over the closing price of the Company Common
Stock on the Nasdaq National Market System on May 5, 1999;
(4) the view of the Company Board, based in part upon the presentations
of Raymond James, regarding the likelihood of a superior offer arising, the
efforts of Raymond James over the last 28 months to locate other potential
merger candidates, and the fact that certain candidates which had been
identified over such period had held discussions with the Company that had
proven unsuccessful or were not as financially attractive as the Offer;
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(5) the prospects for continued independent operation of the Company in
light of market and competitive conditions, including the potential for
increased competition from Parent or another company having significantly
greater financial resources than the Company that may seek to enter the
market for solid waste support services;
(6) the Company's long-term and short-term capital needs;
(7) the alternatives available to the Company in light of the
consideration proposed to be paid to shareholders pursuant to the Merger
Agreement, including continuing to maintain the Company as an independent
company and not engaging in an extraordinary transaction of any kind;
(8) the Company's existing competitive and market position;
(9) current industry and economic conditions;
(10) the provisions of the Merger Agreement, including the provisions
allowing the Company to respond to certain unsolicited inquiries concerning
an acquisition of the Company, and the provisions which permit the Company
to terminate the Merger Agreement and pay a termination fee to Parent under
certain circumstances; and
(11) the fact that Parent's and Purchaser's obligations under the Offer
were not subject to any financing condition, and the fact that Parent's
financial condition and ability to cause Purchaser to meet its obligations
under the Merger Agreement appear to be sufficient.
The foregoing discussion is not intended to be an exhaustive review of the
information and factors considered, or the relative weight given to each
factor, by the Company Board. In view of the variety of factors considered in
connection with its evaluation of the Merger Agreement and the Offer, the
Company Board did not find it practicable to quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Company Board may have
given different weights to each factor.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 10, 1999
By: /s/ Eugene M. Herson
-----------------------------------
Eugene M. Herson
President and Chief Executive
Officer
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ANNEX A
[LOGO]
May 10, 1999
Board of Directors
EMCON
400 South El Camino Real
Suite 1200
San Mateo, CA 94402
Members of the Board:
Raymond James & Associates, Inc. ("Raymond James") understands that EMCON
("EMCON" or the "Company") is contemplating a transaction whereby The IT Group
("IT") or a subsidiary of IT will acquire all of the common stock of EMCON and
subsequently merge with and into EMCON pursuant to the terms of an Agreement
and Plan of Merger and the exhibits and schedules thereto between EMCON and IT
dated as of May 10, 1999 (the "Agreement") (such tender and merger referred to
herein as the "Transaction").
You have requested our opinion as to whether the Transaction is fair to the
shareholders of EMCON from a financial point of view.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
1. reviewed the annual report to stockholders on Form 10-K filed March
23, 1999, the quarterly reports to stockholders on Forms 10-Q filed October
31, 1998, and July 27, 1998, and other publicly available financial
information of EMCON and IT;
2. reviewed certain non-public information prepared by the management of
EMCON, including financial statements, financial projections, and other
financial and operating data concerning EMCON;
3. discussed the past and current operations and financial condition and
the prospects of EMCON with senior executives of the Company;
4. reviewed a draft of the Agreement and the financial terms and
conditions therein;
5. reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business Raymond James
believes to be generally comparable to those of the Company; and
6. compared the financial terms of the Transaction with the financial
terms of certain other transactions which we believe to be generally
comparable to the Transaction.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to Raymond James by EMCON or
any other party and have not attempted to verify independently any such
information. In addition, we have not made or received any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of EMCON, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates, projections,
and other information referred to above, we have assumed, at your direction,
that they have been reasonably prepared in good faith on bases reflecting the
best currently available estimates and judgments of the management of EMCON,
and we have relied upon each party to advise us promptly if any such
information previously provided to or discussed with us became inaccurate or
was required to be updated during the period of our review. In addition, we
have assumed the Transaction will be consummated substantially in accordance
with the terms set forth in the Agreement.
<PAGE>
Our opinion is necessarily based on the economic, market, financial and
other circumstances and conditions in effect on May 7, 1999, and any material
change in such circumstances or conditions would require reevaluation of this
opinion, which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to effect the
Transaction, the structure or tax consequences of the Agreement, or the
availability or advisability of any alternatives to the Transaction. This
letter does not express any opinion as to the likely trading range for IT
Common Stock following the consummation of the Transaction, which may vary
depending on numerous factors that generally impact the price of securities or
on the financial condition of IT at that time. Our opinion is limited to the
fairness, from a financial point of view, of the Transaction to the
Shareholders. We express no opinion with respect to any other reasons, legal,
business, or otherwise, that may support the decision of the Board of
Directors to approve or consummate the Transaction.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of EMCON and certain other publicly
held companies in businesses we believe to be comparable to EMCON; (ii) the
current and projected financial position and results of operations of EMCON;
and (iii) the general condition of the securities markets.
Raymond James is actively involved in the investment banking business and
regularly undertakes the evaluation of investment securities in connection
with public offerings, private placements, business combinations and similar
transactions. Raymond James has acted as financial advisor to the Board of
Directors of EMCON in connection with the Transaction and will receive a fee
upon the consummation thereof, which fee is contingent upon the value of the
Transaction. In the ordinary course of business, Raymond James may trade in
the securities of EMCON for its own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that our advisory services and opinion expressed herein
were prepared for the use of the Board of Directors of EMCON in evaluating the
proposed Transaction and do not constitute a recommendation to any shareholder
of EMCON regarding any action such shareholder should take. This opinion is
not to be quoted or referred to, in whole or in part, without the prior
written consent of Raymond James, which will not be unreasonably withheld.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of May
7, 1999, the Transaction is fair, from a financial point of view, to the
Shareholders.
Respectfully submitted,
/s/ RAYMOND JAMES & ASSOCIATES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
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