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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-220524

 

 

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholders:

You are cordially invited to attend a special meeting of the stockholders (the “CH2M Special Meeting”) of CH2M HILL Companies, Ltd. (“CH2M”), which will take place on December 13, 2017 at 10:00 a.m. Mountain time, at our World Headquarters, 9191 South Jamaica Street, Englewood, Colorado, 80112, USA.

As previously announced, on August 1, 2017, Jacobs Engineering Group Inc. (“Jacobs”) entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement) with CH2M and Basketball Merger Sub Inc., a Delaware corporation and wholly-owned direct subsidiary of Jacobs (“Merger Sub”), pursuant to which Merger Sub will merge with and into CH2M, with CH2M continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of Jacobs (the “Merger”). Each of the boards of directors of Jacobs and CH2M has unanimously approved the Merger.

If the Merger is completed, each share of common stock, par value $0.01 per share, of CH2M (“CH2M Common Stock”) outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than shares held by Jacobs, CH2M or any of their respective wholly-owned subsidiaries, and shares held by any holder of CH2M Common Stock who is entitled to demand and properly demands appraisal of such shares under Delaware law) will be converted into the right to receive, at the election of the holder of such share and subject to proration and adjustment procedures, either (i) mixed consideration consisting of $52.85 in cash, without interest, and 0.6677 shares of common stock, par value $1.00 per share, of Jacobs (“Jacobs Common Stock”), (ii) cash consideration consisting of $88.08 in cash, without interest or (iii) stock consideration consisting of 1.6693 shares of Jacobs Common Stock. Holders of CH2M Common Stock who do not make an election will receive the mixed consideration described in clause (i) above.

Immediately prior to the Effective Time, each share of Series A Preferred Stock, par value $0.01 per share, of CH2M (“CH2M Preferred Stock”) outstanding immediately prior to the Effective Time will be deemed converted into shares of CH2M Common Stock pursuant to Section 2.2 of the Certificate of Designation of the Series A Preferred Stock of CH2M, and such shares of CH2M Common Stock will be converted into the right to receive, at the election of the holder thereof, the mixed consideration, cash consideration or stock consideration described above.

It is anticipated that, immediately following the completion of the Merger, CH2M’s stockholders will own approximately 15% of the outstanding shares of Jacobs Common Stock, calculated on a fully-diluted basis.

Jacobs Common Stock is traded on the New York Stock Exchange (“NYSE”) under the trading symbol “JEC.” On November 8, 2017, the latest practicable trading date before the printing of this Proxy Statement/Prospectus, Jacobs Common Stock closed at $61.12 per share as reported by NYSE.

Jacobs and CH2M cannot complete the Merger unless, among other things, stockholders of CH2M adopt the Merger Agreement. The board of directors of CH2M unanimously recommends a vote “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal, and “FOR” the CH2M Golden Parachute Proposal, each as described in more detail in this Proxy Statement/Prospectus.

Your vote is very important. Whether or not you plan to attend the CH2M Special Meeting, it is important that your shares of CH2M Common Stock and CH2M Preferred Stock be represented and voted at the CH2M Special Meeting. I urge you to promptly vote and authorize your proxy instructions electronically through the Internet, by telephone or by signing, dating and returning the proxy card enclosed with this Proxy Statement/Prospectus. Voting through the Internet or by phone will eliminate the need to return your proxy card by mail.

This Proxy Statement/Prospectus contains important information about Jacobs, CH2M, the Merger Agreement, the proposed Merger and the CH2M Special Meeting. We encourage you to read carefully and in its entirety this Proxy Statement/Prospectus, including the Annexes and the documents incorporated by reference hereto, before voting. In particular, we urge you to read carefully the “Risk Factors” beginning on page 26 of this Proxy Statement/Prospectus.

On behalf of the board of directors of CH2M, thank you for your consideration and continued support.

Sincerely,

 

LOGO

Jacqueline Hinman

Chairman, President and Chief Executive Officer

CH2M HILL Companies, Ltd.

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the proposed transactions described in this Proxy Statement/Prospectus or the securities to be issued pursuant to the Merger Agreement or determined if the information contained in this Proxy Statement/Prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This Proxy Statement/Prospectus is dated November 9, 2017, and is first being mailed to stockholders of CH2M on or about November 10, 2017.


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IF YOU ARE NOT A PARTICIPANT IN THE CH2M HILL RETIREMENT AND TAX-DEFERRED SAVINGS PLAN PLEASE DISREGARD THIS LETTER

CH2M HILL Companies, Ltd.

Participant Notice

Retirement and Tax-Deferred Savings Plan

November 9, 2017

Dear Plan Participant:

This Proxy Statement/Prospectus has been furnished by CH2M HILL Companies, Ltd. (“CH2M”) in conjunction with the special meeting of stockholders (the “CH2M Special Meeting”) of CH2M to be held on December 13, 2017, to vote on the CH2M Merger Proposal, the CH2M Adjournment Proposal and the CH2M Golden Parachute Proposal, each as described in more detail in this Proxy Statement/Prospectus.

Participants and beneficiaries who have accounts in the CH2M HILL Companies, Ltd. Retirement and Tax-Deferred Savings Plan (the “CH2M 401(k) Plan”) that hold shares of common stock, par value $0.01 per share, of CH2M (“CH2M Common Stock”), can, under the terms of the CH2M 401(k) Plan, generally instruct the trustee of the CH2M 401(k) Plan how they wish to vote their shares of CH2M Common Stock credited to their account (“CH2M 401(k) Shares”) with respect to matters on which the stockholders are allowed to vote. Stockholders are being asked to vote on the CH2M Merger Proposal (as described herein) and, therefore, participants and beneficiaries holding CH2M 401(k) Shares as of November 8, 2017 (the “Record Date”) are entitled to provide instruction as to how such shares will be voted. However, for purposes of the CH2M Special Meeting, the trustee has delegated authority to vote the CH2M 401(k) Shares to Newport Trust Company (“Newport Trust”), a professional independent fiduciary that has been retained by the CH2M 401(k) Plan trustee to administer and oversee the voting and election process for participants in the CH2M 401(k) Plan. As the independent fiduciary, Newport Trust will vote the CH2M 401(k) Shares credited to your account in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with its fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (“ERISA”). The trustee of the CH2M 401(k) Plan will not participate in the voting process.

As a CH2M 401(k) Plan participant, you will receive a voting instruction form allowing you to submit voting instructions to Newport Trust. Such voting instruction form is separate from and in addition to the proxy card you will receive if you are also the direct holder of CH2M Common Stock. No instructions submitted on the proxy card for directly owned shares of CH2M Common Stock will be applied to the shares in the CH2M 401(k) Plan; you must provide a completed voting instruction card for such shares to be voted. If you do not send instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, or if your instructions are not received in a timely manner, such shares shall be voted at the CH2M Special Meeting by Newport Trust in accordance with the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole, as determined by the independent fiduciary in its sole discretion. The voting instructions must be received before 11:59 p.m., Mountain time, on December 8, 2017 to be timely.

Newport Trust will vote uninstructed CH2M Common Stock in accordance with the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole, as determined by Newport Trust in its sole discretion. In all events, Newport Trust will comply with ERISA in voting shares of CH2M Common Stock.

It should be noted that your instructions to Newport Trust are strictly confidential. You may, therefore, feel completely free to instruct Newport Trust to vote these shares in the manner you think best.

If you have any questions regarding the information provided to you, you may contact Erik Ammidown, CH2M 401(k) Plan Administrator, 9191 South Jamaica Street, Englewood, Colorado 80112, Erik.Ammidown@CH2M.com.

Sincerely,

Newport Trust Company, independent fiduciary of the CH2M HILL Companies, Ltd. Retirement and Tax-Deferred Savings Plan

 


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LOGO

NOTICE OF SPECIAL MEETING

To Be Held on December 13, 2017

 

 

To the stockholders of CH2M HILL Companies, Ltd.:

We will hold a special meeting of stockholders (the “CH2M Special Meeting”) of CH2M HILL Companies, Ltd., a Delaware corporation (“CH2M,” “we” or “our”), at our World Headquarters, 9191 South Jamaica Street, Englewood, Colorado, 80112, USA, on December 13, 2017 at 10:00 a.m., Mountain time. We will consider and act on the following proposals at the CH2M Special Meeting:

 

  1. To approve, direct and adopt the Agreement and Plan of Merger, dated as of August 1, 2017, by and among Jacobs Engineering Group Inc., a Delaware corporation (“Jacobs”), Basketball Merger Sub Inc., a Delaware corporation and a wholly-owned direct subsidiary of Jacobs (“Merger Sub”) and CH2M (as it may be amended from time to time, the “Merger Agreement”), pursuant to which, upon the satisfaction or waiver of the conditions to closing set forth therein, Merger Sub will merge with and into CH2M (the “Merger”), with CH2M surviving the Merger as a wholly-owned direct subsidiary of Jacobs (the “CH2M Merger Proposal”). A copy of the Merger Agreement is attached hereto as Annex A and is more fully described in this Proxy Statement/Prospectus;

 

  2. To approve one or more adjournments of the CH2M Special Meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the CH2M Merger Proposal (the “CH2M Adjournment Proposal”); and

 

  3. To approve on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers that is based on or otherwise relates to the Merger (the “CH2M Golden Parachute Proposal”), as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of CH2M’s Directors and Officers in the Merger—Quantification of Payments and Benefits to CH2M’s Named Executive Officers” beginning on page 188.

This Proxy Statement/Prospectus and its Annexes, including all documents incorporated by reference into this Proxy Statement/Prospectus, more fully describes these items of business. We urge you to read this information carefully and in its entirety.

The board of directors of CH2M unanimously recommends that you vote (1) “FOR” the CH2M Merger Proposal; (2) “FOR” the CH2M Adjournment Proposal; and (3) “FOR” the CH2M Golden Parachute Proposal. The approval by CH2M stockholders of the CH2M Merger Proposal is required to complete the Merger described in this Proxy Statement/Prospectus. The approval of the adoption of the Merger Agreement, on the one hand, and the approval of the CH2M Adjournment Proposal and the advisory approval of the CH2M Golden Parachute Proposal, on the other hand, are subject to separate votes by CH2M stockholders, and neither the approval of the CH2M Adjournment Proposal nor the advisory approval of the CH2M Golden Parachute Proposal is a condition to completion of the Merger.

The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M common stock, par value $0.01 per share (“CH2M Common Stock”) and the shares of CH2M Series A Preferred Stock, par value $0.01 per share (“CH2M Preferred Stock”) entitled to vote on such matter, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement, assuming a quorum is present. The CH2M Adjournment Proposal will be approved if a majority of the votes cast by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Adjournment

 


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Proposal, whether or not a quorum is present. The CH2M Golden Parachute Proposal will be approved if a majority of the votes cast by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Golden Parachute Proposal, assuming a quorum is present. The obligations of CH2M and Jacobs to complete the Merger are also subject to the satisfaction or waiver of several other conditions. We encourage you to read this Proxy Statement/Prospectus, including the Annexes, in its entirety because it explains the proposed Merger, the documents related to the Merger and other related matters.

Only holders of record of shares of CH2M Common Stock and CH2M Preferred Stock at the close of business on November 8, 2017, the record date for the CH2M Special Meeting (the “Record Date”), are entitled to notice of and to vote at the CH2M Special Meeting and any adjournments or postponements of the CH2M Special Meeting. If you have any questions concerning the Merger, the CH2M Special Meeting or this Proxy Statement/Prospectus, need help voting your shares of CH2M Common Stock or CH2M Preferred Stock, or would like additional copies, without charge, of this Proxy Statement/Prospectus, the election forms, the proxy card or voting instruction form, please contact CH2M’s proxy solicitor:

Georgeson LLC

Toll Free: (888) 566-8006

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

Your vote is very important. It is important that your shares of CH2M Common Stock and CH2M Preferred Stock be represented and voted whether or not you plan to attend the CH2M Special Meeting. You may submit your proxy by completing and mailing the proxy card enclosed with this Proxy Statement/Prospectus, or you may grant your proxy electronically via the Internet or by telephone by following the instructions on the proxy card.

If your shares are held by the trustees of the CH2M HILL Companies Ltd., Retirement and Tax-Deferred Savings Plan (the “CH2M 401(k) Plan”), you will receive a voting instruction form allowing you to instruct Newport Trust with respect to the voting of the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan on the Record Date. Such voting instruction form is separate from and in addition to the proxy card you will receive if you are also the direct holder of CH2M Common Stock. Newport Trust Company (“Newport Trust”) will vote the CH2M Common Stock credited to your account in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”). Pursuant to ERISA, Newport Trust would only be prevented from voting the CH2M Common Stock credited to your account in accordance with your instructions if Newport Trust deems that following the instructions would be a violation of their fiduciary duties. If you do not send instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, or if your instructions are not received in a timely manner, such shares shall be voted at the CH2M Special Meeting by Newport Trust in accordance with the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole, as determined by Newport Trust. The voting instructions must be received before 11:59 p.m., Mountain time, on December 8, 2017 to be timely.

Please note that you may not vote the shares of CH2M Common Stock that are credited to your account(s) under the CH2M Deferred Compensation Plan, the CH2M Supplemental Executive Retirement and Retention Plan and/or the CH2M International Deferred Compensation Plan since these shares have not been issued to you.

Please submit your proxy promptly whether or not you expect to attend the CH2M Special Meeting.

By Order of the CH2M Board of Directors,

 

LOGO

Thomas McCoy

Executive Vice President, General Counsel and Secretary

Englewood, Colorado

November 9, 2017


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REFERENCES TO ADDITIONAL INFORMATION

This Proxy Statement/Prospectus incorporates by reference important business and financial information about Jacobs from documents previously filed by Jacobs with the Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this Proxy Statement/Prospectus. In addition, each of Jacobs and CH2M file annual, quarterly and current reports, proxy statements and other business and financial information with the SEC. This information is available without charge to you upon written or oral request.

This Proxy Statement/Prospectus and the Annexes hereto, the registration statement to which this Proxy Statement/Prospectus relates and the exhibits thereto, the information incorporated by reference herein and the other information filed by Jacobs and CH2M with the SEC is available for you to read and copy, without charge, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room.

You can also obtain these documents through the SEC’s website at www.sec.gov or on either Jacobs’ website at http://www.jacobs.com in the “Investors” section under “Filings and reports” or on CH2M’s website at http://www.ch2m.com in the “Investors” section under “Financial Information.” By referring to Jacobs’ website, CH2M’s website, and the SEC’s website, Jacobs and CH2M do not incorporate any such website or its contents into this Proxy Statement/Prospectus. You can also obtain these documents, without charge, by requesting them in writing, by email or by telephone from Jacobs or CH2M, as applicable, at its address and telephone number listed below.

 

Jacobs Engineering Group Inc.

1999 Bryan Street

Suite 1200

Dallas, Texas 75201

Attention: Investor Relations

Telephone: 214-583-8596

Email: jonathan.doros@jacobs.com

  

CH2M HILL Companies, Ltd.

9191 South Jamaica Street

Englewood, Colorado 80112

Attention: Investor Relations

Telephone: 720-286-2000

Email: stockholder@CH2M.com

In addition, if you have questions about the Merger or the CH2M Special Meeting, or if you need to obtain additional copies, without charge, of this Proxy Statement/Prospectus, the election forms, the proxy card, voting instruction form or other documents incorporated by reference in the Proxy Statement/Prospectus, you may contact CH2M’s proxy solicitor:

Georgeson LLC

Toll Free: (888) 566-8006

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

To obtain timely delivery of these documents before the CH2M Special Meeting, you must request the information no later than December 6, 2017.

For a more detailed description of the information incorporated by reference in this Proxy Statement/Prospectus and how you may obtain it, see “Where You Can Find More Information” beginning on page 247.

 


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This Proxy Statement/Prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Jacobs (File No. 333-220524), constitutes a prospectus of Jacobs under Section 5 of the Securities Act of 1933, as amended (“Securities Act”), with respect to the shares of common stock, par value $1.00, of Jacobs Engineering Group Inc. (“Jacobs Common Stock”) to be issued pursuant to the Merger Agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the CH2M Special Meeting, at which CH2M stockholders will be asked to consider and vote on, among other matters, a proposal to adopt the Merger Agreement.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this Proxy Statement/Prospectus. This Proxy Statement/Prospectus is dated November 9, 2017. The information contained in this Proxy Statement/Prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.

This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning Jacobs contained in this Proxy Statement/Prospectus or incorporated by reference has been provided by Jacobs, and the information concerning CH2M contained in this Proxy Statement/Prospectus has been provided by CH2M.

 


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QUESTIONS AND ANSWERS

     1  

SUMMARY

     12  

Information about the Companies

     12  

The Merger

     13  

Merger Consideration

     13  

Treatment of CH2M Equity Awards

     14  

Jacobs’ Reasons for the Merger

     15  

CH2M’s Reasons for the Merger; Recommendation of the CH2M Board of Directors

     15  

Opinions of CH2M’s Financial Advisors

     16  

CH2M Special Meeting; Proposals; Required Vote

     17  

Interests of CH2M’s Directors and Officers in the Merger

     18  

Share Ownership of Certain Stockholders; Voting of Directors and Executive Officers

     19  

Key Terms of the Merger Agreement

     20  

Key Terms of the Voting Agreement

     23  

Executive Officers and Board of Directors of Jacobs after the Merger

     23  

Financing of the Merger

     23  

Regulatory Approvals Required for the Merger

     24  

CH2M Stockholder Appraisal Rights

     24  

NYSE Listing of Jacobs Common Stock

     24  

Deregistration of CH2M Common Stock

     25  

Material U.S. Federal Income Tax Consequences of the Merger

     25  

Accounting Treatment of the Merger

     25  

Risk Factors

     25  

RISK FACTORS

     26  

Risks Relating to the Merger

     26  

Risks Relating to the Combined Company’s Business upon Completion of the Merger

     31  

Risks Relating to Jacobs

     34  

Risks Relating to CH2M’s Business

     35  

Risks Relating to CH2M Preferred Stock

     51  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF JACOBS

     54  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF CH2M

     56  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     58  

COMPARATIVE PER SHARE DATA

     78  

COMPARATIVE PER SHARE MARKET PRICES AND DIVIDENDS

     80  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     87  

CH2M SPECIAL MEETING

     89  

General

     89  

Date, Time and Place of the Special Meeting

     89  

Purpose of the Special Meeting

     89  

Recommendation of the CH2M Board of Directors

     89  

Stockholders Entitled to Vote; Record Date

     89  

Quorum and Vote Required

     90  

Shares Owned by CH2M’s Directors and Executive Officers

     91  

Voting; Proxies

     91  

Revocation of Proxy

     92  

Solicitation of Proxies

     93  

Appraisal Rights

     93  

Adjournments or Postponements

     94  

Important Notice Regarding the Availability of Proxy Materials for the CH2M Special Meeting to be Held on December 13, 2017

     94  

Assistance

     94  

 

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CH2M SPECIAL MEETING PROPOSALS

     95  

PROPOSAL 1

     95  

PROPOSAL 2

     96  

PROPOSAL 3

     97  

INFORMATION ABOUT JACOBS AND MERGER SUB

     98  

INFORMATION ABOUT CH2M

     99  

Description of Business

     99  

CH2M’S Clients, Key Segments, and Geographic Areas

     101  

Competition

     106  

Backlog

     106  

Executive Officers of CH2M

     107  

Available Information

     108  

Properties

     109  

Legal Proceedings

     109  

CH2M MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     111  

Business Summary

     111  

Proposed Acquisition by Jacobs Engineering

     111  

Private Equity Investor

     112  

Defined Benefit Plans

     113  

Restructuring Plans

     114  

Acquisitions

     114  

Summary of Operations

     114  

Results of Operations for the Six Months Ended June 30, 2017 and June 24, 2016

     115  

Results of Operations for the Year Ended December 30, 2016 Compared to December 25, 2015

     117  

Results of Operations for the Year Ended December 25, 2015 Compared to December 31, 2014

     119  

Income Taxes

     120  

Discontinued Operations

     121  

Liquidity and Capital Resources

     122  

Summary of Cash Flows for the Six Months Ended June 30, 2017 and June 24, 2016

     123  

Summary of Cash Flows for the Years Ended December 30, 2016 and December 25, 2015

     124  

CH2M Revolving Credit Facility

     125  

CH2M Second Lien Indenture

     126  

Internal Market Trades

     127  

Off-Balance Sheet Arrangements

     128  

Controls and Procedures

     128  

Aggregate Contractual Commitments

     130  

Critical Accounting Policies

     130  

Commitments and Contingencies

     133  

Settlement of Certain Costs

     134  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     135  

INFORMATION RELATED TO CH2M VOTING SECURITIES

     136  

CH2M Stockholders Entitled to Vote; Record Date

     136  

Security Ownership of Certain Stockholders

     136  

Security Ownership of Directors, Director Nominees and Executive Officers

     137  

Section 16(a) Beneficial Ownership Reporting Compliance

     138  

Equity Compensation Plan Information

     138  

THE MERGER

     139  

General Description of the Merger

     139  

Merger Consideration

     139  

Treatment of CH2M Equity Awards

     140  

Election Procedures for the Merger Consideration

     141  

Proration Procedures

     143  

 

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Exchange Agent Fund

     145  

Transmittal Materials and Procedures

     145  

Background of the Merger

     145  

Jacobs’ Reasons for the Merger

     156  

CH2M’s Reasons for the Merger; Recommendation of the CH2M Board of Directors

     158  

Opinions of CH2M’s Financial Advisors

     161  

Certain Unaudited Financial and Operating Forecasts

     179  

Interests of CH2M’s Directors and Officers in the Merger

     183  

Interests of Named Experts and Counsel

     190  

Executive Officers and Board of Directors of Jacobs after the Merger

     190  

Regulatory Approvals Required for the Merger

     191  

CH2M Stockholder Appraisal Rights

     192  

Accounting Treatment of the Merger

     196  

Material U.S. Federal Income Tax Consequences of the Merger

     196  

NYSE Listing of Jacobs Common Stock

     199  

Deregistration of CH2M Common Stock

     199  

Financing of the Merger

     199  

Description of Certain Indebtedness of Jacobs and CH2M

     201  

THE MERGER AGREEMENT

     205  

Explanatory Note Regarding the Merger Agreement

     205  

The Merger

     205  

Closing and Effective Time of the Merger

     205  

Merger Consideration

     206  

Treatment of CH2M Equity Awards

     206  

Election Procedures for the Merger Consideration

     207  

Proration Procedures

     208  

Withholding

     209  

Representations and Warranties

     209  

Conduct of CH2M Pending the Closing

     212  

No-Shop; Acquisition Proposals; Change in Recommendation

     215  

Regulatory Filings and Other Actions

     219  

Financing; Payoff Documentation

     220  

Employee Benefits

     220  

Litigation Relating to the Merger

     222  

CH2M Special Meeting

     222  

Director and Officer Indemnification and Insurance

     222  

Directors and Officers of Jacobs

     223  

Other Covenants and Agreements

     223  

Conditions to the Merger

     224  

Termination of the Merger Agreement

     224  

Amendment; Extension; Waiver

     226  

Specific Performance

     226  

Governing Law

     226  

THE VOTING AND SUPPORT AGREEMENT

     228  

DESCRIPTION OF JACOBS STOCK

     229  

Authorized Shares of Capital Stock of Jacobs

     229  

Common Stock

     229  

Preferred Stock

     230  

Takeover Defenses

     230  

Business Combinations with Interested Stockholders

     231  

Number of Directors

     232  

Indemnification and Limitation on Director’s Liability

     232  

 

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COMPARISON OF STOCKHOLDERS RIGHTS

     234  

EXPERTS

     243  

LEGAL MATTERS

     244  

DEADLINE FOR CH2M STOCKHOLDER PROPOSALS

     245  

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     246  

WHERE YOU CAN FIND MORE INFORMATION

     247  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEXES

 

Annex A    Agreement and Plan of Merger, dated as of August 1, 2017, by and among Jacobs Engineering Group Inc., Basketball Merger Sub Inc. and CH2M HILL Companies, Ltd.
Annex B    Voting and Support Agreement, dated as of August 1, 2017, by and among Jacobs Engineering Group Inc., Basketball Merger Sub Inc. and AP VIII CH2 Holdings, L.P.
Annex C    Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated August 1, 2017
Annex D    Opinion of Credit Suisse Securities (USA) LLC, dated August 1, 2017
Annex E    Form of Election Form and Letter of Transmittal
Annex F    Appraisal Rights

 

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QUESTIONS AND ANSWERS

The following are brief answers to some questions that you may have regarding the Merger and the CH2M Special Meeting (each as defined below). The questions and answers in this section may not address all questions that might be important to you as a stockholder. For more detailed information, and for a description of the legal terms governing the Merger, we urge you to read carefully and in its entirety this Proxy Statement/Prospectus, including the Annexes hereto, and the documents incorporated by reference herein, as well as the registration statement to which this Proxy Statement/Prospectus relates, including the exhibits to the registration statement. See “Incorporation of Certain Documents by Reference” beginning on page 246 and “Where You Can Find More Information” beginning on page 247.

 

Q: What is the Merger?

 

A: On August 1, 2017, Jacobs Engineering Group Inc. (“Jacobs”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CH2M HILL Companies, Ltd., a Delaware corporation (“CH2M”), and Basketball Merger Sub Inc., a Delaware corporation and wholly-owned direct subsidiary of Jacobs (“Merger Sub”). Pursuant to and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into CH2M, with CH2M continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of Jacobs (the “Merger”). The Merger Agreement is attached to this Proxy Statement/Prospectus as Annex A.

 

Q: Why am I receiving this Proxy Statement/Prospectus?

 

A: Pursuant to the terms of the Merger Agreement and Delaware law, CH2M stockholders must approve the Merger Agreement prior to the Merger. The CH2M board of directors is using this Proxy Statement/Prospectus to solicit proxies of the CH2M stockholders. In addition, this Proxy Statement/Prospectus is a prospectus for CH2M stockholders because Jacobs is offering shares of its common stock, par value $1.00 per share, (“Jacobs Common Stock”) in exchange for shares of CH2M common stock, par value $0.01 per share, (“CH2M Common Stock”) and shares of CH2M preferred stock, par value $0.01 per share, (“CH2M Preferred Stock”) which are convertible into shares of CH2M Common Stock in the Merger, at the election of the CH2M stockholders (as further discussed below). This Proxy Statement/Prospectus contains important information about the Merger Agreement, the Merger and the special meeting of the CH2M stockholders (the “CH2M Special Meeting”), and you should read it carefully. The enclosed voting materials allow you to vote your shares of CH2M Common Stock and CH2M Preferred Stock without attending the CH2M Special Meeting in person. If you are the direct holder of CH2M Common Stock and a participant in the CH2M HILL Companies Ltd., Retirement and Tax-Deferred Savings Plan (the “CH2M 401(k) Plan”), you will receive two proxy cards, and will need to timely submit both proxy cards in order to vote the shares held directly by you and to instruct Newport Trust Company (“Newport Trust”) as to how to vote your shares held in the CH2M 401(k) Plan.

Your vote is important. We encourage you to submit your voting materials as soon as possible.

 

Q: What will CH2M stockholders receive in the Merger?

 

A:

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of CH2M Common Stock (other than shares of CH2M Common Stock owned by (i) Jacobs, CH2M or any of their wholly-owned subsidiaries, which shares will be cancelled and will cease to exist or (ii) any person who is entitled to and properly demands statutory appraisal of his, her or its shares of CH2M Common Stock under Delaware law) will be converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in the

 

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  Merger Agreement, in each case without interest, one of the following consideration (the “Merger Consideration”):

 

    the combination of (a) $52.85 in cash and (b) 0.6677 shares of Jacobs Common Stock (the “Mixed Election Consideration”);

 

    $88.08 in cash (the “Cash Election Consideration”); or

 

    1.6693 shares of Jacobs Common Stock (the “Stock Election Consideration”).

In addition, immediately prior to the Effective Time, each outstanding share of CH2M Preferred Stock will be deemed converted into shares of CH2M Common Stock pursuant to Section 2.2 of the Certificate of Designation of the Series A Preferred Stock of CH2M, and such shares will be converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in the Merger Agreement, the applicable Merger Consideration elected by such holder.

CH2M stockholders who elect to receive the Cash Election Consideration or the Stock Election Consideration will be subject to proration to ensure that the aggregate number of shares of Jacob Common Stock to be issued by Jacobs in the Merger and the aggregate amount of cash to be paid in the Merger will be the same as if all applicable CH2M stockholders received the Mixed Election Consideration. Any CH2M stockholder who does not make an election will be treated as having elected to receive the Mixed Election Consideration. No fractional shares of Jacobs Common Stock will be issued in the Merger, and CH2M stockholders will receive cash in lieu of any fractional shares (after aggregating all shares delivered by such CH2M stockholder pursuant to the Merger). The Merger Consideration will be delivered to CH2M stockholders who have properly submitted the applicable forms described in this Proxy Statement/Prospectus as promptly as practicable following the Merger.

CH2M stockholders who hold shares of CH2M Common Stock under the CH2M 401(k) Plan may elect any of the above forms of Merger Consideration in the manner described below. Individuals who have shares of CH2M Common Stock credited to accounts under the CH2M Deferred Compensation Plan (the “DCP”), the CH2M Supplemental Executive Retirement and Retention Plan (the “SERRP”) and/or the CH2M International Deferred Compensation Plan (the “ISVEU”) may not elect the form of Merger Consideration in respect of such shares. Instead, the administrator of each of the DCP, SERRP and ISVEU will elect the form of Merger Consideration to be credited to accounts under the DCP, the SERRP and the ISVEU.

 

Q. How do I make an election and what is the deadline for making an election?

 

A: The election form (“Election Form”) will be mailed to CH2M stockholders with this Proxy Statement/Prospectus. The Election Form will allow each CH2M stockholder to specify the number of shares of CH2M Common Stock and CH2M Preferred Stock with respect to which such holder elects to receive Cash Election Consideration, Stock Election Consideration or Mixed Election Consideration. For an election to be properly submitted, an Election Form must be received by Wells Fargo Shareowner Services, the exchange agent for the Merger (the “Exchange Agent”), at its designated office, or an election must be submitted online using the instructions in the Election Form, by the election deadline, which is 5:00 p.m. Eastern time, on December 12, 2017 (which is the date that is one (1) business day preceding the CH2M Special Meeting (the “Election Deadline”).

The election instructions form for shares of CH2M Common Stock held by CH2M stockholders in the CH2M 401(k) Plan (the “401(k) Election Instructions Form”) will be separately mailed to CH2M stockholders who have shares of CH2M Common Stock credited to their account in the CH2M 401(k) Plan. The 401(k) Election Instructions Form will allow CH2M stockholders to direct Newport Trust to make a specific election with respect to shares of CH2M Common Stock held in the CH2M 401(k) Plan. In order for Newport Trust to receive your election instructions in time to submit an effective election on your behalf, Wells Fargo must receive your 401(k) Election Instructions Form, or your election must be properly submitted online, prior to

 

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the date specified in such form. For all purposes of this Proxy Statement/Prospectus, the “Election Deadline” for the shares of CH2M Common Stock held by CH2M stockholders in the CH2M 401(k) Plan is the date specified in the 401(k) Election Instructions Form.

Please note that if there are shares of CH2M Common Stock credited to your account(s) under the DCP, SERRP and/or the ISVEU, you do not need to make any election with respect to such shares. The administrator of each of the DCP, SERRP and ISVEU will elect the form of Merger Consideration to be credited to accounts under the DCP, the SERRP and the ISVEU.

Additional instructions for submitting your election are set forth in this Proxy Statement/Prospectus.

 

Q. What happens if I do not send an Election Form (or 401(k) Election Instructions Form), or submit an election online, or the Election Form (or 401(k) Election Instructions Form) is not received by the Election Deadline?

 

A: If the Exchange Agent does not receive a properly completed Election Form from a CH2M stockholder at or prior to the Election Deadline and that CH2M stockholder has not properly submitted an election online at or prior to the Election Deadline, then such CH2M stockholder will be deemed to have elected to receive the Mixed Election Consideration with respect to his, her or its shares of CH2M Common Stock and CH2M Preferred Stock (unless such CH2M stockholder holds such shares in the CH2M 401(k) Plan in which case such stockholder will be deemed to have made “no election” and Newport Trust will make the appropriate election with respect to such CH2M Common Stock). You bear the risk of delivery of the Election Form to the Exchange Agent.

If Wells Fargo does not receive a properly completed 401(k) Election Instructions Form prior to the date specified in the 401(k) Election Instructions Form and an online election has not been properly submitted, Newport Trust cannot ensure that your election will be followed and Newport Trust will make an election on your behalf with respect to shares of CH2M Common Stock held in the CH2M 401(k) Plan. No shares held in the CH2M 401(k) Plan will be defaulted into the Mixed Consideration election; Newport Trust will make elections with respect to all shares of CH2M Common Stock held in the CH2M 401(k) Plan for which no election is received or for which an election is received that Newport Trust does not believe it may follow under its fiduciary responsibilities under ERISA.

 

Q. Can I change my election after the form of election has been submitted?

 

A: Yes. You may revoke your election at or prior to the Election Deadline by submitting a written notice of revocation to the Exchange Agent. Revocations must specify the name in which your shares of CH2M Common Stock or CH2M Preferred Stock are registered on the share transfer books of CH2M and any other information that the Exchange Agent. If you wish to submit a new Election Form or 401(k) Election Instructions Form, you must do so in accordance with the election procedures described in this Proxy Statement/Prospectus and the Election Form or 401(k) Election Instructions Form. The notice of revocation must be received by the Exchange Agent at or prior to the Election Deadline for the revocation to be valid.

 

Q. What will be the treatment of CH2M options and other equity awards?

 

A: Immediately prior to the Effective Time, the vesting of each (i) outstanding share of restricted CH2M Common Stock (collectively, “CH2M Restricted Shares”), (ii) restricted stock unit in respect of CH2M Common Stock that is not an Assumed Restricted Stock Unit (as defined below), (iii) performance stock unit in respect of CH2M Common Stock that is not an Assumed Performance Stock Unit (as defined below), (iv) phantom stock right in respect of or economically linked to a share of CH2M Common Stock, (v) option to purchase CH2M Common Stock, (vi) stock appreciation right in respect of CH2M Common Stock and (vii) other equity or equity-based award in respect of, linked to or denominated in, CH2M Common Stock other than an Assumed Restricted Stock Unit (as defined below) or Assumed Performance Stock Unit (as defined below) (collectively, “CH2M Accelerated Equity Awards”) will accelerate with respect to one hundred percent (100%) of the shares of CH2M Common Stock underlying, or otherwise linked to, such CH2M Accelerated Equity Award (treating for this purpose any performance-based vesting condition as having been attained at “target”).

 

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In addition, immediately prior to the Effective Time, each CH2M Accelerated Equity Award (other than CH2M Restricted Shares which will be converted in the Merger pursuant to the terms described above) will be cancelled in exchange for a cash payment equal to (i) any positive difference between the Mixed Election Consideration (valuing the Jacobs Common Stock in the Mixed Election Consideration based on the VWAP, defined below) and the exercise price per share of CH2M Common Stock, if applicable thereto, multiplied by (ii) the total number of shares of CH2M Common Stock subject to such CH2M Accelerated Equity Award as of immediately prior to such cancellation (the “Accelerated Equity Award Payment”).

At the Effective Time, each (i) restricted stock unit in respect of CH2M Common Stock granted after February 28, 2017 under CH2M’s Amended and Restated Long-Term Incentive Plan (“Assumed Restricted Stock Units”) held by an employee of CH2M who will continue employment with CH2M, Jacobs or their affiliates following the Effective Time (each, a “Continuing Employee”) will be converted into a restricted stock unit on the same terms and conditions (including applicable vesting requirements) in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock subject thereto immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio (as defined below) and (ii) performance stock unit in respect of CH2M Common Stock granted after February 28, 2017 under CH2M’s Amended and Restated Long-Term Incentive Plan (“Assumed Performance Stock Units”) held by a Continuing Employee will be converted into a Jacobs restricted stock unit on the same terms and conditions (with vesting to occur in substantially equal installments on each of the first three (3) anniversaries of the original date of grant of the related Assumed Performance Stock Unit, subject to such accelerated vesting, if any, provided to the holder thereof upon a qualifying termination of employment pursuant to current CH2M arrangements), in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock that would have vested at the end of the performance period if target performance had been achieved immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio. The “Assumed Equity Award Exchange Ratio” means (x) the sum of the cash and stock portions of the Mixed Election Consideration, divided by (y) the volume weighted average trading price of Jacobs Common Stock on the New York Stock Exchange (“NYSE”) for the ten (10) consecutive trading days ending on the third complete trading day prior to (and excluding) the closing date (the “VWAP”).

 

Q. What will happen to the Payroll Deduction Stock Purchase Plan (the “PDSPP”) in connection with the Merger?

 

A: In accordance with the terms of the Merger Agreement, CH2M terminated the offering period that was ongoing under the PDSPP as of the date of the Merger Agreement and refunded all funds credited to accounts under the PDSPP. If the Merger is consummated, the PDSPP will terminate as of the Effective Time.

 

Q: When do you expect the Merger to be completed?

 

A: The Merger is expected to close by the end of the 2017 calendar year. However, the closing of the Merger is subject to various conditions, including the approval by the CH2M stockholders, as well as certain required regulatory approvals. No assurance can be provided as to when or if the Merger will be completed, and it is possible that factors outside the control of Jacobs and CH2M could result in the Merger being completed at a later time, or not at all.

 

Q: Will current Jacobs stockholders be affected by the Merger?

 

A:

Upon the closing of the Merger, each Jacobs stockholder will continue to hold the same number of shares of Jacobs Common Stock that such stockholder held immediately prior to the closing of the Merger. However, because, in connection with the Merger, Jacobs will be issuing shares of Jacobs Common Stock to CH2M stockholders in exchange for their shares of CH2M Common Stock and CH2M Preferred Stock, each share

 

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  of Jacobs Common Stock outstanding immediately prior to the Merger will represent a smaller percentage of the aggregate number of shares of Jacobs Common Stock outstanding after the Merger.

 

Q: When and where will the CH2M Special Meeting be held?

 

A: The CH2M Special Meeting will be held at CH2M’s World Headquarters, 9191 South Jamaica Street, Englewood, Colorado, 80112, USA, on December 13, 2017 at 10:00 a.m., Mountain time.

 

Q: Who can attend and vote at the CH2M Special Meeting?

 

A: Only holders of record of CH2M Common Stock and CH2M Preferred Stock at the close of business on November 8, 2017 (the “Record Date”) are entitled to notice of, and to vote at, the CH2M Special Meeting. As of the Record Date, there were 24,600,078 shares of CH2M Common Stock and 4,821,600 shares of CH2M Preferred Stock outstanding held by approximately 7,200 holders of record. On the Record Date, the CH2M Preferred Stock was convertible into 5,379,140 shares of CH2M Common Stock. Each holder of CH2M Common Stock and CH2M Preferred Stock is entitled to one (1) vote for each share of CH2M Common Stock and each share of CH2M Preferred Stock (on an as-converted basis) owned as of the Record Date. If you are a participant in the CH2M 401(k) Plan, you may not vote directly at the CH2M Special Meeting; however, prior to the meeting you have the right to instruct Newport Trust regarding how to vote the shares of CH2M Common Stock in your account under such CH2M 401(k) Plan on the Record Date by submitting the voting instruction form. Newport Trust will vote the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with ERISA. Please note that you may not vote the shares of CH2M Common Stock that are credited to your account(s) under the DCP, SERRP and/or the ISVEU since these shares have not been issued to you.

 

Q: What constitutes a quorum for the CH2M Special Meeting?

 

A: A majority of the outstanding shares of CH2M Common Stock and CH2M Preferred Stock (on an as-converted basis), represented in person or by proxy, will constitute a quorum for the CH2M Special Meeting. The shares of CH2M Common Stock and CH2M Preferred Stock held by a stockholder present in person at the CH2M Special Meeting, but not voting, and shares of CH2M Common Stock and CH2M Preferred Stock for which CH2M has received proxies indicating that the holders thereof have abstained will be counted as present at the CH2M Special Meeting for purposes of determining whether a quorum is established. For the avoidance of doubt, if you are a participant in the CH2M 401(k) Plan, you may not vote directly at the CH2M Special Meeting.

 

Q: What are the proposals on which CH2M stockholders are being asked to vote and what is the recommendation of the CH2M board of directors with respect to each proposal?

 

A: At the CH2M Special Meeting, the holders of record of CH2M Common Stock and CH2M Preferred Stock on the Record Date are being asked to:

 

  1. consider and vote on a proposal to approve and adopt the Merger Agreement, which is attached to this Proxy Statement/Prospectus as Annex A (the “CH2M Merger Proposal”);

 

  2. consider and vote on a proposal to approve one or more adjournments of the CH2M Special Meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the CH2M Merger Proposal (the “CH2M Adjournment Proposal”); and

 

  3. consider and vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may become payable to CH2M’s named executive officers that is based on or otherwise relates to the Merger (the “CH2M Golden Parachute Proposal”), as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of CH2M’s Directors and Officers in the Merger—Quantification of Payments and Benefits to CH2M’s Named Executive Officers” beginning on page 188.

 

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The board of directors of CH2M unanimously recommends a vote “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal and “FOR” the Golden Parachute Proposal, each described in more detail in this Proxy Statement/Prospectus. The approval of the adoption of the Merger Agreement, on the one hand, and the approval of the CH2M Adjournment Proposal and the advisory approval of the CH2M Golden Parachute Proposal, on the other hand, are subject to separate votes by CH2M stockholders, and neither the approval of the CH2M Adjournment Proposal nor the advisory approval of the CH2M Golden Parachute Proposal is a condition to completion of the Merger.

CH2M does not expect any other business to be conducted at the CH2M Special Meeting.

 

Q: If I am a CH2M stockholder, why am I being asked to cast an advisory (non-binding) vote to approve the CH2M Golden Parachute Proposal?

 

A: Securities and Exchange Commission (“SEC”) rules require CH2M to seek an advisory (non-binding) vote with respect to certain compensation that CH2M’s named executive officers may potentially receive from CH2M and/or Jacobs in connection with the Merger.

 

Q: What vote is required to approve the proposals being presented at the CH2M Special Meeting?

 

A: The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock entitled to vote on such matter, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement at the CH2M Special Meeting. Since the vote on the CH2M Merger Proposal is based on the total number of shares of CH2M Common Stock and CH2M Preferred Stock outstanding (on an as-converted basis), rather than the number of actual votes cast, abstentions and failures to vote or submit a proxy card or voting instructions will have the same effect as voting “AGAINST” the approval of the CH2M Merger Proposal.

The CH2M Adjournment Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Adjournment Proposal, whether or not a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the vote.

The non-binding advisory CH2M Golden Parachute Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Golden Parachute Proposal, assuming a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the vote. The vote on the CH2M Merger Proposal is a vote separate and apart from the vote on the CH2M Golden Parachute Proposal.

 

Q: What is the effect if the CH2M Merger Proposal is not approved at the CH2M Special Meeting?

 

A: If the CH2M Merger Proposal is not approved by the requisite vote at the CH2M Special Meeting or any adjournment thereof, then the Merger will not occur. Instead, Jacobs and CH2M would each remain an independent company, and the Merger Consideration to be received by CH2M stockholders would not be paid. Each of Jacobs and CH2M have the right to terminate the Merger Agreement under certain circumstances, including failure to obtain the required CH2M stockholder vote.

 

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Upon a termination for failure to obtain the CH2M required stockholder vote, CH2M will be required to reimburse Jacobs for certain of its out-of-pocket expenses in an amount not to exceed $15.0 million. In addition, CH2M will be required to pay Jacobs a termination fee equal to $85,444,783.80 (less any amount previously paid pursuant to the preceding sentence) if a third party made a public proposal for CH2M or such proposal became publicly known and was not withdrawn prior to the CH2M Special Meeting and, within twelve (12) months following the termination of the Merger Agreement, CH2M enters into a definitive written agreement providing for or consummates an acquisition of a material portion of CH2M.

 

Q: What is the effect if the CH2M Golden Parachute Proposal is not approved at the CH2M Special Meeting?

 

A: Approval of the CH2M Golden Parachute Proposal is not a condition to completion of the Merger. The CH2M stockholder vote with respect to the CH2M Golden Parachute Proposal is an advisory vote and will not be binding on CH2M. Therefore, if the Merger is approved by CH2M’s stockholders and completed, any “golden parachute” compensation may still be paid to CH2M’s named executive officers.

 

Q: Are any CH2M stockholders already committed to vote in favor of the CH2M Merger Proposal?

 

A: Yes. On August 1, 2017, in connection with the execution of the Merger Agreement, AP VIII CH2 Holdings, L.P. (“Apollo”), entered into a voting and support agreement with Jacobs (the “Voting Agreement”), pursuant to which Apollo, who owns 100% of the issued and outstanding CH2M Preferred Stock, which is convertible into approximately 17.94% of the issued and outstanding shares of CH2M Common Stock as of the Record Date, has agreed to, among other things, vote in favor of the CH2M Merger Proposal and against any competing proposals. The Voting Agreement will terminate upon the earlier of (i) the conclusion of the CH2M Special Meeting and (ii) the termination of the Merger Agreement in accordance with its terms.

The Voting Agreement is attached to this Proxy Statement/Prospectus as Annex B and is incorporated by reference into this Proxy Statement/Prospectus.

In addition, Apollo consented to the transaction pursuant to its contractual protective provisions set forth in the Certificate of Designation of the Series A Preferred Stock of CH2M, which consent is separate and apart from Apollo’s right to vote its shares of CH2M Preferred Stock at the CH2M Special Meeting.

 

Q: If I have shares of CH2M Common Stock credited to accounts under the DCP, the SERRP and/or the ISVEU, can I vote those shares or elect what Merger Consideration I will receive?

 

A: Shares of CH2M Common Stock credited to your account(s) under the DCP, the SERRP and/or the ISVEU have not been issued to you but instead are held by the trustee of each such plan. You may not vote such shares at the CH2M Special Meeting or elect the form of Merger Consideration with regard thereto. The administrator of the DCP, SERRP and ISVEU will vote such shares and determine the form of Merger Consideration to be credited to accounts under the DCP, the SERRP and the ISVEU.

 

Q: If I am a CH2M stockholder, how do I vote?

 

A: After reading and carefully considering the information contained in this Proxy Statement/Prospectus, please submit the enclosed proxy card or voting instructions for your shares of CH2M Common Stock or CH2M Preferred Stock as promptly as possible so that your shares will be represented at the CH2M Special Meeting. You may submit your proxy card or voting instructions before the CH2M Special Meeting in one of the following ways:

By Internet. Access the Internet website specified on the enclosed proxy card or voting instructions to submit your proxy or instructions and for the electronic delivery up until 11:59 p.m. Mountain time on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan). Have your proxy card or voting instructions in hand when you access the website and follow the instructions to obtain your records and to create an electronic proxy or voting instruction form.

 

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By Phone. Within the U.S., U.S. territories and Canada, use any touch-tone telephone to dial 1-800-652-VOTE (8683) (outside the U.S., U.S. territories and Canada, dial 1-781-575-2300) to submit your proxy or voting instructions up until 11:59 p.m. Mountain time on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan). Have your proxy card or voting instructions in hand when you call and then follow the instructions. If you submit proxy or voting instructions by telephone, do not also return your proxy card or voting instructions by other means.

By Mail. Mark, sign and date your proxy card or voting instructions and return it in the postage-paid envelope we have provided or return it to the address set forth in such proxy card. Your proxy card or voting instructions must be received no later than the close of business on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan).

In addition, all holders of record of CH2M Common Stock and CH2M Preferred Stock may vote in person at the CH2M Special Meeting. In order to attend the CH2M Special Meeting, you must (i) be a holder of record of shares of CH2M Common Stock or CH2M Preferred Stock as of the Record Date and (ii) present valid photo identification issued by a government agency, such as a driver’s license or passport in person at the CH2M Special Meeting.

If you are a participant in the CH2M 401(k) Plan, you have the right, if you choose, to instruct Newport Trust to vote the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan as of the Record Date. If you are a participant in the CH2M 401(k) Plan, you will receive a voting instruction form allowing you to submit voting instructions to Newport Trust. Such voting instruction form is separate from and in addition the proxy card you will receive if you are also the direct holder of CH2M Common Stock. Newport Trust will vote the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with ERISA. If you do not send instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, such shares shall be voted by Newport Trust in accordance with Newport Trust’s determination of the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole. Please follow the instructions on your voting instruction form, which may be different from those provided to other CH2M stockholders. For the avoidance of doubt, if you are a participant in the CH2M 401(k) Plan, you may not vote directly at the CH2M Special Meeting.

Shares of CH2M Common Stock credited to your account(s) under the DCP, the SERRP and/or the ISVEU have not been issued to you but instead are held by the trustee of each such plan. You may not vote such shares at the CH2M Special Meeting.

After reading and carefully considering the information contained in this Proxy Statement/Prospectus, please submit your proxy or voting instructions as soon as possible even if you plan to attend the CH2M Special Meeting.

 

Q: What do I do if I receive more than one set of voting materials?

 

A: You may receive multiple sets of proxy materials if you hold your shares of CH2M Common Stock in multiple ways, such as directly as a holder of record and indirectly through the CH2M 401(k) Plan.

Please complete, sign, date and return each proxy card and voting instruction form you receive, or submit each proxy or voting instruction form by telephone or Internet by following the instructions on your proxy cards or the voting instruction form. If you received multiple sets of voting and election materials, you should submit each form as described in each separate set of voting materials you receive.

 

Q: What will happen if I abstain from voting, fail to vote or submit a proxy card or voting instructions?

 

A: If holders of CH2M Common Stock or CH2M Preferred Stock do not vote or fail to submit a proxy or voting instructions it may have a negative effect on the ability of CH2M to obtain the number of votes necessary for approval of the CH2M Merger Proposal.

 

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The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock entitled to vote on such matter, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement at the CH2M Special Meeting. Since the vote on the CH2M Merger Proposal is based on the total number of shares of CH2M Common Stock and CH2M Preferred Stock outstanding (on an as-converted basis), rather than the number of actual votes cast, abstentions and failures to vote or submit a proxy card or voting instructions will have the same effect as voting “AGAINST” the approval of the CH2M Merger Proposal.

The CH2M Adjournment Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Adjournment Proposal, whether or not a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the vote. The chairman of the CH2M Special Meeting is also entitled to adjourn the meeting to another place, date or time if a quorum is not present.

The non-binding advisory CH2M Golden Parachute Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Golden Parachute Proposal, assuming a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the vote. The vote on the CH2M Merger Proposal is a vote separate and apart from the vote on the CH2M Golden Parachute Proposal.

All properly submitted proxies or voting instructions (other than proxies for shares credited to accounts under the CH2M 401(k) Plan) received at the appropriate time in advance of the CH2M Special Meeting that are not revoked or changed prior to being exercised at the CH2M Special Meeting will be voted at the CH2M Special Meeting in accordance with the instructions indicated on the proxies or voting instructions or, if no instructions were provided, “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal and “FOR” the CH2M Golden Parachute Proposal.

Newport Trust will vote the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan in accordance with your properly submitted proxy or voting instructions that have not been revoked or changed, provided that Newport Trust determines it can do so in accordance with ERISA. If you do not timely send a proxy or voting instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, such shares shall be voted by Newport Trust in accordance with Newport Trust’s determination of the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole.

 

Q: Can I revoke or change my vote after I have submitted a proxy or voting instruction card?

 

A: Yes. If you are a holder of record of CH2M Common Stock or CH2M Preferred Stock as of the Record Date (other than shares of CH2M Common Stock in your account under the CH2M 401(k) Plan), you can change your vote in one of three ways:

 

  1. you can send a signed notice of revocation, which must be received prior to the close of business on December 12, 2017, to the address set forth in the proxy card;

 

  2. you can submit a new, valid, revised proxy bearing a later date by mail, over the Internet or by telephone as described above, which revised proxy must be received prior to the deadlines set forth above for each method of voting; or

 

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  3. you can attend the CH2M Special Meeting and vote in person, which will automatically cancel any proxy previously given, though your attendance alone will not revoke any proxy that you have previously given.

If you are a participant in the CH2M 401(k) Plan, you can change your vote in one of two ways:

 

  1. you can send a signed notice of revocation, which must be received prior to the close of business on December 8, 2017, to the address set forth in the voting instruction form relating to the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan; or

 

  2. you can submit a new, valid, revised voting instructions bearing a later date by mail, over the Internet or by telephone as described above, which revised voting instructions must be received prior to the deadlines set forth above for each method of voting.

If you are a participant in the CH2M 401(k) Plan, you may not vote directly at the CH2M Special Meeting.

 

Q: Will CH2M’s named executive officers continue their employment with Jacobs after consummation of the Merger?

 

A: Jacobs and CH2M have publicly announced that Jacobs’ Chief Executive Officer will continue in his role following the Merger and CH2M’s Chief Executive Officer, Jacqueline C. Hinman, will not remain an employee of Jacobs following the closing of the Merger. In addition, it is anticipated that CH2M’s Executive Vice President, General Counsel and Secretary, Thomas M. McCoy, and CH2M’s Executive Vice President and Chief Financial Officer, Gary L. McArthur, will not continue their employment with Jacobs following the closing of the Merger. It is anticipated that the aforementioned named executive officers will experience a qualifying termination pursuant to their respective change of control agreements with CH2M if the Merger is completed. Definitive decisions with respect to the future employment of the additional named executive officers have not been made.

 

Q: Are there any risks that I should consider?

 

A: Yes. We have described certain of these risks in more detail under “Risk Factors” beginning on page 26. You also should read and carefully consider the risk factors relating to Jacobs contained in the documents that are incorporated by reference into this Proxy Statement/Prospectus.

 

Q: Are CH2M stockholders entitled to appraisal rights in the Merger?

 

A: Yes. CH2M stockholders are expected to be entitled to appraisal rights in connection with the Merger. For further information, see “The Merger—CH2M Stockholder Appraisal Rights” beginning on page 192.

 

Q: What are the material U.S. federal income tax consequences of the Merger to a holder of CH2M Common Stock or CH2M Preferred Stock?

 

A: In general, the receipt of the Merger Consideration is intended to be a taxable transaction for U.S. federal income tax purposes. For a more detailed summary of the material U.S. federal income tax consequences of the Merger, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 196.

CH2M stockholders should also consult their own tax advisors to determine the particular tax consequences to them of the Merger (including the application and effect of any U.S. federal estate, gift and other non-income tax laws and tax consequences under state, local or non-U.S. tax laws).

 

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Q: Can I sell my CH2M Common Stock or CH2M Preferred Stock prior to the Merger?

 

A: No. There will be no further trading permitted through CH2M’s internal market prior to the Effective Time.

 

Q: What are the conditions to the closing of the Merger?

 

A: The consummation of the Merger is subject to customary closing conditions, including: (i) the approval of the Merger Agreement by the CH2M stockholders, (ii) the expiration or termination of applicable waiting periods under, or receipt of the applicable consents required under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain foreign antitrust and competition laws, (iii) the absence of any order, applicable law or other legal restraints of certain specified governmental authorities enjoining or otherwise prohibiting the consummation of the Merger, (iv) the accuracy of certain representations and warranties of each of the parties contained in the Merger Agreement, subject to specified materiality qualifications, (v) compliance, in all material respects, by each of the parties with their respective covenants contained in the Merger Agreement, (vi) the effectiveness of this registration statement (and no stop order suspending the effectiveness of the registration statement shall have been issued by the SEC and remain in effect and no proceeding to that effect shall have been commenced or threatened unless subsequently withdrawn) and the approval of the listing of the Jacobs Common Stock to be issued in the Merger on the NYSE, (vii) the absence of a material adverse effect on either CH2M or Jacobs since the date of the Merger Agreement and (viii) the other conditions set forth in the Merger Agreement.

The consummation of the Merger is not subject to a financing condition.

 

Q: Where can I find more information about the parties to the Merger?

 

A: You can find more information about Jacobs, Merger Sub and CH2M by reading the sections of the Proxy Statement/Prospectus titled “Information about Jacobs and Merger Sub” beginning on page 98 and “Information about CH2M” beginning on page 99.

 

Q: How do I obtain the voting results from the CH2M Special Meeting?

 

A: Preliminary voting results will be announced at the CH2M Special Meeting and will be set forth in a press release that Jacobs and CH2M intend to issue after the CH2M Special Meeting. The press release is expected to be available on Jacobs’ and CH2M’s respective websites. Final voting results for the CH2M Special Meeting are required to be filed in a Current Report on Form 8-K filed with the SEC within four (4) business days after the CH2M Special Meeting.

 

Q: Whom should I contact if I have any questions about these materials or voting?

 

A: If you have any questions about the proxy materials or if you need assistance submitting your proxy card(s) or voting instructions or voting your shares or need additional copies of this Proxy Statement/Prospectus, the Election Form, the 401(k) Election Instructions Form or the proxy card or voting instruction form, you should contact Georgeson LLC:

Georgeson LLC

Toll Free: (888) 566-8006

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

 

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SUMMARY

This summary highlights selected information contained elsewhere in this Proxy Statement/Prospectus and does not contain all the information that may be important to you. For more detailed information, and for a description of the legal terms governing the Merger (as defined below), we urge you to read carefully and in its entirety this Proxy Statement/Prospectus, including the Annexes hereto, and the documents incorporated by reference herein, as well as the registration statement to which this Proxy Statement/Prospectus relates, including the exhibits to the registration statement. See “Incorporation of Certain Documents by Reference” beginning on page 246 and “Where You Can Find More Information” beginning on page 247. The page references have been included in this summary to direct you to a more complete description of the topics presented below.

Information about the Companies

Jacobs Engineering Group Inc. (Page 98)

Jacobs Engineering Group Inc.

1999 Bryan Street

Suite 1200

Dallas, Texas 75201

Phone: (214) 583-8500

Jacobs Engineering Group Inc. (“Jacobs”) is one of the world’s largest and most diverse providers of full-spectrum technical, professional and construction services for industrial, commercial and government organizations globally. Jacobs employs over 54,000 people and operates in more than 25 countries around the world.

Jacobs is a Delaware corporation headquartered in Dallas, Texas. The common stock, par value $1.00 per share, of Jacobs (“Jacobs Common Stock”) is traded on the New York Stock Exchange (“NYSE”) under the symbol “JEC.” Additional information about Jacobs and its subsidiaries is included in documents incorporated by reference into this Proxy Statement/Prospectus. See “Where You Can Find More Information” beginning on page 247.

Basketball Merger Sub Inc. (Page 98)

Basketball Merger Sub Inc.

1999 Bryan Street

Suite 1200

Dallas, Texas 75201

Phone: (214) 583-8500

Basketball Merger Sub Inc. (“Merger Sub”) is a wholly-owned direct subsidiary of Jacobs and was formed on July 20, 2017 solely for the purpose of consummating the Merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the Merger, including the preparation of applicable regulatory filings in connection with the Merger.

CH2M HILL Companies, Ltd. (Page 99)

CH2M HILL Companies, Ltd.

9191 South Jamaica Street

Englewood, Colorado 80112-5946

(303) 771-0900

 



 

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CH2M HILL Companies, Ltd. (“CH2M”) is a large employee-controlled professional engineering services firm, founded in 1946, providing engineering, construction, consulting, design, design-build, procurement, engineering-procurement-construction, operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry and utilities, around the world. A substantial portion of CH2M’s professional fees are derived from projects that are funded directly or indirectly by government entities.

CH2M was incorporated in Oregon in 1946. CH2M is a private company and neither the common stock, par value $0.01 per share, of CH2M (“CH2M Common Stock”) nor the Series A Preferred Stock, par value $0.01 per share, of CH2M (“CH2M Preferred Stock”) is publicly traded.

The Merger (Page 139)

On August 1, 2017, Jacobs entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CH2M, and Merger Sub. Pursuant to and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into CH2M, with CH2M continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of Jacobs (the “Merger”).

It is anticipated that, upon the closing of the Merger, CH2M’s stockholders will own approximately 15% of Jacobs Common Stock, calculated on a fully-diluted basis.

Merger Consideration (Page 139)

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of CH2M Common Stock (other than shares of CH2M Common Stock owned by (i) Jacobs, CH2M or any of their wholly-owned subsidiaries, which shares will be cancelled and will cease to exist or (ii) any person who is entitled to and properly demands statutory appraisal of his, her or its shares of CH2M Common Stock under Delaware law) will be converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in the Merger Agreement, in each case without interest, one of the following considerations (the “Merger Consideration”):

 

    the combination of (a) $52.85 in cash and (b) 0.6677 shares of Jacobs Common Stock (together, the “Mixed Election Consideration”);

 

    $88.08 in cash (the “Cash Election Consideration”); or

 

    1.6693 shares of Jacobs Common Stock (the “Stock Election Consideration”).

In addition, at the Effective Time, each outstanding share of CH2M Preferred Stock will be deemed converted into shares of CH2M Common Stock pursuant to Section 2.2 of the Certificate of Designation of the Series A Preferred Stock of CH2M (the “Certificate of Designation”), and such shares will be converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in the Merger Agreement, the applicable Merger Consideration elected by such holder.

CH2M stockholders who elect to receive the Cash Election Consideration or the Stock Election Consideration will be subject to proration to ensure that the aggregate number of shares of Jacob Common Stock to be issued by Jacobs in the Merger and the aggregate amount of cash to be paid in the Merger will be the same as if all applicable CH2M stockholders received the Mixed Election Consideration. Except as otherwise provided in this Proxy Statement/Prospectus, any applicable CH2M stockholder who does not make an election (including for shares for which an election is not properly made) will be treated as having elected to receive the Mixed Election Consideration. CH2M stockholders who hold shares of CH2M Common Stock under the CH2M HILL

 



 

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Companies Ltd., Retirement and Tax-Deferred Savings Plan (the “CH2M 401(k) Plan”) may direct Newport Trust Company (“Newport Trust”) to make an election on their behalf for any of the above forms of Merger Consideration, which shall be subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) responsibilities imposed on Newport Trust. Notwithstanding anything to the contrary herein, if a CH2M stockholder holds such shares in the CH2M 401(k) Plan and does not provide direction as to such participant’s preferred consideration election, such stockholder will be deemed to have made a “no election” selection. Newport Trust will make the appropriate election regarding the form of consideration with respect to the shares of CH2M Common Stock held in the CH2M 401(k) Plan. No shares held in the CH2M 401(k) Plan will be defaulted into the Mixed Consideration election; Newport Trust will make elections with respect to all shares of CH2M Common Stock for which no election is received or for which an election is received that Newport Trust does not believe it may follow under its fiduciary responsibilities under ERISA. Individuals who have shares of CH2M Common Stock credited to accounts under the Deferred Compensation Plan (the “DCP”), the Supplemental Executive Retirement and Retention Plan (the “SERRP”) and/or the International Deferred Compensation Plan (the “ISVEU”) may not elect the form of Merger Consideration set forth above and, instead, the administrator of each such plan will determine the form of Merger Consideration to be credited to such accounts.

No fractional shares of Jacobs Common Stock will be issued in the Merger, and applicable CH2M stockholders who would otherwise have been entitled to receive a fraction of a share of Jacobs Common Stock (after aggregating all shares represented by the certificates and book-entry shares of CH2M delivered by such CH2M stockholder pursuant to the Merger) will receive cash, without interest, in lieu of any fractional shares. The Merger Consideration will be delivered to CH2M stockholders who have properly submitted the applicable forms described in this Proxy Statement/Prospectus as promptly as practicable following the Merger.

Treatment of CH2M Equity Awards (Page 140)

Immediately prior to the Effective Time, the vesting of each (i) outstanding share of restricted CH2M Common Stock (collectively, “CH2M Restricted Shares”), (ii) restricted stock unit in respect of CH2M Common Stock that is not an Assumed Restricted Stock Unit (as defined below), (iii) performance stock unit in respect of CH2M Common Stock that is not an Assumed Performance Stock Unit (as defined below), (iv) phantom stock right in respect of or economically linked to a share of CH2M Common Stock, (v) option to purchase CH2M Common Stock, (vi) stock appreciation right in respect of CH2M Common Stock and (vii) other equity or equity-based award in respect of, linked to or denominated in, CH2M Common Stock other than an Assumed Restricted Stock Unit (as defined below) or Assumed Performance Stock Unit (as defined below) (collectively, “CH2M Accelerated Equity Awards”) will accelerate with respect to one hundred percent (100%) of the shares of CH2M Common Stock underlying, or otherwise linked to, such CH2M Accelerated Equity Award (treating for this purpose any performance-based vesting condition as having been attained at “target”).

In addition, immediately prior to the Effective Time, each CH2M Accelerated Equity Award (other than CH2M Restricted Shares which will be converted in the Merger pursuant to the terms described above) will be cancelled in exchange for a cash payment equal to (i) any positive difference between the Mixed Election Consideration (valuing the Jacobs Common Stock in the Mixed Election Consideration based on the VWAP (as defined below)) and the exercise price per share of CH2M Common Stock, if applicable thereto, multiplied by (ii) the total number of shares of CH2M Common Stock subject to such CH2M Accelerated Equity Award as of immediately prior to such cancellation (the “Accelerated Equity Award Payment”).

At the Effective Time, each (i) restricted stock unit in respect of CH2M Common Stock granted after February 28, 2017 under CH2M’s Amended and Restated Long-Term Incentive Plan (“Assumed Restricted Stock Units”) held by an employee of CH2M who will continue employment with CH2M, Jacobs or their affiliates following the Effective Time (each, a “Continuing Employee”) will be converted into a restricted stock

 



 

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unit on the same terms and conditions (including applicable vesting requirements) in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock subject thereto immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio (as defined below) and (ii) performance stock unit in respect of CH2M Common Stock granted after February 28, 2017 under CH2M’s Amended and Restated Long-Term Incentive Plan (“Assumed Performance Stock Units”) held by a Continuing Employee will be converted into a Jacobs restricted stock unit on the same terms and conditions (with vesting to occur in substantially equal installments on each of the first three (3) anniversaries of the original date of grant of the related Assumed Performance Stock Unit, subject to such accelerated vesting, if any, provided to the holder thereof upon a qualifying termination of employment pursuant to current CH2M arrangements), in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock that would have vested at the end of the performance period if target performance had been achieved immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio. The “Assumed Equity Award Exchange Ratio” means (x) the sum of the cash and stock portions of the Mixed Election Consideration, divided by (y) the volume weighted average trading price of Jacobs Common Stock on the NYSE for the ten (10) consecutive trading days ending on the third complete trading day prior to (and excluding) the closing date (the “VWAP”).

Jacobs’ Reasons for the Merger (Page 156)

After careful consideration, Jacobs’ board of directors has unanimously determined that that the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of Jacobs Common Stock in the Merger, are fair to and in the best interests of Jacobs and its stockholders and approved, adopted and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Jacobs board of directors consulted with Jacobs’ management, as well as its independent financial and legal advisors, and considered a number of factors. The Jacobs board of directors also considered the potential risks related to the Merger but concluded that the anticipated benefits of the Merger were likely to substantially outweigh these risks.

CH2M’s Reasons for the Merger; Recommendation of the CH2M Board of Directors (Page 158)

After careful consideration, the CH2M board of directors has unanimously determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of CH2M and its stockholders and approved, adopted and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The CH2M board of directors therefore unanimously recommends that you vote “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal and “FOR” the CH2M Golden Parachute Proposal (each as defined below).

In evaluating the Merger, the CH2M board of directors consulted with CH2M’s senior management, as well as CH2M’s outside legal and financial advisors, and, in reaching its decision to approve the Merger Agreement and declare its advisability and to recommend that CH2M’s stockholders vote in favor of the adoption of the Merger Agreement, the CH2M board of directors considered a number of factors, including the anticipated benefits and potential risks of the Merger and considered potential alternative transactions, including an initial public offering of CH2M Common Stock. The CH2M board of directors concluded that the anticipated benefits of the Merger were likely to substantially outweigh the potential risks and determined that the Merger was more advisable that any potential alternative transaction.

 



 

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Opinions of CH2M’s Financial Advisors (Page 161)

Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated

CH2M has engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”) as a financial advisor in connection with the Merger. In connection with the Merger, BofA Merrill Lynch delivered a written opinion, dated August 1, 2017, to the board of directors of CH2M as to the fairness, from a financial point of view and as of such date, to the holders of CH2M Common Stock (other than holders of shares of CH2M Preferred Stock and their respective affiliates, which shares will be deemed converted into shares of CH2M Common Stock in connection with the Merger) of the consideration to be received by such holders in the Merger. The full text of BofA Merrill Lynch’s written opinion, dated August 1, 2017, is attached as Annex C and sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by BofA Merrill Lynch in rendering its opinion. BofA Merrill Lynch delivered its opinion to the board of directors of CH2M for the benefit and use of the board of directors of CH2M (in its capacity as such) in connection with and for purposes of its evaluation of the Merger Consideration from a financial point of view. BofA Merrill Lynch’s opinion did not address any other terms, aspects or implications of the Merger and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to CH2M or in which CH2M might engage or as to the underlying business decision of CH2M to proceed with or effect the Merger. BofA Merrill Lynch also expressed no opinion or recommendation as to any election made by a stockholder or how any stockholder should vote or act in connection with the Merger or any other matter. BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect BofA Merrill Lynch’s opinion and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion.

Opinion of Credit Suisse Securities (USA) LLC

On August 1, 2017, Credit Suisse Securities (USA) LLC (“Credit Suisse”), rendered its oral opinion to the CH2M board of directors (which was subsequently confirmed in writing by delivery of Credit Suisse’s written opinion dated the same date) as to, as of August 1, 2017, the fairness, from a financial point of view, to the holders of CH2M Common Stock (other than holders of shares of CH2M Preferred Stock and their respective affiliates, which shares will be deemed converted into shares of CH2M Common Stock in connection with the Merger) of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement.

Credit Suisse’s opinion was directed to the CH2M board of directors (in its capacity as such), and only addressed the fairness, from a financial point of view, to the holders of CH2M Common Stock (other than holders of shares of CH2M Preferred Stock and their respective affiliates, which shares will be deemed converted into shares of CH2M Common Stock in connection with the Merger) of the Merger Consideration to be received by such holders in the Merger and did not address any other aspect or implication of the Merger. The summary of Credit Suisse’s opinion in this Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex D to this Proxy Statement/Prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Credit Suisse in connection with the preparation of its opinion. However, neither Credit Suisse’s written opinion nor the summary of its opinion and the related analyses set forth in this Proxy Statement/Prospectus is intended to be, and they do not constitute, advice or a recommendation to any CH2M stockholder as to how such CH2M stockholder should vote or act with respect to any matter relating to the Merger.

 



 

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CH2M Special Meeting; Proposals; Required Vote (Page 89)

The CH2M Special Meeting (Page 89)

The special meeting of stockholders of CH2M (the “CH2M Special Meeting”) will take place on December 13, 2017 at 10:00 a.m. Mountain time, at CH2M’s World Headquarters, 9191 South Jamaica Street, Englewood, Colorado, 80112, USA. At the CH2M Special Meeting, CH2M stockholders of record will be asked to vote on the CH2M Merger Proposal, the CH2M Adjournment Proposal and the CH2M Golden Parachute Proposal (each as defined below).

Proposals (Page 95)

Holders of record of shares of CH2M Common Stock and CH2M Preferred Stock at the close of business on November 8, 2017, the record date for the CH2M Special Meeting (the “Record Date”) will consider and act on the following proposals at the CH2M Special Meeting:

 

  1. To approve, direct and adopt the Merger Agreement, which is attached to this Proxy Statement/Prospectus as Annex A (the “CH2M Merger Proposal”);

 

  2. To approve one or more adjournments of the CH2M Special Meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the CH2M Merger Proposal (the “CH2M Adjournment Proposal”);

 

  3. To approve, on a non-binding, advisory basis, certain compensation that will or may become payable to CH2M’s named executive officers that is based on or otherwise relates to the Merger (the “CH2M Golden Parachute Proposal”), as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of CH2M’s Directors and Officers in the Merger—Quantification of Payments and Benefits to CH2M’s Named Executive Officers” beginning on page 188.

Stockholders Entitled to Vote; Vote Required (Page 89)

Holders of record of CH2M Common Stock or CH2M Preferred Stock as of the Record Date may vote at the CH2M Special Meeting. Each share of CH2M Common Stock owned on the Record Date, is entitled to cast one (1) vote on each matter voted upon at the CH2M Special Meeting. Each share of CH2M Preferred Stock is entitled to cast (1) vote for each share of CH2M Common Stock such share of CH2M Preferred Stock would be convertible into on the Record Date.

The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and the shares of CH2M Preferred Stock entitled to vote on such matters, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement. The CH2M Adjournment Proposal will be approved if a majority of the votes cast by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Adjournment Proposal, whether or not a quorum is present. The CH2M Golden Parachute Proposal will be approved if a majority of the votes cast by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Golden Parachute Proposal, assuming a quorum is present.

As of the Record Date, there were 24,600,078 shares of CH2M Common Stock and 4,821,600 shares of CH2M Preferred Stock outstanding held by approximately 7,200 holders of record. On the Record Date, the CH2M Preferred Stock was convertible into 5,379,140 shares of CH2M Common Stock. As of the Record Date, approximately 17.94% of the outstanding shares of CH2M Common Stock and CH2M Preferred Stock (on an as-converted basis) were held by AP VIII CH2 Holdings, L.P. (“Apollo”), which has entered into a Voting

 



 

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Agreement (as defined below) obligating it to vote all of its shares in favor of the CH2M Merger Proposal and any other proposals necessary to consummate the Merger and against any competing proposals.

Quorum (Page 90)

A quorum of CH2M stockholders is necessary to hold the CH2M Special Meeting. The required quorum for the transaction of business at the CH2M Special Meeting shall exist when the holders of a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock (on an as-converted basis) issued and outstanding and entitled to vote at the CH2M Special Meeting are present or represented by proxy. If a quorum is not present at the CH2M Special Meeting, we expect that the CH2M Special Meeting will be adjourned to solicit additional proxies. Abstentions, if any, count as present for establishing a quorum.

Interests of CH2M’s Directors and Officers in the Merger (Page 183)

Certain members of the CH2M board of directors and certain executive officers of CH2M have interests in the Merger that are different from, or are in addition to, the interests of CH2M stockholders generally. Interests of the CH2M directors and executive officers of CH2M may be different from or in addition to the interests of the CH2M stockholders for the following reasons, among others:

 

    Under the Merger Agreement, as of immediately prior to the Effective Time, each CH2M Accelerated Equity Award will vest (assuming performance is achieved at target for any performance-based vesting condition) and, except for CH2M Restricted Shares which will be treated like other shares of CH2M Common Stock, will be cancelled in exchange for the Accelerated Equity Award Payment.

 

    Under the Merger Agreement, as of immediately prior to the Effective Time, each outstanding Assumed Restricted Stock Unit and Assumed Performance Stock Unit will be assumed by Jacobs and converted into a restricted stock unit denominated in Jacobs Common Stock (assuming performance is achieved at target for the Assumed Performance Stock Units). Vesting of Assumed Restricted Stock Units will continue as in effect immediately prior to the Effective Time, and vesting of Assumed Performance Stock Units will occur in substantially equal installments on each of the first three (3) anniversaries of the original date of grant of the Assumed Performance Stock Units, subject to such accelerated vesting, if any, provided to the holder thereof upon a qualifying termination of employment pursuant to current CH2M arrangements.

 

    Each of CH2M’s executive officers has entered into a change of control agreement with CH2M (the “CoC Agreements”) that provide for severance payments and benefits in the event of certain qualifying terminations of employment within the period of time commencing on the Effective Time and ending 24 months after the Merger.

 

    Jacobs and CH2M have publicly announced that CH2M’s Chief Executive Officer, Jacqueline C. Hinman, will not remain an employee of Jacobs following the closing of the Merger. In addition, it is anticipated that CH2M’s Executive Vice President, General Counsel and Secretary, Thomas M. McCoy, and CH2M’s Executive Vice President and Chief Financial Officer, Gary L. McArthur, will not continue their employment with Jacobs following the closing of the Merger. It is anticipated that the aforementioned named executive officers will experience a qualifying termination pursuant to their respective CoC Agreements with CH2M if the Merger is completed. Definitive decisions with respect to the future employment of the additional named executive officers have not been made.

 

   

Under the Merger Agreement, participants in CH2M’s Annual Incentive Plan (the “AIP”), including executive officers of CH2M, will receive a portion of their annual AIP bonus amount shortly following the Effective Time based on performance through September 30, 2017 and the remaining portion of their annual AIP bonus early next year, as originally scheduled, based on performance for the full performance year. If the employment of any participant, including executive officers of CH2M, is

 



 

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terminated without cause before payment of any portion of his or her AIP bonus amount, then the participant will remain eligible to receive their unpaid AIP bonus amount at the same time the unpaid portion of such bonuses are paid to other participants.

 

    Pursuant to the terms of the applicable plan documents, cash awards held by employees of CH2M, including CH2M executive officers, under CH2M’s Amended and Restated Long-Term Incentive Plan (the “LTIP”) for performance periods originally scheduled to end on December 31, 2017 and December 31, 2018 will be accelerated at the target level of performance and become payable at the Effective Time.

 

    Under the Merger Agreement, CH2M’s directors and executive officers are entitled to continued indemnification, expense advancement and insurance coverage for acts and omissions prior to the Effective Time.

 

    Under the Merger Agreement, effective as of immediately following the Effective Time, Jacobs will appoint one (1) director from the CH2M board of directors who qualifies as an “independent director” under applicable NYSE rules to the Jacobs board of directors, to serve in such capacity until his or her successor is duly elected or appointed and qualified in accordance with applicable law.

These interests are discussed in more detail in the section entitled “The Merger—Interests of CH2M’s Directors and Officers in the Merger” beginning on page 183. The members of the CH2M board of directors were aware of the different or additional interests described in such section and considered these interests, among other matters, in evaluating, negotiating and approving the Merger Agreement and the Merger, and in recommending to the CH2M stockholders that the CH2M Merger Proposal be approved.

Share Ownership of Certain Stockholders; Voting of Directors and Executive Officers (Page 136)

None of Jacobs’ directors, executive officers and their affiliates own any outstanding shares of CH2M Common Stock or CH2M Preferred Stock.

As of the Record Date, CH2M’s directors and executive officers beneficially owned and were entitled to vote an aggregate of 665,291 shares of CH2M Common Stock, or the right to vote approximately 2.7% of the total CH2M voting stock outstanding on the Record Date. These numbers do not give effect to outstanding CH2M Accelerated Equity Awards (other than the CH2M Restricted Shares), which CH2M Accelerated Equity Awards (other than the CH2M Restricted Shares) are not entitled to vote at the CH2M Special Meeting. Apollo, which is affiliated with two of CH2M’s directors, has entered into a Voting Agreement (as defined below) obligating Apollo to vote all of its shares of CH2M Common Stock and CH2M Preferred Stock in favor of the CH2M Merger Proposal and any other proposals necessary to consummate the Merger and against any competing proposals. CH2M currently expects that each of its directors and executive officers will vote their shares of CH2M Common Stock in favor of the proposals to be presented at the CH2M Special Meeting.

The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and the shares of CH2M Preferred Stock entitled to vote on such matters, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement.

 



 

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Key Terms of the Merger Agreement (Page 205)

Conditions to the Closing of the Merger

As more fully described in this Proxy Statement/Prospectus and as set forth in the Merger Agreement, the respective obligations of Jacobs and CH2M to consummate the Merger will be subject to the satisfaction or, if permitted by applicable law, written waiver at or prior to the Effective Time of each of the following conditions:

 

    the holders of a majority of the outstanding shares of CH2M Common Stock and CH2M Preferred Stock (on an as-converted basis) entitled to vote upon the adoption of the Merger Agreement, voting together as a single class shall have approved the Merger Agreement (the “CH2M Stockholder Approval”);

 

    the expiration or termination of applicable waiting periods under, or receipt of the applicable consents required under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and certain foreign antitrust and competition laws;

 

    the absence of any order, applicable law or other legal restraints of certain specified governmental authorities enjoining or otherwise prohibiting the consummation of the Merger;

 

    the effectiveness of this registration statement in accordance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”) and no stop order suspending the effectiveness of this registration statement shall have been issued by the Securities and Exchange Commission (the “SEC”) and remain in effect and no proceeding to that effect shall have been commenced or threatened unless subsequently withdrawn;

 

    the shares of Jacobs Common Stock to be issued in the Merger shall have been authorized and approved for listing on the NYSE subject to official notice of issuance;

 

    the accuracy of certain representations and warranties of each of Jacobs and CH2M contained in the Merger Agreement (subject to specified materiality qualifications), and receipt of an officer’s certificate from each party to that effect;

 

    the performance in all material respects by each of Jacobs and CH2M of all obligations required to be performed by such party under the Merger Agreement and receipt of an officer’s certificate from each party to that effect; and

 

    since August 1, 2017, there shall not have occurred any change, event, development, condition, occurrence or effect or state of facts that has had a material adverse effect on either Jacobs or CH2M and the receipt of an officer’s certificate from each party to that effect.

The consummation of the Merger is not subject to a financing condition.

No-Shop; Acquisition Proposals; Change in Recommendation

Pursuant to the terms of the Merger Agreement, CH2M is subject to customary “no-shop” restrictions on its ability to:

 

    solicit, initiate, seek or knowingly encourage or facilitate any alternative acquisition proposal from a third party;

 

    enter into, participate in, maintain or continue discussions or negotiations with any third party regarding any alternative acquisition proposal or enter into any agreement or arrangement regarding an alternative acquisition proposal;

 

    furnish non-public information to a third party if such information would reasonably be expected to be used for purposes of formulating an alternative acquisition proposal; or

 

    submit an alternative acquisition proposal to a vote of the CH2M stockholders.

 



 

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However, prior to the approval of the CH2M Merger Proposal, the foregoing restrictions are subject to a customary “fiduciary-out” provision that allows CH2M to provide information to and participate in negotiations or discussions with third parties with respect to an unsolicited alternative acquisition proposal if (i) CH2M determines in good faith, after consultation with its outside legal counsel and financial advisors, that such alternative acquisition proposal constitutes or is reasonably expected to be superior to the Merger and (ii) CH2M determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to be inconsistent with the fiduciary duties owed by the board of directors of CH2M to the CH2M stockholders under applicable law.

In addition, prior to the approval of the CH2M Merger Proposal, the board of directors of CH2M may change its recommendation to the CH2M stockholders regarding approval of the Merger Agreement or undertake actions demonstrating similar opposition to the Merger:

 

    in response to an unsolicited alternative acquisition proposal if the CH2M board of directors (i) has negotiated in good faith with Jacobs for a four (4) business day period to improve the terms and conditions of the Merger Agreement and (ii) has determined in good faith, after consultation with CH2M’s outside legal counsel and financial advisors, that the alternative acquisition proposal is superior to the Merger (taking into account the results of such negotiations with Jacobs) and the failure to make such change in recommendation would reasonably be expected to be inconsistent with the fiduciary duties owed by the board of directors of CH2M to the CH2M stockholders under applicable law; or

 

    in light of the occurrence of certain intervening events if the CH2M board of directors (i) has negotiated in good faith with Jacobs for a five (5) business day period to improve the terms and conditions of the Merger Agreement and (ii) has determined in good faith, after consultation with CH2M’s outside legal counsel and financial advisors, that the failure to make such change in recommendation would reasonably be expected to be inconsistent with the fiduciary duties owed by the board of directors of CH2M to the CH2M stockholders under applicable law.

Termination of the Merger Agreement

The Merger Agreement may be terminated by mutual written consent of Jacobs and CH2M at any time prior to the Effective Time. In addition, subject to other terms of the Merger Agreement, the Merger Agreement may be terminated by either Jacobs or CH2M if:

 

    a specified governmental entity has issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger, which order or other action has become final and nonappealable;

 

    any law is in effect which makes the Merger illegal or prohibits or otherwise prevents the consummation of the Merger;

 

    the Effective Time has not occurred on or before May 1, 2018 (such date, the “Outside Date”), which Outside Date may be extended to August 1, 2018 in certain circumstances; or

 

    approval of the CH2M Merger Proposal is not obtained at the CH2M Special Meeting or at any adjournment or postponement thereof.

Subject to other the terms of the Merger Agreement, the Merger Agreement may be terminated by CH2M if:

 

    prior to the receipt of approval of the CH2M Merger Proposal, (i) the CH2M board of directors has effected a change of recommendation in response to a superior alternative acquisition proposal; (ii) CH2M enters into a definitive agreement with respect to such alternative acquisition proposal; and (iii) CH2M pays to Jacobs the Breakup Fee (as defined below); or

 



 

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    (i) Jacobs or Merger Sub has breached any of its representations, warranties or covenants such that certain conditions to the Merger cannot be satisfied; (ii) CH2M has delivered written notice to Jacobs of such breach; and (iii) such breach is not capable of cure or, if curable, has not been cured in all material respects prior to the earlier of the Outside Date and twenty (20) days after the written notice of such breach.

Subject to the other terms of the Merger Agreement, the Merger Agreement may be terminated by Jacobs if:

 

    at any time prior to the Effective Time, (i) the board of directors of CH2M effects a change of board recommendation with respect to the Merger Agreement; (ii) CH2M enters into a definitive agreement with respect to an alternative acquisition proposal; (iii) the board of directors of CH2M publicly recommends any alternative acquisition proposal; (iv) an alternative acquisition proposal has been publicly disclosed and the board of directors of CH2M fails to publicly reaffirm its recommendation of the Merger within a certain number of business days after such disclosure; (v) a tender offer or exchange offer for the equity securities of CH2M is commenced by a bona fide third party and the CH2M board of directors fails to recommend against acceptance within ten (10) business days after such commencement; or (vi) the board of directors of CH2M formally resolves to take or announces its intention to take any of the foregoing actions (each, a “Triggering Event”); or

 

    (i) CH2M has breached any of its representations, warranties or covenants such that certain conditions to the Merger cannot be satisfied; (ii) Jacobs has delivered written notice to CH2M of such breach; and (iii) such breach is not capable of cure or, if curable, has not been cured in all material respects prior to the earlier of the Outside Date and twenty (20) days after the written notice of such breach.

Transaction Expenses; Termination Fee and Expense Fee

CH2M must pay Jacobs a termination fee of $85,444,783.80 less any Expense Fee (as defined below) previously paid (the “Breakup Fee”) if:

 

    CH2M terminates the Merger Agreement to enter into a definitive agreement with respect to a superior alternative acquisition proposal in accordance with the terms of the Merger Agreement;

 

    Jacobs terminates the Merger Agreement in connection with a Triggering Event; or

 

    the Merger Agreement is terminated because (i) the Merger has not been consummated before the Outside Date, (ii) CH2M has breached any of its representations, warranties or covenants such that certain conditions to the Merger cannot be satisfied or (iii) approval of the CH2M Merger Proposal shall not have been obtained at the CH2M Special Meeting or at any adjournment or postponement thereof and, in each case, an alternative acquisition proposal has been publicly announced or become publicly known and is not withdrawn prior to such termination, and at any time within twelve (12) months of such termination, CH2M enters into a definitive written agreement in respect of, or consummates, any alternative acquisition proposal.

Each party will generally pay its own fees and expenses in connection with the Merger, whether or not the Merger is completed. However, CH2M must reimburse Jacobs for its reasonable and documented out-of-pocket expenses in connection with the Merger Agreement (including its negotiation) and the transactions contemplated by the Merger Agreement, in an amount not to exceed $15.0 million (the “Expense Fee”) if approval of the CH2M Merger Proposal shall not have been obtained at the CH2M Special Meeting or at any adjournment or postponement thereof.

 



 

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Key Terms of the Voting Agreement (Page 228)

On August 1, 2017, in connection with the execution of the Merger Agreement, Apollo entered into a voting and support agreement with Jacobs (the “Voting Agreement”), pursuant to which Apollo, who owns 100% of the issued and outstanding CH2M Preferred Stock, which is convertible into approximately 17.94% of the issued and outstanding shares of CH2M Common Stock as of the Record Date, has agreed to, among other things, vote in favor of the CH2M Merger Proposal and against any competing proposals. The Voting Agreement will terminate upon the earlier of (i) the conclusion of the CH2M Special Meeting and (ii) the termination of the Merger Agreement in accordance with its terms.

Executive Officers and Board of Directors of Jacobs after the Merger (Page 190)

Jacobs’ board of directors currently consists of ten (10) directors. Prior to the closing of the Merger, Jacobs will take all actions necessary such that, effective as of the Effective Time, the number of directors constituting the board of directors of Jacobs will be increased by one and such vacancy is filled by one director from the board of directors of CH2M who qualifies as an “independent director” under applicable NYSE rules. The current executive officers of Jacobs are currently expected to remain unchanged after the Merger.

Financing of the Merger (Page 199)

On August 1, 2017, in connection with the execution of the Merger Agreement, Jacobs entered into a commitment letter (the “Jacobs Term Loan Commitment Letter”) with BNP Paribas, BNP Paribas Securities Corp. and The Bank of Nova Scotia (the “Commitment Parties”), pursuant to which the Commitment Parties committed to provide a three-year senior unsecured delayed-draw term loan facility in an aggregate principal amount of $1.2 billion. On September 28, 2017, Jacobs increased the size of the term loan facility to $1.5 billion (the “Jacobs Term Loan Facility”) and entered into a three-year senior unsecured delayed-draw term loan credit agreement (the “Jacobs Term Loan Credit Agreement”) with certain lenders party thereto and BNP Paribas, as administrative agent. The proceeds of the Jacobs Term Loan Facility will be used to finance a portion of the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses.

In addition, Jacobs had solicited certain consents from the lenders party to its existing revolving credit agreement (the “Jacobs Existing Revolving Credit Agreement”) in connection with the Merger (the “Revolver Consents”). If the Revolver Consents were not obtained, the Commitment Parties had committed to provide a senior unsecured revolving credit facility in an aggregate principal amount of $1.6 billion (the “Jacobs Backstop Revolver Facility”) pursuant to a commitment letter dated August 1, 2017 (the “Jacobs Backstop Revolver Commitment Letter”), and Jacobs would have financed a portion of the cash consideration in the Merger with borrowings under the Jacobs Backstop Revolver Facility.

However, the consents were obtained and Jacobs will finance a portion of the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses with borrowings under the Jacobs Existing Revolving Credit Agreement (the debt financing for the Merger, the “Debt Financing”). In connection with the Merger, it is currently expected that substantially all of CH2M’s outstanding indebtedness will be repaid or satisfied and discharged at the Effective Time. Jacobs currently estimates that the aggregate principal amount of indebtedness to be incurred in connection with the Merger will be approximately $1.9 billion.

 



 

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Regulatory Approvals Required for the Merger (Page 191)

Subject to the terms of the Merger Agreement, Jacobs and CH2M have agreed to cooperate with each other and use their reasonable best efforts to obtain all regulatory approvals required to complete the Merger; provided that Jacobs is not required to, and CH2M is not permitted to, divest any assets if such divestiture would reasonably be expected to have a material adverse effect on the business, assets, results of operations or financial condition of Jacobs and its subsidiaries (as measured on a scale relative to CH2M and its subsidiaries taken as a whole), on the one hand, or CH2M and its subsidiaries, on the other hand. These approvals include the expiration or termination of the waiting period pursuant to the HSR Act. On August 15, 2017, Jacobs and CH2M filed the required notifications with the Antitrust Division of the U.S. Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”). Jacobs voluntarily withdrew its HSR Act notification effective Thursday, September 14, 2017 to provide the Antitrust Division and the FTC an extension beyond the initial 30-day HSR Act waiting period to conduct their review, and re-filed it on Monday, September 18, 2017. On October 18, 2017, Jacobs and CH2M received early termination of the HSR Act waiting period.

On September 5, 2017, Jacobs submitted a request for an advance ruling certificate under the Canadian Competition Act (“Competition Act”). On September 25, 2017, the parties satisfied the requirements under the Competition Act and the Competition Bureau issued a no action letter. Jacobs and CH2M, on September 20, 2017, submitted a formal pre-merger notification to the European Commission. The European Commission’s 25-working-day Phase I review ended on October 25, 2017.

While Jacobs and CH2M expect to obtain all remaining required regulatory clearances, we cannot assure you that these clearances will be obtained or that the granting of these regulatory clearances will not involve the imposition of additional conditions on the completion of the Merger, including the requirement to divest assets, or require changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the Merger not being satisfied.

CH2M Stockholder Appraisal Rights (Page 192)

Pursuant to Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”), holders of CH2M Common Stock or CH2M Preferred Stock who do not vote in favor of adoption of the Merger Agreement and who comply fully with and properly demand appraisal under the applicable requirements of Section 262 of the DGCL and do not otherwise withdraw or lose the right to appraisal under Delaware law, have the right to seek appraisal of the fair value of their shares of CH2M Common Stock or CH2M Preferred Stock, as determined by the Delaware Court of Chancery, if the Merger is completed. The “fair value” of shares of CH2M Common Stock or CH2M Preferred Stock as determined by the Delaware Court of Chancery may be more than, less than, or equal to the value of the Merger Consideration that CH2M Stockholders would otherwise be entitled to receive under the terms of the Merger Agreement. CH2M stockholders also should be aware that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address, “fair value” under Section 262 of the DGCL. Holders of CH2M Common Stock or CH2M Preferred Stock who wish to preserve any appraisal rights they may have, must so advise CH2M by submitting a written demand for appraisal prior to the vote to adopt the Merger Agreement, and must otherwise follow fully the procedures prescribed by Section 262 of the DGCL.

NYSE Listing of Jacobs Common Stock (Page 199)

Jacobs is required under the terms of the Merger Agreement to apply to list the shares of Jacobs Common Stock to be issued in the Merger on the NYSE prior to the Effective Time.

 



 

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Deregistration of CH2M Common Stock (Page 199)

Following the closing of the Merger, the CH2M Common Stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Material U.S. Federal Income Tax Consequences of the Merger (Page 196)

The receipt of the Merger Consideration in exchange for shares of CH2M Common Stock pursuant to the Merger is intended (and should be assumed) to be a taxable transaction for U.S. federal income tax purposes. For U.S. federal income tax purposes, a U.S. holder (as defined below in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 196), will generally recognize gain or loss equal to the difference, if any, between (i) the sum of any cash and the fair market value (as of the Effective Time) of any Jacobs Common Stock received pursuant to the Merger and (ii) the U.S. holder’s adjusted tax basis in the CH2M Common Stock surrendered in exchange therefor.

Tax matters can be complicated, and the tax consequences of the Merger to a particular holder of CH2M Common Stock will depend on such holder’s particular facts and circumstances. Holders of CH2M Common Stock should consult their own tax advisors to determine the specific consequences to them of exchanging their shares of CH2M Common Stock for cash and/or shares of Jacobs Common Stock pursuant to the Merger.

Accounting Treatment of the Merger (Page 196)

Each of Jacobs and CH2M prepares its financial statements in accordance with United States generally accepted accounting principles (“GAAP”). The Merger will be accounted for using the acquisition method of accounting with Jacobs treated as the acquiror of CH2M for accounting purposes. This means that Jacobs will allocate the purchase price to the fair value of CH2M’s tangible and intangible assets and liabilities and non-controlling interests at the acquisition date, and the excess purchase price, if any, will be recorded as goodwill. Under the acquisition method of accounting, intangible assets are amortized over their remaining useful lives and tested for impairment at least annually.

Risk Factors (Page 26)

You should consider all the information contained in or incorporated by reference into this Proxy Statement/Prospectus in deciding how to vote on the proposals presented in this Proxy Statement/Prospectus. In particular, you should consider the factors described under “Risk Factors” beginning on page 26.

 



 

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RISK FACTORS

In addition to general investment risks and the other information contained or incorporated by reference in this Proxy Statement/Prospectus, you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this Proxy Statement/Prospectus. For further information regarding the documents incorporated into this Proxy Statement/Prospectus by reference, please see the section titled “Where You Can Find More Information” beginning on page 247. Realization of any of the risks described below, any of the uncertainties described under “Cautionary Note Regarding Forward-Looking Statements” beginning on page 87 or any of the risks or uncertainties described in the documents incorporated by reference in this Proxy Statement/Prospectus could have a material adverse effect on Jacobs’, CH2M’s or the combined company’s businesses, financial condition, cash flows and results of operations. In addition, you should read and carefully consider the risks associated with Jacobs and its businesses. These risks can be found in Jacobs’ Annual Report on Form 10-K for the year ended September 30, 2016 and in Jacobs’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, each of which is filed with the SEC and incorporated by reference into this Proxy Statement/Prospectus. The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control, including the risks currently applicable to Jacobs’ and CH2M’s businesses as set forth below and incorporated by reference herein .

Risks Relating to the Merger

The number of shares of Jacobs Common Stock that CH2M stockholders will receive in the Mixed Election Consideration or the Stock Election Consideration is fixed and will not be adjusted for changes in the market price of Jacobs Common Stock. Because the market price of Jacobs Common Stock will fluctuate between the date of the Merger Agreement and the closing of the Merger, CH2M stockholders cannot be sure of the value of the Merger Consideration they will receive.

At the Effective Time, each share of CH2M Common Stock outstanding immediately prior to the Effective Time (other than shares of CH2M Common Stock owned by (i) Jacobs, CH2M or any of their wholly-owned subsidiaries, which shares will be cancelled and will cease to exist or (ii) any person who is entitled to and properly demands statutory appraisal of his, her or its shares of CH2M Common Stock under Delaware law) will be converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in the Merger Agreement, in each case without interest, the Mixed Election Consideration, the Cash Election Consideration or the Stock Election Consideration.

The number of shares of Jacobs Common Stock included in the Mixed Election Consideration is fixed at 0.6677 shares of Jacobs Common Stock and the number of shares of Jacobs Common Stock included in the Stock Election Consideration is fixed at 1.6693 shares of Jacobs Common Stock. Neither the Mixed Election Consideration nor the Stock Election Consideration will change to reflect changes in the market prices of Jacobs Common Stock between the date of the Merger Agreement and the closing of the Merger.

In addition, the Merger Consideration is subject to proration and allocation procedures to ensure that the aggregate number of shares of Jacobs Common Stock to be issued by Jacobs in the Merger and the aggregate amount of cash to be paid in the Merger will be the same as if all electing CH2M stockholders received the Mixed Election Consideration. Accordingly, a CH2M stockholder that elects the Cash Election Consideration may receive a fixed number of Jacobs Common Stock as a result of such proration mechanics. Similarly, a CH2M stockholder that elects the Stock Election Consideration may receive cash as a result of the proration mechanics.

The Merger might not be completed until a significant period of time has passed after a CH2M stockholder has made a Merger Consideration election. The market price of Jacobs Common Stock at the Effective Time may vary significantly from the market price of Jacobs Common Stock on the date the Merger Agreement was executed, the date of this Proxy Statement/Prospectus, the date of the CH2M Special Meeting and the date of the

 

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Effective Time. Accordingly, CH2M stockholders will not know or be able to calculate at the time of the CH2M Special Meeting the market value of the Merger Consideration they will receive upon completion of the Merger and will not know how the proration will affect the Merger Consideration they elected prior to the CH2M Special Meeting. Further, the market value of the Jacobs Common Stock received in the Merger may fluctuate after the closing of the Merger.

Stock price changes may result from, among other things, changes in the business, operations or prospects of Jacobs prior to or following the Merger, litigation or regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of Jacobs. For additional information on risks related to Jacobs Common Stock, see “Risks Relating to Jacobs” beginning on page 34. Neither Jacobs nor CH2M is permitted to terminate the Merger Agreement solely because of changes in the market price of Jacobs Common Stock.

Holders may not receive the form of Merger Consideration that they elect.

The Merger Consideration is subject to proration and allocation procedures to ensure that the aggregate number of shares of Jacobs Common Stock to be issued by Jacobs in the Merger and the aggregate amount of cash to be paid in the Merger will be the same as if all electing CH2M stockholders received the Mixed Election Consideration. Accordingly, there is no assurance that CH2M stockholders will receive the form of consideration that they elect with respect to all CH2M Common Stock and CH2M Preferred Stock they hold. For more information on the proration procedures, see “The Merger—Proration Procedures” beginning on page 208. No fractional shares of Jacobs Common Stock will be issued in the Merger, and CH2M stockholders will receive cash in lieu of any fractional shares of Jacobs Common Stock.

If Jacobs’ financing for the Merger becomes unavailable, the Merger may not be completed.

Jacobs intends to finance the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses with a combination of cash on hand and debt financing, which includes the Jacobs Term Loan Facility in an aggregate principal amount of $1.5 billion and additional borrowings under the Jacobs Existing Revolving Credit Agreement. Jacobs currently estimates that the aggregate principal amount of indebtedness to be incurred in connection with the Merger will be approximately $1.9 billion. There are a number of conditions in the Jacobs Term Loan Credit Agreement and the Jacobs Existing Revolving Credit Agreement that must be satisfied or waived in order for closing of the debt financing to occur. There is a risk that these conditions will not be satisfied. In the event that the financing contemplated by the Jacobs Term Loan Credit Agreement and the Jacobs Existing Revolving Credit Agreement is not available, Jacobs may obtain alternative financing to finance the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses. Such alternative financing may not be available on acceptable terms, in a timely manner or at all. While obtaining financing is not a condition to Jacobs’ obligation to effect the Merger, if other financing becomes necessary and Jacobs is unable to secure such other financing, the Merger may not be completed.

The Merger is subject to certain conditions, including conditions that may not be satisfied or completed on a timely basis, if at all.

Consummation of the Merger is subject to certain closing conditions which make the closing and timing of the Merger uncertain. The conditions include, among others, obtaining approval of the CH2M Merger Proposal, obtaining of various clearances and approvals from certain regulatory and governmental authorities as described in “The Merger—Regulatory Approvals Required for the Merger” beginning on page 191, the effectiveness of the registration statement to which this Proxy Statement/Prospectus relates, the authorization and approval for listing on the NYSE of the shares of Jacobs Common Stock to be issued in the Merger subject to official notice of issuance and the other conditions set forth in the Merger Agreement. See “The Merger Agreement—Conditions to the Merger” beginning on page 224.

 

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Although Jacobs and CH2M have agreed in the Merger Agreement to use their reasonable best efforts to obtain the requisite approvals and consents, there can be no assurance that these approvals and consents will be obtained. Even if obtained, these approvals and consents may be obtained later than anticipated. In addition, Jacobs’ and CH2M’s obligations to obtain the requisite consents and approvals from regulatory authorities are subject to certain limitations, including that Jacobs is not required to, and CH2M is not permitted to, divest any assets if such divestiture would reasonably be expected to have a material adverse effect on the business, assets, results of operations or financial condition of Jacobs and its subsidiaries (as measured on a scale relative to CH2M and its subsidiaries taken as a whole), on the one hand, or CH2M and its subsidiaries, on the other hand.

Jacobs and CH2M will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on Jacobs’ and/or CH2M’s employees and business relationships may have an adverse effect on Jacobs and/or CH2M and, consequently, on the combined company following the closing of the Merger. Employees may decide not to remain with Jacobs or CH2M, as applicable, while the Merger is pending. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, Jacobs’ and/or CH2M’s business activities may be adversely affected and management’s attention may be diverted from successfully managing the respective businesses to hiring suitable replacements, any of which factors may cause business to deteriorate. In addition, Jacobs and/or CH2M may not be able to motivate certain key employees during the pendency of the Merger due to a perceived lack of appropriate opportunities for advancement or other reasons.

In addition, uncertainties during the pendency of the Merger may cause third parties who deal with Jacobs and/or CH2M to seek to change existing business relationships with Jacobs and/or CH2M, which may adversely affect Jacobs and/or CH2M. Moreover, customers’ uncertainty about the effect of the Merger, including the perception of potential conflicts of interest with respect to projects where CH2M assumes, or will assume, a project role and Jacobs assumes, or will assume, a delivery role, and vice versa, may have an adverse effect on the ability of Jacobs and/or CH2M to attract or retain customers or to win customer contracts.

Further, the Merger Agreement contains customary interim covenants, including the obligation of CH2M to (i) carry on its business in the ordinary course during the period between the execution of the Merger Agreement and the consummation of the Merger and (ii) comply with certain other operating covenants, as set forth more fully in the Merger Agreement. These restrictions may prevent CH2M from pursuing otherwise attractive business opportunities that may arise prior to the closing of the Merger or termination of the Merger Agreement, and from making other changes during that interim period to the businesses of CH2M.

Some of CH2M’s directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of CH2M stockholders.

In considering whether to approve the proposals at the CH2M Special Meeting, CH2M stockholders should recognize that some directors and executive officers of CH2M may have interests in the Merger that differ from, or that are in addition to, their interests as stockholders of CH2M. These interests include, among others, their designation as directors or executive officers of the combined company and the accelerated vesting of certain equity awards and/or certain severance benefits in connection with the Merger. These interests, among others, may influence the directors and executive officers of CH2M to support or approve the CH2M Merger Proposal or other proposals to be approved at the CH2M Special Meeting. See the sections entitled “The Merger—Interests of CH2M’s Directors and Officers in the Merger” beginning on page 183.

 

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The Merger Agreement contains provisions that may discourage other companies from trying to acquire CH2M, that restrict CH2M’s ability to pursue alternative acquisition transactions and that could require CH2M to pay Jacobs a termination fee.

The Merger Agreement contains customary “no-shop” restrictions that, subject to limited exceptions, restrict CH2M’s ability to solicit, knowingly encourage, discuss or negotiate an alternative acquisition proposal. In addition, the board of directors of CH2M has limitations on its ability to change its recommendation that CH2M stockholders vote “FOR” the CH2M Merger Proposal or undertake actions demonstrating similar opposition to the Merger.

CH2M may also be required to (i) reimburse Jacobs for its reasonable and documented out-of-pocket expenses in connection with the Merger Agreement (including its negotiation) and the transactions contemplated by the Merger Agreement, in an amount not to exceed $15.0 million if approval of the CH2M Merger Proposal is not obtained and/or (ii) pay Jacobs a fee of $85,444,783.80 (less any amount paid pursuant to clause (i)) in certain circumstances.

In addition, Apollo, who owns 100% of the issued and outstanding CH2M Preferred Stock, which is convertible into approximately 17.94% of the issued and outstanding shares of CH2M Common Stock as of the Record Date, has agreed to, among other things, vote all of its shares of CH2M Preferred Stock in favor of the adoption of the Merger Agreement and against any competing transaction. Apollo also agreed not to solicit or engage in negotiations with respect to any alternative acquisition proposal.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring CH2M from considering or proposing an acquisition, even if it were prepared to pay consideration with a higher per share cash or value than the market value proposed to be received or realized in the Merger. Similarly, these provisions might result in a potential third-party acquirer proposing to pay a lower price to CH2M stockholders than it might otherwise have proposed to pay because of the added expenses described above. If the Merger Agreement is terminated and CH2M determines to seek another business combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

For further information, see “The Merger Agreement—No-Shop; Acquisition Proposals; Change in Recommendation” beginning on page 215.

Failure to complete the Merger could negatively impact the stock prices and future businesses and financial results of Jacobs and/or CH2M.

Completion of the Merger is subject to certain closing conditions which make the closing and timing of the Merger uncertain. The conditions include, among others, obtaining approval of the CH2M Merger Proposal, obtaining various clearances and approvals from certain regulatory and governmental authorities as described in “The Merger—Regulatory Approvals Required for the Merger” beginning on page 191, the effectiveness of the registration statement to which this Proxy Statement/Prospectus relates, the authorization and approval for listing on the NYSE of the shares of Jacobs Common Stock to be issued in the Merger subject to official notice of issuance and the other conditions set forth in the Merger Agreement. See “The Merger Agreement—Conditions to the Merger” beginning on page 224.

There can be no assurance that these conditions to the completion of the Merger will be satisfied in a timely manner or at all. In addition, other factors, such as Jacobs’ ability to obtain the debt financing it needs to consummate the transaction, may affect when and whether the Merger will occur. If the Merger is not completed, the ongoing businesses of Jacobs and/or CH2M may be adversely affected and Jacobs and/or CH2M may be subject to several risks and consequences, including the following:

 

    CH2M may be required, under certain circumstances, to pay Jacobs the Breakup Fee and/or the Expense Fee;

 

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    Jacobs and CH2M will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, financial advisory and printing fees;

 

    Jacobs and CH2M would not realize the expected benefits of the Merger;

 

    the only available source of liquidity for CH2M stockholders, if at all, would be sales through CH2M’s internal market;

 

    matters relating to the Merger may require substantial commitments of time and resources by Jacobs and/or CH2M management, which could otherwise have been devoted to other opportunities;

 

    legal proceedings related to the Merger;

 

    negative publicity and a negative impression of Jacobs and/or CH2M in the investment community; and

 

    disruption to Jacobs’ and/or CH2M’s business resulting from the announcement and pendency of the Merger, including any adverse changes in their respective relationships with their customers, suppliers and/or employees that may continue or intensify.

In addition, if the Merger is not completed or delayed, Jacobs and/or CH2M may experience negative reactions from their respective stockholders, customers, vendors, regulators and employees and their respective business, financial condition and results of operations may be materially adversely affected and the market price of Jacobs Common Stock may decline significantly, particularly to the extent that the market price reflects a market assumption that the Merger will be consummated or will be consummated on a particular timeframe.

The shares of Jacobs Common Stock to be received by CH2M stockholders as a result of the Merger will have different rights than the shares of CH2M Common Stock.

Upon completion of the Merger, CH2M stockholders will become Jacobs stockholders, unless such CH2M stockholders elect to receive and actually receive only the Cash Election Consideration, and their rights will be governed by the Amended and Restated Certificate of Incorporation of Jacobs, amended on January 27, 2014 (the “Jacobs Charter”) and the Amended and Restated Bylaws of Jacobs, amended on January 19, 2017 (the “Jacobs Bylaws”). The rights associated with Jacobs Common Stock are different from the rights associated with CH2M Common Stock and CH2M Preferred Stock. See “Comparison of Stockholders Rights” beginning on page 234 for a discussion of the different rights associated with Jacobs Common Stock and CH2M Common Stock and CH2M Preferred Stock.

The Merger may adversely affect the outcome of pending and future claims and litigation.

The Merger may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of possible litigation or other claims, and may have an adverse effect on any pending claims against Jacobs or CH2M. Litigation and claims are subject to inherent uncertainties and unfavorable rulings can and do occur. The nature of Jacobs’ and CH2M’s business sometimes results in clients, subcontractors, and vendors presenting claims for, among other things, recovery of costs related to certain projects. These claims can be the subject of lengthy and costly negotiations, arbitration or litigation proceedings. In addition, Jacobs and CH2M could be subject to claims or litigation related to the Merger, whether or not the Merger is consummated. Such actions may create additional uncertainty relating to the Merger, and responding to such claims and defending such actions may be costly and distracting to management.

The Merger may divert the attention of Jacobs’ and CH2M’s respective employees and management.

The Merger may divert the attention of Jacob’s and CH2M’s respective employees and management due to activities related to the transactions contemplated by the Merger Agreement. As a result, Jacobs and/or CH2M may neglect their ongoing businesses and may not pursue otherwise attractive business opportunities.

 

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The current ownership and voting interests of CH2M stockholders and Jacobs stockholders will be diluted by the merger.

Jacobs stockholders will have a reduced ownership and voting interest in Jacobs after the Merger and will exercise less influence over Jacobs management. Upon the completion of the Merger, except for stockholders who own stock in both Jacobs and CH2M, each Jacobs stockholder will have a percentage ownership of Jacobs that is smaller than such stockholder’s current percentage ownership of Jacobs. Additionally, each CH2M stockholder who elects the Mixed Election Consideration or the Stock Election Consideration and receives shares of Jacobs Common Stock will become a Jacobs stockholder with a percentage ownership of Jacobs that is smaller than the stockholder’s percentage ownership of CH2M. Because of this, Jacobs stockholders and CH2M stockholders will generally have less influence on the management and policies of the combined company than they now have on the management and policies of Jacobs and CH2M, respectively. If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, Jacobs and CH2M stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the strategic and financial benefits currently anticipated from the Merger.

The Merger and related transactions are subject to approval by CH2M stockholders.

In order for the Merger to be completed, the CH2M Merger Proposal must be approved. The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and the shares of CH2M Preferred Stock entitled to vote on such matter, voting together as a single class on an as-converted basis, vote to adopt the Merger Agreement. There is no assurance that approval of the CH2M Merger Proposal will be obtained.

Risks Relating to the Combined Company’s Business upon Completion of the Merger

The combined company will incur significant integration costs and may not realize all of the anticipated benefits of the transactions contemplated by the Merger Agreement or such benefits may take longer to realize than expected.

The success of the Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits from combining the businesses of Jacobs and CH2M as further described in the section titled “The Merger—Jacobs’ Reasons for the Merger” beginning on page 156 and “The Merger—CH2M’s Reasons for the Merger; Recommendation of the CH2M Board of Directors” beginning on page 158. The combined company’s ability to realize the anticipated benefits of the Merger will depend, to a large extent, on the ability of Jacobs to integrate the businesses of CH2M with Jacobs. The combination of two independent companies is a complex, costly and time-consuming process. As a result, the combined company will be required to devote significant management attention and resources to integrating the business practices and operations of Jacobs and CH2M. The integration process may disrupt the business of either or both of the companies and, if implemented ineffectively, could preclude or delay the realization of the full benefits expected by Jacobs and CH2M. The failure of the combined company to meet the challenges involved in integrating successfully the operations of Jacobs and CH2M or otherwise to realize the anticipated benefits of the proposed transactions could cause an interruption of, or a loss of momentum in, the activities of the combined company and could seriously harm its results of operations. In addition, the overall integration of the two companies may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of client relationships and diversion of management’s attention, and may cause the combined company’s stock price to decline. The difficulties of combining the operations of the companies include, among others:

 

    difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination;

 

    delays, unexpected costs or difficulties in completing the integration of CH2M or its assets;

 

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    unanticipated issues in integrating, logistics, information, communications and other systems;

 

    unanticipated changes in applicable laws and regulations;

 

    difficulties assimilating the operations and personnel of CH2M into Jacobs’ operations;

 

    unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;

 

    diversion of the attention and resources of management or other disruptions to current operations;

 

    challenges in attracting and retaining key personnel;

 

    retaining key customers and suppliers;

 

    challenges in obtaining new customers and winning customer contracts;

 

    retaining and obtaining required regulatory approvals, licenses and permits;

 

    organizational conflicts of interest;

 

    difficulties in managing the expanded operations of a significantly larger and more complex company; and

 

    potential unknown liabilities and unforeseen increased expenses or delays associated with the Merger.

Many of these factors will be outside of the combined company’s control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact the combined company’s business, financial condition and results of operations.

In addition, even if the operations of Jacobs and CH2M are integrated successfully, the combined company may not realize the full benefits of the proposed transactions, including the synergies, cost savings or growth opportunities that the combined company expects. These benefits may not be achieved within the anticipated time frame, or at all. As a result, Jacobs and CH2M cannot assure you that the combination of CH2M with Jacobs will result in the realization of the full benefits anticipated from the transactions contemplated by the Merger Agreement.

Jacobs expects to incur substantial indebtedness to finance the Merger, which may decrease Jacobs’ business flexibility and adversely affect Jacobs’ financial results.

In addition to using cash on hand at Jacobs and CH2M, Jacobs intends to finance the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses with debt financing, which includes the Jacobs Term Loan Facility in an aggregate principal amount of $1.5 billion and additional borrowings under the Jacobs Existing Revolving Credit Agreement. Jacobs currently estimates that the aggregate principal amount of indebtedness to be incurred in connection with the Merger will be approximately $1.9 billion. The financial and other covenants to which Jacobs has agreed to, or may agree to in connection with the incurrence of new indebtedness, and the combined company’s increased indebtedness may have the effect, among other things, of reducing the combined company’s flexibility to respond to changing business and economic conditions, thereby placing the combined company at a competitive disadvantage compared to competitors that have less indebtedness and making the combined company more vulnerable to general adverse economic and industry conditions. The combined company’s increased indebtedness will also increase borrowing costs, and the covenants pertaining thereto may also limit the combined company’s ability to obtain additional financing to fund working capital, capital expenditures, acquisitions or general corporate requirements. The combined company will also be required to dedicate a larger portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow for other purposes, including working capital, capital expenditures and general corporate purposes. In addition, the terms and

 

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conditions of such debt may not be favorable to the combined company and, as such, could further increase the costs of the Merger, as well as the overall burden of such debt upon the combined company and the combined company’s business flexibility. Further, the combined company will be exposed to the risk of increased interest rates as a result of (i) higher leverage at or after the closing of the Merger and (ii) unless the combined company enters into offsetting hedging transactions, interest rates that vary based on LIBOR or a bank’s prime rate.

The combined company’s ability to make payments on and to refinance its debt obligations and to fund planned capital expenditures will depend on its ability to generate cash from the combined company’s operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the combined company’s control.

The combined company may not be able to refinance any of its indebtedness on commercially reasonable terms, or at all. If the combined company cannot service its indebtedness, the combined company may have to take actions such as selling assets, selling additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments or alliances, any of which could impede the implementation of the combined company’s business strategy or prevent the combined company from entering into transactions that would otherwise benefit its business. Additionally, the combined company may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.

Any of the foregoing consequences could adversely affect the combined company’s financial results.

If the combined company is unable to manage its growth, its business and financial results could suffer.

The combined company’s future financial results will depend in part on its ability to manage its core businesses, including any growth that the combined company may be able to achieve. Over the past several years, each of Jacobs and CH2M has engaged in the identification of, and competition for, growth and expansion opportunities. In order to achieve those initiatives, the combined company will need to, among other things, recruit, train, retain and effectively manage employees and expand its operations and financial control systems. If the combined company is unable to manage its businesses effectively and profitably, its business and financial results could suffer.

To be successful, the combined company must retain and motivate key employees, including those experienced with post-acquisition integration, and failure to do so could seriously harm the combined company.

The success of the combined company, like each of Jacobs and CH2M, largely depends on the skills, experience and continued efforts of management and other key personnel. As a result, to be successful, the combined company must retain and motivate executives and other key employees. If key Jacobs or CH2M personnel were to leave, the combined company may experience increased difficulty in the post-Merger integration process and may not be able to adequately replace such personnel, which could have a material adverse effect on the combined company’s overall business, results of operations and financial condition.

Employees of Jacobs and CH2M may experience uncertainty about their future roles with the combined company until integration strategies for the combined company are announced or executed. These circumstances may adversely affect the combined company’s ability to retain key personnel. The combined company also must continue to motivate employees and maintain their focus on the strategies and goals of the combined company. Doing so may be difficult due to the uncertainties and challenges associated with post-Merger integration. If the combined company is unable to retain executives and other key employees, the roles and responsibilities of such executives and employees will need to be filled either by existing or new executives and employees, which may require the combined company to devote time and resources to identifying, hiring and integrating replacements for the departed executives and employees that could otherwise be used to integrate the businesses of Jacobs and CH2M or otherwise pursue business opportunities. There can be no assurance that the combined company will be able to retain and motivate its employees in the same manner as Jacobs and CH2M have historically.

 

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The market price of the common stock of the combined company may be affected by factors different from those affecting the market price for shares of Jacobs Common Stock.

Upon completion of the Merger, CH2M stockholders will become Jacobs stockholders, unless such CH2M stockholders elect to receive and actually receive solely the Cash Election Consideration. Jacobs’ business differs from that of CH2M, and the business of the combined company will differ from that of Jacobs. Accordingly, the results of operations for the combined company will be affected by factors different from those currently affecting the results of operations of CH2M and may be affected by factors different from those currently affecting the results of operations of Jacobs. For a discussion of the businesses of Jacobs and of certain factors to consider in connection with those businesses, see “Information about Jacobs and Merger Sub” beginning on page 98 and the documents incorporated by reference in this Proxy Statement/Prospectus and referred to in the section entitled “Where You Can Find More Information” beginning on page 247. For a discussion of the businesses of CH2M and of certain factors to consider in connection with those businesses, see “Information about CH2M” beginning on page 99. See also “Comparative Per Share Market Prices and Dividends” beginning on page 80 for additional information on the market value of shares of Jacobs Common Stock and CH2M Common Stock.

The unaudited pro forma financial statements included in this Proxy Statement/Prospectus are not necessarily an indication of the combined company’s financial condition or results of operations following the closing of the Merger.

The pro forma financial information included in this Proxy Statement/Prospectus is derived from the historical audited and unaudited consolidated financial statements of Jacobs and CH2M, respectively. The preparation of this pro forma information is based upon available information and certain assumptions and estimates that Jacobs and CH2M believe are reasonable as of the date of this Proxy Statement/Prospectus. However, this pro forma information may be materially different from what the combined company’s actual results of operations and financial condition would have been had the Merger occurred during the periods presented or what the combined company’s results of operations and financial position will be after the consummation of the Merger. In particular, the assumptions used in preparing the pro forma financial information may not be correct, and other factors that are not reflected in the pro forma financial information may affect the combined company’s financial condition and results of operations following the closing of the Merger. See “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 58.

Completion of the Merger may trigger change in control or other provisions in certain agreements to which CH2M is a party.

The completion of the Merger may trigger change in control or other provisions in certain agreements to which CH2M is a party. If Jacobs and CH2M are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, including potentially terminating the agreements or seeking monetary damages. Even if Jacobs and CH2M are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the combined company.

Risks Relating to Jacobs

Jacobs is, and will continue to be, subject to the risks described in Part I, Item 1A in Jacobs’ Annual Report on Form 10-K for the year ended September 30, 2016 and in Part II, Item 1A in Jacobs’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, each as filed with the SEC and incorporated by reference into this Proxy Statement/Prospectus. See “Where You Can Find More Information” beginning on page 247.

 

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Risks Relating to CH2M’s Business

Project losses and other adverse operating results can constrain CH2M’s cash flow and liquidity, which could reduce CH2M’s ability to win new business or materially and adversely affect CH2M’s business and results of operations, and CH2M’s strategic initiatives may not be successful.

CH2M has experienced project losses and other adverse operating results in recent periods—such as a charge to operations of $121.3 million, $93.6 million, and $38.7 million for the years ended December 30, 2016, December 25, 2015 and December 31, 2014, respectively, for estimated cost growth on a fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States and a charge to operations of $301.5 million and $280.0 million for the years ended December 30, 2016 and December 31, 2014, respectively (no charges to operations for 2015), for estimated costs growth identified for CH2M’s consolidated Australian joint venture project—which has constrained CH2M’s cash flow and liquidity. If CH2M sustains additional project losses or other adverse operating results in the future, or if cash flow and liquidity continue to be constrained, CH2M may have a reduced ability to win new business, which could materially and adversely affect its business, results of operations, cash flows and financial position.

CH2M may not be able to recover all or a portion of its project losses, and CH2M could be found liable to the client or general contractor, in connection with a fixed-price EPC project that was terminated in early 2017.

Prior to 2017, through a consolidated joint venture partnership with an Australian construction contractor, CH2M was involved in a consortium with a major U.S. power plant equipment supplier engaged in a fixed-price EPC project with a general contractor to engineer, procure, construct and start-up a combined cycle power plant to supply power to a large liquefied natural gas facility in Australia. The joint venture experienced project losses resulting in a charge to operations of $301.5 million and $280.0 million for the years ended December 30, 2016 and December 31, 2014, respectively, of which CH2M’s portion of the loss was $154.1 million and $140.0 million, respectively (there were no project losses in 2015). In 2015, the consortium reached agreement with the client to settle certain claims to recover costs and extend the amount of time allowed to complete interim delivery milestones for the project. During the second quarter of 2016, however, the client advised that it would be unable to meet its obligations in line with the revised program schedule. As a result, the project experienced delays and was expected to incur additional future delays resulting in increases in the total estimated costs to complete. On January 24, 2017, the consortium terminated the fixed-price EPC contract with the general contractor. The Consortium filed the Request for Arbitration against JKC on August 3, 2017 with the International Chamber of Commerce (“ICC”) in Hong Kong.

CH2M expects the arbitration process to be lengthy and at this time CH2M is unable to predict the timing of resolution or the outcome of disputes. The ultimate outcome of the dispute will depend upon contested issues of fact and law. CH2M cannot currently predict whether it will realize any recoveries from the general contractor or the amount of any recoveries that it may ultimately receive. Moreover, CH2M cannot currently predict whether either or both CH2M’s consolidated joint venture partnership or the consortium will be held liable to the general contractor or the amount of any such liability should it occur. The timing and amount of any recovery or liability is currently unknown and will be subject to negotiations, arbitration or other formal dispute-resolution processes, and could be materially adverse to CH2M’s results of operations, cash flow and financial condition.

If CH2M is unable to continue to access credit or raise capital on acceptable terms, CH2M’s business may be adversely affected.

CH2M’s primary sources of liquidity are cash flows from operations and borrowings under CH2M’s Amended Credit Agreement (“CH2M Amended Credit Agreement”). CH2M’s primary uses of cash are working capital, stock repurchases primarily in CH2M’s internal market, capital expenditures, and acquisitions. Cash flows from operations primarily result from earnings on CH2M’s operations and changes in CH2M’s working capital. Earnings from CH2M’s operations and working capital requirements can vary significantly from period to period based primarily on the mix of CH2M’s projects underway and the percentage of project work

 

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completed during the period. For example, cash used in operations for the year ended December 30, 2016 was $245.5 million. While CH2M manages cash requirements for working capital needs, unpredictability in cash collections and payments has required CH2M in the past and may require CH2M in the future to borrow on the CH2M Amended Credit Agreement from time to time to meet the needs of CH2M’s operations.

CH2M’s borrowing capacity under the Fourth Amendment to the CH2M Amended Credit Agreement is limited by a maximum consolidated leverage ratio, which is based on a multiple of CH2M’s adjusted earnings before interest, taxes, depreciation and amortization, and other outstanding obligations of CH2M. Moreover, the Certificate of Designation limits CH2M’s ability to incur additional debt under certain circumstances without the consent of the holders of at least a majority of the then outstanding shares of CH2M Preferred Stock. As of June 30, 2017, the remaining unused borrowing capacity under the CH2M Amended Credit Agreement was over $400.0 million.

The CH2M Amended Credit Agreement and the Certificate of Designation may contain covenants that limit or restrict CH2M’s operations and require that CH2M comply with certain financial ratios.

The CH2M Amended Credit Agreement contains customary affirmative and negative covenants, some of which limit or restrict CH2M’s operations including its ability to incur additional indebtedness and other obligations, grant liens to secure obligations, make investments, merge or consolidate and dispose of assets, subject to certain customary exceptions. These restrictions could limit CH2M’s ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict CH2M’s activities or business plans, and could adversely affect CH2M’s ability to finance its operations, acquisitions, investments or strategic alliances or other capital needs or limit its ability to take advantage of business opportunities.

In addition, the CH2M Amended Credit Agreement requires that CH2M comply with a minimum consolidated fixed charge coverage ratio, and both the CH2M Amended Credit Agreement and the Certificate of Designation require that it comply with a maximum consolidated leverage ratio. CH2M’s ability to comply with these ratios depends on its results of operations from time to time, which may be affected by events beyond its control. If CH2M fails to satisfy the requirements of or if CH2M is in default of the CH2M Amended Credit Agreement, CH2M would be prohibited from incurring further borrowings under the CH2M Amended Credit Agreement unless CH2M was able to secure necessary waivers from the lenders. If the lenders declined to waive a default under the CH2M Amended Credit Agreement, CH2M’s outstanding indebtedness under the CH2M Amended Credit Agreement could be accelerated. Further, if CH2M’s consolidated leverage ratio exceeds certain limits specified in the Certificate of Designation, CH2M may be unable to incur additional indebtedness.

Any of the factors could have a material adverse impact on CH2M’s business, results of operations, cash flow and financial condition.

CH2M may be unable to amend the CH2M Amended Credit Agreement or maintain or expand CH2M’s credit capacity, each of which would adversely affect CH2M’s operations and business.

CH2M uses credit facilities to support CH2M’s working capital and acquisition needs. If CH2M exhausts its borrowing capacity or if CH2M is unable to increase the available borrowing capacity of the CH2M Amended Credit Agreement, CH2M’s ability to fund the working capital and other needs of its existing operations could be constrained and its business and results of operations could be materially adversely affected. In addition, CH2M’s credit facility reaches maturity in 2019 and there is no guarantee that CH2M will be able to renew its credit facility on favorable terms or at all, and, if CH2M is unable to do so, CH2M’s costs of borrowing and its business may be adversely affected. There can be no assurance that CH2M will be able to secure any additional capacity or amendment to the CH2M Amended Credit Agreement or to do so on terms that are acceptable to CH2M, in which case, CH2M’s costs of borrowing could rise and CH2M’s business and results of operations could be materially adversely affected.

 

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CH2M’s new awards and liquidity may be adversely affected by bonding and letter of credit capacity.

A portion of CH2M’s new awards requires the support of bid and performance surety bonds or letters of credit, as well as advance payment and retention bonds. CH2M’s primary use of surety bonds is to support water and wastewater treatment in the U.S., while letters of credit are generally used to support other projects. The issuance of surety bonds is at CH2M’s sureties’ sole discretion and sureties rely on tangible net worth as an indication of risk when deciding whether to issue a requested surety bond. CH2M currently has a negative tangible net worth, which if significantly expanded could limit CH2M’s bonding capacity or require CH2M to use more of its letters of credit under its credit facility. If CH2M is required to utilize CH2M’s credit facility for letters of credit, the amount available under the credit facility for other purposes, including compensating for any swings in working capital could be adversely affected. Further, if CH2M is unable to procure such surety bonds or use letters of credit, CH2M’s ability to win new business and achieve its business plans could be adversely impacted, which would have a material adverse effect on CH2M’s growth, liquidity and financial condition.

An impairment of some or all of CH2M’s goodwill and intangible assets could have a material adverse effect on CH2M’s financial condition and results of operations.

As of June 30, 2017, CH2M had $499.2 million of goodwill and $30.5 million of net intangible assets. CH2M conducts a test for impairment of goodwill as of the first day of the fourth quarter of each year or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If the future fair value of any of CH2M’s reporting units is less than their carrying value, CH2M is required to record an impairment charge. The amount of any impairment charge could be significant and could have a material adverse effect on CH2M’s financial condition and results of operations.

Unpredictable economic cycles, uncertain demand for CH2M’s engineering and related services, and failure by CH2M’s major customers to pay CH2M’s fees, could cause CH2M’s revenue to fluctuate or be uncollectible.

Demand for CH2M’s engineering and other services is affected by the general level of economic activity in the markets in which CH2M operates, both inside and outside of the U.S. CH2M’s customers and the markets in which CH2M competes to provide services are likely to experience periods of economic decline from time-to-time. For example, the most recent global economic downturn and governmental tax revenue declines resulted in a slowdown in demand for CH2M’s services from local government clients. Similarly, the decline in oil, gas and other commodity prices beginning in 2014 and continuing to date has negatively affected demand for certain of CH2M’s services and has pressured pricing.

Adverse economic conditions may decrease the willingness of CH2M’s customers to make capital expenditures or otherwise reduce their spending for CH2M’s services, which could result in diminished revenue and margins for CH2M’s business. The demand for services depends on the demand and capital spending of CH2M’s customers in their target markets, some of which are cyclical in nature. Adverse economic conditions could alter the overall mix of services that CH2M’s customers seek to purchase, and increased competition during a period of economic decline could force CH2M to accept contract terms that are less favorable to it than it might be able to negotiate under other circumstances. Changes in CH2M’s mix of services or a less favorable contracting environment may cause CH2M’s revenue and margins to decline. Moreover, CH2M’s customers impacted by the economic downturn could delay or fail to pay CH2M’s fees. If a customer failed to pay a significant outstanding fee, CH2M’s financial results could be adversely affected. Adverse credit market conditions could negatively impact customers’ ability to fund their projects and therefore utilize CH2M’s services; they can also impact subcontractors’ and suppliers’ ability to deliver work. These credit disruptions could negatively impact CH2M’s backlog and profits, and could increase CH2M’s costs or adversely impact project schedules.

 

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The uncertainties involved in prolonged procurement processes associated with CH2M’s projects make it particularly difficult to predict whether and when CH2M will receive a contract award. The uncertainty of contract award timing can present difficulties in matching CH2M’s workforce size with CH2M’s project needs. If an expected project award is delayed or not received, CH2M could incur costs resulting from idle workforce reductions in staff, or redundancy of facilities that would have the effect of reducing CH2M’s profits.

Changes and fluctuations in the U.S. government’s spending priorities could adversely affect CH2M’s revenue expectations.

Because a substantial part of CH2M’s overall business is generated either directly or indirectly as a result of U.S. federal, state and local government regulatory and infrastructure priorities, shifts in these priorities due to changes in policy imperatives, changes in elected officials following elections or changing economic conditions are often unpredictable and may affect CH2M’s revenue.

CH2M’s contracts with the U.S. federal government are subject to the uncertainties of U.S. Congressional funding. Since government contracts represent a significant percentage of CH2M’s revenue, government budget deficits or a significant reduction in government funding could lead to continued delays in contract awards and termination or suspension of CH2M’s existing contracts, which could have an adverse impact on CH2M’s business, financial condition and results of operations. In addition, any government shutdown or other curtailment of funding, such as the U.S. federal government shutdown in October 2013, could have an impact on CH2M’s government projects including CH2M’s ability to earn revenue on the projects already awarded, and could have an adverse impact on CH2M.

Effective March 1, 2013, the Budget Control Act of 2011 imposed a process known as sequestration to implement $1.2 trillion in automatic spending cuts effective through fiscal year 2021, subsequently extended to 2023. Under sequestration the agencies of the U.S. federal government may be required to modify or terminate contracts and substantially reduce awards of new work to companies like CH2M, which will likely impact CH2M’s ability to earn revenue on projects already awarded, win new work from U.S. federal government customers and may have an adverse impact on CH2M. In December 2015, Congress and the President enacted a two year budget agreement that removed the threat of sequestration in the U.S. federal government’s fiscal 2016 and 2017 budgets, but absent a future budget agreement, the full effect of sequestration could return in the U.S. federal government’s 2018 budget. Because some of the spending cuts under the Budget Control Act of 2011 are continuing and others could be reinstated in future years, the U.S. federal government spending limitations and reductions from sequestration may continue to affect CH2M’s operations in the foreseeable future.

Political instability in key regions around the world coupled with the U.S. federal government’s commitment to the war on terror put at risk U.S. federal discretionary spending, such as spending on infrastructure projects that are of particular importance to CH2M’s business. At the state and local levels, the need to compensate for reductions in federal matching funds, as well as financing of federal unfunded mandates, creates pressures to cut back on infrastructure project expenditures. As a result, there can be no assurances that changing U.S. government priorities and spending would not have a material adverse impact on CH2M’s business.

Government contracts present risks of termination for convenience, adjustment of payments received, restrictions on ability to compete for government work and funding constraints.

The following risks are inherent in contracts with the U.S. federal government and agencies regulated by the U.S. federal government, which represents 21% of CH2M’s total revenue for fiscal 2016:

 

    Because U.S. federal laws permit government agencies to terminate a contract for convenience, CH2M’s U.S. government clients may terminate or decide not to renew CH2M’s contracts with little or no prior notice.

 

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    Due to payments CH2M receives from CH2M’s U.S. government clients, CH2M’s books, records and processes are subject to audit by various U.S. governmental agencies for a number of years after these payments are made. Based on these audits, the U.S. government may adjust or demand repayment of payments CH2M previously received, or withhold a portion of fees due to CH2M because of unsatisfactory audit outcomes. Audits have been completed on CH2M’s U.S. federal contracts through December 31, 2010, and are continuing for subsequent periods. Audits performed to date have not resulted in material adjustments to CH2M’s financial statements; however, there can be no assurance that future audit findings will not result in repayments or disqualification of CH2M’s processes/systems, which could impact CH2M’s ability to bid or win future U.S. government contract work. In addition, as a government contractor, CH2M is subject to increased risks of investigation, criminal prosecution and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact CH2M’s business and have an adverse effect on CH2M’s consolidated financial statements.

 

    CH2M’s ability to earn revenue from CH2M’s existing and future U.S. federal government projects will depend upon the availability of funding from U.S. federal government agencies. CH2M cannot control whether those clients will fund or continue funding CH2M’s existing projects.

 

    In years when the U.S. federal government does not complete its budget process before the end of its fiscal year on September 30, government operations are typically funded pursuant to a “continuing resolution” that authorizes agencies of the U.S. government to continue to operate, but does not authorize new spending initiatives, which can delay the award of new contracts. These delays could have an adverse effect on CH2M’s operating results.

 

    Many U.S. federal government programs in which CH2M works require security clearances. Security clearances can be difficult and time-consuming to obtain. If CH2M or CH2M’s employees are unable to obtain or retain necessary security clearances, CH2M may not be able to win new business or may not be able to renew existing contracts. To the extent CH2M cannot obtain or maintain the required security clearances for CH2M’s employees working on a particular contract, CH2M may not derive the revenue anticipated from the contract, which could adversely affect CH2M’s business and results of operations.

CH2M’s ability to secure new government contracts and CH2M’s revenue from existing government contracts could be adversely affected by any one or a combination of the factors listed above.

Many of CH2M’s projects are funded by U.S. federal, state and local governments, and if CH2M violates applicable laws governing this work, CH2M would be subject to the risk of suspension or debarment from government contracting activities, which could have a material adverse effect on CH2M’s business and results of operations.

If CH2M fails to comply with the terms of one or more of CH2M’s government contracts or adhere to the statutes and regulations that govern this type of work, or if CH2M or CH2M’s employees are indicted or convicted on criminal charges (including misdemeanors) relating to any of CH2M’s government contracts, in addition to any civil or criminal penalties and costs CH2M may incur, CH2M could be suspended or barred from government contracting activities for a period of time. Some U.S. federal and state statutes and regulations provide for automatic debarment in certain circumstances. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to CH2M’s entire enterprise in certain severe circumstances. Even a narrow scope suspension or debarment could result in negative publicity that could adversely affect CH2M’s ability to renew contracts and to secure new contracts, both with governments and private customers, which could materially and adversely affect CH2M’s business and results of operations.

 

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CH2M may incur additional restructuring charges in future periods.

During the third quarter of 2016, CH2M began a process to review the structure and resources within CH2M’s business segments and formulate a restructuring plan to more fully align global operations with CH2M’s client-centric strategy, including a simplified organization structure and streamlined delivery model to achieve higher levels of profitable growth. The restructuring activities have included workforce reductions and facilities consolidations. During the year ended December 30, 2016 and the six months ended June 30, 2017, CH2M incurred $42.2 million and $13.1 million of costs, respectively, for these restructuring activities, which have been included in general and administration expense on the consolidated statement of operations. These restructuring activities were substantially complete in the first quarter of 2017, and, as such, no restructuring costs were incurred during the three months ended June 30, 2017. Overall, as of June 30, 2017, CH2M incurred aggregate costs of $55.3 million in total restructuring charges under the 2016 Restructuring Plan, and CH2M expects aggregate annual cost savings of approximately $100.0 million. These restructuring activities may result in a diversion of management’s attention from ongoing business, a loss of key personnel and a loss of clients, all of which could disrupt CH2M’s operations. If these restructuring activities are not completed in a timely manner, if CH2M incurs costs that are higher than originally anticipated or if anticipated cost savings, synergies, and efficiencies are not realized, there could be a material adverse impact on CH2M’s business, financial condition, and results of operations.

The results of the United Kingdom’s referendum on a withdrawal from the European Union may have a negative effect on CH2M’s business, results of operation and financial condition.

On June 23, 2016, the United Kingdom held a referendum in which a majority of the voters elected to withdraw from the European Union, commonly referred to as “Brexit.” It is expected that the United Kingdom will exit the European Union within two years; although, the exact timeframe for such exit is unknown. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, and may adversely affect global economic conditions and the stability of global financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal could depress economic activity and restrict CH2M’s access to capital. Changes in leadership and public sector infrastructure funding could lead to cancellations, delays or changes in timing to CH2M’s current and prospective infrastructure projects in the United Kingdom. These factors, among others, could potentially materially affect CH2M’s business, results of operations and financial condition.

CH2M’s industry is highly competitive.

CH2M is engaged in a highly competitive business in which most of CH2M’s contracts with public sector clients are awarded through a competitive bidding process that places no limit on the number or type of potential service providers. The process usually begins with a government agency request for proposal that delineates the size and scope of the proposed contract. The government agency evaluates the proposals on the basis of technical merit and cost.

In both the private and public sectors, acting either as a prime contractor or as a subcontractor, CH2M may join with other firms that CH2M otherwise competes with to form a team to compete for a single contract. Because a team can often offer stronger combined qualifications than any firm standing alone, these teaming arrangements can be very important to the success of a particular contract competition or proposal. Consequently, CH2M maintains a network of relationships with other companies to form teams that compete for particular contracts and projects. Failure to maintain technical and price competitiveness, as well as failure to maintain access to strong teaming partners may adversely impact CH2M’s ability to win work.

 

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CH2M’s backlog is subject to unexpected adjustments and cancellations and may, therefore, be an uncertain indicator of CH2M’s future performance.

CH2M’s backlog represents the total dollar amount of revenue CH2M estimates it will earn as a result of performing work under contracts that have been awarded. CH2M cannot assure that the revenue projected in CH2M’s backlog will be realized or, if realized, will result in profits. Projects may remain in CH2M’s backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over multiple periods. In addition, CH2M’s ability to earn revenue from CH2M’s backlog depends on the availability of funding for various government and private clients. Most of CH2M’s contracts with industrial clients have termination for convenience provisions. Further, even if CH2M provides services under the relevant contract, it is possible that the customer may default or otherwise refuse to pay amounts owed to CH2M. Therefore, project terminations, contract suspensions or reductions in scope, or defaults in payment may occur from time-to-time with respect to contracts reflected in CH2M’s backlog, which in turn would adversely affect the revenue and profit CH2M actually receives from contracts reflected in CH2M’s backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of CH2M’s backlog and the revenue and profit that CH2M actually earns.

Backlog is not a measure defined in GAAP, and CH2M’s methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. The amount of backlog is not necessarily indicative of CH2M’s future earnings or cash flows.

CH2M’s inability to attract and retain professional personnel could adversely affect CH2M’s business.

CH2M’s ability to attract, retain and expand CH2M’s staff of qualified engineers and technical professionals will be an important factor in determining CH2M’s future success and growth. The market for these professionals is competitive inside and outside the U.S. CH2M lost veteran managers and engineers through the reduction in force and voluntary retirement programs CH2M initiated in 2014 and continued to date as part of CH2M’s planned restructuring activities. As some of CH2M’s existing key personnel approach retirement age, CH2M is developing and implementing proactive succession plans. If CH2M cannot attract and retain qualified personnel, or if CH2M cannot effectively implement CH2M’s succession plans, CH2M could experience a material adverse impact on CH2M’s business, financial condition, and results of operations. Since CH2M derives a significant part of CH2M’s revenue from services performed by CH2M’s professional staff, CH2M’s failure to retain and attract professional staff could adversely affect CH2M’s business by impacting CH2M’s ability to complete CH2M’s projects and secure new contracts.

CH2M faces potential liability for faulty engineering services and CH2M is subject to potential liability in other litigation, regulatory and legal proceedings.

CH2M’s engineering practice involves professional judgments regarding the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects. Because CH2M’s projects are often large and can affect many people, CH2M’s failure to make judgments and recommendations in accordance with applicable professional standards could result in large damages and, perhaps, punitive damages. Although CH2M has adopted quality control, risk management and risk avoidance programs designed to reduce potential liabilities, and carry professional liability insurance to further set off this risk, there can be no assurance that such programs will protect CH2M fully from all risks and liabilities.

CH2M is also a party to other lawsuits and other legal and regulatory proceedings that arise in the normal course of business, including employment-related claims and contractual disputes. While CH2M does not currently believe that any pending lawsuits or proceedings will have a material adverse effect on CH2M’s results of operations or financial condition, there can be no assurance that this will not be the case.

 

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Fluctuations in commodity prices may affect the investment decisions of CH2M’s customers and therefore subject CH2M to risks of cancellation or delays in existing work, or changes in the timing and funding of new awards.

Commodity prices can affect CH2M’s customers and may have a significant impact on the costs and profitability of CH2M’s projects. For example, for projects that CH2M performs on a guaranteed fixed price or “not to exceed” cost basis, unforeseen rising commodity prices can reduce CH2M’s profit or cause CH2M to incur a loss. Further, rising commodity prices can negatively impact the potential returns on investments for CH2M’s customers and may lead to customers deferring new investments or canceling or delaying existing projects. Some of CH2M’s customers are engaged in the production or processing of commodity products, particularly in the energy sector, and fluctuations in commodity prices can impact their business and their willingness to make new capital investments, which in turn may reduce demand for CH2M’s services. Cancellations, delays and weakness in demand for CH2M’s services in markets that are affected by commodity price fluctuations may affect CH2M’s operating results in significant and unpredictable ways and could have a material adverse impact on CH2M’s business, financial condition, and results of operations.

Changes in the level of activity in the hydrocarbon industry may adversely affect CH2M’s financial condition and results of operations.

Demand for CH2M’s oilfield services and other services CH2M provides to the hydrocarbon industry fluctuates, and depends in part on decisions by CH2M’s customers about their current and future activities and expenditures which, in turn, depend largely upon prevailing industry and market conditions that are influenced by numerous factors over which CH2M has no control, including, but not limited to:

 

    Current and projected prices of oil and natural gas and hydrocarbon products;

 

    Oil and natural gas supply and demand in different geographic areas around the world;

 

    Cost of exploring for, developing, producing and delivering oil and natural gas;

 

    Availability of qualified personnel and lead times associated with acquiring equipment and products;

 

    Federal, state and local regulation of oilfield activities;

 

    Environmental concerns regarding oil and natural gas exploration and production activities and methods; and

 

    Seasonal limitations on access to work locations.

Anticipated future prices for natural gas and crude oil are a primary factor affecting activity and expenditure levels of CH2M’s customers in the hydrocarbon industry. Lower prices or volatility in prices for oil and natural gas, as has recently occurred, typically decrease spending and drilling activity, which can cause rapid and material declines in demand for CH2M’s oilfield services and in the prices CH2M is able to charge for CH2M’s services. Worldwide political, economic, military and terrorist events, as well as natural disasters and other factors beyond CH2M’s control contribute to oil and natural gas price levels and volatility and are likely to continue to do so in the future.

CH2M could sustain losses on contracts that contain a fixed price or guaranteed maximum price provision if CH2M’s costs exceed the maximum prices.

Under fixed price contracts, CH2M agrees to deliver projects for a definite, predetermined price and under guaranteed maximum price contracts, CH2M agrees to deliver projects for a price that is capped regardless of CH2M’s actual costs incurred over the life of the project. Under cost reimbursable contracts with maximum pricing provisions, CH2M is typically compensated for the labor hours expended at agreed-upon hourly rates plus cost of materials plus any subcontractor costs used; however, there is a stated maximum compensation for the services to be provided under the contract. Many fixed-price or guaranteed maximum price contracts are for

 

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large industrial facilities and public infrastructure projects and present the risk that CH2M’s costs to complete a project may exceed the guaranteed maximum or fixed-price agreed upon with the client. The fees negotiated for such projects may not cover CH2M’s actual costs and desired profit margins. In addition, many of CH2M’s customers on fixed or maximum price contracts do not accept escalation clauses regarding labor or material cost increases, including commodity price increases. If CH2M’s actual costs for a maximum price project or fixed-price project are higher than CH2M expects, as has occurred in recent years, CH2M’s profit margins on the project will be reduced or CH2M could suffer a loss that could materially affect CH2M’s results of operations.

CH2M’s use of the percentage-of-completion method requires the use of estimates and changes in those estimates could result in a reduction or reversal of previously recorded revenues and profits.

The revenue for CH2M’s engineering and construction contracts is accounted for on the percentage-of-completion method of accounting. This method of accounting recognizes revenue and profit over the duration of the contract, generally based on the proportion of costs incurred to date, to the total costs expected to be incurred for the project. Revised estimates of costs and contract revenue are recorded when they are known or can otherwise be reasonably estimated. The inherent uncertainties in the estimating process make it possible for actual cost and revenue to vary materially from prior estimates, which can result in the reduction or reversal of previously recorded revenues and profits.

Environmental and other regulations and related compliance investigations may adversely impact CH2M’s project performance, expose CH2M to liability and could adversely affect CH2M’s revenue.

A substantial portion of CH2M’s business is generated either directly or indirectly as a result of laws and regulations related to environmental and other matters. In particular, CH2M’s business involves significant risks including the assessment, analysis, remediation, handling, management and disposal of hazardous substances. As a result, CH2M is subject to a variety of environmental laws and regulations governing, among other things, discharges of pollutants and hazardous substances into the air and water and the handling and disposal of hazardous waste including nuclear materials and related record keeping requirements. These laws and regulations and related investigations into CH2M’s compliance, as it pertains to facility operations and remediation of hazardous substances, can cause project delays and substantial management time commitment and may significantly add to CH2M’s costs. Violations of these environmental laws and regulations could subject CH2M to civil and criminal penalties and other liabilities, which can be very large. Although CH2M has not been subject to any material civil or criminal penalties for violations of these laws to date, CH2M has incurred costs and diverted resources to respond to reviews that have negatively impacted the profitability of some of CH2M’s projects. While the costs of these reviews have not been material to CH2M’s consolidated results of operations in the past, additional or expanded reviews or proceedings on environmental compliance, or any substantial fines or penalties, could affect CH2M’s profitability and CH2M’s stock price in the future, or could adversely affect CH2M’s ability to compete for new business. Changes in environmental regulations could affect CH2M’s business more significantly than other firms. Accordingly, a reduction in the number or scope of these laws and regulations, or changes in government policies regarding the funding, implementation or enforcement of such laws and regulations, could significantly reduce one of CH2M’s most important markets and limit CH2M’s opportunities for growth or reduce CH2M’s revenue. In addition, any effort by government agencies to reduce the role of private contractors in regulatory programs, including environmental compliance projects and department of defense projects, could have material adverse effects on CH2M’s business.

CH2M may not be successful in growing through acquisitions or integrating effectively any businesses and operations CH2M may acquire.

CH2M’s success depends in part on CH2M’s ability to continually enhance and broaden CH2M’s service offerings and CH2M’s service delivery footprint in response to changing customer demands, technology, and competitive pressures. Numerous mergers and acquisitions in CH2M’s industry have resulted in a group of larger firms that offer a full complement of single source services including studies, design, engineering, procurement,

 

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construction, operations, maintenance, and facility ownership. To remain competitive, CH2M may acquire new and complementary businesses to expand CH2M’s portfolio of services, add value to the projects undertaken for clients or enhance CH2M’s capital strength. CH2M does not know if it will be able to complete any future acquisitions or whether CH2M will be able to successfully integrate any acquired businesses, operate them profitably, or retain their key employees.

When suitable acquisition candidates are identified, CH2M anticipates significant competition when trying to acquire these companies, and there can be no assurance that CH2M will be able to acquire such acquisition targets at reasonable prices or on favorable terms. The Certificate of Designation also limits CH2M’s ability to conduct certain acquisitions by requiring the consent of the holders of a majority of the outstanding shares of CH2M Preferred Stock before a proposed acquisition can be approved. If CH2M cannot identify or successfully acquire suitable acquisition candidates, CH2M may not be able to successfully expand CH2M’s operations. Further, there can be no assurance that CH2M will be able to generate sufficient cash flow from an acquisition to service any indebtedness incurred to finance such acquisitions or realize any other anticipated benefits. In addition, there can be no assurance that the due diligence undertaken in connection with an acquisition will uncover all liabilities relating to the acquired business. Nor can there be any assurance that CH2M’s profitability will be improved as a result of these acquisitions. Any acquisition may involve operating risks, such as:

 

    The difficulty of assimilating the acquired operations and personnel and integrating them into CH2M’s current business;

 

    The potential impairment of employee morale;

 

    The potential disruption of CH2M’s ongoing business;

 

    Preserving important strategic and customer relationships;

 

    The diversion of management’s attention and other resources;

 

    The risks of entering markets in which CH2M has little or no experience;

 

    The possibility that acquisition related liabilities that CH2M incurs or assumes may prove to be more burdensome than anticipated;

 

    The risks associated with possible violations of the Foreign Corrupt Practices Act, the United Kingdom Bribery Act of 2010, and other anti-corruption laws as a result of any acquisition or otherwise applicable to CH2M business; and

 

    The possibility that any acquired firms do not perform as expected.

The success of CH2M’s joint ventures depends on the satisfactory performance by CH2M’s joint venture partners. The failure of CH2M’s joint venture partners to perform their obligations could impose on CH2M additional financial and performance obligations that could result in reduced profits or significant losses on the projects that CH2M’s joint ventures undertake.

CH2M routinely enters into joint ventures as part of CH2M’s business. The success of these joint ventures depends, in large part, on the satisfactory performance of CH2M’s joint venture partners. If CH2M’s joint venture partners fail to satisfactorily perform their joint venture obligations as a result of financial or other difficulties, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, CH2M may be required to make additional investments and provide additional services to ensure the adequate performance and project delivery. These additional obligations could result in reduced profits or, in some cases, significant losses for CH2M with respect to the joint venture.

Occasionally, CH2M participates in joint ventures where CH2M is not a controlling party. In such instances CH2M may have limited control over joint venture decisions and actions, including internal controls and financial reporting, which may have an adverse impact on CH2M’s business.

 

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CH2M may be restricted in CH2M’s ability to access the cash flows or assets from CH2M’s subsidiaries and joint venture partners upon which CH2M is substantially dependent.

Substantially all of CH2M’s cash flows and liquidity necessary to meet CH2M’s operating expenditures and to participate in CH2M’s internal market are generated by CH2M’s subsidiaries. CH2M’s ability to access these necessary cash flows may be restricted by certain rules and regulations regarding the financial condition and operational requirements imposed on CH2M’s foreign subsidiaries that may limit CH2M’s ability to gain access to the cash flows or assets of these entities. CH2M does not manage all of these entities. Even in those joint ventures that CH2M manages, CH2M is often required to consider the interests of CH2M’s joint venture partners in connection with decisions concerning the operations of the joint ventures and distributions out of the joint ventures. CH2M’s ability to access cash flows from CH2M’s joint ventures may be restricted by certain rules and regulations imposed on CH2M’s foreign joint ventures and by joint venture arrangements that may restrict CH2M from gaining access to the cash flows or assets of these entities. As of December 30, 2016, $46.6 million of CH2M’s cash included in CH2M’s consolidated balance sheet was held in bank accounts of CH2M’s consolidated joint ventures. As of December 30, 2016, cash and cash equivalents held in CH2M’s consolidated joint ventures included $9.7 million related to an Australian fixed-price Power EPC joint venture, which is presented within current assets of discontinued operations in CH2M’s consolidated financial statements was deconsolidated in the first quarter of 2017.

CH2M’s dependence on subcontractors and equipment manufacturers could adversely affect CH2M.

CH2M relies on third-party subcontractors as well as third-party equipment manufacturers to complete CH2M’s projects. To the extent that CH2M cannot engage subcontractors or acquire equipment or materials, CH2M’s ability to complete a project in a timely fashion or at a profit may be impaired. If the amount CH2M is required to pay for these goods and services exceeds the amount CH2M has estimated in bidding for fixed price contracts, CH2M could experience losses in the performance of these contracts. In addition, if a subcontractor or a manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any reason, including the deterioration of its financial condition, CH2M may be required to purchase the services, equipment or materials from another source at a higher price or on less favorable terms. These risks are potentially more significant in an economic downturn if financial difficulties in CH2M’s supply chain cause CH2M’s subcontractors or equipment suppliers not to be able to support the demands and schedules of CH2M’s business. This may reduce the profit CH2M expects to realize or result in a loss on a project for which the services, equipment or materials were needed.

CH2M’s defined benefit pension plans have significant deficits that may grow in the future; deficits require payments over time to meet any underfunded benefit obligations under these plans which can create volatility in CH2M’s cash flows from operations.

As a result of CH2M’s acquisition of Halcrow Group Limited, CH2M acquired defined benefit pension plans (also known as “defined benefit pension schemes”) that have significant deficits. The ongoing funding obligations for the defined benefit pension plans vary from time to time depending on actuarial assumptions outside of CH2M’s control, such as discount rates, inflation rates, plan investment returns, and life expectancy of the plan members. Additionally, certain transactions, such as the October 4, 2016 transaction to restructure the benefits provided to members of the Halcrow Pension Scheme, one of CH2M’s defined benefit pension schemes, may change CH2M’s funding obligations. In order to maintain an adequate funding position over time, CH2M continuously reviews these assumptions and mitigates these risks by working with the pension plan trustees and with actuarial and investment advisors. CH2M maintains an ongoing dialog with its pension plan trustees to negotiate a reasonable schedule for cash contributions as required by local regulations. Certain assumptions that are outside CH2M’s control, such as discount rates, inflation rates, plan investment returns or life expectancy change over time and impact the level of contributions CH2M has to make relative to the schemes. As a result, there is an inherent variability to CH2M to meet such funding obligations, which could have material adverse effects on CH2M’s financial position and/or cash flows.

 

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CH2M faces risks associated with CH2M’s international business.

CH2M derives a substantial portion of CH2M’s revenue from operations outside of the U.S. Conducting business abroad is subject to a variety of risks including:

 

    Currency exchange rate fluctuations, restrictions on currency movement and impact of international tax laws could adversely affect CH2M’s results of operations and particularly if CH2M is forced to maintain assets in currencies other than the U.S. dollar as CH2M’s financial results are reported in U.S. dollars.

 

    Political and economic instability and unexpected changes in regulatory environment in countries outside the U.S. or negative attitudes and sentiments towards the U.S. could adversely affect CH2M’s projects overseas and CH2M’s ability to repatriate cash.

 

    Inconsistent and diverse regulations, licensing and legal requirements may increase CH2M’s costs because CH2M’s operations must comply with a variety of laws that differ from country-to-country.

 

    Terrorist attacks and civil unrest in some of the countries where CH2M does business may delay project schedules, threaten the health and safety of CH2M’s employees, increase CH2M’s cost of operations, and also result in cancellation of CH2M’s contracts.

 

    Challenges in managing risks inherent in international operations, such as unique labor rules and corrupt business environments may cause inadvertent violations of both foreign and U.S. laws that CH2M may not immediately detect or correct.

While CH2M is monitoring such regulatory, geopolitical and other factors, CH2M cannot assess with certainty what impact they may have over time on CH2M’s business.

Foreign exchange risks may affect CH2M’s ability to realize a profit from certain projects.

CH2M attempts to minimize CH2M’s exposure from currency risks by denominating CH2M’s contracts in the currencies of CH2M’s expenditures, obtaining escalation provisions for projects in inflationary economies, or entering into derivative (hedging) instruments. However, these actions may not always eliminate CH2M’s currency risk exposure. Based on fluctuations in currency, the U.S. dollar value of CH2M’s backlog may from time to time increase or decrease significantly. CH2M does not enter into derivative instruments or hedging activities for speculative purposes. CH2M’s operational cash flows and cash balances may consist of different currencies at various points in time in order to execute CH2M’s project contracts globally. In addition, CH2M’s non-U.S. asset and liability balances are subject to currency fluctuations when measured period to period for financial reporting purposes in U.S. dollars.

Limitations of or modifications to, indemnification regulations of the U.S. or foreign countries could adversely affect CH2M’s business.

The Price-Anderson Nuclear Industries Indemnity Act, commonly called the Price-Anderson Act (the “PAA”), is a U.S. federal law, which, among other things, regulates radioactive materials and the nuclear energy industry, including liability and compensation in the event of nuclear related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators and U.S. Department of Energy (“DOE”) contractors. The PAA protections and indemnification apply to CH2M as part of CH2M’s services to the U.S. nuclear energy industry and DOE for new facilities, maintenance, modification, decontamination and decommissioning of nuclear energy, weapons, and research facilities. CH2M offers similar services in other jurisdictions outside the U.S., provided CH2M believes similar protections and indemnities are available, either through laws or commercial insurance. These protections and indemnifications, however, may not cover all of CH2M’s liability that could arise in the performance of these services. To the extent the PAA or other protections and indemnifications do not apply to CH2M’s services, CH2M’s business could be adversely affected because of the cost of losses associated with liability not covered by the available protections and indemnifications, or by virtue of CH2M’s loss of business because of these added costs.

 

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Risks associated with doing business in highly corrupt environments and employee, agent or partner misconduct or failure to comply with anti-bribery and other governmental laws could, among other things, harm CH2M’s reputation.

The global nature of CH2M’s business creates various domestic and local regulatory challenges. In select cases, CH2M’s operations include projects in developing countries and countries torn by war and conflict. Many of these countries are rated poorly by Transparency International, the independent watchdog organization for government and institutional corruption around the world. Further, CH2M’s operations outside of the U.S. are subject to the Foreign Corrupt Practices Act (“FCPA”), the United Kingdom Bribery Act 2010, and similar anti-bribery laws in other jurisdictions which generally prohibit companies and their intermediaries from paying or offering anything of value to foreign government officials for the purpose of obtaining or retaining business, or otherwise receiving discretionary favorable treatment of any kind. In addition, CH2M may be held liable for actions taken by CH2M’s local partners, subcontractors and agents even though such parties are not always subject to CH2M’s control. Any determination that CH2M has violated FCPA, the United Kingdom Bribery Act 2010, or any similar anti-bribery laws in other jurisdictions (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on CH2M’s business and CH2M’s reputation and on CH2M’s ability to secure U.S. federal government and other contracts. While CH2M’s staff is trained on FCPA, the United Kingdom Bribery Act 2010, and other anti-corruption laws and CH2M has procedures and controls in place to monitor compliance, situations may arise that could potentially put CH2M in violation of these regulations and thus negatively impact CH2M’s business. In addition, CH2M is also subject to various international trade and export laws. Any misconduct, fraud, non-compliance with applicable governmental laws and regulations, or other improper activities by CH2M’s employees, agents or partners could have a significant adverse impact on CH2M’s business, financial results and reputation and could subject CH2M to criminal and civil enforcement actions.

Misconduct could also include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws and any other applicable laws or regulations. In addition, CH2M regularly provides services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, CH2M’s ability to procure future government contracts could be severely limited. Failure to comply with applicable laws or regulations or acts of misconduct could subject CH2M to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harm CH2M’s reputation, reduce CH2M’s revenue and profits and subject CH2M to criminal and civil enforcement actions.

CH2M faces risks associated with working in locations where there are high security risks.

Some of CH2M’s projects are performed in locations known for their high security risks. In these high risk locations, CH2M may incur substantial security costs to maintain the safety of CH2M’s employees and work sites. Despite CH2M’s best efforts, CH2M cannot guarantee the safety of CH2M’s employees and CH2M may suffer future losses of employees and subcontractors.

CH2M faces risks associated with CH2M’s work sites and the maintenance of adequate safety standards.

Construction and maintenance sites are inherently dangerous workplaces and place CH2M’s employees in close proximity to dangers of the work site, such as mechanized equipment, moving vehicles, chemical and manufacturing process and materials. While CH2M routinely plans and implements site-specific safety programs and training for CH2M’s employees and subcontractors. CH2M’s failure to maintain and implement adequate safety standards and procedures could have a material adverse impact on CH2M’s business, financial condition and results of operations.

 

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CH2M’s businesses can be materially and adversely affected by severe weather.

Severe weather has in the past and can in the future create conditions that adversely affect CH2M’s ability to complete specific projects on time or without excess costs. Such adverse weather conditions may include:

 

    Evacuation of personnel and curtailment of services which may be temporary in nature;

 

    Increased labor and materials costs in areas impacted by weather and subsequent increased demand for labor and materials for repairing and rebuilding;

 

    Weather related damage to CH2M’s jobsites or facilities;

 

    Inability to deliver materials to jobsites in accordance with contract schedules;

 

    Loss of productivity; and

 

    Inability to complete projects in accordance with project schedules.

CH2M typically remains obligated to perform CH2M’s services after a natural disaster unless the contract contains a force majeure clause. CH2M has force majeure clauses in the majority of CH2M’s contracts that are at the highest risk of being impacted by a force majeure, which are CH2M’s design-build, program management and EPC contracts. In addition, CH2M typically seeks and frequently obtains force majeure clauses in CH2M’s engineering and consulting contracts. If a contract contains a force majeure provision, CH2M may be able to obtain an extension of time to complete CH2M’s obligations under such contracts, but CH2M will still be subject to CH2M’s other contractual obligations in the event of such an extraordinary event. Because CH2M cannot predict the length, severity or location of any potential force majeure event, it is not possible to determine the specific effects any such event may have on CH2M. Depending on the specific circumstances of any particular force majeure event, or if CH2M is unable to react quickly such an event, CH2M’s operations may be affected significantly, CH2M’s productivity may be affected, CH2M’s ability to complete projects in accordance with CH2M’s contractual obligations may be affected and CH2M may incur increased labor and materials costs, which could have a negative impact on CH2M’s financial condition, relationships with customers or suppliers, and CH2M’s reputation.

Rising inflation and increases to interest rates and construction costs could reduce the demand for CH2M’s services as well as decrease CH2M’s profit on CH2M’s existing contracts.

Rising inflation could result in reduced demand for CH2M’s services as inflationary pressures can prompt CH2M’s public, government and commercial clients to reduce or eliminate spending. Further, increasing inflation could have an adverse impact on CH2M’s costs of operations as increasing inflation could increase the cost of certain services or products used in delivering CH2M’s services.

This risk is further heightened because in some instances CH2M may bear some or all of the risk of rising inflation in CH2M’s fixed price and guaranteed maximum price contracts which make up a significant portion of CH2M’s revenue. In addition, if CH2M expands its business into markets and geographic areas where fixed price work is more prevalent, inflation may have a larger impact on CH2M’s results of operations in the future. Therefore, increases in inflation, interest rates or construction costs could individually or collectively have a material adverse impact on CH2M’s business and financial results.

It can be difficult or expensive to obtain the insurance CH2M needs for CH2M’s business operations.

As part of CH2M’s business operations, CH2M maintains insurance both as a corporate risk management strategy and to satisfy the requirements of many of CH2M’s contracts. Insurance products go through market fluctuations and can become expensive and sometimes very difficult to obtain. CH2M works with a diversified team of insurers to reduce CH2M’s risk of available capacity. There can be no assurances, however, that CH2M can secure all necessary or appropriate insurance in the future at an affordable price for the required limits. CH2M’s failure to obtain such insurance could lead to uninsured losses that could have a material adverse effect on CH2M’s results of operations or financial condition.

 

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CH2M’s present assessment of the insurance market is that there is adequate capacity to cover CH2M’s insurance needs, but the cost of insurance may rise. Currently CH2M’s insurance and bonds are purchased from several of the world’s leading and financially stable providers often in layered insurance or co-surety arrangements. The built-in redundancy of such arrangements usually enables CH2M to call upon existing insurance and surety suppliers to fill gaps that may arise if other such suppliers become financially unstable, however, this may not always be the case. CH2M’s risk management personnel continuously monitor the developments in the insurance market and financial stability of the insurance providers.

The restatement of CH2M’s previously issued financial statements may lead to additional expenses, risks and uncertainties and could have a material adverse effect on CH2M’s business, results of operation and financial condition.

As discussed in an amendment to CH2M’s Form 10-K for the fiscal year ended December 25, 2015 as filed with the Securities Exchange Commission on January 19, 2017, CH2M previously restated its unaudited consolidated financial statements as of and for the quarterly periods ended June 26, 2015, September 25, 2015 and December 25, 2015. As a result of these restatements, CH2M has become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the remediation of CH2M’s ineffective disclosure controls and procedures and material weakness in internal control over financial reporting. In addition, the attention of CH2M’s management team has been diverted by these efforts. CH2M could be subject to additional stockholder, governmental, or other actions in connection with the restatement or other matters. Any such proceedings will, regardless of the outcome, consume management’s time and attention and may result in additional legal, accounting, insurance and other costs. If CH2M does not prevail in any such proceedings, CH2M could be required to pay substantial damages and settlement costs. In addition, the restatement and related matters could impair CH2M’s reputation or could cause CH2M’s counterparties to lose confidence in CH2M. Each of these occurrences could have a material adverse effect on CH2M’s business, results of operations and financial condition.

CH2M has identified a material weakness in its internal control over financial reporting and CH2M’s disclosure controls and procedures which could result in additional material misstatements in CH2M’s consolidated financial statements.

CH2M’s management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over CH2M’s financial reporting. As disclosed in an amendment to CH2M’s Form 10-K for the fiscal year ended December 25, 2015, management identified a material weakness in CH2M’s internal control over financial reporting and determined CH2M’s disclosure controls and procedures were not effective as of December 25, 2015. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of CH2M’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As disclosed in Item 9A of CH2M’s most recent Annual Report on Form 10-K, CH2M determined that this previously identified material weakness continues to affect CH2M’s internal control over financial reporting and, as a result of such material weakness, CH2M’s disclosure controls and procedures were not effective as of December 30, 2016.

CH2M has developed a remediation plan to address the material weakness in internal control over financial reporting and ineffective disclosure controls and procedures. If CH2M’s remedial measures are not effectively designed or implemented, CH2M may not be able to accurately and timely report its financial results, which could materially and adversely affect CH2M’s business, results of operations, and financial condition, require CH2M to expend significant resources to correct the weaknesses or deficiencies, harm CH2M’s reputation, impact CH2M’s ability to request the issuance of new loan advances under the CH2M Amended Credit Agreement or otherwise cause a decline in investor confidence. As a result, CH2M’s business could decline or CH2M’s ability to fund ongoing operations could be adversely affected, which would adversely affect CH2M’s liquidity and results of operations.

 

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Actual results could differ from the estimates and assumptions used to prepare CH2M’s financial statements.

In order to prepare financial statements in conformity with GAAP, CH2M is required to make estimates and assumptions as of the date of the financial statements which affect the reported values of CH2M’s assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. Any changes in CH2M’s estimates or assumptions could adversely affect CH2M’s results of operations and result in future impairment charges. Areas requiring significant estimates by CH2M include:

 

    Recognition of contract revenue, costs, profit or losses in applying the percentage-of-completion method of accounting;

 

    Recognition of recoveries under contract change orders or claims;

 

    Collectability of billed and work-in-process unbilled accounts receivables and the need for and the amount of allowances for problematic accounts;

 

    Estimated amounts for anticipated project losses, warranty costs and contract close-out costs;

 

    Determination of liabilities under pension and other postretirement benefit programs;

 

    Accruals for self-insurance programs for medical, workers compensation, general liability and professional liability;

 

    Recoverability of deferred tax assets and the related valuation allowances, and accruals for uncertain tax positions;

 

    Stock option valuation model assumptions;

 

    Accruals for other estimated liabilities;

 

    Employee incentive plans; and

 

    Asset valuations.

CH2M relies on information systems to conduct CH2M’s business, and failure to protect these systems against security breaches could adversely affect CH2M’s business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, CH2M’s business could be harmed.

Because of recent advancements in technology and well-known efforts on the part of computer hackers and cyber terrorists to breach data security of companies, CH2M faces risks associated with potential failure to adequately protect critical corporate, client, and employee data which, if released, could adversely impact CH2M’s client relationships, CH2M’s reputation, CH2M’s operational capabilities and results, and violate privacy laws and other applicable laws and regulations. As part of CH2M’s business, CH2M develops, receives and retains confidential and sensitive data about CH2M’s company and CH2M’s clients including the U.S. federal government.

In addition, as a global company, CH2M relies heavily on computer, information and communications technology and related systems in order to operate. From time to time, CH2M may be subject to systems failures, including network, software or hardware failures, whether caused by CH2M, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks. Such failures could cause loss of data and interruptions or delays in CH2M’s or its customers’ businesses and could damage CH2M’s reputation. In addition, the failure or disruption of CH2M’s communications or utilities could cause CH2M to interrupt or suspend CH2M’s operations or otherwise adversely affect CH2M’s business. Losses that may occur as a result of any system or operational failure or disruption may cause CH2M’s actual results to differ materially from those anticipated.

 

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CH2M relies on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on CH2M’s information systems. However, these measures and technology may not adequately prevent security breaches. Any significant interruption or failure of CH2M’s information systems or any significant breach of security could result in the violation of privacy laws and other applicable laws and regulations, damage CH2M’s reputation and adversely affect CH2M’s business and results of operations.

Further, there is increasing public attention on the importance of cyber security relating to critical infrastructure. This creates the potential for future developments in the regulatory approach to this area, which may adversely impact CH2M’s clients and how CH2M offers its services to CH2M’s clients.

Risks Relating to CH2M Preferred Stock

The issuance of shares of CH2M Preferred Stock to Apollo has reduced the relative voting power of holders of CH2M Common Stock, may dilute the ownership of such holders and therefore negatively affect the price of CH2M Common Stock, and any additional issuance of shares of CH2M Preferred Stock in the future may increase these effects.

On June 24, 2015, CH2M sold and issued an aggregate of 3,214,400 shares of CH2M Preferred Stock to Apollo for an aggregate purchase price of approximately $200.0 million in a private placement. On April 11, 2016, CH2M sold and issued an additional 1,607,200 shares of CH2M Preferred Stock to Apollo for an aggregate purchase price of approximately $100.0 million in a second closing subject to the conditions within the Subscription Agreement. As holders of CH2M Preferred Stock are entitled to vote, on an as-converted basis, together with holders of CH2M Common Stock as a single class on all matters submitted to a vote of CH2M’s common stockholders, the issuance of CH2M Preferred Stock to Apollo has effectively reduced the relative voting power of the holders of CH2M Common Stock.

In addition, any holder of outstanding shares of CH2M Preferred Stock may elect, from time to time, to convert any or all of such holder’s shares of CH2M Preferred Stock into a number of shares of CH2M Common Stock as is determined by dividing the original issue price of $62.22 per share (the “Original Issue Price”) by a conversion price (the “Initial Conversion Price”), which initially is also $62.22 per share. Under certain circumstances set forth in CH2M’s Investor Rights Agreement with Apollo, after June 24, 2020, the Initial Conversion Price will be reduced to $52.65 or $47.86. The Initial Conversion Price is also subject to adjustments on a broad-based, weighted-average basis upon the issuance of shares of common stock or certain equivalent securities at a price per share less than the Initial Conversion Price as adjusted to date, subject to certain exclusions. Conversion of CH2M Preferred Stock to CH2M Common Stock would dilute the ownership interest of existing holders of CH2M Common Stock.

The holders of CH2M Preferred Stock may exercise influence over CH2M, including through Apollo’s ability to elect up to two members of CH2M’s Board of Directors.

As of the Record Date, the shares of CH2M Preferred Stock owned by Apollo represent approximately 17.94% of the voting rights of CH2M Common Stock, on an as-converted basis. As a result, Apollo has the ability to influence the outcome of any matter submitted for the vote of CH2M’s stockholders, including the Merger.

In addition, the Certificate of Designation grants certain consent rights to the holders of at least a majority of CH2M Preferred Stock before taking certain actions, including (a) increasing the authorized number of shares of CH2M Preferred Stock; (b) authorizing securities having rights, preferences or privileges that are senior to or on a parity with the CH2M Preferred Stock as to dividends or upon any liquidation, dissolution or winding up of CH2M, whether voluntary or involuntary, or any other transaction deemed a liquidation event pursuant to the certificate of designation (including a sale of CH2M) or increasing the authorized number of shares of any such securities; (c) amending CH2M’s restated certificate of incorporation in any way that adversely affects the rights,

 

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preferences or privileges of CH2M Preferred Stock; (d) conducting certain liquidation events in which the holders of CH2M Preferred Stock would receive less than $600.0 million in cash or liquid assets; (e) effecting or allowing the registration or listing on a securities exchange of any securities of CH2M other than in accordance with post-registration or post-listing restrictions on transfer of CH2M Common Stock as further described in the Certificate of Designation; (f) entering into agreements for certain acquisitions, joint ventures or investments, except, in certain circumstances, those involving amounts of $100.0 million or less; (g) entering into agreements for certain firm, fixed-price or lump-sum design-build or EPC contracts outside of CH2M’s water business group involving certain negotiated amounts; (h) entering into certain related-party transactions; (i) entering into any new line of business; (j) conducting certain repurchases of shares of capital stock in excess of negotiated pre-approved amounts set forth in the certificate of designation; (k) incurring certain debt for borrowed money in amounts that would cause CH2M’s leverage ratio to exceed 3.00:1.00 (or 3.25:1.00 for 2015); (l) increasing the number of directors on the CH2M board of directors to more than 13; and (m) under certain circumstances set forth in CH2M’s Investor Rights Agreement with Apollo, after June 24, 2020, issuing equity securities other than certain pre-approved issuances pursuant to existing plans and agreements. Apollo and any other future holders of CH2M Preferred Stock may have interests that diverge from, or even conflict with, those of CH2M’s other stockholders. For example, the holders of CH2M Preferred Stock may have an interest in directly or indirectly pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their other equity investments, even though such transactions might involve risks to CH2M.

In addition, after June 24, 2020, the rate at which dividends on the CH2M Preferred Stock accrue may increase from 7.0% to 10.0% or 15.0% if certain liquidity opportunities are not provided to Apollo on or before such date as more fully described below.

On August 1, 2017, the sole holder of CH2M Preferred Stock, Apollo, held a special meeting of the holders of CH2M Preferred Stock. At that meeting, Apollo approved CH2M’s entry into the Merger Agreement with Jacobs in accordance with clause (d) above pursuant to its contractual protective provisions set forth in the Certificate of Designation of the Series A Preferred Stock of CH2M, which consent is separate and apart from Apollo’s right to vote its shares of CH2M Preferred Stock at the CH2M Special Meeting.

In addition, for so long as Apollo continues to hold a minimum required number of the shares of CH2M Preferred Stock set forth in the Investor Rights Agreement, Apollo will have the right to designate two directors to the CH2M board of directors.

Notwithstanding the fact that all directors will be subject to fiduciary duties and applicable law, the interests of the directors appointed by Apollo may differ from the interests of CH2M’s stockholders as a whole or of CH2M’s other directors.

The CH2M Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of CH2M’s common stockholders. Such preferential rights could adversely affect CH2M’s liquidity and financial condition and may result in the interests of the holders of CH2M Preferred Stock differing from those of CH2M’s common stockholders.

In the event of any liquidation, dissolution or winding up of CH2M, whether voluntary or involuntary, or any other transaction deemed a liquidation event pursuant to the Certificate of Designation, including a sale of CH2M (a “Liquidation”), each holder of outstanding shares of CH2M Preferred Stock will be entitled to be paid out of CH2M’s assets available for distribution to stockholders, before any payment may be made to the holders of CH2M Common Stock, an amount per share equal to the Original Issue Price, plus accrued and unpaid dividends thereon or, in the event that such Liquidation occurs before the June 24, 2020, such dividends as would have accrued on such shares through such date and are unpaid, and in each case, together with any other dividends declared and unpaid on such shares of CH2M Preferred Stock. If, upon such Liquidation, the amount that the holders of CH2M Preferred Stock would have received if all outstanding shares of CH2M Preferred Stock had been converted into shares of CH2M Common Stock immediately prior to such Liquidation would

 

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exceed than the amount they would receive pursuant to the preceding sentence, the holders of CH2M Preferred Stock will receive such greater amount.

Pursuant to the Certificate of Designation, dividends on CH2M Preferred Stock are cumulative and accrue quarterly, whether or not declared by the CH2M board of directors, at the rate of 5.0% per annum on the sum of the Original Issue Price plus all accrued and unpaid dividends thereon. On April 28, 2017, CH2M filed a Certificate of Amendment to the Certificate of Designation which increased the annual rate at which dividends accrue from 5% to 7% beginning April 1, 2017. After June 24, 2020, the rate at which dividends accrue may increase from 7.0% to 10.0% or 15.0% if CH2M’s stockholders do not approve a sale of CH2M which has been recommended by the CH2M board of directors or subsequently do not approve certain other actions to facilitate an initial public offering. Dividends accruing on shares of CH2M Preferred Stock prior to June 24, 2020 are not paid in cash or in kind but are added to the liquidation preference of the CH2M Preferred Stock pursuant to the Certificate of Designation. After June 24, 2020, dividends accruing on shares of CH2M Preferred Stock will be payable in cash at the election of the CH2M board of directors. In addition, under certain circumstances set forth in the Certificate of Designation, after June 24, 2020, dividends accrued on shares of CH2M Preferred Stock will be payable in cash or in kind at the election of the holders of a majority of the outstanding shares of CH2M Preferred Stock. In addition to the dividends accruing on shares of CH2M Preferred Stock described above, if CH2M declares certain dividends on CH2M Common Stock, CH2M will be required to declare and pay a dividend on the outstanding shares of CH2M Preferred Stock on a pro rata basis with the CH2M Common Stock, determined on an as-converted basis.

Pursuant to the Certificate of Designation, CH2M may redeem all shares of CH2M Preferred Stock, but no less than all shares of CH2M Preferred Stock, out of funds lawfully available for such purpose in one installment commencing at any time on or after June 24, 2018. The aggregate redemption price for the shares of CH2M Preferred Stock will be equal to the greater of (a) the fair value of such shares, as determined by an appraisal provided for in the Certificate of Designation, plus accrued and unpaid dividends on such shares, together with any other dividends declared and unpaid thereon, and (b) certain guaranteed minimum prices of up to an aggregate of $600.0 million. The CH2M Preferred Stock is not redeemable upon the election of the holders of CH2M Preferred Stock.

CH2M’s obligation to pay dividends to the holders of CH2M Preferred Stock in certain circumstances and CH2M’s potential decision to redeem the outstanding shares of CH2M Preferred Stock could impact CH2M’s liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions and other general corporate purposes and the repurchase of common stock on CH2M’s internal market. CH2M’s obligations to the holders of CH2M Preferred Stock could also limit CH2M’s ability to obtain additional financing or increase CH2M’s borrowing costs, which could have an adverse effect on CH2M’s financial condition.

On August 1, 2017, in connection with the execution of the Merger Agreement, Apollo entered into a voting and support agreement with Jacobs, pursuant to which Apollo, who owns 100% of the issued and outstanding CH2M Preferred Stock, has agreed to, among other things, vote in favor of the CH2M Merger Proposal and against any competing proposals.

If the Merger is consummated, 100% of the issued and outstanding CH2M Preferred Stock will be converted into Merger Consideration and the rights, preferences and privileges of the CH2M Preferred Stock will no longer be in place.

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF JACOBS

Set forth below are selected consolidated historical financial data for Jacobs. The selected consolidated historical financial data presented below under the captions “Selected Statement of Operations Data” and “Selected Balance Sheet Data” for, and as of the years ended September 30, 2016 and October 2, 2015, are derived from Jacobs’ audited financial statements that are incorporated by reference into this Proxy Statement/Prospectus from Jacobs’ Annual Report on Form 10-K for the year ended September 30, 2016. The selected consolidated historical financial statement data as of and for the years ended September 26, 2014, September 27, 2013 and September 28, 2012 are derived from Jacobs’ audited financial statements for the years ended October 2, 2015, September 26, 2014 and September 27, 2013, which financial statements are not included in or incorporated by reference into this Proxy Statement/Prospectus. The selected consolidated historical financial data as of June 30, 2017 and for the nine months ended June 30, 2017 have been derived from Jacobs’ unaudited consolidated financial statements and related notes contained in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, which is incorporated by reference into this Proxy Statement/Prospectus. The summary selected consolidated financial data as of July 1, 2016 and for the nine months ended July 1, 2016 have been derived from Jacobs’ unaudited consolidated financial statements and related notes for the quarterly period ended July 1, 2016, which financial statements are not included in or incorporated by reference into this Proxy Statement/Prospectus. The results for the nine months ended June 30, 2017 and July 1, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year. Jacobs’ unaudited interim financial statements reflect all adjustments that management of Jacobs considers necessary for the fair presentation of Jacobs’ financial position and results of operations as of June 30, 2017 and July 1, 2016 and for the nine months ended as of June 30, 2017 and July 1, 2016 in accordance with U.S. generally accepted accounting principles (“GAAP”). Historical results are not necessarily indicative of the results that may be expected for any future period.

The financial statement data provided below is only a summary, and you should read it in conjunction with the historical consolidated financial statements of Jacobs and the related notes contained in its annual and quarterly reports and the other information that Jacobs has previously filed with the SEC and which is incorporated into this Proxy Statement/Prospectus by reference. See “Incorporation of Certain Documents by Reference” beginning on page 246 and “Where You Can Find More Information” beginning on page 247. Amounts below are presented in thousands, except per share amounts.

 

    Nine Months
Ended
    Fiscal Year Ended  
(in millions, except per share data)   June 30,
2017
    July 1,
2016
    September 30,
2016 (a)
    October 2,
2015 (b)
    September 26,
2014 (c)
    September 27,
2013
    September 28,
2012 (d)
 

Selected Statement of Operations Data:

             

Revenues

  $ 7,368.9     $ 8,323.6     $ 10,964.2     $ 12,114.8     $ 12,695.2     $ 11,818.4     $ 10,893.8  

Operating income

    285.3       255.8       338.6       445.5       528.1       669.0       596.1  

Net income of the Group (1)

    194.0       184.6       214.5       328.9       352.1       440.2       391.0  

Net income (loss) attributable to noncontrolling interests

    5.6       (3.8     (4.1     (25.9     (24.0     (17.1     (12.0

Net income attributable to Jacobs

    199.6       180.8       210.4       303.0       328.1       423.1       379.0  

Net income per share:

             

Basic

    1.65       1.50       1.75       2.42       2.51       3.27       2.97  

Diluted

    1.64       1.49       1.73       2.40       2.48       3.23       2.94  

Selected Balance Sheet Data:

             

Total assets

  $ 7,244.8     $ 7,420.8     $ 7,360.0     $ 7,785.9     $ 8,453.7     $ 7,274.1     $ 6,839.4  

Long-term debt

    282.0       479.0       385.3       584.4       764.1       415.1       528.3  

Total liabilities

    2,959.8       2,931.5       3,029.8       3,429.5       3,948.0       3,025.8       3,080.5  

Total Jacobs stockholders’ equity

    4,225.7       4,424.6       4,265.3       4,291.7       4,469.3       4,213.1       3,722.5  

Total Group stockholders’ equity

    4,285.0       4,489.3       4,330.2       4,356.4       4,505.7       4,248.3       3,758.9  

 

(1) “Group” refers to the combined economic interests and activities of Jacobs and the persons and entities holding noncontrolling interests in the subsidiaries and affiliates that are consolidated into the accompanying Consolidated Financial Statements.
(a) Includes costs of $135.6 million or $1.12 per diluted share, related to Jacobs’ restructuring initiatives in the first, second, third and fourth quarter of fiscal 2016. Also, included in the fourth quarter of fiscal 2016 are (i) a loss on sale of Jacobs’ French subsidiary of $17.1 million or $0.14 per diluted share; and (ii) a non-cash write-off on an equity investment of $10.4 million or $0.09 per diluted share.

 

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(b) Includes costs of $107.9 million or $0.86 per diluted share, related to Jacobs’ restructuring initiatives in the second, third and fourth quarters of fiscal 2015.
(c) Includes costs of $109.2 million or $0.82 per diluted share, related to Jacobs’ restructuring initiatives in the third and fourth quarter of fiscal 2014.
(d) Includes a one-time, after-tax gain of $4.0 million, or $0.03 per diluted share, related to the sale of Jacobs’ intellectual property for iron ore pelletizing and certain other related assets.

Dividend Program

On December 1, 2016, Jacobs announced that its board of directors had approved the initiation of a quarterly cash dividend program. Prior to such date, Jacobs had not declared or paid a dividend during the preceding five fiscal years. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on March 17, 2017, to Jacobs stockholders of record as of the close of business on February 17, 2017. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on June 16, 2017, to Jacobs stockholders of record as of the close of business on May 19, 2017. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on September 1, 2017 to Jacobs stockholders of record as of the close of business on August 4, 2017. On September 27, 2017, the board of directors of Jacobs declared a quarterly dividend of $0.15 per share of Jacobs Common Stock to be paid on November 10, 2017 to Jacobs stockholders of record as of the close of business on October 13, 2017. Future dividend payments are subject to review and approval by the Jacobs board of directors.

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF CH2M

The selected CH2M financial data presented below under the captions “Selected Statement of Operations Data” and “Selected Balance Sheet Data” for, and as of the end of, each of the years in the five year period ended December 30, 2016, have been revised to reflect the presentation of our fixed-price Power EPC business as discontinued operations. CH2M’s selected financial data as of December 30, 2016 and December 25, 2015, and for each of the years in the three year period ended December 30, 2016, were derived from the consolidated financial statements which have been audited by KPMG LLP, an independent registered public accounting firm. The report thereon of KPMG LLP is included in this Proxy Statement/Prospectus. CH2M’s selected financial data as of December 31, 2014, 2013 and 2012 and for the years ended December 31, 2013 and 2012 are unaudited.

 

    Years Ended  
($ in millions, except per share data)   December 30,
2016
    December 25,
2015
    December 31,
2014
    December 31,
2013
    December 31,
2012
 

Selected Statement of Operations Data:

         

Revenue

  $ 5,195.7     $ 5,149.8     $ 5,216.5     $ 5,378.6     $ 5,577.1  

Operating income

    50.0       128.0       55.3       216.9       163.2  

Net income (loss) from continuing operations

    121.5       84.9       (5.8 )(e)      143.7       100.6  

Net (loss) income from discontinued operations

    (245.7 )(b)      7.3       (312.8 )(f)      (12.5     (2.3

Net income (loss) attributable to CH2M

  $ 15.0 (c)    $ 80.4     $ (181.5   $ 118.3     $ 93.0  

Net income (loss) from continuing operations attributable to CH2M per common share:

         

Basic

  $ 0.26     $ 2.64     $ (0.44   $ 4.62     $ 3.10  

Diluted

  $ 0.26     $ 2.63     $ (0.44   $ 4.58     $ 3.06  

Net income (loss) attributable to CH2M per common share:

         

Basic

  $ 0.03     $ 2.62     $ (6.42   $ 4.00     $ 2.99  

Diluted

  $ 0.03     $ 2.61     $ (6.42   $ 3.96     $ 2.95  

Selected Balance Sheet Data:

         

Total assets

  $ 2,670.5     $ 2,861.3     $ 2,941.3     $ 3,056.4     $ 3,114.6  

Long-term debt, including current maturities (a)

    497.9       301.7       513.0       391.1       252.3  

Total CH2M common stockholders’ equity

  $ 546.7 (d)      412.2     $ 212.8 (g)      624.4     $ 603.7  

 

(a) Substantially all of CH2M’s long-term debt relates to CH2M’s revolving credit facility. Borrowings on this facility are primarily used for working capital needs, required pension contributions and funds to repurchase shares on CH2M’s internal market.
(b) The net loss from discontinued operations was primarily caused by estimated project losses related to an Australian fixed-price Power EPC contract within CH2M’s discontinued fixed-price Power EPC business.
(c) The net income (loss) attributable to CH2M included estimated project losses and costs incurred for restructuring activities in 2016. These losses were offset by the release of a significant tax valuation allowance for an existing deferred tax asset related to the Halcrow Pension Scheme benefit restructuring as well as project losses attributable to noncontrolling interests resulting in net income attributable to CH2M.
(d) The increase in stockholders’ equity primarily relates to the change in accumulated other comprehensive income due to the Halcrow Pension Scheme benefit restructuring.
(e) The primary cause for the net loss from continuing operations relates to estimated project losses within CH2M’s State & Local Governments sector, impairment charges within CH2M’s Private sector, and costs incurred for restructuring activities in 2014.
(f) The net loss from discontinued operations was primarily caused by estimated project losses related to an Australian fixed-price Power EPC contract and a fixed-price Power contract to design and construct a new power generation facility in the northeastern United States as well as impairment charges within CH2M’s discontinued fixed-price Power EPC business.
(g) The decrease in stockholders’ equity is related to the consolidated net loss incurred in 2014, shares repurchases and changes in assumptions that increased pension liabilities that are included in accumulated other comprehensive income.

Dividend Program

CH2M has not declared or paid any cash dividends on CH2M Common Stock during the last five fiscal years. Dividends accrue on each outstanding share of CH2M Preferred Stock on the last day of March, June, September and December each year, whether or not declared, and are cumulative. Such dividends on the CH2M Preferred Stock accrued quarterly in arrears at an annual rate of 5% on the original issue price of the CH2M Preferred Stock and all accumulated and unpaid dividends accrued on the CH2M Preferred Stock to and including the quarter ending March 31, 2017. Beginning with the quarter ending June 30, 2017 such dividend on the CH2M Preferred Stock increased to an annual rate of 7% on the original issue price of the CH2M Preferred

 

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Stock and all accumulated and unpaid dividends accrued on the CH2M Preferred Stock. The CH2M Preferred Stock was first issued on June 24, 2015 at an original issue price of $62.22. In addition, the CH2M Amended Credit Agreement limits CH2M’s ability to declare and pay dividends, subject to compliance with the financial covenants and other restrictions set forth therein.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information presents the combination of the historical consolidated financial statements of Jacobs and CH2M adjusted to give effect to the Merger and the Financing Transactions (as defined below).

The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X and gives effect to events that are (1) directly attributable to the Merger and the Financing Transactions (as defined below), (2) factually supportable and (3) with respect to the statement of earnings, expected to have a continuing impact on the combined company’s results. The unaudited pro forma condensed combined financial information and related notes have been prepared utilizing period ends that differ by fewer than 93 days, as permitted by Regulation S-X.

The unaudited pro forma condensed combined balance sheet as of June 30, 2017 combines the unaudited consolidated balance sheets of Jacobs and CH2M as of June 30, 2017 and gives effect to the Merger and the Financing Transactions (as defined below) as if they had occurred on June 30, 2017.

The unaudited pro forma condensed combined statement of earnings for the year ended September 30, 2016 combines Jacobs’ audited consolidated statement of earnings for the fiscal year ended September 30, 2016 with CH2M’s audited consolidated statement of operations for the fiscal year ended December 30, 2016.

The unaudited pro forma condensed combined statement of earnings for the nine months ended June 30, 2017 combines Jacobs’ unaudited consolidated statement of earnings for the nine months ended June 30, 2017 with CH2M’s unaudited consolidated statement of operations for the nine months ended June 30, 2017. For purposes of the unaudited pro forma condensed combined statement of earnings for the nine months ended June 30, 2017, the historical CH2M amounts were derived by subtracting the unaudited consolidated statement of operations for the nine months ended September 30, 2016 from the audited consolidated statement of operations for the fiscal year ended December 30, 2016, and combining it with the unaudited consolidated statement of operations for the six months ended June 30, 2017. The historical results of CH2M’s fiscal quarter ended December 30, 2016 are included in the unaudited pro forma condensed combined statement of earnings for both the year ended September 30, 2016 and the nine months ended June 30, 2017. The unaudited pro forma condensed combined statements of earnings give effect to the Merger and the Financing Transactions (as defined below) as if they had occurred on October 1, 2015.

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

    the accompanying notes to the unaudited condensed combined pro forma financial information;

 

    the separate audited consolidated financial statements of Jacobs as of and for the year ended September 30, 2016 and the related notes, included in Jacobs’ Annual Report on Form 10-K for the fiscal year ended September 30, 2016, as incorporated by reference into this Proxy Statement/Prospectus;

 

    the separate unaudited condensed consolidated financial statements of Jacobs as of and for the nine months ended June 30, 2017 and the related notes, included in Jacobs’ Quarterly Report on Form 10-Q for the period ended June 30, 2017, as incorporated by reference into this Proxy Statement/Prospectus;

 

    the separate audited consolidated financial statements of CH2M as of and for the fiscal year ended December 30, 2016 and the related notes, included in this Proxy Statement/Prospectus; and

 

    the separate unaudited condensed consolidated financial statements of CH2M as of and for the six months ended June 30, 2017 and the related notes included in this Proxy Statement/Prospectus.

The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the Merger and the

 

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Financing Transactions (as defined below) had been completed as of the dates indicated, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Merger, the costs to integrate the operations of Jacobs and CH2M or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements. The pro forma adjustments represent Jacobs and CH2M management’s best estimates and are based upon current available information and certain assumptions that Jacobs and CH2M believe are reasonable under the circumstances. The final valuation may materially change the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information. Refer to Note 3 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 65 for more information on the basis of preparation.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2017

 

    As of
June 30, 2017
                          As of
June 30,
2017
 
    Jacobs
(Historical)
    CH2M
(Historical)
    Reclassification
Adjustments

(Note 4)
    Deconsolidation
of Chalk
River Joint
Venture
(Note 5)
    Pro Forma
Adjustments
        Pro Forma
Combined
 
    (unaudited)     (in thousands)            

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 758,296     $ 112,400     $ —       $ (10,365   $ (481,291   7(a)   $ 379,040  

Receivables

    2,086,331       —         1,180,257       (90,520     —           3,176,068  

Client accounts

    —         568,386       (568,386     —         —           —    

Unbilled revenue

    —         573,162       (573,162     —         —           —    

Other

    —         13,678       (13,678     —         —           —    

Income tax receivable

    —         25,031       (25,031     —         —           —    

Prepaid expenses and other

    95,608       103,899       827       (19,015     (2,443   7(b)     178,876  

Current assets of discontinued operations

    —         827       (827     —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    2,940,235       1,397,383       —         (119,900     (483,734       3,733,984  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Property, Equipment and Improvements, net

    329,128       233,536       —         —         16,000     7(c)     578,664  

Other Noncurrent Assets:

             

Goodwill

    2,900,819       499,221       —         —         1,664,693     7(d)     5,064,733  

Intangibles, net

    310,416       30,496       —         —         780,504     7(e)     1,121,416  

Miscellaneous

    764,161       —         515,666       152       (229,243   7(f)     1,050,736  

Deferred income taxes

    —         348,446       (348,446     —         —           —    

Employee benefit plan assets and other

    —         93,594       (93,594     —         —           —    

Investments in unconsolidated affiliates

    —         73,626       (73,626     —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total other noncurrent assets

    3,975,396       1,045,383       —         152       2,215,954         7,236,885  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
  $ 7,244,759     $ 2,676,302     $ —       $ (119,748   $ 1,748,220       $ 11,549,533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

             

Current Liabilities:

             

Notes payable

  $ 3,020     $ 2,231     $ —       $ —       $ (2,231   7(g)   $ 3,020  

Accounts payable

    553,744       —         363,536       (79,278     —           838,002  

Accounts payable and accrued subcontractor costs

    —         369,515       (369,515     —         —           —    

Accrued liabilities

    886,215       —         492,293       (28,715     (11,984   7(h)     1,337,809  

Accrued payroll and employee related liabilities

    —         290,407       (290,407     —         —           —    

Other accrued liabilities

    —         194,668       (194,668     —         —           —    

Current liabilities of discontinued operations

    —         1,239       (1,239     —         —           —    

Billings in excess of costs

    396,823       211,141       —         (2,395     —           605,569  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    1,839,802       1,069,201       —         (110,388     (14,215       2,784,400  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Long-term Debt

    282,000       520,234       —         —         1,405,467     7(i)     2,207,701  

Other Deferred Liabilities

    838,028       102,216       372,563       (8,660     (40,223   7(j)     1,263,924  

Long term employee related liabilities

    —         294,643       (294,643     —         —           —    

Long term liabilities of discontinued operations

    —         77,920       (77,920     —         —           —    

Commitments and Contingencies

             

Stockholders’ Equity:

             

Capital Stock:

             

Preferred stock

    —         48       —         —         (48   7(l)     —    

Common stock

    120,267       246       —         —         20,518     7(l)

7(m)

    141,031  

Additional paid-in capital

    1,223,805       144,197       —         —         933,827     7(l)

7(m)

    2,301,829  

Retained earnings

    3,664,970       642,504       —         —         (752,013   7(k)     3,555,461  

Accumulated other comprehensive loss

    (783,387     (171,234     —         —         171,234     7(l)     (783,387
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    4,225,655       615,761       —         —         373,518         5,214,934  

Noncontrolling interests

    59,274       (3,673     —         (700     23,673     7(n)     78,574  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Group stockholders’ equity

    4,284,929       612,088       —         (700     397,191         5,293,508  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
  $ 7,244,759     $ 2,676,302     $ —       $ (119,748   $ 1,748,220       $ 11,549,533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

FOR THE NINE MONTHS ENDED JUNE 30, 2017

 

    For the Nine
Months Ended
June 30, 2017
                            For the Nine
Months Ended
June 30, 2017
 
    Jacobs
(Historical)
    CH2M
(Historical)
    Reclassification
Adjustments
(Note 4)
    Deconsolidation
of Chalk
River Joint
Venture
(Note 5)
    Pro Forma
Adjustments
          Pro Forma
Combined
 
    (unaudited)     (in thousands except per share data)              

Revenues

  $ 7,368,922     $ 3,840,375     $ —       $ (525,517   $ —         $ 10,683,780  

Equity in earnings of joint ventures and affiliated companies

    —         30,049       —         (2,456     —           27,593  

Costs and Expenses:

             

Direct cost of contracts

    (6,070,961     (3,128,861     —         533,683       (746     8(b)       (8,666,885

Selling, general and administrative expenses

    (1,012,685     (614,869     —         8       (46,176     8(a), 8(b), 8(c), 8(d)       (1,673,722
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating profit

    285,276       126,694       —         5,718       (46,922       370,766  

Other Income (Expense):

             

Interest income

    5,697       446       —         —         —           6,143  

Interest expense

    (11,327     (22,574     —         (3     (14,970     8(e)       (48,874

Miscellaneous (expense) income, net

    (5,879     —         —         —         —           (5,879
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

    (11,509     (22,128     —         (3     (14,970       (48,610
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Earnings before taxes

    273,767       104,566       —         5,715       (61,892       322,156  

Income tax (expense) benefit

    (79,820     10,094       —         —         19,805       8(f)       (49,921
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net earnings of the group from continuing operations

    193,947       114,660       —         5,715       (42,087       272,235  

Net earnings attributable to noncontrolling interests

    5,639       (4,924     —         (5,715     —           (5,000
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net earnings attributable to the company from continuing operations

  $ 199,586     $ 109,736     $ —       $ —       $ (42,087     $ 267,235  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Earnings Per Share:

             

Basic

  $ 1.65               $ 1.91  
 

 

 

             

 

 

 

Diluted

  $ 1.64               $ 1.87  
 

 

 

             

 

 

 

Weighted Average Shares Outstanding:

             

Basic

    119,360             20,793       8(g)       140,153  

Diluted

    121,567             21,205       8(g)       142,772  

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED SEPTEMBER 30, 2016

 

    For the Fiscal Year Ended                           For the Fiscal
Year Ended
September 30,
2016
 
    Jacobs
(Historical)
September 30,
2016
    CH2M
(Historical)
December 30,
2016
    Reclassification
Adjustments
(Note 4)
    Deconsolidation
of Chalk
River Joint
Venture
(Note 5)
    Pro Forma
Adjustments
        Pro Forma
Combined
 
                (in thousands except per share data)            

Revenues

  $ 10,964,157     $ 5,195,667     $ —       $ (646,737   $ —         $ 15,513,087  

Equity in earnings of joint ventures and affiliated companies

    —         51,957       —         (93     —           51,864  

Costs and Expenses:

             

Direct cost of contracts

    (9,196,326     (4,288,408     —         647,050       (1,028   8(b)     (12,838,712

Selling, general and administrative expenses

    (1,429,233     (909,254     —         —         (69,065   8(a)8(b)8(c)     (2,407,552
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating profit

    338,598       49,962       —         220       (70,093       318,687  

Other Income (Expense):

             

Interest income

    7,848       544       —         —         —           8,392  

Interest expense

    (15,260     (16,183     —         (2     (34,904   8(e)     (66,349

Loss on disposal of business and investments

    (41,410     —         —         —         —           (41,410

Miscellaneous (expense) income, net

    (3,053     —         —         —         —           (3,053
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

    (51,875     (15,639     —         (2     (34,904       (102,420
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Earnings before taxes

    286,723       34,323       —         218       (104,997       216,267  

Income tax (expense) benefit

    (72,208     87,148       —         —         33,599     8(f)     48,539  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net earnings of the group from continuing operations

    214,515       121,471       —         218       (71,398       264,806  

Net earnings attributable to noncontrolling interests

    (4,052     (4,611     —         (218     —           (8,881
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net earnings attributable to the company from continuing operations

  $ 210,463     $ 116,860     $ —       $ —       $ (71,398     $ 255,925  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Earnings Per Share:

             

Basic

  $ 1.75               $ 1.82  
 

 

 

             

 

 

 

Diluted

  $ 1.73               $ 1.79  
 

 

 

             

 

 

 

Weighted Average Shares Outstanding:

             

Basic

    120,133             20,774     8(g)     140,907  

Diluted

    121,483             21,205     8(g)     142,688  

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Description of the Merger

On August 1, 2017, Jacobs entered into the Merger Agreement with CH2M and Merger Sub. Pursuant to and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into CH2M, with CH2M continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of Jacobs. Each outstanding share of CH2M Common Stock will be converted into the right to receive, at the election of the holder, the Merger Consideration, consisting of (i) the Mixed Election Consideration of (a) $52.85 in cash and (b) 0.6677 shares of Jacobs Common Stock; (ii) the Cash Election Consideration of $88.08; or (iii) the Stock Election Consideration of 1.6693 shares of Jacobs Common Stock. In accordance with the terms of the Merger Agreement, regardless of the elections of CH2M’s stockholders, the Merger Consideration will be subject to proration such that the aggregate consideration paid to CH2M stockholders in the Merger will equal 60% cash and 40% Jacobs Common Stock.

The issued and outstanding shares of CH2M Preferred Stock, including an amount equal to all dividends that would have been payable during the period from the date of issuance through the fifth anniversary of the original issuance of such shares of CH2M Preferred Stock in accordance with the Certificate of Designation, will convert into issued and outstanding shares of CH2M Common Stock immediately prior to the Effective Time. For pro forma financial statement purposes, the CH2M Preferred Stock and associated dividends have been treated as having been converted to CH2M Common Stock and entitling the holders thereof to receive the Merger Consideration paid to CH2M stockholders as described above at the pro forma balance sheet date.

Immediately prior to the Effective Time, each (i) outstanding CH2M Restricted Share, (ii) restricted stock unit in respect of CH2M Common Stock that is not an Assumed Restricted Stock Unit, (iii) performance stock in respect of CH2M Common Stock that is not an Assumed Performance Stock Unit, (iv) phantom stock right in respect of or economically linked to share of CH2M Common Stock, (v) option to purchase CH2M Common Stock, (vi) stock appreciation right in respect of CH2M Common Stock and (vii) any other equity or equity-based award in respect of, linked to or denominated in in respect of CH2M Common Stock other than the Assumed Restricted Stock Units and Assumed Performance Stock Units will accelerate vesting with respect to one hundred percent (100%) of the shares of CH2M Common Stock underlying such CH2M Accelerated Equity Award (treating for this purpose any performance-based vesting condition as having been attained at “target”).

In addition, immediately prior to the Effective Time, each CH2M Accelerated Equity Award (other than CH2M Restricted Shares which will be converted in the Merger pursuant to the terms described above) will be cancelled and exchanged for (i) any positive difference between the Mixed Consideration (valuing the Jacobs Common Stock in the Mixed Consideration based on the VWAP) and the exercise price per share of CH2M Common Stock, if applicable thereto, multiplied by (ii) the total number of shares of CH2M Common Stock subject to such CH2M Accelerated Equity Award as of immediately prior to such cancellation.

At the Effective Time, (i) each Assumed Restricted Stock Unit will be converted into a restricted stock unit on the same terms and conditions (including applicable vesting requirements) in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock subject thereto immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio and (ii) each Assumed Performance Stock Unit will be converted into a restricted stock unit on the same terms and conditions (with vesting to occur in substantially equal installments on each of the first three anniversaries of the original date of grant of the related Assumed Performance Stock Units, subject to such accelerated vesting, if any, provided to the holder thereof), in respect of the number of shares of Jacobs Common Stock equal to (a) the number of shares of CH2M Common Stock that would have vested at the end of the performance period if target performance had been achieved immediately prior to the Effective Time, multiplied by (b) the Assumed Equity Award Exchange Ratio.

Each of CH2M’s executive officers has entered into a change of control agreement with CH2M (the “CoC Agreements”). Under the CoC Agreements, CH2M will provide certain benefits in the event of a qualifying

 

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termination of employment (i.e., the termination of the executive’s employment by CH2M other than for “cause” or by the executive for “good reason,” each as defined in the CoC Agreements) that occurs within the 24-month period commencing upon a “change of control.” The Merger would constitute a “change of control” under the CoC Agreements. The unaudited pro forma condensed combined financial information includes payments expected to be made to CH2M’s Chief Executive Officer, Jacqueline C. Hinman, CH2M’s Executive Vice President, General Counsel and Secretary, Thomas M. McCoy, and CH2M’s Executive Vice President and Chief Financial Officer, Gary L. McArthur for base salary and bonus severance, incentive plans, retirement plan contributions and single and double trigger equity awards under these CoC Agreements as part of merger consideration or post-combination expense, as dictated by GAAP.

Jacobs considered the guidance in FASB ASC 805-10-55-24 to determine which payments should be accounted for as part of consideration transferred and which portion should be accounted for as post-combination compensation expense and to what extent the amounts should be reflected in the pro forma financial information presented. Such payments under the CH2M Golden Parachute Proposal and CH2M’s Change of Control Agreements comprise cash for base salary and bonus severance, Annual Incentive Plan bonus and retirement plan contributions, as well as the acceleration of outstanding single trigger and double trigger equity awards, as further described below.

Jacobs performed an analysis of the one-time cash payments for salary, Annual Incentive Plan bonus and retirement vesting and benefits and determined that such payments should be reflected as post-combination compensation expense. Consequently, payments to those executives to whom payments under the respective agreements are deemed to be probable have been included in the Unaudited Pro Forma Condensed Combined Balance Sheet as an adjustment to cash and retained earnings to the extent that such amounts will be paid upon closing of the Merger and do not relate to pre-combination service periods. No pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Earnings have been included for these payments, as they were determined to have no continuing impact on the registrant’s results of operations.

Payments related to single trigger equity awards consisting of value based Long-Term Incentive Plan awards and certain equity instruments (primarily stock options) have been determined to be a component of consideration transferred in the Unaudited Pro Forma Condensed Combined Balance Sheet, as pursuant to the terms of their respective underlying agreements, they will be accelerated and redeemed upon a change of control, with no pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Earnings, as they were determined to have no continuing impact on the registrant’s results of operations.

Payments related to double trigger equity awards that will be redeemed or replaced pursuant to the Merger Agreement have been reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet as (i) allocated between consideration transferred to the extent such amounts have been determined to relate to pre-combination service periods, and (ii) as an adjustment to cash and retained earnings for the remainder, which are treated as a charge to post-combination compensation expense. Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Earnings have been included only in relation to replacement awards issued, which have been determined to have a continuing impact on the registrant’s results of operations.

2. Description of the Financing Transactions

On August 1, 2017, in connection with execution of the Merger Agreement, Jacobs entered into the Jacobs Term Loan Commitment Letter with the Commitment Parties, pursuant to which the Commitment Parties committed to provide the Jacobs Term Loan Facility, which is a three-year senior unsecured delayed-draw term loan facility in an aggregate principal amount of $1.2 billion. On September 28, 2017, Jacobs increased the size of the Jacobs Term Loan Facility to $1.5 billion and entered into the Jacobs Term Loan Credit Agreement with certain lenders party thereto and BNP Paribas, as administrative agent. The proceeds of the Jacobs Term Loan Facility will be used to finance a portion of the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses.

 

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Additionally, in connection with the Merger, Jacobs solicited the Revolver Consents from the lenders party to the Jacobs Existing Revolving Credit Agreement. If the Revolver Consents were not obtained, the Commitment Parties had committed to provide the Jacobs Backstop Revolver Facility, which was a senior unsecured revolving credit facility with an aggregate principal amount of $1.6 billion, and Jacobs would have financed a portion of the Merger Consideration with borrowings under the Jacobs Backstop Revolver Facility. However, the consents were obtained and Jacobs will finance a portion of the cash component of the Merger Consideration, the repayment of CH2M’s outstanding indebtedness and other transaction expenses with borrowings under the Jacobs Existing Revolving Credit Agreement. Jacobs currently estimates that the aggregate principal amount of indebtedness to be incurred in connection with the Merger will be approximately $1.9 billion.

It is currently expected that substantially all of CH2M’s outstanding indebtedness will be repaid or satisfied and discharged at the Effective Time.

We refer to the foregoing transactions as the “Financing Transactions.” See “The Merger—Financing of the Merger” beginning on page 199 for additional information.

3. Basis of Preparation

This unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with Jacobs as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurements, and based on the historical consolidated financial statements of Jacobs and CH2M. Under ASC 805, all assets acquired, liabilities assumed and noncontrolling interest in the acquiree are required to be recognized and measured as of the acquisition date at fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of Merger Consideration over the fair value of assets acquired, liabilities assumed and noncontrolling interest, if any, is allocated to goodwill. The determination of the estimated fair value of CH2M’s assets to be acquired, liabilities to be assumed and noncontrolling interest presented herein has been made for the purpose of developing the unaudited pro forma condensed combined financial information. Jacobs has not completed the detailed valuation work necessary to finalize the required estimated fair values of CH2M’s assets to be acquired, liabilities to be assumed and noncontrolling interest. The final determination of such fair value will be determined after the Merger is completed and after completion of an analysis to determine the fair value of CH2M’s net assets and liabilities. This final determination may materially affect the fair values assigned to the assets, liabilities and noncontrolling interest, and could result in a material change to this unaudited pro forma condensed combined financial information.

Additionally, the accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in Jacobs’ audited consolidated financial statements as of and for the year ended September 30, 2016. Upon consummation of the Merger, Jacobs will perform a comprehensive review of CH2M’s accounting policies. As a result of the review, Jacobs may identify additional differences between the accounting policies of the two companies, which, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information. Based on a preliminary analysis, Jacobs has identified a policy difference between Jacobs and CH2M related to investments in certain of the two companies’ respective unconsolidated joint venture entities. Under the provisions of ASC Topic 810, Consolidation, Jacobs elects to account for such entities using proportionate consolidation, when such entities meet the criteria for such treatment, while CH2M elects to account for all such entities using the equity method of accounting. Determining the impact of aligning CH2M’s policy related to such entities with respect to the unaudited pro forma condensed combined financial information requires a detailed analysis of the facts and circumstances of each entity. This analysis is in progress and has not been completed. Based on its preliminary analysis, Jacobs has not identified any differences, including this one, that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information have no adjustments for differences in accounting policies.

 

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The pro forma financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Merger, the costs to integrate the operations of Jacobs and CH2M or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

4. Reclassification Adjustments

Certain reclassification adjustments have been made to the unaudited pro forma condensed combined financial information to conform CH2M’s consolidated balance sheet as of June 30, 2017 to Jacobs’ presentation.

The unaudited pro forma condensed combined financial information may not reflect all reclassifications necessary to conform CH2M’s presentation to that of Jacobs due to limitations on the availability of information as of the date of this document. Additional reclassification adjustments may be identified as more information becomes available.

5. Deconsolidation of Chalk River Joint Venture

Due to the closing of the acquisition of WS Atkins plc. by SNC-Lavalin Group Inc. on July 3, 2017, both of whom were partners with CH2M in a joint venture (the “Chalk River Joint Venture”) through which CH2M is executing a large Canadian nuclear project within CH2M’s National Governments sector, CH2M concluded that it is no longer the primary beneficiary of the Chalk River Joint Venture, and it will deconsolidate the joint venture commencing with its third quarter 2017 consolidated financial statements. The unaudited pro forma condensed combined financial information includes a pro forma adjustment to deconsolidate the investment (referred to in the disclosure) for the periods presented.

6. Calculation of Merger Consideration and Preliminary Purchase Price Allocation

            Merger Consideration

The Merger Consideration for the purpose of this unaudited pro forma condensed combined financial information is $2.8 billion. The Merger Consideration was determined by reference to the fair value on the date the Merger Agreement was executed. The calculation of Merger Consideration is as follows:

 

     Shares      Per Share      Total  
     (dollars and shares in thousands,
except per share amounts)
 

Estimated cash paid for outstanding CH2M common and preferred stock (1) (3)

         $ 1,643,274  

Estimated shares of Jacobs’ common stock issued to CH2M’s common stockholders (1)

     20,764      $ 52.76        1,095,516  

Estimated Jacobs’ equity awards and cash for CH2M’s equity awards (2) (5)

     37           3,272  

Estimated cash paid for settlement of CH2M’s stock-based compensation awards (2) (4)

           97,890  
        

 

 

 

Merger Consideration

         $ 2,839,952  
        

 

 

 

 

(1) CH2M’s stockholders have the option to elect to receive Cash Election Consideration of $88.08, Stock Election Consideration of 1.6693 shares of Jacobs Common Stock or Mixed Election Consideration of $52.85 and 0.6677 shares of Jacobs Common Stock, subject to proration such that the aggregate consideration paid to CH2M stockholders in the Merger will equal 60% cash and 40% Jacobs Common Stock.

 

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(2) Estimated consideration for settlement of CH2M outstanding equity awards consists of a cash component and Jacobs equity award component. The portion of the equity awards not settled in cash are settled by the issuance of Jacobs equity awards with similar terms.

 

(3) Shares used to determine the cash paid:

 

     Shares      Per Share      Total  
    

(dollars and shares in thousands,

except per share amounts)

 

Basic shares outstanding of common stockholders

     24,592      $ 88.08      $ 2,166,036  

Shares outstanding of preferred stockholders

     4,822      $ 88.08        424,687  

Dividends due to preferred stockholders

     1,681      $ 88.08        148,068  
        

 

 

 
         $ 2,738,791  

Cash split

           60
        

 

 

 
         $ 1,643,274  
        

 

 

 

For pro forma purposes, the fair value of consideration given and thus the Merger Consideration was partially based on Jacobs’ volume weighted average trading price for the five days preceding and including July 31, 2017 ($52.76 per share).

 

(4) Estimated cash paid for settlement of CH2M’s stock-based compensation awards (amounts in thousands)

 

     Total  

LTIP single trigger cash paid (a)(c)

   $ 20,021  

Value of other cash settled equity awards (b)(c)

     77,869  
  

 

 

 
   $ 97,890  
  

 

 

 

 

 

  (a) Value based LTIP payments are single trigger and meet the criteria under ASC 805 to be accounted for as part of merger consideration. The amount of the value based LTIP awards payments were calculated based on the terms of the LTIP agreements for eligible CH2M participants at 100% of target in accordance with the Merger Agreement.

 

  (b) This amount includes single-trigger equity awards.

 

     Shares      Per Share      Total  
     (dollars and shares in thousands,
except per share amounts)
 

Stock Appreciation Rights

     10      $ 88.08      $ 902  

Phantom Stock

     12      $ 88.08        1,100  

Stock Options

     822      $ 88.08        72,412  

Other preferred stock tracking awards

     39      $ 88.08        3,454  
        

 

 

 
         $ 77,869  
        

 

 

 

 

  (c) The above amounts include single trigger payments which are expected to be paid to CH2M’s Chief Executive Officer, Jacqueline C. Hinman, CH2M’s Executive Vice President, General Counsel and Secretary, Thomas M. McCoy, and CH2M’s Executive Vice President and Chief Financial Officer, Gary L. McArthur pursuant to their respective CoC Agreements.

 

(5)

Estimated Jacobs’ equity awards and cash for CH2M’s equity awards represents the portion of the double trigger RSUs (120,480) and PSUs (276,666) that were vested and represent pre-combination expense. 37

 

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  shares were vested and represent pre-combination expense/merger consideration at June 30, 2017. Refer to Note 8(c) for details on the portion of the RSUs and PSUs that relate to post-combination expense accounted for outside of merger consideration.

            Preliminary Purchase Price Allocation

Under the acquisition method of accounting, the identifiable assets acquired, liabilities assumed and noncontrolling interest of CH2M are recognized and measured as of the acquisition date at fair value and added to those of Jacobs. The determination of fair value used in the pro forma adjustments presented herein are preliminary and based on management estimates and have been prepared to illustrate the estimated effect of the Merger. The final determination of fair value is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the pro forma purchase price allocation is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. These additional analyses and final valuations may result in changes to the estimates of fair value set forth below, and such changes may be material.

The following table sets forth a preliminary allocation of the Merger Consideration to the identifiable tangible and intangible assets acquired, liabilities assumed and noncontrolling interest of CH2M based on CH2M’s consolidated balance sheet as of June 30, 2017, with the excess recorded as goodwill:

 

     (dollars in thousands)  

Current assets

   $ 1,393,574  

Property, equipment and improvements

     249,536  

Goodwill (1)

     2,163,914  

Intangibles

     811,000  

Other noncurrent assets

     286,309  
  

 

 

 
     4,904,333  

Current liabilities

     1,064,680  

Long-term debt

     545,145  

Other deferred liabilities

     434,556  
  

 

 

 
     2,044,381  

Noncontrolling interests

     20,000  
  

 

 

 

Merger Consideration

   $ 2,839,952  
  

 

 

 

 

(1) Goodwill represents the excess of the Merger Consideration over the fair value of the underlying net assets acquired. Goodwill is not amortized, but instead is reviewed for impairment at least annually, absent any indicators of impairment.

 

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7. Notes to Unaudited Pro Forma Condensed Combined Balance Sheet

 

  (a) Reflects the Financing Transactions to fund a portion of the Merger Consideration as described in Note 2 and the payments of transaction and financing costs.

 

     (dollars in thousands)  

Cash proceeds of the Financing Transactions

   $ 1,919,409  

Cash consideration paid (1)

     (1,741,164

Change of control payments(2)

     (28,040

Cash paid to extinguish CH2M’s Revolving Credit Facility and the CH2M Second Lien Notes (inclusive of $20 million prepayment penalty and accrued interest)

     (542,022

Transaction costs paid (exclusive of debt financing and Jacobs Backstop Revolver Facility commitment fees paid)

     (84,519

Debt financing fees paid

     (3,475

Jacobs Backstop Revolver Facility commitment fees paid

     (1,480
  

 

 

 

Net adjustment to cash

   $ (481,291
  

 

 

 

 

  (1) Cash consideration paid of $1,741.2 million reflects $1,643.3 million paid to CH2M’s common and preferred stockholders and $97.9 million paid to cash settle CH2M’s equity awards.
  (2) Change of control payment amounts include double trigger cash payments for base salary and bonus severance, Annual Incentive Plan bonus, retirement plan contributions and double trigger equity awards, which are expected to be paid to CH2M’s Chief Executive Officer, Jacqueline C. Hinman, CH2M’s Executive Vice President, General Counsel and Secretary, Thomas M. McCoy, and CH2M’s Executive Vice President and Chief Financial Officer, Gary L. McArthur pursuant to their respective CoC Agreements.

 

  (b) Reflects the elimination of debt financing fees related to the CH2M Credit Facility and the capitalization of the Jacobs Backstop Revolver Facility commitment fee incurred by Jacobs to finance the Merger.

 

     (dollars in thousands)  

Elimination of debt financing fees on the CH2M Credit Facility (1)

   $ (3,809

Jacobs Backstop Revolver Facility commitment fee (2)

     1,366  
  

 

 

 

Net adjustment to prepaid expenses and other

   $ (2,443
  

 

 

 

 

  (1) Debt financing fees of $11.6 million in total have been eliminated. In this adjustment, $3.8 million have been removed from prepaid expenses and other assets, $2.9 million have been removed from miscellaneous as described in Note 7(f) below and $4.9 million have been removed from long-term debt as described in Note 7(i) below.
  (2) Jacobs Backstop Revolver Facility commitment fees of $1.5 million in total have been capitalized. In this adjustment, $1.4 million have been capitalized as prepaid expenses and other assets and $0.1 million have been capitalized as miscellaneous as described in Note 7(f) below.

 

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  (c) Reflects the purchase accounting adjustment for property, equipment and improvements based on the acquisition method of accounting. Refer to Note 10 for additional information.

 

     (dollars in thousands)  

Elimination of CH2M’s property, equipment and improvements—carrying value

   $ (233,536

Property, equipment and improvements—fair value

     249,536  
  

 

 

 

Net adjustment to property, equipment and improvements

   $ 16,000  
  

 

 

 

 

  (d) Reflects the elimination of CH2M’s goodwill and the capitalization of the preliminary goodwill for the Merger Consideration in excess of the fair value of the net assets acquired in connection with the Merger. Refer to Note 6 for additional information.

 

     (dollars in thousands)  

Elimination of CH2M’s goodwill

   $ (499,221

Recording of preliminary goodwill in connection with the Merger

     2,163,914  
  

 

 

 

Net adjustment to goodwill

   $ 1,664,693  
  

 

 

 

 

  (e) Reflects the preliminary purchase accounting adjustments for estimated intangibles based on the acquisition method of accounting. Refer to Note 9 for additional information.

 

     (dollars in thousands)  

Elimination of CH2M’s intangibles

   $ (30,496

Recording of preliminary intangibles

     811,000  
  

 

 

 

Net adjustment to intangibles

   $ 780,504  
  

 

 

 

The Company is continuing to evaluate its preliminary purchase accounting and could identify additional intangible assets and/or liabilities as additional information is made available upon completion of the Merger.

 

  (f) Reflects the elimination of debt financing fees related to CH2M’s Revolving Credit Facility, the capitalization of the Jacobs Backstop Revolver Facility commitment fee incurred by Jacobs to finance the Merger, the purchase accounting adjustment for the investment in unconsolidated subsidiaries based on the acquisition method of accounting and adjustments to deferred tax assets (“DTAs”) and liabilities (“DTLs”) resulting from pro forma fair value adjustments of the acquired assets and assumed liabilities based upon a blended statutory rate of 32%.

 

     (dollars in thousands)  

Elimination of debt financing fees on the CH2M Credit Facility (1)

   $ (2,857

Jacobs Backstop Revolver Facility commitment fee (2)

     114  

Elimination of CH2M’s investment in unconsolidated subsidiaries

     (73,626

Recording of preliminary investment in unconsolidated subsidiaries

     100,000  

Recording of CH2M’s net DTL (3)

     (252,874
  

 

 

 

Net adjustment to miscellaneous

   $ (229,243
  

 

 

 

 

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  (1) Debt financing fees of $11.6 million in total have been eliminated. In this adjustment, $2.9 million have been removed from miscellaneous. $3.8 million have been removed from prepaid expenses and other assets as described in Note 7(b) above and $4.9 million have been removed from long-term debt as described in Note 7(i) below.
  (2) Jacobs Backstop Revolver Facility commitment fees of $1.5 million in total have been capitalized. In this adjustment, $0.1 million have been capitalized as miscellaneous and $1.4 million have been capitalized as prepaid expenses and other assets as described in Note 7(b) above.
  (3) Deferred tax liabilities have been recognized at an estimated blended statutory rate of 32% associated with the net increase in estimated amortizable identifiable intangible assets, the net increase in investment in unconsolidated subsidiaries, the net increase in noncontrolling interests, the increase in property, equipment and improvements due to purchase accounting and the write-off of unamortized debt financing fees and deferred rent. The blended statutory tax rate is driven by the anticipated geographic mix of taxable earnings for the combined company, driven by statutory tax rates in the U.S. partly offset by the inclusion of taxable earnings from non-U.S. jurisdictions with lower tax rates.

 

  (g) Reflects the payment of the current portion of CH2M’s Revolving Credit Facility and the CH2M Second Lien Notes.

 

     (dollars in thousands)  

Payment of the CH2M Credit Facility and CH2M Second Lien Notes

   $ (2,231
  

 

 

 

Net adjustment to notes payable

   $ (2,231
  

 

 

 

 

  (h) Reflects the elimination of the current portion of CH2M’s deferred rent and the payments of CH2M’s accrued interest and transaction costs as of June 30, 2017.

 

     (dollars in thousands)  

Elimination of CH2M’s deferred rent (1)

   $ (4,521

Payment of CH2M’s accrued interest

     (4,413

Payment of transaction related costs accrued as of June 30, 2017

     (3,050
  

 

 

 

Net adjustment to accrued liabilities

   $ (11,984
  

 

 

 

 

  (1) Deferred rent of $44.7 million in total has been eliminated ($4.5 million from accrued liabilities and $40.2 million from other deferred liabilities).

 

  (i) Reflects the recognition of the noncurrent portion of the Financing Transactions (net of unamortized debt financing fees) to fund the Merger, the elimination of debt financing fees related to CH2M’s Second Lien Notes and the payment of the noncurrent portion of CH2M’s Revolving Credit Facility and the CH2M Second Lien Notes.

 

     (dollars in thousands)  

Anticipated new borrowings (1)

   $ 1,919,409  

Unamortized debt financing fees (2)

     (3,475

Elimination of debt financing fees on CH2M’s Second Lien Notes (3)

     4,911  

Payment of CH2M’s Revolving Credit Facility and the CH2M Second Lien Notes (4)

     (515,378
  

 

 

 

Net adjustment to long-term debt

   $ 1,405,467  
  

 

 

 

 

  (1) Anticipated new borrowings of $1,919.4 million in total have been recognized.

 

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  (2) Unamortized debt financing fees of $3.5 million in total have been recognized.
  (3) Debt financing fees of $11.6 million in total have been eliminated. In this adjustment, $4.9 million have been removed from long-term debt. $3.8 million have been removed from prepaid expenses and other assets as described in Note 7(b) above and $2.9 million have been removed from miscellaneous as described in Note 7(f) above.
  (4) The CH2M Credit Facility and CH2M’s Second Lien Notes (the “CH2M Second Lien Notes”) of $517.6 million in total will be paid in connection with the Merger. In this adjustment, $515.4 million has been recognized in long-term debt and $2.2 million has been recognized in notes payable as described in Note 7(g) above.

 

  (j) Reflects the elimination of the noncurrent portion of CH2M’s deferred rent.

 

  (k) Reflects the payment of transaction costs and the elimination of CH2M’s retained earnings after adjustment.

 

     (dollars in thousands)  

Payment of transaction related costs not accrued as of June 30, 2017 (1)

   $ (81,469

Change of control payments

     (28,040

Elimination of CH2M’s retained earnings after adjustments (2)

     (642,504
  

 

 

 

Net adjustment to retained earnings

   $ (752,013
  

 

 

 

 

  (1) Jacobs and CH2M are expected to incur a total of $89.5 million in transaction related costs. These costs consist of legal advisory, financial advisory, accounting, consulting and financing costs and are not reflected in the unaudited pro forma condensed combined statements of earnings because they do not have a continuing effect on the combined company. Of the $89.5 million of transaction related costs, $3.0 million was accrued on the balance sheet as of June 30, 2017. Approximately $81.5 million has been shown as a pro forma adjustment reducing retained earnings. Approximately $5.0 million was related to financing and was capitalized. Of this $5.0 million, $3.5 million was netted against the debt balance as described in Note 7(i) and $1.5 million was capitalized as a deferred expense as described in Note 7(b) and Note 7(f).

 

  (2) Elimination of CH2M’s retained earnings includes the preferred stock dividend declaration impact ($105 million) and its subsequent elimination of the same amount.
 

 

  (l) Reflects the elimination of CH2M’s historical preferred stock, common stock, additional paid-in capital and accumulated other comprehensive loss.

 

  (m) Reflects the stock consideration component of the Merger ($20.8 million in common stock and $1,074.8 million in additional paid-in capital) and $3.3 million for the consideration attributable to the replacement of CH2M’s outstanding equity awards, as described in Note 6 above.

 

  (n) Reflects the purchase accounting adjustment for noncontrolling interests based on the acquisition method of accounting.

 

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8. Notes to Unaudited Pro Forma Condensed Combined Statements of Earnings

 

  (a) Represents adjustment to record amortization expense related to other identifiable intangible assets calculated on a straight-line basis as a result of the fair values recorded in purchase accounting. The amortization of intangible assets is based on the periods over which the economic benefits of the intangible assets are expected to be realized. See Note 9 for further details on the amortization lives of the intangible assets expected to be recognized.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

Selling, general and administrative expenses:

     

Elimination of CH2M’s amortization on intangible assets

   $ 13,135      $ 18,152  

Amortization after fair value adjustment

     (57,400      (76,533
  

 

 

    

 

 

 

Net adjustment to amortization expense

   $ (44,265    $ (58,381
  

 

 

    

 

 

 

 

  (b) Pro forma depreciation expense related to property, equipment and improvements is calculated on a straight-line basis as a result of the fair values recorded in the preliminary purchase accounting estimates used for purposes of the pro forma financial information presented. The depreciation of property and equipment is based on the estimated useful lives of the assets, while the estimated fair value assigned to leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease. See Note 10 for further details on the depreciation lives of the property, equipment and improvements expected to be recognized.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

Direct costs of contracts:

     

Elimination of CH2M’s depreciation on property, equipment and improvements

   $ 11,230      $ 14,630  

Depreciation after fair value adjustment

     (11,976      (15,658
  

 

 

    

 

 

 

Net adjustment to depreciation expense

   $ (746    $ (1,028
  

 

 

    

 

 

 

Selling, general and administrative expenses:

     

Elimination of CH2M’s depreciation on property, equipment and improvements

   $ 20,978      $ 28,163  

Depreciation after fair value adjustment

     (22,374      (30,142
  

 

 

    

 

 

 

Net adjustment to depreciation expense

   $ (1,396    $ (1,979
  

 

 

    

 

 

 

 

  (c)

Reflects the change in stock-based compensation expense due to the equity award replacement and resulting remeasurement of the fair value of stock based compensation as a result of the Merger. Under the terms of the Merger Agreement, certain unvested time based CH2M restricted stock units and CH2M performance stock units will be replaced and converted into unvested equity awards of Jacobs Common Stock. Pro forma stock-based compensation expense relating to these awards of $3.6 million and $8.7 million were recognized for the nine months ended June 30, 2017 and the year ended September 30, 2016, respectively. The June 30, 2017 expense is significantly lower than the

 

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  September 30, 2016 expense due primarily to the issuance of RSUs in March of 2017 that had a one year cliff vest.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

RSUs (1)

     

Reversal of CH2M historical compensation expense

   $ 677      $ —    
  

 

 

    

 

 

 

Pro forma compensation expense

     —          (1,706
  

 

 

    

 

 

 

PSUs (2)

     

Reversal of previously recognized compensation expense

     1,007        —    

Pro forma compensation expense

     (5,249      (6,999
  

 

 

    

 

 

 
   $ (3,565    $ (8,705
  

 

 

    

 

 

 

 

  (1) For the nine months ended June 30, 2017, $677 thousand was recognized in CH2M’s historical financial statements for stock based compensation expense relating to one-year vesting RSU awards. For the purpose of the pro forma presentation, this amount is reversed. Further, because the pro forma financial information assumes the merger transaction occurred on October 1, 2015, and because the associated replacement awards to be granted by Jacobs will vest in one year or less, the resulting calculation of pro forma stock based compensation expense for these awards of $1.7 million was fully reflected in the year ended September 30, 2016 with no corresponding expense in 2017. There were no other awards that would have generated expense in the nine-months ended June 30, 2017 for purposes of the pro forma financial information presented.

 

  (2) For the nine months ended June 30, 2017, $1.0 million was recognized in CH2M’s historical financial statements for stock based compensation expense relating to three-year vesting PSU awards. For the purpose of the pro forma presentation, this amount is reversed. The remaining comparative PSU pro forma compensation expense adjustment differs due to the nine-month versus twelve-month period presentation.

The pro forma stock-based compensation expense amounts have been calculated in accordance with ASC 805 by determining the proportion of each replacement award attributable to post-combination service periods and applying such proportion to the acquisition date fair value of Jacobs’ replacement awards. The resulting post-combination compensation expense is amortized over the remaining life of the awards.

 

  (d) Reflects the elimination of transaction related costs incurred by Jacobs and CH2M to consummate the Merger of $3.1 million during the nine months ended June 30, 2017 as transaction related costs do not have a continuing effect on the combined company.

 

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  (e) Reflects estimated incremental interest expense, amortization of debt financing fees, amortization of Jacobs Backstop Revolver Facility commitment fees and the elimination of CH2M’s interest expense and amortization of deferred debt financing and commitment fees.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

Interest expense on anticipated borrowings

   $ (36,564    $ (48,596

Amortization of debt financing fees

     (866      (1,125

Amortization of Jacobs Backstop Revolver Facility commitment fees

     (114      (1,366

Elimination of CH2M’s interest expense and amortization of debt financing fees

     22,574        16,183  
  

 

 

    

 

 

 

Net adjustment to interest expense

   $ (14,970    $ (34,904
  

 

 

    

 

 

 

Interest expense on anticipated borrowings was calculated by using available rates under Jacobs’ credit agreements as of the pro forma balance sheet date. The rate of 2.8% was derived by adding the LIBOR rate at June 30, 2017 of 1.3% to the spread as defined in such credit agreements, taking into account the expected leverage of the combined company after giving effect to the Merger.

A sensitivity analysis on interest expense for the nine months ended June 30, 2017 and the year ended September 30, 2016 has been performed to assess the effect of a change of 12.5 basis points of the hypothetical interest rate would have on the debt financing.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

Interest expense assuming:

     

Increase of 0.125%

   $ 2,064      $ 2,750  

Decrease of 0.125%

     (2,064      (2,750

 

  (f) Represents adjustment to income tax expense as a result of the tax impact on the pro forma adjustments. The blended statutory tax rate was used to compute the income tax expense related to the pro forma condensed combined statement of income adjustment as follows:

 

     Pro Forma
Nine Months
Ended
June 30, 2017
    Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (dollars in thousands)  

Pro forma net loss before taxes

   $ (61,892   $ (104,997

Statutory rate

     32     32
  

 

 

   

 

 

 

Income tax benefit

   $ 19,805     $ 33,599  
  

 

 

   

 

 

 

The blended statutory tax rate is driven by the anticipated geographic mix of taxable earnings for the combined company, driven by statutory tax rates in the U.S. partly offset by the inclusion of taxable earnings from non-U.S. jurisdictions with lower tax rates.

 

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  (g) Reflects the adjustments to weighted average shares outstanding.

 

     Pro Forma
Nine Months
Ended
June 30, 2017
     Pro Forma
Twelve Months
Ended
September 30, 2016
 
     (shares in thousands)  

Pro forma basic weighted average shares:

     

Historical Jacobs weighted average shares outstanding

     119,360        120,133  

Issuance of shares to CH2M common stockholders

     20,764        20,764  

Issuance of Jacobs replacement awards to CH2M equity award holders

     29        10  
  

 

 

    

 

 

 

Pro forma weighted average shares (basic)

     140,153        140,907  
  

 

 

    

 

 

 

Pro forma diluted weighted average shares:

     

Historical Jacobs weighted average shares outstanding

     121,567        121,483  

Issuance of shares to CH2M common stockholders

     20,764        20,764  

Issuance of Jacobs replacement awards to CH2M equity award holders

     441        441  
  

 

 

    

 

 

 

Pro forma weighted average shares (diluted)

     142,772        142,688  
  

 

 

    

 

 

 

9. Intangible Assets

The significant intangible assets identified in the preliminary purchase price allocation discussed above include customer relationships and trade names. Jacobs is continuing to evaluate its preliminary purchase accounting and could identify additional intangible assets and/or liabilities as additional information is made available upon completion of the Merger.

The table below indicates the estimated fair value of each of the intangibles that have been identified and the approximate useful lives of each:

 

     Approximate
Fair Value
     Estimated
Useful Life
 
     (dollars in thousands)  

Customer Relationships

   $ 765,000        13 years  

Trade Name

     46,000        3 years  
  

 

 

    
   $ 811,000     
  

 

 

    

Fair value was estimated using inputs primarily from the income approach. The income approach included the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value includes (i) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability and (iii) the estimated discount rate the reflects the level of risk associated with receiving future cash flows.

10. Property, Equipment and Improvements

The significant property, equipment and improvements valued in the preliminary purchase price allocation discussed above include land and land improvements, buildings, furniture, fixtures and equipment, computers and office equipment, field equipment and leasehold improvements.

 

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Pro forma depreciation expense related to property, equipment and improvements is calculated on a straight-line basis as a result of the fair values recorded in the preliminary purchase accounting estimates used for purposes of the pro forma financial information presented. The depreciation of property and equipment is based on the estimated useful lives of the assets, while the estimated fair value assigned to leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease.

The fair value of land was determined using the market approach, which arrives at an indication of value by comparing the site being valued to sites that have been recently acquired in arm’s-length transactions. The market data is then adjusted for any significant differences, to the extent known, between the identified comparable sites and the site being valued. Personal property assets with an active and identifiable secondary market such as field equipment (cranes, heavy equipment, tractors, trailers and vehicles) were valued using the market approach. Buildings and land improvements were valued using the cost approach using a direct cost model built on estimates of replacement cost. Other personal property assets such as furniture, fixtures and equipment were valued using the cost approach which is based on replacement or reproduction costs of the asset less depreciation.

The cost approach is an estimation of fair value developed by estimating the current cost of replacing a property and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence.

 

Remaining useful life of property, equipment and improvements

   Years  

Buildings

     20-40  

Ground Lease

     10  

Site Improvements

     8  

Equipment

     0.5-10  

 

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COMPARATIVE PER SHARE DATA

The following tables present selected historical per share information of Jacobs and CH2M. Also set forth below is information for Jacobs on an unaudited pro forma basis, calculated using the methodology described in “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 58, which is referred to as “pro forma combined” information. The pro forma combined information is also presented on a hypothetical basis per share of CH2M Common Stock, which we refer to as “CH2M equivalent” information.

The historical per share information of Jacobs below is derived from Jacobs’ audited financial statements from Jacobs’ Annual Report on Form 10-K for the year ended September 30, 2016 and from Jacobs’ unaudited consolidated financial statements contained in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017. The historical per share information of CH2M below is derived from audited financial statements of CH2M for the year ended December 30, 2016 and the unaudited condensed consolidated financial statements of CH2M for the six months ended June 30, 2017.

The pro forma combined and the CH2M equivalent per share information does not purport to represent the actual results of operations that CH2M would have achieved had the Merger occurred prior to these periods or to project the future results of operations that Jacobs may achieve after closing of the Merger.

 

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You should read the information in this section in conjunction with “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 58, with Jacobs’s historical consolidated financial statements and related notes that Jacobs has previously filed with the SEC and which are incorporated in this Proxy Statement/Prospectus by reference (see “Incorporation of Certain Documents by Reference” beginning on page 246 and “Where You Can Find More Information” beginning on page 247) and with CH2M’s historical consolidated financial statements set forth in this Proxy Statement/Prospectus. The pro forma combined information below is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been completed as of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company. In addition, the pro forma combined information does not purport to indicate balance sheet data or results of operations data as of any future date or for any future period.

 

     Nine Months Ended      Year Ended  
     June 30, 2017      September 30, 2016  

Jacobs Historical Per Share Data:

     

Net Earnings Per Share:

     

Basic

   $ 1.65      $ 1.75  

Diluted

   $ 1.64      $ 1.73  

Cash Dividends Per Share

   $ 0.30        —    

Book Value Per Share at Period End

   $ 35.14      $ 35.26  

 

     Six Months Ended      Year Ended  
     June 30, 2017      December 30, 2016  

CH2M Historical Per Share Data:

     

Net income (loss) attributable to CH2M per common share:

     

Basic

   $ 1.55      $ 0.03  

Diluted

   $ 1.55      $ 0.03  

Cash Dividends Per Share

     —          —    

Book Value Per Share at Period End

   $ 25.05      $ 21.74  

 

     Nine Months Ended  
     June 30, 2017  

Pro Forma Combined Per Share Data

  

Net Earnings Per Share:

  

Basic

   $ 1.91  

Diluted

   $ 1.87  

Cash Dividends Per Share

   $ 0.30  

Book Value Per Share at Period End

   $ 37.21  

 

     Nine Months Ended  
     June 30, 2017(1)  

CH2M Equivalent Per Share Data

  

Net Earnings Per Share:

  

Basic

   $ 3.19  

Diluted

   $ 3.12  

Cash Dividends Per Share

     —    

Book Value Per Share at Period End

   $ 62.12  

 

  (1) Pro forma per equivalent CH2M share information is calculated based on pro forma combined information multiplied by the applicable exchange ratio of 1.6693.

 

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COMPARATIVE PER SHARE MARKET PRICES AND DIVIDENDS

The following table presents trading information on the last full trading day prior to the public announcement of the Merger and on the latest practicable date before the date of this Proxy Statement/Prospectus. On July 31, 2017, the last trading day before the public announcement of the signing of the Merger Agreement, the closing sale price per share of Jacobs Common Stock was $52.72 on the NYSE and the price of shares of CH2M Common Stock, as established by the CH2M board of directors (in a process more fully described below) was $50.69. On November 8, 2017, the latest practicable date before the date of this Proxy Statement/Prospectus, the last sales price per share of Jacobs Common Stock was $61.12 on the NYSE and the price of shares of CH2M Common Stock, as established by the CH2M board of directors (in a process more fully described below) was $50.69. The equivalent per share prices set forth below were determined, for CH2M Common Stock in respect of which (A) a Stock Election is made, by multiplying the closing price of Jacobs Common Stock on the relevant date by the exchange ratio of 1.6693 and (B) a Mixed Election is made, by multiplying the closing price of Jacobs Common Stock on the relevant date by the exchange ratio of 0.6677 and adding $52.85 to such amount.

 

     Jacobs
Common Stock
     CH2M
Common
Stock
     CH2M Equivalent
Per Stock
Election Share
     CH2M Equivalent Per
Mixed Election Share
 

July 31, 2017

   $ 52.72      $ 50.69      $ 88.01      $ 88.05  

November 8, 2017

   $ 61.12      $ 50.69      $ 102.03      $ 93.66  

CH2M stockholders are advised to obtain current market quotations for Jacobs Common Stock. The market price of Jacobs Common Stock will fluctuate between the date of this Proxy Statement/Prospectus and the completion of the Merger. No assurance can be given concerning the market price of Jacobs Common Stock before, at or after the Effective Time.

Jacobs

Price of Jacobs Common Stock

The Jacobs Common Stock is traded on the NYSE under the symbol “JEC.” The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share of Jacobs Common Stock which trade on the NYSE.

 

     High      Low  

Fiscal 2017:

     

First quarter

   $ 62.17      $ 49.25  

Second quarter

     61.87        53.70  

Third quarter

     55.92        51.40  

Fourth quarter

     58.34        49.58  

Fiscal 2016:

     

First quarter

     45.41        37.51  

Second quarter

     44.77        34.76  

Third quarter

     53.33        40.93  

Fourth quarter

     55.89        48.13  

Fiscal 2015:

     

First quarter

     49.94        39.78  

Second quarter

     45.49        37.87  

Third quarter

     48.25        41.68  

Fourth quarter

     44.64        36.05  

On July 31, 2017, the last trading day before the public announcement of the signing of the Merger Agreement, the closing sale price per share of Jacobs Common Stock on the NYSE was $52.72. On November 8, 2017, the latest practicable date before the date of this Proxy Statement/Prospectus, the closing sale price per share of Jacobs Common Stock on the NYSE was $61.12.

 

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Jacobs Dividend Policy

On December 1, 2016, Jacobs announced that its board of directors had approved the initiation of a quarterly cash dividend program. Prior to such date, Jacobs had not declared or paid a dividend during the preceding five fiscal years. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on March 17, 2017, to Jacobs stockholders of record as of the close of business on February 17, 2017. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on June 16, 2017, to Jacobs stockholders of record as of the close of business on May 19, 2017. A quarterly dividend of $0.15 per share of Jacobs Common Stock was paid on September 1, 2017 to Jacobs stockholders of record as of the close of business on August 4, 2017. On September 27, 2017, the board of directors of Jacobs declared a quarterly dividend of $0.15 per share of Jacobs Common Stock to be paid on November 10, 2017 to Jacobs stockholders of record as of the close of business on October 13, 2017. Future dividend payments are subject to review and approval by the Jacobs board of directors.

CH2M

CH2M Internal Market Information

CH2M has a long history as an employee-controlled professional engineering services firm. CH2M’s Common Stock was, in the past, only available to be owned by certain active and former employees, directors, eligible consultants and benefit plans and their participants (“Eligible Employee Stockholders”) and, under limited circumstances at CH2M’s discretion, other third parties. In 2015, CH2M’s stockholders approved certain measures, including amendments to CH2M’s restated certificate of incorporation, intended to facilitate investments in CH2M Common Stock or CH2M Preferred Stock, by third-party investors (“Outside Investors”), and to permit such Outside Investors to transfer CH2M Common Stock other than through the internal market, subject to any contractual limitations CH2M and the Outside Investor agree upon. In addition, certain other rights and restrictions in CH2M’s restated certificate of incorporation are applicable to Eligible Employee Stockholders, but are not applicable to Outside Investors who may hold CH2M Common Stock or Preferred Stock from time to time.

There is no market on which CH2M’s stock may be purchased by the general public. In order to provide liquidity for its Eligible Employee Stockholders, in 2000 CH2M established an internal market (“Internal Market”) effected through an external third-party plan administrator, currently Computershare Trust Company, N.A (“Computershare”).

The Internal Market enabled Eligible Employee Stockholders to offer to sell or purchase shares of CH2M Common Stock on predetermined days (each, a “Trade Date”). The Trade Dates were determined by the CH2M board of directors in its sole discretion and generally occur on a quarterly basis. Unlike public companies whose stock is traded on a national securities exchange, the price of CH2M Common Stock is determined by the CH2M board of directors, generally on a quarterly basis in conjunction with the determination and announcement of quarterly Trade Dates based on a company fair valuation methodology that is intended to establish a price for CH2M Common Stock that represents fair value as of the applicable Trade Date. After the CH2M board of directors determines the stock price for use on the next Trade Date, all Eligible Employee Stockholders are advised as to the new stock price and the next Trade Date.

Upon CH2M’s entry into the Merger Agreement, CH2M’s board of directors suspended any further actions with respect to the Internal Market. Accordingly, the CH2M board of directors does not intend to determine any further Trade Dates unless the Merger Agreement is terminated.

Price of CH2M Common Stock

The price of CH2M Common Stock was established by the CH2M board of directors for each Trade Date based on a fair valuation methodology described in the CH2M Prospectus, dated March 23, 2010 (the “Prospectus”), as filed with the SEC, as amended by the information contained in the subsequent annual,

 

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quarterly and current reports filed by CH2M with the SEC pursuant to the Exchange Act. The valuation methodology used by the CH2M board of directors includes the following valuation formula (“Stock Valuation Formula”):

Share Price = [(7.8 × M × P) + (SE)] / CS

As further discussed below, the Stock Valuation Formula was one of several factors considered by the CH2M board of directors as part of the total mix of information available to determine the fair value of CH2M Common Stock.

In order to determine the fair value of CH2M Common Stock in the absence of a public trading market, the CH2M board of directors thought it appropriate to develop a valuation methodology to use as a tool to determine a price that would be a valid approximation of the fair value. In determining the fair value stock price, the CH2M board of directors believed that the use of a going concern component (i.e., net income, which CH2M calls profit after tax, as adjusted by the market factor) and a book value component (i.e., total stockholders’ equity) is a reasonable valuation process based on factors that are generally used in the valuation of equity securities. As part of the total mix of information that the CH2M board of directors considered in determining the fair value of CH2M Common Stock in addition to the Stock Valuation Formula, the CH2M board of directors reviewed appraisal information prepared by independent third-party valuation experts and other available information. The valuation methodology used to determine the stock price is subject to change at the discretion of the CH2M board of directors, as described below.

The existence of an over-subscribed or under-subscribed market on any given Trade Date did not affect the stock price on that Trade Date. However, the CH2M board of directors, when determining the stock price for a future Trade Date, may take into account the fact that there have been under-subscribed or over-subscribed markets on prior Trade Dates.

Market Factor (“M”). “M” is the market factor, which is subjectively determined in the sole discretion of the CH2M board of directors. A market factor greater than one increases the price per share, while a market factor less than one would decrease the price per share. In determining the market factor, the CH2M board of directors took into account factors it considered to be relevant in determining the fair value of the CH2M Common Stock, including:

 

    The market for publicly traded equity securities of companies comparable to CH2M;

 

    The merger and acquisition market for companies comparable to CH2M;

 

    The prospects for CH2M’s future performance, including CH2M’s financial condition and results of operations;

 

    General economic conditions;

 

    General capital market conditions; and,

 

    Other factors the CH2M board of directors deemed appropriate.

The CH2M board of directors did not assign predetermined weights to the various factors it considered in determining the market factor.

In its discretion, the CH2M board of directors changed the market factor used in the valuation process from time-to-time. The CH2M board of directors may have changed the market factor, for example, following a change in general market conditions that either increased or decreased stock market equity values for companies comparable to CH2M, if the CH2M board of directors thought that the market change was applicable to CH2M Common Stock as well. The CH2M board of directors considered adjusting the “M” factor of CH2M Common Stock to enable the stock price formula to better reflect the fair value of CH2M, including expectations for the future performance of CH2M as well as any other factors as described above.

 

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As part of the total mix of information that the CH2M board of directors considered in determining the “M” factor, the CH2M board of directors also took into account appraisal information of CH2M Common Stock regarding CH2M prepared by independent valuation experts. In setting the price of CH2M Common Stock, the CH2M board of directors compared the total of the going concern and book value components used in the valuation methodology to the enterprise value of CH2M in the appraisal provided by the independent valuation experts. If the CH2M board of directors concluded that its initial determination of the “M” factor should have been re-examined, the CH2M board of directors reviewed, and if appropriate, adjusted the “M” factor. Since the inception of the Internal Market program on January 1, 2000, the total of the going concern and book value components used by the CH2M board of directors in setting the price for the CH2M Common Stock has always been within the enterprise appraisal range provided quarterly by the independent valuation experts.

Profit After Tax (“P”). “P” is profit after tax, otherwise referred to as net income, for the four fiscal quarters immediately preceding the Trade Date. The CH2M board of directors, at its discretion, may have excluded nonrecurring or unusual transactions from the calculation. Nonrecurring or unusual transactions are developments that the market would not generally take into account in valuing an equity security. A change in accounting rules, for example, could increase or decrease net income without changing the fair value of the CH2M Common Stock. Similarly, such a change could fail to have an immediate impact on the value of the CH2M Common Stock, but still have an impact on the value of the CH2M Common Stock over time. The CH2M board of directors believes that in order to determine the fair value of the CH2M Common Stock, it is important for the CH2M board of directors to have the ability to review unusual or one-time events that affect net income. For example, in 2016 there was a one-time, non-cash tax benefit related to the redesign of one of CH2M’s defined benefit plans in the United Kingdom. Additionally, results related to CH2M’s Power EPC business are excluded as CH2M chose to exit the business in 2014, and inclusion of Power EPC results do not accurately reflect the profitability or value of CH2M’s continuing operations. In 2016, there were also certain restructuring activities which resulted in recording non-cash charges for restructuring activities and recognizing a cash restructuring charge related primarily to severance costs, as well as reductions to reported earnings as a result of the recognition of certain non-cash depreciation and amortization charges relating to acquisitions. The CH2M board of directors concluded that these charges are among the types of cash and non-cash charges that would generally not be taken into account by the market in valuing an equity security. Therefore, the CH2M board of directors decided to exclude these charges from the “P” (profit after tax) parameter for stock valuation purposes during the relevant periods and expects to treat similar charges and costs in future periods in the same manner. Because “P” is calculated on a four quarter basis, an exclusion impacts the calculation of fair value for four consecutive quarters.

Total Stockholders’ Equity (“SE”). “SE” is CH2M’s total stockholders’ equity, which includes intangible items, as set forth on CH2M’s most recent available quarterly or annual financial statements. The CH2M board of directors, at its discretion, may have excluded from the stockholders’ equity parameter nonrecurring or unusual transactions that the market would not generally take into account in valuing an equity security. The exclusions from stockholders’ equity generally were those transactions that were non-cash and were reported as “accumulated other comprehensive income (loss)” on the face of CH2M’s consolidated balance sheet. For example, the CH2M board of directors excluded a non-cash adjustment to stockholders’ equity related to the accounting for CH2M’s defined benefit pension and other postretirement plans. Because this adjustment is unusual and fluctuates from period to period, the CH2M board of directors excluded it from the “SE” parameter for stock valuation purposes. Similarly, other items that are reported as components of “accumulated other comprehensive income (loss)” and non-controlling interests are excluded from “SE” and include items such as unrealized gains/losses on securities and foreign currency translation adjustments.

Common Stock Outstanding (“CS”). “CS” is the weighted-average number of shares of CH2M Common Stock outstanding during the four fiscal quarters immediately preceding the Trade Date, calculated on a fully-diluted basis. By “fully-diluted” this means that the calculations are made as if all outstanding options to purchase CH2M Common Stock had been exercised and other “dilutive” securities, such as CH2M Preferred Stock, were converted into shares of CH2M Common Stock. In addition, an estimate of the weighted-average

 

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number of shares that CH2M reasonably anticipated would be issued under CH2M’s stock-based compensation programs and employee benefit plans were included in this calculation. For example, CH2M included in CS as calculated an estimate of the weighted-average number of shares that CH2M reasonably anticipated would be issued during the next four quarters under CH2M’s stock-based compensation programs and employee benefit plans in this calculation. CH2M included an estimate of the weighted-average number of shares that it reasonably anticipated would be issued during the next four quarters because CH2M has more than a 30-year history in making annual grants of stock-based compensation. Therefore, CH2M believed that it had sufficient information to reasonably estimate the number of such “to be issued” shares. This approach avoids an artificial variance in share value during the first calendar quarter of each year when the bulk of shares of CH2M Common Stock were issued pursuant to CH2M’s stock-based compensation programs. Similarly, if CH2M makes a substantial issuance of shares during the four fiscal quarters immediately preceding the Trade Date, using the weighted average of those shares may create an inappropriate variance in share value during the four fiscal quarters following the issuance. For example, if CH2M used shares as all or part of the consideration for the acquisition of a business, the time-weighted average number of shares issued in the acquisition transaction would not match the impact of the transaction reflected in total stockholders’ equity (or “SE”) as described above. Therefore, in the discretion of the CH2M board of directors, a substantial issuance of shares during the four-quarter period used to calculate CS for each Trade Date may have been treated as having been issued at the beginning of such four-quarter period. As a result, the CH2M board of directors may determine, in its discretion, to adjust the weighted-average number of shares to reflect in an appropriate manner the impact of past or anticipated future issuances.

The following table shows a comparison of the “CS” value actually used by the CH2M board of directors to calculate common stock prices on the dates indicated versus the year-to-date weighted-average number of shares of CH2M Common Stock as reflected in the diluted earnings per share calculation in CH2M’s financial statements for the past three years.

 

Effective Date

   CS      YTD Weighted-
Average Number
of Shares as reflected in
Diluted EPS calculation
 
     (in thousands)      (in thousands)  

February 14, 2014

     30,502        29,890  

May 16, 2014

     30,242        28,809  

August 15, 2014

     29,892        28,976  

November 24, 2014

     29,470        28,429  

February 20, 2015

     28,980        28,257  

May 7, 2015

     28,465        27,386  

August 3, 2015

     31,270        27,383  

November 2, 2015

     31,918        28,717  

February 22, 2016

     31,702        27,181  

May 2, 2016

     31,482        26,507  

August 1, 2016

     33,111        26,065  

January 19, 2017

     32,622        25,817  

March 6, 2017

     32,173        25,732  

Constant 7.8. In the course of developing this valuation methodology, it became apparent to the CH2M board of directors that a multiple would be required in order for the price of CH2M Common Stock derived by this methodology to approximate CH2M’s historical, pre-Internal Market common stock price. Another objective of the CH2M board of directors when developing the valuation methodology was to establish the fair value of CH2M Common Stock using a market factor of 1.0. CH2M believed that it was important to begin the Internal Market program with an “M” factor equal to 1.0 in order to make it easier for CH2M’s stockholders to understand future changes, if any, to the market factor.

 

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Therefore, the constant 7.8 was introduced into the formula. The constant 7.8 is the multiple that CH2M’s board of directors determined necessary (i) for the new stock price to approximate CH2M’s historical stock price derived using the pre-Internal Market formula as well as (ii) to allow the use of the market factor of 1.0 at the beginning of the Internal Market program.

CH2M generally announced the new stock price and the Trade Date approximately four weeks prior to each Trade Date. The external third-party administrator, currently Computershare, delivered the information to all employees and eligible participants in the Internal Market. In addition, CH2M filed a Current Report on Form 8-K disclosing the new stock price and all components used by the CH2M board of directors in determining such price in accordance with the valuation methodology described above.

CH2M also made the most current prospectus for CH2M Common Stock and its audited annual financial statements available to all CH2M stockholders, as well as other employees, and to participants in the Internal Market through the employee benefit plans. Such information was made available at the same time as CH2M’s annual reports and proxy information.

Historical Price of CH2M Common Stock

Starting in 2000, with the introduction of the Internal Market and its quarterly trades, the CH2M board of directors reviewed the CH2M Common Stock price prior to each Trade Date using the valuation methodology described above to set the price for the CH2M Common Stock.

The prices of CH2M Common Stock for the past three years, along with the various factors and values used by the CH2M board of directors to determine such stock prices on each date, are as follows:

 

Effective Date

   M      P      SE      CS      Price Per
Share
     Percentage
Price
Increase
(Decrease)
 
            (in thousands)      (in thousands)      (in thousands)                

February 14, 2014

     1.2      $ 144,682      $ 763,383        30,502      $ 69.43        12.4 %

May 16, 2014

     1.2      $ 131,486      $ 729,888        30,242      $ 64.83        (6.6 )%

August 15, 2014

     1.2      $ 117,630      $ 698,369        29,892      $ 60.20        (7.1 )%

November 24, 2014

     1.2      $ 84,307      $ 564,545        29,470      $ 45.93        (23.7 )%

February 20, 2015

     1.2      $ 96,361      $ 485,115        28,980      $ 47.86        4.2 %

May 7, 2015

     1.2      $ 101,314      $ 507,560        28,465      $ 51.14        6.9 %

August 3, 2015

     1.2      $ 110,060      $ 713,237        31,270      $ 55.75        9.0 %

November 2, 2015

     1.2      $ 153,652      $ 728,232        31,918      $ 67.87        21.7 %

February 22, 2016

     1.2      $ 139,622      $ 686,890        31,702      $ 62.89        (7.3 )%

May 2, 2016

     1.2      $ 131,724      $ 684,531        31,482      $ 60.91        (3.1 )%

August 1, 2016

     1.2      $ 110,648      $ 693,619        33,111      $ 52.23        (14.3 )%

January 19, 2017

     1.2      $ 88,288      $ 701,729        32,622      $ 46.83        (10.3 )%

March 6, 2017

     1.2      $ 93,446      $ 756,124        32,173      $ 50.69        8.2 %

CH2M Dividend Policy

CH2M has not declared or paid any cash dividends on CH2M Common Stock during the last five fiscal years. Dividends accrue on each outstanding share of CH2M Preferred Stock on the last day of March, June, September and December each year, whether or not declared, and are cumulative. Such dividends on the CH2M Preferred Stock accrued quarterly in arrears at an annual rate of 5% on the original issue price of the CH2M Preferred Stock and all accumulated and unpaid dividends accrued on the CH2M Preferred Stock to and including the quarter ending March 31, 2017. Beginning with the quarter ending June 30, 2017 such dividend on the CH2M Preferred Stock increased to an annual rate of 7% on the original issue price of the CH2M Preferred

 

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Stock and all accumulated and unpaid dividends accrued on the CH2M Preferred Stock. In connection with certain events, the accruing dividend on the CH2M Preferred Stock may increase to an annual rate of 10% or 15%. The CH2M Preferred Stock was first issued on June 24, 2015 at an original issue price of $62.22. In addition, the CH2M Amended Credit Agreement limits CH2M’s ability to declare and pay dividends, subject to compliance with the financial covenants and other restrictions set forth therein. Future declarations and payments of dividends on the CH2M Common Stock are subject to review and approval by the CH2M board of directors.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement/Prospectus and the documents that are incorporated into this Proxy Statement/Prospectus by reference may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements.” You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “should,” “could,” “would,” “predicts,” “future,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “aim,” “seek,” “forecast” and other similar words. These include, but are not limited to, statements relating to the strategy of the combined company, the synergies and the benefits that are expected to be achieved as a result of the closing of the Merger, future financial and operating results, the combined company’s plans, objectives, expectations and intentions, Jacobs’ and CH2M’s projections and other prospective financial information, as well as other statements that are not historical facts. These forward-looking statements represent intentions, plans, expectations, assumptions and beliefs about future events including the operations of the combined company and are subject to risks, uncertainties and other factors outside the control of Jacobs and CH2M, which could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In addition to the risk factors described under “Risk Factors” beginning on page 26, these risks, uncertainties and other factors include:

 

    uncertainties as to the timing of the closing of the Merger;

 

    the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, including a termination under circumstances that could require CH2M to pay the Breakup Fee and/or the Expense Fee to Jacobs;

 

    the inability to complete the Merger due to the failure to obtain the requisite CH2M stockholder approval or the failure to satisfy (or to have waived) other conditions to closing of the Merger;

 

    the inability to complete the Merger due to the failure to obtain the requisite regulatory approvals or, if obtained, the possibility of being subjected to conditions that could reduce the expected synergies and other benefits of the Merger, result in a material delay in, or the abandonment of, the Merger or otherwise have an adverse effect on Jacobs or CH2M;

 

    risks that the Merger disrupts current plans and operations of Jacobs and CH2M, and the potential difficulties in employee retention as a result of the Merger;

 

    the outcome and costs of any legal proceedings that may be instituted against Jacobs, CH2M and/or others relating to the Merger Agreement;

 

    diversion of each of Jacobs and CH2M’s management’s attention from ongoing business concerns;

 

    the effect of disruption from the Merger on each of Jacobs’ and CH2M’s business relationships, operating results and business generally;

 

    the amount of the costs, fees, expenses and charges related to the Merger, including any possible unexpected costs resulting therefrom;

 

    risks that the respective businesses of Jacobs and CH2M will have been adversely impacted during the pendency of the Merger;

 

    the risk that competing offers may be made for either Jacobs or CH2M;

 

    the ability to integrate Jacobs’ and CH2M’s businesses successfully and to avoid problems which may result in the combined company not operating as effectively and efficiently as expected;

 

    the inability to retain key personnel of Jacobs or of CH2M;

 

    risks that expected synergies, operational efficiencies and cost savings from the Merger may not be fully realized or realized within the expected time frame;

 

    significant changes in the business environment in which Jacobs and/or CH2M operate;

 

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    the effects of future regulatory or legislative actions on Jacobs and/or CH2M;

 

    the impact of the issuance of Jacobs Common Stock as consideration in connection with the Merger on the current holders of Jacobs Common Stock, including dilution of their ownership and voting interests;

 

    the resulting credit ratings of Jacobs, CH2M or their respective subsidiaries;

 

    changing circumstances related to third-party relationships on which Jacobs and CH2M rely for their respective businesses;

 

    the impact of changes in national and regional economies;

 

    market risks from fluctuations in interest rates;

 

    risks, uncertainties and other factors discussed in Jacobs’ SEC filings;

 

    events that are outside of the control of Jacobs and CH2M, such as political unrest in international markets, terrorist attacks, malicious human attacks, natural disasters, pandemics and other similar events; and

 

    other economic, business, regulatory and/or competitive factors affecting Jacobs’ and CH2M’s businesses generally.

The areas of risk and uncertainty described above should be considered in connection with any written or oral forward-looking statements that may be made after the date of this Proxy Statement/Prospectus by Jacobs or CH2M or any of their representatives.

Jacobs and CH2M also caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this Proxy Statement/Prospectus, or in the case of a document incorporated by reference, as of the date of that document. Except as required by law, neither of Jacobs or CH2M undertakes any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this Proxy Statement/Prospectus or to reflect actual outcomes.

 

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CH2M SPECIAL MEETING

General

If you are a holder of record of CH2M Common Stock or CH2M Preferred Stock on the Record Date, your proxy is solicited on behalf of the CH2M board of directors for use at the CH2M Special Meeting to be held at 9191 South Jamaica Street, Englewood, Colorado, 80112 on December 13, 2017, at 10:00 a.m., Mountain time, or at any postponement or adjournment thereof, for the purposes discussed in this Proxy Statement/Prospectus and in the accompanying Notice of Special Meeting and any business properly brought before the CH2M Special Meeting. Proxies are solicited to give all CH2M stockholders of record as of the Record Date entitled to vote, an opportunity to vote on matters properly presented at the CH2M Special Meeting. Instructions on how to attend and participate at the CH2M Special Meeting are also posted online at http://www.envisionreports.com/ch2m.

Date, Time and Place of the Special Meeting

CH2M will hold the CH2M Special Meeting on December 13, 2017, at 10:00 a.m., Mountain time, at 9191 South Jamaica Street, Englewood, Colorado, 80112. On or about November 10, 2017, CH2M commenced mailing this Proxy Statement/Prospectus and the enclosed proxy card and voting instructions to CH2M stockholders who held shares of CH2M Common Stock and CH2M Preferred Stock as of the Record Date.

Purpose of the Special Meeting

At the CH2M Special Meeting, CH2M is asking holders of record of CH2M Common Stock and CH2M Preferred Stock as of the Record Date of November 8, 2017, to consider and vote on the following:

 

  1. the CH2M Merger Proposal;

 

  2. the CH2M Adjournment Proposal; and

 

  3. the advisory, non-binding CH2M Golden Parachute Proposal, as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “The Merger—Interests of CH2M’s Directors and Officers in the Merger—Quantification of Payments and Benefits to CH2M’s Named Executive Officers” beginning on page 188.

Recommendation of the CH2M Board of Directors

After careful consideration, the CH2M board of directors has unanimously determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of CH2M and its stockholders and approved, adopted and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The CH2M board of directors unanimously recommends that CH2M’s stockholders vote “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal and “FOR” the CH2M Golden Parachute Proposal. See the section entitled “The Merger—CH2M’s Reasons for the Merger; Recommendation of the CH2M Board of Directors” beginning on page 158.

Stockholders Entitled to Vote; Record Date

You may vote at the CH2M Special Meeting if you were a record holder of shares of CH2M Common Stock or CH2M Preferred Stock at the close of business on the Record Date of November 8, 2017.

If your shares are held by the trustees of the CH2M 401(k) Plan you may not vote directly at the CH2M Special Meeting, rather you will receive a voting instruction form allowing you to instruct Newport Trust with respect to the voting of the shares of CH2M Common Stock in your account under the CH2M

 

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401(k) Plan on the Record Date. Such voting instruction form is separate from and in addition to the proxy card you will receive if you are also the direct holder of CH2M Common Stock. Newport Trust will vote the CH2M Common Stock credited to your account in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with ERISA. If you do not send instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, or if your instructions are not received in a timely manner, such shares shall be voted at the CH2M Special Meeting by Newport Trust in accordance with the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole, as determined by Newport Trust. The voting instructions must be received before 11:59 p.m., Mountain time, on December 8, 2017 to be timely. Please note that you may not vote the shares of CH2M Common Stock that are credited to your account(s) under the DCP, SERRP and/or the ISVEU since these shares have not been issued to you.

Each share of CH2M Common Stock and each share of CH2M Common Stock into which shares of CH2M Preferred Stock are convertible on the Record Date is entitled to cast one vote on each matter voted upon at the CH2M Special Meeting. As of the Record Date, there were 24,600,078 shares of CH2M Common Stock and 4,821,600 shares of CH2M Preferred Stock outstanding held by approximately 7,200 holders of record. On the Record Date, the CH2M Preferred Stock was convertible into 5,379,140 shares of CH2M Common Stock.

Quorum and Vote Required

A quorum of stockholders is necessary to hold the CH2M Special Meeting. The required quorum for the transaction of business at the CH2M Special Meeting shall exist when the holders of a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock (on an as-converted basis) issued and outstanding and entitled to vote at the CH2M Special Meeting are present or represented by proxy. Shares of CH2M Common Stock and CH2M Preferred Stock held by a stockholder present in person at the CH2M Special Meeting, but not voting, and shares of CH2M Common Stock and CH2M Preferred Stock for which CH2M has received proxies indicating that the holders thereof have abstained will be counted as present at the CH2M Special Meeting for purposes of determining whether a quorum is established. If a quorum is not present at the CH2M Special Meeting, we expect that the CH2M Special Meeting will be adjourned to solicit additional proxies. As of the Record Date, approximately 24,600,078 shares of CH2M Common Stock and 4,821,600 shares CH2M Preferred Stock were outstanding. Apollo holds the right to vote approximately 17.94% of the total amount of CH2M voting stock outstanding as of the Record Date as a result of its holdings of CH2M Preferred Stock, which, as discussed below, Apollo has agreed, pursuant to the Voting Agreement, to vote in favor of the CH2M Merger Proposal and any other proposals necessary to consummate the Merger.

You may vote “FOR” or “AGAINST,” or you may “ABSTAIN” from voting on, the CH2M Merger Proposal. The CH2M Merger Proposal will be approved if a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock entitled to vote on such matter, voting together as a single class on an as-converted basis, vote in favor of the CH2M Merger Proposal at the CH2M Special Meeting. Since the vote on the CH2M Merger Proposal is based on the total number of shares of CH2M Common Stock and CH2M Preferred Stock outstanding (on an as-converted basis), rather than the number of actual votes cast, abstentions and failures to vote or submit a proxy card or voting instructions will have the same effect as voting “AGAINST” the approval of the CH2M Merger Proposal.

You may vote “FOR” or “AGAINST,” or you may “ABSTAIN” from voting on, the CH2M Adjournment Proposal. The CH2M Adjournment Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Adjournment Proposal, whether or not a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the approval of the CH2M Adjournment Proposal.

 

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You may vote “FOR” or “AGAINST,” or you may “ABSTAIN” from voting on, the CH2M Golden Parachute Proposal. The non-binding advisory CH2M Golden Parachute Proposal will be approved if a majority of the votes cast (excluding abstentions) by the shares of CH2M Common Stock and CH2M Preferred Stock, voting together as a single class on an as-converted basis, present or represented by proxy at the CH2M Special Meeting and entitled to vote on such matter, vote in favor of the CH2M Golden Parachute Proposal, assuming a quorum is present. In this case, an abstention from voting and a failure to vote or to submit a proxy card or voting instructions will have no effect on the approval of the CH2M Golden Parachute Proposal.

Shares Owned by CH2M’s Directors and Executive Officers

As of the Record Date, CH2M’s directors and executive officers beneficially owned and were entitled to vote an aggregate of 665,291 shares of CH2M Common Stock, or the right to vote approximately 2.7% of the total CH2M voting stock outstanding on the Record Date. These numbers do not give effect to outstanding CH2M Accelerated Equity Awards (other than the CH2M Restricted Shares), which CH2M Accelerated Equity Awards (other than the CH2M Restricted Shares) are not entitled to vote at the CH2M Special Meeting. Apollo, which is affiliated with two of CH2M’s directors, has entered into a Voting Agreement (as defined below) obligating Apollo to vote all of its shares of CH2M Common Stock and CH2M Preferred Stock in favor of the CH2M Merger Proposal and any other proposals necessary to consummate the Merger and against any competing proposals. CH2M currently expects that each of its directors and executive officers will vote their shares of CH2M Common Stock in favor of the proposals to be presented at the CH2M Special Meeting.

Voting; Proxies

You may vote in person at the CH2M Special Meeting or you may submit a proxy over the Internet, by telephone or by signing, dating and returning the proxy card by the deadlines set forth herein.

Voting at the CH2M Special Meeting

You may attend the CH2M Special Meeting in person and vote at the CH2M Special Meeting. If you do not plan to attend the CH2M Special Meeting in person and wish to vote at the CH2M Special Meeting, follow the instructions provided on your proxy card.

To ensure that your shares are represented and voted at the CH2M Special Meeting, CH2M recommends that you promptly submit a proxy, even if you plan to attend the CH2M Special Meeting.

Voting by Proxy

You may submit your proxy by completing, dating, signing and returning the enclosed proxy card by mail or by granting a proxy by telephone or on the Internet as set forth below.

If your shares are held by the trustees of the CH2M 401(k) Plan, you will receive a voting instruction form allowing you to instruct Newport Trust of the CH2M 401(k) Plan with respect to the voting of the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan on the Record Date. Such voting instruction form is separate from and in addition to the proxy card you will receive if you are also the direct holder of CH2M Common Stock. Newport Trust will vote the CH2M Common Stock credited to your account in accordance with your instructions, provided that Newport Trust determines it can do so in accordance with ERISA. If you do not send instructions regarding the voting of CH2M Common Stock in your CH2M 401(k) Plan account, or if your instructions are not received in a timely manner, such shares shall be voted at the CH2M Special Meeting by Newport Trust in accordance with the interests of the CH2M 401(k) Plan participants and the CH2M 401(k) Plan as a whole, as determined by Newport Trust. Please follow the instructions on your voting instruction form, which may be different from those provided to other CH2M stockholders. For the avoidance of doubt, if you are a participant in the CH2M 401(k) Plan, you may not vote directly at the CH2M Special Meeting.

 

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Please note that you may not vote the shares of CH2M Common Stock that are credited to your account(s) under the DCP, SERRP and/or the ISVEU since these shares have not been issued to you.

All shares of CH2M Common Stock and CH2M Preferred Stock represented by properly executed proxies (other than proxies for shares credited to accounts under the CH2M 401(k) Plan) received at the times indicated below and that are not revoked or changed prior to being exercised at the CH2M Special Meeting will be voted at the CH2M Special Meeting in accordance with the instructions indicated on the proxies or voting instructions or, if no instructions were provided, “FOR” the CH2M Merger Proposal, “FOR” the CH2M Adjournment Proposal, and “FOR” the CH2M Golden Parachute Proposal.

Only shares of CH2M Common Stock and CH2M Preferred Stock affirmatively voted for the CH2M Merger Proposal, the CH2M Adjournment Proposal, or the CH2M Golden Parachute Proposal, as applicable, and properly executed proxies that do not contain voting instructions (other than proxies for shares credited to accounts under the CH2M 401(k) Plan), will be counted as votes “FOR” the applicable proposals. Shares of CH2M Common Stock and CH2M Preferred Stock held by persons who attend the CH2M Special Meeting but abstain from voting at the CH2M Special Meeting or by proxy, and shares of CH2M Common Stock and CH2M Preferred Stock for which we received proxies directing an abstention, will have the same effect as votes “AGAINST” the CH2M Merger Proposal, but will have no effect on the CH2M Adjournment Proposal or the CH2M Golden Parachute Proposal.

By Internet. Access the Internet website specified on the enclosed proxy card or voting instructions to submit your proxy or instructions and for the electronic delivery up until 11:59 p.m. Mountain time on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan). Have your proxy card or voting instructions in hand when you access the website and follow the instructions to obtain your records and to create an electronic proxy or voting instruction form.

By Phone. Within the U.S., U.S. territories and Canada, use any touch-tone telephone to dial 1-800-652-VOTE (8683) (outside the U.S., U.S. territories and Canada, dial 1-781-575-2300) to submit your proxy or voting instructions up until 11:59 p.m. Mountain time on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan). Have your proxy card or voting instructions in hand when you call and then follow the instructions. If you submit proxy or voting instructions by telephone, do not also return your proxy card or voting instructions by other means.

By Mail. Mark, sign and date your proxy card or voting instructions and return it in the postage-paid envelope we have provided or return it to the address set forth in such proxy card. Your proxy card or voting instructions must be received no later than the close of business on December 12, 2017 (December 8, 2017 for participants in the CH2M 401(k) Plan).

Revocation of Proxy

If you are a holder of record of CH2M Common Stock or CH2M Preferred Stock as of the Record Date (other than shares of CH2M Common Stock in your account under the CH2M 401(k) Plan), you can change your vote in one of three ways:

 

  1. you can send a signed notice of revocation, which must be received prior to the close of business on December 12, 2017, to the address set forth in the proxy card;

 

  2. you can submit a new, valid, revised proxy bearing a later date by mail, over the Internet or by telephone as described above, which revised proxy must be received prior to the deadlines set forth above for each method of voting; or

 

  3. you can attend the CH2M Special Meeting and vote in person, which will automatically cancel any proxy previously given, though your attendance alone will not revoke any proxy that you have previously given.

 

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If you are a participant in the CH2M 401(k) Plan, you can change your vote in one of two ways:

 

  1. you can send a signed notice of revocation, which must be received prior to the close of business on December 8, 2017, to the address set forth in the voting instruction form relating to the shares of CH2M Common Stock in your account under the CH2M 401(k) Plan; or

 

  2. you can submit a new, valid, revised voting instructions bearing a later date by mail, over the Internet or by telephone as described above, which revised voting instructions must be received prior to the deadlines set forth above for each method of voting.

Solicitation of Proxies

The CH2M board of directors is soliciting proxies for the CH2M Special Meeting from CH2M’s stockholders. CH2M will bear the entire cost of soliciting proxies from its stockholders. In addition to the solicitation of proxies by delivery of this Proxy Statement/Prospectus by mail, CH2M will request that the trustee of the CH2M 401(k) Plan deliver, or cause to be delivered, copies of the Notice of Special Meeting of CH2M Stockholders, proxies and proxy materials to beneficial owners under the CH2M 401(k) Plan and secure those beneficial owners’ voting instructions. CH2M will reimburse the trustee for its reasonable expenses. CH2M has engaged Georgeson LLC to assist in the solicitation of proxies and provide related advice and informational support for a fee of $12,500, plus certain variable fees, reimbursement of customary disbursements and other costs. CH2M may use several of its regular employees, who will not be specially compensated, to solicit proxies from the CH2M stockholders, either personally or by telephone, Internet, facsimile or special delivery letter.

Appraisal Rights

As more fully described below in the section entitled “The Merger—CH2M Stockholder Appraisal Rights” beginning on page 192, if the Merger is effected, under applicable Delaware law, CH2M stockholders who do not vote in favor of adoption of the Merger Agreement and who comply with and properly demand appraisal under the applicable requirements of Section 262 of the DGCL and do not otherwise withdraw or lose the right to appraisal under Delaware law, have the right to seek appraisal of the fair value of their shares of CH2M Common Stock or CH2M Preferred Stock as determined by the Delaware Court of Chancery if the Merger is completed. The “fair value” of your shares of CH2M Common Stock and CH2M Preferred Stock as determined by the Delaware Court of Chancery in an appraisal proceeding may be more than, less than, or equal to the value of the Merger Consideration that you are otherwise entitled to receive under the terms of the Merger Agreement.

Generally, in order to properly demand appraisal, a stockholder must:

 

    deliver to CH2M a written demand for appraisal, in compliance with Section 262 of the DGCL, before the vote on the CH2M Merger Proposal at the CH2M Special Meeting;

 

    not vote in favor of the CH2M Merger Proposal or submit a proxy to have such stockholder’s shares of CH2M Common Stock or CH2M Preferred Stock voted in favor of the CH2M Merger Proposal;

 

    be a record holder of shares of CH2M Common Stock or CH2M Preferred Stock on the date the written demand for appraisal is made and continue to hold the shares through the Effective Time of the Merger; and

 

    strictly follow the statutory procedures for perfecting appraisal rights under Section 262 of the DGCL, which are described in the section entitled “The Merger—CH2M Stockholder Appraisal Rights” beginning on page 192, and included as Annex F to this Proxy Statement/Prospectus.

Merely voting against, or failing to vote in favor of, the CH2M Merger Proposal will not preserve your right to appraisal under the DGCL. Also, since a submitted proxy not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the CH2M Merger Proposal, the submission of a proxy not marked “AGAINST” or “ABSTAIN” will result in the loss of appraisal rights.

 

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Annex F to this Proxy Statement/Prospectus contains the full text of Section 262 of the DGCL, which relates to your right of appraisal. We encourage you to read these provisions carefully and in their entirety. If you or your nominee fail to follow all of the steps required by Section 262 of the DGCL, you will lose your right of appraisal.

Adjournments or Postponements

Although it is not currently expected, if necessary, the CH2M Special Meeting may be adjourned for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the CH2M Special Meeting to approve the CH2M Merger Proposal, by a majority in voting power of the shares of CH2M Common Stock and CH2M Preferred Stock entitled to vote on such matter, voting together as a single class on an as-converted basis, at the CH2M Special Meeting. Any signed proxies received by us for which no voting instructions are provided on such matter will be voted “FOR” the CH2M Adjournment Proposal.

Important Notice Regarding the Availability of Proxy Materials for the CH2M Special Meeting to be Held on December 13, 2017

A copy of this Proxy Statement/Prospectus is available, without charge, by written request to CH2M HILL Co