<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
METRO INFORMATION SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
METRO
Information Services
REFLECTIONS II OFFICE BUILDING
200 GOLDEN OAK COURT
THIRD FLOOR
VIRGINIA BEACH, VIRGINIA 23452
NOTICE OF 1997 ANNUAL MEETING, PROXY STATEMENT
AND
1996 ANNUAL REPORT TO SHAREHOLDERS
May 8, 1997
Dear Shareholder:
The directors and officers of your company cordially invite you to attend
the Annual Meeting of Shareholders ("Annual Meeting") of Metro Information
Services, Inc. ("Metro"), which will be held at The Contemporary Arts Center of
Virginia, 2200 Parks Avenue, Virginia Beach, VA 23451-4062, on Tuesday, June 10,
1997, at 2:30 p.m. local time. Please bring proof of identity to be admitted to
the meeting.
Shareholders of record on April 30, 1997 are entitled to vote at the Annual
Meeting and all adjournments. Shareholders entitled to vote will elect one
director, vote on ratification of the appointment of independent auditors and
vote on amendments to the Metro Information Services, Inc. Employee Stock
Purchase Plan, as described in the formal notice of meeting and proxy statement
appearing on the following pages.
Management will report on Metro's progress and comment on matters of current
interest. There will be a period of informal discussion in which shareholders
will have an opportunity to comment or ask questions.
Whether or not you plan to attend the meeting in person, we ask that you
carefully review the material on the following pages and vote your shares on the
matters that will come before the meeting. Please vote your shares by marking
your votes on the enclosed proxy card, signing and dating it and promptly
mailing it in the enclosed business reply envelope.
It is important that your shares are represented at the Annual Meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, I urge you to vote as
soon as possible by mailing your proxy card.
Very truly yours,
John H. Fain
Chairman and
Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders ("Annual Meeting") of Metro Information
Services, Inc. will be held at The Contemporary Arts Center of Virginia, 2200
Parks Avenue, Virginia Beach, VA 23451-4062, on Tuesday, June 10, 1997 at 2:30
p.m. local time to consider and take action with respect to the following
matters:
1. Election of one Class 1 Director to serve for a term of three years
or until his successor is elected;
2. Ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for the year ending December
31, 1997;
3. Amendment of the Metro Information Services, Inc. Employee Stock
Purchase Plan; and
4. Such other business as may properly come before the meeting or any
adjournment thereof.
Holders of Common Stock of record at the close of business on April 30, 1997
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof. A list of such holders will be open to the examination of any
shareholders, for any purpose germane to the meeting, at the offices of Metro
Information Services, Inc., Reflections II Office Building, 200 Golden Oak
Court, Third Floor, Virginia Beach, Virginia 23452, for a period of ten days
before the meeting.
By Order of the Board of Directors,
Steven A. Lurus
Secretary
May 8, 1997
<PAGE>
PROXY STATEMENT
AND
1996 ANNUAL REPORT TO SHAREHOLDERS
METRO INFORMATION SERVICES, INC.
REFLECTIONS II OFFICE BUILDING
200 GOLDEN OAK COURT
THIRD FLOOR
VIRGINIA BEACH, VIRGINIA 23452
GENERAL
The Board of Directors of Metro Information Services, Inc. ("Metro" or the
"Company") solicits your proxy for use at the 1997 Annual Meeting of
Shareholders ("Annual Meeting") to be held at The Contemporary Arts Center of
Virginia, 2200 Parks Avenue, Virginia Beach, Virginia 23451-4062, on Tuesday,
June 10, 1997 at 2:30 p.m. local time and at any time the Annual Meeting is
reconvened following an adjournment. Shareholders of record can give proxies by
mailing their signed proxy cards in the enclosed reply envelope. Any shareholder
giving a proxy may revoke it at any time before it is exercised by executing
another proxy or by appearing at the Annual Meeting and voting in person.
THE COMPANY'S REPORT ON FORM 10-K FILED PURSUANT TO THE SECURITIES AND
EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT") FOR THE COMPANY'S YEAR ENDED DECEMBER
31, 1996 IS BEING SENT TO ALL SHAREHOLDERS CONCURRENTLY WITH THIS PROXY. THIS
REPORT IS TO BE CONSIDERED A PART OF THE PROXY SOLICITING MATERIAL. THE
COMPANY'S REPORT ON FORM 10-K AND THIS PROXY STATEMENT CONSTITUTE THE COMPANY'S
ANNUAL REPORT TO SHAREHOLDERS FOR 1996. AN ADDITIONAL COPY MAY BE OBTAINED FROM
THE COMPANY WITHOUT CHARGE, ON THE REQUEST OF A SHAREHOLDER. THE REQUEST SHOULD
BE DIRECTED TO JULANN OPPASSER, INVESTOR RELATIONS, AT THE COMPANY'S ADDRESS
LISTED ABOVE OR BY TELEPHONE TO (757) 306-0299.
Holders of record of Metro Common Stock at the close of business on April
30, 1997 are entitled to vote at the Annual Meeting. On that date, 14,800,000
shares of Metro Common Stock, $.01 par value ("Common Stock") were issued and
outstanding. Each share entitles the holder to one vote. The persons appointed
by the enclosed proxy card have advised the Board of Directors that it is their
intention to vote at the meeting in compliance with the instructions on the
proxies received from shareholders and, if no contrary instruction is indicated,
FOR: (i) the election of the person nominated to serve as a Class 1 Director,
(ii) the ratification of appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ending December 31, 1997, (iii) the adoption
and approval of the first amendment to the Metro Information Services, Inc.
Employee Stock Purchase Plan and (iv) in accordance with the recommendations of
the Board of Directors on the other matters brought before the meeting, as
described herein.
The Class 1 Director to be elected at the Annual Meeting will be elected by
a plurality of the votes cast by the shareholders present in person or by proxy
and entitled to vote. With regard to the election of the Director, votes may be
cast for or withheld from the nominee. Votes that are withheld will have no
effect on the outcome of the election because the Director will be elected by a
plurality of votes cast.
Abstentions may be specified on all proposals submitted to a shareholder
vote other than the election of Directors. Abstentions and shares held of record
by a broker or its nominee ("broker shares") that are voted on any matter are
included in determining the number of votes present or represented at the
meeting. Broker shares that are not voted on any matter at the meeting are not
included in determining whether a quorum is present. If a quorum is present at
the meeting, votes that are withheld and broker shares that are not voted
(commonly referred to as "broker non-votes") are not included in determining the
number of votes cast in the election of directors or on other matters.
This proxy statement and the enclosed proxy card are being first mailed to
shareholders on or about May 8, 1997.
<PAGE>
ITEM 1--ELECTION OF DIRECTORS
The Board of Directors is composed of five members. The Board is divided
into three classes of directors, Class 1, Class 2 and Class 3, in accordance
with the Company's Bylaws. One director is a Class 1 director, two are Class 2
directors and two are Class 3 directors. The term of each class of directors
expires at the Annual Meeting as follows: Class 1 in 1997, Class 2 in 1998 and
Class 3 in 1999. The term of the Class 1 Director elected at the 1997 Annual
Meeting will expire at the Annual Meeting in 2000 or when his successor is
elected and qualified. If for any reason the nominee for election at the Annual
Meeting becomes unable or is unwilling to serve at the time of the Annual
Meeting, the persons named in the enclosed proxy card will have discretionary
authority to vote for a substitute nominee or nominees. It is not anticipated
that any nominee will be unavailable for election.
The following sets forth information as to the nominee for election at this
Annual Meeting and each Director continuing in office, including his age,
present principal occupation, other business experience during the last five
years, directorships in other publicly-held companies, membership on committees
of the Board of Directors and period of service as a Director of Metro.
NOMINEE FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 2000:
JOHN H. FAIN, 48, is Chairman of the Board of Directors, President and Chief
Executive Officer of the Company. Mr. Fain co-founded Metro in 1979 and has been
an executive officer of Metro since that time. 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 information technology industry experience.
Mr. Fain is Chairman of the Compensation Committee and has been a Director since
1979.
DIRECTORS CONTINUING TO SERVE
RAY E. BECKER, 60, is founder and President of Consultants to Management,
Inc. of Ellsworth, Maine (management consulting services), and has held those
positions since 1995. From 1985 to 1994, Mr. Becker served in a variety of
management roles with Keane, Inc., retiring as Vice President and Western
Regional Manager for Keane in 1994. Mr. Becker consented to serve on Metro's
Board of Directors on April 24, 1997 and was appointed to the Board as a Class 2
director effective April 29, 1997. Mr. Becker is a member of Metro's Audit
Committee and its Compensation Committee.
ANDREW J. DOWNING, 41, is Executive Vice President and Chief Operating
Officer of the Company. Between 1983 and July 1996, Mr. Downing served in
various marketing capacities in the Company's Virginia Beach, Virginia office,
as a Regional Vice President and a Vice President of Operations. In July 1996,
Mr. Downing became Executive Vice President and Chief Operating Officer of the
Company. Mr. Downing has served on the Board of Directors since January 1997 as
a Class 2 director.
ROBERT J. EVELEIGH, 37, is Vice President of Finance, Treasurer and Chief
Financial Officer of the Company. Between August 1988 and January 1997, Mr.
Eveleigh was an attorney with Clark & Stant, P.C., the Company's general
counsel. Mr. Eveleigh is also a certified public accountant. Mr. Eveleigh became
Vice President of Finance, Treasurer and Chief Financial Officer on January 29,
1997. Mr. Eveleigh has served on the Board of Directors since January 1997 as a
Class 3 director.
A. EUGENE LOVING, JR., 55, is Chairman of the Board and Chief Executive
Officer of Max Media Properties LLC ("Max"). Mr. Loving has held these positions
with Max and its predecessors since 1991. Mr. Loving consented to serve on the
Board of Directors effective April 24, 1997 and was appointed to the Board as a
Class 3 director effective April 29, 1997. Mr. Loving is a member of Metro's
Audit Committee and its Compensation Committee.
2
<PAGE>
OTHER EXECUTIVE OFFICERS OF THE COMPANY
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.
RICHARD C. JAECKLE, a Vice President of Operations, joined the Company in
1987 and has served as a Vice President of Operations 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.
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.
THE BOARD OF DIRECTORS
The business and affairs of Metro are managed under the direction of the
Board of Directors. The Board has responsibility for establishing broad
corporate policies and for the overall performance of Metro rather than
day-to-day operating details. Members of the Board of Directors are kept
informed of the Company's business by various reports and documents sent to them
each month as well as by reports presented at meetings of the Board and its
committees by officers and employees of Metro.
COMMITTEES OF THE BOARD
The Audit Committee, which is composed entirely of Directors who are not
officers or employees of Metro ("Outside Directors"), reviews the Company's
accounting functions, operations and management and the adequacy and
effectiveness of the internal controls and internal auditing methods and
procedures of the Company. The Audit Committee recommends to the Board the
appointment of the independent auditors for the Company. In connection with its
duties, the Audit Committee meets privately with the independent auditors. The
Audit Committee was formed in April 1997.
The Compensation Committee, which is composed of John H. Fain and two
Outside Directors, reviews and acts with respect to pension, compensation and
other employee benefit plans, approves the salary and compensation of the
officers of Metro other than chief executive officer and the other four most
highly compensated officers. The Compensation Committee makes recommendations to
the full Board of Directors concerning the salary and compensation of the chief
executive officer and the other four most highly compensated officers of Metro.
The Compensation Committee was formed in April 1997.
The committee membership of the nominee Director is set forth in his
biographical information above.
The Company does not have a nominating committee.
DIRECTOR COMPENSATION
Directors who are executive officers of the Company receive no compensation
for their service as members of either the Board of Directors or committees
thereof. Outside Directors receive an annual fee of $3,000, plus $500 for each
Board of Directors and committee meeting attended and reimbursement for their
expenses. In addition, under the Company's non-qualified stock option plan for
Outside Directors (the "Outside Directors Stock Plan"), each Outside Director is
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
3
<PAGE>
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
may be exercised immediately at a price equal to the fair market value of the
Common Stock on the date of grant. The options expire 10 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.
ATTENDANCE AT MEETINGS
Between January 1, 1996 and January 10, 1997, Mr. Fain was the sole director
of the Company. As a result, during that period the Company's Board of Directors
acted by written consent as permitted by the Company's Bylaws. There were no
committees of the Board and no committee meetings were held in 1996.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth, as of April 30, 1997, certain information
regarding the beneficial ownership of Metro Common Stock, by (i) each of the
Company's directors, (ii) each of the executive officers named in the Summary
Compensation Table, (iii) all directors and officers of the Company as a group
and (iv) 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>
DIRECTORS, OFFICERS TOTAL
AND 5% SHAREHOLDERS OWNERSHIP(1) PERCENTAGE
- --------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
John H. Fain(2)........................................................................ 8,413,665 56.9%
Andrew J. Downing(3)................................................................... 571,916 3.9
Robert J. Eveleigh..................................................................... -- --
Ray E. Becker(4)....................................................................... 3,000 *
Frank B. Bracken, Jr................................................................... 231,481 1.6
Richard C. Jaeckle..................................................................... 84,160 *
A. Eugene Loving, Jr.(5)............................................................... 3,100 *
Kathleen A. Neff (6)................................................................... 231,102 1.6
The Fain Family Irrevocable Trust 1993(7).............................................. 1,206,510 8.2
All directors and executive officers as a group
(8 persons)(2)(3)(6)................................................................. 9,532,324 64.4
</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 proxy statement 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 a trust of which Mr.
Fain's son is the beneficiary and Mr. Fain is the trustee 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.
4
<PAGE>
(3) Includes 60,759 shares of the Common Stock owned by a trust established by
Mr. Downing and his wife, Cheryl O. Downing, of which his wife is the sole
trustee. The business address of The Downing Irrevocable Trust 1997 is 2401
Haversham Close, Virginia Beach, VA 23454.
(4) Includes 3,000 option shares awarded under the Outside Directors Stock Plan.
Mr. Becker's business address is P.O. Box 1448, Ellsworth, ME 04605.
(5) Includes 3,000 option shares awarded under the Outside Directors Stock Plan.
Mr. Loving's business address is 900 Laskin Road, Virginia Beach, VA 23451.
(6) Includes 200 shares of the Common Stock owned jointly by Ms. Neff and her
sisters and 100 shares owned jointly by Ms. Neff's husband and his brother.
(7) The business address of The Fain Family Irrevocable Trust 1993 is P.O. Box
8888, Virginia Beach, VA 23450.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
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 four other most highly compensated executive officers who
earned more than $100,000 for the year ended December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ------------------------------------------------------------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
John H. Fain,
Chairman of the Board, President
and Chief Executive Officer........................................... $ 600,000 -- $ 7,889
Andrew J. Downing,
Executive Vice President and Chief
Operating Officer..................................................... 210,000 $ 180,810 749
Frank B. Bracken, Jr.,
Vice President of Operations.......................................... 170,000 143,891 --
Richard C. Jaeckle,
Vice President of Operations.......................................... 180,000 99,787 --
Kathleen A. Neff,
Vice President of Operations.......................................... 165,000 100,203 475
</TABLE>
- ------------------------
(1) Includes certain insurance premiums paid by the Company, non-cash
compensation for use of Company condominiums and amounts paid for excess
accrued vacation.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with John H. Fain, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Andrew J. Downing, the Company's 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
5
<PAGE>
against competition from each officer for a two-year period after termination of
employment in any market in which the Company operates.
The Company 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. 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
their 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 entered 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, effective January 29, 1997. The Employment Agreement
provides 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 is also 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 contains 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
in the event of termination of the agreement by the Company without cause. The
amount payable under these arrangements from Metro's funds and group disability
policy could exceed $100,000 under each employment agreement.
ITEM TWO--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, on recommendation of the Audit Committee, has
appointed KPMG Peat Marwick LLP, as independent auditors, to audit the financial
statements of the Company for the year ending December 31, 1997. KPMG Peat
Marwick LLP has served as independent auditor for the Company since 1996.
A proposal will be presented at the meeting to ratify the appointment of
KPMG Peat Marwick LLP as Metro's independent auditors. One or more members of
that firm are expected to be present at the Annual Meeting to respond to
questions and to make a statement if they desire to do so. If the shareholders
do not ratify this appointment by the affirmative vote of a majority of the
shares present in person or represented by proxy at the meeting, other
independent auditors will be considered by the Board on recommendation of the
Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITORS.
6
<PAGE>
ITEM THREE--AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
In 1996, the Board of Directors and shareholders approved the Company's
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan provides a
means for the Company to encourage and assist staff members to acquire stock in
the Company. The Company believes the Purchase Plan will assist it in attracting
and retaining the services of its staff and provide incentives for staff to
exert maximum efforts for the success of the Company.
The following is a summary of some of the terms of the Purchase Plan. The
summary is qualified in its entirety by the full text of the Purchase Plan,
which is attached as Exhibit A. Capitalized terms used in this Item Three and
not defined in this Item Three shall have the meaning assigned to them in
Exhibit A.
PURPOSE
The Purchase Plan provides a means by which the Company's staff may
collectively purchase up to 250,000 shares of the Company's Common Stock through
payroll deductions. The Purchase Plan is an employee stock purchase plan under
Internal Revenue Code Section 423.
REASON FOR AMENDMENT
The Board determined that the purpose of the Purchase Plan can be better
achieved by changing the eligibility requirements for staff participation in the
Purchase Plan. The Board also believes that early employee stock ownership may
reduce turnover and may help differentiate Metro from its competitors.
CURRENT STANDARD
Any employee of the Company who, on the commencement date of a purchase
period, has been employed by the Company for at least one (1) year and is
employed on a basis that customarily requires not less than twenty (20) hours of
service per calendar week or less than five (5) months of service per calendar
year is eligible to participate in the Purchase Plan during a purchase period.
An employee is not eligible for the grant of any rights under the Purchase Plan
if, immediately after such grant, the employee would own, directly or
indirectly, stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or of any parent or subsidiary of
the Company, including any stock that the employee may purchase under all
outstanding options. No employee will be permitted to purchase more than $25,000
worth of stock (determined at the fair market value of the shares at the time
such rights are granted) under all employee stock purchase plans of the Company
in any calendar year.
PROPOSED STANDARD
Any full time employee of the Company who, on the commencement date of the
purchase period, has been employed by the Company for at least six (6) months
without a break in service of more than 30 calendar days is eligible to
participate in the Purchase Plan during a purchase period. An employee is not
eligible for the grant of any rights under the Purchase Plan if, immediately
after such grant, the employee would own, directly or indirectly, stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or of any parent or subsidiary of the Company, including
any stock that the employee may purchase under all outstanding options. No
employee will be permitted to purchase more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
RESOLVED
Section 2(a) of the Metro Information Services, Inc. Employee Stock Purchase
Plan is amended by deleting Section 2(a) in its entirety and replacing it with
the following:
7
<PAGE>
2. ELIGIBILITY AND PARTICIPATION.
(a) Subject to Section 6(c)(iii), every employee of the Company who,
on the commencement date of the purchase period, has been employed by the
Company for at least six (6) months without a break in service of more
than thirty (30) calendar days is eligible to participate in this Plan
during a purchase period.
VOTE REQUIRED
The amendment to the Purchase Plan will be approved if the votes cast in
favor of approval of the amendment to the Purchase Plan at the Annual Meeting
exceed the votes cast against approval.
THE BOARD BELIEVES THAT APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK
PURCHASE PLAN IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND, ACCORDINGLY,
RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO THE EMPLOYEE STOCK PURCHASE
PLAN.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
For 1997, the Compensation Committee of the Board of Directors has oversight
responsibility for the Company's executive compensation programs. More
specifically, the Committee approves all pay plans and changes to the pay plans.
The Compensation Committee also approves performance goals for incentive awards
and recommends awards to the chief executive officer and the other four most
highly compensated executive officers to the full Board of Directors. The full
Board of Directors is responsible for acting on the recommendations of the
Committee. During 1996, the Company was privately held and compensation
decisions were made by the Company's sole director, John H. Fain.
BASIS FOR COMPENSATION
Since its inception, the Company has designed and administered executive
compensation programs so that pay is linked to Company performance and so that
the interests of executives are aligned with the interests of shareholders. This
philosophy is articulated in the following guiding principles of the Company's
compensation programs:
- A significant percentage of pay will be determined by the Company's annual
and long-term financial performance.
- Compensation programs will be designed to encourage and balance the
attainment of operational goals and strategic initiatives.
- Total compensation will be targeted at competitive levels to allow the
Company to attract, retain and motivate high-caliber staff.
In 1996, there were two elements to the Company's compensation program, each
consistent with the compensation philosophy: annual base salary and cash bonus
incentives. Annual incentives are directed toward specific earnings growth
goals.
Annual cash compensation (as reported in the "Salary" and "Bonus" columns of
the Summary Compensation Table) is influenced somewhat by the compensation
practices of similar companies. Although the compensation practices of similar
companies are viewed as important, the Company believes the most important
considerations in setting annual compensation are merit and the achievement of
the Company's financial goals.
Performance targets established for the annual incentive bonuses are based
on internal financial goals.
8
<PAGE>
Metro believes strongly in long-term as well as short term incentives. In
1996, shareholders approved the Incentive Stock Option Plan. The first grant
under this program was made in January 1997. The options are granted at fair
market value on the date of grant. The share units will be paid in shares
following the exercise of the option.
As often as it seems appropriate, the Board has studied Metro's executive
compensation programs to judge their consistency with the Company's compensation
philosophy, their support of the Company's strategic and financial objectives
and their market competitiveness. The Company's performance targets will be
changed from time to time so as to maintain an effective relationship between
performance and compensation.
Submitted by:
John H. Fain
Sole Member of the Board of Directors during 1996
SUBMISSION OF 1998 SHAREHOLDER PROPOSALS
Proposals of the shareholders intended to be presented at the Annual Meeting
in 1998 must be received by the Secretary of Metro Information Services, Inc.,
Reflections II Office Building, 200 Golden Oak Court, Third Floor, Virginia
Beach, Virginia 23452, no later than January 10, 1998 to be considered for
inclusion in the Company's 1998 proxy material.
9
<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
in the Company's report on Form 10-K for the year ended December 31, 1996 which
accompanies this proxy statement. The Balance Sheet Data as of December 31,
1994, 1995 and 1996 and the Statements of Income Data for the years ended
December 31, 1994, 1995 and 1996 were derived from the Company's Financial
Statements and Notes thereto that have been audited by KPMG Peat Marwick LLP,
independent auditors. The Balance Sheet Data as of December 31, 1992 and 1993
and the Statements of Income Data for the year ended December 31, 1992 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 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 Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995(1) 1996
----------- ----------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Revenue................................................ $ 43,720 $ 53,344 $ 68,669 $ 85,904 $ 113,963
Cost of revenue........................................ 30,394 37,646 48,221 61,074 79,752
----------- ----------- --------- --------- ---------
Gross profit........................................... 13,326 15,698 20,448 24,830 34,211
Selling, general and administrative.................... 9,794 11,461 14,595 19,507 25,110
----------- ----------- --------- --------- ---------
Operating income....................................... 3,532 4,237 5,853 5,323 9,101
Net interest income (expense).......................... 43 8 (215) (323) (260)
----------- ----------- --------- --------- ---------
Income before income taxes............................. 3,575 4,245 5,638 5,000 8,841
Pro forma provision for income taxes(2)................ 1,430 1,698 2,255 2,000 3,536
----------- ----------- --------- --------- ---------
Pro forma net income(2)................................ $ 2,145 $ 2,547 $ 3,383 $ 3,000 $ 5,305
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Pro forma net income per share(2)...................... $ 0.24 $ 0.42
--------- ---------
--------- ---------
Weighted average shares outstanding.................... 12,756 12,762
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
----------- ----------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........................................ $ 3,576 $ 2,649 3,724 $ 2,368 $ 6,369
Total assets........................................... 7,847 11,356 13,466 19,786 21,572
Credit Facilities...................................... -- 3,119 3,596 7,256 2,547
Redeemable common stock................................ 531 732 1,070 1,404 2,651
Total shareholders' equity............................. 4,649 3,913 4,425 4,613 8,354
Operating Data:(3)
Offices................................................ 14 15 16 20 23
Consultants............................................ 548 675 838 1,074 1,279
Total employees........................................ 636 779 963 1,239 1,493
</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. Effective as of January 1, 1997, the Company
revoked its S corporation election subjecting it to corporate income taxes
at federal, state and local levels.
(3) Consultant data include only the Company's full-time consultants and total
employees data include only the Company's full-time employees.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT UNDER THE "SAFE-HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: INCLUDED IN THIS REPORT AND OTHER
INFORMATION PRESENTED BY MANAGEMENT FROM TIME TO TIME, INCLUDING, BUT NOT
LIMITED TO, THE ANNUAL REPORT TO SHAREHOLDERS, QUARTERLY SHAREHOLDER LETTERS,
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, NEWS RELEASES AND INVESTOR
PRESENTATIONS, ARE FORWARD-LOOKING STATEMENTS ABOUT BUSINESS STRATEGIES, MARKET
POTENTIAL, FUTURE FINANCIAL PERFORMANCE AND OTHER MATTERS WHICH REFLECT
MANAGEMENT'S EXPECTATIONS AS OF THE DATE OF THIS REPORT. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THERE ARE A
NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, WITHOUT LIMITATION: THE COMPANY'S ABILITY TO ATTRACT, DEVELOP
AND RETAIN QUALIFIED CONSULTANTS, THE COMPANY'S ABILITY TO OPEN NEW OFFICES, THE
COMPANY'S ABILITY TO EFFECTIVELY IDENTIFY, MANAGE AND INTEGRATE ACQUISITIONS,
CHANGES IN STAFF UTILIZATION AND PRODUCTIVITY RATES, THE COMPANY'S ABILITY TO
ACQUIRE OR DEVELOP ADDITIONAL SERVICE OFFERINGS, CLIENT DECISIONS TO REDUCE OR
INCREASE IT SERVICES OUTSOURCING, EARLY TERMINATION OF CLIENT CONTRACTS WITHOUT
PENALTY, CHANGES IN THE COMPANY'S DEPENDENCE ON SIGNIFICANT CLIENTS, CHANGES IN
GROSS MARGINS DUE TO A VARIETY OF FACTORS, THE TYPES OF SERVICES PERFORMED BY
THE COMPANY DURING A PARTICULAR PERIOD AND COMPETITION. PLEASE REFER TO A
DISCUSSION OF THESE AND OTHER FACTORS IN THE COMPANY'S PROSPECTUS DATED JANUARY
29, 1997, THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND OTHER SECURITIES AND
EXCHANGE COMMISSION FILINGS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO
UPDATE PUBLICLY THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
OVERVIEW
Metro Information Services, Inc. provides a wide range of information
technology ("IT") consulting and custom software development services through 25
offices in the United States and Puerto Rico. The Company's more than 1,350
consultants, 66% of whom are salaried, work with clients' internal IT
departments on all aspects of computer systems and applications development.
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.
Metro's clients operate in a wide variety of industries including
communications, distribution, financial services, health care, information
technology, manufacturing and utilities. The Company emphasizes long-term
relationships with its clients rather than one-time projects or assignments.
During the 12 months ended December 31, 1996, the Company performed IT services
for 324 clients (excluding clients that generated less than $25,000 in revenue
during such period).
Revenue growth is derived primarily from increases in the number of
consultants placed with existing and new clients. Between December 31, 1993 and
December 31, 1996, the number of full time consultants grew from 675 to 1,279.
In addition, over the same period 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.
Metro's revenue grew from $68.7 million in 1994 to $114.0 million in 1996.
In 1995 and 1996, approximately 33.4% and 29.1%, respectively, of the Company's
revenue was derived from its 10 largest clients and its largest client accounted
for 6.8% and 6.5%, respectively, of revenue.
The Company's revenue grew 25.1% in 1995 and 32.7% in 1996. This revenue
growth has been achieved solely through internal growth and without the benefit
of acquisitions. Part of this internal growth
11
<PAGE>
is driven by opening new offices. In 1995, the Company accelerated its rate of
new office openings and, between January 1, 1995 and December 31, 1996, opened
seven new offices. Although the opening of new offices resulted in increased
revenue, it adversely impacted net income in 1995 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 continues to
invest in infrastructure such as the development of the Company's proprietary
business systems and its communications network to support its continued growth.
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.
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
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995(1) 1996
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue........................................................................ 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................................................ 70.6 70.2 71.1 70.0
--------- --------- ----- ---------
Gross profit................................................................... 29.4 29.8 28.9 30.0
Selling, general and administrative expenses................................... 21.4 21.3 22.7 22.0
--------- --------- ----- ---------
Operating income............................................................... 8.0 8.5 6.2 8.0
Net interest income (expense).................................................. -- (0.3) (0.4) (0.2)
--------- --------- ----- ---------
Income before income taxes..................................................... 8.0 8.2 5.8 7.8
Pro forma provision for income taxes(2)........................................ 3.2 3.3 2.3 3.1
--------- --------- ----- ---------
Pro forma net income(2)........................................................ 4.8% 4.9% 3.5% 4.7%
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES
-------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995(3) 1996
COMPARED TO COMPARED TO COMPARED TO
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue................................................................ 28.7% 25.1% 32.7%
Cost of revenue........................................................ 28.1 26.7 30.6
Gross profit........................................................... 30.3 21.4 37.8
Selling, general and administrative expenses........................... 27.3 33.7 28.7
Operating income....................................................... 38.1 (9.1) 71.0
Income before income taxes............................................. 32.8% (11.3)% 76.8%
</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
12
<PAGE>
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. Effective as of January 1, 1997, the Company
revoked its S corporation election subjecting it to corporate income taxes
at federal, state and local levels.
(3) 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 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%.
1996 COMPARED TO 1995
REVENUE. Revenue increased $28.1 million, or 32.7%, to $114.0 million for
1996 from $85.9 million for 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 $20.7 million, or 24.6%, from the earlier period and
the eight new offices accounted for the remaining $7.4 million increase in
revenue. As of December 31, 1996 compared to December 31, 1995, the total number
of full-time consultants increased to 1,279 from 1,074, respectively, and
clients (excluding clients that generated less than $25,000 in revenue during
each preceding 12-month period) increased to 324 from 266, respectively.
COST OF REVENUE. Cost of revenue increased $18.7 million, or 30.6%, to
$79.8 million for 1996 from $61.1 million for 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 1996 from 71.1% for 1995 primarily because billing rates to clients
increased faster than consultant compensation and benefits increased.
GROSS PROFIT. Gross profit increased $9.4 million, or 37.8%, to $34.2
million for 1996 from $24.8 million for 1995. As a percentage of revenue, gross
profit increased to 30.0% for 1996 from 28.9% for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.6 million, or 28.7%, to $25.1 million for
1996 from $19.5 million for 1995. This increase is due primarily to costs
associated with eight 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 decreased to
22.0% for 1996 from 22.7% for 1995. Selling, general and administrative expenses
for 1995, however, include 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. Excluding the non-recurring $770,000 charge,
selling, general and administrative expenses for 1996 would have increased $6.4
million, or 34.0%, from $18.7 million for 1995 and, as a percentage of revenue,
would have increased to 22.0% for 1996 from 21.8% for 1995.
OPERATING INCOME. Operating income increased $3.8 million, or 71.0%, to
$9.1 million for 1996 from $5.3 million for 1995. As a percentage of revenue,
operating income increased to 8.0% for 1996 from 6.2% for 1995. Excluding the
$770,000 charge to selling, general and administrative expenses, operating
income would have been $6.1 million for 1995 and, as a percentage of revenue,
would have been 7.1% for 1995.
13
<PAGE>
NET INTEREST EXPENSE. Net interest expense decreased to $260,000 for 1996
from $323,000 for 1995. This decrease reflects a decrease in the average level
of borrowings during the period.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $3.8
million, or 76.8%, to $8.8 million for 1996 from $5.0 million for 1995. As a
percentage of revenue, income before income taxes increased to 7.8% for 1996
from 5.8% for 1995. Excluding the $770,000 charge to selling, general and
administrative expenses, income before income taxes for 1995 would have been
$5.8 million and, as a percentage of revenue, would have been 6.7% for 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 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.
14
<PAGE>
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%
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.
SELECTED QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain quarterly operating information for
each of the 12 quarters ending with the quarter ended December 31, 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 Company's audited financial
statements 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
15
<PAGE>
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>
(DOLLARS IN THOUSANDS)
1994:
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
December................................................... 30,681 9,216 30.0 2,314 7.5
</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
In January 1997, the Company completed an initial public offering of
3,100,000 shares of its Common Stock at a price of $16.00 per share. Of the
3,100,000 shares, 2,300,000 shares were issued and sold by the Company and
800,000 shares were sold by a shareholder of the Company. Shortly thereafter,
the representatives of the several underwriters exercised their over-allotment
option resulting in the sale of 465,000 shares by other shareholders of the
Company. The Company did not receive any of the proceeds from the sale of shares
by the selling shareholders. The net proceeds to the Company were approximately
$33,163,000.
The Company's primary sources of liquidity are the net proceeds of the
Company's initial public offering, 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. In addition, the Company may commit liquid assets to
acquisitions.
16
<PAGE>
The Company maintains three line of credit facilities totaling $17.0 million
with three different banks. On December 31, 1996, $2.5 million was outstanding
under these facilities. Borrowings under these lines may not exceed the lesser
of $17,000,000 and 85% of the Company's eligible accounts receivable. The
facilities bear interest at the London Interbank Offered Rate (LIBOR) plus 150
basis points (5.8% at March 31, 1997 and 7.0% at December 31, 1996), 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.
The facilities are scheduled to expire on May 31, 1997. The Company has
commitments from its lenders to extend and expand its credit facilities to a
total of $39.9 million for periods up to five years. The Company has not
borrowed against its credit facilities since February 1997.
During 1994, 1995 and 1996, the Company generated $3.5 million, $3.2 million
and $11.1 million, respectively, in cash from operations. In 1996, the cash
generated was used, in part, to fund $2.3 million of capital expenditures.
Capital expenditures, which consisted primarily of telecommunications equipment,
computer systems and furniture and fixtures, were made to support the continued
growth and expansion of the Company. For 1997, capital expenditures are expected
to be approximately $2.0 million.
The Company intends to grow, in part, through the acquisition of other
businesses. 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 net proceeds from its initial public offering,
combined with available funds under its 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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
revised the calculation of earnings per share for publicly held companies in
certain situations. SFAS No. 128 is effective for fiscal years ending after
17
<PAGE>
December 15, 1997. In the opinion of management, SFAS No. 128 is not expected to
have a material impact on the Company's calculation of earnings per share.
MARKET INFORMATION, DIVIDENDS AND RELATED STOCKHOLDER MATTERS
The Company completed its initial public offering of stock on January 29,
1997. The Company's common stock, $.01 par value, trades on the Nasdaq National
Market under the symbol "MISI." Before January 29, 1997, there was no
established market for the Company's stock. A table summarizing the high, low
and closing price for the Company's common stock for the quarter indicated
follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
--------- --------- ---------
<S> <C> <C> <C>
Quarterly Stock Price Data:
1997:
March................................................. $ 20.75 $ 12.50 $ 12.63
</TABLE>
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 Company's credit facilities), legal and
regulatory restrictions on the payment of dividends and other factors the Board
of Directors deems relevant. See, "Management Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company estimates that there were approximately 3,400 holders of the
Company's common stock, $.01 par value, on April 30, 1997.
ADDITIONAL INFORMATION
In addition to soliciting proxies through the mail, certain employees of
Metro and its transfer agent Firstar Trust Company, may solicit proxies in
person and by telephone. Metro has retained Firstar Trust Company to assist in
the solicitation of proxies, primarily from brokers, banks and other nominees,
for an estimated fee of $1,500. Metro will bear the cost of soliciting these
proxies. As is customary, Metro will, on request, reimburse brokers, bankers,
nominees, custodians and other record holders for their out-of-pocket expense of
forwarding proxy materials to the beneficial owners of the shares.
DOCUMENTS INCORPORATED IN THIS PROXY STATEMENT
The proxy statement incorporates by this reference the Company's Annual
Report on Form 10-K, a copy of which is enclosed with this proxy statement. An
additional copy may be obtained from the Company without charge on the request
of a shareholder. The request should be directed to Julann Oppasser, Investor
Relations, at the Company's address listed above or by telephone to (757)
306-0299.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT
IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By Order of the Board of Directors,
Steven A. Lurus
Secretary
18
<PAGE>
EXHIBIT A
METRO INFORMATION SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
PURPOSE.
The Metro Information Services, Inc. Employee Stock Purchase Plan (the
"Plan") is intended to provide certain employees ("Participants") of Metro
Information Services, Inc. (the "Company") with an opportunity to acquire a
proprietary interest in the Company through their participation in a plan
designed to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986 (the "Code").
ADMINISTRATION.
(a) COMMITTEE. This Plan shall be administered by a committee (the
"Committee") composed of at least two (2) members of the Board of Directors of
the Company (the "Board"). No person shall serve as a member of the Committee,
or if a member of the Committee, shall not participate in decisions concerning
the timing, pricing or amount of stock to be made available for purchase
hereunder, unless such person is a disinterested person as described in Rule
16b-3 promulgated pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor rule ("Rule 16b-3"). This Plan is intended to
meet the requirements of Rule 16b-3 and shall be interpreted and administered so
as to comply with such rule. The Committee shall have full authority to
administer this Plan and to adopt such rules and regulations for administering
this Plan as it may deem necessary to comply with the requirements of Section
423 of the Code. The Committee may delegate to an agent or agents any of its
responsibilities under this Plan except its responsibilities to: (1) establish
the number of shares available for purchase by employees during any purchase
period; (2) establish the maximum and minimum percentage of base compensation to
be paid by any single employee for the purchase of stock during any purchase
period and its authority and (3) construe and interpret the provisions of this
Plan.
(b) ACTIONS OF THE COMMITTEE. All actions taken and all interpretations and
determinations made by the Committee in good faith (including determinations of
fair market value) shall be final and binding on all Participants, the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan and all members of the Committee shall, in addition to
their rights as directors, be fully protected by the Company with respect to any
such action, determination or interpretation.
1. PURCHASE PERIODS.
The first purchase period under this Plan shall commence on the effective
date of the Company's registration statement filed with the Securities and
Exchange Commission and shall terminate on March 31, 1997. Unless otherwise
determined by the Committee, a purchase period shall commence on the first day
of each succeeding calendar quarter and shall terminate on the last day of each
such quarter. The Committee may, from time to time, establish purchase periods
with differing commencement dates and durations. No two purchase periods shall
run concurrently.
2. ELIGIBILITY AND PARTICIPATION.
(a) Subject to Section 6(c)(iii), every employee of the Company who, on the
commencement date of the purchase period, has been employed by the Company for
at least one (1) year and is employed on a
19
<PAGE>
basis that customarily requires not less than twenty (20) hours of service per
calendar week or less than five (5) months of service per calendar year is
eligible to participate in this Plan during a purchase period.
(b) An employee may become a Participant in this Plan for a particular
purchase period only by completing the enrollment forms prescribed by the
Committee (including a purchase agreement and a payroll deduction authorization)
and filing such forms before the commencement of the purchase period with the
person designated by the Committee. No enrollment forms will be accepted from an
individual who is not on the active payroll of the Company on the filing date,
unless such individual is temporarily off the payroll by reason of illness,
vacation, jury duty or other employer-sponsored absence.
3. STOCK SUBJECT TO PLAN.
(a) COMMON STOCK. The stock that is purchasable by Participants shall be the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock"). To have sufficient shares available for sale under this Plan,
the Company may repurchase shares of Common Stock on the open market, issue
authorized but unissued stock or otherwise. The maximum number of shares that
may be sold to employees during any single purchase period shall be established
by the Committee before the beginning of the purchase period; provided, however,
that the total number of shares that may be sold to Participants throughout the
entire duration of this Plan shall not exceed 250,000 shares (subject to
adjustment under subparagraph (b) below).
(b) CHANGES IN CAPITAL STRUCTURE. If any change is made to the Common Stock
purchasable under this Plan (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of twenty percent
(20%) at any single time, stock splits, combination of shares, exchange of
shares, changes in corporate structure or otherwise), then appropriate
adjustments shall be made to the maximum number of shares purchasable under this
Plan and the number of shares and price per share of stock subject to rights to
purchase stock outstanding under this Plan.
4. PURCHASE OF COMMON STOCK.
(a) RIGHT TO PURCHASE. An employee who becomes a Participant for a
particular purchase period shall have the right, as of the beginning of the
purchase period, to purchase Common Stock on the terms and conditions set forth
in this Plan and shall execute a purchase agreement embodying such terms and
conditions and such other provisions, not inconsistent with this Plan, as the
Committee may deem advisable.
(b) PURCHASE PRICE PER SHARE. Except as provided in Section 6(j), the
purchase price per share shall be eighty-five percent (85%) of the fair market
value of a share of Common Stock on the commencement date of the purchase
period. The fair market value of a share of Common Stock on any date shall be
the closing sales price, as quoted by the National Association of Securities
Dealers through the NASDAQ National Market System for the date in question, or,
if the Common Stock is listed on a national stock exchange, the
officially-quoted closing sales price on such exchange on the date in question.
If the Common Stock is not traded publicly, the fair market value of a share of
Common Stock on any date shall be determined, in good faith, by the Board or the
Committee after consultation with outside legal, accounting or other experts as
the Board or the Committee may deem advisable. If the Common Stock is not traded
publicly, the Board or the Committee shall maintain a written record of its
method of determining such value.
(c) TOTAL PURCHASE PRICE. Each Participant shall, for any purchase period,
have the right to purchase Common Stock with a total purchase price equal to a
designated percentage of his Compensation. A Participant's "Compensation" for a
particular purchase period shall be the amount of the Participant's (i) base
salary or wages or (ii) base salary or wages, plus overtime, bonuses and other
compensation, that is payable to the Participant at any time or from time to
time during the purchase period. Each Participant
20
<PAGE>
shall designate in his purchase agreement the whole percentage of the
Participant's Compensation the Participant wishes to use to pay for the purchase
of Common Stock for the particular purchase period, subject to the provisions
set forth below which shall be uniformly applied to all Participants in a
particular purchase period:
(i) The maximum percentage of a Participant's Compensation that may be
used to pay for the Common Stock in a particular purchase period shall be
five percent (5%); provided, however, that the Committee shall establish
before the beginning of the purchase period a maximum number of shares
(subject to adjustment under Section 6(b)) that may be purchased during the
purchase period by each Participant.
(ii) The minimum percentage of a Participant's Compensation that may be
used to pay for the purchase of Common Stock in a particular period shall be
one percent (1%).
(iii) No right to purchase shares under this Plan shall be granted to an
employee if such employee would, immediately after the grant, own stock
possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company. An employee's stock ownership
shall be determined under Section 424(d) of the Code and stock that an
employee may purchase under any outstanding options shall be treated as
stock owned by the employee. Notwithstanding the provisions of paragraphs
(i) and (ii) above, the Committee may, in its discretion, establish any
other maximum and minimum percentages of Compensation to be used to pay for
Common Stock under this Plan.
(d) ALLOCATION OF AVAILABLE SHARES. If the total number of shares of Common
Stock that may be purchased under the purchase agreements of all Participants
for a particular purchase period exceeds the number of shares available for sale
under this Plan, then the Committee shall make a pro rata allocation of the
available shares and shall notify each Participant of such allocation.
(e) PAYMENT. Payment of the purchase price for Common Stock under this Plan
shall be effected by means of payroll deductions, which shall begin with the
first pay period, the payment date for which occurs coincident with or
immediately following the commencement date of the relevant purchase period and
shall terminate with the last pay period, the payment date for which occurs on
or before the last day of the purchase period. Each payroll deduction shall be
an amount equal to the percentage of the Compensation included in that payroll
payment that was designated by the Participant in his purchase agreement
(subject to reduction as provided in Section 6(g)).
(f) TERMINATION OF RIGHT TO PURCHASE. A Participant may, at any time before
the last day of the purchase period, terminate his right to purchase stock under
this Plan by filing the prescribed notification form with the Committee or its
delegate. Any amounts deducted from the Participant's pay or otherwise collected
from him by reason of his participation in this Plan for such purchase period
shall be refunded and no further amounts will be collected from the Participant
(by payroll deduction or otherwise) during the remainder of the purchase period.
A Participant's termination of his right to purchase shall be irrevocable with
respect to the purchase period to which it pertains.
(g) REDUCTION OF COMPENSATION PERCENTAGE. A Participant may, once and only
once during a purchase period, other than after his termination of employment
with the Company, reduce the percentage of his Compensation to be paid for
shares of Common Stock under the purchase agreement to a lesser whole percentage
by giving written notice to the Committee.
(h) TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of
the Company for any reason (including, without limitation, death or retirement)
during a purchase period, the Participant or his personal representative may
either:
(i) receive a stock certificate for the number of shares (in five (5)
share lots) of Common Stock paid for pursuant to payroll deductions made on
behalf of the Participant during the purchase period
21
<PAGE>
up to the day before the date of the Participant's cessation of employment
and receive any balance remaining in the Participant's account after such
purchase; or
(ii) receive a cash refund of all sums previously collected from the
Participant during the purchase period.
Any election provided by this Section 6(h) shall be exercisable only during the
90-day period following the date of the Participant's cessation of employment
(but in no event later than the last date of the purchase period) and the
underlying right to purchase stock under this Plan shall terminate on the
exercise of such election. If a Participant or his personal representative fails
to make a timely election under this Section 6(h), the Company shall treat such
failure as an election to exercise alternative (ii) above.
(i) EXERCISE. Each right to purchase stock under this Plan, other than a
right to purchase Common Stock that has been accelerated under this Plan or that
has previously terminated under this Plan, shall be exercised automatically on
the last day of the purchase period. Promptly after the date of exercise, the
Participant or the Participant's nominee, shall be issued a stock certificate
for the whole number of shares that is divisible by five (5) shares for which
the Participant's right to purchase has been exercised. Not more than one
certificate shall be issued pursuant to the exercise of any right to purchase
Common Stock under this Plan. Any excess of amounts collected during the
purchase period, plus any beginning balance over the purchase price of the
issued shares, shall be, at the sole option of the Company, promptly refunded or
left on deposit for the ensuing quarterly period, and, in any case, refunded
after termination.
(j) REDUCTION OF PURCHASE PRICE. If the fair market value of a share of
Common Stock on the last day of the purchase period is less than the fair market
value of such share on the commencement date of the purchase period, then the
purchase price per share under this Plan on the last day of the purchase period
shall be reduced to eighty-five percent (85%) of the fair market value of such
share on the last day of the purchase period. Each right to purchase stock in
five (5) share multiples under this Plan not previously exercised or terminated
shall be automatically exercised on the last day of the purchase period for the
number of whole shares (in five (5) share lots) obtained by dividing the sum on
deposit from the Participant (and not refunded) by the purchase price per share
determined under this Section 6(j), but in no event shall any right to purchase
stock under this Plan be exercised for more than the specified number of shares,
if any, (subject to adjustment under Section 5(b)) established by the Committee
pursuant to Section 6(c)(i) before the beginning of the purchase period, and the
balance shall be, at the sole option of the Company, promptly refunded or left
on deposit for the ensuing quarterly period. For example, if a Participant has
$100.00 on account and the Company's stock price pursuant to this paragraph is
determined to be $9.00, then ten (10) shares will be issued (10 x $9.00; with
ten (10) being divisible by 5) and $10.00 will be left on deposit or refunded as
herein stated.
(k) RIGHTS AS STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to shares subject to a right to purchase Common Stock
granted under this Plan until such right to purchase is exercised and a share
certificate is delivered to the Participant. No adjustments shall be made for
dividends, distributions or other rights for which the record date is before the
date of exercise.
(l) ASSIGNABILITY. No right to purchase Common Stock granted under this Plan
shall be assignable or transferable by a Participant other than by will or by
the laws of descent and distribution, and, during the lifetime of the
Participant, such rights to purchase Common Stock shall be exercisable only by
the Participant.
(m) ACCRUAL LIMITATIONS. No Participant shall be entitled to accrue rights
to purchase Common Stock under this Plan that, when aggregated with purchase
rights accruable by him under other qualified employee stock purchase plans
(within the meaning of Section 423 of the Code) of the Company, would permit
such Participant to purchase more than $25,000 worth of Common Stock (determined
on the basis of the fair market value of such Common Stock on the date the
Participant accrues purchase rights under the Plan) for each calendar year such
purchase rights are at any time outstanding.
22
<PAGE>
(n) MERGER OR LIQUIDATION OF THE COMPANY. If the Company or its shareholders
enter into an agreement to dispose of all or substantially all of the assets of
the Company or to dispose of greater than fifty percent (50%) of the outstanding
capital stock of the Company by means of sale, merger, reorganization or
liquidation, each Participant shall be entitled to receive, as nearly as
reasonably may be determined, the cash, securities or property (or any
combination thereof) that a holder of one share of the Common Stock was entitled
to receive at the time of such transaction. The Board or the Committee shall
take such steps in connection with such transactions as the Board or the
Committee shall deem necessary to assure that the provisions of this Section
shall thereafter be applicable, as nearly as reasonably may be determined, to
the said cash, securities or property (or any combination thereof) as to which
such Participant might thereafter be entitled to receive.
(o) NO INTEREST. No interest shall be paid on any monies refunded to
Participants pursuant to the provisions of this Plan.
(p) WITHHOLDING. The Company may withhold any taxes required by any law or
regulation of any governmental authority, whether federal, state or local, in
connection with the purchase of Common Stock under this Plan or the sale of such
stock that is not held for at least two (2) years after the beginning of the
purchase period during which the Common Stock was purchased. Such withholding
may include all or any portion of any payment or other compensation payable to
the Participant, unless the Participant reimburses the Company for such amount.
5. AMENDMENT.
The Board may from time to time alter, amend, suspend or discontinue this
Plan; provided, however, that no such action shall adversely affect rights and
obligations with respect to rights to purchase stock at the time outstanding
under this Plan and provided, further, that no such action of the Board may,
without the approval of the shareholders of the Company, increase the number of
shares subject to this Plan or the maximum number of shares for which a right to
purchase Common Stock under this Plan may be exercised (unless necessary to
effect the adjustments required by Section 5(b)), extend the term of this Plan,
alter the per share purchase price formula so as to reduce the purchase price
per share specified in this Plan, otherwise materially increase the benefits
accruing to Participants under the Plan or materially modify the requirements
for eligibility to participate in this Plan. Furthermore, the Plan may not,
without the approval of the shareholders of the Company, be amended in any
manner that will cause this Plan to fail to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code.
6. EFFECTIVE DATE
This Plan has been approved by the Board and shall become effective on the
effective date of the Company's registration statement filed with the Securities
and Exchange Commission, provided the shareholders of the Company have approved
this Plan. If the shareholders have not approved this Plan, this Plan will not
become effective.
METRO INFORMATION SERVICES, INC.
By: /s/ JOHN H. FAIN
-----------------------------------------
John H. Fain, President
Date: December 24, 1996
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10K (SP-15D2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
COMMISSION FILE NO.: 000-22035
------------------------
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
VIRGINIA 54-1112301
(State of incorporation) (I.R.S. Employer Identification
Number)
POST OFFICE BOX 8888 VIRGINIA BEACH, VIRGINIA 23450
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (757) 486-1900
Securities registered pursuant to Section 12(b) of the NONE
Act:
Securities registered pursuant to Section 12(g) of the Common Stock, Par Value $.01
Act: (Title Of Class)
</TABLE>
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
Yes /X/ No / /
(2) has been subject to the filing requirements for the past 90 days. Yes / /
No /X/
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 20, 1997 was approximately $87 million, based on the
average of the high and low prices of the registrant's Common Stock on the
Nasdaq National Market on such date.
As of March 20, 1997, the registrant had issued and outstanding 14,800,000
shares of Common Stock, $.01 par value.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
This Annual Report on Form 10-K is being filed pursuant to Rule 15d-2 under
the Securities Exchange Act of 1934 and contains only certified financial
statements as required by Rule 15d-2.
On January 29, 1997 Metro Information Services, Inc. (the "Company")
consummated its initial public offering (the "Offering") of 3,100,000 shares of
common stock, par value $.01 per share (the "Common Stock"), at $16.00 per
share. Subsequently, on January 31, 1997 the underwriters exercised their
over-allotment option to purchase an additional 465,000 shares at $16.00 per
share. The proceeds, net of the underwriters' commissions and estimated Offering
expenses, were $33,324,000. A detailed description of the Offering is included
within the Registration Statement (Registration Statement No. 333-16585) filed
with the Securities and Exchange Commission (the "Commission").
Rule 15d-2 ("Rule 15d-2") under the Securities Exchange Act of 1934, as
amended, provides generally that, if a registrant files a registration statement
under the Securities Act of 1933, as amended, which does not contain certified
financial statements for the registrant's last full fiscal year (or for the life
of the registrant if less than a full fiscal year), then the registrant shall,
within 90 days after the effective date of the registration statement, file a
special report furnishing certified financial statements for such last full
fiscal year or other period as the case may be. Rule 15d-2 further provides that
such special financial report is to be filed under cover of the facing sheet
appropriate for annual reports of the registrant.
The Company's Form S-1 Registration Statement referenced above did not
contain the certified financial statements contemplated by Rule 15d-2,
therefore, as required by Rule 15d-2, these are being filed with the Commission
under cover of the facing page of an Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a)(1) LIST OF FINANCIAL STATEMENTS FILED AS PART OF THE FORM 10-K
The following Financial Statements of Metro Information Services, Inc. are
filed as part of the Form 10-K. Page numbers refer to this Form 10-K:
METRO INFORMATION SERVICES, INC.:
<TABLE>
<S> <C>
Independent Auditors' Report.............................. 3
Balance Sheets............................................ 4
Statements of Income...................................... 5
Statements of Changes in Redeemable Common Stock and
Shareholders' Equity.................................... 6
Statements of Cash Flows.................................. 7
Notes to Financial Statements............................. 8
</TABLE>
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED AS PART OF
THIS FORM 10-K
None.
(a)(3) LIST OF EXHIBITS
23.1 Consent of KPMG Peat Marwick.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
Not applicable to this filing.
(c) EXHIBITS
23.1 Consent of KPMG Peat Marwick.
27 Financial Data Schedule.
(d) SCHEDULES REQUIRED BY REGULATION S-X EXCLUDED UNDER RULES 14a-3(b).
None.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1995 and 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, 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, 1995 and 1996 and the results of its operations and cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 24, 1997
3
<PAGE>
METRO INFORMATION SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
ASSETS:
Current assets:
Cash............................................................................. $ 116,835 $ 157,372
Accounts receivable less allowance for doubtful accounts of $86,007 and $113,886
at December 31, 1995 and 1996 (note 4)......................................... 15,781,539 16,665,989
Notes receivable--related parties (note 2)....................................... 18,060 --
Prepaid expenses................................................................. 220,243 112,281
------------- -------------
Total current assets......................................................... 16,136,677 16,935,642
Property and equipment, net (note 3)............................................... 2,615,226 4,069,816
Notes receivable--related parties, less current maturities (note 2)................ 963,622 --
Other assets....................................................................... 70,644 566,689
------------- -------------
Total assets....................................................................... $ 19,786,169 $ 21,572,147
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit facilities (note 4)............................................... $ 7,255,622 $ 2,547,388
Accounts payable................................................................. 956,629 1,146,010
Accrued compensation and benefits................................................ 5,556,640 6,873,694
------------- -------------
Total liabilities.................................................................. 13,768,891 10,567,092
------------- -------------
Redeemable common stock (notes 8 and 10)........................................... 1,404,298 2,650,893
------------- -------------
Shareholders' equity:
Preferred stock, $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 (notes 8 and 10).................................. 87,682 87,682
Retained earnings................................................................ 4,525,298 8,266,480
------------- -------------
Total shareholders' equity................................................... 4,612,980 8,354,162
------------- -------------
Commitments, contingencies and subsequent events (notes 7 and 10)
Total liabilities and shareholders' equity......................................... $ 19,786,169 $ 21,572,147
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- --------------
Revenue............................................................ $ 68,668,769 $ 85,904,026 $ 113,962,932
Cost of revenue.................................................... 48,220,645 61,074,051 79,751,603
------------- ------------- --------------
Gross profit....................................................... 20,448,124 24,829,975 34,211,329
Selling, general and administrative expenses (notes 2 and 8)..... 14,595,147 19,506,718 25,110,693
------------- ------------- --------------
Operating income................................................... 5,852,977 5,323,257 9,100,636
------------- ------------- --------------
Interest expense................................................... (232,745) (380,420) (309,076)
Interest income.................................................... 18,190 57,440 49,622
------------- ------------- --------------
Net interest expense............................................. (214,555) (322,980) (259,454)
------------- ------------- --------------
Net income......................................................... $ 5,638,422 $ 5,000,277 $ 8,841,182
------------- ------------- --------------
------------- ------------- --------------
Pro forma income data:
Net income....................................................... $ 5,638,422 $ 5,000,277 $ 8,841,182
Pro forma provision for income taxes (unaudited) (note 5)........ 2,255,369 2,000,111 3,536,473
------------- ------------- --------------
Pro forma net income (unaudited)................................. $ 3,383,053 $ 3,000,166 $ 5,304,709
------------- ------------- --------------
------------- ------------- --------------
Pro forma net income per share (unaudited)....................... $ 0.24 $ 0.42
------------- --------------
------------- --------------
Weighted average number of shares of common stock and common
stock equivalents outstanding.................................. 12,755,789 12,761,685
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK COMMON STOCK
------------------------ --------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
---------- ------------ ---------- --------- ------------ ------------
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.......................... -- -- -- -- (5,100,000) (5,100,000)
Net income for 1996......................... -- -- -- -- 8,841,182 8,841,182
---------- ------------ ---------- --------- ------------ ------------
BALANCE AS OF DECEMBER 31, 1996............. 3,731,761 $ 2,650,893 8,768,239 $ 87,682 $ 8,266,480 $ 8,354,162
---------- ------------ ---------- --------- ------------ ------------
---------- ------------ ---------- --------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 5,638,422 $ 5,000,277 $ 8,841,182
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 357,243 536,986 763,760
Net loss on sale of property and equipment....................... 442 4,839 39,509
Changes in assets and liabilities increasing (decreasing) cash:
Accounts receivable............................................ (3,030,606) (4,367,288) (884,450)
Prepaid expenses............................................... (51,424) (71,685) 107,962
Accounts payable............................................... 36,847 402,999 189,381
Accrued compensation and benefits.............................. 592,362 1,736,083 2,087,054
------------- ------------- -------------
Net cash provided by operating activities...................... 3,543,286 3,242,211 11,144,398
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............................ (913,343) (1,617,562) (2,267,638)
Proceeds from sale of property and equipment..................... 275 16,707 9,779
Increase in other assets......................................... (8,388) (24,399) (496,045)
------------- ------------- -------------
Net cash used in investing activities.......................... (921,456) (1,625,254) (2,753,904)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit................... 477,050 3,659,191 (4,708,234)
Proceeds from issuance of redeemable common stock.................. 363,454 359,421 476,595
Redemption of redeemable common stock.............................. (613,418) (36,463) --
Distributions to shareholders...................................... (4,383,833) (4,801,836) (5,100,000)
Advances on notes receivable--related parties...................... -- (800,000) (175,000)
Repayment of notes receivable--related parties..................... 1,554,395 19,680 1,156,682
------------- ------------- -------------
Net cash used in financing activities............................ (2,602,352) (1,600,007) (8,349,957)
Net increase in cash............................................. 19,478 16,950 40,537
Cash at beginning of period.......................................... 80,407 99,885 116,835
------------- ------------- -------------
Cash at end of period................................................ $ 99,885 $ 116,835 $ 157,372
------------- ------------- -------------
Supplemental disclosure of cash flow information--
Cash paid for interest............................................. $ 232,745 $ 380,420 $ 309,076
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
7
<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. As of December
31, 1996, the Company had 23 offices in the United 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 costs incurred through December 31, 1996
in connection with the Company's January 29, 1997 initial public offering of
stock (see note 10) and security deposits relating to the Company's leased
facilities.
INCOME TAXES
For the periods shown, the Company, with the consent of its shareholders,
was 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 (see note 10 for subsequent event).
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 the initial public offering, even if
anti-dilutive, have been included in the calculation as if they were outstanding
for all periods, at the initial public offering price of $16.00 per share. In
addition, weighted average shares for each period are increased in accordance
with Securities and Exchange Commission Staff Accounting Bulletin Topic 1B3 to
reflect certain distributions in excess of earnings.
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
8
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 adopted APB No. 25's accounting
recognition provisions. In the opinion of management, adopting SFAS No. 123
would not 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.
(2) RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
As of December 31, 1995, notes receivable-related parties consisted of
$800,000 due on a $1,000,000 line of credit note from the majority shareholder
requiring annual interest payments at 8%, which was secured by Deed of Trust on
real property; $168,322 due on an unsecured note from a partnership in which the
majority shareholder and two other shareholders are general partners, requiring
monthly payments of principal and interest at 8%; and $13,360 of other notes
receivable from employees.
As of December 31, 1996, all notes receivable, except the line of credit
note, had been repaid in full and the notes canceled. The line of credit note
was canceled shortly before the initial public offering discussed in note 10.
OTHER
Until December 31, 1996, the Company leased facilities for its corporate
headquarters from a partnership in which the majority shareholder of the Company
and his spouse are the general partners. The lease agreement provided for an
annual rental of $144,000 payable in monthly installments of $12,000. The
Company leased a new corporate headquarters facility from an unrelated third
party beginning December 15, 1996. The lease for the old facilities was
terminated on December 31, 1996.
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.
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,
--------------------------
<S> <C> <C> <C>
USEFUL
LIFE 1995 1996
----------- ------------ ------------
Land.................................................................... n.a. $ 60,296 $ 94,376
Buildings............................................................... 31.5 years 278,483 607,297
Computer equipment...................................................... 3-7 years 2,917,598 4,166,220
Furniture and equipment................................................. 5-7 years 1,048,851 1,370,312
Leasehold improvements.................................................. Various 54,142 203,953
------------ ------------
4,359,370 6,442,158
Less accumulated depreciation........................................... 1,744,144 2,372,342
------------ ------------
$ 2,615,226 $ 4,069,816
------------ ------------
------------ ------------
</TABLE>
(4) LINE OF CREDIT FACILITIES
The Company maintains three line of credit facilities with three different
banks. As of December 31, 1996, availability under the three facilities totaled
$17,000,000. Borrowings under these facilities may not exceed the lesser of
$17,000,000 and 85% of the Company's eligible accounts receivable. The
facilities bear interest at the London Interbank Offered Rate (LIBOR) plus 150
basis points (7.0% at December 31, 1996), 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 $12,000,000, expire on April 30, 1997. The third facility
expires on May 31, 1997.
As of December 31, 1995 and 1996, borrowings outstanding under these
facilities totaled $7,255,622 and $2,547,388, respectively.
(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,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------ ------------ ------------
Pro forma (unaudited)
Federal............................................................... $ 1,917,063 $ 1,700,094 $ 3,006,002
State................................................................. 338,306 300,017 530,471
------------ ------------ ------------
Total pro forma................................................... $ 2,255,369 $ 2,000,111 $ 3,536,473
------------ ------------ ------------
------------ ------------ ------------
</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.
10
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED)
A reconciliation of the statutory federal income tax rate and the effective
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
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 employee's compensation.
The Company made matching contributions of $749,324, $939,223 and $1,181,665
to the plan for the years ended December 31, 1994, 1995 and 1996, respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases for
office space. Rent expense for the years ended December 31, 1994, 1995 and 1996
was $625,054, $854,539 and $1,094,436, respectively, and is included in selling,
general and administrative expenses in the accompanying statements of income.
Renewal options are available at most locations. Future minimum lease payments
as of December 31, 1996 (including those for the Company's new headquarters
facility) are as follows:
<TABLE>
<S> <C>
1997............................................................................ $1,249,317
1998............................................................................ 1,073,389
1999............................................................................ 960,093
2000............................................................................ 778,885
2001............................................................................ 553,222
Thereafter...................................................................... 5,406
----------
$4,620,312
----------
----------
</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
$1,613,111, $2,206,861 and $3,143,431 for the years ended December 31, 1994,
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 $328,099 and $485,434 at December 31, 1995 and 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
11
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) SHAREHOLDERS' EQUITY (CONTINUED)
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 Stock 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.
Certain shares of Redeemable Common Stock were issued within 12 months of
the Company's 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 as of December 31, 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
On January 29, 1997, the Company's initial public offering of Common Stock
became effective. The Company sold 2,300,000 shares of Common Stock at $16.00
per share generating net proceeds of approximately $33,324,000 after
underwriting discount and offering expenses.
12
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SUBSEQUENT EVENTS (CONTINUED)
The following corporate actions have been taken in connection with the
initial public offering:
DISTRIBUTIONS
On January 20, 1997, the Company distributed $9,000,000 to its shareholders,
approximating the estimated aggregate undistributed amount of income on which
the Company's shareholders either have paid or will be required to pay income
taxes for tax years 1987 through 1996.
STOCK SPLIT
On January 24, 1997, the Company effected a 3,507.2952 for 1 stock split by
means of a stock dividend. All share and per share data in these financial
statements reflect this stock split.
CONVERSION OF NONVOTING COMMON STOCK
The nonvoting Redeemable Common Stock was released from any agreement
requiring its redemption and was converted into voting Common Stock. As a
result, the 3,731,761 shares of Redeemable Common Stock will be reclassified as
Common Stock in future financial statements.
TERMINATION OF S CORPORATION ELECTION
Effective January 1, 1997, the Company terminated its S corporation election
resulting in the Company becoming a C corporation for all income tax purposes.
CANCELLATION OF RELATED PARTY NOTE
Shortly before the initial public offering, the Company's majority
shareholder repaid his outstanding line of credit note in full. The Company then
cancelled the line of credit note and released the Deed of Trust on real
property securing the note.
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 initial public
offering, certain employees of the Company were granted options to purchase
375,000 shares of common stock at the initial public offering price of $16.00
per share. The options vest ratably over five years.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted the Metro Information Services, Inc. Employee Stock
Purchase Plan (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.
13
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SUBSEQUENT EVENTS (CONTINUED)
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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange of
1934, the registrant has duly caused this report to be signed on itself by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
METRO INFORMATION SERVICES, INC.
By: /s/ JOHN H. FAIN
------------------------------------------
John H. Fain
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
<C> <S> <C>
/s/ JOHN H. FAIN
-------------------------------------- President and Director March 27, 1997
John H. Fain (Principal Executive Officer)
/s/ ANDREW J. DOWNING
-------------------------------------- Director and Executive March 27, 1997
Andrew J. Downing Vice President
/s/ ROBERT J. EVELEIGH Treasurer, Chief Financial
-------------------------------------- Officer and Director March 27, 1997
Robert J. Eveleigh (Principal Financial Officer)
/s/ STEVEN A. LURUS
-------------------------------------- Director of Finance (Principal Accounting March 27, 1997
Steven A. Lurus Officer)
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
METRO INFORMATION SERVICES, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS--JUNE 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of Metro Information Services, Inc. (the
"Company"), hereby appoints John H. Fain, Andrew J. Downing and Robert J.
Eveleigh, and each of them, as proxies, each with the power to appoint a
substitute, and hereby authorizes each of them to represent and to vote, as
designated below, all of the shares of stock of the Company held of record by
the undersigned on April 30, 1997, at the 1997 Annual Meeting of Shareholders of
the Company to be held on June 10, 1997 at 2:30 p.m. and at any and all
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF THE NOMINEE FOR DIRECTOR, "FOR" THE APPOINTMENT
OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS AND "FOR" THE
AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN. THESE MATTERS ARE DESCRIBED
IN MORE DETAIL IN THE COMPANY'S PROXY STATEMENT.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
x DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED x
- --------------------------------------------------------------------------------
METRO INFORMATION SERVICES, INC. 1997 ANNUAL MEETING OF SHAREHOLDERS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1-3
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTOR: JOHN H. FAIN / / FOR / / WITHHOLD AUTHORITY
2. To ratify the selection of KPMG Peat Marwick LLP as the Company's Independent
Auditors. / / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the 1997 Employee Stock Purchase Plan. / / FOR / / AGAINST / / ABSTAIN
</TABLE>
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the 1997 Annual Meeting and at any and all
adjournments thereof.
<TABLE>
<S> <C> <C>
Address Change? Date ------------------------- NO. OF SHARES
MARK BOX / /
Indicate changes below:
SIGNATURE(S) IN BOX
Please sign exactly as your name appears on this
Proxy. When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Metro Information Services, Inc.:
We consent to incorporation by reference in registration statements (Nos.
333-22751, 333-22753 and 333-22777) on Form S-8 of Metro Information Services,
Inc. of our report dated February 24, 1997, relating to the balance sheets of
Metro Information Services, Inc. as of December 31, 1996 and 1995, and the
related statements of income, cash flows and changes in redeemable common stock
and shareholders' equity for each of the years in the three-year period ended
December 31, 1996, which report appears in the December 31, 1996 Annual Report
on Form 10-K of Metro Information Services, Inc.
/s/ KPMG PEAT MARWICK LLP
Norfolk, Virginia
March 26, 1997
