<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
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 November 1, 1999, the registrant had issued and outstanding
14,971,250 shares of Common Stock, $.01 par value.
1
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METRO INFORMATION SERVICES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. Consolidated Statements of Income for the
Three Months and Nine Months Ended September 30, 1998 and 1999 (unaudited) 3
Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity for the
Nine Months Ended September 30, 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 24
PART II. OTHER INFORMATION 25
SIGNATURES 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------------- ----------------------------
1998 1999 1998 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $56,592,510 $81,253,123 $156,092,988 $232,035,234
Cost of revenue 39,296,852 57,232,789 108,076,070 164,021,246
----------- ------------ ------------ ------------
Gross profit 17,295,658 24,020,334 48,016,918 68,013,988
----------- ------------ ------------ ------------
Selling, general and administrative expenses 10,283,462 15,383,816 29,792,612 41,996,067
Depreciation expense 425,520 730,249 1,169,819 1,835,694
Amortization expense (Note 3) 48,234 840,115 138,112 1,814,706
----------- ------------ ------------ ------------
Total operating expenses 10,757,216 16,954,180 31,100,543 45,646,467
----------- ------------ ------------ ------------
Operating income 6,538,442 7,066,154 16,916,375 22,367,521
----------- ------------ ------------ ------------
Interest income 227,774 31,126 622,748 106,058
Interest expense (14,896) (865,177) (25,453) (1,714,900)
----------- ------------ ------------ ------------
Net interest income (expense) 212,878 (834,051) 597,295 (1,608,842)
----------- ------------ ------------ ------------
Income before income taxes 6,751,320 6,232,103 17,513,670 20,758,679
Income taxes 2,700,528 2,524,002 7,005,468 8,407,265
----------- ------------ ------------ ------------
Net income $ 4,050,792 $ 3,708,101 $10,508,202 $12,351,414
=========== ============ ============ ============
Net income per share:
Basic $ 0.27 $ 0.25 $ 0.71 $ 0.83
=========== ============ ============ ============
Diluted $ 0.27 $ 0.25 $ 0.70 $ 0.82
=========== ============ ============ ============
Weighted average number of shares of common stock
and potential dilutive securities outstanding:
Basic 14,851,919 14,940,792 14,838,618 14,914,106
=========== ============ ============ ============
Diluted 15,031,537 14,953,416 15,012,930 14,988,045
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $18,495,580 $ 4,007,347
Accounts receivable, net (Note 5) 35,994,170 57,712,785
Prepaid expenses 457,578 4,487,303
Deferred income taxes 851,653 753,991
----------- ------------
Total current assets 55,798,981 66,961,426
Property and equipment, net 9,655,638 11,868,270
Goodwill, net (Notes 3 and 4) 15,410,128 95,364,663
Other assets, net (Notes 3 and 4) 134,951 4,767,591
----------- ------------
Total assets $80,999,698 $178,961,950
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 2) $ 8,119,928 $ 4,447,395
Accrued compensation and benefits 10,902,482 20,118,497
----------- ------------
Total current liabilities 19,022,410 24,565,892
Line of credit facilities (Note 5) -- 78,314,784
Deferred income taxes 732,195 1,304,629
----------- ------------
Total liabilities 19,754,605 104,185,305
----------- ------------
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
14,884,160 shares at December 31, 1998,
14,971,250 shares at September 30, 1999 148,842 149,713
Paid in capital 37,585,480 38,764,747
Retained earnings 23,510,771 35,862,185
----------- ------------
Total shareholder's equity 61,245,093 74,776,645
----------- ------------
Total liabilities and shareholders' equity $80,999,698 $178,961,950
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Shareholders' Equity
-----------------------------------------------------------------------
Common Stock
----------------------- Paid in Retained
Shares Amount Capital Earnings Total
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1998 14,884,160 $148,842 $37,585,480 $23,510,771 $61,245,093
Net proceeds from issuance of
80,000 shares of common stock
under Employee Stock Purchase Plan 80,000 800 1,065,698 -- 1,066,498
Net proceeds from issuance of
7,090 shares of common stock under
Employee Incentive Stock Option Plan 7,090 71 113,569 -- 113,640
Net income -- -- -- 12,351,414 12,351,414
---------- ---------- ----------- ----------- -----------
BALANCE AS OF SEPTEMBER 30, 1999 14,971,250 $149,713 $38,764,747 $35,862,185 $74,776,645
========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months
ended September 30,
----------------------------------
1998 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,508,202 $ 12,351,414
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - cost of revenue 34,998 33,857
Depreciation and amortization - selling, general &
administrative expenses 1,307,931 3,650,400
Net loss on sale of property and equipment 19,120 18,156
Deferred income taxes 291,984 670,096
Changes in operating assets and liabilities increasing
(decreasing) cash, net of the effects of acquisitions:
Accounts payable from restricted cash (Note 2) 1,688,000 (1,186,020)
Accounts receivable (11,965,682) (5,930,302)
Prepaid expenses (37,808) (3,906,816)
Other assets, net (203,678) (189,531)
Accounts payable 1,389,067 (5,245,831)
Accrued compensation and benefits 3,529,310 6,195,391
------------ -------------
Net cash provided by operating activities 6,561,444 6,460,814
------------ -------------
Cash flows from investing activities:
Acquisition of property and equipment (2,876,755) (2,431,706)
Acquisition of computer software (1,747,672) (856,652)
Acquisition of businesses (1,647,999) (97,159,838)
Proceeds from sale of property and equipment 3,524 4,227
------------ -------------
Net cash used in investing activities (6,268,902) (100,443,969)
------------ -------------
Cash flows from financing activities:
Net borrowings under line of credit - 78,314,784
Proceeds from issuance of shares under Employee
Stock Purchase Plan 927,931 1,066,498
Proceeds from issuance of shares under Employee
Incentive Stock Option Plan 172,160 113,640
------------ -------------
Net cash provided by financing activities 1,100,091 79,494,922
------------ -------------
Net increase (decrease) in cash and cash equivalents 1,392,633 (14,488,233)
Cash and cash equivalents at beginning of period 22,028,594 18,495,580
------------ -------------
Cash and cash equivalents at end of period $ 23,421,227 $ 4,007,347
------------ -------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25,453 $ 1,714,900
------------ -------------
------------ -------------
Cash paid for income taxes $ 6,085,332 $ 9,722,718
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The information presented for September 30, 1998 and 1999, and for the
three-month and nine-month periods then ended, is unaudited, but, in the opinion
of the Company's management, the accompanying unaudited consolidated 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 September 30, 1999 and the results of its
operations and its cash flows for the three-month and nine-month periods ended
September 30, 1998 and 1999. The consolidated 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 consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1998, which were included
as part of the Company's Annual Report on Form 10-K (File No. 000-22035).
Certain 1998 amounts have been reclassified for comparability with the 1999
financial statement presentation.
Results for the interim periods presented are not necessarily
indicative of results that may be expected for the entire year.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated. The subsidiaries were formed in conjunction
with the acquisitions discussed in Note 3. Results of operations of the Company
include the results of operations of the subsidiaries since the acquisitions as
follows:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY D/B/A DATE OF ACQUISITION
- ------------------ ----- -------------------
<S> <C> <C>
Metro Information Services of Northern California, Inc. The Avery Group December 2, 1998
Metro Information Services of Los Angeles, Inc. D.P. Specialists January 1, 1999
Metro Information Services of Orange County, Inc. The Professionals February 1, 1999
Krystal Solutions
Metro Information Services of Pennsylvania, Inc. Solution Technologies March 1, 1999
Metro Information Services - ATS, Inc. Acuity Technology Services August 13, 1999
</TABLE>
2. Restricted Cash
Metro has agreed to act as payment agent for a client on an information
technology project. As of September 30, 1999, the Company held $78,504 of
restricted cash for this client. This amount is included in cash and cash
equivalents and accounts payable presented in the consolidated balance sheets.
Client approved invoices will be paid out of the restricted cash held and Metro
will remit any remaining restricted cash to the client at the end of the
project. Metro is not obligated to pay invoices that exceed the amount of the
restricted cash held.
3. Acquisitions
On December 2, 1998, the Company completed the acquisition of The Avery
Group ("Avery"), an information technology services company with one office in
the Palo Alto/Silicon Valley area of California. The purchase price was
approximately $11,837,000, of which $11 million was paid at closing, $754,000
was paid in February 1999 based on a net worth adjustment calculation performed
in February 1999 and direct costs of the acquisition were approximately $83,000.
7
<PAGE>
On January 1, 1999, the Company acquired D.P. Specialists, Inc. and
D.P. Specialists Learning Center, LLC ("DPS" collectively), information
technology consulting services and personnel staffing businesses located in El
Segundo, California and Woodbridge, New Jersey for a purchase price of
approximately $10,070,000, including direct costs of the acquisition of
approximately $90,000. The company has made a preliminary allocation of a
portion of the purchase price to net tangible and intangible assets acquired
based on their estimated fair values at the date of acquisition, with the excess
purchase price over the fair value assigned to goodwill. The following
summarizes a preliminary allocation of the purchase price based on January 1,
1999 asset and liability balances:
<TABLE>
<S> <C>
Assets purchased:
Accounts receivable $ 1,880,710
Prepaid expenses 6,622
Property and equipment 303,771
Goodwill 8,767,445
Other intangible assets 249,806
Other assets 50,246
-----------
Total assets purchased $11,258,600
-----------
Liabilities assumed:
Note payable $ 514,977
Accounts payable 132,491
Accrued compensation and benefits 541,220
-----------
Total liabilities assumed 1,188,688
-----------
Purchase price $10,069,912
===========
</TABLE>
On February 1, 1999, the Company acquired The Professionals - Computer
Management & Consulting, Inc. ("PCM") and Krystal Solutions, Inc. ("KSC"), both
of which are information technology consulting services and personnel staffing
businesses located in Irvine, California and San Bruno, California for a
purchase price of approximately $18,511,000, of which $17,976,000 was paid at
closing, $352,000 was paid in April 1999 based on a net worth adjustment
calculation performed in April 1999 and approximately $183,000 represents direct
costs related to the acquisition. The company has made a preliminary allocation
of a portion of the purchase price to net tangible and intangible assets
acquired based on their estimated fair values at the date of acquisition, with
the excess purchase price over the fair value assigned to goodwill. The
following summarizes a preliminary allocation of the purchase price based on
February 1, 1999 asset and liability balances:
Assets purchased:
Accounts receivable $ 2,968,910
Prepaid expenses 6,562
Property and equipment 22,291
Goodwill 15,374,541
Other intangible assets 284,130
Other assets 8,586
-----------
Total assets purchased $18,665,020
-----------
Liabilities assumed:
Accounts payable $ 144,069
Accrued compensation and benefits 10,304
-----------
Total liabilities assumed 154,373
-----------
Purchase price $18,510,647
===========
8
<PAGE>
On March 1, 1999, the Company acquired Solution Technologies, Inc.
("STI"), an information technology consulting services and personnel staffing
business located in Camp Hill (Harrisburg), Altoona and Pittsburgh,
Pennsylvania, Charlotte, North Carolina, Hagerstown, Maryland and Kansas City,
Missouri, for a purchase price of approximately $28,398,000, of which
$24,046,000 was paid at closing, $3,654,000 was paid in March 1999 based on a
consultant count adjustment on March 8, 1999, $591,000 was paid in April 1999
based on a net worth adjustment calculation performed in April 1999 and
approximately $107,000 represents direct costs of the acquisition. The company
has made a preliminary allocation of a portion of the purchase price to net
tangible and intangible assets acquired based on their estimated fair values at
the date of acquisition, with the excess purchase price over the fair value
assigned to goodwill. The following summarizes the preliminary allocation of the
purchase price based on March 1, 1999 asset and liability balances:
<TABLE>
<S> <C>
Assets purchased:
Accounts receivable $ 3,699,259
Prepaid expenses 40,406
Property and equipment 217,107
Goodwill 23,958,144
Other intangible assets 1,348,970
Other assets 17,948
-----------
Total assets purchased $29,281,834
-----------
Liabilities assumed:
Accounts payable $ 39,869
Accrued compensation and benefits 844,013
-----------
Total liabilities assumed 883,882
-----------
Purchase price $28,397,952
===========
</TABLE>
On August 13, 1999, the Company acquired all of the membership and
equity interests of Acuity Technology Services, LLC and Acuity Technology
Services of Dallas, LLC ("ATS" collectively), both of which are information
technology consulting services and personnel staffing businesses located in
Washington D.C., Baltimore, Maryland and Dallas, Texas for a purchase price of
approximately $40,183,000, of which $39,425,000 was paid at closing, $666,000 is
expected to be paid in November 1999 and approximately $92,000 represents direct
costs related to the acquisition. The company has made a preliminary allocation
of a portion of the purchase price to net tangible and intangible assets
acquired based on their estimated fair values at the date of acquisition, with
the excess purchase price over the fair value assigned to goodwill. The
following summarizes the preliminary allocation of the purchase price based on
August 13, 1999 asset and liability balances:
<TABLE>
<S> <C>
Assets purchased:
Accounts receivable $ 7,239,434
Prepaid expenses 69,319
Property and equipment 263,161
Goodwill 33,508,774
Other intangible assets 2,583,587
Other assets 72,058
-----------
Total assets purchased $43,736,333
-----------
Liabilities assumed:
Accounts payable $ 1,927,912
Accrued compensation and benefits 1,625,087
-----------
Total liabilities assumed 3,552,999
-----------
Purchase price $40,183,334
===========
</TABLE>
9
<PAGE>
For each of these acquisitions, if the acquired company achieves
certain predetermined financial results during a twelve month measurement
period, the Company will make an additional payment which will be recorded as
additional goodwill. The measurement periods for the acquired companies end as
follows:
<TABLE>
<CAPTION>
ACQUIRED COMPANY: TWELVE MONTHS ENDED:
- ----------------- --------------------
<S> <C>
The Avery Group December 31, 1999
D.P. Specialists, Inc. and D.P. Specialists Learning Center, LLC December 31, 1999
The Professionals - Computer Management & Consulting, Inc. and Krystal Solutions, Inc. January 31, 2000
Solution Technologies, Inc. February 29, 2000
Acuity Technology Services, LLC and Acuity Technology Services of Dallas, LLC August 31, 2000
</TABLE>
Each of these acquisitions is accounted for as a purchase. The acquisitions were
financed partially with proceeds remaining from the Company's initial public
offering of common stock on January 29, 1997. The remainder of the purchase
price was financed with the Company's cash on hand and borrowings from the
Company's line of credit. In connection with these acquisitions, the Company has
recorded approximately $91,468,000 of goodwill and approximately $5,941,000 of
other intangible assets which are being amortized on a straight-line basis over
30 years and 3 to 7 years, respectively. These amounts are subject to further
adjustment subject to completion of appraisals and additional payments noted
above.
Unaudited pro forma consolidated results of operations for the nine
months ended September 30, 1998 and 1999 would have been as follows had the
acquisitions of Avery, DPS, PCM, KSC, STI and ATS occurred as of the beginning
of the period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SETEMBER 30,
--------------------------
1998 1999
--------- ---------
(In thousands, except per share data)
<S> <C> <C>
Revenue .............................................. $232,191 $263,382
Net income ........................................... $ 11,451 $ 11,805
Net income per share - basic ......................... $ 0.77 $ 0.79
Net income per share - diluted ....................... $ 0.76 $ 0.79
Weighted average number of shares of common
stock and potential dilutive securities outstanding:
Basic ........................................ 14,839 14,914
Diluted ...................................... 15,038 14,988
</TABLE>
4. Goodwill and Other Intangible Assets
Goodwill and other intangible assets represent the excess of cost over
fair value of net tangible assets acquired through acquisitions and are
amortized on a straight-line basis over their estimated useful lives, generally
30 years and 3 to 7 years, respectively. Management periodically assesses
whether there has been a permanent impairment in the value of goodwill and other
intangible assets. The amount of such impairment is determined by comparing
anticipated undiscounted future cash flows to the carrying value of the related
goodwill and other intangible assets.
5. Credit Facilities
The Company maintains credit facilities of $125,000,000. The
facilities, which are provided in equal amounts of $35,000,000 by three banks
and $20,000,000 by a fourth bank, mature on June 20, 2004 and may be
10
<PAGE>
extended each year for an additional year. Until June 2004, interest, but no
principal, 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 other two have only LIBOR based interest rates. All of the facilities
have interest rates that increase as the balance outstanding under the
facilities increases. At September 30, 1999, $78,314,784 was outstanding under
the facilities. No amount was outstanding at December 31, 1998. The Company has
selected a 30-day LIBOR based rate and the rate on borrowings was 5.9% as of
September 30, 1999. 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, including one
requiring the maintenance of a certain tangible net worth ratio, which limits
the amount of dividends that can be paid. The covenants also impose limits on
incurring additional debt and require a certain debt service coverage ratio to
be maintained. Amounts advanced under the facilities can be used for
acquisitions and general working capital purposes.
6. Net Income Per Share
The following reconciles the numerators and denominators of the basic
and diluted net income per share computations of net income:
<TABLE>
<CAPTION>
SHARES
NET INCOME OUTSTANDING NET INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 (NUMERATOR) (DENOMINATOR) PER SHARE
- --------------------------------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Basic Net Income Per Share .............. $4,050,792 14,851,919 $ 0.27
========
Effect of Dilutive Securities - Incentive
Stock Options deemed outstanding ...... -- 179,618
---------- ----------
Diluted Net Income Per Share ............ $4,050,792 15,031,537 $ 0.27
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SHARES
NET INCOME OUTSTANDING NET INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (NUMERATOR) (DENOMINATOR) PER SHARE
- --------------------------------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Basic Net Income Per Share .............. $3,708,101 14,940,792 $ 0.25
========
Effect of Dilutive Securities - Incentive
Stock Options deemed outstanding ...... -- 12,624
---------- ----------
Diluted Net Income Per Share ............ $3,708,101 14,953,416 $ 0.25
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SHARES
NET INCOME OUTSTANDING NET INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (NUMERATOR) (DENOMINATOR) PER SHARE
- -------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Basic Net Income Per Share .............. $10,508,202 14,838,618 $ 0.71
========
Effect of Dilutive Securities - Incentive
Stock Options deemed outstanding ...... -- 174,312
----------- -----------
Diluted Net Income Per Share ............ $10,508,202 15,012,930 $ 0.70
=========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
SHARES
NET INCOME OUTSTANDING NET INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (NUMERATOR) (DENOMINATOR) PER SHARE
- -------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Basic Net Income Per Share .............. $12,351,414 14,914,106 $ 0.83
========
Effect of Dilutive Securities - Incentive
Stock Options deemed outstanding ...... -- 73,939
----------- ------------
Diluted Net Income Per Share ............ $12,351,414 14,988,045 $ 0.82
=========== =========== ========
</TABLE>
11
<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, ANNUAL REPORTS 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, THE ESTIMATED INCREASE IN REVENUE FOR
THE FOURTH QUARTER OF 1999 OVER THE THIRD QUARTER OF 1999, THE ESTIMATED DECLINE
IN EARNINGS PER SHARE IN THE FOURTH QUARTER OF 1999 COMPARED TO THE THIRD
QUARTER OF 1999, PROSPECTS FOR NEW BUSINESS AND OTHER MATTERS WHICH REFLECT
MANAGEMENT'S EXPECTATIONS AS OF THE DATE MADE. WITHOUT LIMITING THE FOREGOING,
THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "SEEKS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FUTURE EVENTS
AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
REFLECTED IN THESE 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
CONSULTANT 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 (INCLUDING INCREASED WAGE AND BENEFIT COSTS
THAT ARE NOT OFFSET BY BILL RATE INCREASES), THE TYPES OF SERVICES PERFORMED BY
THE COMPANY DURING A PARTICULAR PERIOD, UNCERTAINTY AS TO THE YEAR 2000
PHENOMENON, FUTURE PROFITABILITY OF ACQUIRED BUSINESSES AND COMPETITION. PLEASE
REFER TO A DISCUSSION OF THESE AND OTHER FACTORS IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 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.
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. THE
COMPANY'S FISCAL YEAR ENDS ON DECEMBER 31.
OVERVIEW
Metro Information Services, Inc. ("Metro" or the "Company") provides a
wide range of information technology ("IT") consulting and custom software
development services and solutions through 45 offices in 43 metropolitan markets
in the United States and Puerto Rico. The Company's more than 2,800 consultants,
59% of whom are salaried, work with clients' internal IT departments on all
aspects of computer systems and applications development. Services and solutions
provided 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, network and Internet
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, C++ and Web-based
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, retail, financial services, government, health
care, information technology, manufacturing, transportation, leisure and
utilities. The Company emphasizes long-term relationships with its clients
rather than one-time projects or assignments. During the 12 months ended
September 30, 1999, the Company performed IT services for 741 clients (excluding
clients that generated less than $25,000 in revenue during such period).
IT services are primarily provided by the Company through supplemental
IT services arrangements. IT solutions are provided through a combination of
project outsourcing and supplemental IT services arrangements. Substantially all
services and solutions are billed on a time and materials basis. During the
three months ended
12
<PAGE>
September 30, 1999, the Company estimates that supplemental IT services
accounted for more than 90% and project outsourcing services accounted for less
than 10% of the Company's revenue.
Revenue growth is derived primarily from increases in the number of
consultants placed with existing and new clients both through internal growth
and through acquisitions. Between September 30, 1998 and September 30, 1999, the
total number of full time consultants grew from 2,035 to 2,912. Excluding the
946 consultants gained through acquisitions, the number of full time consultants
declined from 2,035 to 1,966 over this time period. Over the same period, the
Company increased the average billing rates charged to clients for consultants.
During 1999, the Company has experienced slowing demand for its
services. This slowing in demand appears to be primarily the result of client
uncertainty about starting new IT projects until their Year 2000 issues are
resolved, budget constraints and uncertainty about IT spending priorities. This
slowing in demand has resulted in slower revenue growth for the nine months
ended September 30, 1999 in existing offices, lower bill rate increases than
obtained in 1998, more non-billable consultant time and slower growth in
profitability. Management believes these conditions will continue into the first
quarter of 2000.
On December 2, 1998, the Company completed the acquisition of The Avery
Group, an information technology services company with one office in the Palo
Alto/Silicon Valley area of California. The purchase price was approximately
$11,837,000, of which $11 million was paid at closing, $754,000 was paid in
February 1999 based on a net worth adjustment calculation performed in February
1999 and direct costs of the acquisition were approximately $83,000. On January
1, 1999, the Company acquired D. P. Specialists, Inc. and D.P. Specialists
Learning Center, LLC ("DPS" collectively), information technology consulting
services and personnel staffing businesses located in El Segundo, California and
Woodbridge, New Jersey for a purchase price of approximately $10,070,000,
including direct costs of the acquisition of approximately $90,000. On February
1, 1999, the Company acquired The Professionals - Computer Management &
Consulting, Inc. ("PCM") and Krystal Solutions, Inc. ("KSC"), both of which are
information technology consulting services and personnel staffing businesses
located in Irvine, California and San Bruno, California for a purchase price of
approximately $18,511,000, of which $17,976,000 was paid at closing, $352,000
was paid in April 1999 based on a net worth adjustment calculation performed in
April 1999 and approximately $183,000 represents direct costs related to the
acquisition. On March 1, 1999, the Company acquired Solution Technologies, Inc.
("STI"), an information technology consulting services and personnel staffing
business located in Camp Hill (Harrisburg), Altoona and Pittsburgh,
Pennsylvania, Charlotte, North Carolina, Hagerstown, Maryland and Kansas City,
Missouri, for a purchase price of approximately $28,398,000, of which
$24,046,000 was paid at closing, $3,654,000 was paid in March 1999 based on a
consultant count adjustment on March 8, 1999, $591,000 was paid in April 1999
based on a net worth adjustment calculation performed in April 1999 and
approximately $107,000 represents direct costs of the acquisition. On August 13,
1999, the Company acquired all of the membership and equity interests of Acuity
Technology Services, LLC and Acuity Technology Services of Dallas, LLC ("ATS"
collectively), both of which are information technology consulting services and
personnel staffing businesses located in Washington D.C., Baltimore, Maryland
and Dallas, Texas for a purchase price of approximately $40,183,000, of which
$39,425,000 was paid at closing, $666,000 is expected to be paid in November
1999 and approximately $92,000 represents direct costs related to the
acquisition. For each of these acquisitions, if the acquired company achieves
certain predetermined financial results during a twelve month measurement
period, the Company will make an additional payment which will be recorded as
additional goodwill. The measurement periods for the acquired companies end
December 31, 1999 for Avery, December 31, 1999 for DPS, January 31, 2000 for PCM
and KSC, February 29, 2000 for STI and August 31, 2000 for ATS.
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.
13
<PAGE>
RESULTS OF OPERATIONS
FOR PURPOSES OF THE FOLLOWING DISCUSSION, AS OF SEPTEMBER 30, 1998, A
MATURE OFFICE IS AN OFFICE THAT WAS OWNED BY THE COMPANY FOR AT LEAST 12 MONTHS
AT THE BEGINNING OF THE EARLIER PERIOD BEING COMPARED AND A NEW OFFICE IS AN
OFFICE OPENED OR ACQUIRED THEREAFTER. AS OF SEPTEMBER 30, 1999, A MATURE OFFICE
IS AN OFFICE THAT WAS OWNED BY THE COMPANY FOR AT LEAST 24 MONTHS AND A NEW
OFFICE IS AN OFFICE OPENED OR ACQUIRED WITHIN THE LAST 24 MONTHS.
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
-----------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue .................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue ............................ 69.4 70.4 69.2 70.7
-------- -------- -------- --------
Gross profit ............................... 30.6 29.6 30.8 29.3
-------- -------- -------- --------
Selling, general and administrative expenses 18.2 18.9 19.1 18.1
Depreciation expense ....................... 0.7 0.9 0.8 0.8
Amortization expense ....................... 0.1 1.1 0.1 0.8
-------- -------- -------- --------
Total operating expenses ................... 19.0 20.9 20.0 19.7
-------- -------- -------- --------
Operating income ........................... 11.6 8.7 10.8 9.6
-------- -------- -------- --------
Interest income ............................ 0.4 -- 0.4 --
Interest expense ........................... (0.1) (1.0) -- (0.7)
-------- -------- -------- ---------
Net interest income (expense) .............. 0.3 (1.0) 0.4 (0.7)
-------- -------- -------- ---------
Income before income taxes ................. 11.9 7.7 11.2 8.9
Income taxes ............................... 4.8 3.1 4.5 3.6
-------- -------- -------- ---------
Net income ................................. 7.1% 4.6% 6.7% 5.3%
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
1999 OVER 1998
-------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
<S> <C> <C>
Revenue........................................ 43.6% 48.7%
Cost of revenue................................ 45.6% 51.8%
Gross profit................................... 38.9% 41.6%
Selling, general and administrative expenses... 49.6% 41.0%
Depreciation expense........................... 71.6% 56.9%
Amortization expense........................... N/M N/M
Total operating expenses....................... 57.6% 46.8%
Operating income............................... 8.1% 32.2%
Interest income................................ (86.3)% (83.0)%
Interest expense............................... N/M N/M
Income before income taxes..................... (7.7)% 18.5%
Income taxes................................... (6.5)% 20.0%
Net income..................................... (8.5)% 17.5%
</TABLE>
- -------------
N/M - Not Meaningful
14
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE. Revenue increased $24.7 million, or 43.6%, to $81.3 million
for the three months ended September 30, 1999 from $56.6 million for the three
months ended September 30, 1998. This increase was due to revenue from companies
acquired since September 30, 1998. Excluding the $25.3 million increase which is
attributable to acquisitions during 1998 and 1999, revenue decreased $0.6
million, or 1.1%. This decrease is the result of a reduction in the number of
billable consultants in Metro's non-acquired offices.
COST OF REVENUE. Cost of revenue increased $17.9 million, or 45.6%, to
$57.2 million for the three months ended September 30, 1999 from $39.3 million
for the three months ended September 30, 1998. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the number
of consultants. This growth was the result of consultants added through
acquisitions. As a percentage of revenue, cost of revenue increased to 70.4% for
the three months ended September 30, 1999 from 69.4% for the three months ended
September 30, 1998 primarily because the percentage of employees who are hourly
is higher in 1999 than in 1998. Hourly employees have a higher pay rate in
relation to their billing rate but do not receive the same benefits as salaried
employees. To a lesser extent, cost of revenue rose due to lower utilization of
salaried consultants. Salaried consultants are paid even if they are not
billing. Pay rates also rose faster than bill rates during 1999, increasing cost
of revenue.
GROSS PROFIT. Gross profit increased $6.7 million, or 38.9%, to $24.0
million for the three months ended September 30, 1999 from $17.3 million for the
three months ended September 30, 1998. As a percentage of revenue, gross profit
decreased to 29.6% for the three months ended September 30, 1999 from 30.6% for
the three months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.1 million, or 49.6%, to $15.4 million for
the three months ended September 30, 1999 from $10.3 million for the three
months ended September 30, 1998. This increase is due primarily to costs
associated with recently opened offices, acquired 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
computerized business systems and hiring additional sales and marketing staff to
support the Company's efforts to provide more e-Business services. As a
percentage of revenue, selling, general and administrative expenses increased to
18.9% for the three months ended September 30, 1999 from 18.2% for the three
months ended September 30, 1998.
DEPRECIATION EXPENSE. Depreciation expense increased $305,000, or
71.6%, to $730,000 for the three months ended September 30, 1999 from $425,000
for the three months ended September 30, 1998. This increase is attributable to
depreciation on additions to computer equipment and software. As a percentage of
revenue, depreciation expense increased to 0.9% for the three months ended
September 30, 1999 from 0.7% for the three months ended September 30, 1998.
AMORTIZATION EXPENSE. Amortization expense increased $792,000 to
$840,000 for the three months ended September 30, 1999 from $48,000 for the
three months ended September 30, 1998. This increase is attributable to
amortization of goodwill and other intangible assets related to the Company's
acquisitions. As a percentage of revenue, amortization expense increased to 1.1%
for the three months ended September 30, 1999 from 0.1% for the three months
ended September 30, 1998.
OPERATING INCOME. Operating income increased $0.6 million, or 8.1%, to
$7.1 million for the three months ended September 30, 1999 from $6.5 million for
the three months ended September 30, 1998. As a percentage of revenue, operating
income decreased to 8.7% for the three months ended September 30, 1999 from
11.6% for the three months ended September 30, 1998. The decline in operating
income margin is the result of lower gross margins, increased selling, general
and administrative expenses and higher amortization expenses not being fully
offset by increased revenues.
INTEREST INCOME. Interest income decreased by $197,000, or 86.3%, to
$31,000 for the three months ended September 30, 1999 from $228,000 for the
three months ended Septemeber 30, 1998. This change reflects a decrease in cash
and cash equivalents due to the Company's cash being used for acquisitions.
15
<PAGE>
INTEREST EXPENSE. Interest expense increased by $850,000 to $865,000
for the three months ended September 30, 1999 from $15,000 for the three months
ended September 30, 1998. This change reflects an increase in the average level
of borrowings during the period related to the use of cash to make several
acquisitions. The Company increased its debt level from zero at September 30,
1998 to $78,315,000 at September 30, 1999.
INCOME BEFORE INCOME TAXES. Income before income taxes decreased $0.5
million, or 7.7%, to $6.2 million for the three months ended September 30, 1999
from $6.7 million for the three months ended September 30, 1998. As a percentage
of revenue, income before income taxes decreased to 7.7% for the three months
ended September 30, 1999 from 11.9% for the three months ended September 30,
1998.
INCOME TAXES. The Company's effective tax rate was 40.5% for the three
months ended September 30, 1999 and 40% for the three months ended September 30,
1998. This increase is the result of higher income tax rates in the states where
the Company's acquisitions operate. Income taxes decreased $0.2 million or 6.5%,
to $2.5 million for the three months ended September 30, 1999 from $2.7 million
for the three months ended September 30, 1998.
NET INCOME. Net income decreased $0.3 million, or 8.5%, to $3.7 million
for the three months ended September 30, 1999 from $4.0 million for the three
months ended September 30, 1998. As a percentage of revenue, net income
decreased to 4.6% for the three months ended September 30, 1999 from 7.1% for
the three months ended September 30, 1998.
NET INCOME PER SHARE. Diluted net income per share decreased $0.02, or
7.4%, to $0.25 for the three months ended September 30, 1999 from $0.27 for the
three months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE. Revenue increased $75.9 million, or 48.7%, to $232.0 million
for the nine months ended September 30, 1999 from $156.1 million for the nine
months ended September 30, 1998. $59.2 million of this increase was due to
revenue from companies acquired since September 30, 1998. This increase is also
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 $55.9 million, or 51.8%, to
$164.0 million for the nine months ended September 30, 1999 from $108.1 million
for the nine months ended September 30, 1998. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the number
of consultants, including consultants added through acquisitions. As a
percentage of revenue, cost of revenue increased to 70.7% for the nine months
ended September 30, 1999 from 69.2% for the nine months ended September 30, 1998
primarily because the percentage of employees who are hourly is higher in 1999
than in 1998. Hourly employees have a higher pay rate in relation to their
billing rate but do not receive the same benefits as salaried employees. To a
lesser extent, cost of revenue rose due to lower utilization of salaried
consultants. Salaried consultants are paid even if they are not billing. Pay
rates also rose faster than bill rates during 1999, increasing cost of revenue.
GROSS PROFIT. Gross profit increased $20.0 million, or 41.6%, to $68.0
million for the nine months ended September 30, 1999 from $48.0 million for the
nine months ended September 30, 1998. As a percentage of revenue, gross profit
decreased to 29.3% for the nine months ended September 30, 1999 from 30.8% for
the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $12.2 million, or 41.0%, to $42.0 million for
the nine months ended September 30, 1999 from $29.8 million for the nine months
ended September 30, 1998. This increase is due primarily to costs associated
with recently opened offices, acquired 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 computerized business systems
and hiring additional sales and marketing staff to support the Company's efforts
to provide more e-Business services. As a percentage of revenue, selling,
general and administrative expenses decreased to 18.1% for the nine months ended
September 30, 1999 from 19.1% for the nine months ended September 30, 1998. This
decrease is in part the result of the Company's centralization of administrative
functions and leverage obtained from the Company's proprietary business systems.
16
<PAGE>
DEPRECIATION EXPENSE. Depreciation expense increased $666,000, or
56.9%, to $1,836,000 for the nine months ended September 30, 1999 from
$1,170,000 for the nine months ended September 30, 1998. This increase is
attributable to depreciation on additions to computer equipment and software. As
a percentage of revenue, depreciation expense remained constant at 0.8% for the
nine months ended September 30, 1999 and 1998.
AMORTIZATION EXPENSE. Amortization expense increased $1,677,000 to
$1,815,000 for the nine months ended September 30, 1999 from $138,000 for the
nine months ended September 30, 1998. This increase is attributable to
amortization of goodwill and other intangible assets related to the Company's
acquisitions. As a percentage of revenue, amortization expense increased to 0.8%
for the nine months ended September 30, 1999 from 0.1% for the nine months ended
September 30, 1998.
OPERATING INCOME. Operating income increased $5.5 million, or 32.2%, to
$22.4 million for the nine months ended September 30, 1999 from $16.9 million
for the nine months ended September 30, 1998. As a percentage of revenue,
operating income decreased to 9.6% for the nine months ended September 30, 1999
from 10.8% for the nine months ended September 30, 1998. The decline in
operating income margin is the result of lower gross margins, increased selling,
general and administrative expenses and higher amortization expenses not being
fully offset by increased revenues.
INTEREST INCOME. Interest income decreased by $517,000, or 83.0%, to
$106,000 for the nine months ended September 30, 1999 from $623,000 for the nine
months ended September 30, 1998. This change reflects a decrease in cash and
cash equivalents due to the Company's cash being used for acquisitions.
INTEREST EXPENSE. Interest expense increased by $1,690,000 to
$1,715,000 for the nine months ended September 30, 1999 from $25,000 for the
nine months ended September 30, 1998. This change reflects an increase in the
average level of borrowings during the period related to the use of cash to make
several acquisitions. The Company increased its debt level from zero at
September 30, 1998 to $78,315,000 at September 30, 1999.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $3.3
million, or 18.5%, to $20.8 million for the nine months ended September 30, 1999
from $17.5 million for the nine months ended September 30, 1998. As a percentage
of revenue, income before income taxes decreased to 8.9% for the nine months
ended September 30, 1999 from 11.2% for the nine months ended September 30,
1998.
INCOME TAXES. The Company's effective tax rate was 40.5% for the nine
months ended September 30, 1999 and 40% for the nine months ended September 30,
1998. This increase is the result of higher income tax rates in the states where
the Company's acquisitions operate. Income taxes increased $1.4 million or
20.0%, to $8.4 million for the nine months ended September 30, 1999 from $7.0
million for the nine months ended September 30, 1998.
NET INCOME. Net income increased $1.9 million, or 17.5%, to $12.4
million for the nine months ended September 30, 1999 from $10.5 million for the
nine months ended September 30, 1998. As a percentage of revenue, net income
decreased to 5.3% for the nine months ended September 30, 1999 from 6.7% for the
nine months ended September 30, 1998.
NET INCOME PER SHARE. Diluted net income per share increased $0.12, or
17.1%, to $0.82 for the nine months ended September 30, 1999 from $0.70 for the
nine months ended September 30, 1998.
17
<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 September 30, 1999,
both in dollars and as a percentage of revenue. This information was derived
from the unaudited consolidated financial statements of the Company which, in
the opinion of management, were prepared on the same basis as the consolidated
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
consolidated 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
- ------------------------- ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1996:
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
September.................................... 40,569 12,580 31.0 4,314 10.6
December..................................... 43,080 13,351 31.0 4,612 10.7
1998:
March........................................ 47,110 14,346 30.5 4,663 9.9
June......................................... 52,391 16,375 31.3 5,715 10.9
September.................................... 56,593 17,296 30.6 6,538 11.6
December..................................... 57,799 17,553 30.4 6,454 11.2
1999:
March........................................ 72,473 20,970 28.9 6,909 9.5
June......................................... 78,309 23,023 29.4 8,393 10.7
September.................................... 81,253 24,020 29.6 7,066 8.7
</TABLE>
- -------------------------
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 renewals related to clients' budget approval processes. These
seasonal fluctuations may be more severe in the fourth quarter of 1999 and the
first quarter of 2000 due to client concerns about the Year 2000 phenomenon. As
part of the Year 2000 phenomenon, the Company's clients are delaying the start
of new assignments until the effect of Year 2000 on their business is better
known.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, the Company acquired D.P.
Specialists, Inc. and D.P. Specialists Learning Center, LLC, The
Professionals - Computer Management & Consulting, Inc., Krystal Solutions,
Inc., Solution Technologies, Inc. and Acuity Technology Services, LLC and
Acuity Technology Services of Dallas, LLC, as described in Note 3 of Notes to
Consolidated Financial Statements. The acquisitions were financed with the
balance of the proceeds from the Company's January 1997 initial public
offering, cash generated by operations and borrowings on the Company's credit
facilities.
18
<PAGE>
The Company sold 80,000 shares of stock under the Metro Information
Services, Inc. Employee Stock Purchase Plan for an aggregate purchase price of
$1,066,498 during the nine months ended September 30, 1999.
During 1999, certain employees exercised stock options which vested on
December 31, 1997, December 31, 1998 and March 18, 1999 pursuant to the 1997
Employee Stock Option Plan. Total proceeds from the issuance of stock for option
exercises were $113,640 during the nine months ended September 30, 1999.
The Company funds its operations primarily from cash generated by
operations. Net cash provided by operations was $6,460,814 for the nine months
ended September 30, 1999 and consisted primarily of net income of $12,351,414
and, excluding the effects of acquisitions, increases in accounts receivable of
$5,930,302 and accrued compensation and benefits of $6,195,391 and a decrease in
accounts payable of $5,245,831. The increases in accounts receivable and accrued
compensation and benefits are primarily due to the revenue growth experienced
during the nine months ended September 30, 1999. The decrease in accounts
payable is due to a reduction in contract deposits, reduction in outstanding
checks and subsequent payments of amounts due to acquired companies. The Company
had working capital of $42,395,534 at September 30, 1999 compared to $36,776,571
at December 31, 1998.
Net cash used in investing activities was $100,443,969 for the nine
months ended September 30, 1999 and included normal acquisitions of property and
equipment used in operations of $2,431,706 and $97,159,838 of payments for the
acquisitions described above. The Company's investing activities also include
$856,652 spent on developing new computer systems for financial accounting,
human resources and payroll activities. See "New Systems Implementation." The
funds used in these activities came from the Company's line of credit, cash
generated by the Company's operations, proceeds from the sale of stock and
proceeds from the exercise of vested stock options.
The Company increased its credit facilities from $39,900,000 to $90,000,000 on
January 15, 1999 and to $125,000,000 on August 25, 1999. The credit facilities
are provided in equal amounts of $35,000,000 by three banks and $20,000,000 by a
fourth bank. The Company has borrowed $78,314,784 against these facilities,
leaving $46,685,216 available as of September 30, 1999. The facilities mature in
June 2004 and may be extended each year for an additional year. Until June 2004,
interest, but no principal, 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 other two have only LIBOR based interest rates.
All of the facilities have interest rates which increase as the balance
outstanding under the facilities increases. The Company has selected a 30-day
LIBOR based rate and the rate on such borrowings was 5.9% as of September 30,
1999. 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 contain several covenants, including one
requiring the maintenance of a certain tangible net worth ratio, which limit the
amount of dividends that can be paid. The covenants also impose limits on
incurring additional debt and require a certain debt service coverage ratio to
be maintained. Amounts advanced under the facilities can be used for
acquisitions and general working capital purposes.
The Company believes that the available funds under its credit
facilities and cash flows from operations will be adequate to meet its needs for
working capital and capital expenditures for the next year. Any significant
acquisitions, however, may require additional debt and equity financing.
YEAR 2000 ISSUES
Many computer systems use dates to correctly process information. Until
recently, computer systems used a two-digit date to indicate a year. For
example, the year 1958 is indicated in these systems by the digits "58." As the
year 2000 approaches, these systems will need to process information involving
the year 2000 and later years. Systems that use only a two-digit year may
confuse the year 2000 for the year 1900, causing the systems to produce
incorrect results. This problem is commonly known as the Year 2000, Y2K or
Millenium Bug problem. In this disclosure, the problem is referred to as the
"Year 2000" problem.
19
<PAGE>
As an investor, you should be aware that the full extent of the Year
2000 problem is unknown. In 1998, the Securities and Exchange Commission ("SEC")
issued an Interpretation in which it indicated that, "... the extent of the
potential impact of the Year 2000 problem is not yet known, and if not timely
corrected, it could affect the global economy." The SEC's Interpretation
requires publicly traded companies such as us to disclose additional information
about their Year 2000 problems. This disclosure is the result of our effort to
inform the investing public of the risks we believe are likely to affect us. All
readers of this document are encouraged to read the SEC Interpretation.
Estimates of the cost to fix Year 2000 problems worldwide run to the
hundreds of billions of dollars. Additional costs in the form of business
interruptions, additional repair costs and litigation costs may be incurred if
the fixes do not work. It appears there is no way to predict with certainty what
will happen after December 31, 1999. It is certain, however, that the year 2000
will arrive soon. As a result, all companies should be undertaking a study to
determine how they may be affected by the Year 2000 problem and take steps to
address the effects where appropriate. Failure to do so could cause injury not
only to the company that is not ready for the year 2000, but every other person
dealing with that company. As a result, it is difficult for any company,
including Metro, to evaluate effectively the impact that third party failures
may have on its business. While we believe our internal systems are compliant,
we are required by the SEC to assume we will not be fully Year 2000 compliant
until all third parties with whom we have a material relationship provide us
with written assurance that they expect to be Year 2000 compliant in time. We
have treated written responses to our requests for this information, information
provided on third parties' web sites and information filed with the SEC by our
U.S. public company clients as written assurance under this disclosure. Not all
third parties with whom we have material relationships have provided clear
evidence of their readiness despite repeated requests. Statistics on these
responses appear below.
METRO'S STATE OF READINESS
Metro's approach to the Year 2000 problem involves: 1) assessing,
correcting and testing our internal systems; 2) obtaining assurance from third
parties who exchange information electronically with us that the information
they provide will be Year 2000 compliant; 3) obtaining assurance or information
on the state of Year 2000 readiness of our material clients and suppliers; and
4) developing contingency plans, when practical, to address expected Year 2000
failures. A discussion of each of these areas follows.
Metro has addressed its known internal systems risks and developed
contingency plans to address likely failures by third parties. Metro has
received assurances from critical vendors of Year 2000 compliance or prepared
contingency plans where practical in the event that a vendor can not operate due
to Year 2000 problems. Metro continues to assess its internal systems, clients
and vendors. If additional Year 2000 issues come to our attention we plan to fix
them or develop contingency plans, where practical, to address them.
INTERNAL RISKS. We have assessed embedded computer chips, computer
software, computer hardware, telephones, communications equipment, facsimile
machines, scanners, copiers and voice mail which we own and were able to
identify as critical to our ability to provide services to our clients. These
assessments identified a limited amount of non-compliant software and
hardware. As of the date of this filing, we have remediated all of the Year
2000 problems we know exist. We will continue to perform additional testing
of our systems through the end of 1999. If those tests reveal additional Year
2000 problems, we plan to fix those issues before December 31, 1999 or put
into effect contingency plans.
We have acquired six companies since December 1, 1998: The Avery Group,
D.P. Specialists, Inc. and D.P. Specialists Learning Center, LLC ("DPS"
collectively), The Professionals - Computer Management & Consulting, Inc.,
Krystal Solutions, Inc., Solution Technologies, Inc. and Acuity Technology
Services, LLC and Acuity Technology Services of Dallas, LLC ("ATS"
collectively). We have completed an assessment of these companies. We expect all
systems to be Year 2000 compliant except for certain accounting software and
development systems and non-Metro recruiting systems which are scheduled for
replacement or upgrade by December 31, 1999.
20
<PAGE>
We requested information from suppliers with whom we have a
material relationship. These companies have indicated that they are or will
be Year 2000 compliant.
On July 1, 1999 we implemented other systems which we have received
written assurances are Year 2000 compliant. See "New Systems Implementation." We
are not treating the costs of these new systems as Year 2000 costs because we
did not accelerate their implementation due to Year 2000 problems.
EXTERNAL RISKS. We have installed new software that we began using July
1, 1999. See "New Systems Implementation." This new system increases the amount
of information we exchange with our banks and 401(k) plan administrator. In some
cases, the Year 2000 problem does not affect the information being received. In
other cases, we have received assurances from these institutions that they will
be Year 2000 compliant in a timely fashion. In one case, we have made
arrangements to receive the information in a usable 2-digit year format. We are
relying on these assurances as part of our Year 2000 planning. If these
assurances are wrong, they could have a material adverse effect on our business,
financial condition and results of operations.
We have reviewed filings made by our U.S. public company clients who
provided more than 0.2% of revenue during the 12 months ended September 30,
1999. This review covered filings through October 31, 1999, and was performed to
determine the extent of the risk that our clients may not be Year 2000
compliant. These companies represented 48.8% of our revenue for the 12 months
ending September 30, 1999. This review furnished the following information on
our clients' expected completion date for their Year 2000 efforts:
<TABLE>
<CAPTION>
Will not
Not Be Year 2000 Year 2000 By By
Disclosed Compliant Compliant Now 9/30/99 12/31/99
<S> <C> <C> <C> <C> <C>
% Of Metro
Revenue 0% 0% 18.3% 18.1% 12.4%
</TABLE>
We have treated the information furnished in these reports as written
assurance provided by these clients on the status of their Year 2000 problem. In
some cases these clients have indicated they will be substantially complete or
will have completed Year 2000 efforts for their mission critical systems by the
date indicated. We have treated this disclosure as an indication that these
companies will be able to continue their business relationships with us without
disruption or failure. We have or will request additional information from those
clients who indicated they will not be compliant or provided no disclosure. At
present, we plan to monitor disclosures made by these publicly traded clients in
Forms 10-Q, 10-K and 8-K. Please note that these filings reflect the position of
these companies on the date of their filings and may change in subsequent
filings.
We are also requesting assurance from our other clients who provided
more than 0.2% of revenue during the 12 months ended September 30, 1999. These
clients represented 25.8% of revenue during the 12 months ended September 30,
1999. We have reviewed written assurances from these clients representing 17.3%
of revenue during the 12 months ended September 30, 1999. This review furnished
the following information on our clients' expected completion date for their
Year 2000 efforts:
<TABLE>
<CAPTION>
Will not
Not be Year 2000 Year 2000 By By
Disclosed Compliant Compliant Now 9/30/99 12/31/99
<S> <C> <C> <C> <C> <C>
% Of Metro
Revenue 0% 0% 5.7% 2.2% 9.4%
</TABLE>
21
<PAGE>
We have not yet received assurance from the rest of these companies. If
these clients do not become Year 2000 compliant in a timely fashion, our
business, financial condition and results of operations could be materially
adversely affected.
BUSINESS RISKS. We are seeking written assurance from our clients. See
EXTERNAL RISKS above.
LITIGATION RISKS. We have limited our involvement in Year 2000 projects
and worked primarily on a time and materials basis. We have also sought
limitations on our liability for Year 2000 related problems arising from our
services when appropriate. We are not able to estimate the cost of any
litigation that may arise in the future.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 PROBLEM
Our internal information technology staff has made repairs to our
internal systems. We believe our internal systems are Year 2000 compliant. We
may perform additional assessments, remediation and testing if information about
Year 2000 risks to our internal systems changes.
Our internal information technology staff have requested information
from our material clients and suppliers to address external risks. We did not
incur material incremental costs to gather this information. We have deferred
other projects these individuals could have worked on by about 6 months. We do
not consider these deferred projects mission critical or expect their delay to
have a material adverse effect on our business, results of operations or
financial condition.
The cost of our Year 2000 activities has been approximately $120,000.
If we learn of other Year 2000 deficiencies that need to be fixed we will spend
additional sums on those fixes.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
The Year 2000 problem involves several risks for us. One risk is that
our computerized systems and embedded systems (such as minicontrollers and chips
in elevators, machinery and equipment) ("internal risks") and those of our
clients, suppliers, vendors, financial institutions and others ("external
risks") will be disrupted or fail. We also consider the possible loss of revenue
when consultants on Year 2000 assignments complete their assignments and
possible slow downs in demand for our services for the rest of 1999 and the
first quarter of 2000 to be Year 2000 related risks. We may also become involved
in litigation over the Year 2000 services we have rendered to our clients. These
risks have the capacity to cause a material adverse effect on our business,
results of operations and financial condition although we are uncertain what
losses we will actually suffer. These risks are discussed below.
INTERNAL RISKS. We rely heavily on computer systems to run our
business. Internal risks consist of potential disruptions and failures of our
proprietary and purchased computer software, computer hardware, office
equipment, office systems and turnover in our information technology staff.
Software systems include recruiting, candidate tracking, payroll, human
resources, benefits and financial accounting systems. Disruptions and failures
of these systems could hurt our ability to bill our clients, collect money from
clients, pay our employees in a timely manner and continue in business.
EXTERNAL RISKS. External risks are risks that third parties will
suffer Year 2000 problems that adversely affect us. These risks include the
inability of certain third parties to exchange electronic data with us and
the risk of disruptions and failures of persons with whom we do business.
These third parties include our clients, suppliers, vendors, financial
institutions and others with whom we do business.
If we are not able to exchange information electronically with third
parties, our ability to receive and pay money as needed may be slowed and
information on 401(k) account and cash balances may be delayed. If our
22
<PAGE>
clients, suppliers, vendors and financial institutions are not Year 2000
compliant, their noncompliance may cause a material disruption to their
businesses. These disruptions could negatively impact us in many ways,
including: a client may be unable to pay us; a financial institution may be
unable to process checks drawn on our bank accounts, accept deposits or process
wire transfers; a client, supplier, vendor or financial institution may fail;
vendor deliveries of computer equipment and other supplies may be delayed or
cease; voice and data connections we use to share information may be interrupted
and brokers who make a market in our stock may not be able to trade our stock.
This list is not comprehensive. Other interruptions to the normal conduct of
business by us, the nature and extent of which we cannot fully foresee, may also
occur. We are unable to determine the nature or length or effect such
interruptions, if any, may have on us.
BUSINESS RISKS. As an IT services company, we have benefited from the
Year 2000 problem by providing consultants with the skills necessary to help
address these issues for our clients. We face the risk of reduced business
opportunities, revenue and profits as clients resolve their Year 2000 problem if
Year 2000 assignments are not replaced with other assignments. We believe that
when consultants complete Year 2000 assignments, many of these consultants will
be re-assigned to perform activities delayed by clients while addressing the
Year 2000 problem. In other cases, we will need to find other assignments for
these consultants. We estimate that, at September 30, 1999, approximately 10% of
our consultants were involved in Year 2000 assignments. In addition, some
clients are delaying implementation of new software during the rest of 1999 and
into the first quarter of 2000 to avoid the risk of introducing non-compliant
software into previously tested systems. It appears these delays, sometimes
referred to as "lockdowns," will only affect a portion of our clients and in
most cases only during the fourth quarter of 1999 and the first quarter of 2000,
typically a slow growth period for us. If more clients impose lockdowns or begin
them earlier or extend their length, our growth and prospects for the balance of
1999 and 2000 will be adversely affected. As of September 30, 1999,
approximately 28% of our consultants were working with mainframe computer
systems.
LITIGATION RISKS. Approximately 70% of our services involve writing
custom software for clients and maintaining software for clients. Clients may
sue us over work we have performed that causes or fails to fix a Year 2000
problem. This risk exists regardless of the steps we may take to provide error
free Year 2000 services and make our internal systems Year 2000 ready. Any
litigation may have a material adverse effect on our business, financial
condition and results of operations and may distract management's attention from
running the business. This distraction could have further adverse effects on the
business.
The SEC has directed us to describe our "most reasonably likely worst
case scenario" posed by the Year 2000 issues we face. Based on our current
understanding of the Year 2000 issues facing the Company, we believe our most
reasonably likely worst case scenario is that we will suffer little or no
disruptions or failures in our internal systems, but minor disruptions and
failures among our material clients, suppliers, vendors and financial
institutions. We also expect little or no revenue growth and a reduction in our
consultant count in the last quarter of 1999 and the first quarter of 2000 due
to normal seasonality and client "lockdowns." Nonetheless, as we learn more from
our material clients, suppliers, vendors and financial institutions, it is
possible that this belief could change for better or worse.
CONTINGENCY PLANS
We are developing Year 2000 contingency plans where practical. These
plans address alternatives to electronic processing of candidate resumes, hires
of new employees, terminations of existing employees, payroll, supplier
payments, cash receipts from clients, invoices to clients and initiatives
without e-mail. These plans also address furnishing required reports to clients,
furnishing required governmental reports, gaining access to leased office space,
shipping intracompany correspondence and communicating Company reports. These
plans include stockpiling supplies and equipment, identifying alternative
sources of goods and services and performing certain tasks manually. For
example, we plan to store paper copies of electronically stored data (such as
candidate resumes) at locations likely to need them if we believe that the data
will not be accessible due to a Year 2000 failure. In some situations, however,
it is not practical to have an effective contingency plan. For example, a
failure by our primary banking institution may interrupt our cash receipts and
our ability to pay our employees in a timely manner. Our contingency plan may
call for paying employees in cash, but may not be practical due to the amount
of
23
<PAGE>
cash involved, the number of Company locations and the number of employees who
must be paid. Our payroll is currently several million dollars per pay period
paid through 45 locations in 43 metropolitan markets to over 3,400 employees.
As an investor, you should be aware that the number of Year 2000
failures suffered by us may exceed our ability to address them all at one time.
In addition, significant Year 2000 failures by third parties, including clients,
may jeopardize our financial strength. In severe circumstances, our ability to
continue as a going concern may be threatened or we may fail. We believe,
however, that we are taking reasonable and prudent steps to address the Year
2000 problem based on the information currently available to us. We will
continue to monitor this issue and plan to modify our approach to the problem if
we believe the circumstances warrant such a change.
NEW SYSTEMS IMPLEMENTATION
The Company has implemented new human resources, payroll and financial
accounting software. These systems provide enhanced capabilities and integration
of information and are believed to be Year 2000 compliant. A combination of
Metro employees and outside consultants implemented these systems. The Company
spent $2.8 million on these systems. The Company capitalized these costs and is
amortizing them over seven years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into derivative financial or commodity
instrument transactions. The Company is exposed to market risk due to variable
interest rates on the Company's credit facilities. The Company's exposure to
market risk from other types of financial instruments, such as accounts
receivable and accounts payable, is not material.
24
<PAGE>
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
10.1 Registrant's 1997 Employee Stock Purchase Plan as
amended and restated through June 8, 1999.
10.2 Registrant's 1997 Stock Option Plan as amended and
restated through March 18, 1999.
10.3 Employment Agreement dated as of April 1, 1999
between Registrant and Charles Adams.
10.4 Employment Agreement dated as of September 23, 1999
between Registrant and Bruce F. Gannett.
27 Financial Data Schedule
99 Second Modification and Joinder Agreement with Bank
of America, N.A., Crestar Bank, First Union National
Bank and Wachovia Bank, N.A. dated August 25, 1999.
(b) Reports on Form 8-K during third quarter of 1999:
Report dated August 13, 1999 reporting under Item 2 the
acquisition of all the membership interests of Acuity
Technology Services, LLC and Acuity Technology Services of
Dallas, LLC.
25
<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 15th day of November, 1999.
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
26
<PAGE>
EXHIBIT 10.1
METRO INFORMATION SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED THROUGH JUNE 8, 1999
1. PURPOSE.
The Metro Information Services, Inc. Employee Stock Purchase Plan (the "Plan")
is intended to provide certain employees ("Participants") of Metro Information
Services, Inc. (the "Company") with an opportunity to acquire a proprietary
interest in the Company through their participation in a plan designed to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986 (the "Code").
2. ADMINISTRATION.
(a) COMMITTEE. This Plan shall be administered by a committee (the "Committee")
composed of at least two (2) members of the Board of Directors of the Company
(the "Board"). No person shall serve as a member of the Committee, or if a
member of the Committee, shall not participate in decisions concerning the
timing, pricing or amount of Stock to be made available for purchase hereunder,
unless such person is a disinterested person as described in Rule 16b-3
promulgated pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any successor rule ("Rule 16b-3"). This Plan is intended to meet the
requirements of Rule 16b-3 and shall be interpreted and administered so as to
comply with such rule. The Committee shall have full authority to administer
this Plan and to adopt such rules and regulations for administering this Plan as
it may deem necessary to comply with the requirements of Section 423 of the
Code. The Committee may delegate to an agent or agents any of its
responsibilities under this Plan except its responsibilities to: (1) establish
the number of shares available for purchase by employees during any purchase
period; (2) establish the maximum and minimum percentage of base compensation to
be paid by any single employee for the purchase of stock during any purchase
period and its authority and (3) construe and interpret the provisions of this
Plan.
(b) ACTIONS OF THE COMMITTEE. All actions taken and all interpretations and
determinations made by the Committee in good faith (including determinations of
fair market value) shall be final and binding on all Participants, the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan and all members of the Committee shall, in addition to
their rights as directors, be fully protected by the Company with respect to any
such action, determination or interpretation.
3. PURCHASE PERIODS.
The first purchase period under this Plan shall commence on the effective date
of the Company's registration statement filed with the Securities and Exchange
Commission and shall terminate on March 31, 1997. Unless otherwise determined by
the Committee, a purchase period shall commence on the first day of each
succeeding calendar quarter and shall terminate on the last day of each such
quarter. The Committee may, from time to time, establish purchase periods with
differing commencement dates and durations. No two purchase periods shall run
concurrently.
4. ELIGIBILITY AND PARTICIPATION.
(a) Subject to Section 6(c)(iii), effective July 1, 1998, every employee of the
Company who, on the commencement date of the purchase period, has been employed
by the Company for at least three (3) months without a break in service of more
than thirty (30) calendar days is eligible to participate in this Plan during a
purchase period.
27
<PAGE>
(b) An employee may become a Participant in this Plan for a particular purchase
period only by completing the enrollment forms prescribed by the Committee
(including a purchase agreement and a payroll deduction authorization) and
filing such forms before the commencement of the purchase period with the person
designated by the Committee. No enrollment forms will be accepted from an
individual who is not on the active payroll of the Company on the filing date,
unless such individual is temporarily off the payroll by reason of illness,
vacation, jury duty or other employer-sponsored absence.
5. STOCK SUBJECT TO PLAN.
(a) COMMON STOCK. The stock that is purchasable by Participants shall be the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock"). To have sufficient shares available for sale under this Plan,
the Company may repurchase shares of Common Stock on the open market, issue
authorized but unissued stock or otherwise. The maximum number of shares that
may be sold to employees during any single purchase period shall be established
by the Committee before the beginning of the purchase period; provided, however,
that the total number of shares that may be sold to Participants throughout the
entire duration of this Plan shall not exceed 500,000 shares (subject to
adjustment under subparagraph (b) below).
(b) CHANGES IN CAPITAL STRUCTURE. If any change is made to the Common Stock
purchasable under this Plan (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of twenty percent
(20%) at any single time, stock splits, combination of shares, exchange of
shares, changes in corporate structure or otherwise), then appropriate
adjustments shall be made to the maximum number of shares purchasable under this
Plan and the number of shares and price per share of stock subject to rights to
purchase stock outstanding under this Plan.
6. PURCHASE OF COMMON STOCK.
(a) RIGHT TO PURCHASE. An employee who becomes a Participant for a particular
purchase period shall have the right, as of the beginning of the purchase
period, to purchase Common Stock on the terms and conditions set forth in this
Plan and shall execute a purchase agreement embodying such terms and conditions
and such other provisions, not inconsistent with this Plan, as the Committee may
deem advisable.
(b) PURCHASE PRICE PER SHARE. Except as provided in Section 6(j), the purchase
price per share shall be eighty-five percent (85%) of the fair market value of a
share of Common Stock on the commencement date of the purchase period. The fair
market value of a share of Common Stock on any date shall be the closing sales
price, as quoted by the National Association of Securities Dealers through the
NASDAQ National Market System for the date in question, or, if the Common Stock
is listed on a national stock exchange, the officially-quoted closing sales
price on such exchange on the date in question. If the Common Stock is not
traded publicly, the fair market value of a share of Common Stock on any date
shall be determined, in good faith, by the Board or the Committee after
consultation with outside legal, accounting or other experts as the Board or the
Committee may deem advisable. If the Common Stock is not traded publicly, the
Board or the Committee shall maintain a written record of its method of
determining such value.
(c) TOTAL PURCHASE PRICE. Each Participant shall, for any purchase period, have
the right to purchase Common Stock with a total purchase price equal to a
designated percentage of his Compensation. A Participant's "Compensation" for a
particular purchase period shall be the amount of the Participant's (i) base
salary or wages or (ii) base salary or wages, plus overtime, bonuses and other
compensation, that is payable to the Participant at any time or from time to
time during the purchase period. Each Participant shall designate in his
purchase agreement the whole percentage of the Participant's Compensation the
Participant wishes to use to pay for the purchase of Common Stock for the
particular purchase period, subject to the provisions set forth below which
shall be uniformly applied to all Participants in a particular purchase period:
(i) The maximum percentage of a Participant's Compensation that may be used to
pay for the Common Stock in a particular purchase period shall be five percent
(5%); provided, however, that the Committee shall establish before the beginning
of the purchase period a maximum number of shares (subject to adjustment under
Section 6(b)) that may be purchased during the purchase period by each
Participant.
28
<PAGE>
(ii) The minimum percentage of a Participant's Compensation that may be used to
pay for the purchase of Common Stock in a particular period shall be one percent
(1%).
(iii) No right to purchase shares under this Plan shall be granted to an
employee if such employee would, immediately after the grant, own stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company. An employee's stock ownership shall be
determined under Section 424(d) of the Code and stock that an employee may
purchase under any outstanding options shall be treated as stock owned by the
employee.
Notwithstanding the provisions of paragraphs (i) and (ii) above, the Committee
may, in its discretion, establish any other maximum and minimum percentages of
Compensation to be used to pay for Common Stock under this Plan.
(d) ALLOCATION OF AVAILABLE SHARES. If the total number of shares of Common
Stock that may be purchased under the purchase agreements of all Participants
for a particular purchase period exceeds the number of shares available for sale
under this Plan, then the Committee shall make a pro rata allocation of the
available shares and shall notify each Participant of such allocation.
(e) PAYMENT. Payment of the purchase price for Common Stock under this Plan
shall be effected by means of payroll deductions, which shall begin with the
first pay period, the payment date for which occurs coincident with or
immediately following the commencement date of the relevant purchase period and
shall terminate with the last pay period, the payment date for which occurs on
or before the last day of the purchase period. Each payroll deduction shall be
an amount equal to the percentage of the Compensation included in that payroll
payment that was designated by the Participant in his purchase agreement
(subject to reduction as provided in Section 6(g)).
(f) TERMINATION OF RIGHT TO PURCHASE. A Participant may, at any time before the
last day of the purchase period, terminate his right to purchase stock under
this Plan by filing the prescribed notification form with the Committee or its
delegate. Any amounts deducted from the Participant's pay or otherwise collected
from him by reason of his participation in this Plan for such purchase period
shall be refunded and no further amounts will be collected from the Participant
(by payroll deduction or otherwise) during the remainder of the purchase period.
A Participant's termination of his right to purchase shall be irrevocable with
respect to the purchase period to which it pertains.
(g) REDUCTION OF COMPENSATION PERCENTAGE. A Participant may, once and only once
during a purchase period, other than after his termination of employment with
the Company, reduce the percentage of his Compensation to be paid for shares of
Common Stock under the purchase agreement to a lesser whole percentage by giving
written notice to the Committee.
(h) TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of the
Company for any reason (including, without limitation, death or retirement)
during a purchase period, the Participant or his personal representative will
receive a cash refund of all sums previously collected from the Participant
during the purchase period.
(i) EXERCISE. Each right to purchase stock under this Plan, other than a right
to purchase Common Stock that has been accelerated under this Plan or that has
previously terminated under this Plan, shall be exercised automatically on the
last day of the purchase period. Promptly after the date of exercise, the
Participant or the Participant's nominee, shall be issued a stock certificate
for the number of whole and fractional shares for which the Participant's right
to purchase has been exercised. Not more than one certificate shall be issued
pursuant to the exercise of any right to purchase Common Stock under this Plan.
Any excess of amounts collected during the purchase period, plus any beginning
balance over the purchase price of the issued shares, shall be, at the sole
option of the Company, promptly refunded or left on deposit for the ensuing
quarterly period, and, in any case, refunded after termination.
29
<PAGE>
(j) REDUCTION OF PURCHASE PRICE. If the fair market value of a share of Common
Stock on the last day of the purchase period is less than the fair market value
of such share on the commencement date of the purchase period, then the purchase
price per share under this Plan on the last day of the purchase period shall be
reduced to eighty-five percent (85%) of the fair market value of such share on
the last day of the purchase period. Each right to purchase stock under this
Plan not previously exercised or terminated shall be automatically exercised on
the last day of the purchase period for the number of whole and fractional
shares obtained by dividing the sum on deposit from the Participant (and not
refunded) by the purchase price per share determined under this Section 6(j),
but in no event shall any right to purchase stock under this Plan be exercised
for more than the specified number of shares, if any, (subject to adjustment
under Section 5(b)) established by the Committee pursuant to Section 6(c)(i)
before the beginning of the purchase period, and the balance shall be, at the
sole option of the Company, promptly refunded or left on deposit for the ensuing
quarterly period.
(k) RIGHTS AS STOCKHOLDER. A Participant shall have no rights as a stockholder
with respect to shares subject to a right to purchase Common Stock granted under
this Plan until such right to purchase is exercised and a share certificate is
delivered to the Participant. No adjustments shall be made for dividends,
distributions or other rights for which the record date is before the date of
exercise.
(l) ASSIGNABILITY. No right to purchase Common Stock granted under this Plan
shall be assignable or transferable by a Participant other than by will or by
the laws of descent and distribution, and, during the lifetime of the
Participant, such rights to purchase Common Stock shall be exercisable only by
the Participant.
(m) ACCRUAL LIMITATIONS. No Participant shall be entitled to accrue rights to
purchase Common Stock under this Plan that, when aggregated with purchase rights
accruable by him under other qualified employee stock purchase plans (within the
meaning of Section 423 of the Code) of the Company, would permit such
Participant to purchase more than $25,000 worth of Common Stock (determined on
the basis of the fair market value of such Common Stock on the date the
Participant accrues purchase rights under the Plan) for each calendar year such
purchase rights are at any time outstanding.
(n) MERGER OR LIQUIDATION OF THE COMPANY. If the Company or its shareholders
enter into an agreement to dispose of all or substantially all of the assets of
the Company or to dispose of greater than fifty percent (50%) of the outstanding
capital stock of the Company by means of sale, merger, reorganization or
liquidation, each Participant shall be entitled to receive, as nearly as
reasonably may be determined, the cash, securities or property (or any
combination thereof) that a holder of one share of the Common Stock was entitled
to receive at the time of such transaction. The Board or the Committee shall
take such steps in connection with such transactions as the Board or the
Committee shall deem necessary to assure that the provisions of this Section
shall thereafter be applicable, as nearly as reasonably may be determined, to
the said cash, securities or property (or any combination thereof) as to which
such Participant might thereafter be entitled to receive.
(o) NO INTEREST. No interest shall be paid on any monies refunded to
Participants pursuant to the provisions of this Plan.
(p) WITHHOLDING. The Company may withhold any taxes required by any law or
regulation of any governmental authority, whether federal, state or local, in
connection with the purchase of Common Stock under this Plan or the sale of such
stock that is not held for at least two (2) years after the beginning of the
purchase period during which the Common Stock was purchased. Such withholding
may include all or any portion of any payment or other compensation payable to
the Participant, unless the Participant reimburses the Company for such amount.
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7. AMENDMENT.
The Board may from time to time alter, amend, suspend or discontinue this Plan;
provided, however, that no such action shall adversely affect rights and
obligations with respect to rights to purchase stock at the time outstanding
under this Plan and provided, further, that no such action of the Board may,
without the approval of the shareholders of the Company, increase the number of
shares subject to this Plan or the maximum number of shares for which a right to
purchase Common Stock under this Plan may be exercised (unless necessary to
effect the adjustments required by Section 5(b)), extend the term of this Plan,
alter the per share purchase price formula so as to reduce the purchase price
per share specified in this Plan, otherwise materially increase the benefits
accruing to Participants under the Plan or materially modify the requirements
for eligibility to participate in this Plan. Furthermore, the Plan may not,
without the approval of the shareholders of the Company, be amended in any
manner that will cause this Plan to fail to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code.
8. EFFECTIVE DATE
This Plan, as amended and restated, supersedes all prior versions of this Plan.
This Plan has been approved by the Board and shall become effective on the date
the shareholders of the Company approve this Plan.
Date: As amended through June 8, 1999.
METRO INFORMATION SERVICES, INC.
By: /s/ JOHN H. FAIN
--------------------------------
John H. Fain, President
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EXHIBIT 10.2
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
Metro Information Services, Inc., a Virginia corporation and
its subsidiaries, whether now existing or formed after the date hereof (the
"Corporation"), hereby adopts an amended and restated stock option plan (the
"Plan") to attract and retain key employees of the Corporation ("Employees").
This Plan replaces the Corporation's 1997 Incentive Stock Option Plan.
As a reward for the Employees' role in the continued growth
and success of the Corporation, the Corporation desires to provide to the
Employees the benefits inherent in ownership of the Corporation's common stock.
This Plan provides a means whereby the Employees are given an opportunity to
purchase shares of the Corporation's voting common stock on the exercise of the
options ("Options") granted under this Plan.
This Plan is as follows:
1. OPTION STOCK. The aggregate number of shares that may be
issued pursuant to Options granted under this Plan is 1,500,000 shares of the
Common Stock of the Corporation (the "Stock").
2. EMPLOYEES ELIGIBLE TO RECEIVE OPTION. Only key Employees,
including, without limitation, an Employee who is an officer or director of the
Corporation, are eligible to participate in and receive Options under this Plan.
For the purposes of this Plan, the term "key employees" shall mean and include
all persons who have responsibility in the management, administration or
supervision of the business or affairs of the Corporation or who are engaged in
the development, sale, marketing, promotion or performance of the services of
the Corporation. Directors of the Corporation who are not employees of the
Corporation are not eligible to receive Options under this Plan. In determining
the Employees to whom Options shall be granted under this Plan and the number of
shares of the Stock as to which Options may be granted to an Employee, a
committee of the Board of Directors ("Committee") shall consider the duties of
the Employees, their present and potential contributions to the success of the
business of the Corporation and such other factors as the Committee may deem
relevant in furthering the purposes of granting such Options in the interest of
the Corporation. An Employee may receive more than one Option under this Plan.
3. DURATION OF THE STOCK OPTION PLAN. All Options authorized
under this Plan must be granted within nine (9) years and eleven (11) months
from the date this Plan is adopted by the Committee or by the shareholders of
the Corporation, whichever is earlier.
4. GRANT OF OPTIONS. The Committee shall set forth each Option
and its terms and conditions on a written stock option certificate ("Option
Certificate") that shall be duly authorized by the Committee. The Committee
shall determine the type or types of Options to be made to each Employee and
shall set forth in each Option Certificate the terms, conditions, and
limitations applicable to each Option. Options may be granted singly, in
combination or in tandem. Options also may be granted in combination or in
tandem with, in replacement of, or as alternatives to, grants or rights under
any other employee plan of the Corporation, including the plan of any acquired
entity. The Option Certificate shall set forth the number of shares of Stock
that the Employee may purchase during any calendar year. The Committee, in
granting the Option, may, in its sole discretion, include such terms and
conditions in the Option Certificate as may be required to make the Option
qualify as an incentive stock option, if applicable, under the Code.
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5. INCENTIVE STOCK OPTIONS. Incentive stock options, or
substitutes therefor, are options to purchase shares of common stock of the
Corporation which, in addition to being subject to applicable terms, conditions,
and limitations established by the Committee, comply with Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Incentive stock options
shall be evidenced by Option Certificates which shall contain in substance the
following terms and conditions:
(a) OPTION PRICE. Each Option Certificate shall set
forth the exercise price per share of the stock ("Purchase Price"). The Purchase
Price per share of Stock deliverable upon the exercise of an incentive stock
option shall not be less than 100% of the fair market value of the stock on the
day the incentive stock option is granted, as determined by the Committee;
provided, however, that the Purchase Price per share of any Option granted to an
Employee who, at the time the Option is granted, is the owner of stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation, shall not be less than one hundred ten
percent (110%) of the fair market value of the Stock on the date that such
Option is granted.
(b) DURATION OF OPTION. Each Option Certificate,
pursuant to which incentive stock options are granted, shall state the period or
periods of time within which the incentive stock option may be exercised by the
Employee, in whole or in part, which shall be such period or periods of time as
may be determined by the Committee, provided that the exercise period shall not
end later than nine (9) years and eleven (11) months after the date of the grant
of the incentive stock option; provided, however, any Option granted to a person
who, at the time the Option is granted, is the owner of Stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation, must be exercised no later than four (4) years and
eleven (11) months after the date on which the Option is granted. The Committee,
in its discretion, may reduce the time specified herein for the exercise of the
Option in the Option Certificate, but may not expand on the time specified
herein.
(c) EXERCISE OF INCENTIVE STOCK OPTION. Each Option
shall be exercised, in whole or in part, as to such number of shares of Stock
and at such time or times as the Committee shall have determined at the time of
grant. No more than $100,000 worth of incentive stock options, based on the
Purchase Price granted under this Plan or any other incentive stock option plan
sponsored by the Corporation, shall be first exercisable in any calendar year by
any one employee. Except as provided in paragraph 10, an Option may only be
exercised if the holder of the Option is, at the time of exercise, in the employ
of the Corporation.
(d) CODE COMPLIANCE. Each Option Certificate, pursuant
to which incentive stock options are granted, shall contain such other terms,
conditions and provisions as the Committee may determine to be necessary or
desirable in order to qualify such option as a tax-favored option within the
meaning of Section 422 of the Code, or the regulations thereunder.
Notwithstanding Section 13 hereof, the Board shall have the power without
further approval to amend the terms of the Plan or any Option Certificates
thereunder for such purpose.
6. NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options,
or substitutes therefor, are options to purchase shares of common stock of the
Corporation which are not intended to comply with Section 422 of the Code.
Non-qualified stock options shall be evidenced by Option Certificates which
shall contain in substance the following terms and conditions:
(a) OPTION PRICE. The purchase price per share of stock
deliverable upon the exercise of a non-qualified stock option shall be not less
than 100% of the fair market value of the stock on the day the non-qualified
stock option is granted, as determined by the Committee.
(b) DURATION OF OPTION. Each Option Certificate,
pursuant to which non-qualified stock options are granted, shall state the
period or periods of time within which the non-qualified stock option may be
exercised by the Employee, in whole or in part, which shall be such period or
periods of time as may be determined by the Committee at the time of grant,
provided that the exercise period shall not end later than nine (9) years and
eleven (11) months after the date of the grant of the non-qualified stock
option.
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(c) CASHLESS EXERCISE. To the extent permitted under
the applicable laws and regulations under Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder, and with the consent of the
Committee, the Corporation agrees to cooperate in a "cashless exercise" of a
non-qualified stock option. The cashless exercise shall be effected by the
Employee delivering to a registered securities broker acceptable to the
Corporation instructions to sell a sufficient number of shares of stock to cover
the costs and expenses associated therewith.
7. PAYMENT FOR SHARES. At the time the Option is granted, the
Committee, in its sole discretion, may require payment of the Purchase Price at
the date of exercise of any Option hereunder in any form permitted by the Code,
including, without limitation, payment (1) in cash, (2) using a promissory note
payable over a specified number of years bearing interest at a specified annual
rate, (3) in stock equal to the Purchase Price or (4) any combination of the
foregoing as set forth in the Option Certificate; provided, however, if the
Option Certificate does not set forth a form of payment, payment shall be in
cash.
8. SHAREHOLDER RIGHTS. The holder of an Option shall not have
any of the rights of a shareholder of the Corporation with respect to the shares
of the Stock issuable on the exercise of the Option until one or more
certificates evidencing such shares ("Share Certificates") shall have been
issued to the holder of the Option.
9. RESTRICTIONS ON STOCK. All persons issued Share
Certificates shall sign an agreement with the Corporation indicating that they
are not taking the Stock with the view for sale or distribution of the Stock
and, if no registration statement is in effect with respect to such shares, that
they recognize that the issuance of the Stock is not subject to registration
under the Securities Act of 1933, the Securities and Exchange Act of 1934 or any
state agency of any State respecting the sale and transfer of securities.
10. TERMINATION OF EMPLOYMENT.
(a) Except as provided in Section 10(b) or 10(c), no
Option granted under this Plan shall be exercisable more than thirty (30) days
after the holder ceases to be an Employee of the Corporation and, on that date,
all outstanding Options and any accompanying rights, to the extent they have not
been exercised, shall terminate immediately. Options granted under this Plan
shall not be affected by any change of employment so long as the holder
continues to be an Employee of the Corporation.
(b) If the holder of an Option dies while employed by
the Corporation, the Option may be exercised, as to any shares subject to the
Option, by the executor, administrator or personal representative of such
deceased employee (or by such other person at the time who is entitled by law to
the rights of such deceased employee under the Option) at any time within twelve
(12) months after the death of the Employee, but in no event after the
expiration of the Option. In the event that the employment of the holder of the
Option of the Corporation is terminated by reason of the disability of the
holder of the Option, the Option may be exercised, as to any shares subject to
the Option, by the holder thereof at any time within twelve (12) months after
the date of such termination of Employee, but in no event after the expiration
of the term of the Option. For the purposes of this Plan, the term "disability"
shall mean a physical or mental disability as defined in Section 22(e)(3) of the
Code or, if such provision is repealed, as determined by the Committee in its
sole discretion. In the event that the employment of the holder of any Option is
terminated by reason of retirement of the holder of the Option at such age as
may be determined by the Committee at the date of the grant of the Option, the
Option may be exercised (to the extent otherwise exercisable on the date of
retirement of the holder of the Option) by the holder thereof at any time within
three (3) months after the date of such retirement, but in no event after the
expiration of the term of the Option.
(c) Notwithstanding anything in this Plan to the
contrary, if an Employee consultant who is paid on an hourly basis ("Hourly
Consultant") experiences a break in service with the Corporation that lasts
ninety (90) days or less, then the Hourly Consultant shall be entitled to retain
previously granted Options as well as the vesting rights available at the time
of such break in service.
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11. NON-TRANSFERABILITY OF OPTIONS. Options may not be
assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise), except to the extent expressly provided for
in this Plan and shall not be subject to execution, attachment or similar
process. Any assignment, transfer, pledge, hypothecation or other disposition of
any Option attempted contrary to the provisions of this Plan or any levy of
execution, attachment or other process attempted on an Option will be null and
void and without effect. Any attempt to make an assignment, pledge, transfer,
hypothecation or other disposition of an Option or any attempt to make a levy of
execution, attachment or other process will cause the Option to be terminated
immediately if the Corporation at any time should, in the sole discretion of the
Committee, so elect by written notice to the person entitled to exercise the
Option; provided, however, that any such termination of the Option will not
prejudice any rights or amenities of the Corporation that the Corporation may
have under this Plan or otherwise.
12. ADJUSTMENTS. If the Corporation shall at any time (a) be
involved in a transaction to which Section 424(a) of the Code is applicable, (b)
declare a dividend payable in stock, (c) subdivide or combine its stock or (d)
be involved in any other event that, in the judgment of the Committee,
necessitates action by way of adjusting the terms of the outstanding Options,
then the Committee shall take any action as, in its judgment, may be necessary
to preserve the outstanding Option holders' rights so that these rights remain
substantially proportionate to the rights as they existed before such event. To
the extent that such action shall include an increase or decrease in the number
of shares of Stock subject to outstanding Options under this Plan, the aggregate
number of shares of Stock available under Paragraph 1 of this Plan for issuance
on exercise of outstanding Options and of additional Options that may be granted
shall be increased or decreased proportionately, as the case may be. No action
shall be taken by the Committee under the provisions of this Paragraph that, in
its judgment, would constitute a modification, extension or renewal of the
Option within the meaning of Section 424(h) of the Code or that would prevent
the Option from qualifying as an incentive stock option within the meaning of
the Code. The determination of the Committee with respect to any matter in this
Paragraph shall be conclusive and binding on each holder of an Option granted
under this Plan.
13. TERMINATION AND AMENDMENT OF THIS PLAN. Unless sooner
terminated, this Plan shall terminate nine (9) years and eleven (11) months
after the date hereof, and no Option shall be granted hereunder after that date.
At any time, the Committee, without further approval of the shareholders may
terminate or amend this Plan without notice or make such modifications of this
Plan as it shall deem advisable; provided, however, that the Committee may not,
without prior approval of the holders of a majority of the outstanding shares of
the Stock of the Corporation (a) increase the maximum number of shares of Stock
as to which Options may be granted under this Plan (except as contemplated by
the provisions of Paragraph 11, (b) extend the term during which the Options may
be granted under this Plan, (c) permit the exercise of an Option after the date
on which such Option would otherwise terminate pursuant to the terms hereof or
(d) reduce the exercise price per share less than the purchase price as
determined by this Plan. No termination, amendment or modification of this Plan
may, without the consent of any person to whom any Option theretofore has been
granted, adversely affect the rights of such person under such Option or any
exercisable portion thereof. Notwithstanding the foregoing, this Plan, any
Option granted hereunder and the number of shares as to which any Option under
this Plan shall have been granted may be modified, retroactively at any time, to
conform to the provisions of the Code and the regulations promulgated thereunder
so that the Options under this Plan may qualify as incentive stock options
within the meaning of the Code. No such amendment shall be considered
prejudicial to the rights of any holder of any Option.
14. NO EMPLOYMENT RIGHTS. This Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
Employees to purchase any Stock under the Plan or create in any Employee or
class of Employees any right with respect to continuation of employment by the
Corporation. This Plan shall not be deemed to interfere in any way with the
Corporation's right to terminate or otherwise modify an Employee's employment at
any time.
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15. ADMINISTRATION. No person shall serve as a member of the
Committee, or if a member of the Committee, shall not participate in decisions
concerning the timing, pricing or amount of grant of Options hereunder, unless
such person is a non-employee director as defined in Rule 16b-3 promulgated
pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or
any successor rule ("Rule 16b-3"). This Plan is intended to meet the
requirements of Rule 16b-3 and shall be interpreted and administered so as to
comply with such rule.
The Corporation has amended and signed this Plan on the date
indicated below and shall be effective as of that date.
METRO INFORMATION SERVICES, INC.
Date: March 18, 1999 By: /S/ JOHN H. FAIN
--------------------------------
John H. Fain, President
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is dated as of April 1, 1999,
between METRO INFORMATION SERVICES, INC., a Virginia corporation (the
"Company"), and CHARLES ADAMS ("Executive").
PRELIMINARY STATEMENTS
A. Executive is employed by the Company as a Vice President of Operations.
B. The Company and the Executive desire to enter into this agreement to
establish the terms and conditions of Executive's employment with the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, the parties agree as
follows:
1. EMPLOYMENT PERIOD. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning April 1, 1999 and ending on the
first to occur of (a) December 31, 1999 and (b) the termination of Executive's
employment pursuant to paragraph 6 (the "Employment Period"); provided, however,
the Employment Period will be continued for successive one-year periods unless
at least 90 days before the end of the initial or any subsequent term either the
Company or the Executive gives the other notice of termination of this
Agreement.
2. SERVICES. During the Employment Period, Executive will render such
services of an executive and administrative character to the Company as it may
from time to time direct. During the Employment Period, Executive will devote
his best efforts and all of his business time and attention (except for vacation
periods and reasonable periods of illness or other incapacity) to the business
of the Company, and will not perform any services of any nature for any
enterprise other than the Company without the prior consent of the Company's
board of directors (the "Board of Directors").
3. BASE SALARY. Beginning April 1, 1999 and thereafter during the
Employment Period, the Company will pay Executive salary at a per annum rate of
One Hundred Fifty Thousand Dollars ($150,000) (the "Base Salary"). The Company
may increase or decrease the Base Salary at any time and from time to time. Any
increase or decrease in Executive's Base Salary shall be made in accordance with
Executive's annual compensation plan as approved by the Company's Board of
Directors.
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4. BENEFITS. Executive will be entitled to receive from the Company, in
addition to the salary set forth in paragraph 3 above, all benefits provided
generally to full time employees of the Company. Any alteration of the benefits
that Executive is entitled to receive from the Company shall be made in
accordance with Executive's annual compensation plan as approved by the
Company's Board of Directors.
5. Intentionally Omitted.
6. TERMINATION OF EMPLOYMENT.
a. The Employment Period will automatically end on Executive's
voluntary resignation, termination by the Board of Directors with or without
cause, termination by the Board of Directors in the event of Executive's
disability (as determined by the Board of Directors in its good faith judgment)
or Executive's death; PROVIDED, that Executive's resignation will be effective
not less than three months after Executive has given written notice thereof to
the Board of Directors; PROVIDED FURTHER, that Executive's termination with or
without cause will be effective only after the Board of Directors has determined
in its good faith judgment that such termination is in the best interests of the
Company and written notice of such termination has been delivered to Executive.
b. In the event of termination for disability or without cause,
Executive will be entitled to be paid his salary by the Company and to receive
the benefits set forth in paragraph 4 for a period following such termination of
2 weeks for each full year of service completed at the time of termination or 90
days, whichever is the longer. Such salary will be payable semi-monthly at the
rate in effect at the time of termination. Executive will have no duty to
mitigate the Company's damages by taking other employment after his termination
by the Company without cause and any compensation earned by him in such other
employment will not be deducted from any amount payable to him hereunder. In the
event of Executive's disability, however, the amounts payable to him hereunder
will be reduced by any amounts received by Executive from disability insurance
purchased by the Company for Executive.
c. "Disability," for purposes hereof, means any physical or mental
condition which prevents Executive from performing his duties hereunder, for 180
days, whether or not consecutive, in any 12-month period. In the event of
disagreement between the Board of Directors and Executive whether "disability"
exists, the disagreement will be resolved by arbitration pursuant to paragraph 9
below.
d. "Cause" for which the Board of Directors may terminate Executive's
employment means, (i) the commission of a crime involving the Company or any
entity in which it has an interest or (ii) a breach or
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breaches of Executive's fiduciary duty to the Company or its shareholders which
individually or in the aggregate are materially adverse to the Company's
business or financial condition or prospects; and, in either case, as finally
determined by a court of competent jurisdiction. "Finally determined" means
after all direct appeals to appellate courts of competent jurisdiction are
exhausted. While "materially adverse" as used in clause (ii) above is not
limited to the following instances, (x) any substantial breach of Executive's
duties under paragraphs 2, 7, 8 or 9 of this Agreement, and (y) any willful or
grossly negligent breach or breaches (whether or not related) of Executive's
fiduciary duties to the Company which, individually or in the aggregate, result
in the Company's suffering damages of $100,000 or more, will be deemed PRIMA
FACIE "materially adverse" within the meaning of clause (ii).
e. In the event that the Board of Directors determines, in its good
faith judgment, that Executive has committed a crime involving the Company or
any entity in which it has an interest, it may suspend Executive without pay
pending final determination of the charges, but only after Executive has been
charged with such crime by competent law-enforcement authorities by warrant,
summons, information, indictment or otherwise. During the period of suspension,
the Company will continue to provide Executive with the insurance benefits which
it provided pursuant to paragraph 4 above immediately before his suspension. In
the event that the criminal charges against Executive are finally determined
without a conviction of Executive of the crime charged or any lesser offense
included under such crime, the Company will reinstate Executive and resume
paying him the salary and providing him with the other benefits to which he is
entitled hereunder, with the salary payable retroactively to the date of
suspension (with interest at 8% per annum on all amounts not paid during the
period of suspension, calculated from the respective dates these amounts would
have been payable).
f. In the event that the Board of Directors determines, in its good
faith judgment, that Executive has committed a breach of fiduciary duty of a
type justifying termination with Cause, the Board may immediately suspend
Executive. During such suspension, however, Executive will continue to be paid
the salary provided in paragraph 3 and receive the benefits provided for in
paragraph 4, regardless of any other employment Executive may take. In the event
of final determination by a court of competent jurisdiction that Executive has
breached his fiduciary duty to the Company or its stockholders within the
meaning of paragraph 7(d)(ii) above, Executive will, on demand by the Board of
Directors, reimburse the Company for all salary and benefits received by him
from the Company from the date of suspension, together with interest thereon at
8% per annum from the respective
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dates of payment.
7. CONFIDENTIAL INFORMATION. Executive acknowledges that all computer
systems, programs, reports, designs, drawings, memoranda, discoveries,
inventions, state of the art technology, data, notes, records, files,
proposals, plans, lists, documents and any other information containing or
referring to confidential or proprietary information or concerning the
business or affairs of the Company or any of its clients (the "Proprietary
Information"), whether prepared or developed or both by Executive or others,
and all copies thereof are property of the Company or its clients,
respectively. Executive agrees that he will not disclose to any unauthorized
person any Proprietary Information nor will he use for his own account any
Proprietary Information without the written consent of the Company, which
consent may be denied for any reason or no reason. On the termination of
Executive's employment with the Company for any reason (or at any earlier
time that such request is made by the Company), Executive will deliver to the
Company all Proprietary Information and any copies thereof which Executive
may possess or have under his control. Executive agrees not to copyright or
attempt to copyright any Proprietary Information or any computer system or
any findings or recommendations or other data prepared in connection with the
Proprietary Information or Executive's performance of duties with the Company
or both.
8. NON-COMPETE. As a significant inducement to the Company to enter into
this Agreement, Executive agrees that:
a. as long as Executive is employed by the Company in any capacity,
during or after the Employment Period, Executive will not, directly or
indirectly, own any interest in, manage, control, participate in, render
services for or in any other manner engage in any other activity (all of the
foregoing being hereinafter referred to as having or acquiring an "interest") in
any information technology services business (whether or not a client of the
Company), without the prior consent of the Board of Directors;
b. beginning on the termination of Executive's employment with the
Company and ending two years after such termination for any reason (the
"Non-Compete Period"), Executive will not have or acquire an interest in any
enterprise which is "in competition" with the Company, as "in competition" is
defined below; and
c. after the end of the Non-Compete Period, Executive will not acquire
any interest in any enterprise "in competition" with the Company as long as he
owns 1% or more of any class of the capital stock of the Company.
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An enterprise will be deemed to be "in competition" with the Company
if (i) such enterprise is involved, directly or indirectly with providing
information technology services, or (ii) in the case of any enterprise other
than an enterprise providing information technology services, Executive's
intended relationship to such enterprise would, in the reasonable good faith
judgment of the Board of Directors, create problems for the Company or any of
its affiliates, or (iii) is a client of the Company or has been a client of
the Company during the 24-month period before the beginning of the
Non-Compete Period. To enable the Board of Directors to make the
determination required by clauses (ii) or (iii) of the immediately preceding
sentence, Executive will, during the Non-Compete Period and as long
thereafter as he owns any of the capital stock of the Company, inform the
Board of Directors in writing, at least 30 days before acquiring any interest
in any enterprise, of his intention to acquire such interest. The notice will
set forth sufficient information about that enterprise to enable the Company
to determine whether the enterprise is "in competition" with the Company.
If, at the time of enforcement of this Agreement, a court of
competent jurisdiction should hold that the restrictions contained in this
paragraph 8 are unreasonable under circumstances then existing, the Company
and Executive agree that the maximum period, scope, or geographical area
reasonable under such circumstances will be substituted for the stated
period, scope, or area.
9. STAFF RELATIONSHIPS. Executive acknowledges that the Company's employees
and its relationships with its employees are valuable assets of the Company.
Executive agrees that he will not, at any time during the term of his employment
and during the Non-Compete Period, directly or indirectly, engage in any of the
following activities, as an individual, independent contractor, officer,
partner, member, employee, agent, consultant, shareholder or investor:
a. employ, hire, engage, contract with or enter into any type of
business arrangement with any employee of the Company or any Prospect
(defined below) or solicit or seek to solicit any employee of the Company or
any Prospect to cease being an employee of the Company or seeking to have
such employee or Prospect enter into the employment of or enter into any
business arrangement with any other entity. For purposes of this Agreement,
the term "Prospect" means any individual or entity which is a candidate
recorded on the Company's Staff Sourcing Network or is an employee of any
entity with which the Company has entered into discussions or agreements
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concerning its acquisition or a strategic alliance or with which the Company has
another contractual arrangement. During the Non-Compete Period, Prospects shall
be those Prospects in existence at the beginning of the Non-Compete Period.
10. ARBITRATION. If there is any disagreement between the Company and
Executive whether a resignation by Executive was "voluntary" for purposes of
paragraphs 6 or 8, whether there was "Cause" for the Board of Directors to
terminate Executive's employment for purposes of paragraph 6, whether Executive
is "disabled" for purposes of paragraph 6 or whether an enterprise in which
Executive desires to acquire an interest is "in competition" with the Company
for purposes of paragraph 8, the Company and Executive will make a good faith
effort to resolve such disagreement between themselves. If they fail to so
resolve it, they agree to submit the issue to a binding arbitrator proposed by
the Company reasonably satisfactory to Executive. Executive agrees to pay all
costs of such arbitration and to abide by the results if the Company prevails in
the arbitration and the Company agrees to pay all the costs of the arbitration
and to abide by the results if Executive prevails in the arbitration.
11. REMEDIES. The parties will be entitled to enforce their rights under
this Agreement specifically, to recover damages by reason of any breach of any
provision hereof, and to exercise all other rights existing in their favor. The
Company and Executive agree and acknowledge that money damages may not be an
adequate remedy for any breach by Executive of the provisions of this Agreement
(including paragraph 8) and that the Company may in its sole discretion apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief to enforce, or prevent any violations of, the
provisions of this Agreement.
12. MODIFICATION, AMENDMENT, WAIVER. No modification, amendment or waiver
of any provision of this Agreement will be effective unless set forth in a
writing signed by the Company and Executive and approved by the Board of
Directors. The Company's or Executive's failure at any time to enforce any
provision of this Agreement will in no way be construed as a waiver of such
provision and will not affect the right of the Company and Executive thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
13. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such provision will be ineffective only to the extent of such
invalidity, illegality or unenforceability in such jurisdiction, without
42
<PAGE>
invalidating the remainder of this Agreement in such jurisdiction or any
provision hereof in any other jurisdiction.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience and do not constitute a part of this Agreement.
15. CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by and interpreted in
accordance with the internal law, and not the law of conflicts, of the
Commonwealth of Virginia.
16. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of any of the provisions of this Agreement will be
in writing and will, except as otherwise provided herein, be deemed to have been
given when delivered personally or mailed by certified or registered mail,
return receipt requested and postage prepaid, to the recipient c/o Metro
Information Services, Inc., Reflections II, P.O. Box 8888, Virginia Beach,
Virginia 23450, or at such other address as the recipient party has specified by
prior written notice to the sending party.
IN WITNESS, the undersigned parties have executed this Agreement as of the
date first written above.
METRO INFORMATION SERVICES, INC.
By /s/ John H. Fain
-------------------------------
John H. Fain, President
EXECUTIVE:
/s/ Charles Adams
----------------------------------
Charles Adams
43
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is dated as of September 23,
1999 ("Effective Date"), between METRO INFORMATION SERVICES, INC., a Virginia
corporation (the "Company"), and BRUCE F. GANNETT ("Executive").
PRELIMINARY STATEMENTS
A. Executive is employed by the Company as a Vice President of
Operations.
B. The Company and the Executive desire to enter into this agreement
to establish the terms and conditions of Executive's employment with the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, the parties agree as
follows:
1. EMPLOYMENT PERIOD. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning on the Effective Date and
ending on the first to occur of (a) December 31, 1999 and (b) the termination of
Executive's employment pursuant to paragraph 6 (the "Employment Period");
provided, however, the Employment Period will be continued for successive
one-year periods unless at least 90 days before the end of the initial or any
subsequent term either the Company or the Executive gives the other notice of
termination of this Agreement.
2. SERVICES. During the Employment Period, Executive will render such
services of an executive and administrative character to the Company as it may
from time to time direct. During the Employment Period, Executive will devote
his best efforts and all of his business time and attention (except for vacation
periods and reasonable periods of illness or other incapacity) to the business
of the Company, and will not perform any services of any nature for any
enterprise other than the Company without the prior consent of the Company's
board of directors (the "Board of Directors").
3. BASE SALARY. Beginning on the Effective Date and thereafter during the
Employment Period, the Company will pay Executive salary at a per annum rate of
One Hundred Sixty-five Thousand Dollars ($165,000) (the "Base Salary"). The
Company may increase or decrease the Base Salary at any time and from time to
time. Any increase or decrease in Executive's Base Salary shall be made in
accordance with Executive's annual
44
<PAGE>
compensation plan as approved by the Company's Board of Directors.
4. BENEFITS. Executive will be entitled to receive from the Company, in
addition to the salary set forth in paragraph 3 above, all benefits provided
generally to full time employees of the Company. Any alteration of the benefits
that Executive is entitled to receive from the Company shall be made in
accordance with Executive's annual compensation plan as approved by the
Company's Board of Directors.
5. Intentionally Omitted.
6. TERMINATION OF EMPLOYMENT.
a. The Employment Period will automatically end on Executive's
voluntary resignation, termination by the Board of Directors with or without
cause, termination by the Board of Directors in the event of Executive's
disability (as determined by the Board of Directors in its good faith judgment)
or Executive's death; PROVIDED, that Executive's resignation will be effective
not less than three months after Executive has given written notice thereof to
the Board of Directors; PROVIDED FURTHER, that Executive's termination with or
without cause will be effective only after the Board of Directors has determined
in its good faith judgment that such termination is in the best interests of the
Company and written notice of such termination has been delivered to Executive.
b. In the event of termination for disability or without cause,
Executive will be entitled to be paid his salary by the Company and to receive
the benefits set forth in paragraph 4 for a period following such termination of
2 weeks for each full year of service completed at the time of termination or 90
days, whichever is the longer. Such salary will be payable per the Company's
standard pay schedule in effect at the time of termination. Executive will have
no duty to mitigate the Company's damages by taking other employment after his
termination by the Company without cause and any compensation earned by him in
such other employment will not be deducted from any amount payable to him
hereunder. In the event of Executive's disability, however, the amounts payable
to him hereunder will be reduced by any amounts received by Executive from
disability insurance purchased by the Company for Executive.
c. "Disability," for purposes hereof, means any physical or mental
condition which prevents Executive from performing his duties hereunder, for 180
days, whether or not consecutive, in any 12-month period. In the event of
disagreement between the Board of Directors and Executive whether "disability"
exists, the disagreement will be resolved by arbitration pursuant to paragraph 9
below.
45
<PAGE>
d. "Cause" for which the Board of Directors may terminate Executive's
employment means, (i) the commission of a crime involving the Company or any
entity in which it has an interest or (ii) a breach or breaches of Executive's
fiduciary duty to the Company or its shareholders which individually or in the
aggregate are materially adverse to the Company's business or financial
condition or prospects; and, in either case, as finally determined by a court of
competent jurisdiction. "Finally determined" means after all direct appeals to
appellate courts of competent jurisdiction are exhausted. While "materially
adverse" as used in clause (ii) above is not limited to the following instances,
(x) any substantial breach of Executive's duties under paragraphs 2, 7, 8 or 9
of this Agreement, and (y) any willful or grossly negligent breach or breaches
(whether or not related) of Executive's fiduciary duties to the Company which,
individually or in the aggregate, result in the Company's suffering damages of
$100,000 or more, will be deemed PRIMA FACIE "materially adverse" within the
meaning of clause (ii).
e. In the event that the Board of Directors determines, in its good
faith judgment, that Executive has committed a crime involving the Company or
any entity in which it has an interest, it may suspend Executive without pay
pending final determination of the charges, but only after Executive has been
charged with such crime by competent law-enforcement authorities by warrant,
summons, information, indictment or otherwise. During the period of suspension,
the Company will continue to provide Executive with the insurance benefits which
it provided pursuant to paragraph 4 above immediately before his suspension. In
the event that the criminal charges against Executive are finally determined
without a conviction of Executive of the crime charged or any lesser offense
included under such crime, the Company will reinstate Executive and resume
paying him the salary and providing him with the other benefits to which he is
entitled hereunder, with the salary payable retroactively to the date of
suspension (with interest at 8% per annum on all amounts not paid during the
period of suspension, calculated from the respective dates these amounts would
have been payable).
f. In the event that the Board of Directors determines, in its good
faith judgment, that Executive has committed a breach of fiduciary duty of a
type justifying termination with Cause, the Board may immediately suspend
Executive. During such suspension, however, Executive will continue to be paid
the salary provided in paragraph 3 and receive the benefits provided for in
paragraph 4, regardless of any other employment Executive may take. In the event
of final determination by a court of competent jurisdiction that Executive has
breached his fiduciary duty to the Company or its stockholders within the
meaning of paragraph 7(d)(ii) above,
46
<PAGE>
Executive will, on demand by the Board of Directors, reimburse the Company for
all salary and benefits received by him from the Company from the date of
suspension, together with interest thereon at 8% per annum from the respective
dates of payment.
7. CONFIDENTIAL INFORMATION. Executive acknowledges that all computer
systems, programs, reports, designs, drawings, memoranda, discoveries,
inventions, state of the art technology, data, notes, records, files, proposals,
plans, lists, documents and any other information containing or referring to
confidential or proprietary information or concerning the business or affairs of
the Company or any of its clients (the "Proprietary Information"), whether
prepared or developed or both by Executive or others, and all copies thereof are
property of the Company or its clients, respectively. Executive agrees that he
will not disclose to any unauthorized person any Proprietary Information nor
will he use for his own account any Proprietary Information without the written
consent of the Company, which consent may be denied for any reason or no reason.
On the termination of Executive's employment with the Company for any reason (or
at any earlier time that such request is made by the Company), Executive will
deliver to the Company all Proprietary Information and any copies thereof which
Executive may possess or have under his control. Executive agrees not to
copyright or attempt to copyright any Proprietary Information or any computer
system or any findings or recommendations or other data prepared in connection
with the Proprietary Information or Executive's performance of duties with the
Company or both.
8. NON-COMPETE. As a significant inducement to the Company to enter into
this Agreement, Executive agrees that:
a. as long as Executive is employed by the Company in any capacity,
during or after the Employment Period, Executive will not, directly or
indirectly, own any interest in, manage, control, participate in, render
services for or in any other manner engage in any other activity (all of the
foregoing being hereinafter referred to as having or acquiring an "interest") in
any information technology services business (whether or not a client of the
Company), without the prior consent of the Board of Directors;
b. beginning on the termination of Executive's employment with the
Company and ending two years after such termination for any reason (the
"Non-Compete Period"), Executive will not have or acquire an interest in any
enterprise which is "in competition" with the Company, as "in competition" is
defined below; and
c. after the end of the Non-Compete Period, Executive will not acquire
any interest in
47
<PAGE>
any enterprise "in competition" with the Company as long as he owns 1% or more
of any class of the capital stock of the Company.
An enterprise will be deemed to be "in competition" with the Company
if (i) such enterprise is involved, directly or indirectly with providing
information technology services, or (ii) in the case of any enterprise other
than an enterprise providing information technology services, Executive's
intended relationship to such enterprise would, in the reasonable good faith
judgment of the Board of Directors, create problems for the Company or any of
its affiliates, or (iii) is a client of the Company or has been a client of
the Company during the 24-month period before the beginning of the
Non-Compete Period. To enable the Board of Directors to make the
determination required by clauses (ii) or (iii) of the immediately preceding
sentence, Executive will, during the Non-Compete Period and as long
thereafter as he owns any of the capital stock of the Company, inform the
Board of Directors in writing, at least 30 days before acquiring any interest
in any enterprise, of his intention to acquire such interest. The notice will
set forth sufficient information about that enterprise to enable the Company
to determine whether the enterprise is "in competition" with the Company.
If, at the time of enforcement of this Agreement, a court of
competent jurisdiction should hold that the restrictions contained in this
paragraph 8 are unreasonable under circumstances then existing, the Company
and Executive agree that the maximum period, scope, or geographical area
reasonable under such circumstances will be substituted for the stated
period, scope, or area.
9. STAFF RELATIONSHIPS. Executive acknowledges that the Company's
employees and its relationships with its employees are valuable assets of the
Company. Executive agrees that he will not, at any time during the term of his
employment and during the Non-Compete Period, directly or indirectly, engage in
any of the following activities, as an individual, independent contractor,
officer, partner, member, employee, agent, consultant, shareholder or investor:
a. employ, hire, engage, contract with or enter into any type of
business arrangement with any employee of the Company or any Prospect (defined
below) or solicit or seek to solicit any employee of the Company or any Prospect
to cease being an employee of the Company or seeking to have such employee or
Prospect enter into the employment of or enter into any business arrangement
with any other entity. For purposes of this
48
<PAGE>
Agreement, the term "Prospect" means any individual or entity which is a
candidate recorded on the Company's Staff Sourcing Network or is an employee of
any entity with which the Company has entered into discussions or agreements
concerning its acquisition or a strategic alliance or with which the Company has
another contractual arrangement. During the Non-Compete Period, Prospects shall
be those Prospects in existence at the beginning of the Non-Compete Period.
10. ARBITRATION. If there is any disagreement between the Company and
Executive whether a resignation by Executive was "voluntary" for purposes of
paragraphs 6 or 8, whether there was "Cause" for the Board of Directors to
terminate Executive's employment for purposes of paragraph 6, whether Executive
is "disabled" for purposes of paragraph 6 or whether an enterprise in which
Executive desires to acquire an interest is "in competition" with the Company
for purposes of paragraph 8, the Company and Executive will make a good faith
effort to resolve such disagreement between themselves. If they fail to so
resolve it, they agree to submit the issue to a binding arbitrator proposed by
the Company reasonably satisfactory to Executive. Executive agrees to pay all
costs of such arbitration and to abide by the results if the Company prevails in
the arbitration and the Company agrees to pay all the costs of the arbitration
and to abide by the results if Executive prevails in the arbitration.
11. REMEDIES. The parties will be entitled to enforce their rights under
this Agreement specifically, to recover damages by reason of any breach of any
provision hereof, and to exercise all other rights existing in their favor. The
Company and Executive agree and acknowledge that money damages may not be an
adequate remedy for any breach by Executive of the provisions of this Agreement
(including paragraph 8) and that the Company may in its sole discretion apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief to enforce, or prevent any violations of, the
provisions of this Agreement.
12. MODIFICATION, AMENDMENT, WAIVER. No modification, amendment or waiver
of any provision of this Agreement will be effective unless set forth in a
writing signed by the Company and Executive and approved by the Board of
Directors. The Company's or Executive's failure at any time to enforce any
provision of this Agreement will in no way be construed as a waiver of such
provision and will not affect the right of the Company and Executive thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
13. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be
49
<PAGE>
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such provision will be ineffective only to the extent
of such invalidity, illegality or unenforceability in such jurisdiction, without
invalidating the remainder of this Agreement in such jurisdiction or any
provision hereof in any other jurisdiction.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience and do not constitute a part of this Agreement.
15. CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by and interpreted in
accordance with the internal law, and not the law of conflicts, of the
Commonwealth of Virginia.
16. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of any of the provisions of this Agreement will be
in writing and will, except as otherwise provided herein, be deemed to have been
given when delivered personally or mailed by certified or registered mail,
return receipt requested and postage prepaid, to the recipient c/o Metro
Information Services, Inc., Reflections II, P.O. Box 8888, Virginia Beach,
Virginia 23450, or at such other address as the recipient party has specified by
prior written notice to the sending party.
IN WITNESS, the undersigned parties have executed this Agreement as of the
date first written above.
METRO INFORMATION SERVICES, INC.
By /s/ John H. Fain
-------------------------------
John H. Fain, President
EXECUTIVE:
/s/ Bruce F. Gannett
----------------------------------
Bruce F. Gannett
50
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS' LEGEND.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 4,007 4,007
<SECURITIES> 0 0
<RECEIVABLES> 58,099 58,099
<ALLOWANCES> 386 386
<INVENTORY> 0 0
<CURRENT-ASSETS> 66,961 66,961
<PP&E> 17,924 17,924
<DEPRECIATION> 6,056 6,056
<TOTAL-ASSETS> 178,962 178,962
<CURRENT-LIABILITIES> 24,566 24,566
<BONDS> 0 0
0 0
0 0
<COMMON> 150 150
<OTHER-SE> 38,765 38,765
<TOTAL-LIABILITY-AND-EQUITY> 178,962 178,962
<SALES> 0 0
<TOTAL-REVENUES> 81,253 232,035
<CGS> 0 0
<TOTAL-COSTS> 57,233 164,021
<OTHER-EXPENSES> 16,954 45,646
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 865 1,715
<INCOME-PRETAX> 6,232 20,759
<INCOME-TAX> 2,524 8,407
<INCOME-CONTINUING> 3,708 12,351
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,708 12,351
<EPS-BASIC> 0.25 0.83
<EPS-DILUTED> 0.25 0.82
</TABLE>
<PAGE>
EXHIBIT 99
SECOND MODIFICATION AND JOINDER AGREEMENT
------------------------------------------
THIS SECOND MODIFICATION AND JOINDER AGREEMENT ("Agreement"), dated as
of the 25th day of August, 1999, is made by, between and among METRO
INFORMATION SERVICES, INC., a Virginia corporation ("Borrower"), METRO
INFORMATION SERVICES OF NORTHERN CALIFORNIA, INC., a Virginia
corporation ("Metro NC"), METRO INFORMATION SERVICES OF LOS ANGELES,
INC., a Virginia corporation ("Metro LA"), METRO INFORMATION SERVICES OF
ORANGE COUNTY, INC., a Virginia corporation ("Metro OC"), METRO
INFORMATION SERVICES OF PENNSYLVANIA, INC. a Virginia corporation
("Metro PA"), METRO INFORMATION SERVICES-ATS, INC., a Virginia
corporation ("Metro ATS"), ACUITY TECHNOLOGY SERVICES, LLC, a Virginia
limited liability company ("Acuity LLC") (Metro NC, Metro LA, Metro OC,
Metro PA, Metro ATS and Acuity LLC are sometimes hereinafter
individually referred to as "Guarantor" and collectively referred to as
"Guarantors"), BANK OF AMERICA, N.A. d/b/a NationsBank, N.A., successor
to NationsBank, N.A. ("Bank of America"), CRESTAR BANK ("Crestar"),
FIRST UNION NATIONAL BANK ("First Union") and Wachovia Bank, N.A.
("Wachovia") (Bank of America, Crestar, First Union and Wachovia are
sometimes hereinafter individually referred to as a "Lender" and
collectively referred to as "Lenders").
R E C I T A L S:
-----------------
A. Borrower, Bank of America, Crestar and First Union are parties
to a Credit Agreement, dated June 20, 1997, as modified by a First
Modification Agreement, dated as of January 15, 1999 (collectively, the
"Credit Agreement"), pursuant to which each bank has provided Borrower
with a line of credit facility in the amount of $30,000,000.
B. Borrower has requested, and each Lender has agreed, that (i)
Bank of America, Crestar and First Union each increase the amount of
their respective line of credit facility to $35,000,000, and (ii)
Wachovia become a Lender under the Credit Agreement and all related
documents and provide a line of credit facility to Borrower in the
amount of $20,000,000, so that the four lines of credit total
$125,000,000, on the terms and subject to the conditions set forth in
this Agreement and the Credit Agreement.
C. Each Guarantor is a wholly owned subsidiary of Borrower, or a
remote subsidiary of Borrower, and has unconditionally guaranteed
payment of the Obligations of Borrower under the Credit Agreement.
Guarantors join in this Agreement to evidence their consent to the
modification to the Loan Documents set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement and the Credit Agreement, and for other good and valuable
consideration, the parties stipulate and agree as follows:
1. DEFINITIONS. Unless the context otherwise requires, terms used in
-----------
this Agreement will have the same meanings and definitions as set forth in the
Credit Agreement.
52
<PAGE>
2. JOINDER OF WACHOVIA. Wachovia joins in and becomes a party to the
-------------------
Credit Agreement and the Loan Documents, and in all respects shall be considered
a Lender under the Credit Agreement and the other Loan Documents. Wachovia will
have all of the rights and obligations of a Lender under the Loan Documents.
3. MODIFICATIONS TO LOAN DOCUMENTS. The Loan Documents are modified
-------------------------------
and amended as follows:
3.1. The definition of the terms "Commitment" and "Process
Agent" contained in Section 1.1 of the Credit Agreement are deleted and the
following definitions are substituted in lieu thereof:
"Commitment" means, with respect to each of Bank of America,
Crestar and First Union, $35,000,000, and with respect to Wachovia,
$20,000,000.
"Commitment Termination Date" means, as to each Lender, June 20,
2004, 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.
"Process Agent" means C. Grigsby Scifres, Esquire, whose
address is Williams, Mullen, Clark & Dobbins, P.C., 900 One
Columbus Center, Virginia Beach, Virginia 23462.
3.2. The maximum aggregate principal amount of Advances on the
Loans by all of the Lenders, as referenced in Section 2.1(a) of the Credit
Agreement, is increased from $90,000,000 to $125,000,000. Each reference in
the Loan Documents, and in any exhibits thereto, to the sum $90,000,000 is
modified to refer to the sum $125,000,000. Each reference in the Loan
Documents, and in any exhibits thereto, to the sum $30,000,000 is modified to
refer to the sum $35,000,000 as to Bank of America, Crestar and First Union,
and the sum $20,000,000 as to Wachovia.
3.3. All references in the Loan Documents to NationsBank,
N.A., are changed to mean and refer to Bank of America.
3.4. Schedule 2.2 attached to the Credit Agreement is
deleted and replacement Schedule 2.2 attached to this Agreement as EXHIBIT A
is substituted in lieu thereof. The average unused commitment fee for
Wachovia for its Commitment Period, as set forth in Schedule 2.2, shall be
payable to Wachovia quarterly in arrears beginning on November 30, 1999, and
continuing quarterly thereafter during Wachovia's Commitment Periods, with
the final installment of such commitment fee being paid to Wachovia 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.
3.5. In Section 10.6 of the Credit Agreement, the
NationsBank address and other contact information is deleted and the
following address and other contact information for Bank of America is
substituted in lieu thereof:
53
<PAGE>
Bank of America, N.A.
Commercial Banking
One Commercial Place, 3rd Floor
Norfolk, Virginia 23510-2103
ATTN: Nancy A. Old
Facsimile No. 757-441-8237
3.6. In Section 10.6 of the Credit Agreement, the address
and other contact information for Steven W. Burke, Esquire is deleted and
the following address and other contact information for copies of all notices
to Borrower is substituted in lieu thereof:
C. Grigsby Scifres, Esquire
Williams, Mullen, Clark & Dobbins, P.C.
900 One Columbus Center
Virginia Beach, Virginia 23462-6762
Facsimile No. 757-473-0395
3.7. In Section 10.6 of the Credit Agreement, the
following address and other contact information for Wachovia is inserted for
purposes of notices to Wachovia:
Wachovia Bank, N.A.
Corporate Banking
400 World Trade Center
Post Office Box 12602
Norfolk, Virginia 23541-0602
ATTN: Charnette Simmons
Facsimile No. 757-640-5690
3.8. The term "Loan Documents" defined in Section 1.1 of
the Credit Agreement also includes, without limitation, this Agreement, the
Replacement Notes and the Wachovia Note delivered to the Lenders pursuant to
Section 4 below, and the security agreements and guaranties delivered to the
Lenders pursuant to Section 5 below.
4. WACHOVIA NOTE AND REPLACEMENT NOTES. Borrower will deliver to each
-----------------------------------
of Bank of America, Crestar and First Union a replacement commercial note (each
hereinafter referred to as a "Replacement Note") which shall (i) be executed by
Borrower and dated the date of this Agreement, (ii) be payable to the order of
each such Lender at its respective office in the amount of $35,000,000, (iii)
bear interest in accordance with Section 3.6 of the Credit Agreement and (iv) be
in the form of EXHIBIT B attached to and incorporated in this Agreement with
blanks appropriately completed in conformity with the Credit Agreement and this
Agreement. Borrower will deliver to Wachovia a commercial note (the "Wachovia
Note") which shall (i) be executed by Borrower and dated the date of this
Agreement, (ii) be payable to the order of Wachovia at its office in the amount
of $20,000,000, (iii) bear interest in accordance with Section 3.6 of the Credit
Agreement and (iv) be in the form of EXHIBIT C attached to and incorporated in
this Agreement with blanks appropriately completed in conformity with the Credit
Agreement and this Agreement. All references in the Loan Documents to the Notes
will be deemed to refer to the Replacement Notes and Wachovia Note delivered in
accordance with
54
<PAGE>
this Agreement. On delivery to a Lender of its Replacement Note,
such Lender will return its original Note to Borrower.
5. WACHOVIA SECURITY AGREEMENTS AND GUARANTIES. Borrower will deliver
-------------------------------------------
to Wachovia a security agreement ("Wachovia Security Agreement") in the form of
EXHIBIT B to the Credit Agreement and will file UCC-1 financing statements to
perfect Wachovia's security interest in the Collateral. Each Guarantor will
deliver to the Lenders (i) a replacement guaranty ("Replacement Guaranty") in
the form of EXHIBIT D to the Credit Agreement and (ii) a replacement security
agreement ("Replacement Security Agreement") in the form of EXHIBIT E to the
Credit Agreement. Each Guarantor, other than Metro ATS, will file UCC-1
financing statements to perfect Wachovia's security interest in the Collateral
owned by each Guarantor. On delivery to each Lender, other than Wachovia, of the
Replacement Guaranties and Replacement Security Agreements from the Guarantors,
the Lenders will return the original Guaranties and Subsidiary Security
Agreements to the Guarantors.
6. CONDITIONS TO EFFECTIVENESS. This Agreement is limited as specified
---------------------------
and shall not constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement, or any other Loan Documents. This Agreement
shall become effective on the date (the "Modification Agreement Effective Date")
when each of the following conditions have been satisfied by Borrower and
Guarantors or waived by the Lenders:
6.1. Borrower, Guarantors and each Lender shall have
signed a counterpart of this Agreement (whether the same or different
counterparts);
6.2. The Lenders shall have received from Williams,
Mullen, Clark, and Dobbins, P.C., counsel to the Borrower and Guarantors, an
opinion addressed to the Lenders and dated the Modification Agreement
Effective Date, in form and substance reasonably satisfactory to the Lenders
and covering such matters incident to the Loan Documents, this First
Modification Agreement and the transactions contemplated herein as the
Lenders may reasonably request;
6.3. The Lenders shall have received Resolutions of the
Board of Directors of the Borrower and Guarantors, which Resolutions shall be
certified by the Secretary or any Assistant Secretary of such entity and
shall authorize the execution, delivery and performance by each such party of
this Agreement and any documents contemplated hereby, and the consummation of
the transactions contemplated hereby;
6.4. The Lenders shall have received from the Borrower and
Guarantors all of the documents required by Sections 4 and 5 above, duly
executed, and all UCC-1 financing statements in favor of Wachovia as secured
party shall have been filed;
6.5. The Lenders shall have received a Certificate from
the Borrower in the form prescribed pursuant to Section 4.1(c) of the Credit
Agreement; and
6.6. The Lenders shall have received a Certificate of Good
Standing for the Borrower and for each Guarantor issued by the State
Corporation Commission of Virginia dated within 60 days prior to the date of
this Agreement, together with Certificates issued by other states confirming
the Borrower and each Guarantor is qualified to do business in each
jurisdiction in which it does business.
55
<PAGE>
7. FURTHER ASSURANCES. Borrower and Guarantors will execute and
------------------
deliver, or cause to be executed and delivered, and do or make, or cause to be
done or made, on the reasonable request of any Lender, any and all instruments,
documents, acts or things, supplemental, confirmatory or otherwise, for the
purpose of effecting the modifications to the Loan Documents described in this
Agreement.
8. CONFLICT BETWEEN DOCUMENTS; RATIFICATION. If there is any conflict
----------------------------------------
between the terms and conditions of this Agreement or any note, guaranty or
security agreement delivered in accordance with this Agreement and any one or
more of the terms and conditions of any other Loan Document, the terms and
conditions of this Agreement or the documents delivered pursuant to this
Agreement, as applicable, will supercede and control. Except as modified by the
provisions of this Agreement, the Borrower and each Lender hereby ratifies and
reaffirms all of the provisions of the Loan Documents.
9. MULTIPLE COUNTERPARTS. This Agreement may be executed in any number
---------------------
of counterparts, all of which taken together will constitute one and the same
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10. GOVERNING LAW. This Agreement has been prepared, is being executed
-------------
and delivered, and is intended to be performed in the Commonwealth of Virginia.
The substantive laws of such state and the applicable federal laws of the United
States of America will govern the validity, construction, enforcement and
interpretation of this Agreement and all of the other Loan Documents.
11. GUARANTORS' CONSENT. Each Guarantor consents to the modifications
-------------------
to Loan Documents set forth in this Agreement and to the increase in the
Obligations which they have guaranteed. The Guarantors ratify and affirm all
their obligations under their respective guarantees as modified by this
Agreement. By executing and delivering this Agreement, each Guarantor agrees
that all Obligations (including, without limitation, the additional Loans which
may be incurred pursuant to the maximum Commitments after giving effect to this
Agreement) shall be fully guaranteed pursuant to the Guaranty to which each is a
party in accordance with the terms and provisions thereof, and shall be fully
secured pursuant to each Guarantor's respective Security Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the day and year first above written.
METRO INFORMATION SERVICES, INC.
By: /s/ Robert J. Eveleigh
-----------------------
Robert J. Eveleigh,
Vice President and Chief Financial Officer
56
<PAGE>
METRO INFORMATION SERVICES OF LOS
ANGELES, INC.
By: /s/ Robert J. Eveleigh
-----------------------
Robert J. Eveleigh,
Secretary and Treasurer
METRO INFORMATION SERVICES OF NORTHERN
CALIFORNIA, INC.
By: /s/ Robert J. Eveleigh
------------------------
Robert J. Eveleigh,
Secretary and Treasurer
METRO INFORMATION SERVICES OF ORANGE
COUNTY, INC.
By: /s/ Robert J. Eveleigh
------------------------
Robert J. Eveleigh,
Secretary and Treasurer
METRO INFORMATION SERVICES OF PENNSYLVANIA,
INC.
By: /s/ Robert J. Eveleigh
------------------------
Robert J. Eveleigh,
Secretary and Treasurer
METRO INFORMATION SERVICES-ATS, INC.
By: /s/ Robert J. Eveleigh
------------------------
Robert J. Eveleigh,
Secretary and Treasurer
ACUITY TECHNOLOGY SERVICES, LLC
By: /s/ Robert J. Eveleigh
------------------------
Robert J. Eveleigh,
Secretary and Treasurer
57
<PAGE>
BANK OF AMERICA, N.A.
d/b/a NationsBank, N.A.,
successor to NationsBank, N.A.
By: /s/ Nancy A. Old
-----------------
Nancy A. Old,
Vice President
CRESTAR BANK
By: /s/ Joel S. Rhew
-----------------
Joel S. Rhew,
Senior Vice President
FIRST UNION NATIONAL BANK
By: /s/ Bonnie A. Banks
--------------------
Bonnie A. Banks,
Vice President
WACHOVIA BANK, N.A.
By: /s/ James M. Themides
----------------------
James M. Themides
Sr. Vice President
65029035/Second Modification/SECOND MODIFICATION & JOINDER AGREEMENT
58
<PAGE>
EXHIBIT A
---------
SCHEDULE 2.2
<TABLE>
<CAPTION>
UNUSED COMMITMENT FEES
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
FUNDED DEBT
TO EBITDA FIRST UNION CRESTAR BANK OF AMERICA WACHOVIA
RATIO
<S> <C> <C> <C> <C>
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
> 2.5 .3125 .3125 .25 .25
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
1.5 - 2.5 .2500 .2500 .18725 .18725
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
.5 - 1.5 .1875 .1875 .125 .125
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
LESS THAN .5 .1875 .1250 .125 .125
- ----------------------------- ---------------------- ------------------ ----------------------- ---------------------
</TABLE>
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.
59
<PAGE>
EXHIBIT B
---------
REPLACEMENT COMMERCIAL NOTE
____________, 1999 $35,000,000.00
Commitment
FOR VALUE RECEIVED, the undersigned (the "Maker"),
unconditionally promises to pay to the order of ___________________ (the
"Bank"), without offset, at the Bank's office in Norfolk, Virginia, or at such
other place as the Bank may designate, all sums advanced hereunder pursuant to
the Credit Agreement (as hereinafter defined), with interest payable on the
first day of each month beginning February 1, 1999, and at maturity, on the
unpaid principal balance of such sums from the date of each advance until repaid
in full. If not earlier paid, the aggregate amount of all sums outstanding, set
forth below in the last entry on the Schedule of Advances and Payments set forth
below as "Principal Amount Outstanding," together with interest shall be paid in
full on such date as is provided for in the Credit Agreement, dated June 20,
1997, as amended, by and among the Maker and Wachovia Bank, N.A., Bank of
America, N.A. d/b/a NationsBank, N.A., successor to NationsBank, N.A., Crestar
Bank and First Union National Bank (successor in interest to Signet Bank), as
Lenders (the "Credit Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Credit
Agreement.
All payments made on this Note may be applied, at the Bank's
option first to unpaid commitment fees and costs of collection, if any, then to
accrued interest, then to principal and then to other fees.
The Bank may, but shall not be required to, enter all advances
and payments on this Note in the Schedule of Advances and Payments set forth
below. In no event shall the principal sum set forth below in the last entry on
the Schedule as "Principal Amount Outstanding" exceed the Bank's Commitment. The
aggregate Principal Amount Outstanding shown on the Schedule shall be prima
facie evidence of the principal amount owing and unpaid on this Note. The
failure to record the date and amount of any advance on the Schedule shall not,
however, limit or otherwise affect the obligations of the Maker under this Note
to repay the principal amount of the advance together with all interest accruing
thereon.
Interest on this Note shall accrue at the rate per annum set
forth in the Credit Agreement.
It is understood and agreed that any officer or authorized
employee of the Bank may make entries on the Schedule and on any additional
schedules attached hereto upon receipt of written or telephonic instructions of
anyone reasonably believed by the Bank to be an authorized officer or agent of
the Maker; provided that, in the case of initial borrowings hereunder and
increases in the principal amount of borrowings, the amount of such borrowings
shall have been credited to the account of the Maker or otherwise delivered to
the Maker. Upon written or telephonic instructions of anyone reasonably believed
by the Bank to be an authorized officer or agent of the Maker, the Bank may
charge Maker's account with the Bank and apply funds therefrom to the payment of
interest, principal, or late charges due under this Note. The Maker shall
indemnify and hold the Bank harmless from and against any and all claims,
60
<PAGE>
damages, losses, costs and expenses (including attorney's fees) which may arise
or be created by the acceptance of instructions for making or paying advances by
telephone. This Note is issued pursuant to the Credit Agreement. The Maker and
Bank shall have the rights and obligations set forth in this Note and the Credit
Agreement, including any amendments thereto and any renewals or substitutions
thereof.
This Note is secured by the Collateral.
The happening of any of Event of Default shall constitute an
event of default hereunder.
Upon the happening of any event of default under this Note,
the Bank may exercise its remedies available to it under the Credit
Agreement and any other rights available to it at law or in equity.
If Maker fails to pay any installment of principal and/or
interest within seven (7) days of its due date as set forth in the Credit
Agreement, or otherwise fails to repay this Note within seven (7) days of its
due date, the Maker agrees to pay the Bank on demand a late charge of five
percent (5%) of the overdue payment. The Bank may, at its option, apply any late
payments (either full or partial) in the following manner: first to interest,
then to principal and finally to any late charges.
Maker hereby expressly waives presentment, demand, protest and
notice of dishonor, and agrees that this Note may be renewed one or more times
and any extension or extensions of the time of payment of this Note may be made
before, at, or after maturity for periods in excess of the original term of this
Note; waives any right which it may have to require the Bank to proceed against
any other Person or any property securing this Note; agrees that its liability
hereunder shall not be affected or impaired by any failure, neglect or omission
of Bank to exercise any remedies of set-off or otherwise that it may have or by
any determination that any security interest or lien taken by the Bank to secure
this Note is invalid or unperfected.
The Bank shall have, but shall not be limited to, the
following rights, each of which may be exercised at any time: to pledge or
transfer this Note and the Collateral, and any pledgee or transferee shall have
all of the rights of the Bank and the Bank shall thereafter be relieved from any
liability with respect to any Collateral so pledged or transferred; and after an
Event of Default, to transfer the whole or any part of the Collateral into the
name of itself or its nominee.
Maker agrees to remain liable to the Bank for any deficiency.
Any Collateral, and any surplus after sale, may be returned to Maker, but if
after sale of the Collateral any obligation or liability of Maker or any
guarantor to the Bank is contingent or not due, the Bank may retain such
proceeds as additional security for such obligation or liability. The Bank may
continue to hold any Collateral after payment of this Note if at any time of
payment or any discharge hereof Maker shall be then directly or contingently
liable to the Bank pursuant to the Credit Agreement or any of the Loan Documents
whether or not such obligation is due, and the Bank may thereafter exercise all
rights with respect to such Collateral granted therein even though this Note
shall have been surrendered to Maker. Any proceeds of any of the Collateral
received by the Bank may be applied by the Bank to the payment of expenses
incurred in connection with the
61
<PAGE>
Collateral, including attorneys' fees and legal expenses, and any balance of
such proceeds may be applied by the Bank toward the payment of this Note and all
other liabilities, and in such order of application as the Bank may from time to
time elect.
The term "Bank" used herein shall include any future holder of
this Note or any agent acting on behalf of the Bank. This Note shall be governed
and construed in accordance with the laws of the Commonwealth of Virginia.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note. This Note shall apply to and bind Maker's successors and assigns and shall
inure to the benefit of the Bank and its successors and assigns.
62
<PAGE>
EXHIBIT C
---------
COMMERCIAL NOTE
____________, 1999 $20,000,000.00
Commitment
FOR VALUE RECEIVED, the undersigned (the "Maker"),
unconditionally promises to pay to the order of WACHOVIA BANK, N.A. (the
"Bank"), without offset, at the Bank's office in Norfolk, Virginia, or at such
other place as the Bank may designate, all sums advanced hereunder pursuant to
the Credit Agreement (as hereinafter defined), with interest payable on the
first day of each month beginning February 1, 1999, and at maturity, on the
unpaid principal balance of such sums from the date of each advance until repaid
in full. If not earlier paid, the aggregate amount of all sums outstanding, set
forth below in the last entry on the Schedule of Advances and Payments set forth
below as "Principal Amount Outstanding," together with interest shall be paid in
full on such date as is provided for in the Credit Agreement, dated June 20,
1997, as amended, by and among the Maker and Wachovia Bank, N.A., Bank of
America, N.A. d/b/a NationsBank, N.A., successor to NationsBank, N.A., Crestar
Bank and First Union National Bank (successor in interest to Signet Bank), as
Lenders (the "Credit Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Credit
Agreement.
All payments made on this Note may be applied, at the Bank's
option first to unpaid commitment fees and costs of collection, if any, then to
accrued interest, then to principal and then to other fees.
The Bank may, but shall not be required to, enter all advances
and payments on this Note in the Schedule of Advances and Payments set forth
below. In no event shall the principal sum set forth below in the last entry on
the Schedule as "Principal Amount Outstanding" exceed the Bank's Commitment. The
aggregate Principal Amount Outstanding shown on the Schedule shall be prima
facie evidence of the principal amount owing and unpaid on this Note. The
failure to record the date and amount of any advance on the Schedule shall not,
however, limit or otherwise affect the obligations of the Maker under this Note
to repay the principal amount of the advance together with all interest accruing
thereon.
Interest on this Note shall accrue at the rate per annum set
forth in the Credit Agreement.
It is understood and agreed that any officer or authorized
employee of the Bank may make entries on the Schedule and on any additional
schedules attached hereto upon receipt of written or telephonic instructions of
anyone reasonably believed by the Bank to be an authorized officer or agent of
the Maker; provided that, in the case of initial borrowings hereunder and
increases in the principal amount of borrowings, the amount of such borrowings
shall have been credited to the account of the Maker or otherwise delivered to
the Maker. Upon written or telephonic instructions of anyone reasonably believed
by the Bank to be an authorized officer or agent of the Maker, the Bank may
charge Maker's account with the Bank and apply funds therefrom to the payment of
interest, principal, or late charges due under this Note. The Maker shall
indemnify and hold the Bank harmless from and against any and all claims,
63
<PAGE>
damages, losses, costs and expenses (including attorney's fees) which may arise
or be created by the acceptance of instructions for making or paying advances by
telephone. This Note is issued pursuant to the Credit Agreement. The Maker and
Bank shall have the rights and obligations set forth in this Note and the Credit
Agreement, including any amendments thereto and any renewals or substitutions
thereof.
This Note is secured by the Collateral.
The happening of any of Event of Default shall constitute an
event of default hereunder.
Upon the happening of any event of default under this Note,
the Bank may exercise its remedies available to it under the Credit
Agreement and any other rights available to it at law or in equity.
If Maker fails to pay any installment of principal and/or
interest within seven (7) days of its due date as set forth in the Credit
Agreement, or otherwise fails to repay this Note within seven (7) days of its
due date, the Maker agrees to pay the Bank on demand a late charge of five
percent (5%) of the overdue payment. The Bank may, at its option, apply any late
payments (either full or partial) in the following manner: first to interest,
then to principal and finally to any late charges.
Maker hereby expressly waives presentment, demand, protest and
notice of dishonor, and agrees that this Note may be renewed one or more times
and any extension or extensions of the time of payment of this Note may be made
before, at, or after maturity for periods in excess of the original term of this
Note; waives any right which it may have to require the Bank to proceed against
any other Person or any property securing this Note; agrees that its liability
hereunder shall not be affected or impaired by any failure, neglect or omission
of Bank to exercise any remedies of set-off or otherwise that it may have or by
any determination that any security interest or lien taken by the Bank to secure
this Note is invalid or unperfected.
The Bank shall have, but shall not be limited to, the
following rights, each of which may be exercised at any time: to pledge or
transfer this Note and the Collateral, and any pledgee or transferee shall have
all of the rights of the Bank and the Bank shall thereafter be relieved from any
liability with respect to any Collateral so pledged or transferred; and after an
Event of Default, to transfer the whole or any part of the Collateral into the
name of itself or its nominee.
Maker agrees to remain liable to the Bank for any deficiency.
Any Collateral, and any surplus after sale, may be returned to Maker, but if
after sale of the Collateral any obligation or liability of Maker or any
guarantor to the Bank is contingent or not due, the Bank may retain such
proceeds as additional security for such obligation or liability. The Bank may
continue to hold any Collateral after payment of this Note if at any time of
payment or any discharge hereof Maker shall be then directly or contingently
liable to the Bank pursuant to the Credit Agreement or any of the Loan Documents
whether or not such obligation is due, and the Bank may thereafter exercise all
rights with respect to such Collateral granted therein even though this Note
shall have been surrendered to Maker. Any proceeds of any of the Collateral
received by the Bank may be applied by the Bank to the payment of expenses
incurred in connection with the
64
<PAGE>
Collateral, including attorneys' fees and legal expenses, and any balance of
such proceeds may be applied by the Bank toward the payment of this Note and
all other liabilities, and in such order of application as the Bank may from
time to time elect.
The term "Bank" used herein shall include any future holder of
this Note or any agent acting on behalf of the Bank. This Note shall be governed
and construed in accordance with the laws of the Commonwealth of Virginia.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note. This Note shall apply to and bind Maker's successors and assigns and shall
inure to the benefit of the Bank and its successors and assigns.
65
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
PRINCIPAL APPROVING
MATURITY; RATE OPTIONS; METHOD OF AMOUNT PERSON'S
DATE ADVANCES DISBURSEMENT; OTHER PAYMENTS OUTSTANDING INITIALS
<S> <C> <C> <C> <C> <C>
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
- ------------------- --------------- -------------------------------------- ---------------- ----------------- ----------------
</TABLE>
66
<PAGE>
To the extent any of the provisions contained herein are
inconsistent with or conflict with the terms of the Credit Agreement, the Credit
Agreement shall govern.
Witness the following signature of a duly authorized officer
of Maker who has executed this Note on behalf of Maker and who has executed this
Note under seal as of the day and year first written above.
MAKER:
METRO INFORMATION SERVICES, INC.
a Virginia corporation
By:_______________________________(SEAL)
Robert J. Eveleigh, Vice President
and Chief Financial Officer
67
