<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1997.
REGISTRATION NO. 333-19991
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE REGISTRY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 7379 04-2920563
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
189 WELLS AVENUE
NEWTON, MASSACHUSETTS 02159
(617) 527-6886
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD L. BUGLEY, ESQ.
GENERAL COUNSEL
THE REGISTRY, INC.
189 WELLS AVENUE
NEWTON, MASSACHUSETTS 02159
(617) 527-6886
(617) 527-6999 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
KEITH F. HIGGINS, ESQ. PETER B. TARR, ESQ.
ROPES & GRAY HALE AND DORR LLP
ONE INTERNATIONAL PLACE 60 STATE STREET
BOSTON, MA 02110-2607 BOSTON, MA 02109
(617) 951-7000 (617) 526-6000
(617) 951-7050 (FAX) (617) 526-5000 (FAX)
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 30, 1997
3,000,000 SHARES
LOGO
COMMON STOCK
-----------
Of the 3,000,000 shares of Common Stock offered hereby, 1,234,166 shares are
being sold by the Company and 1,765,834 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders. The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol "REGI." On January 29, 1997, the last reported sale
price of the Common Stock was $40.00 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total (3)..................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $550,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to receipt and acceptance by them and to their right to reject any order in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made at the offices of Adams, Harkness & Hill, Inc., Boston,
Massachusetts, on or about , 1997.
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
[ARTWORK]
Artwork - inside front cover
- title: "The Registry, Inc., Delivery Management System"
Graphical representation of the Company's Delivery Management System displaying
the following aspects of that system: National Resource Delivery; Continuous
Support; Consultant Retention; and Technology Sector Recruiting. Technology,
Sector Recruiting is divided into the following areas: Network & Communications;
Legacy Systems; Internet; Workgroup/Desktop; and Database Design & Development.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS AND THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
The logo of the Company is a registered service mark of the Company. All
trademarks and trade names referred to in this Prospectus are the property of
their respective owners.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors related to the purchase of Common Stock of the Company. See "Risk
Factors."
THE COMPANY
The Registry, Inc. ("The Registry" or the "Company") provides information
technology ("IT") consultants on a contract basis to organizations with complex
IT operations. The Company's revenue is principally derived from supplemental
IT staffing services and, to a lesser extent, from management consulting
services provided through its specialized practices. As of December 28, 1996,
the Company had approximately 2,840 IT consultants placed with its clients to
assist them in implementing solutions for systems and applications development
in such areas as distributed network design, database design and development
and client/server migration. These consultants, billed primarily on an hourly
basis, typically work on engagements lasting from six to twelve months under
the direction of the client. In fiscal 1996, the Company provided IT
consultants to approximately 800 clients in a diverse range of industries,
including Abbott Laboratories, Digital Equipment Corp., Sprint Communications
Company L.P. and Sun Microsystems, Inc. The Registry has grown from six offices
and $19.4 million in revenue in fiscal 1991 to 37 offices and $266.9 million in
revenue for the twelve months ended December 28, 1996.
In recent years, the IT services industry has grown significantly. According
to a 1996 report prepared by Dataquest, Inc. for the Company, the potential
U.S. market size for supplemental IT staffing services of the type provided by
The Registry's IT consultants was estimated at $9.5 billion in 1994 and is
projected to grow to $16.1 billion in 1999. This growth is a result of numerous
factors including: (i) an increased focus on core business operations by
organizations; (ii) the need to access specialized IT skills to keep pace with
rapidly changing technologies; (iii) the growing trend toward flexible staffing
which provides a variable cost solution to a fixed cost problem; and (iv) the
desire to reduce the cost of recruiting, training and terminating employees as
IT requirements change.
The Company believes that its ability to identify, attract and retain
qualified IT consultants is critical to its success. Most of the Company's
Resource Managers recruit in one of five technology sectors, thereby enabling
the Company to more effectively match the needs of its clients with the skills
of its IT consultants. The Company has also established a National Resource
Delivery Team (NRDT) which provides access to consultants from across the
nation when local resources for a particular skill set are scarce. To enhance
retention, the Company actively remarkets its consultants and offers a
comprehensive benefits package.
Account Managers manage the Company's client relationships. The primary
responsibility of each Account Manager is to develop and implement a specific
account plan identifying the business requirements for IT staffing and services
of each assigned client on an ongoing basis. Account Managers work closely with
Resource Managers to identify new assignments at existing client sites as well
as to locate potential new clients. Resource Managers are responsible for
soliciting, recruiting and assessing technical consultants, developing and
maintaining consultant relationships and maintaining and updating the Company's
database of IT consultant resumes.
The Registry's goal is to be a leading nationwide provider of IT professional
services. The Company's strategy encompasses the following elements: (i) focus
on resource management to effectively identify, qualify, place and retain
quality IT consultants; (ii) focus on application development and software
engineering; (iii) emphasize long-term client relationships; (iv) enhance
growth through internal development, acquisitions and development of new
services; and (v) continue to expand a national presence, leveraging the
Company's resource management capabilities as well as its nationwide resource
pool and customer base. As a result of its involvement in the IT planning
process of many of its clients, the Company is often afforded an opportunity to
anticipate clients' needs for additional IT consultants and services.
Following this offering, G. Drew Conway, President, Chief Executive Officer
and principal stockholder of The Registry, will own 50.1% of the Company's
outstanding Common Stock.
The Company was incorporated in Massachusetts on June 10, 1986. Unless the
context otherwise requires, references herein to "The Registry" and the
"Company" refer to The Registry, Inc., a Massachusetts corporation ("TRI"), and
its wholly-owned subsidiaries. The Company's executive offices are located at
189 Wells Avenue, Newton, Massachusetts 02159. Its telephone number is (617)
527-6886.
3
<PAGE>
RECENT ACQUISITIONS
In keeping with an important component of its growth strategy, the Company
has acquired five IT consulting companies and an application development
business since its initial public offering in June 1996. The Company believes
that these acquisitions have expanded its national presence thereby broadening
its nationwide resource pool and client base. Certain information relating to
these acquisitions is summarized in the following table.
<TABLE>
<CAPTION>
MOST RECENT
ACQUISITION FISCAL YEAR
ACQUIRED COMPANY DATE REVENUE (1) BRANCHES HEADQUARTERS
- ------------------------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Morris Information 8/16/96 $ 3,700,000 2 Houston, TX
Systems, Inc.
Sun-Tek Consultants, Inc. 11/1/96 2,400,000 1 Orlando, FL
Application Resources, 11/26/96 37,600,000 3 San Francisco, CA
Inc.
Shamrock Computer 11/27/96 33,700,000 5 Bloomington, MN
Resources, Ltd.
Sterling Information 11/27/96 6,100,000 1 Austin, TX
Group, Inc.
James Duncan & Associates 12/24/96 6,400,000 2 Royal Tunbridge
Wells, England
</TABLE>
- --------
(1) Represents revenue for fiscal years ending December 31, 1995 for each of
Morris Information Systems, Inc., Sun-Tek Consultants, Inc., Sterling
Information Group, Inc. and James Duncan & Associates and June 29, 1996 for
each of Application Resources, Inc. ("ARI") and Shamrock Computer
Resources, Ltd. ("SCR"). The acquisitions of ARI and SCR have been
accounted for as poolings-of-interests and, accordingly, the Company's
financial statements have been restated to include the results of
operations of these entities for all periods presented. The other
acquisitions have been accounted for as purchases. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Acquisitions" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company.............................. 1,234,166 shares
The Selling Stockholders................. 1,765,834 shares
Common Stock to be outstanding after the
offering.................................. 13,974,989 shares (1)
Use of proceeds............................ For repayment of indebtedness, working
capital, other general corporate purposes
and acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol.............. REGI
</TABLE>
- --------
(1) Excludes 4,088,671 shares of Common Stock reserved for issuance under stock
option and stock purchase plans, of which 1,403,405 shares were subject to
outstanding options as of December 28, 1996 at a weighted average exercise
price of $9.91 per share. See "Capitalization" and "Management -- Stock
Awards."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------------------------- ---------------------------
MAY 31,
---------------------------- JUNE 24, JUNE 29, DEC. 30, DEC. 28,
1992 (1) 1993 (1) 1994 (1) 1995 (1)(2)(3) 1996 (1)(3) 1995 (1)(3) 1996 (1)(3)
-------- -------- -------- -------------- ----------- ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue................. $27,541 $47,890 $82,376 $153,985 $216,878 $94,532 $144,520
Cost of revenue......... 21,035 36,770 63,100 114,641 158,742 69,394 104,442
------- ------- ------- -------- -------- ------- --------
Gross profit............ 6,506 11,120 19,276 39,344 58,136 25,138 40,078
Selling, general and
administrative
expenses............... 5,357 9,659 16,933 33,544 46,144 19,980 34,763 (4)
------- ------- ------- -------- -------- ------- --------
Income from operations.. 1,149 1,461 2,343 5,800 11,992 5,158 5,315
Interest and other
income
(expense), net......... (160) (290) (452) (1,133) (2,233) (902) 1,619 (5)
------- ------- ------- -------- -------- ------- --------
Income before taxes..... 989 1,171 1,891 4,667 9,759 4,256 6,934
Pro forma provision for
income taxes (6)....... 320 593 889 2,014 4,222 1,868 5,187
------- ------- ------- -------- -------- ------- --------
Pro forma net
income (6)............. $ 669 $ 578 $ 1,002 $ 2,653 $ 5,537 $ 2,388 $ 1,747
======= ======= ======= ======== ======== ======= ========
Pro forma net income per
share (6).............. $ 0.24 $ 0.50 $ 0.22 $ 0.13
======== ======== ======= ========
Weighted average common
and common equivalent
shares (7)............. 10,968 11,083 10,867 13,599
SELECTED OPERATING DATA:
Number of branch offices
open at end of period.. 9 12 24 29 31 29 37
<CAPTION>
DECEMBER 28, 1996
---------------------------
ACTUAL AS ADJUSTED (8)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 7,090 $ 35,767
Working capital............................................................... 26,543 72,891
Total assets.................................................................. 90,608 119,285
Total debt.................................................................... 22,429 4,758
Total stockholders' equity.................................................... 48,563 94,911
</TABLE>
(1) Upon consummation of the acquisitions of ARI and SCR, ARI and SCR's
December 31 year ends were conformed to the Company's last Saturday in June
year end for fiscal 1996. The Statement of Income Data above gives effect
to the acquisitions by combining the results of operations of The Registry
for the year ended June 29, 1996 and the six months ended December 30, 1995
and December 28, 1996 with the results of operations of ARI and SCR for the
same periods. The Statement of Income Data also gives effect to the
acquisitions by combining the results of operations of The Registry for the
years ended May 31, 1992, May 31, 1993, May 31, 1994 and June 24, 1995 with
the results of operations of ARI for the three months ended December 31,
1994 and the year ended December 31, 1995 and with the results of
operations of SCR for the years ended December 31, 1992, December 31, 1993,
December 31, 1994 and December 31, 1995, respectively, on a pooling-of-
interests basis. ARI commenced operations as a separate entity on October
1, 1994.
(2) The Company changed its fiscal year from May 31 to the last Saturday in
June, effective with the fiscal year ended June 24, 1995. Accordingly, the
June 1994 results are not included in the data presented above. See Note 2
to Consolidated Financial Statements.
5
<PAGE>
(3) Statement of Income Data for the years ended June 24, 1995 and June 29,
1996 are for 52 and 53 weeks, respectively. Statement of Income Data for
the six months ended December 30, 1995 and December 28, 1996 are for 27 and
26 weeks, respectively.
(4) In November 1996, the Company completed the acquisitions of ARI and SCR,
each of which has been accounted for as a pooling-of-interests. Transaction
and other related costs have been expensed as incurred and totalled $5.1
million in the six months ended December 28, 1996.
(5) In August 1996, ARI received a settlement of $1.6 million from its
insurance company for payment of defense costs and related expenses
associated with certain litigation. This amount, net of related expenses,
has been included in interest and other income (expense), net, in the
Statement of Income Data above.
(6) The Company effected the Reorganization described below on January 1, 1996.
In addition, effective November 26, 1996, the S corporation status of SCR
was terminated in connection with the acquisition of SCR by The Registry.
The pro forma data have been computed as if America's Registry, Inc.
("America's Registry"), a wholly-owned subsidiary of the Company, and SCR,
which were S corporations for federal and state income tax purposes since
inception of their respective operations, were subject to federal and state
corporate income taxes since inception based on the statutory tax rates and
the tax laws then in effect. See Notes 2, 9 and 16 to Consolidated
Financial Statements.
(7) Weighted average common and common equivalent shares outstanding consist of
the weighted average number of shares of Common Stock outstanding, after
giving effect to the Reorganization described below, Common Stock which may
be issuable upon exercise of outstanding stock options using the treasury
stock method and Common Stock issuable upon conversion of shares of
preferred stock. For the year ended June 24, 1995 and the six months ended
December 30, 1995, weighted average common and common equivalent shares
also include 397,588 shares related to the dilution attributable to options
granted in the twelve months prior to the closing of the Company's initial
public offering in June 1996 using the treasury stock method.
(8) Adjusted to give effect to the sale of 1,234,166 shares of Common Stock by
the Company offered hereby at an assumed offering price of $40.00 per share
and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
----------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Capitalization,"
"Description of Capital Stock" and "Underwriting." Until January 1, 1996, G.
Drew Conway was the sole stockholder of TRI and America's Registry. Pursuant to
a plan and agreement of merger entered into among TRI, America's Registry and
The Registry Newco, Inc., a wholly-owned subsidiary of TRI, The Registry Newco,
Inc. merged with and into America's Registry effective January 1, 1996 (the
"Reorganization"). As a result, America's Registry became a wholly-owned
subsidiary of TRI.
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the Common Stock
offered by this Prospectus. Except for the historical information contained
herein, the discussion in this Prospectus contains certain forward-looking
statements that involve risks and uncertainties. The cautionary statements
made in this Prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed here.
Important factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere herein.
Dependence on Availability of Qualified IT Consultants. Substantially all of
the Company's revenue is derived from providing IT consultants on a contract
basis. The Company's success depends upon its ability to continue to attract
and retain IT consultants who possess the technical skills and experience
required to meet the staffing needs of its clients. The Company must
continually update and add to its database of technical personnel in each
market in which it operates. The vast majority of the IT consultants in The
Registry's database are also included in one or more of the databases of the
Company's competitors, and there can be no assurance that experienced
professionals currently working on projects for the Company will not choose to
work on projects for competitors on their next assignment. Competition for IT
consultants is intense and demand for their services has, to date,
substantially exceeded their supply, and the Company expects such competition
will continue to increase. There can be no assurance that qualified technical
personnel will continue to be available to the Company in sufficient numbers,
and any failure to attract or retain qualified IT consultants in sufficient
numbers could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- IT Consultants"
and "-- Competition."
Ability to Sustain and Manage Growth; Development of Ancillary Services. The
Company's business has grown rapidly during the past four years due to the
increased number of branch offices and the increased demand for services from
existing clients. The Company's continued growth is dependent upon a number of
factors, including: (i) the successful performance of new and existing
offices; (ii) the continued identification and training of corporate personnel
to staff new and recently-opened branch offices; (iii) the ability to identify
and qualify IT consultants within both new and existing markets; and (iv) the
Company's ability to develop additional business from existing clients and to
obtain new clients. There can be no assurance that recently-opened offices
will reach or maintain any level of profitability or that the Company's
historical revenue growth will continue. Further, the Company's rapid growth
and expansion has placed and could continue to place a significant strain on
the Company's personnel and resources, and the failure to manage growth
effectively could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company's ability
to develop successful ancillary practices depends on various factors,
including identification of suitable practice areas in which to invest
resources and the Company's ability to effectively integrate such practices
into its overall operating structure. There can be no assurance that any
ancillary practice developed by the Company will perform according to
management's expectations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Acquisitions,"
"Business -- Growth Strategy" and "Management."
Risks Associated with Acquisitions. The Company has grown, and intends to
continue to grow, in part through the acquisition of other businesses. The
Company's ability to expand through acquisition depends on many factors,
including the successful identification and acquisition of businesses and
management's ability to effectively integrate and operate the new businesses.
There is intense competition for acquisition opportunities in the industry,
which may intensify due to consolidation in the industry, increasing the costs
of capitalizing on such opportunities. The Company competes for acquisition
opportunities with other companies that have significantly greater financial
and management resources than the Company. Further, the anticipated benefits
from any acquisitions may not be achieved unless the
7
<PAGE>
operations of the acquired business are successfully combined with those of
the Company in a timely manner. The integration of the Company's acquisitions
requires substantial attention from management. The diversion of the attention
of management, and any difficulties encountered in the transition process,
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the process of integrating the
various businesses could cause the interruption of or the loss of momentum in
the activities of some or all of these businesses, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Further, acquired businesses may experience employee turnover rates
higher than have been experienced historically. Higher employee turnover rates
could adversely impact the Company's efforts to integrate these businesses.
There can be no assurance that the Company will be able to identify suitable
acquisition candidates, acquire any such candidates on reasonable terms or
integrate acquired businesses successfully. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Growth Strategy."
Dependence on Key Clients; Price Reduction Agreements; Terminability of
Client Arrangements. The Company's top ten clients accounted for approximately
30.0% of revenue in fiscal 1996 and approximately 30.7% of revenue in the
first six months of fiscal 1997. The loss of a significant client could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company provides certain large clients with reduced
prices for its services in order to retain the volume of business and/or to
obtain a preferred vendor status with such clients. There can be no assurance
that the Company will be able to maintain desired pricing levels with these or
other clients. All of the Company's arrangements with clients are terminable
by the client at will and without any penalty. There can be no assurance that
existing clients will continue to engage the Company's services at historical
levels, if at all. See "Business -- Client Base."
Risks of International Operations. The Company commenced international
operations with the acquisition in December 1996 of James Duncan & Associates,
an IT consulting company based near London, England. The success of the
Company's international operations will depend greatly upon the continued
development of the technology infrastructure in Europe and the Company's
ability to manage generally lower gross profit margins associated with
European IT consulting operations. There can be no assurance that the
Company's international operations will be profitable or support the Company's
growth strategy. The risks inherent in the Company's international business
activities include unexpected changes in regulatory environments, foreign
currency fluctuations, tariffs and other trade barriers, difficulties in
managing international operations and potential foreign tax consequences,
including repatriation of earnings and the burden of complying with a wide
variety of foreign laws and regulations. The failure of the Company to manage
growth, attract and retain personnel, manage major development efforts or
profitably deliver services could have a material adverse impact on the
Company's ability to successfully develop its international operations and
could have a material adverse effect on the Company's business, operating
results and financial condition.
Dependence on Key Personnel. The Company depends to a significant extent on
key management, technical and other personnel. The Company's continued growth
and success will depend in significant part on the continued service of its
President, Chief Executive Officer and principal stockholder, Mr. G. Drew
Conway. The loss of Mr. Conway or other key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company maintains a $23 million key man life insurance policy
on Mr. Conway. See "Management."
Concentration of Ownership. Upon completion of the offering, the Company's
President, Chief Executive Officer and principal stockholder, Mr. G. Drew
Conway, will own 50.1% of the Company's outstanding shares of Common Stock
(48.5% if the over-allotment option is exercised in full). As a result, Mr.
Conway will be able to exercise effective control over almost all matters
requiring stockholder approval. This concentration of ownership could have the
effect of making it difficult for a third party to acquire control of the
Company and may discourage third parties from attempting to do so. Further,
future
8
<PAGE>
sales of substantial amounts of Common Stock by Mr. Conway, or the potential
for such sales, could adversely affect the prevailing market price of the
Common Stock. See "Management," "Principal and Selling Stockholders" and
"Description of Capital Stock."
History of Marginal Profitability. Through fiscal 1995, the Company grew
rapidly through the opening of new offices. Offices opened by The Registry
have generally experienced either losses or marginal profitability for a
period of approximately 12 to 18 months after opening. As these offices have
matured and the Company has implemented certain cost control policies, the
Company's profitability has improved; however, new office openings in the
future, among other factors, could adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company can maintain profitability on a quarterly or annual basis in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Government Regulation of Immigration. Certain of the Company's IT
consultants are foreign nationals working in the United States under H-1B
permits. Accordingly, both the Company and these foreign nationals must comply
with United States immigration laws. The inability of the Company to obtain H-
1B permits for certain of its employees in sufficient quantities or at a
sufficient rate could have a material adverse effect on the Company's
business, operating results and financial condition. Furthermore, Congress and
administrative agencies with jurisdiction over immigration matters have
periodically expressed concerns over the levels of legal and illegal
immigration into the U.S. These concerns have often resulted in proposed
legislation, rules and regulations aimed at reducing the number of work
permits that may be issued. Any changes in such laws making it more difficult
to hire foreign nationals or limiting the ability of the Company to retain
foreign employees could require the Company to incur additional unexpected
labor costs and expenses. Any such restrictions or limitations on the
Company's hiring practices could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Employees."
Fluctuations in Operating Results; Seasonality. The Company's operating
results have fluctuated in the past based on many factors, including the
opening of new branch offices. In view of the Company's significant growth in
recent years, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. Because the Company only derives
revenue when its consultants are actually working, its operating results are
adversely affected when client facilities close due to holidays or inclement
weather. In particular, the Company generally experiences a certain amount of
seasonality in its second fiscal quarter due to the number of holidays in that
quarter. Further, the Company generally experiences lower operating margins in
its third fiscal quarter due in part to the timing of unemployment tax
accruals. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Fluctuations in the General Economy. Demand for IT professional services is
significantly affected by the general level of economic activity. When
economic activity slows, clients may delay or cancel plans that involve the
hiring of IT consultants. The Company is unable to predict the level of
economic activity at any particular time, and fluctuations in the general
economy could adversely affect the Company's business, operating results and
financial condition.
Employment Liability Risks. Providers of IT professional services employ and
place individuals in the workplace of other businesses. Inherent risks of such
activity include possible claims of errors and omissions, misuse of client
proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and
other claims. Although historically the Company has not experienced any
material claims of these types, there can be no assurance that the Company
will not experience such claims in the future.
Potential Effect of Anti-Takeover Provisions. The Company's Board of
Directors has the authority without action by the Company's stockholders to
fix the rights and preferences of and to issue shares of
9
<PAGE>
the Company's Preferred Stock, which may have the effect of delaying,
deterring or preventing a change in control of the Company. The Company has
also imposed various procedural and other requirements, such as supermajority
voting requirements for specified corporate actions, that could make it more
difficult for stockholders to effect certain corporate actions. In addition,
the classification of the Board of Directors of the Company and certain
provisions of Massachusetts law could have the effect of delaying, deterring
or preventing a change in control of the Company. See "Description of Capital
Stock."
Possible Volatility of Stock Price. The stock market historically has
experienced volatility which has affected the market price of securities of
many companies and which has sometimes been unrelated to the operating
performance of such companies. In addition, factors such as announcements of
new services or offices or strategic alliances by the Company or its
competitors or third parties, as well as market conditions in the IT
professional services industry, may have a significant impact on the market
price of the Common Stock. The market price may also be affected by movements
in prices of stocks in general. See "Underwriting."
Absence of Dividends. Except as noted in "Dividend Policy," the Company has
never paid any cash dividends on the Common Stock and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. In
addition, the Company is prohibited under the terms of its revolving line of
credit from paying dividends without the consent of the lender. See "Dividend
Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,234,166 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $40.00 per share, after deducting the underwriting discount and estimated
offering expenses payable by the Company, are estimated to be approximately
$46.3 million. The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company expects to use approximately $18.0 million of the net proceeds
to repay the outstanding indebtedness under its revolving line of credit with
BNY Financial Corporation. From February 29, 1996, the date on which the BNY
debt was originally incurred, through December 28, 1996, the weighted average
interest rate was 8.09%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The revolving line of credit expires on February 28, 1999. The
Company also intends to use approximately $2.5 million of the net proceeds to
finance the continuing upgrade of the Company's IT infrastructure. See
"Business --Operations and Support Services." The Company intends to use the
remaining net proceeds for working capital and general corporate purposes. A
portion of the net proceeds may also be used for acquisitions of businesses
that are complementary to that of the Company. As of the date of this
Prospectus, there are no agreements or commitments with respect to any
significant acquisitions, and no portion of the net proceeds has been
allocated for any specific acquisition. Pending such uses, the net proceeds of
this offering will be invested in short-term, investment-grade, interest-
bearing securities.
PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low sale prices for the
Common Stock on the Nasdaq National Market, under the symbol "REGI," for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1996 ------- -------
<S> <C> <C>
Fourth Quarter (from June 5).................................... $36 3/4 $17*
<CAPTION>
FISCAL 1997
<S> <C> <C>
First Quarter................................................... $34 1/4 $24 1/2
Second Quarter.................................................. $53 1/4 $34 1/2
Third Quarter (through January 29, 1997)........................ $49 3/4 $39 3/4
</TABLE>
- --------
* Initial public offering price per share.
On January 29, 1997, the last reported sale price for the Common Stock on
the Nasdaq National Market was $40.00 per share. As of January 29, 1997, there
were approximately 70 holders of record of Common Stock.
DIVIDEND POLICY
America's Registry paid cash dividends in the approximate aggregate amount
of $862,000 to Mr. Conway in December 1995, of which amount $645,000 was used
to repay certain indebtedness of Mr. Conway to TRI. SCR, which was an S
corporation prior to its acquisition by the Company, paid cash dividends of
approximately $1.4 million in fiscal 1996 and $515,000 in the first six months
of fiscal 1997 to its former stockholders. See "Certain Transactions." The
Company currently intends to retain future earnings, if any, to fund the
development and growth of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. In addition, the
Company's revolving line of credit with BNY Financial Corporation prohibits
the payment of dividends without consent of the lender. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of December 28, 1996, and as adjusted to reflect the application of
the estimated net proceeds from the sale of 1,234,166 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $40.00 per
share. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 28, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving line of credit................................ $10,171 $ --
======= =======
Current portion of long-term debt (1)................... $ 9,741 $ 2,241
Long-term debt (2)........................................ 2,517 2,517
Stockholders' equity (3):
Preferred stock, $0.10 par value per share; 1,000,000
shares authorized, none issued and outstanding......... -- --
Common stock, no par value per share; 49,000,000 shares
authorized, 12,607,314 shares issued and outstanding;
as adjusted: 13,841,480 shares issued and outstanding.. 4,702 4,702
Additional paid-in capital.............................. 36,687 83,035
Treasury stock.......................................... (2,000) (2,000)
Notes receivable from stockholders...................... (226) (226)
Retained earnings....................................... 9,400 9,400
------- -------
Total stockholders' equity............................. 48,563 94,911
------- -------
Total capitalization................................... $60,821 $99,669
======= =======
</TABLE>
- --------
(1) Includes $39,000 of debt owed by the 189 Wells Avenue Realty Trust (the
"Realty Trust"), of which G. Drew Conway is the sole beneficiary and an
executive officer of the Company is the sole trustee. See Note 9 to
"Selected Consolidated Financial Data" and Note 15 to Consolidated
Financial Statements. Also includes $7.5 million associated with the
acquisition of Sterling Information Group, Inc., which amount has been
subsequently paid with borrowings under the Company's revolving line of
credit.
(2) Includes $2.0 million of debt owed by the Realty Trust. See Note 9 to
"Selected Consolidated Financial Data" and Note 15 to Consolidated
Financial Statements.
(3) Excludes 1,403,405 shares of Common Stock issuable upon exercise of
outstanding stock options as of December 28, 1996 at a weighted average
exercise price of $9.91 per share. See "Management -- Stock Awards."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data and
is derived from the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The Consolidated Balance Sheet
Data at June 24, 1995 and June 29, 1996 and the Consolidated Statement of
Income Data for the years ended May 31, 1994, June 24, 1995 and June 29, 1996
have been derived from the Consolidated Financial Statements of the Company
that have been audited by Price Waterhouse LLP, independent accountants, except
as to the financial statements of ARI and SCR as of and for the years ended
December 31, 1994 and 1995, that have been audited by other independent
accountants, and are included elsewhere in this Prospectus. The Consolidated
Balance Sheet Data as of May 31, 1992, 1993 and 1994 and the Consolidated
Statement of Income Data for the years ended May 31, 1992 and 1993 have been
derived from the Company's audited Consolidated Financial Statements, together
with the unaudited financial statements of SCR as of and for the years ended
December 31, 1992 and 1993. The Consolidated Balance Sheet Data at December 28,
1996 and the Consolidated Statement of Income Data for the six months ended
December 30, 1995 and December 28, 1996 have been derived from unaudited
consolidated financial statements also appearing herein and which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods. Operating results for the six months ended December
28, 1996 are not necessarily indicative of results for future periods. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------------------------- -----------------------
MAY 31,
---------------------------- JUNE 24, JUNE 29, DEC. 30, DEC. 28,
1992 (1) 1993 (1) 1994 (1) 1995 (1)(2)(3) 1996 (1)(3) 1995 (1)(3) 1996 (1)(3)
-------- -------- -------- -------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................. $27,541 $47,890 $82,376 $153,985 $216,878 $94,532 $144,520
Cost of revenue......... 21,035 36,770 63,100 114,641 158,742 69,394 104,442
------- ------- ------- -------- -------- ------- --------
Gross profit............ 6,506 11,120 19,276 39,344 58,136 25,138 40,078
Selling, general and
administrative
expenses............... 5,357 9,659 16,933 33,544 46,144 19,980 34,763 (4)
------- ------- ------- -------- -------- ------- --------
Income from operations.. 1,149 1,461 2,343 5,800 11,992 5,158 5,315
Interest and other
income (expense), net.. (160) (290) (452) (1,133) (2,233) (902) 1,619 (5)
------- ------- ------- -------- -------- ------- --------
Income before taxes..... 989 1,171 1,891 4,667 9,759 4,256 6,934
Provision for income
taxes.................. 218 281 473 875 3,127 681 4,259
------- ------- ------- -------- -------- ------- --------
Net income.............. $ 771 $ 890 $ 1,418 $ 3,792 $ 6,632 $ 3,575 $ 2,675
======= ======= ======= ======== ======== ======= ========
Distributions to
stockholders (6)....... $ 114 $ 206 $ 530 $ 696 $ 2,958 $ 1,685 $ 540
======= ======= ======= ======== ======== ======= ========
Income before taxes..... $ 989 $ 1,171 $ 1,891 $ 4,667 $ 9,759 $ 4,256 $ 6,934
Pro forma provision for
income taxes (7)....... 320 593 889 2,014 4,222 1,868 5,187
------- ------- ------- -------- -------- ------- --------
Pro forma net
income (7)............. $ 669 $ 578 $ 1,002 $ 2,653 $ 5,537 $ 2,388 $ 1,747
======= ======= ======= ======== ======== ======= ========
Pro forma net income per
share (7).............. $ 0.24 $ 0.50 $ 0.22 $ 0.13
======== ======== ======= ========
Weighted average common
and common equivalent
shares
outstanding (8)........ 10,968 11,083 10,867 13,599
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
MAY 31,
-------------------------- JUNE 24, JUNE 29, DEC. 28,
1992 (1) 1993 (1) 1994 (1) 1995 (1) 1996 (1)(9)(10) 1996 (1)(9)(10)
-------- -------- -------- -------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 157 $ 109 $ 1,283 $ 1,804 $13,707 $ 7,090
Working capital......... 789 677 3,213 5,006 39,723 26,543
Total assets............ 6,133 10,833 23,188 39,278 65,190 90,608
Total debt.............. 3,756 6,147 9,424 20,736 4,958 22,429
Stockholders' equity.... 1,517 2,424 5,669 8,302 44,389 48,563
</TABLE>
(1) Upon consummation of the acquisitions of ARI and SCR, ARI and SCR's
December 31 year ends were conformed to the Company's last Saturday in
June year end for fiscal 1996. The Statement of Income and Balance Sheet
Data above gives effect to the acquisitions by combining the results of
operations and financial position of The Registry as of and for the year
ended June 29, 1996 and the six months ended December 30, 1995 and
December 28, 1996 with the results of operations and financial position of
ARI and SCR as of and for the same periods. The Statement of Income and
Balance Sheet Data also gives effect to the acquisitions by combining the
results of operations and financial position of The Registry as of and for
the years ended May 31, 1992, May 31, 1993, May 31, 1994 and June 24, 1995
with the results of operations of ARI as of and for the three months ended
December 31, 1994 and the year ended December 31, 1995, and with the
results of operations and financial position of SCR as of and for the
years ended December 31, 1992, December 31, 1993, December 31, 1994 and
December 31, 1995, respectively, on a pooling-of-interests basis. ARI
commenced operations as a separate entity on October 1, 1994.
(2) The Company changed its fiscal year end from May 31 to the last Saturday
in June, effective with the fiscal year ended June 24, 1995. Accordingly,
the June 1994 results are not included in the data presented above. See
Note 2 to Consolidated Financial Statements.
(3) Statement of Income Data for the years ended June 24, 1995 and June 29,
1996 are for 52 and 53 weeks, respectively. Statement of Income Data for
the six months ended December 30, 1995 and December 28, 1996 are for 27
and 26 weeks, respectively.
(4) In November 1996, the Company completed the acquisitions of ARI and SCR,
each of which has been accounted for as a pooling-of-interests.
Transaction and other related costs have been expensed as incurred and
totalled approximately $5.1 million in the six months ended December 28,
1996.
(5) In August 1996, ARI received a settlement of $1.6 million from its
insurance company for payment of defense costs and related expenses
associated with certain litigation. This amount, less related expenses,
has been included in interest and other income (expense), net, in the
Statement of Income Data above.
(6) For the year ended June 29, 1996 and the six months ended December 30,
1995, includes $649,000 distributed by the Realty Trust to Mr. Conway upon
refinancing of the Realty Trust's mortgage. See Note 9 below. For the year
ended June 29, 1996, also includes $861,500 distributed to Mr. Conway in
respect of the common stock of America's Registry. For the years ended May
31, 1992, May 31, 1993, May 31, 1994, June 24, 1995 and June 29, 1996, and
the six months ended December 30, 1995 and December 28, 1996,
respectively, also includes $114,000, $156,000, $530,000, $696,000,
$1,447,000, $174,000 and $515,000 in distributions from SCR to its former
stockholders.
(7) The Company effected the Reorganization on January 1, 1996. In addition,
effective November 26, 1996, the S corporation status of SCR was
terminated in connection with the acquisition of SCR by The Registry. The
pro forma data have been computed as if America's Registry and SCR, which
were S corporations for federal and state income tax purposes since
inception of their operations, were subject to federal and state corporate
income taxes since inception based on the statutory tax rates and the tax
laws then in effect. See Notes 2, 9 and 16 to Consolidated Financial
Statements.
(8) Weighted average common and common equivalent shares outstanding consist
of the weighted average number of shares of Common Stock outstanding,
after giving effect to the Reorganization, Common Stock which may be
issuable upon exercise of outstanding stock options using the treasury
14
<PAGE>
stock method and Common Stock issuable upon conversion of shares of
preferred stock. For the year ended June 24, 1995 and the six months ended
December 30, 1995, weighted average common and common equivalent shares
also include 397,588 shares related to the dilution attributable to options
granted in the twelve months prior to the closing of the Company's initial
public offering in June 1996 using the treasury stock method.
(9) In conjunction with the renegotiation of the Company's lease with the
Realty Trust, the accounts of the Realty Trust have been consolidated with
those of the Company, commencing September 19, 1995. See Note 15 to
Consolidated Financial Statements.
(10) The Company completed its initial public offering on June 10, 1996,
selling 2,230,000 shares of Common Stock and receiving net proceeds of
$34.5 million. The Company used a portion of the proceeds to repay all
outstanding indebtedness under the Company's credit facility and certain
term loans. See Note 10 to Consolidated Financial Statements.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Registry provides information technology ("IT") consultants on a
contract basis to organizations with complex IT operations. The Company's
revenue is principally derived from supplemental IT staffing services and, to
a lesser extent, from management consulting services provided through its
specialized practices. The Company's IT consultants, billed primarily on an
hourly basis, typically work on engagements lasting from six to twelve months
under the direction of the client. The Registry has grown from six offices and
$19.4 million of revenue in fiscal 1991 to 37 offices and $266.9 million of
revenue in the twelve months ended December 28, 1996.
Revenue growth is derived primarily from increases in the number of IT
consultants placed with existing clients and the addition of new clients. In
recent years, the Company has also been able to increase the average billing
rates for its IT consultants as economic conditions have improved and the
demand for skilled and experienced professionals has increased. Revenue is
recognized as services are provided and the majority of clients are billed on
a weekly basis. In fiscal 1996, approximately 30.0% of the Company's revenue
was derived from its top ten clients, with no client accounting for more than
4.4%.
Because the Company only derives revenue when its consultants are actually
working, its operating results are adversely affected when client facilities
are closed due to holidays or inclement weather. In particular, the Company
experiences a certain amount of seasonality in its second fiscal quarter
because of the number of holidays falling in such quarter. In addition, the
Company generally experiences lower operating margins in its third fiscal
quarter due in part to the timing of unemployment tax accruals.
Since its founding in 1986, the Company has had an aggressive expansion plan
and growth strategy, opening six offices between fiscal 1986 and 1992; three
in fiscal 1993; seven in fiscal 1994; five in fiscal 1995 and two in fiscal
1996. Through acquisitions the Company acquired 14 offices in the first six
months of fiscal 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Acquisitions." The increase in
the number of offices has resulted in an increase in revenue for each year,
but has in some cases adversely impacted net income due primarily to expenses
associated with staffing the newly opened offices as well as with the increase
in corporate staff needed to support an increased number of branches. In most
instances, offices opened by The Registry have experienced either losses or
marginal profitability for approximately 12 to 18 months after opening. In
certain cases, branches that have achieved profitability have not remained
profitable on a consistent basis.
Beginning in fiscal 1996, the Company implemented tighter cost controls and
a compensation program based on operating profitability rather than revenue
growth. Further, the Company has sought to improve profitability by increasing
the number of full-time, salaried staff consultants, who generally produce
higher margins than the Company's hourly IT consultants. Apart from its core
IT professional services and in response to market opportunities, the Company
has introduced new service offerings, including the Network Systems Consulting
Practice (NSCP) and the Documentation Services Practice (DSP), both of which
are established practices, as well as a recently introduced Help Desk
Practice. In November 1996, the Company acquired Sterling Information Group,
Inc. which will form the basis for the Company's Application Development
Practice.
Through December 31, 1995, America's Registry, and through November 26,
1996, SCR, were S corporations for federal and state income tax purposes and,
accordingly, were not subject to corporate income taxes. As a result, the
Company believes that direct comparisons of historical provisions for income
taxes are not meaningful.
In conjunction with the renegotiation of the Company's leases with the
Realty Trust, the accounts of the Realty Trust have been consolidated with
those of the Company, commencing September 19, 1995. The effect of this
consolidation was to increase fixed assets by $1.7 million and long-term
16
<PAGE>
debt by $2.1 million at December 28, 1996. The consolidation of the Realty
Trust did not have a significant effect on the Company's results of
operations, nor is it expected to have a significant effect in the future. See
Note 15 to Consolidated Financial Statements.
RECENT ACQUISITIONS
Since its initial public offering in June 1996, the Company has completed
six acquisitions. Five of the acquired companies--Morris Information Systems,
Inc. ("MIS"), based in Houston, Texas; Sun-Tek Consultants, Inc. ("Sun-Tek"),
based in Orlando, Florida; Application Resources, Inc. ("ARI"), based in San
Francisco, California; Shamrock Computer Resources, Ltd. ("SCR"), based in
Bloomington, Minnesota; and James Duncan & Associates ("JDA"), based in Royal
Tunbridge Wells, England--provide information technology consulting services
similar to those that the Company currently provides. One of the
acquisitions--Sterling Information Group, Inc. ("Sterling"), based in Austin,
Texas--is an independent provider of outsourced software application
development services.
Application Resources, Inc. Headquartered in San Francisco, California with
branch offices in Walnut Creek and Los Altos, California, ARI provides IT
consulting services to a wide variety of clients in Northern California. The
Company intends to combine the ARI Walnut Creek office with its own Walnut
Creek office in the near future. ARI had revenue of $37.6 million and $23.7
million in fiscal 1996 and in the six months ended December 28, 1996,
respectively.
Shamrock Computer Resources, Ltd. Headquartered in Bloomington, Minnesota
with branch offices in Moline, Illinois, Omaha, Nebraska, St. Louis, Missouri
and Schaumberg, Illinois, SCR provides IT consulting services to a wide
variety of clients in the Midwest. SCR employs primarily staff IT consultants
and its acquisition has increased the number of the Company's staff IT
consultants significantly. The Company expects to combine SCR's Schaumberg,
Illinois office with its Rolling Meadows, Illinois office in the near future.
SCR had revenue of $33.7 and $20.3 million in fiscal 1996 and in the six
months ended December 28, 1996, respectively.
Similar to The Registry, ARI and SCR have also experienced significant
growth over the past several years. SCR has historically reported a higher
gross profit percentage than the Company because SCR employs nearly all of its
consultants on a full-time basis and therefore has a lower cost structure than
the Company and ARI, which employ consultants primarily on a contract basis.
However, this has also resulted in greater variability in SCR's gross profit
percentage from period to period, as SCR must continue to pay its employees
during periods in which they are not working for clients and generating
revenue.
In connection with these transactions, the Company has incurred transaction
and integration costs of $5.1 million during the six months ended December 28,
1996. In addition to these non-recurring charges, the Company will incur
additional expenses over the remainder of fiscal 1997 to complete the
integrations.
The ARI and SCR acquisitions, in which an aggregate of 2,350,774 shares of
Common Stock were issued, and $2.0 million in cash was used to repurchase
shares of capital stock from a stockholder of SCR who exercised dissenter's
rights, have been accounted for as poolings-of-interests. Accordingly, the
Company's financial statements have been restated to reflect those
acquisitions on a historical basis.
Morris Information Systems, Inc. Headquartered in Houston, Texas with a
branch office in Columbia, South Carolina, MIS provides IT consulting services
to a wide variety of clients. In its most recently completed fiscal year, MIS
had revenue of approximately $3.7 million.
Sun-Tek Consultants, Inc. Located in Orlando, Florida, Sun-Tek provides IT
consulting services to a variety of clients in Central Florida. In its most
recently completed fiscal year, Sun-Tek had revenue of approximately $2.4
million.
17
<PAGE>
Sterling Information Group, Inc. Headquartered in Austin, Texas, Sterling
provides application development services to a variety of clients in the
Southwest. The Company intends to use Sterling as the basis of its Application
Development Practice and will operate Sterling under its current name. In its
most recently completed fiscal year, Sterling had revenue of $6.1 million.
James Duncan & Associates. Based in England, JDA was the Company's first
overseas acquisition. From its headquarters in Royal Tunbridge Wells, and its
branch office in Luxembourg, JDA provides IT consulting services to clients in
England and in continental Europe. In its most recently completed fiscal year,
JDA had revenue of $6.4 million.
In connection with the MIS, Sun-Tek, Sterling and JDA acquisitions, the
Company paid an aggregate of $15.8 million in cash, issued 2,736 shares of
Common Stock and agreed to pay $125,000 in deferred consideration. In
addition, the Company may become obligated to pay up to $1.2 million in
contingent cash consideration. These acquisitions have been accounted for as
purchases and, accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
as of the respective dates of acquisition. The excess of the consideration
paid over the estimated fair value of net assets acquired has been recorded as
goodwill. The results of operations for these acquisitions have been included
in the Company's results from the respective dates of acquisition.
RESULTS OF OPERATIONS
The following table summarizes the Company's significant operating results
as a percentage of revenue for each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------- -----------------
MAY 31, JUNE 24, JUNE 29, DEC. 30, DEC. 28,
1994 1995 1996 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................... 76.6 74.4 73.2 73.4 72.3
----- ----- ----- ----- -----
Gross profit...................... 23.4 25.6 26.8 26.6 27.7
Selling, general and administra-
tive expenses.................... 20.6 21.8 21.3 21.1 24.0
----- ----- ----- ----- -----
Income from operations............ 2.8 3.8 5.5 5.5 3.7
Interest and other income (ex-
pense), net...................... (0.5) (0.8) (1.0) (1.0) 1.1
----- ----- ----- ----- -----
Income before taxes............... 2.3% 3.0% 4.5% 4.5% 4.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED DECEMBER 29, 1996 AND DECEMBER 30, 1995
Revenue. Revenue increased 52.9% to $144.5 million for the first six months
of fiscal 1997 from $94.5 million for the first six months of fiscal 1996.
This increase was attributable primarily to an increase in revenue from
professional services and to a lesser extent from additional service offerings
provided by the Company's practices. The increase in revenue from professional
services was primarily due to the growth of sales within existing offices, the
continued maturation of newer branch offices, and the addition of new branches
resulting from acquisitions accounted for as purchases which were completed
during the first six months of fiscal 1997 resulting in a greater number of IT
consultants placed with the Company's clients during the period. To a lesser
extent, the increase in revenue resulted from an increase in average hourly
billing rates charged for the Company's IT consultants.
Gross Profit. Gross profit increased 59.4% to $40.1 million for the first
six months of fiscal 1997 from $25.1 million in the first six months of fiscal
1996. As a percentage of revenue, gross profit increased to 27.7% in the first
six months of fiscal 1997 compared to 26.6% in the first six months of fiscal
1996. The increase was attributable primarily to increases in the number of
relatively higher margin projects and specialized practice engagements and
increased utilization of staff IT consultants compared with the comparable
prior period.
18
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 74.0% to $34.8 million in the first six
months of fiscal 1997 from $20.0 million in the first six months of fiscal
1996. As a percentage of revenue, selling, general and administrative expenses
increased to 24.0% in the first six months of fiscal 1997 from 21.1% in the
first six months of fiscal 1996. This increase was attributable to one-time
non-recurring transaction and integration costs of $5.1 million incurred
during the first six months of fiscal 1997 associated with the two
acquisitions accounted for as poolings-of-interests. Excluding these non-
recurring charges, selling, general and administrative expenses decreased to
20.5% of revenue. This decrease was attributable primarily to growth in
revenue during the period in which, other than through acquisition, the
Company did not open any new offices.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, increased by $2.5 million to $1.6 million of income for the
first six months of fiscal 1997 from $0.9 million of expense for the first six
months of fiscal 1996. This increase was attributable to the receipt by ARI of
approximately $1.5 million in net proceeds from the settlement of certain
litigation during the first six months of fiscal 1997. In addition, the
Company repaid amounts outstanding under its line of credit and certain other
obligations in June 1996 upon receipt of the proceeds from the Company's
initial public offering. During the first six months of fiscal 1996, the
Company incurred interest expense on amounts outstanding under the Company's
line of credit and other debt facilities.
FISCAL YEARS ENDED JUNE 29, 1996 AND JUNE 24, 1995
Revenue. Revenue increased 40.8% to $216.9 million for fiscal 1996 from
$154.0 million for fiscal 1995. This increase was attributable primarily to an
increase in revenue from professional services and to a lesser extent from
additional service offerings provided by the Company's practices. The increase
in revenue from professional services was primarily due to the growth in sales
within existing offices and the continued maturation of newer branch offices
resulting in a greater number of IT consultants placed with the Company's
clients during the period. To a lesser extent, the increase in revenue
resulted from an increase in the average hourly billing rates charged for the
Company's IT consultants.
Gross Profit. Gross profit increased 47.8% to $58.1 million for fiscal 1996
from $39.3 million for fiscal 1995. As a percentage of revenue, gross profit
increased to 26.8% in fiscal 1996 compared to 25.6% for the comparable prior
period. This increase was attributable primarily to a higher average hourly
billing rate charged for the Company's IT consultants during this period. In
addition, the increase in gross profit as a percentage of revenue was
favorably impacted by the increased utilization of staff IT consultants and by
the growth in relatively higher margin new service offerings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 37.6% to $46.1 million for fiscal 1996
from $33.5 million in the comparable prior period. As a percentage of revenue,
selling, general and administrative expenses decreased to 21.3% for fiscal
1996 compared to 21.8% for the comparable prior period. This decrease was
attributable primarily to the growth in revenue during a period in which there
was limited expansion into new markets. This decrease was offset in part by
additional investment in both corporate and branch staff at SCR and ARI.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, was $(2.2) million during fiscal 1996 as compared to $(1.1)
million in the comparable prior period. This change was attributable primarily
to the increased borrowings under the Company's lines of credit resulting from
the increase in working capital requirements associated with the Company's
sales growth.
FISCAL YEARS ENDED JUNE 24, 1995 AND MAY 31, 1994
Revenue. Revenue increased 86.9% to $154.0 million for fiscal 1995 from
$82.4 million for fiscal 1994. The increase was attributable primarily to an
increase in revenue from existing branch offices with lesser amounts derived
from new branch offices opened during the year. In addition, the increase was
19
<PAGE>
in part attributable to a full year of operations for ARI, which commenced
operations in October 1994. To a lesser extent, the increase in revenue
resulted from an increase in average hourly billing rates charged for the
Company's IT consultants.
Gross Profit. Gross profit increased 104.1% to $39.3 million for fiscal 1995
from $19.3 million in the comparable prior period. As a percentage of revenue,
gross profit increased to 25.6% for fiscal 1995 from 23.4% for fiscal 1994.
This increase in gross profit as a percentage of revenue was attributable
primarily to a higher average hourly billing rate charged for the Company's IT
consultants during the period and to increased utilization of staff IT
consultants during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 98.1% to $33.5 million for fiscal 1995 from
$16.9 million for fiscal 1994. As a percentage of revenue, selling, general
and administrative expenses increased to 21.8% for fiscal 1995 from 20.6% for
fiscal 1994. This increase was attributable primarily to the opening of five
branch offices during the year and the staffing of those offices. To a lesser
extent, the increase in selling, general and administrative expenses resulted
from an increase in corporate staff needed to support an increased number of
branches.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, was $(1.1) million in fiscal 1995 compared to $(0.5) million
for fiscal 1994. This change was attributable primarily to increased
borrowings under the Company's lines of credit resulting from the increase in
working capital requirements associated with the Company's sales growth. In
addition, the increase in interest expense resulted in part from a nominal
increase in interest rates.
20
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the ten quarters ending with the quarter ended December
28, 1996, in thousands of dollars and as a percentage of revenue. In connection
with the acquisition of ARI and SCR as poolings-of-interests, the results of
operations of the Company for the fiscal year ended June 24, 1995 have been
combined with those of ARI and SCR for the year ended December 31, 1995.
Therefore, the quarterly results of the Company presented below for the three
months ended September 1994, December 1994, March 1995 and June 1995 include
the results of operations of ARI and SCR for the three months ended March 1995,
June 1995, September 1995 and December 1995, respectively. All other periods
presented below are for the quarterly periods specified. This data has been
prepared on the same basis as the audited financial statements contained
elsewhere in this Prospectus and in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the information for the periods presented, when read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto. Results for any previous fiscal quarter are not necessarily
indicative of results for the full year or for any future quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. JUNE SEPT. DEC.
1994 1994 1995 1995 1995 1995 1996 (1) 1996 1996 1996 (2)
------- ------- ------- ------- ------- ------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................. $32,963 $37,340 $39,139 $44,543 $46,341 $48,191 $57,296 $65,050 $69,429 $75,091
Gross profit............ 8,658 9,214 9,769 11,703 12,019 13,119 15,256 17,742 19,083 20,995
Income from operations.. 1,667 887 1,501 1,745 2,560 2,598 2,910 3,924 4,739 576
Net income (loss)....... 1,102 435 1,087 1,168 1,717 1,858 979 2,078 3,882 (1,207)
Pro forma net income
(loss)................. 845 374 710 724 1,166 1,222 1,340 1,809 3,521 (1,774)
Pro forma net income
(loss) per share....... $ 0.08 $ 0.03 $ 0.07 $ 0.07 $ 0.11 $ 0.11 $ 0.12 $ 0.16 $ 0.26 $ (0.14)
AS A PERCENTAGE OF REVENUE:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 %
Gross profit............ 26.3% 24.7% 25.0% 26.3% 25.9% 27.2% 26.6% 27.3% 27.5% 28.0 %
Income from operations.. 5.1% 2.4% 3.8% 3.9% 5.5% 5.4% 5.1% 6.0% 6.8% 0.8 %
Net income (loss)....... 3.3% 1.2% 2.8% 2.6% 3.7% 3.9% 1.7% 3.2% 5.6% (1.6)%
Pro forma net income
(loss)................. 2.6% 1.0% 1.8% 1.6% 2.5% 2.5% 2.3% 2.8% 5.1% (2.4)%
</TABLE>
- --------
(1) Includes a $642,000 charge associated with the conversion of America's
Registry from an S corporation to a C corporation. See Note 9 to
Consolidated Financial Statements.
(2) In November 1996, The Registry completed the acquisitions of ARI and SCR,
each of which has been accounted for as a pooling-of-interests. Transaction
and integration costs have been expensed as incurred and totalled $4.9
million in the quarter.
The above quarterly data reflects the results of operations for 13 weeks,
except for the September 1995 quarter which includes 14 weeks. The March 1995
and 1996 revenue reflects in some part the seasonality of the business and the
impact of the additional employment taxes on profitability.
During the October to December quarter, the number of holidays and vacation
days marginally reduces revenue. Some clients also close operations completely
during the last week of the year. The Company also experiences a lower
operating profit margin in its third fiscal quarter, the January to March
quarter, in part as a result of higher unemployment tax accruals and, to a
lesser extent, FICA taxes which are expensed as incurred. During this quarter,
the unemployment tax, which is based on the first $7,000-$20,000 of wages for
each employee, depending on the state, is significantly higher than other
quarters.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On June 10, 1996, the Company completed its initial public offering of
2,230,000 shares of Common Stock, which included 330,000 shares issued upon
exercise of the underwriters' over-allotment option. The Company received
$34.5 million from the sale of the shares, net of the underwriting discounts
and expenses associated with the offering. Additionally, the Company had
previously incurred $294,000 of costs related to the initial public offering
that were deferred in previous years. Net proceeds were used to repay all
outstanding indebtedness under the Company's credit facility, which was
approximately $19.3 million, and certain term loans (see Note 8 to the
Consolidated Financial Statements). As of February 29, 1996, the Company
entered into a $25.0 million revolving advance facility with BNY Financial
Corporation (the "Line of Credit"). This facility allows the Company to borrow
the lesser of $25.0 million or 85% of eligible receivables. The Line of Credit
is secured by all of the Company's assets and contains certain restrictive
covenants, including limitations on amounts of loans the Company may extend to
officers and employees, the incurrence of additional debt and the payment of
dividends on the Company's common or preferred stock. Additionally, the
agreement requires the maintenance of certain financial ratios, including
minimum tangible net worth and a limit on the ratio of total liabilities to
total tangible net worth. The Company was on December 28, 1996 and is
currently in compliance with these financial covenants.
As of December 28, 1996, the principal amount outstanding under the Line of
Credit was $10.2 million, with availability of $14.8 million. The Line of
Credit bears an interest rate of LIBOR plus 2.5% or the BNY alternate base
rate plus 0.5% at the Company's option. In addition, at December 28, 1996, the
Company had invested $2.2 million in short term treasury bills at a financial
institution which earn interest at the short term treasury bill rate (5.36% at
December 28, 1996).
The Company had negative cash flows from operations of $4.9 million, $0.2
million, $5.0 million and $1.6 million for the six months ended December 28,
1996 and for the fiscal years 1996, 1995 and 1994, respectively. The negative
operating cash flows during these periods reflected an increase in net
accounts receivable between these periods in which significant revenue growth
occurred. The Company's operating cash flows and working capital requirements
are significantly affected by the timing of the payment of payroll and the
receipt of payment from the customer. The Company pays its employees on either
a weekly or bi-weekly basis. Clients are generally invoiced for services
either at the end of the applicable pay period or on a monthly basis.
The Company had negative cash flows from investing activities of $10.2
million, $1.5 million, $3.3 million and $0.6 million for the six months ended
December 28, 1996 and for the fiscal years 1996, 1995 and 1994, respectively.
The primary use of cash for investing activities in the six months ended
December 28, 1996 was $8.0 million for acquisitions completed in the period.
Capital expenditures totaled $2.2 million, $2.5 million, $2.6 million and $0.8
million for the six months ended December 28, 1996 and for the fiscal years
1996, 1995 and 1994, respectively. Capital expenditures in the six months
ended December 28, 1996 and in fiscal 1996 related primarily to the upgrade of
the Company's IT infrastructure and to a lesser extent to the establishment of
new branch offices. Capital expenditures in fiscal 1995 and 1994 related
primarily to the establishment of the seventeen offices opened during these
years.
The Company generated cash from financing activities of $8.5 million, $14.5
million, $8.9 million and $3.4 million for the six months ended December 28,
1996 and for the fiscal years 1996, 1995 and 1994, respectively. Historically,
the Company has funded its capital requirements with borrowings against its
Line of Credit and term loans with a leasing company. In June 1996, the
Company completed its initial public offering of 2,230,000 shares of Common
Stock from which it received $34.5 million in proceeds, net of the
underwriting discounts and expenses associated with the offering. Net proceeds
were used to repay all outstanding indebtedness under the Company's Line of
Credit and certain term loans (See Notes 7 and 8 to the Consolidated Financial
Statements). In the six months ended December 28, 1996, an additional $2.6
million in proceeds from the sale of ARI stock was received. During the first
six months of fiscal 1997,
22
<PAGE>
cash requirements for acquisitions, working capital, fixed asset purchases and
a stock repurchase relating to the SCR acquisition resulted in the Company
borrowing $8.1 million against its Line of Credit.
The Company anticipates that its primary uses of working capital in future
periods will be for funding growth, either through acquisitions, the internal
development of existing branch offices or the development of new branch
offices and new service offerings. The Company also anticipates making
approximately $2.5 million in capital expenditures in the next twelve months
principally to upgrade its computer system. In connection with certain of its
acquisitions the Company may be obligated to make certain contingent payments
during the next several years. See "Certain Transactions" and Notes 3 and 17
to the Consolidated Financial Statements. The Company does not believe that
such payments would have a material impact on the Company's liquidity, results
of operations or capital requirements. The Company's principal capital
requirement is working capital to support accounts receivable associated with
its revenue growth. The Company believes that the proceeds from the offering,
together with cash flow from operations and borrowings under the Line of
Credit, will be sufficient to meet the Company's presently anticipated working
capital needs for at least the next twelve months.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period, which is
usually the vesting period.
Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-
based transactions. Companies are also permitted to continue to account for
such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," but would be required to disclose
in a note to the financial statements pro forma net income and earnings per
share as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption of the
standard. The Company has decided not to adopt the fair value method of
accounting for employee stock-based compensation for financial reporting
purposes.
23
<PAGE>
BUSINESS
The Registry, Inc. ("The Registry" or the "Company") provides information
technology ("IT") consultants on a contract basis to organizations with
complex IT operations. The Company's revenue is principally derived from
supplemental IT staffing services and, to a lesser extent, from management
consulting services provided through its specialized practices. As of December
28, 1996, the Company had approximately 2,840 IT consultants placed with its
clients to assist them in implementing solutions for systems and applications
development, in such areas as distributed network design, database design and
development and client/server migration. These consultants, billed primarily
on an hourly basis, typically work on engagements lasting from six to twelve
months under the direction of the client. In fiscal 1996, the Company provided
IT consultants to approximately 800 clients in a diverse range of industries,
including Abbott Laboratories, Digital Equipment Corp., Sprint Communications
Company L.P. and Sun Microsystems, Inc. The Registry has grown from six
offices and $19.4 million in revenue in fiscal 1991 to 37 offices and $266.9
million in revenue for the twelve months ended December 28, 1996.
INDUSTRY OVERVIEW
In recent years, the growth of the information services industry has been
driven by companies' increasing reliance on information technology as a
strategic tool, the shift to distributed computing and the proliferation of
multi-vendor computing environments. As companies struggle to integrate
multiple processing platforms and applications which serve an increasing
number of end-users, systems and applications development has become
increasingly challenging. As organizations continue to focus on their core
competencies and strive to operate more efficiently with fewer people,
managing and planning staffing requirements to meet their IT needs becomes
more difficult.
Confronted with the challenge of designing, implementing and operating more
complex information systems without enlarging corporate staff, businesses are
increasingly turning to IT service providers to augment their in-house IT
operations. Using the services of IT consultants allows companies to: (i)
focus on their core business; (ii) access specialized technical skills; (iii)
implement flexible staffing, providing a variable cost solution to a fixed
cost problem; and (iv) reduce the cost of recruiting, training and terminating
employees as IT requirements change.
There are a number of competitive factors within the highly fragmented IT
services industry. These factors include, among others, IT services providers'
ability to: (i) identify, recruit and retain highly qualified software
engineers; (ii) provide software application and development services across a
broad range of platforms and technologies; and (iii) serve clients across
multiple locations and industries.
In recent years, the IT services industry has grown significantly. According
to a 1996 report prepared by Dataquest, Inc. for the Company, the potential
U.S. market size for supplemental IT staffing services of the type provided by
The Registry's IT consultants was estimated at $9.5 billion in 1994 and is
projected to grow to $16.1 billion in 1999. The Company paid a nominal amount
for this report.
BUSINESS STRATEGY
The Registry's goal is to be a leading nationwide provider of IT
professional services for organizations with complex IT operations. The
Company's business strategy encompasses the following elements:
. Emphasize Resource Management. The Company believes that its ability to
provide the highest quality, most professional IT consultants is
critical to its success. The Company's Delivery Management System is
designed to effectively identify, qualify, place and retain IT
consultants. Most of the Company's 151 Resource Managers recruit in one
of five specific technology sectors, enabling the Company to more
effectively match the skills of its IT consultants with the needs of its
clients. To attract and retain IT consultants, the Company offers them a
comprehensive benefits package and actively remarkets them before their
engagement ends. In addition, the
24
<PAGE>
Company's National Resource Delivery Team (NRDT), a group of Resource
Managers based at the Company's headquarters, helps coordinate
recruiting efforts with the local branch offices to provide access to
consultants from across the nation when local resources for a particular
skill set are scarce. The Company believes that its resource management
methodologies have been and will continue to be a significant factor in
its ability to grow.
. Focus on Application Development and Software Engineering. Many of the
Company's clients are leaders in adopting emerging computing
technologies. The Company provides IT consultants for application
development and software engineering in areas such as networking and
communications, migration from legacy systems, workgroup/desktop
applications, database design and development and Internet. In addition
to differentiating the Company's service offerings from those of other
IT service providers, this focus on application development and software
engineering provides the Company an opportunity to enhance margins by
moving away from the commodity pricing more typical for IT consultants
providing routine operations and maintenance services. In addition, this
focus enables the Company to offer its IT consultants the opportunity to
work on challenging projects, which the Company believes is a
significant advantage in attracting and retaining highly skilled
professionals.
. Build Client Relationships. The Registry's goal is to become an
extension of its clients' IT departments. The Company seeks long-term
relationships as a primary IT service provider for companies which have
complex IT operations and for which IT development is a strategic tool
and not merely a support function. The Company believes that this
relationship-oriented approach results in greater client satisfaction
and reduces business development expense. By helping its clients assess
their future staffing needs in their IT planning process, the Company is
better able to anticipate opportunities to provide additional services.
. Maintain and Expand National Presence. The Company believes that larger
organizations with multiple locations prefer to deal with IT service
providers that can provide consistent and high quality services on a
nationwide basis. The Company has focused from its inception on
establishing a nationwide presence to take advantage of the enhanced
delivery capabilities resulting from a nationwide resource pool as well
as to focus on and serve national accounts. The Company has 35 offices
in the United States allowing national coverage for larger accounts and
mobility for IT consultants. In the future, the Company's decision to
establish a new office or make an acquisition will be influenced, in
part, by the extent to which establishing a new office or making an
acquisition can help increase the Company's national presence and assist
in serving national accounts.
GROWTH STRATEGY
Through fiscal 1996, the Company's growth was achieved primarily through
branch expansion and, to a lesser extent, the development of new service
offerings, rather than through acquisitions. Since the Company's initial
public offering, it has completed six acquisitions. The Company believes that
a balance of internal growth and selective acquisitions will best position the
Company to capitalize on opportunities in the IT professional services
industry. The Company's growth strategy consists of five primary components:
. Acquire Complementary Businesses. The Company expects to continue to
seek to acquire companies, both nationally and internationally, in the
IT professional services industry to facilitate its expansion into new
geographic areas or to acquire technology businesses that offer
complementary services. The Company believes that the fragmented nature
of the IT professional services industry presents a number of
opportunities for growth through acquisition.
. Concentrate on Existing Branch Development. The Company believes that
there are substantial opportunities for increasing revenue in existing
branches, many of which have been open for less than four years. The
Company's strategy is to increase sales to existing clients by
25
<PAGE>
increasing the number of IT consultants placed with these clients and by
offering them additional services. As a result of its involvement in the
IT planning process of many of its clients, the Company is often
afforded an opportunity to anticipate clients' needs for additional IT
consultants and services. In addition, the Company seeks to selectively
expand its client base within existing markets.
. Expand National Accounts. The Company is currently focusing on national
account development and has identified certain of its clients, including
systems integrators, computer manufacturers and telecommunications
firms, as potential national accounts. These accounts present an array
of unique operational challenges, such as coordinating service delivery
across divisional lines and providing centralized invoicing. The Company
believes that its national presence and national resource management
capabilities will enable it to meet these challenges.
. Implement Satellite Branch Expansion. The Company believes that
opportunities exist for additional satellite expansion. From existing
branch offices, the Company has successfully developed satellite offices
in certain regions. This method of developing opportunities in given
geographic areas allows the Company to expand its client and consultant
base while leveraging existing infrastructure and reducing start-up
costs. For example, the Durham, North Carolina office served as a hub
for the opening of satellite offices in Charlotte and Greensboro, North
Carolina.
. Develop and Provide New Service Offerings. The Company intends to
continue its practice of developing and acquiring complementary
services, such as the Documentation Services Practice, the recently
introduced Help Desk Practice and the Applications Development Practice.
These services can then be expanded on a national level after their
viability and profitability is demonstrated at a local level.
RECENT ACQUISITIONS
A key component of the Company's growth strategy is to acquire complementary
IT consulting organizations. The Company seeks acquisitions that will increase
its national and international presence, strengthen its professional services
offerings, add clients, provide access to expanded resource pools, introduce
new service offerings and establish the Company in new geographic markets. The
Company believes that its team-oriented management style facilitates its
efforts to acquire independent IT consulting businesses seeking an alliance
with a national organization. In determining to proceed with an acquisition,
the Company evaluates a number of factors, including: historical and projected
financial results, compatibility of corporate cultures, reputation and
personality of management, the expansion of the Company's geographic market
share, enhancement of service offerings to clients, synergy with the Company's
existing operations and the purchase price and expected impact on the
Company's earnings per share.
Since its initial public offering in June 1996, the Company has completed
six acquisitions. Five of the acquired companies--Morris Information Systems,
Inc., based in Houston, Texas; Sun-Tek Consultants, Inc., based in Orlando,
Florida; Application Resources, Inc., based in San Francisco, California;
Shamrock Computer Resources, Ltd., based in Bloomington, Minnesota; and James
Duncan & Associates, based in Royal Tunbridge Wells, England--provide
information technology consulting services similar to those that the Company
currently provides. One of the acquisitions--Sterling Information Group, Inc.,
based in Austin, Texas--is an independent provider of outsourced software
application development services.
Management believes that acquired businesses can be integrated with the
Company at acceptable incremental costs. When integrating a particular
acquisition, the Company addresses the particular sales and recruiting as well
as operational structure in a manner that management believes will best
preserve those attributes of value and at the same time leverage the existing
infrastructure that the Company has established. The Company has, on occasion,
utilized independent consultants to assist in its evaluation and integration
processes. Depending on the particular acquisition, the Company may choose to
operate the entity as an independent subsidiary maintaining its own corporate
identity, or choose to integrate the acquired business into the Company.
26
<PAGE>
THE REGISTRY'S SERVICES
The Registry provides IT professional services for application development
and software engineering. The vast majority of the Company's IT consultants
work on a supplemental staffing basis to deliver IT implementation,
integration and development services. The Registry's goal is to become an
extension of its clients' IT departments, and the Company believes that this
relationship-oriented approach results in a better understanding of its
clients' business and IT staffing needs. The Company's IT consultants, billed
primarily on an hourly basis, typically work on engagements lasting from six
to twelve months under the direction of the client. In addition, the Company
provides management consulting services primarily through its Network Systems
Consulting Practice. Management consulting engagements generally involve
network strategy, systems architecture and implementation. The Company
generally assumes responsibility for project outcome in such engagements.
Further, the Company has recently introduced service offerings in three
additional practice areas: documentation services, application development and
help desk services.
IT Professional Services
The Company organizes its IT professional services in five sectors:
workgroup/desktop; legacy systems; networks and communications; database
design and development; and Internet. The following are descriptions of the
nature of engagements in each sector, a description of the skill sets common
to each and examples of assignments The Registry's IT consultants have worked
on as part of a project team within each of the Company's five technology
sectors. Project teams generally comprise client staff and IT consultants
placed by the Company and other IT service providers.
Workgroup/Desktop. Workgroup/desktop engagements involve front-end graphical
user interface (GUI) development, rapid application prototyping and
development, object-oriented development and workgroup application services.
General skills required in this sector include NT/C++/GUI development, MS
Windows/Windows 95/Windows NT architecture and development, and Visual Basic
design/OBDC.
. Migration to New Operating System for a Software Developer. One of The
Registry's IT consultants acted as a project manager and a developer in
the migration of an operating system from Windows to an NT/Windows 95
environment. Another of the Company's IT consultants worked as a
developer on the project, which lasted approximately one and a half
years. This was a large project, involving more than 50 IT
professionals, on which many other IT consultants from the Company's
competitors worked.
. Development of an Investment Management Reporting System for a Financial
Services Company. The Registry provided two IT consultants who acted as
project managers and architects for this project. In addition, the
Company provided six to eight Visual Basic developers on this project,
which lasted approximately nine months. The project managers reported to
an employee of the client. The Company's IT consultants constituted a
majority of the professionals on this project.
Legacy Systems. Legacy system engagements address challenges in the
migration of legacy applications to a client/server environment, large systems
development and general legacy (primarily IBM and Digital VAX/VMS) support.
General skills required in this sector include IBM/COBOL/CICS, VAX/VMS
application development and systems administration, and IMS systems
programming.
. Development of an On-Line Portfolio Accounting System for a Mutual
Fund. The Company provided three programmer analysts for a project that
lasted one and a half years. These programmer analysts worked at the
direction of the client and with IT consultants provided by certain of
the Company's competitors. The project team consisted of 30 persons,
including staff from the client.
. Development of a Billing System for a Long Distance Telecommunications
Company. The Company placed a total of ten programmer analysts working
on three different aspects of this system. These IT consultants have
worked from three months to two and one-half years on this
27
<PAGE>
project, which is still ongoing. The consultants work under the client's
supervision and direction. Employees of the client, as well as
consultants from other IT service firms, constituted a majority of the
personnel working on each of the portions of this project.
Networks and Communications. Networks and communications engagements
generally involve distributed network design and implementation or
optimization and connectivity services in both local area networks (LANs) and
wide area networks (WANs). General skills required in this sector include
UNIX/TCP-IP/IPX development, SNMP network management development, and LAN/WAN
architecture.
. Integration of Network Protocols for a Systems Integrator. The Company
provided a project manager for one campus of a statewide network
integration project for a four campus state university system. During
this four-month engagement, the Company's IT consultant managed
employees of the client on this portion of the project. To the best of
the Company's knowledge, no other firm provided IT consultants to the
portion of the project on which the Company was engaged.
. Development of Object-Oriented Front-End of a Network Management System
for a Software Manufacturer. One of the Company's IT consultants was the
lead designer and developer on a portion of this project, which lasted
approximately two years. This consultant worked in conjunction with more
than 20 other professionals, consisting of client employees and IT
consultants from other firms. His work was reviewed and supervised by
employees of the client.
Database Design and Development. Database design and development assignments
involve design, development and implementation of relational database
applications and systems. General skills required in this sector include
Sybase/UNIX/C++/Tuxedo, Oracle DBA, and Powerbase/Sybase client server
development.
. Design and Development of a Reporting and Switching System for a
Telecommunications Company. The Company provided five IT consultants on
a project team of eight individuals for this project which lasted eight
months. The Registry's IT consultants primarily acted as software
engineers and, to a lesser extent, test engineers with respect to this
project.
. Design and Development of a Loan Processing System for a Bank. The
Company provided an IT consultant who acted as project manager on this
project which lasted two and one-half years. He directed approximately
five other client server and database developers, who were also IT
consultants of the Company. Approximately two other IT consultants from
competing firms and approximately four employees of the client worked on
the project under the direction of the project manager.
Internet. Internet engagements include Web Page design, internet security
design issues and intranetworking systems development. General skills required
in this sector include HTML/WWW design and development, UNIX/Systems
Engineer/CGI/Firewall development, and JAVA development.
. Web Site Development for a Telecommunications Company. On one project
the Company provided approximately eight software developers on a three-
month project. These IT consultants comprised the majority of the
project team which also included approximately two employees of the
client, although the Company did not manage this project.
On another project the Company provided two programmer analysts, one of
whom acted as project leader, who worked on a team of approximately
eight IT consultants. The project lasted approximately seven months.
. Design and Implementation of an Internet Firewall Security System for a
Mutual Fund. One of the Company's IT consultants with expertise as a
UNIX systems administrator worked on this project in conjunction with
approximately five employees of the client for approximately two and
one-half months.
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<PAGE>
Practices
Network Systems Consulting Practice. In November 1994, the Company acquired
the business that formed the basis for its Network Systems Consulting Practice
("NSCP"). Based in New England and operating from locations in New York City
and Chicago, the NSCP is staffed by 35 salaried employees. The NSCP provides
an extensive suite of management consulting services, addressing issues such
as network strategy, systems architecture and implementation. Most projects
are performed on a time and materials basis, with engagements generally
lasting approximately two to three months. The clients of the NSCP include
systems integrators, hardware manufacturers and pharmaceutical companies.
Documentation Services Practice. In 1994, the Company initiated its
Documentation Services Practice ("DSP") in its Chicago branch office. The DSP
assists hardware and software vendors and other organizations in developing
documentation, instruction and accompanying related materials associated with
introducing new or upgrading existing products. As product development cycles
continue to shorten, these services, including documentation needs analysis,
design and development, project management, technical writing and graphic
design and illustrations, are designed to help clients produce high-quality,
cost-effective documentation under heightened scheduling constraints. In
addition, the DSP provides systems documentation and process consulting
services to other organizations. The DSP is composed of 32 professionals
including project managers, technical writers, principal consultants, a
quality manager and a practice manager, of whom approximately half are
salaried employees and half are hourly IT consultants. Most projects are
performed on a time and materials basis, with engagements generally lasting
approximately three to four months.
Application Development Practice. In November 1996, the Company acquired
Sterling Information Group, Inc., the business which will form the basis for
the Company's Application Development Practice. Based in Austin, Texas, the
practice specializes in developing end-user applications that utilize
client/server, Internet, relational database and object-oriented technologies.
The core competencies utilized in the Application Development Practice include
project-based software analysis, development, implementation, support
services, training and outsourced software product development.
Help Desk Practice. The Company is currently developing a Help Desk Practice
to assist clients in identifying their help desk requirements and implementing
and operating their help desk services. These services may range from
providing consulting services to providing a complete outsourcing solution for
a client's help desk needs.
THE REGISTRY'S DELIVERY MANAGEMENT SYSTEM
The Registry's Methodology
The Company has developed a system designed to identify, qualify, place and
retain IT consultants. This system includes the following:
Technology Sector Recruiting. Resource Management teams in each branch
office recruit IT consultants who specialize in one of the five technology
sectors that the Company serves. Each Resource Manager is assigned to one
specific sector and is accountable for continually developing consultant
relationships within, and an understanding of, that sector. This approach
helps a Resource Manager stay current in a particular sector and reduce a
field of potential consultants to a select list of experts particularly
qualified for current openings.
National Resource Delivery Team. The Company utilizes a National Resource
Delivery Team ("NRDT"), a group of 12 Resource Managers located at the
Company's corporate headquarters. Communicating daily with Resource Managers
in the Company's U.S. branch offices, the NRDT helps coordinate recruiting
efforts with the local branch offices to provide access to consultants from
across the nation when local resources for a particular skill set are scarce.
The NRDT also supports local branches with on-site auxiliary recruiters to
provide added support and expertise for new office openings or the rapid
growth of existing offices.
29
<PAGE>
Continuous Support and Quality. The Company believes that consultant quality
is of primary importance to its clients and that clients prefer to work with
vendors that have substantial quality programs in place. The Company has
always maintained a proactive approach to quality initiatives, and its quality
programs include a consultant orientation and a review of client satisfaction
30 days after the beginning of each engagement and at the end of each
engagement. The Company actively solicits feedback from clients and IT
consultants in the areas of productivity, technical performance and
compatibility, as well as overall quality of the service provided, which then
forms the basis for the Company's statistical analysis for quality improvement
programs.
Consultant Retention and Benefits. Clients spend valuable time and effort in
the training and orientation of consultants, and, accordingly, retention until
project completion is extremely important. Before completion of a project, the
Company actively remarkets its consultants, which helps the Company minimize
turnover. This approach allows consultants to focus on completing their
current project -- often when it is in the most critical phase. The Company
offers a benefits package to its hourly IT consultants which includes
comprehensive medical insurance, a prescription drug card, term life
insurance, individual long-term disability insurance, a 401(k) retirement plan
and, subject to certain restrictions, the right to participate in the
Company's stock purchase plan. These benefits underscore the Company's
commitment to its consultants and further consultant loyalty and retention
efforts.
IT Consultants
A major challenge facing IT professional services companies is the
identification and retention of highly qualified software engineers and
computer programmers. The Company's typical IT consultant has an average of
six to eight years of experience in application development and software
engineering. The Company believes that it is able to attract and retain the
highest quality IT consultants by offering the following advantages:
. Consultants work with a Resource Manager with a single technology sector
focus who understands the consultants' skills and professional interests.
. The Company provides exposure to a variety of challenging assignments
that help consultants increase their skill sets and business expertise.
. The Company actively remarkets its consultants, allowing them to
concentrate on completing their current assignment.
. The Company offers a comprehensive benefits package comparable in
coverage to those offered in many permanent employment positions,
including participation in the Company's stock purchase plan.
Resource Management
Resource Managers are responsible for soliciting, recruiting and assessing
IT consultants, developing and maintaining consultant relationships and
maintaining and updating the Company's database. Although Resource Managers
recruit most of the Company's IT consultants through referrals from existing
IT consultants, they utilize several additional recruiting methods, including
local and national print advertising, participation in technical job fairs
across the nation and listing a variety of current openings on the Company's
home page on the World Wide Web. Resource Managers also utilize the Company's
database that contains the resumes of more than 100,000 IT consultants that
have been submitted to the Company directly or indirectly by such consultants
in response to the Company's recruiting efforts. At any particular time, only
certain of the individuals whose resumes are included in the Company's
database may be available for placement by the Company; certain individuals
may have accepted permanent assignments, may be working for the Company's
competitors or may have left the IT services industry. Nevertheless, the
Company believes that the database facilitates the identification of qualified
IT consultants to the extent of their availability.
30
<PAGE>
As of December 28, 1996, the Company employed 151 Resource Managers located
in its branch offices. This number exceeds the number of Account Managers by a
ratio of 1.35 to 1 and reflects the Company's commitment to resource
development. Resource Managers are typically college-educated individuals with
experience in customer service, telemarketing and relationship management.
They are compensated through a combination of base salary and bonus incentives
based on consultant placements and gross profit margins.
Account Management
The Company's Account Managers manage its client relationships. Each Account
Manager is responsible for approximately four to seven accounts, some of which
may involve multiple operating units of a particular organization. The Account
Manager's primary responsibility is to develop and implement a specific
account plan for each assigned client. Each plan addresses the following
areas: building and serving the client relationship; identifying and
understanding the client's current and anticipated requirements; and expanding
services to additional areas within the client's organization. The Company's
Account Managers work closely with the Resource Managers to identify new
assignments at existing client sites, staff assignments appropriately and
market IT consultants to existing clients. As of December 28, 1996, the
Company employed 112 Account Managers who are compensated through a
combination of base salary and commission.
OPERATIONS AND SUPPORT SERVICES
Regional Management
The Company has a Regional Vice President for each of the Northeast,
Midwest, Southeast, Southwest and Western Regions. The Regional Vice President
is responsible for supervising Branch Managers and for developing a financial
plan for the region, implementing staff development and training and
coordinating marketing strategy. Each Regional Vice President serves on the
Company's Executive Committee. Compensation of Regional Vice Presidents
consists of a base salary plus bonus incentives relating to regional
profitability.
Branch Management
The Company's Branch Managers are accountable for branch profitability and
are responsible for day-to-day branch operations, as well as business and
staff development. To date, a majority of the Company's Branch Managers have
been promoted from within and thus bring with them an appreciation for the
Company's culture. Management believes that this approach allows the Company
to maintain consistent standards during a period of rapid growth. Branch
Managers are compensated through a combination of base salary and bonus
incentives based on branch profitability.
Staffing levels of branch sales offices vary depending on the maturity of an
office and range from one Account Manager to 13 Resource Managers, five
Account Managers, six administrative staff persons and one Branch Manager for
a larger, more established office.
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<PAGE>
The following chart lists the Company's 37 branch offices and the fiscal
year in which they were opened or acquired:
<TABLE>
<CAPTION>
FISCAL YEAR
LOCATION OPENED/ACQUIRED
- -------- ---------------
<S> <C>
Newton, Massachusetts... 1987
McLean, Virginia........ 1987
Bloomington, Minnesota.. 1989
Durham, North Carolina.. 1990
Moline, Illinois........ 1990
Atlanta, Georgia........ 1991
Chicago, Illinois....... 1992
Richmond, Virginia...... 1992
Omaha, Nebraska......... 1992
Cleveland, Ohio......... 1993
Rye Brook, New York..... 1993
Boston, Massachusetts... 1993
Ft. Lauderdale,
Florida................ 1994
Rosemont, Illinois...... 1994
Dallas, Texas........... 1994
Denver, Colorado........ 1994
Chicago, Illinois....... 1994
Greensboro, North
Carolina............... 1994
Los Altos, California... 1994
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
LOCATION OPENED/ACQUIRED
- -------- ---------------
<S> <C>
Walnut Creek,
California.............. 1994
New York, New York....... 1994
San Francisco,
California.............. 1994
St. Louis, Missouri...... 1994
Santa Clara, California.. 1994
Seattle, Washington...... 1995
Columbus, Ohio........... 1995
Stratham, New Hampshire.. 1995
Charlotte, North
Carolina................ 1995
Rolling Meadows, Illinois
(DSP)................... 1995
New York, New York
(NSCP).................. 1996
Walnut Creek,
California.............. 1996
Houston, Texas........... 1997
Columbia, South
Carolina................ 1997
Orlando, Florida......... 1997
Austin, Texas............ 1997
Royal Tunbridge Wells,
England................. 1997
Luxembourg............... 1997
</TABLE>
Corporate Services
From its headquarters in Newton, Massachusetts and certain regional offices
the Company provides its branch offices with centralized support services,
including marketing, financial and accounting, legal support and purchasing.
In addition, the Company has committed and expects to continue to commit
substantial resources to the following areas:
Training. The Company provides a number of training programs for its staff
employees to help them stay current with emerging issues in the information
technology industry. These programs include "Registry University," a four-day
training and orientation workshop for new Account Managers and Resource
Managers, and the "Branch Manager's Workshop," an annual series of four three-
day workshops that focus on operations, business development and staff
development. Drawing on the experience of the Company's most successful
Resource Managers, the training department has also developed a "Best
Practices" program in resource management.
Information Services. The Company believes that its own information
technology system is an important tool for enhancing productivity, promoting
efficiency and improving communications within the organization. The Company
also believes that its database is one of its most important assets. The
Company is currently committing significant resources to improving the
database search capabilities through centralization and development of a
nationwide communications network.
Human Resources. The Company believes that extending a benefits program to
its IT consultants provides it with a competitive edge by promoting
consultants' loyalty to the Company and enhancing its retention efforts. In
this regard, the Company offers a benefits package to the Company's IT
consultants nationwide. This program includes comprehensive medical insurance,
a prescription drug card, term life insurance, individual long-term disability
insurance, a 401(k) retirement plan and, subject to certain restrictions, the
right to participate in the Company's stock purchase plan.
CLIENT BASE
The Company focuses its sales efforts primarily on organizations with
complex IT needs and during fiscal 1996 provided IT consultants to
approximately 800 clients. In the six months ended December 28, 1996,
approximately 30.7% of the Company's revenue was derived from its top ten
customers, none of
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<PAGE>
which accounted for more than 4.8% of revenue. The primary industries served
by the Company are: financial services, manufacturing, communications, systems
integration and pharmaceutical. The following table shows selected clients,
categorized by industry group, for which the Company provided services in the
six months ended December 28, 1996. The clients and their affiliates listed
below generated approximately $34.1 million of revenue for the six months
ended December 28, 1996, which represents approximately 23.6% of the Company's
total revenue for that period.
SELECTED CLIENTS
Abbott Laboratories NYNEX Information Resources
Allstate Insurance Company Prodigy Services Corporation
American Electric Power Sprint Communications Company L.P.
Ameritech Services, Inc. Sun Microsystems, Inc.
Andersen Consulting Swiss Bank Corporation
AT&T Wireless Services, Inc. The Chase Manhattan Bank
BellSouth Long Distance, Inc. The Coca-Cola Company
Blue Cross/Blue Shield of South Carolina The Commonwealth of Virginia
Chicago Mercantile Exchange Department of Transportation
Digital Equipment Corp. The Foxboro Company
First Union National Bank Union Pacific Railroad Company
Harvard Pilgrim Healthcare Wells Fargo Bank
John Hancock Mutual Life Insurance Co.
COMPETITION
The market for IT professional services is intensely competitive on both
local and national levels. The market is served by numerous IT professional
services companies, many of which have greater financial, technical and other
resources than the Company. Some of these competitors have a nationwide
presence equivalent to, or greater than, that of the Company. Within any given
market, the Company and its competitors frequently compete for the same
highly-skilled IT consultants and clients.
The Company competes for IT consultants with other IT professional services
providers, outsourcing and consulting companies, systems integrators,
temporary personnel agencies and client companies. IT consultants, including
those who work with The Registry, often seek assignments from more than one
staffing company. Primary competitive factors for recruiting and retaining
such professionals include: compensation, including timeliness of payment;
availability of benefits; consistent flow of high quality, varied assignments;
schedule flexibility; and an understanding of consultant skills and work
preferences.
The Company competes for clients with other IT professional services
providers, outsourcing and consulting companies, systems integrators and, to a
lesser extent, temporary personnel agencies. The Company considers large
organizations with complex IT needs to be among its prime clients. Within a
given market, there are a limited number of such potential clients, some of
which have designated only certain IT professional services companies as
approved providers of IT professional services. Primary
33
<PAGE>
competitive factors for obtaining and retaining clients include: careful
matching of consultant skills with the client's requirements; selectivity in
referral of consultant candidates; nationwide presence; consultant technical
expertise; price of services; monitoring of client satisfaction during and
after a placement; and general responsiveness to client needs.
Although the Company believes that it competes favorably both in recruiting
IT consultants and obtaining clients, there is no assurance that it will
continue to be successful in doing so.
EMPLOYEES
As of December 28, 1996, the Company had 1,230 employees, of whom 711 were
staff IT consultants, 151 were Resource Managers, 112 were Account Managers,
60 were either Branch, Regional or corporate managers and 196 served in
various administrative and accounting capacities. On that date, there were
approximately 2,840 IT consultants (including the 711 staff IT consultants)
working on full-time assignments for the Company's clients. The Company is not
a party to any collective bargaining agreements and considers its
relationships with its employees to be satisfactory.
Approximately 84.7% of the Company's non-staff IT consultants at December
28, 1996 were treated as employees of the Company for federal and state tax
purposes. For such employees, the Company pays social security taxes (FICA),
federal and state unemployment taxes and workers' compensation insurance
premiums. The remainder of the IT consultants worked for the Company on a
subcontract basis, and the Company is not responsible for such taxes under
these arrangements. The Company believes that such arrangements meet the
requirements of applicable law.
PROPERTIES
The Company's executive offices are located in Newton, Massachusetts, in
approximately 18,800 square feet of leased office space, under leases that
expire on September 30, 2010, from the Realty Trust. See Note 9 to "Selected
Consolidated Financial Data," "Certain Transactions" and Notes 13 and 15 to
Consolidated Financial Statements. The Company also maintains offices and
leases office space occupying between 208 and 13,173 square feet under leases
terminating from March 14, 1997 to March 1, 2002 in the locations in which it
maintains a branch office noted under "-- Branch Management." The Company
believes that its facilities are adequate for its current operations.
LEGAL PROCEEDINGS
On April 21, 1995, Ralph Kirkley Associates, Inc. ("Kirkley"), an IT
services provider, filed suit against the Company in the District Court of
Travis County, Texas, 353rd Judicial District, alleging that the Company
breached a mixed oral and written contract with Kirkley to enter into an
agreement to purchase substantially all of the assets comprising Kirkley's
business. Kirkley's complaint seeks a declaratory judgment that a valid
contract existed between Kirkley and the Company to enter into a purchase and
sale agreement for Kirkley's assets, as well as actual damages of not less
than $500,000, recovery of lost profits, exemplary damages of three times all
actual damages awarded and attorney's fees and costs. The Company has filed a
general denial of Kirkley's complaint and a counterclaim seeking return of the
$100,000 deposit paid to Kirkley's escrow agent and other legal and equitable
relief. No further actions have been taken with respect to this suit. On May
31, 1995, Kirkley filed a voluntary petition for bankruptcy under Chapter 11
in the United States Bankruptcy Court for the Western District of Texas. In
the event Kirkley or the trustee in bankruptcy proceeds with the case, the
Company intends to defend vigorously. The Company does not believe that the
resolution of this matter will have a material adverse effect on its business,
financial condition or results of operations.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
believes that it is not currently involved in any legal proceedings the
resolution of which, individually or in the aggregate, would have a material
adverse effect on the Company's business, financial condition or results of
operation.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
G. Drew Conway.......... 39 President, Chief Executive Officer and Director
Robert E. Foley......... 48 Chief Financial Officer and Treasurer
Mark W. Biscoe.......... 36 Vice President, Northeast Region
Christopher T. Cain..... 33 Vice President, Southwest Region
Anthony F. Carusone..... 48 Vice President, Southeast Region
Christopher B. Egizi.... 40 Vice President, Midwest Region
James F.J. McKee........ 31 Vice President, Western Region
Martin E. Goober........ 31 Vice President, Operations
David E. Jackson........ 45 Vice President, Network Systems Consulting Practice
Robert P. Badavas....... 43 Director
Paul C. O'Brien......... 57 Director
</TABLE>
Mr. Conway, the founder of the Company, has served as President, Chief
Executive Officer and Director of the Company since its incorporation in May
1986 and as Treasurer from such date until March 1996. From 1983 until 1986,
Mr. Conway was a founder and principal of The Experts, a technical staffing
company. Mr. Conway previously served as an Account Manager with EDP Temps, a
technical staffing company.
Mr. Foley has served as Chief Financial Officer since joining the Company in
July 1990 and as Treasurer since March 1996. Mr. Foley has more than 22 years
of experience in finance and accounting and has served as an Adjunct Professor
of Finance at Northeastern University.
Mr. Biscoe has served as Vice President, Northeast Region, since July 1996,
and Vice President, New England, from November 1995 to July 1996. Mr. Biscoe
joined the Company in March 1992 and has served as Branch Manager of the
Newton office and Manager of the NRDT. From 1990 until 1992, Mr. Biscoe served
as Branch Manager of Triple T, Inc., a technical staffing company.
Mr. Cain has served as Vice President, Southwest Region, since January 1995.
Mr. Cain joined the Company in 1990 as an Account Manager and opened the
Dallas office as Branch Manager.
Mr. Carusone has served as Vice President, Southeast Region, since February
1994. Mr. Carusone joined the Company in February 1992 and has served as
Branch Manager of the Atlanta office. From July 1990 to February 1992, Mr.
Carusone was employed by Status, Inc., a personnel recruiting company.
Mr. Egizi has served as Vice President, Midwest Region, since January 1994.
Mr. Egizi was a founding staff member of the Company in 1986 and has served as
Vice President, Strategic Corporate Services, Branch Manager of the Newton
office and Manager of the NRDT.
Mr. McKee has served as Vice President, Western Region, since January 1996.
Mr. McKee joined the Company in November 1991 as an Account Manager and
subsequently opened the Santa Clara office in June 1994 as Branch Manager and
the Walnut Creek, California office in August 1995. Before joining the
Company, Mr. McKee was employed as an Account Executive with Spectator
Publications.
Mr. Goober has served as Vice President, Operations, since September 1995.
Mr. Goober joined the Company in January 1991 as an Account Manager, and
before serving as a Director of Training, served as
35
<PAGE>
Branch Manager of the Newton office, and opened the Boston office. From April
1988 until December 1990, Mr. Goober served as Senior Account Manager with
Sullivan & Cogliano, a technical staffing company.
Mr. Jackson has served as Vice President, Network Systems Consulting
Practice, since November 1994. Mr. Jackson joined the Company when Axiom
Consulting Group, Inc., the network implementation consulting firm he founded
in December 1991, was acquired by the Company. From 1989 to 1991, Mr. Jackson
served as Vice President of Sales and Marketing of The DMW Group, Inc., a
network management consulting firm. Mr. Jackson has 22 years of experience in
the networking and communications industry.
Mr. Badavas became a director of the Company in May 1996. Mr. Badavas has
been President and Chief Executive Officer of Cerulean Technology, Inc., a
provider of mobile information systems applications, since December 1995. From
October 1986 through October 1995, Mr. Badavas was employed by Chipcom
Corporation, a manufacturer of computer networking intelligent switching
systems, where he served as Senior Vice President, Finance, from July 1994 to
October 1995, Vice President, Finance, from October 1986 to July 1994 and
Chief Financial Officer and Treasurer, from October 1986 to October 1995.
Mr. O'Brien became a director of the Company in April 1996. Mr. O'Brien is
the President of The O'Brien Group, Inc., a consulting firm in the areas of
community relations and external affairs that he founded in January 1995.
Before founding The O'Brien Group, Mr. O'Brien was employed by New England
Telephone and Telegraph Company, most recently as Chairman of the Board from
June 1993 to December 1994 and as President and Chief Executive Officer from
October 1988 to June 1993. Mr. O'Brien is also a director of Bank of Boston
Corporation, Cambridge NeuroScience, Inc., First Pacific Networks Inc., Shiva
Corporation and Chairman of the Board of View Tech Inc.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, presently composed of Messrs. Badavas and O'Brien,
reviews the Company's accounting practices, internal accounting controls and
financial results and oversees the engagement of the Company's independent
accountants. The Compensation Committee, also composed of Messrs. Badavas and
O'Brien, reviews and recommends to the Board of Directors the salaries,
bonuses and other forms of compensation for executive officers of the Company
and administer various compensation and benefit plans, including the 1996
Stock Plan and the 1996 Employee Stock Purchase Plan. The Board of Directors
does not maintain a nominating committee or a committee performing similar
functions.
The Company's Restated Articles of Organization provide that the Board of
Directors is classified into three classes, with the members of the respective
classes serving for staggered three-year terms. The first class consists of
Mr. Badavas, the second class consists of Mr. O'Brien and the third of Mr.
Conway. At each annual meeting of stockholders, nominees for director will be
eligible for re-election or election for three-year terms. See "Description of
Capital Stock -- Massachusetts Law and Certain Provisions of the Company's
Articles of Organization and By-Laws."
DIRECTOR COMPENSATION
Directors of the Company who are not officers or employees of the Company
are paid $1,000 for each Board meeting attended and an annual fee of $1,000
for each membership on a committee of the Board. In addition, each non-
employee director is granted stock options pursuant to the Company's 1996
Eligible Directors Stock Plan described under "Stock Awards."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation received by the Company's Chief Executive Officer and each of the
other four most highly compensated executive officers during fiscal 1996 and
1995 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
(1) SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ---- -------- -------- ------------------
<S> <C> <C> <C> <C>
G. Drew Conway................... 1996 $520,000 $ -- --
President and Chief Executive 1995 537,500 -- --
Officer
Anthony F. Carusone.............. 1996 97,940 199,052 50,000
Vice President, Southeast Region 1995 75,260 120,231 --
Christopher B. Egizi............. 1996 201,800 80,000 60,000
Vice President, Midwest Region 1995 201,400 12,500 --
Mark W. Biscoe................... 1996 97,745 167,867 50,000
Vice President, Northeast Region 1995 86,269 71,308 --
Martin E. Goober................. 1996 118,600 139,000 50,000
Vice President, Operations 1995 109,132 47,500 --
</TABLE>
- --------
(1) Annual compensation amounts do not include the dollar value of perquisites
and other personal benefits which did not exceed the lesser of $50,000 or
10 percent of salary and bonus for any Named Executive Officer.
EMPLOYMENT AGREEMENTS
Effective June 30, 1996, the Company entered into an employment agreement
(the "Employment Agreement") with Mr. Conway pursuant to which Mr. Conway is
employed as President and Chief Executive Officer of the Company. The
Employment Agreement provides for a term of four years and an annual base
salary of $400,000, $425,000, $475,000 and $525,000 in the first through
fourth years of the term. Mr. Conway is also eligible for a bonus based on
performance criteria pre-established by the Compensation Committee for each
year and subject to a maximum limitation of $160,000 in the first year. The
Employment Agreement provides that if Mr. Conway's employment is terminated
without "cause" (as defined in the Employment Agreement) or if Mr. Conway
terminates his employment for "good reason" (as defined in the Employment
Agreement), the Company will pay Mr. Conway severance equal to two years of
base compensation plus a portion of the bonus paid or payable with respect to
the immediately preceding full employment year based on days of service in the
year of termination. In addition, if Mr. Conway's employment is terminated at
the end of the Employment Agreement, he will be entitled to severance equal to
one year of base compensation. The Employment Agreement also contains non-
competition and non-solicitation covenants during the employment term and for
a two-year period thereafter. Mr. Conway is also provided with certain
registration rights with respect to his shares of Common Stock, described
under "Description of Common Stock."
37
<PAGE>
No stock options were granted during fiscal 1995 to any Named Executive
Officer. The following table sets forth certain information concerning grants
of stock options made during fiscal 1996 to each of the Named Executive
Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE OR PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERMS (2)
NAME GRANTED (1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ----------- ------------- ----------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
G. Drew
Conway..... -- -- -- -- -- --
Anthony F.
Carusone... 50,000 3.7% $11.00 3/06/06 $ 345,892 $ 876,558
Christopher
B. Egizi... 60,000 4.4% $11.00 3/06/06 $ 415,070 $ 1,051,870
Mark W.
Biscoe..... 50,000 3.7% $11.00 3/06/06 $ 345,892 $ 876,558
Martin E.
Goober..... 50,000 3.7% $11.00 3/06/06 $ 345,892 $ 876,558
</TABLE>
- --------
(1) The expiration date of each option is the tenth anniversary of the date on
which it was originally granted. These options are exercisable in five
equal installments commencing on December 10, 1996 and annually thereafter
commencing on December 15, 1997.
(2) In accordance with the rules of the Securities and Exchange Commission,
the amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
option holders' continued employment through the option period, and the
date on which the options are exercised.
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
June 29, 1996. No options were exercised by any of the Named Executive
Officers during fiscal 1995 or 1996 and at fiscal year-end no options were
exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME YEAR END YEAR END (1)
- ---- ---------------------- --------------------
<S> <C> <C>
G. Drew Conway...................... -- --
Anthony F. Carusone................. 50,000 $ 912,500
Christopher B. Egizi................ 60,000 $1,095,000
Mark W. Biscoe...................... 50,000 $ 912,500
Martin E. Goober.................... 50,000 $ 912,500
</TABLE>
- --------
(1) Value is based upon the difference between the fair market value of $29.25
per share, which was the closing sale price per share of Common Stock on
the Nasdaq National Market on the last trading day of the 1996 fiscal
year, less the option exercise price payable per share multiplied by the
number of shares underlying the option.
No stock appreciation rights were granted to any Named Executive Officer
during fiscal 1995 or 1996, nor were any outstanding at June 29, 1996.
38
<PAGE>
STOCK PLANS
1996 Stock Plan. The Company's 1996 Stock Plan was approved by the Board of
Directors on March 6, 1996 and by the then sole stockholder on March 22, 1996.
On January 9, 1997, the Board of Directors, subject to stockholder approval,
voted to amend the 1996 Stock Plan by increasing the number of shares of
Common Stock available for issuance thereunder by 2,000,000, to an aggregate
of 3,600,000 shares of Common Stock. Mr. Conway, who will own approximately
50.1% of the outstanding shares of the Company's Common Stock after the
offering, has indicated that he will vote as a stockholder in favor of such
amendment. The 1996 Stock Plan provides for the grant or award of stock
options, restricted stock and stock bonus awards (collectively, the "Awards").
Stock options granted under the 1996 Stock Plan may be either incentive stock
options or non-qualified stock options. The purpose of the 1996 Stock Plan is
to attract and retain outstanding employees through stock incentives. Regular
full-time employees of the Company, including officers but excluding directors
who are not officers, are eligible to receive Awards.
The 1996 Stock Plan is administered by the Compensation Committee. Subject
to the provisions of the 1996 Stock Plan, the Committee has the authority to
designate participants and determine the types of Awards to be granted, the
number of shares to be covered by each Award, the time at which each Award is
exercisable or may be settled, the method of payment and any other terms and
conditions of the Awards. All Awards shall be evidenced by an Award agreement
between the Company and the participant.
Although the Committee determines the prices at which options and other
Awards may be exercised under the 1996 Stock Plan, the exercise price of an
incentive stock option shall be at least 100% of the fair market value (as
determined under the terms of the 1996 Stock Plan) of a share of Common Stock
on the date of grant. Upon stockholder approval of the amendment referred to
above, the aggregate number of shares of Common Stock available for Awards
under the Plan will be 3,600,000. No Awards may be made under the 1996 Stock
Plan after March 6, 2006. As of December 28, 1996, options to purchase an
aggregate of 1,145,510 shares of Common Stock were outstanding under the 1996
Stock Plan.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "1996 Purchase Plan") was adopted by the Board of Directors
and approved by the then sole stockholder on March 29, 1996. A total of
300,000 shares of Common Stock has been reserved for issuance under the 1996
Purchase Plan. The 1996 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"),
will be implemented by one offering during each six-month period and is
administered by the Board of Directors of the Company or by the Compensation
Committee. Employees are eligible to participate if they have been employed by
the Company for at least 18 months. The 1996 Purchase Plan permits eligible
employees to purchase up to 200 shares of Common Stock in any six-month
offering period through payroll deductions, which may not exceed 10% of an
employee's compensation, at a price equal to 85% of the lower of the fair
market value of the Common Stock at the beginning or at the end of each six-
month offering period. Employees may end their participation in the offering
at any time during the offering period, and participation ends automatically
on termination of employment with the Company. The 1996 Purchase Plan will
terminate on March 29, 2006.
1996 Eligible Directors Stock Plan. The Company's 1996 Eligible Directors
Stock Plan (the "Directors Stock Plan") was approved by the Board of Directors
and by the Company's then sole stockholder on March 29, 1996. Under the
Directors Stock Plan, each director who is not an officer, employee or
consultant of the Company or any subsidiary of the Company (an "outside
director") will be granted, upon first being elected to the Board of
Directors, an option to purchase 20,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of the grant. A total of
100,000 shares of Common Stock are available for awards under the Directors
Stock Plan. The options granted under the Directors Stock Plan vest in four
equal annual installments commencing one year after the date of grant. No
options may be granted under the Directors Stock Plan after March 29, 2006. In
connection with their initial election to the Board of Directors, each of
Messrs. O'Brien and Badavas was
39
<PAGE>
granted an option to purchase 20,000 shares at an exercise price of $11.00 per
share in the case of Mr. O'Brien and $13.00 per share in the case of Mr.
Badavas, the fair market value of the Common Stock on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Company's initial public offering in June 1996, the Company had
no Compensation Committee or other committee performing similar functions and
decisions concerning executive compensation were made by Mr. Conway, the
President, Chief Executive Officer and then sole stockholder of the Company,
together with Mr. Foley, the Chief Financial Officer of the Company. Since
June 1996, decisions concerning executive compensation have been made by the
Compensation Committee, consisting of Messrs. O'Brien and Badavas, neither of
whom is or has ever been an officer, employee or consultant of the Company.
CERTAIN TRANSACTIONS
On September 19, 1995, the Company entered into four lease agreements, each
with a term ending on September 30, 2010, with the Realty Trust for a total of
approximately 18,800 square feet of office space located at 189 Wells Avenue,
Newton, Massachusetts at an annual rent of approximately $357,000. The
Company's executive offices are located in these spaces. Mr. Conway is the
sole beneficiary of the Realty Trust and Mr. Foley is the trustee of the
Realty Trust. Management believes that the terms of each lease agreement are
no less favorable to the Company than could be obtained in a transaction with
an unrelated third party.
The Realty Trust acquired the building in August 1992 with approximately
$170,000 borrowed from the Company pursuant to the Realty Trust Loan described
below and approximately $1,650,000 in bank financing. The Realty Trust, and
not the Company, acquired the building based on the advice of the Company's
advisors and lending banks that (i) the Company should not be in the business
of owning and operating real estate and (ii) the Company should not be
burdened by additional debt on its books, given its debt to equity ratio. In
connection with the refinancing of the Realty Trust's mortgage on the building
in September 1995, approximately $649,000 of the proceeds from the refinancing
were distributed to Mr. Conway. See Note 15 to Consolidated Financial
Statements. Pursuant to the terms of the loan between the Realty Trust and the
Company, the Realty Trust repaid the outstanding loan balances upon the
closing of the Company's initial public offering and the Realty Trust now has
an equity interest in the building.
Beginning in May, 1990 the Company made certain loans ("Loans") to Mr.
Conway. The largest amount outstanding under all such Loans was $1,108,982 on
September 25, 1995. The outstanding balance under the Loans accrued interest
at the rate of 10% per annum. Of these proceeds, $300,000 was used for capital
contributions to America's Registry and the balance was used for personal
purposes. Mr. Conway repaid all of such indebtedness, including accrued
interest, following the Company's initial public offering in June 1996.
Beginning on August 25, 1992, the Company made certain loans to the Realty
Trust, used to purchase and operate the office building at 189 Wells Avenue,
Newton, Massachusetts, in which the Company's executive offices are located
(the "Realty Trust Loan"). The largest amount outstanding under such loans was
$420,988 as of May 30, 1996, the date of the note evidencing such
indebtedness. Pursuant to the terms of the Realty Trust Loan, the Realty Trust
repaid the outstanding balances thereunder following the Company's initial
public offering in June 1996.
In December 1995, America's Registry paid dividends to Mr. Conway totaling
$861,500, of which amount Mr. Conway used $645,000 to repay principal and
accrued interest on the Loans. SCR paid cash dividends of approximately
$1,447,000 and $515,000 in fiscal 1996 and the first six months of fiscal
1997,
40
<PAGE>
respectively, to the former stockholders of SCR. In December 1996, the Realty
Trust paid a cash dividend of $25,000 to Mr. Conway, which was used to repay
certain indebtedness of Mr. Conway to the Company. See "Dividend Policy."
In November 1994, the Company acquired Axiom Consulting Group, Inc.
("Axiom") (currently doing business as "Network Systems Consulting Practice"
or "NSCP") pursuant to a Stock Purchase Agreement dated as of November 30,
1994 by and among the Company, Axiom and each of the stockholders of Axiom
(the "Purchase Agreement"). Mr. Jackson was President and a principal
stockholder of Axiom and, in exchange for his stock, received $97,500 at the
closing of the acquisition and a subordinated, non-negotiable promissory note
in the principal amount of $292,500, with interest at the prime rate as
recalculated on each anniversary of the note, payable in six equal semi-annual
installments commencing May 30, 1996. In addition, Mr. Jackson is eligible to
receive certain additional payments for his stock equal to 39% (representing
his equity interest in Axiom) of an amount equal to (i) 30% of the net
profits, if any, of NSCP (determined in accordance with the Purchase
Agreement) for the twelve months ended November 30, 1996, plus (ii) 25% of the
net profits, if any, of NSCP for the twelve months ended November 30, 1997,
plus (iii) 20% of the net profits, if any, of NSCP for the twelve months ended
November 30, 1998, provided that if the actual total revenue for NSCP
(determined in accordance with the Purchase Agreement) for the twelve months
ended November 30, 1998 exceeds the revenue targeted for such period in NSCP's
strategic plan, then the payment shall equal the greater of 20% of the net
profit, if any, of NSCP for the twelve months ended November 30, 1998 or $3
million less the aggregate amount of contingent payments previously paid under
clauses (i) and (ii) above.
Mr. O'Brien, a director of the Company, is a director of Bank of Boston
Corporation. The First National Bank of Boston, a subsidiary of Bank of Boston
Corporation, serves as the Company's Transfer Agent and Registrar.
The Company has adopted a policy that all material transactions between the
Company and its officers, directors and other affiliates must (i) be approved
by a majority of the members of the Company's Board of Directors and by a
majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, and as
adjusted to reflect the sale of the shares offered hereby, certain information
with respect to the beneficial ownership of the Common Stock by: (i) each
person known by the Company to beneficially own more than 5% of the Common
Stock; (ii) each director of the Company; (iii) each of the Named Executive
Officers; (iv) each Selling Stockholder; and (v) all directors and executive
officers of the Company as a group. The Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING (1) NUMBER OFFERING (1)(2)
DIRECTORS, NAMED EXECUTIVE OFFICERS AND ----------------------- OF SHARES -----------------------
5% AND SELLING STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
G. Drew Conway (3)+
Director, President and
Chief Executive
Officer................ 7,697,560 60.4% 700,000 6,997,560 50.1%
Robert P. Badavas
Director............... 5,000 * -- 5,000 *
Paul C. O'Brien
Director............... 5,000 * -- 5,000 *
Mark W. Biscoe (4)
Vice President,
Northeast Region....... 12,400 * -- 12,400 *
Anthony F. Carusone (4)
Vice President,
Southeast Region....... 12,200 * -- 12,200 *
Christopher B. Egizi (5)
Vice President, Midwest
Region................. 19,200 * -- 19,200 *
Martin E. Goober (4)
Vice President,
Operations............. 11,950 * -- 11,950 *
James D. Campbell....... 122,943 1.0 61,471 61,472 *
William J. Campbell
(6)(7)................. 715,158 5.6 353,463 361,695 2.6
Charles E. Entrekin,
Jr..................... 263,450 2.1 131,725 131,725 *
Essex Performance Fund
L.P. .................. 37,047 * 18,523 18,524 *
Essex Special Growth
Opportunities Fund
L.P. .................. 4,802 * 2,401 2,401 *
Essex High Tech. Foreign
Fund L.P. ............. 11,663 * 5,831 5,832 *
Essex New Discovery Fund
L.P. .................. 21,954 * 10,977 10,977 *
Thomas W. Fife (6)...... 20,855 * 6,311 14,544 *
James J. Flaherty....... 153,182 1.2 58,333 94,849 *
Patrick J. Flaherty..... 153,182 1.2 58,333 94,849 *
Timothy J. Guilfoil..... 153,182 1.2 58,333 94,849 *
Judith Hamilton (6)..... 20,855 * 6,311 14,544 *
Santosh S. Krishnan..... 153,182 1.2 58,333 94,849 *
Luke Family Trust (8)... 31,833 * 12,623 19,210 *
William Magidson (9).... 1,920 * 823 1,097 *
Donald C. Peterson...... 153,182 1.2 58,333 94,849 *
Raj Ponnuswamy.......... 153,182 1.2 58,333 94,849 *
Marc L. Steuer (6)...... 20,855 * 6,311 14,544 *
Guy J. Vaillancourt
(10)................... 27,991 * 3,018 24,973 *
Robert Warshawer........ 179,475 1.4 89,737 89,738 *
Charles Yazel........... 12,623 * 6,311 6,312 *
All directors and
executive officers as a
group (11 persons)..... 7,808,210 61.0% 700,000 7,108,210 50.6%
</TABLE>
42
<PAGE>
- --------
+ c/o The Registry, Inc.
189 Wells Avenue
Newton, MA 02159
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to the shares. Shares of Common Stock subject to
options currently exercisable or exercisable within 60 days following the
date of this Prospectus are deemed outstanding for computing the share
ownership and percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to an aggregate of 450,000 shares of Common Stock from the
Company. If the over-allotment option is exercised in full, Mr. Conway
will own 48.5% of the total Common Stock outstanding after completion of
the offering.
(3) Includes 2,200 shares of Common Stock held by trusts for which Mr. Conway
serves as trustee.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable or exercisable within 60 days.
(5) Includes 12,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable or exercisable within 60 days.
(6) Includes 8,232 shares of Common Stock issuable upon exercise of options
which are currently exercisable or exercisable within 60 days.
(7) Two trusts affiliated with Mr. Campbell, The Campbell 1997 Charitable
Trust UA dated 1/16/97 (the "Campbell Charitable Trust") and The
Campbell/Murphy Revocable Trust UA dated 8/17/94 (the "Campbell Revocable
Trust") hold 200,000 and 466,200 shares of Common Stock, respectively. Of
the 353,463 shares offered by Mr. Campbell, 200,000 are being sold by the
Campbell Charitable Trust and 153,463 are being sold by the Campbell
Revocable Trust, respectively. The address for Mr. Campbell is c/o
Application Resources, Inc., 300 Montgomery St., San Francisco, CA 94104.
(8) Includes 6,586 shares of Common Stock issuable upon exercise of options
which are held by a trustee of the Luke Family Trust and are currently
exercisable or exercisable within 60 days.
(9) Includes 274 shares of Common Stock issuable upon exercise of options
which are currently exercisable or exercisable within 60 days.
(10) Includes 21,954 shares of Common Stock issuable upon exercise of options
which are currently exercisable or exercisable within 60 days.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares,
of which 49,000,000 shares are designated Common Stock, no par value per
share, and 1,000,000 shares are designated Preferred Stock, par value $0.10
per share. The following summary description of the capital stock of the
Company is qualified in its entirety by reference to the Company's restated
articles of organization ("Articles of Organization") and amended and restated
by-laws ("By-laws"), copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
As of January 29, 1997, there were 12,740,823 shares of Common Stock
outstanding, held of record by approximately 70 stockholders. Holders of
Common Stock are entitled to one vote per share on all matters submitted to a
vote of stockholders and to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor, subject to
preferences that may be applicable to any outstanding Preferred Stock. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All of the outstanding shares
of Common Stock are, and the shares of Common Stock offered by the Company in
this offering will be, fully paid and nonassessable. The rights, privileges
and preferences of Common Stock are subject to, and could be adversely
affected by, the issuance of Preferred Stock.
PREFERRED STOCK
Pursuant to the Company's Articles of Organization, the Board of Directors
has the authority to issue 1,000,000 shares of Preferred Stock. Within the
limitations established by law, the Board of Directors is authorized to fix or
alter the dividend rights, dividend rates, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preference, conversion rights, voting rights and other rights of any unissued
shares of Preferred Stock, and to fix and amend the number of shares
constituting any issued or unissued series and the designation thereof, or any
of the foregoing. The issuance of Preferred Stock in certain circumstances may
have the effect of delaying, deterring or preventing a change in control of
the Company, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, the Common Stock.
Upon the completion of this offering, the Company will have no shares of
Preferred Stock outstanding. At present the Company has no plans to issue any
shares of Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
ORGANIZATION AND BY-LAWS
The Company has elected to be governed by Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute prohibits a
publicly-held Massachusetts corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person becomes an interested
stockholder, unless (i) the interested stockholder obtains the approval of the
board of directors before becoming an interested stockholder, (ii) the
interested stockholder acquires 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the corporation)
at the time it becomes an interested stockholder, or (iii) the business
combination is approved by both the board of directors and the holders of two-
thirds of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder). An "interested stockholder" is a person
who, together with affiliates and associates, owns (or at any time within the
prior three years did own) 5% or more of the outstanding voting stock of the
corporation. A "business combination" includes a merger, a stock or asset
sale, and certain other transactions resulting in a financial benefit to the
interested stockholder. The Company may
44
<PAGE>
at any time elect not to be governed by Chapter 110F by vote of a majority of
its stockholders, but such an election would not be effective for 12 months
and would not apply to a business combination with any person who became an
interested stockholder before such election.
Massachusetts General Laws Chapter 156B, Section 50A, generally requires
that publicly-held Massachusetts corporations have a classified board of
directors consisting of three classes as nearly equal in size as possible,
with one class to be elected each year to a three-year term. This statute also
provides that directors of publicly-held Massachusetts corporations may only
be removed for "cause." "Cause" includes (i) a felony conviction, (ii)
declaration of an unsound mind, or (iii) intentional misconduct or a knowing
violation of law, if the director derives an improper and substantial personal
benefit from his actions and his actions materially injure the Company. This
statute further provides that (a) vacancies and newly-created directorships
may be filled solely by a majority vote of directors remaining in office, (b)
directors elected to fill any vacancy hold office for the remainder of the
full term of the class to which they are elected, (c) no decrease in the
number of directors shortens the term of any incumbent director, and (d) the
number of directors is to be fixed only by vote of the board. The Company has
elected not to be governed by Chapter 156B, Section 50A, but has included
provisions substantially similar to those of Section 50A in its Articles of
Organization and By-laws. The classification of Directors may have the effect
of making it more difficult for stockholders to change the composition of the
Board of Directors in a relatively short period of time. At least two annual
meetings of stockholders, instead of one, will generally be required to effect
a change in a majority of the Board of Directors. This delay will provide the
Board of Directors with additional time to evaluate proposed takeover efforts
and other extraordinary corporate transactions, to consider appropriate
alternatives to such proposals and to act in what it believes to be the best
interest of the stockholders. The classified Board of Directors provision may
only be amended, altered, changed or repealed, and any inconsistent provision
may only be adopted, by a vote of holders of 75% of the shares entitled to
vote at an election of directors.
The Company's Articles of Organization include a provision that excludes the
Company from the applicability of Massachusetts General Laws Chapter 110D,
entitled "Regulation of Control Share Acquisitions." In general, this statute
provides that any stockholder of a corporation subject to this statute who
acquires beneficial ownership of 20% or more or the outstanding voting stock
of a corporation may not vote such stock unless the stockholders of the
corporation so authorize. (For purposes of the statute, a person is not deemed
to be a beneficial owner of shares as to which such person may exercise voting
power solely by virtue of a revocable proxy conferring the right to vote.) The
Board of Directors may amend the Company's By-laws at any time to subject the
Company to this statute prospectively.
The Company's By-laws require that nominations for the Board of Directors
made by a stockholder comply with certain notice procedures. In the case of an
annual meeting or a special meeting in lieu of an annual meeting, a notice by
a stockholder of a planned nomination must be given not more than 90 days and
not less than 60 days before the first anniversary of the preceding year's
annual meeting, provided that if the date of the annual meeting or special
meeting in lieu of an annual meeting is more than 30 days before or more than
60 days after such anniversary date, notice by a stockholder must be given not
more than 90 days before the meeting and not less than the later of 60 days
before the meeting or 10 days after the date on which public announcement of
the date of the meeting is first made by the Company. In the case of a special
meeting (other than a special meeting in lieu of an annual meeting), notice by
a stockholder must be given not more than 90 days before such meeting and not
less than the later of 60 days before such meeting or 10 days after the date
on which public announcement of the date of the meeting is first made by the
Company. The stockholder's notice of nomination must include particular
information about the stockholder, the nominee and any beneficial owner on
whose behalf the nomination is made. The Company may require any proposed
nominee to provide such additional information as is reasonably required to
determine the eligibility of the proposed nominee.
The By-laws require that a stockholder seeking to have any business
conducted at a meeting of stockholders give notice to the Company in
accordance with certain procedures specified in the By-Laws,
45
<PAGE>
including a timetable for notification identical to the timetable for
nominating members of the Board of Directors described in the preceding
paragraph. The notice from the stockholder must describe the proposed business
to be brought before the meeting and include information about the stockholder
making the proposal, any beneficial owner on whose behalf the proposal is
made, and any other stockholder known to be supporting the proposal.
The By-laws require the Company to call a special meeting of stockholders at
the request of stockholders holding at least 40% of the voting power of the
Company, the minimum threshold for publicly-held Massachusetts corporations
required by Massachusetts General Laws, Chapter 156B, Section 34. Upon
adoption, certain provisions in the Company's By-laws pertaining to
stockholders and directors (including the provisions described above
pertaining to nominations and the presentation of business before a meeting of
the stockholders) may not be amended and no provision inconsistent therewith
may be adopted without the approval of either the Board of Directors or the
holders of at least 75% of the voting power of the Company.
The Company's Articles of Organization include provisions eliminating the
personal liability of the Company's directors for monetary damages resulting
from breaches in their fiduciary duty to the extent permitted by the
Massachusetts Business Corporation Law. Additionally, the Company's Articles
of Organization provide that the Company shall indemnify each person who is or
was a director, officer, employee or other agent of the Company, and each
person who is or was serving at the request of the Company as a director,
trustee, officer, employee or other agent of another organization in which it
directly or indirectly owns shares or of which it is directly or indirectly a
creditor, against all liabilities, costs and expenses reasonably incurred by
any such person in connection with the defense or disposition of or otherwise
in connection with or resulting from any action, suit or other proceeding in
which they may be involved by reason of being or having been such a director,
officer, employee, agent or trustee, or by reason of any action taken or not
taken in such capacity, except with respect to any matter as to which such
person shall have been finally adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that his
or her action was in the best interest of the Company and provided that
indemnification for matters that are settled requires approval by (i) a
majority of disinterested directors, or if there are not at least two such
directors, a majority of the directors based upon a finding by independent
legal counsel that the statutory standard appears to have been met; (ii) the
holders of a majority of the shares of stock entitled to vote for directors of
the Company, exclusive of shares held by interested directors and officers; or
(iii) a court of competent jurisdiction.
The Articles of Organization provide that certain transactions, such as the
sale, lease or exchange of all or substantially all of the Company's property
and assets and the merger or consolidation of the Company into or with a 10%
or greater stockholder or its affiliates must be authorized by the approval of
the holders of 75% of the shares of each class of stock entitled to vote
thereon, rather than by two-thirds as otherwise provided by statute, provided
that such transactions may be approved by the holders of a majority of the
shares of each class of stock entitled to vote thereon if (i) they have been
authorized by a majority of the members of the Board of Directors who are not
affiliates of the 10% stockholder and were directors before the 10%
stockholder acquired his interest or who are successors to such directors,
having been recommended to succeed such directors by a majority of the
continuing directors; and (ii) the requirements of any other applicable
provision of the Articles of Organization have been met.
Subject to the above limitations, the Articles of Organization provide that
certain transactions, including the sale, lease or exchange of all or
substantially all of the property or assets of the Company, or the merger or
consolidation of the Company, which under the Massachusetts Business
Corporation Law would otherwise require approval by the affirmative vote of
two-thirds of the shares of each class of stock entitled to vote thereon, may
be approved by the vote of a majority of such stockholders, provided that a
majority of the Board of Directors has recommended approval of the transaction
to the stockholders.
46
<PAGE>
Certain of the provisions of the Articles of Organization and By-Laws
discussed above would make more difficult or discourage a proxy contest or the
assumption of control by a holder of a substantial block of the Company's
stock. Such provisions could also have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even though such an attempt might be beneficial to the Company
and its stockholders. In addition, since the Articles of Organization and By-
Laws are designed to discourage accumulations of large blocks of the Company's
stock by purchasers whose objective is to have such stock repurchased by the
Company at a premium, such provisions could tend to reduce the temporary
fluctuations in the market price of the Company's stock which are caused by
such accumulations. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a potentially higher market price.
REGISTRATION RIGHTS
In connection with his Employment Agreement with the Company, Mr. Conway has
been provided with registration rights that entitle him to notice of, and
inclusion of shares of Common Stock in, any registration of shares of Common
Stock by the Company for its account or otherwise (other than certain
registrations relating solely to employee benefit plans or certain business
combinations), provided that in any underwritten offering, the number of
shares of Common Stock that Mr. Conway may include in such offering will be
subject to reduction before any reduction of shares of Common Stock by the
Company if the underwriters determine that marketing factors require a
limitation on the number of shares to be included in the offering.
In connection with the acquisition of ARI, the Company granted registration
rights to the former stockholders of ARI. As a result, the holders of
1,431,682 shares of Common Stock (the "ARI Registrable Securities") are
entitled to certain rights with respect to the registration of such shares
under the Securities Act of 1933, as amended (the "Securities Act"). On no
more than three occasions, these holders have the right to require the Company
to effect the registration of all or a portion of the ARI Registrable
Securities under the Securities Act, subject to certain conditions and
limitations.
In connection with the acquisition of SCR, the Company granted registration
rights to the former stockholders of SCR. As a result, the holders of 919,092
shares of Common Stock (the "SCR Registrable Securities," and together with
the ARI Registrable Securities, the "Registrable Securities") are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. On no more than one occasion, these holders have the right to
require the Company to effect the registration of all or a portion of SCR
Registrable Securities under the Securities Act, subject to certain conditions
and limitations.
In addition, in the event the Company proposes to register any of its
securities under the Securities Act either for its own account or the account
of other security holders, the holders of Registrable Securities are entitled
to notice of such registration and may request the Company to include all or a
portion of their Registrable Securities in such registration, subject to
certain marketing and other limitations. The Company may in certain
circumstances defer such registrations and the underwriters have the right,
subject to certain limitations, to limit the number of Registrable Securities
included in such registrations. All of the shares of Common Stock being sold
by the Selling Stockholders in this offering are being sold pursuant to
registration rights.
The Company has agreed to bear all expenses incurred in connection with any
such registrations, other than the fees and disbursements of counsel selected
by the holders of the Registrable Securities and underwriting commissions and
discounts applicable to such Registrable Securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The First
National Bank of Boston.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc., Montgomery Securities and J.C. Bradford & Co. are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company and the Selling Stockholder, the respective numbers
of shares of Common Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------- ------------
<S> <C>
Adams, Harkness & Hill, Inc........................................
Montgomery Securities..............................................
J.C. Bradford & Co.................................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby, if
any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 450,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the 3,000,000 shares of Common
Stock offered hereby.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Adams, Harkness &
Hill, Inc., except for the shares of Common Stock offered hereby and except
that the Company may issue securities pursuant to the Company's stock plans
and in connection with certain acquisitions, subject to certain restrictions.
In addition, G. Drew Conway, the President, Chief Executive Officer and
principal stockholder of the Company, who will hold an aggregate of 6,997,560
shares of Common Stock following the offering, for a period of 180 days after
the date of this Prospectus, and the Company's executive officers, directors
and certain Selling Stockholders, who will hold an aggregate of 1,395,590
shares after the offering, for a period of 90 days after the date of this
Prospectus, have agreed with the Underwriters not to offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of Common Stock owned beneficially by them, other than
as a bona fide gift or gifts to or in trust for a person or entity who or
which agrees in writing to be bound by the foregoing restrictions, without the
prior written consent of Adams, Harkness & Hill, Inc.
48
<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the "cooling off" period immediately preceding
the commencement of sales in the offering. The Commission has, however,
adopted exemptions from these rules that permit passive market making under
certain conditions. These rules permit an Underwriter to continue to make a
market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters, selling group members (if any) or
their respective affiliates may engage in passive market making in the
Company's Common Stock during the cooling off period.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF COMMON STOCK
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Ropes & Gray, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of The Registry, Inc. as of June 29,
1996 and June 24, 1995, and for the years ended June 29, 1996, June 24, 1995
and May 31, 1994, included in this Prospectus, except as they relate to
Application Resources, Inc. as of December 31, 1995 and for the year then
ended and for the three month period ended December 31, 1994, and Shamrock
Computer Resources, Ltd. as of December 31, 1995 and for each of the two years
in the period then ended, have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Application Resources, Inc. and Shamrock
Computer Resources, Ltd. as of September 30, 1996 and for the nine month
period then ended and the financial statements of the Consulting Services
Division of The Application Group, Inc. for the nine month period ended
September 30, 1994 included in this Prospectus have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Application Resources, Inc. as of December 31,
1995 and 1994, and for the year ended December 31, 1995 and for the three
month period ended December 31, 1994, included in this Prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report, given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Shamrock Computer Resources, Ltd. as of December
31, 1995 and 1994 and for the years then ended included in this Prospectus
have been so included in reliance on the report of Graves, McKenna, Lundeen &
Almquist, P.L.L.P., independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy
49
<PAGE>
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and the
Commission's regional offices at 7 World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically, such as the Company. The address of the Commission's Web site
is http://www.sec.gov.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information contained in the Registration Statement and
the exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
DC 20549, and at the Commission's regional offices at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REGISTRY, INC.
Report of Price Waterhouse LLP.......................................... F-2
Consolidated Balance Sheet as of June 24, 1995, June 29, 1996 and
December 28, 1996 (unaudited).......................................... F-3
Consolidated Statement of Income for the Years Ended May 31, 1994, June
24, 1995 and June 29, 1996 and for the Six Months Ended December 30,
1995 (unaudited) and December 28, 1996 (unaudited)..................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years
Ended May 31, 1994, June 24, 1995 and June 29, 1996 and for the Six
Months Ended December 28, 1996 (unaudited)............................. F-5
Consolidated Statement of Cash Flows for the Years Ended May 31, 1994,
June 24, 1995 and June 29, 1996 and for the Six Months Ended December
30, 1995 (unaudited) and December 28, 1996 (unaudited)................. F-7
Notes to Consolidated Financial Statements.............................. F-8
APPLICATION RESOURCES, INC.
Report of Price Waterhouse LLP.......................................... F-26
Balance Sheet as of September 30, 1996.................................. F-27
Statement of Income for the Nine Months Ended September 30, 1996 and
September 30, 1995 (unaudited)......................................... F-28
Statement of Changes in Stockholders' Equity for the Nine Months Ended
September 30, 1996..................................................... F-29
Statement of Cash Flows for the Nine Months Ended September 30, 1996 and
September 30, 1995 (unaudited)......................................... F-30
Notes to Financial Statements........................................... F-31
Report of Ernst & Young LLP............................................. F-39
Balance Sheets as of December 31, 1994 and December 31, 1995............ F-40
Statements of Income for the Three Months Ended December 31, 1994 and
for the Year Ended December 31, 1995................................... F-41
Statement of Shareholders' Equity for the Three Months Ended December
31, 1994 and for the Year Ended December 31, 1995...................... F-42
Statements of Cash Flows for the Three Months Ended December 31, 1994
and for the Year Ended December 31, 1995............................... F-43
Notes to Financial Statements........................................... F-44
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
Report of Price Waterhouse LLP.......................................... F-49
Statement of Operations for the Nine Months Ended September 30, 1994.... F-50
Statement of Cash Flows for the Nine Months Ended September 30, 1994.... F-51
Notes to Financial Statements........................................... F-52
SHAMROCK COMPUTER RESOURCES, LTD.
Report of Price Waterhouse LLP.......................................... F-55
Balance Sheet as of September 30, 1996.................................. F-56
Statement of Income for the Nine Months Ended September 30, 1996 and
September 30, 1995 (unaudited) ........................................ F-57
Statement of Changes in Stockholders' Equity for the Nine Months Ended
September 30, 1996..................................................... F-58
Statement of Cash Flows for the Nine Months Ended September 30, 1996 and
September 30, 1995 (unaudited)......................................... F-59
Notes to Financial Statements........................................... F-60
Report of Graves, McKenna, Lundeen & Almquist, P.L.L.P.................. F-64
Balance Sheets as of December, 31, 1995 and December 31, 1994........... F-65
Statements of Income for the Years Ended December 31, 1995 and December
31, 1994............................................................... F-66
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995 and December 31, 1994................................ F-67
Statements of Cash Flows for the Years Ended December 31, 1995 and
December 31, 1994...................................................... F-68
Notes to Financial Statements........................................... F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Registry, Inc.
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of The Registry, Inc. and its
subsidiaries (the "Company") at June 29, 1996 and June 24, 1995, and the
results of their operations and their cash flows for each of the two years in
the period ended June 29, 1996, for the one month ended June 25, 1994 (not
presented separately herein), and for the year ended May 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Application Resources,
Inc., a wholly-owned subsidiary, as of December 31, 1995 and for the year then
ended, or for the three month period ended December 31, 1994. We also did not
audit the financial statements of Shamrock Computer Resources, Ltd., a wholly-
owned subsidiary, as of December 31, 1995 and for each of the two years in the
period then ended. These statements reflect total assets of $10,635,000 at
December 31, 1995 (which are included in the accompanying June 24, 1995
consolidated balance sheet), and total revenues of $55,298,000 and $22,008,000
for the years ended December 31, 1995 and 1994, respectively (which are
included in the accompanying consolidated statement of income for the years
ended June 24, 1995 and May 31, 1994, respectively). Those statements were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
Application Resources, Inc. and Shamrock Computer Resources, Ltd. for these
periods, is based solely on the reports of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 26, 1996, except as to Note 4 which is as of November 27, 1996
F-2
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 24, JUNE 29, DECEMBER 28,
1995 1996 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,804 $13,707 $ 7,090
Accounts receivable, net of allowance for
doubtful accounts of $349, $513 and $887 at
June 24, 1995, June 29, 1996 and December 28,
1996, respectively........................... 30,274 42,439 55,597
Notes receivable from related parties......... 422 82 78
Deferred income taxes......................... -- 47 1,191
Other current assets.......................... 546 924 1,215
------- ------- -------
Total current assets...................... 33,046 57,199 65,171
Fixed assets, net............................... 3,628 6,979 9,136
Notes receivable from officers.................. 1,121 60 90
Other assets.................................... 1,303 917 15,491
Deferred income taxes........................... 180 35 720
------- ------- -------
$39,278 $65,190 $90,608
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................ $17,938 $ 1,885 $10,171
Current portion of capital lease obligations.. -- 77 67
Current portion of long-term debt............. 1,029 344 9,674
Accounts payable.............................. 2,227 2,652 1,992
Accrued salaries and wages.................... 3,351 4,946 6,161
Other accrued expenses........................ 2,802 5,401 8,441
Income taxes payable.......................... 209 2,082 1,972
Deferred income taxes......................... 484 89 150
------- ------- -------
Total current liabilities................. 28,040 17,476 38,628
------- ------- -------
Deferred income taxes........................... 1,167 673 900
------- ------- -------
Capital lease obligations....................... -- 52 25
------- ------- -------
Long-term debt.................................. 1,769 2,600 2,492
------- ------- -------
Commitments and contingencies (Notes 3, 13 and
17)
Stockholders' equity:
Preferred stock, no par value:
Authorized--5,000,000 shares; issued and
outstanding--2,448,000 shares at June 24,
1995 and June 29, 1996 (liquidating
preference $1,934); no shares at December 28,
1996......................................... 1,916 1,916 --
Preferred stock, $.10 par value (Note 10) .... -- -- --
Common stock, no par value:
Authorized--49,000,000 shares; issued and
outstanding--4,257,558 shares at June 24,
1995, 11,833,515 shares at June 29, 1996 and
12,607,314 shares at
December 28, 1996............................ 176 179 4,702
Common stock, $.01 par value:
Authorized, issued and outstanding--200,000
shares at June 24, 1995 and no shares at June
29, 1996 and December 28, 1996............... 2 -- --
Additional paid-in capital.................... 918 35,434 36,687
Treasury stock (48,143 shares at December 28,
1996)........................................ -- -- (2,000)
Notes receivable from stockholders............ (226) (226) (226)
Deferred stock compensation................... (195) (179) --
Retained earnings............................. 5,711 7,265 9,400
------- ------- -------
Total stockholders' equity................ 8,302 44,389 48,563
------- ------- -------
$39,278 $65,190 $90,608
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
--------------------------- -------------------------
MAY 31, JUNE 24, JUNE 29, DECEMBER 30, DECEMBER 28,
1994 1995 1996 1995 1996
------- -------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $82,376 $153,985 $216,878 $94,532 $144,520
Cost of revenue......... 63,100 114,641 158,742 69,394 104,442
------- -------- -------- ------- --------
19,276 39,344 58,136 25,138 40,078
Selling, general and
administrative
expenses............... 16,933 33,544 46,144 19,980 29,619
Acquisition-related
expenses............... -- -- -- -- 5,144
------- -------- -------- ------- --------
Income from operations.. 2,343 5,800 11,992 5,158 5,315
Interest expense........ (507) (1,223) (2,125) (996) (258)
Interest and other
income (expense), net.. 55 90 (108) 94 1,877
------- -------- -------- ------- --------
Income before taxes..... 1,891 4,667 9,759 4,256 6,934
Income tax provision.... 473 875 3,127 681 4,259
------- -------- -------- ------- --------
Net income.............. $ 1,418 $ 3,792 $ 6,632 $ 3,575 $ 2,675
======= ======== ======== ======= ========
Unaudited pro forma information
(Note 16):
Income before taxes... $ 1,891 $ 4,667 $ 9,759 $ 4,256 $ 6,934
Pro forma income tax
provision............ 889 2,014 4,222 1,868 5,187
------- -------- -------- ------- --------
Pro forma net income.. $ 1,002 $ 2,653 $ 5,537 $ 2,388 $ 1,747
======= ======== ======== ======= ========
Pro forma net income
per share............ $ 0.24 $ 0.50 $ 0.22 $ 0.13
======== ======== ======= ========
Weighted average
common and common
equivalent shares.... 10,968 11,083 10,867 13,599
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK COMMON STOCK NOTES
NO PAR NO PAR $.01 PAR ADDITIONAL RECEIVABLE DEFERRED
----------------- ----------------- --------------- PAID-IN TREASURY FROM STOCK RETAINED
SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL STOCK STOCKHOLDERS COMPENSATION EARNINGS
--------- ------ ---------- ----- -------- ----- ---------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May
31, 1993......... -- $ -- 3,585,759 $ 12 200,000 $ 2 $ 763 $-- $ -- $(257) $1,904
Capital of ARI at
inception (Note
4) 2,790,000 2,204 765,654 193 -- -- -- -- (941) -- --
Capital
contribution..... -- -- -- -- -- -- 155 -- -- -- --
Repayment of
notes receivable
from
stockholders..... -- -- -- -- -- -- -- -- 715 -- --
Amortization of
deferred stock
compensation..... -- -- -- -- -- -- -- -- -- 31 --
Distributions.... -- -- -- -- -- -- -- -- -- -- (530)
Net income for
the year......... -- -- -- -- -- -- -- -- -- -- 1,418
--------- ------ ---------- ---- -------- ---- ------- ---- ----- ----- ------
Balance at May
31, 1994......... 2,790,000 2,204 4,351,413 205 200,000 2 918 -- (226) (226) 2,792
Net loss for the
month............ -- -- -- -- -- -- -- -- -- -- (177)
--------- ------ ---------- ---- -------- ---- ------- ---- ----- ----- ------
Balance at June
25, 1994......... 2,790,000 2,204 4,351,413 205 200,000 2 918 -- (226) (226) 2,615
Stock issued upon
exercise of
options.......... 123,000 14 33,754 1 -- -- -- -- -- -- --
Repurchase of
stock............ (465,000) (302) (127,609) (30) -- -- -- -- -- -- --
Amortization of
deferred stock
compensation..... -- -- -- -- -- -- -- -- -- 31 --
Distributions.... -- -- -- -- -- -- -- -- -- -- (696)
Net income for
the year......... -- -- -- -- -- -- -- -- -- -- 3,792
--------- ------ ---------- ---- -------- ---- ------- ---- ----- ----- ------
Balance at June
24, 1995......... 2,448,000 1,916 4,257,558 176 200,000 2 918 -- (226) (195) 5,711
Consolidation of
real estate trust
(Note 15)........ -- -- -- -- -- -- (111) -- -- -- --
Acquisition of
America's
Registry by TRI
(Note 2)......... -- -- 5,333,333 -- (200,000) (2) 2 -- -- -- --
Amortization of
deferred stock
compensation..... -- -- -- -- -- -- -- -- -- 31 --
Proceeds from
issuance of
Common Stock, net
of issuance
costs............ -- -- 2,230,000 -- -- -- 34,204 -- -- -- --
Stock issued upon
exercise of
options.......... 23,000 -- 18,935 3 -- -- -- -- -- -- --
Capital
contribution..... -- -- -- -- -- -- 421 -- -- -- --
Distributions.... -- -- -- -- -- -- -- -- -- -- (2,958)
Net income for
the year......... -- -- -- -- -- -- -- -- -- -- 6,632
Adjustment to
eliminate
duplication of
the six month
period ended
December 31, 1995
resulting from
the change in
fiscal year of
entities acquired
in poolings-of-
interests (Note
4):
Net income...... -- -- -- -- -- -- -- -- -- -- (2,294)
Distributions... -- -- -- -- -- -- -- -- -- -- 174
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- -- -- -- (15) --
Stock issued
upon exercise of
stock options... (23,000) -- (6,311) -- -- -- -- -- -- -- --
--------- ------ ---------- ---- -------- ---- ------- ---- ----- ----- ------
Balance at June
29, 1996......... 2,448,000 $1,916 11,833,515 $179 -- $-- $35,434 $-- $(226) $(179) $7,265
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at May
31, 1993......... $ 2,424
Capital of ARI at
inception (Note
4) 1,456
Capital
contribution..... 155
Repayment of
notes receivable
from
stockholders..... 715
Amortization of
deferred stock
compensation..... 31
Distributions.... (530)
Net income for
the year......... 1,418
-------------
Balance at May
31, 1994......... 5,669
Net loss for the
month............ (177)
-------------
Balance at June
25, 1994......... 5,492
Stock issued upon
exercise of
options.......... 15
Repurchase of
stock............ (332)
Amortization of
deferred stock
compensation..... 31
Distributions.... (696)
Net income for
the year......... 3,792
-------------
Balance at June
24, 1995......... 8,302
Consolidation of
real estate trust
(Note 15)........ (111)
Acquisition of
America's
Registry by TRI
(Note 2)......... --
Amortization of
deferred stock
compensation..... 31
Proceeds from
issuance of
Common Stock, net
of issuance
costs............ 34,204
Stock issued upon
exercise of
options.......... 3
Capital
contribution..... 421
Distributions.... (2,958)
Net income for
the year......... 6,632
Adjustment to
eliminate
duplication of
the six month
period ended
December 31, 1995
resulting from
the change in
fiscal year of
entities acquired
in poolings-of-
interests (Note
4):
Net income...... (2,294)
Distributions... 174
Amortization of
deferred stock
compensation.... (15)
Stock issued
upon exercise of
stock options... --
-------------
Balance at June
29, 1996......... $44,389
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK COMMON STOCK NOTES
NO PAR NO PAR $.01 PAR ADDITIONAL RECEIVABLE DEFERED
------------------ ------------------ ------------ PAID-IN TREASURY FROM STOCK RETAINED
SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL STOCK STOCKHOLDERS COMPENSATION EARNINGS
---------- ------ ---------- ------ ------ ----- ---------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
29, 1996........ 2,448,000 $1,916 11,833,515 $ 179 -- $-- $35,434 $ -- $(226) $(179) $7,265
Proceeds from
issuance of
stock, net of
issuance costs
(unaudited)..... 165,000 1,564 30,187 1,043 -- -- -- -- -- -- --
Stock issued
upon exercise of
options
(unaudited)..... -- -- 74,675 -- -- -- 303 -- -- -- --
Tax benefit
associated with
exercise of
certain options
(unaudited)..... -- -- -- -- -- -- 950 -- -- -- --
Repurchase of
stock
(unaudited)..... -- -- (48,143) -- -- -- -- (2,000) -- -- --
Amortization of
deferred stock
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- 179 --
Conversion of
preferred stock
(unaudited)..... (2,613,000) (3,480) 717,080 3,480 -- -- -- -- -- -- --
Distributions
(unaudited)..... -- -- -- -- -- -- -- -- -- -- (540)
Net income for
the six months
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 2,675
---------- ------ ---------- ------ --- ---- ------- ------- ----- ----- ------
Balance at
December 28,
1996
(unaudited)..... -- $ -- 12,607,314 $4,702 -- $-- $36,687 $(2,000) $(226) $ -- $9,400
========== ====== ========== ====== === ==== ======= ======= ===== ===== ======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at June
29, 1996........ $44,389
Proceeds from
issuance of
stock, net of
issuance costs
(unaudited)..... 2,607
Stock issued
upon exercise of
options
(unaudited)..... 303
Tax benefit
associated with
exercise of
certain options
(unaudited)..... 950
Repurchase of
stock
(unaudited)..... (2,000)
Amortization of
deferred stock
compensation
(unaudited)..... 179
Conversion of
preferred stock
(unaudited)..... --
Distributions
(unaudited)..... (540)
Net income for
the six months
(unaudited)..... 2,675
-------------
Balance at
December 28,
1996
(unaudited)..... $48,563
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
--------------------------- ------------------
MAY 31, JUNE 24, JUNE 29, DEC. 30, DEC. 28,
1994 1995 1996 1995 1996
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 1,418 $ 3,792 $ 6,632 $ 3,575 $ 2,675
Adjustments to reconcile net
income to net cash provided by
(used for) operating
activities:
Depreciation and
amortization................. 266 785 1,101 574 774
Amortization of deferred stock
compensation................. 31 31 31 16 179
Provision for losses on
accounts receivable.......... 185 112 164 33 374
Deferred income taxes......... 154 (275) (763) (60) (1,049)
(Increase) decrease in
accounts receivable.......... (6,674) (11,634) (13,687) 221 (8,267)
(Increase) decrease in other
current assets............... (109) (185) (346) 8 (85)
(Increase) decrease in other
assets....................... (177) (195) 30 277 (140)
Increase (decrease) in
accounts payable............. 539 698 239 (1,329) (1,583)
Increase in accrued expenses.. 1,102 1,248 3,145 928 2,696
Increase (decrease) in accrued
salaries and wages........... 1,352 693 1,383 (354) (436)
Increase (decrease) in income
taxes payable................ 304 (100) 1,838 (97) (17)
------- -------- -------- ------- -------
Net cash provided by (used
for) operating activities.... (1,609) (5,030) (233) 3,792 (4,879)
------- -------- -------- ------- -------
Cash flows from investing
activities:
Cash disbursed for
acquisitions, net of cash
acquired...................... -- (250) -- -- (7,999)
Increase in notes receivable
from officers................. (82) (406) (709) (130) (30)
Repayment of notes receivable
from officers................. -- -- 1,770 1,060 --
Decrease (increase) in notes
receivable from related
parties....................... 318 (57) (25) -- 21
Purchases of fixed assets...... (803) (2,603) (2,525) (724) (2,193)
------- -------- -------- ------- -------
Net cash provided by (used
for) investing activities.... (567) (3,316) (1,489) 206 (10,201)
------- -------- -------- ------- -------
Cash flows from financing
activities:
Cash proceeds from issuance of
common stock
(Notes 10 and 17)............. -- -- 34,498 -- 2,607
Cash proceeds from exercise of
stock options................. -- 15 3 -- 303
Repayment of notes receivable
from stockholders............. 715 -- -- -- --
Cash payments to repurchase
common stock.................. -- (71) -- -- (2,000)
Net borrowings (payments) on
line of credit................ 3,098 8,024 (16,053) (2,264) 8,069
Principal payments on long-term
debt and capital lease
obligations................... (88) (485) (3,591) (1,341) (354)
Proceeds from issuance of long-
term debt..................... -- 2,080 2,160 2,160 378
Capital contribution........... 155 -- 421 -- --
Distributions.................. (530) (696) (2,958) (1,685) (540)
------- -------- -------- ------- -------
Net cash provided by (used
for) financing activities.... 3,350 8,867 14,480 (3,130) 8,463
------- -------- -------- ------- -------
Elimination of duplicated
activity from July to
December 1995 (Note 4)....... -- -- (855) (855) --
------- -------- -------- ------- -------
Net increase (decrease) in cash
and cash equivalents.......... 1,174 521 11,903 13 (6,617)
Cash and cash equivalents,
beginning of period........... 109 1,283 1,804 1,804 13,707
------- -------- -------- ------- -------
Cash and cash equivalents, end
of period..................... $ 1,283 $ 1,804 $ 13,707 $ 1,817 $ 7,090
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest......... $ 513 $ 1,215 $ 2,049 $ 1,003 $ 258
Cash paid for income taxes..... $ 15 $ 1,250 $ 2,052 $ 859 $ 4,750
</TABLE>
See additional disclosure of non-cash investing and financing activity in
Notes 3, 4, 5, 8, 10, 15 and 17.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION INCLUDED IN THESE FOOTNOTES FOR ANY PERIOD SUBSEQUENT TO JUNE
29, 1996 IS UNAUDITED.
1. NATURE OF BUSINESS
The Registry, Inc. ("TRI" or the "Company") is an information technology
("IT") professional services firm providing IT consultants on a contract basis
to organizations nationwide with complex IT operations in a broad range of
industries. As of December 28, 1996, offices are maintained in 17 states and
two European locations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying financial statements include the accounts of TRI and
America's Registry, Inc. ("America's Registry") which, prior to January 1,
1996, were owned and controlled by a common sole stockholder who serves as an
officer of the Company. Effective January 1, 1996, TRI, through a wholly-owned
subsidiary, acquired all of the outstanding shares of common stock of
America's Registry and the stockholder of America's Registry received an
additional 5,333,333 shares of the common stock of TRI. The accompanying
financial statements also include the accounts of TRI's wholly-owned
subsidiaries subsequent to their acquisition (see Notes 3, 4 and 17), as well
as the accounts of a real estate trust which is substantially controlled by
the Company, subsequent to the renegotiation of certain lease terms on
September 19, 1995 (see Note 15). All intercompany balances and transactions
have been eliminated. On November 26 and 27, 1996, the Company completed the
acquisitions of Application Resources, Inc. ("ARI") and Shamrock Computer
Resources, Ltd. ("SCR"), respectively. These transactions have been accounted
for as poolings-of-interests and, therefore, the accompanying financial
statements have been retroactively restated to reflect the financial position
and results of operations and cash flows of the Company, ARI and SCR for all
periods presented (see Note 4 ).
Fiscal Year
The Company changed its fiscal year end from May 31 to the last Saturday in
June effective with the fiscal year ended June 24, 1995. The consolidated
statements of income, of changes in stockholders' equity and of cash flows are
presented for the years ended May 31, 1994, June 24, 1995 and June 29, 1996.
Results of operations and of cash flows for the years ended June 24, 1995 and
June 29, 1996 are for 52 weeks and 53 weeks, respectively. The results of
operations and of cash flows for the six months ended December 30, 1995 and
December 28, 1996 are for 27 weeks and 26 weeks, respectively.
The Company's results of operations for the month ended June 25, 1994
reflected revenue of $5,812,000, cost of revenue of $4,468,000, expenses of
$1,588,000, an income tax benefit of $67,000 and net loss of $177,000. During
the month ended June 25, 1994, net cash of $585,000 and $90,000 was used for
operating and investing activities, respectively, and net cash of $675,000 was
provided by financing activities.
ARI and SCR previously utilized a December 31 year end. Upon acquisition,
ARI and SCR changed their fiscal year end to the last Saturday in June to
conform to the Company's fiscal year (see Note 4).
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company's investments consist of short term U.S. treasury bill investments
earning interest at the Short Term Federal Funds rate (5.167% at June 29,
1996) and money market accounts. Accordingly, the investments are subject to
minimal credit and market risks. These investments are carried at cost plus
accrued interest which approximates market. The Company considers such
securities to be classified as "held-to-maturity".
F-8
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue is recognized as services are performed. Ongoing credit evaluations
of customers' financial condition are performed and collateral is not
required. Concentration of credit risk with respect to accounts receivable is
limited due to the number and diversity of customers comprising the Company's
customer base. No single customer accounted for more than 10% of the Company's
accounts receivable at June 24, 1995 or June 29, 1996. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have
not exceeded management's expectations.
Fixed Assets
Fixed assets are stated at cost. Additions, renewals and betterments of
fixed assets are capitalized. Repair and maintenance expenditures for minor
items are generally expensed as incurred. Depreciation of fixed assets is
provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Building and improvements................. 31 1/2 years
Software.................................. 3 years
Computer equipment........................ 5 years
Furniture and equipment................... 5 to 7 years
Motor vehicles............................ 5 years
Leasehold improvements.................... lesser of estimated useful life or
remaining lease term
</TABLE>
Advertising Costs
Advertising costs are recorded as expense when incurred. There were no
advertising costs recorded as assets at June 24, 1995 or June 29, 1996. Total
advertising expenses for the years ended May 31, 1994, June 24, 1995 and June
29, 1996 were $462,000, $725,000 and $480,000, respectively.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement and tax
bases of assets and liabilities, utilizing currently enacted tax rates. The
effect of any future change in tax rates is recognized in the period in which
the change occurs. Through May 31, 1994, TRI had used the cash method of
accounting for income tax reporting purposes. Effective June 1, 1994, TRI
converted to the accrual method of accounting for income tax reporting
purposes. Certain of TRI's subisidiares have also converted from the cash
method to the accrual method of accounting for income tax reporting purposes
upon their acquisiton by the Company.
As described in Note 9, America's Registry and SCR had both previously
elected to be treated as a small business corporation for income tax purposes
with income or loss and credits passed through to the stockholders. Concurrent
with the acquisition of America's Registry and SCR by TRI described above,
America's Registry's and SCR's elections to be treated as an S corporation
terminated (see Note 9). The companies will continue to file separate tax
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at June 24, 1995, June 29, 1996 and December 28,
1996, and the reported amounts of revenues and expenses during the periods
then ended. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current period presentation.
F-9
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recently Enacted Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation". Both SFAS No. 121 and No. 123 are effective for fiscal
years beginning after December 15, 1995. The Company has decided to adopt SFAS
No. 123 for disclosure purposes only. The adoption of SFAS No. 121 is not
expected to have a material effect on the Company's financial position or
results of operations or cash flows.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position of the Company at December 28, 1996 and
the results of operations and cash flows of the Company for the six months
ended December 30, 1995 and December 28, 1996 as presented in the accompanying
consolidated financial statements. Results of operations for the interim
period are not necessarily indicative of the results of operations for the
full fiscal year.
3. ACQUISITIONS OF SUBSIDIARIES--PURCHASES
The Registry, Inc. Network Systems Consulting Practice
On November 30, 1994, TRI acquired all of the common stock of Axiom
Consulting Group, Inc., an information technology consulting firm providing
services similar to those of the Company. The acquired entity retained its
separate corporate form and was subsequently renamed The Registry, Inc.
Network Systems Consulting Practice ("NSCP"). The purchase price was
$1,000,000, of which $250,000 was paid in cash at the closing and $750,000 is
in the form of promissory notes which will be paid in installments through
November 1998 (see Note 8).
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price, including an additional $12,000 of related costs which were
incurred by TRI, has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition.
Goodwill of $918,000, representing the excess of the purchase price over the
fair value of the assets acquired and liabilities assumed, is included in
other assets in the accompanying balance sheet and is being amortized on a
straight-line basis over 10 years. Accumulated amortization at June 24, 1995
and June 29, 1996 was $53,000 and $145,000, respectively.
The pro forma results of operations, assuming that the acquisition of NSCP
occurred at the beginning of the years ended May 31, 1994 and June 24, 1995,
would not materially differ from TRI's reported results of operations.
TRI is required to make additional payments up to $3,000,000 to the selling
stockholders of the former Axiom Consulting Group, Inc., contingent upon the
revenue and profits of the subsidiary for the four years subsequent to the
acquisition. Such payments are determined as a stated percentage of net income
of the subsidiary, as defined in the purchase agreement, with a provision that
all $3,000,000 would be payable to the selling stockholders in the event that
the subsidiary's revenue exceeds a stated amount in the twelve month period
ending November 30, 1998. Such amounts, if paid, will be recorded as
additional purchase price. No amounts have been accrued for these contingent
payments at June 24, 1995 or June 29, 1996, and $246,000 has been accrued for
these contingent payments during the six months ended December 28, 1996.
F-10
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Morris Information Systems
On August 16, 1996, the Company, through a wholly-owned subsidiary, acquired
all of the outstanding stock of Morris Information Systems, Inc. ("MIS"), an
information technology consulting firm performing services similar to those of
the Company. The purchase price was $2,500,000 in cash plus amounts up to an
aggregate of $700,000 contingent upon the operating results of MIS during the
two years following the acquisition. Such amounts, if paid, will be recorded
as additional purchase price. No amounts have been accrued for the contingent
payments at December 28, 1996. In addition, the Company will pay a total of
$300,000 in monthly payments through August 1998 to the former stockholder of
MIS in consideration for a consulting and noncompetition agreement.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition.
Goodwill of $2,303,000, representing the excess of the purchase price over
the fair value of the assets acquired and liabilities assumed, is included in
other assets in the accompanying balance sheet and is being amortized on a
straight-line basis over 30 years. Accumulated amortization at December 28,
1996 is $29,000.
The pro forma results of operations, assuming that the acquisition of MIS
occurred at the beginning of the year ended June 29, 1996 or the six months
ended December 28, 1996, would not materially differ from TRI's reported
results of operations.
4. ACQUISITIONS OF SUBSIDIARIES--POOLINGS-OF-INTERESTS
On November 26, 1996, pursuant to an Agreement and Plan of Merger dated
October 30, 1996, the Company, through a wholly-owned subsidiary, acquired
Application Resources, Inc., a California corporation ("ARI"). ARI is an
information technology consulting firm performing services similar to those of
the Company. Pursuant to the agreement, each outstanding share of ARI capital
stock was converted into the right to receive 0.274428 shares of the Company's
Common Stock. The Company also assumed outstanding options for the purchase of
ARI common stock at the same conversion ratio. Immediately prior to the
acquisition, there were 5,217,000 shares of ARI common stock and options to
purchase 794,000 shares of ARI common stock outstanding.
On November 27, 1996, pursuant to an Agreement and Plan of Merger dated
November 26, 1996, the Company, through a wholly-owned subsidiary, acquired
Shamrock Computer Resources, Ltd., an Iowa corporation ("SCR"). SCR is an
information technology consulting firm performing services similar to those of
the Company. Pursuant to the agreement, each outstanding share of SCR capital
stock was converted into the right to receive 136.7695 shares of the Company's
Common Stock. Immediately prior to the acquisition, there were 7,072 shares of
SCR common stock outstanding. Pursuant to the provisions of the Iowa Business
Corporation Act (the "IBCA"), a stockholder of SCR holding 352 shares of SCR
common stock perfected dissenters' rights under the IBCA and was paid
$2,000,000 in redemption of such shares.
In total, 2,350,774 shares of TRI Common Stock were exchanged for all of the
outstanding common stock of ARI and SCR. In addition, outstanding stock
options to purchase ARI common stock were converted into options to purchase
217,895 shares of TRI's Common Stock. These transactions have been accounted
for as poolings-of-interests and, therefore, all prior period financial
statements presented have been restated as if the acquisitions took place at
the beginning of such periods.
F-11
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ARI and SCR each had a calendar year end and, accordingly, the results of
operations for ARI for the year ended December 31, 1995 and the three months
from October 1, 1994 (date of inception as a separate entity) to December 31,
1994, and for SCR for the years ended December 31, 1995 and 1994, have been
combined with the results of operations for the Company's fiscal years ended
June 24, 1995 and May 31, 1994, respectively. Additionally, the financial
position of ARI and SCR as of December 31, 1995 has been combined with TRI's
financial position as of June 24, 1995. In order to conform ARI and SCR's year
end to TRI's fiscal year end, the consolidated statement of income for fiscal
1996 includes six months (July to December 1995) for both companies which are
also included in the consolidated statement of income for the fiscal year
ended June 24, 1995. Accordingly, an adjustment has been made to retained
earnings in fiscal 1996 to eliminate the duplication of net income of ARI and
SCR of $682,000 and $1,612,000, respectively, for such six month period, as
well as for distributions of $174,000 made by SCR during this six month period
and amortization of deferred stock compensation of $15,000 for SCR. Other
results of operations for such six month period of ARI included net revenue of
$15,972,000, costs and expenses of $14,744,000, income before taxes of
$1,228,000 and income tax provision of $548,000. Other results of operations
for such six month period of SCR included net revenue of $14,801,000 and costs
and expenses of $13,189,000. As an S corporation, SCR was not subject to
corporate income taxes.
There were no material transactions between the Company, ARI or SCR during
any of the periods presented. No material adjustments to net assets or results
of operations were necessary to conform the accounting practices of ARI and
SCR to that of TRI. Certain reclassifications have been made to the financial
statements of ARI and SCR to conform with TRI's classifications.
Separate results of operations for the periods prior to the acquisitions of
ARI and SCR by the Company were as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL THREE MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED SEPTEMBER 28,
MAY 31, JUNE 24, JUNE 29, 1996
1994 1995 1996 (UNAUDITED)
------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
The Registry, Inc. .............. $60,367 $ 98,687 $145,588 $47,303
Application Resources, Inc. ..... 6,421(a) 29,870 37,615 12,073
Shamrock Computer Resources,
Ltd. ........................... 15,588 25,428 33,675 10,053
------- -------- -------- -------
Combined......................... $82,376 $153,985 $216,878 $69,429
======= ======== ======== =======
NET INCOME
The Registry, Inc. .............. $ 385 $ 326 $ 2,543 $ 1,624
Application Resources, Inc. ..... 26(a) 1,273 1,228 1,376
Shamrock Computer Resources,
Ltd. ........................... 1,007 2,193 2,861 882
------- -------- -------- -------
Combined......................... $ 1,418 $ 3,792 $ 6,632 $ 3,882
======= ======== ======== =======
PRO FORMA NET INCOME (see Notes 9
and 16)
The Registry, Inc. .............. $ 385 $ 86 $ 2,621 $ 1,624
Application Resources, Inc. ..... 26(a) 1,273 1,228 1,376
Shamrock Computer Resources,
Ltd. ........................... 591 1,294 1,688 521
------- -------- -------- -------
Combined......................... $ 1,002 $ 2,653 $ 5,537 $ 3,521
======= ======== ======== =======
OTHER CHANGES IN STOCKHOLDERS'
EQUITY
The Registry, Inc. .............. $ 155 $ 0 $ 33,003 $ 0
Application Resources, Inc. ..... 715(a) (317) 3 0
Shamrock Computer Resources,
Ltd. ........................... (499) (665) (1,416) (301)
------- -------- -------- -------
Combined......................... $ 371 $ (982) $ 31,590 $ (301)
======= ======== ======== =======
</TABLE>
(a) Includes the results of operations of ARI from October 1, 1994 (date of
inception as a separate entity) through December 31, 1994 only.
F-12
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMBINED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
JUNE 24, JUNE 29,
1995 1996
---------- ----------
<S> <C> <C>
Other Current Assets:
Prepaid expenses.................................... $ 358,000 $ 788,000
Advances to officers................................ 105,000 4,000
Advances to employees............................... 83,000 132,000
---------- ----------
$ 546,000 $ 924,000
========== ==========
Fixed Assets:
Land................................................ $ -- $ 360,000
Building............................................ -- 1,439,000
Computer equipment.................................. 3,060,000 4,468,000
Software............................................ 237,000 222,000
Furniture and equipment............................. 1,603,000 2,242,000
Motor vehicles...................................... 19,000 19,000
Leasehold and building improvements................. 404,000 823,000
---------- ----------
Total fixed assets................................ 5,323,000 9,573,000
Less: accumulated depreciation and amortization..... 1,695,000 2,594,000
---------- ----------
$3,628,000 $6,979,000
---------- ----------
Other Accrued Expenses:
Accrued employee benefits........................... $ 971,000 $2,079,000
Accrued commissions and bonuses..................... 680,000 1,648,000
Other accrued expenses.............................. 1,151,000 1,674,000
---------- ----------
$2,802,000 $5,401,000
========== ==========
</TABLE>
Computer equipment recorded under capital leases amounted to approximately
$238,000 at June 29, 1996 ($0 at June 24, 1995). Total accumulated
amortization related to these assets is approximately $78,000 at June 29,
1996. Amortization expense for the period is included in depreciation and
amortization in the accompanying consolidated statement of cash flows.
6. RELATED PARTY TRANSACTIONS
Notes receivable from officers at June 24, 1995 primarily represent
promissory notes from the Company's president and majority stockholder which
were repaid during fiscal year 1996. The promissory notes bore interest at an
annual interest rate of 10%. Related interest income for the years ended May
31, 1994, June 24, 1995 and June 29, 1996 was $53,000, $56,000 and $55,000,
respectively. Notes receivable from officers at June 29, 1996 represents notes
due from various senior officers of the Company and bear interest at the prime
rate (8.25% at June 29, 1996).
Notes receivable from related parties at June 24, 1995 include promissory
notes totaling $365,000 from a real estate trust, of which the president and
majority stockholder of the Company is the sole beneficiary (the "Trust"). In
June 1996, the president and majority stockholder contributed $421,000 to the
Trust, which was used to repay the notes and accrued interest. These notes
were payable on demand and bore interest at a variable rate (5.6% at June 24,
1995). At June 24, 1995 and June 29, 1996 notes receivable from related
parties also include promissory notes totaling $57,000 and $82,000,
respectively, from certain of the former stockholders of TRI's wholly-owned
subsidiary (NSCP). These notes bear interest at the prime rate published in
The Wall Street Journal (9% at June 24, 1995 and 8.25% at June 29, 1996), and
are payable in installments at various dates through November 30, 1998.
F-13
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes receivable from stockholders of $225,660 at June 29, 1996, which are
included as a reduction of stockholders' equity in the accompanying balance
sheet, represent promissory notes from two of ARI's officers for the exercise
of stock options. The loans bear interest at a variable rate based upon
federal income tax requirements (approximately 6% at June 29, 1996).
7. LINE OF CREDIT
On March 31, 1993, TRI and America's Registry combined their separate lines
of credit into a single line of credit with the bank; this agreement was
amended on June 7, 1995 to allow a maximum borrowing of $17,000,000 and again
on October 4, 1995 to allow a maximum borrowing of $18,000,000, payable on
demand. The agreement provided a borrowing base of 80% of eligible accounts
receivable, as defined, less the aggregate amount of issued and undrawn
letters of credit. The line of credit was collateralized by all the assets of
the Company and the personal guarantee of the Company's president and majority
stockholder. Interest was paid monthly in arrears at the bank's prime rate
plus 0.75% (9.75% at June 24, 1995). There were no letters of credit
outstanding at June 24, 1995.
In March 1996, the Company terminated its existing line of credit and
replaced it with a line of credit from a different bank. The new line of
credit provides a borrowing base of 85% of eligible accounts receivable, as
defined, up to a maximum borrowing of $25,000,000, payable on demand. Interest
is payable monthly in arrears at the bank's prime rate plus 0.5% (8.75% at
June 29, 1996) or the LIBOR rate plus 2.5% (8.00% at June 29, 1996) at the
option of the Company. The new line of credit is collateralized by all of the
assets of the Company, contains certain restrictions, including limitations on
the amount of distributions which can be made to stockholders, purchases of
fixed assets, and loans which can be made to officers, and requires the
maintenance of certain financial covenants. The line of credit agreement
expires in February 1999.
ARI had a line of credit arrangement with a bank which allowed ARI to borrow
the lesser of $1,750,000 or 60% of eligible accounts receivable, as defined,
at an interest rate equal to the bank's prime rate plus .50% (9.0% at June 24,
1995 and 8.75% at June 29, 1996). There were no amounts outstanding under this
line at June 24, 1995 or June 29, 1996. The line of credit is secured by all
of the assets of ARI, contains certain restrictions, including limitations on
the amount of distributions which can be made to stockholders, purchases of
fixed assets, and new indebtedness, and requires the maintenance of certain
financial covenants. On November 26, 1996, in conjunction with the acquisition
of ARI by the Company (see Note 4), ARI terminated its line of credit
arrangement.
SCR had a credit arrangement with a bank consisting of a committed line of
credit totaling $2,500,000, of which $2,500,000 and $625,000 were unused as of
June 24, 1995 and June 29, 1996, respectively, and a discretionary equipment
line of $500,000. The line of credit carries interest at the bank's prime rate
(8.5% at June 24, 1995 and 8.25% at June 29, 1996) and is collateralized by
substantially all of the assets of SCR. The equipment line carries an interest
rate equal to the bank's prime rate plus .50% (9.0% and 8.75% at June 24, 1995
and June 29, 1996, respectively). The sum of the outstanding balances on the
line of credit and the equipment line cannot exceed a borrowing base of 80% of
eligible accounts receivable, as defined, up to a maximum total borrowing of
$3,000,000. At June 29, 1996, $7,000 of the equipment line was used. Monthly
principal payments of $3,000, including interest, are due through August 1996
on this line. The equipment line is secured by a first priority interest in
the related equipment purchased with the loan proceeds. Both credit
arrangements were guaranteed by SCR's former stockholders and required a
commitment fee of .25% per annum on the unused portion. Additionally, the
credit arrangements contain certain restrictions, including limitations on new
indebtedness, and require the maintenance of certain financial covenants.
On November 27, 1996, in connection with the acquisition of SCR by the
Company (see Note 4), SCR terminated its credit arrangements.
F-14
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 24, JUNE 29,
1995 1996
---------- ----------
<S> <C> <C>
Note payable due January 1, 1996...................... $ 59,000 $ --
Note payable due August 31, 1996...................... 28,000 7,000
Term loan due December 1, 1996........................ 563,000 --
10.7% term loan due September 30, 1997................ 502,000 --
11% term loan due March 13, 1998...................... 626,000 --
Notes payable due November 30, 1998................... 750,000 625,000
Notes payable due June 30, 2000....................... 270,000 216,000
9.375% term loan due August 27, 2010.................. -- 1,406,000
6.75% term loan due April 1, 2013..................... -- 690,000
---------- ----------
2,798,000 2,944,000
Less: current portion................................. 1,029,000 344,000
---------- ----------
$1,769,000 $2,600,000
========== ==========
</TABLE>
The note payable due January 1, 1996 was payable to a bank in monthly
installments, including interest at the bank's prime rate plus 1.5% (10.5% at
June 24, 1995).
The note payable due August 31, 1996 is payable to a bank, under the line of
credit described in Note 7, in monthly installments of $3,000, including
interest at the bank's prime rate plus .50% (9.0% and 8.75% at June 24, 1995
and June 29, 1996, respectively).
The term loan due December 1, 1996, payable to a bank in monthly
installments of $31,000 plus interest at the bank's prime rate plus 1.25%
(10.25% at June 24, 1995), was repaid in March 1996.
The term loans due September 30, 1997 and March 13, 1998, payable in monthly
installments of $21,000 and $22,000, respectively, including interest, were
repaid in June 1996.
The notes payable due November 30, 1998 resulted from TRI's acquisition of
the former Axiom Consulting Group, Inc. in November 1994 (see Note 3). The
notes are unsecured and are payable to the former stockholders of Axiom
Consulting Group, Inc. in semi-annual installments of $125,000, plus interest
at the prime rate published in The Wall Street Journal, beginning in May 1996.
ARI repurchased 127,609 shares of common stock and 465,000 shares of
preferred stock from certain of its stockholders in June 1995 at a price of
$.24 and $.65 per share, respectively. These repurchased shares have been
excluded from the number of shares issued and outstanding on the accompanying
consolidated balance sheet. In conjunction with this transaction, ARI issued
$261,000 in promissory notes, recorded as long-term debt on the accompanying
balance sheet, due through June 30, 2000 in five equal annual installments of
$63,000, including interest of 6.83%, with the first payment due in June 1996.
These notes are unsecured.
The term loan due August 27, 2010 is payable to a bank in monthly
installments of $12,000, including interest, and is collateralized by certain
property of the Trust and the personal guarantee of the Company's president
and majority stockholder.
The term loan due April 1, 2013 is payable in semi-annual installments of
$34,000, including interest, and is secured by a mortgage on the land and
building of the Trust and the assignment of a life insurance policy on the
Company's president and majority stockholder.
F-15
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate maturities of long-term debt are as follows at June 29, 1996:
<TABLE>
<S> <C>
1997.............................................................. $ 344,000
1998.............................................................. 352,000
1999.............................................................. 226,000
2000.............................................................. 105,000
2001.............................................................. 53,000
Thereafter........................................................ 1,864,000
----------
$2,944,000
==========
</TABLE>
9. INCOME TAXES
Prior to January 1, 1996 and November 27, 1996, respectively, America's
Registry and SCR had each elected to be an S corporation for federal income
tax purposes as provided in Section 1362(a) of the Internal Revenue Code. As
such, the corporate income or loss and credits were passed through to the
stockholders and reported on their personal tax returns.
In conjunction with the acquisition of all of the common stock of America's
Registry and SCR by TRI (see Notes 2 and 4), America's Registry's and SCR's
elections to be treated as an S corporation terminated, effective January 1,
1996 and November 26, 1996, respectively. As a result, the income or loss of
America's Registry commencing on January 1, 1996 and the income or loss of SCR
commencing on November 27, 1996 will be subject to corporate income tax. The
income tax provision (benefit) described below for the year ended June 29,
1996 includes the income taxes related to America's Registry since January 1,
1996. The unaudited pro forma provision for income taxes and pro forma net
income on the accompanying consolidated statement of income (see Note 16)
reflects the estimated results of operations if America's Registry and SCR had
been subject to corporate income taxes during the years ended May 31, 1994,
June 24, 1995 and June 29, 1996 and the six months ended December 30, 1995 and
December 28, 1996.
At the time of conversion of America's Registry from an S corporation to a C
corporation, a net deferred tax liability of $642,000 was recorded through the
income tax provision on January 1, 1996. This deferred tax liability was
comprised principally of the remaining effects of America's Registry
converting from the cash basis to the accrual basis for tax reporting purposes
on January 1, 1994, offset by deferred tax assets for certain accrued expenses
which are recognized in different periods for financial and tax reporting.
At the time of conversion of SCR from an S corporation to a C corporation, a
net deferred tax asset of $403,000 was recorded through the income tax
provision on November 27, 1996. This deferred tax asset was comprised
principally of certain accrued expenses and allowances which are recognized in
different periods for financial and tax reporting.
The components of the provision (benefit) for federal and state income taxes
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
MAY 31, JUNE 24, JUNE 29,
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Current:
Federal................................. $250,000 $ 875,000 $ 3,076,000
State................................... 69,000 275,000 814,000
-------- --------- -----------
319,000 1,150,000 3,890,000
Deferred:
Federal................................. 127,000 (219,000) (1,082,000)
State................................... 27,000 (56,000) (323,000)
-------- --------- -----------
154,000 (275,000) (1,405,000)
Change in tax status of America's
Registry................................. -- -- 642,000
-------- --------- -----------
$473,000 $ 875,000 $ 3,127,000
======== ========= ===========
</TABLE>
F-16
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences and operating loss or
credit carryforwards is recognized if it is more likely than not that a benefit
will be realized. Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance. Deferred tax assets and
liabilities are comprised of the following at June 24, 1995 and June 29, 1996:
<TABLE>
<CAPTION>
JUNE 24, JUNE 29,
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carry forwards........ $ 214,000 $ 53,000
Allowance for doubtful accounts..................... 3,000 135,000
Accounts payable and accrued expenses............... 42,000 447,000
Other............................................... 135,000 32,000
---------- ----------
Total gross deferred tax assets................... 394,000 667,000
---------- ----------
Deferred tax liabilities:
Conversion from cash to accrual basis............... 1,536,000 1,041,000
Accounts receivable................................. 170,000 --
Prepaid expenses.................................... 55,000 82,000
Fixed assets........................................ 53,000 167,000
Other............................................... 51,000 57,000
---------- ----------
Total gross deferred tax liabilities.............. 1,865,000 1,347,000
---------- ----------
Net deferred tax liability........................ $1,471,000 $ 680,000
========== ==========
</TABLE>
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
MAY 31, JUNE 24, JUNE 29,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Statutory U.S. federal tax rate.................. 34.0 % 34.0 % 34.0 %
State taxes, net of federal tax benefit.......... 3.4 % 3.1 % 3.4 %
Income from America's Registry and SCR not
taxable for corporate income tax purposes....... (17.2)% (19.3)% (14.3)%
Non-deductible expenses.......................... 2.2 % 0.7 % 1.6 %
Amortization of goodwill not deductible for
corporate income tax purposes................... -- 0.4 % 0.3 %
Change in tax status of America's Registry....... -- -- 6.6 %
Other............................................ 2.6 % (0.2)% 0.4 %
------- ------- -------
Effective tax rate............................... 25.0 % 18.7 % 32.0 %
======= ======= =======
</TABLE>
Non-deductible expenses during the years ended May 31, 1994 and June 24, 1995
primarily relate to meals and entertainment expenses. Non-deductible expenses
during the year ended June 29, 1996 and the six month period ended December 28,
1996 primarily relate to certain costs incurred in connection with the
acquisitions of ARI and SCR by the Company.
F-17
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 29, 1996, the Company has available for federal income tax purposes
unused operating losses
of $90,000 to offset future taxable income, expiring in various years through
2011. Additionally, the Company has available for federal income tax purposes
unused tax credits of $18,000 at June 29, 1996 to offset future tax
liabilities, which may be carried forward indefinitely.
10. STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value
On April 10, 1996, the Company's then sole stockholder authorized 1,000,000
shares of preferred stock, $.10 par value ("Preferred Stock"). Preferred Stock
may be issued in one or more series at the discretion of the Board of
Directors of the Company (without stockholder approval) with such
designations, rights and preferences as the Board of Directors may determine.
The preferred stock may have dividend, liquidation, redemption, conversion,
voting or other rights which may be more expansive than the rights of the
holders of the Company's Common Stock.
Preferred Stock, no par value
The Company's wholly-owned subsidiary, ARI, is authorized to issue 5,000,000
shares of preferred stock, of which 3,000,000 shares are designated as Series
A Preferred Stock (the "Series A Preferred Stock"). The remaining preferred
stock may be issued from time to time in one or more additional series at the
discretion of the Board of Directors. Shares of Series A Preferred Stock are
non-redeemable and have a liquidation preference of $.79 per share plus any
declared but unpaid dividends.
Each share of Series A Preferred Stock is convertible into the number of
shares of common stock that results from dividing the conversion price in
effect at the time of conversion into $.79 for each share of Series A
Preferred Stock being converted. The conversion price of the Series A
Preferred Stock is initially $.2168 per share, subject to adjustment for stock
splits, dividends, distributions and combinations. At June 29, 1996, all
shares of Series A Preferred Stock are convertible into .274428 shares of the
Company's Common Stock based on a conversion price of $.2168 per share. At
June 29, 1996, 671,800 shares of the Company's Common Stock are reserved for
issuance upon conversion of the Series A Preferred Stock.
Each share of Series A Preferred Stock shall automatically be converted into
shares of common stock upon (i) the effectiveness of ARI's registration
statement on Form S-1 pursuant to the closing of a public offering resulting
in gross proceeds greater than $5,000,000 for ARI's common stock or (ii) the
election of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock to convert all outstanding shares of Series A Preferred Stock
into common stock. In the event of a sale or merger of ARI to or with another
corporation, holders of Series A Preferred Stock have the right to convert
each share of Series A Preferred Stock into shares of common stock (at the
appropriate conversion ratio) by delivery of an election to do so.
For a vote other than for directors of ARI, preferred stockholders have
voting rights equivalent to one vote for each share of common stock into which
their respective shares of Series A Preferred Stock are convertible on the
record date of the vote. For election of directors of ARI, the holders of
shares of common stock, voting as a class, are entitled to elect one director
of ARI and the holders of shares of Series A Preferred Stock, voting as a
class, are entitled to elect all other directors of ARI. However, if more than
75% of the originally issued shares of Series A Preferred Stock have been
converted into common stock, all the directors of ARI are elected by the
holders of Series A Preferred Stock and common stock voting together as a
single class.
On November 26, 1996, in conjunction with the acquisition of ARI by TRI (see
Note 4), all of the outstanding shares of Series A Preferred Stock were
converted into 717,080 shares of Common Stock.
F-18
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Split
On March 22, 1996, the Company's then sole stockholder approved a 177.77778-
for-1 stock split on the Common Stock of TRI. At that time, the Company's
stockholder also approved an increase to 12,000,000 in the number of
authorized shares of the Common Stock of TRI, no par value. On April 10, 1996,
the Company's stockholder approved an additional increase to 29,000,000 in the
number of authorized shares of the Common Stock of TRI. On November 21, 1996,
the Company's stockholders approved an additional increase to 49,000,000 in
the number of authorized shares of the Common Stock of TRI.
All shares and per share amounts included in the consolidated financial
statements have been adjusted to give retroactive effect to the stock split
for all periods presented.
Public Offering of Common Stock
On June 10, 1996, the Company completed its initial public offering for the
sale of 2,230,000 shares of Common Stock, which included 330,000 shares in
respect of the underwriters' over-allotment option. The Company received
$34,498,000 from the sale of the shares, net of the underwriting discounts and
expenses associated with the offering. Additionally, the Company had
previously incurred $294,000 of costs related to the initial public offering
that were deferred in previous years which were also charged against the
proceeds of the offering. Net proceeds were used to repay all outstanding
indebtedness under the Company's credit facility and certain term loans (see
Note 7).
11. STOCK PLANS
In March 1996, the Company's then sole stockholder approved the formation of
the 1996 Stock Plan, the 1996 Employee Stock Purchase Plan and the 1996
Eligible Directors Stock Plan.
1996 Stock Plan
This plan authorizes the grant of incentive stock options, non-qualified
stock options, stock purchase authorizations or stock bonus awards to key
employees, including officers, employee directors and consultants, to purchase
up to 1,600,000 shares of Common Stock. In January 1997, the Company's Board
of Directors, subject to stockholder approval, voted to increase the number of
shares of Common Stock authorized under this plan to 3,600,000. Incentive
stock options cannot be granted to consultants. For incentive options, the
purchase price is equal to the fair market value on the date of grant (110% of
fair market value for stockholders who hold greater than 10% of the Company's
stock at the time of grant). For non-qualified options and stock purchase
authorizations, the purchase price is determined by the Board of Directors
within limits as set forth in the plan, but shall not be less than 85% of the
fair market value of the Common Stock on the date of grant. The periods over
which options are exercisable are determined by the Board of Directors. If
permitted by the Board of Directors, employees may use previously acquired
shares of the Company's Common Stock (provided that such shares tendered have
been held for at least six months) or may borrow money from the Company on a
recourse basis (for a period of time not to exceed five years) to pay the
exercise price of shares purchased. Options may expire up to ten years after
the date of grant (five years for incentive options granted to 10%
stockholders). The Board of Directors has the discretion to designate non-
qualified options as transferable. The plan will terminate in March 2006.
F-19
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of option activity under the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding at June 24, 1995....................... -- --
Granted............................................ 1,210,750 $11.00-$16.00
Canceled........................................... (15,750) $11.00-$13.00
--------- -------------
Outstanding at June 29, 1996....................... 1,195,000 $11.00-$16.00
Granted (unaudited)................................ 24,250 $27.00-$52.00
Exercised (unaudited).............................. (26,540) $11.00-$27.00
Canceled (unaudited)............................... (47,200) $11.00-$16.00
--------- -------------
Outstanding at December 28, 1996 (unaudited)....... 1,145,510 $11.00-$52.00
========= =============
</TABLE>
1996 Employee Stock Purchase Plan
This plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, authorizes the grant of options to eligible employees on a semi-
annual basis to purchase shares of the Company's Common Stock. An aggregate of
300,000 shares of Common Stock has been reserved for issuance under this plan.
The plan permits eligible employees to purchase up to 200 shares of Common
Stock in any six month offering period through the accumulation of payroll
deductions, which may not exceed 10% of the employee's compensation. Employees
are eligible to participate if they have been employed by the Company for at
least eighteen months. Shares are purchased at 85% of the lower of the fair
market value of the Company's Common Stock at the beginning or end of each six
month offering period. Employees may end their participation in the offering
at any time during the offering period, and participation ends automatically
on termination of employment. The first stock offering period under the plan
commenced on June 5, 1996, the effective date of the registration statement
covering the Company's initial public offering. The plan will terminate in
March 2006.
1996 Eligible Directors' Stock Plan
This plan authorizes the grant of an option to purchase 20,000 shares of
Common Stock to each non-employee director on the date of the director's
initial election to the Board of Directors. The exercise price of options
granted is 100% of the closing price per share of Common Stock on the date of
grant. Directors may use previously acquired shares of the Company's Common
Stock to pay the exercise price of shares purchased, provided that such shares
tendered have been held for at least six months. An aggregate of 100,000
shares of Common Stock may be issued under the plan. Options are exercisable
in four equal annual installments commencing on the first anniversary date of
the grant. Options expire ten years after the date of grant. The plan will
terminate in March 2006.
In April and May 1996, options to purchase 20,000 shares each of Common
Stock at an exercise price of $11.00 and $13.00 per share, respectively, were
granted to newly-elected directors.
SCR Option
On April 1, 1993, SCR granted a non-qualifying stock option to a key
employee to purchase 48,143 shares of common stock at an exercise price of
$0.0073 per share. The option has a nine-year vesting period, subject to
acceleration for certain events (such as the sale, merger or liquidation of
the Company, or an initial public offering), and expires on April 1, 2002.
Compensation expense of $281,000, which represents the excess of the estimated
fair market value of the stock on the date of grant over the exercise price,
is being recognized over the nine-year vesting period. The unrecognized
portion of the
F-20
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
compensation expense is recorded as a reduction of stockholders' equity in the
accompanying balance sheet. Effective November 27, 1996, the stock option was
exercised in accordance with the acceleration clause of the option agreement
in connection with the acquisition of SCR by the Company as described in Note
4, and the remaining unamortized balance of deferred stock compensation of
$164,000 was recorded as expense at that time.
1994 ARI Stock Plan
In 1994, ARI adopted the 1994 Stock Option Plan (the "1994 Plan"), under
which 411,642 shares of common stock are reserved for issuance to eligible
employees, directors and consultants upon the exercise of stock options. ARI
also has outstanding options to purchase 7,409 shares of common stock and
27,000 shares of Series A Preferred Stock which were granted prior to the
adoption of the 1994 Plan. Stock options were granted at prices determined by
ARI's former Board of Directors and generally may not be less than 100% and
85%, for incentive and nonstatutory options, respectively, of the estimated
fair value of the related shares on the date of grant. Options granted under
the 1994 Plan are for periods not to exceed ten years, are exercisable
beginning generally one year after the date of grant and vest ratably over a
maximum period of five years following the date of grant.
Options which expire or are canceled shall become available for reissuance
under the 1994 Plan. The 1994 Plan provides for an unvested share repurchase
option on behalf of ARI. In the event an optionee ceases to be eligible under
the 1994 Plan for any reason, shares acquired through the exercise of an
option which have not yet vested may be repurchased by ARI at the higher of
the option exercise price or the value of the stock being purchased on the
date of termination. All stock options granted to ARI's former management
employees fully vest in the event of a change of control, as defined by the
Board of Directors.
The Company does not intend to grant any further options under the 1994
Plan.
A summary of option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK
---------------------- --------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
--------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at May 31, 1994... 151,485 $0.01-$0.24 150,000 $0.0157-$0.3285
Granted....................... 98,794 $0.24 -- --
Exercised..................... (33,754) $0.01-$0.06 (123,000) $0.0157-$0.135
Canceled...................... (28,267) $0.06-$0.24 -- --
------- ----------- -------- ---------------
Outstanding at June 24, 1995.. 188,258 $0.01-$0.24 27,000 $0.0157-$0.3285
Elimination of duplicated ac-
tivity from July to
December 1995................ 823 $0.24 23,000 $.0157
Granted....................... 41,164 $0.24 -- --
Exercised..................... (18,935) $0.24 (23,000) $.0157
Canceled...................... (824) $0.24 -- --
------- ----------- -------- ---------------
Outstanding at June 29, 1996.. 210,486 $0.01-$0.24 27,000 $0.0157-$0.3285
======= =========== ======== ===============
</TABLE>
On November 26, 1996, in conjunction with the acquisition of ARI by TRI, all
options to purchase Series A Preferred Stock were converted into options to
purchase 7,409 shares of Common Stock. Additionally, all options outstanding
under the 1994 Plan vested upon the date of the acquisition.
F-21
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Compensation is
recognized for the difference between the exercise price of options granted
and the estimated fair value of the related shares on the date of grant, and
is recorded over the vesting period. The benefit of tax deductions associated
with the exercise of non-qualified stock options or the disqualifying
disposition of shares acquired through the exercise of incentive stock options
in excess of the amount of compensation recorded for financial reporting
purposes is recorded as a credit to additional paid-in capital.
12. EMPLOYEE SAVINGS PLAN
The Company provides an employee retirement savings plan under Section
401(k) of the Internal Revenue Code (the "Plan") which covers substantially
all employees. Under the terms of the Plan, employees may contribute a
percentage of their salary, up to a maximum of 15%, which is then invested in
one or more of several mutual funds selected by the employee. The Company may
make contributions to the Plan at their discretion; such contributions totaled
$17,000, $31,000 and $50,000 during the years ended May 31, 1994, June 24,
1995 and June 29, 1996, respectively.
13. COMMITMENTS
In addition to leasing computer equipment under various capital leases (Note
5), the Company occupies premises under various noncancelable operating leases
which include terms requiring the Company to pay a pro-rata portion of
increased operating expenses and real estate taxes. The leases expire on
various dates through fiscal 2002, and certain of the leases contain options
for renewal or purchase of the related equipment.
In January 1993, TRI entered into a three year lease with the Trust, which
required annual rental payments of $120,000, payable in equal monthly
installments of $10,000. This lease was amended in January of 1994 upon
expansion of the leased area to require annual rental payments of $150,000,
payable in equal monthly installments of $12,500. This lease was further
amended in September 1995 upon expansion of the leased area to require annual
payments of $357,000, payable in equal monthly installments of $29,800. The
term of the lease was also extended through September 2010. In conjunction
with the amendment in September 1995, the Company has begun to consolidate the
accounts of the Trust on a prospective basis (see Note 15). Rent expense for
the years ended May 31, 1994, June 24, 1995 and June 29, 1996 (excluding
amounts paid to the Trust after September 19, 1995) was $824,000, $1,746,000
and $2,090,000, respectively.
At June 29, 1996, future minimum rental payments under noncancelable lease
arrangements are as follows, excluding amounts payable to the Trust:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
1997.................................................... $1,967,000 $ 92,000
1998.................................................... 1,767,000 50,000
1999.................................................... 1,417,000 10,000
2000.................................................... 949,000 --
2001.................................................... 472,000 --
Thereafter.............................................. 37,000 --
---------- --------
Total minimum lease payments............................ $6,609,000 $152,000
==========
Less--amount representing interest...................... 23,000
--------
Present value of obligations under capital leases....... $129,000
========
</TABLE>
F-22
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the normal
course of business. Fair values are estimated based on assumptions concerning
the amount and timing of estimated future cash flows and assumed discount
rates reflecting varying degrees of perceived risk. Accordingly, the fair
values may not represent actual values of the financial instruments that could
have been realized as of year end or that will be realized in the future.
The carrying amounts of the Company's financial instruments, which include
accounts receivable, notes receivable from related parties, line of credit,
accounts payable, accrued salaries and wages, other accrued expenses, income
taxes payable and long-term debt, approximate their fair values at June 29,
1996.
15. CONSOLIDATION OF REAL ESTATE TRUST
As described in Note 13, the Company leases office space from a real estate
trust, of which the president and majority stockholder of the Company is the
sole beneficiary and an officer of the Company is the trustee. Effective
September 19, 1995, the Company renegotiated its lease with the Trust in
conjunction with a refinancing of the Trust's mortgage. The modified lease
terms expanded the amount of space which the Company occupies, committed the
Company to rent the facility through the maturity date of the mortgage loan,
and granted the Company a right of first refusal to lease any space in the
facility currently occupied by other tenants when the tenants' leases expire.
Accordingly, as of this date, the Company obtained significant control over
the operations of the Trust and assumed a significant portion of the Trust's
obligations. As a result, the Company has consolidated the accounts of the
Trust as of September 19, 1995 on a prospective basis. As of September 19,
1995, the Trust reported the following assets and liabilities:
<TABLE>
<S> <C>
Fixed assets, net.............................................. $ 1,750,000
Other current assets........................................... 49,000
Security deposits and deferred income.......................... (84,000)
Note payable to TRI............................................ (365,000)
Mortgage loans payable......................................... (1,461,000)
-----------
$ (111,000)
===========
</TABLE>
In September 1995, one of the mortgage loans payable by the Trust was
refinanced with a new mortgage loan (see Note 8). At this time, a distribution
of $649,000 was made to the beneficiary of the Trust.
Rental income from tenants during the period from September 19, 1995 through
June 29, 1996 was $137,000, which is included in interest and other income in
the accompanying consolidated statement of income. Future minimum rental
commitments from tenants are as follows at June 29, 1996:
<TABLE>
<S> <C>
1997................................................................ $109,000
1998................................................................ 12,000
--------
$121,000
========
</TABLE>
F-23
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. UNAUDITED PRO FORMA INCOME INFORMATION
The following unaudited pro forma income tax information is presented as if
America's Registry and SCR each had been a C corporation subject to federal
and state income taxes throughout the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
MAY 31, JUNE 24, JUNE 29, DEC. 30, DEC. 28,
1994 1995 1996 1995 1996
---------- ----------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Income before taxes..... $1,891,000 $ 4,667,000 $9,759,000 $4,256,000 $6,934,000
Pro forma income tax
provision.............. 889,000 2,014,000 4,222,000 1,868,000 5,187,000
---------- ----------- ---------- ---------- ----------
Pro forma net income.... $1,002,000 $ 2,653,000 $5,537,000 $2,388,000 $1,747,000
========== =========== ========== ========== ==========
</TABLE>
From inception through the year ended May 31, 1994, America's Registry
generated a taxable loss for which the Company would not have received a
benefit, as America's Registry would have filed a separate tax return from
TRI.
Net Income Per Share
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent shares
outstanding, after considering the events described in Notes 2, 4, 10 and 11.
Weighted average common and common equivalent shares include common shares and
common shares which may be issuable upon exercise of outstanding stock
options, computed using the treasury stock method. The weighted average number
of common and common equivalent shares outstanding also includes common shares
issuable upon conversion of ARI's preferred stock, using the exchange ratio of
0.274428 shares of TRI Common Stock for each share of ARI stock. Pursuant to
Securities and Exchange Commissions Staff Accounting Bulletin No. 83, stock
options granted by the Company during the twelve months prior to the date of
the initial filing of the Company's Registration Statement on Form S-1 have
been included in the calculation of common equivalent shares using the
treasury stock method, as if they were outstanding as of the beginning of each
period presented.
17. UNAUDITED SUBSEQUENT EVENTS
Sun-Tek Consultants, Inc.
On November 1, 1996, the Company, through a wholly owned subsidiary,
acquired all of the outstanding stock of Sun-Tek Consultants, Inc., a Florida
corporation ("Sun-Tek"), for $1,900,000 in cash. Sun-Tek Consultants, Inc. is
an information technology consulting firm based in Orlando, Florida performing
services similar to those of the Company. The acquisition has been accounted
for as a purchase and, accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based upon their estimated fair
values as of the date of acquisition. The excess of the consideration over the
estimated fair value of net assets acquired has been recorded as goodwill and
is being amortized on a straight-line basis over 30 years.
Sterling Information Group, Inc.
On November 27, 1996, the Company, through a wholly-owned subsidiary,
acquired certain assets and liabilities of Sterling Information Group, Inc.
("Sterling"), a Texas corporation, for cash consideration of $7,500,000, plus
amounts up to an aggregate of $500,000 contingent upon the operating results
and expansion success of Sterling over the next 7 months. The cash
consideration was paid in January 1997,
F-24
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and is included in current portion of long-term debt in the accompanying
consolidated balance sheet. Sterling is an independent provider of outsourced
software application development based in Austin, Texas. The acquisition has
been accounted for as a purchase and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values as of the date of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired has
been recorded as goodwill and is being amortized on a straight-line basis over
30 years.
James Duncan & Associates
On December 24, 1996, the Company, through a wholly-owned subsidiary,
acquired all of the outstanding share capital of AFC Holdings (Guernsey)
Limited, a Guernsey trust which holds all of the outstanding share capital of
James Duncan & Associates ("JDA"), a United Kingdom corporation, for
$4,172,000, payable in $3,921,000 in cash, 2,736 shares of the Company's
Common Stock and $125,000 payable on or before December 24, 1997 in cash or
shares of the Company's Common Stock at the option of the selling
stockholders. JDA is an information technology consulting firm performing
services similar to those of the Company. The acquisition has been accounted
for as a purchase and, accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based upon their estimated fair
values as of the date of acquisition. The excess of the consideration paid
over the estimated fair value of net assets acquired has been recorded as
goodwill, and is being amortized on a straight-line basis over 30 years.
Legal Settlement
In August 1996, ARI received a settlement of $1,625,000 from its insurance
company for payment of defense costs and certain expenses associated with a
previous intellectual property rights matter. This amount, net of related
expenses, has been included in interest and other income in the accompanying
consolidated statement of income.
Sale of Common and Preferred Stock
On November 19, 1996, ARI sold 55,000 units to an unrelated investor for net
proceeds of $2,607,000. Each unit consisted of 3 shares of ARI's Series A
Preferred Stock and 0.5489 shares of the Company's Common Stock, for a total
of 165,000 shares of Series A Preferred Stock and 30,187 shares of Common
Stock.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Application Resources, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Application Resources,
Inc. at September 30, 1996, and the results of its operations and its cash
flows for the nine month period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 6, 1997
F-26
<PAGE>
APPLICATION RESOURCES, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $2,631
Accounts receivable, net of allowance for doubtful accounts of $37... 5,939
Deferred income taxes................................................ 65
Other current assets................................................. 146
------
Total current assets............................................. 8,781
Fixed assets, net...................................................... 731
------
Total assets..................................................... $9,512
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 50
Accounts payable..................................................... 489
Accrued salaries and wages........................................... 1,309
Other accrued expense................................................ 1,445
Income taxes payable................................................. 971
------
Total current liabilities........................................ 4,264
------
Long-term debt......................................................... 168
------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares; issued
and outstanding 2,448,000 shares (liquidating preference $1,934).... 1,916
Common stock, no par value; authorized 10,000,000 shares; issued and
outstanding 2,494,000 shares........................................ 167
Notes receivable from stockholders (Note 4).......................... (226)
Retained earnings.................................................... 3,223
------
Total stockholders' equity....................................... 5,080
------
Total liabilities and stockholders' equity....................... $9,512
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue............................................ $33,716 $21,598
Cost of revenue.................................... 25,193 16,676
------- -------
8,523 4,922
Selling, general and administrative expenses....... 6,172 3,437
------- -------
Income from operations............................. 2,351 1,485
Interest expense................................... (16) (10)
Interest and other income.......................... 1,235 13
------- -------
Income before tax provision........................ 3,570 1,488
Income tax provision............................... 1,647 575
------- -------
Net income......................................... $ 1,923 $ 913
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------- --------------- FROM RETAINED
SHARES VALUE SHARES VALUE STOCKHOLDERS EARNINGS TOTAL
--------- ------ --------- ----- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 2,448,000 $1,916 2,448,000 $164 $(226) $1,300 $3,154
Exercise of stock op-
tions.................. -- -- 46,000 3 -- -- 3
Net income.............. -- -- -- -- -- 1,923 1,923
--------- ------ --------- ---- ----- ------ ------
Balance at September 30,
1996................... 2,448,000 $1,916 2,494,000 $167 $(226) $3,223 $5,080
========= ====== ========= ==== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 1,923 $ 913
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation..................................... 132 86
Deferred income taxes............................ (408) (193)
Provision for losses on accounts receivable...... 30 --
Increase in accounts receivable.................. (2,146) (1,045)
Decrease in accounts receivable from related
party........................................... -- 85
(Increase) decrease in other current assets...... (94) 8
Decrease in accounts payable..................... (49) (24)
Increase in accrued salaries and wages........... 637 240
Increase (decrease) in other accrued expenses.... 761 (53)
Increase (decrease) in income taxes payable...... 861 (83)
------- -------
Net cash provided by (used for) operating
activities..................................... 1,647 (66)
------- -------
Cash flows from investing activities:
Purchases of fixed assets......................... (446) (301)
------- -------
Cash flows from financing activities:
Repayments of long-term debt...................... (51) --
Payments to repurchase stock...................... -- (72)
Proceeds from exercise of stock options........... 3 15
------- -------
Net cash used for financing activities.......... (48) (57)
------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 1,153 (424)
Cash and cash equivalents, beginning of period..... 1,478 803
------- -------
Cash and cash equivalents, end of period........... $ 2,631 $ 379
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 13 $ --
Cash paid for income taxes........................ $ 1,194 $ 941
</TABLE>
See additional disclosure of non-cash financing activity in Note 6.
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Application Resources, Inc. (the "Company") is an information technology
("IT") professional services firm providing IT consultants on a contract basis
to primarily industrial, manufacturing and financial organizations with
complex IT operations. Three offices are maintained within Northern
California, which is the Company's primary area of business. The Company was
previously a division of The Application Group, Inc. As of October 1, 1994,
The Application Group, Inc. spun off the assets and liabilities of the Company
to its stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Such investments are carried
at cost plus accrued interest, which approximates market. At September 30,
1996, $2,043,000 of money market accounts are included in cash and cash
equivalents in the accompanying balance sheet.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue is recognized as services are performed. Ongoing credit evaluations
of customers' financial condition are performed and collateral is not
required. Concentration of credit risk with respect to accounts receivable is
limited due to the number and diversity of customers comprising the Company's
customer base. At September 30, 1996, two customers comprised approximately
31% (21% and 10%, respectively) of the Company's accounts receivable and 29%
(20% and 9%, respectively) of the Company's sales for the nine month period
then ended. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Fixed Assets
Fixed assets are stated at cost. Additions, renewals, and betterments of
fixed assets are capitalized. Repair and maintenance expenditures for minor
items are generally expensed as incurred. Depreciation of fixed assets is
provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Computer equipment...... 5 years
Software................ 3 years
Furniture and fixtures.. 7 years
Leasehold improvements.. Lesser of estimated useful life or remaining lease term
</TABLE>
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future consequences of
temporary differences between the financial statement and tax basis of assets
and liabilities, utilizing currently enacted tax rates.
Advertising Costs
Advertising costs are recorded as expense when incurred. Total advertising
expense for the nine month period ended September 30, 1996 was not material.
F-31
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
September 30, 1996, and the reported amounts of revenues and expenses during
the nine month period then ended. Actual results could differ from those
estimates.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
money market investments, accounts receivable, notes receivable from
stockholders, accounts payable, accrued salaries and wages, other accrued
expenses, income taxes payable and long-term debt, approximate their fair
values at September 30, 1996.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results of operations and cash flows of the Company for
the nine month period ended September 30, 1995 as presented in the
accompanying financial statements. Results of operations for the nine month
period are not necessarily indicative of the results of operations for the
full fiscal year.
3. BALANCE SHEET DETAILS (IN THOUSANDS)
<TABLE>
<S> <C>
Fixed assets:
Computer equipment................................................. $ 480
Software........................................................... 228
Furniture and fixtures............................................. 227
Leasehold improvements............................................. 150
------
Total fixed assets............................................... 1,085
Less accumulated depreciation...................................... 354
------
$ 731
======
Other accrued expenses:
Accrued employee benefits.......................................... $ 245
Accrued commissions and bonuses.................................... 769
Other accrued expenses............................................. 431
------
$1,445
======
</TABLE>
4. RELATED PARTY TRANSACTIONS
Notes receivable from stockholders of $225,660 at September 30, 1996, which
are included as a reduction of stockholders' equity in the accompanying
balance sheet, represent promissory notes from two of the Company's officers
for the exercise of stock options. The loans bear interest at a variable rate
based upon federal income tax requirements (approximately 6% at September 30,
1996).
5. LINE OF CREDIT FACILITY
At September 30, 1996, the Company had a line of credit arrangement with a
bank which allowed the Company to borrow the lesser of $1,750,000 or 60% of
eligible accounts receivable, as defined, at an interest rate of the bank's
prime rate plus .50% (8.75% at September 30, 1996). There were no amounts
F-32
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
outstanding at September 30, 1996. The line of credit is secured by all of the
assets of the Company, contains certain restrictions, including limitations on
the amount of distributions which can be made to stockholders, purchases of
fixed assets, and new indebtedness, and requires the maintenance of certain
financial covenants. On November 26, 1996, in conjunction with the merger with
The Registry, Inc. (see Note 12), the Company terminated its line of credit
agreement.
6. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock, of
which 3,000,000 shares are designated as Series A Preferred Stock (the
"Preferred Stock"). The remaining preferred stock may be issued from time to
time in one or more additional series at the discretion of the Board of
Directors. Shares of Preferred Stock are non-redeemable and have a liquidation
preference of $.79 per share plus any declared but unpaid dividends.
Each share of Preferred Stock is convertible into the number of shares of
common stock that results from dividing the conversion price in effect at the
time of conversion into $.79 for each share of Preferred Stock being
converted. The conversion price of the Preferred Stock is initially $.79 per
share, subject to adjustment for stock splits, dividends, distributions and
combinations. All shares of Preferred Stock are convertible into shares of
common stock at a 1-to-1 ratio based on a conversion price of $.79 per share
at September 30, 1996. At September 30, 1996, 2,448,000 shares of the
Company's common stock are reserved for issuance upon conversion of the
Preferred Stock.
Each share of Preferred Stock shall automatically be converted into shares
of common stock upon (i) the effectiveness of the Company's registration
statement on Form S-1 pursuant to the closing of a public offering resulting
in gross proceeds greater than $5,000,000 for the Company's common stock or
(ii) the election of the holders of two-thirds of the outstanding shares of
Preferred Stock to convert all outstanding shares of Preferred Stock into
common stock. In the event of a sale or merger of the Company to or with
another corporation, holders of Preferred Stock have the right to convert each
share of Preferred Stock into shares of common stock by delivery of an
election to do so.
For a vote other than for directors, preferred stockholders have voting
rights equivalent to one vote for each share of common stock into which their
respective shares of Preferred Stock are convertible on the record date of the
vote. For election of directors, the holders of shares of common stock, voting
as a class, are entitled to elect one director and the holders of shares of
Preferred Stock, voting as a class, are entitled to elect all other directors.
However, if more than 75% of the originally issued shares of Preferred Stock
have been converted into common stock, all the directors of the Company are
elected by the holders of Preferred Stock and common stock voting together as
a single class.
On November 26, 1996, in conjunction with the merger of the Company with The
Registry, Inc. (see Note 12), all of the outstanding shares of Preferred Stock
were converted into an equivalent number of shares of common stock.
F-33
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Share Repurchase and Long-Term Debt
The Company repurchased 465,000 shares of common stock and 465,000 shares of
Preferred Stock from certain of its stockholders in 1995 at a price of $.065
and $.65 per share, respectively. These repurchased shares have been excluded
from the number of shares issued and outstanding on the accompanying balance
sheet. In conjunction with this transaction, the Company issued $261,000 in
promissory notes, recorded as long-term debt on the accompanying balance
sheet, due in five equal annual installments of $63,250, including interest at
6.83%, with the first payment due in June 1996. These notes are unsecured.
Aggregate maturities of this long-term debt are as follows at September 30,
1996:
<TABLE>
<S> <C>
1997................................................................ $ 50,000
1998................................................................ 53,000
1999................................................................ 56,000
2000................................................................ 59,000
--------
$218,000
========
</TABLE>
7. STOCK OPTION PLAN
In 1994, the Company adopted the 1994 Stock Option Plan (the "Plan"), under
which 1,500,000 shares of common stock are reserved for issuance to eligible
employees, directors and consultants upon the exercise of stock options. The
Company also has outstanding options to purchase 27,000 shares of common stock
and 27,000 shares of Preferred Stock which were granted prior to the adoption
of the Plan. Stock options are granted at prices determined by the Board of
Directors and generally may not be less than 100% and 85%, for incentive and
nonstatutory options, respectively, of the estimated fair value of the related
shares on the date of grant. Options granted under the Plan are for periods
not to exceed ten years, are exercisable beginning generally one year after
the date of grant and vest ratably over a maximum period of five years
following the date of grant.
Options which expire or are canceled shall become available for reissuance
under the Plan. The Plan provides for an unvested share repurchase option on
behalf of the Company. In the event an optionee ceases to be eligible under
the Plan for any reason, shares acquired through the exercise of an option
which have not yet vested may be repurchased by the Company at the higher of
the option exercise price or the value of the stock being purchased on the
date of termination. All stock options granted to the Company's management
employees fully vest in the event of a change of control, as defined by the
Board of Directors.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plan. Compensation is
recognized for the difference between the exercise price of options granted
and the estimated fair value of the related shares on the date of grant.
Had compensation cost for the Company's stock option plan been determined
based on the fair value of the options at the grant date, consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), for awards made during 1995 and the
nine month period ended September 30, 1996, the Company's net income would not
have been materially different.
The fair value of each option grant under SFAS 123 was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1996 and 1995, respectively: (i) dividend yield
of 0% for both periods; (ii) expected volatility of 0% for both periods; (iii)
risk-free interest rates of 6.05% and 5.5%, respectively; and (iv) expected
lives of 5 years for both periods.
F-34
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plan as of September
30, 1996 and for the nine month period then ended is as follows:
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995..... 686,000 $0.0627 27,000 $0.0522
Granted.............................. 130,000 0.065 -- --
Exercised............................ (46,000) 0.065 -- --
Canceled............................. (3,000) 0.065 -- --
------- ------- ------ -------
Outstanding at September 30, 1996.... 767,000 $0.0629 27,000 $0.0522
======= ======= ====== =======
Exercisable at September 30, 1996.... 171,445 $0.0557 27,000 $0.0522
======= ======= ====== =======
Weighted average fair value of
options granted during the period... $ 0.065 $ --
======= =======
Options available for future grant... 714,000 --
======= ======
</TABLE>
The following table summarizes information about stock options outstanding as
of September 30, 1996:
Common Stock
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING NUMBER OF
NUMBER CONTRACTUAL LIFE, OPTIONS
EXERCISE PRICE OUTSTANDING IN YEARS EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$0.0017 23,000 6.3 23,000
$0.0217 2,000 6.8 2,000
$0.0365 2,000 6.8 2,000
$0.0650 740,000 8.3 144,445
------- --- -------
767,000 8.3 171,445
======= === =======
</TABLE>
Preferred Stock
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING NUMBER OF
NUMBER CONTRACTUAL LIFE, OPTIONS
EXERCISE PRICE OUTSTANDING IN YEARS EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$0.0157 23,000 6.3 23,000
$0.1953 2,000 6.8 2,000
$0.3285 2,000 6.8 2,000
------ --- ------
27,000 6.3 27,000
====== === ======
</TABLE>
F-35
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The following is a summary of the components of the income tax provision:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Current:
Federal...................................................... $1,579,000
State........................................................ 476,000
----------
2,055,000
----------
Deferred:
Federal...................................................... (326,000)
State........................................................ (82,000)
----------
(408,000)
----------
$1,647,000
==========
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences and operating loss or
credit carryforwards is recognized if it is more likely than not that a benefit
will be realized. Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance. Deferred tax assets and
liabilities are comprised of the following at September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Deferred tax assets:
Accrued expenses................................................ $270,000
Allowance for doubtful accounts................................. 15,000
Other........................................................... 15,000
--------
Total gross deferred tax assets............................... 300,000
--------
Deferred tax liabilities:
Conversion from cash to accrual basis........................... 217,000
Fixed assets.................................................... 18,000
--------
Total gross deferred tax liabilities.......................... 235,000
--------
Net deferred tax asset.......................................... $ 65,000
========
</TABLE>
F-36
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Statutory U.S. federal tax rate................................ 34.0%
State taxes, net of federal tax benefit........................ 7.1%
Non-deductible expenses........................................ 5.0%
----
Effective tax rate............................................. 46.1%
====
</TABLE>
Non-deductible expenses primarily relate to certain costs incurred in
connection with the planned sale or merger of the Company (see Note 12).
9. COMMITMENTS AND CONTINGENCIES
The Company occupies premises under various noncancellable operating leases,
which include terms requiring the Company to pay a pro-rata portion of
increased operating expenses and real estate taxes. The Company also leases
certain types of office equipment. The leases expire on various dates through
2001, and certain of the leases contain options for renewal or purchase of the
related equipment.
At September 30, 1996, future minimum rental payments under noncancellable
lease arrangements are as follows:
<TABLE>
<S> <C>
Three months ended December 31, 1996............................. $ 80,000
1997............................................................. 319,000
1998............................................................. 270,000
1999............................................................. 256,000
2000............................................................. 262,000
2001............................................................. 100,000
----------
Total minimum lease payments................................... $1,287,000
==========
</TABLE>
Rent expense was $266,000 for the nine month period ended September 30, 1996.
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, the ultimate outcome of such litigation
will not have a material effect on the Company's financial position or results
of operations or cash flows.
10. RETIREMENT PLAN
The Company maintains a 401(k) retirement plan for its employees who have
completed more than one month of service. Under the terms of the plan,
employees may contribute a percentage of their salary, which is then invested
in one or more of several mutual funds selected by the employee. The plan year
is from January 1 to December 31, and the discretionary employer matching
contribution is established at the end of the plan year. The Company made
contributions of $12,000 to the retirement plan during the nine month period
ended September 30, 1996.
F-37
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. LEGAL SETTLEMENT
In August 1996, the Company received a settlement of $1,625,000 from its
insurance company for payment of defense costs and certain expenses associated
with a previous intellectual property rights matter. This amount, net of
related expenses, has been included in interest and other income in the
accompanying unaudited consolidated statement of income.
12. SUBSEQUENT EVENTS
On November 19, 1996, the Company sold 55,000 units to an unrelated investor
for net proceeds of $2,607,000. Each unit consisted of 3 shares of the
Company's Series A Preferred Stock and 2 shares of the Company's common stock,
for a total of 165,000 shares of Preferred Stock and 110,000 shares of common
stock.
On November 26, 1996, all of the outstanding shares of the Company's Series
A Preferred Stock were converted into 2,613,000 shares of common stock.
On November 26, 1996, the Company was acquired by The Registry, Inc. by
merger. The Registry, Inc. acquired all of the outstanding shares of the
Company in exchange for 1,431,682 shares of The Registry, Inc.'s common stock.
F-38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Application Resources, Inc.
We have audited the accompanying balance sheets of Application Resources, Inc.
as of December 31, 1995 and 1994, and the related statements of income,
shareholders' equity, and cash flows for the year ended December 31, 1995 and
three month period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Application Resources, Inc.
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995 and the three month period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Francisco, California
January 24, 1997
F-39
<PAGE>
APPLICATION RESOURCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 803,003 $1,477,826
Accounts receivable--net of allowance for doubtful
accounts of $44,640 in 1994 and $7,445 in 1995...... 3,029,906 3,744,526
Unbilled receivables................................. 641,887 70,741
Accounts receivable from related party............... 92,793 7,306
Prepaid expenses and other current assets............ 46,885 51,920
---------- ----------
Total current assets............................... 4,614,474 5,352,319
---------- ----------
Property, equipment and leasehold improvements:
Computer equipment................................... 373,759 468,003
Software............................................. 53,680 237,218
Furniture and fixtures............................... 126,058 151,357
Leasehold improvements............................... 939 8,972
---------- ----------
554,436 865,550
Less accumulated depreciation.......................... (333,209) (448,129)
---------- ----------
Net property, equipment and leasehold improvements..... 221,227 417,421
---------- ----------
Total assets....................................... $4,835,701 $5,769,740
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued compensation................................. $ 924,725 $ 909,626
Other accrued liabilities............................ 277,041 446,370
Accounts payable..................................... 604,559 538,046
Income taxes payable................................. 293,140 100,127
Current portion of notes payable..................... -- 54,440
Current portion of deferred taxes.................... 98,840 124,501
---------- ----------
Total current liabilities.......................... 2,198,305 2,173,110
Deferred income taxes.................................. 440,095 227,812
Notes payable.......................................... -- 215,407
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; 2,790,000 issued; outstanding: 2,790,000
at December 31, 1994 and 2,448,000 at December 31,
1995; with a preference in liquidation of
$1,933,920.......................................... 2,204,100 1,915,709
Common stock, no par value, 10,000,000 shares
authorized; 2,790,000 issued; outstanding: 2,790,000
at December 31, 1994 and 2,448,000 at December 31,
1995................................................ 192,823 164,139
Notes receivable from shareholders................... (225,660) (225,660)
Retained earnings.................................... 26,038 1,299,223
---------- ----------
Total shareholders' equity......................... 2,197,301 3,153,411
---------- ----------
Total liabilities and shareholders' equity......... $4,835,701 $5,769,740
========== ==========
</TABLE>
See accompanying notes.
F-40
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Revenues, net of discounts............................ $6,420,524 $29,869,670
Cost of services...................................... 4,993,107 22,940,424
---------- -----------
1,427,417 6,929,246
Selling, general and administrative expenses.......... 1,365,535 4,800,842
---------- -----------
Income from operations................................ 61,882 2,128,404
Other income.......................................... 6,909 32,770
Interest expense...................................... -- 16,528
---------- -----------
Income before taxes................................... 68,791 2,144,646
Income tax provision.................................. 42,753 871,461
---------- -----------
Net income............................................ $ 26,038 $ 1,273,185
========== ===========
</TABLE>
See accompanying notes.
F-41
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK SHAREHOLDER TOTAL
--------------------- ------------------- NOTES RETAINED SHAREHOLDERS'
SHARE AMOUNTS SHARE AMOUNTS RECEIVABLE EARNINGS EQUITY
--------- ---------- --------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity transferred at
inception--October 1,
1994................... 2,790,000 $2,204,100 2,790,000 $192,823 $(940,616) $ -- $1,456,307
Paydown of shareholder
notes receivable..... -- -- -- -- 714,956 -- 714,956
Net income............ -- -- -- -- -- 26,038 26,038
--------- ---------- --------- -------- --------- ---------- ----------
Balance, December 31,
1994................... 2,790,000 2,204,100 2,790,000 192,823 (225,660) 26,038 2,197,301
Exercise of stock
options.............. 123,000 13,860 123,000 1,540 -- -- 15,400
Repurchase of capital
stock................ (465,000) (302,251) (465,000) (30,224) -- -- (332,475)
Net income............ -- -- -- -- -- 1,273,185 1,273,185
--------- ---------- --------- -------- --------- ---------- ----------
Balance, December 31,
1995................... 2,448,000 $1,915,709 2,448,000 $164,139 $(225,660) $1,299,223 $3,153,411
========= ========== ========= ======== ========= ========== ==========
</TABLE>
See accompanying notes.
F-42
<PAGE>
APPLICATION RESOURCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 26,038 $1,273,185
Adjustment to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization..................... 19,146 114,917
Decrease in deferred income taxes................. (250,391) (186,622)
Changes in operating assets and liabilities:
Accounts receivable............................. 215,742 (714,620)
Unbilled receivables............................ (311,268) 571,146
Accounts receivable from related party.......... 136,024 85,487
Prepaid expenses and other current assets....... 13,508 (5,035)
Accrued compensation............................ 27,280 (15,099)
Other accrued liabilities....................... 56,463 178,242
Accounts payable................................ 117,868 (66,513)
Income taxes payable............................ 293,140 (193,013)
--------- ----------
Net cash provided by operating activities........... 343,550 1,042,075
--------- ----------
INVESTING ACTIVITIES
Purchases of property, equipment and leasehold im-
provements......................................... (59,321) (311,113)
--------- ----------
FINANCING ACTIVITIES
Borrowings on commercial loan....................... 416,000 --
Payments on commercial loan......................... (612,182) --
Paydown of shareholders notes receivable............ 714,956 --
Payments to repurchase capital stock................ -- (71,539)
Proceeds from exercise of stock options............. -- 15,400
--------- ----------
Net cash provided by (used in) financing activi-
ties............................................... 518,774 (56,139)
--------- ----------
Net increase in cash and cash equivalents........... 803,003 674,823
Cash and cash equivalents at beginning of year...... -- 803,003
--------- ----------
Cash and cash equivalents at end of year............ $ 803,003 $1,477,826
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes...................................... $ -- $1,251,298
Interest.......................................... 3,316 7,617
</TABLE>
See accompanying notes.
F-43
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Application Resources, Inc. (the "Company") provides computer programmers
for mainframe, midrange and personal computer applications to its clients
located primarily in Northern California. The Company, previously named The
Application Group Consulting Services, Inc., was incorporated on August 9,
1993, in the state of California, as a division of The Application Group, Inc.
("AGI"). As of October 1, 1994, AGI spun off the assets and liabilities of the
Company to its shareholders.
Two clients comprise 17% and 11%, respectively, of total revenue for 1995.
No other clients represent more than 10% of the Company's total revenue for
1995.
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition and Direct Costs
Revenues arising from services are recognized when the services are
performed. Direct costs include compensation to consultants and other
personnel costs directly associated with consulting services provided and are
recorded as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. The carrying amount
reported in the balance sheet for cash equivalents approximates fair value.
Property, Equipment and Leasehold Improvements
Computer equipment, software, furniture and fixtures, and leasehold
improvements are recorded at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, which range from three
to seven years.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
liability method specified by SFAS No. 109, deferred taxes are determined
based on the difference between the financial statement and tax bases of
assets and liabilities as measured by the effective tax rates.
2. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the year ended
December 31, 1995. This action was taken as a result of management's discovery
during January 1997, that a number of individually
F-44
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
insignificant expenses totalling $170,576 charged against earnings during 1995
were actually related to fiscal 1994. In addition, management determined that
a charge for deferred compensation expense of $112,000 which was recorded
during 1995 actually related to stock options of former AGI employees which
were exercised concurrently with the spin-off of the Company from AGI on
October 1, 1994.
The 1995 financial statements have been restated to reverse the improperly
recorded expenses, and in the opinion of management, all material adjustments
necessary to correct the 1995 financial statements have been recorded. The
effect of the above restatement (net of related income taxes) on the
previously issued 1995 Financial Statements was to increase previously
recorded net income by $234,022 and reduce opening retained earnings and
common stock by $117,564 and $166,458, respectively.
3. BANK LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank which
allows the Company to borrow up to $1,750,000 at the bank's prime rate plus
.50% (9% at December 31, 1995). There were no amounts outstanding under this
line of credit at December 31, 1995. The agreement includes covenants
requiring the Company to maintain certain levels of working capital, tangible
net worth and net income. The line of credit expires July 1, 1996.
4. INCOME TAXES
The following is a summary of the components of the income tax provision:
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Current:
Federal.......................................... $ 249,946 $ 820,755
State............................................ 68,957 237,328
--------- ----------
318,903 1,058,083
--------- ----------
Deferred:
Federal.......................................... (217,116) (154,815)
State............................................ (59,034) (31,807)
--------- ----------
(276,150) (186,622)
--------- ----------
$ 42,753 $ 871,461
========= ==========
</TABLE>
F-45
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences and operating loss or
credit carryforwards is recognized if it is more likely than not that a benefit
will be realized. Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance. Deferred tax assets and
liabilities are comprised of the following:
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses................................. $ 120,332 $ 101,366
Deferred tax liabilities:
Conversion from cash to accrual basis............ (644,899) (434,186)
Fixed assets..................................... (14,368) (19,493)
--------- ---------
Total gross deferred tax liabilities............... (659,267) (453,679)
--------- ---------
Net deferred tax liability......................... $(538,935) $(352,313)
========= =========
</TABLE>
The provision for income tax differs from the amount that would result from
applying the federal statutory rate to income before taxes, as follows:
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Expected tax provision............................. 34.0% 34.0%
State income tax, net of federal benefit........... 9.5 6.3
Non-deductible expenses............................ 18.6 0.3
---- ----
Actual tax provision............................... 62.1% 40.6%
==== ====
</TABLE>
In the course of filing its annual tax return, the Company has taken a
position regarding the timing of income recognition for tax purposes, which,
based on the related facts and circumstances, may be contrary to applicable
Treasury regulations. Management and its legal advisors are of the opinion that
the Company's position is supported by the related facts and circumstances.
However, should this position be disallowed by the Internal Revenue Service,
the Company could be subject to fines of up to $150,000.
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, which
has a liquidation preference of $.79 per share. Each share of preferred stock
is convertible into the number of shares of common stock that results from
dividing the conversion price, in effect at the time of conversion, into $.79
for each share of preferred stock being converted. The conversion price of the
preferred stock is initially $.79 per share and will, in subsequent years, be
subject to adjustments for stock splits, dividends, distributions and
combinations. At December 31, 1995, shares of preferred stock are convertible
into shares of common stock at a 1-to-1 ratio based on the conversion price of
$.79 per share.
Preferred stockholders have voting rights equivalent to one vote for each
full share of common stock into which their respective shares of preferred
stock are convertible on the record date for the vote.
F-46
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25. Under the terms of the stock option plan, stock options to
purchase shares of the Company's common and preferred stock are granted at a
price equal to the market price of the stock at the date of grant. Options for
common and preferred stock were granted at $.065 and $.65 per share,
respectively during the 3 months ended December 31, 1994 and the year ended
December 31, 1995. Stock options may be exercised within ten years from the
date of grant and generally vest over a period of five years. All stock
options granted to the Company's management employees fully vest in the event
of a change of control as defined by the Board of Directors. The shares that
may be granted or sold under this plan is limited to 1,527,000 shares of
common stock and 27,000 shares of preferred stock.
Changes in stock options under the plan were as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED
STOCK STOCK TOTAL
-------- --------- --------
<S> <C> <C> <C>
Options outstanding at Inception--October
1, 1994................................... -- -- --
Granted.................................. 552,000 150,000 702,000
Exercised................................ -- -- --
Canceled................................. -- -- --
-------- -------- --------
Options outstanding at December 31, 1994... 552,000 150,000 702,000
Granted.................................. 360,000 -- 360,000
Exercised................................ (123,000) (123,000) (246,000)
Canceled................................. (103,000) -- (103,000)
-------- -------- --------
Options outstanding at December 31, 1995... 686,000 27,000 713,000
======== ======== ========
Options exercisable at December 31, 1995... 119,400 27,000 146,400
======== ======== ========
Options available for grant................ 841,000 -- 841,000
======== ======== ========
</TABLE>
The Company repurchased 465,000 shares of common stock and 465,000 shares of
preferred stock from its employees and former AGI employees in 1995 at $.065
and $.65 per share, respectively. In conjunction with this transaction, the
Company issued promissory notes in the amount of $260,936, recorded on the
balance sheet, due in five equal annual installments of $63,250, including
interest at 6.83%, with the first payment due in June 1996.
6. LEASE COMMITMENTS
The Company leases its office facilities and certain equipment, which are
accounted for as operating leases. At December 31, 1995, minimum commitments
under these noncancelable operating leases having initial terms in excess of
one year are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 361,814
1997.......................................................... 322,641
1998.......................................................... 256,234
1999.......................................................... 250,347
2000.......................................................... 250,347
2001 and thereafter........................................... 177,369
----------
1,618,752
Less aggregate future minimum rentals to be received under
noncancelable subleases...................................... 3,922
----------
$1,614,830
==========
</TABLE>
F-47
<PAGE>
APPLICATION RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense amounted to $106,535 for the three months ended December 31,
1994 and $369,664 for the year ended December 31, 1995. Rental expense in 1995
includes $101,605 which was paid to related parties.
7. RETIREMENT PLAN
The Company has a 401(K) retirement plan for its employees with more than
one month of service. The plan year is from January 1 to December 31, and the
discretionary employer matching contribution is established at the end of the
plan year. The Company contributions to the retirement plan for the three
months ended December 31, 1994 and the year ended December 31, 1995 were
$8,000 and $12,000, respectively.
8. CONTINGENCIES
The Company is involved in litigation arising in the normal course of
business. Management's opinion is that the ultimate outcome of this litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
9. SUBSEQUENT EVENTS
On November 19, 1996, the Company sold 55,000 units to an unrelated investor
for net proceeds of $2,607,000. Each unit consisted of 3 shares of the
Company's Preferred Stock and 2 shares of the Company's common stock, for a
total of 165,000 shares of Preferred Stock and 110,000 shares of common stock.
On November 26, 1996, the Company was acquired by The Registry, Inc. by
merger. The Registry, Inc. acquired all of the outstanding shares of the
Company in exchange for 1,431,682 shares of The Registry, Inc.'s common stock.
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Registry, Inc.
In our opinion, the accompanying statements of operations and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of the Consulting Services Division of The Application Group, Inc. (the
"Company") for the nine month period ended September 30, 1994, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 24, 1997
F-49
<PAGE>
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Revenue................................................................ $16,396
Cost of revenue........................................................ 12,846
-------
3,550
Selling, general and administrative expenses........................... 4,320
-------
Loss from operations................................................... 770
Interest expense....................................................... 44
-------
Net loss............................................................... $ 814
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
INCREASE (DECREASE) IN CASH
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................. $ (814)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation........................................................ 58
Provision for losses on accounts receivable......................... 8
Increase in accounts receivable..................................... (1,026)
Decrease in other current assets.................................... 365
Decrease in intercompany receivable................................. 1,064
Decrease in accounts payable........................................ (77)
Increase in accrued salaries and wages.............................. 580
Decrease in other accrued expenses.................................. (86)
-------
Net cash provided by operating activities.......................... 72
-------
Cash flows from investing activities:
Purchases of fixed assets............................................ (72)
-------
Net cash used for investing activities............................. (72)
-------
Net change in cash.................................................... 0
Cash, beginning of period............................................. 0
-------
Cash, end of period................................................... $ 0
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Consulting Services Division (the "Company") of The Application Group,
Inc. was an information technology ("IT") professional services group
providing IT consultants on a contract basis to primarily industrial,
manufacturing and financial organizations with complex IT operations. Three
offices are maintained within Northern California, which is the primary area
of business. As of October 1, 1994, The Application Group, Inc. spun off the
assets and liabilities of the Company to its stockholders, in a new entity
named Application Resources, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements present the results of operations and cash flows
of the Consulting Services Division of The Application Group, Inc. ("AGI"),
which were previously included in AGI's financial statements. Securities and
Exchange Commission Staff Accounting Bulletin Number 55 requires that
historical financial statements of a subsidiary, division, or lesser business
component of another entity include certain expenses incurred by the parent on
its behalf. Accordingly, included in the accompanying financial statements are
costs allocated to the Company by The Application Group, Inc. (see Note 6).
Prior to September 30, 1994, the Company was conducted as a division of The
Application Group, Inc. and not as a distinct legal entity. Accordingly, there
are no equity and capital accounts at the Company's level. Instead, a parent
company investment was maintained by AGI to account for the net assets of the
Company. No interest has been charged on the parent company investment.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue is recognized as services are performed. Ongoing credit evaluations
of customers' financial condition are performed and collateral is not
required. Concentration of credit risk with respect to accounts receivable is
limited due to the number and diversity of customers comprising the Company's
customer base. At September 30, 1994, one customer comprised approximately 10%
of the Company's accounts receivable. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
Fixed Assets
Fixed assets are stated at cost. Additions, renewals and betterments of
fixed assets are capitalized. Repair and maintenance expenditures for minor
items are generally expensed as incurred. Depreciation of fixed assets is
provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Computer equipment...... 5 years
Software................ 3 years
Furniture and fixtures.. 7 years
Leasehold improvements.. Lesser of estimated useful life or remaining lease term
</TABLE>
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement and tax
bases of assets and
F-52
<PAGE>
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities, utilizing currently enacted tax rates. The effect of any future
change in tax rates is recognized in the period in which the change occurs.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during
the nine month period ended September 30, 1994. Actual results could differ
from those estimates.
3. INCOME TAXES
Income taxes computed using the federal statutory income tax rate differ
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1994
-----------------------
<S> <C>
Statutory U.S. federal tax rate...................... (34.0)%
Net operating loss without tax benefit............... 34.0%
-----
Effective tax rate................................... -- %
=====
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Under SFAS 109, the
benefit associated with future deductible temporary differences and operating
loss or credit carryforwards is recognized if it is more likely than not that
a benefit will be realized. Deferred tax expense (benefit) represents the
change in the net deferred tax asset or liability balance. During the nine
month period ended September 30, 1994, the Company incurred a net loss for
which it will not be able to receive a benefit as a separate entity subsequent
to the spin off of the Company from AGI.
4. RETIREMENT PLAN
AGI maintains a 401(k) retirement plan for its employees who have completed
more than one month of service. Under the terms of the plan, employees may
contribute a percentage of their salary, which is then invested in one or more
of several mutual funds selected by the employee. The plan year is from
January 1 to December 31, and the discretionary employer matching contribution
is established at the end of the plan year. Employer contributions to the plan
during the nine month period ended September 30, 1994 for employees of the
Company were approximately $20,000.
5. WRITE-OFF OF LEGAL FEES
In December 1989, the Company entered into a license agreement providing for
the use of certain software. In May 1991, the licensor notified the Company of
the termination of the license agreement, alleging breach of contract,
misappropriation of trade secrets and unfair competition. The Company invoked
the arbitration provisions of the license agreement and asserted claims
against the licensor.
On March 29, 1994, the Company and the licensor reached a settlement
agreement. Under the terms of the agreement, all disputes were resolved.
Except for legal fees discussed below, there is no material financial impact
from the settlement on the Company.
F-53
<PAGE>
CONSULTING SERVICES DIVISION OF THE APPLICATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has incurred legal fees in connection with the arbitration that
were submitted to its insurance carrier for reimbursement. Claims receivable
from the insurance carrier totaled $372,389 at December 31, 1993. In October
1993, the Company's insurance carrier filed an action for declaratory relief
against the Company for approximately $452,000 in legal fees paid to the
Company by the insurance carrier. In July 1994, the Company filed a
counterclaim against its insurance carrier alleging, among other things,
breach of contract.
Due to the insurance carrier's assertions that it would not pay the amounts
due to the Company, the claim receivable was written off during the nine month
period ended September 30, 1994, and charged to the Company's selling, general
and administrative expenses. The Company and its insurance carrier
subsequently reached a settlement in August 1996, whereby the insurance
carrier paid $1,625,000 to the Company.
6. ALLOCATION OF SELLING, GENERAL AND ADMINISTRATIVE AND INTEREST EXPENSES
Certain selling, general and administrative costs incurred by AGI are
directly attributable to the Company. These costs include payroll and related
costs of sales and recruiting personnel who are specifically assigned to the
Company's business and customers. Such costs, totaling $2,362,000 during the
nine month period ended September 30, 1994, have been charged to the Company
and are included in the accompanying statement of operations.
The Application Group, Inc. allocates all of its remaining general and
administrative expenses to its various divisions. These costs include AGI's
executive management and corporate overhead, benefit administration, cash
management services, and other support and executive functions.
Such costs are allocated based on a percentage of AGI's total costs for the
services provided, based on factors such as total direct expenses, square
footage or the relative level of administrative requirements for AGI's various
divisions. Management believes that such allocations, including their
methodologies, are reasonable. The allocation of these selling, general and
administrative expenses to the Company totaled $1,586,000 for the nine month
period ended September 30, 1994.
All of the allocations and charges described above are included in selling,
general and administrative expenses in the accompanying financial statements.
Interest expense incurred by AGI is allocated to its various divisions based
upon the relative level of accounts receivable, as this is the primary use of
AGI's line of credit. Management believes that such allocation is reasonable.
The allocation of interest expense to the Company totaled $44,000 for the nine
month period ended September 30, 1994.
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Shamrock Computer Resources,
Ltd.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Shamrock Computer
Resources, Ltd. (the "Company") at September 30, 1996, and the results of its
operations and its cash flows for the nine month period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 20, 1996
F-55
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 661
Accounts receivable, net of allowance for doubtful accounts of $125.. 5,596
Other current assets................................................. 90
------
Total current assets............................................. 6,347
Fixed assets, net...................................................... 952
Other assets........................................................... 14
------
Total assets..................................................... $7,313
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit....................................................... $1,200
Current portion of long-term debt.................................... 134
Accounts payable..................................................... 701
Accrued salaries and wages........................................... 642
Other accrued expenses............................................... 956
------
Total current liabilities........................................ 3,633
------
Long-term debt......................................................... 244
------
Commitments (Note 7)
Stockholders' equity
Common stock, no par value; authorized 100,000 shares; issued and
outstanding 6,720 shares............................................ 2
Additional paid-in capital........................................... 465
Deferred stock compensation (Note 8)................................. (172)
Retained earnings.................................................... 3,141
------
Total stockholders' equity....................................... 3,436
------
Total liabilities and stockholders' equity..................... $7,313
======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-56
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue............................................ $28,928 $17,585
Cost of revenue.................................... 19,706 12,091
------- -------
9,222 5,494
Selling, general and administrative expenses....... 7,062 4,056
------- -------
Income from operations............................. 2,160 1,438
Interest expense................................... (37) (5)
Interest and other income.......................... 8 1
------- -------
Net income......................................... $ 2,131 $ 1,434
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL DEFERRED
COMMON PAID-IN STOCK RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995....................... $ 2 $465 $(195) $ 2,593 $ 2,865
Distributions............... -- -- -- (1,583) (1,583)
Net income.................. -- -- -- 2,131 2,131
Amortization of deferred
stock compensation......... -- -- 23 -- 23
--- ---- ----- ------- -------
Balance at September 30,
1996....................... $ 2 $465 $(172) $ 3,141 $ 3,436
=== ==== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPT. 30, 1996 SEPT. 30, 1995
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $2,131 $1,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 195 115
Amortization of deferred stock compensation.... 23 23
Provision for losses on accounts receivable.... 100 18
Increase in accounts receivable................ (1,692) (1,573)
Increase in other current assets............... (16) (8)
Increase in other assets....................... (5) (7)
Increase in accounts payable................... 264 488
Increase in accrued expenses................... 125 424
Decrease in accrued salaries and wages......... (61) (81)
------ ------
Net cash provided by operating activities..... 1,064 833
------ ------
Cash flows from investing activities:
Purchases of fixed assets....................... (694) (379)
------ ------
Cash flows from financing activities:
Net borrowings on line of credit................ 1,200 --
Proceeds from issuance of long-term debt........ 378 --
Repayment of long-term debt..................... (29) (28)
Distributions to stockholders................... (1,583) (672)
------ ------
Net cash used for financing activities........ (34) (700)
------ ------
Net increase (decrease) in cash and cash
equivalents..................................... 336 (246)
Cash and cash equivalents, beginning of period... 325 478
------ ------
Cash and cash equivalents, end of period......... $ 661 $ 232
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 37 $ 5
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Shamrock Computer Resources, Ltd. (the "Company") is an information
technology ("IT") professional services firm providing IT consultants on a
contract basis to organizations with complex IT operations, particularly in
the manufacturing, transportation and financial services industries. Offices
are maintained in five states in the midwestern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Temporary cash investments in money market accounts are considered to be
cash equivalents. Such investments are carried at cost plus accrued interest,
which approximates market value.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue is recognized as services are performed. Accounts receivable in the
accompanying balance sheet include amounts which were earned prior to
September 30,1996 but not billed to customers until shortly thereafter due to
the timing of invoicing. Ongoing credit evaluations of customers' financial
condition are performed and collateral is not required. Concentration of
credit risk with respect to accounts receivable is limited due to the number
and diversity of customers comprising the Company's customer base. At
September 30, 1996, two customers comprised approximately 35% (24% and 11%) of
the Company's accounts receivable and 34% (23% and 11%) of the Company's sales
for the nine month period then ended. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
Fixed Assets
Fixed assets are stated at cost. Additions, renewals and betterments of
fixed assets are capitalized. Repair and maintenance expenditures for minor
items are generally expensed as incurred. Depreciation of fixed assets is
provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Computer equipment.............................................. 5 years
Furniture and equipment......................................... 5 to 7 years
</TABLE>
Advertising Costs
Advertising costs are recorded as expense when incurred. Total advertising
expense for the nine month period ended September 30, 1996 was $89,000.
Income Taxes
For federal and state income tax purposes, the Company is treated as an S
corporation and is not subject to corporate income taxes. Accordingly, no
recognition has been given to income taxes for financial reporting purposes.
Taxes on the Company's income are borne by the individual stockholders on
their individual tax returns through an allocation of taxable income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-60
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at September 30, 1996, and the reported amounts of revenues and
expenses during the nine month period then ended. Actual results could differ
from those estimates.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
accounts receivable, line of credit, accounts payable, accrued salaries and
wages, other accrued expenses and long-term debt, approximate their fair
values at September 30, 1996.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results of operations and cash flows of the Company for
the nine month period ended September 30, 1995 as presented in the
accompanying financial statements. Results of operations for the nine month
period are not necessarily indicative of the results of operations for the
full fiscal year.
3. BALANCE SHEET DETAIL (IN THOUSANDS)
<TABLE>
<S> <C>
Fixed assets:
Computer equipment................................................. $1,000
Furniture and equipment............................................ 409
------
Total fixed assets............................................. 1,409
Less accumulated depreciation...................................... 457
------
$ 952
======
Other accrued expenses:
Accrued employee benefits.......................................... $ 771
Accrued commissions and bonuses.................................... 112
Other accrued expenses............................................. 73
------
$ 956
======
</TABLE>
4. RELATED PARTY TRANSACTIONS
Notes receivable from stockholders of $3,000 at September 30, 1996, which is
included in other assets in the accompanying balance sheet, represent a non-
interest bearing promissory note from the Company's vice president, which was
repaid in December 1996.
5. CREDIT FACILITY
At September 30, 1996, the Company had a credit arrangement with a bank
consisting of a committed line of credit totaling $2,500,000, of which
$1,300,000 was unused, and a discretionary equipment line of $500,000. The
line of credit carries interest at the bank's prime rate (8.25% at September
30, 1996) and is collateralized by substantially all of the assets of the
Company. The equipment line carries an interest rate of the bank's prime rate
plus .50% (8.75% at September 30, 1996). The sum of the outstanding balances
on the line of credit and the equipment line cannot exceed a borrowing base of
80% of eligible accounts receivable, as defined, up to a maximum total
borrowing of $3,000,000. At September 30, 1996, $378,000 of the equipment line
was used. Monthly principal payments of $11,115 plus interest are due through
July 15, 1999 on this line. The equipment line is secured by a first priority
interest in the related equipment purchased with the loan proceeds.
F-61
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Both credit arrangements are guaranteed by the Company's stockholders and
require a commitment fee of .25% per annum on the unused portion.
Additionally, the credit arrangements contain certain restrictions, including
limitations on new indebtedness, and require the maintenance of certain
financial covenants.
On November 27, 1996, in connection with the merger with The Registry, Inc.
(see Note 9), the Company terminated its credit arrangements.
6. EMPLOYEE SAVINGS PLAN
The Company provides an employee retirement savings plan under Section
401(k) of the Internal Revenue Code (the "Plan") which covers substantially
all employees. Under the terms of the Plan, employees may contribute a
percentage of their salary, up to a maximum of 15%, which is then invested in
one or more of several mutual funds selected by the employee. The Company may
make contributions to the Plan at their discretion. The Company matched 10% of
the first 5% of the employee contributions for the nine month period ended
September 30, 1996 (a total of $53,000).
7. COMMITMENTS
The Company occupies premises under various noncancelable operating leases,
which include terms requiring the Company to pay a pro-rata portion of
increased operating expenses and real estate taxes. The Company also leases
certain types of office equipment. The leases expire on various dates through
2000, and certain of the leases contain options for renewal or purchase of the
related equipment.
At September 30, 1996, future minimum rental payments under noncancelable
lease arrangements are as follows (in thousands):
<TABLE>
<S> <C>
Three months ended December 31, 1996................................... $ 69
1997................................................................... 287
1998................................................................... 238
1999................................................................... 157
2000................................................................... 8
----
Total minimum lease payments......................................... $759
====
</TABLE>
Rent expense was $279,000 for the nine month period ended September 30,
1996.
8. STOCK OPTION
On April 1, 1993, the Company granted a non-qualifying stock option to a key
employee to purchase 352 shares of common stock at an exercise price of $1 per
share. The option has a nine-year vesting period, subject to acceleration for
certain events (such as the sale, merger or liquidation of the Company, or an
initial public offering), and expires on April 1, 2002. Compensation expense
of $281,000, which represents the excess of the estimated fair market value of
the stock on the date of grant over the exercise price, is being recognized
over the nine-year vesting period. The unrecognized portion of the
compensation expense is recorded as a reduction of stockholders' equity in the
accompanying balance sheet. Effective November 27, 1996, the stock option was
exercised in accordance with the acceleration clause of the option agreement
in connection with the merger of the Company as described in Note 9, and the
remaining unamortized balance of deferred stock compensation of $164,000 was
recorded as expense at that time.
F-62
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company adopted Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-based Compensation," effective January 1,
1996. The Company had no awards of stock-based compensation during the nine
month period ended September 30, 1996 or the year ended December 31, 1995.
Accordingly, the adoption of FAS 123 had no effect on the Company's financial
position, results of operations, cash flows or footnotes.
9. SUBSEQUENT EVENT
On November 27, 1996, the Company was acquired by The Registry, Inc. by
merger. The Registry, Inc. acquired all of the outstanding shares of the
Company in exchange for 919,092 shares of The Registry, Inc.'s common stock.
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Shamrock Computer Resources, Ltd.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Shamrock Computer
Resources, Ltd. as of December 31, 1995 and 1994, and the related statements
of income, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shamrock Computer Resources,
Ltd. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Graves, McKenna, Lundeen & Almquist, P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
December 13, 1996
F-64
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 325,509 $ 478,362
Accounts receivable, less allowance for doubtful ac-
counts of $25,000 and $0, respectively.............. 2,968,900 1,791,189
Unbilled work on contracts in progress............... 1,034,433 312,225
Other current assets................................. 74,475 36,961
---------- ----------
Total current assets............................. 4,403,317 2,618,737
Fixed assets, net...................................... 452,647 199,091
Other assets........................................... 9,088 4,153
---------- ----------
$4,865,052 $2,821,981
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 28,694 $ 34,334
Accounts payable..................................... 436,501 581,780
Accrued salaries and wages........................... 703,143 503,869
Other accrued expenses............................... 832,400 337,588
---------- ----------
Total current liabilities........................ 2,000,738 1,457,571
---------- ----------
Long-term debt......................................... -- 28,420
---------- ----------
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, no par value; authorized, 100,000
shares; issued and outstanding, 6,720 shares........ 2,238 2,238
Additional paid-in capital........................... 464,988 464,988
Deferred compensation--stock option.................. (195,065) (226,277)
Retained earnings.................................... 2,592,153 1,095,041
---------- ----------
2,864,314 1,335,990
---------- ----------
$4,865,052 $2,821,981
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenue............................................... $25,428,221 $15,588,219
Cost of revenue....................................... 17,412,312 11,845,522
----------- -----------
8,015,909 3,742,697
Selling, general and administrative expenses.......... 5,817,429 2,736,178
----------- -----------
Income from operations................................ 2,198,480 1,006,519
Interest expense...................................... (6,286) (1,812)
Interest and other income............................. 918 2,220
----------- -----------
Net income............................................ $ 2,193,112 $ 1,006,927
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFERRED
COMMON STOCK ADDITIONAL COMPENSATION--
------------- PAID-IN STOCK RETAINED
SHARES VALUE CAPITAL OPTIONS EARNINGS TOTAL
------ ------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1993............... 6,720 $2,238 $464,988 $(257,489) $ 618,539 $ 828,276
Recognition of portion
of deferred
compensation--stock
options applicable to
the year ended December
31, 1994............... -- -- -- 31,212 -- 31,212
Net income for the year
ended December 31,
1994................... -- -- -- -- 1,006,927 1,006,927
Distributions to
stockholders for the
year ended December 31,
1994................... -- -- -- -- (530,425) (530,425)
----- ------ -------- --------- ---------- ----------
Balance as of December
31, 1994............... 6,720 2,238 464,988 (226,277) 1,095,041 1,335,990
Recognition of portion
of deferred
compensation--stock
options applicable to
the year ended December
31, 1995............... -- -- -- 31,212 -- 31,212
Net income for the year
ended December 31,
1995................... -- -- -- -- 2,193,112 2,193,112
Distribution to
stockholders for the
year ended December 31,
1995................... -- -- -- -- (696,000) (696,000)
----- ------ -------- --------- ---------- ----------
Balance as of December
31, 1995............... 6,720 $2,238 $464,988 $(195,065) $2,592,153 $2,864,314
===== ====== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 2,193,112 $1,006,927
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation........................................ 153,196 50,547
Amortization of deferred compensation--stock op-
tion............................................... 31,212 31,212
Increase in accounts receivable..................... (1,177,711) (940,749)
(Increase) decrease in unbilled work on contracts in
progress........................................... (722,208) 46,895
Increase in other current assets.................... (37,514) (13,890)
Increase in other assets............................ (4,935) (2,985)
(Decrease) increase in accounts payable............. (145,279) 262,117
Increase in accrued salaries and wages.............. 199,274 427,148
Increase in other accrued expenses.................. 494,812 206,458
----------- ----------
Net cash provided by operating activities.......... 983,959 1,073,680
----------- ----------
Cash flows from investing activities--Expenditures for
fixed assets......................................... (406,752) (166,047)
----------- ----------
Cash flows from financing activities:
Distributions to stockholders........................ (696,000) (530,425)
Principal payments on long-term debt................. (34,060) (8,246)
----------- ----------
Net cash used in financing activities.............. (730,060) (538,671)
----------- ----------
Net (decrease) increase in cash and cash equivalents.. (152,853) 368,962
Cash and cash equivalents, beginning of year.......... 478,362 109,400
----------- ----------
Cash and cash equivalents, end of year................ $ 325,509 $ 478,362
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid for interest............................... $ 6,286 $ 1,460
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. NATURE OF BUSINESS
The Company provides information systems personnel on a credit basis to a
diverse client base primarily in Illinois, Iowa, Minnesota, Missouri and
Nebraska on terms it established with individual clients.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Temporary cash investments in money market accounts are considered to be
cash equivalents.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue is recognized as services are performed. Ongoing credit evaluations
of clients' financial condition are performed and collateral is not required.
As of December 31, 1995 and 1994, one client comprised approximately 25% of
the Company's accounts receivable. The Company had sales to two clients
totaling approximately 34% (23% and 11%) and 37% (22% and 15%) during the
years ended December 31, 1995 and 1994, respectively.
Fixed Assets
Furniture and equipment are stated at cost. Additions, renewals and
betterments of fixed assets are capitalized. Repair and maintenance
expenditures for minor items are generally expensed as incurred. Depreciation
of fixed assets is provided using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Computer equipment...... 3 years
Furniture and
equipment.............. 5 years
Leasehold improvements.. Lesser of estimated useful life or remaining lease term
</TABLE>
Advertising Costs
Advertising costs are recorded as expenses when incurred. There were no
advertising costs recorded as assets as of December 31, 1995 and 1994.
Advertising expenses totaled $74,774 and $16,177 for the years ended December
31, 1995 and 1994, respectively.
Income Taxes
The Company, with the consent of its stockholders, has elected to be taxes
as an S corporation under the applicable provisions of the Internal Revenue
Code, which provides that, in lieu of corporation income taxes, taxable income
and/or losses and credits are passed through to the stockholders for inclusion
in their individual income tax returns.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
accounts receivable, unbilled work on contracts in progress, accounts payable,
accrued salaries and wages, other accrued expenses and long-term debt,
approximate their fair values as of December 31, 1995 and 1994.
F-69
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current period presentation.
3. BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
<S> <C> <C>
Fixed Assets:
Computer equipment...................................... $525,672 $235,515
Furniture and equipment................................. 188,949 72,353
-------- --------
714,621 307,868
Less accumulated depreciation........................... 261,974 108,777
-------- --------
$452,647 $199,091
======== ========
Other Accrued Expenses:
Accrued employee benefits............................... $441,034 $225,598
Accrued and withheld payroll taxes...................... 71,133 35,207
Accrued commissions and bonuses......................... 247,730 63,494
Other accrued expenses.................................. 72,503 13,289
-------- --------
$832,400 $337,588
======== ========
</TABLE>
4. NOTES PAYABLE TO BANK
On September 14, 1994, the Company entered into two line-of-credit
agreements with its bank. The first line allows borrowings based on the
percentage of qualifying receivables, not to exceed $600,000. The line bears
interest at a variable rate of .75% over the bank's base rate (8.5% and 9.0%
as of December 31, 1995 and 1994, respectively). There were no draws against
the line as of December 31, 1995 and 1994.
The second line allows borrowings based on a percentage of the purchase
price of the asset being acquired, not to exceed $200,000. The line bears
interest at a variable rate of 1% over the bank's base rate as referred to in
the preceding paragraph. Draws against the second line totaled $62,754 as of
December 31, 1994. No additional draws were made in 1995.
The above mentioned lines are secured by substantially all the assets of the
Company and are subject to various debt compliance items and are also
guaranteed by the six stockholders of the Company.
Subsequent to December 31, 1995, the above lines of credit were amended. The
first line of credit was increased to $1.2 million and the second line of
credit was discontinued. The other terms and conditions of the first line of
credit remained in effect. The amended line of credit is scheduled to expire
on July 31, 1996.
F-70
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. LONG-TERM DEBT
Long-term debt consists of the following as of December 31,
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Note payable to bank under the second line-of-credit
agreement referred to above; due in monthly payments of
$3,235, including interest, through August 1996........... $28,694 $62,754
Less portion due within one year........................... 28,694 34,334
------- -------
$ -- $28,420
======= =======
</TABLE>
6. 401(K) PLAN
The Company maintains a 401(k) pension plan and trust agreement covering all
full-time employees meeting certain age and length-of-service requirements.
The Company may, at its discretion, contribute to the plan in the form of
nonelective contributions, elective deferrals and matching contributions, the
total of which cannot exceed 15% of participating payroll. The Company agreed
to match 10% of the first 5% of employees' contributions for the years ended
December 31, 1995 and 1994. Costs and expenses include contributions to the
plan totaling $19,041 and $9,667, for the years ended December 31, 1995 and
1994, respectively.
7. LEASE COMMITMENTS
The Company leases office space under non-cancelable operating leases.
Certain leases require additional payments for real estate taxes and operating
expenses. Future minimum rental payments under the leases having an initial or
remaining term of more than one year are payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
------------
<S> <C>
1996.............................................................. $151,799
1997.............................................................. 83,988
1998.............................................................. 69,900
1999.............................................................. 70,656
2000.............................................................. 6,000
--------
$382,343
========
</TABLE>
Rent expense, primarily for office facilities, was $188,051 and $83,229 for
the years ended December 31, 1995 and 1994, respectively.
F-71
<PAGE>
SHAMROCK COMPUTER RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. STOCK OPTION
On April 1, 1993, the Company granted a non-qualifying, compensatory stock
option to a key employee to purchase up to 352 shares of common stock at an
exercise price of $1 per share. The option had a nine-year vesting period
(subject to acceleration for certain events such as the sale, merger or
liquidation of the Company, or an initial offering), which was originally
scheduled to expire April 1, 2002. Compensation expense of $280,898, which
represented the excess of the estimated fair market value of the stock option
over the exercise price, was recorded as deferred compensation--stock option,
a component of stockholders' equity, and was being amortized over the nine-
year vesting period. The stock option was exercised in accordance with the
acceleration clause of the option agreement in connection with the merger of
the Company as described in Note 9. The remaining balance of the deferred
compensation of $164,000 was recorded as an expense at that time.
9. SUBSEQUENT EVENT
On November 27, 1996, the Company, by merger, was acquired by The Registry,
Inc. The Registry, Inc. acquired all of the outstanding shares of the Company
in exchange for 919,092 shares of the Registry, Inc.'s common stock.
F-72
<PAGE>
(ART)
Artwork - inside back cover
- title: "The Registry, Inc."
- sub-title: "2,800 Information Technology Consultants"
Map of the United States showing locations of the Company's offices, divided
into the following regions: Midwest; West; Southwest; Northeast; and Southeast.
Offices in each region are listed as follows: Midwest (Cleveland, Columbus,
Chicago, Rosemont, Rolling Meadows, Minneapolis, St. Louis, Omaha and Moline);
West (Seattle, Santa Clara, Walnut Creek, Los Altos and San Francisco);
Southwest (Dallas, Denver, Houston and Austin); Northeast; (Stratham, Boston,
Newton, Rye Brook, Manhattan and McLean); and Southeast (Richmond, Greensboro,
Durham, Charlotte, Atlanta, Ft. Lauderdale, Columbia and Orlando).
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 11
Dividend Policy.......................................................... 11
Capitalization........................................................... 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 24
Management............................................................... 35
Certain Transactions..................................................... 40
Principal and Selling Stockholders....................................... 42
Description of Capital Stock............................................. 44
Underwriting............................................................. 48
Validity of Common Stock................................................. 49
Experts.................................................................. 49
Available Information.................................................... 49
Additional Information................................................... 50
Index to Financial Statements............................................ F-1
</TABLE>
---------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
THE REGISTRY, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of the Common Stock being registered hereby. All
the amounts shown are estimated, except the SEC registration fee, the NASD
filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $47,765
NASD filing fee..................................................... 16,263
Nasdaq listing fee.................................................. 17,500
Blue Sky fee and expenses........................................... 10,000
Printing and engraving expenses..................................... 100,000
Legal fees and expenses............................................. 125,000
Accounting fees and expenses........................................ 175,000
Transfer Agent and Registrar fees................................... 7,100
Miscellaneous expenses.............................................. 51,372
-------
Total............................................................. 550,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Massachusetts General Laws, Chapter 156B, Section 67, empowers a
Massachusetts corporation to indemnify any person in connection with any
action, suit or proceeding brought or threatened by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation, unless such person shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that such action was in the best interests of the Company.
The Company's Articles of Organization, as amended and restated, contains
provisions that require the Company to indemnify its directors and officers to
the fullest extent permitted by Massachusetts law.
Reference is made to the Underwriting Agreement (filed as Exhibit 1.1
hereto) which provides for indemnification arrangements by and among the
Company, its directors or officers, the Underwriters and the Selling
Stockholders in the offering of the Common Stock registered hereby, and each
person, if any, who controls the Company, the Selling Stockholders or the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1, 1993, the Company has issued the following securities that
were not registered under the Securities Act:
In connection with the Reorganization effective on January 1, 1996, the
Company issued 5,333,333 shares of Common Stock to G. Drew Conway in
exchange for his 200,000 shares of common stock, $0.01 par value, of
America's Registry, Inc.
In connection with the acquisition of all of the capital stock of
Application Resources, Inc. on November 26, 1996, the Company issued
1,431,682 shares of Common Stock, no par value, to the former stockholders
of Application Resources, Inc.
In connection with the acquisition of all of the capital stock of
Shamrock Computer Resources, Ltd. on November 27, 1996, the Company issued
919,092 shares of Common Stock, no par value, to the former stockholders of
Shamrock Computer Resources, Ltd.
II-1
<PAGE>
In connection with the acquisition of all of the capital stock of AFC
Holdings (Guernsey) Limited on December 24, 1996, the Company issued 2,736
shares of Common Stock, no par value, to certain employees of James Duncan
& Associates, a United Kingdom Corporation.
No underwriters were engaged in connection with the foregoing sale of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act, except in the
case of the sale of securities to certain employees of James Duncan &
Associates in connection with the acquisition of AFC Holdings (Guernsey)
Limited, which sale was made in reliance upon the exemption from
registration contained in Regulation S under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Registrant, the Selling
Stockholders and the Underwriters.
2.1/1/ Stock Purchase Agreement between the Registrant and Axiom Consulting
Group, Inc., dated November 30, 1994.
3.1* Restated Articles of Organization of Registrant, as filed in
Massachusetts on January 13, 1997.
3.2/1/ By-Laws of Registrant, as amended and restated on May 13, 1996.
4.1/1/ Articles 3, 4, 5, and 6 of the Articles of Organization of Registrant
(included in Exhibit 3.2).
4.2/1/ Specimen Stock Certificate.
5.1 Opinion of Ropes & Gray, as to the validity of the shares being
registered.
10.1/1/ Leases dated September 19, 1995 between the 189 Wells Avenue Realty
Trust and the Company for premises located at the 189 Wells Avenue,
Newton, Massachusetts.
10.2/1/ Registrant's 1996 Stock Plan and related form of stock option
agreement.
10.3/1/ Registrant's 1996 Employee Stock Purchase Plan and related form of
subscription agreement.
10.4/1/ Registrant's 1996 Eligible Directors Stock Plan and related form of
stock option agreement.
10.5/1/ Accounts Receivable Management and Security Agreement dated as of
February 29, 1996 by and among BNY Financial Corporation and each of
The Registry, Inc., America's Registry, Inc. and The Registry, Inc.
Network Systems Consulting Practice.
10.6/1/ Employment Agreement dated May 13, 1996 between Registrant and G.
Drew Conway.
10.7/1/ Amended and Restated Promissory Note dated May 30, 1996, payable to
Registrant by G. Drew Conway.
10.8/1/ Amended and Restated Promissory Note dated May 30, 1996, payable to
Registrant by the 189 Wells Avenue Realty Trust.
10.9/2/ Agreement and Plan of Merger among the Registrant, Application
Resources, Inc. and ARI Acquisition Corp. dated as of October 30,
1996.
10.10/2/ Agreement and Plan of Merger among the Registrant, Shamrock Computer
Resources, Ltd. and SCR Acquisition Corp. dated as of November 26,
1996.
21.1* Subsidiaries of Registrant.
23.1 Consent of Price Waterhouse LLP, independent accountants.
23.2 Consent of Ernst & Young LLP, independent accountants.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.3 Consent of Graves, McKenna, Lundeen & Almquist, P.L.L.P, independent accountants.
23.4 Consent of Ropes & Gray (included in Exhibit 5.1).
23.5* Consent of Dataquest Incorporated.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
/1/ Filed as an exhibit to the Company's registration statement on Form S-1
filed with the Commission on April 11, 1996 (File No. 333-3366) and
incorporated by reference herein.
/2/ Filed as an exhibit to the Registrant's Current Report on Form 8-K filed
with the Commission on December 11, 1996 and incorporated herein by
reference.
b. Financial Statement Schedules.
Schedule II, "Valuation and Qualifying Accounts."
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14 or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF
MASSACHUSETTS ON THE 30TH DAY OF JANUARY, 1997.
The Registry, Inc.
By: /s/ G. Drew Conway*
----------------------------------
G. DREW CONWAY PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED BELOW ON THE 30TH DAY OF JANUARY, 1997.
SIGNATURE TITLE
President, Chief Executive Officer and
/s/ G. Drew Conway* Director (Principal Executive Officer)
- -------------------------------------
(G. DREW CONWAY)
Chief Financial Officer and Treasurer
/s/ Robert E. Foley* (Principal Financial and Accounting
- ------------------------------------- Officer)
(ROBERT E. FOLEY)
Director
/s/ Paul C. O'Brien*
- -------------------------------------
(PAUL C. O'BRIEN)
Director
/s/ Robert P. Badavas*
- -------------------------------------
(ROBERT P. BADAVAS)
/s/ Richard L. Bugley
*By:____________________________
(RICHARD L. BUGLEY)
ATTORNEY-IN-FACT
II-4
<PAGE>
SCHEDULE II
THE REGISTRY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
DEDUCTIONS-
BALANCE AT CHARGED CHARGED WRITE-OFF OF BALANCE
BEGINNING TO COSTS AND TO OTHER UNCOLLECTIBLE AT END OF
OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
---------- ------------ -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended May 31,
1994................... $ 52 $272 $ 0 $ 87 $237
Year ended June 24,
1995(1)................ 237 261 0 149 349
Year ended June 29,
1996................... 349 357 0 193 513
Six months ended
December 28, 1996
(unaudited)............ 513 451 0 77 887
</TABLE>
- --------
(1) The Company changed its fiscal year end from May 31, 1994 to the last
Saturday in June, effective with the fiscal year ended June 24, 1995.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ----------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement by and among Registrant, the
Selling Stockholders and the Underwriters.
2.1/1/ Stock Purchase Agreement between the Registrant and Axiom
Consulting Group, Inc., dated November 30, 1994.
3.1* Restated Articles of Organization of Registrant, as filed in
Massachusetts on January 13, 1997.
3.2/1/ By-Laws of Registrant, as amended and restated on May 13,
1996.
4.1/1/ Articles 3, 4, 5, and 6 of the Articles of Organization of
Registrant (included in Exhibit 3.2).
4.2/1/ Specimen Stock Certificate.
5.1 Opinion of Ropes & Gray, as to the validity of the shares
being registered.
10.1/1/ Leases dated September 19, 1995 between the 189 Wells Avenue
Realty Trust and the Company for premises located at the 189
Wells Avenue, Newton, Massachusetts.
10.2/1/ Registrant's 1996 Stock Plan and related form of stock option
agreement.
10.3/1/ Registrant's 1996 Employee Stock Purchase Plan and related
form of subscription agreement.
10.4/1/ Registrant's 1996 Eligible Directors Stock Plan and related
form of stock option agreement.
10.5/1/ Accounts Receivable Management and Security Agreement dated as
of February 29, 1996 by and among BNY Financial Corporation
and each of The Registry, Inc., America's Registry, Inc. and
The Registry, Inc. Network Systems Consulting Practice.
10.6/1/ Employment Agreement dated May 13, 1996 between Registrant and
G. Drew Conway.
10.7/1/ Amended and Restated Promissory Note dated May 30, 1996,
payable to Registrant by G. Drew Conway.
10.8/1/ Amended and Restated Promissory Note dated May 30, 1996,
payable to Registrant by the 189 Wells Avenue Realty Trust.
10.9/2/ Agreement and Plan of Merger among the Registrant, Application
Resources, Inc. and ARI Acquisition Corp. dated as of October
30, 1996.
10.10/2/ Agreement and Plan of Merger among the Registrant, Shamrock
Computer Resources, Ltd. and SCR Acquisition Corp. dated as of
November 26, 1996.
21.1* Subsidiaries of Registrant.
23.1 Consent of Price Waterhouse LLP, independent accountants.
23.2 Consent of Ernst & Young LLP, independent accountants.
23.3 Consent of Graves, McKenna, Lundeen & Almquist, P.L.L.P,
independent accountants.
23.4 Consent of Ropes & Gray (included in Exhibit 5.1).
23.5* Consent of Dataquest Incorporated.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
/1/ Filed as an exhibit to the Company's registration statement on Form S-1
filed with the Commission on April 11, 1996 (File No. 333-3366) and
incorporated by reference herein.
/2/ Filed as an exhibit to the Registrant's Current Report on Form 8-K filed
with the Commission on December 11, 1996 and incorporated herein by
reference.
<PAGE>
DRAFT 1/28/97
THE REGISTRY, INC.
3,450,000 Shares/*/
Common Stock
(no par value per share)
--------------
Underwriting Agreement
___________, 1997
Adams, Harkness & Hill, Inc.
Montgomery Securities
J.C. Bradford & Co.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Adams, Harkness & Hill, Inc.
60 State Street
Boston, Massachusetts 02109
Dear Sirs:
The Registry, Inc., a Massachusetts corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you and the several Underwriters named in Schedule I hereto (collectively,
the "Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of 1,234,166 shares (the "Company Firm Shares")
and, at the election of the Underwriters, up to 450,000 additional shares (the
"Optional Shares") of common stock of the Company, without par value per share
("Common Stock"), and, the Selling Stockholders named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 1,765,834 shares (the
"Selling Stockholder Firm Shares", and together with the Company Firm Shares,
the "Firm Shares") of Common Stock. The Firm Shares and the Optional Shares
which the Underwriters elect to purchase pursuant to Section 3 hereof are herein
collectively called the "Shares".
- -------------------------
/*/ Includes 450,000 shares subject to an option to purchase additional
shares to cover over-allotments.
<PAGE>
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-19991) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement including any pre-effective amendments thereto and any
post-effective amendments thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form;
other than a registration statement, if any, increasing the size of the
offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has been
initiated or, to the Company's knowledge, threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement and
incorporated by reference in the Rule 462(b) Registration Statement, if any,
or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto, including any exhibits incorporated by reference in the
Initial Registration Statement and the Rule 462(b) Registration Statement, and
including the information contained in the form of final prospectus filed with
the Commission pursuant to Rule 424(b) under the Act in accordance with
Section 6(a) hereof and deemed by virtue of Rule 430A under the Act to be part
of the Initial Registration Statement at the time it was declared effective or
the Rule 462(b) Registration Statement, if any, at the time it became
effective, each as amended at the time such part of such registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein. The Company
-2-
<PAGE>
acknowledges that the statements set forth in the last paragraph on the front
cover page, in the first two paragraphs on page 2 and under the heading
"Underwriting" in the Prospectus constitute the only information relating to
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the Registration Statement
and any amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through you
expressly for use therein;
(d) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the rules and regulations thereunder which have not
been described or filed, or incorporated by reference in the Registration
Statement, as required; the contracts so described in the Prospectus to which
the Company or any of its subsidiaries is a party have been duly authorized,
executed and delivered by the Company or its subsidiaries, constitute valid
and binding agreements of the Company or its subsidiaries and are enforceable
against and by the Company or its subsidiaries in accordance with their
respective terms, and are in full force and effect on the date hereof; and
neither the Company nor any of its subsidiaries, nor, to the best of the
Company's knowledge, any other party is in breach of or default under any of
such contracts, except to the extent that such breach or default would not
have a material adverse effect on the business, operating results or financial
condition of the Company and its subsidiaries taken as a whole;
(e) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other than
issuances of Common Stock pursuant to Company stock option and stock purchase
plans described in the Registration Statement and Prospectus) or long-term
debt of the Company or any of its subsidiaries or any material adverse change,
or
-3-
<PAGE>
any development that is reasonably likely to result in a material adverse
change, in or affecting the business, assets, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the Prospectus;
(f) Neither the Company nor any subsidiary of the Company owns any real
property; any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries; the
Company owns or leases all such properties as are necessary to its operations
as now conducted or as proposed to be conducted, except where the failure to
so own or lease would not result in a material adverse change in or affecting
the business, assets, management, financial position, stockholders' equity or
results of operations of the Company;
(g) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its respective jurisdiction of organization, each with full power and
authority (corporate and otherwise) to own its properties and conduct its
business as described in the Prospectus, and each has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such qualification, or
is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction;
(h) The Company has an authorized capitalization as set forth in the
Prospectus, and all the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Common Stock contained in the
Prospectus; all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims; except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, neither the Company
nor any subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations; and the description of the Company's stock option
and stock purchase plans and the options or other rights granted and exercised
thereunder set forth in the Prospectus accurately and fairly presents in all
material respects the information required to be shown with respect to such
plans, options and rights;
-4-
<PAGE>
(i) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Common Stock contained in the Prospectus; no preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Shares by the Company pursuant to this Agreement;
except as set forth in the Prospectus, no stockholder of the Company has any
right, which has not been waived, to require the Company to register the sale
of any shares of capital stock owned by such stockholder under the Act in the
public offering contemplated by this Agreement; and no further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein;
(j) The Company has full corporate power and authority to enter into
this Agreement; this Agreement has been duly authorized, executed and
delivered by the Company, constitutes a valid and binding obligation of the
Company and is enforceable against the Company in accordance with its terms;
(k) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or material instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result in
any violation of the provisions of the Articles of Organization or By-laws of
the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court
or governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions contemplated by
this Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. ("NASD") in connection
with the purchase and distribution of the Shares by the Underwriters;
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased by the
Company or any of its subsidiaries is or may be the subject, or related to
environmental or discrimination matters, which
-5-
<PAGE>
actions, suits or proceedings, are required to be described in the
Registration Statement by the Act or the rules and regulations thereunder or
which might, individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in or affecting the business, assets, management, financial position,
stockholders' equity or results of operations of the Company; no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or, to the knowledge of the Company, is imminent which is reasonably likely to
affect materially and adversely such business, assets, management, financial
position, stockholders' equity or results of operations; and neither the
Company nor any of its subsidiaries is a party or subject to the provisions of
any material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body;
(m) The Company and its subsidiaries possess all licenses, certificates,
authorizations or permits issued by the appropriate governmental or regulatory
agencies or authorities that are necessary to enable them to own, lease and
operate their respective properties and to carry on their respective
businesses as presently conducted and which are material to the Company and
its subsidiaries, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or modification
of any such license, certificate, authority or permit which, singly or in the
aggregate, would be expected to materially and adversely affect the business,
assets, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries;
(n) Price Waterhouse LLP, who have audited certain financial statements
of the Company, and Ernst & Young LLP and Graves, McKenna, Lundeen & Almquist,
P.L.L.P., who have audited certified certain financial statements of certain
subsidiaries of the Company, have advised the Company that they are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(o) The financial statements and schedules of the Company and certain of
its subsidiaries, and the related notes thereto, included in the Registration
Statement and the Prospectus present fairly the financial position of the
Company and such subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and such subsidiaries for the respective periods covered thereby; such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis as
certified by the independent public accountants named in paragraph (n) above;
no other financial statements or schedules are required to be included in the
Registration Statement; and the selected financial data set forth in the
Prospectus under the captions "Capitalization" and "Selected Consolidated
Financial Data" fairly present in all material respects the information set
forth therein on the basis stated in the Registration Statement;
-6-
<PAGE>
(p) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct their business as now conducted; the Company has no
knowledge of any material infringement by the Company of trademark, trade name
rights, patent rights, copyrights, licenses, trade secret or other similar
rights of others; and there is no claim of infringement being made against the
Company regarding trademark, trade name, patent, copyright, license, trade
secret or other similar rights which could have a material adverse effect on
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries;
(q) The Company and each of its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or any of its subsidiaries which could materially and adversely affect
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company;
(r) The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(s) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts which it deems adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of
which insurance is in full force and effect;
(t) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any foreign, federal or state governmental
officer or official, or other person charged with similar public or quasi-
public duties, other than payments required or permitted by the laws of the
United States or any jurisdiction thereof;
(u) The Company has not taken and will not take, directly or indirectly
through any of its directors, officers or controlling persons, any action
which is designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares;
and
-7-
<PAGE>
(v) The Common Stock of the Company has been registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Company is not required to take any further action
for the inclusion of the Shares on the Nasdaq National Market.
2. Representations of the Selling Stockholders. Each of the Selling
-------------------------------------------
Stockholders, severally and not jointly, represents and warrants to, and agrees
with, each of the Underwriters that:
(a) All consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Stockholder of this Agreement and the
Power-of-Attorney and Custody Agreement (the "Custody Agreement") hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this Agreement
and the Custody Agreement and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder;
(b) This Agreement and the Custody Agreement have each been duly
authorized, executed and delivered by such Selling Stockholder and each such
document constitutes a valid and binding obligation of such Selling
Stockholder, enforceable in accordance with its terms;
(c) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body with respect to
such Selling Stockholder is required in connection with the sale of the Shares
by such Selling Stockholder or the consummation by such Selling Stockholder of
the transactions on his or its part contemplated by this Agreement and the
Custody Agreement, except such as have been obtained under the Act or the
rules and regulations thereunder and such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Shares;
(d) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the performance by such Selling Stockholder of this Agreement
and the Custody Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement or other material agreement or material
instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or any of his or its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to
such Selling Stockholder;
-8-
<PAGE>
(e) Such Selling Stockholder has, and at the First Time of Delivery (as
defined in Section 5 hereof) will have, good and valid title to the Shares to
be sold by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or claims, will pass to each of
the several Underwriters who have purchased such Shares in good faith and
without notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code;
(f) Such Selling Stockholder will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of Common Stock within 90 days or, in
the case of G. Drew Conway (the "Management Selling Stockholder"), 180 days,
after the date of the Prospectus otherwise than hereunder, as a bona fide gift
or gifts to, or in trust for, a person or entity who or which agrees in
writing to be bound by this restriction or with your written consent;
(g) Such Selling Stockholder has not taken and will not at any time
take, directly or indirectly, any action designed, or which might reasonably
be expected, to cause or result in, or which will constitute, stabilization of
the price of shares of Common Stock to facilitate the sale or resale of any of
the Shares; and
(h) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling Stockholder
expressly for use therein, as set forth in Section 10(b) hereof, such
Preliminary Prospectus and the Registration Statement did, and the Prospectus
and any further amendments or supplements to the Registration Statement and
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In addition to the foregoing representations, the Management Selling
Stockholder, joins in and makes each of the representations and warranties of
the Company contained in Section 1 hereof.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
with respect to the transactions herein contemplated, each Selling Stockholder
agrees to deliver to you prior to or at the First Time of Delivery a properly
completed and executed United States Treasury
-9-
<PAGE>
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
Each of the Selling Stockholders represents and warrants that a certificate in
negotiable form representing all of the Shares to be sold by such Selling
Stockholder has been placed in custody under the Custody Agreement, in the form
heretofore furnished to you, duly executed and delivered by such Selling
Stockholder to the Custodian (as defined in the Custody Agreement), and that
such Selling Stockholder has duly executed and delivered a power-of-attorney, in
the form heretofore furnished to you and included in the Custody Agreement (the
"Power-of-Attorney"), appointing Robert E. Foley and Keith F. Higgins, Esq., and
each of them, as such Selling Stockholder's attorney-in-fact (the "Attorney-in-
Fact") with authority to execute and deliver this Agreement on behalf of such
Selling Stockholder, to determine (subject to the provisions of the Custody
Agreement) the purchase price to be paid by the Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of the
Shares to be sold by such Selling Stockholder hereunder and otherwise to act on
behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the Attorneys-in-
Fact by the Power-of-Attorney, are to that extent irrevocable. Each of the
Selling Stockholders specifically agrees that the obligations of such Selling
Stockholder hereunder shall not be terminated by operation of law, whether by
the death or incapacity of such Selling Stockholder or, in the case of an estate
or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or by the occurrence of any other event.
If such Selling Stockholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be dissolved, or if any
other such event should occur, before the delivery of the Shares hereunder,
certificates representing the Shares to be sold by such Selling Stockholder
shall be delivered by or on behalf of such Selling Stockholder in accordance
with the terms and conditions of this Agreement and of the Custody Agreement,
and actions taken by the Attorneys-in-Fact pursuant to the Powers-of-Attorney
shall be as valid as if such death, incapacity, termination or other event had
not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact,
or any of them, shall have received notice of such death, incapacity,
termination or other event.
3. Shares Subject to Sale. (a) On the basis of the representations,
----------------------
warranties and agreements of the Company and the Selling Stockholders contained
herein, and subject to the terms and conditions of this Agreement, (i) the
Company agrees to issue and sell the Company Firm Shares to the several
Underwriters, (ii) each of the Selling Stockholders agrees to sell its Selling
Stockholder Firm Shares to the several Underwriters, and (iii) each of the
Underwriters agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, at a purchase price per share of $______, the
respective number of Firm Shares
-10-
<PAGE>
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares by a fraction, the numerator of
which is the aggregate number of Firm Shares to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all the Underwriters and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to issue and sell the Company Optional Shares to the
several Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 3, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of the Optional Shares which all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at their
election up to 450,000 Optional Shares at the purchase price per share set forth
in the paragraph above, for the sole purpose of covering overallotments in the
sale of the Firm Shares. Any such election to purchase Optional Shares may be
exercised on one occasion by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery or, unless you and the Company
otherwise agree in writing, earlier than two or later than three business days
after the date of such notice.
4. Offering. Upon the authorization by you of the release of the Firm
--------
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
5. Closing. Certificates in definitive form for the Shares to be purchased
-------
by each Underwriter hereunder, and in such denominations and registered in such
names as Adams, Harkness & Hill, Inc. may request upon at least forty-eight
hours' prior notice to the Company, shall be delivered by or on behalf of the
Company to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price therefor by (i) certified or
official bank check or checks, payable to the order of the Company and each
Selling Stockholder, respectively, in New York Clearing House (next day) funds
or (ii) wire transfer of same day funds, all at the office of Adams, Harkness &
Hill, Inc., 60 State Street, Boston, Massachusetts 02109. The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
Boston time, on ________, 1997 or such other time and date as you and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., Boston time, on the date specified by you in the written notice given
by you of the Underwriters' election to purchase such Optional Shares, or
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<PAGE>
at such other time and date as you and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery," such time and date for delivery of the Optional Shares, if
not the First Time of Delivery, is herein called the "Second Time of Delivery,"
and each such time and date for delivery is herein called a "Time of Delivery."
Such certificates will be made available for checking and packaging at least
twenty four hours prior to each Time of Delivery at such location as you may
specify.
6. Covenants of the Company. The Company agrees with each of the
------------------------
Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus unless after reasonable notice you shall have approved such
amendment or supplement (such approval not to be unreasonably withheld or
delayed); to advise you, promptly after it receives notice thereof, of the
time when the Registration Statement, or any amendment thereto, has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you copies thereof; to
advise you, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or Prospectus, of the suspension of
the qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required by law at any time prior to the
expiration of nine months after the time of issuance of the Prospectus in
connection with the offering or sale of the
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<PAGE>
Shares and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during
such same period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any
Underwriter is required by law to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time
of issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than the forty-fifth (45th) day
following the end of the full fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement (as
defined in Rule 158(c)), an earning statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of any securities of the
Company which are substantially similar to the Shares, without your prior
written consent other than (i) the sale of the Shares to be sold by the
Company hereunder, (ii) the Company's issuance of options under its option
plans in amounts not in excess of the amount shown as available for future
grant in the Prospectus and (iii) shares of capital stock issued in
connection with the acquisition by the Company of the assets or capital
stock of another person or entity, whether directly, through merger or
consolidation or otherwise, if the terms of such issuance provide that such
shares of capital stock shall not be resold for a period of 180 days
following the date of the Prospectus; provided, however, that the Company
-------- -------
shall not release any party from such resale restriction without the prior
written consent of the Representatives;
(f) Not to grant options to purchase shares of Common Stock which
would become exercisable during a period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus;
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<PAGE>
(g) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flow of the Company and
its consolidated subsidiaries certified by independent public accountants)
and to make available (within the meaning of Rule 158(b) under the Act) as
soon as practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such quarter
in reasonable detail;
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders generally,
and deliver to you as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission, the Nasdaq
National Market or any national securities exchange on which any class of
securities of the Company is listed (such financial statements to be on a
combined or consolidated basis to the extent the accounts of the Company
and its subsidiaries are combined or consolidated in reports furnished to
its stockholders generally or to the Commission);
(i) To use the net proceeds acquired by it from the sale of the
Shares in the manner specified in the Prospectus under the caption "Use of
Proceeds" and in a manner such that the Company will not become an
"investment company" as that term is defined in the Investment Company Act;
and
(j) Not to accelerate the vesting of any option issued under any
stock option plan such that any such option may be exercised within 180
days from the date of the Prospectus.
7. Covenants of the Selling Stockholders. Each Selling Stockholder
-------------------------------------
agrees to pay or cause to be paid all taxes, if any, on the transfer and sale of
the Shares to be sold by such Selling Stockholder hereunder and the fees and
expenses, if any, of counsel and accountants retained by such Selling
Stockholders (except that the Company shall pay for the fees and expenses of
Ropes & Gray, as special counsel to the Selling Stockholders). The Company
agrees with the Selling Stockholder to pay all costs and expenses incident to
the performance of the obligations of the Selling Stockholders under this
Agreement (except as set forth above), including, but not limited to, all
expenses incident to the delivery of the certificates for the Shares to be sold
by such Selling Stockholder, the costs and expenses incident to the preparation,
printing and filing of the Registration Statement (including all exhibits
thereto) and the Prospectus and any amendments or supplements thereto, the
expenses of qualifying the Shares to be sold by the Selling Stockholders under
the state securities or Blue Sky laws, all filing fees and the reasonable fees
and expenses of counsel for the Underwriters payable in connection with the
review of the offering of the Shares by the National Association of Securities
Dealers, Inc. ("NASD"), and the cost of furnishing to the Underwriters the
required copies of the Registration Statement and Prospectus and any
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<PAGE>
amendments or supplements thereto; provided that each Selling Stockholder agrees
--------
to pay or cause to be paid its pro rata share (based on the percentage which the
number of Shares sold by such Selling Stockholder bears to the total number of
Shares sold) of all underwriting discounts and commissions.
8. Expenses. The Company covenants and agrees with the several Under-
--------
writers that the Company will pay or cause to be paid the following: (i) the
fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of reproducing any
Agreement among Underwriters, this Agreement, the Blue Sky Memoranda and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
6(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) the filing fees and, subject to a maximum of $2,500, the
reasonable fees and expenses of counsel to the Underwriters incident to securing
any required review by the NASD of the terms of the sale of the Shares; (v) the
cost of preparing stock certificates; (vi) the cost and charges of any transfer
agent or registrar; and (vii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, Section 10 and Section 13 hereof, the Underwriters
will pay all of their own costs and expenses, including the fees of their
counsel, stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.
9. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and each
Selling Stockholder herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and each Selling Stockholder shall each
have performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
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<PAGE>
(b) Hale and Dorr LLP, counsel to the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to this Agreement, the Registration Statement, the Prospectus,
and other related matters as you may reasonably request;
(c) Ropes & Gray, counsel to the Company and special counsel to the
Selling Stockholders, shall have furnished to you their written opinion,
dated such Time of Delivery, in form and substance satisfactory to you,
with respect to the matters set forth in Annex I hereto;
(d) At 10:00 a.m., Boston time, on the effective date of the
Registration Statement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each
Time of Delivery, Price Waterhouse LLP, Ernst & Young LLP and Graves,
McKenna, Lundeen & Almquist, P.L.L.P., shall have furnished to you a letter
or letters, dated the respective date of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex II hereto;
(e) (i) Neither the Company nor any of its subsidiaries have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus, there shall not have been any change in the capital stock
(other than issuances of Common Stock pursuant to Company stock option and
stock purchase plans described in the Registration Statement and
Prospectus) or long-term debt of the Company or any change, or any
development that is reasonably likely to result in a prospective change, in
or affect the business, assets, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been
generally established on the New York Stock Exchange or on the American
Stock Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange or
in the over the counter market by the NASD, or a general banking moratorium
shall have been established by federal or New York authorities, (ii) an
outbreak of major hostilities or other national or international calamity
or any
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<PAGE>
substantial change in political, financial or economic conditions shall
have occurred or shall have accelerated or escalated to such an extent, as,
in the judgment of the Representatives, to affect adversely the
marketability of the Shares, or (iii) there shall be any action, suit or
proceeding pending or threatened, or there shall have been any development
or prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the judgment of the
Representatives, has materially and adversely affected the Company's
business or earnings and makes it impracticable or inadvisable to offer or
sell the Shares;
(g) The Shares to be sold by the Company at such Time of Delivery
shall have been accepted for quotation, subject to notice of issuance, on
the Nasdaq National Market System;
(h) The Company and each Selling Stockholder shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of such Selling Stockholder, respectively, in
their capacities as such, satisfactory to you, stating, limited in the case
of the Company only to the best of their knowledge after due inquiry, as to
the accuracy of the representations and warranties of the Company and of
such Selling Stockholder, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and of such Selling
Stockholder, respectively, of all of its or his obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request and the Company shall have furnished
or caused to be furnished certificates as to the matters set forth in
subsections (a) and (e) of this Section, and as to such other matters as
you may reasonably request; and
(i) Each director, executive officer and stockholder holding more
than 100,000 shares of the Company's Common Stock shall have executed and
delivered to you agreements in which such holder undertakes, for 90 days
or, in the case of the Management Selling Stockholder, 180 days, after the
date of the Prospectus, not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, or any securities convertible into
or exchangeable for, or any rights to purchase or acquire, shares of Common
Stock, without the prior written consent of Adams, Harkness & Hill, Inc.
10. Indemnification and Contribution. (a) The Company and the Management
--------------------------------
Selling Stockholder, jointly and severally, will indemnify and hold harmless
each Underwriter and each person, if any, who controls such Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are
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<PAGE>
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that the
Company and the Management Selling Stockholder shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein.
(b) Each of the Selling Stockholders other than the Management Selling
Stockholder (each a "Non-Management Selling Stockholder"), severally and not
jointly, will indemnify and hold harmless each Underwriter and any person, if
any, who controls such Underwriter, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Non-Management Selling Stockholder expressly
for use therein, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred. The Underwriters acknowledge that the only information relating to
any Non-Management Selling Stockholder furnished in writing to the Company by
such Non-Management Selling Stockholder specifically for inclusion in the
Registration Statement consists of the following (i) the information relating to
such Non-Management Selling Stockholder set forth under the heading "Principal
and Selling Stockholders"; (ii) insofar as such Non-Management Selling
Stockholder was formerly a stockholder of Application Resources, Inc. ("ARI")
(as indicated on Schedule II hereto), the information set forth on page 4 under
the heading "Prospectus Summary - The Company -Recent Acquisitions", in the
first sentence of paragraph 2 on page 17 under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations -Recent
Acquisitions", and the financial statements of ARI audited by Ernst & Young LLP
and included in pages F-40 through F-48 of the Registration Statement, in
each case only insofar as they relate to ARI; and (iii) insofar as such Non-
Management Selling Stockholder was formerly a stockholder of Shamrock Computer
Resources, Ltd. ("Shamrock") (as indicated on Schedule II hereto), the
information set forth on page 4 under the heading
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<PAGE>
"Summary - The Company - Recent Acquisitions", in the first sentence of
paragraph 3 on page 17 under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Recent Acquisitions" and the
financial statements of Shamrock audited by Graves, McKenna, Lundeen & Almquist,
P.L.L.P., and included in pages F-65 through F-72 of the Registration Statement,
in each case only insofar as they relate to Shamrock.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or each Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through you
expressly for use therein; and will reimburse the Company and the Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or the Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification shall be available
hereunder to any party who shall fail to give notice as provided in the
preceding sentence if, and only to the extent that, the party to whom such
notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the notice would have related and was prejudiced by the
failure to give such notice, but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under such subsection. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
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<PAGE>
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party. No
Indemnifying Party shall be liable for any settlement of any action or claim
effected without its written consent, which consent shall not be unreasonably
withheld.
(e) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders, respectively, bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or any Selling Stockholder on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses
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<PAGE>
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Selling Stockholder shall be liable for contribution under this
Section 10 in circumstances where such Selling Stockholder would not be required
to provide indemnification if indemnification were available. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 10 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriter under this Section 10
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act. In addition
to the indemnification obligations set forth in this Section 10, any
indemnification obligation that the Company may have to any Selling Stockholder
under a registration rights or other agreement shall remain in full force and
effect.
(g) Notwithstanding anything to the contrary contained herein, (i) in the
event that the offering contemplated by this Agreement does not commence as
contemplated herein, (A) the aggregate liability of the Management Selling
Stockholder under this Agreement shall be limited to an amount equal to the net
proceeds which such Management Selling Stockholder would have received from the
sale of such Management Selling Stockholder's Firm Shares had the offering
contemplated by this Agreement commenced and (B) no other Selling Stockholder
shall have any liability hereunder and (ii) from and after the First Time of
Delivery, and provided that the offering contemplated by this Agreement has
commenced, the aggregate liability of each Selling Stockholder under this
Agreement shall be limited to an amount equal to the net proceeds received by
such Selling Stockholder from the sale of the Selling Stockholder Firm Shares
sold by such Selling Stockholder to the Underwriters. The Underwriters shall
seek to collect the amount of any loss, claim, damage or liability covered by
this Section 10 for which a Selling Stockholder is liable from the Company prior
to taking any action against any Selling Stockholder hereunder; provided, that
--------
the Underwriters shall not be required to delay acting against any Selling
Stockholder if such delay may materially prejudice the Underwriters' rights
under this Agreement.
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<PAGE>
11. Termination. (a) If any Underwriter shall default in its obligation
-----------
to purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company and the Selling Stockholders that you have so arranged for
the purchase of such Shares, or the Company and the Selling Stockholders notify
you that they have so arranged for the purchase of such Shares, you or the
Company and the Selling Stockholders shall have the right to postpone such Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-tenth of the aggregate number of all the
Shares to be purchased at such Time of Delivery, then the Company shall have the
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-tenth of the aggregate number of all the Shares
to be purchased at such Time of Delivery, or if the Company shall not exercise
the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter, the Company or any Selling Stockholder, except for
the expenses to be borne by the Company, any Selling Stockholder and the
Underwriters as provided in Section 8 hereof and the indemnity and contribution
agreements in Section 10 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
-22-
<PAGE>
12. Survival. The respective indemnities, agreements, representations,
--------
warranties and other statements of the Company, each Selling Stockholder and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or any Selling Stockholder, or any officer or
director or controlling person of the Company or any Selling Stockholder, and
shall survive delivery of and payment for the Shares.
13. Expenses of Termination. If this Agreement shall be terminated
-----------------------
pursuant to Section 11 hereof, neither the Company nor any Selling Stockholder
shall then have any liability to any Underwriter except as provided in Section 8
and Section 10 hereof; but, if for any other reason this Agreement is
terminated, the Company will reimburse the Underwriters through you for all out-
of-pocket expenses approved in writing by you, including fees and disbursements
of counsel, reasonably incurred by the Underwriters in making preparations for
the purchase, sale and delivery of the Shares not so delivered, but neither the
Company nor any Selling Stockholder shall have any further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Section 8 and Section 10 hereof.
14. Notice. In all dealings hereunder, you shall act on behalf of each of
------
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Adams, Harkness & Hill, Inc. on behalf of you as the
Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Representatives in care of Adams, Harkness
& Hill, Inc., 60 State Street, Boston, MA 02109, Attention: Joseph W. Hammer if
to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: President and if to any Selling Stockholder shall be
delivered or sent by mail, telex or facsimile transmission to the address of
such Selling Stockholder set forth in Schedule II hereto; provided, however,
that any notice to an Underwriter pursuant to Section 10(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriter's Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
by you on request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
14. Miscellaneous. (a) This Agreement shall be binding upon, and inure
-------------
solely to the benefit of, the Underwriters, the Company and the Selling
Stockholders and, to the extent provided in Sections 10 and 12 hereof, the
officers and directors of the Company and each person who controls the Company,
any Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the
-23-
<PAGE>
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
(b) Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
(d) This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
the Selling Stockholders. It is understood that your acceptance of this letter
on behalf of each of the Underwriters is pursuant to the authority set forth in
a form of Agreement among Underwriters, the form of which shall be submitted to
the Company for examination, upon request, but without warranty on your part as
to the authority of the signors thereof.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
-24-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for the
Selling Stockholders represents by so doing that he has been duly appointed as
Attorney-in-Fact by each Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
THE REGISTRY, INC.
By:
-------------------------
G. Drew Conway
President
SELLING STOCKHOLDERS
(Named in Schedule II to the Agreement)
By:
-------------------------
Name:
Title: Attorney-in-Fact
----------------------------
G. Drew Conway
Accepted as of the date
hereof at Boston, Massachusetts
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
By:
------------------------------
(Adams, Harkness & Hill, Inc.
On behalf of each of
the Underwriters)
-25-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional
Total Shares to be
Number of Purchased if
Firm Maximum
Shares to be Option
Purchased Exercised
--------- ---------
<S> <C> <C>
Adams, Harkness & Hill, Inc. ........
Montgomery Securities ...............
J.C. Bradford & Co. .................
----------- -------------
Total ......... 3,000,000 450,000
=========== =============
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Total
Total Number of
Number of Optional
Firm Shares Shares to
to be Sold be Sold
----------- ---------
<S> <C> <C>
The Company..................................... 1,234,166 450,000
The Selling Stockholders:
G. Drew Conway.................................. 700,000 --
James D. Campbell(1)............................ 61,471 --
JP Morgan Trust Company of Delaware TTEE
UA made by William J. Campbell &
Marjorie E. Murphy FBO The Campbell
1997 Charitable Trust dtd 1-16-97(1)........... 200,000 --
William J. Campbell & Marjorie E. Murphy
TTEES FBO The Campbell/Murphy Revocable
Trust U/A dtd 8/17/94(1)....................... 153,463 --
Charles E. Entrekin, Jr.(1)..................... 131,725 --
Essex Performance Fund L.P.(1).................. 18,523 --
Essex Special Growth Opportunities
Fund L.P.(1).................................. 2,401 --
Essex High Tech. Foreign Fund L.P.(1)........... 5,831 --
Essex New Discovery Fund L.P.(1)................ 10,977 --
Thomas W. Fife(1)............................... 6,311 --
James J. Flaherty(2)............................ 58,333 --
Patrick J. Flaherty(2).......................... 58,333 --
Timothy J. Guilfoil(2).......................... 58,333 --
Judith Hamilton(1).............................. 6,311 --
Santosh S. Krishnan(2).......................... 58,333 --
Luke Family Trust(1)............................ 12,623 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
William Magidson(1)............................... 823 --
Donald C. Peterson(2)............................. 58,333 --
Raj Ponnuswamy(2)................................. 58,333 --
Marc L. Steuer(1)................................. 6,311 --
Guy J. Vaillancourt(1)............................ 3,018 --
Robert Warshawer(1)............................... 89,737 --
Charles Yazel(1).................................. 6,311 --
--------- --------
TOTAL............................................. 3,000,000 450,000
========= ========
</TABLE>
(1) Formerly a stockholder of Application Resources, Inc.
(2) Formerly a stockholder of Shamrock Computer Resources, Ltd.
<PAGE>
ANNEX I
Form of Ropes & Gray Opinion
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Prospectus. The Company is duly
qualified to do business and is in good standing in each jurisdiction within the
United States in which it owns or leases real property or maintains an office.
2. The authorized, issued and outstanding capitalization of the
Company as of December 31, 1996 is as set forth under the caption
"Capitalization" in the Prospectus. All of the issued and outstanding shares of
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable and have not been issued in violation of any statutory
preemptive right or, to such counsel's knowledge, any other similar right. The
Shares have been duly authorized and, when issued and delivered in accordance
with the Underwriting Agreement, will be validly issued, fully paid and
nonassessable and will conform in all material respects to the description of
the capital stock contained in the Prospectus.
3. Each subsidiary of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its organization. All of the issued and outstanding shares of capital stock
of each such subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable and are owned of record and, to such counsel's
knowledge, beneficially by the Company or another subsidiary of the Company,
free and clear of all liens, encumbrances, equities or claims other than those
imposed by applicable securities laws (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company and its
subsidiaries, provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and certificates).
Each subsidiary of the Company is duly qualified to do business and is in good
standing in each jurisdiction within the United States in which it owns or
leases real property or maintains an office.
4. The Company has the corporate power and authority to enter into
the Underwriting Agreement and the Underwriting Agreement has been duly
authorized, executed and delivered by the Company.
5. The issuance and sale by the Company of the Shares and the
performance by the Company of its obligations under the Underwriting Agreement
does not and will not (i) violate the articles of organization or by-laws of the
Company, (ii) breach or result in a default under any agreement, indenture or
other instrument filed as an exhibit to the
I-1
<PAGE>
Registration Statement to which the Company is a party or by which it is bound,
or to which any of its properties is subject, or (iii) violate any existing
Massachusetts or federal law, rule, administrative regulation or any decree
known to us of any court or any governmental agency or body having jurisdiction
over the Company or any of its properties, except that we express no opinion as
to state securities or "Blue Sky" laws or as to compliance with the antifraud
provisions of federal and state securities laws.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required for the issuance and
sale of the Shares by the Company or the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except the registration
under the Act of the Shares.
7. The Company is not subject to regulation as an "investment
company" under the Investment Company Act of 1940, as amended.
8. The Shares have been authorized for inclusion on the Nasdaq
National Market System, subject to notice of issuance.
9. The Underwriting Agreement has been duly authorized, executed and
delivered by each of the Selling Stockholders (by such Selling Stockholder or
his or its duly authorized attorney-in-fact).
10. A Custody Agreement has been duly authorized, executed and
delivered by each of the Selling Stockholders and, pursuant to such Custody
Agreement, each Selling Stockholder has authorized its attorney-in-fact to carry
out the transactions contemplated in the Underwriting Agreement on its behalf
and to deliver the Shares being sold by such Selling Stockholder pursuant to the
Underwriting Agreement.
11. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required to be obtained by any
Selling Stockholder to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder in the manner provided in the Underwriting Agreement
and the Custody Agreement, other than as have been obtained or made under the
Act.
12. Immediately prior to the Closing Date, each Selling Stockholder
was the registered owner of the Shares to be sold by such Selling Stockholder.
Upon registration of the Shares in the names of the Underwriters in the stock
records of the Company, assuming the Underwriters purchase the Shares in good
faith and without notice of any adverse claim within the meaning of Section 8-
302 of the Massachusetts Uniform Commercial Code, the Underwriters will have
acquired the Shares free of any adverse claim, any lien in favor of the Company,
and any restrictions on transfer imposed by the Company.
I-2
<PAGE>
In the course of the preparation by the Company of the Registration
Statement and the Prospectus, we have participated in discussions with your
representatives and those of the Company and its independent accountants in
which the business and affairs of the Company and the contents of the
Registration Statement and Prospectus were discussed. On the basis of
information that we have gained in the course of our representation of the
Company in connection with its preparation of the Registration Statement and
Prospectus and our participation in the discussions referred to above, we
believe that the Registration Statement, as of its effective date, and the
Prospectus, as of its date, complied as to form in all material respects with
the requirements of the Act and the published rules and regulations of the
Commission thereunder and we do not know of any legal or governmental
proceedings pending to which the Company is a party or of which any property of
the Company is the subject that are required to be described in the Registration
Statement or Prospectus that are not so described or of any contracts or any
other documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration Statement
or Prospectus that are not filed or described as required. Further, based on
such information and participation, nothing came to our attention that caused us
to believe that (i) the Registration Statement as of its effective date
contained an untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) that the Prospectus as of its date contained or as of the
date hereof contains any untrue statement of a material fact or omitted or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or (iii)
it is necessary to amend the Registration Statement. We express no opinion,
however, as to the financial statements, including the notes and schedules
thereto, or any other financial or accounting information set forth or referred
to in the Registration Statement and Prospectus.
The limitations inherent in the independent verification of factual
matters and the character of the determinations involved in our review are such
that we do not assume any responsibility for the accuracy, completeness or
fairness of the statements made or the information contained in the Registration
Statement and Prospectus except for those made under the captions "Description
of Capital Stock" and "Underwriting", which accurately summarize in all material
respects the provisions of the laws and documents referred to therein.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this paragraph. The Registration Statement has become
effective under the Act. To the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued by
the Commission nor has any proceeding been instituted or contemplated for that
purpose under the Act. The Prospectus has been filed with the Commission
pursuant to Rule 424(b) of the rules and regulations under the Act within the
time period required thereby.
I-3
<PAGE>
ANNEX II
Pursuant to Section 9(d) of the Underwriting Agreement, Price Waterhouse LLP
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the applicable
published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, pro forma financial
information) examined by them and included in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder;
(iii) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(iv) On the basis of limited procedures, not constituting an examination in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below, a
reading of the latest available interim financial statements of the Company and
its subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements included
in the Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) the unaudited consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the Prospectus do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder, or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with the basis for the
audited consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items were
derived, and any such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding amounts in the
audited consolidated financial statements included in the Prospectus;
II-1
<PAGE>
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement data and
balance sheet items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial statements
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date of
such letter, there have been any changes in the consolidated capital stock
(other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon conversions
of convertible securities, in each case which were outstanding on the date of
the latest financial statements included in the Prospectus) or any increase in
the combined long-term debt of the Company and its subsidiaries, or any
decreases in combined net current assets or net assets or other items specified
by the representatives, or any increases in any items specified by the
representatives, in each case as compared with amounts shown in the latest
balance sheet included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (E) there
were any decreases in consolidated net revenues or operating profit or the total
or per share amounts of consolidated net income or other items specified by the
representatives, or any increases in any items specified by the representatives,
in each case as compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the representatives,
except in each case for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(v) In addition to the examination referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (iv) above,
they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
representatives, and have compared certain of such amounts, percentages and
financial information with the
II-2
<PAGE>
accounting records of the Company and its subsidiaries and have found them to be
in agreement.
Pursuant to Section 9(d) of the Underwriting Agreement, Ernst & Young LLP and
Graves, McKenna, Lundeen & Almquist, P.L.L.P., shall furnish letters to the
Underwriters with respect to the matters set forth in paragraphs (i) and (ii)
above.
II-3
<PAGE>
Exhibit 5.1
[LETTERHEAD OF ROPES & GRAY APPEARS HERE]
January 30, 1997
The Registry, Inc.
189 Wells Avenue
Newton, MA 02159
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-1 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 3,450,000 shares of common stock, no par value
per share (the "Shares"), of The Registry Inc., a Massachusetts corporation (the
"Company"). The Shares are to be sold pursuant to an underwriting agreement (the
"Underwriting Agreement") to be entered into among the Company, the Selling
Stockholders listed on Schedule II to the Underwriting Agreement, and Adams,
Harkness & Hill, Inc., Montgomery Securities, and J.C. Bradford & Co. as
representatives of the several underwriters named in Schedule I to the
Underwriting Agreement.
We have acted as counsel for the Company in connection with the issue and
sale by the Company and the Selling Stockholders of the Shares. For purposes of
our opinion, we have examined and relied upon such documents, records,
certificates and other instruments as we have deemed necessary.
We express no opinion as to the applicability of compliance with or effect
of Federal law of the law of any jurisdiction other than The Commonwealth of
Massachusetts.
Based upon the foregoing, we are of the opinion that the Shares will have
been duly authorized and, when issued and sold by the Company and the Selling
Stockholders in accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and nonassessable.
<PAGE>
The Registry, Inc.
January 30, 1997
Page 2
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein and in the related prospectus under
the caption "Validity of Common Stock."
This opinion is to be used only in connection with the offer and sale of
the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 26, 1996, except
as to Note 4 which is as of November 27, 1996, relating to the consolidated
financial statements of The Registry, Inc., which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedule for each of the two years in the period ended June 29, 1996 and the
year ended May 31, 1994 listed under Item 16(b) of this Registration Statement
when such schedule is read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also included
this schedule. We also consent to the use in such Prospectus of our report
dated January 6, 1997 relating to the financial statements of Application
Resources, Inc., which appears in such prospectus. We also consent to the use
in such Prospectus of our report dated December 20, 1996 relating to the
financial statements of Shamrock Computer Resources, Ltd., which appears in
such Prospectus. We also consent to the use in such Prospectus of our report
dated January 24, 1997 relating to the financial statements of the Consulting
Services Division of The Application Group, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
Price Waterhouse LLP
Boston, Massachusetts
January 29, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 24, 1997 with respect to the Financial
Statements of Application Resources, Inc. included in the Registration
Statement (Form S-1 No. 333-19991) and related Prospectus of The Registry,
Inc. for its registration of 3,450,000 shares of common stock, no par value
per share.
Ernst & Young LLP
San Francisco, California
January 29, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 13, 1996
relating to the financial statements of Shamrock Computer Resources, Ltd. as
of and for the years ended December 31, 1995 and 1994, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Graves, McKenna, Lundeen & Almquist,
P.L.L.P
Minneapolis, Minnesota
January 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED DECEMBER 28, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JUN-29-1996 JUN-28-1997
<PERIOD-START> JUN-25-1995 JUN-30-1996
<PERIOD-END> JUN-29-1996 DEC-28-1996
<CASH> 13,707 7,090
<SECURITIES> 0 0
<RECEIVABLES> 42,952 56,484
<ALLOWANCES> 513 887
<INVENTORY> 0 0
<CURRENT-ASSETS> 57,199 65,171
<PP&E> 6,979 9,136
<DEPRECIATION> 2,594 3,547
<TOTAL-ASSETS> 65,190 90,608
<CURRENT-LIABILITIES> 17,476 38,628
<BONDS> 2,652 2,517
0 0
1,916 0
<COMMON> 179 4,702
<OTHER-SE> 42,294 43,861
<TOTAL-LIABILITY-AND-EQUITY> 65,190 90,608
<SALES> 0 0
<TOTAL-REVENUES> 216,878 144,520
<CGS> 0 0
<TOTAL-COSTS> 158,742 104,442
<OTHER-EXPENSES> 46,144 34,763<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,125 258
<INCOME-PRETAX> 9,759 6,934
<INCOME-TAX> 3,127 4,259
<INCOME-CONTINUING> 6,632 2,675
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,632 2,675
<EPS-PRIMARY> 0<F2> 0<F2>
<EPS-DILUTED> 0 0
<FN>
<F1>INCLUDES $5,144 OF ONE-TIME NON-RECURRING ACQUISITION-RELATED EXPENSES
ASSOCIATED WITH TWO TRANSACTIONS ACCOUNTED FOR AS POOLINGS-OF-INTERESTS.
<F2>HISTORICAL EARNINGS PER SHARE HAS BEEN DELETED BECAUSE IT IS NOT CONSIDERED
MEANINGFUL. CERTAIN OF THE COMPANY'S SUBSIDIARIES ARE S CORPORATIONS AND HAVE
NOT BEEN SUBJECT TO CORPORATE INCOME TAXES.
</FN>
</TABLE>
