<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 7370 54-1112301
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
POST OFFICE BOX 8888
VIRGINIA BEACH, VIRGINIA 23450
(757) 486-1900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN H. FAIN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
METRO INFORMATION SERVICES, INC.
REFLECTIONS II
200 GOLDEN OAK COURT
VIRGINIA BEACH, VIRGINIA 23452
(757) 486-1900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
STEPHEN W. BURKE, ESQ. ERIC A. STERN, ESQ.
CLARK & STANT, P.C. LATHAM & WATKINS
900 One Columbus Center Suite 1300
Virginia Beach, VA 23462 1001 Pennsylvania Avenue, N.W.
(757) 499-8800 Washington, D.C. 20004
(202) 637-2200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE COMPLETION OF THIS OFFERING 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: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE (2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock $0.01 par value 3,565,000 shares $14.00 $49,910,000 $15,124.24
</TABLE>
(1) Includes 465,000 shares of Common Stock issuable on exercise of an
over-allotment option granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Section 6(b) of the Securities Act of 1993.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 22, 1997
P R O S P E C T U S
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>
3,100,000 SHARES
[LOGO]
AN INFORMATION TECHNOLOGY SERVICES COMPANY
COMMON STOCK
----------------
Of the 3,100,000 shares of Common Stock offered hereby, 2,300,000 shares are
being offered by Metro Information Services, Inc. ("Metro" or the "Company") and
800,000 shares are being offered by a shareholder of the Company (the "Selling
Shareholder"), who will beneficially own 56.9% of the Company's outstanding
Common Stock after the offering. See "Principal and Selling Shareholders" and
"Description of Capital Stock." The Company will not receive any proceeds from
the sale of Common Stock by the Selling Shareholder. See "Use of Proceeds."
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $12.00 and $14.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "MISI."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 6.
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 PROCEEDS PROCEEDS TO
TO UNDERWRITING TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholder and certain other shareholders of
the Company (together, the "Selling Shareholders") have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $700,000, all of which are payable
by the Company.
(3) Certain shareholders of the Company have granted the Underwriters a 30-day
option to purchase up to 465,000 additional shares of Common Stock on the
same terms and conditions as set forth above to cover over-allotments, if
any. If all such shares are purchased by the Underwriters, these
shareholders will receive all of the proceeds from the sale of such shares
and the Company will not receive any of such proceeds. If the Underwriters
exercise the over-allotment option in full, the total Price to Public will
be $ , the total Underwriting Discount will be $ and the
total Proceeds to the Selling Shareholders will be $ . See
"Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing shares of Common Stock will be made on
or about , 1997 through the Depository Trust Company or at the offices of
Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO.
INCORPORATED
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
Artwork--Inside Front Cover
- --Title "Metro Information Services, Inc. Information Technology Services"
[A chart of the five major information technology services areas provided to
clients of the Company. The word "client" is in a circle surrounded by five
hexagonal figures, each of which contains the name of one of the five service
areas: application systems development and maintenance, IT architecture and
engineering, systems consulting, project outsourcing and general support
services.]
<TABLE>
<CAPTION>
MISSION STATEMENT OUR VISION
<S> <C>
WE WILL BE THE "BEST/VALUE" INFORMATION WE BELIEVE IN:
TECHNOLOGY SERVICES COMPANY BY:
- - PROVIDING EXCELLENT INFORMATION SYSTEMS - CONTINUED GROWTH, FROM A COMPANY
PROFESSIONALS THAT ARE MOTIVATED TO PERFORM PERSPECTIVE AS WELL AS PERSONAL GROWTH FOR EACH
CLIENT
PROJECTS AS SPECIFIED AND ON SCHEDULE; METRO STAFF MEMEBER;
- - PROVIDING LEADERSHIP/MANAGEMENT SUPPORT TO - CLIENT SATISFACTION, AS A RESULT OF METRO'S
ENSURE OUR CONSULTING STAFF EXCEED OUR CLIENTS' RESPONSIVENESS AND OUTSTANDING PERFORMANCE; AND
EXPECTATIONS; AND
- - ESTABLISHING A "BUSINESS PARTNER" RELATIONSHIP - BEING A "LEADER" AS A COMPANY IN THE
WITH OUR CLIENTS IN WHICH WE ARE THE "PREFERRED INDIVIDUALS IN OUR DAILY ACTIVITIES.
CHOICE"
TO SUPPORT THEIR INFORMATION TECHNOLOGY
SOLUTIONS.
</TABLE>
<PAGE>
[ARTWORK TO COME]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) CONTAINED
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS REFLECTS A 3,507.2952 FOR ONE STOCK SPLIT OF THE COMMON STOCK TO
BE EFFECTED BEFORE COMPLETION OF THE OFFERING BY MEANS OF A STOCK DIVIDEND AND
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
Metro Information Services, Inc. ("Metro" or the "Company") provides a wide
range of information technology ("IT") consulting and custom software
development services through 24 offices in the United States and Puerto Rico.
The Company's approximately 1,300 consultants, 65% of whom are salaried, work
with clients' internal IT departments on all aspects of computer systems and
applications development. The Company believes its experienced consultants and
proprietary systems allow it to deliver high-quality, on-schedule services to
its clients in a cost-effective and efficient manner. Services performed by
Metro include application systems development and maintenance, IT architecture
and engineering, systems consulting, project outsourcing and general support
services. The Company supports all major computer technology platforms
(mainframe, mid-range, client/server and network environments) and supports
client projects using a broad range of software applications. For example, the
Company implements SAP's client/ server software, custom develops Oracle,
Informix, DB2, VisualBasic and C++ applications, implements and supports Windows
NT, Novell and UNIX based network environments and supports numerous other
application environments.
The Company's goal is to become a leading national provider of IT services.
Metro's clients operate in a wide variety of industries including
communications, distribution, financial services, health care, information
technology, manufacturing and utilities. The Company's clients include GTE Data
Services, Inc., Microsoft Corporation, NationsBank of Virginia, N.A., Newport
News Shipbuilding Inc., Norfolk Southern Corporation, Northern Telecom, Inc.
("NORTEL") and Virginia Power Company. During the 12 months ended September 30,
1996, the Company performed IT services for 328 clients (excluding clients that
generated less than $25,000 in revenue during such period). The Company
emphasizes long-term relationships with its clients rather than one-time
projects or assignments. In 1995, each of the Company's 10 largest clients by
revenue had been a client for five or more years and each of the Company's three
largest clients had been a client for 10 or more years.
Rapid technological advances have accelerated the growth of the IT industry.
These advances in recent years include more powerful and less expensive computer
technology, the transition from mainframe computer systems to open and
distributed computing environments and the advent of capabilities such as
relational databases, imaging and software development productivity tools. While
these advances have enhanced the benefits of computer systems, the development
and implementation of such systems have become more complex. Accordingly,
organizations are increasingly turning to IT services firms to develop, support
and strengthen their internal IT departments and systems. In July 1996,
Dataquest, an industry research organization, estimated that in 1995 the size of
the IT professional services market in the United States was $48.6 billion.
Dataquest estimates that this market will grow at a compound annual rate of
14.8%, reaching $96.7 billion by 2000.
The Company has competed successfully in the rapidly changing IT environment
and has capitalized on the growing demand for IT services. The Company's revenue
grew at a compound annual rate of 29.2% over the last 10 years and 24.6% over
the last five years and grew 33.6% for the nine months ended September 30, 1996,
compared to the same period in 1995. These growth rates have been achieved
solely through internal growth and without the benefit of acquisitions. The
Company has grown from 15 offices in 1993 to 24 offices currently, eight of
which have opened since April 1, 1995, and anticipates that it will open three
to five additional offices annually for the next several years. The Company's
growth strategy consists of three primary components: (i) developing and
expanding its client base, (ii) opening new offices and (iii) selectively
acquiring other IT businesses.
Metro's management personnel have substantial experience in the IT services
industry. Metro's five executive officers have an average of 24 years of
experience in the IT industry and have worked together at Metro for the past
nine years. The Company was co-founded by John H. Fain in 1979 in Virginia
Beach, Virginia. Following this offering, Mr. Fain, the Company's President and
Chief Executive Officer, will beneficially own 56.9% of its outstanding Common
Stock.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,300,000 shares
Common Stock offered by the
Selling Shareholder........................ 800,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 14,800,000 shares(2)
Use of Proceeds.............................. Repay bank borrowings, open additional
offices, make additional capital expenditures
for upgraded technology and for working
capital and general corporate purposes,
including possible acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... MISI
</TABLE>
- ------------------------
(1) See "Principal and Selling Shareholders" and "Description of Capital Stock."
(2) Excludes 389,100 shares of the Common Stock issuable on exercise of stock
options, which will be granted immediately on the completion of this
offering at an exercise price equal to the initial public offering price per
share and are reserved for issuance under the Company's 1997 Incentive Stock
Option Plan. Also excludes any shares of the Common Stock issuable on
exercise of stock options, which will be granted to outside directors and
are reserved for issuance under the Company's Outside Directors Stock Plan.
See "Management--Director Compensation," "Management--Stock Option Plan and
Employee Stock Purchase Plan" and "Description of Capital Stock."
--------------------------
THE FOLLOWING TRANSACTIONS (THE "PRE-OFFERING TRANSACTIONS") ARE ANTICIPATED
TO OCCUR BEFORE THE COMPLETION OF THIS OFFERING AND ARE REFLECTED IN THE PRO
FORMA AMOUNTS APPEARING IN THIS PROSPECTUS: (I) THE DISTRIBUTIONS (THE
"DISTRIBUTIONS") TO THE COMPANY'S EXISTING SHAREHOLDERS OF THE AGGREGATE
UNDISTRIBUTED AMOUNT OF INCOME THAT WAS ALLOCATED TO THEM DURING THE PERIOD THE
COMPANY WAS AN S CORPORATION FOR FEDERAL AND CERTAIN STATE INCOME TAX PURPOSES,
(II) THE RELEASE OF ALL REDEEMABLE COMMON STOCK FROM ANY AGREEMENT REQUIRING ITS
REDEMPTION AND THE CONVERSION OF SUCH STOCK INTO COMMON STOCK, (III) THE
REPAYMENT OF THE SELLING SHAREHOLDER'S NOTE RECEIVABLE TO THE COMPANY (THE "NOTE
RECEIVABLE") AND (IV) THE ELECTION TO TERMINATE THE COMPANY'S S CORPORATION
ELECTION CAUSING THE COMPANY TO BECOME A C CORPORATION FOR INCOME TAX PURPOSES,
EFFECTIVE AS OF JANUARY 1, 1997, WHICH WILL RESULT IN THE RECOGNITION OF A NET
DEFERRED TAX ASSET (THE "NET DEFERRED TAX ASSET"). THE COMPANY ESTIMATES THAT:
(I) THE DISTRIBUTIONS WOULD HAVE AGGREGATED APPROXIMATELY $9.0 MILLION IF THEY
OCCURRED AS OF SEPTEMBER 30, 1996, (II) THERE WAS $351,422 OUTSTANDING ON THE
NOTE RECEIVABLE AS OF SEPTEMBER 30, 1996 AND (III) THE NET DEFERRED TAX ASSET
WOULD HAVE BEEN $410,000 IF THE COMPANY WERE CONVERTED TO A C CORPORATION AS OF
SEPTEMBER 30, 1996. THE ACTUAL AMOUNTS OF THE DISTRIBUTIONS, NOTE RECEIVABLE AND
NET DEFERRED TAX ASSET MAY DIFFER ON THE DATES THE PRE-OFFERING TRANSACTIONS
ACTUALLY OCCUR. SEE "PRIOR S CORPORATION STATUS," "USE OF PROCEEDS,"
"DESCRIPTION OF CAPITAL STOCK" AND "CERTAIN TRANSACTIONS."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995(1) 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA: (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenue................................. $33,954 $43,720 $53,344 $68,669 $85,904 $62,336 $83,282
Cost of revenue......................... 24,168 30,394 37,646 48,221 61,074 44,292 58,287
------ ------ ------ ------ ------ ------ ------
Gross profit............................ 9,786 13,326 15,698 20,448 24,830 18,044 24,995
Selling, general and administrative
expenses.............................. 7,782 9,794 11,461 14,595 19,507 13,511 18,209
------ ------ ------ ------ ------ ------ ------
Operating income........................ 2,004 3,532 4,237 5,853 5,323 4,533 6,786
Net interest income (expense)........... 7 43 8 (215) (323) (233) (209)
------ ------ ------ ------ ------ ------ ------
Income before income taxes.............. 2,011 3,575 4,245 5,638 5,000 4,300 6,577
Pro forma provision for income
taxes(2).............................. 804 1,430 1,698 2,255 2,000 1,720 2,631
------ ------ ------ ------ ------ ------ ------
Pro forma net income(2)................. $ 1,207 $ 2,145 $ 2,547 $ 3,383 $ 3,000 $ 2,580 $ 3,946
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Pro forma net income per share(2)....... $ 0.23 $ 0.31
------ ------
------ ------
Weighted average shares outstanding..... 12,823 12,920
SELECTED OPERATING DATA:(3)
Offices................................. 13 14 15 16 20 19 22
Consultants............................. 483 548 675 838 1,074 1,013 1,266
Total employees......................... 557 636 779 963 1,239 1,175 1,471
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(4)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA: (UNAUDITED)
Working capital............................................................................. $ 6,356 $25,438
Total assets................................................................................ 23,502 37,653
Total debt.................................................................................. 4,606 --
Redeemable common stock..................................................................... 2,651 --
Total shareholders' equity.................................................................. 7,940 29,108
</TABLE>
- ------------------------
(1) Includes $770,000 of non-recurring, non-cash compensation expense charged to
selling, general and administrative expenses accrued in the fourth quarter
of 1995 for stock issued for services performed by employees in 1995.
(2) For periods shown, the Company was an S corporation for federal and certain
state income tax purposes. The pro forma provision for income taxes for each
period shown reflects a provision for income taxes, as if the Company were a
C corporation for income tax purposes during such periods, at an assumed
effective tax rate of 40%. See "Prior S Corporation Status" and Note 5 of
Notes to Financial Statements.
(3) All data shown is at the end of the period. Consultant data include only the
Company's full-time consultants and total employees data include only the
Company's full-time employees.
(4) Pro forma to reflect the Pre-Offering Transactions as if they occurred as of
September 30, 1996. As adjusted to reflect the sale of 2,300,000 shares of
Common Stock by the Company being offered hereby (assuming an initial public
offering price of $13.00 per share) and the application of the estimated net
proceeds therefrom. See "Prior S Corporation Status," "Use of Proceeds,"
"Selected Financial and Operating Data," "Certain Transactions,"
"Description of Capital Stock" and Notes 1, 2, 4 and 10 of Notes to
Financial Statements.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, AS WELL AS THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE
INVESTING IN SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FUTURE
EVENTS AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
REFLECTED IN THESE FORWARD-LOOKING STATEMENTS.
DEPENDENCE ON QUALIFIED PERSONNEL
The Company's success depends on its ability to attract and retain
consultants with the technical skills and experience required to meet its
clients' specific needs. The Company must continually identify and recruit
technical personnel in each of its markets to fill new positions and to replace
consultants who have left the Company. The IT industry has high consultant
turnover rates and the demand for consultants has, to date, substantially
exceeded supply. This has resulted in intense competition for consultants and
the Company expects such competition for consultants to increase in the future.
There can be no assurance that the Company will attract and retain the personnel
it requires to conduct its operations successfully or attract additional
personnel for expanded operations. Failure to attract and retain such personnel
or an increase in the Company's consultant turnover rate could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Business Strategy," "Business-- Employees" and
"Business--Recruiting and Hiring."
RISK ASSOCIATED WITH OPENING NEW OFFICES
The Company recently accelerated its office expansion program by opening
four new offices in 1995 and three new offices in 1996 in geographic markets
where the Company had no previous presence. In addition, the Company expects to
open three to five offices annually for the next several years. Historically,
for approximately six to 12 months after opening, new offices have generally
produced monthly operating losses or marginal operating income and have placed
significant demands on the Company's operational, administrative and financial
resources. In addition, the Company's future performance and profitability will
depend, in part, on its ability to successfully attract and retain qualified
personnel to manage the growth and operations of the new offices. The opening of
additional offices, individually or in the aggregate, may have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Growth Strategy."
RISK ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS
The Company intends to grow, in part, through the acquisition of other IT
businesses. To date, the Company has no experience with, and has no existing
agreements, understandings or commitments with respect to, any acquisitions. The
Company's acquisition strategy depends on its ability to identify, finance and
complete acquisitions. There is significant competition for acquisition
opportunities which may increase the cost of acquisition candidates. Some
competitors for these candidates have greater resources than the Company. The
Company will face a variety of additional risks if it completes acquisitions,
including the inability to integrate the acquired businesses into the Company's
operations, the inability to achieve expected financial results from the
acquired businesses, the diversion of management's attention, the inability to
retain key personnel of the acquired businesses, losses due to liabilities and
contingencies of the acquired businesses and the adverse impact on net income
caused by amortization of acquired intangible assets. The Company's failure or
inability to successfully implement and manage its acquisition strategy may have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, the value of Company stock held by
shareholders at the time of any acquisition may be diluted if the Company issues
stock to complete any acquisition. See "--Risks Associated with New Services,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources," "Business--Growth Strategy" and
"Description of Capital Stock."
6
<PAGE>
RISK ASSOCIATED WITH NEW SERVICES
The Company intends to grow, in part, through the development or acquisition
of IT services beyond the scope of services presently provided by the Company.
The Company's ability to successfully develop new services depends on a number
of factors, including its ability to identify and effectively integrate new
services into the Company's existing operating structure. The identification and
offering of new services in which the Company has no or little experience or
expertise could result in diversion of management's attention and place
disproportionate demands on the Company's operational, administrative and
financial resources. There can be no assurance that the performance of any new
service offerings, whether acquired or developed by the Company, will meet
management's expectations or provide the same profit margins as the Company's
existing operations. See "Business--Growth Strategy" and "Business--Services."
COMPETITION
The IT services industry is extremely competitive and highly fragmented.
Although the market is consolidating, management believes no one company is
dominant. The Company's competitors include general IT services firms, temporary
staffing and personnel placement companies, general management consulting firms,
major accounting firms, divisions of large hardware and software companies and
niche providers of IT services. Some of the Company's competitors possess
substantially greater resources, greater name recognition and a more established
client base than the Company. In addition, the services offered by the Company
have been and continue to be provided by clients' in-house personnel. There can
be no assurance that the Company will be able to compete successfully against
existing or new competitors as the industry continues to evolve. See
"Business--Competition."
TREND TOWARD PRIME VENDORS
To reduce the number of their IT service providers, certain businesses are
beginning to use a limited number of vendors and, in some cases, a single vendor
(collectively, "Prime Vendors"). These Prime Vendors fill client needs directly
or through subcontractors. Metro anticipates that this trend toward Prime
Vendors may become increasingly common in the marketplace and may result in
pricing pressure and the loss of business opportunities. There can be no
assurance that this trend will not lead to reduced gross profit margins and
fewer opportunities to place consultants and will not have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business--Competition."
The Company has taken steps, when practical, to become a Prime Vendor of IT
services. In certain cases, the Company experiences pricing pressure from
clients as a condition to becoming or remaining a Prime Vendor. In other cases,
the Company experiences demands to provide consultants in multiple locations to
become or remain a Prime Vendor. Although the Company believes it can
effectively meet its clients' requirements, there can be no assurance that the
Company will be able to compete effectively with other Prime Vendors or remain a
Prime Vendor. See "Business--Competition."
ABSENCE OF LONG-TERM CONTRACTS; DEPENDENCE ON KEY CLIENTS
Substantially all of the Company's contracts to perform services may be
cancelled or modified by the Company's clients at will without penalty.
Approximately 65% of the Company's consultants are salaried employees and,
unless terminated, receive full compensation and benefits even if not engaged in
billable work. As a result, cancellation or reduction of a contract may result
in a loss of revenue without a corresponding reduction in cost of revenue.
Although the Company has a broad client base, the loss of one or more large
clients could have a material adverse effect on the Company's business,
operating results and financial condition. In 1993, 1994, 1995 and the nine
months ended September 30, 1996, the Company's 10 largest clients accounted for
approximately 45.3%, 40.1%, 33.4% and 29.3%, respectively, of the Company's
revenue and its largest client accounted for approximately 8.2%, 9.3%, 6.8% and
6.3%, respectively, of revenue. See "Business--Clients."
7
<PAGE>
CONTRACT PERFORMANCE AND PROJECT OUTSOURCING RISKS
Project outsourcing is distinguishable from the Company's core business in
that project outsourcing requires the Company to assume a greater level of
responsibility for developing or maintaining systems on behalf of its clients.
Many of the Company's project outsourcing engagements are critical to the
operations of its clients' businesses. The Company's failure or inability to
complete such engagements to its clients' satisfaction could have a material
adverse effect on its clients' operations and, consequently, may give rise to
claims against the Company for actual or consequential damages or otherwise
damage its reputation, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Services."
RAPID TECHNOLOGICAL CHANGE
Rapid technological advances, frequent product introductions and
enhancements, and changes in client requirements characterize the market for IT
services. The Company's future success depends, in part, on its ability to
provide consultants possessing the skills to service past, current and next
generation products and technologies. These factors will require the Company to
provide adequately trained personnel to address the increasing and evolving
needs of its clients. Any failure by the Company to anticipate or respond
rapidly to technological advances, new products and enhancements or changes in
client requirements could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Industry
Overview," "Business--Services" and "Business--Consultant Training and
Education."
EMPLOYMENT LIABILITY RISKS
Metro employs and places its consultants and other employees at its clients'
businesses. Risks associated with this activity include possible claims of
discrimination and harassment, liabilities for errors and omissions by the
Company's employees, misuse of client proprietary information or intellectual
property, injury to Company and client employees, misappropriation of client
funds, theft of client property, other criminal activity, torts and other
similar claims. In certain circumstances, the Company may be held responsible
for the actions of persons not under the Company's direct control. Although the
Company has not had significant problems with respect to such employment
liability, there can be no assurance that the Company will not experience such
problems in the future. See "Business--Employees" and "Business--Office
Operations."
RELIANCE ON TECHNOLOGY AND COMPUTER SYSTEMS
The Company relies on its computer and communications systems, the hub of
which is located at its corporate headquarters in Virginia Beach, Virginia.
Although the Company has a disaster recovery plan, temporary or permanent loss
of these systems from fire, power loss, natural disaster, operating malfunction
or any other cause could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's property and
business interruption insurance may not be adequate to compensate the Company
for all losses that may occur. See "Business--Corporate Support Group."
DEPENDENCE ON SENIOR MANAGEMENT
The continued growth and success of the Company is largely dependent on the
efforts, direction and guidance of its existing senior management and on its
ability to attract and retain qualified managers. The Company has entered into
employment agreements with its executive officers, each of which contains
provisions limiting these employees' rights to compete with the Company and hire
its employees. The loss of any of the Company's senior management or key
personnel and, in particular, John H. Fain, President and Chief Executive
Officer, or Andrew J. Downing, Executive Vice President and Chief Operating
Officer, or the inability to attract and retain key management personnel in the
future, could have a
8
<PAGE>
material adverse effect on the Company's business, operating results and
financial condition. The Company carries no key man life insurance on Mr. Fain
or Mr. Downing. See "Management."
HEALTH PLAN SELF INSURANCE RISKS
The Company self-insures a portion of its group health and dental plan. On
September 30, 1996, 964 of the Company's 1,471 employees were covered by the
group health plan. The Company self-insures up to $125,000 of claims per covered
employee per year with a Company maximum annual aggregate liability of 125% of
expected claims as computed at the end of each year based on the number of
covered persons during the year. Self insurance charges may fluctuate materially
from quarter to quarter and may cause a material adverse affect on the Company's
quarterly and annual business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Corporate Support Group" and "Business--Employees."
CONTROL BY CURRENT SHAREHOLDER
On completion of this offering, John H. Fain, the Company's President and
Chief Executive Officer, will beneficially own an aggregate of approximately
56.9% of the outstanding shares of Common Stock. Accordingly, Mr. Fain will be
able to determine the outcome of all corporate actions requiring shareholder
approval by an equal or lesser percentage and will be able to control the
election of the Board of Directors and the determination of the Company's
policies at least for the foreseeable future. This control may have the effect
of delaying or preventing a change in control of the Company and consequently
adversely affect the market price of the Common Stock. See "Management,"
"Principal and Selling Shareholders" and "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Amended and Restated Articles of Incorporation (the
"Articles") and the Amended and Restated Bylaws (the "Bylaws") contain
provisions that could have the effect of delaying, deferring or preventing an
unsolicited change in the control of the Company, which may adversely affect the
market price of the Common Stock or the ability of shareholders to participate
in a transaction in which they might otherwise receive a premium for their
shares over the then-current market price. These provisions establish certain
advance notice procedures for nomination of candidates for election as directors
and for shareholder proposals to be considered at shareholders' meetings,
provide that only the Board of Directors may call special meetings of the
shareholders and provide for the Board of Directors to be divided into three
classes to serve for staggered three-year terms. In addition, the Articles
authorize the Board of Directors to issue preferred stock ("Preferred Stock")
without shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock are currently outstanding and
the Company has no present plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any Preferred Stock that may be issued in
the future. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
A substantial number of outstanding shares of the Common Stock and shares of
the Common Stock issuable on exercise of options under the Company's 1997
Incentive Stock Option Plan (the "Stock Option Plan") and under the
non-qualified stock option plan ("Outside Directors Stock Plan") established by
the Company for outside directors are or will be eligible for future sale in the
public market at prescribed times pursuant to Rule 144 or Rule 701 under the
Securities Act of 1933, as amended (the "Securities Act"). Sales of such shares
in the public market, or the perception that such sales may occur, could
adversely affect the market price of the Common Stock or impair the Company's
ability to raise additional capital in the future through the sale of equity
securities. See "Management--Stock Option Plan and Employee Stock Purchase Plan"
and "Shares Eligible for Future Sale."
9
<PAGE>
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
The Company expects to use approximately $15.0 million of the estimated net
proceeds it receives from this offering for specific identified purposes, with
the remainder of approximately $12.1 million, to be used for general corporate
purposes, including possible acquisitions. As a result, management will have
substantial discretion to spend a large percentage of the proceeds to be
received by the Company. There can be no assurance that the Company will deploy
these proceeds in a manner which enhances shareholder value. See "Use of
Proceeds."
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE; DILUTION
Before this offering there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or
continue following this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock will be determined by negotiations among the
Company, the Selling Shareholder and the Representatives based on several
factors and may not be indicative of the market price for the Common Stock after
this offering. See "Underwriting."
The Company believes that various factors such as general economic
conditions and changes or volatility in the financial markets, changing market
conditions in the IT services industry and quarterly or annual variations in the
Company's financial results, some of which are unrelated to the Company's
performance, could cause the market price of Common Stock to fluctuate
substantially.
In addition, investors in this offering will incur immediate and substantial
dilution in net tangible book value. See "Dilution."
DIVIDEND POLICY
The Company currently anticipates that, after the completion of this
offering, all of its earnings will be retained for development and expansion of
the Company's business and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."
10
<PAGE>
PRIOR S CORPORATION STATUS
In 1987, the Company became an S corporation for federal and certain state
income tax purposes. As such, the Company's income has been allocated and
taxable to the Company's individual shareholders, rather than to the Company.
Between 1987 and September 30, 1996, the Company declared and made quarterly
distributions to its shareholders, generally in amounts in excess of amounts
needed by the shareholders to pay the taxes on the income allocated to them. In
addition, before the completion of this offering, the Company will distribute to
its shareholders $9.0 million, approximating the estimated aggregate
undistributed amount of income on which the shareholders either have paid or
will be required to pay income taxes for tax years 1987 through 1996 (the
"Distributions"). A portion of the proceeds of the offering will be used to
repay all borrowings on the Company's lines of credit used to make the
Distributions. In connection with this offering, the Company will terminate its
S corporation election as of January 1, 1997 ("S Termination Date"). On and
after the S Termination Date, the Company will no longer be treated as an S
corporation and, accordingly, will be fully subject to federal and state income
taxes. See "Use of Proceeds," "Capitalization" and Note 5 of Notes to Financial
Statements.
The Company has entered into an agreement (the "Tax Indemnification
Agreement") with its existing shareholders providing for, among other things,
the indemnification of the Company by them for any federal, state and other
income taxes (including interest) incurred by the Company for any period for
which it reported its taxable income as an S corporation, but only to a maximum
amount equal to the aggregate distributions (including the Distributions)
received by each existing shareholder from the Company with respect to periods
during which the Company was an S Corporation. See "Certain Transactions."
USE OF PROCEEDS
After deducting the estimated underwriting discount and offering expenses
payable by the Company, the net proceeds to the Company from the sale of the
2,300,000 shares of the Common Stock being sold by the Company in this offering
are estimated to be approximately $27.1 million (assuming an initial public
offering of $13.00 per share). The Company will not receive any proceeds from
the sale of shares of the Common Stock by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Company intends to use approximately $15.0 million of the estimated net
proceeds of this offering to repay all of the Company's expected debt, shortly
after the completion of this offering. The Company's three lines of credit (the
"Credit Facilities") aggregate $17.0 million, bear interest at LIBOR plus 1.5%
(approximately 6.9% as of September 30, 1996) and expire in April and May 1997.
Borrowings under the Credit Facilities may not exceed the lesser of $17.0
million and 85% of the Company's eligible accounts receivable. As of September
30, 1996, the amount outstanding on the Company's Credit Facilities was
approximately $4.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The balance of the estimated net proceeds of this offering to the Company,
expected to be approximately $12.1 million, will be used to open additional
offices, upgrade technology and for working capital and general corporate
purposes, including possible acquisitions. Capital expenditures for 1997 are
expected to be approximately $2.0 million. Currently, the Company has no
agreements, understandings or commitments with respect to any potential
acquisition candidates. Pending any such uses, the Company plans to invest the
net proceeds of this offering in short-term, investment grade securities or
money market instruments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Growth Strategy."
11
<PAGE>
DIVIDEND POLICY
The Company will make the $9.0 million Distributions to existing
shareholders before the completion of this offering. See "Prior S Corporation
Status." After the completion of this offering, the Company currently
anticipates that all of its earnings will be retained for development and
expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. The payment of dividends is subject to the
discretion of the Board of Directors and will depend on the Company's results of
operations, financial position, capital requirements, general business
conditions, restrictions imposed by financing arrangements (including, without
limitation, the Credit Facilities), legal and regulatory restrictions on the
payment of dividends and other factors the Board of Directors deems relevant.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
12
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of September 30, 1996 was
$2.0 million or $0.16 per share, based on 12,500,000 shares of Common Stock. Pro
forma net tangible book value per share represents the amount of the Company's
total tangible assets less total liabilities on a pro forma basis (to give
effect to the Pre-Offering Transactions) divided by the total number of shares
of the Common Stock outstanding. After giving effect to the sale of 2,300,000
shares of the Common Stock offered by the Company in this offering (assuming an
initial public offering price of $13.00 per share) and the application of the
estimated net proceeds therefrom (after the deduction of estimated offering
expenses to be paid by the Company), the pro forma net tangible book value of
the Company as of September 30, 1996 would have been $29.1 million or $1.97 per
share of the Common Stock. This represents an immediate increase in pro forma
net tangible book value of $1.81 per share to existing shareholders and an
immediate dilution of $11.03 per share to new investors purchasing the Common
Stock in this offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 13.00
Pro forma net tangible book value per share before this offering......... $ 0.16
Increase per share attributable to new investors......................... 1.81
---------
Pro forma net tangible book value per share after this offering.............. 1.97
---------
Dilution of net tangible book value per share to new investors(1)............ $ 11.03
---------
---------
</TABLE>
- ------------------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the assumed initial public offering price of
$13.00 per share.
The following table sets forth the number of shares of the Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing shareholders and to be paid by new
investors in this offering and before deduction of estimated underwriting
discount:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................. 12,500,000 84.5% $ 2,675,893 8.2% $ 0.21
New investors...................................... 2,300,000 15.5 29,900,000 91.8 13.00
------------ ----- ------------- -----
Total........................................ 14,800,000 100.0% $ 32,575,893 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
Sales by Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 11,700,000 shares or approximately 79.1%
(11,235,000 shares or approximately 75.9% if the Underwriters over-allotment is
exercised in full) and will increase the number of shares to be held by new
investors to 3,100,000 shares or approximately 20.9% (3,565,000 shares or
approximately 24.1% if the Underwriters over-allotment option is exercised in
full) of the total number of shares of the Common Stock outstanding after this
offering. See "Risk Factors--No Prior Public Market; Volatility of Stock Price;
Dilution" and "Principal and Selling Shareholders."
The foregoing tables do not reflect the sale of 800,000 shares of the Common
Stock by the Selling Shareholder to be sold in this offering and exclude 389,100
shares of the Common Stock issuable on exercise of stock options which will be
granted immediately on the completion of this offering at an exercise price
equal to the initial public offering price per share and will be reserved for
issuance under the Stock Option Plan and any shares issuable under the Outside
Directors Stock Plan. See "Management-- Director Compensation,"
"Management--Stock Option Plan and Employee Stock Purchase Plan" and
"Description of Capital Stock."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996: (i) on an actual basis and (ii) pro forma to reflect the
Pre-Offering Transactions and as adjusted to reflect the application of the
estimated net proceeds from the issuance and sale by the Company of 2,300,000
shares of the Common Stock offered hereby (assuming an initial public offering
price of $13.00 per share). See "The Offering," "Use of Proceeds," "Selected
Financial and Operating Data," "Certain Transactions" and Notes 1, 2, 4 and 10
of Notes to Financial Statements.
This table should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Credit Facilities(1).................................................................. $ 4,606 $ --
----------- -----------
----------- -----------
Redeemable common stock............................................................... $ 2,651 $ --
----------- -----------
Shareholders' equity(2):
Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued and
outstanding....................................................................... -- --
Common stock, $0.01 par value, 50,000,000 shares authorized; 8,768,239 shares issued
and outstanding; 14,800,000 shares pro forma as adjusted.......................... 88 148
Additional paid-in capital.......................................................... -- 29,697
Retained earnings (deficit)......................................................... 7,852 (737)
----------- -----------
Total shareholders' equity........................................................ 7,940 29,108
----------- -----------
Total capitalization............................................................ $ 10,591 $ 29,108
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) All amounts are current liabilities. See Note 4 of Notes to Financial
Statements for a description of the Company's debt.
(2) Gives effect to the amendment and restatement of the Company's articles of
incorporation including the authorization of Preferred Stock. Excludes
389,100 shares of Common Stock issuable on the exercise of stock options
which will be granted immediately on the completion of this offering at an
exercise price equal to the initial public offering price per share and
reserved for issuance under the Stock Option Plan and any shares issuable
under the Outside Directors Stock Plan. See "Management--Director
Compensation," "Management-- Stock Option Plan and Employee Stock Purchase
Plan" and "Description of Capital Stock."
14
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table contains certain financial and operating data and is
qualified by the more detailed Financial Statements and Notes thereto included
elsewhere in this Prospectus. The Balance Sheet Data as of December 31, 1994 and
1995 and for the nine months ended September 30, 1996 and the Statements of
Income Data for the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1996 were derived from the Company's Financial
Statements and Notes thereto that have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, and are included elsewhere in this
Prospectus. The Balance Sheet Data as of December 31, 1991, 1992 and 1993 and
for the nine months ended September 30, 1995 and the Statements of Income Data
for the years ended December 31, 1991 and 1992 and the nine months ended
September 30, 1995 have been derived from the unaudited financial statements of
the Company which, in the opinion of management, have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, which management considers necessary
for a fair presentation of the selected financial data shown. The financial data
shown for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the entire year ending December 31,
1996. The Operating Data have been derived from the unaudited internal records
of the Company. The financial data shown below should be read in conjunction
with the Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
---------------------------------------------------------------- -----------
1991 1992 1993 1994 1995(1) 1995
----------- ----------- ----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................................. $33,954 $43,720 $53,344 $68,669 $85,904 $62,336
Cost of revenue......................... 24,168 30,394 37,646 48,221 61,074 44,292
------ ------ ------ ------ ------ ------
Gross profit............................ 9,786 13,326 15,698 20,448 24,830 18,044
Selling, general and administrative
expenses.............................. 7,782 9,794 11,461 14,595 19,507 13,511
------ ------ ------ ------ ------ ------
Operating income........................ 2,004 3,532 4,237 5,853 5,323 4,533
Net interest income (expense)........... 7 43 8 (215) (323) (233)
------ ------ ------ ------ ------ ------
Income before income taxes.............. 2,011 3,575 4,245 5,638 5,000 4,300
Pro forma provision for income
taxes(2).............................. 804 1,430 1,698 2,255 2,000 1,720
------ ------ ------ ------ ------ ------
Pro forma net income(2)................. $ 1,207 $ 2,145 $ 2,547 $ 3,383 $ 3,000 $ 2,580
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Pro forma net income per share(2)....... $ 0.23
------
------
Weighted average shares outstanding..... 12,823
<CAPTION>
1996
------------
<S> <C>
STATEMENTS OF INCOME DATA:
Revenue................................. $83,282
Cost of revenue......................... 58,287
------
Gross profit............................ 24,995
Selling, general and administrative
expenses.............................. 18,209
------
Operating income........................ 6,786
Net interest income (expense)........... (209)
------
Income before income taxes.............. 6,577
Pro forma provision for income
taxes(2).............................. 2,631
------
Pro forma net income(2)................. $ 3,946
------
------
Pro forma net income per share(2)....... $ 0.31
------
------
Weighted average shares outstanding..... 12,920
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS, EXCEPT OPERATING DATA)
Working capital.............. $3,420 $3,576 $ 2,649 $ 3,724 $ 2,368 $ 3,360 $ 6,356
Total assets................. 7,101 7,847 11,356 13,466 19,786 18,387 23,502
Credit Facilities............ -- -- 3,119 3,596 7,256 6,022 4,606
Redeemable common stock...... 374 531 732 1,070 1,404 1,404 2,651
Total shareholders' equity... 4,572 4,649 3,913 4,425 4,613 5,313 7,940
OPERATING DATA:(3)
Offices...................... 13 14 15 16 20 19 22
Consultants.................. 483 548 675 838 1,074 1,013 1,266
Total employees.............. 557 636 779 963 1,239 1,175 1,471
</TABLE>
- ------------------------
(1) Includes $770,000 of non-recurring, non-cash compensation expense charged to
selling, general and administrative expenses accrued in the fourth quarter
of 1995 for stock issued for services performed by employees in 1995.
(2) For periods shown, the Company was an S corporation for federal and certain
state income tax purposes. The pro forma provision for income taxes for each
period shown reflects a provision for income taxes, as if the Company were a
C corporation for income tax purposes during such periods, at an assumed
effective tax rate of 40%. See "Prior S Corporation Status" and Note 5 of
Notes to Financial Statements.
(3) Consultant data include only the Company's full-time consultants and total
employees data include only the Company's full-time employees.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY'S FISCAL
YEAR ENDS ON DECEMBER 31.
OVERVIEW
Metro provides a wide range of IT consulting and custom software development
services. The Company's revenue is primarily derived from supplemental IT
services. Substantially all of Metro's clients are billed on a time and
materials basis. Consultants typically work on engagements lasting from six to
12 months at clients' facilities. Cost of revenue includes compensation,
statutory and other benefits associated with the Company's consultants and other
direct costs associated with providing services to clients. Selling, general and
administrative expenses include compensation, statutory and other benefits of
corporate, administrative, recruiting and sales and marketing personnel,
occupancy and other indirect costs. Selling, general and administrative costs
incurred in opening new offices are expensed when incurred.
Metro's revenue grew from $34.0 million in 1991 to $85.9 million in 1995.
Revenue growth is derived primarily from increases in the number of consultants
placed with existing and new clients. Between December 31, 1991 and December 31,
1995, the number of consultants grew from 483 to 1,074. In addition, the Company
has increased the average billing rates charged to clients for consultants in an
attempt to keep pace with the increased costs of consultants. In 1995 and for
the nine months ended September 30, 1996, approximately 33.4% and 29.3%,
respectively, of the Company's revenue was derived from its 10 largest clients
and its largest client accounted for 6.8% and 6.3%, respectively, of revenue.
The Company has competed successfully in the rapidly changing IT environment
and has capitalized on the growing demand for IT services. The Company's revenue
grew at a compound annual rate of 29.2% over the last 10 years and 24.6% over
the last five years and grew 33.6% for the nine months ended September 30, 1996
compared to the same period in 1995. These growth rates have been achieved
solely through internal growth and without the benefit of acquisitions. Between
1991 and 1994, the Company grew from 13 to 16 offices. In 1995, the Company
accelerated its rate of geographic expansion and, since April 1, 1995, has
opened eight new offices. Although the opening of new offices has resulted in
increased revenue, it has adversely impacted net income primarily due to
expenses associated with staffing the new offices and hiring additional
corporate staff to support the increased number of offices. In particular, the
Company experienced a decline in its operating income margin in 1995 as a result
of the increase in the number of offices opened. Historically, new offices have
generally produced monthly operating losses or marginal operating income for six
to 12 months and have required 18 to 24 months to reach cumulative operating
income. In addition, to support its growth strategy, the Company has invested in
infrastructure such as the development of the Company's proprietary business
systems and its communications network which the Company believes are capable of
supporting a larger organization.
For purposes of the following discussion, a mature office is an office that
was open for at least 12 months at the beginning of the earlier period being
compared and a new office is an office opened thereafter.
16
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated the percentage of
revenue and the percentage change from the prior period of certain items
reflected in the Company's statements of income:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
---------------------------------------------------------------
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995(1) 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............................................. 70.6 70.2 71.1 71.0 70.0
----- ----- ----- ----- -----
Gross profit................................................. 29.4 29.8 28.9 29.0 30.0
Selling, general and administrative expenses................. 21.4 21.3 22.7 21.7 21.9
----- ----- ----- ----- -----
Operating income............................................. 8.0 8.5 6.2 7.3 8.1
Net interest income (expense)................................ -- (0.3) (0.4) (0.4) (0.2)
----- ----- ----- ----- -----
Income before income taxes................................... 8.0 8.2 5.8 6.9 7.9
Pro forma provision for income taxes(2)...................... 3.2 3.3 2.3 2.8 3.2
----- ----- ----- ----- -----
Pro forma net income(2)...................................... 4.8% 4.9% 3.5% 4.1% 4.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES
---------------------------------------------------
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -----------------
1994 1995 1996
COMPARED TO COMPARED TO COMPARED TO
1993 1994(3) 1995
--------------- --------------- -----------------
<S> <C> <C> <C>
Revenue............................................................... 28.7% 25.1% 33.6%
Cost of revenue....................................................... 28.1 26.7 31.6
Gross profit.......................................................... 30.3 21.4 38.5
Selling, general and administrative expenses.......................... 27.3 33.7 34.8
Operating income...................................................... 38.1 (9.1) 49.7
Income before income taxes............................................ 32.8 (11.3) 52.9
</TABLE>
- ------------------------
(1) Includes $770,000 of non-recurring, non-cash compensation expense charged to
selling, general and administrative expenses accrued in the fourth quarter
of 1995 for stock issued for services performed by employees in 1995.
Excluding the effect of such expense, the percentage of revenue of: selling,
general and administrative expenses would have been 21.8%, operating income
would have been 7.1%, income before income taxes would have been 6.7%, pro
forma provisions for income taxes would have been 2.7% and net income would
have been 4.0%.
(2) For periods shown, the Company was an S corporation for federal and certain
state income tax purposes. The pro forma provision for income taxes for each
period shown reflects a provision for income taxes as if the Company were a
C corporation for all income tax purposes during such periods, at an assumed
effective tax rate of 40%. See "Prior S Corporation Status" and Note 5 of
Notes to Financial Statements.
(3) Includes $770,000 of non-recurring, non-cash compensation expense charged to
selling, general and adminsitrative expenses accrued in the fourth quarter
of 1995 for stock issued for services performed by employees in 1995.
Excluding the effect of such expense, the percentage change in: selling,
general and administrative expenses would have been 28.4%, operating income
would have been 4.1% and income before income taxes would have been 2.3%.
17
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
REVENUE. Revenue increased $21.0 million, or 33.6%, to $83.3 million for
the nine months ended September 30, 1996 from $62.3 million for the nine months
ended September 30, 1995. This increase is primarily a result of increased
billings to existing clients, the addition of new clients and increased billing
rates charged for the Company's consultants. Revenue from the 15 mature offices
increased $15.9 million, or 25.9%, from the earlier period and the seven new
offices accounted for the remaining $5.1 million increase in revenue. As of
September 30, 1996 compared to September 30, 1995, the total number of full-time
consultants increased to 1,266 from 1,013, respectively, and clients (excluding
clients that generated less than $25,000 in revenue during each preceding
12-month period) increased to 328 from 252, respectively.
COST OF REVENUE. Cost of revenue increased $14.0 million, or 31.6%, to
$58.3 million for the nine months ended September 30, 1996 from $44.3 million
for the nine months ended September 30, 1995. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the number
of consultants. As a percentage of revenue, cost of revenue decreased to 70.0%
for the nine months ended September 30, 1996 from 71.0% for the nine months
ended September 30, 1995 primarily because billing rates to clients increased
faster than consultant compensation and benefits increased.
GROSS PROFIT. Gross profit increased $7.0 million, or 38.5%, to $25.0
million for the nine months ended September 30, 1996 from $18.0 million for the
nine months ended September 30, 1995. As a percentage of revenue, gross profit
increased to 30.0% for the nine months ended September 30, 1996 from 29.0% for
the nine months ended September 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.7 million, or 34.8%, to $18.2 million for
the nine months ended September 30, 1996 from $13.5 million for the nine months
ended September 30, 1995. This increase is due primarily to costs associated
with seven new offices, growth of administrative staff in mature offices, hiring
additional corporate staff to support the increased number of offices and
development of the Company's proprietary business systems. As a percentage of
revenue, selling, general and administrative expenses increased slightly to
21.9% for the nine months ended September 30, 1996 from 21.7% for the nine
months ended September 30, 1995.
OPERATING INCOME. Operating income increased $2.3 million, or 49.7%, to
$6.8 million for the nine months ended September 30, 1996 from $4.5 million for
the nine months ended September 30, 1995. As a percentage of revenue, operating
income increased to 8.1% for the nine months ended September 30, 1996 from 7.3%
for the nine months ended September 30, 1995.
NET INTEREST EXPENSE. Net interest expense decreased to $210,000 for the
nine months ended September 30, 1996 from $233,000 for the nine months ended
September 30, 1995. This decrease reflects a decrease in the average level of
borrowings during the period.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $2.3
million, or 52.9%, to $6.6 million for the nine months ended September 30, 1996
from $4.3 million for the nine months ended September 30, 1995. As a percentage
of revenue, income before income taxes increased to 7.9% for the nine months
ended September 30, 1996 from 6.9% for the nine months ended September 30, 1995.
1995 COMPARED TO 1994
REVENUE. Revenue increased $17.2 million, or 25.1%, to $85.9 million for
1995 from $68.7 million for 1994. This increase is primarily a result of
increased billings to existing clients, the addition of new clients and
increased billing rates charged for the Company's consultants. Revenue from the
14 mature offices increased $12.5 million, or 18.5%, from the earlier period and
the six new offices accounted for the remaining $4.7 million increase in
revenue. As of December 31, 1995 compared to December 31, 1994, the total number
of full-time consultants increased to 1,074 from 838, respectively, and clients
(excluding
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<PAGE>
clients that generated less than $25,000 in revenue during each preceding
12-month period) increased to 266 from 194, respectively.
COST OF REVENUE. Cost of revenue increased $12.9 million, or 26.7%, to
$61.1 million for 1995 from $48.2 million for 1994. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the number
of consultants. As a percentage of revenue, cost of revenue increased to 71.1%
for 1995 from 70.2% for 1994 primarily because consultant compensation and
benefits increased faster than billing rates to clients increased.
GROSS PROFIT. Gross profit increased $4.4 million, or 21.4%, to $24.8
million for 1995 from $20.4 million for 1994. As a percentage of revenue, gross
profit decreased to 28.9% for 1995 from 29.8% for 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.9 million, or 33.7%, to $19.5 million for
1995 as compared to $14.6 million for 1994. This increase is due primarily to
costs associated with six new offices, growth of administrative staff in mature
offices, hiring additional corporate staff to support the increased number of
offices and development of the Company's proprietary business systems. This
increase is also due to a non-recurring $770,000 non-cash compensation expense
accrued in the fourth quarter of 1995 for stock issued for services performed by
employees in 1995. As a percentage of revenue, selling, general and
administrative expenses increased to 22.7% for 1995 from 21.3% for 1994.
Excluding the non-recurring $770,000 charge, selling, general and administrative
expenses would have increased $4.1 million, or 28.4%, to $18.7 million for 1995
from $14.6 million for 1994 and, as a percentage of revenue, would have
increased to 21.8% for 1995 from 21.3% for 1994.
OPERATING INCOME. Operating income decreased $530,000, or 9.1%, to $5.3
million for 1995 from $5.9 million for 1994. As a percentage of revenue,
operating income decreased to 6.2% for 1995 from 8.5% for 1994. Excluding the
$770,000 charge to selling, general and administrative expenses, operating
income would have increased to $6.1 million, or 4.1%, for 1995 from $5.9 million
for 1994 and, as a percentage of revenue, would have decreased to 7.1% for 1995
from 8.5% for 1994.
NET INTEREST EXPENSE. Net interest expense increased to $323,000 for 1995
from $215,000 for 1994. This increase reflects an increase in the average level
of borrowings during the period.
INCOME BEFORE INCOME TAXES. Income before income taxes decreased $638,000,
or 11.3%, to $5.0 million for 1995 from $5.6 million for 1994. As a percentage
of revenue, income before income taxes decreased to 5.8% for 1995 from 8.2% for
1994. Excluding the $770,000 charge to selling, general and administrative
expenses, income before income taxes would have increased to $5.8 million, or
2.3%, for 1995 from $5.6 million for 1994 and, as a percentage of revenue, would
have decreased to 6.7% for 1995 from 8.2% for 1994.
1994 COMPARED TO 1993
REVENUE. Revenue increased $15.4 million, or 28.7%, to $68.7 million for
1994 from $53.3 million for 1993. This increase is primarily a result of
increased billings to existing clients, the addition of new clients and
increased billing rates charged for the Company's consultants. Revenue from the
13 mature offices increased $12.3 million, or 23.7%, from the earlier period and
the three new offices accounted for the remaining $3.1 million increase in
revenue. As of December 31, 1994 compared to December 31, 1993, the total number
of full-time consultants increased to 838 from 675, respectively, and clients
(excluding clients that generated less than $25,000 in revenue during each
preceding 12-month period) increased to 194 from 155, respectively.
COST OF REVENUE. Cost of revenue increased $10.6 million, or 28.1%, to
$48.2 million for 1994 from $37.6 million for 1993. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the number
of consultants. As a percentage of revenue, cost of revenue decreased to 70.2%
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<PAGE>
for 1994 from 70.6% for 1993 primarily because billing rates to clients
increased faster than consultant compensation and benefits increased and because
consultants' utilization rate (hours billed to clients as a percentage of all
paid hours) increased.
GROSS PROFIT. Gross profit increased $4.7 million, or 30.3%, to $20.4
million for 1994 from $15.7 million for 1993. As a percentage of revenue, gross
profit increased to 29.8% for 1994 from 29.4% for 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.1 million, or 27.3%, to $14.6 million for
1994 from $11.5 million for 1993. This increase is due primarily to costs
associated with three new offices, growth of administrative staff in mature
offices and development of the Company's proprietary business systems. As a
percentage of revenue, selling, general and administrative expenses decreased
slightly to 21.3% for 1994 from 21.4% for 1993.
OPERATING INCOME. Operating income increased $1.7 million, or 38.1%, to
$5.9 million for 1994 from $4.2 million for 1993. As a percentage of revenue,
operating income increased to 8.5% for 1994 from 8.0% for 1993.
NET INTEREST EXPENSE. Net interest expense was $215,000 for 1994 compared
to net interest income of $8,000 for 1993. This change reflects an increase in
the average level of borrowings during 1994.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $1.4
million, or 32.8%, to $5.6 million for 1994 from $4.2 million for 1993. As a
percentage of revenue, income before income taxes increased to 8.2% for 1994
from 8.0% for 1993.
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SELECTED QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain quarterly operating information for
each of the 11 quarters ending with the quarter ended September 30, 1996, both
in dollars and as a percentage of revenue. This information was derived from the
unaudited financial statements of the Company which, in the opinion of
management, were prepared on the same basis as the audited financial statements
contained elsewhere in this Prospectus and include all adjustments, consisting
of normal recurring adjustments, which management considers necessary for the
fair presentation of the information for the periods presented. The financial
data shown below should be read in conjunction with the Financial Statements and
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>
GROSS PROFIT OPERATING INCOME
------------------------ ------------------------
% OF % OF
STATEMENTS OF INCOME DATA: REVENUE AMOUNT REVENUE AMOUNT REVENUE
- --------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1994: (DOLLARS IN THOUSANDS)
March...................................... $ 15,978 $ 4,651 29.1% $ 1,255 7.9%
June....................................... 16,803 4,928 29.3 1,367 8.1
September.................................. 17,787 5,487 30.8 1,672 9.4
December................................... 18,101 5,382 29.7 1,559 8.6
1995:
March...................................... 19,760 5,732 29.0 1,422 7.2
June....................................... 20,695 6,195 29.9 1,683 8.1
September.................................. 21,881 6,117 28.0 1,428 6.5
December................................... 23,568 6,786 28.8 790(1) 3.4(1)
1996:
March...................................... 26,328 7,726 29.3 2,107 8.0
June....................................... 27,812 8,452 30.4 2,248 8.1
September.................................. 29,142 8,817 30.3 2,431 8.3
</TABLE>
- ------------------------
(1) Includes the $770,000 of non-recurring, non-cash compensation expense
charged to selling, general and administrative expenses accrued in the
fourth quarter of 1995 for stock issued for services performed by employees
in 1995. Excluding the effect of such expense, income from operations and
income from operations as a percentage of revenue for the fourth quarter of
1995 would have been $1.6 million and 6.6%, respectively.
Metro's operating results are adversely affected when client facilities
close due to holidays or inclement weather. The Company generally experiences a
certain amount of seasonality in the fourth quarter due to the number of
holidays and closings of client facilities during that quarter. Further, the
Company generally experiences lower operating results in the first quarter due
in part to the timing of unemployment and FICA tax accruals and delays in
clients' contract renewal related to clients' budget approval processes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations
and available borrowings under its Credit Facilities. The Company's principal
uses of cash are to fund working capital and capital expenditures. The Company
generally pays its employees twice monthly for their services while receiving
payments from clients 35 to 60 days from the date of invoice. As new offices are
established or as existing offices expand, there are increased requirements for
cash resources to fund operations.
Since 1987, the Company's first year as an S corporation for federal and
certain state income tax purposes, it has distributed to its shareholders
approximately 80% of the aggregate amount of the Company's income that was
taxable to its individual shareholders. Management believes the amounts
distributed to shareholders during such periods exceeded what the provision for
income taxes would have been if the Company was a C corporation for all income
tax purposes during such periods. The Company borrowed against its then existing
Credit Facilities to fund, in whole or in part, such shareholder
21
<PAGE>
distributions. Before completion of this offering, the Company will make the
$9.0 million Distributions with borrowings from its Credit Facilities. The
Company intends to repay the Credit Facilities in full with a portion of the
estimated net proceeds of this offering. Before the completion of this offering,
the Company intends to terminate its S corporation election effective January 1,
1997 and currently anticipates that thereafter all of its earnings will be
retained for development and expansion of the Company's business and does not
anticipate paying cash dividends in the foreseeable future. See "Use of
Proceeds," "Dividend Policy" and "Prior S Corporation Status."
On September 30, 1996, $4.6 million was outstanding under the Company's
Credit Facilities. The Credit Facilities expire in April and May 1997.
Borrowings under the Credit Facilities may not exceed the lesser of $17.0
million and 85% of the Company's eligible accounts receivable, accrue interest
at LIBOR plus 1.5% and are more fully described in Notes 4 and 10 of Notes to
Financial Statements. See "Use of Proceeds."
During 1993, 1994 and 1995 and the nine months ended September 30, 1996, the
Company generated $2.7 million, $3.5 million, $3.2 million and $6.6 million,
respectively, in cash from operations. In 1995, the cash generated was used, in
part, to fund $1.6 million of capital expenditures. Capital expenditures, which
consisted primarily of telecommunications equipment, computer systems, furniture
and fixtures, were made to support the continued growth and expansion of the
Company. As a result of the Company's continued growth and expansion, 1996 and
1997 capital expenditures are expected to be approximately $2.1 million and $2.0
million, respectively. See "Use of Proceeds," "Business--Facilities" and
"Certain Transactions."
The Company intends to grow, in part, through the acquisition of other
businesses, although the Company currently has no agreements, understandings or
commitments concerning any acquisition. Any such acquisition, however, will
likely increase the Company's use of cash to fund the purchase price and the
working capital needs of acquired businesses.
The Company believes that the estimated net proceeds from this offering,
combined with available funds under its continuing Credit Facilities and cash
flows from operations will be adequate to meet its needs for working capital and
capital expenditures for at least the next two years. Any significant
acquisitions however, may require additional debt and equity financing.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION. With respect to stock options granted to employees, SFAS No. 123
permits companies to continue using the accounting method promulgated by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, to measure compensation or to adopt the fair value based
method prescribed by SFAS No. 123. If APB No. 25's method is continued, pro
forma disclosures are required as if SFAS No. 123 accounting provisions were
followed. Management has not adopted SFAS No. 123. In the opinion of management,
SFAS No. 123 is not expected to have a material impact on the Company's
financial statements.
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF, is effective for years beginning after
December 15, 1995. This pronouncement requires that long-lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment. This pronouncement was adopted for the periods beginning with
January 1, 1996 and did not have a material impact on the Financial Statements.
22
<PAGE>
BUSINESS
GENERAL
Metro provides a wide range of IT consulting and custom software development
services through 24 offices in the United States and Puerto Rico. The Company's
approximately 1,300 consultants, 65% of whom are salaried, work with clients'
internal IT departments on all aspects of computer systems and applications
development. The Company believes its experienced consultants and proprietary
systems allow it to deliver high-quality, on-schedule services to its clients in
a cost-effective and efficient manner. Services performed by Metro include
application systems development and maintenance, IT architecture and
engineering, systems consulting, project outsourcing and general support
services. The Company supports all major computer technology platforms
(mainframe, mid-range, client/server and network environments) and supports
client projects using a broad range of software applications. For example, the
Company implements SAP's client/server software, custom develops Oracle,
Informix, DB2, VisualBasic and C++ applications, implements and supports Windows
NT, Novell and UNIX based network environments and supports numerous other
application environments.
The Company's goal is to become a leading national provider of IT services.
Metro's clients operate in a wide variety of industries including
communications, distribution, financial services, health care, information
technology, manufacturing and utilities. The Company's clients include GTE Data
Services, Inc., Microsoft Corporation, NationsBank of Virginia, N.A., Newport
News Shipbuilding Inc., Norfolk Southern Corporation, NORTEL and Virginia Power
Company. During the 12 months ended September 30, 1996, the Company performed IT
services for 328 clients (excluding clients generating less than $25,000 in
revenue during such period). The Company emphasizes long-term relationships with
its clients, rather than one-time projects or assignments. In 1995, each of the
Company's 10 largest clients by revenue had been a client for five or more years
and each of the Company's three largest clients had been a client for 10 or more
years.
The Company strongly believes that its culture, philosophy and values are
the foundation of its success and the basis for its ongoing growth. Since its
founding, the Company has been guided by an intense commitment to
professionalism, with the cornerstone principles of honesty, integrity, caring
and sharing, as set forth in its Philosophy/Values Statement:
- HONESTY AND INTEGRITY ARE FUNDAMENTAL PRINCIPLES IN WORKING WITH OUR STAFF
AND CLIENTS--AS ARE CARING AND SHARING.
- WE CARE ABOUT OUR STAFF, REMAINING SENSITIVE TO THEIR GROWTH AND GOALS AS
PROFESSIONALS, AND THEIR PERSONAL COMMITMENTS. AND WE SHARE MATERIAL
SUCCESS WITH STAFF MEMBERS WHO MAKE OUR SUCCESS POSSIBLE.
- WE CARE ABOUT OUR CLIENTS, THEIR BUSINESS MISSION, AND THE PROJECTS
REQUIRED TO ACCOMPLISH THEIR OBJECTIVES. WE SHARE KNOWLEDGE, SKILLS, AND
INFORMATION FREELY AMONG OURSELVES AND WITH OUR CLIENTS.
- AT METRO, INDIVIDUAL EFFORT, COMBINED WITH TEAMWORK AND SUPPORTED BY
LEADERSHIP, ASSURES CLIENT SATISFACTION AND PROFESSIONAL GROWTH.
The Company believes this intense commitment results in a competitive
advantage that helps the Company attract and retain exceptional consultants and
meet the demands of its clients for talented, high-quality professionals. As a
direct result of this commitment to professionalism, the Company believes it has
established a strong reputation for quality, integrity, reliability and
responsiveness.
Metro's management personnel have substantial experience in the IT services
industry. Metro's five executive officers have an average of 24 years of
experience in the IT industry and have worked together at Metro for the past
nine years. The Company was co-founded by John H. Fain in 1979 in Virginia
Beach, Virginia. The Company's executive offices are located at Reflections II,
200 Golden Oak Court, Virginia
23
<PAGE>
Beach, Virginia 23452 and its telephone number is (757) 486-1900. The Company's
e-mail address is [email protected].
INDUSTRY OVERVIEW
Rapid technological advances have accelerated the growth of the IT industry.
These advances in recent years include more powerful and less expensive computer
technology, the transition from mainframe computer systems to open and
distributed computing environments and the advent of capabilities such as
relational databases, imaging and software development productivity tools. These
advances have expanded the benefits that users can derive from computer-based
information systems and improved the price-to-performance ratios of such
systems. As a result, an increasing number of companies are employing IT in new
ways, often to gain competitive advantages in the marketplace, and IT services
have become an important component of their long-term growth strategies.
The same advances that have enhanced the benefits of computer systems have
rendered the development and implementation of such systems increasingly
complex. Accordingly, organizations are turning to IT services firms to develop,
support and strengthen their internal IT departments and systems. In July 1996,
Dataquest, an industry research organization, estimated that in 1995 the size of
the IT professional services market in the United States, consisting of
consulting services, systems integration and development and systems management
services, was $48.6 billion. Dataquest estimates that this market will grow at a
compound annual rate of 14.8%, reaching $96.7 billion by 2000.
The Company believes that a number of factors have caused and will continue
to cause the demand for IT services to grow rapidly. These factors include: (i)
the increased use and reliance on IT, (ii) the accelerating rate of
technological change and complexity, (iii) the trend towards outsourcing and the
related work force reductions as companies focus on core competencies, (iv) the
migration from centralized mainframe computer systems to distributed
client/server environments and (v) the shortage of in-house expertise and
resources to address the variety and complexity of IT projects.
BUSINESS STRATEGY
The Company's long-term business strategy is based on its goal to be the
"best value" IT services company as articulated in its mission statement:
WE WILL BE THE "BEST VALUE" INFORMATION TECHNOLOGY SERVICES COMPANY BY:
- PROVIDING EXCELLENT INFORMATION SYSTEMS PROFESSIONALS THAT ARE MOTIVATED
TO PERFORM CLIENT PROJECTS AS SPECIFIED AND ON SCHEDULE;
- PROVIDING LEADERSHIP/MANAGEMENT SUPPORT TO ENSURE OUR CONSULTING STAFF
EXCEED OUR CLIENTS' EXPECTATIONS; AND
- ESTABLISHING A "BUSINESS PARTNER" RELATIONSHIP WITH OUR CLIENTS IN WHICH
WE ARE THE "PREFERRED CHOICE" TO SUPPORT THEIR INFORMATION TECHNOLOGY
SOLUTIONS.
The Company believes it can achieve its goal to become a national leader in
the IT services industry by maximizing support for its consultants through
ongoing training and development, delivering high-quality, on-schedule services
and continuing its commitment to professionalism. By focusing on its business
strategy, the Company has experienced compound annual revenue growth of 29.2%
over the last 10 years.
The key components of the Company's business strategy are:
ATTRACT, DEVELOP AND RETAIN QUALIFIED CONSULTANTS. The Company believes it
has been able to attract, develop and retain qualified consultants by providing
leadership and management support through effective and open communication,
developing consultants through professional and technical training and education
programs, providing challenging project opportunities with significant client
responsibility,
24
<PAGE>
offering competitive compensation and benefits that recognize the individual
needs of each consultant and focusing on providing primarily IT services. The
Company maintains a proprietary database of current, prospective and former
consultants to help it identify and recruit qualified consultants. In addition,
the Company's presence in 24 metropolitan markets enhances the Company's ability
to match consultants' desired locations and technical abilities with client
needs. Metro recognizes that its success can be sustained only through the
efforts and quality of its consultants. To this end, management provides
responsive technical and professional support, promotes a sense of
responsibility and rewards quality performance through numerous incentive
programs and awards.
BUILD LONG-TERM PARTNERSHIPS WITH CLIENTS. The Company's goal is to have
its clients view Metro as an extension of their IT departments and as a
long-term partner that is able to fulfill their IT services requirements. As a
result, the Company emphasizes a partnership approach to its clients, rather
than a one-time project or assignment approach. To develop these relationships,
the Company spends a significant amount of time and resources tracking and
anticipating the needs of its clients. The Company works to maintain close
communications with its clients during and at the conclusion of each project
with a view to achieving quality results and assessing future opportunities. The
Company believes that this partnership approach results in increased client
retention and less disruption to clients' businesses. Evidence of the Company's
success in this area is that the Company's 10 largest clients by revenue for
1995 had each been a client for over five years, while each of the Company's
three largest clients had been a client for over 10 years. Six of the Company's
10 largest clients for the nine months ended September 30, 1996 also were among
its 10 largest clients in 1993, 1994 and 1995.
PROVIDE A WIDE RANGE OF VALUE-ADDED IT SERVICES. The Company's consultants
provide a wide range of IT services including planning, managing, building,
implementing and maintaining IT systems. The Company supports all major computer
technology platforms (mainframe, mid-range, client/server and network
environments) and supports projects using a broad range of software
applications. For example, the Company implements SAP's client/server software,
custom develops Oracle, Informix, DB2, Visual Basic and C++ applications,
implements and supports Windows NT, Novell and UNIX based network environments
and supports numerous other application environments. The Company continually
seeks to broaden its services in the changing IT market by providing its
consultants with exposure to emerging technologies and by hiring consultants
with diverse IT backgrounds and skills.
PROVIDE HIGH-QUALITY, COST-EFFECTIVE SERVICES. The Company is dedicated to
providing its clients with the highest possible level of service at what the
Company believes is the "best value." The Company believes its experienced
consultants and proprietary systems allow the Company to deliver high-quality,
on-schedule services to its clients in a cost-effective and efficient manner.
The Company believes that its experienced consultants reduce costs for clients
by accurately analyzing the scope of projects and by decreasing the time needed
to complete projects, thus meeting clients' needs on time and within budget. In
addition, the Company believes that the quality of its services has been a
differentiating factor that has helped it successfully expand. The Company's
dedication to quality services and client satisfaction has resulted in special
recognition from clients, such as IBM Corporation, First Union National Bank and
GTE Corporation. The Company has been recommended for ISO 9002 registration of
its operating procedures and its quality assurance programs. The Company
believes ISO registration, an international standard for quality assurance and
consistency in operating procedures, will enhance its reputation and help it
achieve preferred vendor status with clients. The Company also believes many
potential and existing clients will require evidence of ISO registration in the
future. The Company's ISO 9002 registration is expected to be completed during
the first quarter of 1997.
LEVERAGE PROPRIETARY SYSTEMS. The Company believes that its internally
designed and developed proprietary business systems have been a major factor in
its successful growth and expansion. These systems are used to support and
enhance its recruiting, marketing, training, consultant productivity, client
scheduling and client servicing processes. For example, Metro's Staff Sourcing
Network provides the
25
<PAGE>
Company with the ability to identify and hire qualified consultants on a
nationwide basis and match their skills and desired work locations with an
appropriate office in a time-critical manner. The Company's scheduling system
allows it to efficiently manage contract renewals and billing rate increases and
anticipate clients' needs for IT consultants and services. These proprietary
systems, which reside on the Company's wide area network and local area
networks, permit timely sharing of information on a Company-wide basis. The
Company believes these systems support expansion of its operations in a
controlled, cost-efficient and effective manner and are capable of supporting a
larger organization.
GROWTH STRATEGY
The Company has competed successfully in the rapidly changing IT environment
and has capitalized on the growing demand for IT services. The Company's revenue
has increased at a compound annual growth rate of 29.2% over the last 10 years
and 24.6% over the last five years and grew 33.6% for the nine months ended
September 30, 1996 compared to the same period in 1995. These growth rates have
been achieved solely through internal growth and without the benefit of
acquisitions. In the future, the Company intends to augment internal growth with
selective acquisitions. The Company's growth strategy consists of three primary
components:
DEVELOP AND EXPAND CLIENT BASE. The Company intends to increase revenue by
achieving higher penetration rates of its existing clients and expanding its
client base. By providing a wide range of high-quality services, the Company has
historically expanded the scope of its client relationships through additional
assignments and by providing additional services within client organizations. In
addition, because many of the Company's clients have offices throughout the
United States, the Company strives to leverage these relationships by providing
IT services in multiple locations. For example, in 1983, the Company provided
NORTEL with approximately eight consultants in one NORTEL location, Raleigh,
North Carolina. As of September 30, 1996, the Company had approximately 95
consultants supporting five NORTEL locations through five Company offices.
In addition to increasing sales with existing clients, the Company seeks to
develop new client relationships in each office. For example, the Company's
Research Triangle (Raleigh, North Carolina) office, which opened in 1982 and is
currently Metro's largest office, added 15 new clients during the 12-month
period ended September 30, 1996, (excluding clients that generated less than
$25,000 in revenue during such 12-month period). The Company believes that its
existing offices have the potential for substantial growth.
OPEN NEW OFFICES. The Company believes that there is substantial
opportunity to expand its existing network of offices. The Company has grown
from 15 offices in 1993 to 24 offices currently, eight of which have opened
since April 1, 1995, and anticipates that it will open three to five additional
offices annually for the next several years. The Company has developed a
national expansion strategy and has successfully replicated its business model
in its newly-opened offices. The Company believes this strategy has allowed it
to expand into new geographic regions with reduced start-up times and costs.
Historically, new offices have generally achieved monthly operating income
within six to 12 months and cumulative operating income within 18 to 24 months.
The Company's office network establishes a local presence in each market and
demonstrates its commitment to each local market thereby enhancing its ability
to attract skilled, local consultants for local assignments and assignments in
its other offices. The Company believes a local presence also allows it to be
more responsive to clients, provides a competitive advantage against firms that
do not maintain a local presence and enables the Company to serve clients in
different geographic markets.
SELECTIVELY ACQUIRE BUSINESSES. The Company's strategy is to supplement its
internal growth through selective acquisitions. The Company will consider
acquiring IT services firms in new geographic markets to reduce start-up costs
and "best reputation" firms in its current markets to provide business synergies
and increased market penetration. The Company will also consider acquisition
opportunities involving specialty consulting practices and new IT services that
the Company can cross-sell to its existing client base. Given
26
<PAGE>
the highly fragmented nature of the IT services marketplace, the Company
believes acquisition opportunities exist. In identifying potential acquisition
candidates, the Company will pursue IT services firms with a culture, client
base, geographic presence and technical expertise complementary to its own. The
Company will seek to improve the acquired firm's profitability by implementing
the Company's business strategies and proprietary business systems. The Company
currently has no agreements, understandings or commitments with respect to any
potential acquisitions.
SERVICES
IT services are primarily provided by the Company through supplemental IT
services arrangements and, to a lesser extent, through project outsourcing
services arrangements. Substantially all services are billed on a time and
materials basis. For the nine months ended September 30, 1996, the Company
estimates that supplemental IT services accounted for more than 90% and project
outsourcing services accounted for less than 10% of the Company's revenue.
The Company offers IT services in five major service areas: application
systems development and maintenance, IT architecture and engineering, systems
consulting, project outsourcing and general support services.
[Graphic]
- --Title "Metro Information Services, Inc. Information Technology Services"
[A chart of the five major information technology services areas provided to
clients of the Company. The word "client" is in a circle surrounded by five
hexagonal figures, each of which contains the name of one of the five service
areas: application systems development and maintenance, IT architecture and
engineering, systems consulting, project outsourcing and general support
services.]
Application systems development and maintenance services include consultant
support of projects on all major technology platforms including mainframe,
mid-range, client/server, object oriented, network and desktop computing
environments. IT architecture and engineering services include the support of
major systems foundations and operating systems. Systems consulting services
include a variety of strategic business services such as information systems and
IT planning. Project outsourcing services include full project services that
generally require a higher level of responsibility. General support services
include a variety of services such as help desks, call center support, technical
training and documentation and technical writing.
27
<PAGE>
Set forth below is an overview of the key services and sample engagements
provided within each major service area:
- -----------------------------------------------------------------------------
APPLICATION SYSTEMS DEVELOPMENT AND MAINTENANCE SERVICES
KEY SERVICES SAMPLE ENGAGEMENTS
Systems design and development Metro's programmer/analysts designed and
Prototyping developed an application system that
Systems implementation placed a products catalog on the
Database administration Internet to allow sales personnel and
Legacy system maintenance customers of a forms distributor to
Internet/Intranet application search for products and view product
development information and images on-line. The
Packaged software customization system utilized Microsoft's Internet
Project management Explorer set of tools, which include
Front Page, ActiveX, Control Pad, Visual
Basic 4.0 Enterprise, Access 7.0 and SQL
Server.
Metro has assisted with a variety of
Year 2000 projects including the
analysis for the selection of a Year
2000 tool for a large public utility
(the tool selected was ADPAC's
SystemVision 2000) and project
management support for a Year 2000
Compliance Project at a large
transportation company (the project team
consisted of 10 consultants who analyzed
and repaired the software code of an
integrated material management system
utilizing ViaSoft tools).
- -----------------------------------------------------------------------------
IT ARCHITECTURE AND ENGINEERING SERVICES
KEY SERVICES SAMPLE ENGAGEMENTS
Local and wide area network A team of Metro network engineers
design and implementation designed and implemented an
Network administration enterprise-wide network consisting of
Systems programming Windows NT Server, Windows NT
Capacity planning/ Workstation, Windows 95 and Windows for
performance tuning Workgroups for a marketing agency. The
Host computer connectivity wide area network components were a
Internet/Intranet connectivity mixture of Wellfleet, Cisco, Adtran and
Electronics data interchange MS RAS components utilizing MCI frame
(EDI) relay and direct point-to-point lines.
Systems integration Network users had access to Microsoft
Disaster recovery planning Office, Goldmine (contact management
software), IBM AS/400 and Internet
services. The team also implemented
Internet access connections with a Cisco
router and Sparc Sun UNIX stations and
maintained several other UNIX servers
including SCO, HP-HX and IBM AIX. The
Wide Area Network consisted of over 15
sites and remote access for mobile sales
staff was provided by Citrix Winframe
Server and Windows NT RAS.
Metro provided a team of consultants to
assist with requirements analysis,
systems architecture design, procurement
specification development, acquisition
coordination and the implementation of
major extensions to a complex LAN
computing environment for a large
shipbuilder. The LAN included a mixture
of PCs, UNIX Computer Aided Design
workstations and servers running MS
Windows for Workgroups, Windows 95,
Windows NT Server and Intergraph's CLIX
computing environments. The applications
and systems implemented included
computer-based fax services using Optus
FaxSys for MS Windows NT, imaging
support using Watermark Enterprise and a
Windows NT/RAID array based NFS file
server. The client's heterogeneous LAN
was TCP/IP protocol based and was
implemented using both 10BaseT and
10Base2 technologies. In addition, the
consultants provided PC user support,
Windows NT server installation and
administration, UNIX network system
administration, IGES translation of CAD
models, administration and support of
the Internet Domain Name Server and
participation in the US Navy's NewNet
Wide Area Network.
28
<PAGE>
- -----------------------------------------------------------------------------
SYSTEMS CONSULTING SERVICES
KEY SERVICES SAMPLE ENGAGEMENTS
Business analysis and Metro was responsible for requirements
requirements definition definition and software and hardware
Packaged software evaluation evaluation for a commercial construction
and implementation firm. Metro assisted with purchase
Business process re-engineering negotiations and made recommendations
Information systems planning concerning implementation planning.
IT organization assessment Metro assisted a national managed
and planning behavioral health organization in its
efforts to implement a contract for the
provision of health care to military
dependents. The project included the
development of implementation plans and
tasks list and a detailed plan for the
execution of a benchmark system required
by the federal government which tested
the functionality of the Beneficiary
Services, Clinical, and Claims
Processing systems. In addition, Metro
interacted with subcontractors and
software vendors to ensure that services
and products were delivered in
accordance with the schedule and
prepared and presented status reports to
the client.
- -----------------------------------------------------------------------------
PROJECT OUTSOURCING SERVICES
KEY SERVICES SAMPLE ENGAGEMENTS
Project management Metro was responsible for the project
Application systems management and full life cycle
development development of a workers' compensation
Legacy systems maintenance system for a large manufacturer. The
Off-site development centers system was developed using IDMS, ADSO
Year 2000 impact analysis and COBOL in an IBM MVS mainframe
and compliance computer environment. The project
included requirements definition, user
and technical design, programming and
testing, systems testing, user training,
conversion from both manual and
automated systems, implementation and
post-implementation support phases.
Metro provided a complete Project Team
responsible for the development of a
system to support all business processes
of a new fiber recycling plant for a
large paper manufacturer. Specific
responsibilities included project
management, business process definition,
requirements definition, overall project
plan design specifications, detailed
design specifications, program
specifications, complete system
construction, unit and system
documentation, unit and system testing,
conversion and implementation and post-
implementation support. The project
environment was HP-9000 hardware, HP-UX,
Uniface application development
language, the CASE tool System Architect
for Data Flow Diagrams, Entity
Relationship Diagrams ported to Uniface
by U-SA Bridge and Oracle 7.0 RDBMS in a
distributed environment.
- -----------------------------------------------------------------------------
GENERAL SUPPORT SERVICES
KEY SERVICES SAMPLE ENGAGEMENTS
Help desk/call center Metro's consultants provided support
Technical training services for a major oil and gas
Documentation and technical exploration corporation to discover and
writing document the practices and standards for
world-wide implementation of a
client/server infrastructure. The end
product consisted of six volumes of
information and primarily utilized Word
and PowerPoint.
Metro consultants supported a help desk
support center for a large oil and gas
exploration and distribution
corporation. The Help Desk Support
Center used Clarify to manage calls and
supported OS/2, Windows 95, Novell 4.1
and Microsoft Office products.
29
<PAGE>
CLIENTS
The Company serves clients operating in a wide variety of industries
including communications, distribution, retail, financial services, government
(state and local only), health care, IT services, manufacturing, transportation,
leisure and utilities. The Company's clients include GTE Data Services, Inc.,
Microsoft Corporation, NationsBank of Virginia, N.A., Newport News Shipbuilding
Inc., Norfolk Southern Corporation, NORTEL and Virginia Power Company.
In 1993, 1994, 1995 and for the nine months ended September 30, 1996, the
Company provided IT consultants to approximately 155, 194, 266 and 328 clients,
respectively (excluding clients that generated less than $25,000 in revenue
during each preceding 12-month period). In each of 1993, 1994 and 1995 and the
nine months ended September 30, 1996, at least 85% of the Company's revenue came
from clients who were clients in the prior year. The Company's 10 largest
clients by revenue in 1995 had each been a client for over five years, while the
Company's three largest clients for 1995 had each been a client for over 10
years. Six of the Company's 10 largest clients by revenue for the nine months
ended September 30, 1996 also were among the 10 largest clients in 1993, 1994
and 1995. The Company's 10 largest clients accounted for approximately 45.3%,
40.1%, 33.4% and 29.3% of the Company's revenue in 1993, 1994, 1995 and the nine
months ended September 30, 1996, respectively. The Company's largest client
accounted for approximately 8.2%, 9.3%, 6.8% and 6.3% of the Company's revenue
in 1993, 1994, 1995 and the nine months ended September 30, 1996, respectively.
SALES AND MARKETING
The Company's marketing objective is to develop long-term partnership
relationships with existing and new clients that will lead to the Company
becoming the preferred provider of IT services. The Company's primary marketing
approach is to introduce prospective clients to Metro's capabilities and to
learn about prospective clients' IT environments through personal appointments
with information systems managers, purchasing or human resources managers and
chief information officers. This personal approach results in a better
appreciation of each client manager's role within the organization and
preferences in using IT services. Other sales and marketing methods include
client referrals, networking, attending trade shows and alliances with other
vendors.
The Company divides its sales and marketing effort between new client
acquisition and existing client development. New client acquisition is primarily
supported by marketing account representatives who are responsible for
completing the full sales cycle from the identification of prospective clients
through the start of the initial client assignment. Once an assignment begins,
client services coordinators are responsible for client development, which
includes ensuring the delivery of quality services and seeking opportunities for
additional assignments.
At September 30, 1996, the Company employed 18 individuals performing new
client acquisition functions and 35 individuals performing client development
functions. The compensation plans for these individuals are structured similarly
and consist of a base salary and quarterly incentives and bonuses. Their base
salary depends on their experience and performance levels, while quarterly
incentives and bonuses are based on the achievement of a number of factors,
including new client acquisition, margin improvement, increases in the number of
consultants, consultant productivity, consultant retention and administrative
objectives.
In addition to the Company's primary marketing approach, the Company also
has developed three targeted marketing initiatives: Year 2000 compliance,
project outsourcing and managed services/vendor on premise for IT services. The
Company believes these initiatives will position Metro to capitalize on a
growing trend towards vendors accepting more project responsibility.
30
<PAGE>
EMPLOYEES
Virtually all of the Company's consultants are treated as employees of the
Company for federal and state tax purposes. For such individuals, the Company
pays social security taxes (FICA), federal and state unemployment taxes and
workers' compensation insurance premiums.
As of September 30, 1996, the Company had 1,517 employees of which 1,471
were full-time and 46 were part-time (working 30 hours or less in a week). Of
the 1,471 full-time employees, 1,266 were consultants and 205 were general and
administrative staff. Of the 1,266 consultants, the Company classifies 847 as
Regular Staff Members ("RSMs") and 419 as Associate Staff Members ("ASMs"). RSMs
are entitled to full benefits and substantially all are salaried and continue to
earn full salary and benefits even if not working for a client. The Company
markets RSMs to new clients in anticipation of completion of current project
assignments. ASMs are entitled to only statutory benefits and the majority are
paid on an hourly basis. In addition to the statutory benefits, ASMs are
permitted to participate in a limited number of other benefits, but are required
to pay substantially all of the cost of these benefits. ASMs are employed only
for specific client projects. As a result, even though the Company markets most
ASMs to new clients in anticipation of completion of current project
assignments, they are at greater risk of not being retained by the Company.
Competition for qualified IT professionals to fill client needs is intense.
Consultants are often contacted by competitors and clients who wish to hire
them. The Company believes that its core philosophy and values, developed at the
Company's inception, help it attract and retain high-quality IT professionals.
Employees sign agreements that limit their ability to compete with the Company
for a 12-month period after leaving the Company. In addition, clients may only
hire employees of the Company working at the client's facility if permitted by,
and in accordance with the terms of, the contractual provisions governing the
engagement or with the Company's consent.
The Company completes an annual comprehensive staff survey detailing
employee satisfaction and areas for improvement. The survey results are
published in special editions of the Company newsletter, MetroEXPRESS, and
shared with employees and clients. The Company believes that the survey
identifies changing employee needs and desires and increases employee
satisfaction which reduces employee turnover. The Company is not a party to any
collective bargaining agreements and considers its relationships with its
employees to be excellent.
RECRUITING AND HIRING
Recruiting and hiring qualified consultants is critical to the Company's
success. The Company spends significant resources and effort to locate and
retain high-quality consultants. Management believes a structured approach to
recruiting increases the effectiveness of its recruiting efforts, ultimately
resulting in the hiring of high-quality consultants and enhancing the Company's
competitive position. The Company's structured recruiting approach is based on:
- the use of a proprietary resume tracking database which allows qualified
candidates to be identified based on specific client requirements,
- effective communication between the local offices and corporate
headquarters which allows all offices to share information and match
candidates to the appropriate office and client and
- a strict qualification process that utilizes Company-stated standards to
qualify candidates both on a technical and professional basis.
The Company identifies candidates through a variety of sources, including
local and national advertising, recruiting agencies, referrals from employees
and clients, the Internet, career fairs and professional associations. The
Company believes its national presence and local office network enables it to
recruit consultants with specialized skill sets, which are generally in higher
demand and more difficult to locate.
31
<PAGE>
Candidate resume information is entered into the Company's proprietary database,
which allows the Company's 24 offices equal access to candidate qualifications.
Office staff can search for candidates based on a variety of search criteria
including skill sets, experience and location preferences. The Company's Quality
Operations Department monitors the recruiting process and coordinates the
sharing of information among all offices so candidates are quickly and
efficiently pursued for hire throughout the Company.
The Company seeks consultants who demonstrate a commitment to client
service. Offices are required to adhere to a defined team recruiting process.
The evaluation of candidates includes: (i) a basic qualification of the
candidates' technical skills and experience, (ii) a behavioral interview to
determine skill and personality match with the clients' environment, (iii) a
minimum of two reference checks, (iv) a technical interview to objectively
assess skill level and (v) a personal interview to further assess interpersonal
skills.
On September 30, 1996, the Company had 49 individuals performing recruiting
functions. The compensation plan for these individuals consists of a base
salary, commissions for consultant hires and quarterly bonuses.
CONSULTANT TRAINING AND EDUCATION
The Company believes consultant training and education is essential to
meeting client requirements for ever-changing skills and for retaining
consultants. The Company offers a variety of training in technical and
professional competencies on a Company-wide level, through its Human Resources
Department and, on an individual office level, through each office's training
coordinator. The Human Resources Department oversees professional and technical
training, the licensing of computer-based training courses, development or
licensing of instructor-led training, utilization of corporate training hardware
and software and tuition reimbursement. Office training coordinators work
closely with their office staff to provide effective training through the
development of training plans, coordination of class logistics and the
sponsorship of informal special interest training sessions.
OFFICE OPERATIONS
Each office is staffed with a team of personnel to support varying client
and consultant needs. Generally, each team performs support functions such as
marketing, recruiting, professional development, business development and
management. This team approach is designed to achieve the Company's goal of
providing each client with "service beyond the client's expectations" and is
illustrated by the Company's Client Support Structure:
32
<PAGE>
[Graphic]
"CLIENT SUPPORT STRUCTURE"
[Chart of the Company's Client Support Structure showing the Company's
clients in a rectangle at the top of the Chart. Below the clients appears a
rectangle containing the positions of the Company's employees who perform
services from the Company's officers. These positions consist of the Company's
Consultants, Marketing Account Representatives, Client Service Coordinators,
Professional Staff Recruiters, Staff Support of Training Coordinators and Office
Directors. Below this rectangle appears a rectangle containing the departments
that make up the Company's Corporate Support Group. These departments are
Quality Operations, Information Services, Finance, Human Resources and Executive
Management.]
Clients are the focus of the Company's client support structure which
provides each client with "layers of support" from the Company. The first layer
of client support is the IT consultants who work at client sites on projects
generally lasting six to 12 months. The next layer of support is each office's
Leadership Team which includes: (i) marketing account representatives, (ii)
client services coordinators, (iii) professional staff recruiters, (iv) staff
support and training coordinators and (v) a director who leads the office
Leadership Team, all of whom are supported by administrative assistants.
Most office directors were promoted from within the Company and have an
appreciation for the Company's culture. Having a strong core-leadership team
that has "grown up" with the Company allows Metro to maintain its focus on
supporting consultants and servicing clients.
CORPORATE SUPPORT GROUP
The Corporate Support Group furnishes a "layer of support" for the Company's
offices through its President and Chief Executive Officer, John H. Fain, Chief
Operating Officer, Andrew J. Downing, and, on joining the Company, Chief
Financial Officer, Robert J. Eveleigh, working in conjunction with the Vice
Presidents of Operations ("VPOs") and the Quality Operations, Information
Services, Finance and
33
<PAGE>
Human Resources Departments. The Corporate Support Group performs as many back
office functions as possible at the corporate headquarters to allow the offices
to focus primarily on client service and consultant support.
EXECUTIVE MANAGEMENT. The Executive Management Team consists of Mr. Fain,
Mr. Downing, Mr. Eveleigh, after he joins the Company, and three VPOs. Each VPO
supports a group of five to ten offices.
QUALITY OPERATIONS. The Quality Operations Department coordinates the
Company's recruiting process and is responsible for its ISO 9002 registration
and compliance. ISO is an international standard for quality assurance and
consistency in operating procedures. The Company anticipates that many of its
existing and prospective clients will soon require their IT services vendors'
processes be ISO registered.
INFORMATION SERVICES. The Information Services Department supports systems
operations, office telecommunications and internal applications systems
development and support. The Company has committed significant resources to the
development of its recruiting systems to improve the database search
capabilities, ease data entry via scanning and imaging, ease remote access to
the database and implement a workgroup concept for using the system.
FINANCE. The Finance Department is responsible primarily for general
accounting, time entry and reporting, billing, accounts receivable, payroll,
facilities acquisition and administration, risk management and monitoring
contract performance.
HUMAN RESOURCES. The Human Resources Department develops and refines
policies and procedures, administers personnel benefits and coordinates staff
hiring, training and development. The Human Resources Department has also
established a benefits help desk designed to respond quickly and accurately to
employee questions.
GEOGRAPHIC EXPANSION TEAM
In 1995, the Company established a geographic Expansion Team to support the
Company's growth plan to open three to five new offices annually for the next
several years. The Expansion Team has supported or is supporting the eight
offices opened by the Company since April 1, 1995. The Expansion Team focuses
on: (i) culture transfer to ensure that the Company's "caring and sharing"
values are adopted by the new office team, especially if team members are new to
the Company; (ii) orientation and training to ensure that each member of the new
office team thoroughly understands the Company's philosophy, mechanics and
expectations of effectively performing their primary function; (iii) teamwork to
ensure that office members are interacting and effectively communicating as a
team and achieving team synergy; and (iv) performance of the primary functions.
These primary functions include recruiting, sales and marketing, employee
support and administration. Expansion Team members also act as coaches and role
models for office team members.
The Expansion Team consists of an Expansion Director, responsible for the
sales and marketing for the new office, an Expansion Recruiter, responsible for
recruiting for the new office, members of the Information Services Department,
responsible for office communications equipment installation and support, and a
Vice President of Operations, responsible for the selection and development of
the local Leadership Team and the growth and profitability of the new office.
COMPETITION
The IT services industry is extremely competitive and highly fragmented.
Although the market is consolidating, management believes no one company is
dominant. The Company's competitors include general IT services firms, temporary
staffing and personnel placement companies, general management consulting firms,
major accounting firms, divisions of large hardware and software companies and
niche providers of IT services. Some of the Company's competitors possess
substantially greater resources,
34
<PAGE>
greater name recognition and a more established client base than the Company. In
addition, the services offered by the Company have been and continue to be
provided by client personnel.
The Company believes that the significant competitive factors in the sale of
its services include quality of consultant services, availability of
consultants, price, breadth of services offered and reputation. The Company
believes the quality of consultant services is determined by the consultant's
professionalism and ethics, relevant past experience, technical skills, ability
to learn quickly, solve problems and meet milestones and sensitivity to client
personnel and resources.
As a result of intense competition, IT services engagements frequently are
subject to pricing pressure. Clients also require vendors to be able to provide
services in multiple locations. Competition for contracts for many of Metro's
services takes the form of competitive bidding in response to requests for
proposals and quotes.
Prime Vendors present an additional competitive challenge. Prime Vendors
enter into contractual arrangements with clients to fill their IT services needs
either directly or through subcontractors. Because these Prime Vendors generally
are given the first opportunity to fill a client's consultant needs, the
industry trend toward the use of Prime Vendors may give the Company fewer
opportunities to place consultants. In those circumstances where the Prime
Vendor subcontracts with the Company to provide consultants, the Prime Vendor
may place billing rate pressure on the Company.
The Company has taken steps, when practical, to become a Prime Vendor of IT
services for certain clients. The Company has experienced and anticipates
continued pricing pressure from these clients as a condition to becoming or
remaining a Prime Vendor. The Company evaluates these situations on an
individual basis to determine whether these arrangements contribute to the
overall profitability of the Company.
INTELLECTUAL PROPERTY
In accordance with industry practice, contracts between the Company and its
clients normally provide that all intellectual property created for a client
belongs exclusively to that client. Intellectual property used by the Company to
operate its business is owned by or licensed to the Company. The Company relies
on trade secret laws to protect its proprietary software. The Company attempts
to protect its trade secrets and other proprietary information through
agreements with employees and consultants. The Company does not hold any patents
and does not have any patent applications pending. There can be no assurance
that the steps taken by the Company to protect its proprietary technology will
be adequate to deter misappropriation of its proprietary rights or third party
development of similar proprietary software.
Metro Information Services-SM- is a registered service mark of the Company.
Other than Metro Information Services-SM-, the Company does not own any
registered service marks.
35
<PAGE>
FACILITIES
The Company's principal executive office is located in Virginia Beach,
Virginia. This facility currently serves as the headquarters for the Corporate
Support Group. The Company's headquarters is located in a leased facility with
approximately 19,300 square feet at a current annual rent of $298,050, and a
term expiring in 2001. The Company's 24 offices aggregate approximately 57,400
square feet and are leased at aggregate current annual rents of approximately
$913,000 for various terms, with no lease commitment extending past the year
2001. In addition, in support of its geographic expansion plan, the Company
occasionally leases residential apartments for terms of two to six months in
those cities where its newest offices are located. The Company believes that its
properties are adequate for its current needs. Further, the Company believes
that suitable additional or replacement space will be available when required on
terms the Company believes will be acceptable. See "Certain Transactions."
The following table sets forth additional information concerning the
Company's facilities:
<TABLE>
<CAPTION>
DATE OPENED OFFICE LOCATION
<S> <C>
July 1979.................................... Tidewater (Virginia Beach), Virginia
September 1982............................... Research Triangle (Raleigh), North Carolina
November 1982................................ Richmond, Virginia
August 1984.................................. Tampa Bay (Tampa), Florida
November 1984................................ Charlotte, North Carolina
October 1985................................. Triad (Winston-Salem), North Carolina
March 1987................................... Atlanta, Georgia
October 1987................................. South Florida (Ft. Lauderdale), Florida
August 1988.................................. Caribbean Islands (Hato Rey), Puerto Rico
August 1989.................................. Orlando (Winter Park), Florida
November 1989................................ Greenville, South Carolina
March 1990................................... Roanoke, Virginia
April 1991................................... Nashville (Brentwood), Tennessee
September 1992............................... Dallas/Ft. Worth (Dallas), Texas
July 1993.................................... Jacksonville, Florida
July 1994.................................... Houston, Texas
April 1995................................... Cincinnati (Fort Mitchell, KY), Ohio
May 1995..................................... Chicago (Des Plaines), Illinois
September 1995............................... Phoenix, Arizona
November 1995................................ Delaware Valley (Wayne), Pennsylvania
April 1996................................... Puget Sound (Bellevue), Washington
June 1996.................................... Washington, D.C. (Fairfax, VA)
October 1996................................. Columbus (Worthington), Ohio
January 1997................................. Rocky Mountain (Denver), Colorado
</TABLE>
36
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL
The following table sets forth certain information regarding the directors,
executive officers and certain key personnel of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----------- -------------------------------------------------------
<S> <C> <C>
John H. Fain................. 48 Director, President and Chief Executive Officer
Andrew J. Downing............ 40 Director, Executive Vice President and Chief Operating
Officer
Robert J. Eveleigh(1)........ 37 Director, Vice President of Finance, Treasurer and
Chief Financial Officer
Frank B. Bracken, Jr. ....... 48 Vice President of Operations
Richard C. Jaeckle........... 50 Vice President of Operations
Kathleen A. Neff............. 46 Vice President of Operations
Bradley B. Breseman.......... 46 Director of Quality Operations
Steven A. Lurus.............. 41 Director of Finance, Secretary and Chief Accounting
Officer
Marilynn C. Moschel.......... 49 Director of Human Resources
R. Lawrence Whitley.......... 36 Director of Information Services
</TABLE>
- ------------------------
(1) Mr. Eveleigh will become a director and executive officer of the Company
immediately before this offering becomes effective.
JOHN H. FAIN has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since its inception in 1979. Mr. Fain
also serves on the Board of Directors of Tidewater Health Care, Inc., Virginia
Beach General Hospital and the Board of Trustees of Cape Henry Collegiate
School. Mr. Fain received a bachelor of science degree in computer science from
the University of South Carolina and has over 26 years of IT experience.
ANDREW J. DOWNING joined the Company in 1983, since July 1, 1996, has served
as Executive Vice President and Chief Operating Officer, and, on January 10,
1997 became a director of the Company. He served in various marketing capacities
in the Company's Virginia Beach, Virginia office beginning in 1983 through 1993,
including Marketing Director. From January 1994 through December 1995, he served
as a Regional Vice President and, beginning January 1996, until being named
Executive Vice President, served as a Vice President of Operations. Mr. Downing
received a bachelor of science degree in business from the University of
Virginia and has over 18 years of IT experience.
ROBERT J. EVELEIGH will become a Director, Vice President of Finance,
Treasurer and Chief Financial Officer of the Company immediately before this
offering becomes effective. Since August 1988, Mr. Eveleigh has been an attorney
with Clark & Stant, P.C., the Company's general counsel. See "Legal Matters." In
addition to being an attorney licensed to practice in the Commonwealth of
Virginia, Mr. Eveleigh is a Certified Public Accountant and, from 1981 to 1985,
was on the staff of KPMG Peat Marwick. He received a Bachelor of Science degree
in Business Administration from the University of Richmond and a Juris Doctor
from the Marshall-Wythe School of Law at the College of William & Mary.
FRANK B. BRACKEN, JR. joined the Company in July 1984 and has served as a
Vice President of Operations since July 1996. He served as Division Director in
the Company's Richmond, Virginia office from January 1996 until being named a
Vice President of Operations. From January 1994 to December 1995, Mr. Bracken
served as Metro's National Account Marketing Director. From July 1984 to
December 1993, he served in various marketing positions in the Company's
Richmond, Virginia office. Mr. Bracken has over 25 years of IT experience.
37
<PAGE>
RICHARD C. JAECKLE, a Vice President of Operations, joined the Company in
1987 and has served as a Vice President since January 1994. From July 1989 to
December 1993, he was responsible for the selection and development of new
offices. Before joining the Company, Mr. Jaeckle was a Vice President of Sales
and Marketing for Teco Technology, Inc. and served as branch manager and held
other positions with Computer Task Group, Inc. Mr. Jaeckle has over 26 years of
IT experience.
KATHLEEN A. NEFF joined Metro in 1980 and since January 1996 has served as a
Vice President of Operations. From January 1983 to December 1995, she served as
the Technical Director of the Company's Richmond, Virginia office. Ms. Neff has
over 25 years of IT experience.
BRADLEY B. BRESEMAN joined the Company in April 1995 as Director of Quality
Operations. Before joining Metro, Mr. Breseman spent 22 years with A.B. Dick
Company in various capacities, last serving as Vice President, Service and
Distribution. He received a bachelor of business administration degree in
marketing and finance from the University of Wisconsin-Madison.
STEVEN A. LURUS joined Metro in June 1984 as controller, in 1986, was named
Director of Finance and, in 1991, was also named Secretary and Treasurer.
Effective immediately before this offering becomes effective, Mr. Lurus will
resign his position as Treasurer to accommodate Mr. Eveleigh being named
Treasurer and Mr. Lurus will become the Company's Chief Accounting Officer. He
is a certified public accountant and, from 1981 to 1984, was on the staff of
Goodman & Company CPAs. He received a bachelor of science degree in business
administration from Old Dominion University.
MARILYNN C. MOSCHEL, Director of Human Resources, joined Metro in February
1988. Before joining the Company, she served as Director of Marketing and Human
Resources for Goodman & Company CPAs. From 1975 to 1981, she was on the Faculty
of Old Dominion University's Speech, Communications and Theatre Arts Department.
From 1971 to 1975, she was a Speech Pathologist. Ms. Moschel received a bachelor
of arts degree from Mary Washington College, a master of education degree from
the University of Virginia and an advanced certificate in higher educational
administration from the College of William and Mary.
R. LAWRENCE WHITLEY joined the Company in September 1988 and since July
1992, has served as Director of Information Services. From September 1988
through March 1989, Mr. Whitley was an Information Systems Consultant working on
the Company's recruiting systems. From April 1989 through June 1992, he served
as the Manager of Information Services. From January 1981 until joining Metro,
Mr. Whitley served on the information services staff of, and held consulting
positions for, a chemical company, a local government, a temporary services
company and a NASA contractor. Mr. Whitley graduated from Old Dominion
University with a bachelor of science degree in business administration with a
concentration in Management Information Systems.
ELECTION OF DIRECTORS
On January 10, 1997, Andrew J. Downing was added to the Board of Directors
and, immediately before this offering becomes effective, Robert J. Eveleigh will
become a member of the Board of Directors. The Company intends to add two
directors who are not executive officers of the Company (the "Outside
Directors") within 90 days after listing on the Nasdaq National Market. It will
be necessary for the Company to appoint these Outside Directors within the
90-day period to maintain its Nasdaq National Market listing. Failure to appoint
such Outside Directors could result in a delisting of the Common Stock from the
Nasdaq National Market.
Effective on the election of the third director, the Board of Directors will
be divided into three classes, the members of which will serve for staggered
three-year terms. At each annual meeting of shareholders, directors will be
elected for three-year terms to succeed the directors of the class whose terms
are then to expire. The terms of Class 1 Directors, Class 2 Directors and Class
3 Directors will expire on the election and qualification of successor directors
at the annual meetings of shareholders to be held in 1997, 1998 and 1999,
respectively. The Company's directors will serve until their respective
successors are elected or until
38
<PAGE>
death, resignation or removal. Officers are appointed by, and serve at the
pleasure of, the Board of Directors.
After the offering, Mr. Fain will control a majority of the Common Stock.
Mr. Fain will therefore have beneficial voting control of approximately 56.9% of
the total number of shares of Common Stock to be outstanding after the offering,
and accordingly, will have the ability to elect the Company's entire Board of
Directors and direct affairs of the Company. See "Principal and Selling
Shareholders."
DIRECTOR COMPENSATION
Directors who are executive officers of the Company will receive no
compensation as such for service as members of either the Board of Directors or
committees thereof. Outside Directors will receive an annual fee of $3,000, plus
$500 for each Board of Directors and committee meeting attended and
reimbursement for their expenses. The Company intends to adopt a non-qualified
stock option plan for its Outside Directors (the "Outside Directors Stock
Plan"). Under the Outside Directors Stock Plan, each Outside Director will be
granted a non-statutory option for 3,000 shares of the Common Stock on such
director's initial election as a director and, at each annual meeting of
shareholders thereafter such director shall be granted an additional option for
1,000 shares of the Common Stock. The options granted to Outside Directors will
be immediately exercisable in full at a price equal to the fair market value of
the Common Stock on the date of grant. The options will expire ten years after
the date of grant or one year after the Outside Director is no longer a director
of the Company, whichever is earlier. Options for an aggregate of 50,000 shares
of the Common Stock may be granted under the Outside Directors Stock Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish committees whose
responsibilities are summarized as follows:
AUDIT COMMITTEE. The Audit Committee will be comprised of the two Outside
Directors and will be responsible for reviewing the independence, qualifications
and activities of the Company's independent certified public accountants and the
Company's financial policies, control procedures and accounting staff. The Audit
Committee will be responsible for recommending to the Board of Directors the
appointment of the independent certified public accountants, reviewing and
approving the Company's financial statements and reviewing transactions between
the Company and any Company officer, director or entity in which a Company
officer or director has a material interest.
COMPENSATION COMMITTEE. The Compensation Committee will be comprised of Mr.
Fain and the Outside Directors and will be responsible for establishing the
compensation of the Company's directors, officers and other managerial
personnel, including salaries, bonuses, termination arrangements and other
executive officer benefits. In addition, the Committee will be responsible for
the administration of the Employee Stock Purchase Plan and Stock Option Plan,
including the recipient, amount and terms of stock option grants. A Compensation
Committee member who is also an officer of the Company is required to abstain on
votes relating to such officer's compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not currently have a Compensation Committee, but
anticipates establishing one within 90 days after the completion of this
offering. It will be necessary for the Company to establish the Compensation
Committee with a majority of its members being Outside Directors within 90 days
of listing on the Nasdaq National Market to maintain its listing. Failure to
establish a Compensation Committee with such Outside Directors could result in a
delisting of the Common Stock from the Nasdaq National Market. The functions of
the Compensation Committee, other than administration of the Stock Option Plan
and the Employee Stock Purchase Plan, are currently performed by the Board of
Directors of the Company. Mr. Fain serves on the Board of Directors and on the
committee established to
39
<PAGE>
administer the Stock Option Plan and the Employee Stock Purchase Plan before the
establishment of the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to or earned by the Company's President and Chief Executive Officer and
each of the Company's other most highly compensated executive officers who
earned more than $100,000 for the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ---------------------------------------------- --------- --------- ---------------- -----------------
<S> <C> <C> <C> <C>
John H. Fain,
President and Chief Executive Officer....... $ 600,000 -- $ 216,292 $ 14,489
Andrew J. Downing,
Executive Vice President and Chief
Operating Officer........................... 144,000 $ 166,930 43,258 7,591
Frank B. Bracken, Jr.,
Vice President of Operations................ 127,083 68,675 43,258 761
Richard C. Jaeckle,
Vice President of Operations................ 144,000 88,618 43,258 949
Kathleen A. Neff,
Vice President of Operations................ 127,083 68,675 43,258 7,494
</TABLE>
- ------------------------
(1) Includes non-recurring, non-cash compensation accrued in the fourth quarter
of 1995 for redeemable common stock issued for services performed in 1995 in
an amount equal to the excess of the fair market value of such stock over
the amount paid. The stock was issued pursuant to 30-day options, is fully
vested with the same rights to dividends as other issued and outstanding
Common Stock of the Company. Other compensation representing less than
$50,000 or 10% of the officer's salary and bonus has been omitted. Does not
include distributions to shareholders. See "Dividend Policy." and "Prior S
Corporation Status."
(2) Includes certain insurance premiums paid by the Company, non-cash
compensation for use of Company condominiums and amounts paid for excess
accrued vacation.
As of December 31, 1995, there were no outstanding options held by the
Company's executive officers.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with John H. Fain, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Andrew J. Downing, Executive Vice President and Chief Operating Officer, with
annual base salaries of $300,000 and $240,000, respectively, effective January
1, 1997. The employment agreements provide for an initial term of one year.
Thereafter, each agreement will automatically renew for successive one-year
terms unless terminated by either party. Mr. Fain and Mr. Downing are also
entitled to a performance bonus up to approximately 50% of their base salary
based on the Company's achievement of specified levels of revenue and operating
income as determined by the Compensation Committee and to participate in such
bonus programs and other benefit plans as are generally made available to other
executive officers of the Company. The agreements contain provisions protecting
against use of the Company's confidential information and protecting the Company
against competition from each officer for a two-year period after termination of
employment in any market in which the Company operates.
The Company has entered into employment agreements with Frank B. Bracken,
Jr., Richard C. Jaeckle and Kathleen A. Neff, the three Vice Presidents of
Operations, with annual base salaries of $180,000 effective January 1, 1997. The
employment agreements provide for an initial term of one year.
40
<PAGE>
Thereafter, the agreements will automatically renew for successive one-year
terms. Each individual is also entitled to a performance bonus up to
approximately 50% of base salary based on the Company's achievement of specified
levels of revenue and operating income as determined by the Company and to
participate in such bonus programs and other benefit plans as are generally made
available to other executive officers of the Company. The agreements contain
provisions protecting against the use of the Company's confidential information
and protecting the Company against competition from each officer for a two-year
period after termination of employment in any market in which the Company
operates.
The Company will enter into an Employment Agreement with Robert J. Eveleigh,
Vice President of Finance, Treasurer and Chief Financial Officer with an annual
base salary of $120,000, to be effective immediately before this offering
becomes effective. The Employment Agreement will provide for an initial term of
one year. Thereafter, the Agreement will automatically renew for successive
one-year terms unless terminated by either party. Mr. Eveleigh will be entitled
to a performance bonus of up to approximately 50% of his base salary based on
the Company's achievement of specified levels of revenue and operating income as
determined by the compensation committee and to participate in such bonus
programs and other benefit plans as are generally made available to other
executive officers of the Company. The Agreement will contain provisions
protecting against the use of the Company's confidential information and
protecting the Company against competition for a two-year period after
termination of employment in any market in which the Company operates.
Each employment agreement also includes a salary continuation arrangement in
the event of a serious illness or accident, that leads to long-term disability,
or termination by the Company of the agreement without cause. The amount payable
under these arrangements from Metro's funds and group disability policy could
exceed $100,000 under each employment agreement.
STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
THE FOLLOWING SUMMARIES OF THE STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE
PLAN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXTS OF SUCH
PLANS, COPIES OF WERE FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS IS A PART.
The Company has adopted the Metro Information Services, Inc. 1997 Incentive
Stock Option Plan ("Stock Option Plan") which provides for the grant of
incentive stock options (i.e., options intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")) to employees of the Company. Under the Stock Option Plan, the Board of
Directors may grant options to purchase up to 770,000 shares of Common Stock.
The Stock Option Plan will be administered by a committee (the "Committee")
of the Board of Directors intended to satisfy all applicable requirements
pertaining to disinterested administration under Rule 16b-3 of the 1934 Act
("Rule 16b-3") and Section 162(m) of the Code.
The Committee may grant only incentive stock options pursuant to Section 422
of the Code ("Incentive Stock Options"). The exercise price of the options
granted under the Stock Option Plan may be no less than 100% of the fair market
value of the shares on the date of grant. The Committee has the authority to
determine the terms (including vesting and expiration) of the stock option
grants; provided, however, that the expiration date of such option shall comply
with Section 422 of the Code. At the discretion of the Committee, options may be
exercised by payment of the purchase price, in whole or in part, in cash, by
promissory note or by the tendering of stock of the Company having a fair market
value on the date the option is exercised equal to the purchase price. The
ability to pay the purchase price in shares would, if permitted by the
Committee, enable the holder of the option to engage in a series of successive
stock for stock exercises and thereby fully exercise any options with little or
no cash investment. It is expected, however, that the Committee will require
that any shares tendered in satisfaction of the exercise price have been owned
by the holder of the option for at least six months.
The Stock Option Plan provides that no option granted under the plan may be
assigned, transferred, pledged or otherwise encumbered by the individual to whom
it is granted, other than by will or by the laws
41
<PAGE>
of descent and distribution, and each option will be exercisable, during such
individual's lifetime, only by the individual or after the individual's death,
only by such individual's legal representative.
Determinations and interpretations with respect to the Stock Option Plan are
made by the Committee, whose determinations and interpretations are binding on
all interested parties.
The Stock Option Plan provides that the Board of Directors may amend, alter
or terminate the Stock Option Plan at any time, provided that shareholder
approval must generally be obtained for any change that would require
shareholder approval under Rule 16b-3 or any other regulatory or tax requirement
that the Board of Directors deems desirable to comply with or obtain relief
under and subject to the requirement that no rights under an outstanding option
may be impaired by such action without the consent of the holder thereof. With
the consent of the holder, the Committee may amend or modify the terms of any
outstanding option in any manner including to authorize the grant of new options
in substitution for surrendered options, provided that the amended or modified
terms are permitted by the Stock Option Plan as then in effect. In the event of
certain corporate transactions or events affecting the Common Stock or the
structure of the Company, the Committee may make certain adjustments set forth
in the Stock Option Plan.
Neither the adoption of the Stock Option Plan or the Employee Stock Purchase
Plan discussed below, nor the making of awards under this plan precludes the
Company from adopting or establishing other incentive plans or arrangements and
such plans or arrangements may be generally applicable only in specific cases.
UNITED STATES FEDERAL TAX CONSEQUENCES OF THE STOCK OPTION PLAN. The
following discussion summarizes the federal income tax consequences of the Stock
Option Plan based on current provisions of the Code, which are subject to
change. The summary does not cover any state or local tax consequence of
participation in the Stock Option Plan.
When an optionee exercises an incentive stock option while employed by the
Company or within the 30-day (one-year for death or disability; three-month for
retirement) period after termination of employment, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares acquired on such exercise over the option price will
be an adjustment to taxable income for purposes of the federal alternative
minimum tax applicable to individuals. If the shares acquired on exercise are
not disposed of before the expiration of one year after the date of transfer and
two years after the date of grant of the option, the excess (if any) of the
sales proceeds over the aggregate option price of such shares will be long-term
capital gain, but the Company will not be entitled to any tax deduction with
respect to such gain. If the shares are disposed of before the expiration of
such periods (a "disqualifying disposition"), the excess of the fair market
value of such shares at the time of exercise over the aggregate option price
(but not more than the gain on the disposition if the disposition is a
transaction on which a loss, if such had been realized, would have been
recognized) will be ordinary income at the time of such disqualifying
disposition and the Company will be entitled to a federal tax deduction in a
like amount.
Special rules may apply to a participant who is subject to Section 16(b) of
the 1934 Act (generally directors, executive officers and 10% stockholders).
Certain additional special rules apply if the exercise price for an option is
paid for in shares previously owned by the optionee rather than in cash. The
deductions described above may be subject to the limitations of Section 162(m)
of the Code. Based on current law, however, the Company does not expect to be
subject to such limitations.
EMPLOYEE STOCK PURCHASE PLAN. The Company has adopted the Metro Information
Services, Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan"). The effectiveness of the Employee Stock Purchase Plan is conditioned on
the successful completion of this offering. Before completion of this offering,
no shares may be purchased under the Employee Stock Purchase Plan. Under the
Employee Stock Purchase Plan, a maximum of 250,000 shares of Common Stock may be
purchased from the Company by the employees through payroll withholding,
pursuant to a series of quarterly offerings. The
42
<PAGE>
Employee Stock Purchase Plan has been established pursuant to the provisions of
Section 423 of the Code. All full-time employees meeting certain service
requirements (as defined in the Employee Stock Purchase Plan), except for
employees who own Common Stock of the Company or options on such stock which
represent more than 5% of Common Stock of the Company, are eligible to
participate. Following the public offering, the Employee Stock Purchase Plan
will be administered by the Committee in a fashion intended to satisfy all
applicable requirements pertaining to disinterested administration under Rule
16b-3 and Section 162(m) of the Code. The Committee may make certain adjustments
set forth in the Employee Stock Purchase Plan. The Board of Directors may amend,
alter or terminate the Plan at any time, provided that shareholder approval must
generally be obtained for any change that would require shareholder approval
under Rule 16b-3 or any other regulatory or tax requirement that the Board of
Directors deems desirable to comply with or obtain relief under and subject to
the requirement that no rights under the plan may be impaired by such action
without the consent of the holder thereof. The Employee Stock Purchase Plan
provides that the purchase price of Common Stock shall be not less than 85% of
the fair market value of Common Stock on the date of the offering commencement
or termination, whichever is lower. Shares will be made available in a series of
quarterly offerings until the earlier of the time the shares reserved have been
purchased or the end of the quarterly offering. The Employee Stock Purchase Plan
provides that participants may purchase shares of Common Stock through a payroll
deduction unless, before the actual purchase, a participant withdraws his
accumulated payroll deductions. The Employee Stock Purchase Plan provides that
no employee will be granted any right to purchase Common Stock with a value in
excess of $25,000 per year. The Employee Stock Purchase Plan provides that in
the event of a disposition of all or substantially all of the assets of the
Company or a disposition of greater than 50% of the outstanding capital stock of
the Company by means of a sale, merger, reorganization or liquidation, the
holder of each outstanding option shall be entitled to receive at the time of
the next succeeding quarterly offering for each share as to which an option was
exercised, the cash, securities and/or property that the holder of one share of
the Common Stock was entitled to receive in the change in control transaction.
UNITED STATES FEDERAL TAX CONSEQUENCES OF THE EMPLOYEE STOCK PURCHASE
PLAN. The following discussion summarizes the federal income tax consequences of
the Employee Stock Purchase Plan based on current provisions of the Code, which
are subject to change. The summary does not cover any state or local tax
consequences of participation in the Employee Stock Purchase Plan.
Under Section 423 of the Code, employees do not realize taxable income at
the commencement of the quarterly offering or when they complete their payment
for and receive delivery of the Common Stock that they are eligible to purchase,
provided such purchase occurs while they are employed by the Company or within
three months after termination of employment. If no disposition of such Common
Stock is made within two years after the date of execution of an agreement or
within one year after the date of acquisition, any gain or loss that may be
realized on the ultimate sale will be treated as long-term capital gain or loss.
If such Common Stock, however, is disposed of within such two-year or one-year
period, the difference between the market value of such Common Stock at the time
of purchase and the purchase price will be treated as income taxable to the
employee at ordinary income rates in the year the disposition occurs and the
Company will be entitled to a federal tax deduction in the same amount in such
year. Notwithstanding the above, if the purchase price of Common Stock when
offered was less than 100% of its then fair market value, on a subsequent
disposition of Common Stock by the employee, including a disposition after the
two-year and one-year periods referred to above or the death of the employee
while holding such Common Stock, the employee will recognize compensation
taxable as ordinary income in an amount equal to the discount at the time of the
offer or, if less, the excess of the Common Stock's value at the time of such
disposition or death, as the case may be, over the original purchase price. The
Company's deductions described above may be subject to the limitations of
Section 162(m) of the Code. Based on current law, however, the Company does not
expect to be subject to such limitations.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the Common Stock offered hereby with respect to (i) the
Company's directors, (ii) the executive officers named in the Summary
Compensation Table, (iii) all directors and officers of the Company as a group,
(iv) the Selling Shareholders and (v) each person known by the Company to own
beneficially more than 5% of Common Stock. Unless otherwise indicated in the
footnotes to the table below, each person or entity named below has an address
in care of the Company's principal office.
<TABLE>
<CAPTION>
BEFORE OFFERING(1) AFTER OFFERING(1)
----------------------------- -----------------------------
COMMON STOCK COMMON STOCK
DIRECTORS, OFFICERS BENEFICIALLY COMMON STOCK BENEFICIALLY
AND 5% SHAREHOLDERS OWNED PERCENTAGE BEING OFFERED OWNED PERCENTAGE
- ------------------------------ -------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
John H. Fain(2)............... 9,213,665 73.7% 800,000 8,413,665 56.9%
Andrew J. Downing(3).......... 680,416 5.4 -- 680,416 4.6
Robert J. Eveleigh(4) -- -- -- -- --
Frank B. Bracken, Jr.......... 231,481 1.9 -- 231,481 1.6
Janet A. Ellis(5)............. 669,893 5.4 -- 669,893 4.5
Richard C. Jaeckle............ 77,160 * -- 77,160 *
Kathleen A. Neff(6)........... 385,802 3.1 -- 385,802 2.6
Marvin L. Welton(7)........... 617,284 4.9 -- 617,284 4.2
The Fain Family
Irrevocable
Trust--1993(8).............. 1,206,510 9.7 -- 1,206,510 8.2
All directors and executive
officers as a group (6
persons)(2)................. 10,588,524 84.7 800,000 9,788,524 66.1
</TABLE>
- --------------------------
* Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "Commission") and includes general
voting power or investment power with respect to securities. Shares of the
Common Stock subject to options and warrants currently exercisable or
exercisable within 60 days of the date of this Prospectus are deemed
outstanding for computing the percentage of the person holding such options,
but are not deemed outstanding for computing the percentage of any other
person. Except as otherwise specified below, the persons named in the table
above have sole voting and investment power with respect to all shares of
the Common Stock shown as beneficially owned by them.
(2) Includes 1,206,510 shares of the Common Stock owned by a trust established
by Mr. Fain of which his wife, Joyce L. Fain, and his sister, Cynthia L.
Akins, are the co-trustees and of which Mr. Fain disclaims beneficial
ownership, 227,974 shares of the Common Stock held by Mr. Fain's son of
which Mr. Fain disclaims beneficial ownership and 206,930 shares of the
Common Stock held by Ms. Akins as custodian for the benefit of Mr. Fain's
daughter under the Virginia Uniform Transfers to Minors Act of which Mr.
Fain disclaims beneficial ownership.
(3) A total of 108,500 of such shares are subject to the Underwriters'
over-allotment option.
(4) Mr. Eveleigh will become a director and executive officer of the Company
immediately before the offering becomes effective.
(5) A total of 100,750 of such shares are subject to the Underwriters'
over-allotment option.
(6) A total of 155,000 of such shares are subject to the Underwriters'
over-allotment option.
(7) A total of 100,750 of such shares are subject to the Underwriters'
over-allotment option. Mr. Welton's business address is: Carolina Place,
Suite 105, 2626 Glenwood Avenue, Raleigh, NC 27608.
(8) The business address of The Fain Family Irrevocable Trust--1993 is P.O. Box
8888, Virginia Beach, VA 23450.
44
<PAGE>
CERTAIN TRANSACTIONS
The Company leased an office building in Virginia Beach, Virginia, from a
partnership in which Mr. and Mrs. Fain are the sole partners, on a triple-net
basis with annual base lease payments of approximately $144,000, until December
31, 1996, when this lease was terminated by the partnership at no cost to the
Company. The Company believes the terms of the lease were no less favorable to
the Company than could have been obtained from an unaffiliated third party. The
premises served as part of the Company's corporate headquarters until the
Company relocated its headquarters in December 1996. See "Business--
Facilities."
As of January 17, 1996, Mr. Fain owed the Company $550,000 under a March 1,
1995, $1.0 million credit line deed of trust note to the Company. The highest
amount outstanding under this note within the last 12 months was $875,000. This
note provides for payments of interest only at the annual rate of 8.0% and is
due in full on March 1, 2005. The note is secured by real property owned by Mr.
Fain. The Company expects that this loan will be repaid in full, the note
cancelled and the security released immediately after the completion of this
offering.
In September 1996, the Company purchased a condominium located in
Wintergreen, Virginia. The condominium was purchased from a partnership in which
Mr. Fain was a 50% partner. The $125,000 purchase price for the property was
determined by an independent appraisal. Also in September 1996, the Company
purchased a condominium located in Nassau County, Florida. The condominium was
purchased from a partnership in which Mr. Fain, Mr. Downing and Ms. Ellis were
general partners. The $255,000 purchase price for the property was determined by
an independent appraisal. In 1992, the general partnership that owned the Nassau
County, Florida condominium borrowed $200,000 from the Company to fund partially
its purchase. This loan bore interest at an annual rate of 8.0% and was repaid
in full on September 27, 1996. The highest amount outstanding under this loan
within the last 12 months was $169,791. Before their purchase by the Company,
the partnerships leased these condominiums to the Company and were generally
made available to the Company's employees as a benefit. The annual rent paid by
the Company under leases for the Wintergreen, Virginia property and Nassau
County, Florida property was $33,000 and $36,000, respectively. The Company
believes that the terms of the leases were no less favorable to the Company than
could have been obtained from an unaffiliated third party.
In 1987, the Company became an S corporation for federal and certain state
income tax purposes. As such, the Company's income was allocated and taxable to
the Company's individual shareholders, rather than to the Company. Between 1987
and September 30, 1996, the Company declared and made distributions to its
shareholders aggregating $23.9 million. The Company will make the $9.0 million
Distributions before the completion of this offering. A portion of the proceeds
of the offering will be used to repay all borrowings on the Credit Facilities
used to make the Distributions. See "Prior S Corporation Status" and "Use of
Proceeds."
The Company has entered into an agreement with its existing shareholders
providing for, among other things, the indemnification of the Company by them
for any federal, state and other income taxes (including interest) incurred by
the Company for any period for which it reported its taxable income as an S
corporation, but only to a maximum amount equal to the aggregate distributions
(including the Distributions) received by each existing shareholder from the
Company with respect to periods during which the Company was an S corporation.
See "Prior S Corporation Status."
The Audit Committee of the Board of Directors, when constituted, will be
responsible for reviewing all future transactions between the Company and any
officer or director of the Company or any entity in which an officer or director
has a material interest. Any such transactions must be on terms no less
favorable than those that could be obtained on an arms-length basis from
independent third parties. See "Management--Committees of the Board."
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares of
Common, par value $0.01 per share, of which 49,000,000 shares are designated as
the Common Stock and 1,000,000 shares are designated as Nonvoting Common Stock
and 1,000,000 shares are designated as Preferred Stock, par value $0.01. As of
the date of this Prospectus, there are issued and outstanding 12,500,000 shares
of Common held of record by 28 shareholders and no shares of Preferred Stock
outstanding. As a part of the Pre-Offering Transactions, all shares of Nonvoting
Common Stock will be released from the contractual obligations requiring their
redemption in certain circumstances and will be converted into the Common Stock
on a one-for-one basis. See "Principal and Selling Shareholders."
The following description is qualified in its entirety by reference to the
Articles and Bylaws, which will be filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Cumulative voting
in the election of directors is not permitted. Holders of the Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of liquidation, dissolution or winding up of the Company, holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of and provision for liabilities. Holders of the Common Stock have no
conversion, preemptive or other rights to subscribe for additional shares or
other securities and there are no redemption or sinking fund provisions with
respect to such shares. The issued and outstanding shares of the Common Stock
are, and the shares offered hereby will be on payment therefor, fully paid and
nonassessable.
The rights, preferences and privileges of holders of the Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock that the Company may designate and issue
in the future. See "Anti-Takeover Effects of Certain Provisions of the Company's
Articles of Incorporation and Bylaws and Virginia Law" below for a description
of the votes required to elect and remove directors.
PREFERRED STOCK
The Board of Directors has the authority, without further action of the
shareholders of the Company, to issue up to an aggregate of 1,000,000 shares of
Preferred Stock in one or more series and to fix or determine the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption price or prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series.
The Board of Directors, without shareholder approval, has the power to issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of the Common Stock. The issuance of Preferred
Stock, although providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, may have the effect of discouraging,
delaying or preventing a change in control of the Company. There are currently
no issued or outstanding shares of Preferred Stock and the Company has no
present plans to issue any shares of Preferred Stock.
46
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS AND VIRGINIA LAW
ARTICLES OF INCORPORATION AND BYLAWS. The Articles provide that the
directors of the Company shall be classified into three classes as nearly equal
in size as possible, with staggered three-year terms. Directors are elected by a
plurality of the votes cast by the holders of the shares entitled to vote in the
election at a meeting in which a quorum is present. Cumulative voting is not
permitted. A quorum consists of a majority of the shares entitled to vote,
whether represented in person or by proxy. The Articles provide that a director
may be removed by the shareholders only at an annual meeting of shareholders and
only by a vote of the holders of more than two-thirds of the shares entitled to
vote. The staggered terms of the Board of Directors and the removal provision
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of the Company.
STATUTORY PROVISIONS. The Company is subject to several anti-takeover
provisions under Virginia law that apply to a public corporation organized under
Virginia law unless the corporation has elected to opt out of such provisions in
its Articles or (depending on the provision in question) its Bylaws. The Company
has not elected to opt out of these anti-takeover provisions. The Virginia State
Corporation Act ("Virginia Act") contains a provision that prohibits the voting
of shares in a publicly held Virginia corporation which are acquired in a
"control share acquisition" unless voting rights are granted by resolution
adopted by the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the acquiring party). A control share acquisition is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote or direct the
vote of shares having voting power within any of the following ranges of the
votes entitled to be cast in an election of directors: (i) one-fifth or more but
less than one-third of such votes, (ii) one-third or more but less than a
majority of such votes and (iii) a majority or more of such votes. This
statutory voting restriction is not applicable in certain circumstances set
forth in the Virginia Act.
The Virginia Act also contains an "affiliated transaction" provision. This
statute prohibits a Virginia corporation with more than 300 shareholders from
engaging in a broad range of business combinations or other extraordinary
corporate transactions with an "interested shareholder" for a period of three
years after the date of the transaction in which the person became an interested
shareholder unless (i) the transaction is approved by a majority (but not less
than two) of disinterested directors and (ii) the transaction is approved by the
holders of two-thirds of the Company's voting shares other than those owned by
the interested shareholder. After the three-year period, an affiliated
transaction, subject to certain exceptions, must be approved by the affirmative
vote of a majority of the disinterested directors or the holders of two-thirds
of the voting shares of stock, other than shares beneficially owned by the
interested shareholder. With certain exceptions, "affiliated transactions"
include certain mergers, share exchanges, issuances of voting shares of stock,
the sale, exchange, mortgage, pledge, transfer or other disposition of corporate
assets, dissolution of the corporation, reclassification of securities or
recapitalization of a corporation or other transactions between the corporation
(or its subsidiary) and an interested shareholder. With certain exceptions, an
"interested shareholder" is a person who, together with affiliates and
associates, owns, or within the preceding three years did own, more than 10% of
any class of the corporation's voting stock. Shareholders who own more than 10%
of the corporation's voting stock continuously from the date the corporation
becomes subject to the affiliated transactions provisions (i.e., by virtue of
the corporation having more than 300 shareholders) are exempted from the
application of the affiliated transaction provisions. Accordingly, John H. Fain,
President and Chief Executive Officer, will not be subject to these provisions
providing he continues to own more than 10% of the Company's voting stock, even
if he acquires additional shares of voting stock after the completion of this
offering.
The foregoing provisions of the Virginia Act and the Articles and the Bylaws
could have the effect of preventing or delaying a person from acquiring or
seeking to acquire a substantial equity interest in, or control of, the Company.
47
<PAGE>
INDEMNIFICATION AND ELIMINATION OF LIABILITY
The Articles contain provisions that govern indemnification of the Company's
directors, officers, agents and employees. These provisions enable the Company
to indemnify these individuals to the fullest extent permitted by Virginia law.
By law, Virginia corporations may indemnify any person who was or is a party to
any proceeding by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation in any such capacity of another corporation or other
entity, against liability incurred in connection with such proceeding, including
any appeal thereof, if the individual acted in good faith and believed (i) in
the case of conduct in the individual's official capacity with the Company, that
the individual's conduct was in the best interests of the Company or (ii) in all
other cases, that the individual's conduct was at least not opposed to the best
interests of the Company. In addition, in the case of any criminal proceeding,
the individual must not have had reasonable cause to believe his conduct was
unlawful. Virginia law requires the Company to indemnify its directors and
officers (and allows the Company to indemnify employees or agents) who entirely
prevail in the defense of any proceeding to which they were a party because they
are or were directors or officers (or employees or agents) of the Company. The
indemnification authorized under Virginia law is not exclusive and is in
addition to any other rights granted to officers and directors under the
Articles or Bylaws. The Articles also provide for the advancement of expenses
incurred by its directors, officers, agents and employees in connection with the
defense of any action, suit or proceeding to which such a person is or was a
party because such a persons is or was a director, officer, agent or employee of
the Company, on the receipt of an undertaking to repay such amount, if it is
ultimately determined that such person is not entitled to indemnification.
Virginia law permits the Company to purchase and maintain insurance or furnish
similar protection on behalf of any officer or director against any liability
asserted against the officer or director and incurred by the officer or director
in such capacity, or arising out of the status, as an officer or director. This
insurance protection is available under Virginia law whether the Company would
have the power to indemnify the director or officer against such liability under
Virginia law.
Virginia law prohibits the Company from indemnifying directors and officers
in connection with a proceeding by or in the right of the Company in which the
director or officer was adjudged liable to the Company, although the court in
which such action was brought may order indemnification of the director or
officer to the extent of his reasonable expenses if it determines that the
director or officer is entitled such indemnification. Virginia law also
prohibits the Company from indemnifying directors or officers in connection with
any other proceeding charging improper personal benefit to the director or
officer (whether or not involving action in his official capacity) in which the
director or officer was adjudged liable on the basis that personal benefit was
improperly received by him.
Under Virginia law and the Articles, directors and officers are not
personally liable for monetary damages to the Company or any other person for
acts or omissions in their capacity as a director or officer, except in certain
limited circumstances such as certain violations of criminal law and
transactions in which the director or officer derived an improper personal
benefit. As a result, shareholders may be unable to recover monetary damages
against directors and officers for actions taken by directors or officers that
constitute negligence or gross negligence or that violate their fiduciary
duties. Injunctive or other equitable relief may be available.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On the completion of this offering, the Company will have 14,800,000 shares
of the Common Stock outstanding. Of these shares, the 3,100,000 shares of the
Common Stock sold in this offering (3,565,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable by persons
other than affiliates of the Company, without restriction under the Securities
Act. The remaining 11,700,000 shares of the Common Stock (11,235,000 shares if
the Underwriters' over-allotment option is exercised in full) will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemptions
contained in Rule 144. Of this amount, 9,788,524 shares will be beneficially
owned by persons who are affiliates of the Company and, commencing 90 days after
the date of this Prospectus, would be eligible for public sale pursuant to Rule
144, subject to the volume restrictions discussed below. The directors,
executive officers and shareholders of the Company, however, have agreed not to
sell, contract to sell or otherwise dispose of any shares of the Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Robert W. Baird & Co. Incorporated.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least two years (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock and the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not or has not
been deemed an "affiliate" of the Company for at least three months and who has
beneficially owned shares for at least three years (including the holding period
of any prior owner other than an affiliate) would be entitled to sell such
shares under Rule 144 without regard to the limitations discussed above.
Before this offering, there has been no public market for the Common Stock.
Sales of substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the
Underwriters listed below, and the Underwriters, for whom Robert W. Baird & Co.
Incorporated, J.C. Bradford & Co. and The Robinson-Humphrey Company, Inc. are
acting as representatives (the "Representatives"), have severally agreed to
purchase, the respective number of shares of the Common Stock set forth opposite
their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Robert W. Baird & Co. Incorporated...............................................
J.C. Bradford & Co. .............................................................
The Robinson-Humphrey Company, Inc. .............................................
-----------
Total...................................................................... 3,100,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of the Common Stock offered hereby, excluding shares
covered by the over-allotment option granted to the Underwriters, if any such
shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price, less a concession of not in
excess of $ per share, and that the Underwriters and such dealers may
reallow a concession of not in excess of $ per share to other dealers.
The public offering price and concessions and reallowances to dealers may be
changed by the Representatives after the initial public offering.
Certain of the Selling Shareholders have granted to the Underwriters an
option, exercisable within 30 days after the date of the initial public
offering, to purchase up to an additional 465,000 shares of Common Stock to
cover over-allotments, at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any such additional shares pursuant to this option, each of the Underwriters
will be committed to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments, if any, in connection with the offering.
The Company and the Underwriters have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act.
50
<PAGE>
Before the offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiation among the
Company, the Selling Shareholders and the Representatives. The factors
considered in determining the initial public offering price include the history
of and prospects for the business in which the Company operates, past and
present operations, revenue and earnings of the Company and the trend of such
earnings, the prospects for such earnings, the general condition of the
securities markets at the time of the offering and the demand for similar
securities of reasonably comparable companies.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to make sales to any accounts over which
they exercise discretionary authority.
The Company and all of its existing shareholders have agreed not to sell,
contract to sell or otherwise dispose of any shares of the Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Robert W. Baird & Co. Incorporated. See "Shares Eligible for Future
Sale."
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed on for the Company and the Selling Shareholders by Clark &
Stant, P.C., Virginia Beach, Virginia. Certain legal matters in connection with
the sale of the Common Stock offered hereby will be passed on for the
Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The Financial Statements of the Company as of December 31, 1994 and 1995 and
September 30, 1996 and for each of the years in the three-year period ended
December 31, 1995 and the nine months ended September 30, 1996 have been
included in this Prospectus and in the Registration Statement of which this
Prospectus is a part in reliance on the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and on the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in the 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 and the exhibits and schedules
thereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Registration
Statement, including the exhibits and schedules thereto, may be available from
the Commission's Website which is located at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial statements
for the first three quarters of each fiscal year.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2
Financial Statements
Balance Sheets..................................................................... F-3
Statements of Income............................................................... F-4
Statements of Changes in Redeemable Common Stock and Shareholders' Equity.......... F-5
Statements of Cash Flows........................................................... F-6
Notes to Financial Statements...................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the transactions referred to in note 10 to the financial statements
have been finalized and consummated, we will be in a position to render the
following report.
KPMG PEAT MARWICK LLP
The Board of Directors and Shareholders
Metro Information Services, Inc.:
We have audited the accompanying balance sheets of Metro Information Services,
Inc. as of December 31, 1994 and 1995 and September 30, 1996, and the related
statements of income, changes in redeemable common stock and shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995 and the nine-month period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
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 also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
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 Metro Information Services,
Inc. as of December 31, 1994 and 1995 and September 30, 1996 and the results of
its operations and cash flows for each of the years in the three-year period
ended December 31, 1995 and the nine-month period ended September 30, 1996, in
conformity with generally accepted accounting principles.
Norfolk, Virginia
November 15, 1996, except as to note 10, which
is as of , 1997
F-2
<PAGE>
METRO INFORMATION SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS:
Current assets:
Cash....................................... $ 99,885 $ 116,835 $ 123,943 $ 123,943
Accounts receivable, less allowance for
doubtful accounts of $68,641 and $86,007
at December 31, 1994 and 1995 and
$112,739 at September 30, 1996 (note
4)....................................... 11,414,251 15,781,539 18,822,034 18,822,034
Notes receivable--related parties (note
2)....................................... 31,763 18,060 26,422 --
Deferred income taxes...................... -- -- -- 650,000
Prepaid expenses........................... 148,558 220,243 294,602 294,602
---------- ---------- ------------- -------------
Total current assets..................... 11,694,457 16,136,677 19,267,001 19,890,579
Property and equipment, net (notes 3 and
4)......................................... 1,556,196 2,615,226 3,749,053 3,749,053
Notes receivable--related parties, less
current maturities (note 2)................ 169,599 963,622 325,000 --
Other assets................................. 46,245 70,644 160,813 160,813
---------- ---------- ------------- -------------
Total assets................................. $13,466,497 $19,786,169 $23,501,867 $23,800,445
---------- ---------- ------------- -------------
---------- ---------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit facilities (note 4)......... $3,596,431 $7,255,622 $ 4,605,645 $13,254,223
Accounts payable........................... 553,630 956,629 1,248,969 1,248,969
Accrued compensation and benefits.......... 3,820,557 5,556,640 7,056,043 7,056,043
---------- ---------- ------------- -------------
Total current liabilities................ 7,970,618 13,768,891 12,910,657 21,559,235
Deferred income taxes........................ -- -- -- 240,000
---------- ---------- ------------- -------------
Total liabilities........................ 7,970,618 13,768,891 12,910,657 21,799,235
---------- ---------- ------------- -------------
Redeemable common stock (notes 8 and 10)..... 1,070,400 1,404,298 2,650,893 --
---------- ---------- ------------- -------------
Shareholders' equity:
Preferred stock, pro forma, $0.01 par
value; authorized 1,000,000 shares; none
issued and outstanding (note 8).......... -- -- -- --
Common stock, $0.01 par value; authorized
50,000,000 shares; issued and outstanding
8,768,239 shares and pro forma 12,500,000
shares (notes 8 and 10).................. 87,682 87,682 87,682 125,000
Additional paid-in capital................. -- -- -- 2,613,575
Retained earnings (deficit)................ 4,337,797 4,525,298 7,852,635 (737,365)
---------- ---------- ------------- -------------
Total shareholders' equity............... 4,425,479 4,612,980 7,940,317 2,001,210
---------- ---------- ------------- -------------
Commitments, contingencies and subsequent
events (notes 7, 8 and 10).................
Total liabilities and shareholders' equity... $13,466,497 $19,786,169 $23,501,867 $23,800,445
---------- ---------- ------------- -------------
---------- ---------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue............................. $53,344,335 $68,668,769 $85,904,026 $62,336,243 $83,282,418
Cost of revenue..................... 37,646,138 48,220,645 61,074,051 44,292,257 58,286,967
---------- ---------- ---------- ---------- ----------
Gross profit........................ 15,698,197 20,448,124 24,829,975 18,043,986 24,995,451
Selling, general and administrative
expenses (notes 2 and 8).......... 11,460,856 14,595,147 19,506,718 13,510,652 18,209,072
---------- ---------- ---------- ---------- ----------
Operating income.................... 4,237,341 5,852,977 5,323,257 4,533,334 6,786,379
---------- ---------- ---------- ---------- ----------
Interest expense.................... (52,186) (232,745) (380,420) (269,012) (252,063)
Interest income..................... 60,106 18,190 57,440 35,697 42,261
---------- ---------- ---------- ---------- ----------
Net interest income (expense)... 7,920 (214,555) (322,980) (233,315) (209,802)
---------- ---------- ---------- ---------- ----------
Net income.......................... $4,245,261 $5,638,422 $5,000,277 $4,300,019 $6,576,577
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma income data:
Net income........................ $4,245,261 $5,638,422 $5,000,277 $4,300,019 $6,576,577
Pro forma provision for income
taxes (unaudited) (note 5)...... 1,698,104 2,255,369 2,000,111 1,720,008 2,630,631
---------- ---------- ---------- ---------- ----------
Pro forma net income
(unaudited)................... $2,547,157 $3,383,053 $3,000,166 $2,580,011 $3,945,946
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net income per share
(unaudited)..................... $ 0.23 $ 0.31
---------- ----------
---------- ----------
Weighted average number of shares
of common stock and common stock
equivalents outstanding......... 12,823,122 12,920,065
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
COMMON STOCK COMMON STOCK
------------------- ---------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ---------- ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1992......... 3,093,434 $ 531,220 8,768,239 $87,682 $ 4,029,916 $ 4,117,598
Issuance of redeemable common stock..... 234,989 234,969 -- -- -- --
Stock redemption........................ (420,875) (33,720) -- -- (544,530) (544,530)
Distributions paid...................... -- -- -- -- (4,637,794) (4,637,794)
Net income for 1993..................... -- -- -- -- 4,245,261 4,245,261
------ ---------- ------ ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1993......... 2,907,548 732,469 8,768,239 87,682 3,092,853 3,180,535
Issuance of redeemable common stock..... 319,164 363,454 -- -- -- --
Stock redemption........................ (24,551) (25,523) -- -- (9,645) (9,645)
Distributions paid...................... -- -- -- -- (4,383,833) (4,383,833)
Net income for 1994..................... -- -- -- -- 5,638,422 5,638,422
------ ---------- ------ ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1994......... 3,202,161 1,070,400 8,768,239 87,682 4,337,797 4,425,479
Issuance of redeemable common stock..... 242,003 359,421 -- -- -- --
Stock redemption........................ (24,551) (25,523) -- -- (10,940) (10,940)
Distributions paid...................... -- -- -- -- (4,801,836) (4,801,836)
Net income for 1995..................... -- -- -- -- 5,000,277 5,000,277
------ ---------- ------ ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1995......... 3,419,613 1,404,298 8,768,239 87,682 4,525,298 4,612,980
Issuance of redeemable common stock..... 312,148 1,246,595 -- -- -- --
Distributions paid...................... -- -- -- -- (3,249,240) (3,249,240)
Net income for the nine months ended
September 30, 1996.................... -- -- -- -- 6,576,577 6,576,577
------ ---------- ------ ------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 1996........ 3,731,761 $2,650,893 8,768,239 $87,682 $ 7,852,635 $ 7,940,317
------ ---------- ------ ------- ----------- -----------
------ ---------- ------ ------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $4,245,261 $5,638,422 $5,000,277 $4,300,019 $6,576,577
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 274,754 357,243 536,986 383,928 545,340
Net loss on sale of property and
equipment.......................... 2,400 442 4,839 5,412 10,812
Changes in assets and liabilities
increasing (decreasing) cash:
Accounts receivable................ (2,308,044) (3,030,606) (4,367,288) (3,221,804 ) (3,040,495)
Prepaid expenses................... (85,153) (51,424) (71,685) (98,566 ) (74,359)
Accounts payable................... 266,761 36,847 402,999 88,418 292,340
Accrued compensation and
benefits......................... 279,894 592,362 1,736,083 1,185,566 2,269,403
---------- ---------- ---------- ----------- ----------
Net cash provided by operating
activities..................... 2,675,873 3,543,286 3,242,211 2,642,973 6,579,618
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment............................ (501,404) (913,343) (1,617,562) (1,296,677 ) (1,698,347)
Proceeds from sale of property and
equipment............................ 225 275 16,707 16,707 8,368
Increase in other assets............... (5,253) (8,388) (24,399) (34,490 ) (90,169)
---------- ---------- ---------- ----------- ----------
Net cash used in investing
activities..................... (506,432) (921,456) (1,625,254) (1,314,460 ) (1,780,148)
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit.... 3,119,381 477,050 3,659,191 2,425,617 (2,649,977)
Proceeds from issuance of redeemable
common stock......................... 234,969 363,454 359,421 359,421 476,595
Redemption of redeemable common
stock................................ -- (613,418) (36,463) (36,463 ) --
Distributions to shareholders.......... (4,637,794) (4,383,833) (4,801,836) (3,402,305 ) (3,249,240)
Advances on notes receivable--related
parties.............................. (1,500,000) -- (800,000) (655,844 ) (125,000)
Repayment of notes receivable--related
parties.............................. 206,079 1,554,395 19,680 -- 755,260
---------- ---------- ---------- ----------- ----------
Net cash used in financing
activities..................... (2,577,365) (2,602,352) (1,600,007) (1,309,574 ) (4,792,362)
---------- ---------- ---------- ----------- ----------
Net increase (decrease) in
cash........................... (407,924) 19,478 16,950 18,939 7,108
Cash at beginning of period.............. 488,331 80,407 99,885 99,885 116,835
---------- ---------- ---------- ----------- ----------
Cash at end of period.................... $ 80,407 $ 99,885 $ 116,835 $ 118,824 $ 123,943
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Supplemental disclosure of cash flow
information--
Cash paid for interest................. $ 52,186 $ 232,745 $ 380,420 $ 269,012 $ 252,063
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Metro Information Services, Inc. ("Metro" or the "Company") is an
information technology ("IT") consulting services firm providing IT consultants
on a contract basis to organizations with complex IT operations. The Company
currently maintains offices in 12 states and Puerto Rico.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company derives substantially all of its revenue from consulting
services. Revenue is recognized as services are performed. Concentration of
credit risk with respect to accounts receivable is limited due to the number and
diversity of the Company's client base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated useful
lives. Depreciation on leasehold improvements is calculated on the straight-line
method over the lesser of the length of the lease term or their estimated useful
lives.
OTHER ASSETS
Other assets primarily consist of security deposits relating to the
Company's leased facilities.
INCOME TAXES
The Company, with the consent of its shareholders, has elected to be taxed
as an S corporation under federal and certain state income tax laws, which
provide that, in lieu of corporate income taxes, the shareholders separately
account for their PRO RATA share of the Company's items of income, gains,
deductions, losses and credits.
UNAUDITED INTERIM FINANCIAL INFORMATION
Interim financial information for the nine months ended September 30, 1995,
including such information in the notes to the financial statements, is
unaudited. This information has been derived from financial statements prepared
on the same basis as the annual financial statements and, in the opinion of the
Company's management, reflects normal recurring adjustments considered necessary
for a fair presentation of the results of such period. Financial results for the
interim period are not necessarily indicative of the results for the full year.
UNAUDITED PRO FORMA BALANCE SHEET
The September 30, 1996 pro forma balance sheet gives effect to the following
events, as if the anticipated initial public offering occurred as of September
30, 1996: (i) the distribution to the Company's existing shareholders of
$9,000,000 of undistributed S corporation earnings accumulated from January 1,
1987 through September 30, 1996 (the "Distributions"), using funds borrowed from
the Company's line of credit facilities; (ii) the repayment of the note
receivable from the majority shareholder; (iii) the release of all redeemable
common stock from any agreement requiring its redemption; and (iv) the
conversion to a C corporation for income tax purposes, making the Company's
income taxable to the Company, rather than its shareholders, with pro forma
current and deferred income taxes being presented as if the Company were a C
corporation for income tax purposes, resulting in an offsetting credit of
$410,000 to retained earnings. The Company's pro forma current income tax
liability has been offset as if the distributions to
F-7
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shareholders made during the nine months ended September 30, 1996 were C
corporation estimated tax payments.
UNAUDITED PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE
The pro forma net income presented in the statements of income reflects the
pro forma effects for income taxes at an effective rate of 40%, as if the
Company had been a taxable entity for all periods presented.
The pro forma net income per common share is computed based on the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after giving effect to the stock split discussed in
note 10. In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all common and common equivalent shares issued during the
12-month period before filing of the initial public offering even if
anti-dilutive, have been included in the calculation as if they were outstanding
for all periods, using the treasury stock method at an assumed initial public
offering price of $13.00 per share. In addition, weighted average shares for
each period are increased by the number of shares obtained by dividing: (i) the
amount by which the distributions to shareholders during the period (including
the Distributions) exceeded earnings during the period, by (ii) the initial
public offering price per share.
EFFECT OF RECENT ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION. With respect to stock options granted to employees, SFAS No. 123
permits companies to continue using the accounting method promulgated by the
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, to measure compensation or to adopt the fair value based method
prescribed by SFAS No. 123. If APB No. 25's method is continued, pro forma
disclosures are required as if SFAS No. 123 accounting provisions were followed.
Management has determined not to adopt SFAS No. 123's accounting recognition
provisions. In the opinion of management, SFAS No. 123 is not expected to have a
material impact on the Company's financial statements.
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF, is effective for years beginning after
December 15, 1995. This pronouncement was adopted for periods beginning January
1, 1996 and did not have a material impact on the Company's financial
statements.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-8
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
Notes receivable--related parties, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
The $1,000,000 line of credit note from the majority
shareholder, requires annual payments of interest only
at 8%, is secured by Deed of Trust on real property,
and is due March 2005................................. -- $ 800,000 $ 351,422
The note from a partnership in which the majority
shareholder and two other shareholders are general
partners, was unsecured, required monthly payments of
principal and interest at 8%, and was repaid in
1996.................................................. $ 173,839 168,322 --
Other.................................................. 27,523 13,360 --
----------- ----------- -------------
201,362 981,682 351,422
Less current maturities................................ 31,763 18,060 26,422
----------- ----------- -------------
$ 169,599 $ 963,622 $ 325,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
OTHER
Part of the Company's corporate headquarters is owned by a partnership in
which the majority shareholder of the Company is a general partner. The lease
agreement provides for an annual rental of $144,000 payable in monthly
installments of $12,000, with an original lease term of 20 years that expires in
2005. The Company has signed a lease with an unrelated third party for a new
corporate headquarters facility commencing December 15, 1996, at an annual
rental of $298,050 payable in monthly installments of $24,837, with an original
lease term of five years that expires in 2001. See Note 10 for discussion of
subsequent event.
In September 1996, the Company purchased two condominiums from partnerships
in which the majority shareholder and certain other shareholders of the Company
are general partners. The total purchase price of $380,000 was determined by
independent appraisals. Before the purchase, these condominiums were leased by
the Company from the partnerships for annual rentals of $69,000 and were
generally made available to the Company's employees as a benefit.
F-9
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL -------------------- SEPTEMBER 30,
LIFE 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Land....................................... n.a. -- $ 60,296 $ 94,376
27.5
Buildings.................................. years -- 278,483 607,297
Computer equipment......................... 5-7 years $2,026,511 2,917,598 3,949,078
Furniture and equipment.................... 5-7 years 773,561 1,048,851 1,299,531
Leasehold improvements..................... Various 43,155 54,142 60,751
--------- --------- -------------
2,843,227 4,359,370 6,011,033
Less accumulated depreciation........ 1,287,031 1,744,144 2,261,980
--------- --------- -------------
$1,556,196 $2,615,226 $ 3,749,053
--------- --------- -------------
--------- --------- -------------
</TABLE>
(4) LINE OF CREDIT FACILITIES
The Company maintains three line of credit facilities with three different
banks. As of September 30, 1996, availability under the three facilities totaled
$11,000,000 with $4,605,645 outstanding. Borrowings under these lines may not
exceed the lesser of $11,000,000 and 75% of the Company's eligible accounts
receivable. The facilities bear interest at the London Interbank Offered Rate
(LIBOR) plus 150 basis points, payable monthly. Borrowings are collateralized by
a security interest in the Company's accounts receivable, general intangibles,
inventory and furniture and fixtures. The facilities also include several
covenants which restrict transfers or changes in control of the Company, limit
additional indebtedness, require the lenders' consent for mergers and require
the Company to maintain a specified debt to net worth ratio and to meet a
minimum shareholders' equity requirement. Two of the three facilities, with
availability of $9,000,000, expire on April 30, 1997. The third facility expires
on May 31, 1997. See Note 10 for discussion of subsequent event.
The average interest rates on the facilities for the years ended December
31, 1994 and 1995 and for the nine months ended September 30, 1996 were 10.5%,
8.5% and 6.4%, respectively.
F-10
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES
The unaudited pro forma provision for income taxes presented on the
statements of income represents the estimated taxes that would have been
recorded had the Company been a C corporation for income tax purposes for each
of the periods presented. The pro forma provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Pro forma (unaudited).................
Federal............................. $1,443,389 $1,917,063 $1,700,094
State............................... 254,715 338,306 300,017
--------- --------- ---------
Total pro forma................. $1,698,104 $2,255,369 $2,000,111
--------- --------- ---------
--------- --------- ---------
</TABLE>
The pro forma tax expense differs from the amount which would be provided by
applying the statutory federal rate to income before income taxes primarily as a
result of state income taxes.
A reconciliation of the statutory federal income tax rate and the effective
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate...................... 34% 34% 34%
Effect of:
State and local income taxes, net of
federal tax benefit................. 5 5 5
Other................................. 1 1 1
--------- --------- ---------
Effective tax rate................ 40% 40% 40%
--------- --------- ---------
--------- --------- ---------
</TABLE>
(6) PROFIT SHARING PLAN
The Company sponsors a 401(k) employee benefit plan covering all eligible
employees with a minimum of three months of service. Eligible employees are
permitted to make voluntary deductible contributions to the plan and the Company
makes matching contributions of one-half of the eligible employee's
contribution, up to a maximum of 6% of the eligible employee's compensation.
The Company made matching contributions of $635,737, $749,324, $939,223,
$674,510 (unaudited) and $812,918 to the plan for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases for
office space (including the related party lease discussed in notes 2 and 10).
Rent expense for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996 was $556,625, $625,054, $854,539,
$615,973 (unaudited) and $792,243, respectively, and is included in selling,
general and administrative
F-11
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
expenses in the accompanying statements of income. Renewal options are available
at most locations. Future minimum lease payments under all leases entered into
through September 30, 1996 are as follows:
<TABLE>
<S> <C>
Remainder of fiscal 1996..................................... $ 293,884
1997......................................................... 1,351,498
1998......................................................... 1,097,114
1999......................................................... 950,309
2000......................................................... 795,847
Thereafter................................................... 1,173,248
---------
$5,661,900
---------
---------
</TABLE>
The Company self-insures against employees' health insurance claims up to a
stop loss limit of $125,000 per employee per year and a variable, aggregate stop
loss limit. Amounts charged to income related to insurance claims were
$1,482,634, $1,613,111, $2,206,861, $1,564,370 (unaudited) and $1,681,559 for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, respectively. Included in accrued compensation and
benefits on the accompanying balance sheet is a reserve for claims incurred but
not yet reported of $339,257, $328,099 and $463,228 at December 31, 1994 and
1995 and September 30, 1996, respectively.
(8) SHAREHOLDERS' EQUITY
On October 22, 1996, the Company's shareholders amended and restated the
articles of incorporation. Under the amended and restated articles of
incorporation, the Company authorized 1,000,000 shares of Preferred Stock, par
value $0.01 and 50,000,000 shares of Common with a par value of $0.01 per share,
of which 49,000,000 shares are designated as Common Stock and 1,000,000 shares
are designated as Nonvoting Common Stock. The recapitalization and the
3,507.2952 for one stock split referenced in note 10 are reflected in these
financial statements and the accompanying notes.
PREFERRED STOCK
The Company's Board of Directors have the authority to issue shares of
Preferred Stock and determine the stock terms without obtaining shareholders
approval. There are currently no issued or outstanding shares of Preferred Stock
and the Company has no present plans to issue any shares of Preferred Stock.
COMMON STOCK
The Common Stock shareholders have the sole right to vote. Those shares of
Common that are subject to certain contractual redemption obligations have been
classified as redeemable common stock (the "Redeemable Common Stock"). In all
other respects, the Common Stock and Redeemable Common Stock have identical
rights.
Redeemable Common Stock was offered to key members of management under
individual stock purchase agreements annually on April 1 and the individuals had
30 days to purchase the stock. The number of shares offered was determined by
the Company's president based on the prior fiscal year's operating income and
each individual's performance in that year. The purchase price was determined by
a formula based on operating income. The stock is subject to a contractual
obligation requiring mandatory redemption on the employees' termination at a
price determined by the same formula used to determine the purchase price. The
redemption price is payable over four years, however, it may be paid by lump sum
at the Company's discretion.
F-12
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) SHAREHOLDERS' EQUITY (CONTINUED)
Certain shares of Redeemable Common Stock were issued within 12 months of
the anticipated initial public offering date. As a result, the Company's
December 31, 1995 balance sheet reflects a $770,000 liability for accrued
compensation and benefits which was charged as an expense to selling, general
and administrative expenses in 1995. This amount represents the excess of the
fair value of the stock, as determined by an independent appraisal obtained by
the Company, over its purchase price.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes disclosures regarding the fair value of the
Company's financial instruments at September 30, 1996:
ACCOUNTS RECEIVABLE, LINE OF CREDIT FACILITIES, ACCOUNTS PAYABLE AND ACCRUED
COMPENSATION AND BENEFITS
The carrying amounts approximate fair value due to the short maturity of
these instruments.
NOTES RECEIVABLE--RELATED PARTIES
The carrying amount approximates fair value, because the rates of interest
on these notes approximate rates currently offered by lending institutions for
loans of similar terms to individuals or companies with comparable credit risk.
(10) SUBSEQUENT EVENTS AND PRO FORMA BALANCE SHEET ADJUSTMENTS
SUBSEQUENT EVENTS
RELATED PARTY LEASE
The lease for the former corporate headquarters of the Company described in
Note 2 was terminated by the landlord on December 31, 1996.
INCREASE IN CREDIT FACILITIES
As of December 31, 1996, the Company increased the availability under its
three line of credit facilities. Borrowings under these line of credit
facilities may not exceed the lesser of $17,000,000 and 85% of the Company's
eligible accounts receivable. The facilities bear interest at LIBOR plus 150
basis points, payable monthly. Two of the three facilities, with availability of
$12,000,000, expire April 30, 1997. The third facility expires on May 31, 1997.
SUBSEQUENT EVENTS RELATED TO THE INITIAL PUBLIC OFFERING
In anticipation of an initial public offering of Common Stock, the following
corporate actions were taken or will be taken before or contemporaneously with
the offering:
CONVERSION OF NONVOTING COMMON STOCK
The Redeemable Common Stock will be released from any agreement requiring
its redemption and will be converted into Common Stock. As a result, the
3,731,761 shares of Redeemable Common Stock will be reclassified as Common
Stock.
STOCK SPLIT
The Company has authorized a 3,507.2952 for 1 stock split effected by means
of a stock dividend. All share and per share data in these financial statements
have been retroactively restated to reflect this stock split.
F-13
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SUBSEQUENT EVENTS AND PRO FORMA BALANCE SHEET ADJUSTMENTS (CONTINUED)
STOCK OPTION PLANS
Incentive Stock Option Plan
The Company has adopted the 1997 Employee Incentive Stock Option Plan which
provides for the grant of incentive stock options to purchase up to an aggregate
of 770,000 shares of Common Stock. Contemporaneous with the planned initial
public offering, certain employees of the Company will be granted options to
purchase shares of common stock at the initial public offering price. Each of
such options will vest ratably over the five-year period following the
completion of the planned initial public offering.
Employee Stock Purchase Plan
The Company has adopted the Metro Information Services, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan"). Before completion of this
offering, no shares may be purchased under the Employee Stock Purchase Plan.
Under the Employee Stock Purchase Plan, an aggregate of 250,000 shares of Common
Stock may be purchased from the Company by the employees through payroll
withholding pursuant to a series of offerings. All full-time employees who have
met certain service requirements (as defined in the Employee Stock Purchase
Plan), except for employees who own Common Stock of the Company or options on
such stock which represent more than 5% of Common Stock of the Company, are
eligible to participate. The purchase price of Common Stock may not be less than
85% of the fair market value of Common Stock on the date of the offering
commencement or termination whichever is lower.
Director Option Plan
The Company has adopted a nonqualified stock option plan for the outside
directors of the Company. These directors will be granted a non-statutory option
for 3,000 shares of Common Stock on such Director's initial election as a
Director and, at each annual meeting of shareholders thereafter such Director
shall be granted an additional option for 1,000 shares of Common Stock. The
options granted to outside directors will be immediately exercisable in full at
a price equal to the fair market value of Common Stock on the date of grant. The
options will expire ten years after the date of grant or one year after the
outside director is no longer a director of the Company, whichever is earlier.
The Company has reserved 50,000 shares for issuance under this plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the Company's six
executive officers. The agreements are effective January 1997, and provide for
an initial term of one year with total annual base salaries of $1,200,000 and
automatically renew for successive one-year terms unless terminated by either
party. The six executive officers are also entitled to a performance bonus up to
approximately 50% of their base salary. The agreements also contain a two-year
non-competition provision following termination of employment.
PRO FORMA BALANCE SHEET ADJUSTMENTS (SEE NOTE 1)
The Pro Forma Balance Sheet reflects: (i) the $9.0 million Distributions to
its existing shareholders; (ii) the release of all Redeemable Common Stock from
any agreement requiring its redemption; (iii) the repayment of the note
receivable from the majority shareholder; and (iv) the termination of the
Company's S corporation election effective as of January 1, 1997, resulting in
the Company becoming a C corporation for all income tax purposes and the
recognition of a net deferred tax asset.
F-14
<PAGE>
Artwork--inside back cover
- --title: "Metro Information Services"
- --sub-title: "An Information Technology Services Company"
- --sub-title:"1300 Information Systems Consultants Serving Our Clients Through 24
Offices"
[Map of the United States and Puerto Rico showing states and cities where the
Company's 24 offices and headquarters are located.]
<PAGE>
[MAP]
ARTWORK TO COME
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN 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..................................... 6
Prior S Corporation Status....................... 11
Use of Proceeds.................................. 11
Dividend Policy.................................. 12
Dilution......................................... 13
Capitalization................................... 14
Selected Financial and Operating Data............ 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 16
Business......................................... 23
Management....................................... 37
Principal and Selling Shareholders............... 44
Certain Transactions............................. 45
Description of Capital Stock..................... 46
Shares Eligible for Future Sale.................. 49
Underwriting..................................... 50
Legal Matters.................................... 51
Experts.......................................... 51
Available Information............................ 51
Index to Financial Statements.................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,100,000 SHARES
[LOGO]
AN INFORMATION TECHNOLOGY SERVICES COMPANY
COMMON STOCK
----------------
PROSPECTUS
----------------
ROBERTW. BAIRD & CO.
INCORPORATED
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 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 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>
<CAPTION>
ITEM AMOUNT
- ------------------------------------------------------------------ ---------
SEC Registration Fee.............................................. $ 15,124
<S> <C>
NASD Filing Fee................................................... 5,491
Nasdaq Listing Fee................................................ 50,000
Blue Sky Fee and Expenses......................................... 15,000
Printing and Engraving Expenses................................... 80,000
Legal Fees and Expenses........................................... 200,000
Auditors' Fees and Expenses....................................... 250,000
Transfer Agent and Registrar Fees................................. 10,000
Miscellaneous Expenses............................................ 74,385
---------
Total......................................................... $ 700,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles contain provisions that govern indemnification of the Company's
directors, officers, agents and employees. These provisions enable the Company
to indemnify these individuals to the fullest extent permitted by Virginia law.
By law, Virginia corporations may indemnify any person who was or is a party to
any proceedings by reason of the fact that the person is or was a director,
officer, employee or agent of the Corporation or was serving at the request of
the Corporation in any such capacity of another corporation or other entity,
against liability incurred in connection with such proceeding, including any
appeal thereof, if the individual acted in good faith and believed (i) in the
case of conduct in the individual's official capacity with the Company, that the
individual's conduct was in the best interests of the Company or, (ii) in all
other cases, that the individual's conduct was at least not opposed to the best
interests of the Company. In addition, in the case of any criminal proceeding,
the individual must not have had reasonable cause to believe his conduct was
unlawful. Virginia law requires the Company to indemnify its directors and
officers (and allows the Company to indemnify employees or agents) who entirely
prevail in the defense of any proceeding to which they were a party because they
are or were directors or officers (or employees or agents) of the Company.
Virginia law prohibits the Company from indemnifying directors and officers in
connection with a proceeding by or in the right of the Company in which the
director or officer was adjudged liable to the Company, although the court in
which such action was brought may order indemnification of the director or
officer to the extent of his reasonable expenses if it determines that the
director or officer is entitled to such indemnification. Virginia law also
prohibits the Company from indemnifying directors and officers in connection
with any other proceeding charging improper personal benefit to the director or
officer (whether or not involving action in his official capacity) in which the
director or officer was adjudged liable on the basis that personal benefit was
improperly received by him.
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
Shareholders in the offering of the Common Stock registered hereby, and each
person, if any, who controls the Company, the Selling Shareholders or the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On or about May 1, 1994, 1995 and 1996, for a price per share of $3,994,
$5,209 and $5,355, respectively, the Company sold an aggregate of 87, 69 and 89
shares, respectively, of non-voting common stock to a total of 24 employees of
the Company and to Mr. Fain's sister, Cynthia L. Akins, as custodian for Mr.
Fain's children under the Virginia Uniform Transfer to Minors Act.
No underwriters were engaged in connection with the foregoing sale of
securities. Such sales were made in reliance on the exemption from registration
set forth in Section 4(2) of 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 and Selling Shareholders and
the Underwriters.**
3.1 Amended and Restated Articles of Incorporation of Registrant, as filed in Virginia
on November 20, 1996.**
3.2 Amended and restated Bylaws of Registrant.**
4.1 See Amended and Restated Articles of Incorporation of Registrant (included as
Exhibit 3.1).**
4.2 Specimen Stock Certificate.*
5.1 Opinion of Clark & Stant, P.C., a Virginia professional corporation, as to the
legality of the shares being registered.**
10.1 Registrant's 1997 Stock Incentive Plan and related form of stock option
agreement.**
10.2 Registrant's 1997 Employee Stock Purchase Plan.**
10.3 Registrant's Directors Stock Plan.**
10.4 Intercreditor Agreement dated as of May 2, 1996 by and between NationsBank, N.A.
Crestar Bank, Signet Bank and Registrant.**
10.5 Security Agreement dated as of April 30, 1996 by and between NationsBank of
Virginia, N.A. and Registrant.**
10.6 Promissory Note dated as of April 30, 1996 by and between NationsBank of Virginia,
N.A. and Registrant.**
10.7 Security Agreement dated as of April 30, 1996 by and between Crestar Bank and
Registrant.**
10.8 Promissory Note dated as of December 31, 1996 by and between Crestar Bank and
Registrant.**
10.9 Security Agreement dated as of April 30, 1996 by and between Signet Bank and
Registrant.**
10.10 Promissory Note dated as of January 2, 1997 by and between Signet Bank and
Registrant.**
10.11 Employment Agreement dated as of December 10, 1996 between Registrant and John H.
Fain.**
10.12 Employment Agreement dated as of December 10, 1996 between Registrant and Andrew J.
Downing.**
10.13 Employment Agreement dated as of December 10, 1996 between Registrant and Frank B.
Bracken, Jr.**
10.14 Employment Agreement dated as of December 10, 1996 between Registrant and Richard
C. Jaeckle.**
10.15 Employment Agreement dated as of December 10, 1996 between Registrant and Kathleen
A. Neff.**
10.16 Lease dated September 19, 1996 between Tidewater Partners Limited Partnership and
Registrant for premises located at Reflections II Office Building, Suite 300, 200
Golden Oak Court, Virginia Beach, VA 23452.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------
<C> <S>
10.17 Lease dated January 1, 1986 between C-F Lynnhaven Associates and Registrant for
premises located at 607 Lynnhaven Parkway, Virginia Beach, Virginia 23450.**
10.18 Tax Indemnification Agreement dated as of December 24, 1996 between Shareholders of
Registrant and Registrant.**
10.19 First Amendment to Intercreditor Agreement dated December 18, 1996.**
10.20 Employment Agreement dated as of January , 1997 between Registrant and Robert J.
Eveleigh.
11.1 Computation of Earnings Per Share.**
23.1 Consent of KPMG Peat Marwick LLP., independent auditors.
23.2 Consent of Clark & Stant, P.C., a Virginia professional corporation (included in
Exhibit 5.1).
23.3 Consent of Andrew J. Downing to serve as director.
23.4 Consent of Robert J. Eveleigh to serve as director.
27.1 Financial Data Schedule.**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(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 to provide at the closing of this
offering to the Underwriters specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance on rule 430A and contained in a form of
prospectus filed by the registrant 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 of
1933, 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. 3 Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Virginia Beach, Commonwealth of Virginia on the 22nd day of January, 1997.
METRO INFORMATION SERVICES, INC.
By: /s/ JOHN H. FAIN
-----------------------------------------
John H. Fain
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 22nd day of January, 1997.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Director
/s/ JOHN H. FAIN (Principal Executive
- ------------------------------ Officer and Principal January 22, 1997
John H. Fain Financial Officer)
/s/ STEVEN A. LURUS Director of Finance and
- ------------------------------ Treasurer (Principal January 22, 1997
Steven A. Lurus Accounting Officer)
/s/ ANDREW J. DOWNING Director and Executive
- ------------------------------ Vice President January 22, 1997
Andrew J. Downing
/s/ ROBERT J. EVELEIGH Nominee for Director
- ------------------------------ January 22, 1997
Robert J. Eveleigh
II-4
<PAGE>
SCHEDULE II
METRO INFORMATION SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
WRITE-OFF
BALANCE AT OF BALANCE AT
BEGINNING CHARGES TO UNCOLLECTIBLE END OF
OF PERIOD REVENUE ACCOUNTS PERIOD
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1993............... $ 43,687 $ 144,794 $ 135,037 $ 53,444
Year ended December 31, 1994............... 53,444 35,051 19,854 68,641
Year ended December 31, 1995............... 68,641 42,346 24,980 86,007
Nine months ended September 30, 1996....... 86,007 67,504 40,772 112,739
</TABLE>
II-5
<PAGE>
METRO INFORMATION SERVICES, INC.
3,100,000 Shares of Common Stock
UNDERWRITING AGREEMENT
January __, 1997
ROBERT W. BAIRD & CO. INCORPORATED
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY, INC.
As Representatives of the Several Underwriters
Identified in Schedule I Annexed Hereto
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
SECTION 1. Introductory. Metro Information Services, Inc.,
a Virginia corporation (the "Company"), and John H. Fain (the "Principal
Shareholder") propose to sell 3,100,000 shares (the "Firm Shares") of common
stock, $.01 par value per share (the "Common Stock"), to the several
underwriters identified in SCHEDULE I annexed hereto (the "Underwriters"), who
are acting severally and not jointly. In addition, certain other shareholders
of the Company (together with the Principal Shareholder, the "Selling
Shareholders") have agreed to grant to the Underwriters an option to purchase up
to 465,000 additional shares of Common Stock (the "Optional Shares") as provided
in Section 6 hereof. The Firm Shares and, to the extent such option is
exercised, the Optional Shares are hereinafter collectively referred to as the
"Shares."
You, as representatives of the Underwriters (the
"Representatives"), have advised the Company and the Selling Shareholders
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon hereafter as in your judgment is advisable and
that the public offering price of the Shares initially will be $_____ per
share.
The Company and the Selling Shareholders hereby confirm their
respective agreements with the Underwriters and each other as follows:
SECTION 2. Representations and Warranties of the Company and the
Principal Shareholder. The Company and the Principal Shareholder, jointly and
severally, represent and warrant to, and agree with, the several Underwriters,
and shall be deemed to represent and warrant to the several Underwriters on
each Closing Date (as hereinafter defined), that:
<PAGE>
(a) The Company was duly incorporated and is validly existing as a
corporation and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as presently conducted
and described in the Prospectus (as hereinafter defined) and the
Registration Statement; the Company is duly registered and qualified to do
business as a foreign corporation under the laws of, and is in good
standing as such in, each jurisdiction in which such registration or
qualification is required, except where the failure to so register or
qualify would not have a material adverse effect on the condition
(financial or other), business, property, net worth, results of operations
or prospects of the Company ("Material Adverse Effect"); and no proceeding
has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification. Complete and correct copies of the articles of
incorporation and by laws, as amended or restated ("Articles of
Incorporation" and "By-laws," respectively), of the Company as in effect on
the date hereof have been delivered to the Representatives, and no changes
thereto will be made on or subsequent to the date hereof and prior to each
Closing Date.
(b) The shares of Common Stock issued and outstanding immediately
prior to the issuance and sale of the Shares to be sold by the Company
hereunder as set forth in the Prospectus have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description thereof contained in the Prospectus and the Registration
Statement. There are no preemptive, preferential or, except as described
in the Prospectus, other rights to subscribe for or purchase any shares of
Common Stock (including the Shares), and no shares of Common Stock have
been issued in violation of such rights. The Shares to be issued and sold
by the Company to the Underwriters have been duly authorized and, when
issued, delivered and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable and will conform to the description
thereof contained in the Prospectus and the Registration Statement. The
delivery of certificates for the Shares to be issued and sold by the
Company hereunder and payment therefor pursuant to the terms of this
Agreement will pass valid title to such Shares to the Underwriters, free
and clear of any lien, claim, encumbrance or defect in title. Except as
described in the Prospectus, there are no outstanding options, warrants or
other rights of any description, contractual or otherwise, entitling any
person to be issued any class of security by the Company, and there are no
holders of Common Stock or other securities of the Company, or of
securities that are convertible or exchangeable into Common Stock or other
securities of the Company, that have rights to the registration of such
Common Stock or securities under the Securities Act of 1933, as amended,
and the regulations thereunder (together, the "Act") or the securities laws
or regulations of any of the states (the "Blue Sky Laws").
(c) The Company has no subsidiaries and does not own any equity
interest in or control, directly or indirectly, any other corporation,
limited liability company, partnership, joint venture, association, trust
or other business organization.
(d) The Company has full corporate power and authority to enter into
and perform this Agreement, and the execution and delivery by the Company
of this
2
<PAGE>
Agreement and the performance by the Company of its obligations
hereunder and the consummation of the transactions described herein, have
been duly authorized with respect to the Company by all necessary corporate
action and will not: (i) violate any provisions of the Articles of
Incorporation or By-laws of the Company; (ii) violate any provisions of, or
result in the breach, modification or termination of, or constitute a
default under, any provision of any agreement, lease, franchise, license,
indenture, permit, mortgage, deed of trust, evidence of indebtedness or
other instrument to which the Company is a party or by which the Company,
or any property owned or leased by the Company; may be bound or affected;
(iii) violate any statute, ordinance, rule or regulation applicable to the
Company; or order or decree of any court, regulatory or governmental body,
arbitrator, administrative agency or instrumentality of the United States
or other country or jurisdiction having jurisdiction over the Company; or
(iv) result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company. No consent,
approval, authorization or other order of any court, regulatory or
governmental body, arbitrator, administrative agency or instrumentality of
the United States or other country or jurisdiction is required for the
execution and delivery of this Agreement by the Company, the performance of
its obligations hereunder or the consummation of the transactions
contemplated hereby, except for compliance with the Act, the Securities
Exchange Act of 1934, as amended, and the regulations thereunder (together,
the "Exchange Act"), the Blue Sky Laws applicable to the public offering of
the Shares by the several Underwriters and the clearance of such offering
and the underwriting arrangements evidenced hereby with the National
Association of Securities Dealers, Inc. (the "NASD"). This Agreement has
been duly executed and delivered by and on behalf of the Company and is a
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms.
(e) A registration statement on Form S-1 (Reg. No. 333-16585) with
respect to the Shares, including a preliminary form of prospectus, has been
carefully prepared by the Company in conformity with the requirements of
the Act and has been filed with the Securities and Exchange Commission (the
"Commission"). Such registration statement, as finally amended and revised
at the time such registration statement was or is declared effective by the
Commission (including the information contained in the form of final
prospectus, if any, filed with the Commission pursuant to Rule 424(b) and
Rule 430A under the Act and deemed to be part of the registration statement
if the registration statement has been declared effective pursuant to Rule
430A(b) under the Act) and as thereafter amended by post-effective
amendment, if any, is herein referred to as the "Registration Statement."
The related final prospectus in the form first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no such filing is required, as
included in the Registration Statement, or any supplement thereto, is
herein referred to as the "Prospectus." The Company has prepared and filed
such amendments to the Registration Statement since its initial filing with
the Commission, if any, as may have been required to the date hereof, and
will file such additional amendments thereto as may hereafter be required.
There have been delivered to the Representatives two signed copies of the
Registration Statement and each amendment thereto, if any, together with
two copies of each exhibit filed therewith or incorporated by
3
<PAGE>
reference therein, and such number of conformed copies for each of the
Underwriters of the Registration Statement and each amendment thereto, if
any (but without exhibits), and of each Preliminary Prospectus and of the
Prospectus as the Representatives have requested.
(f) Neither the Commission nor any state securities commission has
issued any order preventing or suspending the use of any Preliminary
Prospectus, nor, to the knowledge of the Company or the Principal
Shareholder, have any proceedings for that purpose been initiated or
threatened, and each Preliminary Prospectus filed with the Commission as
part of the Registration Statement as originally filed or as part of any
amendment or supplement thereto complied when so filed with the
requirements of the Act and, as of its date, did not include any 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 not
misleading. As of the effective date of the Registration Statement, and at
all times subsequent thereto up to each Closing Date, the Registration
Statement and the Prospectus contained or will contain all statements that
are required to be stated therein in accordance with the Act and conformed
or will conform in all respects to the requirements of the Act, and neither
the Registration Statement nor the Prospectus included or will include any
untrue statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither the Company, nor any person
that controls, is controlled by or is under common control with the
Company, has distributed or will distribute prior to each Closing Date any
offering material in connection with the offering and sale of the Shares
other than a Preliminary Prospectus, the Prospectus, the Registration
Statement or other materials permitted by the Act and provided to the
Representatives.
(g) KPMG Peat Marwick, LLP, which has expressed its opinion with
respect to the financial statements and schedules (other than the pro forma
financial statements) filed with the Commission and included as a part of
each Preliminary Prospectus, the Prospectus or the Registration Statement
are independent accountants as required by the Act.
(h) The financial statements (other than pro forma financial
statements) and the related notes thereto included in each Preliminary
Prospectus, the Prospectus and the Registration Statement present fairly
the financial position, results of operations and cash flows of the Company
as of their respective dates or for the respective periods covered thereby,
all in conformity with generally accepted accounting principles
consistently applied throughout the periods involved. The financial
statement schedules, if any, included in the Registration Statement present
fairly the information required to be stated therein on a basis consistent
with the financial statements of the Company contained therein. The
Company had an outstanding capitalization as set forth in the Registration
Statement and under "Capitalization" in the Prospectus as of the date
indicated therein, and there has been no material change thereto since such
date except as disclosed in the Prospectus. The financial and statistical
information and data (other than pro forma financial information and data)
relating to the Company in each Preliminary Prospectus, the Prospectus and
the Registration Statement are accurately presented and prepared on a
4
<PAGE>
basis consistent with the audited financial statements and books and records
of the Company. The financial statements and schedules and the related
notes thereto included or incorporated by reference in each Preliminary
Prospectus, the Prospectus or the Registration Statement are the only such
financial statements and schedules required under the Act to be set forth
therein.
(i) The Company is not, or with the giving of notice or passage of
time or both, would not be, in violation or in breach of: (i) its
respective Articles of Incorporation or By-laws; (ii) any statute,
ordinance, order, rule or regulation applicable to the Company; (iii) any
order or decree of any court, regulatory body, arbitrator, administrative
agency or other instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company; or (iv) any provision of
any agreement, lease, franchise, license, indenture, permit, mortgage, deed
of trust, evidence of indebtedness or other instrument to which the Company
is a party or by which any property owned or leased by the Company is bound
or affected. The Company has not received notice of any violation of any
applicable statute, ordinance, order, rule or regulation applicable to the
Company. The Company has obtained and holds, and is in compliance with,
all permits, certificates, licenses, approvals, registrations, franchises,
consents and authorizations of governmental or regulatory authorities
required under all laws, rules and regulations in connection with its
businesses (hereinafter "permit" or "permits"), and all of such permits are
in full force and effect; and the Company has fulfilled and performed all
of its obligations with respect to each such permit and no event has
occurred which would result in, or after notice or lapse of time would
result in, revocation or termination of any such permit or result in any
other impairment of the rights of the holder of such permit. The Company
is not or has not been (by virtue of any action, omission to act, contract
to which it is a party or other occurrence) in violation in any material
respect of any applicable foreign, federal, state, municipal or local
statutes, laws, ordinances, rules, regulations or orders (including those
relating to environmental protection, occupational safety and health and
equal employment practices) heretofore or currently in effect.
(j) There are no legal or governmental proceedings or investigations
pending or, to the knowledge of the Company or the Principal Shareholder,
threatened to which the Company is or may be a party or to which any
property owned or leased by the Company is or may be subject, including,
without limitation, any such proceedings that are related to environmental
or employment discrimination matters, which are required to be described in
the Registration Statement or the Prospectus which are not so described, or
which question the validity of this Agreement or any action taken or to be
taken pursuant hereto. Except as described in the Registration Statement
or the Prospectus, the Company: (i) is not in violation in any material
respect of any statute, ordinance, rule or regulation, or any decision,
order or decree of any court, regulatory body, arbitrator, administrative
agency or other instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environmental or human exposure to
hazardous or toxic substances (collectively, "environmental laws");
(ii) does not own or operate any real property contaminated with any
substance that is subject to any environmental laws; (iii) is not liable for
any off-site disposal or contamination
5
<PAGE>
pursuant to any environmental laws; or (iv) is not subject to
any claim relating to any environmental laws, which violation,
contamination, liability or claim could have a Material Adverse Effect.
(k) There is no transaction, relationship, obligation, agreement or
other document required to be described in the Registration Statement or
the Prospectus or to be filed or deemed to be filed as an exhibit to the
Registration Statement by the Act, which has not been described or filed as
required. All such contracts or agreements to which the Company is a party
have been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company, and are enforceable
by and against the Company, in accordance with the respective terms
thereof.
(l) The Company has good and valid title to all property and assets
reflected as owned by the Company in the Company's financial statements
included in the Registration Statement (or elsewhere in the Registration
Statement or the Prospectus), free and clear of all liens, claims,
mortgages, security interests or other encumbrance of any kind or nature
whatsoever except those, if any, reflected in such financial statements (or
elsewhere in the Registration Statement or the Prospectus). All property
(real and personal) held or used by the Company under leases, licenses,
franchises or other agreements is held by the Company under valid,
subsisting, binding and enforceable leases, franchises, licenses or other
agreements.
(m) Neither the Company nor any person that controls, is controlled
by or is under common control with the Company has taken or will take,
directly or indirectly, any action designed to cause or result in, or which
constituted, or which could cause or result in, stabilization or
manipulation, under the Exchange Act or otherwise, of the price of any
security of the Company to facilitate the sale or resale of the Common
Stock.
(n) Except as described in the Registration Statement or the
Prospectus, since the respective dates as of which information is given in
the Registration Statement or the Prospectus and prior to each Closing
Date: (i) the Company has not or will not have incurred any liability or
obligation, direct or contingent, or entered into any transaction, that is
material to the Company, except as in the ordinary course of business; (ii)
the Company has not and will not have paid or declared any dividend or
other distribution with respect to its capital stock and the Company is not
or will not be delinquent in the payment of principal or interest on any
outstanding debt obligation; and (iii) there has not been and will not have
been any change in the capital stock, any material change in the
indebtedness of the Company, or any change or development involving or
which could be expected to involve, a Material Adverse Effect, whether or
not arising from transactions in the ordinary course of business.
(o) Neither the Company nor any person that controls, is controlled
by or is under common control with the Company has, directly or indirectly:
(i) made any unlawful contribution to any candidate for political office,
or failed to disclose fully any contribution in violation of law; or (ii)
made any payment to any federal, state or foreign governmental officer or
official, or other person charged with similar public or quasi-
6
<PAGE>
public duties, other than payments required or permitted by the laws of the
United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(p) The Company owns or possesses adequate rights to use all patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses
presently used in or necessary for the conduct of its business or ownership
of its properties, and the Company has not violated or infringed upon the
rights of others, or received any notice of conflict with the asserted
rights of others, in respect thereof.
(q) Except as described in the Registration Statement or the
Prospectus, the Company has in place and effective such policies of
insurance, with limits of liability in such amounts, as are normal and
prudent in the ordinary course of the business of the Company.
(r) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company and the Principal Shareholder, is imminent,
and the Company is not a party to any collective bargaining agreement and,
to the knowledge of the Company and the Principal Shareholder, no union
organizational attempts have occurred or are pending. Except as described
in the Registration Statement or the Prospectus, there has been no change
in the relationship of the Company with any of its principal suppliers,
manufacturers, contractors or customers resulting in or that could result
in a Material Adverse Effect.
(s) The Company is not an "investment company", 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.
(t) All federal, state and local tax returns required to be filed by
or on behalf of the Company have been filed (or are the subject of valid
extension) with the appropriate federal, state and local authorities, and
all such tax returns, as filed, are accurate in all material respects; all
federal, state and local taxes (including estimated tax payments) required
to be shown on all such tax returns or claimed to be due from or with
respect to the business of the Company have been paid or reflected as a
liability on the financial statements of the Company for appropriate
periods; all deficiencies asserted as a result of any federal, state or
local tax audits have been paid or finally settled, and no issue has been
raised in any such audit which, by application of the same or similar
principles, reasonably could be expected to result in a proposed deficiency
for any other period not so audited; no state of facts exist or has existed
which would constitute grounds for the assessment of any tax liability with
respect to the periods which have not been audited by appropriate federal,
state or local authorities; there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal,
state or local tax return of any period; and the Company has not been a
member of an affiliated group of corporations filing consolidated federal
income tax returns, other than a group of which the Company is and has been
the common parent. A valid election with respect to the taxation of the
Company under Subchapter S of the Internal Revenue Code of 1986, as
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amended, has been continuously in effect with respect to the Company from
January 1, 1987 through January 1, 1997.
(u) Except for the Company's Long Term Disability Plan, Cafeteria
Plan, Health Benefit Plan and its Retirement Savings Plan and Trust
(collectively, the "Plans"), the Company is not a participating employer or
plan sponsor with respect to any employee pension benefit plan as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any employee welfare benefit plan as defined in
Section 3(1) of ERISA, including, without limitation, any multiemployer
welfare or pension plan. With respect to the Plans, the Company is in
substantial compliance with all applicable regulations, including ERISA and
the Code. With respect to each defined benefit retirement plan, such plan
does not have benefit liabilities (as defined in Section 4001(a)(16) of
ERISA) exceeding the assets of the plan. The Company or the administrator
of each of the Plans, as the case may be, has timely filed the reports
required to be filed by ERISA and the Code in connection with the maintenance
of the Plans, and no facts, including, without limitation, any "reportable
event" as defined by ERISA and the regulations thereunder, exist in
connection with the Plans which, under applicable law, would constitute
grounds for the termination of any of the Plans by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any of the Plans.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorizations; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(w) None of the Company, any officer or director of the Company, or
any person who owns, of record or beneficially, any class of securities
issued by the Company is: (i) an officer, director or partner of any
brokerage firm, broker or dealer that is a member of the NASD ("NASD
Member"); or (ii) directly or indirectly, a "person associated with" an
NASD member or an "affiliate" of an NASD member, as such terms are used in
the NASD By-laws. In addition the Company has not issued or transferred
any Common Stock, warrants, options or other securities, or any other items
of value, to any of the Underwriters or any "related person" of any
Underwriter, as such term is used in the NASD Conduct Rules, except as
provided in this Agreement.
(x) The Company has prepared and filed with the Commission a
registration statement for the Common Stock pursuant to Section 12 of the
Exchange Act. Such registration statement either has been declared
effective by the Commission under the Exchange Act or will be declared
effective by the Commission prior to or concurrently with the commencement
of the public offering of the Shares. The Common Stock has been approved
for designation upon notice of issuance as a Nasdaq National Market
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security on The Nasdaq Stock Market ("Nasdaq") concurrently with the
effectiveness of the Registration Statement.
(y) Neither the Company nor any affiliate of the Company does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075 of the Florida
Statutes, and the Company agrees to comply with such Section if, prior to
the completion of the distribution of the Shares, the Company, or any
affiliate of the Company commences doing such business.
(z) All offers and sales of the securities of the Company prior to
the date hereof were made in compliance with the Act and all other
applicable state and federal laws or regulations.
(aa) The Company has obtained for the benefit of the Underwriters the
agreement, enforceable by Robert W. Baird & Co. Incorporated ("Baird"), of
each of the officers and directors of the Company and certain of the
shareholders of the Company who are not listed on SCHEDULE II hereof, who
own of record the number of shares of Common Stock set forth on SCHEDULE II
opposite such shareholder's name, that for a period of 180 days after the
date of the Prospectus, such persons will not, without the prior written
consent of Baird, directly or indirectly, offer, sell, transfer, or pledge,
contract to sell, transfer or pledge, or cause or in any way permit to be
sold, transferred, pledged, or otherwise disposed of, any: (i) shares of
Common Stock; (ii) rights to purchase shares of Common Stock (including,
without limitation, shares of Common Stock that may be deemed to be
beneficially owned by any such shareholder in accordance with the applicable
regulations of the Commission and shares of Common Stock that may be issued
upon the exercise of a stock option, warrant or other convertible security);
or (iii) securities that are convertible or exchangeable into shares of
Common Stock.
(bb) A copy of the Irrevocable Power of Attorney and Custody Agreement
executed by each Selling Shareholder and a copy of each Directors',
Officers' and Selling Shareholders' Questionnaire has been furnished to
counsel for the Underwriters prior to the date hereof, along with such
other information as such counsel may reasonably request in connection with
their review thereof.
A certificate signed by any officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company and the Principal Shareholders to the
Underwriters as to the matters covered thereby. A certificate delivered by the
Company to its counsel for purposes of enabling such counsel to render the
opinion referred to in Section 10(d) will also be furnished to the
Representatives and counsel for the Underwriters and shall be deemed to be
additional representations and warranties to the Underwriters by the Company as
to the matters covered thereby.
SECTION 3. Representations and Warranties of the Selling
Shareholders. Each Selling Shareholder, severally and not jointly, represents
and warrants to and agrees with the
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several Underwriters and the Company, and shall be deemed to represent and
warrant to the several Underwriters and the Company on each Closing Date,
that:
(a) Such Selling Shareholder has duly executed a durable power of
attorney and custody agreement ("Irrevocable Power of Attorney and Custody
Agreement") naming John H. Fain and Andrew J. Downing, or either of them,
as such Selling Shareholder's attorney(s)-in-fact ("Attorneys-in-Fact") for
the purpose of entering into and carrying out this Agreement and naming
John H. Fain, as custodian ("Custodian") of the Shares of such Selling
Shareholder for the purpose of selling such Shares to the Underwriters on
each Closing Date and receiving payment therefor.
(b) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Shareholder of this Agreement,
the Irrevocable Power of Attorney and Custody Agreement and the Tax
Indemnification Agreement by and among the Company and the shareholders of
the Company and included as an exhibit to the Registration Statement (the
"Tax Indemnification Agreement"), and for the sale and delivery of the
Shares to be sold by such Selling Shareholder hereunder, as set forth on
SCHEDULE II annexed hereto, have been obtained. Such Selling Shareholder
has, and at the time of delivery thereof hereunder such Selling Shareholder
will have, good and valid title to the Shares proposed to be sold by such
Selling Shareholder hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, security interests, equities, claims and
community or marital property rights, other than any created by the
Irrevocable Power of Attorney and Custody Agreement or this Agreement for
the benefit of the Underwriters. Such Selling Shareholder has full right,
power and authority to enter into this Agreement, the Irrevocable Power of
Attorney and Custody Agreement and the Tax Indemnification Agreement and to
sell, assign, transfer and deliver such Shares hereunder, free and clear of
all voting trust arrangements, liens, encumbrances, security interests,
equities, claims and community or marital property rights, other than any
created by the Irrevocable Power of Attorney and Custody Agreement or this
Agreement for the benefit of the Underwriters. Upon delivery of and
payment for such Shares hereunder, the Underwriters will acquire good and
valid title thereto, free and clear of all voting trust arrangements,
liens, encumbrances, security interests, equities, claims and community or
marital property rights.
(c) Such Selling Shareholder has not distributed and will not
distribute any Preliminary Prospectus, the Prospectus or any other material
in connection with the offering and sale of the Shares. Such Selling
Shareholder has not taken and will not take, directly or indirectly, any
action designed to or which could cause or result in, under the Exchange
Act or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Common
Stock.
(d) The execution, delivery and performance by such Selling
Shareholder of this Agreement, the Irrevocable Power of Attorney and
Custody Agreement and the Tax Indemnification Agreement will not, if
applicable, result in the violation of any provisions of the Articles of
Incorporation, By-laws or other governing documents of such Selling
Shareholder, or constitute a breach, or be in contravention, of any
provision of any
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agreement, franchise, license, indenture, mortgage, deed of trust or other
instrument to which such Selling Shareholder is a party or by which such
Selling Shareholder or such Selling Shareholder's property may be bound or
affected, or any statute, rule or regulation applicable to such Selling
Shareholder, or violate any order or decree of any court, regulatory body,
administrative agency or other governmental body having jurisdiction over
such Selling Shareholder or any of such Selling Shareholder's property. No
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery of, and performance under, this Agreement by such
Selling Shareholder or the consummation by such Selling Shareholder of the
transactions contemplated by this Agreement, except for compliance with the
Act, the Exchange Act, the Blue Sky Laws applicable to the public offering
of the Shares by the Underwriters and the clearance of such offering with
the NASD. Such Selling Shareholder hereby represents and warrants that each
Attorney-in-Fact has been duly appointed as attorney-in-fact by such Selling
Shareholder for the purpose of entering into and carrying out this
Agreement, and the Irrevocable Power of Attorney and Custody Agreement has
been duly executed and delivered by or on behalf of such Selling
Shareholder to the Representatives.
(e) This Agreement, the Irrevocable Power of Attorney and Custody
Agreement and the Tax Indemnification Agreement are each valid and binding
agreements of such Selling Shareholder enforceable in accordance with their
respective terms.
(f) Such Selling Shareholder has deposited in custody, under the
Irrevocable Power of Attorney and Custody Agreement, certificates in
negotiable form for the Shares to be sold hereunder by such Selling
Shareholder as set forth opposite such Selling Shareholder's name on
SCHEDULE II annexed hereto (including the maximum number of Optional Shares
set forth on SCHEDULE II) for the purpose of further delivery pursuant to
this Agreement. Such Selling Shareholder agrees that the Shares of such
Selling Shareholder on deposit with the Custodian are subject to the
interests of the Company, the Underwriters and the other Selling
Shareholders, that the arrangements made for such custody, and the
appointment of the Attorneys-in-Fact pursuant to the Irrevocable Power of
Attorney and Custody Agreement, are to that extent irrevocable, and that
the obligations of such Selling Shareholder hereunder and under the
Irrevocable Power of Attorney and Custody Agreement shall not be
terminated, except as provided in this Agreement and the Irrevocable Power
of Attorney and Custody Agreement, by any act of such Selling Shareholder,
by operation of law, whether in the case of an individual Selling
Shareholder, by the death or incapacity of such Selling Shareholder or, in
the case of a trust or estate, by the death of the trustee or trustees or
the executor or executors or the termination of such trust or estate, or,
in the case of a partnership or corporation, by the dissolution, winding up
or other event affecting the legal life of such entity, or by the
occurrence of any other event. If any individual Selling Shareholder,
trustee or executor should die or become incapacitated, or any such trust,
estate, partnership or corporation should be terminated, or if any other
event should occur before the delivery of the Shares hereunder, the
certificates for Shares then on deposit with the Custodian shall, to the
extent such Shares are purchased by the Underwriters, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement and
the Irrevocable Power of
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Attorney and Custody Agreement as if such death, incapacity, termination or
other event had not occurred, regardless of whether or not the Custodian
shall have received notice thereof. Such Selling Shareholder represents
that each Attorney-in-Fact has been authorized by such Selling Shareholder
to execute and deliver this Agreement and the Custodian has been authorized
to receive and acknowledge receipt of the proceeds of sale of the Shares
sold by such Selling Shareholder against delivery thereof and otherwise to
act on behalf of such Selling Shareholder.
(g) Insofar as it relates to such Selling Shareholder, each
Preliminary Prospectus, as of its date, has conformed in all material
respects with the requirements of the Act and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading; and
on the effective date of the Registration Statement and at all times
subsequent thereto up to each Closing Date; (i) the Registration Statement
and the Prospectus, as they relate to such Selling Shareholder, did or will
conform to the requirements of the Act; and (ii) neither the Registration
Statement nor the Prospectus as it relates to such Selling Shareholder did
or will include 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 not misleading.
(h) To the knowledge of each Selling Shareholder who is not a
Principal Shareholder, the representations and warranties of the Company
and the Principal Shareholders set forth in Section 2 hereof are true and
correct.
(i) The information contained in such Directors', Officers' and
Selling Shareholders' Questionnaire completed in connection with the
Company's public offering and delivered to the Representatives was, as of
the date of such questionnaire, and is, as of the date of this Agreement,
true and correct.
A certificate signed by or on behalf of any Selling Shareholder
as such and delivered to the Representatives or to counsel for the Underwriters
shall be deemed a representation and warranty by such Selling Shareholder to the
Underwriters as to the matters covered thereby. A certificate delivered by or
on behalf of any Selling Shareholder to counsel for the Selling Shareholders for
purposes of enabling such counsel to render the opinion referred in Section
10(e) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and warranties
to the Underwriters by such Selling Shareholder as to the matters covered
thereby.
SECTION 4. Representation of Underwriters. The Representatives
will act as the representatives for the several Underwriters in connection with
the public offering of the Shares, and any action under or in respect of this
Agreement taken by the Representatives will be binding upon all of the
Underwriters.
SECTION 5. Information Furnished by the Underwriters. The
information set forth in the last paragraph on the outside front cover page of
the Prospectus concerning the terms of the offering by the Underwriters, the
paragraph on the inside front cover page of the
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Prospectus relating to stabilization practices, and the concession and
reallowance amounts appearing under the caption "Underwriting" in the
Prospectus constitute all of the information furnished to the Company by and
on behalf of the Underwriters for use in connection with the preparation of
the Registration Statement and the Prospectus, as such information is
referred to in this Agreement.
SECTION 6. Purchase, Sale and Delivery of Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Company agrees to sell to the Underwriters identified in SCHEDULE I
annexed hereto _________ Firm Shares, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company the number of Firm
Shares as hereinafter set forth at the price per share of $__________. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full Firm Shares which (as nearly as practicable in
full shares as determined by the Representatives) bears the same proportion
to the number of Firm Shares to be sold by the Company as the number of
shares set forth opposite the name of such Underwriter in SCHEDULE I
annexed hereto bears to the total number of Firm Shares to be purchased by
all of the Underwriters under this Agreement.
(b) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Principal Shareholder agrees, severally and not jointly, to sell to the
Underwriters _____________________ full Firm Shares, and each of the
Underwriters agrees, severally and not jointly, to purchase from the
Principal Shareholder the number of Firm Shares as hereinafter set forth at
the same purchase price per share as stated in the preceding paragraph.
The obligation of each Underwriter to the Principal Shareholder shall be to
purchase from the Principal Shareholder that number of full Firm Shares
which (as nearly as practicable in full shares as determined by the
Representatives) bears the same proportion to the number of Firm Shares to
be sold by such Principal Shareholder as the number of shares set forth
opposite the name of such Underwriter in SCHEDULE I annexed hereto bears to
the total number of Firm Shares to be purchased by all of the Underwriters
under this Agreement.
(c) On the First Closing Date (as hereinafter defined), the Company
and the Custodian on behalf of the Principal Shareholder will deliver to
the Representatives, at the offices of Latham & Watkins, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, or through the facilities of The
Depository Trust Company, for the accounts of the several Underwriters,
certificates representing the Firm Shares to be sold by them against
payment of the purchase price therefor by certified or official bank check
or checks in New York Clearing House (next day) funds payable to the order
of the Company with respect to the Firm Shares being sold by the Company
and to the order of the Custodian with respect to the Firm Shares being
sold by the Principal Shareholder. As referred to in this Agreement, the
"First Closing Date" shall be on the third full business day after the date
of the Prospectus, at 9:00 a.m., Washington, D.C. time, or at such other
date or time not later than ten full business days after the date of the
Prospectus as the Representatives,
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and the Company may agree. The certificates for the Firm Shares to be so
delivered will be in denominations and registered in such names as the
Representatives request by notice to the Company and the Attorneys-in-Fact,
or either of them, prior to the First Closing Date, and such certificates
will be made available for checking and packaging at 9:00 a.m., Washington,
D.C. time on the first full business day preceding the First Closing Date
at a location to be designated by the Representatives.
(d) In addition, on the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein
set forth, the Selling Shareholders hereby agree to sell to the
Underwriters that number of Optional Shares set forth opposite the name of
such Selling Shareholder in Schedule II annexed hereto (a total of 465,000
shares from the Selling Shareholders), and the Underwriters, severally and
not jointly, shall have the right at any time within thirty days after the
date of the Prospectus to purchase up to 465,000 Optional Shares from the
Selling Shareholders at the purchase price per share to be paid for the
Firm Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised upon notice by the Representatives to
the Company and the Attorneys-in-Fact, or either of them, within thirty
days after the date of the Prospectus setting forth the aggregate number of
Optional Shares to be purchased by the Underwriters and sold by the Selling
Shareholders, the names and denominations in which the certificates for
such shares are to be registered and the date and place at which such
certificates will be delivered. Such date of delivery (the "Second Closing
Date") shall be determined by the Representatives, provided that the Second
Closing Date, which may be the same as the First Closing Date, shall not be
earlier than the First Closing Date and, if after the First Closing Date,
shall not be earlier than three nor later than ten full business days after
delivery of such notice to exercise. The number of Optional Shares to be
sold by each Selling Shareholder pursuant to such notice shall equal that
number of full Optional Shares which (as nearly as practicable in full
shares as determined by the Representatives) bears the same proportion to
the number of Optional Shares to be purchased by the Underwriters as the
number of Firm Shares to be sold by such Selling Shareholder bears to the
total number of Firm Shares. Certificates for the Optional Shares will be
made available for checking and packaging at 9:00 a.m., Washington, D.C.
time, on the first full business day preceding the Second Closing Date at a
location to be designated by the Representatives. The manner of payment
for and delivery of (including the denominations of and the names in which
certificates are to be registered) the Optional Shares shall be the same as
for the Firm Shares.
(e) The Representatives have advised the Company and the
Attorneys-in-Fact that each Underwriter has authorized the Representatives
to accept delivery of the Shares and to make payment therefor. It is
understood that the Representatives, individually and not as a
representatives of the Underwriters, may (but shall not be obligated to)
make payment for any Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing
Date or the Second Closing Date, as the case may be, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter
from any obligation under this Agreement. As referred to in
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this Agreement, "Closing Date" shall mean either the First Closing Date or
the Second Closing Date.
SECTION 7. Covenants of the Company. The Company covenants and
agrees with the several Underwriters that:
(a) If the effective time of the Registration Statement is not prior
to the execution and delivery of this Agreement, the Company will use its
best efforts to cause the Registration Statement to become effective at the
earliest possible time and, upon notification from the Commission that the
Registration Statement has become effective, will so advise the
Representatives and counsel to the Underwriters promptly. If the effective
time of the Registration Statement is prior to the execution and delivery
of this Agreement and any information shall have been omitted therefrom in
reliance upon Rule 430A under the Act, the Company, at the earliest
possible time, will furnish the Representatives with a copy of the
Prospectus to be filed by the Company with the Commission to comply with
Rule 424(b) and Rule 430A under the Act and, if the Representatives do not
object to the contents thereof, will comply with such Rules. Upon
compliance with such Rules, the Company will so advise the Representatives
promptly. The Company will advise the Representatives and counsel to the
Underwriters and the Attorneys-in-Fact promptly of the issuance by the
Commission or any state securities commission of any stop order suspending
the effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose, or of any notification of the suspension
of qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceedings for that purpose, and will
also advise the Representatives and counsel to the Underwriters and the
Attorneys-in-Fact promptly of any request of the Commission for amendment
or supplement of the Registration Statement, of any Preliminary Prospectus
or of the Prospectus, or for additional information, and the Company will
not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), to any Preliminary Prospectus or to
the Prospectus (including a prospectus filed pursuant to Rule 424(b) under
the Act) if the Representatives have not been furnished with a copy prior
to such filing (with a reasonable opportunity to review such amendment or
supplement) or if the Representatives object to such filing.
(b) If, at any time when a prospectus relating to the Shares is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event occurs as a result of which the Prospectus would
include an untrue statement of a material fact, or would 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, or if it is necessary at any time to supplement the
Prospectus to comply with the Act, the Company promptly will advise the
Representatives and counsel to the Underwriters and the Attorneys-in-Fact
thereof and will promptly prepare and file with the Commission, at its
expense, an amendment to the Registration Statement which will correct such
statement or omission or an amendment which will effect such compliance;
and, if any Underwriter is required to deliver a prospectus after the
effective date of the Registration Statement, the Company, upon request of
the Representatives, will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with
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the requirements of Section 10(a)(3) of the Act. The Company consents to
the use, in accordance with the provisions of the Act and with the Blue Sky
Laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, of each Preliminary Prospectus.
(c) The Company will not, prior to the Second Closing Date, if any,
incur any liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, or
enter into any transaction with an "affiliate," as defined in Rule 405
under the Act, which is required to be described in the Prospectus pursuant
to Item 404 of Regulation S-K under the Act, except as described in the
Prospectus.
(d) The Company will not, prior to the Second Closing Date, if any,
acquire any of the Common Stock nor will the Company declare or pay any
dividend or make any other distribution upon its Common Stock payable to
shareholders of record on a date prior to such earlier date, except as
described in the Prospectus.
(e) The Company will make generally available to its security holders
and the Representatives an earnings statement as soon as practicable, but
in no event later than sixty days after the end of its fiscal quarter in
which the first anniversary of the effective date of the Registration
Statement occurs, covering a period of twelve consecutive calendar months
beginning after the effective date of the Registration Statement, which
will satisfy the provisions of the last paragraph of Section 11(a) of the
Act and Rule 158 promulgated thereunder.
(f) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company
will furnish to the Representatives, at the expense of the Company, copies
of the Registration Statement, the Prospectus, any Preliminary Prospectus
and all amendments and supplements to any such documents in each case as
soon as available and in such quantities as the Representatives may
reasonably request.
(g) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder for the purposes set forth in the
Prospectus.
(h) The Company will cooperate with the Representatives and counsel
to the Underwriters in qualifying or registering the Shares for sale under
the Blue Sky Laws of such jurisdictions as the Representatives designates,
and will continue such qualifications or registrations in effect so long as
reasonably requested by the Representatives to effect the distribution of
the Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified. In each jurisdiction
where any of the Shares shall have been qualified as provided above, the
Company will file such reports and statements as may be required to
continue such qualification for a period of not less than one year from the
date of the Prospectus. The Company shall promptly prepare and file with
the Commission, from time to time, such reports as may be required to be
filed by the Act and the Exchange
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Act, and the Company shall comply in all respects with the undertakings
given by the Company in connection with the qualification or registration
of the Shares for offering and sale under the Blue Sky Laws.
(i) During the period of three years from the date of the Prospectus,
the Company will furnish to each of the Representatives and to each of the
other Underwriters who may so request, as soon as available, each report,
statement or other document of the Company or its Board of Directors mailed
to its shareholders or filed with the Commission, and such other
information concerning the Company as the Representatives may reasonably
request.
(j) The Company shall deliver the requisite notice of issuance to
Nasdaq and shall take all necessary or appropriate action within its power
to maintain the authorization for trading of the Common Stock as a Nasdaq
National Market security, for a period of at least thirty-six months after
the date of the Prospectus.
(k) Except for the issuance and sale by the Company of Common Stock
upon exercise of presently existing outstanding stock options, the sale of
the Shares to be sold by the Company pursuant to this Agreement, and the
grant of employee stock options pursuant to the Company's 1997 Incentive
Stock Option Plan, the Outside Directors Stock Plan, and the Company's
Employee Stock Purchase Plan, copies of which are filed as exhibits to the
Registration Statement, and provided that none of such options shall be
exercisable during the 180-day period herein described, the Company shall
not, for a period of 180 days after the date of the Prospectus, without the
prior written consent of Baird, directly or indirectly, offer, sell or
otherwise dispose of, contract to sell or otherwise dispose of, or cause or
in any way permit to be sold or otherwise disposed of, any: (i) shares of
Common Stock; (ii) rights to purchase shares of Common Stock; or (iii)
securities that are convertible or exchangeable into shares of Common Stock.
(l) The Company will maintain a transfer agent and, if required by
law or the rules of The Nasdaq Stock Market or any national securities
exchange on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as the
transfer agent) for its Common Stock. The Company shall, as soon as
practicable after the date hereof, use its best efforts to obtain listing
in Standard and Poor's Stock Guide, or such other recognized securities
manuals for which it may qualify for listing, and the Company shall use its
best efforts to maintain such listings for at least five years after the
First Closing Date.
(m) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any rumor, publication or event
relating to of affecting the Company shall occur as a result of which, in
the opinion of Baird, the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to the Prospectus), the
Company will, after written notice from Baird advising the Company of any
of the matters set forth above, promptly consult with Baird concerning the
advisability and substance of, and, if
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the Company and Baird determine that it is appropriate, disseminate, a
press release or other public statement responding to or commenting on,
such rumor, publication or event.
(n) If the sale to the Underwriters of the Shares is not consummated
for any reason other than termination of this Agreement pursuant to Section
13 hereof, without limiting any other rights the Underwriters may have, the
Company agrees to reimburse the Underwriters upon demand for all
out-of-pocket expenses (including reasonable fees and expenses of counsel
for the Underwriters), that shall have been incurred by the Underwriters in
connection with the proposed purchase and sale of the Shares, and the
provisions of Sections 9 and 12 hereof shall at all times be effective and
apply. Notwithstanding the foregoing sentence, if the sale to the
Underwriters of the Shares is not consummated for any reason other than
termination of this Agreement by the Underwriters pursuant to Section 13
hereof, and the Company or any of the shareholders of the Company enter
into an agreement on or before June 30, 1997 with respect to the sale,
lease, disposition or other transfer of all or substantially all of the
Company's assets or a majority interest in its capital stock, directly or
indirectly, by merger, share exchange, business combination or otherwise
(such sale, lease, disposition or other transfer of assets or stock is
hereinafter referred to as a "Business Combination"), then the Company
shall engage the Representatives as its financial advisors for any such
Business Combination and the Company shall pay the Representatives a
financial advisory fee in the amount of $700,000 or 0.4% of the aggregate
consideration paid or payable in connection with such Business Combination,
whichever is greater, in immediately available funds upon consummation of
such Business Combination for financial advisory services to be rendered
by the Representatives in connection therewith.
(o) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters in Section 10 hereof.
SECTION 8. Covenants of the Selling Shareholders. Each Selling
Shareholder, severally and not jointly, covenants and agrees with the several
Underwriters and the Company as follows:
(a) If the effective time of the Registration Statement is not prior
to the execution and delivery of this Agreement, such Selling Shareholder
will cooperate to the extent necessary to cause the Registration Statement
to become effective at the earliest possible time; and such Selling
Shareholder will do and perform all things to be done and performed by such
Selling Shareholder prior to each Closing Date, pursuant to this Agreement
or the Irrevocable Power of Attorney and Custody Agreement.
(b) Such Selling Shareholder agrees to deliver to the Custodian on or
prior to the First Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable substitute form or
statement specified by Treasury Department regulations in lieu thereof).
(c)Such Selling Shareholder will pay all federal and other taxes, if
any, on the transfer or sale of the Shares being sold by such Selling
Shareholder to the Underwriters.
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(d) For a period of 180 days after the date of the Prospectus, such
Selling Shareholder will not, without the prior written consent of Baird,
directly or indirectly, offer, sell, transfer, or pledge, contract to sell,
transfer or pledge or cause or in any way permit to be sold, transferred,
pledged or otherwise disposed of any: (i) shares of Common Stock; (ii)
rights to purchase shares of Common Stock (including, without limitation,
shares of Common Stock that may be deemed to be beneficially owned by such
Selling Shareholder in accordance with the rules and regulations of the
Commission and shares of Common Stock that may be issued upon exercise of a
stock option, warrant or other convertible security); or (iii) securities
that are convertible or exchangeable into shares of Common Stock.
(e) Such Selling Shareholder will furnish any documents, instruments
or other information which the Representatives may reasonably request in
connection with the sale and transfer of the Shares to the Underwriters.
SECTION 9. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective, or
if this Agreement is terminated for any reason, the Company will pay the costs,
fees and expenses incurred in connection with the public offering of the Shares.
Such costs, fees and expenses to be paid by the Company include, without
limitation:
(a) All costs, fees and expenses (excluding the expenses incurred by
the Underwriters and the legal fees and disbursements of counsel for the
Underwriters, but including such fees and disbursements described in
subsection (b) of this Section 9) incurred in connection with the
performance of the Company's obligations hereunder, including without
limiting the generality of the foregoing: the registration fees related to
the filing of the Registration Statement with the Commission; the fees and
expenses related to the quotation or listing of the Shares on Nasdaq or
other national securities exchange; the fees and expenses of the Company's
counsel, accountants, transfer agent and registrar; the costs and expenses
incurred in connection with the preparation, printing, shipping and
delivery of the Registration Statement, each Preliminary Prospectus and the
Prospectus (including all exhibits and financial statements) and all
agreements and supplements provided for herein, this Agreement and the
Preliminary and Supplemental Blue Sky Memoranda and the Irrevocable Power
of Attorney and Custody Agreement, including, without limitation, shipping
expenses via overnight delivery and/or courier service to comply with
applicable prospectus delivery requirements; and the costs and expenses
associated with the production of materials related to, and travel expenses
incurred by the management of the Company in connection with, the various
meetings to be held between the Company's management and prospective
investors.
(b) All registration fees and expenses, including legal fees and
disbursements of counsel for the Underwriters incurred in connection with
qualifying or registering all or any part of the Shares for offer and sale
under the Blue Sky Laws and the clearing of the public offering and the
underwriting arrangements evidenced hereby with the NASD.
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(c) All fees and expenses related to printing of the certificates for
the Shares, and all transfer taxes, if any, with respect to the sale and
delivery of the Shares.
Notwithstanding the foregoing, each Selling Shareholder shall be solely
responsible for any transfer or sales tax imposed upon the transfer and sale of
such Selling Shareholder's Shares to the Underwriters. All costs and expenses
incident to the performance of any Selling Shareholder's obligations hereunder
which are not otherwise specifically provided for in this section will be borne
and paid solely by the Company.
SECTION 10. Conditions to the Obligations of the
Underwriters. The obligations of the several Underwriters under this
Agreement shall be subject to the accuracy of the representations and
warranties on the part of the Company, the Principal Shareholder and the
Selling Shareholders herein set forth as of the date hereof and as of each
Closing Date, to the accuracy of the statements of the Company's officers,
the Selling Shareholders and the Attorneys-in-Fact on behalf of the Selling
Shareholders made pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of their respective obligations
hereunder, and to the following additional conditions, unless waived in
writing by the Representatives:
(a) The Registration Statement shall have been declared effective by
the Commission not later than 5:30 p.m., Washington, D. C. time, on the
date of this Agreement, or such later time as shall have been consented to
by the Representatives, which consent shall be deemed to have been given if
the Registration Statement shall have been declared effective on or before
the date and time requested in the acceleration request submitted on behalf
of the Representatives pursuant to Rule 461 under the Act; all filings
required by Rules 424(b) and 430A under the Act shall have been timely
made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission or any state securities
commission nor, to the knowledge of the Company or the Principal
Shareholders, shall any proceedings for that purpose have been initiated or
threatened; and any request of the Commission or any state securities
commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to the reasonable
satisfaction of the Representatives.
(b) Since the dates as of which information is given in the
Registration Statement:
(i) there shall not have occurred any change or development
involving, or which could be expected to involve, a Material Adverse
Effect, whether or not arising from transactions in the ordinary
course of business; and
(ii) the Company shall not have sustained any material loss or
interference from any labor dispute, strike, fire, flood, windstorm,
accident or other calamity (whether or not insured) or from any court
or governmental action, order or decree,
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the effect of which on the Company, in any such case described in clause (i) or
(ii) above, is in the opinion of the Representatives so material and adverse as
to make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares on the terms and in the manner contemplated in the
Registration Statement and the Prospectus.
(c) The Representatives shall not have advised the Company that the
Registration Statement or the Prospectus contains an untrue statement of
fact that, in the opinion of the Representatives or counsel for the
Underwriters, is material, or omits to state a fact that, in the opinion of
the Representatives or such counsel, is material and is required to be
stated therein or necessary to make the statements therein not misleading.
(d) The Representatives shall have received an opinion of Clark &
Stant, P.C., counsel for the Company, addressed to the Representatives, as
the representatives of the Underwriters, and dated the First Closing Date
or the Second Closing Date, as the case may be, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority
to own, lease and operate its properties and conduct its business as
presently conducted and as described in the Prospectus and the
Registration Statement; the Company is duly registered and qualified
to do business as a foreign corporation under the laws of, and is in
good standing as such in, each jurisdiction in which such registration
or qualification is required, except where the failure to so register
or qualify would not have a Material Adverse Effect;
(ii) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share, and all
such stock conforms as to legal matters to the descriptions thereof in
the Prospectus and the Registration Statement;
(iii) The issued and outstanding shares of capital stock of
the Company immediately prior to the issuance and sale of the Shares
to be sold by the Company hereunder have been duly authorized and
validly issued, are fully paid and nonassessable, and there are no
preemptive, preferential or, except as described in the Prospectus,
other rights to subscribe for or purchase any shares of capital stock
of the Company, and to such counsel's knowledge, no shares of capital
stock of the Company have been issued in violation of such rights;
(iv) The Company has no subsidiaries, and the Company does not
own any equity interest in or control, directly or indirectly, any
other corporation, limited liability company, partnership, joint
venture, association, trust or other business organization except as
described in the Prospectus and the Registration Statement;
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(v) The certificates for the Shares to be delivered hereunder
are in due and proper form and conform to the requirements of
applicable law; and when duly countersigned by the Company's transfer
agent, and delivered to the Representatives or upon the order of the
Representatives against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement, the Shares to be
sold by the Company represented thereby will be duly authorized and
validly issued, fully paid and nonassessable, and free of any
preemptive, preferential or other rights to subscribe for or purchase
shares of Common Stock;
(vi) The Registration Statement has become effective under the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or are threatened
under the Act or any Blue Sky Laws; the Registration Statement and the
Prospectus and any amendment or supplement thereto (except for the
financial statements and other statistical or financial data included
therein as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act; no
facts have come to the attention of such counsel which lead it to
believe that either the Registration Statement or the Prospectus or
any amendment or supplement thereto contains any untrue statement of a
material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of the First Closing
Date or the Second Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under
which they were made (except for the financial statements and other
financial data included therein as to which such counsel need express
no opinion); to such counsel's knowledge, (x) there are no legal or
governmental proceedings pending or threatened, including, without
limitation, any such proceedings that are related to environmental or
employment discrimination matters, required to be described in the
Registration Statement or the Prospectus which are not so described or
which question the validity of this Agreement or any action taken or
to be taken pursuant thereto, (y) nor is there any transaction,
relationship, agreement, contract or other document of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to or incorporated by
reference in the Registration Statement by the Act, which is not
described as required;
(vii) The Company has full corporate power and authority to
enter into and perform this Agreement; the performance of the
Company's obligations hereunder and the consummation of the
transactions described herein have been duly authorized by the Company
by all necessary corporate action and this Agreement has been duly
executed and delivered by and on behalf of the Company, and is a
legal, valid and binding agreement of the Company enforceable against
the Company in accordance with its terms, except that rights to
indemnity or contribution may be limited by applicable law and except
as enforceability of
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this Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, and by equitable principles limiting the
right to specific performance or other equitable relief and rights to
indemnification and contribution may be limited by state or federal
securities laws or the policies underlying such laws; no consent,
approval, authorization or other order or decree of any court,
regulatory or governmental body, arbitrator, administrative agency or
other instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement (except for compliance
with the Act, the Exchange Act, applicable Blue Sky Laws and the
clearance of the underwriting arrangements by the NASD);
(viii) The execution, delivery and performance of this
Agreement by the Company will not: (A) violate any provisions of the
Articles of Incorporation or By-laws of the Company; (B) violate any
provisions of, or result in the breach, modification or termination
of, or constitute a default under, any material agreement, lease,
franchise, license, indenture, permit, mortgage, deed of trust, other
evidence of indebtedness or other material instrument to which the
Company is a party or by which the Company, or any of its owned or
leased property is bound, and which is filed as an exhibit to the
Registration Statement; or (C) violate any statute, ordinance, order,
rule, decree or regulation of any court, regulatory or governmental
body, arbitrator, administrative agency or other instrumentality of
the United States or other country or jurisdiction having jurisdiction
over the Company (assuming compliance with all applicable federal and
state securities laws);
(ix) To such counsel's knowledge, except as described in the
Prospectus, there are no holders of Common Stock or other securities
of the Company, or securities that are convertible or exchangeable
into Common Stock or other securities of the Company, that have rights
to the registration of such securities under the Act or any Blue Sky
Laws;
(x) The Common Stock has been designated for inclusion as a
National Market security on The Nasdaq Stock Market and is registered
under the Exchange Act;
(xi) The Company is not, nor with the giving of notice or passage
of time or both would be, in violation of its Articles of
Incorporation or By-laws or, to such counsel's knowledge, in default
in any material respect in the performance of any agreement, lease,
franchise, license, permit, mortgage, deed of trust, evidence of
indebtedness or other instrument, or any other document that is filed
as an exhibit to in the Registration Statement, to which the Company
is subject or bound;
(xii) The Company is not an "investment company", 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
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amended, and, upon its receipt of any proceeds from the sale of the
Shares, the Company will not become or be deemed to be an "investment
company" thereunder;
(xiii) The description in the Registration Statement and the
Prospectus of statutes, law, regulations, legal and governmental
proceedings, and contracts and other legal documents described therein
fairly and correctly present, in all material respects, the
information required to be included therein by the Act; and
(xiv) All offers and sales by the Company of its capital
stock before the date hereof were at all relevant times duly
registered under or exempt from the registration requirements of the
Act, and were duly registered under or the subject of an available
exemption from the registration requirements of any applicable Blue
Sky Laws.
In rendering such opinion, counsel for the Company may rely, to the extent
counsel deems such reliance proper, as to matters of fact upon certificates of
officers of the Company and of governmental officials, and copies of all such
certificates shall be furnished to the Representatives and for the Underwriters
on or before each Closing Date.
(e) The Representatives shall have received an opinion from Clark &
Stant, P.C., special counsel for the Selling Shareholders, dated the First
Closing Date or the Second Closing Date, as the case may be, to the effect
that:
(i) Each of this Agreement and the Irrevocable Power of Attorney
and Custody Agreement has been duly authorized, executed and delivered
by or on behalf of each Selling Shareholder and such agreement
constitutes the valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its respective terms,
except that rights to indemnity or contribution thereunder may be
limited by applicable law and except as enforceability of such
agreement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting the rights of creditors
and by equitable principles limiting the right to specific performance
or other equitable relief and rights to indemnification and
contribution may be limited by state or federal securities laws or
the policies underlying such laws;
(ii) The execution and delivery of this Agreement and the
Irrevocable Power of Attorney and Custody Agreement and the
consummation of the transactions herein and therein contemplated will
not, if applicable, result in the violation of any provisions of the
Articles of Incorporation, By-laws or other governing documents of
such Selling Shareholder, or constitute a breach, or be in
contravention, of any provision of any agreement, franchise, license,
indenture, mortgage, deed of trust or other instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder or
such Selling Shareholder's property may be bound or affected, or any
statute, rule or regulation applicable to such Selling Shareholder, or
violate any order or decree of any court, regulatory or governmental
body, administrative body or instrumentality of the United States or
other jurisdiction having jurisdiction over such
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<PAGE>
Selling Shareholder or any of such Selling Shareholder's property,
which violation would reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), business, properties,
net worth or results of operations of such Selling Shareholder;
(iii) Such Selling Shareholder has full legal right, power
and authority, and has secured any consent, approval, authorization
and order required to enter into and perform this Agreement and the
Irrevocable Power of Attorney and Custody Agreement and to sell,
assign, transfer and deliver title to the Shares to be sold by such
Selling Shareholder as provided herein; and upon delivery to the
Underwriters or upon the order of the Representatives against payment
of the agreed consideration therefor in accordance with the provisions
of this Agreement, the Underwriters will acquire good and marketable
title to the Shares to be sold hereunder by such Selling Shareholder,
free and clear of all voting trust arrangements, liens, encumbrances,
security interests, equities, claims and community or marital property
rights; and
(iv) To such counsel's knowledge, the information concerning the
Selling Shareholders contained in the Prospectus under the caption
"Principal and Selling Shareholders" complies in all material respects
with the Act.
In rendering such opinion, counsel for the Selling Shareholders may rely, to the
extent counsel deems such reliance proper, as to matters of fact upon
certificates of the Selling Shareholders, and copies of all such certificates
shall be furnished to the Representatives and counsel for the Underwriters on or
before each Closing Date.
(f) The Representatives shall have received an opinion of Latham &
Watkins, counsel for the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the issuance and
sale of the Shares by the Company, the Registration Statement and other
related matters as the Representatives may require, and the Company shall
have furnished to such counsel such documents and shall have exhibited to
them such papers and records as they reasonably request for the purpose of
enabling them to pass upon such matters.
(g) The Representatives shall have received on each Closing Date, a
certificate of the Company executed by John H. Fain, President and Chief
Executive Officer, and Steven A. Lurus, Treasurer and Director of Finance,
of the Company, to the effect that:
(i) The representations and warranties of the Company and the
Principal Shareholders set forth in Section 2 hereof are true and
correct as of the date of this Agreement and as of the date of such
certificate, and the Company has complied with all the agreements and
satisfied all the conditions to be performed or satisfied by it at or
prior to the date of such certificate;
(ii) The Commission has not issued an order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus or
any amendment or
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supplement thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the knowledge of the
respective signatories, no proceedings for that purpose have been
initiated or are pending or contemplated under the Act or under the
Blue Sky Laws of any jurisdiction;
(iii) Each of the respective signatories has carefully
examined the Registration Statement and the Prospectus, and any
amendment or supplement thereto and such documents contain all
statements required to be stated therein, and do not include any
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and since the date on which the Registration
Statement was initially filed, no event has occurred that was required
to be set forth in an amended or supplemented prospectus or in an
amendment to the Registration Statement that has not been so set
forth; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there has not occurred any change
or development involving, or which could be expected to involve, a
Material Adverse Effect, whether or not arising from transactions in
the ordinary course of business, except as disclosed in the Prospectus
and the Registration Statement as heretofore amended or (but only if
the Representatives expressly consent thereto in writing) as disclosed
in an amendment or supplement thereto filed with the Commission and
delivered to the Representatives after the execution of this
Agreement; since such date and except as so disclosed or in the
ordinary course of business, the Company has not incurred any
liability or obligation, direct or indirect, or entered into any
transaction which is material to the Company; since such date and
except as so disclosed, there has not been any change in the
outstanding capital stock of the Company or any change that is
material to the Company in the short-term debt or long-term debt of
the Company; since such date and except as so disclosed, the Company
has not acquired any of the Common Stock or other capital stock of the
Company nor has the Company declared or paid any dividend, or made any
other distribution, upon its outstanding Common Stock payable to
shareholders of record on a date prior to such Closing Date; since
such date and except as so disclosed, the Company has not incurred any
material contingent obligations, and no material litigation is pending
or threatened against the Company; and, since such date and except as
so disclosed, the Company has not sustained any material loss or
interference from any strike, fire, flood, windstorm, accident or
other calamity (whether or not insured) or from any court or
governmental action, order or decree.
The delivery of the certificate provided for in this subsection (g)
shall be and constitute a representation and warranty of the Company as to the
facts required in the immediately foregoing clauses (i), (ii), (iii) and (iv) to
be set forth in said certificate.
(h) The Representatives shall have received a certificate from each
Selling Shareholder (which may be signed by such Selling Shareholder's
Attorneys-in-Fact, or
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either of them), dated the First Closing Date or the Second Closing Date,
as the case may be, to the effect that: (i) the representations and
warranties of such Selling Shareholder in Section 3 of this Agreement are
true and correct as of the date of this Agreement and as of the date of such
certificate, as if again made on and as of such Closing Date, and such
Selling Shareholder has complied with all of the agreements and satisfied
all of the conditions to be performed or satisfied by such Selling
Shareholder at or prior to such Closing Date; and (ii) such Selling
Shareholder has no reason to believe that the Registration Statement or any
amendment thereto at the time it was declared effective by the Commission
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as amended or
supplemented, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(i) At the time this Agreement is executed and also on each Closing
Date, there shall be delivered to the Representatives a letter addressed to
the Representatives, as the representatives of the Underwriters, from KPMG
Peat Marwick LLP, the Company's independent accountants, the first letter
to be dated the date of this Agreement, the second letter to be dated the
First Closing Date and the third letter (if applicable) to be dated the
Second Closing Date, which shall be in form and substance satisfactory to
the Representatives and shall contain information as of a date within five
days of the date of such letter. There shall not have been any change set
forth in any of the letters referred to in this subsection (i) which makes
it impracticable or inadvisable in the judgment of the Representatives to
proceed with the public offering or purchase of the Shares as contemplated
hereby.
(j) The Shares shall have been qualified or registered for sale under
the Blue Sky Laws of such jurisdictions as shall have been specified by the
Representatives, the underwriting terms and arrangements for the offering
shall have been cleared by the NASD, and the Common Stock shall have been
designated for inclusion as a Nasdaq National Market security on the Nasdaq
Stock Market and shall have been registered under the Exchange Act.
(k) At or prior to the First Closing Date, the Tax Indemnification
Agreement, by and among the Company and each of the shareholders of the
Company, in the form included as an exhibit to the Registration Statement
at the time the Registration Statement was declared effective by the
Commission, or in such other form as shall be acceptable to the
Representatives, shall have been executed and delivered by the parties
thereto.
(l) Such further certificates and documents as the Representatives
may reasonably request (including certificates of officers of the Company).
All such opinions, certificates, letters and documents shall be
in compliance with the provisions hereof only if they are reasonably
satisfactory to the Representatives and to Latham & Watkins, counsel for the
Underwriters. The Company and the Selling Shareholders shall
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<PAGE>
furnish the Representatives with such manually signed or conformed copies of
such opinions, certificates, letters and documents as the Representatives may
reasonably request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at either Closing Date is not so satisfied, this Agreement
at the election of the Representatives will terminate upon notification to the
Company and the Attorneys-in-Fact, or any one of them, for the Selling
Shareholders without liability on the part of any Underwriter, including the
Representatives and the Company or the Selling Shareholders, except for the
provisions of Section 7(n) hereof, the expenses to be paid by the Company and
the Selling Shareholders pursuant to Section 9 hereof and except to the extent
provided in Section 12 hereof.
SECTION 11. Maintain Effectiveness of Registration Statement. The
Company will use its best efforts and the Selling Shareholders will use their
best efforts to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement, and, if such stop order is issued,
to obtain as soon as possible the lifting thereof.
SECTION 12. Indemnification.
(a) The Company, subject to the last paragraph of this Section 12,
agrees to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act or the
Exchange Act (a "Controlling Person"), from and against any losses, claims,
damages, expenses, liabilities or actions in respect thereof ("Claims"),
joint or several, to which such Underwriter or each such Controlling Person
may become subject under the Act, the Exchange Act, Blue Sky Laws or other
federal or state statutory laws or regulations, at common law or otherwise
(including payments made in settlement of any litigation), insofar as such
Claims arise out of or are based upon any breach of any representation,
warranty or covenant made by the Company in this Agreement, or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or in any application filed under any Blue
Sky Law or other document executed by the Company for that purpose or based
upon written information furnished by the Company and filed in any state or
other jurisdiction to qualify any or all of the Shares under the securities
laws thereof (any such document, application or information being
hereinafter called a "Blue Sky Application") 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
not misleading. The Company, subject to the last paragraph of this Section
12, agree to reimburse each Underwriter and each Controlling Person for any
legal fees or other expenses incurred by such Underwriter or any such
Controlling Person in connection with investigating or defending any such
Claim; provided, however, that the Company will not be liable in any such
case to the extent that any such Claim arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or supplement thereto or in any Blue Sky Application in
reliance upon and in conformity with the written information furnished to
the Company pursuant to Section 5 of this Agreement. The indemnification
obligations of
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the Company, as provided above are in addition to and in no way limit any
liabilities the Company may otherwise have.
(b) Each of the Selling Shareholders, severally and jointly, subject
to the last paragraph of this Section 12, agrees to indemnify and hold
harmless each Underwriter and Controlling Person, from and against any
Claims, joint or several, to which such Underwriter or each such
Controlling Person may become subject under the Act, the Exchange Act, Blue
Sky Laws or other federal or state statutory laws or regulations, at common
law or otherwise (including payments made in settlement of any litigation),
insofar as such Claims arise out of or are based upon any breach of any
representation, warranty or covenant made by the Company or the Selling
Shareholders in this Agreement, or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or in any application filed under any Blue Sky Law or other
document executed by the Company for that purpose or based upon written
information furnished by the Company and filed in any Blue Sky Application
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 not misleading. Each of the Selling Shareholders,
jointly and severally, subject to the last paragraph of this Section 12,
agrees to reimburse each Underwriter and each such Controlling Person for
any legal fees or other expenses incurred by such Underwriter or any such
Controlling Person in connection with investigating or defending any such
Claim; provided, however, that each of the Selling Shareholders will not be
liable in any such case to the extent that any such Claim arises out of or
is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or supplement thereto or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished to the Company pursuant to Section 5 of this Agreement. The
indemnification obligations of each Selling Shareholder as provided above
are in addition to and in no way limit any liabilities that any Selling
Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors and each of its officers
who signs the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act or the Exchange Act, the
Principal Shareholder and each Selling Shareholder against any Claim to
which the Company, or any such director, officer, controlling person,
Principal Shareholder or Selling Shareholder may become subject under the
Act, the Exchange Act, Blue Sky Laws or other federal or state statutory
laws or regulations, at common law or otherwise (including payments made in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and Baird), insofar as such Claim
arises out of or are based upon any breach of any representation, warranty
or covenant made by such Underwriter in this Agreement, or any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, or arises out of or is
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary
29
<PAGE>
to make the statements therein 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 the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, in reliance solely upon
and in conformity with the written information furnished by the
Representatives to the Company pursuant to Section 5 of this Agreement.
Each Underwriter will severally reimburse any legal fees or other expenses
incurred by the Company, or any such director, officer, controlling person,
the Principal Shareholder or any Selling Shareholder in connection with
investigating or defending any such Claim, and from any and all Claims
solely resulting from failure of an Underwriter to deliver a Prospectus, if
the person asserting such Claim purchased Shares from such Underwriter and
a copy of the Prospectus (as then amended if the Company shall have
furnished any amendments thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended) would have
cured the defect giving rise to such Claim. The indemnification
obligations of each Underwriter as provided above are in addition to any
liabilities any such Underwriter may otherwise have. Notwithstanding the
provisions of this section, no Underwriter shall be required to indemnify
or reimburse the Company, or any officer, director, controlling person, the
Principal Shareholder or any Selling Shareholder in an aggregate amount in
excess of the total price at which the Shares purchased by any such
Underwriter hereunder were offered to the public, less the amount of any
damages such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(d) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its directors and each of
its officers who signs the Registration Statement, and each person, if any,
controlling the Company within the meaning of the Act or the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Underwriter set forth in subsection (a) of this section. In case any Claim
shall be brought or asserted against the Company, its directors, such
officers or any such controlling person, in respect of which indemnity may
be sought against any Selling Shareholder, such Selling Shareholder shall
have the rights and duties given to the Company, and the Company, such
directors or officers and any such controlling person shall have the rights
and duties given to the Underwriters by subsection (a) of this section.
(e) Promptly after receipt by an indemnified party under this section
of notice of the commencement of any action in respect of a Claim, such
indemnified party will, if a Claim in respect thereof is to be made against
an indemnifying party under this section, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve an indemnifying party from any
liability it may have to any indemnified party under this section or
otherwise, provided such failure to notify shall not result in the loss of
a defense for such party. In case any such action is brought against any
indemnified party, and such indemnified party notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in and, to the extent that he, she or it may wish, jointly
with all other indemnifying parties,
30
<PAGE>
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and any
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to the indemnified
party and/or other indemnified parties which are different from or
additional to those available to any indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties.
(f) Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the
defense of such action and upon approval by the indemnified party of
counsel selected by the indemnifying party, the indemnifying party will not
be liable to such indemnified party under this section for any legal fees
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless:
(i) the indemnified party shall have employed separate counsel
in connection with the assumption of legal defenses in accordance with
the proviso to the last sentence of subsection (e) of this section (it
being understood, however, that the indemnifying party shall not be
liable for the legal fees and expenses of more than one separate
counsel, approved by Baird, if one or more of the Underwriters or
their controlling persons are the indemnified parties);
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the indemnified
party's notice to the indemnifying party of commencement of the
action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
(g) If the indemnification provided for in this section is
unavailable to an indemnified party under subsection (a), (b) (c) or (d)
hereof in respect of any Claim referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall, subject to
the limitations hereinafter set forth, contribute to the amount paid or
payable by such indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Principal Shareholder, each
Selling Shareholder and the Underwriters from the offering of the
Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company, the Principal
Shareholder, each Selling Shareholder and the Underwriters in
31
<PAGE>
connection with the statements or omissions which resulted in such
Claim, as well as any other relevant equitable considerations.
The relative benefits received by each of the Company, the
Principal Shareholder, each Selling Shareholder and the Underwriters shall be
deemed to be in such proportion so that the Underwriters are responsible for
that portion represented by the percentage that the amount of the
underwriting discounts and commissions per share appearing on the cover page
of the Prospectus bears to the public offering price per share appearing
thereon, and the Company (including its officers and directors and
controlling persons), and the Principal Shareholder, and each of the Selling
Shareholders who is not a Principal Shareholder, are responsible for the
remaining portion. The relative fault of the Company, the Principal
Shareholder, each Selling Shareholder and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, such
Principal Shareholder, such Selling Shareholder or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the Claims referred to above shall be deemed to include,
subject to the limitations set forth in subsections (e) and (f) of this
section, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
(h) The Company, the Principal Shareholder, the Selling Shareholders
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this section were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method or allocation which does not take into
account the equitable considerations referred to in subsection (g) of this
section. Notwithstanding the other provisions of this section, no
Underwriter shall be required to contribute any amount that is greater than
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 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 to contribute pursuant to this section are
several in proportion to their respective underwriting commitments and not
joint.
(i) Notwithstanding any provision of this Section 12 to the contrary,
the liability of each of the Selling Shareholders arising under this
Section 12 shall not exceed the purchase price received by such Selling
Shareholder from the Underwriters for the Shares sold by such Selling
Shareholder.
SECTION 13. Default of Underwriters. It shall be a condition to
the obligations of each Underwriter to purchase the Shares in the manner as
described herein, that, except as hereinafter provided in this section, each of
the Underwriters shall purchase and pay for all the Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives
32
<PAGE>
of all such Shares in accordance with the terms hereof. If any Underwriter
or Underwriters default in their obligations to purchase Shares hereunder on
either the First Closing Date or the Second Closing Date and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed ten percent (10%) of the total number of
Shares which the Underwriters are obligated to purchase on such Closing Date,
the Representatives may make arrangements for the purchase of such Shares by
other persons, including any of the Underwriters, but if no such arrangements
are made by such Closing Date the nondefaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder,
to purchase the Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so
default and the aggregate number of Shares with respect to which such default
or defaults occur is greater than ten percent (10%) of the total number of
Shares which the Underwriters are obligated to purchase on such Closing Date,
and arrangements satisfactory to the Representatives for the purchase of such
Shares by other persons are not made within thirty-six hours after such
default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Company, any Principal Shareholder or any
Selling Shareholder except for the expenses to be paid by the Company and the
Selling Shareholders pursuant to Section 9 hereof and except to the extent
provided in Section 12 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representatives shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 14. Effective Date. This Agreement shall become effective
upon the execution and delivery of this Agreement by the parties hereto. Such
execution and delivery shall include an executed copy of this Agreement sent by
telecopier, facsimile transmission or other means of transmitting written
documents.
SECTION 15. Termination. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representatives prior to or on the First Closing Date and the
over-allotment option from the Selling Shareholders referred to in Section 6
hereof, if exercised, may be canceled by the Representatives at any time prior
to or on the Second Closing Date, if in the judgment of the Representatives,
payment for and delivery of the Shares is rendered impracticable or inadvisable
because:
(a) additional governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities
generally or trading in securities generally shall have been suspended or
materially limited on either such exchange or on The Nasdaq Stock Market or
a general banking moratorium shall have been established by either federal
or state authorities in New York, Virginia or Wisconsin;
33
<PAGE>
(b) any event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information contained
in the Registration Statement or which is not reflected in the Registration
Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect; or
(c) an outbreak or escalation of hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated to such
extent, in the judgment of the Representatives, as to have a material
adverse effect on the financial markets of the United States, or to make it
impracticable or inadvisable to proceed with completion of the sale of and
payment for the Shares as provided in this Agreement.
Any termination pursuant to this Section shall be without
liability on the part of any Underwriter to the Company, the Principal
Shareholder or any Selling Shareholder, or on the part of the Company, the
Principal Shareholder or any Selling Shareholder to any Underwriter, except
for expenses to be paid by the Company pursuant to Section 9 hereof or
reimbursed by the Company pursuant to Section 7(n) hereof and except as to
indemnification to the extent provided in Section 12 hereof.
SECTION 16. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties, covenants
and other statements of the Company, of its officers or directors, of the
Principal Shareholder, of the Selling Shareholders, and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter, the Principal Shareholder, Selling Shareholder or the Company or
any of its or their partners, officers, directors or any controlling person, as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder.
SECTION 17. Notices. All communications hereunder will be in
writing and, if sent to the Representatives, will be mailed, delivered,
telecopied (with receipt confirmed) or telegraphed and confirmed to Robert W.
Baird & Co. Incorporated at 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, Attention: Dominick P. Zarcone, with a copy to Eric A. Stern, Esq.,
Latham & Watkins, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004; and if
sent to the Company, Selling Shareholders or the Principal Shareholder, will be
mailed, delivered, telecopied (with receipt confirmed) or telegraphed and
confirmed to the Company at Suite 300, Reflections II Office Building, Virginia
Beach, Virginia 23452 Attention: John H. Fain, with a copy to Stephen W. Burke,
Esq., Clark & Stant, P.C., 900 One Columbus Center, Virginia Beach, Virginia
23462; and the Selling Shareholders, will be mailed, delivered, telecopied (with
receipt confirmed) or telegraphed and confirmed to the Attorneys-in-Fact, or
either of them, in care of the Company.
SECTION 18. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors,
personal representatives and assigns, and to the benefit of the officers and
directors and controlling persons referred to in Section 12 hereof and no other
person will have any right or obligation hereunder. The term
34
<PAGE>
"successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
SECTION 19. Partial Unenforceability. If any section,
paragraph, clause or provision of this Agreement is for any reason determined
to be invalid or unenforceable, such determination shall not affect the
validity or enforceability of any other section, paragraph clause or provision
hereof.
SECTION 20. Applicable Law; Counterparts. This Agreement
shall be governed by and construed in accordance with the internal laws of
the State of Wisconsin without reference to conflict of law principles
thereunder. This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument, and shall be effective
when at least one counterpart hereof shall have been executed by or on behalf
of each party hereto.
35
<PAGE>
If the foregoing is in accordance with
your understanding of our agreement, kindly sign and return to us the
enclosed duplicates hereof, whereupon it will become a binding agreement
among the Company, the Principal Shareholder, each of the Selling
Shareholders and the several Underwriters, including the Representatives, all
in accordance with its terms.
Very truly yours,
METRO INFORMATION SERVICES, INC.
By:
---------------------------
John H. Fain, President
THE PRINCIPAL SHAREHOLDER:
-----------------------------------
Name: John H. Fain
THE SELLING SHAREHOLDERS:
By:
----------------------------
John H. Fain
Attorney-in-Fact
By:
----------------------------
Andrew J. Downing
Attorney-in-Fact
By:
----------------------------
Janet A. Ellis
Attorney-in-Fact
By:
----------------------------
Marvin L. Welton
Attorney-in-Fact
By:
----------------------------
Kathleen A. Neff
Attorney-in-Fact
36
<PAGE>
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
ROBERT W. BAIRD & CO. INCORPORATED
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY, INC.
By: ROBERT W. BAIRD & CO. INCORPORATED
Acting as Representatives of the several
Underwriters (including themselves) identified
in SCHEDULE I annexed hereto.
By:
------------------------------------
AUTHORIZED REPRESENTATIVE
37
<PAGE>
METRO INFORMATION SERVICES, INC.
Schedule I
[Underwriters]
<PAGE>
METRO INFORMATION SERVICES, INC.
Schedule II
[Selling Shareholders]
<PAGE>
METRO INFORMATION SERVICES, INC.
Schedule III
[Lock-up Agreement Shareholders]
<PAGE>
COUNTERSIGNED AND REGISTERED:
FIRSTAR TRUST COMPANY
(Milwaukee, WI) TRANSFER AGENT & REGISTRAR
BY
AUTHORIZED SIGNATURE
EXHIBIT 4.2
M METRO
INFORMATION SERVICES
SHARES SHARES
COMMON STOCK COMMON STOCK
SEE REVERSE SIDE FOR CUSIP 59162P 10 4
CERTAIN DEFINITIONS
METRO INFORMATION SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
METRO INFORMATION SERVICES, INC.
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY ON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE
AND THE SHARES REPRESENTED HEREBY ARE ISSUED AND SHALL BE SUBJECT TO THE LAWS
OF THE COMMONWEALTH OF VIRGINIA, ALL PROVISIONS OF THE ARTICLES OF
INCORPORATION OF THE CORPORATION AND ALL AMENDMENTS THEREOF. THIS CERTIFICATE
IS NOT VALID UNTIL COUNTERSIGNED AND REGISTERED BY THE TRANSFER AGENT AND
REGISTRAR.
IN WITNESS WHEREOF THE CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE
CORPORATION.
DATED
/s/ S A Lurus Seal /s/ John H. Fain
_________________________ _____________________________________
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
#3849 METRO INFORMATION SERVICES BACK 1/97
METRO INFORMATION SERVICES, INC.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER ON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION AND THE
VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES THEREOF, SO FAR AS THE SAME
MAY HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
SUBSEQUENT SERIES THEREOF. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE
SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this certificate shall be construed as though they were written out in
full according to applicable laws or regulations:
UNIF GIFT MIN ACT_____Custodian_____
(Cust) (Minor)
Under Uniform Gift to Minors
Act-_________________
TEN COM - as tenants in common (State)
TEN ENT - as tenants by the entities UNIF TRANS MIN ACT_____Custodian_____
(Cust) (Minor)
JT TEN - as joint tenants with Under Uniform Transfers to Minors
right of survivorship
and not to tenants in
common
Act-_________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED_____________________HEREBY SELL ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________________SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPROVE_________________________________.
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATE________________________________ X_______________________________________
SIGNATURE
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER
____________________________________
SIGNATURE GUARANTEED
SIGNATURES MUST BE GUARANTEED BY A
COMMERCIAL BANK OR STOCK BROKER
AFFILIATED WITH ONE OF THE MAJOR
STOCK EXCHANGES
<PAGE>
EXHIBITS FOR S-1 REGISTRATION STATEMENT
OF METRO INFORMATION SERVICES, INC.
EXHIBIT 10.20 EMPLOYMENT AGREEMENT DATED JANUARY __, 1997 BY AND BETWEEN
REGISTRANT AND ROBERT J. EVELEIGH.
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is dated as of January
__, 1997, between METRO INFORMATION SERVICES, INC., a Virginia corporation
(the "Company"), and ROBERT J. EVELEIGH ("Executive").
PRELIMINARY STATEMENTS
A. Executive is employed by the Company as its Vice President of
Finance, Treasurer and Chief Financial Officer.
B. The Company and the Executive desire to enter into this agreement
to establish the terms and conditions of Executive's employment with the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, the parties agree as
follows:
1. EMPLOYMENT PERIOD. The Company agrees to employ Executive and
Executive accepts such employment for the period beginning January __, 1997
and ending on the first to occur of (a) December 31, 1997 and (b) the
termination of Executive's employment pursuant to paragraph 6 (the
"Employment Period"); provided, however, the Employment Period will be
continued for successive one-year periods unless at least 90 days before the
end of the initial or any subsequent term either the Company or the
<PAGE>
Executive gives the other notice of termination of this Agreement.
2. SERVICES. During the Employment Period, Executive will render
such services of an executive and administrative character to the Company as
it may from time to time direct. During the Employment Period, Executive
will devote his best efforts and all of his business time and attention
(except for vacation periods and reasonable periods of illness or other
incapacity) to the business of the Company, and will not perform any services
of any nature for any enterprise other than the Company without the prior
consent of the Company's board of directors (the "Board of Directors").
3. BASE SALARY. Beginning January __, 1997 and thereafter during
the Employment Period, the Company will pay Executive salary at a per annum
rate of One Hundred Twenty Thousand Dollars ($120,000) (the "Base Salary").
The Company may increase or the Base Salary at any time and
from time to time. Any increase or decrease in Executive's Base Salary shall
be made in accordance with Executive's annual compensation plan as approved
by the Company's Board of Directors.
4. BENEFITS. Executive will be entitled to receive from the
Company, in addition to the salary set forth in paragraph 3 above, all
benefits provided generally to full time employees of the Company. Any
alteration of the benefits that Executive is entitled to receive from the
Company shall be made in accordance with Executive's annual compensation plan
as approved by the Board of Directors.
5. Intentionally Omitted
<PAGE>
6. TERMINATION OF EMPLOYMENT.
a. The Employment Period will automatically end on Executive's
voluntary resignation, termination by the Board of Directors with or without
cause, termination by the Board of Directors in the event of Executive's
disability (as determined by the Board of Directors in its good faith
judgment) or Executive's death; PROVIDED, that Executive's resignation will
be effective not less than three months after Executive has given written
notice thereof to the Board of Directors; PROVIDED FURTHER, that Executive's
termination with or without cause will be effective only after the Board of
Directors has determined in its good faith judgment that such termination is
in the best interests of the Company and written notice of such termination
has been delivered to Executive.
b. In the event of termination for disability or without
cause, Executive will be entitled to be paid his salary by the Company and to
receive the benefits set forth in paragraph 4 until
December 31 of the year in which such termination occurs or 90 days after the
date of such termination occurs, whichever is the longer. Such salary will
be payable semi-monthly at the rate in effect at the time of termination.
Executive will have no duty to mitigate the Company's damages by taking other
employment after his termination by the Company without cause and any
compensation earned by him in such other employment will not be deducted from
any amount payable to him hereunder. In the event of Executive's disability,
however, the amounts payable to him hereunder will be reduced by any amounts
<PAGE>
received by Executive from disability insurance purchased by the Company for
Executive.
c. "Disability," for purposes hereof, means any
physical or mental condition which prevents Executive from performing his
duties hereunder, for 180 days, whether or not consecutive, in any 12-month
period. In the event of disagreement between the Board of Directors and
Executive whether "disability" exists, the disagreement will be resolved by
arbitration pursuant to paragraph 9 below.
d. "Cause" for which the Board of Directors may terminate
Executive's employment means, (i) the commission of a crime involving the
Company or any entity in which it has an interest or (ii) a breach or
breaches of Executive's fiduciary duty to the Company or its shareholders
which individually or in the aggregate are materially adverse to the
Company's business or financial condition or prospects; and, in either case,
as finally determined by a court of competent jurisdiction. "Finally
determined" means after all direct appeals to appellate courts of competent
jurisdiction are exhausted. While "materially adverse" as used in clause (ii)
above is not limited to the following instances, (x) any substantial breach
of Executive's duties under paragraphs 2, 7, 8 or 9 of this Agreement, and
(y) any willful or grossly negligent breach or breaches (whether or not
related) of Executive's fiduciary duties to the Company which, individually
or in the aggregate, result in the Company's suffering damages of $100,000 or
more, will be deemed PRIMA FACIE "materially adverse" within the meaning of
clause (ii).
<PAGE>
e. In the event that the Board of Directors determines, in
its good faith judgment, that Executive has committed a crime involving the
Company or any entity in which it has an interest, it may suspend Executive
without pay pending final determination of the charges, but only after
Executive has been charged with such crime by competent law-enforcement
authorities by warrant, summons, information, indictment or otherwise.
During the period of suspension, the Company will continue to provide
Executive with the insurance benefits which it provided pursuant to paragraph
4 above immediately before his suspension. In the event
that the criminal charges against Executive are finally determined without a
conviction of Executive of the crime charged or any lesser offense included
under such crime, the Company will reinstate Executive and resume paying him
the salary and providing him with the other benefits to which he is entitled
hereunder, with the salary payable retroactively to the date of suspension
(with interest at 8% per annum on all amounts not paid during the period of
suspension, calculated from the respective dates these amounts would have
been payable).
f. In the event that the Board of Directors
determines, in its good faith judgment, that Executive has committed a breach
of fiduciary duty of a type justifying termination with Cause, the Board may
immediately suspend Executive. During such suspension, however, Executive
will continue to be paid the salary provided in paragraph 3 and receive the
benefits provided for in paragraph 4, regardless of any
other employment Executive may take. In the event of final
<PAGE>
determination by a court of competent jurisdiction that Executive has
breached his fiduciary duty to the Company or its stockholders within the
meaning of paragraph 7(d)(ii) above, Executive will, on demand by the Board
of Directors, reimburse the Company for all salary and benefits received by
him from the Company from the date of suspension, together with interest
thereon at 8% per annum from the respective dates of payment.
7. CONFIDENTIAL INFORMATION. Executive acknowledges that all
computer systems, programs, reports, designs, drawings, memoranda,
discoveries, inventions, state of the art technology, data, notes, records,
files, proposals, plans, lists, documents and any other information
containing or referring to confidential or proprietary information or
concerning the business or affairs of the Company or any of its clients (the
"Proprietary Information"), whether prepared or developed or both by
Executive or others, and all copies thereof are property of the Company or
its clients, respectively. Executive agrees that he will not disclose to any
unauthorized person any Proprietary Information nor will he use for his own
account any Proprietary Information without the written consent of the
Company, which consent may be denied for any reason or no reason. On the
termination of Executive's employment with the Company for any reason (or at
any earlier time that such request is made by the Company), Executive will
deliver to the Company all Proprietary Information and any copies thereof
which Executive may possess or have under his control. Executive agrees not
to copyright or attempt to copyright any Proprietary Information or any
computer system or any findings or
<PAGE>
recommendations or other data prepared in connection with the Proprietary
Information or Executive's performance of duties with the Company or both.
8. NON-COMPETE. As a significant inducement to the Company to
enter into this Agreement, Executive agrees that:
a. as long as Executive is employed by the Company in any
capacity, during or after the Employment Period, Executive will not,
directly or indirectly, own any interest in, manage, control, participate in,
render services for or in any other manner engage in any other activity (all
of the foregoing being hereinafter referred to as having or acquiring an
"interest") in any information technology services business (whether or not a
client of the Company), without the prior consent of the Board of Directors;
b. beginning on the termination of Executive's employment with
the Company and ending two years after such termination for any reason (the
"Non-Compete Period"), Executive will not have or acquire an interest in any
enterprise which is "in competition" with the Company, as "in competition" is
defined below; and
c. after the end of the Non-Compete
Period, Executive will not acquire any interest in any enterprise "in
competition" with the Company as long as he owns 1% or more of any class of
the capital stock of the Company.
An enterprise will be deemed to be "in competition" with the
Company if (i) such enterprise is involved, directly or indirectly with
providing information technology services, or
<PAGE>
(ii) in the case of any enterprise other than an enterprise providing
information technology services, Executive's intended relationship to such
enterprise would, in the reasonable good faith judgment of the Board of
Directors, create problems for the Company or any of its affiliates, or (iii)
is a client of the Company or has been a client of the Company during the
24-month period before the beginning of the Non-Compete Period. To enable the
Board of Directors to make the determination required by clauses (ii) or (iii)
of the immediately preceding sentence, Executive will, during the Non-Compete
Period and as long thereafter as he owns any of the capital stock of the
Company, inform the Board of Directors in writing, at least 30 days before
acquiring any interest in any enterprise, of his intention to acquire such
interest. The notice will set forth sufficient information about that
enterprise to enable the Company to determine whether the enterprise is
"in competition" with the Company.
If, at the time of enforcement of this Agreement, a court of
competent jurisdiction should hold that the restrictions contained in this
paragraph 8 are unreasonable under circumstances then existing, the Company
and Executive agree that the maximum period, scope, or geographical area
reasonable under such circumstances will be substituted for the stated
period, scope, or area.
9. STAFF RELATIONSHIPS. Executive acknowledges that the Company's
employees and its relationships with its employees are valuable assets of the
Company. Executive agrees that he will
<PAGE>
not, at any time during the term of his employment and during the Non-Compete
Period, directly or indirectly, engage in any of the following activities, as
an individual, independent contractor, officer, partner, member, employee,
agent, consultant, shareholder or investor:
a. employ, hire, engage, contract with or enter into any type
of business arrangement with any employee of the Company or any Prospect
(defined below) or solicit or seek to solicit any employee of the Company or
any Prospect to cease being an employee of the Company or seeking to have
such employee or Prospect enter into the employment of or enter into any
business arrangement with any other entity. For purposes of this Agreement,
the term "Prospect" means any individual or entity which is a candidate
recorded on the Company's Staff Sourcing Network or is an employee of any
entity with which the Company has entered into discussions or agreements
concerning its acquisition or a strategic alliance or with which the Company
has another contractual arrangement. During the Non-Compete Period,
Prospects shall be those Prospects in existence at the beginning of the
Non-Compete Period.
10. ARBITRATION. If there is any disagreement between the Company
and Executive whether a resignation by Executive was "voluntary" for purposes
of paragraphs 6 or 8, whether there was "Cause" for the Board of Directors to
terminate Executive's employment for purposes of paragraph 6, whether
Executive is "disabled" for purposes of paragraph 6 or whether an enterprise
in which Executive desires to acquire an interest is "in competition"
<PAGE>
with the Company for purposes of paragraph 8, the Company and Executive will
make a good faith effort to resolve such disagreement between themselves. If
they fail to so resolve it, they agree to submit the issue to a binding
arbitrator proposed by the Company reasonably satisfactory to Executive.
Executive agrees to pay all costs of such arbitration and to abide by the
results if the Company prevails in the arbitration and the Company agrees to
pay all the costs of the arbitration and to abide by the results if Executive
prevails in the arbitration.
11. REMEDIES. The parties will be entitled to enforce their rights
under this Agreement specifically, to recover damages by reason of any breach
of any provision hereof, and to exercise all other rights existing in their
favor. The Company and Executive agree and acknowledge that money damages may
not be an adequate remedy for any breach by Executive of the provisions of
this Agreement (including paragraph 8) and that the Company may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief to enforce, or prevent any
violations of, the provisions of this Agreement.
12. MODIFICATION, AMENDMENT, WAIVER. No modification, amendment
or waiver of any provision of this Agreement will be effective unless set
forth in a writing signed by the Company and Executive and approved by the
Board of Directors. The Company's or Executive's failure at any time to
enforce any provision of this Agreement will in no way be construed as a
waiver of such provision and will not affect the right of the Company and
Executive
<PAGE>
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
13. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such
jurisdiction, without invalidating the remainder of this Agreement in such
jurisdiction or any provision hereof in any other jurisdiction.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience and do not constitute a part of this
Agreement.
15. CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and
interpreted in accordance with the internal law, and not the law of
conflicts, of the Commonwealth of Virginia.
16. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of any of the provisions of this
Agreement will be in writing and will, except as otherwise provided herein,
be deemed to have been given when delivered personally or mailed by certified
or registered mail, return receipt requested and postage prepaid, to the
recipient c/o Metro Information Services, Inc., Suite 300, 200 Golden Oak
Court, Virginia Beach, Virginia 23452, or at such other address as the
recipient party has specified by prior written notice to the
<PAGE>
sending party.
IN WITNESS, the undersigned parties have executed this Agreement as of
the date first written above.
METRO INFORMATION SERVICES, INC.
By
--------------------------------
Its
--------------------------
EXECUTIVE:
-----------------------------------
ROBERT J. EVELEIGH
<PAGE>
EXHIBITS FOR S-1 REGISTRATION STATEMENT
OF METRO INFORMATION SERVICES, INC.
EXHIBIT 23.1 CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS.
When the transactions referred to in Note 10 to the financial statements have
been finalized and consummated, we will be in a position to render the
following consent.
/s/ KPMG Peat Marwick LLP
The Board of Directors and Shareholders
Metro Informaiton Services, Inc.
We consent to the use of our reports included in this Amendment No. 3 to the
Registration Statement (No. 333-16585) and to the reference to
our firm under the headings "Selected Financial and Operating Data" and
"Experts" in the Prospectus.
Norfolk, Virginia
<PAGE>
EXHIBITS FOR S-1 REGISTRATION STATEMENT
OF METRO INFORMATION SERVICES, INC.
EXHIBIT 23.3 CONSENT OF ANDREW J. DOWNING TO SERVE AS DIRECTOR.
CONSENT OF ANDREW J. DOWNING
In reference to the Registration Statement on Form S-1 and the related
Prospectus of Metro Information Services, Inc. (File No. 333-16585), I hereby
consent to the references to me under the caption "MANAGEMENT - Executive
Officers and Directors" of such Registration Statement and confirm that I
have agreed to join the Board of Directors of Metro Information Services,
Inc. upon the consummation of the offering contemplated by such Registration
Statement.
Detroit, Michigan /s/Andrew J. Downing
___________ ________ ____________________
City, State Name
January 22, 1997
________________
Date Signed
<PAGE>
EXHIBITS FOR S-1 REGISTRATION STATEMENT
OF METRO INFORMATION SERVICES, INC.
EXHIBIT 23.4 CONSENT OF ROBERT J. EVELEIGH TO SERVE AS DIRECTOR.
CONSENT OF ROBERT J. EVELEIGH
In reference to the Registration Statement on Form S-1 and the related
Prospectus of Metro Information Services, Inc. (File No. 333-16585), I hereby
consent to the references to me under the caption "MANAGEMENT - Executive
Officers and Directors" of such Registration Statement and confirm that I
have agreed to join the Board of Directors of Metro Information Services,
Inc. upon the consummation of the offering contemplated by such Registration
Statement.
Virginia Beach, Virginia /s/Robert J. Eveleigh
______________ _________ _____________________
City, State Name
January 22, 1997
________________
Date Signed
