<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
JUNE 30, 1997
COMMISSION FILE NO.: 000-22035
------------------------------
METRO INFORMATION SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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)
(757) 486-1900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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), and has been subject to the filing requirements
for the past 90 days. Yes /x/ No / /
As of July 31, 1997, the registrant had issued and outstanding 14,800,000
shares of Common Stock, $.01 par value.
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1
<PAGE>
METRO INFORMATION SERVICES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
-------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................. 3
Statements of Income for the Three Months and Six Months Ended June 30, 1996 and 1997
(unaudited).......................................................................... 4
Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1997
(unaudited).......................................................................... 5
Statements of Changes in Redeemable Common Stock And Shareholders' Equity for the
Six Months Ended June 30, 1997 (unaudited)........................................... 6
Notes to Financial Statements (unaudited)............................................ 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 9
PART II. OTHER INFORMATION.................................................................... 15
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
METRO INFORMATION SERVICES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
IN THOUSANDS 1996 1997
------------ ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................................................. $ 157 $ 22,526
Accounts receivable, net............................................................... 16,666 21,312
Prepaid expenses....................................................................... 112 408
Deferred income taxes (Note 2)......................................................... -- 815
------------ ---------
Total current assets................................................................. 16,935 45,061
Property and equipment, net.............................................................. 4,070 4,718
Other assets............................................................................. 567 287
------------ ---------
Total assets......................................................................... $ 21,572 $ 50,066
------------ ---------
------------ ---------
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit facilities.............................................................. $ 2,547 --
Accounts payable....................................................................... 1,146 1,862
Accrued compensation and benefits...................................................... 6,874 8,619
------------ ---------
Total current liabilities............................................................ 10,567 10,481
Deferred income taxes (Note 2)........................................................... -- 424
------------ ---------
Total liabilities................................................................... 10,567 10,905
------------ ---------
Redeemable common stock.................................................................. 2,651 --
Shareholders' equity
Preferred stock, $0.01 par value; authorized 1,000,000 shares; none issued and
outstanding.......................................................................... -- --
Common stock, $0.01 par value, authorized 50,000,000 shares; issued and outstanding
8,768,239 shares at December 31, 1996, 14,800,000 shares at June 30, 1997............ 88 148
Paid in capital...................................................................... -- 35,734
Retained earnings.................................................................... 8,266 3,279
------------ ---------
Total shareholders' equity......................................................... 8,354 39,161
------------ ---------
Total liabilities and shareholders' equity....................................... $ 21,572 $ 50,066
------------ ---------
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</TABLE>
3
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METRO INFORMATION SERVICES, INC.
Statements of Income (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA 1996 1997 1996 1997
--------- --------- --------- ---------
Revenue............................................................... $ 27,812 $ 35,883 $ 54,140 $ 68,929
Cost of revenue....................................................... 19,360 25,042 37,962 48,361
--------- --------- --------- ---------
Gross profit......................................................... 8,452 10,841 16,178 20,568
Selling, general and administrative expenses.......................... 6,204 7,432 11,823 14,418
--------- --------- --------- ---------
Operating income..................................................... 2,248 3,409 4,355 6,150
Interest income (expense)............................................. (64) 225 (150) 329
--------- --------- --------- ---------
Income before income taxes........................................... 2,184 3,634 4,205 6,479
Income taxes (Note 2)................................................. -- 1,454 -- 2,467
--------- --------- --------- ---------
Net income (Note 2).................................................. $ 2,184 $ 2,180 $ 4,205 $ 4,012
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma income data:
Income before income taxes........................................... 2,184 3,634 4,205 6,479
Provision for income taxes........................................... 874 1,454 1,682 2,467
--------- --------- --------- ---------
Net income........................................................... 1,310 2,180 2,523 4,012
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share (Note 2)......................................... $ 0.10 $ 0.15 $ 0.20 $ 0.28
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares of common stock and common stock
equivalents outstanding............................................. 12,852 14,800 12,842 14,417
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
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METRO INFORMATION SERVICES, INC.
Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
---------------------------
<S> <C> <C>
1996 1997
------------ -------------
Cash flows from operating activities:
Net Income.......................................................................... $ 2,523,129 $ 4,012,222
Adjustments to reconcile net income to net
cash provided by operating activities:
(Depreciation)...................................................................... 346,598 506,334
Net loss on sale of property and equipment.......................................... 648 36,623
Deferred taxes...................................................................... -- (391,254)
Changes in assets and liabilities increasing
(decreasing) cash:
Accounts receivable............................................................... (1,803,236) (4,646,013)
Notes receivable.................................................................. 518,110
Prepaid expenses.................................................................. (47,414) (294,917)
Accounts payable.................................................................. (28,250) 715,909
Accrued compensation and benefits................................................. 2,853,247 1,744,910
------------ -------------
Net cash provided by operating activities........................................ 4,362,832 1,683,814
------------ -------------
Cash flows from investing activities:
Acquisition of property and equipment............................................... (922,881) (1,200,468)
Proceeds from sale of property and equipment........................................ 8,368 9,200
Increase in other assets............................................................ (44,705) (191,680)
------------ -------------
Net cash used in investing activities............................................ (959,218) (1,382,948)
------------ -------------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit.................................... (1,896,918) (2,547,388)
Decrease in other assets related to issuance of
2,300,000 shares................................................................... -- 471,849
Proceeds from issuance of 2,300,000 shares.......................................... -- 33,143,634
Distributions to shareholders....................................................... (2,122,562) (9,000,000)
------------ -------------
Net cash provided (used) by financing activities.................................... (2,772,885) 22,068,095
------------ -------------
Net increase in cash................................................................. 630,729 22,368,961
Cash at beginning of period.......................................................... 116,835 157,372
------------ -------------
Cash at end of period................................................................ $ 747,564 $ 22,526,333
------------ -------------
------------ -------------
Supplemental disclosure of cash flow information-
Cash paid for interest.............................................................. $ 182,474 $ 36,607
------------ -------------
------------ -------------
Cash paid for income taxes (Note 2)................................................. $ -- $ 2,502,400
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
METRO INFORMATION SERVICES, INC.
Statements of Changes in Redeemable Common Stock and Shareholders'
Equity (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
REDEEMABLE SHAREHOLDERS' EQUITY
------------------------- --------------------------------------------------------------------
COMMON STOCK COMMON STOCK
------------------------- ------------------------ PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------------ ------------ ---------- ------------- ------------ -------------
Balance as of December 31, 1996... 3,731,761 $ 2,650,893 8,768,239 $ 87,682 -- $ 8,266,480 $ 8,354,162
Release of redemption feature
on............................... (3,731,761) (2,650,893) 3,731,761 37,318 2,613,575 -- 2,650,893
Distributions paid................ -- -- -- -- -- (9,000,000) (9,000,000)
Net proceeds from issuance of
2,300,000....................... -- -- 2,300,000 23,000 33,120,634 -- 33,143,634
Net income........................ -- -- -- -- -- 4,012,222 4,012,222
----------- ------------ ------------ ---------- ------------- ------------ -------------
Balance as of June 30, 1997....... -- -- 14,800,000 $ 148,000 $ 35,734,209 $ 3,278,702 $ 39,160,911
----------- ------------ ------------ ---------- ------------- ------------ -------------
----------- ------------ ------------ ---------- ------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The information presented for June 30, 1996 and 1997, and for the three-
month and six-month periods then ended, is unaudited, but, in the opinion of
the Company's management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for the fair presentation of the
Company's financial position as of June 30, 1997 and the results of its
operations and its cash flows for the three-month and six-month periods ended
June 30, 1996 and 1997. The financial statements included herein have been
prepared in accordance with generally accepted accounting principles and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the Company's audited financial statements for
the year ended December 31, 1996, which were included as part of the
Company's Annual Report on Form 10-K (File No. 000-22035) and in conjunction
with the Company's Registration Statement on Form S-1 (Registration No.
33-16585) declared effective by the Commission on January 29, 1997.
Results for the interim periods presented are not necessarily indicative of
results that may be expected for the entire year.
2. INCOME TAXES AND PRO FORMA INCOME TAXES
Before January 1, 1997, the Company, with the consent of its shareholders,
was taxed under the provisions of Subchapter S of the Internal Revenue Code of
1986, which provides that in lieu of corporate income taxes, the shareholders of
the S Corporation are taxed on their proportionate share of the Company's
taxable income. Therefore, pro forma income taxes shown for periods ending in
1996 represent the estimated amount of income taxes the Company would have
reported had the Company been a C Corporation for that period taxable at an
assumed effective tax rate of 40%.
Effective January 1, 1997, the Company terminated its S Corporation election
and became a C Corporation subject to corporate income taxes. The cumulative
effect of this change, through June 30, 1997, is to reduce income taxes
appearing on the Statement of Income for the six months ended June 30, 1997 by
$125,000 and create a current deferred tax asset and a long term deferred tax
liability. The balances of the deferred tax accounts relate primarily to
differences in the timing of deductions of health care claims reserves, vacation
liabilities and depreciation for financial statement and tax purposes.
3. INITIAL PUBLIC OFFERING
On January 29, 1997, the Company consummated an initial public offering of
3,100,000 shares of its Common Stock at a price of $16.00 per share, of which
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 net proceeds to
the Company from the offering were $33,144,000. The Company did not receive any
proceeds from the sale of shares by the selling shareholders.
7
<PAGE>
4. CREDIT FACILITIES
On June 29, 1997, the Company completed an expansion and extension of its
credit facilities to $39,900,000. The facilities are provided in equal
amounts by three banks and have a five-year maturity which may be extended
each year for an additional year. If the facilities are not extended,
principal on one of the facilities must be repaid in four equal annual
installments while the other two facilities require principal repayment at
the end of four years. Until that time interest only is payable monthly. Two
of the facilities allow the Company to select among prime rate and London
Interbank Offered Rate (LIBOR) based interest rates while the third has only
LIBOR based interest rates. All of the facilities have interest rates that
increase as the balance outstanding under the facilities increases. At June
30, 1997, no amounts were outstanding under the facilities. The Company has
selected a 30-day LIBOR based rate which at June 30, 1997 would have ranged
from 6.0% to 6.6%. The facilities also contain fees, ranging from 0.125% to
0.3125% annually, which are charged on the unused portion of the facilities.
The facilities are collateralized by accounts receivable of the Company.
The credit facilities include several covenants requiring the
maintenance of certain tangible net worth and debt service coverage ratios
and imposing limits on the incurrence of additional indebtedness. Amounts
advanced under the facilities can be used for acquisitions and general
working capital purposes.
8
<PAGE>
PART I
ITEM 2:
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. ("Metro" or the "Company") 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 1,440 consultants, 65% 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 June 30, 1997, the Company performed IT services for
347 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 June 30, 1996 and
June 30, 1997, the number of full time consultants grew from 1,171 to 1,442.
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.
The Company's past financial performance should not be relied on as an
indication of future performance. Period-to-period comparisons of the Company's
financial results are not necessarily meaningful indicators of future
performance.
9
<PAGE>
RESULTS OF OPERATIONS
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.
REVENUE. Revenue increased $14.8 million, or 27.3%, to $68.9 million for
the six months ended June 30, 1997 from $54.1 million for the six months ended
June 30, 1996. 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. As of June 30, 1997, compared to June 30,
1996, the total number of full-time consultants increased to 1,442 from 1,171,
respectively, and clients (excluding clients that generated less than $25,000 in
revenue during each preceding 12-month period) increased to 347 from 290,
respectively. Revenue from the Company's 16 mature offices increased $10.2
million, or 19.6%, from the earlier period and the nine new offices accounted
for the remaining $4.6 million increase in revenue.
Revenue increased $8.1 million, or 29.0%, to $35.9 million for the three
months ended June 30, 1997 from $27.8 million for the three months ended June
30, 1996. 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.
COST OF REVENUE. Cost of revenue increased $10.4 million, or 27.4%, to
$48.4 million for the six months ended June 30, 1997 from $38.0 million for
the six months ended June 30, 1996. 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 70.2%
for the six months ended June 30, 1997 from 70.1% for the six months ended
June 30, 1996 primarily because of an increase in the per consultant cost of
compensation and benefits.
Cost of revenue increased $5.7 million, or 29.3%, to $25.0 million for the
three months ended June 30, 1997 from $19.4 million for the three months ended
June 30, 1996. 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 69.8% for the three months ended June 30,
1997 from 69.6% for the three months ended June 30, 1996 primarily because of an
increase in the per consultant cost of compensation and benefits.
GROSS PROFIT. Gross profit increased $4.4 million, or 27.1%, to $20.6
million for the six months ended June 30, 1997 from $16.2 million for the six
months ended June 30, 1996. As a percentage of revenue, gross profit decreased
to 29.8% for the six months ended June 30, 1997 from 29.9% for the six months
ended June 30, 1996.
Gross profit increased $2.4 million, or 28.3%, to $10.8 million for the
three months ended June 30, 1997 from $8.5 million for the three months ended
June 30, 1996. As a percentage of revenue, gross profit decreased to 30.2% for
the three months ended June 30, 1997 from 30.4% for the three months ended June
30, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.6 million, or 21.9%, to $14.4 million for
the six months ended June 30, 1997 from $11.8 million for the six months ended
June 30, 1996. This increase is due primarily to costs associated with recently
opened 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 20.9% for the
six months ended June 30, 1997 from 21.9% for the six months ended June 30,
1996.
Selling, general and administrative expenses increased $1.2 million, or
19.8%, to $7.4 million for the three months ended June 30, 1997 from $6.2
million for the three months ended June 30, 1996. This increase is due primarily
to costs associated with recently opened 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 20.7% for the three months ended June 30, 1997 from 22.3% for the
three months ended June 30, 1996.
10
<PAGE>
OPERATING INCOME. Operating income increased $1.8 million, or 41.2%, to
$6.2 million for the six months ended June 30, 1997 from $4.4 million for the
six months ended June 30, 1996. As a percentage of revenue, operating income
increased to 8.9% for the six months ended June 30, 1997 from 8.0% for the
six months ended June 30, 1996. The improvement in operating income margin is
in part the result of the Company's centralization of administrative
functions and leverage obtained from the Company's proprietary business systems.
Operating income increased $1.2 million, or 51.6%, to $3.4 million for
the three months ended June 30, 1997 from $2.2 million for the three months
ended June 30, 1996. As a percentage of revenue, operating income increased
to 9.5% for the three months ended June 30, 1997 from 8.1% for the three
months ended June 30, 1996. The improvement in operating income margin is in
part the result of the Company's centralization of administrative functions
and leverage obtained from the Company's proprietary business systems.
Net interest income (expense). Net interest income (expense) increased by
$479,000 to $329,000 of interest income for the six months ended June 30, 1997
from $150,000 of interest expense for the six months ended June 30, 1996. This
change reflects a decrease in the average level of borrowings during the period
and investment of a portion of the proceeds of the Company's January 1997
initial public offering of common stock in interest bearing instruments.
Net interest income (expense) increased by $289,000 to $225,000 of interest
income for the three months ended June 30, 1997 from $64,000 of interest expense
for the three months ended June 30, 1996. This change reflects a decrease in the
average level of borrowings during the period and investment of a portion of the
proceeds of the Company's January 1997 initial public offering of common stock
in interest bearing instruments.
Income before income taxes. Income before income taxes increased $2.3
million, or 54.1%, to $6.5 million for the six months ended June 30, 1997 from
$4.2 million for the six months ended June 30, 1996. As a percentage of revenue,
income before income taxes increased to 9.4% for the six months ended June 30,
1997 from 7.8% for the six months ended June 30, 1996.
Income before income taxes increased $580,000, or 66.4%, to $3.6 million for
the three months ended June 30, 1997 from $2.2 million for the three months
ended June 30, 1996. As a percentage of revenue, income before income taxes
increased to 10.1% for the three months ended June 30, 1997 from 7.9% for the
three months ended June 30, 1996.
INCOME TAXES. In 1996, the Company was an S Corporation for federal and
certain state income tax purposes. The income statements for the three months
and six months ended June 30, 1996 include a pro forma provision for income
taxes as if the Company was subject to federal and state income taxes at an
assumed effective rate of 40%. The Company's effective tax rate for the three
months ended June 30, 1997 was 40.0%. The Company's effective tax rate for
the six months ended June 30, 1997 was 38.1%. Income taxes increased
$785,000, or 46.7%, to $2.5 million for the six months ended June 30, 1997
from pro forma income taxes of $1.7 million for the six months ended June 30,
1996. As a percentage of revenue, income taxes increased to 3.6% for the six
months ended June 30, 1997 from the pro forma amount of 3.1% for the six
months ended June 30, 1996. Income taxes for the six months ended June 30,
1997 include a one-time reduction in income tax expense of $125,000 which
represents the cumulative effect of the Company converting from a S
Corporation to a C Corporation effective January 1, 1997. Excluding the
$125,000 one-time reduction in income taxes, income taxes for the six months
ended June 30, 1997 would have increased $910,000, or 54.1%, to $2.6 million.
Excluding the $125,000 one-time reduction in income taxes, as a percentage
of revenue, income taxes would have increased to 3.8% for the six months
ended June 30, 1997 from the pro forma amount of 3.1% for the six months
ended June 30, 1996.
Income taxes increased $580,000, or 66.4%, to $1.5 million for the three
months ended June 30, 1997 from pro forma income taxes of $874,000 for the
three months ended June 30, 1996. As a percentage of revenue, income taxes
increased to 4.0% for the three months ended June 30, 1997 from 3.2% for the
three months ended June 30, 1996.
NET INCOME. Net income increased $1.5 million, or 59.0%, to $4.0 million
for the six months ended June 30, 1997 from pro forma net income of $2.5 million
for the six months ended June 30, 1996. As a percentage of revenue, net income
increased to 5.8% for the six months ended June 30, 1997 from the pro forma
amount of 4.7% for the six months ended June 30, 1996.
Net income increased $870,000, or 66.4%, to $2.2 million for the three
months ended June 30, 1997 from pro forma net income of $1.3 million for the
three months ended June 30, 1996. As a percentage of revenue, net income
increased to 6.1% for the three months ended June 30, 1997 from the pro forma
amount of 4.7% for the three months ended June 30, 1996.
11
<PAGE>
EARNINGS PER SHARE. Earnings per share increased $0.08, or 40.0%, to $0.28
for the six months ended June 30, 1997 from pro forma earnings per share of
$0.20 for the six months ended June 30, 1996. Excluding the $125,000 one time
credit described under "Income taxes' above, earnings per share for the six
months ended June 30, 1997 would have increased $0.07, or 35.0%, to $0.27.
EARNINGS PER SHARE increased $.05, or 50.0%, to $0.15 for the three months
ended June 30, 1997 from pro forma earnings per share of $0.10 for the three
months ended June 30, 1996.
The following table sets forth the percentage of revenue and the percentage
change from the prior period of certain items reflected in the statements of
income for the:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30. JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue......................................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................................................. 69.6 69.8 70.1 70.2
--------- --------- --------- ---------
Gross profit.................................................................... 30.4 30.2 29.9 29.8
Selling, general and administrative expenses.................................... 22.3 20.7 21.9 20.9
--------- --------- --------- ---------
Operating income................................................................ 8.1 9.5 8.0 8.9
Net interest income (expense)................................................... (0.2) 0.6 (0.2) 0.5
--------- --------- --------- ---------
Income before income taxes...................................................... 7.9 10.1 7.8 9.4
Pro forma provision for income taxes(1)......................................... 3.2 4.0 3.1 3.6
--------- --------- --------- ---------
Pro forma net income(1)......................................................... 4.7% 6.1% 4.7% 5.8%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
1997 OVER 1996
--------------------------------------------
<S> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -------------------
Revenue.................................................................. 29.0% 27.3%
Cost of revenue.......................................................... 29.3% 27.4%
Gross profit............................................................. 28.3% 27.1%
Selling, general and administrative expenses............................. 19.8% 21.9%
Operating income......................................................... 51.6% 41.2%
Net interest income (expense)............................................ -- --
Income before income taxes............................................... 66.4% 54.1%
Pro forma provision for income taxes(1).................................. 66.4% 46.7%
Pro forma net income(1).................................................. 66.4% 59.0%
</TABLE>
- ------------------------
(1) For 1996, the Company was an S corporation for federal and certain state
income tax purposes. The pro forma provision for income taxes for 1996
reflects a provision for income taxes as if the Company were a C corporation
for all income tax purposes during such period, at an assumed effective tax
rate of 40%.
12
<PAGE>
SELECTED QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain quarterly operating information for
each of the 13 quarters ending with the quarter ended June 30, 1997, 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 financial statements
contained elsewhere in this report and include all adjustments, consisting of
normal recurring adjustments, which management considers necessary for the fair
presentation of the information for the periods presented. The financial data
shown below should be read in conjunction with the financial statements and
notes thereto included in this report. Results for any 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
- ---------------------------------------------------------------- ----------- --------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994:
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
1997:
March......................................................... 33,045 9,727 29.4 2,741 8.3
June.......................................................... 35,883 10,841 30.2 3,409 9.5
</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 net proceeds to the Company were
approximately $33,144,000. The Company did not receive any of the proceeds
from the sale of shares by the selling shareholders.
13
<PAGE>
Since its inception, the Company has funded its operations primarily from
cash generated by operations and, to a lesser extent, from borrowings under
the Company's revolving credit facilities. Net cash provided by operations
was $1,684,000 for the six months ended June 30, 1997 and consisted primarily
of net income of $4,012,000, an increase in accounts receivable of $4,646,000
and an increase in accrued compensation and benefits of $1,745,000. The
increase in accounts receivable and accrued compensation and benefits is
primarily due to the revenue growth experienced in the second quarter of
1997.The Company's working capital was $34,580,000 at June 30, 1997 compared
to $6,369,000 at December 31, 1996.
On June 29, 1997, the Company completed an expansion and extension of its
credit facilities to $39,900,000. The facilities are provided in equal
amounts by three banks and have a five-year maturity which may be extended
each year for an additional year. If the facilities are not extended,
principal on one of the facilities must be repaid in four equal annual
installments while the other two facilities require principal repayment at
the end of four years. Until that time interest only is payable monthly. Two
of the facilities allow the Company to select among prime rate and London
Interbank Offered Rate (LIBOR) based interest rates while the third has only
LIBOR based interest rates. All of the facilities have interest rates which
increase as the balance outstanding under the facilities increases. At June
30, 1997, no amounts were outstanding under the facilities. The Company has
selected a 30-day LIBOR based rate which at June 30, 1997 would have ranged
from 6.0% to 6.6%. The facilities also contain fees, ranging from 0.125% to
0.3125% annually, which are charged on the unused portion of the facilities.
The facilities are collateralized by accounts receivable of the Company.
The credit facilities include several covenants requiring the
maintenance of certain tangible net worth and debt service coverage ratios
and imposing limits on the incurrence of additional indebtedness. Amounts
advanced under the facilities can be used for acquisitions and general
working capital purposes.
RECENT ACCOUNTING PRONOUNCEMENTS
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
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.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of Metro Information Services, Inc.
held on June 10, 1997, the following matters were voted on with the
results indicated below.
1) Election of Class 1 Director to serve for a term of three years or until
his successor is elected.
FOR WITHHELD
---------- --------
John Fain 13,117,060 2,900
The term of office of directors Ray E. Becker, Andrew J. Downing, Robert J.
Eveleigh and A. Eugene Loving, Jr. continued after the meeting.
2) Ratification of KPMG Peat Marwick LLP as the Company's independent
public auditors for the year ending December 31, 1997.
FOR AGAINST ABSTAIN
------------ --------- -----------
13,085,503 27,877 6,580
3) Amendment of the Metro Information Services, Inc. Employee Stock
Purchase Plan to allow employees with at least six months service without a
30-day break in service to participate in the Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTES
----------- --------- ---------- ----------------
13,067,670 40,435 11,945 0
ITEM 5. OTHER INFORMATION
NONE
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
(i) 11 Computation of pro forma earnings per share
(ii) 27 Financial Data Schedule
(iii) 99 Credit Agreement with NationsBank, N.A., Signet Bank and
Crestar Bank dated June 20, 1997
(b) Reports on Form 8-K:
(i) Report dated July 11, 1997 reporting the acquisition of the
assets of Data Systems Technology, Inc.
(ii) Report dated July 11, 1997 reporting the acquisition of the
assets of J2, Inc. d/b/a DP Career Associates.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Virginia Beach,
Commonwealth of Virginia on the 13th day of August, 1997.
Metro Information Services, Inc.
By /s/ John H. Fain
-------------------------------------
John H. Fain
President and Principal Executive Officer
By /s/ Robert J. Eveleigh
---------------------------------------
Robert J. Eveleigh
Principal Financial Officer
By /s/ Steven A. Lurus
-----------------------------------------
Steven A. Lurus
Principal Accounting Officer
17
<PAGE>
EXHIBIT 11
METRO INFORMATION SERVICES, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------ ------------ ------------ ------------
SHARES (2)
Average outstanding during the period (3)................ 12,187,851 14,800,000 12,187,851 14,416,500
Add: Incremental shares related to stock issued within
the year preceding the Company's initial public offering
under the treasury stock method using the offering price
of $16 per share (4)................................... 302,220 -- 292,291 --
Add: The number of shares obtained by dividing the amount
by which the distributions during the period exceeded
earnings for the period, by the offering price of $16
per share (5).......................................... 362,152 -- 362,152 --
------------ ------------ ------------ ------------
Number of shares on which published earnings per share is
based.................................................. 12,852,223 14,800,000 12,842,294 14,416,500
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS
Pro forma net income applicable to common shareholders... $ 1,310,000 $ 2,180,000 $ 2,523,000 $ 4,012,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro Forma Earnings Per Share............................. $ 0.10 $ 0.15 $ 0.20 $ 0.28
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(1) There is no difference between primary and fully-diluted earnings per share.
Therefore, only primary earnings and related per share data are presented.
(2) All share amounts give effect to the 3,507.2952 for 1 stock split effected
in the form of a stock dividend before the Company's initial public
offering.
(3) Average shares outstanding for the six-month period ended June 30, 1997 are
calculated based on 12,500,000 shares outstanding for the first month of the
six-month period and 14,800,000 thereafter.
(4) Gives effect to the 312,149 shares issued May 1, 1996, as if they were
outstanding for all periods, using the treasury stock method.
(5) Includes $9,000,000 of S corporation earnings distributed before the
completion of the initial public offering.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF METRO INFORMATION SERVICES, INC. AS PRESENTED IN THE
FORM 10-Q FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS' LEGEND.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 22,526 22,526
<SECURITIES> 0 0
<RECEIVABLES> 21,419 21,419
<ALLOWANCES> 107 107
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,061 45,061
<PP&E> 7,581 7,581
<DEPRECIATION> 2,843 2,843
<TOTAL-ASSETS> 50,066 50,066
<CURRENT-LIABILITIES> 10,481 10,481
<BONDS> 0 0
0 0
0 0
<COMMON> 148 148
<OTHER-SE> 39,013 39,013
<TOTAL-LIABILITY-AND-EQUITY> 50,066 50,066
<SALES> 0 0
<TOTAL-REVENUES> 35,883 68,929
<CGS> 0 0
<TOTAL-COSTS> 25,042 48,361
<OTHER-EXPENSES> 7,432 14,418
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5 37
<INCOME-PRETAX> 3,634 6,479
<INCOME-TAX> 1,454 2,467
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,180 4,012
<EPS-PRIMARY> 0.15 0.28
<EPS-DILUTED> 0.15 0.28
</TABLE>
<PAGE>
CREDIT AGREEMENT
BY AND AMONG
METRO INFORMATION SERVICES, INC.,
as Borrower, and
NATIONSBANK, N.A.,
SIGNET BANK and
CRESTAR BANK,
as Lenders
LINES OF CREDIT
June 20, 1997
<PAGE>
INTENTIONALLY LEFT BLANK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1.............................................................................. 1
SECTION 1.1 DEFINITIONS............................................................. 1
(2) APPLICABLE SPREAD COMPONENT................................................. 2
(4) LIBOR RATE.................................................................. 6
(3) PRIME RATE.................................................................. 10
(1) PRINCIPAL AMOUNT............................................................ 10
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS........................................... 11
ARTICLE 2.............................................................................. 12
SECTION 2.1 COMMITMENTS............................................................. 12
SECTION 2.2 COMMITMENT FEES......................................................... 13
SECTION 2.3 USE OF PROCEEDS......................................................... 13
SECTION 2.4 NOTES................................................................... 13
SECTION 2.5......................................................................... 13
(B) OPTIONS........................................................................ 13
(C) SELECTING AN INTEREST RATE..................................................... 14
(1) LIBOR SET RATE REQUEST....................................................... 14
(D) ADJUSTMENTS TO INTEREST RATE OPTIONS.......................................... 14
(E) REGULATORY CHANGES............................................................ 15
(F) INABILITY TO DETERMINE LIBOR RATE............................................. 16
(G) PREPAYMENT PENALTY............................................................ 16
(H) FALL BACK INTEREST RATE....................................................... 17
(I) DEFAULT RATE.................................................................. 17
SECTION 2.6 PRINCIPAL PAYMENTS...................................................... 17
SECTION 2.7 PAYMENT OF INTEREST ON THE LOAN......................................... 17
SECTION 2.8 CALCULATION OF INTEREST RATES........................................... 17
ARTICLE 3.............................................................................. 17
SECTION 3.1 BORROWING PROCEDURES.................................................... 17
(A) NOTICE OF BORROWING........................................................... 17
(B) FUNDING....................................................................... 17
(C) LENDER OBLIGATIONS SEVERAL.................................................... 18
SECTION 3.2 COLLATERAL.............................................................. 18
(B) LENDERS' COLLATERAL RIGHTS.................................................... 18
SECTION 3.3 PAYMENTS GENERALLY...................................................... 18
SECTION 3.4 CONFLICTS WITH ACCOUNT CONTRACTS........................................ 19
ARTICLE 4.............................................................................. 19
SECTION 4.1 INITIAL ADVANCE OR LETTER OF CREDIT..................................... 19
(A) NOTES......................................................................... 19
(B) FINANCIAL INFORMATION......................................................... 19
(C) OFFICERS' CERTIFICATE......................................................... 19
(D) RESOLUTIONS OF................................................................ 20
(E) INCUMBENCY CERTIFICATE OF..................................................... 20
(F) INCORPORATION/GOOD STANDING CERTIFICATES...................................... 20
(G) CHARTER AND BYLAWS............................................................ 20
(J) OPINION OF BORROWER'S COUNSEL................................................. 20
(K) COLLATERAL DOCUMENTS.......................................................... 20
(M) ADDITIONAL INFORMATION........................................................ 21
SECTION 4.2 ALL ADVANCES............................................................ 21
(A) NO DEFAULTS................................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(B) COMPLIANCE WITH AGREEMENTS.................................................... 21
(C) NO MATERIAL ADVERSE CHANGE.................................................... 21
(D) CONTINUED COMPLIANCE.......................................................... 21
(E) REPRESENTATIONS AND WARRANTIES................................................ 21
(F) FINANCIAL STATEMENTS.......................................................... 21
(G) SOLVENCY/BANKRUPTCY PROCEEDINGS............................................... 22
SECTION 4.3 RELIANCE ON CERTIFICATES................................................ 22
ARTICLE 5.............................................................................. 22
SECTION 5.1......................................................................... 22
(A) ORGANIZATION AND GOOD STANDING................................................ 22
(B) AUTHORIZATION AND POWER....................................................... 22
(C) NO CONFLICTS OR CONSENTS...................................................... 22
(D) ENFORCEABLE OBLIGATIONS....................................................... 23
(E) FINANCIAL CONDITION........................................................... 23
(F) FULL DISCLOSURE............................................................... 23
(G) NO DEFAULT.................................................................... 23
(H) MATERIAL AGREEMENTS........................................................... 23
(I) TAXES......................................................................... 24
(J) PRINCIPAL OFFICE, ETC......................................................... 24
(K) ERISA......................................................................... 24
(L) COMPLIANCE WITH LAW........................................................... 24
(M) GOVERNMENTAL REGULATION....................................................... 24
(N) INSIDER....................................................................... 25
(O) INDEBTEDNESS, PROPERTY OWNERSHIP AND LIENS.................................... 25
(P) STOCK OWNERSHIP AND PLEDGE.................................................... 25
(Q) LITIGATION.................................................................... 25
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............................. 25
ARTICLE 6.............................................................................. 26
SECTION 6.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS............................. 26
(A) QUARTERLY STATEMENTS.......................................................... 26
(B) ANNUAL STATEMENTS............................................................. 26
(C) AUDIT REPORTS................................................................. 26
(D) OTHER REPORTS................................................................. 27
(E) COMPLIANCE CERTIFICATE........................................................ 27
(G) OTHER INFORMATION............................................................. 27
SECTION 6.2 PAYMENT OF TAXES AND OTHER INDEBTEDNESS................................. 27
SECTION 6.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS................ 27
SECTION 6.4 OTHER NOTICES........................................................... 28
SECTION 6.5 COMPLIANCE WITH LOAN DOCUMENTS.......................................... 28
SECTION 6.6 COMPLIANCE WITH MATERIAL AGREEMENTS..................................... 28
SECTION 6.7 OPERATIONS AND PROPERTIES............................................... 28
SECTION 6.8 BOOKS AND RECORDS; ACCESS............................................... 28
SECTION 6.9 COMPLIANCE WITH LAW..................................................... 28
SECTION 6.10 INSURANCE.............................................................. 29
SECTION 6.11 AUTHORIZATIONS AND APPROVALS........................................... 29
SECTION 6.12 ERISA COMPLIANCE....................................................... 29
SECTION 6.13 FINANCIAL COVENANTS.................................................... 29
(A) MAXIMUM FUNDED DEBT TO CAPITALIZATION RATIO................................... 29
(B) MINIMUM INTEREST COVERAGE..................................................... 29
(C) MINIMUM CURRENT RATIO......................................................... 29
(D) MAXIMUM FUNDED DEBT TO EARNINGS RATIO......................................... 30
(E) MINIMUM NET WORTH STEP UP..................................................... 30
SECTION 6.14 SUBSIDIARIES........................................................... 30
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.15 ACQUIRED COMPANIES..................................................... 30
SECTION 6.16 MINIMUM GROSS REVENUES................................................. 31
SECTION 6.17 STOCK OF SUBSIDIARIES.................................................. 31
SECTION 6.18 ARTICLES AND BYLAWS.................................................... 31
ARTICLE 7.............................................................................. 31
SECTION 7.1 NO GUARANTEES........................................................... 31
SECTION 7.2 CERTAIN TRANSACTIONS.................................................... 31
SECTION 7.3 LIMITATION ON SALE OF PROPERTIES; LIENS................................. 31
SECTION 7.4 NAME AND ACCOUNTING METHOD.............................................. 32
SECTION 7.5 LIQUIDATION, MERGER OR CONSOLIDATION.................................... 32
SECTION 7.6 ACQUISITIONS............................................................ 32
SECTION 7.7. INDEBTEDNESS........................................................... 32
SECTION 7.8 MARGIN SECURITIES....................................................... 33
SECTION 7.9 REMOTE SUBSIDIARIES..................................................... 33
ARTICLE 8.............................................................................. 33
SECTION 8.1 INDEMNITY BY BORROWER................................................... 33
ARTICLE 9.............................................................................. 34
SECTION 9.1 EVENTS OF DEFAULT....................................................... 34
SECTION 9.2 REMEDIES UPON EVENT OF DEFAULT.......................................... 36
SECTION 9.3 NOTICES OF DEFAULT...................................................... 37
SECTION 9.4 PERFORMANCE BY LENDERS.................................................. 37
ARTICLE 10............................................................................. 38
SECTION 10.1 STRICT COMPLIANCE...................................................... 38
SECTION 10.2 MODIFICATION........................................................... 38
SECTION 10.3 ACCOUNTING TERMS AND REPORTS........................................... 38
SECTION 10.4 WAIVER................................................................. 38
SECTION 10.5 PAYMENT OF EXPENSES.................................................... 38
SECTION 10.6 NOTICES................................................................ 39
SECTION 10.7 GOVERNING LAW.......................................................... 40
SECTION 10.8 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION........ 40
SECTION 10.9 INTENTIONALLY OMITTED.................................................. 41
SECTION 10.10 INVALID PROVISIONS.................................................... 41
SECTION 10.11 MAXIMUM INTEREST RATE................................................. 41
SECTION 10.12 NONLIABILITY OF LENDERS............................................... 41
SECTION 10.13 OFFSET................................................................ 41
SECTION 10.14 SHARING SET OFF....................................................... 42
SECTION 10.15 BINDING EFFECT........................................................ 42
SECTION 10.16 ENTIRETY.............................................................. 42
SECTION 10.17 HEADINGS.............................................................. 42
SECTION 10.18 SURVIVAL.............................................................. 42
SECTION 10.19 NO THIRD PARTY BENEFICIARY............................................ 43
SECTION 10.20 SEVERAL OBLIGATIONS................................................... 43
SECTION 10.21 INCREASED COSTS....................................................... 43
SECTION 10.22 MULTIPLE COUNTERPARTS................................................. 43
SECTION 10.22 SEAL.................................................................. 44
</TABLE>
iv
<PAGE>
LINES OF CREDIT TOTALLING $39,900,000
THIS CREDIT AGREEMENT (the "Agreeement) is entered into as of this 20th day
of June, 1997, by and among METRO INFORMATION SERVICES, INC., a Virginia
corporation (hereinafter referred to as "Borrower"); NATIONSBANK, N.A.
("NationsBank"); SIGNET Bank ("Signet"); and CRESTAR BANK ("Crestar")
(hereinafter collectively referred to as "Lenders" and individually as a
"Lender").
W I T N E S S E T H :
RECITALS
A. Borrower has requested that NationsBank, Signet and Crestar
(hereinafter, sometimes collectively referred to as the "Lenders" or each
individually as a "Lender") each provide Borrower with a line of credit
facility in the amount of $13,300,000, and each of the Lenders is willing to
provide a facility in the amount of $13,300,000 to Borrower upon the terms
and subject to the conditions herein set forth;
B. In lieu of documenting the line of credit facilities with separate credit
agreements for each of the Lenders, the Lenders have agreed to document their
credit relationships with the Borrower through a single agreement.
AGREEMENT
For and in consideration of the mutual promises herein contained and for
other valuable consideration, the parties agree as follows:
ARTICLE 1
DEFINITION OF TERMS
Section 1.1 Definitions. For the purposes of this Agreement, unless
the context otherwise requires, the following terms shall have the following
meanings:
"Additional Costs" means any costs, losses or expenses incurred by the
Lenders, which are attributable to the Lenders' making or maintaining the
Loans, or their obligation to make any Advances or any reduction in any
amount receivable by the Lenders under the Loans.
"Advance" means a disbursement by any of the Lenders of a sum loaned to
Borrower pursuant to this Agreement.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or supplemented from time to time.
<PAGE>
"Agreement Year" means each year ending on the anniversary date of this
Agreement.
"Applicable Spread Component" means the number of basis points ("bps")
which are to be added to the LIBOR Rate in determining the LIBOR Set Rate
based on the Borrower's performance under the Financial Criteria as of the
end of the prior Fiscal Quarter. The Applicable Spread Components are more
particularly set forth in the "Grid Performance Model" and are expressed as
basis points.
"Base Rate" means, with respect to any portion of the Loan (i) not
subject to a LIBOR Set Rate or (ii) requested by the Borrower to which the
Base Rate shall apply, the rate per annum (expressed as a percentage)
determined by each Lender to be equal to the greater of the Prime Rate or the
overnight Federal Funds Rate, plus fifty (50) basis points.
"Business Day" means any day on which the Lenders are open for business in
Virginia (other than a Saturday).
"Capital Lease" means any lease of property, real or personal, which
should be capitalized on a consolidated balance sheet of the Borrower
prepared in accordance with GAAP.
"Collateral" means the property and assets securing the Obligations
described in Section 3.2.
"Collateral Documents" means the Security Agreements and all other
documents necessary to create and/or perfect each Lender's first priority
security interest in the Collateral.
"Commitment" means, with respect to each Lender, $13,300,000.
"Commitment Period" means the period beginning on the date hereof and
ending on the Commitment Termination Date.
"Commitment Termination Date" means June 20, 2002, as extended, pursuant
to Section 2.1, or such earlier date as Borrower may designate by not less
than 30 days' advance written notice to a Lender.
"Control" (including, with correlative meanings, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly of the power to direct or cause the
direction of the management and policies of such Person (excluding the power
to cast votes by proxy) whether through the ownership of Voting Shares or by
contract or otherwise.
"Corporate Income Taxes" means federal and state income taxes paid or
payable by the Borrower.
2
<PAGE>
"Current Assets" means, as of any date, the value of the current assets
which are reflected on a consolidated balance sheet of the Borrower prepared
as of such date in accordance with GAAP.
"Current Liabilities" means, as of any date, the value of current
liabilities which are reflected on a consolidated balance sheet of the
Borrower prepared in accordance with GAAP.
"Current Ratio" means, as of any date, (i) Current Assets divided by (ii)
Current Liabilities. The Current Ratio may be expressed as a fraction as
follows:
Current Assets
----------------
Current Liabilities
"CMLTD" means, for any period, current maturities of long-term debt which
should be reflected as a current liability on Borrower's consolidated balance
sheet prepared in accordance with GAAP.
"Debtor Laws" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
or similar laws from time to time in effect affecting the rights of creditors
generally.
"Default" means the occurrence of any of the events specified in Article
9, regardless whether there shall have occurred any passage of time or giving
of notice or both that would be necessary in order to constitute such event
an Event of Default.
"Default Rate" means an annual rate of interest equal to a Lender's Prime
Rate plus two percent (2%).
"Dividends," in respect of any corporation, means (i) all dividends and
distributions, whether of cash or any other property, on, or in respect of,
any class of capital stock of such corporation, except for distributions made
solely in shares of stock, and (ii) all payments, whether of cash or other
property, made in respect of the redemption, repurchase or acquisition of
such stock, unless such stock shall be redeemed or acquired through the
exchange of such stock with stock of the same class.
"Dollars" and the "$" shall refer to currency of the United States of
America.
"EBITDA" means, for any period, the sum of (i) the Net Income (or deficit)
of Borrower on a consolidated basis before provision for income taxes for
such period, plus (ii) Interest Expense for such period, plus (iii) all
amounts in respect of depreciation and amortization for such period, all as
should be reflected on consolidated financial statements of Borrower for such
period prepared in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, modified or supplemented from time to time, together with all
regulations issued pursuant thereto.
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"Eurodollar Business Day" means any day on which commercial banks are open
for domestic and international business (including dealings in U.S. Dollar
deposits) in London and New York City, excluding Saturdays.
"Eurodollar Reserve Requirement" means, as of any day, that percentage
(expressed as a decimal) which is in effect on such day, as provided by the
Board of Governors of the Federal Reserve System (or any successor
governmental body), for determining the maximum reserve requirements
(including without limitation, basic supplemental, marginal and emergency
reserves) under Regulation D with respect to "Eurocurrency liabilities" as
currently defined in Regulation D, or under any similar or successor
regulation with respect to Eurocurrency liabilities or Eurocurrency funding.
Each determination by the Lenders of the Eurodollar Reserve Requirement
shall, in the absence of manifest error, be conclusive and binding.
"Event of Default" shall have the meaning assigned to such term in Section
9.1.
"Federal Funds Rate" for any day means the per annum rate of interest,
quoted by a Lender in its sole discretion and determined from time to time by
the Lender, as the Federal Funds Effective Rate (under the caption "Trading
Range") published by Telerate Services, Incorporated on page 118 (the
"Telerate Screen") on such date (rounded upwards, if necessary, to the next
higher 1/100 of 1%) (or by Bloomberg, if the Telerate Screen is not
available) (rounded upwards, if necessary, to the next higher 1/100 of 1%),
or such other page as may replace that page on any such service for the
purpose of displaying rates or prices comparable to such rate for federal
funds.
"Financial Criteria" means the Funded Debt to EBITDA Ratio as set forth on
the GPM.
"Fiscal Quarter" means the Borrower's fiscal quarters ending March 31,
June 30, and September 30.
"Fiscal Year" means the Borrower's fiscal year, namely January 1 to
December 31.
"Fiscal Year End" means the end of the Borrower's Fiscal Year, namely,
December 31.
"Fiscal Year End Statements" shall have the meaning assigned to such term
in Section 6.1(b)
"Funded Bank Debt" means, as of any date, the amount outstanding under the
Notes.
"Funded Debt" means, as of any date, Borrower's Funded Bank Debt plus
long-term debt (which is not otherwise Funded Bank Debt) plus long-term
liabilities with respect to Capital Leases (which are not otherwise long-term
debt) plus current maturities of Capital Leases.
"Funded Debt to EBITDA Ratio" means, as of any date, (i) Funded Debt
divided by (ii) EBITDA less declared cash Dividends actually paid and less
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cash used to purchase, redeem or retire any of the Borrower's capital stock
unless such redemption or purchase is fully funded by insurance. The Funded
Debt to EBITDA Ratio may be expressed as a fraction as follows:
FUNDED DEBT
----------------------------------------------
EBITDA - Paid Cash Dividends and Redemptions
"Funded Debt to Capitalization Ratio" means (i) Funded Debt divided by
(ii) the sum of Funded Debt plus Net Worth. The Funded Debt to
Capitalization Ratio may be expressed as a fraction as follows:
Funded Debt
---------------------------------
Funded Debt + Net Worth
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof, as modified by requirements of the Securities and
Exchange Commission, and which are consistently applied for all periods after
the date hereof so as to properly reflect the financial condition, and the
results of operations and changes in financial position, except that any
accounting principle or practice required to be changed by the said
Accounting Principles Board or Financial Accounting Standards Board (or other
appropriate board or committee of the said Boards) in order to continue as a
generally accepted accounting principal or practice may so be changed. In
the event of a change in GAAP, the Lenders and the Borrower will thereafter
revise any covenants of this Agreement affected thereby in order to make such
covenants as now applied consistent with GAAP then in effect.
"Governmental Authority" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over the Borrower or any of its
business, operations or properties.
"Grid Performance Model" or "GPM" means the pricing grid which shall be
utilized to compute the Applicable Spread Component from time to time which
is attached to and incorporated herein as Schedule 1.1.
"Gross Revenues" means gross revenues generated by a Person, less amounts
prepaid for goods not delivered or services not completed.
"Guaranty" of any Person means any contract, agreement or understanding
pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including without limitation agreements: (i)
to purchase such Indebtedness or any property constituting security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of such
Indebtedness, or (B) to maintain net worth or other balance sheet conditions,
or otherwise to advance or make available funds for the purchase or payment
of such Indebtedness, (iii) to purchase property, securities or services
primarily for the purpose of assuring the holder of such Indebtedness of the
ability of the Primary Obligor to make payment of the Indebtedness, or (iv)
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otherwise to assure the holder of such Indebtedness against loss in respect
thereof; except that "Guaranty" shall not include the endorsement in the
ordinary course of business of negotiable instruments or documents for
deposit or collection. The term "Guaranty" used as a verb has a
corresponding meaning.
"Indebtedness" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services (other than trade accounts payable
arising in the ordinary course of business), (iv) all obligations of such
person as lessee under Capital Leases, (v) all obligations of such Person to
purchase securities or other property which arise out of or in connection
with the sale of the same or substantially similar securities or property,
(vi) all non-contingent obligations of such person to reimburse any bank or
other person in respect of amounts paid under a letter of credit or similar
instrument, (vii) all obligations of others secured by a Lien on any assets
of such Person, whether or not such obligation is assumed by such Person and
(viii) all obligations of others Guaranteed by such Person.
"Intercompany Loan Documents" shall have the meaning assigned to it in
Section 6.14.
"Interest Coverage Ratio" means, for any period, (i) EBITDA for such
period, less declared cash Dividends actually paid and less cash used to
purchase, redeem or retire any of the Borrower's capital stock unless such
redemption or purchase is fully funded by insurance, divided by (ii) Interest
Expense for such period. The Interest Coverage Ratio may be expressed as a
fraction as follows:
EBITDA - Paid Cash Dividends and Redemptions
--------------------------------------------
Interest Expense
"Interest Expense" means for any period, all interest charges paid or
becoming past due during such period (including imputed interest on Capital
Lease obligations) on Indebtedness, which should be reflected on Borrower's
consolidated financial statements prepared in accordance with GAAP.
"Interest Payment Date" means the first day of each calendar month during
the Commitment Period, with respect to portions of the Loan bearing interest
at the Base Rate, and means the final day of an Interest Period with respect
to portions of the Loan bearing interest at a LIBOR Set Rate, except that
with respect to portions of the Loan bearing interest at a LIBOR Set Rate
based on one hundred eighty (180) days duration it means the date at the end
of each ninety (90) days after such rate was applied thereto.
"LIBOR Rate" (London Interbank Offered Rate) means for a given date at
11:00 a.m. on such day, for an amount comparable to the amount of the
principal amount of the Loan to which the LIBOR Rate or some derivative
thereof is to be applied, and for a maturity corresponding to the selected
period, the rate of interest per annum (rounded upward if necessary to the
nearest 1/100th of 1%) at which deposits in Dollars are offered to a Lender
by major banks in the London Interbank market, or the rate per annum, quoted
to a Lender as the "London Interbank Offered Rate" per annum designated as
the British Bankers' Association's settlement rate that appears on the
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display on page 3750 (under the caption "USD") of the Telerate Services,
Incorporated screen (the "Telerate Screen"); provided that if no offered
quotations appear on the Telerate Screen or if quotations are not given on
the Telerate Screen then the LIBOR Rate shall be the interest rate per annum
at which deposits in dollars for delivery in available funds are offered by
prime banks in the London interbank market for a period of time approximately
equal to the Interest Period and in an amount approximately equal to the
amount of the outstanding LIBOR Loans to which such rate is to apply, as
reasonably determined by a Lender. Each determination of the LIBOR Rate by a
Lender shall, in the absence of manifest error, be conclusive and binding.
As used herein, the term LIBOR is a reference used by the Lenders in
determining interest rates in certain loans and is not intended to be the
lowest rate of interest charged on any extension of credit to any customer of
any of the Lenders.
"LIBOR Set Rate" means, with respect to any portion of a Loan, the rate
per annum, if any, quoted by a Lender to the Borrower on the first day of a
given LIBOR Set Rate Interest Period which rate will be determined by each
Lender based on the thirty (30), sixty (60), ninety (90) or one hundred
eighty (180) day LIBOR Rates as may be appropriate based on the LIBOR Set
Rate Request, plus the Applicable Spread Component.
"LIBOR Set Rate Amount" means each portion of the Loans bearing interest
at the LIBOR Set Rate.
"LIBOR Set Rate Interest Period or An Interest Period" means the period
during which interest at the LIBOR Set Rate shall be applicable to the amount
designated in a LIBOR Set Rate Request in question, provided, however, that
each such period shall be either thirty (30), sixty (60), ninety (90), or one
hundred eighty (180) days (measured from the date specified by the Borrower,
subject to the Lenders' approval, in each LIBOR Set Rate Request for the
commencement of the computation of interest at the LIBOR Set Rate); and,
provided further that for each LIBOR Set Rate Interest Period, if said period
would otherwise end on a day that is not a "Eurodollar Business Day," that
LIBOR Set Rate Interest Period shall be extended to the next succeeding
Eurodollar Business Day.
"LIBOR Set Rate Request" means the Borrower's telephonic notice to a
Lender (to be promptly confirmed in writing), to be received by such Lender
by 11 a.m. (local time in Norfolk, Virginia) two (2) Business Days prior to
the date specified in the LIBOR Set Rate Request for the commencement of the
LIBOR Set Rate Interest Period, of (a) its intention to have (1) all or any
portion of the Loan which is not then the subject of an Interest Period
(other than an Interest Period which is terminating on such day), and/or (2)
all or any portion of any advance under the Loan which is to be made on such
Business Day bear interest at the LIBOR Set Rate and (b) the LIBOR Set Rate
Interest Period desired by the Borrower in respect of the amount specified.
"LIBOR Set Rate Request Amount" means the amount of a Lender's Loan to be
specified by the Borrower to such Lender in each LIBOR Set Rate Request,
which the Borrower desires bear interest at the LIBOR Set Rate, and which
shall in no event be less than $100,000 and which shall be in integral
multiples of $100,000 for amounts above $100,000.
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<PAGE>
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, whether or not
designed to secure the repayment of Indebtedness, or any other interest in
property designed to secure the repayment of Indebtedness, whether arising by
agreement or under any statute or law, or otherwise.
"Loan" means the amount of principal advanced at any time to the Borrower
by a Lender with respect to such Lender's Note.
"Loans" mean the amount of principal advanced at any time to Borrower
under the Notes.
"Loan Documents" means this Agreement, the Security Agreements and other
Collateral Documents, the Notes (including any renewals, extensions and
refundings thereof), any Guarantys and Security Agreements executed by
Subsidiaries regarding the Loans, the Intercompany Loan Documents and all
other agreements and documents executed or delivered pursuant to or in
connection with this Agreement, as any of the same may be amended, modified
or supplemented from time to time.
"Loan Maturity Date" means the date all amounts outstanding under a Note
become due and payable in full, namely, the Commitment Termination Date.
"Material Adverse Effect" means any (i) material adverse effect whatsoever
upon the validity or enforceability of any of the Loan Documents, (ii)
material adverse effect upon the financial condition or business operations
of Borrower or of Borrower's consolidated group, (iii) material adverse
effect upon the ability of the Borrower or of any of Borrower's Subsidiaries
to fulfill its obligations under any of the Loan Documents, or (iv) adverse
effect which causes a Default or an Event of Default.
"Maximum Rate" means, as of any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time,
or from time to time, may be contracted for, taken, reserved, charged or
received on the Indebtedness evidenced by the Notes under the laws which are
presently in effect of the United States of America and the Commonwealth of
Virginia applicable to the holders of the Notes and such Indebtedness or, to
the extent permitted by law, under such applicable laws of the United States
of America and the Commonwealth of Virginia which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than applicable
laws now allow.
"Net Income" means earnings reflected on Borrower's consolidated
statements after Interest Expense, taxes, depreciation expense and
amortization as determined in accordance with GAAP.
"Net Worth" means, as of any date, the value of total assets less total
liabilities which appear on a consolidated balance sheet of Borrower prepared
as of such date in accordance with GAAP.
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<PAGE>
"Notes" means the notes being executed pursuant to Section 2.4 and the
Signet Term Note or any extensions, renewals, modifications or replacements
thereof or substitutions therefor.
"Notice of Borrowing" shall have the meaning assigned to such term in
Section 3.1(a).
"Obligations" means:
(i) all present and future indebtedness, obligations and liabilities
of the Borrower to the Lenders arising pursuant to this Agreement, regardless
of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future indebtedness, obligations and liabilities
of the Borrower to the Lenders arising pursuant to or represented by the
Notes and all interest accruing thereon, and attorney's fees incurred in the
enforcement or collection thereof;
(iii) all present and future indebtedness, obligations and
liabilities of the Borrower evidenced by or arising pursuant to any of the
Loan Documents; and
(iv) all renewals, extensions and modifications of the indebtedness
referred to in the foregoing clauses, or any part thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor
to all or any of the Pension Benefit Guaranty Corporation's functions under
ERISA.
"Permitted Liens" means, (a) liens and security interests securing
indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or
similar charges either not yet due or being contested in good faith; (c)
liens of landlords, equipment lessors, materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower or its Subsidiaries in the ordinary course of business to
secure indebtedness outstanding up to a maximum of Two Million Dollars
($2,000,000) in the aggregate; (e) liens securing Indebtedness of a Target as
permitted by Section 7.7; and (f) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lenders in writing.
"Person" means an individual, a corporation, a joint venture, a general or
limited partnership, a limited liability company or partnership, an
association, a trust, an unincorporated organization, a Governmental
Authority, or any other entity or organization.
"Plan" means an employee benefit plan or other plan maintained by the
Borrower for its employees, and covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Internal Revenue Code
of 1954, as amended.
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"Prime Rate" means that rate of interest announced by a Lender from time
to time as its Prime Rate adjusted on a daily basis or as frequently as
changes in such Lender's Prime Rate are announced and represents a reference
used by each of the Lenders in determining the interest rate on certain loans
and is not intended to be the lowest rate of interest charged on any
extension of credit to any customer of the Lenders.
"Principal Amount" means that portion of the principal of the Loan which
Borrower has designated to accrue interest at a LIBOR Set Rate or a Base
Rate, as the case may be.
"Process Agent" means Stephen W. Burke, Esq., whose address is Clark &
Stant, P.C., One Columbus Center, Virginia Beach, Virginia 23462.
"Quarterly Statements" shall have the meaning assigned to such term in
Section 6.1(a).
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 204, or any successor or other regulation
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulatory Change" means, with respect to the charging and collecting of
interest at the LIBOR Set Rate, any change after the date of this Agreement
in United States federal, state or foreign laws or regulations (including
Regulation D), or generally the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks
including any of the Lenders under any United States federal, state or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation
or administration thereof.
"Reportable Event" shall have the meaning assigned to such term in Title
IV of ERISA.
"Reserve Requirement" means the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to
be maintained under Regulation D by member banks of the Federal Reserve
System in Richmond, Virginia with deposits exceeding one billion U.S. Dollars
against "Euro Currency Liabilities," as such quoted term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by
such member banks by reason of any Regulatory Change against (a) any category
of liabilities which includes deposits by reference to which the LIBOR Rate
is to be determined as provided in this Agreement or (b) any category of
extensions of credit or other assets which includes loans the interest rate
on which is determined on the basis of rates referred to in the definition of
LIBOR Rate and/or a LIBOR Set Rate.
"Security Agreements" shall have the meaning assigned to such term in
Section 4.1(i).
"Signet Term Note" shall mean the term note payable to Signet Bank upon
conversion of Signet's Note to a term note pursuant to Section 2.1.
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"Solvent" means, with respect to any Person as of any date, that on such
date (i) the fair value of the property of such Person is greater than the
total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair saleable value of the
assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become
matured, (iii) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such Person does not
intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature, and
(v) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"Subsidiary" means any corporation fifty percent (50%) or more of the
Voting Shares of which is owned, directly or indirectly, by the Borrower.
"Target" shall have the meaning assigned to it in Section 7.6.
"Total Liabilities" means, as of any date, a Person's total Indebtedness.
"Voting Shares" of any corporation means shares of any class or classes
(however designated) having voting power for the election of members of the
board of directors (or other governing body) of such corporation, other than
shares having such power only by reason of the happening of a contingency.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in any of the Notes or other Loan Documents, or in any
certificate, report or other document made or delivered pursuant to this
Agreement, unless the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the
plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement.
ARTICLE 2
-------------
THE LOAN
Section 2.1 Commitments.
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(a) Subject to the terms and conditions of this Agreement, each
Lender severally agrees to lend to Borrower on a revolving basis in one or
more Advances, from time to time during its Commitment Period, an amount
not in excess at any time of such Lender's Commitment, such that the
aggregate amount of each Lender's Advances on its Loan at any one time
outstanding shall not exceed the amount of such Lender's Commitment as of
such time; provided, however, that notwithstanding the stated principal
amounts of the Notes or anything to the contrary herein, the aggregate
principal amount of Advances on the Loan by all of the Lenders at any one
time outstanding shall not exceed $39,900,000. Each Advance under this
Section by a Lender shall be in an aggregate principal amount of $100,000 or
any larger integral multiple of $100,000. Within the limits of this Section
2.1, during the Commitment Period, Borrower may borrow, repay and reborrow
in accordance with and subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.5(g)). Annually, beginning on or
before the date which is one year from the date hereof, each Lender shall
have the option in its sole and absolute discretion, if so requested in
writing by the Borrower at least forty-five (45) days prior to such
anniversary date, to extend for an additional Agreement Year the Commitment
Period, the Commitment Termination Date and the Loan Maturity Date with
respect to its Commitment. Each Lender may do so by delivering to the
Borrower written notice of its election to do so prior to the end of the
then current Agreement Year. Failure of a Lender to so notify the Borrower
prior to the end of the Agreement Year shall constitute a denial of
Borrower's request.
(b) If Signet in its sole and absolute discretion, elects, at any
time, not to extend for an additional Agreement Year the Commitment Period,
the Commitment Termination Date and the Loan Maturity Date with respect to
its Commitment, then on the ninety-first (91st) day following the end of the
then current Agreement Year, (i) Signet's Commitment Period will terminate
and (ii) all amounts then outstanding under its Note shall immediately
convert to a non-revolving term loan ("Term Loan") which will be fully
amortized over four (4) years from the conversion date. The Term Loan will
be evidenced by the Signet Term Note substantially in the form of Exhibit C
attached. The Signet Term Note will be delivered by Borrower to Signet in
exchange for Signet's Note. The interest rate for the Term Loan shall be a
fixed rate equal to the average of Signet's three (3) year and five (5) year
fully amortized cost of funds or, if available, the four (4) year cost of
funds, as determined by Signet and reported internally by Signet for use
throughout Signet on such date of the conversion to the Term Loan, plus the
Applicable Spread Component as of such conversion date. Principal on the Term
Loan shall be paid in annual payments due on each anniversary of conversion
to the Term Loan equal to one-fourth of the principal balance outstanding on
the date of conversion to the Term Loan with monthly payments of interest in
arrears, with the first such payment due one month after the date of
conversion to the Term Loan.
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Section 2.2 Commitment Fees. On the date this Agreement is signed,
Borrower will pay or will have paid to each of the Lenders a commitment fee
as set forth below:
NationsBank, N.A. $25,000
Crestar Bank $10,000
Signet Bank None
In addition, the Borrower shall pay to each Lender an average unused
commitment fee for its Commitment Period as set forth in Schedule 2.2. Such
commitment fees shall be payable to Crestar and NationsBank quarterly in
arrears beginning on August 30, 1997, and continuing quarterly thereafter
during their Commitment Periods and to Signet monthly in arrears beginning
June 30, 1997, and continuing monthly thereafter during its Commitment
Period, with the a final installment of such commitment fee being paid to
each Lender on its Commitment Termination Date, which shall be prorated on a
daily basis if less than a full calendar quarter, or calendar month, as the
case may be, has elapsed once the final installment is paid.
Section 2.3 Use of Proceeds. The proceeds of the Loans shall be used
(i) for the general corporate purposes of Borrower, (ii) for acquisitions by
Borrower permitted under this Agreement, or (iii) to refinance existing
Indebtedness of Borrower, and may be relent to Subsidiaries pursuant to the
Intercompany Loan Documents to Subsidiaries for general corporate purposes,
to pay off Indebtedness of a Target being acquired pursuant to a permitted
acquisition, or for permitted acquisitions.
Section 2.4 Notes. Advances made under Section 3.1 shall be evidenced by
the Notes executed by Borrower which shall (i) be dated the date hereof, (ii)
be for each Lender in the amount of its Commitment, (iii) be payable to the
order of the respective Lenders at their respective offices, (iv) bear
interest in accordance with Section 3.6, and (v) be in the form of Exhibit A
hereto with blanks appropriately completed in conformity herewith.
Notwithstanding the stated principal amounts of the Notes, the amount of
principal actually owing on each Note at any time shall be the aggregate of
all Advances theretofore made to Borrower by the Lender to which such Note is
payable, less all payments of principal theretofore received by such Lender
and applied to amounts owed on such Note. The Lenders are authorized, but
are not required, to endorse on schedules attached to their Notes appropriate
notations evidencing the date, amount, and manner of each Advance thereunder,
as well as the amount of each payment made by Borrower thereunder.
Section 2.5 Interest Rates.
(a) Options. Subject to adjustments in accordance with Section
2.5(c), the Loans, or portions of the Loans may accrue interest at any one
of, or combination of, a LIBOR Set Rate or a Base Rate, except that the Base
Rate shall not be available for Advances made by Signet except as provided in
Section 2.5(e). Except as provided in the previous sentence, Borrower shall
select either a LIBOR Set Rate or a Base Rate and with respect to a LIBOR Set
Rate, the Applicable Spread Component thereof shall be determined based on
the GPM. The GPM is designed to dictate the Applicable Spread Component to
be added to the LIBOR Rate, and is predicated upon the financial performance
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of the Borrower. Except for Advances made by Signet Bank, Borrower will have
an option of either a LIBOR Set Rate or a Base Rate for all or a portion of
the Loan. Advances made to Borrower by Signet shall only be available
subject to a LIBOR Set Rate, except as provided in Section 2.5(e). The
Applicable Spread Component initially applicable to the Loans will be 35 bps.
(b) Selecting an Interest Rate. The Borrower shall have the option,
subject to the terms and conditions set forth below, of paying interest on
any Principal Amount, or portions thereof, based on a LIBOR Set Rate, or a
Base Rate from time to time as may be offered by the Lenders, except as set
forth above and in Section 2.5(a) with respect to the Signet term loan.
(1) LIBOR Set Rate Request. If Borrower is interested in the
application of the LIBOR Set Rate, Borrower shall so notify the Lender or
Lenders electronically or by telephone two (2) Business Days prior to the
contemplated commencement of a LIBOR Set Rate Interest Period and the
notified Lenders shall, at their option and subject to availability and terms
and conditions in the Lenders' sole discretion, thereupon communicate to the
Borrower the rate that would, at that time, be the LIBOR Set Rate with
respect to the proposed LIBOR Set Rate Request Amount communicated to it, and
the Borrower shall have until 2 p.m. on the Business Day of such inquiry to
submit to the Lender or Lenders a LIBOR Set Rate Request in respect of the
proposed LIBOR Set Rate Request Amount and LIBOR Set Rate Interest Period
specified by the Borrower, which LIBOR Set Rate Request shall be irrevocable.
In the event that the Borrower fails to submit a LIBOR Set Rate Request with
respect to a LIBOR Set Rate Amount not later than 11 a.m. two (2) Business
Days prior to the last day of an existing LIBOR Set Rate Interest Period, the
LIBOR Set Rate Amount in question shall bear interest, commencing at the end
of such LIBOR Set Rate Interest Period, at the thirty (30) day LIBOR Set Rate.
(c) Adjustments to Interest Rate Options. Based on and together
with the Quarterly Statements and the Fiscal Year End Statements, as the case
may be, the Borrower shall present the Lenders a computation of the Funded
Debt to EBITDA Ratio for the twelve (12) month period ended as of the end of
the Fiscal Quarter or Fiscal Year End, as the case may be, represented by
each such Quarterly Statement or Fiscal Year End Statement, as the case may
be, together with its determination, based on the GPM, of what the
Applicable Spread Component should be. The Lenders shall review such
analysis and determine in their discretion whether the Borrower has performed
in a manner so as to dictate a change in the Applicable Spread Component
applicable to LIBOR Set Rate Amounts. The Borrower shall submit the Quarterly
Statements and Fiscal Year End Statements, as the case may be, to the Lenders
on or prior to the expiration of the periods specified in Section 6.1. The
Lenders shall adjust the Applicable Spread Component which applies to a
portion of the Loan on the first day of the next Fiscal Quarter, except that
the Default Rate shall apply upon the occurrence of an Event of Default.
(d) Regulatory Changes.
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(1) The Borrower shall pay upon demand by any of the Lenders
such amounts as are necessary to compensate such Lenders for Additional Costs
resulting from any Regulatory Change which (i) subjects any of the Lenders to
any tax, duty or other charge with respect to the Loan or this Agreement, or
changes the basis of taxation of any amounts payable to any of the Lenders
under the Loans or this Agreement (other than taxes imposed on the overall
net income of the Lenders or their applicable lending offices by the United
States or by the jurisdiction in which Lenders' respective principal offices
or such applicable lending offices are located), (ii) imposes, modifies or
deems applicable any reserve, special deposit or similar requirements
relating to any extensions of credit or other assets of, or any deposits with
or other liabilities of, any of the Lenders, or (iii) imposes on any of the
Lenders or, in the case of LIBOR Set Rate Amounts, on the London interbank
market, any other condition affecting the Loans or this Agreement, or any of
such extensions of credit or liabilities. The Lenders will notify the
Borrower of any event occurring after the date of this Agreement which would
entitle any Lender to compensation pursuant to this paragraph as promptly as
practicable after the Lenders obtain knowledge of such events and determines
to request such compensation, and will designate a different lending office
for those portions of the Loan affected by such event if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the affected Lenders' sole opinion, be disadvantageous to it,
provided that the affected Lender shall have no obligation to so designate a
lending office located in the United States.
(2) Without limiting the effect of the immediately preceding
paragraph, in the event that, by reason of any Regulatory Change, (i) any of
the Lenders incur Additional Costs based on or measured by the excess above a
specified level of the amount of (1) a category of deposits or other
liabilities of such Lenders which includes deposits by reference to which the
LIBOR Rate or the LIBOR Set Rate is determined as provided in this Agreement
and/or (2) a category of extensions of credit or other assets of any of the
Lenders which includes loans the interest on which is determined on the basis
of rates referred to in the definition of "LIBOR Rate," (ii) any of the
Lenders become subject to restrictions on the amount of such a category of
liabilities or assets which they may hold or (iii) it shall be unlawful or
impossible for any of the Lenders to make or maintain the Loans (or any
portions thereof) at the LIBOR Set Rate, then the affected Lenders'
obligation to make or maintain the Loans (or portions thereof) at the LIBOR
Set Rate (and the Borrower's right to request the same) shall be suspended
and the affected Lenders shall give notice thereof to the Borrower and, upon
the giving of such notice, interest payable hereunder shall be converted to
the Base Rate, unless such Lenders may lawfully continue to maintain the
Loans (or any portions thereof) then bearing interest at the LIBOR Set Rate
to the end of the current Interest Period(s), at which time the interest rate
shall convert to the Base Rate. If subsequently any of the Lenders determines
that such Regulatory Change has ceased to be in effect, the Lenders will so
advise the Borrower and the Borrower may convert the rate of interest payable
under this Agreement with respect to those portions of the Loan bearing
interest at the Base Rate to a LIBOR Set Rate by submitting a LIBOR Set Rate
Request in respect thereof and otherwise complying with the provisions of
this Agreement. Determinations by the Lenders of the existence or effect of
any Regulatory Change on the Lenders' costs of making or maintaining the
Loan, or portions thereof, at the LIBOR Set Rate, or on amounts receivable by
them in respect thereof, and of the additional amounts required to compensate
the Lenders in respect of Additional Costs, shall be conclusive, provided
that such determinations are made on a reasonable basis.
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(e) Inability to Determine LIBOR Rate. Anything in this Agreement
to the contrary notwithstanding, if, at the time of or prior to the
determination of the LIBOR Set Rate in respect of any LIBOR Set Rate Request,
as provided in this Agreement, any of the Lenders determine (which
determination shall be conclusive) that (i) by reason of circumstances
affecting the London interbank market generally, adequate and fair means do
not or will not exist for determining a LIBOR Set Rate or (ii) a LIBOR Set
Rate will not accurately reflect the cost to such Lenders of making or
maintaining the Loans (or any portion thereof) at a LIBOR Set Rate, then the
affected Lenders shall give the Borrower prompt notice thereof, and the Loan
(or portions thereof) shall accrue interest, or continue to accrue interest,
as the case may be, at the Base Rate. If at any time subsequent to the giving
of such notice, such Lenders determine that because of a change in
circumstances a LIBOR Set Rate is again available to the Borrower under this
Agreement, such Lenders shall so advise the Borrower and the Borrower may
convert the rate of interest payable hereunder from the Base Rate to a LIBOR
Set Rate by submitting a LIBOR Set Rate Request to the Lenders and otherwise
complying with the provisions of this Agreement.
(f) LIBOR Breakage Fee. The Borrower shall pay to the Lenders,
immediately upon request and notwithstanding contrary provisions contained in
the other Loan Documents, such amounts as shall, in the conclusive judgment
of the Lenders, compensate the Lenders for any loss, cost or expense incurred
by the Lenders as a result of (i) any payment or prepayment, under any
circumstances whatsoever, of any portion of the Loans bearing interest at a
LIBOR Set Rate on a date other than the last day of an applicable Interest
Period, (ii) the conversion, for any reason whatsoever, of the rate of
interest payable under this Agreement from a LIBOR Set Rate with respect to
any portion of the Loans then bearing interest at the LIBOR Set Rate on a
date other than the last day of an applicable Interest Period, (iii) the
failure of all or a portion of an advance which was to have borne interest at
a LIBOR Set Rate pursuant to a LIBOR Set Rate Request to be made under this
Agreement, or (iv) the failure of the Borrower to borrow in accordance with a
LIBOR Set Rate Request submitted by Borrower to the Lenders, which amounts
shall include, without limitation, with respect to any LIBOR Set Rate Amount,
an amount equal to the excess, if any, of (x) the amount of interest that
would have accrued at the LIBOR Set Rate on the amount so prepaid, converted,
advanced or not borrowed, as the case may be, for the period from the date of
occurrence to the last day of the applicable Interest Period over (y) the
amount of interest (as determined in good faith by the Lenders) that the
Lenders would have received for a Euro-Dollar deposit placed by the Lenders
with lending banks in the London interbank market for an amount comparable to
the amount so prepaid, converted, not advanced or not borrowed, as the case
may be, for the period from the date of occurrence to the last day of the
applicable Interest Period. Notwithstanding this Section 2.5(g), Borrower
will not be obligated to pay any amount to a Lender if the loss, cost or
expense is incurred solely due to an act or omission which constitutes the
gross negligence or willful misconduct of said Lender.
(g) Fall-Back Interest Rate. Any portion of the Loans to which a
LIBOR Set Rate is not or cannot pursuant to the terms hereof be applicable
shall bear interest at the Base Rate, including any Advances made by Signet.
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(h) Default Rate. Upon the occurrence of an Event of Default, the
Loan shall immediately begin to accrue interest at the Default Rate.
Section 2.6 Principal Payments. Each Loan, and all accrued but unpaid
interest thereon, shall be due and payable in full on such Loan's Commitment
Termination Date.
Section 2.7 Payment of Interest on the Loan. Interest on each Loan, or
each portion thereof, shall be payable on each Interest Payment Date
applicable thereto and at maturity.
Section 2.8 Calculation of Interest Rates. Interest on each Loan shall
be calculated on the basis of the actual days elapsed and a year of 360 days.
ARTICLE 3
-----------------------------------------
OTHER PROVISIONS APPLICABLE TO THE LOANS
Section 3.1 Borrowing Procedures.
(a) Notice of Borrowing. Borrower shall give each Lender prior
telephonic or written notice (a "Notice of Borrowing") of each requested
Advance specifying the aggregate amount and requested date of such Advance
and if such Advance or any portion thereof is to be immediately relent to a
Subsidiary, or immediately contributed as capital to a Subsidiary the name of
such Subsidiary and the amount of such loan or contribution of capital, not
later than 11 a.m. on the requested date of such Advance (which shall be a
Business Day). Notwithstanding the foregoing, with respect to Advances which
are to bear interest at a LIBOR Set Rate, Borrower must follow the procedures
set forth in Section 2.5(b)(1).
(b) Funding. Unless any applicable condition specified in Article 4
has not been satisfied, or unless a Default or Event of Default exists, then
not later than 1:30 p.m. (local time in Norfolk, Virginia) on the date of the
Advance requested in such Notice, each Lender required to do so shall make
available its Advance, in federal or other funds immediately available in
Norfolk, Virginia, to Borrower, to an account specified by Borrower.
(c) Lender Obligations Several. No Lender shall be responsible for
the failure of any other Lender to make any loan to be made by such other
Lender on the date of any Advance.
Section 3.2
(a) Collateral of Borrower. Each Loan shall be secured by a
perfected first priority security interest in the Intercompany Loan Documents
and in all accounts and contract rights of the Borrower and of any
Subsidiary, now owned or hereafter acquired together with all proceeds of
such Collateral, all as more fully and particularly described in the Security
Agreements.
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(b) Lenders' Collateral Rights. In the event any Default or Event of
Default under this Agreement, or any default (or event or occurrence that
with the giving of notice or passage of time would become a default) under
any of the other Loan Documents, comes to the attention of any Lender, such
party shall promptly notify the other Lenders of the same, and the Lenders
shall promptly consult and confer with each other regarding the actions to be
taken on account of the same. Any action with respect to the Collateral
shall be taken by the Lenders only after approval of such action by all the
Lenders. If any Lender acquires any of the Collateral for the Loan upon or
in lieu of foreclosure, the same shall be held for the benefit of all the
Lenders in accordance with their respective interests in the Loan, and such
Lender shall by such means as such Lender deems prudent, manage and maintain
the security so acquired with a view toward disposing of it as soon as
practicable under such terms and conditions as the Lenders may mutually
agree; provided, however, that such Lender (i) shall have no liability to any
other Lender for any act or omission of any contractor or agency selected to
manage or maintain the security as provided herein which is approved by a
majority in interest of the Lenders; and (ii) such Lender shall have the
right at any time to take such actions as such Lender in its good faith
judgment deems necessary to protect and preserve the value of the security so
acquired, whether or not the Lenders shall have agreed to such actions. If
any of the Lenders shall receive any funds as a result of its foreclosure of
any lien or security interest it holds with regard to the Collateral or
Loans, or as a result of its offset against accounts of the Borrower, or
under any Guaranty, such Lender shall promptly ratably share the same with
the other Lenders in accordance with their respective interests in the Loans.
Section 3.3 Payments Generally. Borrower shall make each payment of
principal of, and interest on, the Loans and of fees hereunder, not later
than 12:00 noon (local time in Norfolk, Virginia) on the date when due, in
federal or other funds immediately available in Norfolk, Virginia, to the
Lenders at their addresses referred to in Section 10.6. Payments made by
Borrower to the Lenders shall be deemed to have been made to each Lender when
received by such Lender. Whenever any payment of principal of, or interest
on, the Loans shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. If
the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time. Each
payment of principal on the Notes shall be in an aggregate amount of $100,000
or any larger integral multiple of $100,000.
Section 3.4 Conflicts With Account Contracts. Notwithstanding any
provision of any Loan Document to the contrary, if (i) the granting of a
security interest by Borrower in an account or contract right or (ii) the
exercise of a remedy by Lenders following an Event of Default would violate
applicable law (unless waived, to the extent waiveable under applicable law)
or constitute a default by Borrower under a contract, then the grant of such
security interest will be deemed void or Lenders will not exercise such
remedy as the case may be. Borrower shall exercise commercially reasonable
efforts in its negotiation of and procuring of contracts to insure that no
such prohibitions or potential defaults exist, and the Borrower shall take
such action or actions as may be required by a contract to permit the
assignment thereof to the Lenders and to permit the exercise of a remedy
under the Loan Documents by a Lender.
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Section 3.5 Section Amendments. No Loan Documents, including, without
limitation, the Notes, the Signet Term Note, and the Security Agreements, may
be amended or modified in any respect without the prior written consent of
all the parties hereto.
ARTICLE 4
CONDITIONS PRECEDENT
Section 4.1 Initial Advance. The obligation of the Lenders to make the
initial Advance hereunder is subject to the condition precedent that, on or
before the date such initial Advance is made, each of the Lenders shall have
received the following, each dated as of such date or an earlier date
acceptable to the Lenders, in form and substance satisfactory to the Lenders:
(a) Notes. Duly executed Notes, one payable to the order of each
Lender, in the form of Exhibit A hereto with appropriate insertions.
(b) Financial Information. Copies of the most recent financial
statements required to be provided pursuant to Section 6.1.
(c) Officers' Certificate. A certificate signed by the President or
Chief Financial Officer of the Borrower stating that, to his best knowledge
and belief, after reasonable and due investigation and review of matters
pertinent to the subject matter of such certificate as of the date of
execution and delivery of the Loan Documents: (i) all of the representations
and warranties contained in Article 5 hereof and/or in the other Loan
Documents are true and correct as of the date hereof; (ii) no event has
occurred and is continuing, or would result from the making of any Advance as
of this date, which constitutes or would constitute a Default or an Event of
Default, and (iii) the Borrower is Solvent.
(d) Resolutions of Borrower. Resolutions of the Borrower approving
and authorizing the execution, delivery and performance of this Agreement,
the Security Agreements, the Notes and all other Loan Documents to which it
is a party, and the transactions contemplated herein and therein, duly
adopted by the Borrower's Board of Directors and accompanied by a certificate
of the Secretary or Assistant Secretary of Borrower stating that as of the
date of execution and delivery of the Loan Documents such resolutions are
true and correct, have not been altered or repealed and are in full force and
effect.
(e) Incumbency Certificate of Borrower. A signed certificate of the
Secretary or Assistant Secretary of the Borrower which shall certify the
officers authorized to sign each of the Loan Documents to be executed by the
Borrower and any other documents or certificates to be delivered by the
Borrower pursuant to the Loan Documents, together with the true signature of
each of such officers.
(f) Incorporation/Good Standing Certificates. Certificate of Good
Standing for the Borrower issued by the State Corporation Commission of
Virginia, dated within forty-five (45) days prior to the date of this
Agreement.
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(g) Charter and Bylaws. A copy of the Articles of Incorporation of
the Borrower, and all amendments thereto, certified by the State Corporation
Commission of Virginia, and dated within forty-five (45) days of the date of
this Agreement, and a copy of the bylaws of the Borrower, and all amendments
thereto, certified by the Secretary or Assistant Secretary of the Borrower,
as being true, correct and complete as of the date of such certification.
(h) Opinion of Borrower's Counsel. An opinion letter of the
Borrower's counsel covering such matters as may be reasonably required by,
and in form and substance reasonably satisfactory to the Lenders and their
counsel.
(i) Collateral Documents. Security agreements in the form of Exhibit
B duly executed by Borrower for the benefit of each of the Lenders, all in
form and substance satisfactory to the Lenders and duly executed by the
parties thereto. Each document (including without limitation, any UCC
financing statements) required by the Collateral Documents or under law or
reasonably requested by the Lenders to be filed, registered or recorded in
order to create, in favor of the Lenders, a perfected first priority Lien on
the Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lenders shall have received an acknowledgement
copy, or other evidence satisfactory to it, of each such filing, registration
or recordation and satisfactory evidence of the payment of any necessary fee,
tax or expense relating thereto. Each of the security agreements shall be
collectively referred to herein as "Security Agreements."
(j) Additional Information. Such other information and documents as
may reasonably be required by the Lenders and their counsel.
Section 4.2 All Advances. The obligation of the Lenders to make any
Advance (including the initial Advance) shall be subject to the following
additional conditions precedent, which must be fulfilled as of the dates of
the pertinent Notice of Borrowing, and as of the date such Advance is made,
as the case may be:
(a) No Defaults. There shall exist no Default or Event of Default.
(b) Compliance with Agreements. The Borrower and each Subsidiary
shall have performed and complied with all agreements and conditions
contained herein and in each of the Loan Documents which are required to be
performed or complied with by the Borrower and each Subsidiary before or on
the applicable date.
(c) No Material Adverse Change. No Material Adverse Effect shall have
occurred since the date of the last financial statements delivered pursuant
to Section 6.1.
(d) Continued Compliance. (i) Borrower and each Subsidiary shall be
in full compliance with all covenants and agreements contained in this
Agreement or any of the other Loan Documents, (ii) no event shall have
occurred and be continuing, or would result from the making of the Advance,
which constitutes or would constitute a Default or an Event of Default, and
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(iii) all of the representations and warranties of Borrower and each
Subsidiary in each of the Loan Documents executed by the Borrower and the
Subsidiaries shall be true and correct in all material respects.
(e) Representations and Warranties. The representations and
warranties contained in Article 5 hereof and in each of the Loan Documents
shall be deemed to be made again on the applicable date, and shall be true in
all material respects on such date, with the same force and effect as though
made on and as of that date.
(f) Financial Statements. The most recent financial statements of
Borrower delivered pursuant to Section 6.1 shall be true and correct, shall
fairly present the financial condition of the Borrower and of its
Subsidiaries and shall have been prepared in accordance with GAAP applied on
a basis consistent with that of prior periods.
(g) Solvency/Bankruptcy Proceedings. Borrower shall be Solvent, and
no proceeding or case under the United States Bankruptcy Code shall have been
commenced by or against the Borrower.
Section 4.3 Reliance on Certificates. The Lenders may conclusively rely
on any certificates received pursuant to Section 4.1 or Section 4.2 until
they receive a further certificate of an authorized officer of the Borrower
canceling or amending the prior certificate and, in the case of the
incumbency certificate provided for in paragraph 4.1(e), submitting the
signatures of the officers named in such further certificate.
ARTICLE 5
----------------------------------
REPRESENTATIONS AND WARRANTIES
Section 5.1 To induce the Lenders to make the Loans hereunder, the
Borrower represents and warrants to the Lenders as follows:
(a) Organization and Good Standing; Names.
(i) The Borrower is a corporation duly organized and existing
in good standing under the laws of the state of its incorporation, is duly
qualified as a foreign corporation and is in good standing in all states
where its failure to do so would have a Material Adverse Effect, and has the
corporate power and authority to own its properties and assets and to
transact the business in which it is engaged and is or will be qualified in
those states where its failure to do so would have a Material Adverse Effect
in the future.
(ii) The Borrower does not own any property or assets in or
transact or engage in business under, any name other than "Metro Information
Services, Inc." and has not engaged in business under any name other than
"Metro Information Services, Inc." for the last five (5) years.
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(b) Authorization and Power.
(i) The Borrower has the corporate power and requisite
authority to execute, deliver and perform the Loan Documents executed or to
be executed by it. The Borrower is duly authorized to, and has taken all
corporate action necessary to authorize each Person executing the Loan
Documents on behalf of it, to execute, deliver and perform the Loan Documents
executed by such Person. The Borrower is duly authorized to perform the Loan
Documents executed by each such Person.
(c) No Conflicts or Consents. Except for contracts addressed in
Section 3.4, neither the execution and delivery of the Loan Documents, nor
the consummation of any of the transactions therein contemplated, nor
compliance with the terms and provisions thereof, will contravene or
materially conflict with any provision of law, statute or regulation to which
the Borrower is subject or any judgment, license, order or permit applicable
to the Borrower, or any indenture, loan agreement, mortgage, deed of trust,
or other agreement or instrument to which the Borrower may be bound, or
violate any provision of the charter or bylaws or equivalent governing
documents of the Borrower which would be reasonably likely to have a Material
Adverse Effect. No consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by the Borrower of the Loan Documents or to consummate
the transactions contemplated hereby or thereby, except that Borrower makes
no representation about compliance with laws governing the assignment of
contracts with or receivables from Governmental Authorities or the creation
of security interests in accounts and contract rights contracts with
Governmental Authorities.
(d) Enforceable Obligations. The Loan Documents to which the
Borrower is a party have been or when executed will be duly executed and
delivered by the Borrower and are the legal and binding obligations of the
Borrower, enforceable in accordance with their respective terms.
(e) Financial Condition. (i) The Borrower is Solvent. (ii) The
Borrower has delivered to the Lenders copies of (i) the balance sheet of the
Borrower as of December 31, 1996, and related statements of income, cash
flows and changes in redeemable common stock and shareholders' equity of the
Borrower for the year ended such date, certified by KPMG Peat Marwick, LLP,
independent auditors; and (ii) the unaudited balance sheet of the Borrower as
of March 31, 1997, and related statement of income of the Borrower for the
three months ended March 31, 1997. Such financial statements have been
prepared in accordance with GAAP applied on a basis consistent with that of
prior periods. (iii) There are no obligations, liabilities or Indebtedness
(including contingent and indirect liabilities and obligations) of the
Borrower which are not reflected in such most recent financial statements and
which have caused or are reasonably likely to cause a Material Adverse Effect
to occur.
(f) Full Disclosure. There is no fact known to the Borrower that the
Borrower has not disclosed to the Lenders which could have a Material Adverse
Effect. Neither the financial statements referenced in paragraph 5.1(e) and
Section 6.1, nor any certificate or statement delivered herewith or
heretofore by the Borrower to the Lenders in connection with negotiation of
this Agreement and the transactions contemplated by it, contains any untrue
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statement of a material fact or omits to state any material fact necessary to
keep the statements contained herein or therein from being misleading.
(g) No Default. No event has occurred and is continuing which
constitutes a Default or an Event of Default.
(h) Material Agreements. The Borrower is not in default in any
material respect under any contract, lease, loan agreement, indenture,
mortgage, security agreement or other material agreement or obligation to
which it is a party or by which any of its properties are bound, except for
violations that, alone or in the aggregate, do not and could not reasonably
be expected to have a Material Adverse Effect.
(i) Taxes. All tax returns required to be filed by the Borrower in
any jurisdiction have been filed, or timely extensions of the time for filing
of such returns which have not expired have been obtained, and all taxes,
assessments, fees and other governmental charges upon the Borrower or upon
any of its properties, income or franchises have been paid prior to the time
that such taxes could give rise to a lien thereon.
(j) Principal Office, etc. The chief executive office of the
Borrower is at Reflections II, Third Floor, 200 Golden Oak Court, Virginia
Beach, Virginia 23452. The Borrower maintains its principal records and
books at such address.
(k) ERISA. (a) No Reportable Event has occurred and is continuing
with respect to any Plan; (b) PBGC has not instituted proceedings to
terminate any Plan; (c) the Borrower has not (i) incurred any liability to
PBGC with respect to any Plan other than for premiums not yet due or payable,
or (ii) instituted or does not intend to institute proceedings to terminate
any Plan under Sections 4041 or 4041A of ERISA or withdraw from any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA); (d) each Plan of the Borrower has been maintained and funded in all
material respects in accordance with its terms and with all provisions of
ERISA and the Code applicable thereto; (e) where applicable, the Borrower has
complied with all applicable minimum funding requirements of ERISA and the
Code with respect to each Plan; (f) there are no unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) with respect to any Plan of the
Borrower which pose a risk of causing a Lien to be created in its assets; (g)
no material prohibited transaction under the Code or ERISA has occurred with
respect to any Plan of the Borrower, and (h) none of the matters described in
Section 5.1(k) has or could reasonably be expected to have a Material Adverse
Effect.
(l) Compliance with Law. The Borrower is in compliance with all
laws, rules, regulations, orders and decrees which are applicable to it, or
its business or properties, including without limitation all federal, state
and local laws relating to pollution control, health and safety and
protection of the environment, as such laws are supplemented or implemented
by any regulations, policy or guidance documents ("Environmental Laws"),
except for violations of laws which, alone or in the aggregate, do not and
could not have a Material Adverse Effect. The Borrower is not subject to any
liabilities, whether accrued, or to its knowledge contingent or otherwise,
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arising from or in any way associated with Environmental Laws, nor is it a
potentially responsible party under any Environmental Law.
(m) Governmental Regulation. The Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act
(as any of the such Acts have been amended), or any other law (other than
Regulation X, 12 CFR 224) which regulates the incurring by the Borrower of
Indebtedness, including but not limited to laws relating to common contract
carriers or the sale of electricity, gas, steam, water, or other public
utility services.
(n) Insider. The Borrower is not, and no Person having "control" (as
that term is defined in 12 U.S.C. (Section Sign) 375(b)(5) or in regulations
promulgated pursuant thereto) of the Borrower is an "executive officer,"
"director," or "principal shareholder" (as those terms are defined in 12
U.S.C. (Section Sign) 375(b) or in regulations promulgated pursuant thereto)
of any of the Lenders, of a bank holding company of which any of the Lenders
is a subsidiary, or of any subsidiary of a bank holding company of which any
of the Lenders is a subsidiary, or of any bank at which any of the Lenders
maintains a "correspondent account" (as such term is defined in such statute
or regulations), or of any bank which maintains a correspondent account with
any of the Lenders.
(o) Property Ownership and Liens. The Borrower owns all of the
Collateral and, except for the Liens created by the Security Agreements,
there are no liens, encumbrances or claims on or to any of the Collateral, or
objections to the title of the Borrower in and to any of the Collateral, or
assignments or pledges of any of the Borrower's rights in, to or under any of
the Collateral. Upon filing of appropriate financing statements in the
Office of the Clerk of the Circuit Court of the City of Virginia Beach,
Virginia and with the Virginia State Corporation Commission, the Security
Agreements will grant to the Lenders a perfected first priority lien on the
Collateral (other than Collateral of a type in which a security interest
cannot be perfected by the filing of financing statements), which will not be
subject to any prior liens, encumbrances or claims.
(p) Stock Ownership. John H. Fain controls the right to vote a
number of Voting Shares owned by himself, his immediate family or entities
owned by them which constitute not less than twenty-five percent (25%) of the
Voting Shares of the Borrower.
(q) Litigation. There is no action, suit, investigation or
proceeding pending or threatened, against the Borrower or a Subsidiary,
before any court, arbitrator or administrative or governmental body (i) with
respect to this Agreement, the Notes or any of the other Loan Documents or
any of the transactions contemplated hereby or thereby or with respect to any
action taken or to be taken pursuant to any of the Loan Documents, or (ii)
which could reasonably be expected to impair the Collateral or have a
Material Adverse Effect.
(r) Subsidiaries. Borrower has no Subsidiaries as of the date of
this Agreement.
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Section 5.2 Survival of Representations and Warranties. All
representations and warranties herein shall survive delivery of the Notes and
other Loan Documents and the making of any Advances and any investigation at
any time made by or on behalf of the Lenders shall not diminish the Lenders'
right to rely thereon.
ARTICLE 6
---------
AFFIRMATIVE COVENANTS
----------------------
So long as any of the Lenders has any commitment hereunder to make
Advances, and until payment in full of the Loans and Notes and full and
complete performance of all other Obligations, Borrower agrees that:
Section 6.1 Financial Statements, Reports and Documents. Borrower shall
deliver to each of the Lenders each of the following, which shall be accurate
in all respects:
(a) Quarterly Statements. As soon as available, and in any event
within forty-five (45) days after the end of each Fiscal Quarter, copies of
the consolidated and consolidating balance sheets of the Borrower's
consolidated group as of the end of such Fiscal Quarter, and consolidated
and consolidating statements of income of the Borrower's consolidated group
for the prior 12 month period and current Fiscal Year to date, together with
an Accounts Receivable Aging report, all prepared by the Borrower in a manner
consistent with past practice and in a form satisfactory to the Lenders
(collectively, the "Quarterly Statements"), in each case setting forth in
comparative form the figures for the corresponding period of the preceding
Fiscal Year, all in reasonable detail. Such statements shall also be
accompanied by a statement by an officer of Borrower as to the record stock
ownership percentage of John Fain.
(b) Annual Statements. As soon as available and in any event within
ninety (90) days after the close of each Fiscal Year, copies of (i) the
consolidated and consolidating balance sheets of the Borrower's consolidated
group as of the close of such Fiscal Year and consolidated and consolidating
statements of income, cash flows, and changes in shareholders' equity of the
Borrower's consolidated group for such Fiscal Year (collectively the "Fiscal
Year End Statements"), in each case setting forth in comparative form the
figures for the preceding Fiscal Year, all in reasonable detail and
accompanied by all normal and reasonable financial notes, and an opinion
thereon (which shall not be qualified by reason of any limitation imposed by
Borrower) of KPMG Peat Marwick, LLP, or of other independent auditors of
recognized national standing selected by the Borrower and satisfactory to the
Lenders, to the effect that such financial statements have been prepared in
accordance with GAAP consistently applied and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances.
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
written report submitted to the Borrower by independent auditors in any
annual, quarterly or special audit made, it being understood and agreed that
all audit reports which are furnished to the Lenders pursuant to this Article
6 shall be treated as confidential, but nothing herein contained shall limit
or impair the Lenders' right to disclose such reports to any appropriate
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<PAGE>
Governmental Authority, or to use such information to the extent pertinent to
an evaluation of the Obligations, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which any of the
Lenders deems necessary to protect its interests under this Agreement;
(d) Other Reports. To the extent not already provided to satisfy
disclosure or reporting requirements set forth elsewhere in this Credit
Agreement, promptly upon its becoming available, one copy of each filing of
the Borrower with the Securities and Exchange Commission, and all exhibits,
or proxy statements sent by the Borrower to shareholders generally, and of
any order issued by any Governmental Authority in any proceeding to which the
Borrower is a party;
(e) Compliance Certificate. Within forty-five (45) days after the end
of each Fiscal Quarter, a certificate executed by the chief financial officer
or chief executive officer of the Borrower, stating that a review of the
activities of the Borrower and its consolidated group during such quarter and
for the prior twelve (12) month period has been made under his supervision
and that the Borrower and its consolidated group has observed, performed and
fulfilled each and every obligation and covenant contained herein, that no
Default or Event of Default exists hereunder (or, if any does exist,
specifying the nature and status thereof), and setting forth a computation in
reasonable detail as of the end of the period covered by such statements, of
compliance with each paragraph of Section 6.13 and with Section 6.16. Within
ninety (90) days after the end of each Fiscal Year, the Borrower shall also
provide to the Lenders a certificate of the Borrower's chief financial
officer certifying the foregoing with respect to the Borrower's and its
consolidated group's activities during the prior Fiscal Year, and, if
otherwise already separately prepared, calculations performed by the
Borrower's independent certified public accountants, showing compliance as of
the end of such Fiscal Year with each paragraph of Section 6.13.
(f) Other Information. Such other information concerning the
business, properties or financial condition of the Borrower or the
Subsidiaries as the Lenders may reasonably request from time to time.
Section 6.2 Payment of Taxes and Other Indebtedness. The Borrower shall
pay and discharge all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any property belonging
to it, before becoming delinquent, and all of its other Indebtedness, except
as prohibited hereunder or under the Loan Documents; provided, however, that
the Borrower shall not be required to pay any such tax, assessment, charge or
levy if and so long as the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and
appropriate accruals and cash reserves therefor have been established in
accordance with GAAP.
Section 6.3 Maintenance of Existence and Rights; Conduct of Business.
The Borrower shall preserve and maintain its corporate existence and all of
its rights, privileges and franchises necessary or desirable in the normal
conduct of its business, and continuously conduct its business in an orderly
and efficient manner consistent with good business practices and in
accordance with all valid regulations and orders of any Governmental
Authority.
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Section 6.4 Other Notices. The Borrower shall immediately, but no later
than five (5) Business Days after learning thereof, notify the Lenders of (i)
any material adverse change in its financial condition or its business, (ii)
any Default or Event of Default hereunder, or any default or event, fact,
contingent liability, or condition which with the giving of notice or
passage of time or both, could have a Material Adverse Effect, (iii) any
default under any other material agreement, contract or instrument to which
it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any Indebtedness owing by it, (iv) any
material adverse claim against or affecting it or any of its properties, and
(v) the commencement of, or any material determination in, any litigation
with any third party or any proceeding before any Governmental Authority
affecting it which is likely to have a Material Adverse Effect if adversely
determined.
Section 6.5 Compliance with Loan Documents. The Borrower shall comply
with any and all covenants and provisions of the Loan Documents within
applicable cure periods, if any.
Section 6.6 Compliance with Material Agreements. The Borrower shall
comply in all material respects with all material agreements, indentures,
mortgages or documents binding on it or affecting its properties or business,
except for violations that alone or in the aggregate, do not and could not
have a Material Adverse Effect.
Section 6.7 Operations and Properties. The Borrower shall act prudently
and in accordance with customary industry standards in managing or operating
its assets, properties, business and investments. The Borrower shall keep in
good working order and condition, ordinary wear and tear excepted, all of its
assets and properties which are necessary to the conduct of its business.
Section 6.8 Books and Records; Access. The Borrower shall give any
representatives of any of the Lenders, upon forty-eight (48) hours' prior
written notice, access during all business hours to, and permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in its possession and relating to its affairs, and to
inspect any of its properties; provided, however, Lenders' representatives
will use their best efforts to avoid disrupting or unreasonably interfering
with the operation of Borrower's business. The Borrower shall use its best
efforts to cooperate with the Lenders and the Lenders' representatives in
completing such examinations and inspections. The Borrower shall maintain
complete and accurate books and records of its transactions in accordance
with good accounting practices.
Section 6.9 Compliance with Law. The Borrower shall comply with all
applicable laws, rules, regulations, and all orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, a breach of which could have a Material Adverse Effect and upon
request, the Borrower shall provide the Lenders with such evidence of
compliance as the Lenders may reasonably request.
Section 6.10 Insurance. The Borrower shall maintain adequate insurance on
and as to its properties, assets and business, now owned or hereafter
acquired, with responsible companies satisfactory to the Lenders, against
such casualties, risks and contingencies, and in such types and amounts, as
27
<PAGE>
are consistent in Borrower's good faith judgment with customary practices and
standards of companies engaged in similar businesses, and provide the Lenders
upon request with certificates evidencing and such other details with respect
to, such insurance, as Lenders may reasonably request from time to time.
Section 6.11 Authorizations and Approvals. The Borrower shall promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable
it to comply with its obligations hereunder and under the other Loan
Documents, and shall qualify to do business in each state in which it does
business.
Section 6.12 ERISA Compliance. The Borrower shall at all times make
prompt payment of all contributions required under all Plans and required to
meet the minimum funding standard set forth in ERISA with respect to all
Plans.
Section 6.13 Financial Covenants. The Borrower's compliance with the
following financial covenants will be based on the Quarterly Statements and
the Fiscal Year End Statements:
(a) Maximum Funded Debt to Capitalization Ratio. Borrower's Funded
Debt to Capitalization Ratio shall be no greater than fifty percent (50%),
and the Quarterly Statements delivered pursuant to paragraph 6.1(a) as of
such testing dates (as well as Fiscal Year End Statements when a testing date
is at Borrower's Fiscal Year End) must reflect compliance with this covenant.
(b) Minimum Interest Coverage. The Borrower's Interest Coverage Ratio
, which shall be tested on a rolling twelve (12) month basis, shall be equal
to or greater than 3.0 to 1.0, and the Quarterly Statements delivered
pursuant to paragraph 6.1(a) as of such testing dates (as well as Fiscal Year
End Statements when a testing date is at Borrower's Fiscal Year End) must
reflect compliance with this covenant.
(c) Minimum Current Ratio. Borrower's Current Ratio shall be equal to
or greater than 1.50 to 1.00, and the Quarterly Statements delivered pursuant
to paragraph 6.1(a) as of such testing dates (as well as Fiscal Year End
Statements when a testing date is at Borrower's Fiscal Year End) must reflect
compliance with this covenant.
(d) Maximum Funded Debt to EBITDA Ratio. Borrower's Funded Debt to
EBITDA Ratio, which shall be tested on a rolling twelve (12) month basis,
shall not be greater than 3.0 to 1.0, and the Quarterly Statements delivered
pursuant to paragraph 6.1(a) as of such testing dates (as well as Fiscal Year
End Statements when a testing date is at Borrower's Fiscal Year End) must
reflect compliance with this covenant.
(e) Minimum Net Worth Step Up. Borrower's Net Worth at the end of
each Fiscal Quarter and at Fiscal Year End shall be equal to an amount at
least as great as ninety percent (90%) of Borrower's Net Worth as of March
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31, 1997, plus fifty percent (50%) of Borrower's Net Income from each Fiscal
Quarter (including the three month periods ending as of Borrower's Fiscal
Year Ends) thereafter (with no provision for losses).
Section 6.14 Subsidiaries. If the Borrower in the future has any
Subsidiaries, then (i) the financial condition and results for any such
Subsidiary shall be reflected in Borrower's consolidated financial statements
and compliance with respect to the financial covenants set forth in Section
6.13 will be required as to Borrower and the Borrower's Subsidiaries on a
consolidated basis, and (ii) each Subsidiary will (x) guarantee payment of
the Obligations pursuant to a Guaranty in the form of Exhibit D attached, and
(y) secure such guaranty and the Obligations with a first priority security
interest in its accounts and contract rights pursuant to a Security Agreement
in the form attached as Exhibit E. Each Subsidiary will also provide to each
of the Lenders UCC-1 financing statements reasonably satisfactory to the
Lenders to perfect the Lenders' security interests in the Collateral owned by
such Subsidiary. In addition, each Subsidiary shall execute Intercompany
Loan Documents (including, without limitation, notes, security agreements and
UCC financing statements) (the "Intercompany Loan Documents") in a form
reasonably satisfactory to the Lenders, and such Intercompany Loan Documents
shall evidence loans from the Borrower to such Subsidiary for working
capital, acquisition, or other purposes. The Intercompany Loan Documents
shall be collaterally assigned to and held in the possession of the Lenders
to perfect their security interest therein. In addition, each Subsidiary
shall deliver to the Lenders such borrowing resolutions (which resolutions
shall include such recitations of consideration and other benefits derived by
the Subsidiary from its affiliation with the Borrower as the Lenders may
reasonably require), incumbency certificates, good standing certificates,
copies of articles of incorporation and bylaws, opinions of counsel and
additional information as the Lenders may reasonably request.
Section 6.15 Acquired Companies. If an acquisition has occurred
pursuant to Section 7.6, then the calculation of the financial covenants
computed under Section 6.13 also will take into account (i) the actual
results of operations of the Target for the relevant twelve (12) month period
and (ii) the balance sheet of the Target as of the end of the most recent
Fiscal Quarter or as of the Fiscal Year End, as the case may be, with
adjustments to the Target's balance sheet and operating statements that, in
the reasonable judgment of the Lenders, would have occurred if the
acquisition had occurred at the beginning of the testing period.
Section 6.16 Minimum Gross Revenues. Borrower itself (exclusive of
Subsidiaries) shall maintain Minimum Gross Revenues generated by contracts
for the delivery of goods and/or services in the ordinary course with third
parties other than Affiliates of Ninety Million Dollars ($90,000,000) for
each twelve (12) month period to be tested on a rolling twelve (12) month
basis as of the end of each Fiscal Quarter and as of Fiscal Year End.
Section 6.17 Stock of Subsidiaries. Borrower shall own one hundred
percent (100%) of the stock of all Subsidiaries.
Section 6.18 Articles and Bylaws. Borrower will notify Lenders of any
amendments to its articles of incorporation or bylaws within ten (10) days
after such amendment becomes effective.
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<PAGE>
ARTICLE 7
----------
NEGATIVE COVENANTS
-------------------
So long as any of the Lenders has any commitment to make Advances and
until payment in full of the Loan and Notes and full and complete payment and
performance of all other Obligations, the Borrower agrees that:
Section 7.1 No Guarantees. Other than Guarantees of a Subsidiary's
Indebtedness, the Borrower shall not guarantee the Indebtedness of any other
Person.
Section 7.2 Certain Transactions. The Borrower shall not enter into any
transaction with or lend any money to, any Affiliate or their relatives upon
terms less favorable to the Borrower than would be obtainable at the time in
comparable transactions of the Borrower in arms'-length dealings with Persons
other than Affiliates and shall immediately disclose in writing any of said
transactions to the Lenders. The foregoing shall not prohibit such
transactions which, in the aggregate, do not exceed a value of $250,000 and
shall not prohibit the making of loans by Borrower to a Subsidiary pursuant
to the Intercompany Loan Documents.
Section 7.3 Limitation on Sale of Properties; Liens. The Borrower (i)
shall not sell, assign, convey, exchange, lease or otherwise dispose of any
of its properties, rights, assets or business, whether now owned or hereafter
acquired, except in the ordinary course of its business and for a fair
consideration (except that the foregoing shall not apply to write offs or
write downs of goodwill), (ii) shall not pledge or cause or allow any Lien to
be created or permit the existence of any liens, encumbrances, or pledges (a)
on any Collateral and (b) except for Permitted Liens, on any other
properties, rights, assets, or business, including, without limitation, its
leasehold interests, to secure any obligations or otherwise.
Section 7.4 Name and Accounting Method. The Borrower shall not change its
name or chief executive office without the Borrower first giving the Lenders
thirty (30) days' advance written notice and in so doing Borrower shall
execute such additional documents such as UCC Financing Statements as are
requested by the Lenders, and shall not change its method of accounting
except as required by GAAP, or with the prior consent of the Lenders, which
consent will not be unreasonably withheld.
Section 7.5 Liquidation, Merger or Consolidation . Borrower will not (i)
dissolve or liquidate or (ii) become a party to any merger or consolidation
in which Borrower is not the surviving entity.
Section 7.6 Acquisitions.
(a) Borrower will not acquire by purchase, lease, exchange of
capital stock or otherwise substantially all of the assets or capital stock
of a business which is not in the same industry as Borrower and which is not
otherwise permitted under this Section 7.6.
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(b) With respect to an acquisition of substantially all the assets
or capital stock of a business which is in the same industry as Borrower (the
"Target") which, after giving pro forma effect to the acquisition will result
in the Funded Bank Debt being equal to or less than $25,000,000, such
acquisition shall only be permitted so long as no Defaults or Events of
Default have occurred and are continuing and so long as the Borrower has
delivered to the Lenders reasonable calculations which demonstrate that had
the acquisition of the Target occurred during the prior Fiscal Quarter or
during the three month period ended as of the Fiscal Year End (whichever is
the most recent), the Borrower would not have been in default under Section
6.13 (after giving effect to Section 6.15). The Borrower shall deliver such
calculations to the Lenders within a reasonable time prior to the closing of
the acquisition.
(c) An acquisition of a Target by the Borrower which, after giving
pro forma effect to the acquisition will result in, or close at a time when
the Borrower's Funded Bank Debt will be more than $25,000,000 in the
aggregate will be subject to the Lenders' review and approval, which will
include, without limitation, review and approval of the information noted in
Section 7.6(b) above, and any other information the Lenders may reasonably
request. For such an acquisition to be permitted, all of the Lenders must
agree in their sole and absolute discretion to permit it. Any Lender which
fails to respond with either an approval or disapproval to Borrower's request
for approval of an acquisition of a Target within ten (10) days of delivery
to the Lenders of all information reasonably requested by the Lenders will be
deemed to have consented to the acquisition.
Section 7.7 Indebtedness. The Borrower and its Subsidiaries, in the
aggregate, will not incur or suffer to exist any Indebtedness except for (i)
the Obligations and the Subsidiary guarantees thereof, (ii) unsecured
Indebtedness or Indebtedness secured by Permitted Liens which together in the
aggregate will not exceed $2,000,000, (iii) Indebtedness of a Target existing
at the time of its acquisition which is either unsecured or secured by assets
other than the Collateral, (iv) intercompany indebtedness pursuant to the
Intercompany Loan Documents, or (v) guarantees permitted under Section 7.1.
Section 7.8 Margin Securities. The Borrower shall not, directly or
indirectly, use any of the proceeds of the Loan for the purpose, whether
immediate, incidental or ultimate, of buying a "margin stock" or maintaining,
reducing or retiring any indebtedness originally incurred to purchase a stock
that is currently a "margin stock", or for any other purpose that might
constitute this transaction a "purpose credit", in each case within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or Regulation G of such Board, or otherwise take or permit to be
taken any action that would involve a violation of such Regulation U or
Regulation G or of Regulation X or of any other regulation of such Board.
Section 7.9 Remote Subsidiaries. To the extent Borrower has any
Subsidiaries, they shall be direct Subsidiaries of the Borrower, and the
Borrower's Subsidiaries shall not have Subsidiaries without the prior written
consent of the Lenders, which consent shall not be unreasonably withheld.
ARTICLE 8
---------
INDEMNIFICATION
---------------
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<PAGE>
Section 8.1 Indemnity by Borrower. The Borrower shall indemnify, save,
and hold harmless the Lenders and their directors, officers, agents,
attorneys, and employees (collectively, the "indemnitees") from and against:
(i) any and all claims, demands, actions, or causes of action that are
asserted against any indemnitee by any Person if the claim, demand, action,
or cause of action directly or indirectly relates to a claim, demand, action,
or cause of action that the Person asserts or may assert against the
Borrower, any Affiliate of the Borrower or any officer, director, partner or
shareholder of the Borrower or any such Affiliate, (ii) any and all claims,
demands, actions or causes of action that are asserted against any indemnitee
if the claim, demand, action or cause of action directly or indirectly
relates to the use of proceeds of the Loan, or the relationship of any of the
Borrower and Lenders or any of the Lenders under this Agreement or any
transaction contemplated pursuant to this Agreement; (iii) any administrative
or investigative proceeding by any Governmental Authority directly or
indirectly related to a claim, demand, action or cause of action described in
clauses (i) or (ii) above, and (iv) any and all liabilities, losses, costs,
or expenses (including attorneys' fees and disbursements) that any indemnitee
suffers or incurs as a result of any of the foregoing; provided, however,
that the Borrower shall have no obligation under this Section to any
indemnitee with respect to any of the foregoing arising out acts or omissions
on the part of the indemnitees which constitute the gross negligence or
willful misconduct of such indemnitee, or the breach by the Lenders of this
Agreement, or the transfer or disposition of any of the Notes by any of the
Lenders. If any claim, demand, action or cause of action is asserted against
any indemnitee, such indemnitee shall promptly notify Borrower, but the
failure to so promptly notify Borrower shall not affect Borrower's
obligations under this Section unless such failure materially prejudices
Borrower's right to participate in the contest of such claim, demand, action
or cause of action, as hereinafter provided. If requested by the Borrower in
writing and so long as no Default or Event of Default shall have occurred and
be continuing, such indemnitee shall (at the Borrower's expense) in good
faith contest the validity, applicability and amount of such claim, demand,
action or cause of action and shall permit Borrower to participate in such
contest. Any indemnitee that proposes to settle or compromise any claim or
proceeding for which the Borrower may be liable for payment of indemnity
hereunder shall give Borrower written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising
such claim or proceeding and shall obtain Borrower's concurrence thereto.
Each indemnitee is authorized to employ counsel in enforcing its rights
hereunder and in defending against any claim, demand, action, or cause of
action covered by this Section; provided, however, that each indemnitee shall
endeavor, but shall not be obligated, in connection with any matter covered
by this Section which also involves other indemnitees, to use reasonable
efforts to avoid unnecessary duplication of effort by counsel for all
indemnitees. Any obligation or liability of the Borrower to any indemnitee
under this Section shall survive the expiration or termination of this
Agreement and the repayment of the Obligations.
ARTICLE 9
----------
EVENTS OF DEFAULT
------------------
Section 9.1 Events of Default. An "Event of Default" shall exist if any
one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing and any Lender has notified Borrower
that it is declaring Borrower in default:
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<PAGE>
(a) Borrower shall fail to pay when due any principal of, or within
fifteen (15) days of when due, any interest on the Loan or Notes or any fee,
expense or other payment required hereunder or thereunder or under any of the
other Loan Documents;
(b) any representation or warranty made in this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to the Lenders pursuant hereto or in connection herewith or with the Loan shall
prove to be untrue or inaccurate in any material respect as of the date on which
such representation or warranty is made or deemed to be made;
(c) The Borrower shall fail to perform or comply with any of its
covenants or agreements contained herein, or in any of the other Loan Documents
or be in default under any of the other Loan Documents; provided that no Event
of Default shall exist hereunder with respect to any failure to perform or
noncompliance with Sections 6.2, 6.3, 6.7, 6.9, 6.10, 6.11, or 7.4(ii)(b) of
this Agreement unless such nonperformance or noncompliance is not cured within
thirty (30) days after the Borrower receives notice thereof from a Lender.
(d) Borrower shall fail to pay when due any Indebtedness of the
Borrower or of any Subsidiary (other than the Obligations) in excess of $250,000
in the aggregate except that failure to pay trade debt incurred in the ordinary
course of business shall not be deemed to create an Event of Default hereunder
so long as such failure to pay said Indebtedness is due to the Borrower's
contesting in good faith, and, in the judgment of the Lenders, for legitimate,
commercially reasonable reasons, the amounts due to said trade creditors; or
default shall occur in respect of any note, loan agreement or credit agreement
relating to any such Indebtedness and such default shall continue for more than
the period of grace, if any, specified therein; or any such Indebtedness shall
become due before its stated maturity by acceleration of the maturity thereof or
shall become due by its terms and shall not be promptly paid or extended;
(e) any Person executing or bound by any of the Loan Documents
asserts that any of the Loan Documents is not or has ceased in whole or in
part to be a legal, valid and binding agreement enforceable against such
person in accordance with the respective terms thereof, or any of the Loan
Documents shall cease to be in whole or in part a legal, valid and binding
agreement enforceable against any Person executing the same in accordance
with the respective terms thereof, or shall in any way be terminated or
become or be declared ineffective or inoperative or shall in any way
whatsoever cease to give or provide the respective remedies, powers or
privileges intended to be created thereby;
(f) Borrower shall (i) cease to be Solvent or (ii) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself or of all or a substantial part of its assets, (iii)
file a voluntary petition in bankruptcy, admit in writing that it is unable
to pay its debts as they become due or generally not pay its debts as they
become due, (iv) make a general assignment for the benefit of creditors, (v)
file a petition or answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, (vi)
file an answer admitting the material allegations of, or consent to, or
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<PAGE>
default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or (vii) take corporate action for
the purpose of effecting any of the foregoing;
(g) an involuntary petition or complaint shall be filed against the
Borrower seeking bankruptcy or reorganization of the Borrower or the appointment
of a receiver, custodian, trustee, intervenor or liquidator of the Borrower, or
all or substantially all of its assets, and such petition or complaint shall not
have been dismissed within sixty (60) days of the filing thereof; or an order,
order for relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a petition or complaint
seeking reorganization of the Borrower appointing a receiver, custodian,
trustee, intervenor or liquidator of the Borrower, or of all or substantially
all of the Borrower's assets;
(h) any final judgment(s) for the payment of money in excess of the
sum of $250,000 in the aggregate shall be rendered against the Borrower and
such judgment or judgments shall not be satisfied or discharged within ten
(10) days after the entry of said judgment;
(i) both the following events shall occur: (i) either (x)
proceedings shall have been instituted to terminate, or a notice of
termination shall have been filed with respect to, any Plan (other than a
Multi-Employer Pension Plan as that term is defined in Section 3(37) of
ERISA) by the Borrower, PBGC or any representative of any thereof, or any
such Plan shall be terminated, in each case under Section 4041 or 4042 of
ERISA, or (y) a Reportable Event, the occurrence of which would cause the
imposition of a lien under Section 4068 of ERISA, shall have occurred with
respect to any Plan (other than a Multi-Employer Pension Plan as that term is
defined in Section 3(37) of ERISA) and be continuing for a period of sixty
(60) days; and (ii) the sum of the estimated liability to PBGC under Section
4062 of ERISA and the currently payable obligations of the Borrower to fund
liabilities (in excess of amounts required to be paid to satisfy the minimum
funding standard of Section 412 of the Code) under the Plan or Plans subject
to such event shall exceed ten percent (10%) of Tangible Net Worth at such
time as reflected on Borrower's consolidated balance sheet;
(j) any or all of the following events shall occur with respect to
any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA) to which Borrower contributes or contributed on behalf of its employees:
(i) the Borrower incurs a withdrawal liability under Section 4201 of ERISA; or
(ii) any such plan is "in reorganization" as that term is defined in Section
4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A of ERISA
and the Lenders determine in good faith that the aggregate liability likely to
be incurred by the Borrower, as a result of all or any of the events specified
in Subsections (i), (ii) and (iii) above occurring, has or will have a Material
Adverse Effect;
(k) there shall occur any change in the condition (financial or
otherwise) of the Borrower or of a Subsidiary, which, in the sole discretion of
Lenders, has a Material Adverse Effect;
(l) the dissolution or termination of existence of the Borrower; or
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(m) any uninsured loss, theft, damage or destruction to or of any
material part of the Collateral.
(n) John H. Fain ceases to control the right to vote a number of
Voting Shares owned by himself, his immediate family or entities owned by them
which constitute at least twenty-five percent (25%) of the issued and
outstanding Voting Shares of Borrower.
(o) Borrower or any Subsidiary ceases to be duly authorized to perform
the Loan Documents.
(p) any encumbrance, or the making of any levy, seizure or attachment,
on or of the Collateral related to Indebtedness in excess of the sum of $250,000
in the aggregate which is not released or discharged within ten (10) days after
the occurrence thereof.
(q) any Subsidiary shall fail to perform or comply with any of its
covenants or agreements contained in any of the Loan Documents to which it is a
party or be in default under any of the Loan Documents.
Section 9.2 Remedies Upon Event of Default. If an Event of Default
shall have occurred and be continuing, then any one or more of the Lenders
may exercise any one or more of the following rights and remedies, and any
other remedies provided in any of the Loan Documents or available under
applicable law, as any of the Lenders, each in its sole discretion, may deem
necessary or appropriate: (i) terminate any or all of the Lenders'
Commitments hereunder, (ii) declare the principal of, and all interest then
accrued on any or all of the Loan and Notes and any other liabilities
hereunder to be forthwith due and payable, whereupon the same shall forthwith
become due and payable without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other notice
of any kind, all of which Borrower hereby expressly waives, anything
contained herein or in the Notes to the contrary notwithstanding, (iii)
reduce any claim to judgment, and/or (iv) without notice of default or
demand, pursue and enforce any of the Lenders' rights and remedies under the
Collateral Documents and other Loan Documents, or otherwise provided under or
pursuant to any applicable law or agreement; provided, however, that if any
Event of Default specified in Sections 9.1(f) and 9.1(g) shall occur, the
principal of, and all interest on, the Notes and other liabilities hereunder
shall thereupon become due and payable concurrently therewith, and the
Lenders' obligations to lend shall immediately terminate hereunder, without
any further action by the Lenders and without presentment, demand, protest,
notice of default, notice of acceleration or of intention to accelerate or
other notice of any kind, all of which the Borrower hereby expressly waives.
All amounts payable by the Borrower at any time hereunder and its Notes to
each Lender shall be separate and independent debts, and each Lender shall,
subject to the provisions of the next sentence, be entitled to protect and
enforce its rights arising out of this Agreement and its Notes, and, subject
to the provisions of the next sentence, it shall not be necessary for any
other Lender to consent to, or be joined as an additional party in, any
proceedings for such purposes. Each Lender agrees that no Lender shall have
any right individually to realize upon the security granted by any Collateral
Document, it being understood and agreed that such rights and remedies may be
executed by the Lenders acting jointly upon the terms of such Loan Documents
and this Agreement.
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Section 9.3 Notices of Default. The Lenders shall give notice to
Borrower under any provision of Section 9.1 requiring notice as a
pre-condition to maturity of an Event of Default. Promptly after becoming
aware of any Default or Event of Default, or the likelihood of any violation
of or noncompliance with any provision of this Agreement or any of the other
Loan Documents by the Borrower, each of the Lenders shall promptly notify
each of the other Lenders thereof.
Section 9.4 Performance by Lenders. Should the Borrower or any
Subsidiary fail to perform any covenant, duty or agreement contained herein
or in any of the Loan Documents, the Lenders may perform or attempt to
perform such covenant, duty or agreement on its behalf. In such event,
Borrower so requested shall, at the request of any of the Lenders, promptly
pay any amount reasonably expended by such Lender in such performance or
attempted performance, to such Lender at such Lender's principal office noted
in Section 10.6, together with interest thereon at the lesser of the Default
Rate or the Maximum Rate, from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that the Lenders
assume no liability or responsibility for the performance of any duties of
the Borrower or of any Subsidiary hereunder or under any of the Loan
Documents or other control over the management and affairs of the Borrower.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Strict Compliance. If any action or failure to act by the
Borrower violates any covenant or obligation contained herein, then such
violation shall not be excused by the fact that such action or failure to act
would otherwise be required or permitted by any covenant (or exception to any
covenant) other than the covenant violated.
Section 10.2 Modification. All waivers of any provision of any Loan
Document, or consents to departures by the Borrower or any Subsidiary therefrom,
shall be effective only if the same shall be in writing executed by all of the
Lenders, and then shall be effective only in the specific instance and for the
purpose for which given.
Section 10.3 Accounting Terms and Reports. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
GAAP consistently applied on the basis used by the Borrower in prior years. All
financial reports furnished by the Borrower to the Lenders pursuant to this
Agreement shall be prepared in such form and such detail as shall be
satisfactory to the Lenders, shall be prepared on the same basis as those
prepared by the Borrower in prior years (subject to the qualification set forth
in the first sentence of this Section 10.3), and shall be based upon the same
financial reports as those furnished to the Borrower's officers and directors.
All financial projections furnished by the Borrower to the Lenders pursuant to
this Agreement shall be prepared on the same basis and presented in the same
form (or such other form as the Lenders may approve) as the financial
projections previously furnished by the Borrower to the Lenders (subject to the
qualification set forth in the first sentence of this Section 10.3).
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Section 10.4 Waiver. No failure to exercise, and no delay in exercising, on
the part of the Lenders, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of the Lenders
hereunder and under the other Loan Documents shall be in addition to all other
rights provided by law. No modification or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor consent to departure
therefrom, shall be effective unless in writing and no such consent or waiver
shall extend beyond the particular case and purpose involved. No notice or
demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
Section 10.5 Payment of Expenses. Borrower agrees to pay all costs and
expenses of the Lenders (including, without limitation, the reasonable
attorneys' fees of each of the Lenders' legal counsel) incurred by the Lenders
in connection with the preservation and enforcement of their rights under this
Agreement, the Notes, and/or the other Loan Documents, and all reasonable costs
and expenses of the Lenders (including without limitation the reasonable fees
and expenses of their legal counsel) in connection with the negotiation,
preparation, execution and delivery of this Agreement, the Notes, and the other
Loan Documents and any and all amendments, modifications and supplements thereof
or thereto. The Lenders agree that the Borrower's costs for Lenders' counsel in
connection with the preparation of the Intercompany Loan Documents, the
Guaranty, the Security Agreement and the UCC-1 Financing Statements to be
executed by a Subsidiary shall not exceed $500.
Section 10.6 Notices. Except for telephonic notices permitted herein, any
notices or other communications required or permitted to be given by this
Agreement or any other documents and instruments referred to herein must be (i)
given in writing and personally delivered or mailed by prepaid certified or
registered mail, or (ii) made by facsimile delivered or transmitted, to the
party to whom such notice of communication is directed, to the address of such
party as follows:
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(a) Borrower:
Metro Information Services, Inc.
Reflections II
Third Floor, 200 Golden Oak Court
Virginia Beach, Virginia 23452
Attention: Mr. John H. Fain
Facsimile No. 757-306-0251
with a copy to:
Stephen W. Burke, Esq.
Clark & Stant, P.C.
One Columbus Center
Virginia Beach, Virginia 23462
Facsimile No. 757-473-0395
(c) Lenders:
Crestar Bank
P.O. Box 2600
Five Main Plaza East
Norfolk, VA 23501-2600
Attention: Joel S. Rhew
Facsimile No. 757-624-5457
NationsBank, N.A.
Commercial Banking
One Commercial Place
Third Floor
Norfolk, VA 23510-2103
Attention: Nancy A. Asplen
Facsimile No. 757-441-8237
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Signet Bank
Signet Bank Building
Eighth Floor
500 East Plume Street
Norfolk, VA 23510
Attention: John P. Matson
Facsimile No. 757-640-4291
Any notice to be mailed or personally delivered may be mailed or delivered
to the principal offices of the party to whom such notice is addressed. Any such
notice or other communication shall be deemed to have been given (whether
actually received or not) on the day it is mailed or personally delivered as
aforesaid or, if transmitted by facsimile, , on the day that such notice is
transmitted as aforesaid; provided, however, that any telephonic or other notice
received by the Lenders after 11 a.m. (Norfolk, Virginia time) on any day from
Borrower with respect to a Notice of Borrowing shall be deemed for the purposes
of such Section to have been given by Borrower on the next succeeding Business
Day. Any party may change its address for purposes of this Agreement by giving
notice of such change to the other parties pursuant to this Section 10.6.
Section 10.7 Governing Law. This Agreement has been prepared, is being
executed and delivered, and is intended to be performed in the Commonwealth of
Virginia, and the substantive laws of such state and the applicable federal laws
of the United States of America shall govern the validity, construction,
enforcement and interpretation of this Agreement and all of the other Loan
Documents.
Section 10.8 Choice of Forum; Consent to Service of Process and
Jurisdiction. Any suit, action or proceeding against the Borrower, or any Lender
with respect to this Agreement, the Notes or any of the other Loan Documents, or
any judgment entered by any court in respect thereof, may be brought in the
courts of the Commonwealth of Virginia, or in the United States courts located
in the Commonwealth of Virginia as the Lenders or the Borrower, as the case may
be, in their sole discretion may elect, and the Borrower and each Lender hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. THE BORROWER AND EACH LENDER WAIVES THEIR RIGHT
TO TRIAL BY JURY. The Borrower hereby further agrees that service of all writs,
process and summonses in any such suit, action or proceeding brought in the
Commonwealth of Virginia may be brought upon the Borrower's Process Agent. The
Borrower and each Lender hereby irrevocably waives any objections which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any of the Notes brought in the
courts located in the Commonwealth of Virginia, City of Virginia Beach, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient forum.
Section 10.9 Intentionally Omitted.
Section 10.10 Invalid Provisions. If any provision of any Loan Document is
held to be illegal, invalid or unenforceable under present or future laws during
the term of this Agreement,
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such provision shall be fully severable; such Loan Document shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of such Loan Document; and the remaining
provisions of such Loan Document shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or
by its severance from such Loan Document. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision shall be added as part of such
Loan Document a provision mutually agreeable to the Borrower and Lenders as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable. The effective date of the
added provision shall be the date upon which the prior provision was held to
be illegal, invalid or unenforceable.
Section 10.11 Maximum Interest Rate. Regardless of any provision contained
in any of the Loan Documents, the Lenders shall never be entitled to receive,
collect or apply as interest on the Notes any amount in excess of interest
calculated at the Maximum Rate, and, in the event that the Lenders ever receive,
collect or apply as interest any such excess, the amount which would be
excessive interest shall be deemed to be a partial prepayment of principal and
treated hereunder as such; and, if the principal amount of the Obligation is
paid in full, any remaining excess shall forthwith be paid to Borrower.
Section 10.12 Nonliability of Lenders. The relationship between the Borrower
and the Lenders is, and shall at all times remain, solely that of borrower and
lender. Lenders neither undertake nor assume any responsibility or duty to the
Borrower to review, inspect, supervise, pass judgment upon, or inform them of
any matter in connection with any phase of their business, operations, or
condition, financial or otherwise. The Borrower shall rely entirely upon its own
judgment with respect to such matters, and any review, inspection, supervision,
exercise of judgment, or information supplied to the Borrower by the Lenders in
connection with any such matter is for the protection of the Lenders, and
neither the Borrower nor any third party is entitled to rely thereon.
Section 10.13 Offset. The Borrower hereby grants shall grant to the Lenders
the right of offset, to secure repayment of the Notes and other Obligations,
upon any and all moneys, securities or other property of the Borrower and the
proceeds therefrom, now or hereafter held or received by or in transit to any of
the Lenders, from or for the account of Borrower, whether for safe keeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of the Borrower, and any and all
claims of the Borrower against any of the Lenders at any time existing.
Section 10.14 Sharing Set Off. Each Lender agrees that if it shall, by
exercising any right of set-off, counterclaim or otherwise, receive payment of a
proportion of the aggregate amount of principal and interest due with respect to
the Loan which is greater than the proportion received by any other Lender in
respect to the aggregate amount of principal and interest due it with respect to
the Loan, the Lenders receiving such proportionately greater payment shall
purchase such participations in the Loans held by the other Lender, and such
other adjustments shall be made, as may be required so that all such payments
shall be shared by the Lenders pro rata in proportion to the amounts of their
principal and interest due to them with respect to the Loans at the time such
payment is received; provided that nothing in this
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Section shall impair the right of any Lender to exercise any right of set-off
or counterclaim it may have and to apply the amount subject to such exercise
for the payment of indebtedness of the Borrower other than the Obligations.
Section 10.15 Binding Effect; Successors and Assigns. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lenders
and any future Subsidiary neither their respective successors, assigns and legal
representatives; provided, however, that the Borrower may not, without the prior
written consent of the Lenders, assign any rights, powers, duties or obligations
thereunder. In furtherance of the foregoing, each Lender shall be entitled at
any time to grant participations and/or assign, sell, or otherwise transfer or
hold any or all of its rights and/or obligations under this Agreement, the Loan
Documents, or any Loan or Note to any Person. No such participation, assignment,
sale, or other transfer shall relieve any Lender from its obligations hereunder
and the Borrower need deal solely with the Lenders with respect to waivers,
modifications and consents to this Agreement, the Loan Documents or the Notes.
Upon a participation, assignment, sale, or transfer in accordance with the
foregoing, the Borrower, at Lender's reasonable expense, shall execute such
documents and do such acts as any Lender reasonably requests to effect such
assignment, sale or transfer. Any Lender may furnish any information concerning
the Borrower in its possession from time to time to prospective participants,
assignees or transferees.
Section 10.16 Entirety. The Loan Documents embody the entire agreement
between the parties and supersede all prior agreements and understandings, if
any, relating to the subject matter hereof and thereof.
Section 10.17 Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
Section 10.18 Survival. All representations and warranties made by the
Borrower herein shall survive delivery of the Notes and other Loan Documents,
and actions of the Lenders thereunder.
Section 10.19 No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this Agreement
be construed to make or render the Lenders liable to any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by the
Borrower, or for debts or claims accruing to any such persons against the
Borrower. Notwithstanding anything contained herein or in the Notes, or in any
other Loan Document, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Agreement or any other Loan
Document, nothing shall be construed as creating any right, claim or cause of
action against the Lenders, or any of the Lenders' officers, directors, agents
or employees, in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by the Borrower, nor to any other
person or entity other than the Borrower.
Section 10.20 Several Obligations. The obligations and liabilities of the
Lenders hereunder are several. Neither the failure of any Lender to carry out
its obligations hereunder nor of this Agreement to be duly authorized, executed
and delivered by any Lender shall relieve
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any other Lender of its obligations hereunder (or affect the rights hereunder
of such other Lender). No Lender shall be responsible for the obligations of,
liabilities of, or any action taken or omitted by, any other Lender hereunder.
Section 10.21 Increased Costs. If at any time while the Commitments are in
effect, any Lender shall have determined (which determination shall, absent
manifest error, be final and conclusive and binding on all parties hereto) that,
as a result of any change in any applicable law or government rule, regulation
or order (or any interpretation thereof and including the enactment of any law
or governmental rule, regulation or order) or compliance by such Lenders with
any request or directive (whether or not having the force of law and including a
request or requirement which affects the manner in which the Lender allocates
capital resources to any of its commitments, including its commitment hereunder)
of any government authority, agency, or instrumentality having jurisdiction, the
cost to such lender of maintaining its Commitment is increased, then such Lender
shall promptly notify Borrower thereof and in each such case upon demand from
time to time by such Lender (furnished to Borrower), Borrower shall promptly pay
to such Lender such additional amount or amounts as shall compensate the Lender
for such increased costs, together with interest on each such amount from the
date demanded until payment in full thereof at the Prime Rate; provided that
this Section 10.20 shall not cover or be applicable to costs arising by virtue
of an increase in income tax rates. A certificate of the affected Lender to
Borrower as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on Borrower. In determining such amount or amounts, the
Lender may use any method of averaging and attribution as it (in its sole and
absolute discretion) shall deem applicable.
Section 10.22 Multiple Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 10.23 Seal. This Agreement is executed and delivered upon seal, and
the designation "[SEAL]" on this Agreement shall be as effective as the affixing
of a seal physically thereto.
Section 10.24 Conflicts Among Loan Documents. If the provisions of any other
Loan Document conflict with any provision of this Credit Agreement, the
provision of this Credit Agreement will supercede and control.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
BORROWER:
METRO INFORMATION SERVICES, INC.
[SEAL] By: /s/ Robert J. Eveleigh
-----------------------------
Title: Vice President and CFO
Address: 200 Golden Oak Court
Virginia Beach, VA 23452
LENDERS:
NATIONSBANK, N.A.
[SEAL] By: /s/ Nancy Asplen
-----------------------------
Title: Vice President
Address: One Commercial place
Norfolk, VA 23510
Attn: Nancy A. Asplen
SIGNET BANK
[SEAL] By: /s/ John P. Matson
-----------------------------
Title: Executive Vice President
Address: Signet Bank Building
8th Floor
500 East Plume Street
Norfolk, VA 23510
Attn: John P. Matson
CRESTAR BANK
[SEAL] By: /s/ Joel Rhew
-----------------------------
Title: Senior Vice President
Address: 5 Main Plaza East
Norfolk, VA 23510
Attn: Joel S. Rhew
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EXHIBITS
A. Form of Note
B. Form of Security Agreement
C. Form of Signet Term Note
D. Form of Subsidiary Guaranty
E. Form of Subsidiary Security Agreement
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EXHIBIT A
SEE FORM NOTE ATTACHED
45
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EXHIBIT B
SEE FORM SECURITY AGREEMENT ATTACHED
46
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EXHIBIT C
SEE FORM OF SIGNET TERM NOTE ATTACHED
47
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EXHIBIT D
SEE FORM OF SUBSIDIARY GUARANTEE ATTACHED
48
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EXHIBIT E
SEE FORM SUBSIDIARY SECURITY AGREEMENT ATTACHED
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SCHEDULE 1.1
GRID PERFORMANCE MODEL ("GPM")
FUNDED DEBT APPLICABLE SPREAD
TO EARNINGS RATIO
COMPONENT
- --------------------------------------------------------------------------
>2.50/3.0 90 bps
>1.50 / 2.50 70 bps
>0.50 / 1.50 50 bps
/ 0.50 35 bps
In the event the Funded Debt to EBITDA Ratio is equal to or greater than
3.0, the Default Rate shall apply.
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SCHEDULE 2.2
UNUSED COMMITTMENT FEES
FUNDED DEBT TO
EBITDA RATIO SIGNET CRESTAR NATIONSBANK
------------------ ----------- ----------- ---------------
> 2.5 .3125 .3125 .25
1.5--2.5 .2500 .2500 .18725
.5--1.5 .1875 .1875 .125
.5 .1875 .1250 .125
The "Unused Commitment" amount for purposes of determining the Unused
Commitment fee for any Fiscal Quarter shall be equal to the amount of each
Lender's total Commitment, minus the average daily amounts of the Loan
actually outstanding during such Fiscal Quarter just ended or calendar month,
as the case may be.
51
