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[LETTERHEAD OF LAW COMPANIES GROUP, INC. APPEARS HERE]
May 2, 1997
Dear Fellow Shareholder:
Late on the afternoon of April 28, 1997, we received a letter from
Professional Service Industries Holding, Inc. ("PSI") setting forth a general
proposal to make an offer to acquire all of the outstanding stock of Law
Companies Group, Inc. ("Law Companies Group" or the "Company"). PSI is
controlled by Bain Capital, Inc. ("Bain") and is the company with whom we
entered into a letter of intent last fall regarding a possible "merger of
equals" transaction which would be tax-free to shareholders of the Company and
would have resulted in a majority ownership by them. These earlier negotiations
failed in the fall of 1996 after PSI refused to proceed with the transaction
outlined in the letter of intent and proposed changes which would have been
materially adverse to your interests.
When your Board of Directors received PSI's April 28th letter, we referred
it to a committee of independent, non-employee directors (the "Committee") who
reviewed the letter with separate independent counsel. Following that review,
the Committee recommended, and your Board of Directors concurred, that even
though more than six months have elapsed after Bain had been given an exclusive
period of time to propose and complete a transaction with the Company and had
been given full due diligence access to the Company, in the interest of
fairness, PSI should be given one more opportunity to submit a best and final
formal proposal. Accordingly, PSI was advised just after noon on April 30 that
if it wished to do so, PSI could submit a formal proposal to the Committee,
provided it was submitted prior to 1:00 p.m. on May 1, 1997.
The Committee and your Board believed that this deadline was appropriate to
ensure that the Board of Law Companies Group had an adequate opportunity to
consider the merits of any firm proposal that PSI might submit and to advise you
of its actions with respect to any such proposal before you vote on the
preferred stock purchase agreement with the Williams at our Annual Meeting on
Tuesday, May 6, 1997.
We previously advised you of PSI's attempt to renew discussions by their
letter of April 22, 1997. PSI was also told of the Committee's concerns
regarding its stated renewal of interest in the Company. PSI has already
demonstrated that it does not consider itself to be bound by agreed to
provisions in a contemplated transaction with the Company. PSI's latest offer
has come only after a lengthy exploration by the Company of strategic
alternatives, and was received only shortly before the Annual Meeting at which
the Williams' investment will be considered. The Committee believes that the
Company could suffer serious harm from abandoning the Williams' investment if
it did so to pursue an alternative transaction which was ultimately not
consummated.
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May 2, 1997
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Yesterday, we received the formal proposal from PSI. That proposal
included an offer, subject to certain contingencies, to purchase the outstanding
common stock of the Company at a stated price of $22 per share, which would, if
completed, result in the payment of approximately $20 per share to the
shareholders, or in the alternative, PSI proposed to replace the Williams as
purchasers of the Company's proposed preferred stock, indicating a price of $15
million for such stock.
The Committee reviewed the proposal and unanimously concluded that THE PSI
PROPOSAL SHOULD BE REJECTED. The Special Committee of the Board of Directors,
meeting with its separate legal counsel, made the same recommendation to the
Board of Directors. The members of the Board of Directors participating in the
meeting unanimously accepted both recommendations. A summary of the report of
the Committee is attached for your review. However, I would like to highlight a
few of the Committee's findings:
. LAW COMPANIES GROUP IS NOT "FOR SALE." Your management believes the
dramatic changes we have made in the recent past will inure to your
benefit. The Board firmly believes that this is not the time to sell
the Company and deny our shareholders the opportunity to participate
in the anticipated future growth and potential success of the Company.
. Although PSI attempted to characterize the amount offered as $22.00
per share, shareholders would, if the transactions were completed as
proposed, receive approximately $20.00 per share because of certain
offsets which PSI would deduct from the purchase price.
. The PSI proposal contains a number of contingencies and conditions
which could cause their proposed transaction to fail or diminish in
value, just as our previous discussions with PSI failed, after having
sacrificed the Williams' transaction at very significant cost and risk
to the Company.
. PSI's alternative proposal to purchase the preferred stock we propose
to sell to the Williams is untenable for a number of reasons,
including the facts that PSI IS A DIRECT COMPETITOR OF OURS WHICH
COULD POTENTIALLY DISRUPT OUR BUSINESS RELATIONSHIPS, AND THE NET
PROCEEDS REALIZED BY THE COMPANY WOULD BE SIGNIFICANTLY LESS THAN $15
MILLION.
We believe that the investment by the Williams will give our Company the
capital it needs to go forward with its long-term strategic plan. All of the
shareholders will continue to have an opportunity to participate in the future
success of the Law Companies Group.
For these and the other reasons as outlined in the attached report, the
Committee and the Board of Directors have reaffirmed their support for the
Williams investment. We believe that this is the right course for our Company
to follow.
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May 2, 1997
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Please review this information carefully. I believe that you will agree
that your investment in the Company will be better served by approval of our
agreement with the Williams. There is no future with PSI. Please vote for the
Williams transaction.
Very truly yours,
/s/ Bruce C. Coles
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Bruce C. Coles
Chairman and Chief Executive Officer
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SUMMARY REPORT OF THE
AD HOC COMMITTEE
OF BOARD OF DIRECTORS OF
LAW COMPANIES GROUP, INC.
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On May 1, 1997, the Ad Hoc Committee (the "Committee") of the Board of
Directors of Law Companies Group, Inc. (the "Company") convened a meeting for
the purpose of evaluating an offer received May 1, 1997 (the "PSI Offer") by
Professional Service Industries Holding, Inc. ("PSI") to acquire all of the
issued and outstanding shares of the Company. John Y. Williams, Walter T. Kiser
and Steven Muller participated in the meeting and constituted all of the members
of the Committee. Also present by invitation were (i) G. William Speer and Rick
Miller of Powell, Goldstein, Frazer & Murphy LLP, counsel to the Committee, and
(ii) Worthing Jackman and Chase Arnold of Alex. Brown & Sons Incorporated,
independent financial advisors.
The Committee, with the assistance of counsel, reviewed the PSI Offer.
Based on such review, the Committee reaffirmed its concurrence with the Board's
established determination that it is not appropriate to sell the Company at this
time.
The Committee concluded that:
. There is no aspect of the PSI Offer that causes the Committee to
recommend that the Board of Directors change its position and
undertake to sell the Company;
. It would be contrary to the best interests of the Company and
its shareholders to sell preferred stock to PSI; and
. The investment by the Williams brothers in the Company's
preferred stock (the "Williams Transaction") continues to present
a better strategic alternative for the Company at this time and
the Williams Transaction should continue to be recommended to
shareholders.
In reaching the foregoing conclusions, the Committee determined, among
other things, that:
. The PSI Offer must be reviewed in light of PSI's prior actions
with respect to the proposed transaction with the Company in the
fall of 1996, and the timing of the PSI Offer, which came after
the Company's extensive exploration of strategic alternatives and
was received shortly before the Annual Meeting at which the
shareholders will consider the Williams Transaction. Any offer
from PSI must also be considered in light of PSI's status as a
direct competitor of the Company.
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. Notwithstanding a stated purchase price of $22.00 per share of
Company common stock contained in the PSI Offer, the maximum
value that would be payable to shareholders of the Company as
result of the PSI Offer is actually approximately $20.00 per
share. This is because the PSI Offer requires that the existing
contractual obligations for fees payable upon termination of the
Williams Transaction of approximately $2.0 million and existing
severance obligations to the Company's management and other
employees that could be payable upon a change of control,
estimated to be approximately $2 million, are required to be
deducted from the PSI purchase price. In general, U.S.
shareholders would also recognize a taxable gain on their stock
to the extent they received cash in excess of their tax basis in
their stock in the Company.
. The $175 million financing to be provided by PSI's lender is
subject to a number of conditions and contingencies, some of
which are not within the control of either PSI or the Company.
. The form of merger agreement proposed by PSI does not commit PSI
unconditionally to consummate the merger.
. Acceptance of the PSI Offer would obligate the Company to pay
approximately $2.0 million in termination fees and expenses
relating to the Williams Transaction. Such fees would be payable
immediately even though the consummation of the transaction
contemplated by the PSI Offer would not occur for at least
several months and might not occur at all.
. In the event the Company terminated its agreement relating to
the Williams Transaction in order to pursue a transaction with
PSI, and the PSI transaction then failed to close, capital
necessary to implement the Company's business plan may not be
available on terms comparable to those embodied in the Williams
Transaction.
. The benefits of the changes made by the Company and its
employees in the recent past are expected to yield significant
benefits to our shareholders. Unlike the Williams Transaction,
the PSI Offer would deny the shareholders the opportunity to
participate in the anticipated future growth and success of the
Company.
. PSI's alternative proposal to acquire preferred stock of the
Company in a transaction identical to the Williams Transaction
(except that PSI would pay $15.0 million for such stock) is
contrary to the best interests of the Company:
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. PSI is a competitor of the Company and it would be
inappropriate for a competitor to own a significant minority
interest in the Company. Such an interest would also likely
cause confusion among customers, prospective customers,
vendors and suppliers.
. The right to designate directors and other corporate
governance provisions contained in the Williams Transaction
provide synergistic benefits to the Company because of the
Williams brothers' expertise in complementary businesses.
However, it is contrary to the best interests of the Company
for a direct competitor such as PSI to be granted rights to
participate in the formulation of the fundamental corporate
policies and business strategies of the Company and to
obtain continuing access to proprietary information.
. PSI's ownership of preferred stock of the Company and its
representation on the Company's Board of Directors would
likely result in the loss of key employees.
. The effect of market confusion and the loss of key
employees would have a material adverse effect on the
Company, result in a diminution of shareholder value and
enable PSI to exercise at a reduced price warrants acquired
with the preferred stock.
. The net proceeds received by the Company from the sale of
preferred stock to PSI, after payment of termination fees
and other expenses, would be substantially less than $15.0
million.
. The Company has previously received the opinion of Alex. Brown
described in the Proxy Statement to the effect that the aggregate
consideration to be received by the Company in the Williams
Transaction is fair from a financial point of view to the
Company. Such opinion is subject to the assumptions, limitations
and qualifications set forth in such opinion, is based on an
evaluation of the Company and the Williams Transaction, and is
not based on a comparison of the Williams Transaction to the PSI
Offer or to any other potential transactions. Alex.
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Brown confirmed that it would not withdraw or modify such
opinion.
In addition, the Committee took into consideration the concerns expressed
by management regarding PSI's conduct in prior dealing with the Company,
including PSI's abrupt abandonment of the transaction subject to the letter of
intent negotiated last fall.
Based on the foregoing, the Committee unanimously (i) concluded that the
PSI Offer subjected the Company to unwarranted risk, (ii) reaffirmed its view
that the Williams Transaction constituted a better strategic alternative for the
Company at this time and (iii) recommended that the Board of Directors reject
the PSI Offer and reaffirm the Board's established conclusion that the Williams
Transaction is in the best interests of shareholders of the Company.
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