0000927016-01-503268.txt : 20011026
0000927016-01-503268.hdr.sgml : 20011026
ACCESSION NUMBER: 0000927016-01-503268
CONFORMED SUBMISSION TYPE: 424B3
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011022
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KEANE INC
CENTRAL INDEX KEY: 0000054883
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371]
IRS NUMBER: 042437166
STATE OF INCORPORATION: MA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B3
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-68566
FILM NUMBER: 1763186
BUSINESS ADDRESS:
STREET 1: TEN CITY SQ
CITY: BOSTON
STATE: MA
ZIP: 02129
BUSINESS PHONE: 6172419200
MAIL ADDRESS:
STREET 1: TEN CITY SQ
CITY: BOSTON
STATE: MA
ZIP: 02109
FORMER COMPANY:
FORMER CONFORMED NAME: KEANE ASSOCIATES INC
DATE OF NAME CHANGE: 19800826
424B3
1
d424b3.txt
424(B)(3)
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-68566
[METRO INFORMATION SERVICES, INC. LOGO]
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
Dear Shareholders of Metro Information Services, Inc.:
The board of directors of Metro Information Services, Inc. has approved and
adopted an agreement and plan of merger and a related plan of merger with
Keane, Inc. We refer to the agreement and plan of merger, which contains all of
the terms of this merger in detail, and the related plan of merger, which would
be filed with the Virginia State Corporation Commission if the merger is
approved, as the "merger agreement."
We will hold a special meeting of our shareholders at the Contemporary Art
Center of Virginia, 2200 Parks Avenue, Virginia Beach, Virginia 23451, on
Friday, November 30, 2001 at 9:00 a.m., local time, at which we will ask you to
approve and adopt the merger agreement. If the merger agreement is approved and
adopted:
. Metro will become a wholly owned subsidiary of Keane, and
. You will receive 0.48 of a share of Keane common stock in exchange for
each of your shares of Metro common stock and cash, without interest,
for any fractional shares.
Keane's common stock is listed on the American Stock Exchange under the
symbol "KEA." On October 18, 2001, Keane common stock closed at $13.75 per
share.
After careful consideration, your board of directors unanimously approved
and adopted the merger agreement and concluded that the merger agreement is in
the best interests of Metro and its shareholders. Your board of directors
unanimously recommends that you vote "FOR" approval and adoption of the merger
agreement.
Please carefully consider all of the information in this proxy
statement/prospectus regarding Metro, Keane and the merger, including in
particular the discussion in the section called "Risk Factors" starting on page
11.
Sincerely,
John H. Fain
Chairman and Chief Executive Officer
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the merger or the
securities of Keane to be issued in the merger, or determined if this proxy
statement/prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
--------------------------------------------------------------------------------
This proxy statement/prospectus is dated October 19, 2001 and is expected to
be first mailed to Metro shareholders on or about October 22, 2001.
This proxy statement/prospectus incorporates important business and
financial information about Keane that is not included in or delivered with
this document. This information is available without charge to you upon oral or
written request. Requests for this information should be made to Investor
Relations, Keane, Inc., Ten City Square, Boston, Massachusetts 02129,
telephone: (617) 241-9200.
To obtain timely information of the requested materials prior to the special
meeting of Metro shareholders, you must request them no later than November 23,
2001.
Also see "Where You Can Find More Information" on page 118 of this proxy
statement/prospectus.
Keane has supplied all information contained in this proxy
statement/prospectus relating to Keane, and Metro has supplied all information
contained in this proxy statement/prospectus relating to Metro.
METRO INFORMATION SERVICES, INC.
Reflections II Office Building
Third Floor
200 Golden Oak Court
Virginia Beach, Virginia 23452
(757) 486-1900
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, NOVEMBER 30, 2001
I am pleased to give you notice of and cordially invite you to attend,
either in person or by proxy, the special meeting of the shareholders of Metro
Information Services, Inc., which will be held at the Contemporary Art Center
of Virginia, 2200 Parks Avenue, Virginia Beach, Virginia 23451, on Friday,
November 30, 2001 at 9:00 a.m., local time, and at any adjournment or
adjournments thereof. The purposes of the special meeting are:
1. To consider and vote on a proposal to approve and adopt an agreement
and plan of merger, dated as of August 20, 2001, and the related plan of
merger, among Keane, Inc., a Keane subsidiary and Metro. The agreement and
plan of merger and the related plan of merger provide that the Keane
subsidiary will be merged with and into Metro. In the merger, each
shareholder of Metro will receive 0.48 of a share of Keane common stock in
exchange for each outstanding share of common stock of Metro owned prior to
the effective time of the merger and cash, without interest, for any
fractional shares, and
2. To transact any other business which properly comes before the
special meeting.
Following the merger, Keane will own all of the issued and outstanding
shares of Metro's capital stock. The agreement and plan of merger, which
contains all of the terms of this merger in detail, is attached as Annex A, and
the shorter plan of merger, which would be filed with the Virginia State
Corporation Commission if the merger is approved, is attached as Annex B to the
enclosed proxy statement/prospectus.
Only shareholders of record at the close of business on September 28, 2001
will receive notice of and be able to vote at the special meeting. The
affirmative vote of the holders of a majority of the shares of Metro common
stock outstanding on the record date is required to approve and adopt the
agreement and plan of merger and the related plan of merger.
The enclosed proxy statement/prospectus describes the agreement and plan of
merger, the related plan of merger and the actions to be taken in connection
with the merger. The holders of a majority of the outstanding shares of Metro
common stock entitled to vote must be present or represented by proxy at the
special meeting in order to constitute a quorum for the transaction of
business. It is important that your shares are represented at the special
meeting regardless of the number of shares you hold. Whether or not you are
able to attend the special meeting in person, please sign and return promptly
the enclosed proxy card in the enclosed, postage-prepaid envelope. You may
revoke your proxy in the manner described in the enclosed proxy
statement/prospectus at any time before it is voted at the special meeting.
Please do not send any stock certificates with your proxy card.
By Order of the Board of Directors
/s/ Robert J. Eveleigh
Robert J. Eveleigh
Secretary
Virginia Beach, Virginia
October 19, 2001
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1
SUMMARY.................................................................... 3
RISK FACTORS............................................................... 11
Risks Relating to the Merger............................................. 11
Risks Relating to Keane's Business....................................... 13
Risks Relating to Metro's Business....................................... 15
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................. 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KEANE................... 21
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF METRO................... 22
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA....................... 24
UNAUDITED COMPARATIVE PER SHARE DATA....................................... 25
MARKET PRICE AND DIVIDEND INFORMATION...................................... 26
Keane Market Price Information........................................... 26
Metro Market Price Information........................................... 26
Recent Closing Prices.................................................... 27
Dividends................................................................ 27
THE METRO SPECIAL MEETING.................................................. 28
Date, Time and Place of Meeting.......................................... 28
What Will Be Voted Upon.................................................. 28
Record Date and Outstanding Shares....................................... 28
Vote Required to Approve the Merger...................................... 28
Quorum; Abstentions and Broker Non-Votes................................. 28
Share Ownership of Management and Certain Shareholders................... 29
Voting and Revocation of Proxies......................................... 29
Solicitation of Proxies and Expenses..................................... 29
Board Recommendation..................................................... 30
You Do Not Have Dissenters' Or Appraisal Rights.......................... 30
THE MERGER................................................................. 31
Background of the Merger................................................. 31
Keane's Reasons for the Merger........................................... 34
Metro's Reasons for the Merger........................................... 35
Recommendation of Metro's Board of Directors............................. 37
Opinion of Keane's Financial Advisor--Morgan Stanley & Co. Incorporated.. 37
Opinion of Metro's Financial Advisor--Robert W. Baird & Co.
Incorporated............................................................ 44
Shareholder's Agreement and Irrevocable Proxy............................ 52
Interests of Executive Officers and Directors of Metro in the Merger..... 52
Treatment of Metro Common Stock.......................................... 53
Accounting Treatment of the Merger....................................... 53
Regulatory Approvals..................................................... 53
Material United States Federal Income Tax Considerations................. 54
American Stock Exchange Listing.......................................... 55
Resales of Keane Common Stock Issued in Connection with the Merger;
Affiliate Agreements.................................................... 55
No Dissenters' or Appraisal Rights....................................... 55
Delisting and Deregistration of Metro Common Stock Following the Merger.. 55
THE MERGER AGREEMENT....................................................... 56
General.................................................................. 56
The Exchange Ratio and Treatment of Metro Common Stock................... 56
Treatment of Metro Stock Options......................................... 56
Exchange of Certificates................................................. 57
Representations and Warranties........................................... 57
i
Covenants of Keane and Metro.......................................... 59
Related Matters After the Merger...................................... 62
Conditions to Obligations to Complete the Merger...................... 62
Termination; Fees and Expenses........................................ 64
Amendment............................................................. 66
OTHER AGREEMENTS........................................................ 67
Shareholder's Agreement............................................... 67
Affiliate Agreements.................................................. 67
Executive Retention Agreements........................................ 67
Employee Retention and Severance Payments............................. 68
RECENTLY ELECTED DIRECTORS AND EXECUTIVE OFFICERS OF KEANE.............. 70
Recently Elected Directors............................................ 70
Recently Elected Executive Officers................................... 70
BUSINESS OF METRO....................................................... 71
Overview.............................................................. 71
Development of the Business........................................... 71
Industry Overview..................................................... 73
Business Strategy..................................................... 73
Growth Strategy....................................................... 75
Services and Solutions................................................ 76
Sales and Marketing................................................... 76
Client Support Structure.............................................. 76
Intellectual Property................................................. 77
Seasonality........................................................... 77
Competition........................................................... 78
Recruiting and Hiring................................................. 79
Consultant Training and Education..................................... 79
Employees............................................................. 80
Properties............................................................ 80
Legal Proceedings..................................................... 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF METRO................................................. 82
Overview.............................................................. 82
Results of Operations................................................. 84
Selected Quarterly Results of Operations.............................. 90
Liquidity and Capital Resources....................................... 90
Seasonality........................................................... 91
Inflation............................................................. 92
Quantitative and Qualitative Disclosures About Market Risk............ 92
Recent Accounting Pronouncements...................................... 92
METRO'S PRINCIPAL SHAREHOLDERS.......................................... 94
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............. 96
COMPARISON OF STOCKHOLDER RIGHTS........................................ 102
SHAREHOLDER PROPOSALS................................................... 118
LEGAL MATTERS........................................................... 118
EXPERTS................................................................. 118
WHERE YOU CAN FIND MORE INFORMATION..................................... 118
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF METRO..................... F-1
ANNEXES
Annex A--Agreement and Plan of Merger................................. A-1
Annex B--Plan of Merger............................................... B-1
Annex C--Shareholder's Agreement...................................... C-1
Annex D-1--Opinion of Keane's Financial Advisor, Morgan Stanley & Co.
Incorporated......................................................... D-1-1
Annex D-2--Opinion of Metro's Financial Advisor, Robert W. Baird & Co.
Incorporated......................................................... D-2-1
Annex E--Form of Executive Retention Agreement........................ E-1
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why do the companies propose to merge?
A: Keane and Metro believe that the merger will provide several benefits to
both companies, including:
. creating cross-selling opportunities and associated revenue growth by
providing Keane with a larger and more diverse client base,
. strengthening Keane's competitive position by combining Keane's and
Metro's complementary service offerings,
. leveraging Keane's fixed costs as a result of combining the
infrastructure and management organizations of the two companies,
. enhancing Keane's financial position in the long term and facilitating
Keane's ability to complete future acquisitions in the long term, and
. enhancing earnings as the acquisition of Metro is expected to be
accretive to Keane's earnings.
Q: What will Metro shareholders receive in the merger?
A: If the merger is completed, Metro shareholders will receive 0.48 of a share
of Keane common stock for each share of Metro common stock that they own and
cash, without interest, for any fractional shares.
Q: When do you expect to complete the merger of Keane and Metro?
A: We expect to complete the merger in the fourth quarter of 2001, but neither
Keane nor Metro can predict the exact timing because the merger is subject
to governmental and other regulatory approvals.
Q: Who must approve the merger?
A: In addition to the approvals of the boards of directors of Keane and Metro,
which were already obtained, Metro shareholders must approve and adopt the
agreement and plan of merger and the related plan of merger.
Q: What do I need to do now?
A: Keane and Metro urge you to carefully read this proxy statement/prospectus,
including its annexes, and to consider how the merger will affect you as a
shareholder. You may also want to review the documents that we refer to
under "Where You Can Find More Information" on page 118.
Q: How do I vote?
A: You may indicate how you want to vote on your proxy card. You may also
attend the shareholder meeting and vote in person instead of submitting a
proxy. If you fail either to return your proxy card or to vote in person at
the shareholder meeting, or if you mark your proxy "abstain," the effect
will be a vote against the merger. If you fail to indicate your vote on your
proxy, your proxy will be counted as a vote for the merger proposal, unless
your shares are held in a brokerage account.
Q: If my shares are held in a brokerage account, will my broker vote my shares
for me?
A: Your broker cannot vote your shares on the proposal relating to the merger
without instructions from you on how to vote. Therefore, it is important
that you follow the directions provided by your broker regarding how to
instruct your broker to vote your shares. If you fail to provide your broker
with instructions, it will have the same effect as a vote against the
merger.
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Q: May I change my vote after I have mailed in my signed proxy card?
A: You may change your vote at any time before the vote takes place at the
shareholder meeting by either submitting a later dated proxy card or sending
a written notice stating that you would like to revoke your proxy. In
addition, you may attend the shareholder meeting and vote in person.
However, if you elect to vote in person at the shareholder meeting and your
shares are held by a broker, bank or other nominee, you must bring to the
shareholder meeting a legal proxy from the broker, bank or other nominee
authorizing you to vote the shares.
Q: When and where is the special meeting?
A: The special meeting of Metro shareholders will be held at 9:00 a.m., local
time, on Friday, November 30, 2001, at the Contemporary Art Center of
Virginia, 2200 Parks Avenue, Virginia Beach, Virginia 23451.
Q: Should I send in my certificates now?
A: No. After Keane and Metro complete the merger, Keane's transfer agent will
send instructions to you regarding the exchange of shares of Metro common
stock for Keane common stock.
Q: Whom may I contact with any additional questions?
A: You may call Patrice Bryan, Investor Relations Administrator of Metro, at
(757) 306-0299.
2
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you. In addition,
we have incorporated by reference important business and financial information
about Keane into this proxy statement/prospectus. You may obtain the
information that we incorporate by reference without charge by following the
instructions in the section entitled "Where You Can Find More Information" on
page 118. We have included page references parenthetically to direct you to a
more complete description of the topics in this summary.
The Companies
(Pages 118 and 71)
Keane, Inc.
Ten City Square
Boston, Massachusetts 02129
(617) 241-9200
Keane, Inc. is a leading provider of Information Technology, or IT, and
business consulting services. In business since 1965, Keane helps clients
optimize business performance through the innovative use and management of
information technology. Keane's clients consist primarily of Global 2000
companies across every major industry, healthcare organizations and government
agencies. Keane provides its services through an extensive distribution network
of local branch offices in North America and in the United Kingdom. These
branch offices work in conjunction with Keane's business consulting arm, Keane
Consulting Group, and are supported by a centralized Strategic Practices Group
and two Advanced Development Centers. Keane develops a high percentage of
recurring revenue and long-term relationships with its clients as a result of
its multi-year outsourcing contracts, broad range of service offerings, local
presence, and track record of delivering IT solutions consistently and
reliably.
Metro Information Services, Inc.
Reflections II Office Building
Third Floor
200 Golden Oak Court
Virginia Beach, Virginia 23452
(757) 486-1900
Metro Information Services, Inc. provides a wide range of IT consulting and
custom software development services and solutions in 33 metropolitan markets
in the United States and Puerto Rico. As of June 30, 2001, Metro had 1,988
consultants working with clients on all aspects of computer systems and
applications development. Services and solutions performed by Metro include
application systems development and maintenance, IT architecture and
engineering, systems consulting, project outsourcing (including managed
services) and general support services. Metro supports all major computer
technology platforms and supports client projects using a broad range of
software applications.
The Merger
(Page 31)
Upon the consummation of the merger, Metro will become a wholly owned
subsidiary of Keane. Metro shareholders will receive Keane common stock in
exchange for their shares of Metro common stock. The
3
agreement and plan of merger and the related plan of merger are attached to
this proxy statement/prospectus as Annex A and Annex B, respectively. We
encourage you to read the agreement and plan of merger and the related plan of
merger in their entirety because they are the legal documents that govern the
merger. In this proxy statement/prospectus, we refer to the agreement and plan
of merger and the related plan of merger together as the "merger agreement."
Shareholder Approval Required by Metro
(Pages 28 and 67)
Approval and adoption of the merger agreement requires the affirmative
approval of the holders of a majority of the outstanding shares of Metro common
stock. John H. Fain, chairman of the board and chief executive officer of
Metro, together with various family trusts, beneficially owned approximately
54.5% of the outstanding shares of Metro common stock on September 28, 2001,
the record date of the special meeting. Mr. Fain has entered into a
shareholder's agreement with Keane in which he has agreed to vote a portion of
his Metro shares, representing 40% of the outstanding shares of Metro common
stock, in favor of the merger agreement. Under the shareholder's agreement, Mr.
Fain executed an irrevocable proxy that enables Keane to vote his shares to
approve and adopt the merger agreement. Mr. Fain was not paid additional
consideration in connection with this irrevocable proxy. The shareholder's
agreement is attached to this proxy statement/prospectus as Annex C.
Metro's directors, executive officers and their affiliates are entitled to
vote, or direct the vote of, approximately 59.6% of the outstanding shares of
Metro common stock as of the record date. All directors and executive officers
of Metro have indicated their intention to vote all shares over which they
exercise voting control in favor of the merger agreement. Keane's stockholders
are not required and will not vote to approve and adopt the merger agreement.
Interests of Executive Officers and
Directors of Metro in the Merger
(Page 52)
In considering the recommendation of the Metro board of directors, you
should be aware of the interests that Metro executive officers and directors
have in the merger. These include:
. John H. Fain will become a director of Keane,
. five executive officers of Metro are parties to new executive retention
agreements and will receive transaction bonuses and, if their employment
terminates under specified conditions, severance benefits (the form of
executive retention agreement is attached as Annex E to this proxy
statement/prospectus),
. as of September 28, 2001, the executive officers and directors of Metro
owned an aggregate of 10,875 shares of Keane common stock,
. at the closing of the merger, stock options held by the Metro executive
officers and directors will be converted into options to purchase an
aggregate of approximately 45,649 shares of Keane common stock,
. the executive officers and directors of Metro will receive an aggregate
of approximately 4,384,114 shares of Keane common stock upon
consummation of the merger, or approximately 5.8% of the issued and
outstanding shares of Keane common stock following the merger, in
exchange for their shares of Metro common stock, and
. Metro's directors and officers will continue to be covered by directors'
and officers' liability insurance for six years after the merger,
protecting them against liabilities and claims resulting from their
service as directors and officers of Metro prior to the merger.
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In addition, some of Metro's employees will be eligible for severance and
retention payments in the aggregate amount of $1.4 million.
In considering the fairness of the merger to Metro shareholders, the Metro
board of directors took into account these interests. Some of these interests
are different from, or in addition to, the interests of Metro shareholders
generally in the merger.
Opinion of Keane's Financial Advisor
(Page 37)
In connection with the merger, Morgan Stanley & Co. Incorporated, Keane's
financial advisor, rendered a written opinion, dated August 20, 2001, to the
Keane board of directors as to the fairness, from a financial point of view, to
Keane of the exchange ratio in the merger. The full text of Morgan Stanley's
written opinion is attached as Annex D-1 to this proxy statement/prospectus and
should be read carefully in its entirety to understand the procedures followed,
assumptions made, matters considered and limitations on the review undertaken
by Morgan Stanley in providing its opinion. Morgan Stanley's opinion is
addressed to the Keane board of directors and does not constitute a
recommendation to any shareholder with respect to any matter relating to the
merger.
Opinion of Metro's Financial Advisor
(Page 44)
In connection with the merger, on August 20, 2001, Robert W. Baird & Co.
Incorporated, Metro's financial advisor, delivered its written opinion to the
Metro board of directors to the effect that, as of such date, the exchange
ratio in the merger was fair, from a financial point of view, to holders of
Metro common stock (other than Keane and its affiliates). The full text of
Baird's opinion, setting forth the assumptions made, matters considered, scope
and limitations of the review undertaken and the general procedures followed in
rendering such opinion, is attached as Annex D-2 to this proxy
statement/prospectus. Holders of Metro common stock are urged to read this
opinion carefully and in its entirety. Baird's opinion was directed to the
Metro board of directors and does not represent a recommendation to any
shareholder with respect to any matter relating to the merger.
Metro Board Recommendation to Shareholders
(Page 37)
The Metro board of directors has voted unanimously to approve and adopt the
merger agreement. The Metro board of directors believes that the merger is
advisable and in your best interests and recommends that you vote FOR the
proposal to approve and adopt the merger agreement.
What Holders of Metro Common Stock Will Receive
(Page 56)
Each outstanding share of Metro common stock will be exchanged for 0.48 of a
share of Keane common stock and cash, without interest, for any fractional
shares, which we refer to in this proxy statement/prospectus as the exchange
ratio.
The following table sets forth the closing prices per share of Keane common
stock and Metro common stock as reported on the American Stock Exchange and The
Nasdaq National Market, respectively, on August 20, 2001, the last full trading
day prior to the public announcement of the proposed merger, and October 18,
2001. This table also sets forth the equivalent price per share of Metro common
stock on those
5
dates. The equivalent price per share is equal to the closing price of a share
of Keane common stock on that date multiplied by the exchange ratio.
Keane Metro Equivalent
Common Common per Share
Date Stock Stock Price
---- ------ ------ ----------
August 20, 2001........................................ $18.46 $3.70 $8.86
October 18, 2001....................................... $13.75 $6.40 $6.60
Keane will not issue fractional shares of Keane common stock in connection
with the merger. Instead, you will receive cash, without interest, for any
fractional shares that result from multiplying the number of shares you own by
the exchange ratio.
Ownership of Keane Following the Merger
(Page 94)
Based on 15,337,760 shares of Metro common stock outstanding on September
28, 2001, we anticipate the Metro shareholders will receive an aggregate of
approximately 7,362,125 shares of Keane common stock in the merger, or
approximately 9.8% of the issued and outstanding shares of Keane common stock
following the merger. Mr. Fain and various family trusts will receive
approximately 4,013,119 shares of Keane common stock in the merger, or
approximately 5.3% of the issued and outstanding shares of Keane common stock
following the merger. These estimates are based on some assumptions, including
that options to purchase Metro common stock will not be exercised between
September 28, 2001 and the effective time of the merger.
Conditions to the Merger
(Page 62)
The completion of the merger depends on the satisfaction of a number of
conditions, including:
. the approval and adoption by Metro shareholders of the merger agreement,
. the approval of the listing on the American Stock Exchange of the Keane
common stock that will be issued to Metro shareholders in the merger,
. the receipt of legal opinions regarding material tax consequences of the
merger,
. the expiration or termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, and
. other customary conditions specified in the merger agreement.
In some circumstances, conditions to the merger may be waived by one or more
parties.
No Solicitation by Metro
(Page 60)
Until the merger is completed or the merger agreement is terminated, Metro
has agreed that neither it nor any of its subsidiaries will solicit, initiate,
encourage or take any other action to facilitate the making of any acquisition
proposal. Metro's board of directors has also agreed not to withdraw or modify
its recommendation or to adopt, approve or recommend any acquisition proposal,
participate in any discussions or negotiations regarding an acquisition
proposal, or furnish information or cooperate with any person with respect to
an
6
acquisition proposal, unless legally required to in the discharge of its
fiduciary duties. Metro has also agreed to cause each of its directors,
officers, employees, investment bankers, attorneys, accountants and other
advisors or representatives not to take any of these actions.
Metro has agreed to provide Keane with detailed information about any
acquisition proposal it receives.
An acquisition proposal is an inquiry, proposal or offer relating to any
business combination with Metro, a proposal for the issuance by Metro or any of
its subsidiaries of over 25% of its equity securities or any proposal or offer
to acquire over 50% of Metro's equity securities or of its consolidated total
assets.
Termination of the Merger Agreement
(Page 64)
Keane and Metro can mutually agree to terminate the merger agreement without
completing the merger, and either Keane or Metro can terminate the merger
agreement if any of the following occur:
. unless the party has failed to fulfill its obligations under the merger
agreement, the merger is not completed by December 31, 2001,
. with specified exceptions, Metro shareholders fail to approve and adopt
the merger agreement at the Metro special meeting,
. a governmental entity prohibits the merger, or
. the other party materially breaches any representation, warranty or
covenant in the merger agreement and fails to cure the breach within 20
days after the breaching party receives notice of the breach.
Keane may also terminate the merger agreement if:
. Metro's board of directors withdraws or modifies its recommendation to
Metro's shareholders to approve and adopt the merger agreement, or fails
to unanimously reconfirm its recommendation within five days of Keane's
request to do so,
. Metro's board approves or recommends an alternative acquisition
proposal,
. Metro's board recommends that Metro shareholders enter into an agreement
for a tender offer or exchange offer made by a third party, or
. Metro engages in the solicitation, initiation or encouragement of
another proposal that could reasonably be expected to lead to an
acquisition proposal.
Termination Fees and Expenses
(Pages 64 and 65)
Keane and Metro will generally bear their own expenses related to the
merger, other than fees relating to required filings under the Hart-Scott-
Rodino Act and to the preparation of this proxy statement/prospectus and
registration statement, which Keane and Metro will share equally. However, if
the merger agreement is terminated under some circumstances set forth in the
merger agreement, Metro or Keane may be required to reimburse the other up to a
maximum of $1,500,000 for expenses related to the merger.
7
Metro must pay Keane a termination fee of $8,100,000, inclusive of the
payment of any of Keane's expenses, if Keane terminates the merger agreement
because:
. there has been a material breach by Metro that is not cured within 20
days of receiving notice of that breach,
. Metro's board of directors fails to unanimously recommend approval and
adoption of the merger agreement or withdraws or modifies its
recommendation of the merger agreement,
. Metro fails to unanimously reconfirm its recommendation of the merger
agreement within five days after Keane's request to do so,
or under any of the other circumstances set forth in the merger agreement and
described on page 65 of this proxy statement/prospectus.
Keane must pay Metro a termination fee of $8,100,000, inclusive of the
payment of any of Metro's expenses, if Metro terminates the merger agreement
because there has been a material breach by Keane that is not cured within 20
days of receiving notice of that breach.
Stock Options
(Page 56)
In connection with the merger agreement, Keane will assume all options,
whether vested or unvested, to purchase Metro common stock, issued under
Metro's stock option plans. Each option to purchase shares of Metro common
stock outstanding immediately prior to the effective time of the merger will be
considered an option to acquire, on the same terms, 0.48 of a share of Keane
common stock. The option exercise price will be proportionally adjusted.
Accounting Treatment
(Page 53)
In accordance with recently issued Statement of Financial Accounting
Standards No. 141, "Business Combinations," and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," Keane
will use the purchase method of accounting for a business combination to
account for the merger, as well as the new accounting and reporting regulations
for goodwill and other intangibles. Under these methods of accounting, the
assets and liabilities of Metro, including all intangible assets, will be
recorded at their respective fair values. All intangible assets will be
amortized over their estimated useful lives with the exception of goodwill and
any other intangibles with indefinite lives. The financial position, results of
operations and cash flows of Metro will be included in Keane's financial
statements prospectively as of the completion of the merger.
Material United States Federal Income Tax Considerations
(Page 54)
We have structured the merger in order to qualify as a reorganization under
Section 368(a) of the Internal Revenue Code. It is our intention that no gain
or loss will generally be recognized by Metro shareholders for federal income
tax purposes on the exchange of shares of Metro common stock solely for shares
of Keane common stock. Metro shareholders, however, will recognize gain or loss
for federal income tax purposes to the extent any cash received in lieu of
fractional shares is greater than or less than, respectively, the tax basis
allocable to the fractional shares.
8
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You are urged to consult
your tax advisor for a full understanding of the tax consequences of the merger
to you.
Metro Shareholders Have No Dissenters' or Appraisal Rights
(Page 55)
Under Virginia law, Metro shareholders do not have dissenters' or appraisal
rights with respect to the merger.
How the Rights of Metro Shareholders Will Differ as Keane Stockholders
(Page 102)
The rights of Metro shareholders as stockholders of Keane, a Massachusetts
corporation, after the merger will be governed by Keane's corporate charter and
bylaws and the laws of the Commonwealth of Massachusetts. Those rights differ
from the rights of Metro shareholders under Metro's corporate charter and
bylaws and the laws of the Commonwealth of Virginia.
Regulatory Approvals
(Page 53)
The merger is subject to the filing and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. On August 28, 2001,
Keane, Metro and John H. Fain filed pre-merger notification and report forms
with the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice. On September 10, 2001, the Federal Trade Commission, on
behalf of itself and the Antitrust Division, notified the filing parties that
it had granted early termination of the waiting period with respect to the
merger.
Restrictions on the Ability to Sell Keane Common Stock
(Page 55)
The shares of Keane common stock issuable to shareholders of Metro upon
consummation of the merger will be fully tradable without restrictions by those
shareholders who are not deemed to be "affiliates" of Keane or Metro, as that
term is defined in the Securities Act. Shares of Keane common stock received by
those shareholders of Metro who are deemed to be affiliates of Metro at the
time the merger agreement is submitted to a vote may be resold without
registration under the Securities Act only as permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act.
Recent Developments
On September 19, 2001, Keane's board of directors authorized a share
repurchase program in which Keane may repurchase up to 1,542,800 shares of its
common stock in the open market through September 18, 2002. Between May 1999
and July 23, 2001, the expiration of Keane's most recent repurchase program,
Keane had invested $108.9 million to repurchase an aggregate of 5,457,200
shares of its common stock in the open market.
9
On August 8, 2001, one of Keane's subsidiaries announced that it had been
named prime contractor to build an integrated logistics system for supply for
the United States Air Force. The new system will be developed to modernize the
Air Force's supply chain system. The maximum dollar value for this contract is
$127.0 million with work scheduled to be completed by 2011.
Service Marks and Trademarks
Metro has registered or is in the process of registering the following
service marks: Metro Information Services/(SM)/, Metro IT Consulting/(SM)/,
Metro IT Solutions/(SM)/ and Minds Making Technology Work/(SM)/. All other
trademarks and service marks in this proxy statement/prospectus are the property
of their respective owners.
10
RISK FACTORS
You should carefully consider the following risk factors before you decide
whether to vote to approve and adopt the merger agreement. You should also
consider the other information in this proxy statement/prospectus and the
additional information in Keane's other reports on file with the Securities and
Exchange Commission that we incorporate by reference into this proxy
statement/prospectus. See "Where You Can Find More Information" on page 118.
Risks Relating to the Merger
The complex process of integrating Keane and Metro may disrupt the business
activities of Keane and affect employee morale, thus affecting Keane's ability
to pursue its business plan and retain key employees.
Integrating the operations and personnel of Keane and Metro will be a
complex process. The integration of Keane and Metro may not be completed
rapidly or may not achieve the anticipated benefits of the merger. The
successful integration of Keane and Metro will require, among other things,
integration of their finance, human resources and sales organizations. The
diversion of the attention of Keane's management and any difficulties
encountered in the process of combining the companies could cause the
disruption of, or a loss of momentum in, the activities of the combined
company's business. Further, the process of combining Keane and Metro could
negatively affect employee morale and the ability of the combined company to
retain some of its key employees after the merger. The inability to
successfully integrate the operations and personnel of Keane and Metro could
have a material adverse effect on the business, financial condition and results
of operations of the combined company after the merger.
Keane's stock price is volatile and the value of the Keane common stock issued
in the merger will depend on its market price at the time of the merger. No
adjustment to the exchange ratio will be made as a result of changes in the
market price of Keane's common stock.
The market price of Keane common stock, like that of the shares of many
other IT companies, has been and may continue to be volatile. For example, from
January 1, 2000 to December 31, 2000, Keane common stock traded as high as
$30.94 per share and as low as $9.75 per share. Since the announcement of the
proposed merger, the price of Keane's common stock has declined from $18.46 on
August 20, 2001 to a closing price of $13.75 per share on October 18, 2001.
At the closing of the merger, holders of Metro common stock will exchange
each of their shares of Metro common stock for 0.48 of a share of Keane common
stock and cash, without interest, for any fractional share. This exchange ratio
will not be adjusted for changes in the market price of Keane common stock or
Metro common stock. In addition, neither Keane nor Metro may terminate or
renegotiate the merger agreement, and Metro may not resolicit the vote of its
shareholders, solely because of changes in the market price of Keane common
stock or of Metro common stock. Any reduction in the price of Keane's common
stock will result in Metro shareholders receiving less value in the merger at
closing. Metro shareholders will not know the exact value of Keane common stock
to be issued to them in the merger at the time of the special meeting of Metro
shareholders.
If the merger's benefits do not meet the expectations of financial or industry
analysts, the market price of Keane common stock may decline.
The market price of Keane common stock may decline as a result of the merger
if:
. Keane does not achieve the perceived benefits of the merger as rapidly
as, or to the extent, anticipated by financial or industry analysts, or
. the effect of the merger on Keane's financial results is not consistent
with the expectations of financial or industry analysts.
11
Failure to complete the merger may result in Metro paying termination fees to
Keane. This failure may also dilute the value of Metro's common stock, decrease
its market price and cause Metro to nevertheless incur legal and accounting
fees.
If the merger is not completed, Metro may be subject to a number of material
risks, including:
. Metro may be obligated to pay Keane a termination fee of $8,100,000 or
reimburse Keane for expenses of up to $1,500,000, under the
circumstances described in the merger agreement and on pages 64 and 65
of this proxy statement/prospectus,
. the market price of Metro common stock may decline to the extent that
the current market price of Metro common stock reflects a market
assumption that the merger will be completed, and
. Metro's costs related to the merger, such as its legal and accounting
fees, must be paid even if the merger is not completed.
If the merger is terminated and Metro's board of directors seeks another
merger or business combination, Metro shareholders cannot be certain that Metro
will be able to find a party willing to pay an equivalent or more attractive
price than the price Keane will pay in the merger.
Metro may lose an opportunity to enter into a merger or business combination
with another party on more favorable terms because of provisions in the merger
agreement that prohibit Metro from entering into these transactions or
soliciting proposals for these transactions.
While the merger agreement is in effect and subject to the fiduciary duties
of Metro's directors under Virginia law, Metro is prohibited from entering into
or soliciting, initiating or encouraging any inquiries or proposals that may
lead to a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, tender offer, sale of shares of capital stock or
other similar transactions with any person other than Keane. As a result of
this prohibition, Metro may lose an opportunity to enter into a transaction
with another potential partner on more favorable terms.
Some of the officers and directors of Metro have conflicts of interest that may
have influenced them to support or approve the merger.
Metro's officers and directors may have been influenced to approve the
merger because of the following arrangements that provide them with interests
in the merger that are different from, or in addition to, the interests of
Metro shareholders in the merger, including the following:
. John H. Fain, Metro's chairman of the board and chief executive officer,
will become a director of Keane,
. as of September 28, 2001, the executive officers and directors of Metro
owned stock options to purchase an aggregate of 95,103 shares of Metro
common stock and owned an aggregate of 9,133,572 shares of Metro common
stock and 10,875 shares of Keane common stock,
. five executive officers of Metro are parties to new executive retention
agreements with Metro and will receive transaction bonuses and, if their
employment terminates under specified conditions, severance benefits,
and
. Keane has agreed to indemnify present and former Metro officers and
directors against liability arising out of their service as officers or
directors. Keane will maintain officers' and directors' liability
insurance to cover against this liability for the next six years.
Metro shareholders should read more about these interests under "The
Merger--Interests of Executive Officers and Directors of Metro in the Merger"
on page 52.
12
The Metro board of directors was aware of and took into account these
arrangements when it approved the merger. It is possible that these
arrangements may have influenced these directors and officers to support or
recommend the merger.
The merger may cause Metro to lose key personnel, which could materially affect
Metro's business and require Metro to incur substantial costs to recruit
replacements for lost personnel.
As a result of Metro's change in ownership, current and prospective Metro
employees may experience uncertainty about their future roles with Keane. This
uncertainty may adversely affect Metro's ability to attract and retain key
management, sales, marketing and technical personnel. Any failure to attract
and retain key personnel could have a material adverse effect on the business
of Metro and Keane.
Clients of Keane and Metro may delay or cancel engagements as a result of
concerns over the merger.
The announcement and closing of the merger could cause clients and potential
clients of Keane and Metro to delay or cancel engagements or to fail to enter
into new engagements. In particular, clients could be concerned about future
services or the quality of client service during the period of integration of
Metro and Keane. Delays and cancellations would likely have a negative impact
on the combined company's business, and the loss of clients or the failure to
attract new clients could have a material adverse effect on the future revenues
and competitive position of Keane and Metro.
If the costs associated with the merger exceed the benefits realized, the
combined company may experience adverse financial results.
Keane and Metro will incur significant transaction costs as a result of the
merger, including investment banking, legal and accounting fees, that may
exceed the parties' current estimates. In addition, Keane and Metro expect that
the combined company will incur consolidation and integration expenses that
Keane and Metro cannot accurately estimate at this time. Keane and Metro expect
that the combined company will charge consolidation and integration expenses to
operations in fiscal year 2001. Actual transaction costs may substantially
exceed the combined company's estimates and may negatively affect its business,
financial condition and results of operations.
Risks Relating to Keane's Business
Keane's quarterly operating results have varied, and are likely to continue to
vary significantly. This may result in volatility in the market price of
Keane's shares.
Keane has experienced and expects to continue to experience fluctuations in
its quarterly results. Keane's gross margins vary based on a variety of
factors, including employee utilization rates and the number and type of
services performed by Keane during a particular period. A variety of factors
influence Keane's revenue in a particular quarter, including:
. general economic conditions that may influence investment decisions or
cause downsizing,
. the number and requirements of client engagements,
. employee utilization rates,
. changes in the rates Keane can charge clients for services,
. acquisitions, and
. other factors, many of which are beyond Keane's control.
A significant portion of Keane's expenses does not vary relative to revenue.
As a result, if revenue in a particular quarter does not meet expectations,
Keane's operating results could be materially adversely affected,
13
which in turn may have a material adverse impact on the market price of Keane
common stock. In addition, many of Keane's engagements are terminable without
client penalty. An unanticipated termination of a major project could result in
an increase in underutilized employees and a decrease in revenue and profits.
Keane has pursued, and intends to continue to pursue, strategic acquisitions.
Failure to successfully integrate acquired businesses or assets may adversely
affect Keane's financial performance.
In the past five years, Keane has grown significantly through acquisitions.
Since January 1, 1999, Keane has completed eight acquisitions. The aggregate
cost of these acquisitions totaled $103.2 million. Keane's future growth may be
based in part on selected acquisitions. At any given time, Keane may be in
various stages of considering acquisition opportunities, such as the
acquisition of Metro. Keane can provide no assurances that it will be able to
find and identify desirable acquisition targets or that it will be successful
in entering into a definitive agreement with any one target. In addition, even
if Keane reaches a definitive agreement, there is no assurance that Keane will
complete any future acquisition.
Keane typically anticipates that each acquisition will bring benefits, such
as an increase in revenue. Prior to completing an acquisition, however, it is
difficult to determine if Keane can actually realize these benefits.
Accordingly, there is a risk that an acquired company may not achieve an
increase in revenue or other benefits for Keane. In addition, an acquisition
may result in unexpected costs, expenses and liabilities. Any of these events
could have a material adverse effect on Keane's business, financial condition
and results of operations.
The process of integrating acquired companies into Keane's existing business
may also result in unforeseen difficulties. Unforeseen operating difficulties
may absorb significant management attention, which Keane might otherwise devote
to its existing business. In addition, the process may require significant
financial resources that Keane might otherwise allocate to other activities,
including the ongoing development or expansion of Keane's existing operations.
Finally, future acquisitions could result in Keane having to incur additional
debt and/or contingent liabilities. Any of these possibilities could have a
material adverse effect on Keane's business, financial condition and result of
operations.
Keane's growth could be limited if it is unable to attract personnel in the
Information Technology and business consulting industries.
Keane believes that its future success will depend in large part on its
ability to continue to attract and retain highly skilled technical and
management personnel. The competition for these personnel is intense. Keane may
not succeed in attracting and retaining the personnel necessary to develop its
business. If Keane does not succeed, its business, financial condition and
result of operations could be materially adversely affected.
Keane faces significant competition for its services, and its failure to remain
competitive could limit its ability to maintain existing clients or attract new
clients.
The market for Keane's services is highly competitive. The technology for
custom software services can change rapidly. The market is fragmented, and no
company holds a dominant position. Consequently, Keane's competition for client
assignments and experienced personnel varies significantly from city to city
and by the type of service provided. Some of Keane's competitors are larger and
have greater technical, financial and marketing resources and greater name
recognition in the markets they serve than does Keane. In addition, clients may
elect to increase their internal information systems resources to satisfy their
custom software development needs.
In the healthcare software systems market, Keane competes with some
companies that are larger in the healthcare market and have greater financial
resources than Keane. Keane believes that significant competitive factors in
the healthcare software systems market include size and demonstrated ability to
provide service to targeted healthcare markets.
14
Keane may not be able to compete successfully against current or future
competitors. In addition, competitive pressures faced by Keane may materially
adversely affect its business, financial condition and results of operations.
Keane conducts business in the United Kingdom, which exposes it to a number of
difficulties inherent in international activities.
Keane's operations in the U.K. are subject to currency exchange rate
fluctuations, foreign exchange restrictions, changes in taxation and other
difficulties in managing operations overseas. Keane may not be successful in
its international operations.
Keane may be unable to redeploy its professionals effectively if engagements
are terminated unexpectedly, which would adversely affect its results of
operations.
Keane's clients can cancel or reduce the scope of their engagements with
Keane on short notice. If they do so, Keane may be unable to reassign its
professionals to new engagements without delay. The cancellation or reduction
in scope of an engagement could, therefore, reduce the utilization rate of
Keane's professionals, which would have a negative impact on Keane's business,
financial condition and results of operations.
Risks Relating to Metro's Business
Metro may be unable to attract and retain management and other personnel it
needs to succeed.
Metro's success depends, in part, on its ability to attract and retain
consultants with the technical skills and experience required to meet its
clients' rapidly changing needs. Metro must continually identify and recruit
technical personnel in each of its markets to fill new positions and to replace
consultants who have left Metro. The IT industry has high consultant turnover
rates. Metro competes for qualified personnel with other providers of technical
staffing services, system integrators, providers of outsourcing services,
computer consultants, temporary personnel agencies and Metro's own clients. IT
professionals who work with Metro also work with Metro's competitors from time
to time. IT professionals currently working on projects for Metro may choose to
work for competitors on future assignments. Metro's net revenues in any period
are primarily driven by the number of IT professionals Metro has on billable
assignments. Metro may not be able to attract and retain the personnel it
requires to conduct its operations successfully or to attract additional
personnel for expanded operations. Metro's failure to attract and retain such
personnel or an increase in Metro's consultant turnover rate could have a
material adverse effect on Metro's business, financial condition and results of
operations.
Metro may not be able to renegotiate its loan covenants.
Prior to entering into the merger agreement, Metro was negotiating with its
lenders regarding financial covenants under its credit facilities. Since
entering into the merger agreement with Keane, Metro has suspended these
negotiations. There can be no assurance that Metro would be able to resume and
complete these negotiations with its lenders by December 31, 2001 if the merger
with Keane were not to occur. If Metro were not able to renegotiate with its
lenders prior to December 31, 2001, Metro would be in breach of the loan
covenants under its credit facilities. In that event, the interest rate under
these facilities would increase to two points above the prime rate, and all
amounts then outstanding would be immediately due and payable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Metro--Liquidity and Capital Resources."
Rapid technology change may make Metro's products and services obsolete.
The market for IT services is characterized by rapid technological advances,
frequent product introductions and enhancements, and changes in client
requirements. Metro's future success depends, in part, on its ability to
provide consultants possessing the skills to service past, current and next
generation products and technologies. These factors will require Metro to
provide adequately trained personnel to address the increasing and evolving
15
needs of its clients. Any failure by Metro to anticipate or respond rapidly to
technological advances, new products and enhancements or changes in client
requirements could have a material adverse effect on Metro's business,
financial condition and results of operations.
Metro faces intense competition for its products and services, and may be
unable to compete successfully against existing or new competitors.
The IT services industry is extremely competitive and highly fragmented.
Metro's competitors include general IT services firms, temporary staffing and
personnel placement companies, general management consulting firms, major
accounting firms, divisions of large hardware and software companies and niche
providers of IT services. With the recent shift towards the Internet, several
new competitors have entered the market. These competitors are typically small
but well funded services firms focused exclusively on helping businesses to
change their relationships with clients and suppliers via the Internet. In
addition, competition may come in the form of application service providers, or
ASPs. ASPs offer to host standard or slightly customized versions of packaged
software systems for businesses. ASPs may attract clients who are dissatisfied
with their custom software solutions or have difficulty managing their packaged
software systems. Some of Metro's competitors possess substantially greater
resources, greater name recognition and a more established client base than
Metro. In addition, the services offered by Metro have been and continue to be
provided by clients' in-house personnel. There can be no assurance that Metro
will be able to compete successfully against existing or new competitors as the
IT services industry continues to evolve.
Metro plans to develop new IT services, and may not be successful in
integrating these new services into its existing business.
Metro intends to grow, in part, through the development of IT services
beyond the scope of services presently provided by Metro. Metro's ability to
successfully develop new services depends on a number of factors, including its
ability to identify and effectively integrate new services into its existing
operating structure. The identification and offering of new services in which
Metro has little or no experience or expertise could result in diversion of
management's attention and place disproportionate demands on Metro's
operational, administrative and financial resources. There can be no assurance
that the performance of any new service offerings will meet management's
expectations or provide the same profit margins as Metro's existing operations.
Metro's failure or inability to complete its outsourcing projects could result
in damage to Metro's reputation and give rise to legal claims against Metro.
Project outsourcing is distinguishable from Metro's core business in that
project outsourcing requires Metro to assume a greater level of responsibility
for developing or maintaining systems on behalf of its clients. Many of Metro's
project outsourcing engagements are critical to the operations of its clients'
businesses. Historically, Metro has completed the vast majority of its
engagements to its clients' satisfaction. However, Metro's failure or inability
to complete these engagements satisfactorily could have a material adverse
effect on its clients' operations and, consequently, may give rise to claims
against Metro for actual or consequential damages or otherwise damage its
reputation. Any of these claims could have a material adverse effect on Metro's
business, financial condition and results of operations.
Metro generally does not have long-term contracts with its clients, and
reductions, cancellations or delays of engagements by its clients could
adversely affect Metro's operating results.
Substantially all of Metro's contracts to perform services may be canceled
or modified by Metro's clients at will and without penalty. As of June 30,
2001, approximately 61% of Metro's consultants were salaried employees and,
unless terminated, receive full compensation and benefits even if not engaged
in billable work. As a result, cancellation or reduction of a contract may
result in a loss of revenue without a corresponding reduction in cost of
revenue.
16
Metro is heavily dependent on its key clients, and the loss of one or more key
clients could adversely affect its business.
The loss of one or more of Metro's large clients could have a material
adverse effect on Metro's business, financial condition and results of
operations. Metro may be responsible for the continued salary costs associated
with consultants whose projects have been terminated by clients until such
consultants are placed in different assignments or their employment is
terminated. In 1998, 1999 and 2000 and the twelve months ended June 30, 2001,
Metro's ten largest clients accounted for approximately 31.3%, 21.7%, 23.2% and
23.9%, respectively, of Metro's revenue, and its largest client accounted for
approximately 4.4%, 3.6%, 5.2% and 5.9%, respectively, of revenue.
Metro faces risks in connection with the industry's trend toward the
utilization of prime vendors.
To reduce the number of their IT service providers, a number of businesses
are beginning to use a limited number of vendors and, in some cases, a single
vendor. These prime vendors fill client needs directly or through
subcontractors. Metro anticipates that this trend toward prime vendors may
become increasingly common in the marketplace and may result in pricing
pressure and the loss of business opportunities. This trend may lead to reduced
gross profit margins and fewer opportunities for Metro to place consultants,
which would have a material adverse effect on Metro's business, financial
condition and results of operations.
Metro has taken steps, when practical, to become a prime vendor of IT
services. In certain cases, Metro experiences pricing pressure from clients as
a condition to becoming or remaining a prime vendor. In other cases, Metro
experiences demands to provide consultants in multiple locations to become or
remain a prime vendor. There can be no assurance that Metro will be able to
compete effectively with other prime vendors or remain a prime vendor.
Metro could be subject to employment liability claims.
Metro employs and places its consultants and other employees at its clients'
businesses. Accordingly, Metro could face claims of discrimination and
harassment, liabilities for errors and omissions by Metro's employees, misuse
of client proprietary information or intellectual property, injury to Metro and
client employees, misappropriation of client funds, theft of client property,
other criminal activity, torts and other similar claims. Metro may also be held
responsible for the actions of persons not under Metro's direct control.
Historically, Metro has not been held responsible in any material instance for
such claims.
Loss of Metro's computer and communications systems could adversely affect
Metro's operating results.
Metro relies on its computer and communications systems, the hub of which is
located at its corporate headquarters in Virginia Beach, Virginia. Although
Metro has a disaster recovery plan, temporary or permanent loss of these
systems from fire, power loss, natural disaster, operating malfunction or any
other cause could have a material adverse effect on Metro's business, financial
condition and results of operations. Metro's property and business interruption
insurance may not be adequate to compensate Metro for all losses that may
occur.
Loss of any of Metro's key personnel, and particularly Metro's chief executive
officer and/or president, could negatively impact Metro's business because of
their experience, contacts and technological expertise.
The continued growth and success of Metro is largely dependent on the
efforts, direction and guidance of its existing senior management and on its
ability to attract and retain qualified managers. Metro has entered into
employment agreements with its executive officers, each of which contains
provisions limiting the executive's rights to compete with Metro and hire its
employees. The loss of any of Metro's senior management or key personnel and,
in particular, John H. Fain, Metro's chief executive officer, or Andrew J.
Downing, Metro's president and chief operating officer, or the inability to
attract and retain key management personnel in the
17
future, could have a material adverse effect on Metro's business, financial
condition and results of operations. Metro carries no key man life insurance
covering Mr. Fain or Mr. Downing.
Others may assert that Metro's technology infringes their intellectual property
rights.
A portion of Metro's business involves the development of software
applications for specific client engagements. Although Metro believes that its
services do not infringe on the intellectual property rights of others and has
not historically been accused of infringing the intellectual property rights of
others in any material instance, it may be the subject of claims for
infringement, which, even if successfully defended, could be costly and time
consuming. An infringement claim against Metro could materially and adversely
affect Metro in that Metro may:
. experience a diversion of Metro's financial resources and the attention
of management personnel,
. incur damages and litigation costs, including attorneys' fees,
. be enjoined from future use of intellectual property,
. be required to obtain a license to use intellectual property, incurring
licensing fees,
. need to develop a non-infringing alternative, which could be costly and
delay projects, and
. have to indemnify clients with respect to losses incurred as a result of
Metro's infringement of intellectual property.
Health plan self-insurance charges could have a material adverse effect on
Metro's operating results and financial condition.
Metro self-insures a portion of the costs of its group health and dental
plan. On June 30, 2001, approximately 1,789 of Metro's 2,429 full-time
employees were covered by its group health plan. Metro self-insures up to
$125,000 of claims per covered employee per year with a maximum annual
aggregate liability of 125% of expected claims as computed at the end of each
year based on the number of covered persons during the year. Self-insurance
charges may fluctuate materially from quarter to quarter and may have a
material adverse effect on Metro's quarterly and annual financial condition and
results of operations.
Metro's failure or inability to successfully implement and manage its
acquisition strategy may adversely affect Metro's financial performance.
Metro has grown, in part, through the acquisition of other IT businesses.
Metro's ability to acquire other IT businesses depends on its ability to
identify, finance and complete acquisitions. There is significant competition
for acquisition opportunities, which may increase the cost of acquisition
candidates. Some competitors for these candidates have greater resources than
Metro. Metro will face a variety of additional risks if it completes
acquisitions, including:
. the inability to integrate the acquired businesses into Metro's
operations,
. the inability to achieve expected financial results from the acquired
businesses,
. the diversion of management's attention,
. the inability to retain key personnel of the acquired businesses,
. losses due to liabilities and contingencies of the acquired businesses,
and
. the adverse impact on net income caused by amortization of acquired
intangible assets and additional interest expense.
Metro's failure or inability to successfully implement and manage its
acquisition strategy may have a material adverse effect on Metro's business,
financial condition and results of operations. In addition, the value
18
of Metro's capital stock held by shareholders at the time of any acquisition
may be diluted if Metro issues stock to complete any acquisition.
Metro's business is subject to seasonality and other factors outside of its
control, which are difficult to predict and could have a negative impact on
Metro's business, financial condition and results of operations.
Metro generally experiences lower net sales in its fourth quarter due to the
number of holidays and closings of client facilities during that quarter. Metro
also experiences lower operating results in its first quarter due in part to
the timing of unemployment and social security tax thresholds and delays in
client contract renewals related to client budget approval processes. A higher
percentage of employee wages are subject to unemployment and social security
tax withholding in the first quarter. In later quarters, more employees reach
the annual taxable wage limits for unemployment and social security tax
withholding. These factors are difficult to predict and could adversely affect
Metro's business, financial condition and results of operations.
19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Keane and Metro believe this proxy statement/prospectus and the documents
that we incorporate by reference herein contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties and are based on the
beliefs and assumptions of management of Keane and Metro, based on information
currently available to each company's management. When we use words such as
"believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely" or similar expressions, we are making forward-looking
statements. Forward-looking statements include the information concerning
possible or assumed future results of operations of Keane or Metro, including
the anticipated cost savings and revenue enhancements from the merger, set
forth under:
. "Summary,"
. "Risk Factors,"
. "Selected Unaudited Pro Forma Combined Financial Data,"
. "The Merger--Background of the Merger,"
. "The Merger--Keane's Reasons for the Merger,"
. "The Merger--Metro's Reasons for the Merger,"
. "The Merger--Recommendation of Metro's Board of Directors,"
. "The Merger--Opinion of Keane's Financial Advisor--Morgan Stanley & Co.
Incorporated,"
. "The Merger--Opinion of Metro's Financial Advisor--Robert W. Baird & Co.
Incorporated," and
. "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Metro."
Forward-looking statements also include the information concerning possible
or assumed future results of operations of Keane under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Keane's Annual Report on Form 10-K and Quarterly Reports on Form
10-Q that we incorporate by reference into this proxy statement/prospectus.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results, stockholder values of
Keane or shareholder values of Metro may differ materially from those expressed
in the forward-looking statements. Many of the important factors that will
determine these results and values are beyond Keane's or Metro's ability to
control or predict. You are cautioned not to put undue reliance on any forward-
looking statements. For those statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Except as otherwise required by law, neither
Keane nor Metro is under a duty to update any of these forward-looking
statements after the date of this proxy statement/prospectus.
There are important factors that may cause actual results to differ
materially from those suggested by the forward-looking statements. For a
discussion of some of these important factors, you should carefully read the
section of this proxy statement/prospectus entitled "Risk Factors."
20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KEANE
In the table below, we provide you with selected historical consolidated
financial data of Keane. We have prepared this information using the
consolidated financial statements of Keane as of and for the five years ended
December 31, 2000 and as of and for the six-month periods ended June 30, 2000
and 2001. The consolidated financial statements as of and for the two years
ended December 31, 2000 have been incorporated by reference into this proxy
statement/prospectus and have been audited by Ernst & Young LLP, independent
auditors. The consolidated financial statements as of and for the year ended
December 31, 1998 have been incorporated by reference into this proxy
statement/prospectus and have been audited by PricewaterhouseCoopers LLP,
independent auditors. The consolidated financial statements as of and for the
years ended December 31, 1996 and 1997 have not been incorporated by reference
into or included in this proxy statement/prospectus and have been audited by
PricewaterhouseCoopers LLP, independent accountants. The consolidated financial
statements for the six-month periods ended June 30, 2000 and 2001 have not been
audited. The results of the interim periods are not necessarily indicative of
the results to be expected for future periods.
When you read these selected historical consolidated financial data, it is
important that you read the historical consolidated financial statements and
related notes in our annual and quarterly reports filed with the Securities and
Exchange Commission, as well as the section of our annual and quarterly reports
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------ -----------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- ---------- ---------- -------- -------- --------
(In thousands, except per share amounts)
Income Statement Data:
Total revenues......... $505,982 $706,801 $1,076,198 $1,041,092 $871,956 $438,007 $405,341
Operating income....... 47,403 85,163 170,187 116,466 27,921 19,144 19,918
Net income............. 28,173 51,371 96,349 73,074 20,354 13,486 15,152
Net income per share
(basic)............... $ 0.40 $ 0.73 $ 1.36 $ 1.02 $ 0.29 $ 0.19 $ 0.22
Net income per share
(diluted)............. $ 0.40 $ 0.72 $ 1.33 $ 1.01 $ 0.29 $ 0.19 $ 0.22
*Weighted average
common shares
outstanding (basic)... 69,780 70,096 71,053 71,571 69,646 70,595 67,947
*Weighted average
common shares and
common share
equivalents
outstanding (diluted)
equivalents
outstanding
(diluted)............. 70,540 71,603 72,284 72,395 69,993 71,216 68,825
Balance Sheet Data (at
period end):
Total cash and
investments........... $ 69,079 $ 91,022 $ 129,229 $ 142,763 $115,212 $132,123 $159,990
Total assets........... 251,771 329,176 458,959 519,307 463,594 471,676 478,101
Total debt............. 16,502 9,493 3,930 11,403 8,616 9,904 3,035
Stockholders' equity... 201,768 257,037 363,784 422,799 370,677 393,018 387,354
Book value per share... $ 2.89 $ 3.65 $ 5.10 $ 5.95 $ 5.48 $ 5.65 $ 5.71
*Number of shares
outstanding........... 69,792 70,342 71,336 71,051 67,675 69,622 67,805
--------
* Data for 1996 have been adjusted to reflect the 2-for-1 stock split on Keane
common stock that was distributed on August 29, 1997 to Keane stockholders of
record as of August 14, 1997.
All amounts prior to 1999 have been restated to reflect the acquisitions by
Keane of Bricker & Associates, Inc., Icom Systems Limited and Fourth Tier,
Inc., which were accounted for as poolings-of-interests.
21
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF METRO
The following table presents selected historical consolidated financial data
of Metro. The income statement data for the years ended December 31, 1998, 1999
and 2000, and the balance sheet data at December 31, 1999 and 2000, are derived
from Metro's audited consolidated financial statements included in this proxy
statement/prospectus. The income statement data for the years ended December
31, 1996 and 1997 and the balance sheet data at December 31, 1996, 1997 and
1998 are derived from Metro's audited consolidated financial statements not
included in this proxy statement/prospectus. The income statement data for the
six months ended June 30, 2000 and 2001, and the balance sheet data at June 30,
2000 and 2001, are unaudited. In the opinion of Metro's management, all
necessary adjustments, consisting only of normal recurring adjustments, for a
fair presentation of the results of operations have been included in the
interim results for the periods presented. Results for the six months ended
June 30, 2001 are not necessarily indicative of the results to be expected for
the full year. These data should be read in conjunction with the consolidated
financial statements, including the notes thereto, included in this proxy
statement/prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Metro."
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------- ------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share amounts)
Income Statement Data:
Revenue................. $113,963 $152,578 $213,892 $314,646 $313,591 $158,009 $148,616
Cost of revenue......... 79,752 106,080 148,322 222,681 221,566 112,734 107,431
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 34,211 46,498 65,570 91,965 92,025 45,275 41,185
-------- -------- -------- -------- -------- -------- --------
Selling, general and
administrative
expenses............... 24,347 30,264 40,349 58,140 67,385 33,877 33,943
Depreciation and
amortization........... 763 1,158 1,851 5,584 8,082 3,980 4,324
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses.............. 25,110 31,422 42,200 63,724 75,467 37,857 38,267
-------- -------- -------- -------- -------- -------- --------
Restructuring charge.... -- -- -- -- 403 747 904
-------- -------- -------- -------- -------- -------- --------
Operating income........ 9,101 15,076 23,370 28,241 16,155 6,671 2,014
-------- -------- -------- -------- -------- -------- --------
Net interest (expense)
income................. (260) 729 781 (2,875) (6,718) (2,771) (2,607)
Other income............ -- -- -- -- -- -- 1,000
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 8,841 15,805 24,151 25,366 9,437 3,900 407
Income taxes(1)......... -- 6,178 9,534 10,223 4,302 1,589 406
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 8,841 $ 9,627 $ 14,617 $ 15,143 $ 5,135 $ 2,311 $ 1
======== ======== ======== ======== ======== ======== ========
Net income per share--
basic.................. $ 0.71 $ 0.66 $ 0.98 $ 1.01 $ 0.34 $ 0.15 $ 0.00
======== ======== ======== ======== ======== ======== ========
Net income per share--
diluted................ $ 0.71 $ 0.66 $ 0.97 $ 1.01 $ 0.34 $ 0.15 $ 0.00
======== ======== ======== ======== ======== ======== ========
Weighted average number
of shares of common
stock and potential
dilutive securities
outstanding:
Basic.................. 12,397 14,611 14,845 14,929 15,101 15,054 15,249
Diluted................ 12,397 14,662 15,001 14,986 15,145 15,098 15,259
Income before income
taxes.................. $ 8,841
Pro forma provision for
income taxes(1)........ 3,536
--------
Pro forma net
income(1).............. $ 5,305
========
Pro forma net income per
share--basic and
diluted(1)............. $ 0.42
========
Pro forma weighted
average shares
outstanding--basic and
diluted(2)............. 12,669
22
December 31, June 30,
----------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- -------- -------- -------- --------
(In thousands, except per share amounts)
Balance Sheet Data:
Working capital......... $ 6,369 $34,560 $36,777 $ 42,047 $ 42,647 $ 46,145 $ 38,727
Total assets............ 21,572 58,533 81,000 190,179 189,280 185,230 180,693
Line of credit
facilities............. 2,547 -- -- 82,467 83,443 79,659 75,130
Redeemable common
stock.................. 2,651 -- -- -- -- -- --
Total shareholders'
equity................. 8,354 45,128 61,245 78,141 84,937 81,577 85,424
Book value per share.... $ 0.95 $ 3.05 $ 4.11 $ 5.20 $ 5.58 $ 5.39 $ 5.57
Number of shares
outstanding............ 8,768 14,820 14,884 15,022 15,223 15,123 15,338
--------
(1) Throughout 1996, Metro was an S corporation for federal and certain state
income tax purposes. The pro forma provision for income taxes reflects a
provision for income taxes, as if Metro were a C corporation for income tax
purposes during 1996, at an assumed effective tax rate of 40%. Effective
January 1, 1997, Metro revoked its S-election, subjecting it to corporate
income taxes at federal, state and local levels.
(2) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin Topic 1B3, pro forma weighted average shares outstanding for 1996
are increased to reflect certain distributions in excess of earnings.
23
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table presents selected unaudited pro forma combined financial
data of Keane and Metro as of June 30, 2001 and for the year ended December 31,
2000 and the six months ended June 30, 2001, giving effect to the merger as if
it had occurred as of January 1, 2000 for the statement of income data and as
of June 30, 2001 for the balance sheet data. The data have been prepared giving
effect to the merger under the purchase method of accounting, whereby the total
cost of the acquisition has been preliminarily allocated to the tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values at the effective date of the acquisition. This information should
be read in conjunction with the unaudited pro forma combined condensed
financial statements and related notes included elsewhere in this proxy
statement/prospectus. The selected unaudited pro forma combined financial data
are presented for illustrative purposes only and are not necessarily indicative
of the operating results or financial position that would have been achieved
had the merger been consummated as of the dates indicated or that may be
achieved in the future.
Six Months
Year Ended Ended
December 31, 2000 June 30, 2001
----------------- -------------
(in thousands, except
per share amounts)
Statement of Income Data:
Revenues..................................... $1,185,547 $553,957
Cost of revenue and other operating
expenses.................................... 1,161,294 539,331
---------- --------
Net income................................. $ 24,253 $ 14,626
========== ========
Basic net income per share................... $ 0.31 $ 0.19
Diluted net income per share................. $ 0.31 $ 0.19
Shares used in computing basic net income per
share....................................... 77,008 75,309
Shares used in computing diluted net income
per share................................... 77,493 76,364
As of
June 30, 2001
--------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities............... $159,832
Total assets................................................... 731,496
Current liabilities............................................ 188,028
Noncurrent liabilities......................................... 21,330
Stockholders' equity........................................... 522,138
24
UNAUDITED COMPARATIVE PER SHARE DATA
The following tables present (a) the basic and diluted net income per share
and book value per share data for each of Keane and Metro on a historical
basis, (b) the historical basic and diluted net income per share and book value
per share for the combined company on a pro forma basis and (c) the historical
basic and diluted net income per share and book value per share for Metro on an
equivalent pro forma combined basis. Under Metro equivalent pro forma combined
below, Metro and Keane show the effect of the merger from the perspective of an
owner of shares of Metro common stock. The unaudited pro forma combined
financial data are not necessarily indicative of the operating results that
would have been achieved had the transaction been in effect as of the beginning
of the periods and should not be construed as representative of future
operations. Neither Keane nor Metro declared any cash dividends for the periods
presented below.
We calculate historical book value per share by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of each
period.
We calculate pro forma combined--per combined companies share book value by
dividing pro forma shareholders' equity by the pro forma number of shares of
Keane common stock which would have been outstanding had the merger been
consummated as of each balance sheet date. For the purposes of the pro forma
combined net income per share and book value per share data, Keane's historical
financial data for the year ended December 31, 2000 and the six months ended
June 30, 2001 have been combined with Metro's financial data for the year ended
December 31, 2000 and the six months ended June 30, 2001, respectively.
We calculate Metro equivalent pro forma combined amounts by multiplying the
pro forma combined per share amounts by the exchange ratio of 0.48 of a share
of Keane common stock for each share of Metro common stock.
At and For the At and For the
Year Ended Six Months Ended
December 31, 2000 June 30, 2001
----------------- ----------------
Keane--Historical:
Basic net income per share................. $0.29 $0.22
Diluted net income per share............... $0.29 $0.22
Book value per share....................... $5.48 $5.71
Metro--Historical:
Basic net income per share................. $0.34 $ --
Diluted net income per share............... $0.34 $ --
Book value per share....................... $5.58 $5.57
Pro forma combined--Per combined companies
share:
Basic net income per share................. $0.31 $0.19
Diluted net income per share............... $0.31 $0.19
Book value per share....................... $6.74 $6.95
Equivalent pro forma combined--Per Metro
share:
Basic net income per share................. $0.15 $0.09
Diluted net income per share............... $0.15 $0.09
Book value per share....................... $3.24 $3.34
25
MARKET PRICE AND DIVIDEND INFORMATION
Keane Market Price Information
Keane common stock has traded on the American Stock Exchange under the
symbol "KEA" since September 15, 1989.
The table below sets forth the range of intraday high and low sales prices
of Keane common stock as reported on the American Stock Exchange for 1999 and
2000 and for 2001 to date.
High Low
------ ------
1999
Quarter ended March 31, 1999............................... $42.50 $21.31
Quarter ended June 30, 1999................................ 31.69 18.00
Quarter ended September 30, 1999........................... 28.75 20.50
Quarter ended December 31, 1999............................ 32.75 20.06
2000
Quarter ended March 31, 2000............................... $30.94 $22.19
Quarter ended June 30, 2000................................ 29.38 20.38
Quarter ended September 30, 2000........................... 25.00 15.84
Quarter ended December 31, 2000............................ 15.95 9.75
2001
Quarter ended March 31, 2001............................... $18.75 $ 9.28
Quarter ended June 30, 2001................................ 22.00 11.40
Quarter ended September 30, 2001........................... 21.01 12.45
Quarter ending December 31, 2001 (through October 18,
2001)..................................................... 15.30 13.25
As of September 28, 2001, Keane had approximately 2,466 record holders of
its common stock.
Metro Market Price Information
Metro common stock has traded on The Nasdaq National Market under the symbol
"MISI" since its initial public offering on January 29, 1997.
The table below sets forth the range of intraday high and low sales prices
of Metro common stock as reported on The Nasdaq National Market for 1999 and
2000 and for 2001 to date.
High Low
------ ------
1999
Quarter ended March 31, 1999............................... $37.00 $15.25
Quarter ended June 30, 1999................................ 27.00 14.75
Quarter ended September 30, 1999........................... 18.94 12.25
Quarter ended December 31, 1999............................ 26.25 12.00
2000
Quarter ended March 31, 2000............................... $28.06 $14.00
Quarter ended June 30, 2000................................ 15.00 6.00
Quarter ended September 30, 2000........................... 9.50 6.13
Quarter ended December 31, 2000............................ 8.19 4.25
2001
Quarter ended March 31, 2001............................... $ 9.13 $ 5.75
Quarter ended June 30, 2001................................ 7.63 3.80
Quarter ended September 30, 2001........................... 8.38 3.35
Quarter ending December 31, 2001 (through October 18,
2001)..................................................... 7.15 6.10
As of September 28, 2001, Metro had approximately 2,711 record holders of
its common stock.
26
Recent Closing Prices
The following table sets forth the closing prices per share of Keane common
stock and Metro common stock as reported on the American Stock Exchange and The
Nasdaq National Market, respectively, on August 20, 2001, the last full trading
day prior to the public announcement that Keane and Metro had entered into the
merger agreement, and October 18, 2001, the last full trading day for which
closing prices were available at the time of the printing of this proxy
statement/prospectus. This table also sets forth the equivalent price per share
of Metro common stock on those dates. The equivalent price per share is equal
to the closing price of a share of Keane common stock on that date multiplied
by 0.48, the exchange ratio in the merger.
Keane Metro Equivalent
Common Common per Share
Date Stock Stock Price
---- ------ ------ ----------
August 20, 2001........................................ $18.46 $3.70 $8.86
October 18, 2001....................................... $13.75 $6.40 $6.60
Metro and Keane believe that Metro common stock presently trades on the
basis of the value of Keane common stock expected to be issued in exchange for
the Metro common stock in the merger, discounted primarily for the
uncertainties associated with the merger.
You should obtain current market quotations for Keane common stock and Metro
common stock. No assurance can be given as to the market prices of Keane common
stock or Metro common stock at any time before completing the merger or as to
the market price of Keane common stock at any time after the merger. Because
the exchange ratio is fixed, the exchange ratio will not be adjusted to
compensate Metro shareholders for decreases in the market price of Keane common
stock which could occur before the merger becomes effective. In the event the
market price of Keane common stock decreases or increases prior to completing
the merger, the value of the Keane common stock to be received in the merger in
exchange for Metro common stock would correspondingly decrease or increase.
Dividends
Keane has not declared or paid cash dividends on Keane common stock since
June 1986. Keane currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of Keane's board of directors after taking into account various
factors, including Keane's financial condition, operating results, current and
anticipated cash needs and plans for expansion. Keane's articles of
organization restrict the ability of Keane's board of directors to declare
regular quarterly dividends on shares of Keane's class B common stock unless a
noncumulative per share dividend which is $0.05 per share greater is paid at
the same time on the shares of Keane's common stock.
Since Metro became a public company in January 1997, it has not declared or
paid cash dividends, and Metro does not intend to pay any cash dividends on its
common stock in the foreseeable future. If the merger does not occur, Metro
currently intends to retain earnings. Metro's future dividend policy will
depend on its earnings, capital requirements and financial condition and the
requirements of the financing agreements to which it may be a party, and on
other factors considered relevant by its board of directors. Metro's existing
credit facilities restrict its ability to declare dividends. For additional
information, please see note 6 to Metro's audited consolidated financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Metro" included elsewhere in this proxy
statement/prospectus.
27
THE METRO SPECIAL MEETING
Metro is furnishing this document to holders of Metro common stock in
connection with the solicitation by the Metro board of directors of proxies to
be voted at the special meeting to be held on Friday, November 30, 2001, and at
any postponement or adjournment of the meeting. This document is first being
mailed to Metro shareholders on or about October 22, 2001. This document is
also furnished to Metro shareholders as a prospectus in connection with the
issuance by Keane of shares of Keane common stock as contemplated by the merger
agreement.
Date, Time and Place of Meeting
The special meeting of Metro's shareholders will be held on Friday, November
30, 2001 at 9:00 a.m., local time, at the Contemporary Art Center of Virginia,
2200 Parks Avenue, Virginia Beach, Virginia 23451.
What Will Be Voted Upon
At the special meeting, shareholders of Metro at the close of business on
September 28, 2001 will be asked to:
. approve and adopt the merger agreement with Keane, under which Metro
will become a wholly owned subsidiary of Keane and each outstanding
share of Metro will be converted into 0.48 of a share of common stock of
Keane and cash, without interest, for any fractional shares, and
. transact any other business that may properly come before the special
meeting or any postponements or adjournments of that meeting.
The agreement and plan of merger and the related plan of merger are attached
to this proxy statement/prospectus as Annex A and Annex B, respectively. See
the sections entitled "The Merger" and "The Merger Agreement."
Record Date and Outstanding Shares
Only shareholders of record of Metro common stock at the close of business
on September 28, 2001, the record date for the special meeting, are entitled to
notice of, and to vote at, the special meeting. Each holder of record of Metro
common stock at the close of business on the record date is entitled to one
vote for each share of Metro common stock then held on each matter voted on by
shareholders. At the close of business on the record date, there were
15,337,760 shares of Metro common stock issued and outstanding and entitled to
vote held by approximately 2,711 holders of record.
Vote Required to Approve the Merger
The holders of a majority of the outstanding shares of Metro common stock
entitled to vote at the special meeting must vote in favor of approving and
adopting the merger agreement.
Quorum; Abstentions and Broker Non-Votes
The holders of a majority of the outstanding shares entitled to vote at the
special meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining whether a quorum exists.
If you hold your shares of Metro common stock through a broker, bank or
other nominee, generally the nominee may only vote your Metro common stock in
accordance with your instructions. However, if it has not timely received your
instructions, the nominee may vote on matters for which it has discretionary
voting authority. Brokers will not have discretionary voting authority to vote
on the proposal to approve and adopt the
28
merger agreement. If a nominee cannot vote on a matter because it does not have
discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are counted as shares present or represented at the special
meeting for purposes of determining whether a quorum exists.
For purposes of the vote with respect to the merger agreement required under
Virginia law, a failure to vote, a vote to abstain and a broker non-vote will
each have the same legal effect as a vote against approval and adoption of the
merger agreement.
If a Metro shareholder executes a proxy card without giving instructions,
the shares of Metro common stock represented by that proxy card will be voted
"FOR" approval and adoption of the merger agreement. The Metro board is not
aware of any other matters to be voted on at the special meeting. If any other
matters properly come before the special meeting, including a motion to adjourn
the special meeting in order to solicit additional proxies, the persons named
on the proxy card will vote the shares represented by all properly executed
proxies on those matters in their discretion, except that shares represented by
proxies that have been voted "AGAINST" approval and adoption of the merger
agreement will not be used to vote "FOR" adjournment of the special meeting to
allow additional time to solicit additional votes "FOR" the merger agreement.
Share Ownership of Management and Certain Shareholders
On the record date, all Metro directors, executive officers and their
affiliates, including Mr. Fain, who, together with family trusts, held in the
aggregate approximately 59.6% of the outstanding shares of Metro common stock.
See "Metro's Principal Shareholders." All directors and executive officers of
Metro have indicated their intention to vote all shares over which they
exercise voting control in favor of the merger agreement.
Mr. Fain, who, together with various family trusts, beneficially owned
8,360,665 shares of Metro common stock, or approximately 54.5% of Metro's
outstanding shares on the record date, has executed a shareholder's agreement
with Keane. Under the shareholder's agreement, Mr. Fain has agreed to vote a
portion of these shares representing 40% of Metro's outstanding shares in favor
of the merger agreement. Mr. Fain executed an irrevocable proxy that enables
Keane to vote these shares to approve and adopt the merger agreement. Mr. Fain
was not paid additional consideration in connection with the irrevocable proxy.
The shareholder's agreement is attached to this proxy statement/prospectus as
Annex C. See "Other Agreements--Shareholder's Agreement."
Voting and Revocation of Proxies
You may revoke your proxy at any time before the proxy is exercised by one
of the following means:
. sending the secretary of Metro a notice revoking the proxy,
. submitting a duly executed proxy with a later date, or
. voting in person at the special meeting.
All shares represented by each properly executed and not revoked proxy
received by the secretary of Metro prior to the special meeting will be voted
in accordance with the instructions given on the proxy. If no instructions are
indicated, the proxy will be voted to approve and adopt the merger agreement.
Solicitation of Proxies and Expenses
Metro will bear the cost of the solicitation of proxies from its
shareholders. Officers, directors and regular employees of Metro, who will
receive no additional compensation for their services, may solicit proxies by
telephone or personal call. Metro has asked brokers and nominees who hold stock
in their names to give the proxy statement/prospectus to their clients. In
addition to solicitation by mail, brokerage houses and other custodians,
nominees and fiduciaries will send beneficial owners the proxy materials. Metro
will, upon request,
29
reimburse those brokerage houses and custodians for their reasonable expenses.
We urge you to vote your proxy without delay.
Board Recommendation
Metro's board of directors has unanimously approved and adopted the merger
agreement and believes that the terms of the merger agreement are in the best
interests of Metro and its shareholders. Therefore, Metro's board of directors
recommends that Metro shareholders vote for approval and adoption of the merger
agreement.
The proposed merger is of great importance to the shareholders of Metro.
Accordingly, you are urged to read and carefully consider the information
presented in this proxy statement/prospectus, and to complete, date, sign and
promptly return the enclosed proxy card in the enclosed postage-prepaid
envelope.
You Do Not Have Dissenters' Or Appraisal Rights
Under Virginia law, you are not entitled to exercise dissenters' or
appraisal rights as a result of the merger or to demand payment for your
shares.
You should not send any certificates representing Metro common stock at this
time. Following the effective time of the merger, you will receive instructions
for the surrender and exchange of your Metro stock certificates.
30
THE MERGER
This section of the proxy statement/prospectus describes material aspects of
the proposed merger, including the merger agreement. While Keane and Metro
believe that the description covers the material terms of the merger and the
related transactions, this summary may not contain all of the information that
is important to you. You should read this entire document and the other
documents referred to in this proxy statement/prospectus carefully for a more
complete understanding of the merger.
Background of the Merger
Metro's and Keane's founders have known each other for over 15 years. In
June 2000, Brian T. Keane, Keane's chief executive officer and president,
telephoned John H. Fain, Metro's chairman of the board and chief executive
officer, to discuss meeting about a possible business combination or other
strategic alliance. During July, August and September 2000, management
representatives of Keane and Metro engaged in periodic discussions as to
whether there was any mutual interest in pursuing a possible business
combination or other strategic alliance. The parties exchanged non-public
information regarding their respective businesses and discussed industry trends
generally. Neither party made any specific proposal regarding a possible
combination at these meetings. Moreover, Mr. Fain decided not to pursue any
possible business combination with Keane or any other company at that time due
to Metro's then existing position in the market.
In early April 2001, Mr. Keane telephoned Mr. Fain to again explore a
potential business combination between the two companies. Messrs. Keane and
Fain agreed to continue discussions after each company released its respective
earnings for the first quarter of 2001. Following these discussions, Mr. Fain
and representatives of Robert W. Baird & Co. Incorporated began reviewing
certain financial and strategic considerations relating to a potential business
combination between the two companies.
On April 26, 2001, Messrs. Keane and Fain began to more formally discuss a
potential business combination between the two companies and agreed to meet in
Chicago, Illinois on May 14, 2001 to discuss in greater detail the merits of a
possible business combination.
On May 7, 2001, Messrs. Keane and Fain discussed the possibility of
exchanging information relating to the performance of their respective branch
offices prior to the meeting in Chicago. Messrs. Keane and Fain agreed to
exchange this information.
Between May 10, 2001 and May 16, 2001, representatives from Morgan Stanley &
Co. Incorporated, Keane's financial advisor, and Mr. Keane engaged in several
discussions relating to potential transaction structures and other
considerations relating to a potential business combination between Keane and
Metro.
On May 14, 2001, Messrs. Keane and Fain met in person in Chicago to discuss
the strategic benefits of a business combination and its possible terms. They
discussed a number of issues relating to Keane's business strategy, Metro's
market position and internal organization, and potential synergies of a
business combination between the two companies, including cross-selling
opportunities, as well as other corporate and branch office redundancies.
On May 21, 2001, Metro formally engaged Baird to serve as its financial
advisor with regard to the possible business combination of Keane and Metro.
On May 23, 2001, Keane and Metro entered into a mutual non-disclosure
agreement that included Keane's agreement not to purchase shares of Metro for a
three-year period other than in a negotiated transaction.
Between May 23, 2001 and June 27, 2001, Messrs. Keane and Fain began
discussing an appropriate exchange ratio in connection with the potential
merger of the two companies, the potential role of Metro's senior management in
the combined company and issues relating to severance and retention bonuses for
Metro employees.
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Between May 24, 2001 and June 13, 2001, representatives of Morgan Stanley
engaged in discussions with representatives of Baird, on behalf of their
respective clients, regarding potential valuations, financial models, business
and legal due diligence and other issues relating to a business combination
between the two companies.
At a regular meeting of Keane's board of directors on May 30, 2001, Keane
management informed the board that discussions were taking place with Metro
regarding a possible business combination. No formal vote was taken, but the
directors supported the discussions.
On June 6, 2001, the audit committee of the board of directors of Metro held
a regularly scheduled meeting at Metro's executive offices. At the end of that
meeting, Mr. Fain mentioned to the members of the audit committee that he had
had preliminary discussions with members of management of Keane and its
financial advisors and that he, Andrew J. Downing, Metro's president and chief
operating officer, Robert J. Eveleigh, Metro's chief financial officer, and
representatives of Baird were scheduled to meet with Keane and its financial
advisors on Friday, June 8, 2001 in Baltimore, Maryland.
On June 8, 2001, Mr. Keane, John J. Leahy, Keane's chief financial officer,
Messrs. Fain, Downing and Eveleigh, and representatives from Morgan Stanley and
Baird met in person in Baltimore to discuss Metro's business, including its
service lines, office structure, management team, sales strategy, sales
pipeline, clients, consultants and general business operations.
On June 11, 2001, after discussions with Mr. Keane, representatives of
Morgan Stanley informed representatives of Baird of the range of exchange
ratios Keane was considering pending further business and legal due diligence.
At a regular meeting of Metro's board of directors on June 11, 2001, Metro
management informed the full board of directors of the results of the June 8
meeting with Keane and the range of exchange ratios being considered by Keane.
No formal vote was taken, but the directors supported the discussions.
On June 12, 2001, the board of directors of Metro held a special meeting
after Metro's annual meeting of shareholders. At this meeting, the board
discussed the tentative proposal it had received from its four banks regarding
replacement of its credit facility, the current status of its negotiations with
Keane, preliminary results of ongoing cost reduction initiatives and plans for
further cost reductions to address Metro's business condition. The board held a
teleconference call with representatives of Baird at this meeting. No formal
vote was taken, but the directors supported continuing the discussions with
Keane and the banks.
On June 19, 2001, Metro publicly announced a series of cost-reduction
initiatives.
On July 10, 2001, the board of directors of Metro held a special meeting
attended by Metro's outside counsel and representatives of Baird at the offices
of Metro's outside counsel. The purposes of this meeting were to inform the
board regarding the current status of the discussions with Keane and to
determine whether to go forward with continuing due diligence. At the meeting,
Metro's outside counsel reviewed the board's fiduciary duties under Virginia
law, and representatives of Baird reviewed its preliminary financial analysis
of Keane and the proposed merger. After this review, the board passed a motion
encouraging management to continue discussions with Keane and to continue
negotiating replacement credit facilities with its four banks.
On July 14, 2001, drafts of the merger agreement and related agreements were
distributed by counsel for Keane for review by Keane, Metro and its outside
counsel. From this date through August 20, 2001, Keane, together with its
outside counsel and other advisors, and Metro, together with its outside
counsel and other advisors, negotiated the various terms of the merger
agreement and related documents.
Commencing on July 16, 2001, representatives of Keane, including its
financial advisor, accountants and outside counsel, conducted a due diligence
investigation of Metro, which included attending presentations from Metro's
management and reviewing documents made available at the offices of Metro's
outside counsel and at the offices of Metro.
32
On July 25, 2001, a special meeting of the board of directors of Metro was
held at the company's executive offices. At this meeting, management informed
the board of the status of the negotiations with Keane and reviewed the terms
of a draft merger agreement and shareholder's agreement submitted by Keane and
its advisors. No formal vote was taken, but the directors supported continuing
the negotiations with Keane.
At a regular meeting of Keane's board of directors on July 26, 2001, Keane
management informed the board of the status of negotiations with Metro and its
advisors. No formal vote was taken, but Keane's directors supported continued
discussions with Metro.
Commencing on July 30, 2001, representatives of Metro, including its
financial advisor, outside counsel and accountants, conducted a due diligence
investigation of Keane, which included attending presentations from Keane's
management and reviewing documents made available at Keane's corporate office
and other documents made available by Keane's management.
Commencing on August 1, 2001, representatives of Keane and Metro discussed
issues relating to the integration of the two companies.
On August 8, 2001, Mr. Keane telephoned Mr. Fain to discuss the appropriate
exchange ratio. Between August 8, 2001 and August 20, 2001, Messrs. Keane and
Fain and their respective financial advisors had a number of telephone
conversations regarding the exchange ratio.
Negotiations among management of and counsel for Keane and Metro continued
from August 8, 2001 to August 20, 2001. The parties negotiated the terms of the
merger agreement, including the exchange ratio, termination rights and fees,
non-solicitation provisions and the terms of the related documentation. During
this period, final agreement on these and other issues was reached over the
course of several discussions between management of and counsel for Keane and
Metro.
On August 20, 2001, the parties completed their diligence reviews and
finalized the terms of the merger agreement and related agreements.
On August 20, 2001, Keane's board held a special meeting to review the final
terms of the merger agreement and related documents and to consider the
approval of the merger agreement. Members of Keane's management reviewed with
Keane's board the terms of the merger and the merger agreement. At the meeting,
representatives of Morgan Stanley reviewed its financial analysis with respect
to the possible combination of Keane and Metro, and then delivered the oral
opinion of Morgan Stanley, later confirmed in writing, that the exchange ratio
in the merger was fair to Keane from a financial point of view. Additionally,
representatives of Hale and Dorr LLP, Keane's outside counsel, made a
presentation regarding the significant terms of the merger agreement and the
shareholder's agreement to be entered into between Keane and John H. Fain and
reviewed with the board its fiduciary duties in connection with the proposed
transaction. Keane's board, after considering the terms of the merger agreement
and other related documents and the various presentations, unanimously approved
the merger agreement and the related documentation. Keane's board then
authorized Keane's management to execute the merger agreement and related
agreements.
On August 20, 2001, Metro's board held a special meeting to review the final
terms of the merger agreement and related documents and to consider the
approval of the merger agreement. Members of Metro's management reviewed with
Metro's board the terms of the merger and the merger agreement. Metro's board
also considered and discussed with Metro's management and Metro's legal and
financial advisors the various strategic alternatives available to Metro,
including the possibility of remaining independent. At the meeting, Baird
presented an analysis of the financial terms of the merger, including a
discussion of financial data and analyses used in evaluating the possible
combination of Keane and Metro. After its presentation, Baird provided an oral
opinion, later confirmed in writing, to the effect that, as of August 20, 2001
and based upon and subject to the various considerations set forth in its
opinion, the exchange ratio in the merger was fair from a financial point of
view to the holders of Metro common stock (other than Keane and its
affiliates).
33
Additionally, representatives of Williams, Mullen, Clark & Dobbins, Metro's
outside counsel, made a presentation regarding the significant terms of the
merger agreement and the shareholder's agreement to be entered into between
Keane and John H. Fain and reviewed with the board its fiduciary duties in
connection with the proposed transaction. Metro's board, after considering the
terms of the merger agreement and other related documents and the various
presentations, unanimously approved the merger agreement and the related
documentation, concluding that the consideration to be paid to Metro's
shareholders in the merger was in the best interests of Metro and its
shareholders. Metro's board then authorized Metro's management to execute the
merger agreement and related agreements.
On the evening of August 20, 2001, Metro, Keane and Keane's subsidiary,
Veritas Acquisition Corp., executed the merger agreement and related
agreements.
On August 21, 2001, prior to the opening of business, Keane and Metro issued
a joint press release announcing the merger.
Keane's Reasons for the Merger
The Keane board of directors unanimously concluded that the merger was fair
to, and in the best interests of, Keane and its stockholders. The decision of
the board of directors was based on several potential benefits of the merger
that it believes will contribute to Keane' success. These potential benefits
include:
. creating cross-selling opportunities and associated revenue growth by
providing Keane with a larger and more diverse client base,
. strengthening Keane's competitive position by combining Keane's and
Metro's complementary service offerings,
. leveraging Keane's fixed costs as a result of combining the
infrastructure and management organizations of the two companies,
. enhancing Keane's financial position in the long term and facilitating
Keane's ability to complete future acquisitions in the long term, and
. enhancing earnings as the acquisition of Metro is expected to be
accretive to Keane's earnings.
The Keane board of directors reviewed the following material factors in
evaluating the merger:
. historical information concerning Keane's and Metro's respective
business focus, financial performance and condition, operations,
technology and management,
. Keane management's view of the financial condition, results of
operations and business of Keane and Metro before and after giving
effect to the merger and the determination by the Keane board of
directors of the merger's effect on stockholder value,
. current financial market conditions and historical stock market prices,
volatility and trading information,
. the consideration Keane will pay in the merger in light of comparable
merger transactions,
. the terms of the merger agreement,
. the impact of the merger on Keane's clients, employees and stockholders,
. results of the due diligence investigation conducted by Keane's
management, accountants and counsel,
. the expectation that the merger will be accounted for as a purchase
transaction for accounting purposes, and
. the financial presentation of Morgan Stanley, including Morgan Stanley's
opinion to the Keane board as to the fairness, from a financial point of
view and as of the date of the opinion, of the exchange ratio, as
described below under the caption "--Opinion of Keane's Financial
Advisor--Morgan Stanley & Co. Incorporated."
34
During the course of its deliberations concerning the merger, the Keane
board also identified and considered the following potentially negative factors
that could materialize as a result of the merger:
. the risk that the potential benefits sought in the merger might not be
fully realized,
. the possibility that the merger might not be completed, even if approved
and adopted by Metro's shareholders,
. the effect of the public announcement of the merger on Keane's and
Metro's businesses, including their respective employees and clients,
. the risk that the value to be received by Metro shareholders in the
merger could increase significantly from that determined as of the date
of the merger agreement due to the fixed exchange ratio used in the
merger, thus increasing Keane's purchase price,
. the effect of the public announcement of the merger on the price per
share of Keane's common stock,
. the impact of a slowing economy on the IT services business as a whole
and on Metro's revenue specifically,
. the difficulty of integrating Metro's branch offices and the distraction
such integration may cause Keane's management, employees and clients,
. the strain Keane's existing corporate structure may sustain due to the
integration of Metro,
. Keane's obligation to pay Metro a termination fee of $8,100,000,
inclusive of Metro's expenses, in the event of a termination of the
merger agreement for specified reasons,
. the risks associated with obtaining the necessary approvals required to
complete the merger, and
. other applicable risks described in this proxy statement/prospectus
under "Risk Factors" beginning on page 11.
The Keane board concluded that these factors were outweighed by the
potential benefits to be gained by the merger. In view of the wide variety of
factors considered in connection with its evaluation of the merger and the
complexity of these matters, the Keane board did not find it useful to and did
not attempt to quantify, rank or otherwise assign relative weights to these
factors. In addition, the Keane board did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to the Keane board's ultimate
determination, but rather the Keane board conducted an overall analysis of the
factors described above, including thorough discussions with and questioning of
Keane's management and legal, financial and accounting advisors. In considering
the factors described above, individual members of the Keane board may have
given different weight to different factors.
Metro's Reasons for the Merger
Metro's board of directors unanimously approved and adopted the terms of the
merger agreement and determined that the terms of the merger agreement are in
the best interests of Metro and its shareholders. Accordingly, Metro's board
has approved and adopted the merger agreement and the consummation of the
merger and recommends that Metro shareholders vote FOR approval and adoption of
the merger agreement. In reaching its decision, Metro's board of directors
consulted with Metro's management and legal and financial advisors, and
considered the following material factors:
. The strategic fit between the services offered by Keane and those
offered by Metro. Management of Metro believes that by combining Metro's
primary services with those already offered by Keane, the combined
company will be able to offer a broader range of solutions which clients
want.
. The ability of the combined entity to take advantage of a larger and
more diverse client base. Keane has greater penetration of its sales
force and clients than does Metro, which Metro's management expects will
enable the combined company to make additional sales by cross selling to
existing clients.
35
. The premium over the value of Metro's business represented by the
proposed consideration on the trading day prior to announcement of the
transaction. The proposed consideration in the merger represented a
premium of approximately 139% over the value of Metro's business on
August 20, 2001, the last trading day prior to the announcement of the
merger agreement.
. The ability of Metro shareholders to participate in the potential for
growth of the combined company following the merger. Metro shareholders
will be able to retain their equity interest in the form of the Keane
common stock that they will receive in the merger, and thereby
participate in the potential growth of their investment following the
merger.
. The ability to provide Metro shareholders with greater liquidity for
their investment. The widely-held nature of Keane's common stock will
provide Metro shareholders with greater liquidity than is available to
Metro shareholders with their Metro shares due to the larger trading
volume of Keane's common stock.
In the course of deliberations, the Metro board reviewed with Metro
management and its legal and financial advisors the following additional
factors relevant to the merger:
. historical information concerning Keane's and Metro's respective
businesses, financial performance and condition, operations, management
and competitive position, including public reports concerning results of
operations during the most recent fiscal year and fiscal quarters for
each company filed with the Securities and Exchange Commission,
. results of the due diligence investigation conducted by Metro's
management, accountants and outside counsel,
. Metro management's view of the financial condition, results of
operations and businesses of Keane and Metro before and after giving
effect to the merger based on management due diligence,
. the impact of the merger on Metro's management, employees and clients,
. current financial market conditions and historical market prices,
volatility and trading information with respect to Keane common stock
and Metro common stock,
. the terms of the merger agreement, including the parties' respective
representations, warranties and covenants, the conditions to the
parties' respective obligations, and the expected tax-free treatment of
the exchange of Metro common stock for Keane common stock to Metro's
shareholders,
. Metro management's view as to the potential for other third parties to
enter into strategic relationships with or to acquire Metro,
. the likelihood of consolidation in the IT services industry, and
. the financial presentation of Baird, including Baird's opinion to the
Metro board as to the fairness, from a financial point of view and as of
the date of the opinion, of the exchange ratio, as described below under
the caption "--Opinion of Metro's Financial Advisor--Robert W. Baird &
Co. Incorporated."
Metro's board of directors also considered the provisions of the merger
agreement regarding Metro's rights to consider and negotiate other strategic
transaction proposals, as well as the possible effects of the provisions
regarding termination fees. Metro's board of directors considered various
alternatives to the merger, including remaining as an independent company.
Metro's board of directors believed that these factors, including its review of
the terms of the merger agreement, supported the Metro board's recommendation
of the merger, when viewed together with the risks and potential benefits of
the merger.
Metro's board of directors also identified and considered the following
potentially negative factors in its deliberations concerning the merger:
. the risk that the potential benefits sought in the merger might not be
fully realized,
36
. the risk that the value to be received by Metro shareholders in the
merger could decline significantly from that determined as of the date
of the merger agreement due to the fixed exchange ratio used in the
merger,
. Metro's obligation to pay Keane a termination fee of $8,100,000,
inclusive of Keane's expenses, in the event of a termination of the
merger agreement for specified reasons,
. the impact of the loss of Metro's status as an independent company on
its shareholders and employees and the loss of control over the future
operations of the combined company after the merger,
. the possibility that the merger may not be completed, even if approved
and adopted by Metro's shareholders,
. the possibility that the merger might not be completed and the potential
adverse effect of the public announcement of the merger on Metro's
significant clients and other key relationships,
. Metro's ability to attract and retain key management, marketing and
technical personnel,
. Metro's overall competitive position,
. the risk that despite the efforts of the combined company, key
professional and management personnel might choose not to remain
employed by the combined company, and
. the other risks described under "Risk Factors" starting on page 11 of
this proxy statement/prospectus.
Metro's board of directors believed that these risks were outweighed by the
potential benefits of the merger. In view of the wide variety of factors
considered in connection with its evaluation of the merger and the complexity
of these matters, the Metro board did not find it useful to and did not attempt
to quantify, rank or otherwise assign relative weights to these factors. In
addition, the Metro board did not undertake to make any specific determination
as to whether any particular factor, or any aspect of any particular factor,
was favorable or unfavorable to the Metro board's ultimate determination but
rather the Metro board conducted an overall analysis of the factors described
above, including thorough discussions with and questioning of Metro's
management and legal, financial and accounting advisors. In considering the
factors described above, individual members of the Metro board may have given
different weight to different factors.
Recommendation of Metro's Board of Directors
After careful consideration, Metro's board of directors determined the
merger agreement to be in Metro's shareholders' best interests and declared the
merger advisable. Metro's board of directors approved and adopted the merger
agreement and recommends that the Metro shareholders vote in favor of the
approval and adoption of the merger agreement. This recommendation by the Metro
board of directors is unanimous. In considering the recommendation of the Metro
board of directors with respect to the merger agreement, Metro shareholders
should be aware that some directors and executive officers of Metro have
interests in the merger that are different from, or are in addition to, the
interests of Metro shareholders generally in the merger. Please see the section
entitled "--Interests of Executive Officers and Directors of Metro in the
Merger" on page 52 of this proxy statement/prospectus.
Opinion of Keane's Financial Advisor--Morgan Stanley & Co. Incorporated
Pursuant to a letter dated as of January 8, 2001, as amended, Keane engaged
Morgan Stanley to provide financial advisory services and a financial opinion
in connection with the merger. Keane's board of directors selected Morgan
Stanley to act as Keane's financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Keane and the industry in general.
At the August 20, 2001 meeting of the Keane board of directors, Morgan
Stanley rendered its oral opinion that, as of such date and based upon and
subject to the various considerations set forth in its opinion, the
37
exchange ratio in the merger agreement was fair from a financial point of view
to Keane. Morgan Stanley delivered to the Keane board of directors a written
opinion dated August 20, 2001 confirming its oral opinion.
The full text of Morgan Stanley's opinion, which sets forth, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Annex D-1 to this proxy
statement/prospectus and is incorporated by reference into this summary. The
Morgan Stanley opinion is directed to the Keane board of directors and
addresses only the fairness of the exchange ratio from a financial point of
view to Keane as of the date of such opinion and does not address any other
aspect of the merger. This summary of the Morgan Stanley opinion is qualified
in its entirety by reference to the full text of the opinion attached as Annex
D-1 to this proxy statement/prospectus.
In arriving at its opinion, Morgan Stanley, among other things:
. reviewed certain publicly available financial statements and other
information of Keane and Metro, respectively,
. reviewed the reported prices and trading activity for the Metro common
stock and the Keane common stock,
. reviewed certain internal financial statements and other financial and
operating data concerning Metro and Keane, respectively,
. discussed the past and current operations and financial condition and
the prospects of Keane with senior executives of Keane,
. discussed the past and current operations and financial condition and
the prospects of Metro with senior executives of Metro,
. reviewed certain publicly available equity research analyst projections
on Metro and Keane, respectively,
. compared the financial performance of Metro and Keane and the prices and
trading activity of the Metro common stock and the Keane common stock
with that of certain other comparable publicly traded companies and
their securities,
. discussed with the senior managements of Keane and Metro their estimates
of the synergies and cost savings anticipated from the merger,
. reviewed the pro forma impact of the merger on Keane's earnings per
share, consolidated capitalization and financial ratios,
. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions,
. participated in discussions and negotiations among representatives of
Metro and Keane and their financial and legal advisors,
. reviewed the merger agreement and certain related documents, and
. performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it. With respect to the internal financial statements and prospects
of Keane and Metro, including certain estimates of the strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley assumed that
they were reasonably prepared on bases reflecting the best currently available
judgments of the future financial performance of Keane and Metro. Morgan
Stanley relied upon the assessment by the managements of Keane and Metro of
their ability to retain
38
key employees of Metro. Morgan Stanley also relied upon, without independent
verification, the assessment by Keane management of Keane's technology
services, the timing and risks associated with the integration of Metro with
Keane and the validity of, and risks associated with, Keane's existing and
future technology services. Keane did not place any limitation upon Morgan
Stanley with respect to the procedures followed or factors considered by Morgan
Stanley in rendering its opinion.
In addition, Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement, including that the
merger will be treated as a tax-free reorganization and/or exchange, within the
meaning of section 368(a) of the Internal Revenue Code of 1986. Morgan Stanley
has not made any independent valuation or appraisal of the assets or
liabilities of Metro or Keane, nor has it been furnished with any such
appraisals. Morgan Stanley's opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to Morgan Stanley as of, the date of its opinion. Subsequent
developments may affect the opinion, and Morgan Stanley does not have any
obligation to update, revise or reaffirm its opinion.
The following is a brief summary of all material analyses performed by
Morgan Stanley in connection with its oral and written opinion. Certain of
these summaries of financial analyses include information presented in tabular
format. In order to fully understand the financial analyses used by Morgan
Stanley, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial
analyses.
Historical Common Stock Performance. Morgan Stanley's analysis of Metro's
common stock performance consisted of an historical analysis of closing prices
and trading volumes over the period from January 3, 2000 to August 16, 2001.
During that period, based on closing prices on The Nasdaq National Market, the
Metro common stock achieved a high closing price of $27.88 per share on January
10, 2000 and a low closing price of $3.50 per share on August 1, 2001.
Additionally, Morgan Stanley noted that the Metro common stock closed at a
price of $3.85 per share on August 16, 2001. Based on the closing stock prices
of the Keane common stock and the Metro common stock as of August 16, 2001, and
the exchange ratio, the implied consideration for the Metro common stock was
approximately $8.87 per share.
Comparative Stock Price Performance. Morgan Stanley performed historical
analyses of closing prices of the Keane common stock, the Metro common stock,
the Nasdaq index and an equally weighted index of traditional information
technology (IT) services companies consisting of:
. American Management Systems, Inc.,
. Analysts International Corp.,
. Ciber, Inc.,
. Computer Horizons, Corp.,
. Computer Sciences Corp.,
. Computer Task Group, Inc.,
. Covansys Corp.,
. Electronic Data Systems, Corp.,
. Renaissance Worldwide, Inc., and
. Technology Solutions Company.
Morgan Stanley compared the performance of such companies and indices to the
performance of Keane's common stock and Metro's common stock during such
period. Morgan Stanley observed that over the period from January 3, 2000 to
August 16, 2001, the traditional IT services company index decreased 36%,
Metro's common stock decreased 84%, the Nasdaq index decreased 53%, and Keane's
common stock decreased 40%.
39
Comparable Public Company Analysis. As part of its analysis, Morgan Stanley
compared certain publicly available financial information of certain
traditional IT services companies as listed below:
Comparable IT Services Companies
. Analysts International Corp.
. Ciber, Inc.
. Cognizant Technology Solutions, Corp.
. Computer Horizons, Corp.
. Covansys, Corp.
. Keane
. Metro
While noting that none of the comparable public companies listed above are
exactly identical to Keane or Metro, Morgan Stanley compared the financial
information of those companies to the financial performance of Keane and Metro.
Such information included the stock trading price divided by the 2002 earnings
per share, or EPS, estimate adjusted for a calendar year end, or the 2002E
price/earnings multiple, and aggregate value/2002 estimated sales ratio. The
EPS estimates were derived from I/B/E/S International median EPS estimates,
while the sales estimates were derived from selected equity research analyst
reports. Morgan Stanley research was used for all Keane estimates. For the
Metro 2002 estimated financials, Morgan Stanley used the First Call earnings
per share estimates of $0.20 and $0.40, representing the low and high 2002
estimates, which are referred to in this summary as "adjusted First Call low"
and "adjusted First Call high," respectively, derived by First Call and other
publicly available financial information, adjusted based on discussions with
Metro management. In order to calculate the acquisition multiples paid by Keane
for Metro, Morgan Stanley added $15.0 million in pretax operating cost
synergies, tax-affected at the appropriate rate, to the Metro 2002 EPS, based
on guidance from Keane and Metro management, respectively, regarding their
estimates of the financial and operational benefits anticipated from the
merger.
The following table presents, as of August 16, 2001, the 2002E
price/earnings multiples and 2002E aggregate value/sales ratio for the
comparable traditional IT services companies:
2002E Price/Earnings 2002E Aggregate Value/
Companies Multiple Sales Ratio
--------- -------------------- ----------------------
. Analysts International,
Corp........................ 13.9x 0.3x
. Ciber, Inc.................. 17.0x 0.6x
. Cognizant Technology
Solutions, Corp............. 27.2x 3.1x
. Computer Horizons, Corp..... 14.9x 0.2x
. Covansys, Corp.............. 34.7x 0.8x
. Keane....................... 28.4x 1.3x
. Metro stand alone (adjusted
First Call high/low)........ 18.9x/9.6x 0.5x/0.5x
. Metro acquisition multiples
w/synergies
(adjusted First Call
high/low)................... 11.4x/9.1x 0.77x/0.85x
Morgan Stanley noted that the Metro acquisition multiples paid were in line
with trading multiples of comparable public companies within the IT services
sector.
No company utilized in the comparable company comparison analysis is
identical to Keane or Metro. In evaluating the peer group, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Keane or Metro. These other matters include the
impact of competition on the business of Keane or Metro and the industry
generally, industry growth and the absence of any adverse material change in
the financial condition and prospects of Keane or Metro or in the industry or
financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using peer group
data.
40
Exchange Ratio Analysis. Morgan Stanley analyzed the ratios of the closing
prices of the Metro common stock divided by the corresponding prices of Keane
common stock over various periods during the period from January 3, 2000 to
August 16, 2001. Morgan Stanley observed the following implied exchange ratios,
implied equity value premiums and aggregate value premiums over various periods
ending on August 16, 2001 and as of August 16, 2001:
Implied Aggregate
Period Ending August 16, Average Implied Implied Equity Value Premium to
2001 Exchange Ratio Premium to 0.48x 0.48x
------------------------ --------------- ---------------- -----------------
January 3, 2000-August
16, 2001............... 0.48x 1% --
Prior 180 Days.......... 0.39x 23% --
Prior 90 Days........... 0.25x 91% --
Prior 30 Days........... 0.21x 133% --
As of August 16, 2001... 0.21x 130% 58%
Morgan Stanley noted that the exchange ratio of 0.48x paid by Keane is equal
to the average exchange ratio between the Keane and Metro stock prices since
January 3, 2000.
Pro Forma Contribution Analysis. Morgan Stanley analyzed the pro forma
financial contribution of each of Keane and Metro to the combined company. Such
analysis included relative contributions, adjusted for leverage, of net
revenue, gross profit, earnings before interest, tax, depreciation and
amortization (EBITDA) and net income at various projected time periods. For the
2001 Metro financials, Morgan Stanley used an average of equity research
analyst estimates for fiscal year 2001. For 2002, Morgan Stanley used the
adjusted First Call low and adjusted First Call high cases described earlier.
The following table presents the implied Metro offer price based on the
relative contribution of Metro's revenues, gross profit, EBITDA and net income
to Keane:
Implied Metro Offer Price
------------------------------------
2002E
----- --------------------------
Adjust First Adjust First
2001E Call Low Call High
----- ------------- ------------
Revenues................................ $19 $15 $17
Gross Profit............................ 17 13 15
EBITDA.................................. 18 11 16
Net Income.............................. 9 5 11
The implied offer prices in the above table did not take into account any
estimates by the management of Metro or Keane, respectively, of the synergies
or cost savings anticipated from the merger, nor did they take into account any
accounting adjustments or potential changes in capital structure as a result of
the merger. Morgan Stanley noted that, the offer price of $8.87 for Metro is
significantly below what would be implied on a relative contribution basis.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed a
number of recent related transactions in the traditional IT services industry
that consisted of the following:
Announcement
Date Acquiree Acquirer
------------ -------- --------
8/99.................... . International Network Services . Lucent Technologies, Inc.
8/99.................... . i-Cube . Razorfish, Inc.
12/99................... . USWeb/CKS . Whittman-Hart
3/00.................... . Metamor Worldwide, Inc. . PSINet, Inc.
9/00.................... . Cluster Consulting Group . Diamond Technology Partners, Inc.
10/00................... . Convergent Group, Corp. . Schlumberger Technology Corp.
3/01.................... . Cambridge Technology Partners, Inc. . Novell, Inc.
4/01.................... . Mainspring, Inc. . IBM, Corp.
4/01.................... . Proxicom, Inc. . Dimension Data Holdings, PLC
41
The information analyzed by Morgan Stanley for the precedent transactions
included aggregate value to next-twelve-months revenues, based on research
analysts' estimates of forward operating performances. The following table
represents the high and low of the aggregate value/next twelve months revenues
for the selected precedent transactions:
Aggregate Value/
Next Twelve
Months Revenues
----------------
Precedent Transactions
High...................... 9.4
Low....................... 0.3
Morgan Stanley noted that the multiple of 2002 estimated revenues paid for
Metro, ranging from 0.77x to 0.85x, was below that paid for other similar IT
services transactions. However, no transaction utilized as a comparison in the
precedent transactions analysis is identical to the merger. In evaluating the
precedent transactions, Morgan Stanley made judgments and assumptions regarding
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Keane or
Metro, such as the impact of competition on Keane or Metro and the industry
generally, industry growth and the absence of any material adverse change in
the financial condition and prospects of Keane or Metro or the industry or in
the financial markets in general. Mathematical analysis such as determining the
average or median is not in itself a meaningful method of using comparable
transaction data.
Discounted Equity Value Analysis. Morgan Stanley analyzed the value per
share of Metro by calculating the Metro stock price in 2004 by estimating the
2005 earnings per share, applying a price to earnings ratio and discounting
that figure back to August 2001. Morgan Stanley used a discount rate range of
8.0% to 16.0% and a price/earnings ratio range of 12.5x to 17.5x. 2005 expected
earnings per share were derived by using the 2003 earnings per share estimates
for each adjusted First Call high and low cases (described below) and using an
annual rate of growth of 15%, representing the First Call long-term growth
rate.
The following table presents the high and low of the discounted Metro stock
price based on various price to earnings ratios and discount rates:
Implied Metro Stock Price
----------------------------------
Without Synergies With Synergies
------------------ ---------------
Low High Low High
-------- --------- ------- -------
Low...................................... $ 2 $ 5 $ 7 $ 10
High..................................... 4 9 13 17
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the merger on EPS for Keane for the estimated fiscal years 2002 and
2003. The pro forma results were calculated as if the merger had closed at the
beginning of Keane's fiscal 2001 fourth quarter, and were based on estimated
earnings derived from Morgan Stanley research estimates for Keane and adjusted
First Call low and high estimates for Metro as described under Pro Forma
Contribution Analysis. In deriving 2003 estimates for Metro, Morgan Stanley
used the First Call long-term growth rate of 15% for Metro and applied it to
the 2002 adjusted First Call low and adjusted First Call high EPS. Morgan
Stanley then derived an income statement for Metro based on those EPS figures.
Morgan Stanley 2002 and 2003 research analyst estimates were used for Keane's
financials.
42
The following table presents the pro forma 2002 and 2003 estimated Keane EPS
and accretion/(dilution) based on a range of pretax operating synergies at an
exchange ratio of 0.48x:
Pro Forma 2002E Keane EPS
-------------------------------------
Adjusted First Adjusted First
Call Low Call High
------------------ ------------------
Pretax Synergies $ EPS % Accr./Dil. $ EPS % Accr./Dil.
---------------- ----- ------------ ----- ------------
No Synergies.............................. $0.63 (2.6)% $0.68 3.8%
$10MM Syn................................. $0.71 9.0% $0.75 15.3%
$15MM Syn................................. $0.75 14.8% $0.79 21.1%
$20MM Syn................................. $0.78 20.5% $0.83 26.8%
Pro Forma 2003E Keane EPS
-------------------------------------
Adjusted First Adjusted First
Call Low Call High
------------------ ------------------
Pretax Synergies $ EPS % Accr./Dil. $ EPS % Accr./Dil.
---------------- ----- ------------ ----- ------------
No Synergies.............................. $0.79 (3.4)% $0.84 2.4%
$10MM Syn................................. $0.86 5.7% $0.91 11.4%
$15MM Syn................................. $0.90 10.2% $0.95 15.9%
$20MM Syn................................. $0.94 14.7% $0.98 20.4%
Morgan Stanley noted that, with approximately $15.0 million in pretax annual
synergies, based on United States generally accepted accounting principles, the
merger would be meaningfully accretive to Keane's earnings per share in fiscal
years 2002 and 2003 under both the adjusted First Call low case and the
adjusted First Call high case.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of Morgan Stanley's analyses, without
considering all its analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of Keane or Metro.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Keane or Metro. Any
estimates contained in the analyses performed by Morgan Stanley are not
necessarily indicative of actual values, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as a part of Morgan Stanley's analysis of the fairness from a
financial point of view of the exchange ratio in the merger agreement and were
provided to the Keane board of directors in connection with the delivery of its
opinion to Keane. The analyses do not purport to be appraisals of value or to
reflect the prices at which Keane or Metro might actually be sold. In addition,
as described above, Morgan Stanley's opinion was one of the many factors taken
into consideration by the Keane board of directors in making its determination
to approve the merger. The exchange ratio in the merger agreement was
determined through arm's-length negotiations between Keane and Metro and was
approved by the Keane board of directors. Consequently, the Morgan Stanley
analyses as described above should not be viewed as determinative of the
opinion of the Keane board of directors with respect to the value of Keane or
of whether the Keane board of directors would have been willing to agree to
different consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate, estate planning and other purposes.
Morgan Stanley may continue to provide investment banking services to the
combined
43
entity in the future. In the ordinary course of its trading, brokerage and
financing activities, Morgan Stanley and its affiliates may, at any time, have
a long or short position in, and buy and sell the debt or equity securities and
senior loans of, Keane or Metro for its account or the account of its
customers. Morgan Stanley and its affiliates have, in the past, provided
financial advisory and financing services to Keane and its affiliates and have
received fees for the rendering of such services.
Pursuant to an engagement letter dated as of January 8, 2001, as amended,
Morgan Stanley provided financial advisory services and a financial fairness
opinion in connection with the merger, and Keane agreed to pay Morgan Stanley a
$4.0 million fee if the merger is completed. Keane also agreed to reimburse
Morgan Stanley for up to $50,000 of expenses incurred by Morgan Stanley in
performing its services. In addition, Keane has also agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including liabilities
under the federal securities laws, related to or arising out of Morgan
Stanley's engagement and any related transactions.
Opinion of Metro's Financial Advisor--Robert W. Baird & Co. Incorporated
On May 21, 2001, Metro retained Baird to act as its financial advisor in
connection with the merger and to render Baird's opinion as to the fairness,
from a financial point of view, of the exchange ratio to the holders of Metro
common stock (other than Keane and its affiliates). On August 20, 2001, Baird
rendered its opinion to the board of directors of Metro to the effect that, as
of August 20, 2001 and based upon and subject to the various considerations
described in the opinion, the exchange ratio of 0.48 was fair, from a financial
point of view, to the holders of Metro common stock (other than Keane and its
affiliates).
The full text of Baird's opinion, dated August 20, 2001, which describes the
assumptions made, general procedures followed, matters considered and
limitations on the scope of review undertaken by Baird in rendering its
opinion, is attached as Annex D-2 to this proxy statement/prospectus and is
incorporated into this summary by reference. Baird's opinion is directed only
to the fairness, as of the date of the opinion and from a financial point of
view, of the exchange ratio to the holders of Metro common stock (other than
Keane and its affiliates) and does not constitute a recommendation to you as to
how you should vote with respect to the merger agreement. The summary of
Baird's opinion set forth below is qualified in its entirety by reference to
the full text of the opinion attached as Annex D-2 to this proxy
statement/prospectus. Metro shareholders are urged to read the opinion
carefully in its entirety.
In conducting its investigation and analysis and in arriving at its opinion,
Baird reviewed information and took into account financial and economic factors
it deemed relevant under the circumstances. In rendering its opinion, Baird,
among other things (such as general economic factors and financial studies):
. reviewed certain internal information, primarily financial in nature,
including projections, concerning the business and operations of Metro
furnished to Baird for purposes of its analysis, as well as publicly
available information including but not limited to Metro's recent
filings with the Securities and Exchange Commission and equity analyst
research reports prepared by various investment banking firms, including
Baird,
. reviewed certain internal information, primarily financial in nature,
concerning the business and operations of Keane furnished to Baird for
its analysis, as well as publicly available information including but
not limited to Keane's recent filings with the Securities and Exchange
Commission and equity research reports prepared by various investment
banking firms, including Baird,
. reviewed the merger agreement in the form presented to Metro's board of
directors,
. compared the historical market prices and trading activity of Metro's
and Keane's common stock with those of certain other publicly traded
companies Baird deemed relevant,
. compared the financial position and operating results of Metro and Keane
with those of other publicly traded companies Baird deemed relevant,
44
. compared the proposed financial terms of the merger with the financial
terms of certain other business combinations Baird deemed relevant, and
. reviewed certain potential pro forma effects of the merger.
Baird held discussions with members of Metro's and Keane's respective senior
managements concerning Metro's and Keane's historical and current financial
condition and operating results, as well as the future prospects of Metro and
Keane, respectively. Baird also considered other information, financial
studies, analyses and investigations and financial, economic and market data
which Baird deemed relevant for the preparation of its opinion. Baird was not
asked to, and did not, solicit third-party indications of interest in acquiring
all or any part of Metro. Metro and Keane determined the exchange ratio in
arm's-length negotiations. Metro did not place any limitation upon Baird with
respect to the procedures followed or factors considered by Baird in rendering
its opinion.
In arriving at its opinion, Baird assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to Baird by or on behalf of Metro and Keane. Baird was
not engaged to independently verify any of this information. Baird assumed,
with Metro's consent, that:
. all material assets and liabilities (contingent or otherwise, known or
unknown) of Metro and Keane were as set forth in their respective
financial statements,
. the merger will be accounted for under the purchase method according to
generally accepted accounting principles, and
. the merger will be consummated in accordance with the terms set forth in
the merger agreement, without any amendment thereto and without waiver
by Metro or Keane of any of the conditions to their respective
obligations under the merger agreement.
Baird also assumed that the financial projections prepared by Metro's senior
management concerning Metro's financial performance were reasonably prepared on
bases reflecting the best available estimates and good faith judgments as to
future performance of Metro. At the direction of Metro, Baird relied on a
certain published research analyst report prepared by a major investment
banking firm for estimates of Keane's projected financial performance, and
excluded transaction expenses from its analyses. In conducting its review,
Baird did not undertake nor obtain an independent evaluation or appraisal of
any of the assets or liabilities, contingent or otherwise, of Metro or Keane
nor did it make a physical inspection of the properties or facilities of Metro
or Keane. Baird's opinion necessarily was based upon economic, monetary and
market conditions as they existed and could be evaluated on the date of its
opinion, and did not predict or take into account any changes which may occur,
or information which may become available, after the date of the opinion.
Subsequent developments may affect the opinion, and Baird does not have any
obligation to update, revise or reaffirm its opinion. Furthermore, Baird
expressed no opinion as to the prices or trading ranges at which any of Metro's
or Keane's securities (including Metro common stock and Keane common stock)
will trade following the date of Baird's opinion.
The following is a summary of the material financial analyses performed by
Baird in connection with rendering its opinion. Each of the following tables is
qualified in its entirety by reference to the other disclosure contained in
this section and to Baird's opinion attached as Annex D-2 to this proxy
statement/prospectus.
Analysis of Metro Implied Merger Multiples. Baird calculated the "implied
equity value per share" reflected by the terms of the merger to be $8.64 for
each share of Metro common stock. The implied equity value per share was
obtained by multiplying the exchange ratio of 0.48 by the closing price per
share of Keane common stock of $18.00 on August 17, 2001. Baird calculated the
"implied total equity value" and "implied enterprise value" of Metro as a
result of the merger to be $134.1 million and $202.1 million, respectively. The
implied total equity value for Metro was obtained by multiplying the implied
equity value per share by the total number of common shares outstanding, plus
shares issuable upon exercise of stock options and shares issuable
45
under Metro's employee stock purchase plan, less net proceeds from the exercise
of these stock options. The implied enterprise value for Metro was obtained by
adding Metro's outstanding total debt to and subtracting Metro's cash and cash
equivalents balances (as of August 17, 2001, as provided by Metro management)
from, the implied total equity value.
In performing its analysis, Baird used, among other items, operating
statistics exclusive of non-recurring items, for Metro's latest twelve months,
or LTM, ended June 30, 2001. Baird calculated multiples of the implied
enterprise value to Metro's LTM revenues, LTM earnings before interest, taxes,
depreciation and amortization, or LTM EBITDA, and LTM earnings before interest
and taxes, or LTM EBIT. Baird also calculated multiples of the implied total
equity value to Metro's LTM net income and LTM EPS as well as projected
calendar 2001 and 2002 cash EPS, per the Metro projections. Cash EPS is
obtained by adding to EPS the per share value of goodwill amortization,
adjusted for taxes. The table below summarizes the results of this analysis and
is qualified in its entirety by reference to other disclosures contained in
this section and Baird's opinion attached as Annex D-2 to this proxy
statement/prospectus.
Metro Implied
Merger
Multiples
-------------
Implied Enterprise Value to LTM Revenues....................... 0.7x
Implied Enterprise Value to LTM EBITDA......................... 8.9
Implied Enterprise Value to LTM EBIT........................... 14.1
Implied Equity Value to LTM Net Income......................... 30.0
Implied Equity Value to LTM EPS................................ 29.4
Implied Equity Value to Calendar 2001 Cash EPS................. 34.9
Implied Equity Value to Calendar 2002 Cash EPS................. 19.6
Analysis of Metro's Valuation Premiums. Baird compared the premium to
holders of Metro common stock represented by the implied equity value per share
of $8.64 to the closing prices for Metro common stock on August 17, 2001 and on
the dates one month, two months, three months, six months and one year prior to
August 17, 2001, as well as to the 52-week high and low closing prices. Baird
calculated that the implied equity value per share represented the following
premiums to holders of Metro common stock:
. a premium of 139.9% over the closing price for the Metro common stock on
August 17, 2001,
. a premium of 133.5% over the closing price for Metro common stock one
month prior thereto,
. a premium of 92.9% over the closing price for Metro common stock two
months prior thereto,
. a premium of 57.1% over the closing price for Metro common stock three
months prior thereto,
. a premium of 7.2% over the closing price for Metro common stock six
months prior thereto,
. a premium of 31.7% over the closing price for Metro common stock one-
year prior thereto,
. a premium of 0.2% over the 52-week high closing price for Metro common
stock, and
. a premium of 146.9% over the 52-week low closing price for Metro common
stock.
Baird noted that the premiums over the implied equity value per share
relative to Metro's common stock price over certain historical time periods
were influenced by the significant volatility and price declines experienced
recently in the equity capital markets in general and for information
technology service companies in particular.
46
Analysis of Selected Publicly Traded Metro Comparable Companies. Baird
reviewed certain publicly available financial information as of the most
recently reported period and stock market information as of August 17, 2001 for
nine publicly traded companies that Baird deemed relevant. The group of
selected publicly traded information technology services companies is listed
below:
. Analysts International Corporation . Kforce Inc.
. CIBER, Inc. . Modis Professional Services,
. Computer Horizons Corp. Inc.
. Computer Task Group, Incorporated . Syntel, Inc.
. Hall, Kinion & Associates, Inc. . Spherion Corporation
Baird selected these companies based on its review of publicly traded
companies that possessed general business, operating and financial
characteristics representative of companies in the industry in which Metro
operates. Baird noted that none of the companies reviewed is identical to Metro
and that, accordingly, the analysis of these companies necessarily involves
complex considerations and judgments concerning differences in the business,
financial and operating characteristics of each company and other factors that
affect the market values of these companies.
For each selected company, Baird calculated the equity value by multiplying
the closing stock price of each company as of August 17, 2001, by the total
number of outstanding shares on a fully diluted basis. In addition, Baird
calculated enterprise value for each selected company by adding the book value
of outstanding total debt, preferred stock and minority interests to, and
subtracting cash and cash equivalents from, equity value. Baird then calculated
multiples of enterprise value to each selected company's LTM revenues, LTM
EBITDA and LTM EBIT, exclusive of non-recurring items, as of the most recently
reported period. Baird also calculated multiples of each selected company's
equity value per share to each selected company's LTM EPS, projected 2001 cash
EPS and projected 2002 cash EPS, exclusive of non-recurring items. Projected
2001 and projected 2002 cash EPS for the selected companies were based on
publicly available investment banking research reports. Baird then compared the
trading multiples for the selected companies to relevant Metro implied merger
multiples, as implied in the proposed merger, based on Metro's operating
results for the LTM period ended June 30, 2001, and projected calendar 2001 and
calendar 2002. The table below summarizes the results of the analysis and is
qualified in its entirety by reference to the other disclosures contained in
this section and Annex D-2 to this proxy statement/prospectus.
Selected Metro Public
Metro Company Trading
Implied Multiples
Merger -----------------------
Multiples Low Median Mean High
--------- ---- ------ ---- ----
Enterprise Value to LTM Revenues......... 0.7x 0.2x 0.3x 0.5x 1.9x
Enterprise Value to LTM EBITDA........... 8.9 3.9 7.4 7.4 10.4
Enterprise Value to LTM EBIT............. 14.1 9.1 11.5 14.1 23.6
Equity Value to LTM EPS.................. 29.4 4.9 28.4 26.6 45.0
Equity Value to Calendar 2001 Cash EPS... 34.9 14.5 18.9 22.0 30.9
Equity Value to Calendar 2002 Cash EPS... 19.6 10.0 15.0 16.2 25.6
Baird noted that the Metro implied merger multiples were generally within or
above the range of the corresponding multiples for the selected publicly traded
comparable companies.
47
Based on the public company trading multiples, Baird analyzed the resulting
implied exchange ratios derived from applying the selected public comparable
company valuation multiples to Metro's LTM revenues, LTM EBITDA, LTM EBIT, LTM
EPS, projected 2001 cash EPS and projected 2002 cash EPS. The table below
summarizes the results of the analysis and is qualified in its entirety by
reference to the other disclosures contained in this section and Annex D-2 to
this proxy statement/prospectus.
Implied Exchange
Ratio
-----------------------
Low Median Mean High
---- ------ ---- ----
LTM Revenues....................................... N/M 0.04x 0.28x 1.86x
LTM EBITDA......................................... 0.07x 0.36 0.36 0.61
LTM EBIT........................................... 0.22 0.35 0.48 0.97
LTM EPS............................................ 0.08 0.46 0.44 0.73
Calendar 2001 Cash EPS............................. 0.20 0.26 0.30 0.43
Calendar 2002 Cash EPS............................. 0.25 0.37 0.40 0.63
Analysis of Selected Comparable Acquisition Transactions. Baird reviewed
certain publicly available financial information for 19 selected acquisition
transactions, which Baird deemed relevant. The 19 transactions reviewed were
(acquiror/target company):
. Management Group/Renaissance Worldwide, Inc.
. CIBER, Inc./Aris Corporation
. Novell, Inc./Cambridge Technology Partners, Inc.
. ICICI, Ltd./Command Systems, Inc.
. Computer Sciences Corporation/Mynd Corp.
. Charlesbank Equity Fund V/Intellimark
. Vedior NV/Acsys, Inc.
. Leapnet, Inc./SPR Inc.
. Analysts International Corporation./Sequoia NET.com
. Computer Sciences Corporation/Nichols Research Corporation
. Vedior NV/Select Appointments Holdings plc
. GTCR-First Union Capital Partners/Metamor Worldwide, Inc.
. MSX International/Chelsea Computer Consultants
. Compuware Corporation/Data Processing Resources Corporation
. Getronics NV/Wang Laboratories
. Computer Associates International, Inc./Computer Management Sciences,
Inc.
. TMP Worldwide, Inc./Morgan & Banks Limited
. First Consulting Group, Inc./Integrated Systems Consulting Group, Inc.
. Kforce Inc./Source Services Corp.
Baird selected these transactions based on its review of acquisition
transactions that possessed general business, operating and financial
characteristics representative of companies in the industry in which Metro
operates. Baird noted that none of the selected transactions reviewed was
identical to the merger. Accordingly, Baird noted that the analysis of
comparable transactions necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Metro and other factors that
48
would affect the acquisition value of comparable transactions including, among
other factors, the general market conditions prevailing in the equity capital
markets at the time of that transaction.
For each selected transaction, Baird calculated the multiples of enterprise
value to each company's LTM revenues, LTM EBITDA and LTM EBIT, exclusive of
non-recurring items, and calculated multiples of equity value to LTM net
income, exclusive of non-recurring items. Baird then compared those multiples
to the relevant Metro multiples implied in the merger based on Metro's
operating results for the LTM period ended June 30, 2001. The tables below
summarize the results of these analyses and are qualified in their entirety by
reference to the other disclosures contained in this section and Annex D-2 to
this proxy statement/prospectus.
Metro Selected Acquisition
Implied Multiples
Merger -----------------------
Multiples Low Median Mean High
--------- ---- ------ ---- ----
Enterprise Value to LTM Revenues.......... 0.7x 0.1x 0.8x 0.8x 2.2x
Enterprise Value to LTM EBITDA............ 8.9 4.1 10.1 10.9 21.9
Enterprise Value to LTM EBIT.............. 14.1 6.0 14.7 14.9 24.5
Equity Value to LTM Net Income............ 30.0 12.1 28.1 26.7 36.8
Baird noted that the Metro implied merger multiples were generally within or
above the range of the corresponding multiples for the selected comparable
acquisition transactions.
Based on implied selected acquisition multiples, Baird analyzed the
resulting implied exchange ratios derived from applying the selected comparable
company valuation multiples to Metro's LTM revenues, LTM EBITDA, LTM EBIT, and
LTM net income. The table below summarizes the results of the analysis and is
qualified in its entirety by reference to the other disclosures contained in
this section and Annex D-2 to this proxy statement/prospectus.
Implied Exchange
Ratio
-----------------------
Low Median Mean High
---- ------ ---- ----
LTM Revenues........................................ N/M 0.64x 0.66x 2.11x
LTM EBITDA.......................................... 0.09x 0.58 0.65 1.55
LTM EBIT............................................ 0.07 0.51 0.52 1.01
LTM Net Income...................................... 0.19 0.45 0.43 0.59
Baird also calculated the premiums paid for the equity in these transactions
over the public market value of the equity at various times prior to the
announcement of these transactions. Baird then compared those premiums to the
relevant Metro premiums implied in the merger based on Metro's closing price
one day, seven days, one month and three months prior to August 17, 2001. The
tables below summarize the results of these analyses and are qualified in their
entirety by reference to the other disclosures contained in this section and
Annex D-2 to this proxy statement/prospectus.
Metro Selected Acquisition
Implied Premiums
Merger ------------------------
Premiums Low Median Mean High
-------- ---- ------ ---- -----
One-Day premium........................... 139.9% 6.7% 31.0% 53.0% 266.7%
Seven-Day premium......................... 140.0 8.8 38.8 55.3 230.0
One-Month premium......................... 133.5 10.8 39.0 65.8 243.8
Three-Month premium....................... 57.1 4.3 64.3 72.4 207.7
Baird noted that the Metro implied merger premiums were generally within or
above the range of the corresponding premiums for the selected comparable
acquisition transactions.
49
Discounted Cash Flow Analysis. Baird performed a discounted cash flow
analysis of Metro on a stand- alone basis using the Metro projections for
calendar years 2001 through 2005, without taking into account any potential
cost savings and synergies which may be realized following the merger. In that
analysis, Baird assumed terminal value multiples of 8.0x to 10.0x EBITDA in
calendar year 2005 and discount rates of 14.0% to 16.0%, which represented the
estimated weighted average cost of capital for Metro. That analysis produced
implied exchange ratios of 0.35x to 0.51x.
Pro Forma Merger Analysis. Baird prepared a pro forma analysis of the
financial impact of the merger. Baird compared the cash EPS of Keane common
stock, on a stand-alone basis, to the cash EPS of the common stock of the
combined company on a pro forma basis for calendar year 2001 and calendar year
2002, per the Metro projections and the Keane projections. The analysis,
assuming no transaction-related expenses, cost savings or synergies, indicated
that the proposed transaction would be accretive to Keane shareholders on a
cash EPS basis in calendar 2001 and calendar 2002. The results of the pro forma
merger analysis are not necessarily indicative of future operating results or
financial position. The actual results achieved by the combined company may
vary from the projected results and the variations may be material.
Implied Exchange Ratio Analysis. Baird performed an analysis of the
historical trading ratio between Metro common stock and Keane common stock
based on the closing market price per share of Metro common stock relative to
the closing market price per share of Keane common stock for each trading day
for the latest twelve-month period ended August 17, 2001. This analysis yielded
a trading ratio of 0.20x on August 17, 2001 and an average historical trading
ratio of 0.20x over the prior one-month period, 0.22x over the prior three-
month period, 0.33x over the prior six-month period and 0.40x over the latest
twelve months.
Analysis of Selected Publicly Traded Keane Comparable Companies. In order to
assess the relative public market valuation of the Keane common stock to be
used by Keane in exchange for Metro common stock, Baird reviewed certain
publicly available financial information as of the most recently reported
period and stock market information as of August 17, 2001 for 11 publicly
traded companies that Baird deemed relevant. The group of selected publicly
traded companies is listed below:
. American Management Systems, . Electronic Data Systems
Incorporated Corporation
. CIBER, Inc. . KPMG Consulting, Inc.
. Computer Sciences Corporation . PEC Solutions, Inc.
. Cognizant Technology Solutions . Sapient Corporation
Corporation . Systems & Computer Technology
. Convansys Corporation Corporation
. DiamondCluster International,
Inc.
Baird chose these companies based on its review of publicly traded companies
that possessed general business, operating and financial characteristics
representative of companies in the industry in which Keane operates. Baird
noted that none of the companies reviewed are identical to Keane and that,
accordingly, the analysis of these companies necessarily involves complex
considerations and judgments concerning differences in the business, financial
and operating characteristics of each company and other factors that affect the
market values of these companies.
For each selected company, Baird calculated the equity value by multiplying
the closing stock price of each company as of August 17, 2001, by the total
number of outstanding shares on a fully diluted basis. In addition, Baird
calculated enterprise value for each selected company by adding the book value
of outstanding total debt, preferred stock and minority interests to, and
subtracting cash and cash equivalents from, equity value. Baird then calculated
multiples of enterprise value to each selected company's LTM revenues, LTM
EBITDA and LTM EBIT, exclusive of non-recurring items, as of the most recently
reported period. Baird also calculated multiples of each selected company's
equity value per share to each selected company's LTM EPS, projected 2001 EPS
and projected 2002 EPS, exclusive of non-recurring items. Projected 2001 and
projected 2002 EPS for the selected companies was based on publicly available
investment banking research reports. Baird then compared the trading multiples
for the selected companies to relevant Keane trading multiples based
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on Keane's operating results for the LTM period ended June 30, 2001, and
projected calendar 2001 and calendar 2002, per the Keane projections. The table
below summarizes the results of the analysis and is qualified in its entirety
by reference to the other disclosures contained in this section and Annex D-2
to this proxy statement/prospectus.
Selected Keane Public
Company Trading
Multiples
Keane -----------------------
Multiples Low Median Mean High
--------- ---- ------ ---- ----
Enterprise Value to LTM Revenues............. 1.3x 0.6x 0.8x 1.8x 6.9x
Enterprise Value to LTM EBITDA............... 16.6 5.0 9.9 14.3 35.3
Enterprise Value to LTM EBIT................. 28.9 7.2 20.2 20.5 38.8
Equity Value to LTM EPS...................... 47.7 13.0 31.7 33.3 53.0
Equity Value to Calendar 2001 EPS............ 47.4 13.1 20.5 24.8 41.6
Equity Value to Calendar 2002 EPS............ 34.0 11.1 23.5 33.2 95.6
The foregoing is only a summary of the analyses performed by Baird and does
not purport to be a complete description of its presentation to Metro's board
of directors. The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analyses or summary description. Baird
believes that its analyses and the summary set forth above must be considered
as a whole and that selecting portions of those analyses and of the factors
considered by Baird, without considering all analyses and factors, would create
an incomplete view of the processes underlying its opinion. Baird did not
attempt to assign specific weights to particular analyses. Any estimates
contained in Baird's analyses are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth in Baird's
analysis. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because these estimates are inherently subject to uncertainty, Baird does not
assume responsibility for their accuracy.
Baird, as part of its investment banking business, is regularly engaged in
the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate planning, corporate and other purposes. Metro retained
Baird because of its reputation and substantial experience and expertise in the
valuation of businesses and their securities in connection with mergers and
acquisitions. In the ordinary course of business, Baird may from time to time
trade in securities, including the securities of Metro or Keane, for its own
account and for accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities.
Pursuant to an engagement letter agreement dated May 21, 2001 between Metro
and Baird, Metro agreed to pay Baird a non-refundable retainer fee of $25,000
fully creditable to the transaction fee; an additional fee of $500,000 payable
upon delivery of its opinion, fully creditable to the transaction fee,
regardless of the conclusions reached by Baird in such opinion; and a
transaction fee, payable upon consummation of the merger, equal to 1.25% of
total enterprise value at the date of closing of the transaction. In the
engagement letter, which was negotiated between Metro and Baird, Metro has also
agreed to reimburse Baird for its reasonable out-of-pocket expenses. Metro has
also agreed to indemnify Baird, its affiliates and their respective directors,
officers, employees and agents and controlling persons against certain
liabilities relating to or arising out of its engagement, including liabilities
under the federal securities laws.
In the past, Baird has performed investment banking services for Metro,
including acting as lead manager for Metro's 1997 initial public offering of
Metro common stock, for which Baird received its customary compensation.
51
Shareholder's Agreement and Irrevocable Proxy
In connection with the execution of the merger agreement, John H. Fain,
Metro's chairman of the board and chief executive officer, who, together with
various family trusts, beneficially owned approximately 54.5% of the
outstanding shares of Metro common stock on the record date, entered into a
shareholder's agreement with Keane. Under the shareholder's agreement, Mr. Fain
has agreed to vote a portion of his Metro shares representing 40% of the
outstanding shares of Metro common stock in favor of the merger agreement. Mr.
Fain executed an irrevocable proxy that enables Keane to vote these shares to
approve and adopt the merger agreement. Mr. Fain was not paid additional
consideration in connection with the irrevocable proxy. The shareholder's
agreement is attached to this proxy statement/prospectus as Annex C.
On the record date, all Metro directors, executive officers and their
affiliates, including Mr. Fain, held in the aggregate approximately 59.6% of
the outstanding shares of Metro common stock. All directors and executive
officers of Metro have indicated their intention to vote all shares over which
they exercise voting control in favor of the merger agreement.
Interests of Executive Officers and Directors of Metro in the Merger
When Metro shareholders consider the recommendation of Metro's board of
directors with respect to the merger agreement, they should be aware that some
executive officers and directors of Metro have interests in connection with the
merger that are different from, or in addition to, the Metro shareholders'
interests, as summarized below. In making their decision to recommend the
merger, the board was aware of these interests and considered them among the
other matters described above under "--Metro's Reasons for the Merger."
John H. Fain, Metro's chairman of the board and chief executive officer,
will become a director of Keane as of the effective time of the merger.
Five executive officers of Metro will receive transaction bonuses and, if
their employment terminates under specified conditions, severance benefits
under new executive retention agreements. See "Other Agreements--Executive
Retention Agreements."
As of the record date, the directors and executive officers of Metro and
their affiliates beneficially owned approximately 9,133,572 shares of Metro
common stock, or approximately 59.6% of the outstanding shares of Metro common
stock, and are eligible to receive an aggregate of 4,384,114 shares of Keane
common stock in the merger on the same terms as all the other shareholders of
Metro. In addition, as of the record date, these board members and executive
officers held options to acquire an aggregate of 95,103 shares of Metro common
stock, with exercise prices ranging from $4.40 to $35.75 per share, which will
be converted into options to acquire an aggregate of 45,649 shares of Keane
common stock, with exercise prices ranging from $9.17 to $74.48 per share, on
the same terms as all the other holders of Metro stock options. See "The Merger
Agreement--Treatment of Metro Stock Options."
In addition, the executive officers and directors of Metro owned an
aggregate of 10,875 shares of Keane common stock as of the record date.
The merger agreement provides that Keane will indemnify Metro officers and
directors against liabilities and claims resulting from their service as
directors and officers of Metro prior to the merger for a period of six years.
See "Metro's Principal Shareholders" on page 94.
Certain Metro employees will also be eligible to receive retention and
severance payments. The amounts paid as retention and severance payments will
be based upon:
. the employee's length of employment with Metro,
. the employee's annual salary,
52
. the employee's position with Metro,
. whether the employee voluntarily terminates his or her employment with
Metro during or after a retention period following the effective time of
the merger, and
. whether the employee is terminated with or without cause during or after
a retention period following the effective time of the merger.
The aggregate amount subject to the retention and severance payments is
approximately $1.4 million. See "Other Agreements--Employee Retention and
Severance Payments."
Treatment of Metro Common Stock
In the merger, each share of Metro common stock will be exchanged for 0.48
of a share of Keane common stock.
You should not send in any certificates representing Metro common stock at
this time. Following the effective time of the merger, you will receive
instructions for the surrender and exchange of your stock certificates.
Accounting Treatment of the Merger
In accordance with the recently issued Statement of Financial Accounting
Standards No. 141, "Business Combinations," and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," Keane
will use the purchase method of accounting for a business combination to
account for the merger, as well as the new accounting and reporting regulations
for goodwill and other intangibles. Under these methods of accounting, the
assets and liabilities of Metro, including intangible assets, will be recorded
at their respective fair values. All intangible assets will be amortized over
their estimated useful lives with the exception of goodwill and any other
intangibles with indefinite lives. The financial position, results of
operations and cash flows of Metro will be included in Keane's financial
statements prospectively as of the completion of the merger.
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Keane may
not complete the acquisition of shares of Metro common stock in the merger
until notifications have been furnished to the Federal Trade Commission, the
Antitrust Division of the U.S. Department of Justice and other applicable
foreign antitrust authorities and the required waiting periods have been
satisfied or terminated. Keane, Metro and John H. Fain, the principal
shareholder of Metro, filed pre-merger notification and report forms with the
FTC and the Antitrust Division on August 28, 2001. On September 10, 2001, the
FTC, on behalf of itself and the Antitrust Division, notified the filing
parties that it had granted early termination of the waiting period with
respect to the merger.
Even though we received early termination of the waiting period, at any time
before the effective time of the merger, the Antitrust Division, the FTC or a
private person or entity could seek under antitrust laws, among other things,
to enjoin the merger and any time after the effective time of the merger, to
cause Keane to divest itself, in whole or in part, of the surviving corporation
of the merger or of businesses conducted by the surviving corporation of the
merger. There can be no assurance that a challenge to the merger will not be
made or that, if a challenge is made, Keane will prevail. The obligations of
Keane and Metro to complete the merger was subject to the condition that any
applicable waiting period under the Hart-Scott-Rodino Act shall have expired
without action by the Antitrust Division or the FTC to prevent completion of
the merger. See "The Merger Agreement--Conditions to Obligations to Complete
the Merger."
53
Material United States Federal Income Tax Considerations
The discussion below summarizes the material United States federal income
tax considerations generally applicable to United States holders of Metro
common stock who, pursuant to the merger, exchange their Metro common stock for
Keane common stock and cash in lieu of any fractional share of Keane common
stock. Completion of the merger is conditioned on Keane's receipt of an opinion
from Hale and Dorr LLP (or Williams, Mullen, Clark & Dobbins if Hale and Dorr
does not provide the opinion) and Metro's receipt of an opinion from Williams
Mullen (or Hale and Dorr if Williams Mullen does not provide the opinion) to
the effect that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The discussion below reflects the opinions of Hale and Dorr and Williams
Mullen, which are included as exhibits 8.1 and 8.2 to the registration
statement of which this proxy statement/prospectus forms a part.
The discussion below is, and the opinions of Hale and Dorr and Williams
Mullen will be, based on current provisions of the Internal Revenue Code,
currently applicable United States Treasury regulations promulgated thereunder,
and judicial and administrative decisions and rulings. The opinions of Hale and
Dorr and Williams Mullen are based on the facts, representations and
assumptions set forth or referred to in the opinions, including representations
contained in certificates executed by officers of Keane and Metro. The opinions
are not binding on the Internal Revenue Service or the courts, and there can be
no assurance that the Internal Revenue Service or the courts will not take a
contrary view. No ruling from the Internal Revenue Service has been or will be
sought. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conclusions set forth
herein, and these changes or interpretations could be retroactive and could
affect the tax consequences of the merger to Keane, Metro and the shareholders
of Metro.
The discussion below and the opinions of Hale and Dorr and Williams Mullen
do not purport to deal with all aspects of federal income taxation that may
affect particular shareholders in light of their individual circumstances, and
are not intended for shareholders subject to special treatment under federal
income tax law. Shareholders subject to special treatment include insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign individuals and entities, shareholders who hold their stock as part of
a hedge, appreciated financial position, straddle or conversion transaction,
shareholders who do not hold their stock as capital assets and shareholders who
have acquired their stock upon exercise of employee options or otherwise as
compensation. In addition, the discussion below and such opinions do not
consider the effect of any applicable state, local or foreign tax laws.
Moreover, this discussion and such opinions do not address the tax consequences
of transactions effectuated prior or subsequent to, or concurrently with, the
merger (whether or not such transactions are undertaken in connection with the
merger) or the consequences of the assumption by Keane of outstanding Metro
stock options.
You are urged to consult with your tax advisor as to the particular tax
consequences of the merger, including the applicability and effect of any
state, local or foreign tax laws, and of changes in applicable tax laws.
In the opinion of Hale and Dorr, counsel to Keane, and in the opinion of
Williams Mullen, counsel to Metro, the merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. Accordingly, subject to the limitations and qualifications referred to
herein, the following tax consequences will result:
. No gain or loss will be recognized by Keane or Metro solely as a result
of the merger.
. No gain or loss will be recognized by the holders of Metro common stock
upon the receipt of Keane common stock in exchange for Metro common
stock in the merger, except to the extent of cash received in lieu of
fractional shares.
. Cash payments received by holders of Metro common stock in lieu of a
fractional share will be treated as capital gain (or loss) measured by
the difference between the cash payment received and the portion of the
tax basis in the shares of Metro common stock surrendered that is
allocable to the fractional
54
share. Any gain (or loss) will be long-term capital gain (or loss) if the
Metro common stock has been held for more than one year at the effective
time of the merger.
. The aggregate tax basis of the Keane common stock received by each Metro
shareholder in the merger, including any fractional share of Keane
common stock not actually received, will be the same as the aggregate
tax basis of the Metro common stock surrendered in the exchange.
. The holding period of the Keane common stock received by each Metro
shareholder in the merger will include the holding period for the Metro
common stock surrendered in the exchange, provided that the Metro common
stock surrendered is held as a capital asset at the completion of the
merger.
A successful Internal Revenue Service challenge to the "reorganization"
status of the merger would result in your recognizing gain or loss with respect
to each share of Metro common stock surrendered in the merger equal to the
difference between your basis in your Metro common stock and the fair market
value, as of the completion of the merger, of the Keane common stock received
in exchange therefor. In the event of a successful challenge, your total tax
basis in the Keane common stock so received would equal its fair market value,
as of the completion of the merger, and your holding period for the stock would
begin the day after the merger.
There will be no United States federal income tax consequences to the
holders of Keane common stock as a result of the completion of the merger.
American Stock Exchange Listing
It is a condition to the closing of the merger that the shares of Keane
common stock to be issued under the merger agreement be approved for listing on
the American Stock Exchange, subject only to official notice of issuance.
Resales of Keane Common Stock Issued in Connection with the Merger; Affiliate
Agreements
The shares of Keane common stock issuable to shareholders of Metro upon
consummation of the merger have been registered under the Securities Act of
1933. These Keane shares will be freely tradable without restriction by those
shareholders who are not deemed to be "affiliates" of Keane or Metro as that
term is defined under the Securities Act.
Shares of Keane common stock received by those shareholders of Metro who are
deemed to be affiliates of Metro at the time the merger agreement is submitted
to a vote may be resold without registration under the Securities Act only as
permitted by Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. Each person deemed to be an affiliate of Metro will enter
into an affiliate agreement with Keane in which he or she agrees not to offer,
sell, pledge, transfer or otherwise dispose of any shares of Keane common stock
distributed to them in connection with the merger, except in compliance with
Rule 145, or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act, provided that an opinion of counsel,
satisfactory to Keane, has been provided to Keane to the effect that
registration of the shares is not required under the Securities Act.
This proxy statement/prospectus does not cover any resales of Keane common
stock received by persons who are deemed to be affiliates of Metro.
No Dissenters' or Appraisal Rights
Keane stockholders and Metro shareholders are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand payment
for their shares under applicable law.
Delisting and Deregistration of Metro Common Stock Following the Merger
If the merger is completed, Metro's common stock will be delisted from The
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934.
55
THE MERGER AGREEMENT
The following is a summary of the material provisions of the agreement and
plan of merger, a copy of which is attached as Annex A to this proxy
statement/prospectus and is incorporated by reference into this summary, and
the related plan of merger, a copy of which is attached as Annex B to this
proxy statement/prospectus and is incorporated by reference into this summary.
While we believe that the summary covers the material terms of the agreement
and plan of merger and the related plan of merger, this summary may not contain
all of the information that is important to you. We urge you to read the
agreement and plan of merger and the related plan of merger in their entirety
for a complete description of the terms and conditions of the merger. In this
proxy statement/prospectus, we refer to the agreement and plan of merger and
the related plan of merger together as the "merger agreement."
General
Upon consummation of the merger, Metro will become a wholly owned subsidiary
of Keane. If all conditions to the merger are satisfied or waived, the merger
will become effective upon the issuance of a certificate of merger by the State
Corporation Commission of Virginia.
The Exchange Ratio and Treatment of Metro Common Stock
At the effective time of the merger, each issued and outstanding share of
Metro common stock will be converted into 0.48 of a share of Keane common
stock. Shares held by any wholly owned subsidiary of Metro and shares held by
Keane or any of its wholly owned subsidiaries will be canceled in connection
with the merger. We will adjust the exchange ratio for any reclassification,
stock split, reverse split, stock dividend, reorganization, recapitalization or
other similar event with respect to Keane common stock or Metro common stock
occurring before the effective time.
Based on the exchange ratio of 0.48 and the number of shares of Metro common
stock issued and outstanding as of the record date for the Metro meeting of
shareholders, a total of approximately shares of Keane common stock will
be issued in the merger.
Treatment of Metro Stock Options
At the effective time of the merger, Keane will assume each outstanding
option (other than options granted under Metro's employee stock purchase plan)
to purchase shares of Metro common stock, whether vested or unvested,
previously granted by Metro under its stock option plans and convert them into
options to purchase shares of Keane common stock on the same terms and
conditions. The number of shares of Keane common stock issuable upon the
exercise of Metro stock options assumed by Keane in the merger will be adjusted
based on the exchange ratio of 0.48, and rounded down to the nearest whole
number.
The exercise price per share of Keane common stock issuable under each Metro
stock option will also be adjusted by dividing (1) the exercise price per share
of Metro's common stock at which the option was exercisable immediately prior
to the effective time by (2) the exchange ratio. The exercise price will be
rounded up to the next highest whole cent.
Keane will reserve for issuance a sufficient number of shares of its common
stock for delivery if all Metro optionholders exercise their converted options
as described above. As soon as practicable after the effective time of the
merger, Keane will file a registration statement on Form S-8 with respect to
the shares of Keane common stock subject to the assumed Metro stock options
that are eligible for registration on Form S-8. During the period that any
options remain outstanding, Keane will use its commercially reasonable efforts
to maintain the effectiveness of this registration statement.
56
Exchange of Certificates
Surrender of Shares of Metro Common Stock; Stock Transfer Books. Shortly
after the effective time of the merger, Keane's exchange agent will mail to
each record holder of Metro common stock a letter of transmittal and
instructions for surrendering Metro stock certificates. Only those holders who
properly surrender their certificates in accordance with these instructions
will receive certificates representing the number of shares of Keane common
stock, cash in lieu of any fractional shares of Keane common stock and any
dividends or distributions to which they are entitled. The surrendered
certificates will be canceled.
No Further Registration or Transfer of Metro Common Stock. At the effective
time of the merger, the stock transfer books of Metro will be closed and there
will be no further transfers of shares of Metro common stock on the records of
Metro. After the effective time of the merger, the holders of Metro stock
certificates will cease to have any rights with respect to their shares of
Metro common stock except as otherwise provided for in the merger agreement or
by applicable law.
Fractional Shares. Keane will not issue any fractional shares of Keane
common stock in the merger. Instead, each holder of shares of Metro common
stock exchanged pursuant to the merger who would otherwise be entitled to
receive a fraction of a share of Keane common stock will be entitled to receive
cash, without interest, in an amount equal to the product of the fractional
share of Keane common stock multiplied by the average of the last reported
sales price per share of Keane common stock on the American Stock Exchange
during the ten consecutive trading days ending on the last trading day
immediately prior to the completion of the merger.
Distributions With Respect to Unexchanged Shares. Keane will not pay
dividends or other distributions declared or made on or after the effective
time of the merger in connection with shares of Keane common stock to holders
of any unsurrendered Metro certificates with respect to the shares of Keane
common stock that such holders are entitled to receive. Keane will not pay any
cash payment in lieu of fractional shares to holders until such holders
surrender their Metro certificates. Upon such surrender, Keane will issue and
pay to the person in whose name the Keane certificate representing such shares
of Keane common stock will be issued, without interest, any dividends or
distributions with respect to the shares of Keane common stock which have a
record date on or after the effective time of the merger and have become
payable between the effective time of the merger and the time of surrender.
Lost Certificates. If any certificate representing shares of Metro common
stock is lost, stolen or destroyed, a Metro shareholder must provide an
appropriate affidavit of that fact to Keane. Keane may also require the Metro
owner of such lost, stolen or destroyed Metro certificate to deliver a bond as
indemnity against any claim that may be made against Keane with respect to the
Metro certificates alleged to have been lost, stolen or destroyed. Only upon
receipt of the affidavit and, if requested, bond will Keane's exchange agent
issue the shares of Keane common stock, any cash payable for fractional shares
and any unpaid dividends or distributions.
You should not submit your Metro stock certificates for exchange until you
receive the letter of transmittal and instructions referred to above.
Representations and Warranties
The merger agreement contains representations and warranties of Keane, Metro
and Veritas Acquisition Corp. These relate to:
. their organization, existence, good standing, corporate power and
similar corporate matters,
. their capitalization,
. their authorization, execution, delivery, required filings and consents
and the performance and enforceability of the merger agreement and
related matters,
57
. the absence of conflicts, violations and defaults under their corporate
charters and bylaws and other agreements and documents,
. filings with the Securities and Exchange Commission,
. their respective financial statements,
. the absence of changes in their respective businesses,
. litigation matters,
. brokers and related fees, and
. the accuracy of information provided in connection with this proxy
statement/prospectus.
Metro also represented and warranted as to:
. its subsidiaries
. its board recommendation regarding approval of the merger,
. the required vote of its shareholders,
. accounting matters,
. the absence of undisclosed liabilities,
. the absence of restrictions on business activities,
. tax matters,
. its owned and leased real property,
. its intellectual property,
. its material contracts,
. environmental matters,
. its employee benefit plans,
. compliance with laws,
. permits,
. labor matters,
. insurance,
. its assets,
. its clients and suppliers,
. its account receivables, prepayments, prebilled invoices and deposits,
. government contracts,
. the absence of existing discussions with third parties regarding an
acquisition proposal,
. the opinion of its financial advisor, and
. the actions by its board of directors that make the Virginia
antitakeover statute inapplicable to the merger.
Keane has also represented and warranted as to the interim operations of
Veritas Acquisition Corp.
58
Covenants of Keane and Metro
Conduct of Metro's Business Prior to the Merger. Metro has agreed that it
and its subsidiaries will carry on their business in the usual, regular and
ordinary course in substantially the same manner as previously conducted,
excepted as contemplated by the merger agreement or as required by law.
Specifically, Metro has agreed that neither it nor any of its subsidiaries
will, without the prior written consent of Keane:
. declare, set aside or pay any dividends on or make any other
distributions in respect of any of its capital stock,
. split, combine or reclassify any of its capital stock or issue or
authorize the issuance of substitute securities for its capital stock,
. purchase, redeem or otherwise acquire any shares of its capital stock or
rights to acquire these shares,
. with specified exceptions, issue, deliver, sell, grant, pledge or
otherwise dispose of or encumber any shares of capital stock, or
securities convertible into or exchangeable for, or any rights to
acquire any shares of capital stock or securities convertible into or
exchangeable for shares of capital stock,
. amend or propose to amend its charter or bylaws,
. acquire any business, corporation, partnership, joint venture, limited
liability company, association or other business organization or any
assets that would be material, in the aggregate, to Metro and its
subsidiaries, taken as a whole,
. with specified exceptions, pledge or encumber, sell, lease, license,
dispose of or otherwise transfer assets material to Metro and its
subsidiaries, taken as a whole,
. adopt or implement any shareholder rights plan,
. with specified exceptions, enter into an agreement with respect to any
merger, consolidation, liquidation or business combination, or any
acquisition or disposition of all or substantially all of the assets or
securities of Metro or any of its subsidiaries,
. incur any indebtedness in an aggregate amount greater than $80.0 million
or guarantee any indebtedness of another person,
. issue, sell or amend any debt securities or warrants or other rights to
acquire any debt securities of Metro or any of its subsidiaries,
. make any loans, advances, capital contributions to or investment in any
other person other than Metro and any of its subsidiaries,
. except in the ordinary course of business, enter into any hedging
agreement or other financial agreement or arrangement designed to
protect Metro or its subsidiaries against fluctuations in commodities
prices or exchange rates,
. make any capital expenditure or other expenditures with respect to
property, plant or equipment for Metro and its subsidiaries, taken as a
whole, in excess of specified amounts,
. change its accounting methods, principles or practices, except as
required by a change in generally accepted accounting principles or as
directed by the SEC,
. change any assumption underlying, or method of calculating, any bond
debt, contingency or other reserve, except as required by a change in
generally accepted accounting principles or as directed by the
Securities and Exchange Commission,
. pay, discharge, settle or satisfy any claims, liabilities or obligations
reflected or reserved against in, or contemplated by, Metro's most
recent consolidated financial statements other than in the ordinary
course of business,
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. waive any material benefits of, modify in any adverse respect, fail to
enforce, or consent to any matter with respect to which consent is
required under any confidentiality, standstill or similar agreements to
which Metro or any of its subsidiaries is a party,
. modify, amend or terminate any material contract or agreement, or
knowingly waive, release or assign any material rights or claims, except
in the ordinary course of business,
. enter into any material contract or agreement (with specified
exceptions) or, except on a non-exclusive basis in the ordinary course
of business, license any material intellectual property rights to or
from any third party,
. except as required to comply with applicable law or agreements, plans or
arrangements existing as of the date of the merger agreement, and with
specified exceptions, take any action with regard to any plans or
agreements related to employee matters, including adopting, terminating
or amending any employee benefit plan or employment or severance
arrangement, increasing (with specified exceptions) the compensation or
fringe benefits of, or paying any bonus to, any director, officer,
employee, advisor or consultant, amending or accelerating the payment or
vesting of any compensation or benefits (with specified exceptions),
paying any material benefit not provided for under any benefit plan
existing as of the date of the merger agreement, or, with specified
exceptions, granting any awards under any bonus, incentive, performance
or other compensation plan or arrangement or benefit plan,
. make or rescind any tax election, settle or compromise any material tax
liability or amend any tax return,
. initiate, compromise or settle any material litigation or arbitration
proceeding,
. open or close any material facility or office,
. fail to maintain insurance at levels substantially comparable to levels
existing on the date of the merger agreement,
. fail to pay accounts payable and other obligations in the ordinary
course of business, or
. authorize, commit or agree in writing or otherwise to take any action
which would make Metro's representations and warranties untrue or
incorrect in any material respect or which would result in the
conditions of the merger set forth in the merger agreement not being
satisfied in a material way.
Metro is Restricted from Trying to Sell to Another Party. Subject to
applicable fiduciary duties of the Metro board of directors, Metro has agreed
that from the date of the merger agreement through the effective time of the
merger or the termination of the merger agreement, whichever first occurs,
neither it nor any of its subsidiaries will, directly or indirectly through
their directors, officers, employees, investment bankers, attorneys,
accountants and other advisors and representatives:
. solicit, initiate, encourage or take any action to facilitate any
inquiries or the making of any proposal or offer that constitutes or
could reasonably be expected to lead to an "acquisition proposal," or
. enter into, continue or otherwise participate in any discussion or
negotiation regarding, furnish to any person any information with
respect to, assist or participate in any effort or attempt by any person
with respect to, or otherwise cooperate in any way with, an acquisition
proposal.
The merger agreement defines an acquisition proposal to mean:
. an inquiry, proposal or offer for a merger, consolidation, dissolution,
sale of substantial assets, tender offer, recapitalization, share
exchange or other business combination involving Metro or any of its
subsidiaries,
. any proposal for the issuance by Metro or any of its subsidiaries of
over 25% of its equity securities, or
. any proposal or offer to acquire over 50% of the equity securities or
consolidated total assets of Metro.
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However, Metro and Metro's board of directors may, prior to the approval and
adoption of the merger agreement by Metro's shareholders and, if Metro has not
breached this covenant:
. furnish information to, or participate in discussions or negotiations
with, a third party in connection with an unsolicited, bona fide written
proposal to acquire substantially all of Metro's assets or securities,
or recommend any unsolicited, bona fide written proposal to the Metro
shareholders, if:
--Metro's board believes in good faith, based on written advice of its
financial advisor, that the proposal is materially more favorable from
a financial point of view to Metro's shareholders and the proposal is
reasonably capable of being completed on the terms proposed, and
Metro"s board determines in good faith after consultation with outside
legal counsel that such action is necessary to comply with its
fiduciary duties to shareholders under applicable law,
--before it furnishes such information to, or enters into discussions or
negotiations with a third party, that third party provides to Metro's
board an executed confidentiality agreement (including a standstill
agreement) with terms no more favorable to such party than those
contained in the confidentiality agreement previously executed between
Keane and Metro, and
--prior to recommending a superior proposal to its shareholders, Metro
gives Keane at least three business days prior notice to give Keane an
opportunity to make a counterproposal in which event Metro will
consider Keane's counterproposal,
. request clarifications regarding the terms and conditions of any
acquisition proposal from the third party making the proposal for the
purpose of ascertaining whether such acquisition proposal is a superior
proposal, and
. comply with Rule 14d-9 and Rule 14e-2 promulgated under the Securities
Exchange Act of 1934, with regard to a proposal.
Metro has agreed to notify Keane in writing within three business days of
receipt of any acquisition proposal or request for non-public information in
connection with an acquisition proposal or for access to the books or records
of Metro by any person or entity that informs Metro that it is considering
making or has made a proposal. Metro agrees to continue to keep Keane informed
on a current basis to the extent practicable and, in any event, as promptly as
practicable, of all material developments with respect to the status of any
discussions and the material terms being discussed or negotiated.
Meeting of Shareholders. Metro has agreed to hold a meeting of shareholders
as promptly as practicable after the registration statement, of which this
proxy statement/prospectus is a part, is declared effective (but no later than
45 days after such declaration) for Metro shareholders to consider and vote on
the approval and adoption of the merger agreement. Except as described in
"Metro is Restricted from Trying to Sell to Another Party" above, Metro's board
of directors is obligated to recommend approval and adoption of the actions to
be considered by Metro's shareholders and not withdraw or modify its
recommendations in a manner adverse to Keane. Even if the Metro board does
withdraw or modify its recommendation, Metro is obligated to call, give notice
of, convene and hold a meeting of shareholders to consider the proposed
transaction with Keane.
Filings; Other Actions. Keane and Metro have also agreed to use their
respective commercially reasonable efforts to:
. take all appropriate action to complete the transactions contemplated by
the merger agreement,
. obtain any consents, licenses, permits, waivers, approvals,
authorizations or orders from governmental entities or third parties
required in connection with the transactions contemplated by the merger
agreement, and
. make all necessary filings and submissions with respect to the
transactions contemplated by the merger agreement under federal or state
securities laws, antitrust laws and other applicable laws.
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Keane and Metro have also agreed to use commercially reasonable efforts to
obtain any governmental clearances required under antitrust laws for the
closing of the merger. Keane has the right to direct any governmental
proceedings or negotiations relating to these governmental proceedings as long
as it allows Metro a reasonable opportunity to participate in the proceedings.
Keane and its subsidiaries are not required either to divest any of their
businesses or assets or take other action that might adversely affect Keane or
the combined company, or to take any action with respect to these government
approvals if the Department of Justice or the Federal Trade Commission
authorizes its staff to seek a preliminary injunction or restraining order to
enjoin completion of the merger.
Notification. Keane and Metro are obligated to provide prompt notice to one
another of the occurrence or failure to occur of any event which would be
reasonably likely to cause a representation or warranty made in the merger
agreement to be untrue or inaccurate.
Stock Exchange Listing. Keane has agreed to use its best efforts to cause
the shares of Keane common stock which will be issued in the merger to become
listed on the American Stock Exchange.
Director and Officer Indemnification and Insurance. The merger agreement
provides that for a period of six years after the merger Keane will cause the
surviving corporation to honor its obligations:
. to indemnify and hold harmless each present and former director and
officer of Metro against any costs or expenses, judgments, fines,
losses, claims, damages, liabilities or settlement payments arising out
of or pertaining to matters existing or occurring at or prior to the
effective time of the merger, and will not modify those obligations for
a period of six years after the effective time of the merger, and
. to maintain in effect a directors' and officers' liability insurance
policy covering each present and former director and officer of Metro
against any costs or expenses pertaining to matters existing or
occurring at or prior to the merger.
Related Matters After the Merger
At the time of the merger, Veritas Acquisition Corp., a wholly owned
subsidiary of Keane, will be merged into Metro and Metro will become the
surviving corporation in the merger and a wholly owned subsidiary of Keane.
Each share of Veritas Acquisition Corp. common stock issued and outstanding
immediately prior to the merger will be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock of the
surviving corporation. The charter of Veritas Acquisition Corp., as in effect
immediately prior to the merger, will become the charter of the surviving
corporation, except that the name will be changed to Metro Information
Services, Inc. The bylaws of Veritas Acquisition Corp. will become the bylaws
of the surviving corporation, except that the name will be changed to Metro
Information Services, Inc.
Conditions to Obligations to Complete the Merger
The obligations of Keane and Metro to effect the merger are subject to the
satisfaction or waiver of the following conditions:
. Metro's shareholders must have approved and adopted the merger
agreement,
. all applicable waiting periods under the Hart-Scott-Rodino Act must have
expired or been terminated,
. Keane and Metro must have obtained all material government
authorizations and consents,
. the registration statement of which this proxy statement/prospectus is a
part must have become effective and not be the subject of a stop order,
and no proceedings for that purpose can be threatened or initiated,
. there must be no order, executive order, stay, decree, judgement or
injunction, or statute, rule or regulation, in effect that makes the
merger illegal or otherwise prohibits consummation of the merger, and
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. the American Stock Exchange must have approved for listing the shares of
Keane common stock that will be issued to Metro shareholders in the
merger.
In addition, the obligations of Keane and Veritas Acquisition Corp. to
effect the merger are subject to the satisfaction or waiver of the following
conditions:
. with specified exceptions, the representations and warranties of Metro
in the merger agreement must be true and correct in all material
respects as of the closing date of the merger, and Keane must have
received a certificate executed on behalf of Metro to that effect,
. Metro must have performed, in all material respects, its obligations
required to be performed by it under the merger agreement at or prior to
the closing date of the merger, and Keane must have received a
certificate executed by an authorized officer on behalf of Metro to that
effect,
. between the time of the execution of the merger agreement and the
effective time of the merger, no event shall have occurred which has
had, or is reasonably likely to have, a material adverse effect on
Metro,
. Keane must have received an opinion from its counsel (or from Metro's
counsel if Keane's counsel does not provide such an opinion) to the
effect that the merger will be treated as a reorganization for federal
income tax purposes under Section 368(a) of the Internal Revenue Code,
. Metro must have obtained all consents and approvals of third parties
previously identified by the parties,
. no action may be instituted or pending by a governmental entity seeking
to interfere with the ownership or operation of the business of Metro or
its subsidiaries, Keane's ownership of Metro and its subsidiaries after
the merger, or Keane's ownership of its business prior to the merger,
and
. Keane must have received copies of resignations of each of Metro's
directors, including the directors of the Metro subsidiaries.
In addition, the obligation of Metro to effect the merger is subject to the
satisfaction or waiver of the following conditions:
. with specified exceptions, the representations and warranties of Keane
and Veritas Acquisition Corp. in the merger agreement must be true and
correct in all material respects as of the closing date of the merger,
and Metro must have received a certificate executed on behalf of Keane
to that effect,
. Keane and Veritas Acquisition Corp. must have performed, in all material
respects, their obligations required to be performed by them under the
merger agreement at or prior to the closing date of the merger, and
Metro must have received a certificate executed by an authorized officer
on behalf of Keane to that effect,
. between the time of the execution of the merger agreement and the
effective time of the merger, no event shall have occurred which has
had, or is reasonably likely to have, a material adverse effect on
Keane,
. Metro must have received an opinion from its counsel (or from Keane's
counsel if Metro's counsel does not provide such an opinion) to the
effect that the merger will be treated as a reorganization for federal
income tax purposes under Section 368(a) of the Internal Revenue Code,
. John H. Fain must have been elected to serve on the Keane board of
directors effective immediately following the effective time of the
merger, and
. no action may be instituted or pending by a governmental entity seeking
to interfere with the ownership or operation of the business of Metro or
its subsidiaries, Keane's ownership of Metro and its subsidiaries after
the merger, or Keane's ownership of its business prior to the merger.
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Termination; Fees and Expenses
Termination
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective time of the merger under the following circumstances:
. by mutual written consent of the parties,
. by either Keane or Metro, if:
--the merger is not completed, without the fault of the terminating
party, by December 31, 2001,
--a governmental entity has issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action that restrains,
enjoins or otherwise prohibits the merger, or
--the Metro shareholders do not approve and adopt the merger agreement,
except that Metro shall have no right to terminate if it is in breach
of, or failed to fulfill its obligations under, the merger agreement or
if the requisite shareholder vote was not obtained due to breach of the
shareholder's agreement by John H. Fain,
. by Keane, if
--Metro's board of directors fails to unanimously recommend approval and
adoption of the merger agreement or withdraws or modifies its
recommendation of the merger agreement,
--Metro fails to unanimously reconfirm its recommendation of the merger
agreement within five days after Keane's request to do so,
--Metro's board approves or recommends another acquisition proposal,
--a third party commences a tender offer or exchange offer and Metro's
board recommends or fails to recommend against such tender or exchange
offer, or
--Metro engages in the solicitation, initiation or encouragement of
another proposal that could reasonably be expected to lead to an
acquisition proposal, and
. by Keane or Metro, if there has been a breach or failure to perform by
the other party, any representation, warranty, covenant or agreement set
forth in the merger agreement which is not cured within 20 days after
the breaching party receives notice of the breach.
If either Keane or Metro terminates the merger agreement because of any of
the reasons listed above, all obligations of the parties under the merger
agreement will terminate except for the obligation to pay fees and expenses as
described below, and no termination shall relieve Keane or Metro from liability
or damages resulting from breach of the merger agreement.
Expenses
Except as described below, Keane and Metro will bear their own expenses
incurred in connection with the merger, other than the Hart-Scott-Rodino Act
filing fees and expenses incurred with respect to the printing and filing of
this proxy statement/prospectus and the registration statement, which Keane and
Metro will share equally (excluding attorneys' fees).
In addition to any termination fee described below, Metro has agreed to pay
up to $1,500,000 to Keane as reimbursement for its expenses actually incurred
in connection with the merger if the merger agreement is terminated:
. by Keane, where the merger is not completed by December 31, 2001 because
Metro failed to meet specified closing conditions,
. by Keane, where Metro fails to unanimously recommend approval and
adoption of the proposed transaction with Keane, or recommends another
acquisition proposal,
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. by Keane, if a third party commences a tender offer or exchange offer
and Metro recommends or fails to recommend against such tender offer or
exchange offer,
. by Keane, if Metro engages in the solicitation, initiation or
encouragement of another proposal that could reasonably be expected to
lead to an acquisition proposal,
. by Keane, where there has been a material breach of any representation,
warranty or covenant or agreement by Metro that is not cured within 20
days following receipt of notice of such breach from Keane, or
. by Keane or Metro, where Metro fails to obtain the requisite vote of its
shareholders to approve the merger agreement.
In addition to any termination fees described below, Keane has agreed to pay
up to $1,500,000 to Metro as reimbursement for its fees and expenses paid in
connection with the merger if the merger agreement is terminated by Metro:
. where the merger is not completed by December 31, 2001 because Keane
failed to meet specified closing conditions, or
. where there has been a material breach of any representation, warranty
or covenant or agreement by Keane that is not cured within 20 days
following receipt of notice of that breach from Metro.
Termination Fees
Metro has agreed to pay Keane a termination fee of $8,100,000, less any
amounts payable as reimbursement for Keane's expenses, upon the earliest to
occur of the following events:
. Keane terminates the merger agreement because:
--there has been a material breach of any representation, warranty or
covenant or agreement by Metro that is not cured within 20 days of
receiving notice of that breach,
--Metro's board of directors fails to unanimously recommend approval and
adoption of the merger agreement or withdraws or modifies its
recommendation of the merger agreement,
--Metro fails to unanimously reconfirm its recommendation of the merger
agreement within five days after Keane's request to do so,
--Metro's board approves or recommends another acquisition proposal,
--a third party commences a tender offer or exchange offer and Metro's
board recommends or fails to recommend against such tender or exchange
offer, or
--Metro engages in the solicitation, initiation or encouragement of
another proposal that could reasonably be expected to lead to an
acquisition proposal, or
. Metro or Keane terminates the merger agreement because Metro's
shareholders do not approve and adopt the merger agreement if, prior to
the termination of the agreement, a bona fide acquisition proposal with
respect to Metro has been announced and not unconditionally withdrawn
and abandoned.
Keane has agreed to pay Metro a termination fee of $8,100,000, less any
amounts payable as reimbursement for Metro's expenses, if Metro terminates the
merger agreement because there has been a material breach of any
representation, warranty or covenant or agreement by Keane that is not cured
within 20 days of receiving notice of the breach.
If applicable, any expenses and fees payable as described above shall be
paid within one business day after demand therefor.
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Amendment
Generally, the board of directors of each of Keane and Metro may amend the
merger agreement by mutual agreement at any time prior to the completion of the
merger. However, after Metro's shareholders approve and adopt the merger
agreement, any amendment will be restricted by the Virginia corporation
statute. Amendments must be in writing and signed by all parties.
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OTHER AGREEMENTS
Shareholder's Agreement
In connection with the execution of the merger agreement, John H. Fain,
Metro's chairman of the board and chief executive officer, who, together with
various family trusts, beneficially owned approximately 54.5% of the
outstanding shares of Metro common stock on the record date, entered into a
shareholder's agreement with Keane. Under the shareholder's agreement, Mr. Fain
has agreed to vote a portion of his Metro shares representing 40% of the
outstanding shares of Metro common stock in favor of the merger agreement. Mr.
Fain executed an irrevocable proxy that enables Keane to vote his shares to
approve and adopt the merger agreement. Mr. Fain was not paid additional
consideration in connection with the irrevocable proxy. Mr. Fain also agreed
not to transfer or otherwise dispose of any Metro shares except as set forth in
the shareholder's agreement. The proxy automatically terminates upon the
termination of the merger agreement. The shareholder's agreement terminates
upon the earlier of the merger becoming effective in accordance with the terms
and provisions of the merger agreement or the termination of the merger
agreement.
Under the shareholder's agreement, Mr. Fain has the right to be nominated to
the Keane board of directors effective as of the effective time of the merger.
Subject to its fiduciary duties under applicable law, the Keane board has
agreed to nominate Mr. Fain for election to the board at all meetings of
stockholders at which Keane stockholders will vote on the election of directors
following the effective time. Keane's obligation to nominate Mr. Fain will
terminate when he and his affiliates cease to beneficially own 4% or more of
the outstanding shares of Keane common stock.
The shareholder's agreement is attached as Annex C to this proxy
statement/prospectus.
Affiliate Agreements
Each executive officer and director of, and those who may be an affiliate
of, Metro has executed a written affiliate agreement providing, among other
things, that the officer, director or affiliate will not offer, sell, transfer,
pledge, hypothecate or otherwise dispose of, any of the shares of Keane common
stock issued to the officer, director or affiliate under the merger agreement
until such transaction is permitted under Rule 145 of the Securities Act, an
opinion of counsel has been furnished to the effect that no registration under
the Securities Act is required in connection with the proposed transaction or a
registration statement under the Securities Act covering the proposed
transaction becomes effective.
Executive Retention Agreements
In connection with the merger, Metro entered into executive retention
agreements with each of John H. Fain, Andrew J. Downing, Kathleen A. Neff,
Robert J. Eveleigh and Bradley B. Breseman, all of whom are currently Metro
executives. The retention agreements are contingent upon the consummation of
the merger and supersede all prior employment agreements between each executive
and Metro.
Each retention agreement sets the base salary for each executive, which is
equivalent to the executive's existing base salary. Under the executive
retention agreement, each executive is also eligible for a transaction bonus
and severance benefits. If the executive remains employed by Metro through the
closing date of the merger and executes a merger bonus and release agreement
with Metro, the executive shall receive a transaction bonus equivalent to two
times his or her annual base salary.
Metro retains the right to terminate the employment of the executive at any
time, including, without limitation, during the transition period, with or
without notice and with or without cause. The transition period is the period
between the closing date of the merger and a date specified in writing by Keane
(which shall be no more than 180 days) following the closing.
If Keane terminates the executive's employment without cause during the
transition period or the executive notifies Keane in writing during the
transition period of his or her intention to terminate employment
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upon completion of the transition period, the executive is entitled to receive
a retention payment equivalent to one times his annual base salary. The
executive must execute a retention benefit and release agreement as a condition
to receiving his or her retention payment.
The transaction bonus and severance payments of the executives are set forth
in the following table:
Transaction Bonus Severance Payment
Executive Current Metro Title (2X Annual Base Salary) (1X Annual Base Salary)
--------- ------------------- ----------------------- -----------------------
John H. Fain............ Chief Executive Officer $780,000 $390,000
Andrew J. Downing....... President and Chief
Operating Officer $660,000 $330,000
Kathleen A. Neff........ Chief Technology Officer $500,000 $250,000
Robert J. Eveleigh...... Chief Financial Officer $360,000 $180,000
Bradley B. Breseman..... Vice President of
Administrative Services $310,000 $155,000
Each of the retention agreements contains non-competition and non-
solicitation provisions during the term of the executive's employment and for
the period of:
. three years after termination of employment, if termination occurs
before the first anniversary of the closing date, or
. two years after termination of employment, if termination occurs after
the first anniversary of the closing date.
Under these provisions, the executive may not:
. engage in any competitive business or activity,
. solicit, recruit, induce, attempt to induce or permit any organization
directly or indirectly controlled by the executive to solicit, recruit,
induce or attempt to induce any employee or independent contractor to
leave Metro who was employed or engaged by Metro during the executive's
employment with Metro, or
. solicit, divert or take away or attempt to solicit, divert or take away,
or permit any organization directly or indirectly controlled by the
executive to solicit, divert or take away, or attempt to solicit, divert
or take away the business or patronage of any clients or accounts, or
prospective clients or accounts, of Metro, which were contacted,
solicited or served by Metro during the executive's employment with
Metro.
A form of executive retention agreement is attached to this proxy
statement/prospectus as Annex E.
Employee Retention and Severance Payments
In connection with the merger, Metro established and Keane agreed to honor
retention severance programs for some of Metro's general and administrative
employees.
Eligible employees will participate in differing programs depending on the
employee's work function. General and administrative employees who work at the
corporate level will participate in the first program and general and
administrative employees who work in the field will participate in the second
program.
Under the first program, employees are eligible for a total payment equal to
the greater of
. four weeks salary, or
. two weeks salary for each full year of employment with Metro.
Fifty percent of the payment employees are eligible to receive constitutes
retention pay and the remaining fifty percent constitutes severance pay. For an
employee to be eligible to receive a retention payment, he or she
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must remain employed by Keane for a period between the closing date of the
merger and a date specified in writing by Keane, known as the retention period.
The retention period shall not exceed 180 days. An employee will be eligible to
receive retention and severance pay in accordance with the following chart:
Corporate-Level General and Administrative Employees
Termination
Circumstances During Retention Period After Retention Period
------------- ----------------------- ----------------------
Employee voluntarily No retention pay Retention pay
terminates No severance pay No severance pay
Keane or surviving Retention pay Retention pay and
corporation Severance pay
terminates employee
without cause
. Severance pay if termination
occurs prior to first
anniversary of closing date,
or
. standard severance benefits
provided to employees of Keane
if termination occurs on or
after first anniversary of
closing date
Keane or surviving No retention pay Retention pay
corporation No severance pay No severance pay
terminates employee for
cause
Under the second program, if Keane terminates employees without cause during
the 45-day period following the closing date, such employees are eligible for a
total payment equivalent to the greater of
. in the case of office directors: (a) one months salary or (b) two weeks
salary for each full year of employment with Metro completed prior to
the termination date, and
. in all other cases: (a) four weeks salary or (b) one weeks salary for
each full year of employment with Metro completed prior to the
termination date.
The aggregate amount to be paid under these severance and retention programs
is approximately $1.4 million.
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RECENTLY ELECTED DIRECTORS AND EXECUTIVE OFFICERS OF KEANE
Recently Elected Directors
On July 26, 2001, Keane's board of directors unanimously elected Maria A.
Cirino and Stephen D. Steinour to serve as directors of Keane until Keane's
2002 annual meeting of stockholders and until their respective successors are
duly elected and qualified. Ms. Cirino and Mr. Steinour will each receive
$1,000 and expenses for each meeting of Keane's board of directors attended.
During Keane's fiscal year ended December 31, 2000, Keane's board of directors
held ten meetings. Keane's non-employee directors are also entitled to receive
non-statutory stock options under Keane's stock incentive plan. On July 26,
2001, Ms. Cirino and Mr. Steinour were each granted a non-statutory stock
option to purchase 10,000 shares of Keane's common stock at an exercise price
of $18.30 per share. These options vest on the fifth anniversary of the date of
grant, provided that the vesting of such options immediately accelerates with
respect to 34% of the shares covered thereby upon Keane achieving cash earnings
per share of $1.00, with respect to an additional 33% of the shares covered
thereby upon Keane achieving cash earnings per share of $1.50 and with respect
to the remaining 33% of the shares covered thereby upon Keane achieving cash
earnings per share of $2.00.
John H. Fain, Metro's chairman of the board and chief executive officer,
will be nominated to become a director of Keane as of the effective time of the
merger and will serve as a director of Keane until Keane's 2002 annual meeting
of stockholders and until his successor is duly elected and qualified. Under
the shareholder's agreement among Mr. Fain, Keane and Veritas, Mr. Fain has the
right to be nominated and recommended for election to Keane's board at each
meeting of Keane stockholders at which directors are to be elected. Mr. Fain's
right to be nominated and recommended for election to Keane's board will
terminate when Mr. Fain and his affiliates cease to beneficially own 4% or more
of the outstanding shares of Keane's common stock. As an employee director, Mr.
Fain will not be entitled to receive the annual director's fees and the per-
meeting fees and expenses described above. See also "The Merger--Interests of
Executive Officers and Directors of Metro in the Merger."
Set forth below is biographical information with respect to the three
individuals described above.
Maria A. Cirino, age 37, has served as a director of Keane since July 26,
2001. Since February 2000, Ms. Cirino has served as the chief executive officer
and chairman of Guardent, Inc., a provider of security and privacy services.
From July 1997 to February 2000, Ms. Cirino served as vice president of sales
and marketing of i-Cube, Inc., which merged into Razorfish, Inc. in November
1999, a strategic digital communications company. From June 1994 to July 1997,
Ms. Cirino served as vice president of sales, and from January 1993 to June
1994, Ms. Cirino served as director of channel sales of Shiva Corporation, a
developer of remote access products for enterprise networks.
Stephen D. Steinour, age 43, has served as a director of Keane since July
26, 2001. Since January 1997, Mr. Steinour has served as vice chairman of
Citizens Financial Group, a commercial bank holding company. From October 1992
to December 1996, Mr. Steinour served as the executive vice president and chief
credit officer of Citizens Wholesale Banking Group of Citizens Financial Group.
John H. Fain, age 52, will be nominated to become a director of Keane as of
the effective time of the merger. Mr. Fain has served as chairman of the board
and chief executive officer of Metro since July 1979 and served as Metro's
president from July 1979 to January 1, 2001. Mr. Fain is also a director of
Metro.
Recently Elected Executive Officers
In January 2001, Keane appointed Linda B. Toops and Irene Brown as senior
vice presidents. Set forth below is biographical information with respect to
Ms. Toops and Ms. Brown.
Linda B. Toops, age 47, has served as a senior vice president of Keane since
January 2001 and as the president of Keane Consulting Group, a division of
Keane, since May 2000. From January 1998 to May 2000, Ms. Toops served as an
executive vice president and from January 1996 to January 1998 as a senior vice
president of Bricker and Associates, an operations improvement consulting firm
which was acquired by Keane in 1998.
Irene Brown, age 47, has served as a senior vice president of Keane since
January 2001 and as managing director of Keane Ltd., a subsidiary of Keane,
since August 1998. From 1992 until August 1998, Ms. Brown served as the
managing director of Icom Solutions, a U.K.-based IT services firm which was
acquired by Keane in 1998.
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BUSINESS OF METRO
Overview
Metro Information Services, Inc. was incorporated on July 1, 1979 in
Virginia. The headquarters of Metro and its consolidated subsidiaries is
located in Virginia Beach, Virginia.
Metro provides a wide range of information technology, or IT, consulting and
custom software development services and solutions in 33 metropolitan markets
in the United States and Puerto Rico. As of June 30, 2001, Metro had 1,988
consultants working with clients on all aspects of computer systems and
applications development. Services and solutions performed by Metro include
application systems development and maintenance, IT architecture and
engineering, systems consulting, project outsourcing (including managed
services) and general support services. Metro supports all major computer
technology platforms and supports client projects using a broad range of
software applications. For example, Metro custom develops applications in Java,
HTML, ASP and other web-related languages as well as Visual Basic, C++, Oracle,
Informix and DB2. Metro also implements and supports network environments based
on Windows 2000, Windows NT, Novell and UNIX platforms and supports numerous
other application environments.
Development of the Business
Between 1996 and April 1999, Metro grew significantly. On December 31, 1995,
Metro had 20 offices and 1,074 full-time consultants. From December 31, 1995
through December 31, 1999, Metro increased its revenue at a compound annual
growth rate of 36%, including revenue growth through acquisitions. Facilitating
this growth were a strong economy, increased use of and reliance on IT,
significant changes in computer technologies, the migration from centralized
mainframe computer systems to distributed client/server environments to Web-
based systems and a trend in corporate America towards outsourcing IT services
due to the shortage of in-house expertise and resources to address the variety
and complexity of IT projects. Between 1996 and 1999, Metro accelerated its
rate of new office openings from one office per year to as many as four offices
per year. Metro also invested heavily in computerized systems custom-designed
for Metro's approach to the IT services industry and communications systems to
enhance the flow of information within Metro.
Metro was a privately owned company until January 29, 1997, when it
consummated an initial public offering of 3,100,000 shares of its common stock
at a price of $16.00 per share. In the offering, Metro issued 2,300,000 shares
and one of Metro's shareholders sold 800,000 shares. On February 3, 1997, the
underwriters of the initial public offering exercised their over-allotment
option, purchasing 465,000 shares of common stock from several other
shareholders of Metro, at a price of $16.00 per share. The net proceeds to
Metro from the offering were $33,144,000. In connection with the public
offering, Metro terminated its S corporation election resulting in Metro
becoming fully subject to federal and state income taxes effective January 1,
1997. On January 20, 1997, Metro distributed $9,000,000 to its shareholders,
approximating the estimated aggregate undistributed amount of income on which
Metro's shareholders were required to pay income taxes for tax years 1987
through 1996.
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Since 1997, Metro has acquired the following companies:
Date Company Acquired Location
---- ---------------- --------
July 1, 1997...... Data Systems Technology, Inc. Columbia and Greenville,
South Carolina
July 1, 1997...... DP Career Associates Kansas City, Missouri
December 2, 1998.. The Avery Group Palo Alto, California
January 1, 1999... D.P. Specialists, Inc. El Segundo, California
January 1, 1999... D.P. Specialists Learning Center, Woodbridge, New Jersey
LLC
February 1, 1999.. The Professionals--Computer Irvine, California
Management & Consulting, Inc.
February 1, 1999.. Krystal Solutions, Inc. San Bruno, California
March 1, 1999..... Solution Technologies, Inc. Camp Hill (Harrisburg),
Pennsylvania Altoona,
Pennsylvania
Pittsburgh, Pennsylvania
Charlotte, North Carolina
Hagerstown, Maryland
Kansas City, Missouri
August 13, 1999... Acuity Technology Services, LLC Washington, D.C.
Baltimore, Maryland
Dallas, Texas
August 13, 1999... Acuity Technology Services of Washington, D.C.
Dallas, LLC Baltimore, Maryland
Dallas, Texas
At the end of 1999, Metro had grown to 45 offices located in 21 states and
Puerto Rico and more than 2,700 full-time consultants. Metro financed these
acquisitions with the balance of the proceeds from its January 1997 initial
public offering, cash generated by operations and borrowings under its lines of
credit.
Starting in May 1999, Metro experienced a slowdown in demand for IT
services. During 1999, clients were reluctant to start new IT projects until
the full effect of computer problems associated with the advent of the Year
2000 was known. This slowdown continued throughout 2000. On May 25, 2000,
Metro's executive management approved a plan to close eight of Metro's smaller
offices and combine operations in two other markets. By June 2, 2000, offices
located in Memphis, Milwaukee, Minneapolis, Orlando, Pittsburgh, Portland,
Sacramento and Salt Lake City were closed. At the end of 2000, Metro combined
operations in Baltimore and Washington, D.C. As of June 30, 2001, Metro
operated in 34 metropolitan markets in the United States and Puerto Rico.
Despite the slowdown in demand for IT services, which resulted in no growth
in 2000, Metro increased its revenue at a compound annual growth rate of 30%,
including revenue growth through acquisitions, from December 31, 1996 through
December 31, 2000. As of June 30, 2001, Metro had 1,988 full-time consultants,
down from 2,446 at the end of 2000. The decline in consultant count occurred as
Metro rapidly transitioned its workforce towards newer technologies.
On December 12, 2000, Metro announced that it would conduct its business
under two primary brands: Metro IT Consulting and Metro IT Solutions. The Metro
IT Consulting brand would appear in each of the markets Metro serves. IT
Consulting would primarily focus on providing traditional time and material
augmentation services. IT Consulting would also be the primary lead generator
for IT Solutions. The Metro IT
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Solutions brand provides project management, project methodologies and systems
integration-focused e-business solutions. IT Solutions takes over the role
formerly performed by Metro's business technology solutions team and
coordination provided through Metro's Solutions Centers in Virginia Beach,
Virginia, Los Angeles, California and Harrisburg, Pennsylvania. While these
brands are not separately identifiable as separate operating units, they
represent the latest step in a strategy to increase the amount of solutions
work Metro provides to its clients.
Metro's common stock is listed on The Nasdaq National Market under the
symbol "MISI."
Industry Overview
Since May 1999, Metro and the rest of the IT services industry have
experienced a slowdown in demand for IT services. During 1999, clients were
reluctant to start new IT projects until the full effect of computer problems
associated with the advent of the Year 2000 was known. The industry slowdown
continued throughout 2000. As a result, the focus in 2000 was to complete a
major shift in the work force towards newer technologies, and Metro's growth
rate from earlier years has not yet returned. Retention of existing consultants
and finding enough new consultants for the newer technologies, with the right
skills, is Metro's greatest challenge.
Rapid technological advances accelerated the growth of the IT industry in
the 1990's. These advances included more powerful and less expensive computer
technology, the transition from mainframe computer systems to open and
distributed computing environments and the advent of capabilities such as
relational databases, imaging, software development productivity tools and web-
enabled software. These advances expanded the benefits that users can derive
from computer-based information systems and improved the price-to-performance
ratios of those systems. As a result, an increasing number of companies are
employing IT in new ways, often to gain competitive advantages in the
marketplace, and IT services have become an important component of their long-
term growth strategies. The same advances that have enhanced the benefits of
computer systems have rendered the development and implementation of those
systems increasingly complex. Metro believes the significant shift towards
using the Internet for consumer and business transactions presents another
major opportunity for Metro. As a result, Metro is continuing to shift its
employees towards Internet, client/server and network skills that support an
Internet-based economy. At the same time, Metro will continue to provide the
broad variety of IT services its clients use to support their businesses. There
is a shortage of IT consultants qualified to support these systems.
Accordingly, business has turned to IT services firms, such as Metro, to
develop, support and strengthen their internal IT departments and systems.
Business Strategy
The key components of Metro's business strategy are:
Attract, develop and retain qualified consultants. Metro seeks to attract,
develop and retain qualified consultants by focusing primarily on IT services,
providing leadership and management support through effective and open
communication, developing consultants through professional and technical
training and educational programs, providing challenging project opportunities
with significant client responsibility and offering competitive compensation
and benefits that recognize the individual needs of each consultant. Metro
maintains a proprietary database of current, prospective and former consultants
to help it identify and recruit qualified consultants. In addition, Metro's
presence in 33 metropolitan markets enhances Metro's ability to match
consultants' desired locations and technical abilities with client needs. Metro
recognizes that its success can be sustained only through the efforts and
quality of its consultants. To this end, management provides responsive
technical and professional support, promotes a sense of responsibility and
rewards quality performance through numerous incentive programs and awards.
Build long-term partnerships with clients. Metro's goal is to have its
clients view Metro as an extension of their IT departments and as a long-term
partner that is able to fulfill their IT services requirements. As a
73
result, Metro emphasizes a partnership approach to its clients, rather than a
one-time project or assignment approach. To develop these relationships, Metro
spends a significant amount of time and resources tracking and anticipating the
needs of its clients. Metro works to maintain close communications with its
clients during and at the conclusion of each project with a view to achieving
quality results and assessing future opportunities.
In 1998, 1999 and 2000 and the twelve months ended June 30, 2001, Metro
provided IT consultants to approximately 476, 788, 730 and 651 clients,
respectively (excluding clients that generated less than $25,000 in revenue
during those periods). In each of 1998, 1999 and 2000 and the twelve months
ended June 30, 2001, at least 85% of Metro's revenue came from clients who were
clients in the prior year, excluding the effect of acquisitions completed in
1999.
Metro's ten largest clients accounted for approximately 31.3%, 21.7%, 23.2%
and 23.9% of Metro's revenue in 1998, 1999 and 2000 and the twelve months ended
June 30, 2001, respectively. Metro's largest client accounted for approximately
4.4%, 3.6%, 5.2% and 5.9% of Metro's revenue in 1998, 1999 and 2000 and the
twelve months ended June 30, 2001, respectively.
Metro serves clients operating in a wide variety of industries and many of
these clients are engaged in multiple lines of business. In the following
chart, Metro has grouped these clients according to what Metro believes to be
their principal business area. The approximate percentage of Metro's revenue by
industry group for the years ended December 31, 1998, 1999 and 2000 follows:
1998 1999 2000
----- ----- -----
Banking.................................................... 11.0% 7.3% 4.1%
Communications............................................. 10.2 9.2 11.3
Financial Services......................................... 8.6 9.7 7.9
Food....................................................... 1.1 0.7 5.6
Healthcare................................................. 6.2 8.2 6.0
Industrial................................................. 3.0 2.0 0.2
Insurance.................................................. 2.5 2.0 2.6
Manufacturing & Distribution............................... 9.4 8.5 10.3
Oil & Gas.................................................. 1.2 1.4 1.9
Other Services............................................. 6.5 10.7 12.2
Publishing & Broadcasting.................................. 2.1 3.2 3.4
Retail..................................................... 4.4 4.1 3.4
Government................................................. 7.2 8.9 8.0
Technology................................................. 11.8 14.2 16.8
Transportation............................................. 6.1 3.0 2.0
Utilities.................................................. 2.9 2.4 1.7
Other...................................................... 5.8 4.5 2.6
----- ----- -----
Total Percent of Billings................................ 100.0% 100.0% 100.0%
===== ===== =====
Provide a wide range of value-added IT services and solutions. Metro's
consultants provide a wide range of IT services and solutions, including
planning, managing, building, implementing and maintaining IT systems. Metro
supports all major computer technology platforms (client/server, network,
mainframe, Internet and mid-range environments) and supports projects using a
broad range of software applications. For example, Metro custom develops
applications in Java, HTML, ASP and other Web-related languages as well as
Visual Basic, C++, Oracle, Informix and DB2. Metro also implements and supports
network environments based on Windows 2000, Windows NT, Novell and UNIX
platforms and supports numerous other application environments. Metro
continually seeks to broaden its services in the changing IT market by
providing its consultants with exposure to emerging technologies and by hiring
consultants with diverse IT backgrounds and skills.
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Provide high-quality, cost-effective services. Metro is dedicated to
providing its clients with the highest possible level of service at what Metro
believes is the "best value." Metro believes its experienced consultants and
proprietary systems allow it to deliver high-quality, on-schedule services to
its clients in a cost-effective and efficient manner and that the quality of
its services has been a differentiating factor that has helped it successfully
expand. Metro's dedication to quality services and client satisfaction has
resulted in special recognition from clients. Metro's operating procedures and
quality assurance programs are ISO 9002 registered. Metro believes ISO
registration, an international standard for quality assurance and consistency
in operating procedures, enhances its reputation and helps it achieve preferred
vendor status with clients.
Leverage proprietary systems. Metro's internally designed and developed
proprietary business systems are used to support and enhance its recruiting,
marketing, training, consultant productivity, client scheduling and client
servicing processes. For example, Metro's staff sourcing network provides Metro
with the ability to identify and hire qualified consultants on a nationwide
basis and match their skills and desired work locations with an appropriate
office in a time-critical manner. Metro's scheduling system allows it to
efficiently manage contract renewals and bill rate increases and anticipate
clients' needs for IT consultants and services. These proprietary systems also
permit timely sharing of information on a company-wide basis.
Growth Strategy
Metro has competed with relative success in the rapidly changing IT services
industry. Until July 1, 1997, Metro achieved all of its growth through internal
growth. On July 1, 1997, Metro completed two acquisitions and effective
December 2, 1998, Metro completed a third acquisition. Metro completed five
acquisitions in 1999. Metro now plans to focus on internal growth until
industry conditions become more favorable.
Metro's internal growth strategy consists of two components:
Develop and expand client base. By providing a wide range of high-quality
services, Metro has historically expanded the scope of its client relationships
through additional assignments and by providing additional services within
client organizations. In addition, because many of Metro's clients have offices
throughout the United States, Metro strives to leverage these relationships by
providing IT services in multiple locations. In addition to increasing sales
with existing clients, Metro seeks to develop new client relationships in each
office. This component is now the primary component of the growth strategy.
Expand range of solutions and services. For several years, Metro opened up
to four offices per year. Metro developed a national expansion strategy and
successfully replicated its business model in its newly opened offices. In May
2000, Metro implemented a restructuring plan to reduce costs and focus on
growing offices that have critical mass, structure and the capability to
deliver the broad range of Metro's services and solutions. In conjunction with
the plan, eight smaller offices were closed and corporate staff was reduced. In
connection with cost reduction initiatives approved by Metro's executive
management on May 4, 2001 and June 18, 2001, Metro recorded a restructuring
charge of $904,000 for the six months ended June 30, 2001. These costs
consisted of employee severance pay and benefits, lease termination costs, and
excess fixed assets. The charge represents Metro management's estimate of the
ultimate obligations associated with executing the plans at the time the
estimates were made. Metro expects to complete all steps in the restructuring
plans by May 4, 2002 and June 18, 2002, respectively.
With offices in 33 metropolitan markets in the United States and Puerto
Rico, Metro has good national geographic coverage other than in the
northeastern United States. Metro plans to concentrate its resources on
continuing to transition its work force towards newer technologies and grow
Metro's IT Solutions capabilities.
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Services and Solutions
Metro provides IT services primarily through supplemental IT services
arrangements and, to a lesser extent, through project outsourcing services
(including managed services) arrangements. Substantially all of Metro's
services are billed on a time and materials basis. During fiscal years ended
December 31, 1998, 1999 and 2000, supplemental IT services accounted for 90%,
90% and 85%, respectively, of Metro's revenue. During 1998, 1999 and 2000,
systems consulting and project outsourcing services accounted for 10%, 10% and
15% respectively, of Metro's revenue.
Metro offers its IT services in the five major service areas set forth in
the following table:
Approximate percentage
of consultants in area at
IT Service Description December 31, 2000*
---------- ----------- -------------------------
Application systems Includes consultant support of projects on 66%
development and all major technology platforms, including
maintenance client/server, object oriented, network,
mainframe, mid-range and desktop computing
environments
IT architecture and Includes the support of major systems 11%
engineering foundations and operating systems
Systems consulting Includes a variety of strategic business 4%
services such as information systems and IT
planning
Project outsourcing Includes full project services that 5%
generally require a higher level of
responsibility
General support Includes a variety of services such as help 14%
desks, call center support, technical
training and documentation and technical
writing
--------
* These percentages change daily as consultant assignments change. Due to the
variation in billing rates in these service areas, these percentages do not
necessarily correspond to the percentage of revenue from each service area.
Sales and Marketing
Metro's marketing objective is to develop long-term partnership
relationships with existing and new clients that will lead to Metro becoming
the preferred provider of IT services. Metro's primary marketing approach is to
introduce prospective clients to Metro's capabilities and to learn about
prospective clients' IT environments through personal appointments with
information systems managers, purchasing or human resources managers and chief
information officers. Other sales and marketing methods include client
referrals, networking, attending trade shows and alliances with other vendors.
Metro divides its sales and marketing effort between new client acquisition and
existing client development. At June 30, 2001, Metro employed 27 individuals
performing new client acquisition functions and 56 individuals performing
client development functions. In addition to Metro's primary marketing
approach, Metro also has targeted marketing initiatives for project outsourcing
and managed services/vendor on premise IT services. The Metro IT Solutions
brand supports the efforts of its offices. IT Solutions provides technical and
quality assurance support to offices with such opportunities and acts as a
catalyst to match opportunities with Metro's capabilities on a national level.
Client Support Structure
Clients are the focus of Metro's client support structure, which provides
each client with "layers of support" from Metro. The first layer of client
support is the IT consultants who work at client sites on
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assignments generally lasting six to 12 months. The next layer of support is
each office's leadership team which includes:
. marketing executives,
. business development managers,
. professional staff recruiters,
. consultant development managers, and
. a division director who leads the office leadership team, all of whom are
supported by administrative assistants.
The corporate support group furnishes a "layer of support" for Metro's
offices through its chief executive officer, John H. Fain, president and chief
operating officer, Andrew J. Downing, and chief financial officer, Robert J.
Eveleigh, working in conjunction with the chief technology officer, the vice
presidents--business development and the vice president of administrative
services. The corporate support group performs as many back office functions as
possible at the corporate headquarters to allow the offices to focus primarily
on sales, client service and consultant support.
Executive management. During 2000, the executive management team consisted
of Messrs. Fain, Downing and Eveleigh and various vice presidents.
Administrative services. The administrative services department coordinates
Metro's recruiting process, ISO 9002 registration and compliance, human
resources, payroll and training functions. ISO is an international standard for
quality assurance and consistency in operating procedures.
Finance. The finance department is responsible primarily for internal and
external financial reporting, general accounting, time entry and reporting,
billing, accounts receivable, facilities acquisition and administration, legal
services, risk management and contracting.
Information services. The information services department supports systems
operations, office telecommunications and internal applications systems
development and support. Metro has committed significant resources to the
development of its recruiting systems to improve the database search
capabilities, ease data entry via scanning and imaging, ease remote access to
the database and implement a workgroup concept for using the system.
Intellectual Property
In accordance with industry practice, contracts between Metro and its
clients normally provide that all intellectual property created for a client
belongs exclusively to that client. Intellectual property used by Metro to
operate its business is owned by or licensed to Metro. Metro relies on trade
secret laws to protect its proprietary software. Metro seeks to protect its
trade secrets and other proprietary information through agreements with
employees and consultants. Metro does not hold any patents and does not have
any patent applications pending. There can be no assurance that the steps taken
by Metro to protect its proprietary technology will be adequate to deter
misappropriation of its proprietary rights or third party development of
similar proprietary software.
Seasonality
Metro's operating results are adversely affected when client facilities
close due to holidays or inclement weather. Metro generally experiences a
degree of seasonality in the fourth quarter due to the number of holidays and
closings of client facilities during that quarter. Further, Metro generally
experiences lower operating results in the first quarter due in part to the
timing of unemployment and social security tax
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thresholds and delays in clients' contract renewals related to clients' budget
approval processes. A higher percentage of employee wages are subject to
unemployment and social security tax withholding in the first quarter. In later
quarters, more employees reach the annual taxable wage limits for unemployment
and social security tax withholding.
Competition
The IT services industry is extremely competitive and highly fragmented.
Metro believes there are thousands of competitors in the United States alone,
many of which are privately owned. Although the market is consolidating,
management believes no one company is dominant. Metro's competitors include:
. general IT services firms,
. temporary staffing and personnel placement companies,
. general management consulting firms,
. major accounting firms,
. divisions of large hardware and software companies, and
. niche providers of IT services.
With the recent shift towards the Internet, a number of new competitors have
entered the market. These competitors are typically small but well funded
services firms focused exclusively on helping businesses use the Internet to
change their relationships with clients and suppliers.
Competition may also come from application service providers, or ASPs. ASPs
offer to host standard or slightly customized versions of packaged software
systems for businesses. ASPs may attract clients who are dissatisfied with
their custom software solutions or have difficulty managing their packaged
software systems. Some of Metro's competitors possess substantially greater
resources, greater name recognition and a more established client base than
Metro. In addition, the services offered by Metro have been and continue to be
provided by client personnel. Metro believes that the significant competitive
factors in the sale of its services include:
. quality of consultant services,
. timely availability of qualified consultants,
. price,
. breadth of services offered, and
. reputation.
As Metro attempts to increase the amount of systems consulting and project
outsourcing it performs, prior experience and referrals to prior successful
engagements will play a more significant role in getting new business.
As a result of intense competition, IT services engagements frequently are
subject to pricing pressure. Clients also require vendors to provide services
in multiple locations. Competition for contracts for many of Metro's services
takes the form of competitive bidding in response to requests for proposals and
quotes.
Prime vendors present an additional competitive challenge. To reduce the
number of their IT service providers, a number of businesses are beginning to
use a limited number of vendors and, in some cases, a single vendor. Prime
vendors enter into contractual arrangements with clients to fill their IT
services needs either directly or through subcontractors. Because these prime
vendors generally are given the first opportunity to fill a client's consultant
needs, the industry trend toward the use of prime vendors may give Metro fewer
opportunities to place consultants. In those circumstances where the prime
vendor subcontracts with Metro to provide consultants, the prime vendor may
pressure Metro to reduce its billable rates.
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Metro has taken steps, when practical, to become a prime vendor of IT
services for some of its clients. Metro has experienced and anticipates
continued pricing pressure from these clients as a condition to becoming or
remaining a prime vendor. Metro evaluates these situations on an individual
basis to determine whether these arrangements contribute to the overall
profitability of Metro.
Managed services providers are an emerging competitive challenge. Managed
services providers coordinate the distribution of client requirements and the
responses to those requirements as well as performing billing and payment
services. The managed services providers fees are typically paid by suppliers
out of the suppliers' revenues from the client, thereby reducing profitability.
At the same time, Metro views the growth of managed services as an opportunity
and has developed its own managed services offering, under the name vSMART.
Recruiting and Hiring
Because recruiting and hiring qualified consultants is critical to Metro's
success, Metro spends significant resources and effort to locate and retain
high-quality consultants. Metro's structured recruiting approach is based on
the use of a proprietary resume tracking database, which allows qualified
candidates to be identified based on specific client requirements. This
approach generates effective communication between the local offices and
corporate headquarters, which allows all offices to share information and match
candidates to the appropriate office and client. A strict qualification process
that utilizes stated standards to qualify candidates, both on a technical and
professional basis, is incorporated into this approach.
Metro identifies candidates through a variety of sources, including the
Internet, referrals from employees and clients, local and national advertising,
recruiting agencies, career fairs and professional associations. Metro believes
its national presence and local office network enables it to recruit
consultants with specialized skill sets that are generally in higher demand and
more difficult to locate. Candidate resume information is entered into Metro's
proprietary database, which allows Metro's offices equal access to candidate
qualifications. Office staff can search for candidates based on a variety of
search criteria, including skill sets, experience and location preferences.
Metro's administrative services department trains new recruiters (through an
in-house training program known internally as "recruiter university"), monitors
the recruiting process and coordinates the sharing of information among all
offices so candidates are quickly and efficiently pursued for hire throughout
Metro. At June 30, 2001, Metro had 101 recruiters.
Consultant Training and Education
Metro believes consultant training and education is essential to meeting
client requirements for ever-changing skills and for retaining consultants.
Metro offers a variety of training in technical and professional competencies
on a company-wide level, through its human resources department and, on an
individual office level, through each office's training coordinator. The human
resources department oversees:
. professional and technical training,
. the licensing of computer-based training courses,
. development or licensing of instructor-led training,
. utilization of corporate training hardware and software, and
. tuition reimbursement.
Office training coordinators work closely with their office staff to provide
effective training through the development of training plans, coordination of
class logistics and the sponsorship of informal special interest training
sessions. During 2000, approximately 0.9% of Metro's revenue was spent on
training and education.
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Employees
As of June 30, 2001, approximately 92% of Metro's 1,988 consultants were
employees of Metro for federal and state tax purposes. For such individuals,
Metro pays social security taxes (FICA), federal and state unemployment taxes
and workers' compensation insurance premiums. The remaining consultants were
subcontractors.
As of June 30, 2001, Metro had 2,522 employees, 2,429 of which were full-
time and 93 were part-time (working 30 hours or less in a week). Of the 2,429
full-time employees, 1,988 were consultants and 441 were general and
administrative staff. Of the 1,988 consultants, Metro classifies 1,214 as
regular staff members and 774 as associate staff members. Regular staff members
are entitled to full benefits and substantially all are salaried and continue
to earn full salary and benefits, even if not working for a client. Metro
markets regular staff members to new clients in anticipation of completion of
current project assignments. Associate staff members are entitled to only
statutory benefits and the majority are paid on an hourly basis. In addition to
statutory benefits, associate staff members are permitted to participate in a
limited number of other benefits, but are required to pay substantially all of
the cost of these benefits. Associate staff members are employed only for
specific client projects. As a result, even though Metro markets most associate
staff members to new clients in anticipation of completion of current project
assignments, they are at greater risk of not being retained by Metro.
Competition for qualified IT consultants to fill client needs is intense.
Metro believes that its core philosophy and values, developed at Metro's
inception, help it attract and retain high-quality IT professionals.
Consultants sign agreements that limit their ability to compete with Metro for
a 12-month period after leaving Metro. In addition, certain of Metro's
agreements limit the client's ability to hire Metro employees working at the
client's facility.
Metro completes an annual comprehensive staff survey detailing employee
satisfaction and areas for improvement. The survey results are published in
special editions of Metro's newsletter, MetroExpress, and shared with employees
and clients. The survey helps Metro identify changing employee needs and
desires, which Metro believes increases employee satisfaction and reduces
employee turnover. Metro is not a party to any collective bargaining agreements
and considers its relationships with its employees to be excellent.
Properties
Metro's executive office is located at Reflections II, 200 Golden Oak Court,
Virginia Beach, Virginia 23452. This facility serves as the headquarters for
the corporate support group. Metro's headquarters is located in a leased
facility with approximately 29,000 square feet at a current annual rent of
$470,571, and a term expiring in 2004. As of June 30, 2001, Metro leased
offices in 35 cities that aggregated approximately 232,000 square feet and are
leased at minimum current annual rents of $3,932,427 for various terms, with no
lease commitment extending past 2010. Metro believes that its properties are
adequate for its current needs. Further, Metro believes that suitable
additional or replacement space will be available when required on terms Metro
believes will be acceptable.
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The following table sets forth additional information concerning Metro's
facilities:
Date Opened/Acquired Office Location
-------------------- ---------------
July 1979..................... Hampton Roads (Virginia Beach), Virginia
September 1982................ Research Triangle (Raleigh), North Carolina
November 1982................. Richmond, Virginia
August 1984................... Tampa Bay (Tampa), Florida
November 1984................. Charlotte, North Carolina
October 1985.................. Triad (Winston-Salem), North Carolina
March 1987.................... Atlanta, Georgia
October 1987.................. South Florida (Ft. Lauderdale), Florida
August 1988................... Caribbean Islands (Hato Rey), Puerto Rico
November 1989................. Greenville, South Carolina
March 1990.................... Roanoke, Virginia
April 1991.................... Nashville (Brentwood), Tennessee
September 1992................ Dallas/Ft. Worth (Dallas), Texas
July 1993..................... Jacksonville, Florida
July 1994..................... Houston, Texas
April 1995.................... Cincinnati (Fort Mitchell, Kentucky), Ohio
May 1995...................... Chicago (Des Plaines), Illinois
September 1995................ Phoenix, Arizona
April 1996.................... Puget Sound (Bellevue), Washington
October 1996.................. Columbus (Worthington), Ohio
January 1997.................. Rocky Mountain (Denver), Colorado
April 1997.................... St. Louis, Missouri
July 1997*.................... Columbia, South Carolina
July 1997*.................... Kansas City, Missouri
July 1997..................... Austin, Texas
May 1998...................... Tallahassee, Florida
December 1998*................ Palo Alto/Silicon Valley (Menlo Park), California
January 1999*................. Los Angeles (El Segundo), California
February 1999*................ Irvine, California
February 1999*................ San Francisco (San Bruno), California
March 1999*................... Harrisburg (Camp Hill), Pennsylvania
March 1999*................... Altoona, Pennsylvania
March 1999*................... Hagerstown, Maryland
August 1999*.................. Washington, DC (McLean, Virginia)
August 1999*.................. Baltimore, Maryland
--------
* Indicates an office that was acquired.
Legal Proceedings
Metro is not a party to any material legal proceedings, other than ordinary
routine litigation incidental to Metro's business.
81
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF METRO
The following discussion and analysis of Metro's financial condition and
results of operations should be read in conjunction with Metro's consolidated
financial statements and the notes to those statements included elsewhere in
this proxy statement/prospectus.
Overview
Metro provides a wide range of IT consulting and custom software development
services in 33 metropolitan markets in the United States and Puerto Rico. As of
June 30, 2001, Metro had 1,988 consultants working with clients on all aspects
of computer systems and applications development. Services and solutions
performed by Metro include application systems development and maintenance, IT
architecture and engineering, systems consulting, project outsourcing
(including managed services) and general support services. Metro supports all
major computer technology platforms and supports client projects using a broad
range of software applications. For example, Metro custom develops applications
in Java, HTML, ASP and other Web-related languages as well as Visual Basic,
C++, Oracle, Informix and DB2. Metro also implements and supports network
environments based on Windows 2000, Windows NT, Novell and UNIX platforms and
supports numerous other application environments.
Metro's clients operate in a wide variety of industries including
communications, distribution, retail, financial services, government,
healthcare, information technology, manufacturing, transportation, leisure and
utilities. Metro emphasizes long-term relationships with its clients rather
than one-time projects or assignments. During the twelve months ended June 30,
2001, Metro performed IT services for 651 clients (excluding clients that
generated less than $25,000 in revenue during that period).
Metro provides IT services primarily through supplemental IT services
arrangements and, to a lesser extent, through project outsourcing arrangements.
Substantially all services are billed on a time and materials basis. During the
six months ended June 30, 2001, Metro estimated that supplemental IT services
accounted for more than 85% and project outsourcing accounted for less than 15%
of Metro's revenue. Metro intends to work toward increasing the percentage of
project outsourcing it performs.
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. The number of full-time consultants increased from
2,088 at December 31, 1998 to 2,770 at December 31, 1999 and then decreased to
2,446 at December 31, 2000. Over the same period, Metro increased the average
billing rates charged to its clients for consultants. Between June 30, 2000 and
June 30, 2001, the number of full-time consultants decreased by 20.0% from
2,470 to 1,988. Metro's management expects the impact of the slowdown in the
second quarter of 2001 will also be reflected in the third quarter. Between
June 30, 2000 and June 30, 2001, Metro increased the average billing rates
charged to its clients for consultants in an attempt to keep pace with the
increased costs of consultants. However, billing rates did not keep pace with
the increased cost of pay rates.
Since May 1999, Metro and the rest of the IT services industry have
experienced a slowdown in demand for IT services. This slowdown has mostly
affected mainframe computer services. During 1999, clients were reluctant to
start new IT projects until the full effect of computer problems associated
with the advent of the Year 2000 was known. The industry slowdown continued
throughout 2000. As a result, the focus in 2000 was to complete a major shift
in the work force towards newer technologies. Conditions improved in the latter
half of 2000, but have not yet returned to normal. Metro's management cannot
reasonably predict when or if the growth rate previously experienced by Metro
will return. Retention of existing consultants and finding enough new
consultants for the newer technologies, with the right skills, is Metro's
greatest challenge.
Metro's revenue grew 40.2% in 1998 to $213.9 million, 47.1% in 1999 to
$314.6 million and decreased 0.3% in 2000 to $313.6 million. In 1998, 1999 and
2000 and the twelve months ended June 30, 2001, Metro's
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ten largest clients accounted for approximately 31.3%, 21.7%, 23.2% and 23.9%,
respectively, of Metro's revenue and its largest client accounted for
approximately 4.4%, 3.6%, 5.2% and 5.9%, respectively, of revenue.
Revenue growth during 1998 was achieved almost entirely through internal
growth, although revenue growth includes revenue from one acquisition in
December 1998. Revenue growth in 1999 was attributable to acquisitions
completed by Metro between December 1998 and August 1999. Without these
acquisitions, 1999 revenue would have increased approximately 5.6%. Between
January 1, 1998 and January 31, 2000, Metro opened 12 new offices and acquired
12 additional offices. In May 2000, Metro closed eight smaller offices,
including seven offices opened between January 1998 and January 2000. Metro
closed these offices to focus on growing those offices that have the critical
mass, structure and capability to deliver the broad range of Metro's services
and solutions to clients in their respective markets and reduce costs. In
conjunction with cost-reduction initiatives approved on May 4, 2001 and June
18, 2001, Metro recorded a restructuring charge of $904,000 for the six months
ended June 30, 2001. These costs consisted of employee severance pay and
benefits, lease termination costs, and excess fixed assets. The charge
represents Metro management's estimate of the ultimate obligations associated
with executing the plans at the time the estimates were made. Metro expects to
complete all steps in the restructuring plans by May 4, 2002 and June 18, 2002,
respectively. Revenue fell 0.3% in 2000 as Metro transitioned its workforce
towards newer technologies. Revenue for the six months ended June 30, 2001 fell
5.9% compared to the six months ended June 30, 2000 as Metro's consultant count
declined and a slowdown in demand for information technology services occurred.
On July 1, 1997, Metro completed the acquisition of two information
technology services companies. Metro acquired the business operations of Data
Systems Technology, Inc., which had offices in Columbia and Greenville, South
Carolina, for $498,000, of which $134,000 was paid on July 1, 1997 (including
the repayment of net assumed liabilities) and $364,000 was paid on August 31,
1998 as a result of the acquired business attaining certain operating income
targets. Metro also acquired the business operations of Kansas City-based J2,
Inc., d.b.a. DP Career Associates, for approximately $5.2 million, of which
approximately $3.9 million was paid July 1, 1997 and approximately $1.3 million
was paid on February 27, 1998 as a result of the acquired business attaining
certain gross profit targets.
On December 2, 1998, Metro 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
$11.8 million, of which approximately $11.0 million was paid at closing,
$754,000 was paid in February 1999 based on a net worth adjustment calculation
performed in February 1999 and approximately $95,000 represents direct costs
related to the acquisition.
On January 1, 1999, Metro acquired D.P. Specialists, Inc. and D.P.
Specialists Learning Center, LLC, information technology consulting services
and personnel staffing businesses located in El Segundo, California and
Woodbridge, New Jersey, for a purchase price of approximately $17.9 million,
including direct costs of the acquisition of approximately $90,000. During
2000, Metro paid approximately $7.8 million based on the acquired business
attaining certain operating income targets for the twelve months ended December
31, 1999.
On February 1, 1999, Metro acquired The Professionals--Computer Management &
Consulting, Inc. and Krystal Solutions, Inc., 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 $20.6 million, of which approximately $18.0 million 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. During 2000, Metro paid approximately
$2.1 million based on the acquired business attaining certain operating income
targets for the twelve months ended January 31, 2000.
On March 1, 1999, Metro acquired Solution Technologies, Inc., 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 $28.4 million, of which approximately $24.0 million was paid
at closing, approximately
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$3.7 million 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, Metro acquired all of the membership and equity
interests of Acuity Technology Services, LLC and Acuity Technology Services of
Dallas, LLC, 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 $52.4 million, of
which approximately $39.4 million was paid at closing, $666,000 was paid in
November 1999 and approximately $158,000 represents direct costs related to the
acquisition. During 2000, Metro paid approximately $12.2 million based on the
acquired business attaining certain operating income targets for the twelve
months ended August 31, 2000.
Metro's past financial performance should not be relied on as an indication
of future performance. Period-to-period comparisons of Metro's financial
results are not necessarily meaningful indicators of future performance. In
particular, you should be aware of the rapid change in demand for technology
from 1999 to the present. Demand for mainframe services has shifted to web
services. In addition, the demand for solutions versus staffing services
appears to be less strong as core clients become familiar with web technologies
and begin to seek more staffing services.
Results of Operations
For purposes of the following discussion, as of December 31, 1998, a mature
office is one that was owned by Metro for at least 12 months at the beginning
of the earlier period being compared and a new office is one that was opened or
acquired thereafter. As of December 31, 1999, December 31, 2000, June 30, 2000
and June 30, 2001, a mature office is an office that was owned by Metro for at
least 24 months and a new office is an office opened or acquired within the
last 24 months.
The following tables set forth, for the periods indicated, the percentage of
revenue and the percentage change from the prior period of certain items
reflected in Metro's consolidated statements of income:
Percentage of Revenue
---------------------------------
Six Months
Year Ended Ended
December 31, June 30,
------------------- ------------
1998 1999 2000 2000 2001
----- ----- ----- ----- -----
Revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................ 69.3 70.8 70.7 71.3 72.3
----- ----- ----- ----- -----
Gross profit............................... 30.7 29.2 29.3 28.7 27.7
----- ----- ----- ----- -----
Selling, general and administrative
expenses.................................. 18.9 18.5 21.5 21.4 22.8
Depreciation expense....................... 0.8 0.8 1.0 1.0 1.2
Amortization expense....................... 0.1 0.9 1.5 1.5 1.7
----- ----- ----- ----- -----
Total operating expenses................... 19.8 20.2 24.0 23.9 25.7
----- ----- ----- ----- -----
Restructuring charge....................... -- -- 0.1 0.5 0.6
----- ----- ----- ----- -----
Operating income........................... 10.9 9.0 5.2 4.3 1.4
----- ----- ----- ----- -----
Net interest income (expense).............. 0.4 (0.9) (2.2) (1.8) (1.8)
Other income............................... -- -- -- -- 0.7
----- ----- ----- ----- -----
Income before income taxes................. 11.3 8.1 3.0 2.5 0.3
Income taxes............................... 4.5 3.3 1.4 1.0 0.3
----- ----- ----- ----- -----
Net income................................. 6.8% 4.8% 1.6% 1.5% 0.0%
===== ===== ===== ===== =====
84
Percentage Change
---------------------------------------------------------------------
Year Ended December 31, Six Months Ended June 30,
------------------------------------------- -------------------------
1999 Compared to 1998 2000 Compared to 1999 2001 Compared to 2000
--------------------- --------------------- -------------------------
Revenue................. 47.1% (0.3)% (5.9)%
Cost of revenue......... 50.1 (0.5) (4.7)
Gross profit............ 40.3 0.1 (9.0)
Selling, general and
administrative
expenses............... 44.1 15.9 0.2
Depreciation expense.... 59.2 25.1 7.3
Amortization expense.... 1,292.4 61.9 9.6
Total operating
expenses............... 51.0 19.1 1.1
Restructuring charge.... -- 100.0 21.1
Operating income........ 20.8 (42.8) (69.8)
Net interest (expense)
income................. (468.3) 133.7 (6.0)
Other income............ -- -- 100.0
Income before income
taxes.................. 5.0 (62.8) (89.6)
Income taxes............ 7.2 (57.9) (74.4)
Net income.............. 3.6 (66.1) (100.0)
Comparison of Six Months Ended June 30, 2001 to Six Months Ended June 30, 2000
Revenue. Revenue decreased $9.4 million, or 5.9%, to $148.6 million for the
six months ended June 30, 2001 from $158.0 million for the six months ended
June 30, 2000. The decline in revenue was a result of a declining consultant
count and a slowdown in demand for information technology services.
Cost of revenue. Cost of revenue decreased $5.3 million, or 4.7%, to $107.4
million for the six months ended June 30, 2001 from $112.7 million for the six
months ended June 30, 2000. As a percentage of revenue, cost of revenue
increased to 72.3% for the six months ended June 30, 2001 from 71.3% for the
six months ended June 30, 2000. This increase as a percentage of revenue was
primarily due to increases in health and benefit costs of salaried consultants.
Gross profit. Gross profit decreased $4.1 million, or 9.0%, to $41.2 million
for the six months ended June 30, 2001 from $45.3 million for the six months
ended June 30, 2000. As a percentage of revenue, gross profit decreased to
27.7% for the six months ended June 30, 2001 from 28.7% for the six months
ended June 30, 2000. The decline in revenue combined with the increased cost of
revenue lowered gross profit for the six months ended June 30, 2001.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained at $33.9 million for the six months ended June
30, 2001 compared to the six months ended June 30, 2000. As a percentage of
revenue, selling, general and administrative expenses increased to 22.8% for
the six months ended June 30, 2001 from 21.4% for the six months ended June 30,
2000. Metro implemented cost-reduction initiatives during the second quarter
ended June 30, 2001 to bring selling, general and administrative expenses
closer to historical levels. With the number of consultants decreasing, cost-
reduction strategies were necessary. One-time costs for these strategies
totaled $930,000 before taxes. Of these costs, Metro reported a restructuring
charge of $904,000 as a separate line item and included $26,000 in selling,
general and administrative expenses. The $26,000 represents a write-down of the
value of retired or abandoned assets to net realizable value in accordance with
Financial Accounting Standards Board Opinion No. 121.
Depreciation expense. Depreciation expense increased $119,000, or 7.3%, to
$1.8 million for the six months ended June 30, 2001 from $1.6 million for the
six months ended June 30, 2000. This increase was primarily attributable to
depreciation on additions to computer equipment and software. As a percentage
of revenue, depreciation expense increased to 1.2% for the six months ended
June 30, 2001 from 1.0% for the six months ended June 30, 2000.
85
Amortization expense. Amortization expense increased $224,000, or 9.6%, to
$2.5 million for the six months ended June 30, 2001 from $2.3 million for the
six months ended June 30, 2000. This increase was attributable to amortization
of goodwill and other intangible assets related to Metro's acquisitions
completed during 1999. As a percentage of revenue, amortization expense
increased to 1.7% for the six months ended June 30, 2001 from 1.5% for the six
months ended June 30, 2000.
Restructuring charge. For the six months ended June 30, 2001, Metro recorded
a restructuring charge of $904,000 related to the cost-reduction initiatives
approved May 4, 2001 and June 18, 2001. These costs consist of employee
severance pay and benefits, lease terminations costs and excess fixed assets.
The charge represents Metro's management's estimate of the ultimate obligations
associated with executing the plans at the time the estimates were made. Metro
expects to complete all steps in the restructuring plans by May 4, 2002 and
June 18, 2002, respectively. The June 18, 2001 plan included the sale of one of
Metro's offices resulting in a $1.0 million gain before taxes during the six
months ended June 30, 2001.
Operating income. Operating income decreased $4.7 million, or 69.8%, to $2.0
million for the six months ended June 30, 2001 from $6.7 million for the six
months ended June 30, 2000. As a percentage of revenue, operating income
decreased to 1.4% for the six months ended June 30, 2001 from 4.3% for the six
months ended June 30, 2000. The decline in operating income margin was
primarily the result of lower gross margins.
Interest income. Interest income decreased by $53,000, or 65.8%, to $28,000
for the six months ended June 30, 2001 from $81,000 for the six months ended
June 30, 2000.
Interest expense. Interest expense decreased by $217,000, or 7.6%, to $2.6
million for the six months ended June 30, 2001 from $2.8 million for the six
months ended June 30, 2000. This change reflects a decrease in the average
level of borrowings during the period and decreases in interest rates.
Other income. Other income increased $1.0 million for the six months ended
June 30, 2001 from $0 for the six months ended June 30, 2000. As a percentage
of revenue, other income was 0.7% for the six months ended June 30, 2001. The
sale of one of Metro's offices resulted in a $1.0 million gain before taxes
during the six months ended June 30, 2001. The sale of the office was part of
the cost-reduction initiatives approved May 4, 2001 and June 18, 2001.
Income before income taxes. Income before income taxes decreased $3.5
million, or 89.6%, to $407,000 for the six months ended June 30, 2001 from $3.9
million for the six months ended June 30, 2000. As a percentage of revenue,
income before income taxes decreased to 0.3% for the six months ended June 30,
2001 from 2.5% for the six months ended June 30, 2000.
Income taxes. Metro's effective tax rate was 46% for the six months ended
June 30, 2001 and 41% for the six months ended June 30, 2000. The rate increase
was the result of higher than expected nondeductible expenses, which increased
Metro's taxable income above previous estimates, and nonfederal income taxes.
Current tax expense is calculated using book income plus permanent differences
times the effective tax rate. Income taxes decreased $1.2 million, or 74.4%, to
$407,000 for the six months ended June 30, 2001 from $1.6 million for the six
months ended June 30, 2000. As a percentage of revenue, income taxes decreased
to 0.3% for the six months ended June 30, 2001 from 1.0% for the six months
ended June 30, 2000. These decreases were a result of the earnings decline
Metro has experienced over the last 12 months.
Net Income. Net income decreased $2.3 million, or 100%, to $616 for the six
months ended June 30, 2001 from $2.3 million for the six months ended June 30,
2000. As a percentage of revenue, net income decreased to 0.0% for the six
months ended June 30, 2001 from 1.5% for the six months ended June 30, 2000.
Net income per share. Diluted net income per share decreased $0.15, or 100%,
to $0.0 for the six months ended June 30, 2001 from $0.15 for the six months
ended June 30, 2000.
86
Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999
Revenue. Revenue decreased $1.1 million, or 0.3%, to $313.6 million for 2000
from $314.6 million for 1999. Excluding the Acuity Technology acquisition,
revenue decreased $34.4 million, or 10.9%. The decline in revenue was primarily
a result of a declining consultant count, which started in 1999 and continued
throughout 2000. This decline was brought on by decreased client demand, the
transition from mainframe to e-business skilled consultants, slower revenue
growth in existing offices, lower bill rate increases and more non-billable
consultant time. As of December 31, 2000 compared to December 31, 1999, the
total number of full-time consultants decreased to 2,446 from 2,770, and
clients (excluding clients that generated less than $25,000 in revenue during
each year) decreased to 730 from 788.
Cost of revenue. Cost of revenue decreased $1.1 million, or 0.5%, to $221.6
million for 2000 from $222.7 million for 1999. Cost of revenue decreased
slightly due to pay rate increases staying below bill rate increases. As a
percentage of revenue, cost of revenue decreased to 70.7% for 2000 from 70.8%
for 1999.
Gross profit. Gross profit was $92.0 million for 2000 compared to $92.0
million for 1999. As a percentage of revenue, gross profit increased to 29.3%
for 2000 from 29.2% for 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $9.2 million, or 15.9%, to $67.4 million for
2000 from $58.1 million for 1999. This increase was primarily due to the cost
of Metro's sales, marketing and e-business initiatives, the one-time costs
related to the offices closed May 31, 2000 and the costs related to a Tennessee
sales and use tax audit. These one-time costs include a write-down of $343,000
for the value of retired or abandoned assets to net realizable value in
accordance with Financial Accounting Standards Board Opinion No. 121. In
addition, a bad debt reserve for uncollectible Tennessee tax of $586,000 and a
penalty of $198,000 are included in selling, general and administrative
expenses. As a percentage of revenue, selling, general and administrative
expenses increased to 21.5% for 2000 from 18.5% for 1999. The nonrecurring
costs included in selling, general and administrative expenses for 2000 totaled
approximately $1.1 million, before income taxes. Excluding these items, as a
percentage of revenue, selling, general and administrative expenses increased
to 21.1% for 2000 from 18.5% for 1999.
Depreciation expense. Depreciation expense increased $654,000, or 25.1%, to
$3.3 million for 2000 from $2.6 million for 1999. This increase was primarily
attributable to depreciation on additions to computer equipment and software
and an entire year of depreciation on the assets of companies acquired during
1999. As a percentage of revenue, depreciation expense increased to 1.0% in
2000 from 0.8% in 1999.
Amortization expense. Amortization expense increased $1.8 million, or 61.9%,
to $4.8 million for 2000 from $3.0 million for 1999. This increase was
attributable to amortization of goodwill and other intangible assets related to
Metro's acquisitions. As a percentage of revenue, amortization expense
increased to 1.5% for 2000 from 0.9% for 1999.
Operating income. Operating income decreased $12.1 million, or 42.8%, to
$16.2 million for 2000 from $28.2 million for 1999. As a percentage of revenue,
operating income decreased to 5.2% for 2000 from 9.0% for 1999. The decline in
operating income margin was primarily the result of higher selling, general and
administrative expenses and higher depreciation and amortization expenses.
Interest income. Interest income decreased by $49,000 to $94,000 for 2000
from $143,000 for 1999. This change reflects a decrease in cash and cash
equivalents due to Metro's cash being used for acquisitions.
Interest expense. Interest expense increased by $3.8 million to $6.8 million
for 2000 from $3.0 million for 1999. Of this amount, $895,000 relates to a
Tennessee Department of Revenue audit of the Nashville and Memphis offices
completed September 29, 2000. The State of Tennessee found that consulting
services provided to clients connected with the installation, alteration,
development or programming of computer software are subject to Tennessee sales
or use tax. The remaining amount reflects an increase in the average
87
level of borrowings during the period related to the use of cash to make the
Acuity Technology and other 1999 acquisitions.
Income before income taxes. Income before income taxes decreased $15.9
million, or 62.8%, to $9.4 million for 2000 from $25.3 million for 1999. As a
percentage of revenue, income before income taxes decreased to 3.0% for 2000
from 8.1% for 1999.
Income taxes. Metro's effective tax rate for 2000 and 1999 was 45.6% and
40.3%, respectively. The rate increase was primarily the result of higher than
expected non-deductible expenses, which increased Metro's taxable income above
previous estimates, and non-federal income taxes. The increase was also the
result of higher income tax rates in the states where Metro's acquisitions
operate. As a percentage of revenue, income taxes decreased to 1.4% for 2000
from 3.3% for 1999. Income taxes decreased $5.9 million, or 57.9%, to $4.3
million for 2000 from $10.2 million for 1999. These decreases were a result of
the earnings decline Metro experienced during 2000.
Net income. Net income decreased $10.0 million, or 66.1%, to $5.1 million
for 2000 from $15.1 million for 1999. As a percentage of revenue, net income
decreased to 1.6% for 2000 from 4.8% for 1999.
Net income per share. Diluted net income per share decreased $0.67, or
66.3%, to $0.34 for 2000 from $1.01 for 1999.
Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998
Revenue. Revenue increased $100.7 million, or 47.1%, to $314.6 million for
1999 from $213.9 million for 1998. Of this increase, $89.9 million was due to
revenue from companies acquired since December 1, 1998. This increase was also
a result of increased billings to existing clients, the addition of new clients
and increased billing rates charged for Metro's consultants. As of December 31,
1999 compared to December 31, 1998, the total number of full-time consultants
increased to 2,770 from 2,088, and clients (excluding clients that generated
less than $25,000 in revenue during each year) increased to 788 from 476.
Revenue from Metro's 30 mature offices increased $8.6 million, or 4.0%, from
the earlier period and the 15 new offices (including ten acquired offices)
accounted for the remaining $92.1 million increase in revenue.
Cost of revenue. Cost of revenue increased $74.4 million, or 50.1%, to
$222.7 million for 1999 from $148.3 million for 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 70.8% for 1999 from 69.3%
for 1998 primarily because the percentage of employees who are hourly was
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 $26.4 million, or 40.3%, to $92.0
million for 1999 from $65.6 million for 1998. As a percentage of revenue, gross
profit decreased to 29.2% for 1999 from 30.7% for 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $17.7 million, or 44.1%, to $58.1 million for
1999 from $40.4 million for 1998. This increase was due primarily to costs
associated with recently opened offices, growth of administrative staff in
mature offices, hiring additional corporate staff to support the increased
number of offices and development of Metro's computerized business systems and
hiring additional sales and marketing staff to support Metro's efforts to
provide more e-business services. As a percentage of revenue, selling, general
and administrative expenses decreased to 18.5% for 1999 from 18.9% for 1998.
This decrease was in part the result of Metro's centralization of
administrative functions and leverage obtained from Metro's proprietary
business systems.
88
Depreciation expense. Depreciation expense increased $1.0 million, or 59.2%,
to $2.6 million for 1999 from $1.6 million for 1998. This increase was
primarily attributable to depreciation on additions to computer equipment and
software. As a percentage of revenue, depreciation expense remained unchanged
at 0.8%.
Amortization expense. Amortization expense increased $2.8 million, or
1,292.4%, to $3.0 million for 1999 from $0.2 million for 1998. This increase
was attributable to amortization of goodwill and other intangible assets
related to Metro's acquisitions. As a percentage of revenue, amortization
expense increased to 0.9% for 1999 from 0.1% for 1998.
Operating income. Operating income increased $4.8 million, or 20.8%, to
$28.2 million for 1999 from $23.4 million for 1998. As a percentage of revenue,
operating income decreased to 9.0% for 1999 from 10.9% for 1998. The decline in
operating income margin was 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 $695,000 to $143,000 for 1999
from $838,000 for 1998. This change reflects a decrease in cash and cash
equivalents due to Metro's cash being used for acquisitions.
Interest expense. Interest expense increased by $2,961,000 to $3,018,000 for
1999 from $57,000 for 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. Metro increased its debt level from $0 at December 31,
1998 to $82,467,000 at December 31, 1999.
Income before income taxes. Income before income taxes increased $1.2
million, or 5.0%, to $25.3 million for 1999 from $24.1 million for 1998. As a
percentage of revenue, income before income taxes decreased to 8.1% for 1999
from 11.3% for 1998.
Income taxes. Metro's effective tax rate for 1999 and 1998 is 40.3% and
39.5%, respectively. The increase was the result of higher income tax rates in
the states where Metro's acquisitions operate. Income taxes increased $0.7
million, or 7.2%, to $10.2 million for 1999 from $9.5 million for 1998. As a
percentage of revenue, income taxes decreased to 3.3% for 1999 from 4.5% for
1998.
Net income. Net income increased $0.5 million, or 3.6%, to $15.1 million for
1999 from $14.6 million for 1998. As a percentage of revenue, net income
decreased to 4.8% for 1999 from 6.8% for 1998.
Net income per share. Diluted net income per share increased $0.04, or 4.1%,
to $1.01 for 1999 from $0.97 for 1998.
89
Selected Quarterly Results of Operations
The following table sets forth quarterly operating information for each of
the ten quarters ending with the quarter ended June 30, 2001, both in dollars
and as a percentage of revenue. This information was derived from the unaudited
consolidated financial statements of Metro which, in the opinion of management,
were prepared on the same basis as the consolidated financial statements
contained elsewhere in this proxy statement/ prospectus and include all
adjustments, consisting of normal recurring adjustments, which management
considers necessary for the fair presentation of the information for the
periods presented. The financial data shown below should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
in this proxy statement/prospectus. Results for any fiscal quarter are not
necessarily indicative of results for the full year or for any future quarter.
Operating
Gross Profit Income
-------------- -------------- Diluted Net
Quarterly Results of $ $ % of $ % of Income (Loss)
Operations Data Revenue Amount Revenue Amount Revenue Per Share
-------------------- ------- ------ ------- ------ ------- -------------
(Dollars in thousands, except per
share amounts)
1999:
Quarter ended March 31.. 72,473 20,970 28.9 6,909 9.5 $ 0.27
Quarter ended June 30... 78,309 23,023 29.4 8,393 10.7 0.31
Quarter ended September
30..................... 81,253 24,020 29.6 7,066 8.7 0.25
Quarter ended December
31..................... 82,611 23,951 29.0 5,874 7.1 0.19
2000:
Quarter ended March 31.. 80,197 22,411 28.0 3,302 4.1 0.08
Quarter ended June 30... 77,812 22,864 29.4 3,370 4.3 0.08
Quarter ended September
30..................... 77,880 23,614 30.3 4,685 6.0 0.08
Quarter ended December
31..................... 77,702 23,135 29.8 4,799 6.2 0.11
2001:
Quarter ended March 31.. 78,767 22,212 28.2 1,278 1.6 (0.01)
Quarter ended June 30... 69,849 18,973 27.2 737 1.1 0.01
Liquidity and Capital Resources
Metro funds its operations primarily from cash generated by operations. Net
cash provided by operations was $8,754,195 for the six months ended June 30,
2001 and consisted primarily of non-cash items of $5,194,817 and a decrease in
accounts receivable of $4,542,799, offset by a decrease in accrued compensation
and benefits of $1,701,261. Metro's allowance for doubtful accounts has
steadily increased due to the change in general economic conditions, specific
losses in some clients and a general slowdown in payments that resulted in
additional write-offs and bad debts. Metro's allowance for doubtful accounts
was $533,730 at December 31, 1999 compared to $2,469,305 at December 31, 2000.
Metro had working capital of $38,726,735 at June 30, 2001 compared to
$42,647,009 at December 31, 2000.
Net cash used in investing activities was $1,439,138 for the six months
ended June 30, 2001. Metro spent $1,439,138 on normal acquisitions of property
and equipment used in operations.
Metro maintains credit facilities of $125,000,000. The facilities are
provided in equal amounts of $35,000,000 by three banks and $20,000,000 by a
fourth bank. The outstanding balance on these facilities as of June 30, 2001
was $75,129,646, a reduction of $8,313,375 from the balance at December 31,
2000. The facilities mature in June 2005 and may be extended each year for an
additional year. Until June 2005, interest, but not principal, is payable
monthly. The interest rates on Metro's facilities change from time to time. Two
of the facilities allow Metro 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. Metro has selected
30-day LIBOR based rates for the second quarter of 2001, and the rates on these
borrowings ranged from 4.9% to 6.5% on June 30, 2001. The facilities also
contain fees, ranging from 0.125% to 0.380% annually, which are charged on the
unused portion of the facilities. The facilities are collateralized by Metro's
accounts receivable.
90
Effective April 2, 2001, Metro entered into a series of interest rate swaps
with a notional amount of $50,000,000. The purpose of these swaps was to hedge
Metro's exposure to variability in future cash flows by converting the variable
interest rate on a portion of its outstanding credit facilities to a fixed
interest rate. Accounting for these interest rate swaps did not have a material
impact on Metro's financial statements.
The credit facilities contain 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 other
debt, limit the amount borrowed to a multiple of adjusted earnings before
interest, taxes, depreciation and amortization 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. Quarterly
testing dates are required for these covenants. These covenants may prevent
Metro from borrowing the full amount of the credit facilities or trigger a
default under the credit facilities.
The maximum funded debt to EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) ratio under Metro's credit facilities is 4.0 to
1.0 through September 30, 2001. At June 30, 2001, Metro's funded debt to EBITDA
ratio stood at 3.5 to 1.0. As earnings fall, this ratio increases. On December
31, 2001, Metro's credit facilities require Metro to reduce its funded debt to
EBITDA ratio to 3.0 to 1.0 or less. Metro plans to reduce its debt level,
reduce expenses and negotiate a more favorable ratio by December 31, 2001 to
avoid default under its credit facilities at December 31, 2001. A default could
have a material adverse effect on Metro's business. As of June 30, 2001,
approximately $10.9 million was available for additional borrowing without
default.
Prior to entering into the merger agreement with Keane, Metro was
negotiating with its lenders regarding the financial covenants under its credit
facilities. Since entering into the merger agreement with Keane, Metro has
suspended these negotiations. If the merger with Keane is not consummated,
Metro expects to breach its current loan covenants on December 31, 2001. In
that event, the interest rate under these facilities would increase to two
points above the prime rate, and all amounts then outstanding would be
immediately due and payable. Metro would not be able to pay this amount in full
without obtaining substitute financing. There can be no assurance that Metro
would be able to resume and complete negotiations with its current lenders by
December 31, 2001 if the merger with Keane were not to occur or that it would
be able to obtain substitute financing.
Metro sold 115,048 shares of its common stock under its employee stock
purchase plan for an aggregate purchase price of $486,788 during the six months
ended June 30, 2001 and 83,760 shares for $841,442 during the six months ended
June 30, 2000.
During 2000, a number of Metro employees exercised stock options which
vested on December 31, 1997, December 31, 1998 and March 18, 2000, under
Metro's 1997 employee stock option plan. During the six months ended June 30,
2001, Metro did not issue any shares of its common stock upon option exercises.
Accordingly, Metro received no proceeds from the issuance of common stock for
option exercises for the six months ended June 30, 2001.
Seasonality
Metro's operating results are adversely affected when client facilities
close due to holidays or inclement weather. Metro generally experiences a
degree of seasonality in the fourth quarter due to the number of holidays and
closings of client facilities during that quarter. Further, Metro generally
experiences lower operating results in the first quarter due in part to the
timing of unemployment and social security tax thresholds and delays in
clients' contract renewals related to clients' budget approval processes. A
higher percentage of employee wages are subject to unemployment and social
security tax withholding in the first quarter. In later quarters, more
employees reach the annual taxable wage limits for unemployment and social
security tax withholding.
91
Inflation
Due to the high demand for IT services and a shortage of qualified IT
consultants, wage inflation in the IT services industry surpassed normal wage
inflation during 2000 and the twelve months ended June 30, 2001. If this trend
continues, it could have a material adverse effect on Metro's business,
financial condition and results of operations if Metro is unable to pass
increased payroll costs on to its clients. Metro attempts to obtain billing
rate increases from clients to offset these increases whenever possible.
Average pay rates for the twelve months ended June 30, 2001 increased 7.0% over
average pay rates for the twelve months ended June 30, 2000, and average pay
rates for 2000 increased 9.6% over average pay rates for 1999 as Metro
transitioned its workforce to newer technologies with higher billing rates and
pay rates. Average pay rates for 1999 increased 7.6% over average pay rates for
1998.
Quantitative and Qualitative Disclosures About Market Risk
Metro is exposed to market risk due to variable interest rates on Metro's
credit facilities. Actions taken during 1999 and 2000 by the Federal Reserve to
increase interest rates increased Metro's interest rate costs. In 2001, the
Federal Reserve has decreased interest rates. Metro has entered into interest
rate hedges on $50,000,000 of the credit facilities, effective April 2, 2001,
to reduce the variability of Metro's cash flows due to fluctuations in interest
rates. At the measurement date, a mark-to-market adjustment was not necessary
and the hedge instruments were considered fully effective.
Metro experienced slower demand for its services during the second quarter
of 2001. During economic slowdowns, the risk of bad debts increases. Additional
amounts have been reserved in the allowance for doubtful accounts for
uncollectible accounts during the first half of 2001. Current economic
conditions could result in additional accounts becoming doubtful that are
current and considered collectible as of June 30, 2001. Accounts receivable
will be monitored closely during 2001 to determine if additional increases to
the allowance for doubtful accounts are necessary.
Metro's exposure to market risk from other types of financial instruments,
such as accounts payable, is not material.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 141, "Business Combinations,"
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. Statement 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
Metro is required to adopt the provisions of Statement 141 immediately,
except with regard to any pooling-of-interest business combinations initiated
prior to July 1, 2001, and Statement 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of Statement 142.
92
Statement 141 will require upon adoption of Statement 142, that Metro
evaluate its existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141
for recognition apart from goodwill. Upon adoption of Statement 142, Metro will
be required to reassess the useful lives and residual values of all intangible
assets acquired in purchase business combinations, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, Metro will be required to test the intangible
asset for impairment in accordance with the provisions of Statement 142 within
the first interim period. Any impairment loss will be measured as of the date
of adoption and recognized as the cumulative effect of a change in accounting
principle in the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require Metro to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this, Metro must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. Metro will then have up to six months from the date
of adoption to determine the fair value of each reporting unit and compare it
to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and Metro must perform the second step of the
transitional impairment test. In the second step, Metro must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price
allocation in accordance with Statement 141, to its carrying amount, both of
which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in Metro's statement of
earnings.
In addition, any unamortized negative goodwill existing at the date
Statement 142 is adopted must be written off as the cumulative effect of a
change in accounting principle.
As of the date of adoption, Metro expects to have unamortized goodwill in
the amount of $97.0 million and unamortized identifiable intangible assets in
the amount of $13.9 million, all of which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was $3.3 million and $1.8 million for the year ended December 31, 2000 and the
six months ended June 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these statements on Metro's
financial statements at the date of this proxy statement/prospectus, including
whether any transitional impairment losses will be required to be recognized as
the cumulative effect of a change in accounting principle.
93
METRO'S PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 28, 2001, certain
information concerning the beneficial ownership of Metro common stock by:
. each of Metro's directors,
. Metro's chief executive officer and the other four most highly
compensated executive officers of Metro who were serving as executive
officers at the end of Metro's last completed fiscal year and whose total
annual salary and bonus exceeded $100,000,
. each person or entity known by Metro to own of record or be the
beneficial owner of more than five percent (5%) of Metro's common stock,
and
. all directors and executive officers of Metro as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and any shares which the individual or
entity has the right to acquire within 60 days after September 28, 2001 through
the exercise of any stock option, warrant or other right. However, these shares
are not deemed outstanding for purposes of calculating the percentage ownership
of any other person. The inclusion in this table of any shares does not
constitute an admission that the named shareholder is a direct or indirect
beneficial owner of the shares. Unless otherwise indicated, Metro believes that
each person or entity named in the table has sole voting power and investment
power with respect to all shares of capital stock listed as owned by the person
or entity. Unless otherwise indicated in the footnotes to the table below, each
person or entity named below has an address of c/o Metro, Reflections II Office
Building, Third Floor, 200 Golden Oak Court, Virginia Beach, Virginia 23452.
All share amounts have been rounded to the nearest whole share.
Number of Shares Percentage of Shares
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------------------ ------------------ --------------------
John H. Fain(1)....................... 8,360,665 54.5
Andrew J. Downing(2).................. 516,029 3.3
Robert J. Eveleigh(3)................. 20,886 *
Ray E. Becker(4)...................... 8,000 *
A. Eugene Loving, Jr.(5).............. 8,100 *
Kathleen A. Neff(6)................... 221,369 1.3
John R. Turbyfill(7).................. 10,500 *
The Fain Family Irrevocable Trust
1993(8).............................. 1,621,510 10.6
All directors and executive officers
as a group (10 persons)(9)........... 9,133,572 59.6
--------
*Less than one percent (1%) of Metro's outstanding common stock.
(1) Includes (a) 1,621,510 shares of Metro common stock owned by a trust
established by Mr. Fain of which his wife, Joyce L. Fain, and his sister,
Cynthia L. Akins, are the co-trustees and of which Mr. Fain disclaims
beneficial ownership, (b) 227,974 shares of Metro common stock held by a
trust of which Mr. Fain's son is the beneficiary and Mr. Fain is the
trustee and of which Mr. Fain disclaims beneficial ownership and (c)
206,930 shares of Metro common stock held by Ms. Akins as custodian for
the benefit of Mr. Fain's daughter under the Virginia Uniform Transfers to
Minors Act and of which Mr. Fain disclaims beneficial ownership.
(2) Includes 60,759 shares of Metro common stock owned by a trust established
by Mr. Downing and his wife, Cheryl O. Downing, of which his wife is the
sole trustee. Also includes 4,000 option shares awarded in 1997, 5,000
option shares awarded in 1998, and 6,667 option shares awarded in 1999
which are exercisable within 60 days after September 28, 2001 under
Metro's incentive stock option plan. The business address of The Downing
Irrevocable Trust 1997 is 2401 Haversham Close, Virginia Beach, Virginia
23454.
94
(3) Includes 6,000 option shares awarded in 1997, 5,000 option shares awarded
in 1998 and 6,667 option shares awarded in 1999, which are exercisable
within 60 days after September 28, 2001 under Metro's incentive stock
option plan.
(4) Includes 4,000 option shares awarded in 1997, 1,000 option shares awarded
in 1998, 1,000 option shares awarded in 1999, 1,000 option shares awarded
in 2000 and 1,000 option shares awarded in 2001, which are exercisable
within 60 days after September 28, 2001 under Metro's outside directors
stock plan. Mr. Becker's business address is P.O. Box 1448, Ellsworth,
Maine 04605.
(5) Includes 4,000 option shares awarded in 1997, 1,000 option shares awarded
in 1998, 1,000 option shares awarded in 1999, 1,000 option shares awarded
in 2000 and 1,000 option shares awarded in 2001, which are exercisable
within 60 days after September 28, 2001 under Metro's outside directors
stock plan. Mr. Loving's business address is 900 Laskin Road, Virginia
Beach, Virginia 23451.
(6) Includes 4,000 option shares awarded in 1997, 5,000 option shares awarded
in 1998 and 6,667 option shares awarded in 1999, which are exercisable
within 60 days after September 28, 2001 under Metro's incentive stock
option plan.
(7) Includes 4,000 option shares awarded in 2001, which are exercisable within
60 days after September 28, 2001 under Metro's outside directors stock
plan. Mr. Turbyfill's business address is 1304 Taylors Point Road,
Virginia Beach, Virginia 23454.
(8) The business address of The Fain Family Irrevocable Trust 1993 is P.O. Box
8888, Virginia Beach, Virginia 23450.
(9) The number of shares shown as beneficially owned by all directors and
executive officers as a group include 95,103 shares which are exercisable
within 60 days after September 28, 2001, or upon completion of the merger,
upon exercise of, and payment for, outstanding unexercised stock options.
95
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger using the purchase method of
accounting.
The unaudited pro forma combined condensed balance sheet as of June 30, 2001
gives effect to the merger as if it had occurred on such date, and reflects the
allocation of the purchase price to the Metro assets acquired, and liabilities
assumed. The unaudited pro forma combined condensed statements of income
combine the historical statements of income of Keane and Metro as if the merger
had occurred at January 1, 2000. It is expected that following the merger,
Keane will incur additional costs, in connection with integrating the
operations of the two companies. Integration-related costs are not included in
the accompanying unaudited pro forma combined condensed financial statements.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical financial statements of Keane and
Metro, as adjusted, and do not incorporate, nor do they assume, any benefits
from cost savings or synergies of operations of the combined company.
The allocation of the Metro purchase price is preliminary and is based upon
information provided to date by Metro to Keane and its advisors. Such purchase
price allocation will be finalized upon consummation of the merger and
completion of appraisals to determine the fair value of tangible and
identifiable intangible assets. Based on an analysis of fair market value, the
excess of the purchase price over the fair value of net tangible assets on
Metro's balance sheet will then be allocated to identifiable intangible assets
and the remaining balance to goodwill. Keane is currently gathering the data
necessary for determining the fair market value of identifiable intangible
assets.
The total estimated amount of goodwill and identifiable intangible assets is
$185.7 million with an average useful life of identifiable intangible assets of
approximately five years. Because the valuation analysis has not been
completed, the actual amount of goodwill and identifiable intangible assets,
and the related average useful life, could vary from these assumptions.
96
KEANE
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2001
(In thousands)
Historical Historical Pro Forma Pro Forma
Keane Metro Adjustments Keane
---------- ---------- ----------- ---------
ASSETS
Current assets
Cash and cash equivalents..... $ 81,827 $ 92 -- $ 81,919
Marketable securities......... 77,913 -- -- 77,913
Accounts receivable, net:
Trade....................... 144,130 49,887 -- 194,017
Other....................... 1,371 651 -- 2,022
Prepaid expenses and deferred 18,001 4,897 (2,814)(C) 23,535
income taxes................. 3,451 (E)
-------- -------- ------- --------
Total current assets........ 323,242 55,527 637 379,406
Property and equipment, net..... 21,124 11,502 32,626
Other long-term assets.......... 133,735 113,664 72,065 (A) 319,464
-------- -------- ------- --------
Total assets................ $478,101 $180,693 $72,702 $731,496
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable.............. $ 11,971 $ 4,036 $ -- $ 16,007
Notes payable................. -- -- 75,130 (F) 75,130
Other current liabilities..... 71,099 12,765 13,027 (B) 96,891
-------- -------- ------- --------
Total current liabilities... 83,070 16,801 88,157 188,028
Deferred income taxes........... 5,863 3,338 (3,338)(C) 19,516
13,653 (E)
Long-term portion of capital
lease obligations.............. 1,814 -- -- 1,814
Notes payable................... -- 75,130 (75,130)(F) --
Stockholders' equity
Common stock.................. 7,245 153 244 (D) 7,489
(153)(D)
Class B common stock.......... 28 -- 28
Additional paid in capital.... 115,520 41,481 37,817 (D) 158,713
4,754 (D)
622 (D)
(41,481)(D)
Deferred compensation......... -- -- (622)(D) (622)
Accumulated other
comprehensive income......... (2,596) -- (2,596)
Retained earnings............. 359,126 43,790 (43,790)(D) 359,126
Treasury stock................ (91,969) -- 91,969 (D) --
-------- -------- ------- --------
Total stockholders' equity.. 387,354 85,424 49,360 522,138
-------- -------- ------- --------
Total liabilities and
stockholders' equity........... $478,101 $180,693 $72,702 $731,496
======== ======== ======= ========
See notes to unaudited pro forma combined condensed financial statements.
97
KEANE
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(In thousands, except per share amounts)
Historical Historical Pro Forma Pro Forma
Keane Metro Adjustments Keane
---------- ---------- ----------- ---------
Total revenues................... $405,341 $148,616 -- $553,957
Salaries, wages and other direct 282,936 107,431 -- 390,367
costs...........................
Selling, general and other 95,549 35,705 -- 131,254
administrative expenses.........
Amortization of goodwill and
other intangible assets......... 6,938 2,562 3,440 (G) 10,378
(2,562)(H)
Restructuring charge............. -- 904 -- 904
-------- -------- ------- --------
Operating income................. 19,918 2,014 (878) 21,054
Interest and dividend income..... 3,343 28 -- 3,371
Interest expense................. 194 2,635 -- 2,829
Other (income) expense, net...... (2,400) (1,000) -- (3,400)
-------- -------- ------- --------
Income before income taxes....... 25,467 407 (878) 24,996
Provision for income taxes....... 10,315 406 (351) 10,370
-------- -------- ------- --------
Net income....................... $ 15,152 $ 1 $ (527) $ 14,626
Net income per share (basic)..... $ 0.22 $ 0.00 -- $ 0.19
Net income per share (diluted)... $ 0.22 $ 0.00 -- $ 0.19
Weighted average common shares
outstanding (basic)............. 67,947 15,249 (15,249)(I) 75,309
7,362 (J)
Weighted average common shares
and common share equivalents
outstanding (diluted)........... 68,825 15,259 (15,259)(I) 76,364
7,362 (J)
177 (J)
See notes to unaudited pro forma combined condensed financial statements.
98
KEANE
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(In thousands, except per share amounts)
Historical Historical Pro Forma Pro Forma
Keane Metro Adjustments Keane
---------- ---------- ----------- ----------
Total revenues.................. $871,956 $313,591 $ -- $1,185,547
Salaries, wages and other direct 621,208 221,566 -- 842,774
costs..........................
Selling, general and other 201,852 70,645 -- 272,497
administrative expenses........
Amortization of goodwill and 12,351 4,822 6,881 (G) 19,232
other intangible assets........ (4,822)(H)
Restructuring charge............ 8,624 403 -- 9,027
-------- -------- -------- ----------
Operating income................ 27,921 16,155 (2,059) 42,017
Interest and dividend income.... 7,725 94 -- 7,819
Interest expense................ 588 6,812 -- 7,400
Other (income) expense, net..... 872 -- -- 872
-------- -------- -------- ----------
Income before income taxes...... 34,186 9,437 (2,059) 41,564
Provision for income taxes...... 13,832 4,302 (823) 17,311
-------- -------- -------- ----------
Net income...................... $ 20,354 $ 5,135 $ (1,236) $ 24,253
Net income per share (basic).... $ 0.29 $ 0.34 -- $ 0.31
Net income per share (diluted).. $ 0.29 $ 0.34 -- $ 0.31
Weighted average common shares 69,646 15,101 (15,101)(I) 77,008
outstanding (basic)............ 7,362 (J)
Weighted average common shares 69,993 15,145 (15,145)(I) 77,493
and common share equivalents 7,362 (J)
outstanding (diluted).......... 138 (J)
See notes to unaudited pro forma combined condensed financial statements.
99
KEANE
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1
On August 20, 2001, Keane signed a definitive agreement to acquire Metro in
a purchase transaction. The unaudited pro forma combined condensed financial
statements reflect the conversion of all of the outstanding shares of Metro
common stock into approximately 7.4 million shares of Keane common stock
pursuant to the merger. This calculation is based on Metro outstanding common
stock at August 17, 2001 using the conversion ratio of 0.48 of a share of
Keane common stock for each share of outstanding Metro common stock. Options
to purchase approximately 1.3 million shares of Metro common stock with a
weighted average exercise price of $15.05 will be assumed by Keane pursuant to
the merger and converted into options to purchase approximately 602,000 shares
of Keane common stock. The exact number of shares to be issued and the number
of options assumed by Keane in connection with the merger will depend upon the
number of shares and options of Metro outstanding at the close of the merger.
The total cost of the proposed merger is estimated to be approximately
$142,494, determined as follows:
Fair value of Keane shares (calculated using $17.66 per share
average fair value for the three days prior to and after
announcement of the merger)....................................... $130,030
Value of Metro options assumed..................................... 4,754
Keane transaction costs, consisting primarily of financial
advisory, legal and accounting fees............................... 5,100
Transaction bonuses to be paid to some of Metro's executive
officers.......................................................... 2,610
--------
$142,494
========
Keane's common stock has been valued using an average price for three days
before and after the announcement of the merger. The fair value of options
assumed was determined using the Black-Scholes method assuming an expected
life of 4.4 years, a risk-free interest rate of 5.0%, volatility of 93.0% and
no expected dividends. In accordance with FASB Interpretation No. 44, or FIN
44, "Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25," the intrinsic value of unvested options of Metro
has been allocated to deferred stock compensation. Deferred stock compensation
will be amortized on a straight-line basis over the estimated vesting period
of the related options. For purposes of preparing the unaudited pro forma
combined condensed financial statements, Keane estimated the intrinsic value
of the unvested options using the stock price on the date of the merger. Upon
consummation of the merger, Keane will determine the final amount of deferred
compensation based on the closing price of its common stock on the date of
consummation of the merger, and, therefore, the final amount of deferred
compensation will be different from the amounts presented in these unaudited
pro forma combined condensed financial statements.
The allocation of the Metro purchase price is preliminary and is based upon
information provided to date by Metro to Keane and its advisors. Based upon
such preliminary valuation of tangible and intangible assets acquired and
liabilities assumed, Keane has allocated the total cost of the merger to the
net assets of Metro as follows:
Net tangible liabilities assumed.................................. $(43,235)
Customer contracts (5 year useful life)........................... 30,200
Non-compete agreements (3 year useful life)....................... 1,900
Goodwill.......................................................... 153,629
--------
$142,494
========
100
The amount of identifiable intangible assets and the estimated useful lives
will be finalized upon consummation of the merger and completion of an
independent appraisal and, therefore, may be different from the amount
presented in these unaudited pro forma combined condensed financial statements.
To the extent the amounts and estimated useful lives are different than those
presented above, the unaudited pro forma combined condensed financial
statements could change significantly.
Note 2
The unaudited pro forma combined condensed balance sheets include the
adjustments necessary to give effect to the merger as if it had occurred on
June 30, 2001 and to reflect the allocation of the acquisition cost to the fair
value of tangible and intangible assets acquired and liabilities assumed as
noted above, including the elimination of Metro's equity accounts. Adjustments
included in the pro forma combined condensed balance sheet are summarized as
follows (in thousands except per share amounts):
(A) To eliminate Metro historic goodwill and intangible assets recorded
as a result of previous acquisitions and to record the estimated value of
identifiable intangible assets, including goodwill.
(B) To adjust Metro current liabilities in order to conform with Keane's
current corporate accounting policies and to record the accrual of Keane's
and Metro's estimated transaction costs of $8,300 and transaction bonuses
of $3,122 due to some of Metro's executive officers upon consummation of
the merger. Estimated transaction costs include all costs directly incurred
as a result of the transaction including, but not limited to, fees for
financial advisors, accountants and attorneys and other related costs.
(C) To eliminate Metro deferred income taxes.
(D) To eliminate Metro historical shareholders' equity accounts and to
record the issuance of 7,362,125 shares of Keane $0.10 par value common
stock, of which 4,926,408 shares are expected to be issued from treasury
stock, to acquire all of the outstanding common stock of Metro, including
an adjustment of $4,754 to additional paid-in-capital to reflect the fair
value of all stock options issued by Keane in exchange for all outstanding
Metro stock options. This also includes an adjustment to record the
intrinsic value of unvested options issued by Keane in exchange for the
unvested stock options of Metro in accordance with FIN No. 44 (See Note 1).
(E) To record deferred income taxes in connection with the estimated
purchase price allocation.
(F) To reclassify Metro's outstanding note payable from long-term to
short-term liabilities in order to reflect the fact that, upon consummation
of the merger, Metro's note payable, currently due in June 2005, will
become due immediately.
Note 3
The unaudited pro forma combined condensed statements of income include the
adjustments necessary to give effect to the merger as if it had occurred on
January 1, 2000:
(G) To record the amortization of identifiable intangible assets using
an estimated average useful life of five years.
(H) To eliminate Metro amortization expense related to goodwill and
intangible assets recorded as a result of previous acquisitions.
(I) To eliminate Metro weighted average common shares outstanding.
(J) Pro forma basic income per share amounts for the year ended December
31, 2000 and the six months ended June 30, 2001, are based upon the
historical weighted-average number of Keane common stock outstanding
adjusted to reflect the issuance, as of January 1, 2000, of approximately
7,362,125 shares of Keane common stock. Pro forma diluted net income per
share amounts for the year ended December 31, 2000 and the six months ended
June 30, 2001, are based upon the historical weighted-average number of
shares of Keane common stock outstanding adjusted to reflect the issuance,
as of January 1, 2000, of approximately 7,362,125 shares of Keane common
stock and the dilutive effect of stock options issued by Keane in exchange
for all outstanding Metro stock options.
101
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Metro shareholders are governed by Metro's charter and bylaws,
each as amended, and the laws of the Commonwealth of Virginia. The rights of
Keane stockholders are governed by Keane's charter and bylaws, each as amended,
and the laws of the Commonwealth of Massachusetts. As a result of the merger,
Metro shareholders will become holders of Keane common stock and their rights
will thereafter be governed by Keane's charter and bylaws and the laws of the
Commonwealth of Massachusetts.
The following summary outlines the material differences between the Virginia
corporation statute and the Massachusetts corporation statute, between the
Metro charter and the Keane charter and between the Metro bylaws and the Keane
bylaws. Metro shareholders are encouraged to review the full text of each of
the Metro charter, the Metro bylaws, the Keane charter, the Keane bylaws, the
Virginia corporation statute, the Massachusetts corporation statute and other
corporation-related laws of Virginia and Massachusetts insofar as they relate
to corporations organized in such states. The Keane charter and the Keane
bylaws have been filed as exhibits to the material filed by Keane with the
Securities and Exchange Commission. For information as to how these documents
may be obtained, see "Where You Can Find More Information" on page 118.
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Authorized and Metro is authorized to issue Keane is authorized to issue
outstanding common stock 50,000,000 shares of common 200,000,000 shares of common
stock, consisting of stock and 503,797 shares of
49,000,000 shares of common class B common stock. On
stock and 1,000,000 shares September 28, 2001,
of non-voting common stock. 67,801,647 shares of common
On September 28, 2001, the stock and 284,891 shares of
Metro record date, class B common stock were
15,337,760 shares of common outstanding.
stock and no shares of non-
voting common stock were
outstanding.
Description of common The holders of Metro common The holders of Keane common
stock stock are entitled to one stock are entitled to one
vote for each share held of vote for each share held of
record on all matters record on all matters
submitted to a vote of submitted to a vote of
shareholders. The voting, stockholders, and holders of
dividend and liquidation Keane class B common stock
rights of the holders of are entitled to ten votes
common stock are subject to for each share held of
and qualified by the rights record on all matters
of the holders of preferred submitted to a vote of
stock. All outstanding stockholders. Except as
shares of common stock are otherwise required by
fully paid and non- Massachusetts law or Keane's
assessable and have a par charter, the holders of
value of $0.01 per share. Keane common stock and class
Holders of non-voting common B common stock vote together
stock have no voting rights; as a single class. Each
however, in all other share of class B common
respects, holders of common stock may be converted, at
stock and holders of non- any time, into one share of
voting common stock have common stock. All
identical rights. outstanding shares of common
stock and class B common
stock are fully paid and
non-assessable and have a
par value of $0.10 per
share.
102
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Authorized and Metro is authorized to issue Keane is authorized to issue
outstanding preferred 1,000,000 shares of 2,000,000 shares of
stock preferred stock. On preferred stock in one or
September 28, 2001, no more series. On September
shares of preferred stock 28, 2001, no shares of
were outstanding. preferred stock were
outstanding.
Description of preferred Under the Metro charter, the Under the Keane charter, the
stock board of directors has the board of directors has the
authority, by the authority, without further
affirmative vote of a action by the stockholders,
majority of directors and to issue up to 2,000,000
without further action by shares of preferred stock,
the shareholders, to issue $0.01 par value per share,
up to 1,000,000 shares of in one or more series, and
preferred stock, $0.01 par in connection with the
value per share, in one or creation of any such series,
more series and to fix the by resolution or resolutions
designations, preferences, providing for the issue of
limitations and relative the shares thereof, to
rights of the preferred determine and fix such
stock, including dividend voting powers, full or
rights, conversion rights, limited, or no voting
voting rights, terms of powers, and such
redemption, conversion and designations, preferences
liquidation preferences, any and relative participating,
or all of which may be optional or other special
greater than the rights of rights, and qualifications,
the common stock. Except as limitations or restrictions
to the designations, thereof, including without
preferences, limitations and limitation, dividend rights,
relative rights of each conversion rights,
series of preferred stock, redemption privileges and
all preferred stock, liquidation preferences, as
regardless of series, shall shall be stated and
rank in a parity as to expressed in such
dividends (whether the resolutions, all to the full
dividend rates or payment extent permitted by
dates are different) and as Massachusetts law. Without
to rights upon the limiting the generality of
liquidation, dissolution or the foregoing, the
winding up of the affairs of resolutions providing for
Metro (whether the issuance of any series of
redemption or liquidation preferred stock may provide
prices are different). that such series shall be
superior or rank equally or
be junior to the preferred
stock of any other series to
the extent permitted by law.
103
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Special meeting of Under Virginia law, a Under Massachusetts law, a
stockholders special meeting of special meeting of
shareholders may be called stockholders may be called
by the chairman of the board by the president, a majority
of directors, the president, of directors, or, unless
the board of directors or otherwise provided in the
any other person authorized charter or bylaws, by the
to do so in the clerk upon written
corporation's charter or application of one or more
bylaws. stockholders entitled to
vote and who hold at least
The Metro bylaws authorize a 40% in interest of the
majority of the board of capital stock entitled to
directors or the president vote at the meeting.
to call a special meeting of
shareholders. Shareholders Keane's bylaws provide that
of Metro are not authorized a special meeting of
to call special meetings of stockholders may be called
shareholders. by the president or the
board of directors. A
special meeting may also be
called by the clerk upon
written application of one
or more stockholders who are
entitled to vote at the
meeting and hold at least
50% of the capital stock
entitled to vote at the
meeting.
Action by written The Metro bylaws and The Keane bylaws and
consent in lieu of a Virginia law provide that Massachusetts law provide
stockholder meeting shareholders may take action that any action to be taken
by unanimous written consent by stockholders may be taken
in lieu of voting at a without a meeting only by
shareholder meeting. unanimous written consent
and a corporation may not
provide otherwise in its
charter or bylaws.
104
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Record date for The Metro bylaws and The Keane bylaws provide
determining stockholders Virginia law provide that that the directors may fix a
the board of directors may Keane record date not more
fix a record date that shall than 60 days prior to the
not be more than 70 days date of any stockholder
before the date of any meeting, the date for the
shareholder meeting or other payment of any dividend or
action requiring a the making of any
determination of distribution to stockholders
shareholders. The record or the last day on which the
date for a meeting, fixed by consent or dissent of
the board of directors, is stockholders may be
effective for any effectively expressed for
adjournment of the meeting, any purpose, as the Keane
unless the meeting is record date.
adjourned to a date more
than 120 days after the date If no Keane record date is
fixed for the original fixed and the transfer books
meeting. If the date is more are not closed:
than 120 days after the date
fixed for the original
meeting, then the board of
directors must fix a new
record date.
. the Keane record date for
determining stockholders
having the right to notice
of or to vote at a meeting
of stockholders shall be
at the close of business
on the day before the day
on which notice is given.
. the Keane record date for
determining stockholders
for any other purpose
shall be at the close of
business on the day on
which the board of
directors acts with
respect thereto.
105
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Advance notice Generally under Virginia Keane's bylaws provide that
provisions for board law, notice of an annual or nominations for election to
nomination and other special meeting of the board of directors of
stockholder business-- shareholders must be given Keane at an annual meeting
annual meetings not less than ten days nor of stockholders may be made
more than 60 days before the by the board of directors or
meeting date. Notice of an by any stockholder entitled
annual or special meeting of to vote for the election of
shareholders to act on an directors at an annual
amendment to the meeting and who complies
corporation's charter, a with the following
plan of merger, a share procedure: nominations for
exchange, a sale of all or the election of directors
substantially all of the made by a stockholder must
corporation's assets, or of be made by written notice to
a dissolution of the the clerk and received not
corporation must be given less than 45 days nor more
not less than 25 days nor than 60 days prior to the
more than 60 days before the anniversary of the date on
meeting date. which Keane first mailed its
proxy materials for the
The Metro bylaws do not prior year's annual meeting
contain any specific advance of stockholders, provided,
notice provisions for notice however, that if the date of
of shareholder nominations the annual meeting is more
of directors or shareholder than 30 days before or after
proposals of business. the anniversary of the prior
year's annual meeting, the
nomination must be mailed or
delivered to the clerk not
later than the close of
business on the later of the
date 60 days prior to the
date of the meeting or the
tenth day following the date
on which the notice of the
meeting was mailed or public
disclosure was made,
whichever occurs first.
For any other business to be
properly brought before an
annual meeting by a
stockholder, the stockholder
must have given timely
notice thereof in writing to
the clerk. To be timely, a
stockholder's notice must be
received at the principal
executive offices of Keane
not less than 45 days nor
more than 60 days prior to
the anniversary of the date
on which Keane first mailed
its proxy materials for the
prior year's annual meeting
of stockholders, provided,
however, that if the date of
the annual meeting is more
than 30 days before or after
the anniversary of the prior
year's annual meeting, the
notice shall have been
mailed or delivered to the
clerk not later than the
close of business on the
later of the date 60 days
prior to the date of the
meeting or the tenth day
following the date whichever
occurs first.
106
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Advance notice The Metro bylaws do not Under Massachusetts law,
provisions for board contain any specific advance seven days notice is
nomination and other notice provisions for notice required before any
stockholder business-- of shareholder nominations stockholders meeting.
special meetings of directors or shareholder
proposals of business. Under Keane's bylaws, for
business to be properly
brought before a special
meeting by a stockholder
other than the election of
directors (see the procedure
described above), timely
notice must be given by the
stockholder to the clerk of
the corporation. To be
timely with respect to a
special meeting, a
stockholder's notice must be
mailed and received at the
principal executive offices
of Keane not less than 60
days nor more than 90 days
prior to the special
meeting, provided, however,
that if less than 70 days'
notice or prior public
disclosure of the date of
the special meeting is given
or made to the stockholders,
notice by the stockholder
must be delivered or mailed
to the clerk not later than
the close of business on the
tenth day following the date
on which the notice of the
special meeting was mailed
or public disclosure was
made, whichever occurs
first.
Number of directors Virginia law provides that Massachusetts law generally
the board of directors of a provides that a corporation
Virginia corporation shall shall be managed and
consist of a number of conducted by not less than
individuals specified in or three directors.
fixed in accordance with the
bylaws of the corporation Keane's charter and bylaws
or, if not specified or provide that its board of
fixed in accordance with the directors shall not have
bylaws, then a number less than three members.
specified in or fixed in Keane's board of directors
accordance with the charter currently consists of eight
of the corporation. directors.
The Metro bylaws provide
that the board of directors
shall consist of at least
one member but not more than
11 members as that number
may be determined from time
to time by the board of
directors. The Metro board
of directors currently
consists of six members.
107
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Election of Directors Directors are elected by a Directors are elected by a
plurality of the votes cast plurality of the votes cast
by shares of Metro common by shares of Keane common
shareholders entitled to stockholders entitled to
vote at a meeting at which a vote at a meeting at which a
quorum is present. quorom is present.
Holders of Metro common Massachusetts law does not
stock do not have cumulative authorize or provide for
voting rights in the cumulative voting rights by
election of directors. stockholders in the election
of directors. Neither the
Keane charter nor the bylaws
provide for cumulative
voting.
Classified board of Virginia law provides that a Massachusetts law provides
directors corporation's board of that a corporation's board
directors may be divided of directors may be divided
into two or three classes into classes but no class
with staggered terms of shall be elected for a
office. shorter period than one year
or for a longer period than
Metro directors are five years.
classified into three
classes and are elected to a Each of Keane's directors
term of three years and hold currently holds office until
office until the third the next annual meeting of
annual shareholder meeting stockholders.
after their election.
Removal of directors Under Virginia law, except Under Massachusetts law,
as otherwise provided in a except as otherwise provided
corporation's charter, a in a corporation's charter
director may be removed from or bylaws, a director may be
office, with or without removed from office, with or
cause, by the holders of a without cause, by the
majority of the shares holders of a majority of the
entitled to vote in the shares entitled to vote in
election of directors. the election of directors. A
director may also be removed
The Metro charter provides from office with cause by a
that any director may be majority of the directors
removed by: then in
office. A director may be
. the shareholders, only removed for cause only after
at the annual meeting of a reasonable notice and
shareholders, by a vote opportunity to be heard
of not less than two- before the body proposing to
thirds of the shares remove the director.
then entitled to vote at
an election of Keane's bylaws provide that
directors; or a
director may be removed from
. the board of directors, office, with or without
at any time, by a vote cause, by the holders of a
of not less than two- majority of the shares
thirds of the directors. entitled to vote in the
election of directors. In
addition, the directors
elected by the holders of a
particular class or series
of stock may be removed by
the holder of a majority of
the outstanding shares of
that class or series. A
director may be removed for
cause by vote of a majority
of the directors then in
office after reasonable
notice and an opportunity to
be heard.
108
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Board of director Under Virginia law, unless a Under Massachusetts law,
vacancies corporation's charter unless the corporation's
provides otherwise, charter provides otherwise,
vacancies, including a vacancies are filled in the
vacancy resulting from an manner prescribed in the
increase in the number of corporation's bylaws.
directors, may be filled by
a plurality of the votes Keane's bylaws provide that
cast by the shares entitled any vacancy in the board of
to vote in the election at a directors, including a
meeting at which a quorum is vacancy from the enlargement
present or by a majority of of the board of directors,
the directors remaining in may be filled by vote of a
office, even though less majority of the directors
than a quorum. If the board present at the meeting of
of directors fills a directors at which a quorum
vacancy, the director's term is present. Each such
expires at the next successor will hold office
shareholder meeting at which for the unexpired term of
directors are elected even his predecessor.
if the corporation has a
classified board of
directors with staggered
terms and the new director
is filling an unexpired term
with more than one year
remaining.
Notice of special The Metro bylaws provide Keane's bylaws provide that
meetings of the board of that special meetings of the special meetings of the
directors board of directors may be board of directors may be
called by the president, and called by the chairman of
shall be called by the the board, chief executive
president on the written officer, president,
request of any two treasurer, or two or more
directors. directors.
Approval of loans to Virginia law does not Under Massachusetts law, the
officers contain any specific directors and officers who
provisions regarding loans participate in a loan by the
to officers. corporation to any of its
officers shall be jointly
The Metro bylaws do not and severally liable for any
contain any specific unpaid portions of the loan,
provisions regarding loans unless a majority of
to officers. disinterested shares
entitled to vote for
directors approve or ratify
the loan as one reasonably
expected to benefit the
corporation.
Keane's bylaws do not
provide for loans to
officers.
109
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Indemnification Under Virginia law, the Under Massachusetts law, a
liability of directors or director is generally not
officers of a corporation exculpated from liability
may not be eliminated or relating to unauthorized
limited if the director or distributions and loans to
officer engaged in willful insiders. Massachusetts law
misconduct or a knowing provides that no
violation of the criminal indemnification may be
law or of any federal or provided with respect to any
state securities laws. matter in which the director
or officer shall have been
The Metro charter provides adjudicated not to have
that the directors and acted in good faith in the
officers shall not be liable reasonable belief that his
for monetary damages to action was:
Metro or its shareholders in
any instance in which
Virginia law permits the
limitation or elimination of
liability of directors or
officers of a corporation to
the corporation or its
shareholders.
The Metro charter requires
indemnification in any
proceeding, including a
proceeding brought by Metro
or by a shareholder in the
right of Metro, against:
. any person who was or is
threatened to be made a
party to such proceeding
by reason of the fact that
he is or was a director or
officer of Metro, and
. any director or officer of
Metro in connection with
service at the request of
Metro in any capacity of
another enterprise, in
either case unless the
person engaged in willful
misconduct or a knowing
violation of the criminal
law.
. in the best interest of
the corporation, or
. to the extent that such
matter relates to service
with respect to any
employee benefit plan, in
the best interest of the
participants or
beneficiaries of such
employee benefit plan.
Massachusetts law does not
explicitly address indemni-
fying persons against judg-
ments in actions brought by
or in the right of the cor-
poration. The standard de-
scribed above applies to
such cases.
Keane's charter provides
that Keane will indemnify
each person who was or is a
party or is threatened to be
made a party to any threat-
ened, pending or completed
action, suit or proceeding,
whether civil, criminal, ad-
ministrative or investiga-
tive, by reason of the fact
that he is or was, or has
agreed to become, a director
or officer of Keane, or is
or was serving, or has
agreed to serve, at the re-
quest of Keane, as a direc-
tor or officer of, or in a
similar capacity with, an-
other organization or in any
capacity with respect to any
employee benefit plan of
Keane.
110
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Amendment of charter, Under Virginia law, unless a Under Massachusetts law, the
merger, share exchanges Virginia corporation's affirmative vote of two-
and sale of assets charter provides for a thirds of the shares of each
greater or lesser vote, class of stock outstanding
certain actions such as the and entitled to vote, or, if
amendment of the charter, the charter so provides, by
mergers, share exchanges and a vote of a lesser
sales of all or proportion (but not less
substantially all of a than a majority of each
corporation's assets not in class of stock outstanding
the ordinary course of and entitled to vote), is
business, must be approved generally necessary to
by each voting group approve any of these types
entitled to vote on the of transactions.
transaction by more than
two-thirds of all the votes Keane's charter does not
entitled to be cast by that contain any specific
voting group. However, the provisions regarding the
vote specified in the amendment of the charter,
charter may not be reduced other than a requirement
to less than a majority of that two-thirds of the votes
all votes cast by the voting which all of Keane's
group at a meeting at which stockholders would be
a quorum of the voting group entitled to cast at any
exists. annual election of directors
is necessary to amend or
The Metro charter requires repeal, or to adopt any
that any amendment or provision inconsistent with,
restatement of the charter, the indemnification
merger, share exchange or provisions of Keane's
sale of all or substantially charter.
all of Metro's assets be
approved by a majority of
all the votes entitled to be
cast on the action.
111
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Amendment of bylaws Under Virginia law, a Under Massachusetts law, the
corporation's shareholders or power to make, amend or
board of directors may amend or repeal bylaws is given to
repeal bylaws except to the the stockholders, provided
extent that the corporation's that the charter may
charter or Virginia law reserves authorize the directors to
the power exclusively to the also make, amend or repeal
shareholders. With respect to a the bylaws in whole or in
particular bylaw, the part, except with respect to
shareholders may expressly provisions which, by law,
provide that the board of the charter or the bylaws
directors may not amend or repeal require the action of the
that bylaw. A corporation's stockholders.
shareholders may amend or repeal
bylaws even though the bylaws Keane's bylaws may be
also may be amended or repealed amended by vote of the
by its board of directors. holders of a majority of the
shares of each class of the
Virginia law expressly addresses capital stock at the time
an amendment or repeal of a bylaw outstanding and entitled to
provision that fixes a greater vote at any annual or
quorum or voting requirement for special meeting of
the board of directors than the stockholders, if notice of
quorum or voting requirement the substance of the
fixed by Virginia law. If the proposed amendment is stated
shareholders originally adopted in the notice of such
the provision, only they may meeting. If authorized by
amend or repeal it. If the board the charter, the directors,
of directors originally adopted by a majority of their
the provision, either the number then in office, may
shareholders or the board of also make, amend or repeal
directors may amend or repeal it. the bylaws, in whole or in
part, except with respect to
A bylaw adopted or amended by the (a) the provisions of the
shareholders that fixes a greater bylaws governing the removal
quorum or voting requirement for of directors and the
the board of directors may amendment of bylaws, and (b)
provide that it may be amended or any provision of the bylaws
repealed only by a specified vote which by law, the charter or
of either the shareholders or the the bylaws requires action
board of directors. by the stockholders.
Metro's bylaws may be amended or
repealed by the vote of a
majority of the shareholders
entitled to vote in the election
of any director at an annual
meeting or a special meeting
called for that purpose, provided
that written notice stating the
proposed amendment has been sent
to each shareholder of record
entitled to vote at that meeting
at the shareholder's last known
post office address at least ten
days before the date of the
annual or special meeting.
Amendments may only be made if
they have been specified in the
notice. The Metro bylaws also
provide that the board of
directors, by the vote of a
majority of the directors, may
amend or repeal the bylaws at a
regular or special meeting of the
board of directors and that any
bylaws adopted by the board of
directors may be amended or
repealed by the shareholders.
112
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Anti-takeover statutes Virginia law contains Massachusetts law contains a
provisions governing three-year moratorium on
"affiliated transactions." business combinations
In general, these provisions between a corporation and
prohibit a Virginia interested stockholders,
corporation from engaging in unless certain conditions
material acquisition are met. In addition, the
transactions with any holder Massachusetts control share
of more than 10% of any acquisition statute
class of its outstanding restricts the voting rights
voting shares (an of shares acquired under
"interested shareholder") specified circumstances.
for a period of three years
following the date that such
person became an interested
shareholder unless:
. the board of directors of
the corporation and the
holders of two-thirds of
the voting shares, other
than the shares
beneficially owned by the
interested shareholder,
approve the affiliated
transaction, or
. before the date the person
became an interested
shareholder, the board of
directors approved the
transaction that resulted
in the shareholder
becoming an interested
shareholder.
Affiliated transactions
subject to this approval
requirement include mergers,
share exchanges, material
dispositions of corporate
assets not in the ordinary
course of business, any
dissolution of the
corporation proposed by or
on behalf of an interested
shareholder or any
reclassification, including
reverse stock splits,
recapitalizations or mergers
of the corporation with its
subsidiaries, which
increases the percentage of
voting shares owned
beneficially by an
interested shareholder by
more than 5%.
113
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Anti-takeover statutes Virginia law also contains
(cont'd) provisions relating to
"control share
acquisitions," which are
transactions causing the
voting strength of any
person acquiring beneficial
ownership of shares of a
Virginia public corporation
to meet or exceed certain
threshold percentages (20%,
33 1/3% or 50%) of the total
votes entitled to be cast
for the election of
directors. Shares acquired
in a control share
acquisition have no voting
rights unless:
. the voting rights are
granted by a majority vote
of all outstanding shares
other than those held by
the acquiring person or
any officer or employee
director of the
corporation, or
. the charter or bylaws of
the corporation provide
that these Virginia law
provisions do not apply to
acquisitions of its
shares. The acquiring
person may require that a
special meeting of the
shareholders be held to
consider the grant of
voting rights to the
shares acquired in the
control share acquisition.
The board of directors of a
Virginia corporation may
adopt a bylaw providing that
the control share provisions
of Virginia law do not apply
to acquisitions of the
corporation's shares. The
Metro board of directors has
adopted a bylaw opting out
of the control share
acquisition provisions of
Virginia law.
114
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Par value, dividends and The concepts of par value, Under Massachusetts law,
repurchases of shares capital and surplus have corporations generally are
been eliminated under permitted to pay dividends
Virginia law. as long as the action is not
taken when the corporation
Virginia law permits a is insolvent, does not
corporation to declare and render the corporation
pay dividends and make other insolvent and does not
distributions to violate the corporation's
shareholders, unless after charter. The directors of
giving effect to the Massachusetts corporations
distribution: may be jointly and severally
liable to the corporation to
. the corporation would be the extent that the
unable to pay its debts as directors authorize a
they become due in the dividend when the
usual course of business, corporation is insolvent or
or where the amount of the
dividend exceeds the
. the corporation's total permissible amounts and is
assets would be less than not repaid to the
the sum of its total corporation.
liabilities plus the
amount that would be Keane's charter provides
needed, if the corporation that dividends may be
were to be dissolved at declared and paid on its
the time of the common stock and class B
distribution, to satisfy common stock from assets or
the preferential rights funds lawfully available as
upon dissolution of and when determined by the
shareholders whose board of directors, provided
preferential rights are that no regular cash
superior to those quarterly dividend may be
receiving the declared and paid to holders
distribution. of class B common stock
unless at the same time the
In addition, Virginia law board of directors also
provides that a corporation declares and pays to the
may acquire its own shares holders of common stock a
and shares so acquired per share dividend which is
constitute authorized but $.05 per share greater than
unissued shares of the same the per share dividend
class, but undesignated as declared and paid to holders
to series. The concept of of class B common stock.
treasury shares has been Otherwise, no dividend may
eliminated under Virginia be declared or paid to
law. Since any purchase of holders of class B common
its shares by the stock unless an equal
corporation is treated as a dividend is declared and
distribution to the selling paid to holders of common
shareholder, the purchase stock. In addition, the
must be approved by the board of directors may
board of directors or be declare and pay dividends to
part of a repurchase plan the holders of common stock
authorized by the board of without declaring and paying
directors and must comply dividends to the holders of
with Virginia law governing class B common stock.
dividends.
115
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Dissenters' or appraisal With respect to shares of Under Massachusetts law, a
rights any class or series of stockholder may, before the
shares that are either taking of the vote on
listed on a national approval of any merger,
securities exchange or held consolidation or sale of all
by at least 2,000 record or substantially all of a
shareholders, dissenters' corporation's assets and in
rights are not available connection with the adoption
under Virginia law to the of charter amendments that
holders of such shares by may adversely affect the
reason of a merger, share rights or preferences of
exchange or sale or exchange stockholders, file with the
of property unless: corporation a written
objection to the proposed
. the charter of the transaction stating that the
corporation issuing such stockholder intends to
shares provides otherwise demand payment for the
(which the Metro charter stockholder's shares if the
does not), transaction is consummated.
. in the case of a merger or If the shares are not voted
share exchange, the in favor of the transaction,
holders of such shares are the stockholder may have the
required to accept right to demand in writing
anything other than (1) from the corporation, as it
cash, (2) shares of the exists after the
surviving or acquiring transaction, within 20 days
corporation or shares of after the date of mailing to
any other corporation that the stockholder of notice in
are either listed subject writing that the transaction
to notice of issuance on a has been consummated,
national securities payment for the
exchange or held by at stockholder's shares and an
least 2,000 record appraisal for the value of
shareholders or (3) a those shares.
combination of cash and
such shares, or
. the transaction is an
affiliated transaction and
has not been approved by a
majority of the
disinterested directors as
defined in Virginia law.
A shareholder who has the
right to dissent from a
transaction and receive
payment of the "fair value"
of his or her shares must
follow the procedural
requirements specified under
Virginia law in order to
maintain such right and
obtain such payment.
116
METRO KEANE
(Virginia) (Massachusetts)
---------- ---------------
Inspection Rights Under Virginia law, a Under Massachusetts law, a
corporation's shareholders corporation's stockholders
may, after at least five are entitled to inspect and
business days' written copy its charter, bylaws,
notice, inspect and copy record of stockholder
during regular business meetings, and stock and
hours at the corporation's transfer records. These
principal office, its documents must be kept
charter and bylaws as either at the corporation's
currently in effect, principal office, the
resolutions adopted by the transfer agent's office or
board of directors creating at the office of the
any class or series of corporation's clerk or
shares if shares of the resident agent. If access to
class or series are these documents is refused,
outstanding, minutes of the corporation will be
shareholder meetings for the liable to the requesting
past three years, written stockholder for any actual
communications to damages which result from
shareholders for the past such refusal. However, the
three years, the names and corporation is not obligated
business addresses of the to produce such documents if
current directors and the inspection is being
officers and the sought to secure a list of
corporation's most recent stockholders or other
annual report filed with the information to be sold or
State Corporation used for a purpose unrelated
Commission. to such person's interest as
a stockholder.
A qualified shareholder who:
. has been a shareholder of
record for at least six
months immediately
preceding the request or
is a holder of record of
at least 5% of the
corporation's outstanding
shares,
. demands to copy and
inspect in good faith and
for a proper purpose,
. describes the purpose with
reasonable particularity,
and
. inspects records directly
connected with their
purpose
is entitled to inspect and
copy excerpts from minutes
of any board meeting,
records of any action of a
committee of the board
acting in place of the board
on behalf of the
corporation, minutes of any
shareholder meeting, records
of action taken by the
shareholders or the board of
directors without a meeting,
accounting records and the
records of shareholders.
The right of inspection may
not be abolished or limited
by a corporation's charter
or bylaws.
117
SHAREHOLDER PROPOSALS
Metro will hold an annual meeting of shareholders in the year 2002 only if
the merger has not already been completed. If Metro holds an annual meeting in
2002, Metro's shareholders must submit proposals addressed to Metro's
secretary, Reflections II Office Building, Third Floor, 200 Golden Oak Court,
Virginia Beach, Virginia 23452, no later than January 1, 2002 to be considered
for inclusion in Metro's 2002 annual meeting proxy materials. The deadline for
notice of a proposal which a shareholder otherwise wishes to have considered at
Metro's 2002 annual meeting of shareholders is March 17, 2002. If a proposal or
nomination is not submitted by this time, management proxies will be allowed to
use their discretionary authority with respect to the shareholder proposal or
nomination.
LEGAL MATTERS
The validity of the shares of Keane common stock to be issued in connection
with the merger will be passed on for Keane by Hale and Dorr LLP, Boston,
Massachusetts. Certain legal matters with respect to the federal income tax
consequences of the merger will be passed upon for Keane by Hale and Dorr LLP,
Boston, Massachusetts, and for Metro by Williams, Mullen, Clark & Dobbins,
Virginia Beach, Virginia.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Keane's consolidated
financial statements included in Keane's Annual Report on Form 10-K as of and
for the years ended December 31, 2000 and 1999, as set forth in their report,
which is incorporated by reference into this proxy statement/prospectus and
elsewhere in the registration statement. Keane's consolidated financial
statements as of and for the years ended December 31, 2000 and 1999 are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The financial statements for the year ended December 31, 1998 incorporated
into this proxy statement/prospectus by reference to the Annual Report on Form
10-K of Keane for the year ended December 31, 2000, have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Metro and its subsidiaries as of
December 31, 1999 and 2000 and for each of the years in the three-year period
ended December 31, 2000, have been included in this proxy statement/prospectus
in reliance upon the report of KPMG LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Keane and Metro file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information we file at the Securities
and Exchange Commission's Public Reference Room in Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room. Our
Securities and Exchange Commission filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the Securities and Exchange Commission at http://www.sec.gov.
Keane filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission Keane common stock to be issued to Metro
shareholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes the prospectus of Keane as well as being
a proxy statement of Metro for the Metro special meeting.
118
Keane has supplied all the information contained in this proxy
statement/prospectus relating to Keane, and Metro has supplied all the
information contained in this proxy statement/prospectus relating to Metro. As
allowed by Securities and Exchange Commission rules, this proxy
statement/prospectus does not contain all of the information relating to Keane
and Metro you can find in the registration statement or the exhibits to the
registration statement.
Some of the important business and financial information relating to Keane
that you may want to consider in deciding how to vote is not included in this
proxy statement/prospectus. The Securities and Exchange Commission allows Keane
to "incorporate by reference" the information Keane files with the Securities
and Exchange Commission, which means that Keane can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this proxy
statement/prospectus, and later information filed with the Securities and
Exchange Commission will update and supersede this information. Keane
incorporates by reference the documents listed below and all documents filed by
Keane with the Securities and Exchange Commission under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 between the date of this
proxy statement/prospectus and the date of Metro's special meeting of
shareholders:
1. Keane's Annual Report on Form 10-K for the fiscal year ended December
31, 2000, filed on March 30, 2001,
2. Keane's definitive proxy statement on Schedule 14A relating to Keane's
annual meeting of stockholders held on May 30, 2001, filed on April 13,
2001,
3. Keane's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2001, filed on May 14, 2001,
4. Keane's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2001, filed on August 7, 2001,
5. Keane's Current Report on Form 8-K dated August 20, 2001, filed on
August 21, 2001,
6. Keane's Amendment No. 1 to the Current Report on Form 8-K/A dated August
20, 2001, filed on August 24, 2001,
7. Keane's Current Report on Form 8-K dated September 19, 2001, filed on
September 19, 2001, and
8. the description of Keane's common stock contained in Keane's
registration statement on Amendment No. 1 to Form 8-A, filed on August
27, 2001, including any amendment or report filed for the purpose of
updating such description.
If you are a Metro shareholder, you can obtain any of the documents
incorporated by reference through Keane, Metro or the Securities and Exchange
Commission. Documents incorporated by reference are available from Keane or
Metro without charge, excluding all exhibits. You may obtain documents
incorporated by reference into this proxy statement/prospectus free of charge
by requesting them orally or in writing to the following addresses or by
telephone:
Keane Metro
Investor Relations Department Investor Relations
Ten City Square Reflections II Office Building,
Boston, Massachusetts 02109 Third Floor
(617) 241-9200 200 Golden Oak Court
Virginia Beach, Virginia 23452
(757) 306-0299
To ensure timely delivery, you must make this request no later than five
business days before the date of the special meeting of Metro's shareholders,
or November 23, 2001.
119
You should rely only on the information contained into or incorporated by
reference in this proxy statement/prospectus to vote on the merger agreement.
We have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. You should not
assume that the information contained in the proxy statement/prospectus is
accurate as of any date other than the date hereof, and neither the mailing of
this proxy statement/prospectus to Metro shareholders nor the issuance of Keane
common stock in the merger shall create any implication to the contrary.
120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF METRO
Consolidated Financial Statements:
Independent Auditors' Report............................................................ F-2
Consolidated Statements of Income for the Years Ended December 31, 1998, 1999 and 2000.. F-3
Consolidated Balance Sheets as of December 31, 1999 and 2000............................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December
31, 1998, 1999 and 2000................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and
2000................................................................................... F-6
Notes to Consolidated Financial Statements.............................................. F-7
Consolidated Statements of Income for the Six Months Ended June 30, 2000 and 2001
(unaudited)............................................................................ F-19
Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 (unaudited)....... F-20
Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June
30, 2001 (unaudited)................................................................... F-21
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 2001
(unaudited)............................................................................ F-22
Notes to Consolidated Financial Statements (unaudited).................................. F-23
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Metro Information Services, Inc.:
We have audited the accompanying consolidated balance sheets of Metro
Information Services, Inc. and subsidiaries (the "Company") as of December 31,
1999 and 2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metro
Information Services, Inc. and subsidiaries as of December 31, 1999 and 2000
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Norfolk, Virginia
January 29, 2001
F-2
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------------
1998 1999 2000
------------ ------------ ------------
Revenue............................. $213,891,637 $314,646,091 $313,590,997
Cost of revenue..................... 148,321,681 222,681,353 221,565,996
------------ ------------ ------------
Gross profit...................... 65,569,956 91,964,738 92,025,001
------------ ------------ ------------
Selling, general and administrative
expenses........................... 40,349,100 58,140,040 67,385,432
Depreciation expense................ 1,636,678 2,606,003 3,259,940
Amortization expense................ 213,851 2,977,605 4,821,769
Restructuring charge (Note 13)...... -- -- 403,004
------------ ------------ ------------
Total operating expenses.......... 42,199,629 63,723,648 75,870,145
------------ ------------ ------------
Operating income.................... 23,370,327 28,241,090 16,154,856
------------ ------------ ------------
Interest income..................... 837,557 143,478 93,987
Interest expense.................... (56,991) (3,018,355) (6,811,897)
------------ ------------ ------------
Net interest income (expense)..... 780,566 (2,874,877) (6,717,910)
------------ ------------ ------------
Income before income taxes.......... 24,150,893 25,366,213 9,436,946
Income taxes (Note 7)............... 9,533,849 10,222,585 4,302,289
------------ ------------ ------------
Net income.......................... $ 14,617,044 $ 15,143,628 $ 5,134,657
============ ============ ============
Net income per share--basic (Note
8)................................. $ 0.98 $ 1.01 $ 0.34
============ ============ ============
Net income per share--diluted (Note
8)................................. $ 0.97 $ 1.01 $ 0.34
============ ============ ============
Weighted average number of shares of
common stock and potential dilutive
securities outstanding (Note 8):
Basic............................. 14,845,465 14,928,870 15,101,423
Diluted........................... 15,001,176 14,985,934 15,144,529
See accompanying notes to consolidated financial statements.
F-3
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1999 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,612,538 $ 603,699
Accounts receivable, net (Notes 2 and 6)........... 59,720,500 54,923,035
Prepaid expenses................................... 4,442,488 2,378,173
Other current assets less allowance for
uncollectible sales tax of $586,286 at December
31, 2000 (Note 3)................................. -- 1,044,095
Deferred income taxes (Note 7)..................... 1,287,699 2,193,480
------------ ------------
Total current assets............................. 70,063,225 61,142,482
Property and equipment, net (Note 5)................. 12,412,632 11,889,307
Goodwill and other intangibles, net (Note 4)......... 107,395,150 115,972,945
Other assets......................................... 307,843 275,091
------------ ------------
Total assets..................................... $190,178,850 $189,279,825
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 4,202,391 $ 4,029,196
Earnouts payable................................... 8,750,000 --
Accrued compensation and benefits (Note 11)........ 15,063,453 14,466,277
------------ ------------
Total current liabilities........................ 28,015,844 18,495,473
Line of credit facilities (Note 6)................... 82,467,071 83,443,021
Deferred income taxes (Note 7)....................... 1,555,131 2,404,451
------------ ------------
Total liabilities................................ 112,038,046 104,342,945
------------ ------------
Shareholders' equity:
Preferred stock, $0.01 par value; authorized
1,000,000 shares; none issued and outstanding
(Note 12)......................................... -- --
Common stock, $0.01 par value, authorized
50,000,000 shares; issued and outstanding
15,021,552 shares at December 31, 1999 and
15,222,712 shares at December 31, 2000 (Notes 9
and 12)........................................... 150,216 152,227
Paid in capital.................................... 39,336,189 40,995,597
Retained earnings.................................. 38,654,399 43,789,056
------------ ------------
Total shareholders' equity....................... 78,140,804 84,936,880
------------ ------------
Commitments and contingencies (Note 11)
Total liabilities and shareholders' equity....... $190,178,850 $189,279,825
============ ============
See accompanying notes to consolidated financial statements.
F-4
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Shareholders' Equity
-------------------------------------------------------
Common Stock
------------------- Paid in Retained
Shares Amount Capital Earnings Total
---------- -------- ----------- ----------- -----------
Balance as of December
31, 1997............... 14,819,984 $148,200 $36,085,946 $ 8,893,727 $45,127,873
Net proceeds from
issuance of shares of
common stock under
Employee Stock Purchase
Plan................... 53,106 531 1,322,525 -- 1,323,056
Net proceeds from
issuance of shares of
common stock under
Employee Incentive
Stock Option Plan...... 11,070 111 177,009 -- 177,120
Net income for 1998..... -- -- -- 14,617,044 14,617,044
---------- -------- ----------- ----------- -----------
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 shares of
common stock under
Employee Stock Purchase
Plan................... 128,102 1,281 1,601,862 -- 1,603,143
Net proceeds from
issuance of shares of
common stock under
Employee Incentive
Stock Option Plan...... 9,290 93 148,847 -- 148,940
Net income for 1999..... -- -- -- 15,143,628 15,143,628
---------- -------- ----------- ----------- -----------
Balance as of December
31, 1999............... 15,021,552 150,216 39,336,189 38,654,399 78,140,804
Net proceeds from
issuance of shares of
common stock under
Employee Stock Purchase
Plan................... 183,760 1,837 1,376,181 -- 1,378,018
Net proceeds from
issuance of shares of
common stock under
Employee Incentive
Stock Option Plan...... 17,400 174 283,227 -- 283,401
Net income for 2000..... -- -- -- 5,134,657 5,134,657
---------- -------- ----------- ----------- -----------
Balance as of December
31, 2000............... 15,222,712 $152,227 $40,995,597 $43,789,056 $84,936,880
========== ======== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
1998 1999 2000
------------ ------------- ------------
Cash Flows from Operating
Activities:
Net income........................ $ 14,617,044 $ 15,143,628 $ 5,134,657
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization--
cost of revenue................ 45,875 44,315 45,061
Depreciation and amortization--
operating expenses............. 1,850,529 5,583,608 8,081,709
Net loss on sale of property and
equipment...................... 41,089 39,811 337,686
Deferred income taxes........... (192,403) 386,890 (56,461)
Changes in operating assets and
liabilities increasing
(decreasing) cash and cash
equivalents, net of the effects
of acquisitions:
Accounts payable from
restricted cash.............. 1,264,524 (1,264,524) --
Accounts receivable........... (9,664,564) (7,891,996) 4,797,465
Prepaid expenses.............. (53,555) (3,857,741) 2,064,315
Other current assets.......... -- -- (1,044,095)
Other assets.................. 179,933 (49,404) 32,752
Accounts payable.............. 2,922,251 (5,424,864) (173,195)
Accrued compensation and
benefits..................... 2,027,850 1,079,938 (597,176)
------------ ------------- ------------
Net cash provided by
operating activities....... 13,038,573 3,789,661 18,622,718
------------ ------------- ------------
Cash Flows from Investing
Activities:
Acquisition of property and
equipment........................ (3,494,790) (3,544,543) (2,359,550)
Acquisition of computer software.. (2,141,332) (1,102,430) (791,463)
Acquisition of businesses......... (12,443,771) (97,251,067) (22,149,994)
Proceeds from sale of property and
equipment........................ 8,130 6,183 32,081
------------ ------------- ------------
Net cash used in investing
activities................. (18,071,763) (101,891,857) (25,268,926)
------------ ------------- ------------
Cash Flows from Financing
Activities:
Net borrowings under line of
credit........................... -- 82,467,071 975,950
Proceeds from shares issued under
Employee Stock Purchase Plan..... 1,323,056 1,603,143 1,378,018
Proceeds from shares issued under
Employee Incentive Stock Option
Plan............................. 177,120 148,940 283,401
------------ ------------- ------------
Net cash provided by
financing activities....... 1,500,176 84,219,154 2,637,369
------------ ------------- ------------
Net decrease in cash and cash
equivalents........................ (3,533,014) (13,883,042) (4,008,839)
Cash and cash equivalents at
beginning of year.................. 22,028,594 18,495,580 4,612,538
------------ ------------- ------------
Cash and cash equivalents at end of
year............................... $ 18,495,580 $ 4,612,538 $ 603,699
============ ============= ============
Supplemental disclosure of cash flow
information:
Cash paid for interest............ $ 56,991 $ 3,261,046 $ 6,563,030
============ ============= ============
Cash paid for income taxes........ $ 9,004,978 $ 11,047,931 $ 3,092,863
============ ============= ============
During 1998, 1999 and 2000, non-cash financing activities associated with
acquisitions totaled $1,001,344, $8,750,000 and $0, respectively.
See accompanying notes to consolidated financial statements.
F-6
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Business
Metro Information Services, Inc. together with its wholly-owned consolidated
subsidiaries Metro Information Services of Northern California, Inc., Metro
Information Services of Los Angeles, Inc., Metro Information Services of Orange
County, Inc., Metro Information Services of Pennsylvania, Inc. and Metro
Information Services--ATS, Inc. ("Metro" or the "Company") is an information
technology ("IT") consulting services company providing IT consultants on a
contract basis to organizations with complex IT operations. On December 31,
2000, the Company had 36 offices in the United States and Puerto Rico.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Revenue Recognition and Concentration of Credit Risk
The Company derives substantially all of its revenue from consulting
services and substantially all services provided by the Company are billed on a
time and materials basis. Revenue is recognized as services are performed.
Concentration of credit risk with respect to accounts receivable is limited due
to the number and diversity of the Company's client base.
There are several types of revenue that are currently immaterial to the
Company's gross revenue but may account for a greater portion in the future.
These primarily include sales of managed services and fixed fee contracts.
Currently, the combined revenue from these types of sales accounts for less
than 1% of the yearly gross revenue. Accounting for managed services and fixed
fee revenue is different from the services billed on a time and materials
basis. Managed services revenue represents fees for administrative services and
is reported on a net basis. Fixed fee revenue is recognized using the
percentage of completion method. All of these types of revenue are currently
included with revenue from consulting services on the income statement due to
immateriality.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with
original maturities of three months or less. Cash equivalents at December 31,
2000 and 1999 consisted of overnight money market investments.
Financial Instruments
The carrying amounts of the Company's financial instruments, primarily
accounts receivable, accounts payable and accrued compensation and benefits,
approximate fair value due to the short maturity of these instruments. The
carrying amounts of the Company's line of credit facilities approximate fair
value due to their variable interest rates.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated useful
lives. Depreciation on leasehold improvements is calculated on the straight-
line method over the lesser of the length of the lease term or their estimated
useful lives.
F-7
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 for
goodwill and 3-20 years for other intangible assets. Management periodically
assesses whether there has been a permanent impairment in the value of
goodwill, customer base and other intangible assets. Impairment is determined
by comparing anticipated undiscounted future cash flows to the carrying value
of the related goodwill, customer base and other intangibles. If such assets
are considered impaired, the impairment is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and, if applicable, operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of revenue and expense, assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(2) Accounts Receivable
At December 31, 1999 and 2000, the components of accounts receivables
consist of the following:
December 31,
-----------------------
1999 2000
----------- -----------
Billed revenue...................................... $59,100,220 $57,264,101
Unbilled revenue.................................... 1,154,010 128,239
----------- -----------
60,254,230 57,392,340
Less allowance for doubtful accounts.............. 533,730 2,469,305
----------- -----------
$59,720,500 $54,923,035
=========== ===========
F-8
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The allowance for doubtful accounts at December 31, 1999 and 2000 consist of
the following:
Balance
at Write-off of Balance at
Beginning Charges to Uncollectible End of
of Period Income Accounts Period
--------- ---------- ------------- ----------
Allowance for Doubtful Accounts:
Year ended December 31, 1999... $372,671 $ 751,553 $590,494 $ 533,730
Year ended December 31, 2000... 533,730 2,822,713 887,138 2,469,305
For the year ended December 31, 2000 the allowance for doubtful accounts
increased by $1.9 million due to general economic conditions, specific losses
in some clients and a general slowdown in payments that resulted in additional
write-offs and bad debts.
(3) Sales Tax Assessment
The Tennessee Department of Revenue completed a tax audit during 2000. The
audit resulted in the Company's receipt of a Notice of Assessment on September
29, 2000 that proposed the imposition of additional Tennessee sales and use
taxes and related interest and penalty attributable to the performance by
Company employees of services in the State of Tennessee, which the Department
determined to be taxable as "computer software." In the Notice, the Department
assessed sales and use tax of $2,357,147, which the Company paid in October
2000. Under Tennessee law, the ultimate consumer is responsible for paying the
assessed sales and use tax. Accordingly, the Company has billed the assessed
amount to its customers. A portion of this amount may not be collectible. As a
result, the Company has recorded a reserve of $586,286 for uncollectible
accounts. The net current receivable on the balance sheet is $1,044,095 and
appears in other current assets at December 31, 2000. The interest and penalty
paid on the liability through December 31, 2000 totaled $894,594 and $197,979,
respectively. Collectively, the reserve, interest, and recorded penalty reduced
the income before income taxes for the year ended December 31, 2000 by
$1,678,859.
(4) 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 $11,849,000, 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
$95,000.
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
$17,907,000, including direct costs of the acquisition of approximately
$90,000. During 2000, $7,837,164 was paid based on the acquired business
attaining certain operating income targets for the twelve months ended December
31, 1999.
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 $20,611,000, 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. During 2000, $2,100,000 was paid based
on the acquired business attaining certain operating income targets for the
twelve months ended January 31, 2000.
F-9
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $52,410,000 of which $39,425,000 was paid at closing, $666,000
was paid in November 1999 and approximately $158,000 represents direct costs
related to the acquisition. During 2000, $12,160,830 was paid based on the
acquired business attaining certain operating income targets for the twelve
months ended August 31, 2000.
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.
At December 31, 1999 and 2000, the components of goodwill and other
intangibles consist of the following:
December 31,
-------------------------
Useful Life 1999 2000
----------- ------------ ------------
Goodwill.............................. 30 years $ 98,823,240 $106,101,935
Customer base......................... 10-20 years 9,874,500 17,122,300
Other intangibles..................... 3-5 years 1,956,700 830,200
------------ ------------
110,654,440 124,054,435
Less accumulated amortization....... 3,259,290 8,081,490
------------ ------------
$107,395,150 $115,972,945
============ ============
Unaudited Pro forma consolidated results of operations for the year ended
December 31, 1999 would have been as follows had the acquisitions of PCM, KSC,
STI and ATS occurred as of the beginning of the period:
Year Ended December
31, 1999
----------------------
(In thousands,
except per share data)
Revenue............................................. $345,993
Net income.......................................... $ 14,853
Net income per share--basic......................... $ 1.00
Net income per share--diluted....................... $ 0.99
Weighted average number of shares of common stock
and potential dilutive securities outstanding:
Basic............................................. 14,901
Diluted........................................... 15,005
There is no difference between the pro forma and actual consolidated results
of operations for the twelve months ended December 31, 2000 since the
acquisitions occurred before January 1, 2000.
F-10
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Property and Equipment
Property and equipment consist of the following:
December 31,
Useful -----------------------
Life 1999 2000
---------- ----------- -----------
Land..................................... n.a. $ 129,221 $ 129,221
Buildings................................ 31.5 years 938,957 938,957
Computer equipment and software.......... 3-7 years 13,256,857 13,828,027
Furniture and equipment.................. 5-7 years 4,016,179 4,084,078
Leasehold improvements................... Various 771,723 844,112
Automobiles.............................. 3 years 16,065 16,065
----------- -----------
19,129,002 19,840,460
Less accumulated depreciation and
amortization.......................... 6,716,370 7,951,153
----------- -----------
$12,412,632 $11,889,307
=========== ===========
(6) Line of Credit Facilities
The Company increased the maximum amount it may borrow on its credit
facilities from $39,900,000 to $90,000,000 on January 15, 1999 and to
$125,000,000 on August 25, 1999. Amounts advanced under the facilities can be
used for acquisitions and general working capital purposes. The credit
facilities are provided in equal amounts of $35,000,000 by three banks and
$20,000,000 by a fourth bank. As of December 31, 2000, the Company had borrowed
$83,443,021 against these facilities. The facilities mature in June 2005 and
may be extended each year for an additional year. Until June 2005, 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. The rates on such borrowings ranged from 7.66%
to 7.79% on December 31, 2000. The facilities also contain fees, ranging from
0.125% to 0.380% 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 other
debt and require a certain debt service coverage ratio to be maintained.
Quarterly testing dates are required for these covenants. The covenants may
prevent the Company from borrowing the full $125,000,000 of the facilities or
trigger a default under the credit facilities. As of December 31, 2000,
approximately $20.7 million was available for additional borrowing without
default.
On March 20, 2000, the Company negotiated more favorable terms on the credit
facilities, which are expected to allow the Company to fully use the maximum
borrowing amount. The change increased the Maximum Funded Debt to EBITDA ratio
from 3.0 to 1.0 to 4.0 to 1.0 through September 30, 2001 and increased the
Funded Debt to Capitalization ratio to 65% through December 31, 2000 and 60%
through December 31, 2001. At December 31, 2000, the Maximum Funded Debt to
EBITDA ratio stood at 3.2 to 1.0.
F-11
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Income Taxes
The provision for income taxes for 1998, 1999 and 2000 includes federal and
state income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. The provision for income taxes consists of the following:
Year Ended December 31,
----------------------------------
1998 1999 2000
---------- ----------- ----------
Current:
Federal................................ $8,113,236 $ 8,177,304 $3,026,247
State.................................. 1,613,016 1,658,391 608,475
Foreign................................ -- -- 724,028
Deferred:
Federal................................ (160,233) 321,657 (47,518)
State.................................. (32,170) 65,233 (8,943)
---------- ----------- ----------
Total income tax expense............. $9,533,849 $10,222,585 $4,302,289
========== =========== ==========
The 1998, 1999 and 2000 actual tax expense differs from the amount which
would be provided by applying the statutory federal rate to income before
income taxes primarily as a result of state income taxes. A reconciliation of
the statutory federal income tax rate and the effective rate is as follows:
Year Ended
December 31,
----------------
1998 1999 2000
---- ---- ----
Statutory tax rate....................................... 35.0% 35.0% 35.0%
Effect of:
State and local income taxes, net of Federal tax
benefit............................................... 4.5 5.3 4.8
Nondeductible business expenses........................ -- -- 4.1
Foreign statutory rate differential.................... -- -- 1.7
---- ---- ----
Effective tax rate................................... 39.5% 40.3% 45.6%
==== ==== ====
The components of the deferred tax asset and liability at December 31, 1999
and 2000 are as follows:
1999 2000
----------- -----------
Current deferred tax asset:
Self-insurance reserves......................... $ 334,369 $ 293,130
Accrued expenses................................ 743,531 779,778
Allowance for doubtful accounts................. 209,799 1,120,572
----------- -----------
$ 1,287,699 $ 2,193,480
=========== ===========
Long-term deferred tax liability:
Depreciation and amortization................... $(1,424,267) $(2,404,451)
Other deferred tax liabilities.................. (130,864) --
----------- -----------
$(1,555,131) $(2,404,451)
=========== ===========
In assessing whether deferred tax assets may be realized, management
considers whether it is more likely than not that some or all of the deferred
taxes will not be realized. Based on the availability of carrybacks of future
deductible amounts to 1998, 1999 and 2000 taxable income and management's
projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes the
F-12
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
existing net deductible temporary differences will reverse during periods in
which carrybacks are available and/or in which the Company generates net
taxable income. There can be no assurance, however, that the Company will
generate any income or any specific level of continuing income in future years.
(8) Earnings Per Share
The following tables reconcile the numerators and denominators of the basic
and diluted earnings per share computations of net income:
Shares
Net Income Outstanding Net Income
For the Year Ended December 31, 1998 (Numerator) (Denominator) Per Share
------------------------------------ ----------- ------------- ----------
Basic Net Income Per Share............ $14,617,044 14,845,465 $0.98
=====
Effect of Dilutive Securities--
Incentive Stock Options deemed
outstanding.......................... -- 155,711
----------- ----------
Diluted Net Income Per Share.......... $14,617,044 15,001,176 $0.97
=========== ========== =====
Shares
Net Income Outstanding Net Income
For the Year Ended December 31, 1999 (Numerator) (Denominator) Per Share
------------------------------------ ----------- ------------- ----------
Basic Net Income Per Share............ $15,143,628 14,928,870 $1.01
=====
Effect of Dilutive Securities--
Incentive Stock Options deemed
outstanding.......................... -- 57,064
----------- ----------
Diluted Net Income Per Share.......... $15,143,628 14,985,934 $1.01
=========== ========== =====
Shares
Net Income Outstanding Net Income
For the Year Ended December 31, 2000 (Numerator) (Denominator) Per Share
------------------------------------ ----------- ------------- ----------
Basic Net Income Per Share............ $ 5,134,657 15,101,423 $0.34
=====
Effect of Dilutive Securities--
Incentive Stock Options deemed
outstanding.......................... -- 43,106
----------- ----------
Diluted Net Income Per Share.......... $ 5,134,657 15,144,529 $0.34
=========== ========== =====
See Note 9 for a description of the Incentive Stock Option Plan.
(9) Stock Option Plans
SFAS No. 123 Disclosure
As permitted by SFAS No. 123, Accounting for Stock Based Compensation, the
Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees,
to account for its three stock-based compensation plans. In accordance with APB
Opinion No. 25, the Company recorded no compensation expense related to these
plans in 1998, 1999 and 2000. There is no compensation expense related to the
Metro Information Services, Inc. Employee Stock Purchase Plan (the "ESPP")
because it qualifies as a non-compensatory plan under APB Opinion No. 25. There
was no compensation expense recorded for either of the stock option plans
discussed below because the exercise price of each option equaled the fair
value of the underlying common stock as of the grant date. If compensation
expense for the Company's three stock-based compensation plans had been
determined based on the fair value of the underlying option at the grant dates
as calculated in
F-13
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accordance with SFAS No. 123, the Company's net income and net income per share
for the years ended December 31, 1998, 1999 and 2000 would have been reduced to
the Pro forma amounts indicated below.
Year Ended December 31,
-----------------------------------------------------------------------
1998 1999 2000
----------------------- ----------------------- -----------------------
SFAS No. SFAS No.
123 Pro 123 Pro As SFAS No. 123
As Reported forma As Reported forma Reported Pro forma
----------- ----------- ----------- ----------- ---------- ------------
Net income.............. $14,617,044 $13,903,986 $15,143,628 $13,719,741 $5,134,657 $3,913,460
=========== =========== =========== =========== ========== ==========
Net income per share:
Basic................. $ 0.98 $ 0.94 $ 1.01 $ 0.92 $ 0.34 $ 0.26
=========== =========== =========== =========== ========== ==========
Diluted............... $ 0.97 $ 0.93 $ 1.01 $ 0.92 $ 0.34 $ 0.26
=========== =========== =========== =========== ========== ==========
The full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the Pro forma net income and net income per share
amounts presented above because compensation cost is recognized over the
options' vesting periods.
Outside Directors Stock Plan
On December 24, 1996, the Company adopted a non-qualified stock option plan
(the "Outside Directors Stock Plan") for the outside directors of the Company.
Each outside director is granted an option for 3,000 shares of Common Stock on
such director's initial election. At each Annual Meeting thereafter, such
director is granted an additional option for 1,000 shares of Common Stock. The
options granted to outside directors are immediately exercisable in full at a
price equal to the fair market value of Common Stock on the date of grant. The
options expire 10 years after the date of grant or one year after the outside
director is no longer a director of the Company, whichever is earlier. The
Company has reserved 50,000 shares for issuance under this plan. During 1998,
1999 and 2000, the Outside Directors Stock Plan issued 2,000, 2,000 and 2,000
options, respectively, to outside directors and no options were exercised. At
December 31, 2000, 14,000 options had been issued by the Plan.
Incentive Stock Option Plan
On December 24, 1996, the Company adopted the 1997 Employee Incentive Stock
Option Plan which provides for the grant of incentive stock options to purchase
up to an aggregate of 1,500,000 shares of Common Stock. On various dates during
1998, 1999, and 2000 certain employees of the Company were granted options to
purchase 246,000, 762,000 and 456,000 options respectively, at the fair market
value on the date of grant. All of the options issued in 1998, 1999 and 2000
vest ratably over either five or three years and expire not later than nine
years and 11 months after the date of grant.
The fair value of options at the date of grant was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
1998 1999 2000
------- ------- -------
Expected life........................................ 5 years 5 years 5 years
Risk free interest rate.............................. 5.0% 5.5% 5.8%
Expected volatility.................................. 56% 62% 71%
Annual dividend yield................................ 0% 0% 0%
F-14
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's 1997 Employee Incentive Stock Option
Plan and Outside Directors Stock Plan as of December 31, 1998, 1999 and 2000,
and changes during the years then ended, is presented below:
1998 1999 2000
----------------- ------------------- -------------------
Weighted Weighted Weighted
Number Average Average Average
of Exercise Number Exercise Number Exercise
Shares Price of Shares Price of Shares Price
------- -------- --------- -------- --------- --------
Options at beginning of
year................... 314,200 $15.97 523,970 $21.21 1,169,458 $18.80
Granted................. 248,000 $27.47 764,000 $17.31 458,000 $ 6.29
Exercised............... (11,070) $16.00 (9,290) $16.03 (17,400) $16.29
Forfeited............... (27,160) $19.89 (109,222) $20.15 (209,132) $18.55
------- --------- ---------
Options at end of year.. 523,970 $21.21 1,169,458 $18.80 1,400,926 $14.78
======= ========= =========
Options exercisable at
year-end............... 138,310 $18.07 309,694 $19.13 482,426 $18.76
======= ========= =========
Weighted average
estimated fair value of
options granted during
the year............... $ 14.65 $ 10.02 $ 3.98
======= ========= =========
Following is a summary of the range of exercise prices and the weighted
average contractual life of outstanding stock options at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------- ----------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
------------------------ --------- ---------------- -------------- ------- --------------
$6.188 to $6.25......... 447,000 9.7 years $ 6.24 0 $ 0.00
$7.25 to $8.563......... 3,000 9.5 years $ 8.08 2,000 $ 8.56
$13.50 to $14.625....... 188,734 8.7 years $14.59 63,606 $14.52
$15.625 to $16.50....... 512,906 7.1 years $16.28 295,100 $16.21
$18.50 to $19.25........ 6,000 7.7 years $18.75 3,600 $18.92
$21.688................. 1,000 9.1 years $21.69 0 $ 0.00
$22.125 to $23.75....... 36,100 8.0 years $22.62 14,800 $22.62
$25.813................. 7,446 7.2 years $25.81 3,335 $25.81
$27.25 to $28.00........ 178,640 7.2 years $27.65 90,685 $27.66
$35.00 to $35.75........ 20,100 7.9 years $35.07 9,300 $35.16
--------- -------
$6.188 to $35.75........ 1,400,926 8.2 years $14.78 482,426 $18.76
========= =======
Employee Stock Purchase Plan
The Company adopted the ESPP on December 24, 1996. Under the ESPP, an
aggregate of 500,000 shares of Common Stock may be purchased from the Company
by the employees through payroll withholding pursuant to a series of offerings.
All full-time employees who have met certain service requirements (as defined
in the ESPP), except for employees who own Common Stock of the Company or
options on such stock which represent more than 5% of Common Stock of the
Company, are eligible to participate. The purchase price of Common Stock is 85%
of the lesser of the fair market value of Common Stock on the first trading day
of the calendar quarter and the last trading day of the quarter. During 1998,
1999 and 2000, the Company sold 53,106, 128,102 and 183,760 shares,
respectively, of Common Stock to the ESPP for a total of $1,323,056, $1,603,143
F-15
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and $1,378,018, respectively. At December 31, 2000, 384,952 shares had been
purchased by the Plan from the Company.
The fair value of the employees' purchase rights of ESPP shares was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:
1998 1999 2000
-------- -------- --------
Expected life..................................... 3 months 3 months 3 months
Risk free interest rate........................... 4.9% 4.7% 5.9%
Expected volatility............................... 31% 32% 44%
Annual dividend yield............................. 0% 0% 0%
The weighted average fair value of those purchase rights granted in 2000 was
$2.89.
(10) Profit Sharing Plan
The Company sponsors a 401(k) employee benefit plan covering all eligible
employees of Metro Information Services, Inc., with a minimum of three months
of service. In addition, certain of the Company's subsidiaries sponsor their
own 401(k) employee benefit plans covering all of their eligible employees who
met the minimum service requirements of their plans. Eligible employees are
permitted to make voluntary deductible contributions to their plan. Some of the
plans require Metro Information Services, Inc., or the applicable subsidiary,
to make matching contributions on the eligible employee's contribution. The
Company made matching contributions of $1,775,329, $2,594,052 and $2,642,276 to
the plans for the years ended December 31, 1998, 1999 and 2000, respectively.
(11) Commitments and Contingencies
The Company is obligated under various non-cancelable operating leases for
office space. Rent expense for the years ended December 31, 1998, 1999 and 2000
was $1,930,184, $3,494,091 and $4,203,335, respectively, and is included in
selling, general and administrative expenses in the accompanying consolidated
statements of income. Renewal options are available at most locations. Future
minimum lease payments, as of December 31, 2000 are as follows:
2001........................................................... $ 4,080,499
2002........................................................... 3,959,409
2003........................................................... 3,521,844
2004........................................................... 2,179,825
2005........................................................... 1,008,051
Thereafter..................................................... 2,566,423
-----------
$17,316,051
===========
The Company self-insures against employees' health insurance claims up to a
stop loss limit of $125,000 per employee per year and a variable, aggregate
stop loss limit. Amounts charged to income related to insurance claims were
$5,535,831, $6,204,018 and $6,913,922 for the years ended December 31, 1998,
1999 and 2000, respectively. Included in accrued compensation and benefits on
the accompanying consolidated balance sheets is a reserve for claims incurred
but not yet reported of $960,924 and $751,296 at December 31, 1999 and 2000,
respectively.
F-16
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Shareholders' Equity
Preferred Stock
The Company's Board of Directors has the authority to issue shares of
Preferred Stock and determine the stock terms without obtaining shareholders'
approval. There are currently no issued or outstanding shares of Preferred
Stock.
Common Stock
The Common Stock shareholders have the sole right to vote.
(13) Restructuring Charge
On May 25, 2000, the Company's Executive Management approved a plan to close
eight of its smaller offices and combine operations in two other markets. By
June 2, 2000, offices located in Memphis, Milwaukee, Minneapolis, Orlando,
Pittsburgh, Portland, Sacramento, and Salt Lake City had been closed.
During June 2000, the Company recorded a restructuring charge of $746,600.
The charge represents management's estimate of the ultimate obligations
associated with executing the plan at the time the estimates were made. During
the third quarter, the restructuring charge for costs to exit certain
facilities was revised as the Company negotiated an early end to some leases
and subleased other facilities. The Company expects to complete all steps in
the restructuring plan by May 31, 2001.
The following table shows the initial accruals made by the Company and the
remaining liability as of December 31, 2000:
Costs incurred Balance as
through Revision of
Initial December 31, to December 31,
Balance 2000 estimates 2000
-------- -------------- --------- ------------
Cost to exit certain
facilities................ $608,233 $277,338 $(319,842) $11,053
Severance and termination
related accruals.......... 114,767 93,267 (21,500) --
Relocation costs........... 23,600 21,346 (2,254) --
-------- -------- --------- -------
Total restructuring
costs................... $746,600 $391,951 $(343,596) $11,053
======== ======== ========= =======
F-17
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) Quarterly Financial Information (Unaudited)
The following table sets forth certain quarterly operating information for
each of the 12 quarters ending with the quarter ended December 31, 2000. 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.
First Second Third Fourth
Statements of Income Data Quarter Quarter Quarter Quarter
------------------------- ------- ------- ------- -------
(Dollars in thousands except
per share data)
1998:
Revenue................................... $47,110 $52,391 $56,593 $57,799
Gross profit.............................. 14,346 16,375 17,296 17,553
Operating income.......................... 4,663 5,715 6,538 6,454
Net income................................ 2,899 3,559 4,051 4,109
Net income per share--basic............... $ 0.20 $ 0.24 $ 0.27 $ 0.28
Net income per share--diluted............. $ 0.19 $ 0.24 $ 0.27 $ 0.27
Gross profit percentage................... 30.5% 31.3% 30.6% 30.4%
Operating income percentage............... 9.9% 10.9% 11.6% 11.2%
1999:
Revenue................................... $72,473 $78,309 $81,253 $82,611
Gross profit.............................. 20,970 23,023 24,020 23,951
Operating income.......................... 6,909 8,393 7,066 5,874
Net income................................ 4,041 4,603 3,708 2,792
Net income per share--basic............... $ 0.27 $ 0.31 $ 0.25 $ 0.19
Net income per share--diluted............. $ 0.27 $ 0.31 $ 0.25 $ 0.19
Gross profit percentage................... 28.9% 29.4% 29.6% 29.0%
Operating income percentage............... 9.5% 10.7% 8.7% 7.1%
2000:
Revenue................................... $80,197 $77,812 $77,880 $77,702
Gross profit.............................. 22,411 22,864 23,614 23,135
Operating income.......................... 3,302 3,370 4,685 4,799
Net income................................ 1,163 1,148 1,178 1,646
Net income per share--basic............... $ 0.08 $ 0.08 $ 0.08 $ 0.11
Net income per share--diluted............. $ 0.08 $ 0.08 $ 0.08 $ 0.11
Gross profit percentage................... 27.9% 29.4% 30.3% 29.8%
Operating income percentage............... 4.1% 4.3% 6.0% 6.2%
F-18
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30,
--------------------------
2000 2001
------------ ------------
Revenue........................................... $158,009,431 $148,616,195
Cost of revenue................................... 112,734,125 107,430,642
------------ ------------
Gross profit.................................... 45,275,306 41,185,553
------------ ------------
Selling, general and administrative expenses (Note
6)............................................... 33,877,051 33,942,662
Depreciation expense.............................. 1,643,164 1,762,607
Amortization expense (Note 3)..................... 2,336,761 2,561,385
------------ ------------
Total operating expenses........................ 37,856,976 38,266,654
Restructuring charge (Note 6)..................... 746,600 903,983
------------ ------------
Operating income.................................. 6,671,730 2,014,916
------------ ------------
Interest income................................... 80,884 27,665
Interest expense (Note 4)......................... (2,852,133) (2,635,199)
------------ ------------
Net interest expense............................ (2,771,249) (2,607,534)
------------ ------------
Other income (Note 6)............................. -- 1,000,000
------------ ------------
Income before income taxes........................ 3,900,481 407,382
Income taxes...................................... 1,589,420 406,766
------------ ------------
Net income........................................ $ 2,311,061 $ 616
============ ============
Net income per share:
Basic........................................... $ 0.15 $ 0.00
============ ============
Diluted......................................... $ 0.15 $ 0.00
============ ============
Weighted average number of shares of common stock
and potential dilutive securities outstanding:
Basic........................................... 15,054,077 15,248,486
============ ============
Diluted......................................... 15,097,639 15,258,673
============ ============
See accompanying notes to consolidated financial statements.
F-19
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
2000 2001
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 603,699 $ 92,169
Accounts receivable, net........................... 54,923,035 49,886,989
Prepaid expenses................................... 2,378,173 2,083,397
Other current assets, net (Note 2)................. 1,044,095 650,777
Deferred income taxes.............................. 2,193,480 2,814,263
------------ ------------
Total current assets............................. 61,142,482 55,527,595
------------ ------------
Property and equipment, net.......................... 11,889,307 11,501,576
Goodwill and other intangibles, net (Note 3)......... 115,972,945 113,411,560
Other assets......................................... 275,091 252,610
------------ ------------
Total assets..................................... $189,279,825 $180,693,341
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 4,029,196 $ 4,035,844
Accrued compensation and benefits.................. 14,466,277 12,765,016
------------ ------------
Total current liabilities........................ 18,495,473 16,800,860
------------ ------------
Line of credit facilities (Note 4)................... 83,443,021 75,129,646
Deferred income taxes................................ 2,404,451 3,338,551
------------ ------------
Total liabilities................................ 104,342,945 95,269,057
------------ ------------
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
15,222,712 shares at December 31, 2000, 15,337,760
shares at June 30, 2001........................... 152,227 153,378
Paid in capital.................................... 40,995,597 41,481,234
Retained earnings.................................. 43,789,056 43,789,672
------------ ------------
Total shareholders' equity....................... 84,936,880 85,424,284
------------ ------------
Total liabilities and shareholders' equity....... $189,279,825 $180,693,341
============ ============
See accompanying notes to consolidated financial statements.
F-20
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Shareholders' Equity
-------------------------------------------------------
Common Stock
------------------- Paid in Retained
Shares Amount Capital Earnings Total
---------- -------- ----------- ----------- -----------
Balance as of December
31, 2000............... 15,222,712 $152,227 $40,995,597 $43,789,056 $84,936,880
Net proceeds from
issuance of shares of
common stock under
Employee Stock Purchase
Plan................... 115,048 1,151 485,637 -- 486,788
Net income.............. -- -- -- 616 616
---------- -------- ----------- ----------- -----------
Balance as of June 30,
2001................... 15,337,760 $153,378 $41,481,234 $43,789,672 $85,424,284
========== ======== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-21
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
------------------------
2000 2001
----------- -----------
Cash flows from operating activities:
Net income......................................... $ 2,311,061 $ 616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization--cost of revenue... 24,723 23,398
Depreciation and amortization--operating
expenses........................................ 3,979,925 4,323,992
Net loss on sale of property and equipment....... 384,047 40,864
Deferred income taxes............................ (589,830) 313,316
Provision for doubtful accounts.................. -- 493,247
Changes in operating assets and liabilities
increasing (decreasing) cash, net of the effects
of acquisitions:
Accounts receivable............................ (1,605,598) 4,542,799
Prepaid expenses............................... 151,299 294,776
Other current assets........................... -- 393,318
Other assets................................... 17,898 22,482
Accounts payable............................... (512,916) 6,648
Accrued compensation and benefits.............. 2,223,228 (1,701,261)
----------- -----------
Net cash provided by operating activities.... 6,383,837 8,754,195
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.............. (1,387,446) (794,851)
Acquisition of computer software................... (289,820) (644,287)
Acquisition of businesses.......................... (6,924,328) --
Proceeds from sale of property and equipment....... 12,145 --
----------- -----------
Net cash used in investing activities........ (8,589,449) (1,439,138)
----------- -----------
Cash flows from financing activities:
Net repayments under line of credit................ (2,807,760) (8,313,375)
Proceeds from issuance of shares to Employee Stock
Purchase Plan..................................... 841,442 486,788
Proceeds from issuance of shares to Employee
Incentive Stock Option Plan....................... 283,401 --
----------- -----------
Net cash used in financing activities........ (1,682,917) (7,826,587)
----------- -----------
Net decrease in cash and cash equivalents............ (3,888,529) (511,530)
Cash and cash equivalents at beginning of period..... 4,612,538 603,699
----------- -----------
Cash and cash equivalents at end of period........... $ 724,009 $ 92,169
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 2,604,997 $ 2,642,761
=========== ===========
Cash paid for income taxes......................... $ 1,728,030 $ 1,201,010
=========== ===========
See accompanying notes to consolidated financial statements.
F-22
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
The information presented as of June 30, 2001 and for the six-month periods
ended June 30, 2000 and 2001, 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 June 30, 2001 and the results of its
operations and its cash flows for the six-month periods ended June 30, 2000 and
2001. The consolidated financial statements included herein have been prepared
in accordance with generally accepted accounting principles and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America 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, 2000, which were included as part of
the Company's Annual Report on Form 10-K (File No. 000-22035). Certain 2000
amounts have been reclassified for comparability with the 2001 financial
statement presentation.
Results for the interim periods presented are not necessarily indicative of
results that may be expected for the entire year.
(2) Other Current Assets
The Tennessee Department of Revenue completed a tax audit during 2000. The
audit resulted in the Company's receipt of a Notice of Assessment on September
29, 2000 that proposed the imposition of additional Tennessee sales and use
taxes and related interest and penalty attributable to the performance by
Company employees of services in the State of Tennessee, which the Department
determined to be taxable as "computer software." In the Notice, the Department
assessed sales and use tax of $2,357,147, which the Company paid in October
2000. Under Tennessee law, the ultimate consumer is responsible for paying the
assessed sales and use tax. Accordingly, the Company has billed the assessed
amount to its customers. A portion of this amount may be uncollectible and the
Company has recorded a reserve. At December 31, 2000 and June 30, 2001, other
current assets consist of the following:
December 31, June 30,
2000 2001
------------ ----------
Gross sales and use tax receivable.................. $1,630,381 $1,098,246
Less allowance for doubtful accounts................ 586,286 570,217
---------- ----------
Net sales and use tax receivable.................... $1,044,095 $ 528,029
Other taxes receivable.............................. -- 122,748
---------- ----------
Total other current assets........................ $1,044,095 $ 650,777
========== ==========
(3) 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 20 years, respectively. Management periodically assesses whether there has
been a permanent impairment in the value of goodwill and other intangible
assets. Impairment is determined by comparing anticipated undiscounted future
cash flows to the carrying value of the related goodwill and other intangible
assets. If such assets are considered impaired, the impairment is measured as
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
F-23
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
(4) Credit Facilities
The Company maintains credit facilities of $125,000,000. The facilities are
provided in equal amounts of $35,000,000 by three banks and $20,000,000 by a
fourth bank. The outstanding balance on these facilities as of June 30, 2001
was $75,129,646. The facilities mature in June 2005 and may be extended each
year for an additional year. Until June 2005, interest, but not principal, is
payable monthly. The interest rates on the Company's facilities change from
time to time. 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. The Company has selected LIBOR based rates for the second quarter
2001, and the rates on such borrowings ranged from 4.9% to 6.5% on June 30,
2001. The facilities also contain fees, ranging from 0.125% to 0.380% annually,
which are charged on the unused portion of the facilities. The facilities are
collateralized by accounts receivable of the Company.
Effective April 2, 2001, the Company entered into a series of interest rate
swaps with a notional amount of $50,000,000. The purpose of these swaps was to
hedge the Company's exposure to variability in future cash flows by converting
the variable interest rate on a portion of its outstanding credit facilities to
a fixed interest rate. Accounting for these interest rate swaps did not have a
material impact on the Company's quarterly financial statements. Formal
documentation of the hedging relationship pursuant to paragraph 28(a) of
SFAS 133 was prepared and in place at the inception of the hedge. Prepared
documentation includes the formal agreement, the Company's hedge policy and
detail of the hedge transaction.
The credit facilities contain 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 other
debt, limit the amount borrowed to a multiple of adjusted earnings before
interest, taxes, depreciation and amortization 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. Quarterly
testing dates are required for these covenants. These covenants may prevent the
Company from borrowing the full amount of the credit facilities or trigger a
default under the credit facilities.
The Maximum Funded Debt to EBITDA ratio under our credit facilities is 4.0
to 1.0 through September 30, 2001. At June 30, 2001, our Funded Debt to EBITDA
ratio stood at 3.5 to 1.0. As earnings fall this ratio increases. On December
31, 2001 our credit facilities require us to reduce our Funded Debt to EBITDA
ratio to 3.0 to 1.0 or less. The Company plans to reduce its debt level, reduce
expenses and negotiate a more favorable ratio by December 31, 2001 to avoid
default under its credit facilities at December 31, 2001. A default could have
a material adverse effect on the Company's business. The Company is currently
negotiating with its banks to restructure the credit facilities. As of June 30,
2001, approximately $10.9 million was available for additional borrowing
without default.
F-24
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
(5) Earnings Per Share
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations of net income:
Shares
Net Income Outstanding Earnings
For the Six Months Ended June 30, 2000 (Numerator) (Denominator) Per Share
-------------------------------------- ----------- ------------- ---------
Basic Earnings Per Share............... $2,311,061 15,054,077 $0.15
========== =====
Effect of Dilutive Securities--
Incentive Stock Options deemed
outstanding........................... 43,562
----------
Diluted Earnings Per Share............. $2,311,061 15,097,639 $0.15
========== ========== =====
Shares
Net Income Outstanding Earnings
For the Six Months Ended June 30, 2001 (Numerator) (Denominator) Per Share
-------------------------------------- ----------- ------------- ---------
Basic Earnings Per Share............... $ 616 15,248,486 $0.00
========== =====
Effect of Dilutive Securities--
Incentive Stock Options deemed
outstanding........................... 10,187
----------
Diluted Earnings Per Share............. $ 616 15,258,673 $0.00
========== ========== =====
(6) Restructuring Liabilities
On May 4, 2001, the Company's Executive Management approved a plan to reduce
the work force at the Corporate office to bring corporate operating expenses
more in line with the lower consultant count. The plan affected all Corporate
Departments and Operations personnel attached to the Corporate Office.
A second cost reduction plan was approved June 18, 2001. This exit plan
involved three offices. The plan resulted in the sale of the St. Louis office
and the combination of two offices with two other offices. The sale of the St.
Louis office resulted in a $1,000,000 gain before tax during the six months
ended June 30, 2001.
The Company recorded a total restructuring charge of $904,000 ($488,160 or
$0.03 per share net of tax benefit) for the two plans, which appears in the
Statements of Income under the caption "Restructuring Charge." The charge
represents management's estimate of the ultimate obligations associated with
executing the plan at the time the estimates were made. The restructuring
charge for costs to exit certain facilities may change. The Company expects to
complete all steps in the two restructuring plans by May 4, 2002 and June 18,
2002, respectively.
F-25
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
The following table shows the initial accruals made by the Company and the
remaining liability as of June 30, 2001:
Costs incurred
Initial through Revision to Balance as of
Balance June 30, 2001 estimates June 30, 2001
-------- -------------- ----------- -------------
Cost to exit certain
facilities................. $124,034 $ -- $-- $124,034
Severance and termination
related accruals........... 779,949 435,962 -- 343,987
-------- -------- ---- --------
Total restructuring
costs.................... $903,983 $435,962 $-- $468,021
======== ======== ==== ========
As a result of the closings and mergers, the Company identified leasehold
improvements that it would retire or abandon. The carrying value of these
retired and abandoned assets has been adjusted to net realizable value in
accordance with Financial Accounting Standards Board Opinion No. 121 and the
adjustment has been included as an expense in the second quarter 2001
Statements of Income under the caption "Selling, general and administrative
expenses". This adjustment totaled $26,000 ($14,040 net of tax benefit).
F-26
Annex A
AGREEMENT AND PLAN OF MERGER
by and among
Keane, Inc.,
Veritas Acquisition Corp.
and
Metro Information Services, Inc.
Dated as of August 20, 2001
ARTICLE I THE MERGER...................................................... A-1
1.1 Effective Time of the Merger....................................... A-1
1.2 Closing............................................................ A-1
1.3 Effects of the Merger.............................................. A-1
1.4 Directors and Officers............................................. A-2
ARTICLE II CONVERSION OF SECURITIES....................................... A-2
2.1 Conversion of Capital Stock........................................ A-2
2.2 Exchange of Certificates........................................... A-3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-5
3.1 Organization, Standing and Power; Subsidiaries..................... A-6
3.2 Capitalization..................................................... A-6
3.3 Authority; No Conflict; Required Filings and Consents.............. A-8
3.4 SEC Filings; Financial Statements; Information Provided............ A-9
3.5 No Undisclosed Liabilities......................................... A-10
3.6 Absence of Certain Changes or Events............................... A-11
3.7 Taxes.............................................................. A-11
3.8 Owned and Leased Real Properties................................... A-12
3.9 Intellectual Property.............................................. A-13
3.10 Agreements, Contracts and Commitments.............................. A-15
3.11 Litigation......................................................... A-16
3.12 Environmental Matters.............................................. A-16
3.13 Employee Benefit Plans............................................. A-18
3.14 Compliance With Laws............................................... A-20
3.15 Permits............................................................ A-20
3.16 Labor Matters...................................................... A-20
3.17 Insurance.......................................................... A-20
3.18 Assets............................................................. A-20
3.19 Customers and Suppliers............................................ A-21
3.20 Accounts Receivable................................................ A-21
3.21 Prepayments, Prebilled Invoices and Deposits....................... A-21
3.22 Government Contracts............................................... A-21
3.23 No Existing Discussions............................................ A-22
3.24 Opinion of Financial Advisor....................................... A-22
3.25 Articles 14 and 14.1 of the VSCA Not Applicable.................... A-22
3.26 Brokers; Schedule of Fees and Expenses............................. A-22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY
SUBSIDIARY..................................................... A-22
4.1 Organization, Standing and Power................................... A-22
4.2 Capitalization..................................................... A-23
4.3 Authority; No Conflict; Required Filings and Consents.............. A-23
4.4 SEC Filings; Financial Statements; Information Provided............ A-24
4.5 Tax Matters........................................................ A-25
4.6 Operations of the Transitory Subsidiary............................ A-25
4.7 Brokers............................................................ A-25
4.8 Litigation......................................................... A-25
4.9 Absence of Certain Changes or Events............................... A-25
ARTICLE V CONDUCT OF BUSINESS............................................. A-25
5.1 Covenants of the Company........................................... A-25
5.2 Employee Stock Purchase Plan....................................... A-28
5.3 Confidentiality.................................................... A-28
i
ARTICLE VI ADDITIONAL AGREEMENTS........................................ A-28
6.1 No Solicitation.................................................. A-28
6.2 Proxy Statement/Prospectus; Registration Statement............... A-30
6.3 Nasdaq Quotation................................................. A-31
6.4 Access to Information............................................ A-31
6.5 Company Shareholders Meeting..................................... A-31
6.6 Additional Agreements............................................ A-32
6.7 Legal Conditions to the Merger................................... A-32
6.8 Public Disclosure................................................ A-33
6.9 Reorganization................................................... A-33
6.10 Affiliate Agreements............................................. A-33
6.11 AMEX Listing..................................................... A-34
6.12 Company Stock Plans.............................................. A-34
6.13 Shareholder Litigation........................................... A-34
6.14 Indemnification.................................................. A-35
6.15 Notification of Certain Matters.................................. A-35
6.16 Exemption from Liability Under Section 16(b)..................... A-35
6.17 Comfort Letters.................................................. A-36
6.18 Representation on Buyer Board.................................... A-36
ARTICLE VII CONDITIONS TO MERGER........................................ A-36
7.1 Conditions to Each Party's Obligation To Effect the Merger....... A-36
7.2 Additional Conditions to Obligations of the Buyer and the
Transitory Subsidiary............................................ A-37
7.3 Additional Conditions to Obligations of the Company.............. A-38
ARTICLE VIII TERMINATION AND AMENDMENT.................................. A-39
8.1 Termination...................................................... A-39
8.2 Effect of Termination............................................ A-39
8.3 Fees and Expenses................................................ A-40
8.4 Amendment........................................................ A-41
8.5 Extension; Waiver................................................ A-41
ARTICLE IX MISCELLANEOUS................................................ A-41
9.1 Nonsurvival of Representations and Warranties.................... A-41
9.2 Notices.......................................................... A-41
9.3 Entire Agreement................................................. A-42
9.4 No Third Party Beneficiaries..................................... A-42
9.5 Assignment....................................................... A-42
9.6 Severability..................................................... A-43
9.7 Counterparts and Signature....................................... A-43
9.8 Interpretation................................................... A-43
9.9 Governing Law.................................................... A-43
9.10 Remedies......................................................... A-43
9.11 WAIVER OF JURY TRIAL............................................. A-44
Exhibit A Plan of Merger
Exhibit B Form of Shareholder's Agreement
Exhibit C Form of Executive Retention Agreement
Exhibit D Form of Affiliate Agreement
ii
TABLE OF DEFINED TERMS
Reference in
Terms Agreement
----- --------------
Acquisition Proposal............................................ Section 6.1(f)
Affiliate....................................................... Section 3.2(d)
Affiliate Agreement............................................. Section 6.10
Affiliate Contracts............................................. Section 3.10(b)
Agreement....................................................... Preamble
Alternative Acquisition Agreement............................... Section 6.1(b)
AMEX............................................................ Section 2.2(e)
Antitrust Laws.................................................. Section 6.7(b)
Antitrust Order................................................. Section 6.7(b)
Articles of Merger.............................................. Section 1.1
Buyer........................................................... Preamble
Buyer Class B Common Stock...................................... Section 4.2
Buyer Common Stock.............................................. Section 2.1(c)
Buyer Disclosure Schedule....................................... Article IV
Buyer ESPP...................................................... Section 6.12(d)
Buyer Material Adverse Effect................................... Section 4.1
Buyer Preferred Stock........................................... Section 4.2
Buyer SEC Reports............................................... Section 4.4(a)
Buyer Stock Option.............................................. Section 6.12(a)
Certificates.................................................... Section 2.2(b)
Closing......................................................... Section 1.2
Closing Date.................................................... Section 1.2
Code............................................................ Preamble
Company......................................................... Preamble
Company Balance Sheet........................................... Section 3.4(b)
Company Board................................................... Section 3.3(a)
Company Common Stock............................................ Section 2.1(b)
Company Disclosure Schedule..................................... Article III
Company Employee Plans.......................................... Section 3.13(a)
Company ESPP.................................................... Section 5.1(n)
Company Insiders................................................ Section 6.16(c)
Company Intellectual Property................................... Section 3.9(a)
Company Material Adverse Effect................................. Section 3.1(a)
Company Material Contracts...................................... Section 3.10(a)
Company Nonvoting Common Stock.................................. Section 3.2(a)
Company Permits................................................. Section 3.15
Company Preferred Stock......................................... Section 3.2(a)
Company SEC Reports............................................. Section 3.4(a)
Company Stock Options........................................... Section 3.2(b)
Company Stock Plans............................................. Section 3.2(b)
Company Shareholder Approval.................................... Section 3.3(a)
Company Shareholders Meeting.................................... Section 3.4(c)
Company Voting Proposal......................................... Section 3.3(a)
Confidentiality Agreement....................................... Section 5.3
Constituent Corporations........................................ Section 1.3
Contamination................................................... Section 3.12(c)
Contracts....................................................... Section 3.10(e)
Effective Time.................................................. Section 1.1
iii
Reference in
Terms Agreement
----- --------------
Employee Benefit Plan........................................... Section 3.13(a)
Environmental Law............................................... Section 3.12(b)
ERISA........................................................... Section 3.13(a)
ERISA Affiliate................................................. Section 3.13(a)
Exchange Agent.................................................. Section 2.2(a)
Exchange Fund................................................... Section 2.2(a)
Exchange Act.................................................... Section 3.3(c)
Exchange Ratio.................................................. Section 2.1(c)
GAAP............................................................ Section 3.4(b)
Governmental Entity............................................. Section 3.3(c)
Governmental Regulations........................................ Section 3.8(b)
Government Contracts............................................ Section 3.22
Hazardous Substance............................................. Section 3.12(e)
HSR Act......................................................... Section 3.3(c)
Indemnified Parties............................................. Section 6.14(a)
Insurance Policies.............................................. Section 3.17
Intellectual Property........................................... Section 3.9(a)
Liens........................................................... Section 3.18
Merger.......................................................... Preamble
Ordinary Course of Business..................................... Section 3.2(e)
Outside Date.................................................... Section 8.1(b)
Plan of Merger.................................................. Preamble
Proxy Statement/Prospectus...................................... Section 3.4(c)
Registration Statement.......................................... Section 3.4(c)
Release......................................................... Section 3.12(d)
Representatives................................................. Section 6.1(a)
Real Estate..................................................... Section 3.8(a)
Regulation M-A Filing........................................... Section 3.4(c)
Rule 145 Affiliate.............................................. Section 2.2(j)
SCC............................................................. Section 1.1
SEC............................................................. Section 3.3(c)
Section 16 Information.......................................... Section 6.16(b)
Securities Act.................................................. Section 3.3(c)
Shareholder's Agreement......................................... Preamble
Shareholder Designee............................................ Section 6.18(a)
Special ESPP Period............................................. Section 6.12(d)
Specified Time.................................................. Section 6.1(a)
Subsidiary...................................................... Section 3.1(b)
Superior Proposal............................................... Section 6.1(f)
Surviving Corporation........................................... Section 1.3
Tax Returns..................................................... Section 3.7(a)
Taxes........................................................... Section 3.7(a)
Third Party Confidentiality Agreement........................... Section 6.1(a)
Transitory Subsidiary........................................... Preamble
VSCA............................................................ Preamble
iv
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of August 20,
2001, is entered into by and among Keane, Inc., a Massachusetts corporation
(the "Buyer"), Veritas Acquisition Corp., a Virginia corporation and a wholly
owned subsidiary of the Buyer (the "Transitory Subsidiary"), and Metro
Information Services, Inc., a Virginia corporation (the "Company").
Whereas, the boards of directors of the Buyer and the Company deem it
advisable and in the best interests of each corporation and their respective
shareholders that the Buyer acquire the Company in order to advance the long-
term business interests of the Buyer and the Company;
Whereas, the acquisition of the Company shall be effected through a merger
(the "Merger") of the Transitory Subsidiary with and into the Company in
accordance with the terms of this Agreement, including the Plan of Merger
attached hereto as Exhibit A (the "Plan of Merger"), and the Virginia Stock
Corporation Act (the "VSCA"), as a result of which the Company shall become a
wholly owned subsidiary of the Buyer;
Whereas, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, John H. Fain has entered into a Shareholder's Agreement, dated as of
the date of this Agreement, in the form attached hereto as Exhibit B (the
"Shareholder's Agreement"), pursuant to which, among other things, such
shareholder has agreed to give the Buyer a proxy to vote a certain number of
the shares of capital stock of the Company that such shareholder owns in favor
of the Merger; and
Whereas, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Buyer, the Transitory Subsidiary and the Company agree as follows:
ARTICLE I
The Merger
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, prior to the Closing, the Buyer shall prepare, and on the Closing
Date or as soon as practicable thereafter the Buyer shall cause to be filed
with the State Corporation Commission of Virginia (the "SCC"), articles of
merger (the "Articles of Merger") in such form as is required by, and executed
by the Surviving Corporation in accordance with, the relevant provisions of the
VSCA and shall make all other filings or recordings required under the VSCA.
The Merger shall become effective upon the issuance of the Certificate of
Merger by the SCC or at such later time as is established by the Buyer and the
Company and set forth in the Articles of Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., Boston time, on a date to be specified by the Buyer and the Company
(the "Closing Date"), which shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Article VII (other
than delivery of items to be delivered at the Closing and other than
satisfaction of those conditions that by their nature are to be satisfied at
the Closing, it being understood that the occurrence of the Closing shall
remain subject to the delivery of such items and the satisfaction or waiver of
such conditions at the Closing), at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, unless another date, place or time is agreed to
in writing by the Buyer and the Company.
1.3 Effects of the Merger. At the Effective Time (a) the separate existence
of the Transitory Subsidiary shall cease and the Transitory Subsidiary shall be
merged with and into the Company (the Transitory Subsidiary
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and the Company are sometimes referred to herein as the "Constituent
Corporations," and the Company following the Merger is sometimes referred to
herein as the "Surviving Corporation"), (b) the Articles of Incorporation of
the Company as in effect immediately prior to the Effective Time shall be
amended to be identical to the Articles of Incorporation of the Transitory
Subsidiary as in effect immediately prior to the Effective Time except that all
references to the name of the Transitory Subsidiary shall be changed to refer
to the name of the Company, and, as so amended, such Articles of Incorporation
shall be the Articles of Incorporation of the Surviving Corporation, until
further amended in accordance with the VSCA, and (c) the Bylaws of the Company
as in effect immediately prior to the Effective Time shall be amended to be
identical to the Bylaws of the Transitory Subsidiary as in effect immediately
prior to the Effective Time except that all references to the name of the
Transitory Subsidiary shall be changed to refer to the name of the Company,
and, as so amended, such Bylaws shall be the Bylaws of the Surviving
Corporation, until further amended in accordance with the VSCA. The Merger
shall have the other effects set forth in Section 13.1-721 of the VSCA.
1.4 Directors and Officers. The directors and officers of the Transitory
Subsidiary immediately prior to the Effective Time shall become the directors
and officers, respectively, of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE II
Conversion of Securities
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
capital stock of the Company or capital stock of the Transitory Subsidiary:
(a) Capital Stock of the Transitory Subsidiary. Each share of the common
stock of the Transitory Subsidiary issued and outstanding immediately prior
to the Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, $.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Buyer-Owned Stock. All shares of common stock, $0.01
par value per share, of the Company, including all shares of Nonvoting
Common Stock ("Company Common Stock"), that are owned by any wholly owned
Subsidiary of the Company and any shares of Company Common Stock owned by
the Buyer, the Transitory Subsidiary or any other wholly owned Subsidiary
of the Buyer immediately prior to the Effective Time shall be cancelled and
shall cease to exist and no stock of the Buyer or other consideration shall
be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section 2.2, each
share of Company Common Stock (other than shares to be cancelled in
accordance with Section 2.1(b)) issued and outstanding immediately prior to
the Effective Time shall be automatically converted into the right to
receive 0.48 shares (the "Exchange Ratio") of common stock, $0.10 par value
per share, of the Buyer ("Buyer Common Stock") upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 2.2. As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be cancelled and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have
any rights with respect thereto, except the right to receive shares of
Buyer Common Stock pursuant to this Section 2.1(c) and any cash in lieu of
fractional shares of Buyer Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 2.2, without interest.
(d) Adjustments to Exchange Ratio. In the event of any reclassification,
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Buyer Common Stock or Company
Common Stock), reorganization, recapitalization or other like change with
respect to Buyer Common Stock or Company Common Stock occurring (or for
which a record date is established)
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after the date hereof and prior to the Effective Time, the Exchange Ratio
shall be proportionately adjusted to reflect fully such event.
(e) Unvested Stock. At the Effective Time, any shares of Buyer Common
Stock issued in accordance with Section 2.1(c) with respect to any unvested
shares of Company Common Stock awarded to employees, directors, advisors or
consultants pursuant to any of the Company's plans or arrangements and
outstanding immediately prior to the Effective Time shall be converted into
unvested shares of Buyer Common Stock in accordance with the Exchange Ratio
and shall remain subject to the same terms, restrictions and vesting
schedule as in effect immediately prior to the Effective Time, except to
the extent by their terms such unvested shares of Company Common Stock vest
at the Effective Time. The Company shall not take or permit any action
which would accelerate vesting of any unvested shares, except to the extent
required by their terms as in effect on the date hereof. Copies of the
relevant agreements governing such shares and the vesting thereof have been
provided to the Buyer. All outstanding rights which the Company may hold
immediately prior to the Effective Time to repurchase unvested shares of
Company Common Stock shall be assigned to the Buyer in the Merger and shall
thereafter be exercisable by the Buyer upon the same terms and conditions
in effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to such rights and the purchase price payable per
share shall be appropriately adjusted to reflect the Exchange Ratio. The
Company shall take all steps necessary to cause the foregoing provisions of
this Section 2.1(e) to occur.
(f) Treatment of Company Stock Options. Following the Effective Time,
Company Stock Options shall be treated in the manner set forth in Section
6.12.
2.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of Company Common Stock for shares of Buyer Common Stock pursuant to the
Merger are as follows:
(a) Exchange Agent. As of the Effective Time, the Buyer shall deposit
with EquiServe LP or another bank or trust company designated by the Buyer
and acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of the Company Common Stock, for exchange in
accordance with this Section 2.2, through the Exchange Agent, (i)
certificates representing that number of whole shares of Buyer Common Stock
equal to the aggregate number of shares of Buyer Common Stock issuable
pursuant to Section 2.1(c), (ii) cash in an amount sufficient to make
payments for fractional shares required pursuant to Section 2.2(e) and
(iii) any dividends or distributions to which holders of shares of Company
Common Stock may be entitled pursuant to Section 2.2(c). The shares of
Buyer Common Stock deposited with the Exchange Agent pursuant to clause (i)
above, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, and the cash deposited
pursuant to clause (ii) above being hereinafter referred to as the
"Exchange Fund."
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the
"Certificates") whose shares were converted pursuant to Section 2.1 into
the right to receive shares of Buyer Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Buyer may reasonably specify) and (ii) instructions
for effecting the surrender of the Certificates in exchange for shares of
Buyer Common Stock (plus cash in lieu of fractional shares, if any, of
Buyer Common Stock and any dividends or distributions as provided below).
Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by the Buyer, together
with such letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a
certificate representing that number of whole shares of Buyer Common Stock
which such holder has the right to receive pursuant to Section 2.1(c), (B)
cash in an amount sufficient to make payments for fractional shares
pursuant to the provisions of Section 2.2(e) and (C) any dividends or
distributions pursuant to the provisions of Section 2.2(c), and the
Certificate so
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surrendered shall immediately be cancelled. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, (x) a certificate representing the proper number of
shares of Buyer Common Stock issuable pursuant to Section 2.1(c), (y) the
proper amount of cash in lieu of fractional shares pursuant to Section
2.2(e) and (z) any dividends or distributions pursuant to Section 2.2(c)
may be issued or paid to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate is presented
to the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender (1) shares of
Buyer Common Stock issuable pursuant to Section 2.1(c), (2) cash in lieu of
fractional shares pursuant to Section 2.2(e) and (3) any dividends or
distributions pursuant to Section 2.2(c) as contemplated by this Section
2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.2(e) until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and paid
to the record holder of the Certificate, (i) certificates representing
whole shares of Buyer Common Stock issued in exchange therefor, (ii) at the
time of such surrender, the amount of any cash payable in lieu of a
fractional share of Buyer Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time previously paid
with respect to such whole shares of Buyer Common Stock, without interest,
and (iii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect
to such whole shares of Buyer Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Buyer Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (together with any cash or dividends or
other distributions paid pursuant to Sections 2.2(c) or 2.2(e)) shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and from and after the
Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent for any reason, they shall be
cancelled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder
of the Buyer. Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock converted pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Buyer Common Stock (after taking into account all Certificates registered
in the name of or delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a
share of Buyer Common Stock multiplied by the average of the last reported
sales prices per share of the Buyer Common Stock on the American Stock
Exchange ("AMEX") during the ten consecutive trading days ending on the
last trading day prior to the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock 180 days after
the Effective Time shall be delivered to the Buyer, upon demand, and any
holder of Company Common Stock who has not previously complied with this
Section 2.2 shall thereafter look only to the Buyer, as a general unsecured
creditor, for payment of its claim for shares of Buyer Common Stock, any
cash in lieu of fractional shares of Buyer Common Stock issued pursuant to
Section 2.2(e) and any dividends or distributions paid pursuant to Section
2.2(c).
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(g) No Liability. To the extent permitted by applicable law, none of the
Buyer, the Transitory Subsidiary, the Company, the Surviving Corporation or
the Exchange Agent shall be liable to any holder of shares of Company
Common Stock or Buyer Common Stock, as the case may be, for such shares of
Buyer Common Stock (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to one year after the Effective Time (or immediately
prior to such earlier date on which any shares of Buyer Common Stock, and
any cash in lieu of fractional shares payable to the holder of such
Certificate pursuant to Section 2.2(e) or any dividends or distributions
payable to the holder of such Certificate pursuant to Section 2.2(c), would
otherwise escheat to or become the property of any Governmental Entity),
all such shares of Buyer Common Stock, cash in lieu of fractional shares or
dividends or distributions in respect of such Certificate shall, to the
extent permitted by applicable law, become the property of the Buyer, free
and clear of all claims or interest of any person previously entitled
thereto.
(h) Withholding Rights. Each of the Buyer and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it reasonably determines that it is required
to deduct and withhold with respect to the making of such payment under the
Code, or any other applicable provision of law. To the extent that amounts
are so withheld by the Surviving Corporation or the Buyer, as the case may
be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or the Buyer, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the shares of Buyer Common Stock, any cash
in lieu of fractional shares, and unpaid dividends and distributions on
shares of Buyer Common Stock deliverable in respect thereof pursuant to
this Agreement.
(j) Rule 145 Affiliates. Notwithstanding anything herein to the
contrary, Certificates surrendered for exchange by any affiliate of the
Company (within the meaning of Rule 145 promulgated under the Securities
Act) (each such person, a "Rule 145 Affiliate") shall not be exchanged
until the Buyer has received an Affiliate Agreement (as such term is
defined in Section 6.10 below) from such Rule 145 Affiliate.
ARTICLE III
Representations and Warranties of the Company
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article III are true and
correct, except as expressly set forth herein or in the disclosure schedule
delivered by the Company to the Buyer and the Transitory Subsidiary on or
before the date of this Agreement (the "Company Disclosure Schedule"). The
Company Disclosure Schedule shall be arranged in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained in
this Article III, and the disclosure in any section or paragraph shall qualify
(1) the corresponding section or paragraph in this Article III and (2) such
other sections and paragraphs in this Article III only to the extent that it is
clear from a reading of such disclosure that it also qualifies or applies to
such other sections or paragraphs.
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3.1 Organization, Standing and Power; Subsidiaries.
(a) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted and as proposed to be conducted, and is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except for such failures to be so organized, qualified or in good standing,
individually or in the aggregate, which have not had and are not reasonably
likely to have a Company Material Adverse Effect. For purposes of this
Agreement, the term "Company Material Adverse Effect" means any change, event,
circumstance, development or effect that is or is reasonably likely to have a
material adverse effect on (i) the business, assets, liabilities,
capitalization, prospects, condition (financial or other), or results of
operations of the Company and its Subsidiaries, taken as a whole, (ii) the
ability of the Company to consummate the transactions contemplated by this
Agreement or (iii) the ability of the Buyer to operate the business of the
Company and each of its Subsidiaries immediately after the Closing; provided,
however, that for purposes of this Agreement, the following shall not be taken
into account in determining whether there has been or would be a "Company
Material Adverse Effect": (x) any adverse change in the stock price or trading
volume of the Company in and of itself, as quoted on The Nasdaq National
Market, and (y) changes or effects relating to the economy or the IT services
business as a whole not substantially disproportionately affecting the Company
and its Subsidiaries taken as a whole. For the avoidance of doubt, the parties
agree that the terms "material," "materially" or "materiality" as used in this
Agreement with an initial lower case "m" shall have their respective customary
and ordinary meanings, without regard to the meaning ascribed to Company
Material Adverse Effect in the prior sentence of this paragraph.
(b) Neither the Company nor any of its Subsidiaries directly or indirectly
owns any equity, membership, partnership or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity,
membership, partnership or similar interest in, any corporation, partnership,
joint venture, limited liability company or other business association or
entity, whether incorporated or unincorporated. Neither the Company nor any of
its Subsidiaries has, at any time, been a general partner or managing member of
any general partnership, limited partnership or other entity. Section 3.1(b) of
the Company Disclosure Schedule sets forth a complete and accurate list of all
of the Company's Subsidiaries and the Company's direct or indirect equity
interest therein. As used in this Agreement, the term "Subsidiary" means, with
respect to a party, any corporation, partnership, joint venture, limited
liability company or other business association or entity, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner or a managing member (excluding partnerships, the
general partnership interests of which held by such party and/or one or more of
its Subsidiaries do not have a majority of the voting interest in such
partnership), (ii) such party and/or one or more of its Subsidiaries holds
voting power to elect a majority of the board of directors or other governing
body performing similar functions, or (iii) such party and/or one or more of
its Subsidiaries, directly or indirectly, owns or controls more than 50% of the
equity, membership, partnership or similar interests.
(c) The Company has made available to the Buyer complete and accurate copies
of the Articles of Incorporation and Bylaws of the Company and the charter,
bylaws or other organizational documents of each Subsidiary of the Company.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 49,000,000
shares of Company Common Stock, (ii) 1,000,000 shares of nonvoting common
stock, $0.01 par value per share ("Company Nonvoting Common Stock"), and (iii)
1,000,000 shares of preferred stock, $.01 par value per share ("Company
Preferred Stock"). The rights and privileges of each class of the Company's
capital stock are as set forth in the Company's Articles of Incorporation. As
of the close of business on August 17, 2001, (w) 15,337,760 shares of Company
Common Stock were issued and outstanding, (x) no shares of Company Common Stock
were held by
A-6
Subsidiaries of the Company, (y) no shares of the Company Nonvoting Common
Stock were issued or outstanding and (z) no shares of the Company Preferred
Stock were issued or outstanding. Section 3.2(a) of the Company Disclosure
Schedule lists all issued and outstanding shares of Company Common Stock that
constitute restricted stock or that are otherwise subject to a repurchase or
redemption right or right of first refusal in favor of the Company; the name of
the applicable shareholder; the lapsing schedule for any such shares, including
the extent to which any such repurchase or redemption right or right of first
refusal has lapsed as of the date of this Agreement, whether (and to what
extent) the lapsing will be accelerated in any way by the transactions
contemplated by this Agreement or by termination of employment or change in
position following consummation of the Merger; and whether such holder has the
sole power to vote and dispose of such shares.
(b) Section 3.2(b) of the Company Disclosure Schedule lists the number of
shares of Company Common Stock reserved for future issuance pursuant to stock
options granted and outstanding as of the date of this Agreement and the plans
under which such options were granted (collectively, the "Company Stock Plans")
and sets forth a complete and accurate list of all holders of outstanding
options to purchase shares of Company Common Stock (such outstanding options,
the "Company Stock Options") under the Company Stock Plans, indicating with
respect to each Company Stock Option the number of shares of Company Common
Stock subject to such Company Stock Option, the relationship of the holder to
the Company, and the exercise price, the date of grant, vesting schedule and
the expiration date thereof, including the extent to which any vesting has
occurred as of the date of this Agreement. No Company Stock Options will be
accelerated in any way by the transactions contemplated by this Agreement or by
termination of employment or change in position following consummation of the
Merger. The Company has provided to the Buyer accurate and complete copies of
(i) all Company Stock Plans and (ii) the forms of all stock option agreements
evidencing all Company Stock Options.
(c) Except (i) as set forth in this Section 3.2 and (ii) as reserved for
future grants under Company Stock Plans, (A) there are no equity securities of
any class of the Company or any of its Subsidiaries (other than equity
securities of any such Subsidiary that are directly or indirectly owned by the
Company), or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding and (B) there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound obligating the Company
or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or
cause to be issued, exchanged, transferred, delivered or sold, additional
shares of capital stock or other equity interests of the Company or any of its
Subsidiaries or any security or right convertible into or exchangeable or
exercisable for any such shares or other equity interests, or obligating the
Company or any of its Subsidiaries to grant, extend, accelerate the vesting of,
otherwise modify or amend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Neither the Company nor any of
its Subsidiaries has outstanding any stock appreciation rights, phantom stock,
performance-based rights or similar rights or obligations.
(d) Other than the Shareholder's Agreement, neither the Company nor any of
its affiliates (as such term is defined in Rule 405 promulgated under the
Securities Act) (each, an "Affiliate") is a party to or is bound by any, and to
the knowledge of the Company, there are no, agreements or understandings with
respect to the voting (including voting trusts and proxies) or sale or transfer
(including agreements imposing transfer restrictions) of any shares of capital
stock or other equity interests of the Company or any of its Subsidiaries.
Except as contemplated by this Agreement, there are no registration rights, and
there is no rights agreement, "poison pill" anti-takeover plan or other
agreement or understanding to which the Company or any of its Subsidiaries is a
party or by which it or they are bound with respect to any equity security of
any class of the Company or any of its Subsidiaries or with respect to any
equity security, partnership interest or similar ownership interest of any
class of any of its Subsidiaries. Shareholders of the Company are not entitled
to dissenters' or appraisal rights under applicable state law in connection
with the Merger or the transactions contemplated by this Agreement.
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(e) All outstanding shares of Company Common Stock are, and all shares of
Company Common Stock subject to issuance as specified in Sections 3.2(b) and
3.2(c) above, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be, duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision
of the VSCA, the Company's Articles of Incorporation or Bylaws or any agreement
to which the Company is a party or is otherwise bound. There are no
obligations, contingent or otherwise, of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of Company Common Stock
or the capital stock of the Company or any of its Subsidiaries or to provide
funds to or make any material investment (in the form of a loan, capital
contribution or otherwise) in the Company or any Subsidiary of the Company or
any other entity, other than guarantees of bank obligations of Subsidiaries of
the Company entered into in the ordinary course of business consistent with
past practice (the "Ordinary Course of Business").
(f) All of the outstanding shares of capital stock and other equity
securities or interests of each of the Company's Subsidiaries are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights and all such shares (other than directors' qualifying shares in the case
of non-U.S. Subsidiaries, all of which the Company has the power to cause to be
transferred for no or nominal consideration to the Buyer or the Buyer's
designee) are owned, of record and beneficially, by the Company or another
Subsidiary of the Company free and clear of all security interests, liens,
claims, pledges, agreements, limitations in the Company's voting rights,
charges or other encumbrances of any nature.
(g) No consent of the holders of Company Stock Options is required in
connection with the actions contemplated by Section 6.12.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject only to the approval and adoption of this
Agreement and the Plan of Merger (the "Company Voting Proposal") by the
Company's shareholders under the VSCA (the "Company Shareholder Approval"), to
consummate the transactions contemplated by this Agreement. Without limiting
the generality of the foregoing, the board of directors of the Company (the
"Company Board"), at a meeting duly called and held, by the unanimous vote of
all Directors (i) determined that the Merger, the Plan of Merger and this
Agreement are in the best interests of the Company and its shareholders, (ii)
adopted this Agreement and the Plan of Merger in accordance with the provisions
of the VSCA, (iii) directed that this Agreement and the Plan of Merger be
submitted to the shareholders of the Company for their adoption and approval
and resolved to recommend that the shareholders of the Company vote in favor of
the adoption and approval of this Agreement and the Plan of Merger and (iv) to
the extent necessary, adopted a resolution having the effect of causing the
Company, the Buyer, the Transitory Subsidiary and any Affiliate of any of them
not to be subject to any state takeover law or similar law that might otherwise
apply to the Merger and any other transactions contemplated by this Agreement
or the Shareholder's Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement by the
Company have been duly authorized by all necessary corporate action on the part
of the Company, subject only to the required receipt of the Company Shareholder
Approval. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement by the Company does not,
and the consummation by the Company of the transactions contemplated by this
Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Articles of Incorporation or Bylaws of the Company or the
charter, bylaws or other organizational document of any Subsidiary of the
Company, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit) under, require a consent or waiver under,
constitute a change in control under, require the payment of a penalty under or
result in the imposition of any Lien on the Company's or any of its
Subsidiary's assets under, any of the terms,
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conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract or other agreement, instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or (iii) subject to obtaining the
Company Shareholder Approval and compliance with the requirements specified in
clauses (i), (ii), (iii), (iv) and (v) of Section 3.3(c), conflict with or
violate any permit, concession, franchise, license, judgment, injunction,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries or any of its or their properties or assets,
except in the case of clauses (ii) and (iii) of this Section 3.3(b) for any
such conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations or losses which, individually or in the aggregate, are not
reasonably likely to be material to the Company and its Subsidiaries taken as a
whole. Section 3.3(b) of the Company Disclosure Schedule lists all consents,
waivers and approvals under any of Company's or any of its Subsidiaries'
material agreements, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority, agency or instrumentality, foreign or domestic (a
"Governmental Entity"), is required by or with respect to the Company or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the pre-merger notification
requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the filing of the Articles of Merger with the SCC
and appropriate corresponding documents with the Secretaries of State of other
states in which the Company is qualified as a foreign corporation to transact
business, (iii) the filing of the Proxy Statement/Prospectus with the
Securities and Exchange Commission (the "SEC") in accordance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) the
filing of such reports, schedules or materials under Section 13 or Rule 14a-12
of the Exchange Act and materials under Rule 165 and Rule 425 of the Securities
Act of 1933, as amended (the "Securities Act"), as may be required in
connection with this Agreement and the transactions contemplated hereby and
thereby, (v) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and (vi) such other consents, licenses, permits, orders, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be reasonably likely, individually or in the aggregate, to be material to the
Company and its Subsidiaries taken as a whole.
(d) The affirmative vote for approval and adoption of this Agreement and the
Plan of Merger by the holders of a majority of the outstanding shares of
Company Common Stock on the record date for the Company Shareholders Meeting is
the only vote of the holders of any class or series of the Company's capital
stock or other securities necessary to approve and adopt this Agreement and the
Plan of Merger and for consummation by the Company of the other transactions
contemplated by this Agreement. There are no holders of bonds, debentures,
notes or other indebtedness of the Company having the right to vote (nor
holders of bonds, debentures, notes or other indebtedness of the Company
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of the Company may vote.
3.4 SEC Filings; Financial Statements; Information Provided.
(a) The Company has filed all registration statements, forms, reports and
other documents required to be filed by the Company with the SEC since January
1, 1998, and has made available to the Buyer copies of all registration
statements, forms, reports and other documents filed by the Company with the
SEC since such date. All such registration statements, forms, reports and other
documents (including those that the Company may file after the date hereof
until the Closing) are referred to herein as the "Company SEC Reports." The
Company SEC Reports (i) were or will be filed on a timely basis, (ii) at the
time filed, were or will be prepared in compliance in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Company SEC Reports, and (iii) did not or will not at the time they
were or are filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Company SEC Reports or
necessary
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in order to make the statements in such Company SEC Reports, in the light of
the circumstances under which they were made, not misleading. No Subsidiary of
the Company is subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act.
(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Company
SEC Reports at the time filed (i) complied or will comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) were or will be
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by the SEC on Form 10-Q
under the Exchange Act) and (iii) fairly presented or will fairly present in
accordance with GAAP the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, consistent with the books
and records of the Company and its Subsidiaries, except that the unaudited
interim financial statements were or are subject to normal year-end adjustments
which were not or will not be material in amount. The consolidated, unaudited
balance sheet of the Company as of June 30, 2001 is referred to herein as the
"Company Balance Sheet."
(c) The information to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed by the Buyer pursuant to which shares of Buyer Common Stock
issued in connection with the Merger shall be registered under the Securities
Act (the "Registration Statement"), or for inclusion in any filing pursuant to
Rule 165 or Rule 425 under the Securities Act or Rule 14a-12 under the Exchange
Act (each, a "Regulation M-A Filing"), shall not at the time the Registration
Statement or any Regulation M-A Filing is filed with the SEC, at any time it is
amended or supplemented, or at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information to be supplied by
the Company for inclusion in the proxy statement/prospectus (the "Proxy
Statement/Prospectus") to be sent to the shareholders of the Company in
connection with the meeting of the Company's shareholders to consider the
approval and adoption of this Agreement and the Plan of Merger (the "Company
Shareholders Meeting") shall not, on the date the Proxy Statement/Prospectus is
first mailed to shareholders of the Company, or at the time of the Company
Shareholders Meeting or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement/Prospectus not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the Company Shareholders Meeting
which has become false or misleading. If at any time prior to the Effective
Time any event relating to the Company or any of its Affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform the Buyer.
3.5 No Undisclosed Liabilities.
(a) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, and except for normal liabilities incurred since the date of
the Company Balance Sheet in the Ordinary Course of Business, the Company and
its Subsidiaries do not have any material liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due.
(b) Section 3.5(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness of the Company or any of its Subsidiaries in an aggregate
principal amount in excess of $100,000 is outstanding or may be incurred and
the respective principal amounts outstanding thereunder as
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of the date of this Agreement. For purposes of this Section, "indebtedness"
means, with respect to any person, without duplication, (i) all obligations of
such person for borrowed money, or with respect to deposits or advances of any
kind to such person, (ii) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such person
upon which interest charges are customarily paid, (iv) all obligations of such
person under conditional sale or other title retention agreements relating to
property purchased by such person, (v) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding
obligations of such person or creditors for raw materials, inventory, services
and supplies incurred in the Ordinary Course of Business), (vi) all capitalized
lease obligations of such person, (vii) all obligations of others secured by
any lien on property or assets owned or acquired by such person, whether or not
the obligations secured thereby have been assumed, (viii) all obligations of
such person under interest rate or currency hedging transactions (valued at the
termination value thereof), (ix) all letters of credit issued for the account
of such person and (x) all guarantees and arrangements having the economic
effect of a guarantee by such person of any indebtedness of any other person.
All of the outstanding indebtedness of the type described in this Section
3.5(b) and in individual principal amounts in excess of $100,000 of the Company
or any of its Subsidiaries may be prepaid by the Company or its Subsidiary at
any time without the consent or approval of, or prior notice to, any other
person, and without payment of any premium or penalty.
3.6 Absence of Certain Changes or Events. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement, since December 31, 2000,
the Company and its Subsidiaries have conducted their respective businesses
only in the Ordinary Course of Business and (a) since December 31, 2000, there
has not been (i) any change, event, circumstance, development or effect that
individually or in the aggregate has had, or is reasonably likely to have, a
Company Material Adverse Effect or (ii) any material change by the Company or
any of its Subsidiaries in its accounting methods not required pursuant to GAAP
and (b) since June 30, 2001, there has not been any other action or event that
would have required the consent of the Buyer pursuant to Section 5.1 of this
Agreement (other than paragraph (l) of Section 5.1) had such action or event
occurred after the date of this Agreement.
3.7 Taxes.
(a) Each of the Company and its Subsidiaries has timely filed all Tax
Returns that it was required to file (taking into account applicable
extensions), and all such Tax Returns were correct and complete in all material
respects. Each of the Company and its Subsidiaries has paid on a timely basis
or contested in good faith and fully reserved for all Taxes that were due
(whether or not shown) on any such Tax Returns. The unpaid Taxes of the Company
and its Subsidiaries for Tax periods through the date of the Company Balance
Sheet do not exceed the accruals and reserves for Taxes set forth on the
Company Balance Sheet exclusive of any accruals or reserves for "deferred
taxes" or similar items that reflect timing differences between Tax and
financial accounting principles. All Taxes attributable to periods commencing
after the date of the Company Balance Sheet have arisen in the Ordinary Course
of Business and are consistent with regard to type and amount with Taxes
incurred in comparable historical periods. All Taxes that the Company or any of
its Subsidiaries is or was required by law to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Entity. For purposes of this Agreement, (i) "Taxes" means
all taxes, charges, fees, levies or other similar assessments or liabilities,
including without limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales, use, services,
transfer, withholding, employment, payroll and franchise taxes imposed by the
United States of America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof and (ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) The Company made available to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any of its
Subsidiaries for any period commencing after December 31, 1996. The Company has
made available
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to the Buyer correct and complete copies of all other material Tax Returns of
the Company and its Subsidiaries together with all related examination reports
and statements of deficiency for all periods commencing after December 31,
1996. No examination or audit of any Tax Return of the Company or any of its
Subsidiaries by any Governmental Entity is currently in progress or, to the
knowledge of the Company, threatened or contemplated. Neither the Company nor
any of its Subsidiaries has been informed by any Governmental Entity that the
Governmental Entity believes that the Company or any of its Subsidiaries was
required to file any material Tax Return that was not filed. Neither the
Company nor any of its Subsidiaries has waived any statute of limitations with
respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(c) Neither the Company nor any of its Subsidiaries: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or any of its Subsidiaries is subject to an election
under Section 341(f) of the Code; (ii) has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii)
has made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" as defined in Section 280G of the Code determined
without regard to Section 280G(b)(4) of the Code; (iv) has any actual or
potential liability for any Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of law in any jurisdiction), or as a transferee or successor, by
contract, or otherwise; or (v) is or has been required to make a basis
reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(d) Neither the Company nor any of its Subsidiaries has undergone, or will
undergo as a result of the transactions contemplated by this Agreement, a
change in its method of accounting resulting in an adjustment to its taxable
income pursuant to Section 481(h) of the Code.
(e) There is no limitation on the utilization by either the Company or any
Subsidiary of its net operating losses, built-in losses, Tax credits or similar
items under Sections 382 or 383 of the Code or comparable provisions of state
law (other than such limitation arising as a result of the consummation of the
transactions contemplated by this Agreement).
(f) Neither the Company nor any Subsidiary has distributed to its
shareholders or security holders stock or securities of a controlled
corporation, nor has stock or securities of the Company or any Subsidiary been
distributed, in a transaction to which Section 355 of the Code applies (i) in
the two years prior to the date of this Agreement or (ii) in a distribution
that could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code).
(g) To the Company's knowledge, after consulting with its advisors, neither
the Company nor any Affiliate has taken or agreed to take any action which
would prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
3.8 Owned and Leased Real Properties.
(a) Section 3.8(a) of the Company Disclosure Schedule sets forth a complete
and accurate list of (i) the addresses of all real property owned by the
Company or any Subsidiary (the "Real Estate") and (ii) all material
liabilities, liens, encumbrances, easements, restrictions, reservations,
tenancies, agreements or other obligations affecting the Real Estate. There is
no pending or, to the Company's knowledge, threatened material condemnation or
eminent domain proceeding with respect to the Real Estate. There are no
material taxes or betterment assessments other than ordinary real estate taxes
pending or payable against the Real Estate.
(b) The Real Estate complies in all material respects with the requirements
of all applicable building, zoning, subdivision, health, safety, environmental,
pollution control, waste products, sewage control and all other applicable
statutes, laws, codes, ordinances, rules, orders and regulations (collectively,
"Governmental
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Regulations"). There is no action pending or, to the Company's knowledge,
threatened by any Governmental Entity claiming that the Real Estate materially
violates any Governmental Regulations or threatening to shut down the business
of the Company or any of the Subsidiaries. There are no suits, petitions,
notices or proceedings pending, given or, to the Company's knowledge,
threatened by any persons or Governmental Entities before any court,
Governmental Entity or instrumentalities, administrative or otherwise, which if
given, commenced or concluded would have a material adverse effect on the
Company's title to the Real Estate or the operation of the business of the
Company or any Subsidiary as presently operated.
(c) To the Company's knowledge, all of the buildings, fixtures and other
improvements located on the Real Estate are in good operating condition and
repair in all material respects, and, to the Company's knowledge, the operation
thereof as presently conducted is not in violation of any material applicable
building code, zoning ordinance or other law or regulation, except where such
violations, individually or in the aggregate, has not had and is not reasonably
likely to have a Company Material Adverse Effect.
(d) Section 3.8(d) of the Company Disclosure Schedule sets forth a true,
correct and complete list of all title insurance policies, surveys, engineering
reports environmental health and safety reports prepared with respect to the
Real Estate since January 1, 1996, true, correct and complete copies of all of
which have previously been made available to the Buyer.
(e) Section 3.8(e) of the Company Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company or any of its
Subsidiaries and lists the term of such lease and the rent payable thereunder.
The Company has made available to the Buyer correct and complete copies of the
leases and subleases (as amended to date) listed in Section 3.8(e) of the
Company Disclosure Schedule. With respect to each lease and sublease listed in
Section 3.8(e) of the Company Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(ii) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect prior to the Closing;
(iii) neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party to the lease or sublease is in
material breach or default, and no event has occurred which, with notice or
lapse of time (or both) would constitute a material breach or default or
permit termination, modification or acceleration thereunder;
(iv) there are no material disputes, oral agreements, forfeiture
proceedings or forbearance programs in effect as to the lease or sublease;
(v) neither the Company nor any of its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the leasehold or subleasehold;
(vi) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(vii) the Company's consolidated financial statements contain adequate
reserves to provide for the restoration of the property subject to the
leases at the end of the respective lease terms, to the extent required by
the leases.
3.9 Intellectual Property.
(a) Other than with respect to software programs that are commercially
available on a general basis, the Company and its Subsidiaries exclusively own,
or license or otherwise possess legally enforceable rights to use on an
exclusive basis, without any obligation to make any fixed or contingent
payments, including any royalty payments, all Intellectual Property that is
material to the conduct of the business of the Company and its Subsidiaries as
currently conducted or planned to be conducted by the Company and its
Subsidiaries (the
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"Company Intellectual Property"). For purposes of this Agreement, the term
"Intellectual Property" means (i) patents, trademarks, service marks, trade
names, domain names, copyrights, designs and trade secrets, (ii) any
applications for and registrations of such patents, trademarks, service marks,
trade names, domain names, copyrights and designs, (iii) processes, formulae,
methods, schematics, technology, know-how, computer software programs and
applications and (iv) other tangible or intangible proprietary or confidential
information and material.
(b) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third party
the right to terminate or modify, any material license, sublicense or other
agreement relating to any Company Intellectual Property or any software
programs that are commercially available on a general basis, including software
that is used in the manufacture of, incorporated in, or forms a part of any
product or service sold by or expected to be sold by the Company or any of its
Subsidiaries. Section 3.9(b)(i) of the Company Disclosure Schedule sets forth a
complete and accurate list of the Company Intellectual Property (other than
unregistered copyrights, trade secrets and confidential information) owned by
the Company or a Subsidiary, and Section 3.9(b)(ii) sets forth a complete and
accurate list of the Company Intellectual Property licensed by the Company or a
Subsidiary from a third party.
(c) All material patents and registrations for registered trademarks,
service marks and copyrights which are held by the Company or any of its
Subsidiaries are valid and subsisting. To the knowledge of the Company, no
other person or entity is infringing, violating or misappropriating, as
applicable, in any material respect, any of the Company Intellectual Property.
(d) None of the (i) products previously or currently sold by the Company or
any of its Subsidiaries or (ii) business or activities previously or currently
conducted by the Company or any of its Subsidiaries infringes, violates or
constitutes a misappropriation of, as applicable, in any material respect, any
Intellectual Property of any third party. Neither the Company nor any of its
Subsidiaries has received any complaint, claim or notice alleging any such
infringement, violation or misappropriation.
(e) The Company and its Subsidiaries have taken reasonable measures and
precautions to protect and maintain the confidentiality, secrecy and value of
all Company Intellectual Property. Without limiting the generality of the
foregoing, (i) all current and former employees of the Company and its
Subsidiaries who are or were involved in, or who have contributed to, the
creation or development of any Company Intellectual Property have executed and
delivered to the Company an agreement (containing no exceptions to or
exclusions from the scope of its coverage with respect to the assignment of
Intellectual Property other than inventions conceived of or reduced to practice
prior to such person's employment with the Company or its Subsidiaries) that is
similar in scope to the form of the Company's Staff Member Agreement previously
provided to the Buyer by the Company, and (ii) all current and former employees
of the Company or any of its Subsidiaries who are or were involved in, or who
have contributed to, the creation or development of any Company Intellectual
Property have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage with respect to the
assignment of Intellectual Property other than inventions conceived of or
reduced to practice prior to such person's providing services to the Company or
any of its Subsidiaries or outside the scope of such person's performance under
such agreement) that contains terms at least as favorable, on the whole, to the
Company and/or such Subsidiary as those in the form of the Company's Staff
Member Agreement previously provided to the Buyer by the Company. The Company
and its Subsidiaries have entered into agreements with each current and former
non-employee consultant and independent contractor requiring such non-employee
consultant or independent contractor to impose on its employees who are
involved in, or who contribute to, the creation or development of any Company
Intellectual Property obligations with respect to such Company Intellectual
Property in favor of the Company substantially similar to those set forth in
the Staff Member Agreement. To the knowledge of the Company, no current or
former employee, officer, director, shareholder, consultant or independent
contractor has any right, claim or interest in or with respect to any Company
Intellectual Property. All of the Company's Staff Member Agreements and other
agreements containing substantially similar provisions set forth in the Staff
Member Agreement signed by current and former employees, consultants and
independent contractors remain in full
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force and effect unless terminated or expired pursuant to the express terms
thereof and have not been superseded by any subsequent agreements.
3.10 Agreements, Contracts and Commitments.
(a) Section 3.10(a) of the Company Disclosure Schedules sets forth a
complete and accurate list of all contracts and agreements (collectively, the
"Company Material Contracts") that are material to the business, assets,
liabilities, capitalization, prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
Without limiting the generality of the foregoing, the term "Company Material
Contracts" shall include, and Section 3.10(a) of the Company Disclosure
Schedule shall list, (i) any written arrangement (or group of related written
arrangements) which requires the performance of services or the delivery of
products by the Company or any of its Subsidiaries at a fixed price of $50,000
or more (which shall include, for purposes of this Agreement, an agreement for
the provision of services on a "time and materials not to exceed basis" with a
defined deliverable required for the maximum billed amount); (ii) any written
arrangement (or group of related written arrangements) for the lease of
personal property from or to a third party for lease payments in excess of
$25,000 per annum; (iii) all written arrangements with each customer that
accounted for at least $1,000,000 of revenue in the twelve-month period ended
June 30, 2001; and (iv) any written arrangement (or group of related written
arrangements) not entered into in the Ordinary Course of Business and involving
amounts in excess of $50,000. The Company has made available to the Buyer a
complete and accurate copy of each Company Material Contract.
(b) Section 3.10(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of each contract or agreement to which the Company or any of
its Subsidiaries is a party or bound with any Affiliate of the Company (other
than any Subsidiary which is a direct or indirect wholly owned Subsidiary of
the Company) (collectively, the "Affiliate Contracts"). The Company has
provided the Buyer with a complete and accurate copy of each Affiliate
Contract. Except as set forth in the Company SEC Reports filed prior to the
date of this Agreement, neither the Company nor any of its Subsidiaries has
entered into any transaction with any director, officer or other Affiliate of
the Company or any of its Subsidiaries or any transaction that would be subject
to proxy statement disclosure pursuant to Item 404 of Regulation S-K.
(c) There is no non-competition or other similar agreement, commitment,
judgment, injunction or order to which the Company or any of its Subsidiaries
is a party or subject that has or could reasonably be expected to have the
effect of prohibiting or impairing the conduct of the business by the Company
or any of its Subsidiaries in any material respect. Neither the Company nor any
of its Subsidiaries has entered into (or is otherwise bound by) any agreement
under which it is restricted from selling, licensing or otherwise distributing
any of its technology or products, or providing services, to customers or
potential customers or any class of customers, in any geographic area, during
any period of time.
(d) Neither the Company nor any of its Subsidiaries is a party to any
agreement under which a third party would be entitled to receive a license or
any other right to intellectual property of the Buyer or any of the Buyer's
Affiliates (other than the Company and its Subsidiaries) following the Closing.
(e) Sections 3.10(a) and 3.10(b) of the Company Disclosure Schedule
accurately disclose with respect to each Company Material Contract and
Affiliate Contract, respectively (the Company Material Contracts and Affiliate
Contracts are referred to collectively as the "Contracts"), if applicable, (i)
the project name; (ii) the date of the Contract; and (iii) the customer name
and address and customer contact person and phone number. Sections 3.10(a)(i)
and (ii) and 3.10(b) of the Company Disclosure Schedule also accurately
disclose with respect to the Contracts listed therein: (A) the contract amount
or, if the contract amount is not fixed, a good faith, reasonable estimate of
the contract amount; (B) the total billings to date under such Contract; (C)
the total recognized revenues to date under such Contract; and (D) the estimate
to complete computed in dollar amounts based on actual bill rates.
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(f) With respect to each Contract: (i) assuming it is a valid and binding
Contract of the other party thereto, the Contract is legal, valid, binding and
enforceable against the Company or its Subsidiary and in full force and effect;
(ii) to the knowledge of the Company, the Contract is legal, valid, binding and
enforceable against the other party thereto; (iii) the Contract will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing against the Company or its Subsidiary and, to the
knowledge of the Company, against the other party thereto; and (iv) neither the
Company nor, to the knowledge of the Company, any other party to a Contract is
in material breach or default, and no event has occurred which with notice or
lapse of time (or both) would constitute a material breach or default or permit
termination, modification or acceleration, under the Contract.
(g) Neither the Company nor any of its Subsidiaries is a party to any oral
contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed in Sections 3.10(a) or 3.10(b) of the Company
Disclosure Schedule under the terms of this Section 3.10. Neither the Company
nor any of its Subsidiaries is a party to any written or oral arrangement (i)
to perform services or sell products which is expected to be performed at, or
to result in, a loss or (ii) for which the customer has already been billed or
paid that have not been fully accounted for on the Company Balance Sheet.
3.11 Litigation. Except as disclosed in the Company SEC Reports filed prior
to the date of this Agreement, (a) there is no material action, suit,
proceeding, claim, arbitration or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries and (b) neither the Company nor any of its Subsidiaries is the
subject of any material proceeding asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice or any proceeding seeking
to compel it to bargain with any labor union or labor organization. There are
no material judgments, orders or decrees outstanding against the Company or any
of its Subsidiaries.
3.12 Environmental Matters.
(a) Except as disclosed in Section 3.12(a) of the Company Disclosure
Schedule and except for such matters which, individually or in the aggregate,
have not had, and were not reasonably likely to have a Company Material Adverse
Effect:
(i) the Company and each of its Subsidiaries have at all times complied
with, and are not currently in violation of, any applicable Environmental
Laws;
(ii) the Company and each of its Subsidiaries have all permits, licenses
and approvals required under Environmental Laws to operate and conduct
their respective businesses as currently operated and conducted;
(iii) there is no Contamination of or at the properties currently owned,
leased or operated by the Company or any of its Subsidiaries (including
soils, groundwater, surface water, buildings or other structures);
(iv) to the Company's knowledge, there was no Contamination of or at the
properties formerly owned, leased or operated by the Company or any of its
Subsidiaries prior to or during the period of time such properties were
owned, leased or operated by the Company or any of its Subsidiaries;
(v) neither the Company nor any of its Subsidiaries is subject to
liability for a Release of any Hazardous Substance or Contamination on the
property of any third party;
(vi) neither the Company nor any of its Subsidiaries is responsible for
any release of any Hazardous Substance to the environment;
(vii) neither the Company nor any of its Subsidiaries has received any
notice, demand, letter, claim or request for information, nor is the
Company or any of its Subsidiaries aware of any pending or threatened
notice, demand, letter, claim or request for information, alleging that the
Company or any of its Subsidiaries may be in violation of, liable under or
have obligations under any Environmental Law;
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(viii) neither the Company nor any of its Subsidiaries is subject to any
orders, decrees, injunctions or other arrangements with any Governmental
Entity or is subject to any indemnity or other agreement with any third
party relating to liability or obligation under any Environmental Law or
relating to Hazardous Substances;
(ix) there are no circumstances or conditions involving the Company or
any of its Subsidiaries that could reasonably be expected to result in any
claims, liability, obligations, investigations, costs or restrictions on
the ownership, use or transfer of any property of the Company or any of its
Subsidiaries pursuant to any Environmental Law;
(x) none of the properties currently or formerly owned, leased or
operated by the Company or any of its Subsidiaries is listed in the
National Priorities List or any other list, schedule, log, inventory or
record maintained by any federal, state or local governmental agency with
respect to sites from which there is or has been a Release of any Hazardous
Substance or any Contamination;
(xi) none of the properties currently or formerly owned, leased or
operated by the Company or any of its Subsidiaries is used, nor was ever
used, (A) as a landfill, dump or other disposal, storage, transfer or
handling area for Hazardous Substances, excepting, however, for the routine
storage and use of Hazardous Substances from time to time in the Ordinary
Course of Business, in compliance with Environmental Laws and in compliance
with good commercial practice; (B) for industrial, military or
manufacturing purposes; or (C) as a gasoline service station or a facility
for selling, dispensing, storing, transferring or handling petroleum and/or
petroleum products;
(xii) there are no underground or above ground storage tanks (whether or
not currently in use), urea-formaldehyde materials, asbestos, asbestos-
containing materials, polychlorinated biphenyls (PCBs), nuclear fuels,
radioactive wastes or solid wastes, located on or under any of the
properties currently or formerly owned, leased or operated by the Company
or any of its Subsidiaries, and no underground tank previously located on
these properties has been removed therefrom; and
(xiii) there are no liens against any of the properties currently owned,
leased or operated by the Company or any of its Subsidiaries arising under
any Environmental Law, and the Company has complied with all environmental
transfer statutes applicable to this Agreement, if any.
(b) For purposes of this Agreement, "Environmental Law" means any federal,
state, local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement of any jurisdiction relating to: (i)
the protection, investigation or restoration of the environment, human health
and safety, or natural resources; (ii) the handling, use, storage, treatment,
manufacture, transportation, presence, disposal, release or threatened release
of any Hazardous Substance; or (iii) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
(c) For purposes of this Agreement, "Contamination" means the presence of,
or Release on, under, from or to, any property of any Hazardous Substance,
except the routine storage and use of Hazardous Substances from time to time in
the Ordinary Course of Business, in compliance with Environmental Laws and in
compliance with good commercial practice.
(d) For purposes of this Agreement, "Release" or "Released" means the
spilling, leaking, disposing, discharging, emitting, depositing, injecting,
leaching, escaping or any other release, however defined, and whether
intentional or unintentional, of any Hazardous Substance. The term "Release"
shall include any threatened release.
(e) For purposes of this Agreement, "Hazardous Substance" means any
substance that is: (i) listed, classified, regulated or which falls within the
definition of a "hazardous substance," "hazardous waste" or "hazardous
material" pursuant to any Environmental Law; (ii) any petroleum product or by-
product, asbestos-containing material, lead-containing paint, pipes or
plumbing, polychlorinated biphenyls, radioactive materials
A-17
or radon; or (iii) any other substance which is the subject of regulatory
action by any Governmental Entity pursuant to any Environmental Law.
(f) Section 3.12(f) of the Company Disclosure Schedule sets forth a complete
and accurate list of all documents (whether in hard copy or electronic form)
that contain any environmental, human health and safety, or natural resources
reports, investigations and audits relating to premises currently or previously
owned or operated by the Company or any of its Subsidiaries (whether conducted
by or on behalf of the Company or any of its Subsidiaries or a third party, and
whether done at the initiative of the Company or any of its Subsidiaries or
directed by a Governmental Entity or other third party) which were issued or
conducted since January 1, 1997 and of which the Company or any of its
Subsidiaries has possession or to which the Company or any of its Subsidiaries
has access. A complete and accurate copy of each such document has been
provided to the Buyer.
3.13 Employee Benefit Plans.
(a) Section 3.13(a) of the Company Disclosure Schedule sets forth a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Company, any of the Company's Subsidiaries or any of their ERISA
Affiliates (together, the "Company Employee Plans"). For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Employee
Benefit Plan" means any "employee pension benefit plan" (as defined in Section
3(2) of ERISA), any "employee welfare benefit plan" (as defined in Section 3(1)
of ERISA), and any other written or oral plan, agreement or arrangement
involving direct or indirect compensation, including insurance coverage,
severance benefits, disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation and all unexpired
severance agreements, written or otherwise, for the benefit of, or relating to,
any current or former employee of the Company or any of its Subsidiaries or any
ERISA Affiliate; (ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended; and (iii) "ERISA Affiliate" means any entity which is, or
at any applicable time was, a member of (A) a controlled group of corporations
(as defined in Section 414(b) of the Code), (B) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code) or (C) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or
included the Company or a Subsidiary.
(b) With respect to each Company Employee Plan, the Company has furnished to
the Buyer a complete and accurate copy of (i) such Company Employee Plan (or a
written summary of any unwritten plan), (ii) the most recent annual report
(Form 5500) filed with the Internal Revenue Service, (iii) each trust
agreement, group annuity contract and summary plan description, if any,
relating to such Company Employee Plan, (iv) the most recent financial
statements for each Company Employee Plan that is funded, (v) all personnel,
payroll and employment manuals and policies and (vi) all employee handbooks.
(c) Each Company Employee Plan has been administered in all material
respects in accordance with ERISA, the Code and all other applicable laws and
the regulations thereunder (including without limitation Section 4980 B of the
Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and
Section 701 et seq. of ERISA) and in accordance with its terms and each of the
Company, the Company's Subsidiaries and their ERISA Affiliates has in all
material respects met its obligations with respect to such Company Employee
Plan and has made all required contributions thereto (or reserved such
contributions on the Company Balance Sheet). All material filings and reports
as to each Company Employee Plan required to have been submitted to the
Internal Revenue Service or to the United States Department of Labor have been
timely submitted. With respect to the Company Employee Plans, no event has
occurred, and, to the knowledge of the Company, there exists no condition or
set of circumstances in connection with which the Company or any of its
Subsidiaries could be subject to any material liability under ERISA, the Code
or any other applicable law.
(d) With respect to the Company Employee Plans, there are no material
benefit obligations for which contributions have not been made or properly
accrued and there are no material benefit obligations which have
A-18
not been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, on the financial statements of the Company. The assets of
each Company Employee Plan which is funded are reported at their fair market
value on the books and records of such Employee Benefit Plan.
(e) All the Company Employee Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Company Employee Plans are
qualified and the plans and trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and, to the Company's knowledge,
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and, to the Company's knowledge, no act or
omission has occurred, that would adversely affect its qualification or
materially increase its cost. Each Company Employee Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies in all material respects the requirements of
Section 401(k)(3) and Section 401(m)(2) of the Code, as the case may be, for
each plan year ending prior to the Closing Date.
(f) Neither the Company, any of the Company's Subsidiaries nor any of their
ERISA Affiliates has (i) ever maintained a Company Employee Plan which was ever
subject to Section 412 of the Code or Title IV of ERISA or (ii) ever been
obligated to contribute to a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA). No Company Employee Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code. No Company Employee Plan holds securities
issued by the Company, any of the Company's Subsidiaries or any of their ERISA
Affiliates.
(g) Each Company Employee Plan is amendable and terminable unilaterally by
the Company and any of the Company's Subsidiaries party thereto or covered
thereby at any time without liability to the Company or any of its Subsidiaries
as a result thereof, and no Company Employee Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Company or any of the
Company's Subsidiaries party thereto or covered thereby from amending or
terminating any such Company Employee Plan.
(h) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, neither the Company nor any of its Subsidiaries is a party
to any oral or written (i) agreement with any shareholder, director, executive
officer or other key employee of the Company or any of its Subsidiaries (A) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company or any of its
Subsidiaries of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee or (ii)
agreement or plan binding the Company or any of its Subsidiaries, including any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan or severance benefit plan, any of the benefits of which shall be
increased, or the vesting of the benefits of which shall be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which shall be calculated on the basis of any
of the transactions contemplated by this Agreement.
(i) None of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, except as required by
applicable law.
(j) There is no action, suit, proceeding, claim, arbitration, audit or
investigation pending or, to the knowledge of the Company, threatened, with
respect to any Company Employee Plan, other than claims for benefits in the
ordinary course, that would reasonably be expected to result in material
liability to the Company or to such Company Employee Plan.
(k) The Company has no liability for benefits under any Company Employee
Plan, except as set forth in the Company's financial statements.
A-19
(l) Section 3.13(l) of the Company Disclosure Schedule lists each Company
Employee Plan which provides benefits after termination of employment (other
than medical benefits required to be continued under Section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA) and the amount by which the
present value of benefits accrued under each such Company Employee Plan exceeds
the fair market value of the assets of each such Company Employee Plan.
(m) Section 3.13(m) of the Company Disclosure Schedule lists each country in
which the Company or any of its Affiliates has operations and the number of
employees in each such country.
(n) The Company has provided to the Buyer such accurate information as shall
be necessary to enable the Buyer to calculate any excise tax due under Section
4999 of the Code as a result of the transactions contemplated by this Agreement
for which the Company or the Buyer may directly or indirectly become liable,
and the amount of deductions that may be disallowed under Section 280G of the
Code as a result of the transactions contemplated by this Agreement.
3.14 Compliance With Laws. The Company and each of its Subsidiaries have
complied in all respects with, are not in violation of, and have not received
any notice alleging any violation with respect to, any provisions of any
foreign, federal, state or local statute, law or regulation applicable to the
conduct of its business, or the ownership or operation of its properties or
assets, except for such failures to comply, violations and notices as would
not, individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect.
3.15 Permits. The Company and each of its Subsidiaries have all permits,
licenses and franchises from Governmental Entities material to the conduct of
their businesses as now being conducted or as presently contemplated to be
conducted by the Company and its Subsidiaries (the "Company Permits"). The
Company and each of its Subsidiaries are in material compliance with the terms
of the Company Permits. No Company Permit shall cease to be effective as a
result of the consummation of transactions contemplated by this Agreement.
3.16 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization.
There is no pending or, to the knowledge of the Company, threatened, labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving the
Company or any of its Subsidiaries. Section 3.16 of the Company Disclosure
Schedule lists all employees of the Company and its Subsidiaries who are
employed pursuant to a work permit or visa.
3.17 Insurance. Each of the Company and its Subsidiaries maintains insurance
policies (the "Insurance Policies") with reputable insurance carriers against
all risks of a character and in such amounts as, to the Company's knowledge,
are usually insured against by similarly situated companies in the same or
similar businesses. Section 3.17 of the Company Disclosure Schedule sets forth
the insurance coverages maintained by the Company and its Subsidiaries and a
history of any claims made and claims paid since January 1, 1999. Each
Insurance Policy is in full force and effect and is valid, outstanding and
enforceable, and all premiums due thereon have been paid in full. None of the
Insurance Policies shall terminate or lapse (or be affected in any other
materially adverse manner) by reason of the transactions contemplated by this
Agreement. The Company and each of its Subsidiaries have complied in all
material respects with the provisions of each Insurance Policy under which it
is the insured party. No insurer under any Insurance Policy has provided the
Company or any Subsidiary with written notice of cancellation or a written
notice generally disclaiming liability under any such policy or indicated in
writing any intent to do so or not to renew any such policy.
3.18 Assets. The Company or one of its Subsidiaries owns or leases all
tangible assets material to the conduct of their businesses as presently
conducted and as presently proposed to be conducted by the Company and its
Subsidiaries. All of such tangible assets which are owned, are owned free and
clear of all mortgages, security interest, pledges, liens and encumbrances
("Liens") except for (a) Liens which are disclosed in the
A-20
Company SEC Reports filed prior to the date of this Agreement and (b) other
Liens which, individually and in the aggregate, do not materially interfere
with the ability of the Company or its Subsidiaries to conduct their business
as currently conducted and as presently proposed to be conducted by the Company
and its Subsidiaries and have not resulted in, and are not reasonably likely to
result in, a Company Material Adverse Effect. The tangible assets of the
Company and its Subsidiaries, taken as a whole, are free from defects, have
been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear) and are
suitable for the purpose for which they are presently used, except for any
existing defects or needed repairs which would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. Other than general office supplies, neither the Company nor any of its
Subsidiaries maintains any inventory.
3.19 Customers and Suppliers. Section 3.19 of the Company Disclosure
Schedule accurately identifies, and provides an accurate and complete breakdown
of the recognized revenues from, the largest 100 customers of the Company and
its Subsidiaries (calculated on the basis of revenues) in the twelve-month
period ended June 30, 2001. No such customer has indicated in writing to the
Company or any of its Subsidiaries that it will stop buying services or
products from the Company or any of its Subsidiaries nor has any of the largest
50 customers (calculated on the basis of revenues) indicated in writing to the
Company or any of its Subsidiaries that it will materially decrease the rate of
buying services or products from the Company or any of its Subsidiaries. No
material supplier or exclusive supplier of the Company or any of its
Subsidiaries has indicated to the Company or any of its Subsidiaries that it
will stop, or materially decrease the rate of, supplying materials, products or
services to them.
3.20 Accounts Receivable. All accounts receivable of the Company and its
Subsidiaries reflected on the Company Balance Sheet are valid receivables and
are collectible in the Ordinary Course of Business, net of the applicable
reserve for bad debts on the Company Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Company or any of its
Subsidiaries that have arisen since the date of the Company Balance Sheet are
valid receivables and are collectible in the Ordinary Course of Business, net
of a reserve for bad debts in an amount proportionate to the reserve shown on
the Company Balance Sheet. Section 3.20 of the Company Disclosure Schedule sets
forth a complete and accurate list of the Company's accounts receivable and the
aging thereof as of the date specified therein.
3.21 Prepayments, Prebilled Invoices and Deposits. Section 3.21 of the
Company Disclosure Schedule sets forth (a) all prepayments, prebilled invoices
and deposits in amounts, on a per customer basis, greater than $25,000 that
have been received by the Company or any of its Subsidiaries as of the date of
this Agreement from customers for products to be shipped, or services to be
performed, after the Closing Date, and (b) with respect to each such
prepayment, prebilled invoice or deposit, (i) the party and contract credited
and (ii) the date received or invoiced. All such prepayments, prebilled
invoices and deposits are properly accrued for on the Company Balance Sheet in
accordance with GAAP applied on a consistent basis with the past practice of
the Company and its Subsidiaries.
3.22 Government Contracts. Neither the Company nor any of its Subsidiaries
has been suspended or debarred from bidding on contracts or subcontracts with
any Governmental Entity ("Government Contracts"); no such suspension or
debarment has been initiated or, to the knowledge of the Company, threatened;
and the consummation of the transactions contemplated by this Agreement will
not result in any such suspension or debarment. Neither the Company nor any of
its Subsidiaries has been audited or investigated nor is it now being audited
or, to the knowledge of the Company, investigated by the U.S. Government
Accounting Office, the U.S. Department of Defense or any of its agencies, the
Defense Contract Audit Agency, the U.S. Department of Justice, the Inspector
General of any U.S. Governmental Entity, any similar agencies or
instrumentalities of any state or foreign Governmental Entity, or any prime
contractor with a Governmental Entity nor, to the knowledge of the Company, has
any such audit or investigation been threatened. To the knowledge of the
Company, there is no valid basis for (a) the suspension or debarment of the
Company or any of its Subsidiaries from bidding on any Government Contracts, or
(b) any claim pursuant to an audit or investigation by any of the entities
named in the foregoing sentence. Neither the Company nor any of its
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Subsidiaries has any agreements, contracts or commitments which require it to
obtain or maintain a security clearance with any Governmental Entity.
3.23 No Existing Discussions. As of the date of this Agreement, neither the
Company nor any of its Subsidiaries is engaged, directly or indirectly, in any
discussions or negotiations with any other party with respect to an Acquisition
Proposal.
3.24 Opinion of Financial Advisor. The financial advisor of the Company,
Robert W. Baird & Co. Incorporated, has delivered to the Company an opinion
dated the date of this Agreement to the effect, as of such date, that the
Exchange Ratio is fair to the holders of the Company Common Stock from a
financial point of view. A signed copy of such opinion has been delivered to
the Buyer.
3.25 Articles 14 and 14.1 of the VSCA Not Applicable. The Company Board has
taken all actions necessary so that the provisions of Articles 14 and 14.1 of
the VSCA, applicable to "affiliated transactions" (as defined in Section 13.1-
725 of the VSCA) and "control share acquisitions" (as defined in Section 13.1-
728.1 of the VSCA), respectively, shall not apply to the Company, the Buyer,
the Transitory Subsidiary or any Affiliate of any of them in connection with
the execution, delivery or performance of this Agreement, the Shareholder's
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement or the Shareholder's Agreement.
3.26 Brokers; Schedule of Fees and Expenses.
(a) No agent, broker, investment banker, financial advisor or other firm or
person is or shall be entitled, as a result of any action, agreement or
commitment of the Company or any of its Affiliates, to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with any
of the transactions contemplated by this Agreement, except Robert W. Baird &
Co. Incorporated, whose fees and expenses shall be paid by the Company. The
Company has delivered to the Buyer a complete and accurate copy of all
agreements pursuant to which Robert W. Baird & Co. Incorporated is entitled to
any fees and expenses in connection with any of the transactions contemplated
by this Agreement.
(b) Section 3.26(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of the estimated fees and expenses incurred and to be
incurred by the Company and any of its Subsidiaries in connection with this
Agreement and the transactions contemplated by this Agreement (including the
fees and expenses of Robert W. Baird & Co. Incorporated and of the Company's
legal counsel and accountants), absent protracted negotiations with the SEC and
other unforeseen circumstances which may materially delay the consummation of
the transactions contemplated by this Agreement.
ARTICLE IV
Representations and Warranties of the Buyer and the
Transitory Subsidiary
The Buyer and the Transitory Subsidiary jointly and severally represent and
warrant to the Company that the statements contained in this Article IV are
true and correct, except as expressly set forth herein or in the disclosure
schedule delivered by the Buyer and the Transitory Subsidiary to the Company on
or before the date of this Agreement (the "Buyer Disclosure Schedule"). The
Buyer Disclosure Schedule shall be arranged in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained in
this Article IV, and the disclosure in any section or paragraph shall qualify
(1) the corresponding section or paragraph in this Article IV and (2) such
other sections and paragraphs in this Article IV only to the extent that it is
clear from a reading of such document that it also qualifies or applies to such
other sections or paragraphs.
4.1 Organization, Standing and Power. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has
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all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted and
as proposed to be conducted, and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failures to be so
organized, qualified or in good standing, individually or in the aggregate,
which have not had and are not reasonably likely to have a Buyer Material
Adverse Effect. For purposes of this Agreement, the term "Buyer Material
Adverse Effect" means any change, event, circumstance or effect that is or is
reasonably likely to be materially adverse to the business, assets,
liabilities, capitalization, prospects, condition (financial or other), or
results of operations of the Buyer and its Subsidiaries, taken as a whole, or
to have a material adverse effect on the ability of the Buyer or the Transitory
Subsidiary to consummate the transactions contemplated by this Agreement;
provided, however, that for purposes of this Agreement, the following shall not
be taken into account in determining whether there has been or would be a
"Buyer Material Adverse Effect": (x) any adverse change in the stock price or
trading volume of the Buyer in and of itself, as quoted on AMEX, and (y)
changes or effects relating to the economy or the IT services business as a
whole not substantially disproportionately affecting the Buyer and its
Subsidiaries taken as a whole. For the avoidance of doubt, the parties hereto
agree that the terms "material," "materially" or "materiality" as used in this
Agreement with an initial lower case "m" shall have their respective customary
and ordinary meanings, without regard to the meaning ascribed to Buyer Material
Adverse Effect in the prior sentences of this paragraph.
4.2 Capitalization. All issued and outstanding shares of capital stock of
the Transitory Subsidiary are held by the Buyer. The authorized capital stock
of the Buyer consists of (a) 200,000,000 shares of Buyer Common Stock, (b)
503,797 shares of class B common stock, $0.10 par value per share ("Buyer Class
B Common Stock"), and (c) 2,000,000 shares of preferred stock, $0.01 par value
per share ("Buyer Preferred Stock"). The rights and privileges of each class of
Buyer's capital stock are set forth in the Buyer's Articles of Organization. As
of the close of business on August 17, 2001, (i) 67,796,076 shares of Buyer
Common Stock were issued and outstanding, (ii) 4,650,025 shares of Buyer Common
Stock were held in the Buyer's treasury, (iii) 284,891 shares of Buyer Class B
Common Stock were issued and outstanding, (iv) no shares of Buyer Class B
Common Stock were held in the Buyer's treasury and (v) no shares of Buyer
Preferred Stock were issued or outstanding. All shares of Buyer Common Stock
issuable pursuant to Section 2.1(c) in connection with the Merger, when issued
on the terms and conditions of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the
Massachusetts Business Corporation Law, the Buyer's Articles of Organization or
Bylaws or any agreement to which the Buyer is a party or is otherwise bound. As
of August 17, 2001, the Buyer had reserved an aggregate of 7,000,000 shares of
Buyer Common Stock for issuance pursuant to the Buyer's 2001 Stock Incentive
Plan, under which options are outstanding for no shares of Buyer Common Stock
and 7,000,000 shares of Buyer Common Stock are available for additional grants
as of August 17, 2001.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of the Buyer and the Transitory Subsidiary has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement by the Buyer and the Transitory Subsidiary have been duly authorized
by all necessary corporate action on the part of each of the Buyer and the
Transitory Subsidiary (including the approval of the Plan of Merger by the
Buyer in its capacity as the sole shareholder of the Transitory Subsidiary).
This Agreement has been duly executed and delivered by each of the Buyer and
the Transitory Subsidiary and constitutes the valid and binding obligation of
each of the Buyer and the Transitory Subsidiary, enforceable in accordance with
its terms.
(b) The execution and delivery of this Agreement by each of the Buyer and
the Transitory Subsidiary does not, and the consummation by the Buyer and the
Transitory Subsidiary of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any provision
of the Articles of Organization or By-laws of the Buyer or the Articles of
Incorporation or Bylaws of the Transitory Subsidiary,
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(ii) conflict with, or result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit) under, require a consent or waiver under, constitute a change in
control under, require the payment of a penalty under or result in the
imposition of any Lien on the Buyer's or the Transitory Subsidiary's assets
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract or other agreement, instrument or
obligation to which the Buyer or the Transitory Subsidiary is a party or by
which any of them or any of their properties or assets may be bound, or (iii)
subject to compliance with the requirements specified in clause (i), (ii),
(iii), (iv), (v) and (vi) of Section 4.3(c), conflict with or violate any
permit, concession, franchise, license, judgment, injunction, order, decree,
statute, law, ordinance, rule or regulation applicable to the Buyer or the
Transitory Subsidiary or any of its or their properties or assets, except in
the case of clauses (ii) and (iii) of this Section 4.3(b) for any such
conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations or losses which, individually or in the aggregate, are not
reasonably likely to be material to the Buyer and its Subsidiaries taken as a
whole.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity is
required by or with respect to the Buyer or the Transitory Subsidiary in
connection with the execution and delivery of this Agreement by the Buyer or
the Transitory Subsidiary or the consummation by the Buyer or the Transitory
Subsidiary of the transactions contemplated by this Agreement, except for (i)
the pre-merger notification requirements under the HSR Act, (ii) the filing of
the Articles of Merger with the SCC and appropriate corresponding documents
with the Secretaries of State of other states in which the Company is qualified
as a foreign corporation to transact business, (iii) the filing of the
Registration Statement and Proxy Statement/Prospectus with the SEC in
accordance with the Securities Act and the Exchange Act, (iv) the filings of
such reports, schedules or materials under Section 13 or Rule 14a-12 of the
Exchange Act and materials under Rule 165 and Rule 425 of the Securities Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws, (vi) any consents, authorizations, approvals, filings or
exemptions required by the rules of AMEX with respect to the shares of Buyer
Common Stock issuable in connection with the Merger and (vii) such other
consents, licenses, permits, orders, authorizations, filings, approvals and
registrations which, if not obtained or made, would not be reasonably likely,
individually or in the aggregate, to be material to the Buyer and its
Subsidiaries taken as a whole.
4.4 SEC Filings; Financial Statements; Information Provided.
(a) The Buyer has filed all registration statements, forms, reports and
other documents required to be filed by the Buyer with the SEC since January 1,
1998 and has made available to the Company copies of all registration
statements, forms, reports and other documents filed by the Buyer with the SEC
since such date. All such registration statements, forms, reports and other
documents (including those that the Buyer may file after the date hereof until
the Closing) are referred to herein as the "Buyer SEC Reports." The Buyer SEC
Reports (i) were or will be filed on a timely basis, (ii) at the time filed,
were or will be prepared in compliance in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
Buyer SEC Reports, and (iii) did not or will not at the time they were or are
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Buyer SEC
Reports at the time filed (i) complied or will comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) were or will be
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by the SEC on
Form 10-Q under the Exchange Act) and (iii) fairly
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presented or will fairly present in accordance with GAAP the consolidated
financial position of the Buyer and its Subsidiaries as of the dates thereof
and the consolidated results of its operations and cash flows for the periods
indicated, consistent with the books and records of the Buyer and its
Subsidiaries, except that the unaudited interim financial statements were or
are subject to normal year-end adjustments which were not or are not expected
to be material in amount.
(c) The Registration Statement to be filed by Buyer pursuant to this
Agreement will comply as to form in all material respects with the Securities
Act (except to the extent relating to information supplied by or on behalf of
the Company for inclusion or incorporation by reference in the Registration
Statement, as to which the Buyer makes no representation). The information in
the Registration Statement (except for information supplied by or on behalf of
the Company for inclusion or incorporation by reference in the Registration
Statement, as to which the Buyer makes no representation and which shall not
constitute part of the Buyer SEC Reports for purposes of this Agreement) shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement not misleading. If at any
time prior to the Effective Time any event relating to the Buyer or any of its
Affiliates, officers or directors should be discovered by the Buyer which
should be set forth in an amendment to the Registration Statement, the Buyer
shall promptly inform the Company.
4.5 Tax Matters. To the Buyer's knowledge, after consulting with its
advisors, neither the Buyer nor any of its Affiliates has taken or agreed to
take any action which would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
4.6 Operations of the Transitory Subsidiary. The Transitory Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement. During the period from
the date of this Agreement through the Closing Date, the Transitory Subsidiary
shall not engage in any activities except as provided in or contemplated by
this Agreement.
4.7 Brokers. No agent, broker, investment banker, financial advisor or other
firm or person is or shall be entitled as a result of any action, agreement or
commitment of the Buyer or the Transitory Subsidiary, to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with any of the transactions contemplated by this Agreement, except Morgan
Stanley & Co. Incorporated, whose fees and expenses shall be paid by the Buyer.
4.8 Litigation. Except as disclosed in the Buyer SEC Reports filed before
the date of this Agreement, there is no material action, suit, proceeding,
claim, arbitration or investigation pending or, to the knowledge of the Buyer
and the Transitory Subsidiary, threatened against or affecting the Buyer or the
Transitory Subsidiary which would reasonably be expected to have a material
adverse effect on the ability of the Buyer and/or the Transitory Subsidiary to
perform their respective obligations under this Agreement.
4.9 Absence of Certain Changes or Events. Except as disclosed in the Buyer
SEC Reports filed prior to the date of this Agreement, since December 31, 2000
there has not been (i) any change, event, circumstance, development or effect
that would, individually or in the aggregate, reasonably be expected to result
in a Buyer Material Adverse Effect or (ii) any material change by the Buyer in
its accounting methods not required pursuant to GAAP.
ARTICLE V
Conduct of Business
5.1 Covenants of the Company. Except as expressly provided herein, as
required by law, as described in Section 5.1 of the Company Disclosure Schedule
or as consented to in writing by the Buyer, from and after the
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date of this Agreement until the earlier of the termination of this Agreement
in accordance with its terms or the Effective Time, the Company shall, and
shall cause each of its Subsidiaries to, act and carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, pay its debts and Taxes and perform its other obligations
when due (subject to good faith disputes over such debts, Taxes or
obligations), comply with all applicable laws, rules and regulations, and use
commercially reasonable efforts, consistent with past practices, to maintain
and preserve its and each Subsidiary's business organization, assets and
properties, keep available the services of its present officers and employees
and preserve its advantageous business relationships with customers, strategic
partners, suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, and except as expressly
provided herein, as required by law or as described in Section 5.1 of the
Company Disclosure Schedule, from and after the date of this Agreement until
the earlier of the termination of this Agreement in accordance with its terms
or the Effective Time, the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, do any of the following without the
prior written consent of the Buyer:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than dividends and distributions by a
direct or indirect wholly owned Subsidiary of the Company to its parent);
(ii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or any of its other
securities; or (iii) purchase, redeem or otherwise acquire any shares of
its capital stock or any other of its securities or any rights, warrants or
options to acquire any such shares or other securities;
(b) except as permitted by Section 5.1(n), issue, deliver, sell, grant,
pledge or otherwise dispose of or encumber any shares of its capital stock,
or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities (other than the issuance of shares
of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement in accordance with their present
terms);
(c) amend or propose to amend its articles of incorporation, bylaws or
other comparable charter or organizational documents, except as expressly
provided by this Agreement;
(d) acquire (i) by merging or consolidating with, or by purchasing all
or a substantial portion of the assets or any stock of, or by any other
manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof or (ii) any assets that are material, in the aggregate, to
the Company and its Subsidiaries, taken as a whole, except purchases of
assets in the Ordinary Course of Business;
(e) pledge or encumber (except for Permitted Liens), sell, lease,
license, dispose of or otherwise transfer any assets material to the
Company and its Subsidiaries, taken as a whole (including any accounts,
leases, contracts or intellectual property or any assets or the stock of
any of its Subsidiaries) other than, in the case of pledges, encumbrances
and leases, in connection with the purchase of equipment subject to capital
lease or other similar financing arrangements in the Ordinary Course of
Business consistent with the Company's past practice;
(f) adopt or implement any shareholder rights plan;
(g) except for a confidentiality agreement as permitted by Section 6.1,
enter into an agreement with respect to any merger, consolidation,
liquidation or business combination, or any acquisition or disposition of
all or substantially all of the assets or securities of the Company or any
of its Subsidiaries;
(h) (i) incur or suffer to exist any indebtedness for borrowed money in
an aggregate amount greater than $80 million, or guarantee any indebtedness
of another person, (ii) issue, sell or amend any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
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having the economic effect of any of the foregoing, (iii) make any loans,
advances (other than routine advances to employees in the Ordinary Course
of Business) or capital contributions to, or investment in, any other
person, other than the Company or any of its direct or indirect wholly
owned Subsidiaries, or (iv) except in the Ordinary Course of Business,
enter into any hedging agreement or other financial agreement or
arrangement designed to protect the Company or its Subsidiaries against
fluctuations in commodities prices or exchange rates;
(i) make any capital expenditures or other expenditures with respect to
property, plant or equipment for the Company and its Subsidiaries, in
excess of the aggregate amounts, or for other than the types of
expenditures, set forth in Section 5(i) of the Company Disclosure Schedule;
(j) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or as directed
by the SEC or, except as so required, change any assumption underlying, or
method of calculating, any bad debt, contingency or other reserve;
(k) (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge, settlement or
satisfaction, in the Ordinary Course of Business or in accordance with
their terms as in effect on the date of this Agreement, of claims,
liabilities or obligations reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Company SEC Reports filed
prior to the date of this Agreement (to the extent so reflected or reserved
against) or incurred since the date of such financial statements in the
Ordinary Course of Business or (ii) waive any material benefits of, modify
in any adverse respect, fail to enforce, or consent to any matter with
respect to which its consent is required under, any confidentiality,
standstill or similar agreements to which the Company or any of its
Subsidiaries is a party;
(l) except in the Ordinary Course of Business, modify, amend or
terminate any contract or agreement which is or, if in existence on the
date of this Agreement, would have been, a Company Material Contract to
which the Company or any of its Subsidiaries is party, or knowingly waive,
release or assign any material rights or claims (including any write-off or
other compromise of any material accounts receivable of the Company or any
of its Subsidiaries);
(m) (i) enter into any contract or agreement which, if in existence on
the date of this Agreement, would have constituted a Company Material
Contract, other than fixed price contracts for $100,000 or less entered
into in the Ordinary Course of Business, or (ii) except on a non-exclusive
basis in the Ordinary Course of Business, license any material intellectual
property rights to or from any third party;
(n) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (i) take any action with
respect to, adopt, enter into, terminate or amend any employment, severance
or similar agreement or benefit plan for the benefit or welfare of any
current or former director, officer, employee or consultant or any
collective bargaining agreement except for (x) terminations of at will
employment arrangements in the Ordinary Course of Business and (y)
executing the severance arrangements as described in Sections 6.6(b) and
(c) of this Agreement, (ii) increase the compensation or fringe benefits
of, or pay any bonus to, any director, officer, employee, advisor or
consultant (except for salary increases of non-officer employees in the
Ordinary Course of Business), (iii) amend or accelerate the payment, right
to payment or vesting of any compensation or benefits, including any
outstanding options or restricted stock awards (except for salary increases
of non-officer employees in the Ordinary Course of Business), (iv) pay any
material benefit not provided for as of the date of this Agreement under
any benefit plan, (v) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan,
including the grant of stock options, stock appreciation rights, stock-
based or stock-related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or agreements or
awards made thereunder except for the continuation of the Company's
Employee Stock Purchase Plan (the "Company ESPP") through the business day
immediately prior to the Closing Date, or (vi) take any action other than
in the Ordinary
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Course of Business to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or benefit plan;
(o) make or rescind any Tax election, settle or compromise any material
Tax liability or amend any Tax return;
(p) initiate, compromise or settle any material litigation or
arbitration proceeding;
(q) open or close any material facility or office;
(r) fail to maintain insurance at levels substantially comparable to
levels existing as of the date of this Agreement;
(s) fail to pay accounts payable and other obligations in the Ordinary
Course of Business; or
(t) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would make any
representation or warranty of the Company in this Agreement untrue or
incorrect in any material respect, or would materially impair or prevent
the satisfaction of any conditions in Article VII hereof.
5.2 Employee Stock Purchase Plan. The Company shall take whatever action is
necessary, including without limitation the amendment of the Company ESPP, to
terminate the Company ESPP and any offering periods thereunder on the business
day immediately prior to the Closing Date.
5.3 Confidentiality. The parties acknowledge that the Buyer and the Company
previously executed a confidentiality agreement, dated as of May 23, 2001 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
ARTICLE VI
Additional Agreements
6.1 No Solicitation.
(a) No Solicitation or Negotiation. Except as set forth in this Section 6.1,
the Company shall not, nor shall it authorize or permit any of its Subsidiaries
or any of its or their directors, officers, employees, investment bankers,
attorneys, accountants or other advisors or representatives (such directors,
officers, employees, investment bankers, attorneys, accountants, other advisors
and representatives being hereinafter referred to collectively as
"Representatives") to directly or indirectly:
(i) solicit, initiate, encourage or take any other action to facilitate
any inquiries or the making of any proposal or offer that constitutes, or
could reasonably be expected to lead to, any Acquisition Proposal,
including without limitation (A) approving any "affiliated transaction"
under Article 14 of the VSCA, (B) approving any person (other than the
Buyer, the Transitory Subsidiary or any Affiliate of either of them)
becoming an "interested shareholder" under Article 14 of the VSCA, (C)
taking any action under Article 14.1 of the VSCA (other than to comply with
Section 3.26 of this Agreement) or (D) amending or granting any waiver or
release under any standstill or similar agreement with respect to any
Company Common Stock; or
(ii) enter into, continue or otherwise participate in any discussions or
negotiations regarding, furnish to any person any information with respect
to, assist or participate in any effort or attempt by any person with
respect to, or otherwise cooperate in any way with, any Acquisition
Proposal.
Without limiting the foregoing, it is agreed that any violation of the
restrictions set forth in this Section 6.1(a) by any Representative of the
Company or any of its Subsidiaries, whether or not such person is purporting to
act on behalf of the Company or otherwise, shall be deemed to be a breach of
this Section 6.1(a) by the Company.
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Notwithstanding the foregoing, prior to the adoption and approval of this
Agreement and the Plan of Merger at the Company Shareholders Meeting (the
"Specified Time"), the Company may, to the extent required by the fiduciary
obligations of the Company Board, as determined in good faith by the Company
Board after consultation with outside counsel (I) in response to a Superior
Proposal that did not result from a breach by the Company of this Section 6.1,
and subject to compliance with Section 6.1(c), (x) furnish information with
respect to the Company to the person making such Superior Proposal and its
Representatives pursuant to a customary confidentiality agreement not less
restrictive of the other party than the Confidentiality Agreement (including,
but not limited to, the standstill provision set forth therein) (a "Third Party
Confidentiality Agreement") and (y) participate in discussions or negotiations
with such person and its Representatives regarding any Superior Proposal, and
(II) in response to an Acquisition Proposal that did not result from a breach
by the Company of this Section 6.1, and subject to compliance with Section
6.1(c), request clarifications regarding the terms and conditions of any
Acquisition Proposal from the person making such Acquisition Proposal for the
purpose of ascertaining whether such Acquisition Proposal is a Superior
Proposal, without, in the case of this clause (II), providing additional
information to such person.
Notwithstanding the foregoing, at no time prior to the termination of this
Agreement shall the Company or the Company Board release or agree to release
any person or entity from a standstill provision contained in any Third Party
Confidentiality Agreement or any other standstill agreement with any third
party.
(b) No Change in Recommendation or Alternative Acquisition Agreement. The
Company Board shall not:
(i) except as set forth in this Section 6.1, withdraw or modify, or
propose to withdraw or modify, in a manner adverse to the Buyer or the
Transitory Subsidiary, the approval or recommendation by the Company Board
of this Agreement or the Merger;
(ii) cause or permit the Company to enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition agreement,
merger agreement or similar agreement (an "Alternative Acquisition
Agreement") constituting or relating to any Acquisition Proposal (other
than a confidentiality agreement referred to in Section 6.1(a) entered into
in the circumstances referred to in Section 6.1(a)); or
(iii) adopt, approve or recommend, or propose to adopt, approve or
recommend, any Acquisition Proposal.
Notwithstanding the foregoing, the Company Board may, in response to a
Superior Proposal that did not result from a breach by the Company of this
Section 6.1, withdraw or modify the recommendation by the Company Board or any
committee thereof of this Agreement and the Merger, if the Company Board
determines in good faith (after consultation with outside counsel) that its
fiduciary obligations require it to do so, but only at a time that is prior to
the Specified Time and is after the third business day following the Buyer's
receipt of written notice advising the Buyer that the Company Board desires to
withdraw or modify the recommendation due to the existence of a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal. Nothing in
this Section 6.1 shall be deemed to (A) permit the Company to take any action
described in clauses (ii) or (iii) of the first sentence of this Section
6.1(b), although the Company Board may recommend a Superior Proposal to its
shareholders under the circumstances described in the immediately preceding
sentence, (B) affect any obligation of the Company under this Agreement or (C)
limit the Company's obligation to call, give notice of, convene and hold the
Company Shareholders Meeting, regardless of whether the Company Board has
withdrawn or modified its recommendation of this Agreement and the Merger.
(c) Notices to the Buyer; Additional Negotiations. The Company shall advise
the Buyer as promptly as practicable, and in any event within 24 hours, orally
and in writing, of any Acquisition Proposal or any request for nonpublic
information in connection with any Acquisition Proposal, or of any inquiry with
respect to, or that could reasonably be expected to lead to, any Acquisition
Proposal, the material terms and conditions of any such Acquisition Proposal or
inquiry and the identity of the person making any such Acquisition Proposal or
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inquiry. The Company shall not provide any information to or participate in
discussions or negotiations with the person or entity making any Superior
Proposal until three business days after the Company has first notified the
Buyer of such Acquisition Proposal as required by the preceding sentence. The
Company shall (i) keep the Buyer fully informed, on a current basis to the
extent practicable and, in any event, as promptly as practicable, of the status
and details (including any change to the terms) of any such Acquisition
Proposal or inquiry, (ii) provide to the Buyer as soon as practicable after
receipt or delivery thereof copies of all correspondence and other written
material sent or provided to the Company from any third party in connection
with any Acquisition Proposal or sent or provided by the Company to any third
party in connection with any Superior Proposal, and (iii) if the Buyer shall
make a counterproposal, consider and cause its financial and legal advisors to
negotiate on its behalf in good faith with respect to the terms of such
counterproposal. Contemporaneously with providing any information to a third
party in connection with any such Superior Proposal or inquiry, the Company
shall furnish a copy of such information to the Buyer.
(d) Certain Permitted Disclosure. Nothing contained in this Section 6.1 or
in Section 6.5 shall be deemed to prohibit the Company from taking and
disclosing to its shareholders a position with respect to a tender offer
contemplated by Rule 14e-2(a) promulgated under the Exchange Act if, in the
good faith judgment of the Company Board, based on the opinion of outside
counsel, failure to so disclose would be inconsistent with its obligations
under applicable law.
(e) Cessation of Ongoing Discussions. The Company shall, and shall cause its
Subsidiaries and its and their Representatives to, cease immediately all
discussions and negotiations regarding any proposal that constitutes, or could
reasonably be expected to lead to, an Acquisition Proposal. The Company shall
use commercially reasonable efforts to have all copies of all nonpublic
information it or its Subsidiaries and its and their Representatives have
distributed on or prior to the date of this Agreement to other potential
purchasers returned to the Company as soon as possible.
(f) Definitions. For purposes of this Agreement:
"Acquisition Proposal" means (i) any inquiry, proposal or offer for a
merger, consolidation, dissolution, sale of substantial assets, tender
offer, recapitalization, share exchange or other business combination
involving the Company or any of its Subsidiaries, (ii) any proposal for the
issuance by the Company or any of its Subsidiaries of over 25% of its
equity securities or (iii) any proposal or offer to acquire in any manner,
directly or indirectly, over 50% of the equity securities or consolidated
total assets of the Company, in each case other than the Merger
contemplated by this Agreement.
"Superior Proposal" means any unsolicited, bona fide written proposal
made by a third party to acquire substantially all the equity securities or
assets of the Company, pursuant to a tender or exchange offer, a merger, a
consolidation or a sale of its assets, (i) on terms that the Company Board
determines in its good faith judgment to be materially more favorable from
a financial point of view to the holders of Company Common Stock than the
transactions contemplated by this Agreement (based on the written advice of
a recognized independent financial advisor) taking into account all the
terms and conditions of such proposal and this Agreement (including any
proposal by the Buyer to amend the terms of this Agreement) and (ii) that
is reasonably capable of being completed on the terms proposed, taking into
account all financial, regulatory, legal and other aspects of such
proposal; provided, however, that no Acquisition Proposal shall be deemed
to be a Superior Proposal if any financing required to consummate the
Acquisition Proposal is not committed.
6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Buyer and the Company shall prepare and the Company shall file with the SEC the
Proxy Statement/Prospectus, and the Buyer shall prepare and file with the SEC
the Registration Statement, in which the Proxy Statement/Prospectus shall be
included as a prospectus. Each of the Buyer and the Company shall respond to
any comments of the SEC and shall use its respective reasonable best efforts to
have the Proxy Statement/Prospectus cleared by the SEC and the
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Registration Statement declared effective under the Securities Act as promptly
as practicable after such filings, and the Company shall cause the Proxy
Statement/Prospectus to be mailed to its shareholders at the earliest
practicable time after both the Proxy Statement/Prospectus is cleared by the
SEC and the Registration Statement is declared effective under the Securities
Act. Each of the Buyer and the Company shall notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement, the
Proxy Statement/Prospectus or any filing pursuant to Section 6.2(b) or for
additional information and shall supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any filing pursuant to Section 6.2(b). Each
of the Buyer and the Company shall use its reasonable best efforts to cause all
documents that it is responsible for filing with the SEC or other regulatory
authorities under this Section 6.2 to comply in all material respects with all
applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement/Prospectus, the Registration
Statement or any filing pursuant to Section 6.2(b), the Buyer or the Company,
as the case may be, shall promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to shareholders of the Company, of such amendment or
supplement.
(b) The Buyer and the Company shall promptly make all necessary filings with
respect to the Merger under the Securities Act, the Exchange Act, applicable
state blue sky laws and the rules and regulations thereunder.
6.3 Nasdaq Quotation. The Company agrees to use its best efforts to continue
the quotation of the Company Common Stock on The Nasdaq National Market during
the term of this Agreement.
6.4 Access to Information. The Company shall (and shall cause each of its
Subsidiaries to) afford to the Buyer's officers, employees, accountants,
counsel and other representatives, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments, personnel and records and, during such period,
the Company shall (and shall cause each of its Subsidiaries to) furnish
promptly to the Buyer (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties, assets and personnel as
the Buyer may reasonably request. The Buyer will hold any such information
which is nonpublic in confidence in accordance with the Confidentiality
Agreement. No information or knowledge obtained in any investigation pursuant
to this Section or otherwise shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
6.5 Company Shareholders Meeting.
(a) The Company, acting through the Company Board, shall take all actions in
accordance with applicable law (including without limitation all applicable
requirements of the Code and ERISA with respect to the shares of Company Common
Stock held by any Company Employee Plan) and its Articles of Incorporation and
Bylaws to promptly and duly call, give notice of, convene and hold as promptly
as practicable, and in any event within 45 days after the declaration of
effectiveness of the Registration Statement, the Company Shareholders Meeting
for the purpose of considering and voting upon the Company Voting Proposal.
Subject to Section 6.1(b), to the fullest extent permitted by applicable law,
(i) the Company Board shall recommend approval and adoption of the Company
Voting Proposal by the shareholders of the Company and include in the Proxy
Statement/Prospectus such recommendation, and (ii) neither the Company Board
nor any committee thereof shall withdraw or modify, or propose or resolve to
withdraw or modify in a manner adverse to the Buyer, the recommendation of the
Company Board that the Company's shareholders vote in favor of the Company
Voting Proposal. The Company shall take all action that is both reasonable and
lawful to solicit from its shareholders proxies in favor of the Company Voting
Proposal and shall take all other action necessary or
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advisable to secure the vote or consent of the Company Shareholders required by
the rules of The Nasdaq Stock Market or the VSCA to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, after
consultation with the Buyer, the Company may adjourn or postpone the Company
Shareholders Meeting to the extent necessary to ensure that any required
supplement or amendment to the Proxy Statement/Prospectus is provided to the
Company's shareholders or, if as of the time for which the Company Shareholders
Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Company Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Company Shareholders Meeting.
(b) The Company shall call, give notice of, convene and hold the Company
Shareholders Meeting in accordance with this Section 6.5 for the purpose of
voting upon the Company Voting Proposal and shall submit the Company Voting
Proposal to the Company's shareholders for the purpose of acting upon its
adoption whether or not (i) the Company Board at any time subsequent to the
date hereof determines, in the manner permitted by Section 6.1(b), that this
Agreement is no longer advisable or recommends that the Company Shareholders
reject it, or (ii) any actual, potential or purported Acquisition Proposal or
Superior Proposal has been commenced, disclosed, announced or submitted to the
Company.
6.6 Additional Agreements.
(a) John H. Fain has executed and delivered the Shareholder's Agreement to
the Buyer concurrently with the signing of this Agreement.
(b) Each of the employees of the Company listed on Section 6.6(b) of the
Company Disclosure Schedule has executed and delivered an Executive Retention
Agreement in the form attached hereto as Exhibit C and on the terms and
conditions set forth in Section 6.6(b) of the Company Disclosure Schedule.
(c) The Buyer shall, following the Effective Time, cause the Surviving
Corporation to effect and honor the retention and severance arrangements
described in Section 6.6(c) of the Company Disclosure Schedule.
6.7 Legal Conditions to the Merger.
(a) Subject to the terms hereof, including Section 6.7(b), each of the
Company and the Buyer shall use its commercially reasonable efforts to (i)
take, or cause to be taken, all actions, and do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) as promptly as
practicable, obtain from any Governmental Entity or any other third party any
consents, licenses, permits, waivers, approvals, authorizations, or orders
required to be obtained or made by the Company or the Buyer or any of their
Subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any
other applicable federal or state securities laws, (B) the HSR Act and any
related governmental request thereunder and (C) any other applicable law and
(iv) execute or deliver any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. The Company and the Buyer shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing
and, if requested, to accept all reasonable additions, deletions or changes
suggested in connection therewith. The Company and the Buyer shall use their
respective commercially reasonable efforts to furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable law (including all information
required to be included in the Proxy Statement/Prospectus and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
For the avoidance of doubt, the Buyer and the Company agree that nothing
contained in this Section 6.7(a) shall modify or affect their respective rights
and responsibilities under Section 6.7(b).
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(b) Subject to the terms hereof, the Buyer and the Company agree, and shall
cause each of their respective Subsidiaries, to cooperate and to use their
respective commercially reasonable efforts to obtain any government clearances
or approvals required for Closing under the HSR Act, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign law or, regulation or decree
designed to prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws"), to
respond to any government requests for information under any Antitrust Law, and
to contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Antitrust Order") that restricts, prevents or prohibits the
consummation of the Merger or any other transactions contemplated by this
Agreement under any Antitrust Law. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
any Antitrust Law. The Buyer shall be entitled to direct any proceedings or
negotiations with any Governmental Entity relating to any of the foregoing,
provided that it shall afford the Company a reasonable opportunity to
participate therein. Notwithstanding anything in this Agreement to the
contrary, neither the Buyer nor any of its Affiliates shall be under any
obligation to (i) make proposals, execute or carry out agreements or submit to
orders providing for the sale or other disposition or holding separate (through
the establishment of a trust or otherwise) of any assets or categories of
assets of the Buyer, any of its Affiliates or the Company or any of its
Subsidiaries or the holding separate of the shares of Company Common Stock (or
shares of stock of the Surviving Corporation) or imposing or seeking to impose
any material limitation on the ability of the Buyer or any of its subsidiaries
or Affiliates to conduct their business or own such assets or to acquire, hold
or exercise full rights of ownership of the shares of Company Common Stock (or
shares of stock of the Surviving Corporation) or (ii) take any action under
this Section if the United States Department of Justice or the United States
Federal Trade Commission authorizes its staff to seek a preliminary injunction
or restraining order to enjoin consummation of the Merger.
(c) Each of the Company and the Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their commercially reasonable
efforts to obtain any third party consents related to or required in connection
with the Merger that are (i) necessary to consummate the transactions
contemplated hereby, (ii) disclosed or required to be disclosed in the Company
Disclosure Schedule or the Buyer Disclosure Schedule, as the case may be, or
(iii) required to prevent a Company Material Adverse Effect or a Buyer Material
Adverse Effect from occurring prior to or after the Effective Time.
6.8 Public Disclosure. Except as may be required by law or stock market
regulations, (a) the press release announcing the execution of this Agreement
shall be issued only in such form as shall be mutually agreed upon by the
Company and the Buyer and (b) each of the Buyer and the Company shall use its
commercially reasonable efforts to consult with the other party before issuing
any other press release or otherwise making any public statement with respect
to the Merger or this Agreement and shall not issue any such press release or
make any such public statement prior to using such efforts.
6.9 Reorganization. Each of the Buyer and the Company shall use its
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368(a) of the Code. The parties
hereto hereby adopt this Agreement as a plan of reorganization.
6.10 Affiliate Agreements. Schedule 6.10 of the Company Disclosure Schedule
sets forth a list of those persons who are, in the Company's reasonable
judgment, Rule 145 Affiliates. The Company shall provide to the Buyer such
information and documents as the Buyer shall reasonably request for purposes of
reviewing such list and shall notify the Buyer in writing regarding any change
in the identity of its Rule 145 Affiliates prior to the Closing Date. The
Company shall use its commercially reasonable efforts to deliver or cause to be
delivered to the Buyer as soon as practicable after the date of this Agreement
(and in any case prior to the mailing of the Proxy Statement/Prospectus) from
each of its Rule 145 Affiliates, an executed Affiliate
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Agreement, in substantially the form appended hereto as Exhibit D (the
"Affiliate Agreement"). The Buyer shall be entitled to place appropriate
legends on the certificates evidencing any shares of Buyer Common Stock to be
received by Rule 145 Affiliates of the Company pursuant to the terms of this
Agreement and, subject to the terms of the Shareholder's Agreement, to issue
appropriate stop transfer instructions to the transfer agent for the Buyer
Common Stock.
6.11 AMEX Listing. The Buyer shall use its best efforts to cause the shares
of Buyer Common Stock to be issued in the Merger to be listed on AMEX, subject
to official notice of issuance, on or prior to the Closing Date.
6.12 Company Stock Plans.
(a) At the Effective Time, each Company Stock Option (other than options
granted under the Company ESPP) that is outstanding and unexercised immediately
prior thereto shall cease to represent a right to acquire shares of Company
Common Stock and shall be converted automatically into an option to purchase
shares of Buyer Common Stock in an amount and at an exercise price determined
as provided in this Section 6.12(a) (and otherwise subject to the terms of the
Company Stock Plans (other than the Company ESPP) and the agreements evidencing
grants thereunder) (a "Buyer Stock Option"). The number of shares of Buyer
Common Stock to be subject to each Buyer Stock Option shall be equal to the
product of (i) the number of shares of Company Common Stock subject to such
Company Stock Option immediately prior to the Effective Time and (ii) the
Exchange Ratio; provided that any fractional shares resulting from such
multiplication shall be rounded down to the nearest whole number. The exercise
price per share of Buyer Common Stock under each Buyer Stock Option shall be
equal to (y) the exercise price per share of Company Common Stock at which such
Company Stock Option was exercisable immediately prior to the Effective Time
divided by (z) the Exchange Ratio; provided that such exercise price shall be
rounded up to the nearest whole cent.
(b) As soon as practicable after the Effective Time, the Buyer shall deliver
to the participants in the Company Stock Plans (other than the Company ESPP)
appropriate notice setting forth such participants' rights pursuant thereto.
All grants made pursuant to the Company Stock Plans (other than the Company
ESPP) shall continue in effect on the same terms and conditions (subject to the
provisions of Section 6.12(a)).
(c) The Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery upon
exercise of the Buyer Stock Options. As soon as practicable after the Effective
Time, the Buyer shall file a registration statement on Form S-8 (or any
successor form) with respect to the shares of Buyer Common Stock subject to
such Buyer Stock Options that are eligible for registration on Form S-8, and
shall use its commercially reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Buyer Stock Options remain outstanding.
(d) Before the Effective Time, the Buyer shall take whatever action is
necessary with respect to its Amended and Restated 1992 Employee Stock Purchase
Plan (the "Buyer ESPP") to provide for a special offering period commencing at
or as soon as reasonably practicable after the Effective Time and ending on
December 31, 2001 (the "Special ESPP Period") pursuant to which the Buyer shall
allow the Company's employees otherwise eligible to participate in the Buyer
ESPP (based on an adjusted date of hire to coincide with the date of hire by
the Company) to participate in the Special ESPP Period. For the avoidance of
doubt, the parties hereto acknowledge and agree that the Buyer is not assuming
the Company ESPP.
6.13 Shareholder Litigation. Until the earlier of the termination of this
Agreement in accordance with its terms and the Effective Time, the Company
agrees that the Buyer shall have the right to participate in the defense or
settlement of any shareholder litigation against the Company or the Company
Board relating to this Agreement or any of the transactions contemplated by
this Agreement. The Company shall not settle any such litigation without the
Buyer's prior written consent, which consent shall not be unreasonably withheld
or
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delayed. The Company and the Buyer agree to enter into a mutually agreeable
joint defense agreement promptly after the Buyer receives notice from the
Company of such shareholder litigation.
6.14 Indemnification.
(a) From and after the Effective Time, the Buyer shall, to the fullest
extent permitted by law, cause the Surviving Corporation, for a period of six
years from the Effective Time, to honor all of the Company's obligations under
Article VII of the Articles of Incorporation of the Company to indemnify and
hold harmless each present and former director and officer of the Company (the
"Indemnified Parties"), against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities or amounts paid
in settlement incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the extent that such obligations to indemnify and hold
harmless exist on the date of this Agreement.
(b) For a period of six years after the Effective Time, the Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by the Company's directors'
and officers' liability insurance policy (a complete and accurate copy of which
has been delivered to the Buyer prior to the date of this Agreement) with
coverage in amount and scope at least as favorable to such persons as the
Company's existing coverage; provided, that in no event shall the Buyer or the
Surviving Corporation be required to expend in excess of 200% of the annual
premium currently paid by the Company for such coverage, which current annual
premium is set forth in Section 6.14(b) of the Company Disclosure Schedule.
6.15 Notification of Certain Matters. The Buyer shall give prompt notice to
the Company, and the Company shall give prompt notice to the Buyer, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) (i) any representation or
warranty of such party contained in this Agreement that is qualified as to
materiality to be untrue or inaccurate in any respect or (ii) any other
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect, in each case at any time from and
after the date of this Agreement until the Effective Time, or (b) any material
failure of the Buyer and the Transitory Subsidiary or the Company, as the case
may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement. Notwithstanding the above, the delivery
of any notice pursuant to this Section will not limit or otherwise affect the
remedies available hereunder to the party receiving such notice or the
conditions to such party's obligation to consummate the Merger.
6.16 Exemption from Liability Under Section 16(b).
(a) The board of directors of the Buyer, or a committee thereof consisting
solely of non-employee directors (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act), shall adopt a resolution in advance of the
Effective Time providing that the receipt by the Company Insiders of Buyer
Common Stock in exchange for shares of Company Common Stock, and of options to
purchase Buyer Common Stock upon assumption and conversion of Company Stock
Options, in each case pursuant to the transactions contemplated hereby and to
the extent such securities are listed in the Section 16 Information, is
intended to be exempt pursuant to Rule 16b-3 under the Exchange Act.
(b) For purposes of Section 6.16(a), "Section 16 Information" shall mean
information regarding the Company Insiders and the number of shares of Company
Common Stock or other Company equity securities deemed to be beneficially owned
by each such Company Insider and expected to be exchanged for Buyer Common
Stock, and options to purchase Buyer Common Stock, in each case, in connection
with the Merger, which shall be provided by the Company to the Buyer within 10
business days after the date of this Agreement.
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(c) For purposes of Section 6.16(a), "Company Insiders" shall mean those
officers and directors of the Company who are subject to the reporting
requirements of Section 16(a) of the Exchange Act as listed in the Section 16
Information.
6.17 Comfort Letters.
(a) The Company shall use reasonable efforts to cause to be delivered to the
Buyer and the Company a letter of KPMG LLP, the Company's independent auditors,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Buyer, in form reasonably
satisfactory to the Buyer and the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(b) The Buyer shall use reasonable efforts to cause to be delivered to the
Company and the Buyer a letter of Ernst & Young LLP, the Buyer's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to the Buyer, in
form reasonably satisfactory to the Company and the Buyer and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
6.18 Representation on Buyer Board. The Buyer shall take any and all actions
necessary or appropriate to cause the number of directors comprising the
Buyer's board of directors at the Effective Time to be sufficient to permit
John H. Fain (the "Shareholder Designee") to serve thereon, and to cause the
Shareholder Designee to be elected to serve on the Buyer's board of directors
as provided in the Shareholder's Agreement.
ARTICLE VII
Conditions to Merger
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) Shareholder Approval. The Company Voting Proposal shall have been
approved and adopted at the Company Shareholders Meeting, at which a quorum
is present, by the requisite vote of the shareholders of the Company under
applicable law and the Company's Articles of Incorporation and Bylaws.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Governmental Approvals. Other than the filing of the Articles of
Merger, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity in connection with the Merger and the consummation
of the other transactions contemplated by this Agreement, the failure of
which to file, obtain or occur is reasonably likely to have, directly or
indirectly, a Buyer Material Adverse Effect or a Company Material Adverse
Effect shall have been filed, been obtained or occurred.
(d) Registration Statement; Proxy Statement/Prospectus. The Registration
Statement shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceeding for that purpose, and no similar proceeding
with respect to the Proxy Statement/Prospectus, shall have been initiated
or threatened in writing by the SEC or its staff.
(e) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment or injunction (preliminary or
permanent) or statute, rule or regulation which is in effect and which has
the effect of
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making the Merger illegal or otherwise prohibiting consummation of the
Merger or the other transactions contemplated by this Agreement.
(f) AMEX. The shares of Buyer Common Stock to be issued in the Merger
shall have been approved for listing on AMEX, subject only to official
notice of issuance.
7.2 Additional Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligations of the Buyer and the Transitory Subsidiary to
effect the Merger are subject to the satisfaction on or prior to the Closing
Date of each of the following additional conditions, any of which may be waived
in writing exclusively by the Buyer and the Transitory Subsidiary:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct (i) as
of the date of this Agreement and (ii) as of the Closing Date as though
made on and as of the Closing Date, except (A) in the case of this clause
(ii), for changes contemplated by this Agreement and (B) in the case of
both clauses (i) and (ii), (y) to the extent such representations and
warranties are specifically made as of a particular date, in which case
such representations and warranties shall be true and correct as of such
date and (z) where the failures to be true and correct (without regard to
any materiality or Company Material Adverse Effect qualifications contained
therein), individually or in the aggregate, have not had, and are not
reasonably likely to have, a Company Material Adverse Effect); and the
Buyer shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company
to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement on or prior to the Closing Date; and the Buyer
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
(c) No Company Material Adverse Effect. Since the date of this
Agreement, there shall not have been any change, event, circumstance,
development or effect that individually or in the aggregate has had, or is
reasonably likely to have, a Company Material Adverse Effect.
(d) Tax Opinion. The Buyer shall have received a written opinion from
Hale and Dorr LLP, counsel to the Buyer, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; provided that if Hale and Dorr LLP
does not render such opinion, this condition shall nonetheless be deemed
satisfied if Williams, Mullen, Clark & Dobbins renders such opinion to the
Buyer (it being agreed that the Buyer and the Company shall each provide
reasonable cooperation, including making reasonable representations, to
Hale and Dorr LLP or Williams, Mullen, Clark & Dobbins, as the case may be,
to enable them to render such opinion).
(e) Third Party Consents. The Company shall have obtained (i) all
consents and approvals of third parties referred to in Section 3.3(b) of
the Company Disclosure Schedule and (ii) any other consent or approval of
any third party (other than a Governmental Entity) which is material to the
Company and its Subsidiaries taken as a whole.
(f) No Restraints. There shall not be instituted or pending any action
or proceeding by any Governmental Entity (i) seeking to restrain, prohibit
or otherwise interfere with the ownership or operation by the Buyer or any
of its Subsidiaries of all or any portion of the business of the Company or
any of its Subsidiaries or of the Buyer or any of its Subsidiaries or to
compel the Buyer or any of its Subsidiaries to dispose of or hold separate
all or any portion of the business or assets of the Company or any of its
Subsidiaries or of the Buyer or any of its Subsidiaries, (ii) seeking to
impose or confirm limitations on the ability of the Buyer or any of its
Subsidiaries effectively to exercise full rights of ownership of the shares
of Company Common Stock (or shares of stock of the Surviving Corporation)
including the right to vote any such shares on any matters properly
presented to shareholders or (iii) seeking to require divestiture by the
Buyer or any of its Subsidiaries of any such shares.
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(g) Resignations. The Buyer shall have received copies of the
resignations, effective as of the Effective Time, of each director of the
Company and its Subsidiaries.
7.3 Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction on or prior to
the Closing Date of each of the following additional conditions, any of which
may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of the Buyer and the Transitory Subsidiary set forth in this Agreement
shall be true and correct (i) as of the date of this Agreement and (ii) as
of the Closing Date as though made on and as of the Closing Date, except
(A) in the case of this clause (ii), for changes contemplated by this
Agreement and (B) in the case of both clauses (i) and (ii), (y) to the
extent such representations and warranties are specifically made as of a
particular date, in which case such representations and warranties shall be
true and correct as of such date and (z) where the failures to be true and
correct (without regard to any materiality or Buyer Material Adverse Effect
qualifications contained therein), individually or in the aggregate, have
not had, and are not reasonably likely to have, a Buyer Material Adverse
Effect; and the Company shall have received a certificate signed on behalf
of the Buyer by the chief executive officer or the chief financial officer
of the Buyer to such effect.
(b) Performance of Obligations of the Buyer and the Transitory
Subsidiary. The Buyer and the Transitory Subsidiary shall have performed in
all material respects all obligations required to be performed by them
under this Agreement on or prior to the Closing Date; and the Company shall
have received a certificate signed on behalf of the Buyer by the chief
executive officer or the chief financial officer of the Buyer to such
effect.
(c) No Buyer Material Adverse Effect. Since the date of this Agreement,
there shall not have been any change, event, circumstance, development or
effect that individually or in the aggregate has had, or is reasonably
likely to have, a Buyer Material Adverse Effect.
(d) Tax Opinion. The Company shall have received the opinion of
Williams, Mullen, Clark & Dobbins, counsel to the Company, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; provided
that if Williams, Mullen, Clark & Dobbins does not render such opinion,
this condition shall nonetheless be deemed satisfied if Hale and Dorr LLP
renders such opinion to the Company (it being agreed that the Buyer and the
Company shall each provide reasonable cooperation, including making
reasonable representations, to Williams, Mullen, Clark & Dobbins or Hale
and Dorr LLP, as the case may be, to enable them to render such opinion).
(e) Representation on Buyer Board. The Shareholder Designee shall have
been elected to serve on the Buyer's board of directors effective
immediately following the Effective Time.
(f) No Restraints. There shall not be instituted or pending any action
or proceeding by any Governmental Entity (i) seeking to restrain, prohibit
or otherwise interfere with the ownership or operation by the Buyer or any
of its Subsidiaries of all or any portion of the business of the Company or
any of its Subsidiaries or of the Buyer or any of its Subsidiaries or to
compel the Buyer or any of its Subsidiaries to dispose of or hold separate
all or any portion of the business or assets of the Company or any of its
Subsidiaries or of the Buyer or any of its Subsidiaries, (ii) seeking to
impose or confirm limitations on the ability of the Buyer or any of its
Subsidiaries effectively to exercise full rights of ownership of the shares
of Company Common Stock (or shares of stock of the Surviving Corporation),
including the right to vote any such shares on any matters properly
presented to shareholders, or (iii) seeking to require divestiture by the
Buyer or any of its Subsidiaries of any such shares.
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ARTICLE VIII
Termination and Amendment
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 8.1(b) through 8.1(g), by written
notice by the terminating party to the other party), whether before or, subject
to the terms hereof, after adoption of this Agreement by the shareholders of
the Company or the sole shareholder of the Transitory Subsidiary:
(a) by mutual written consent of the Buyer, the Transitory Subsidiary
and the Company; or
(b) by either the Buyer or the Company if the Merger shall not have been
consummated by December 31, 2001 (the "Outside Date") (provided that the
right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been a principal cause of or resulted in the failure of the
Merger to occur on or before the Outside Date); or
(c) by either the Buyer or the Company if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by either the Buyer or the Company if at the Company Shareholders
Meeting (including any adjournment or postponement thereof permitted by
this Agreement) at which a vote on the Company Voting Proposal is taken,
the requisite vote of the shareholders of the Company in favor of the
Company Voting Proposal shall not have been obtained (provided that the
right to terminate this Agreement under this Section 8.1(d) shall not be
available to the Company if (i) at such time the Company is in breach of or
has failed to fulfill its obligations under this Agreement or (ii) the
failure to obtain the requisite vote has been caused by a breach of the
Shareholder's Agreement by any party thereto other than the Buyer); or
(e) by the Buyer, if: (i) the Company Board shall have failed to
unanimously recommend approval of the Company Voting Proposal in the Proxy
Statement/Prospectus or shall have withdrawn or modified its recommendation
of the Company Voting Proposal; (ii) the Company Board fails to unanimously
reconfirm its recommendation of the Company Voting Proposal within five
days after the Buyer requests in writing that the Company Board (or such
committee thereof) do so; (iii) the Company Board shall have approved or
recommended to the shareholders of the Company an Acquisition Proposal
(other than the Merger contemplated by this Agreement); (iv) a tender offer
or exchange offer for outstanding shares of the Company Common Stock is
commenced (other than by the Buyer or an Affiliate of the Buyer) and the
Company Board (or any committee thereof) recommends that the shareholders
of the Company tender their shares in such tender or exchange offer or,
within 10 business days after such tender or exchange offer, fails to
recommend against acceptance of such offer or takes no position with
respect to the acceptance thereof; or (v) the Company shall have breached
Section 6.1 or Section 6.5; or
(f) by the Buyer, if there has been a breach of or failure to perform
any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, which breach or failure to perform (i)
would cause the conditions set forth in Section 7.2(a) or 7.2(b) not to be
satisfied, and (ii) shall not have been cured within 20 days following
receipt by the Company of written notice of such breach from the Buyer; or
(g) by the Company, if there has been a breach of or failure to perform
any representation, warranty, covenant or agreement on the part of the
Buyer or the Transitory Subsidiary set forth in this Agreement, which
breach or failure to perform (i) would cause the conditions set forth in
Section 7.3(a) or 7.3(b) not to be satisfied, and (ii) shall not have been
cured within 20 days following receipt by the Buyer of written notice of
such breach from the Company.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall immediately become void and there
shall be no liability or obligation on the part of the Buyer,
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the Company, the Transitory Subsidiary or their respective officers, directors,
shareholders or Affiliates; provided that (i) any such termination shall not
relieve any party from liability for any breach of this Agreement (which
includes, without limitation, the making of any representation or warranty by a
party in this Agreement that was not true and accurate when made) and (ii) the
provisions of Sections 3.27 and 8.3, Article IX of this Agreement and the
Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such fees and expenses, whether or not the
Merger is consummated; provided however, that the Company and the Buyer shall
share equally (i) the filing fees of the Buyer's and any Company shareholder's
pre-merger notification reports under the HSR Act and (ii) all fees and
expenses, other than accountants' and attorneys' fees, incurred with respect to
the printing, filing and mailing of the Proxy Statement/Prospectus (including
any related preliminary materials) and the Registration Statement and any
amendments or supplements thereto.
(b) The Company shall pay the Buyer up to $1,500,000 as reimbursement for
expenses of the Buyer actually incurred relating to the transactions
contemplated by this Agreement prior to termination (including, but not limited
to, reasonable fees and expenses of the Buyer's counsel, accountants and
financial advisors, but excluding any discretionary fees paid to such financial
advisors), upon the termination of this Agreement (i) by the Buyer or the
Company pursuant to Section 8.1(b) if the failure to satisfy the conditions set
forth in Section 7.1(a) or 7.2(a), (b), (c), (e) or (g) by the Outside Date
shall have resulted in the Closing not occurring; (ii) by the Buyer pursuant to
Section 8.1(e); (iii) by the Buyer pursuant to Section 8.1(f); or (iv) by the
Buyer or the Company pursuant to Section 8.1(d). The expenses payable pursuant
to this Section 8.3(b) shall be paid within one business day after demand
therefor following the occurrence of the termination event giving rise to the
payment obligation described in this Section 8.3(b). To the extent any fees
paid under this Section 8.3(b) are paid in conjunction with Section 8.3(c), the
Buyer may not assert at a later date additional fees for reimbursement of the
Buyer's expenses.
(c) The Company shall pay the Buyer a termination fee of $8,100,000 (less
any amounts payable by the Company as reimbursement for expenses under Section
8.3(b)) upon the earliest to occur of the following events:
(i) the termination of the Agreement by the Buyer or the Company
pursuant to Section 8.1(d) as a result of the failure to receive the
requisite vote for approval of the Company Voting Proposal by the
shareholders of the Company at the Company Shareholders Meeting if, at or
prior to the time of such failure, there shall have been announced an
Acquisition Proposal relating to the Company which shall not have been
absolutely and unconditionally withdrawn and abandoned; or
(ii) the termination of this Agreement by the Buyer pursuant to Section
8.1(e); or
(iii) the termination of this Agreement by the Buyer pursuant to Section
8.1(f).
Any fee due under Section 8.3(c) shall be paid by wire transfer of same-day
funds within one business day after the date of termination of this Agreement.
(d) The Buyer shall pay the Company up to $1,500,000 as reimbursement for
expenses of the Company actually incurred relating to the transactions
contemplated by this Agreement prior to termination (including, but not limited
to, reasonable fees and expenses of the Company's counsel, accountants and
financial advisors, but excluding any discretionary fees paid to such financial
advisors), upon the termination of this Agreement by the Company pursuant to
(i) Section 8.1(b) as a result of the failure to satisfy the conditions set
forth in Section 7.3(a) or (b) or (ii) Section 8.1(g). The expenses payable
pursuant to this Section 8.3(d) shall be paid within one business day after
demand therefor following the occurrence of the termination event giving rise
to the
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payment obligation described in this Section 8.3(d). To the extent any fees
paid under this Section 8.3(d) are paid in conjunction with Section 8.3(e), the
Company may not assert at a later date additional fees for reimbursement of the
Company's expenses.
(e) The Buyer shall pay the Company a termination fee of $8,100,000 (less
any amounts payable by the Buyer as reimbursement for expenses under Section
8.3(d)) upon termination of this Agreement by the Company pursuant to Section
8.1(g). Any fee due under Section 8.3(e) shall be paid by wire transfer of
same-day funds within one business day after the date of termination of this
Agreement.
(f) The parties hereto acknowledge that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the parties would not enter into
this Agreement. If one party fails to promptly pay to the other any expense
reimbursement or fee due hereunder, the defaulting party shall pay the costs
and expenses (including reasonable legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee at the
publicly announced prime rate of Fleet Bank, N.A. plus four percent per annum,
compounded quarterly, from the date such expense reimbursement or fee was
required to be paid.
8.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective boards of directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of the Company or the Transitory Subsidiary, provided,
however, that, after any such approval, no amendment shall be made which by law
requires further approval by such shareholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective boards of directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
ARTICLE IX
Miscellaneous
9.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, the Buyer and the Transitory
Subsidiary contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall expire with, and be terminated and extinguished upon,
the Effective Time. This Section 9.1 shall have no effect upon any other
obligations of the parties hereto, whether to be performed before or after the
consummation of the Merger.
9.2 Notices. All notices, requests, claims and demands and other
communications hereunder shall be in writing and shall be deemed duly delivered
(a) four business days after being sent by registered or certified mail, return
receipt requested, postage prepaid, or (b) one business day after being sent
for next business day delivery, fees prepaid, via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
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(i) if to the Buyer or the Transitory Subsidiary, to
Keane, Inc.
Ten City Square
Boston, MA 02129
Attn: President and Chief Executive Officer
Telecopy: (617) 241-9507
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Hal J. Leibowitz, Esq.
Telecopy: (617) 526-5000
(ii) if to the Company, to
Metro Information Services, Inc.
Reflections II Office Building
Third Floor
200 Golden Oak Court
Virginia Beach, VA 23452
Attn: Chairman of the Board and Chief Executive Officer
Telecopy: (757) 306-0257
with a copy to:
Williams, Mullen, Clark & Dobbins
One Columbus Center
Suite 900
Virginia Beach, VA 23462-6762
Attn: John M. Paris, Jr., Esq.
Telecopy: (757) 473-0395
Any party to this Agreement may give any notice or other communication
hereunder using any other means (including personal delivery, messenger
service, telecopy or ordinary mail), but no such notice or other communication
shall be deemed to have been duly given unless and until it actually is
received by the party for whom it is intended. Any party to this Agreement may
change the address to which notices and other communications hereunder are to
be delivered by giving the other parties to this Agreement notice in the manner
herein set forth.
9.3 Entire Agreement. This Agreement (including the Schedules and Exhibits
hereto and the documents and instruments referred to herein that are to be
delivered at the Closing) constitutes the entire agreement among the parties
hereto and supersedes any prior understandings, agreements or representations
by or among the parties hereto, or any of them, written or oral, with respect
to the subject matter hereof; provided that the Confidentiality Agreement shall
remain in effect in accordance with its terms.
9.4 No Third Party Beneficiaries. Except as provided in Section 6.14, this
Agreement is not intended, and shall not be deemed, to confer any rights or
remedies upon any person other than the parties hereto and their respective
successors and permitted assigns, to create any agreement of employment with
any person or to otherwise create any third-party beneficiary hereto.
9.5 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, and any such assignment without
such prior
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written consent shall be null and void, except that the Buyer and/or the
Transitory Subsidiary may assign this Agreement to any direct or indirect
wholly owned Subsidiary of the Buyer without consent of the Company, provided
that the Buyer and/or the Transitory Subsidiary, as the case may be, shall
remain liable for all of its obligations under this Agreement. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties hereto and their respective successors
and permitted assigns.
9.6 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such
determination shall have the power to limit the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified. In the event
such court does not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term or provision
with a valid and enforceable term or provision that shall achieve, to the
extent possible, the economic, business and other purposes of such invalid or
unenforceable term.
9.7 Counterparts and Signature. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. This Agreement may be executed and delivered by
facsimile transmission.
9.8 Interpretation. When reference is made in this Agreement to an Article
or a Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. The table of contents, table of defined
terms and headings contained in this Agreement are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any party. Whenever the
context may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa. Any reference to
any federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." No summary of this Agreement prepared by any party shall
affect the meaning or interpretation of this Agreement.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Virginia without
giving effect to any choice or conflict of law provision or rule (whether of
the Commonwealth of Virginia or any other jurisdiction) that would cause the
application of laws of any jurisdictions other than those of the Commonwealth
of Virginia.
9.10 Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party shall be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy shall not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which the parties are entitled at law or in equity.
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9.11 WAIVER OF JURY TRIAL. EACH OF THE BUYER, THE TRANSITORY SUBSIDIARY AND
THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE ACTIONS OF THE BUYER, THE TRANSITORY SUBSIDIARY OR
THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT.
In Witness Whereof, the Buyer, the Transitory Subsidiary and the Company
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
Keane, Inc.
/s/ Brian T. Keane
_____________________________________
Name:Brian T. Keane
Title:President and Chief Executive
Officer
Veritas Acquisition Corp.
/s/ Brian T. Keane
_____________________________________
Name:Brian T. Keane
Title:President and Chief Executive
Officer
Metro Information Services, Inc.
/s/ John H. Fain
_____________________________________
Name:John H. Fain
Title: Chairman of the Board and
Chief Executive Officer
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Annex B
PLAN OF MERGER
BETWEEN
METRO INFORMATION SERVICES, INC.
AND
VERITAS ACQUISITION CORP.
Section 1. Merger. Subject to the terms and conditions of (a) this Plan of
Merger and (b) the Agreement and Plan of Merger, dated as of August 20, 2001
(the "Agreement"), by and among Keane, Inc., a Massachusetts corporation (the
"Buyer"), Veritas Acquisition Corp., a Virginia corporation and a wholly owned
subsidiary of the Buyer (the "Transitory Subsidiary"), and Metro Information
Services, Inc., a Virginia corporation (the "Company"), at the Effective Time
(as hereinafter defined) the separate corporate existence of the Transitory
Subsidiary shall cease and the Transitory Subsidiary shall be merged with and
into the Company (the "Merger"). The Company shall be the surviving corporation
in the Merger (the "Surviving Corporation") and shall continue its corporate
existence under the laws of the Commonwealth of Virginia.
Section 2. Effective Time. The Merger shall become effective upon the
issuance of the Certificate of Merger by the State Corporation Commission of
the Commonwealth of Virginia (the "SCC") or at such later time as is
established by the Buyer and the Company and set forth in the Articles of
Merger to be filed with the SCC (the "Effective Time").
Section 3. Effects of the Merger. The Merger shall have the effects set
forth in Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
Section 4. Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be amended and restated as set forth in Exhibit A hereto.
Section 5. Bylaws. At the Effective Time, the Bylaws of the Company as in
effect immediately prior to the Effective Time shall be amended and restated to
be identical to the Bylaws of the Transitory Subsidiary as in effect
immediately prior to the Effective Time except that all references to the name
of the Transitory Subsidiary shall be changed to refer to the name of the
Company.
Section 6. Directors and Officers. The directors and officers of the
Transitory Subsidiary immediately prior to the Effective Time shall become the
directors and officers, respectively, of the Surviving Corporation.
Section 7. Manner of Converting Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
the capital stock of the Company or capital stock of the Transitory Subsidiary:
(a) Capital Stock of the Transitory Subsidiary. Each share of the common
stock of the Transitory Subsidiary issued and outstanding immediately prior
to the Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, $.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Buyer-Owned Stock. All shares of common stock, $0.01
par value per share, of the Company, including all shares of Nonvoting
Common Stock ("Company Common Stock"), that are owned by any wholly owned
Subsidiary (as defined in the Agreement) of the Company and any shares of
Company Common Stock owned by the Buyer, the Transitory Subsidiary or any
other wholly owned Subsidiary of the Buyer immediately prior to the
Effective Time shall be cancelled and shall cease to exist and no stock of
the Buyer or other consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section 9, each share
of Company Common Stock (other than shares to be cancelled in accordance
with Section 7(b) hereof) issued and outstanding
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immediately prior to the Effective Time shall be automatically converted
into the right to receive 0.48 shares (the "Exchange Ratio") of common
stock, $0.10 par value per share, of the Buyer ("Buyer Common Stock") upon
surrender of the certificate representing such share of Company Common
Stock in the manner provided in Section 9 hereof. As of the Effective Time,
all such shares of Company Common Stock shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each holder
of a certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
shares of Buyer Common Stock pursuant to this Section 7(c) and any cash in
lieu of fractional shares of Buyer Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 9 hereof, without interest.
(d) Adjustments to Exchange Ratio. In the event of any reclassification,
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Buyer Common Stock or Company
Common Stock), reorganization, recapitalization or other like change with
respect to Buyer Common Stock or Company Common Stock occurring (or for
which a record date is established) after the date of the Agreement and
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted to reflect fully such event.
(e) Unvested Stock. At the Effective Time, any shares of Buyer Common
Stock issued in accordance with Section 7(c) with respect to any unvested
shares of Company Common Stock awarded to employees, directors, advisors or
consultants pursuant to any of the Company's plans or arrangements and
outstanding immediately prior to the Effective Time shall be converted into
unvested shares of Buyer Common Stock in accordance with the Exchange Ratio
and shall remain subject to the same terms, restrictions and vesting
schedule as in effect immediately prior to the Effective Time, except to
the extent by their terms such unvested shares of Company Common Stock vest
at the Effective Time. All outstanding rights which the Company may hold
immediately prior to the Effective Time to repurchase unvested shares of
Company Common Stock shall be assigned to the Buyer in the Merger and shall
thereafter be exercisable by the Buyer upon the same terms and conditions
in effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to such rights and the purchase price payable per
share shall be appropriately adjusted to reflect the Exchange Ratio.
Section 8. Manner of Converting Company Stock Options. At the Effective
Time, each option to purchase shares of Company Common Stock (collectively, the
"Company Stock Options") (other than options granted under the Company's
Employee Stock Purchase Plan (the "Company ESPP") that is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Company Common Stock and shall be converted automatically
into an option to purchase shares of Buyer Common Stock in an amount and at an
exercise price determined as provided in this Section 8 (and otherwise subject
to the terms of the Company Stock Plans (other than the Company ESPP) and the
agreements evidencing grants thereunder) (a "Buyer Stock Option"). The number
of shares of Buyer Common Stock to be subject to each Buyer Stock Option shall
be equal to the product of (i) the number of shares of Company Common Stock
subject to such Company Stock Option immediately prior to the Effective Time
and (ii) the Exchange Ratio; provided that any fractional shares resulting from
such multiplication shall be rounded down to the nearest whole number. The
exercise price per share of Buyer Common Stock under each Buyer Stock Option
shall be equal to (y) the exercise price per share of Company Common Stock at
which such Company Stock Option was exercisable immediately prior to the
Effective Time divided by (z) the Exchange Ratio; provided that such exercise
price shall be rounded up to the nearest whole cent.
Section 9. Exchange of Certificates. The procedures for exchanging
outstanding shares of Company Common Stock for shares of Buyer Common Stock
pursuant to the Merger are as follows:
(a) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent (as defined in the Agreement) shall mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of the Company
Common Stock (the "Certificates") whose shares were converted pursuant to
Section 7 into the right to receive
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shares of Buyer Common Stock (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
the Buyer may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for shares of Buyer Common Stock
(plus cash in lieu of fractional shares, if any, of Buyer Common Stock and
any dividends or distributions as provided below). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by the Buyer, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) a certificate representing
that number of whole shares of Buyer Common Stock which such holder has the
right to receive pursuant to Section 7(c), (B) cash in an amount sufficient
to make payments for fractional shares pursuant to the provisions of
Section 9(c) and (C) any dividends or distributions pursuant to the
provisions of Section 9(b), and the Certificate so surrendered shall
immediately be cancelled. In the event of a transfer of ownership of
Company Common Stock which is not registered in the transfer records of the
Company, (x) a certificate representing the proper number of shares of
Buyer Common Stock issuable pursuant to Section 7(c), (y) the proper amount
of cash in lieu of fractional shares pursuant to Section 9(c) and (z) any
dividends or distributions pursuant to Section 9(b) may be issued or paid
to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 9, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender (1) shares of Buyer Common Stock
issuable pursuant to Section 7(c), (2) cash in lieu of fractional shares
pursuant to Section 9(c) and (3) any dividends or distributions pursuant to
Section 9(c) as contemplated by this Section 9.
(b) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 9(c) until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be issued and paid to the
record holder of the Certificate, (i) certificates representing whole
shares of Buyer Common Stock issued in exchange therefor, (ii) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of Buyer Common Stock to which such holder is entitled pursuant to
Section 9(c) and the amount of dividends or other distributions with a
record date after the Effective Time previously paid with respect to such
whole shares of Buyer Common Stock, without interest, and (iii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
shares of Buyer Common Stock.
(c) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder
of the Buyer. Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock converted pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Buyer Common Stock (after taking into account all Certificates registered
in the name of or delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a
share of Buyer Common Stock multiplied by the average of the last reported
sales prices per share of the Buyer Common Stock on the American Stock
Exchange during the ten consecutive trading days ending on the last trading
day prior to the Closing Date (as defined in the Agreement).
Section 10. Modifications and Termination. Subject to the limitations of
Section 13.1-718 of the VSCA, this Plan of Merger may be amended, modified or
abandoned at any time prior to the Effective Time by action of the Board of
Directors of each of the parties hereto.
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Exhibit A
ARTICLES OF INCORPORATION
OF
METRO INFORMATION SERVICES, INC.
ARTICLE I
The name of the Corporation is Metro Information Services, Inc.
ARTICLE II
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles, for
which corporations may be incorporated under the Virginia Stock Corporation Act
as amended from time to time.
ARTICLE III
1. The total number of shares that the Corporation shall have authority to
issue shall be 100 shares of Common Stock, $0.10 par value per share.
2. No holder of shares of any class of the Corporation shall have any
preemptive or preferential right to purchase or subscribe to (i) any shares of
any class of the Corporation, whether now or hereafter authorized; (ii) any
warrants, rights, or options to purchase any such shares; or (iii) any
securities or obligations convertible into any such shares or into warrants,
rights, or options to purchase any such shares.
3. Each share of Common Stock shall be entitled to one vote on all matters
submitted to a vote at any meeting of shareholders, and the exclusive general
voting power for all purposes shall be vested therein.
4. Except as otherwise required in these Articles as they may hereafter be
amended, a merger, statutory share exchange, sale or other disposition of all
or substantially all the Corporation's assets otherwise than in the usual and
regular course of business, an amendment to these Articles or the dissolution
of the Corporation, shall be approved by a majority of the votes entitled to be
cast by each voting group that is entitled to vote on such transaction.
ARTICLE IV
The number of Directors constituting the Board of Directors shall be fixed
in the Corporation's Bylaws.
ARTICLE V
1. In this Article:
"applicant" means the person seeking indemnification pursuant to this
Article.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement, penalty,
fine, including any excise tax assessed with respect to an employee benefit
plan, or reasonable expenses incurred with respect to a proceeding.
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"party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
2. In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no Director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence
or course of conduct, whether prior or subsequent to the effective date of this
Article, except for liability resulting from such person's having engaged in
willful misconduct or a knowing violation of the criminal law or any federal or
state securities law.
3. The Corporation shall indemnify (i) any person who was or is a party to
any proceeding, including a proceeding brought by a shareholder in the right of
the Corporation or brought by or on behalf of shareholders of the Corporation,
by reason of the fact that he is or was a Director, officer, employee or agent
of the Corporation, or (ii) any Director or officer who is or was serving at
the request of the Corporation as a Director, trustee, partner or officer of
another corporation, partnership, limited liability company, joint venture,
trust, employee benefit plan or other enterprise, against any liability
incurred by him in connection with such proceeding unless he engaged in willful
misconduct or a knowing violation of the criminal law. A person is considered
to be serving an employee benefit plan at the Corporation's request if his
duties to the Corporation also impose duties on, or otherwise involve services
by, him to the plan or to participants in or beneficiaries of the plan. The
Board of Directors is hereby empowered, by a majority vote of a quorum of
disinterested Directors, to enter into a contract to indemnify any Director or
officer in respect of any proceedings arising from any act or omission, whether
occurring before or after the execution of such contract.
4. The provisions of this Article shall be applicable to all proceedings
commenced after the adoption hereof by the shareholders of the Corporation,
arising from any act or omission, whether occurring before or after such
adoption. No amendment or repeal of this Article shall have any effect on the
rights provided under this Article with respect to any act or omission
occurring prior to such amendment or repeal. The Corporation shall promptly
take all such actions, and make all such determinations, as shall be necessary
or appropriate to comply with its obligation to make any indemnity under this
Article and shall promptly pay or reimburse all reasonable expenses, including
attorneys' fees, incurred by any such Director, officer, employee or agent in
connection with such actions and determinations or proceedings of any kind
arising therefrom.
5. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the applicant did not meet the standard of
conduct described in section 2 or 3 of this Article.
6. Any indemnification under section 3 of this Article (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the applicant is proper in the
circumstances because he has met the applicable standard of conduct set forth
in section 3.
The determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum consisting
of Directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under subsection (a) of this section,
by majority vote of a committee duly designated by the Board of Directors
(in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to the
proceeding;
(c) By special legal counsel:
(i) Selected by the Board of Directors or its committee in the
manner prescribed in subsection (a) or (b) of this section; or
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(ii) If a quorum of the Board of Directors cannot be obtained under
subsection (a) of this section and a committee cannot be designated
under subsection (b) of this section, selected by majority vote of the
full Board of Directors, in which selection Directors who are parties
may participate; or
(d) By the shareholders, but shares owned by or voted under the control
of Directors who are at the time parties to the proceeding may not be voted
on the determination.
Any evaluation as to reasonableness of expenses shall be made in the same
manner as the determination that indemnification is appropriate, except that
if the determination is made by special legal counsel, such evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(c) of this section 6 to select counsel.
Notwithstanding the foregoing, in the event there has been a change in the
composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect
to any claim for indemnification made pursuant to this Article shall be made
by special legal counsel agreed upon by the Board of Directors and the
applicant. If the Board of Directors and the applicant are unable to agree
upon such special legal counsel the Board of Directors and the applicant each
shall select a nominee, and the nominees shall select such special legal
counsel.
7. (a) The Corporation may pay for or reimburse the reasonable expenses
incurred by any applicant who is a party to a proceeding in advance of final
disposition of the proceeding or the making of any determination under section
6 if the applicant furnishes the Corporation:
(i) a written statement of his good faith belief that he has met the
standard of conduct described in section 3; and
(ii) a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he did not meet
such standard of conduct.
(b) The undertaking required by paragraph (ii) of subsection (a) of this
section shall be an unlimited general obligation of the applicant but need
not be secured and may be accepted without reference to financial ability
to make repayment.
(c) Authorizations of payments under this section shall be made by the
persons specified in section 6.
8. The Board of Directors is hereby empowered, by majority vote of a quorum
consisting of disinterested Directors, to cause the Corporation to indemnify
or contract to indemnify any person not specified in section 2 or 3 of this
Article who was, is or may become a party to any proceeding, by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as Director, officer, employee or
agent of another corporation, partnership, limited liability company, joint
venture, trust, employee benefit plan or other enterprise, to the same extent
as if such person were specified as one to whom indemnification is granted in
section 3. The provisions of sections 4 through 7 of this Article shall be
applicable to any indemnification provided hereafter pursuant to this section
8.
9. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by him in any such capacity or arising from his
status as such, whether or not the Corporation would have power to indemnify
him against such liability under the provisions of this Article.
10. Every reference herein to Directors, officers, employees or agents
shall include former Directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification
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hereby provided and provided hereafter pursuant to the power hereby conferred
by this Article on the Board of Directors shall not be exclusive of any other
rights to which any person may be entitled, including any right under policies
of insurance that may be purchased and maintained by the Corporation or others,
with respect to claims, issues or matters in relation to which the Corporation
would not have the power to indemnify such person under the provisions of this
Article. Such rights shall not prevent or restrict the power of the Corporation
to make or provide for any further indemnity, or provisions for determining
entitlement to indemnity, pursuant to one or more indemnification agreements,
bylaws, or other arrangements (including, without limitation, creation of trust
funds or security interests funded by letters of credit or other means)
approved by the Board of Directors (whether or not any of the Directors of the
Corporation shall be a party to or beneficiary of any such agreements, bylaws
or arrangements); provided, however, that any provision of such agreements,
bylaws or other arrangements shall not be effective if and to the extent that
it is determined to be contrary to this Article or applicable laws of the
Commonwealth of Virginia.
11. Each provision of this Article shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
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Annex C
SHAREHOLDER'S AGREEMENT
This Shareholder's Agreement (this "Agreement") is made and entered into as
of August 20, 2001, by and among Keane, Inc., a Massachusetts corporation
("Keane"), Veritas Acquisition Corp., a Virginia corporation and a wholly owned
subsidiary of Keane (the "Transitory Subsidiary"), and the undersigned holder
(the "Shareholder") of the shares of voting Common Stock, $0.01 par value per
share, of Metro Information Services, Inc., a Virginia corporation ("Metro"),
set forth on the signature page hereto (such number of shares, together with
any additional shares that become subject to this Agreement in accordance with
Section 1.4(b) hereof, the "Shares").
Recitals
A. Concurrently with the execution of this Agreement, Keane, Metro and the
Transitory Subsidiary have entered into an Agreement and Plan of Merger (the
"Merger Agreement") that provides for the merger (the "Merger") of the
Transitory Subsidiary with and into Metro. Pursuant to the Merger, shares of
capital stock of Metro will be converted into the right to receive shares of
common stock, $0.10 par value per share, of Keane ("Keane Common Stock") and
cash in lieu of fractional shares as described in the Merger Agreement.
B. The Shareholder is the record holder and beneficial owner of the Shares,
representing at least 40% of the outstanding shares of Metro Common Stock. For
purposes of this Agreement, "beneficial ownership" shall have the meaning given
to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
C. Keane desires the Shareholder to agree, and the Shareholder is willing to
agree, (i) not to transfer or otherwise dispose of any of the Shares prior to
the Expiration Date (as defined in Section 1.1 below) and (ii) to vote the
Shares so as to facilitate consummation of the Merger.
Now, Therefore, intending to be legally bound, the parties agree as follows:
1. Agreement to Retain and Vote Shares.
1.1 Transfer and Encumbrance. The Shareholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge or
otherwise dispose of or encumber any of the Shares or to make any offer or
agreement relating thereto, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of: (a) such
date and time as the Merger shall become effective in accordance with the terms
and provisions of the Merger Agreement (provided that nothing contained herein
shall release the Shareholder from any of his obligations set forth under the
Affiliate Agreement (as defined in the Merger Agreement)) and (b) such date as
the Merger Agreement is terminated pursuant to Section 8.1 thereof.
1.2 Agreement to Vote Shares. From the date hereof until the Expiration
Date, at every meeting of the shareholders of Metro called with respect to the
Merger Agreement and the Plan of Merger (as defined in the Merger Agreement)
and/or the Merger, and at every adjournment or postponement thereof, and on
every action or approval by unanimous written consent of the shareholders of
Metro with respect to the Merger Agreement, the Plan of Merger and/or the
Merger, the Shareholder shall vote the Shares in favor of adoption and approval
of the Merger Agreement, the Plan of Merger and any matter that could
reasonably be expected to facilitate the Merger. The Shareholder agrees not to
take any actions contrary to his obligations under this Agreement.
1.3 Irrevocable Proxy. Concurrently with the execution of this Agreement,
the Shareholder agrees to deliver to Keane a proxy in the form attached hereto
as Exhibit A (the "Proxy"), which shall be coupled with
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an interest and irrevocable, with the number of shares of capital stock of
Metro beneficially owned by the Shareholder and subject to the Proxy set forth
therein.
1.4 Representations, Warranties and Covenants of the Shareholder. The
Shareholder hereby represents, warrants and covenants to Keane as follows:
(a) Ownership of Shares; Authority. The Shareholder (i) is the record
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances; and (ii) has full power and
authority to make, enter into and carry out the terms of this Agreement and
the Proxy. In addition, in the case of a Shareholder that is a trust, the
trustees of such Shareholder have full power and authority to make, enter
into and carry out the terms of this Agreement and the Proxy.
(b) Ownership Percentage. The Shareholder represents and warrants that
the Shares represent 40% of the outstanding shares of Metro Common Stock as
of the date of this Agreement. The Shareholder further acknowledges and
agrees that if at any time and from time to time from the date of this
Agreement until the Expiration Date, the Shares represent less than 40% of
the outstanding shares of Metro Common Stock, this Agreement shall be
deemed to be amended as of such time such that the number of Shares subject
to this Agreement shall be increased to the number of shares of Metro
Common Stock constituting 40% of the outstanding shares of Metro Common
Stock.
(c) No Conflicts or Consents. The execution and delivery of this
Agreement and the Proxy by the Shareholder do not, and the performance by
the Shareholder of his obligations under this Agreement and the Proxy will
not: (i) conflict with or violate any law, rule, regulation, order, decree
or judgment applicable to the Shareholder or by which its properties are
bound or affected; (ii) in the case of a Shareholder that is a trust,
conflict with or violate any trust document applicable to the Shareholder
or by which its properties are bound or affected; or (iii) result in or
constitute any breach or default under, or give any person or entity rights
of termination, amendment or acceleration in, the creation of an
encumbrance or restriction applicable to any of the Shares.
(d) Governmental Filings. The Shareholder agrees to cooperate and to use
his commercially reasonable efforts to obtain any governmental clearances
or approvals for the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and any other federal,
state or foreign law or regulation or decree designed to prohibit, restrict
or regulate actions for the purpose or effect of monopolization or
restraint of trade and to respond to any government requests for
information relating to such antitrust laws.
(e) Transfer of Voting Rights. The Shareholder agrees that, until the
Expiration Date, the Shareholder shall ensure that: (i) none of the Shares
are deposited into a voting trust and (ii) no proxy is granted, and no
voting agreement or similar agreement is entered into, with respect to the
Shares.
(f) No Proxy Solicitations. From the date of this Agreement until the
Expiration Date, the Shareholder, in his capacity as a shareholder of
Metro, will not, and will not permit any individual or entity under the
Shareholder's control to: (i) solicit proxies with respect to (A) an
approval of any proposal made in opposition to or competition with
consummation of the Merger, (B) the adoption of any merger agreement or
approval of any merger, consolidation, sale of assets, reorganization or
recapitalization with any party other than with Keane and Keane's
affiliates (as defined in Rule 405 of the Securities Act of 1933, as
amended) ("Affiliates") or (C) any liquidation or winding up of Metro (each
of the foregoing is hereinafter referred to as an "Opposing Proposal");
(ii) encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the terms
of the Merger Agreement; (iii) initiate a shareholders' vote or action by
consent of Metro shareholders with respect to an Opposing Proposal; or (iv)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of Metro with respect
to an Opposing Proposal.
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(g) Additional Documents. The Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Keane, to carry out the intent of this Section 1.
1.5 Consent and Waiver. The Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which the Shareholder is a party as a shareholder or
pursuant to any rights the Shareholder may have as a shareholder.
1.6 Fiduciary Duty as Director of Metro. The parties hereto acknowledge and
agree that the Shareholder's obligations under this Section 1 are solely in his
capacity as a shareholder of Metro, and that none of the provisions in this
Section 1 shall be deemed to restrict or limit any fiduciary duty that the
Shareholder or any of his Affiliates may have as a member of the Board of
Directors of Metro; provided that no such duty shall excuse the Shareholder
from his obligations as a shareholder of Metro to vote the Shares as herein
provided and to otherwise comply with the terms and conditions of this
Agreement.
1.7 Lock-Up Agreement. The Shareholder shall not, during any 90 day period
commencing on the Closing Date (as defined in the Merger Agreement), transfer,
or permit any of his Affiliates to transfer, shares of Keane Common Stock or
other Keane securities held by the Shareholder and such Affiliates
representing, in the aggregate, more than 1% of the then outstanding shares of
Keane Common Stock. Keane may impose stop-transfer instructions with respect to
shares of Keane Common Stock or other securities subject to the foregoing
restriction.
1.8 Finder's Fees. No investment banker, broker or finder is entitled to a
commission or fee from Keane, Transitory Subsidiary or Metro in respect of this
Agreement based upon any arrangement or agreement made by or on behalf of the
Shareholder.
2. Representations and Warranties of Keane. Keane represents and warrants to
the Shareholder that Keane has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. The
execution, delivery and performance by Keane of this Agreement and the
consummation by Keane of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Keane, and no other corporate action on
the part of Keane is necessary to authorize the execution, delivery or
performance by Keane of this Agreement and the consummation by Keane of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Keane and is a valid and binding agreement of Keane, enforceable
against it in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally.
3. Nomination of the Shareholder to the Keane Board of Directors.
3.1 Nomination Right. Prior to or at the Effective Time, the Shareholder
shall have the right to be nominated to the Keane Board of Directors (the
"Keane Board") effective as of the Effective Time and at each meeting of
stockholders of Keane, as the case may be, at which directors are to be
elected. The Keane Board shall, subject to its fiduciary duties under
applicable law, cause the Shareholder to be nominated and recommended for
election to the Keane Board at the Effective Time and at all meetings of
stockholders of Keane at which directors are to be elected following the
Effective Time.
3.2 Number of Directors. Subject to its fiduciary duties under applicable
law, the Keane Board shall not, in connection with its nomination of
individuals to be submitted to Keane's stockholders for election to the Keane
Board, cause the total number of director seats on the Keane Board to be
considered and filled by Keane stockholders to be decreased to a number less
than that equal to the number of director nominees nominated and recommended
for election by the Keane Board. For the avoidance of doubt, the Keane Board
need not take into account any director nominees proposed by Keane's
stockholders when determining the number of director seats on the Keane Board.
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3.3 Termination. The rights granted to the Shareholder and the obligations
of Keane pursuant to this Section 3 shall terminate on the date on which the
Shareholder, together with his Affiliates, ceases, following the Effective
Time, to beneficially own 4% or more of the outstanding shares of Keane Common
Stock.
4. Miscellaneous.
4.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
4.2 Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the Shareholder may be assigned by the Shareholder
without prior written consent of Keane.
4.3 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
4.4 Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Keane will be irreparably harmed and that there will be no adequate remedy
at law for a violation of any of the covenants or agreement of the Shareholder
set forth herein. Therefore, it is agreed that, in addition to any other
remedies that may be available to Keane upon any such violation, Keane shall
have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Keane at law
or in equity. The Shareholder agrees not to seek, and agrees to waive any
requirement for, the securing or posting of a bond in connection with Keane
seeking or obtaining such equitable relief.
4.5 Notices. All notices, requests, claims, demands and other communications
hereunder shall be deemed duly delivered: (a) four business days after being
sent by registered or certified mail, return receipt requested, postage prepaid
or (b) one business day after being sent for next business day delivery, fees
prepaid, via a reputable nationwide overnight courier service to the intended
recipient as set forth below.
If to Keane: Ten City Square
Boston, MA 02129
Attention:Brian T. Keane
Telecopy:(617) 241-9507
With a copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention:Hal J. Leibowitz, Esq.
Telecopy:(617) 526-5000
If to the Shareholder:
To the address for notice set forth on the last page
hereof.
with a copy to: Williams, Mullen, Clark & Dobbins
One Columbus Center
Suite 900
Virginia Beach, VA 23462-6762
Attention:John M. Paris, Jr., Esq.
Telecopy:(757) 473-0395
Any party to this Agreement may give any notice or other communication
hereunder using any other means (including personal delivery, messenger
service, telecopy, or ordinary mail), but no such notice or other communication
shall be deemed to have been duly given unless and until it actually is
received by the party for
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whom it is intended. Any party to this Agreement may change the address to
which notices and other communications hereunder are to be delivered by giving
the other party to this Agreement notice in the manner herein set forth.
4.6 Amendments; Termination; Expiration. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto. This Agreement may be
terminated by Keane and Transitory Subsidiary upon written notice to the
Shareholder. This Agreement and the Shareholder's obligations hereunder shall
expire on the first to occur of (a) the Effective Time and (b) the date of the
termination of the Merger Agreement in accordance with its terms; provided,
however, that (i) each party shall remain liable for any breach of this
Agreement by such party occurring prior to such termination and (ii) in the
event that the Effective Time shall occur, the provisions of Sections 1.7 and 3
shall survive any termination of this Agreement.
4.7 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the Commonwealth of Virginia
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Virginia or any other jurisdiction) that would
cause the application of laws of any jurisdiction other than those of the
Commonwealth of Virginia.
4.8 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such
subject matter.
4.9 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
4.10 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
4.11 Further Assurances. Except as otherwise provided in the Merger
Agreement, the Shareholder will execute and deliver or cause to be executed and
delivered all further documents and instruments and use his best efforts to
secure such consents and take all such further action as may be reasonably
necessary in order to consummate the transactions contemplated hereby or to
enable Keane and any assignee to exercise and enjoy all benefits and rights of
the Shareholder with respect to the Shares.
4.12 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations and
which may be required under any agreements, contracts, commitments,
instruments, understandings, arrangements or restrictions of any kind to which
such party is a party or by which such party is governed or bound, to
consummate and make effective the transactions contemplated by this Agreement.
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In Witness Whereof, the parties have caused this Agreement to be duly
executed on the date and year first above written.
Keane, Inc.
/s/ Brian T. Keane
By: _________________________________
Name:Brian T. Keane
Title: President and Chief
Executive Officer
Veritas Acquisition Corp.
/s/ Brian T. Keane
By: _________________________________
Name:Brian T. Keane
Title: President and Chief
Executive Officer
Shareholder
/s/ John H. Fain
By: _________________________________
John H. Fain
Print Name: _________________________
Shareholder's Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Shares of Metro Common Stock subject
to this Agreement: 6,135,104
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of Metro Information Services, Inc., a Virginia
corporation ("Metro"), hereby irrevocably appoints Brian T. Keane and John J.
Leahy of Keane, Inc., a Massachusetts corporation ("Keane"), and Keane and each
of them, as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to shares of Common Stock of Metro
beneficially owned by the undersigned and representing 40% of the outstanding
shares of Metro Common Stock (the "Shares"), until the Expiration Date (as
defined below). As used herein, the term "Expiration Date" shall mean the
earlier to occur of: (A) such date and time as the merger of Veritas
Acquisition Corp., a Virginia corporation and a wholly owned subsidiary of
Keane ("Transitory Subsidiary"), with and into Metro (the "Merger")
contemplated by that certain Agreement and Plan of Merger dated as of August
20, 2001, among Keane, Transitory Subsidiary and Metro (the "Merger Agreement")
shall become effective and (B) such date and time as the Merger Agreement is
terminated pursuant to Section 8.1 thereof. Upon the execution hereof, all
prior proxies given by the undersigned with respect to the Shares are hereby
revoked and no subsequent proxies will be given.
This proxy is coupled with an interest and irrevocable, is granted in order
to secure the obligations under the Shareholder's Agreement dated as of August
20, 2001 between Keane and the undersigned shareholder, and is granted in
consideration of Keane entering into the Merger Agreement. The attorneys and
proxies named above will be empowered at any time prior to the Expiration Date
to exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of
the undersigned at every annual, special or adjourned meeting of Metro
shareholders, and in every written consent in lieu of such a meeting, or
otherwise, in favor of approval and adoption of the Merger Agreement, the Plan
of Merger (as defined in the Merger Agreement) and any matter that could
reasonably be expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to the Expiration Date at every
annual, special or adjourned meeting of the shareholders of Metro and in every
written consent in lieu of such meeting, (i) in favor of approval and adoption
of the Merger Agreement, the Plan of Merger and any matter that could
reasonably be expected to facilitate the Merger, and (ii) against any action or
agreement that would (A) result in a breach of any representation, warranty or
covenant of Metro in the Merger Agreement or (B) cause any provision contained
in Articles V, VI or VII of the Merger Agreement to not be satisfied. The
undersigned shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: August 20, 2001
/s/ John H. Fain
Signature of Shareholder: ________________
John H. Fain
Print Name of Shareholder: _______________
Shares beneficially owned as of the date hereof:
6,304,251 shares of Common Stock
Shares subject to this Irrevocable Proxy:
6,135,104 shares of Common Stock
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Annex D-1
August 20, 2001
Board of Directors
Keane, Inc.
10 City Square
Boston, MA 02129
Members of the Board:
We understand that Keane, Inc. ("Keane" or the "Buyer"), Metro Information
Services, Inc. ("Metro"), and Veritas Acquisition Corp. (the "Transitory
Subsidiary"), a wholly-owned subsidiary of Keane, have entered into an
Agreement and Plan of Merger dated as of August 20, 2001 (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger")
of Transitory Subsidiary with and into Metro. Pursuant to the Merger, Metro
will become a wholly-owned subsidiary of Buyer, and each outstanding share of
common stock, par value $.01 per share (the "Metro Common Stock"), of Metro,
other than shares held by Buyer or any affiliate of Buyer, will be converted
into the right to receive 0.48 shares (the "Exchange Ratio") of common stock,
par value $.10 per share, of Keane (the "Keane Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Keane.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Metro and Keane, respectively;
(ii) reviewed the reported prices and trading activity for the Metro
Common Stock and the Keane Common Stock;
(iii) reviewed certain internal financial statements and other financial
and operating data concerning Metro and Keane, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of Keane with senior executives of Keane;
(v) discussed the past and current operations and financial condition
and the prospects of Metro with senior executives of Metro;
(vi) reviewed certain publicly-available equity research analyst
projections on Metro and Keane, respectively;
(vii) compared the financial performance of Metro and Keane and the
prices and trading activity of the Metro Common Stock and the Keane Common
Stock with that of certain other comparable publicly-traded companies and
their securities;
(viii) discussed with the senior managements of Keane and Metro their
estimates of the synergies and cost savings anticipated from the Merger;
(ix) reviewed the pro forma impact of the Merger on Keane's earnings per
share, consolidated capitalization and financial ratios;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
D-1-1
(xi) participated in discussions and negotiations among representatives
of Metro and Keane and their financial and legal advisors;
(xii) reviewed the Merger Agreement and certain related documents; and
(xiii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the estimates of the synergies and cost savings
anticipated from the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available judgments of the
future financial performance of Keane and Metro. We have relied upon the
assessment by the managements of Keane and Metro of their ability to retain key
employees of Metro. We have also relied upon, without independent verification,
the assessment by the management of Keane of Keane's technology services, the
timing and risks associated with the integration of Metro with Keane and the
validity of, and risks associated with, Keane's existing and future technology
services.
In addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement, including, among
other things, that the Merger will be treated as a tax-free reorganization
and/or exchange, within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. We have not made any independent valuation or
appraisal of the assets or liabilities of Metro or Keane, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Keane in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Keane and have received fees for
the rendering of these services.
It is understood that this opinion is for the information of the Board of
Directors of Keane and may not be used for any other purpose without our prior
written consent, provided, however, that this opinion may be included in its
entirety, if required, in any Registration Statement and/or Proxy Statement
which is required to be filed in connection with the transaction. In addition,
this opinion does not in any manner address the prices at which the Keane
Common Stock will trade following consummation of the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Keane.
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ Cordell G. Spencer
By: _________________________________
Cordell G. Spencer
Managing Director
D-1-2
Annex D-2
August 20, 2001
Board of Directors
Metro Information Services, Inc.
Reflections II, Third Floor
200 Golden Oak Court
Virginia Beach, VA 23452
Gentlemen:
Metro Information Services, Inc. (the "Company") proposes to enter into an
Agreement and Plan of Merger (the "Agreement") with Keane, Inc. ("Parent") and
Veritas Acquisition Corp, a wholly owned subsidiary of Parent ("Sub"). Pursuant
to the Agreement, at the Effective Time (as defined in the Agreement), Sub will
be merged with and into the Company (the "Merger") and each issued and
outstanding share of common stock ("Company Common Stock"), $.01 par value per
share, of the Company (other than shares owned by any wholly owned subsidiary
of the Company or by Parent, Sub or any other wholly owned subsidiary of
Parent) will be converted into shares of common stock ("Parent Common Stock"),
$.10 par value per share, of Parent, equal to the Exchange Ratio (as
hereinafter defined). The "Exchange Ratio" means 0.48 of one fully paid and
nonassessable share of Parent Common Stock.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Company Common Stock (other than Parent and its
affiliates) of the Exchange Ratio.
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company furnished to us for purposes of our
analysis, as well as publicly available information including but not limited
to the Company's recent filings with the Securities and Exchange Commission
(the "SEC") and equity analyst research reports prepared by various investment
banking firms including Baird; (ii) reviewed certain internal information,
primarily financial in nature, concerning the business and operations of Parent
furnished to us for our analysis, as well as publicly available information
including but not limited to Parent's recent filings with the SEC and equity
research reports prepared by various investment banking firms including Baird;
(iii) reviewed the Agreement in the form presented to the Company's Board of
Directors; (iv) compared the historical market prices and trading activity of
Company Common Stock and Parent Common Stock with those of certain other
publicly traded companies we deemed relevant; (v) compared the financial
position and operating results of the Company and Parent with those of other
publicly traded companies we deemed relevant; (vi) compared the proposed
financial terms of the Merger with the financial terms of certain other
business combinations we deemed relevant; and (vii) reviewed certain potential
pro forma effects of the Merger. We have held discussions with members of the
Company's and Parent's respective senior managements concerning the Company's
and Parent's historical and current financial condition and operating results,
as well as the future prospects of the Company and Parent, respectively. We
have not been requested to, and did not, solicit third party indications of
interest in acquiring all or any part of the Company. We have also considered
such other information, financial studies, analysis and investigations and
financial, economic and market criteria which we deemed relevant for the
preparation of this opinion.
D-2-1
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to us by or on behalf of the Company and Parent, and have
not been engaged to independently verify any such information. We have assumed,
with your consent, (i) that all material assets and liabilities (contingent or
otherwise, known or unknown) of the Company and Parent are as set forth in
their respective financial statements, (ii) the Merger will be accounted for
under the purchase method according to generally accepted accounting
principles; and (iii) the Merger will be consummated in accordance with the
terms of the Agreement without any amendment thereto and without waiver by any
party of any of the conditions to their respective obligations thereunder. We
have also assumed that the Company's financial projections examined by us were
reasonably prepared on bases reflecting the best available estimates and good
faith judgments of the Company's senior management as to future performance of
the Company. At the direction of the Company, we have relied on a certain
published research analyst report prepared by a major investment banking firm
for estimates of Parent's projected financial performance and have excluded
transaction expenses from our financial analyses. In conducting our review, we
have not undertaken nor obtained an independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of the Company and
Parent nor have we made a physical inspection of the properties or facilities
of the Company or Parent. Our opinion necessarily is based upon economic,
monetary and market conditions as they exist and can be evaluated on the date
hereof, and does not predict or take into account any changes which may occur,
or information which may become available, after the date hereof. Furthermore,
we express no opinion as to the prices or trading ranges at which the Company's
or Parent's securities will trade following the date hereof.
Our opinion has been prepared at the request and for the information of the
Board of Directors of the Company, and shall not be used for any other purpose
or disclosed to any other party without the prior written consent of Baird;
provided, however, that this letter may be reproduced in full in the Proxy
Statement/Prospectus to be provided to the Company's shareholders in connection
with the Merger. This opinion does not address the relative merits of the
Merger and any other potential transactions or business strategies considered
by the Company's Board of Directors, and does not constitute a recommendation
to any shareholder of the Company as to how any such shareholder should vote
with respect to the Merger. Baird will receive a fee for rendering this
opinion. In the past, Baird has performed investment banking services for the
Company, including acting as lead manager for the Company's 1997 initial public
offering of Company Common Stock, for which we received our customary
compensation.
In the ordinary course of our business, we may from time to time trade the
securities of the Company or Parent for our own account or the accounts of our
customers and, accordingly, may at any time hold long or short positions in
such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of Company Common Stock (other than Parent and its affiliates).
Very truly yours,
/s/ ROBERT W. BAIRD & CO. INCORPORATED
D-2-2
Annex E
FORM OF EXECUTIVE RETENTION AGREEMENT
THIS EXECUTIVE RETENTION AGREEMENT BY AND BETWEEN Metro Information
Services, Inc., a Virginia corporation ("Metro"), and [ ] ("the Executive")
is made as of August 20, 2001 (the "Effective Date").
WHEREAS, the Company, Keane, Inc., a Massachusetts corporation (the
"Buyer"), and Veritas Acquisition Corp., a Virginia corporation and wholly
owned subsidiary of the Buyer (the "Transition Subsidiary"), have entered into
an Agreement and Plan of Merger (the "Merger Agreement") on the date hereof,
pursuant to which the Transition Subsidiary will merge (the "Merger") with and
into Metro, whereupon Metro will become a wholly owned subsidiary of the Buyer,
on the terms and subject to the conditions set forth therein;
WHEREAS, as a condition to the consummation of the Merger, the Buyer has
required that the Executive enter into this Executive Retention Agreement, and
the Executive has agreed to enter into this Executive Retention Agreement;
WHEREAS, this Executive Retention Agreement is contingent on the
consummation of the Merger and, in the event the Merger Agreement is terminated
pursuant to Section 8.1 thereof, this Executive Retention Agreement shall have
no force or effect.
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ at least through the Transition Period (as defined
below), the Company (as defined below) agrees that the Executive shall receive
the retention benefits set forth in this Executive Retention Agreement, subject
to the following terms and conditions:
1. Term of Employment
The Executive agrees to remain employed with the Company [for 180 days
following the Closing Date (the term "Closing Date" is as defined in the Merger
Agreement, the 180th day following the Closing Date is referred to as the
"Termination Date" [for JF, KN AND AD]] [OR] [until the date (the "Termination
Date") specified in writing by the Buyer to the Executive (the "Termination
Notice") within 45 days following the Closing Date (the term "Closing Date" is
as defined in the Merger Agreement) (the Termination Date shall be no earlier
than 20 days following the receipt of the Termination Notice and not longer
than 180 days following the Closing Date [for RE AND BB]], and the period
between the Closing Date and the Termination Date is hereinafter referred to as
the "Transition Period"). Subject to the Merger Bonus and Retention Payment
described in Paragraphs 4 and 5 below, the Company retains the right to
terminate the employment of the Executive at any time, including, without
limitation, during the Transition Period, with or without notice and with or
without Cause (as defined below).
2. Compensation
To the extent the Executive remains employed by the Company through the last
day of the Transition Period, the Company shall continue to compensate the
Executive through the last day of the Transition Period at a level of base pay
equivalent to his or her base pay as of the Effective Date.
3. Notice of Election to Terminate Employment
In the event the Executive desires to terminate his or her employment with
the Company upon completion of the Transition Period, the Executive shall
provide the Company written notice of such election (a) not less than 45 days
prior to the end of the Transition Period, in the event that the Transition
Period expires 95 or more days following the Closing Date, and (b) not less
than 10 days prior to the end of the Transition Period, in the
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event that the Transition Period expires less than 95 days following the
Closing Date (the applicable due date for notifying the Company of the election
to terminate employment being referred to herein as the "Notice Deadline"). If
the Company has not received written notice of the Executive's election to
terminate his or her employment on or before the Notice Deadline, the Executive
shall be deemed to have elected to continue his or her employment with the
Company for purposes of the retention benefits described in Paragraph 5 below.
4. Merger Bonus
Provided the Executive has been continuously employed by the Company from
the Effective Date through the Closing Date and contingent upon the execution
by the Executive of the Merger Bonus and Release Agreement described in
Paragraph 6 below, he or she shall be paid a payment (the "Merger Bonus") in
accordance with the provisions of Section 1 of the Merger Bonus and Release
Agreement, equivalent to two (2) times his or her annual base salary in effect
on the Effective Date.
5. Retention Benefits
(a) Termination of Employment by the Company During the Transition
Period or by the Executive upon Completion of the Transition Period.
In the event (i) the Executive's employment with the Company is
terminated without Cause by the Company during the Transition Period or
(ii) the Executive provides the Company timely written notice of his or her
election to terminate his or her employment upon completion of the
Transition Period pursuant to Paragraph 3 above, the Executive shall be
entitled to a payment (the "Retention Payment") in an amount equivalent to
one (1) times his or her annual base salary in effect as of the Effective
Date. Such payment shall be contingent upon the execution by the Executive
of the Retention Benefit and Release Agreement described in Paragraph 6
below.
(b) Continued Employment Following Transition Period.
In the event the Executive remains employed as of the completion of the
Transition Period and has not provided the Company timely written notice of
his or her election to terminate his or her employment upon completion of
the Transition Period pursuant to Paragraph 3 above, the Executive shall
have no further entitlement to a Retention Payment under this Executive
Retention Agreement in the event his or her employment thereafter
terminates for any reason. Instead, the Executive shall be entitled to such
severance or other benefits, if any, provided to similarly situated
employees of the Buyer as of the termination date of his or her employment.
(c) Definition of Termination for Cause.
For the purposes of this Executive Retention Agreement, Cause for
termination shall be deemed to exist upon (a) a good faith finding by the
Company of dishonesty, gross negligence or willful misconduct related to
the performance of the Executive's duties for the Company; (b) the
conviction of the Executive of, or the entry of a pleading of guilty or
nolo contendere by the Executive to, any crime involving moral turpitude or
any felony; (c) the Executive's habitual drunkenness, or the use,
possession, distribution or being under the influence of alcohol or illegal
substances or illegal drugs in the workplace or in a manner otherwise
affecting the Executive's performance of his or her duties for the Company
(to the extent that with respect to alcohol such use, possession or
distribution in the workplace has an adverse effect upon the performance of
the Executive's duties for the Company); or (d) the breach by the Executive
of Paragraph 8 of this Executive Retention Agreement.
(d) Timing of Payments.
The Retention Payment described in this Paragraph 5 shall be paid in a
lump sum payment no earlier than the eighth (8th) day, and no later than
the tenth (10th) day, after execution of the Retention Benefit and Release
Agreement described in Paragraph 6 below.
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6. Release of Claims by Executive
(a) Merger Bonus.
In order to receive the Merger Bonus described in Paragraph 4 of this
Executive Retention Agreement, the Executive shall be required to execute a
Merger Bonus and Release Agreement in the form attached hereto as Exhibit 1
on the Closing Date.
(b) Retention Payment.
In order to receive the Retention Payment described in Paragraph 5 of
this Executive Retention Agreement, the Executive shall be required to
execute a Retention Benefit and Release Agreement in the form attached
hereto as Exhibit 2 on the Executive's last date of employment with the
Company, in the event the Executive terminates his or her employment at the
completion of the Transition Period in accordance with Paragraph 3 above.
In the event the Executive remains employed following the Transition
Period, he or she shall execute and deliver the General Release Agreement
in the form attached hereto as Exhibit 3, within sixty (60) days after
completion of the Transition Period, as a condition to his or her continued
employment.
7. Mitigation
The Executive shall not be required to mitigate the amount of any payment or
benefits provided for in this Executive Retention Agreement by seeking other
employment or otherwise. Further, the amount of any payment or benefits
provided for in this Executive Retention Agreement shall not be reduced by any
compensation earned by the Executive as a result of employment by another
employer, by retirement benefits or by offset against any amount claimed to be
owed by the Executive to the Company.
8. Non-Competition and Non-Solicitation
(a) While employed by the Company, the Executive shall devote all of his or
her business time, attention, skill and effort to the faithful performance of
his or her duties for the Company. For a period of (x) three (3) years after
the termination or cessation of the Executive's employment for any reason, in
the event such termination or cessation occurs on or before the first
anniversary of the Closing Date, or (y) two (2) years after the termination or
cessation of the Executive's employment for any reason, in the event such
termination or cessation occurs following the first anniversary of the Closing
Date, the Executive will not, in the geographical areas that the Company does
business or has done business at the time of the Executive's departure,
directly or indirectly:
(i) Engage in any business or enterprise (whether as owner, partner,
officer, director, employee, consultant, investor, lender or otherwise,
except as the holder of not more than 5% of the outstanding stock of a
publicly held company) that is competitive with the Company's business,
including but not limited to any business or enterprise that develops,
markets or sells any service that competes with any service developed,
marketed or sold, or planned to be developed, marketed or sold, by the
Company while the Executive was employed by the Company; or
(ii) Either alone or in association with others (A) solicit, recruit,
induce, attempt to induce, or permit any organization directly or
indirectly controlled by the Executive to solicit, recruit, induce or
attempt to induce any employee of the Company to leave the employ of the
Company, or (B) solicit, recruit, induce, attempt to induce for employment
or hire or engage as an independent contractor, or permit any organization
directly or indirectly controlled by the Executive to solicit, recruit,
induce, attempt to induce for employment or hire or engage as an
independent contractor, any person who was employed by the Company at any
time during the term of the Executive's employment with the Company; or
(iii) Either alone or in association with others, solicit, divert or
take away, or attempt to solicit, divert or take away, or permit any
organization directly or indirectly controlled by the Executive to solicit,
divert or take away, or attempt to solicit, divert or take away, the
business or patronage of any of the clients,
E-3
customers or accounts, or prospective clients, customers or accounts, of
the Company, which were contacted, solicited or served by the Company at
any time during the term of the Executive's employment with the Company.
(b) In accordance with Paragraph 13(l) below, and for the avoidance of
doubt, the term "Company" refers to Metro, the Buyer and any of their
respective subsidiaries and affiliates, both individually and collectively, for
purposes of Paragraph 8(a).
9. Liquidated Damages
In the event that the Executive breaches any provision of this Executive
Retention Agreement and fails to cure (to the extent susceptible to cure, and
other than a breach of Paragraph 8, as to which there shall be no opportunity
to cure) any such breach after receipt of notice of such breach from the
Company within ten (10) days, the Company shall not be required to make any
Retention Payment to the Executive and the Executive shall be required to
forfeit and repay to the Company, with interest at the state statutory rate,
any Retention Payment paid to or realized by him or her under this Executive
Retention Agreement, provided however that, in the event that the Executive
breaches Paragraph 8 of this Executive Retention Agreement, he or she shall be
required to forfeit and repay to the Company, with interest at the state
statutory rate, any and all monies paid to or realized by him or her under this
Executive Retention Agreement, including, without limitation, any Merger Bonus
and/or Retention Payment made hereunder. The Executive shall further reimburse
the Company for all attorney's fees, costs and expenses associated with
prosecuting the claim for any breach under this Executive Retention Agreement.
In addition, the Company shall be entitled to any other remedy available at law
or in equity.
10. Settlement of Disputes
All claims by the Executive for benefits under this Executive Retention
Agreement shall be directed to and determined by the Board of Directors of the
Company and shall be in writing. Any denial by the Board of Directors of a
claim for benefits under this Executive Retention Agreement shall be delivered
to the Executive in writing and shall set forth the specific reasons for the
denial and the specific provisions of this Executive Retention Agreement relied
upon. The Board of Directors shall afford a reasonable opportunity to the
Executive for a review of the decision denying a claim.
11. Notice
All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide
overnight courier service, in each case addressed to the Company, at Ten City
Square, Boston, Massachusetts 02129, Attention: Senior Vice President, Human
Resources, and to the Executive at the Executive's address indicated on the
signature page of this Executive Retention Agreement (or to such other address
as either the Company or the Executive may have furnished to the other in
writing in accordance herewith). Any such notice, instruction or communication
shall be deemed to have been delivered five business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service. Either party may give any notice, instruction or other communication
hereunder using any other means, but no such notice, instruction or other
communication shall be deemed to have been duly delivered unless and until it
actually is received by the party for whom it is intended.
12. Limitation of Benefits
It is the intention of the parties that payments or distributions to be made
to the Executive pursuant to this Executive Retention Agreement shall not
constitute "excess parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and any Treasury
Regulations
E-4
thereunder. If the Buyer determines that it is likely that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) would be nondeductible by the Company under Section
280G of the Code, then the amounts payable or distributable under this
Agreement will be reduced to the maximum amount which may be paid or
distributed without causing such payments or distributions to be nondeductible.
The Executive shall have the right to designate which payments or distributions
will be reduced. If the Executive disagrees with the determination made by the
Buyer, within ten (10) days of the date on which the payment or distribution
that was reduced or eliminated (the "Eliminated Payment") would otherwise have
been payable to the Executive, the Executive shall notify the Buyer of the
amount of, and the reason for, such disagreement. For a period of thirty (30)
days following delivery of such notice, the Executive and the Company shall use
good-faith efforts to resolve any such dispute. If the dispute is not resolved
within such 30-day period, the dispute shall be referred to the independent
accountants serving as the auditors of the Buyer for binding resolution. If,
upon resolution of such dispute, all or a portion of amounts included in the
Eliminated Payment are determined to be payable to the Executive, the Buyer
shall make such payments within three (3) business days following resolution of
the dispute. The costs of the accountants shall be borne by the party against
whom the dispute is resolved (or, in the event that the Executive prevails with
respect to some but not all of the disputed amount, in proportion to the
respective amounts with respect to which the dispute is resolved against the
parties).
13. Miscellaneous
(a) Severability.
The invalidity or unenforceability of any provision of this Executive
Retention Agreement shall not affect the validity or enforceability of any
other provision of this Executive Retention Agreement, which shall remain in
full force and effect.
(b) Executive Acknowledgment and Equitable Remedies.
The Executive acknowledges that the restrictions contained in Paragraph
8 of this Executive Retention Agreement are necessary for the protection of
the business and goodwill of the Company and the Buyer and considers the
restrictions to be reasonable for such purpose. The Executive recognizes
that his or her willingness to enter into the restrictive covenants
contained in Paragraph 8 was a critical condition precedent to Metro's
willingness to enter into and perform under this Executive Retention
Agreement and the Buyer's willingness to enter into and perform under the
Merger Agreement. The Executive also acknowledges that the restrictions
contained in Paragraph 8 will not materially or unreasonably interfere with
the Executive's ability to earn a living. The Executive agrees that any
breach of this Executive Retention Agreement is likely to cause each of
Metro and the Buyer substantial and irrevocable damage and that therefore,
in the event of any breach of this Executive Retention Agreement, the
Executive agrees that each of Metro and the Buyer, in addition to such
other remedies that may be available, shall be entitled to specific
performance and other injunctive relief without posting a bond. The parties
agree that the Buyer is an intended third party beneficiary of this
Agreement.
(c) Interpretation.
If the Executive violates the provisions of Paragraph 8 of this
Executive Retention Agreement, the Executive shall continue to be bound by
the restrictions set forth in Paragraph 8 until a period of three (3) or
two (2) years, as appropriate pursuant to Paragraph 8, has expired without
any violation of such provisions. If any restriction set forth in Paragraph
8 is found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too great a range
of activities or in too broad a geographic area, it shall be interpreted to
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable. The parties hereto
intend that the non-competition and non-solicitation provisions of
Paragraph 8 shall be deemed to be a series of separate covenants, one for
each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside of the United States of America where these provisions are intended
to be effective.
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(d) Governing Law, Forum and Jurisdiction.
The validity, interpretation, construction and performance of this
Executive Retention Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law
principles. Any action, suit, or other legal proceeding that is commenced
to resolve any matter arising under or relating to any provision of this
Executive Retention Agreement shall be commenced only in a court of the
Commonwealth of Massachusetts (or, if appropriate, a federal court located
within Massachusetts), and the Company and the Executive each consents to
the jurisdiction of such a court.
(e) Caption.
The captions of the sections of this Executive Retention Agreement are
for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Executive Retention Agreement.
(f) Waivers.
No waiver by the Company at any time of any breach of, or compliance
with, any provision of this Executive Retention Agreement to be performed
by the Executive shall be deemed a waiver of that or any other provision at
any subsequent time. No delay or omission by the Company in exercising any
right under this Executive Retention Agreement will operate as a waiver of
that or any other right. A waiver or consent given by the Company on any
one occasion is effective only in that instance and will not be construed
as a bar to or waiver of any right on any other occasion.
(g) Counterparts.
This Executive Retention Agreement may be executed in counterparts, each
of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
(h) Tax Withholding.
Any payments provided for hereunder shall be paid less any applicable
tax withholding required under federal, state or local law.
(i) Entire Agreement.
This Executive Retention Agreement is contingent on consummation of the
Closing of the Merger. This Executive Retention Agreement sets forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and, subject to completion of the Closing, supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto in respect of the subject
matter contained herein, including, without limitation, the Executive's
employment, retention and/or severance rights; and any prior agreement of
the parties hereto in respect of the subject matter contained herein,
including any prior agreement concerning employment, retention and/or
severance is hereby terminated and cancelled, including, without
limitation, the Employment Agreements dated [December 10, 1996-JF, AD and
KN], [January 29, 1997-RE] [Director's Staff Member Agreement and Addendum-
BB].
(j) Amendments.
This Executive Retention Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive;
provided, however, that any amendment or modification of this Executive
Retention Agreement prior to the Closing Date shall also require the
written consent of the Buyer, which consent may be withheld at the Buyer's
sole discretion.
(k) Executive's Acknowledgements.
The Executive states and represents that he or she has had an
opportunity to fully discuss and review the terms of this Executive
Retention Agreement with an attorney. The Executive further states and
represents that he or she has carefully read this Executive Retention
Agreement, understands the contents
E-6
herein, freely and voluntarily assents to all of the terms and conditions
hereof, and signs his or her name of his or her own free act.
(l) Definition of "Company".
For purposes of this Executive Retention Agreement, the term "Company"
refers to Metro, the Buyer and any of their respective subsidiaries and
affiliates, both individually and collectively.
In Witness Whereof, the parties hereto have executed this Executive
Retention Agreement as of the day and year first set forth above.
Metro Information Services, Inc.
By: _________________________________
Title: ______________________________
_____________________________________
Executive
_____________________________________
[NAME]
[ADDRESS]
E-7
Exhibit 1
MERGER BONUS AND RELEASE AGREEMENT
Agreement made as of the day of , 2001, by and between Keane, Inc.,
a Massachusetts corporation (the "Company"), and (the "Employee").
Whereas, on August 20, 2001, Metro Information Services, Inc., a Virginia
corporation ("Metro"), the Company and Veritas Acquisition Corp., a Virginia
corporation and wholly owned subsidiary of the Company (the "Transition
Subsidiary"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which the Transition Subsidiary merged (the "Merger")
with and into Metro, whereupon Metro became a wholly owned subsidiary of the
Company, on the terms and subject to the conditions set forth therein;
Whereas, as a condition to the consummation of the Merger Agreement, the
Company required that the Employee enter into an Executive Retention Agreement
dated as of August 20, 2001, and the Employee entered into an Executive
Retention Agreement;
Whereas, the Merger has consummated and the Employee has been continuously
employed by the Company from the Effective Date of the Executive Retention
Agreement through the Closing Date of the Merger; and
Whereas, as a result of such continued employment, the Employee is entitled
to receive the Merger Bonus described in Paragraph 4 of the Executive Retention
Agreement, subject to his or her execution of this Merger Bonus and Release
Agreement.
Now, Therefore, in consideration of the promises and conditions set forth
herein and in the Executive Retention Agreement, the sufficiency of which is
hereby acknowledged, the Company and the Employee agree as follows:
1. Monetary Consideration. In return for the execution of the instant
Merger Bonus and Release Agreement, the Company agrees to pay the Employee
($ . ) less all applicable state and federal taxes, an amount
equivalent to two (2) times his or her annual base salary in effect on the
Effective Date of the Executive Retention Agreement, as a merger bonus (the
"Merger Bonus"). The Merger Bonus will be paid to the Employee in a lump-
sum payment no earlier than eight (8) days and no later than ten (10) days
after the date of execution of this Agreement; provided that Employee has
not revoked his or her acceptance of the Agreement during the seven (7) day
revocation period described in Section 11 below.
2. Release. In consideration of the payment of the Merger Bonus, which
the Employee acknowledges he or she would not otherwise be entitled to
receive, the Employee hereby fully, forever, irrevocably and
unconditionally releases, remises and discharges the Company, its
subsidiaries (including, without limitation, Metro), and their respective
officers, directors, stockholders, predecessors, corporate affiliates,
agents and employees (each in their individual and corporate capacities)
(hereinafter, the "Released Parties") from any and all claims, charges,
complaints, demands, actions, causes of action, suits, rights, debts, sums
of money, costs, accounts, reckonings, covenants, contracts, agreements,
promises, doings, omissions, damages, executions, obligations, liabilities,
and expenses (including attorneys' fees and costs), of every kind and
nature which he or she ever had or now has against the Released Parties
arising out of the Merger and/or his or her employment with the Company
and/or Metro, including, but not limited to, all employment discrimination
claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. (S)2000e
et seq., the Age Discrimination in Employment Act, 29 U.S.C. (S)621 et
seq., the Americans With Disabilities Act of 1990, 42 U.S.C., (S)12101 et
seq., the Family and Medical Leave Act, 29 U.S.C. (S)2601 et seq., the
Rehabilitation Act of 1973, 29 U.S.C. (S)701 et seq., the Massachusetts
Fair Employment Practices Act, M.G.L. c.151B, (S)1 et seq., and the
Virginia Human Rights Act, Va. Code Ann. (S)2,1-714, et seq., all as
amended; all claims arising out of the Fair Credit Reporting Act, 15 U.S.C.
(S)1681 et seq., the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. (S)1001
E-8
et seq., the Massachusetts Civil Rights Act, M.G.L. c.12 (S)(S)11H and 11I,
the Massachusetts Equal Rights Act, M.G.L. c.93, (S)102 and M.G.L. c.214,
(S)1C, the Massachusetts Labor and Industries Act, M.G.L. c.149, (S)1 et
seq., and the Massachusetts Privacy Act, M.G.L. c. 214, (S)1B, all as
amended; all common law claims including, but not limited to, actions in
tort, defamation and breach of contract; all claims to the Merger Bonus,
all claims to any ownership interest in the Company, contractual or
otherwise (except to the extent the Employee is entitled by virtue of his
or her direct ownership of Company stock, his or her continued employment
with the Company and/or Metro and the terms of any governing plan documents
to continue to participate in any stock, stock option and/or benefit plans
established and maintained by the Company); and any claim or damage arising
out of the Merger and/or his or her employment with the Company and/or
Metro (including a claim for retaliation) under any common law theory or
any federal, state or local statute or ordinance not expressly referenced
above; provided, however, that nothing in this Agreement prevents the
Employee from filing, cooperating with, or participating in any proceeding
before the EEOC or a state Fair Employment Practices Agency (except that
the Employee acknowledges that he or she may not be able to recover any
monetary benefits in connection with any such claim, charge or proceeding);
and provided further, however, that nothing in this Agreement shall be
deemed to waive any of the Employee's rights to indemnification set forth
in Section 6.14(a) of the Merger Agreement.
3. Non-Disclosure, Non-Competition and Non-Solicitation. The Employee
acknowledges his or her continuing obligation to keep confidential all non-
public information concerning the Company and/or Metro and their respective
subsidiaries which he or she has acquired and will acquire during the
course of his or her employment with the Company and/or Metro and their
respective subsidiaries. The Employee further acknowledges and reaffirms
his or her obligations under the non-competition and non-solicitation
covenants contained in Paragraph 8 of the Executive Retention Agreement he
or she previously executed for the benefit of the Company and Metro in
connection with the Merger Agreement and the inception of his or her
employment with the Company and/or Metro which remain in full force and
effect.
4. Non-disparagement. The Employee understands and agrees that as a
condition for payment to him or her of the consideration described herein,
he or she will not make any false, disparaging or derogatory statements to
any media outlet, industry group, financial institution or current or
former employee, consultant, client or customer of the Company, Metro or
their respective subsidiaries regarding the Company, Metro or their
respective subsidiaries or any of their respective directors, officers,
employees, agents or representatives or about the business affairs and
financial condition of the Company, Metro, and their respective
subsidiaries.
5. Nature of Agreement. The Employee understands and agrees that this
Agreement is a merger bonus and release agreement and does not constitute
an admission of liability or wrongdoing on the part of the Company.
6. Amendment. This Agreement shall be binding upon the parties and may
not be abandoned, supplemented, changed or modified in any manner, orally
or otherwise, except by an instrument in writing of concurrent or
subsequent date signed by a duly authorized representative of the parties
hereto. This Agreement is binding upon and shall inure to the benefit of
the parties and their respective agents, assigns, heirs, executors,
successors and administrators.
7. Waiver of Rights. No delay or omission by the Company in exercising
any rights under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one occasion
shall be effective only in that instance and shall not be construed as a
bar or waiver of any right on any other occasion.
8. Validity. Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be illegal or invalid,
the validity of the remaining parts, terms, or provisions shall not be
affected thereby and said illegal or invalid part, term or provision shall
be deemed not to be a part of this Agreement.
E-9
9. Applicable Law. This Agreement shall be interpreted and construed by
the laws of the Commonwealth of Massachusetts, without regard to conflict
of laws provisions. The Employee hereby irrevocably submits to and
acknowledges and recognizes the jurisdiction of the courts of the
Commonwealth of Massachusetts, or if appropriate, a federal court located
in Massachusetts (which courts, for purposes of this Agreement, are the
only courts of competent jurisdiction), over any suit, action or other
proceeding arising out of, under or in connection with this Agreement or
the subject matter hereof.
10. Eligibility for Merger Bonus Program. Attached to this Agreement as
Attachment A is a description of (i) any class, unit or group of
individuals covered by the Merger Bonus program which the Company has
offered to the Employee, and any applicable time limits regarding such
Merger Bonus program; and (ii) the job title and ages of all individuals
eligible or selected for such Merger Bonus program, and the ages of all
individuals in the same job classification or organizational unit who are
not eligible or who were not selected for such Merger Bonus program as
required by the Older Workers Benefit Protection Act ("OWBPA material").
11. Acknowledgments. The Employee acknowledges that he or she has been
given at least forty-five (45) days to consider this Merger Bonus and
Release Agreement, including Attachment A, and that the Company advised the
Employee to consult with an attorney of his or her own choosing prior to
signing this Agreement. The Employee understands that he or she may revoke
this Agreement for a period of seven (7) days after he or she signs this
Agreement, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period. The Employee
understands and agrees that by entering into this Agreement he or she is
waiving any and all rights or claims he might have under The Age
Discrimination in Employment Act, as amended by The Older Workers Benefit
Protection Act (the "OWBPA"), and that the Employee has received
consideration beyond that to which he or she was previously entitled.
12. Voluntary Assent. The Employee affirms that no other promises or
agreements of any kind have been made to or with him or her by any person
or entity whatsoever to cause him or her to sign this Agreement, and that
he or she fully understands the meaning and intent of this Agreement. The
Employee states and represents that he or she has had an opportunity to
fully discuss and review the terms of this Agreement, including the OWBPA
material he or she received, with an attorney. The Employee further states
and represents that he or she has carefully read this Agreement, including
the OWBPA material, understands the contents therein, freely and
voluntarily assents to all of the terms and conditions of this Agreement,
and signs his or her name to this Agreement as his or her own free act.
13. Entire Agreement. This Agreement, together with the Executive
Retention Agreement, contains and constitutes the entire understanding and
agreement between the parties hereto with respect to the Merger Bonus and
supersedes all previous oral and written negotiations, agreements,
commitments, and writings in connection therewith. Nothing in this Section
13 shall, however, modify, cancel, or supersede the Employee's obligations
set forth in Section 3.
14. Counterparts. This Agreement may be executed in two (2) signature
counterparts, each of which shall constitute an original, but both of which
taken together shall constitute but one and the same instrument.
E-10
In Witness Whereof, all parties have set their hand and seal to this
Agreement as of the date written above.
The Employee
_____________________________________
[NAME]
Keane, Inc.
By: _________________________________
Name:
Title:
E-11
Exhibit 2
RETENTION BENEFIT AND RELEASE AGREEMENT
Agreement made as of the day of , 2001, by and between Keane, Inc., a
Massachusetts corporation (the "Company"), and (the "Employee").
Whereas, on August 20, 2001, Metro Information Services, Inc., a Virginia
corporation ("Metro"), the Company and Veritas Acquisition Corp., a Virginia
corporation and wholly owned subsidiary of the Company (the "Transition
Subsidiary"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which the Transition Subsidiary merged (the "Merger")
with and into Metro, whereupon Metro became a wholly owned subsidiary of the
Company, on the terms and subject to the conditions set forth therein;
Whereas, as a condition to the consummation of the Merger Agreement, the
Company required that the Employee enter into an Executive Retention Agreement
dated as of August 20, 2001 and the Employee entered into an Executive
Retention Agreement;
Whereas, the Merger has consummated and the Employee has been continuously
employed by the Company from the Effective Date of the Executive Retention
Agreement through the completion of his or her Transition Period, as defined in
Paragraph 1 of the Executive Retention Agreement;
Whereas, pursuant to Paragraph 3 of the Executive Retention Agreement, the
Employee has provided the Company timely written notice of his or her election
to terminate his or her employment with the Company and/or Metro upon
completion of the Transition Period; and
Whereas, as a result of such continuous employment and timely written notice
of election to terminate his or her employment, the Employee is entitled to
receive the Retention Payment described in Paragraph 5.a. of the Executive
Retention Agreement, subject to his or her execution of this Retention Benefit
and Release Agreement;
Now, Therefore, in consideration of the promises and conditions set forth
herein and in the Executive Retention Agreement, the sufficiency of which is
hereby acknowledged, the Company and the Employee agree as follows:
1. Termination Date. The Employee's effective date of termination from
the Company and/or Metro is (the "Termination Date").
2. Monetary Consideration. In return for the execution of the instant
Retention Benefit and Release Agreement, the Company agrees to pay the
Employee ($ . ), less all applicable state and federal taxes, an
amount equivalent to one (1) times his or her annual base salary in effect
as of the Effective Date of the Executive Retention Agreement, as a
retention payment (the "Retention Payment"). The Retention Payment will be
paid to the Employee in a lump-sum payment no earlier than eight (8) days
and no later than ten (10) days after the date of execution of this
Agreement; provided that Employee has not revoked his or her acceptance of
the Agreement during the seven (7) day revocation period described in
Section 12 below.
3. Release. In consideration of the payment of the Retention Payment,
which the Employee acknowledges he or she would not otherwise be entitled
to receive, the Employee hereby fully, forever, irrevocably and
unconditionally releases, remises and discharges the Company, its
subsidiaries (including, without limitation, Metro), and their respective
officers, directors, stockholders, predecessors, corporate affiliates,
agents and employees (each in their individual and corporate capacities)
(hereinafter, the "Released Parties") from any and all claims, charges,
complaints, demands, actions, causes of action, suits, rights, debts, sums
of money, costs, accounts, reckonings, covenants, contracts, agreements,
promises, doings, omissions, damages, executions, obligations, liabilities,
and expenses (including attorneys' fees and costs), of every kind and
nature which he or she ever had or now has against the
E-12
Released Parties arising out of the Merger and/or his or her employment
with or separation from the Company and/or Metro, including, but not
limited to, all employment discrimination claims under Title VII of the
Civil Rights Act of 1964, 42 U.S.C. (S)2000e et seq., the Age
Discrimination in Employment Act, 29 U.S.C. (S)621 et seq., the Americans
With Disabilities Act of 1990, 42 U.S.C., (S)12101 et seq., the Family and
Medical Leave Act, 29 U.S.C. (S)2601 et seq., the Rehabilitation Act of
1973, 29 U.S.C. (S)701 et seq., the Massachusetts Fair Employment Practices
Act, M.G.L. c.151B, (S)1 et seq., and the Virginia Human Rights Act, Va.
Code Ann. (S)2,1-714, et seq., all as amended; all claims arising out of
the Fair Credit Reporting Act, 15 U.S.C. (S)1681 et seq., the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. (S)1001 et
seq., the Massachusetts Civil Rights Act, M.G.L. c.12 (S)(S)11H and 11I,
the Massachusetts Equal Rights Act, M.G.L. c.93, (S)102 and M.G.L. c.214,
(S)1C, the Massachusetts Labor and Industries Act, M.G.L. c.149, (S)1 et
seq., and the Massachusetts Privacy Act, M.G.L. c. 214, (S)1B, all as
amended; all common law claims including, but not limited to, actions in
tort, defamation and breach of contract; all claims to the Retention
Payment; all claims to any non-vested ownership interest in the Company,
contractual or otherwise, including but not limited to claims to stock or
stock options; and any claim or damage arising out of the Merger and/or his
or her employment with or separation from the Company and/or Metro
(including a claim for retaliation) under any common law theory or any
federal, state or local statute or ordinance not expressly referenced
above; provided, however, that nothing in this Agreement prevents the
Employee from filing, cooperating with, or participating in any proceeding
before the EEOC or a state Fair Employment Practices Agency (except that
the Employee acknowledge that he or she may not be able to recover any
monetary benefits in connection with any such claim, charge or proceeding);
and provided further, however, that nothing in this Agreement shall be
deemed to waive any of the Employee's rights to indemnification set forth
in Section 6.14(a) of the Merger Agreement.
4. Non-Disclosure, Non-Competition and Non-Solicitation. The Employee
acknowledges his or her continuing obligation to keep confidential all non-
public information concerning the Company and/or Metro and their respective
subsidiaries which he or she has acquired during the course of his or her
employment with the Company and/or Metro and their respective subsidiaries.
The Employee further acknowledges and reaffirms his or her obligations
under the non-competition and non-solicitation covenants contained in
Paragraph 8 of the Executive Retention Agreement he or she previously
executed for the benefit of the Company and Metro in connection with the
Merger Agreement and the inception of his or her employment with the
Company and/or Metro which remain in full force and effect.
5. Non-disparagement. The Employee understands and agrees that as a
condition for payment to him or her of the consideration described herein,
he or she will not make any false, disparaging or derogatory statements to
any media outlet, industry group, financial institution or current or
former employee, consultant, client or customer of the Company, Metro or
their respective subsidiaries regarding the Company, Metro or their
respective subsidiaries or any of their respective directors, officers,
employees, agents or representatives or about the business affairs and
financial condition of the Company, Metro, and their respective
subsidiaries.
6. Nature of Agreement. The Employee understands and agrees that this
Agreement is a retention benefit and release agreement and does not
constitute an admission of liability or wrongdoing on the part of the
Company.
7. Amendment. This Agreement shall be binding upon the parties and may
not be abandoned, supplemented, changed or modified in any manner, orally
or otherwise, except by an instrument in writing of concurrent or
subsequent date signed by a duly authorized representative of the parties
hereto. This Agreement is binding upon and shall inure to the benefit of
the parties and their respective agents, assigns, heirs, executors,
successors and administrators.
8. Waiver of Rights. No delay or omission by the Company in exercising
any rights under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one occasion
shall be effective only in that instance and shall not be construed as a
bar or waiver of any right on any other occasion.
E-13
9. Validity. Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be illegal or invalid,
the validity of the remaining parts, terms, or provisions shall not be
affected thereby and said illegal or invalid part, term or provision shall
be deemed not to be a part of this Agreement.
10. Applicable Law. This Agreement shall be interpreted and construed by
the laws of the Commonwealth of Massachusetts, without regard to conflict
of laws provisions. The Employee hereby irrevocably submits to and
acknowledges and recognizes the jurisdiction of the courts of the
Commonwealth of Massachusetts, or if appropriate, a federal court located
in Massachusetts (which courts, for purposes of this Agreement, are the
only courts of competent jurisdiction), over any suit, action or other
proceeding arising out of, under or in connection with this Agreement or
the subject matter hereof.
11. Eligibility for Retention Benefits Program. Attached to this
Agreement as Attachment A is a description of (i) any class, unit or group
of individuals covered by the Retention Benefits program which the Company
has offered to the Employee, and any applicable time limits regarding such
Retention Benefits program; and (ii) the job title and ages of all
individuals eligible or selected for such Retention Benefits program, and
the ages of all individuals in the same job classification or
organizational unit who are not eligible or who were not selected for such
Retention Benefits program as required by the Older Workers Benefit
Protection Act ("OWBPA material").
12. Acknowledgments. The Employee acknowledges that he or she has been
given at least forty-five (45) days to consider this Retention Benefit and
Release Agreement, including Attachment A, and that the Company advised the
Employee to consult with an attorney of his or her own choosing prior to
signing this Agreement. The Employee understands that he may revoke this
Agreement for a period of seven (7) days after he or she signs this
Agreement, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period. The Employee
understands and agrees that by entering into this Agreement he or she is
waiving any and all rights or claims he or she might have under The Age
Discrimination in Employment Act, as amended by The Older Workers Benefit
Protection Act, and that the Employee has received consideration beyond
that to which he or she was previously entitled.
13. Voluntary Assent. The Employee affirms that no other promises or
agreements of any kind have been made to or with him or her by any person
or entity whatsoever to cause him or her to sign this Agreement, and that
he or she fully understands the meaning and intent of this Agreement. The
Employee states and represents that he or she has had an opportunity to
fully discuss and review the terms of this Agreement, including the OWBPA
material he or she received, with an attorney. The Employee further states
and represents that he or she has carefully read this Agreement, including
the OWBPA material, understands the contents therein, freely and
voluntarily assents to all of the terms and conditions of this Agreement,
and signs his or her name to this Agreement as his or her own free act.
14. Entire Agreement. This Agreement, together with the Executive
Retention Agreement, contains and constitutes the entire understanding and
agreement between the parties hereto with respect to the Retention Payment
and the termination of the Employee's employment and supersedes all
previous oral and written negotiations, agreements, commitments, and
writings in connection therewith. Nothing in this Section 14 shall,
however, modify, cancel, or supersede the Employee's obligations set forth
in Section 4.
15. Counterparts. This Agreement may be executed in two (2) signature
counterparts, each of which shall constitute an original, but both of which
taken together shall constitute but one and the same instrument.
E-14
In Witness Whereof, all parties have set their hand and seal to this
Agreement as of the date written above.
The Employee
_____________________________________
[NAME]
Keane, Inc.
By: _________________________________
Name:
Title:
E-15
Exhibit 3
GENERAL RELEASE AGREEMENT
Agreement made as of the day of , 2001, by and between Keane, Inc.,
a Massachusetts corporation (the "Company"), and (the "Employee").
Whereas, on August 20, 2001, Metro Information Services, Inc., a Virginia
corporation ("Metro"), the Company and Veritas Acquisition Corp., a Virginia
corporation and wholly owned subsidiary of the Company (the "Transition
Subsidiary"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which the Transition Subsidiary merged (the "Merger")
with and into Metro, whereupon Metro became a wholly owned subsidiary of the
Company, on the terms and subject to the conditions set forth therein;
Whereas, as a condition to the consummation of the Merger Agreement, the
Company required that the Employee enter into an Executive Retention Agreement
dated as of August 20, 2001, and the Employee entered into an Executive
Retention Agreement;
Whereas, the Merger has consummated and the Employee has been continuously
employed by the Company from the Effective Date of the Executive Retention
Agreement through the present date; and
Whereas, the Employee has declined to accept, and is no longer eligible to
receive, the Retention Payment provided for in Paragraph 6.b. of the Executive
Retention Agreement (the "Retention Payment") and instead has elected to
continue his or her at-will employment with the Company, subject to his or her
execution of this General Release Agreement;
Now, Therefore, in consideration of the promises and conditions set forth
herein and in the Executive Retention Agreement, the sufficiency of which is
hereby acknowledged, the Company and the Employee agree as follows:
1. Consideration. In return for the execution of the instant General
Release Agreement no later than 60 days after completion of the Transition
Period as defined in the Executive Retention Agreement, the Company agrees
to continue to employ the Employee beyond the effective date of this
Agreement on an at-will basis, until such time as the Employee or the
Company chooses to terminate the employment relationship, at any time and
for any reason.
2. Release. In consideration of the Company's agreement not to
immediately terminate the Employee's at-will employment, the Employee
hereby fully, forever, irrevocably and unconditionally releases, remises
and discharges the Company, its subsidiaries (including, without
limitation, Metro), and their respective officers, directors, stockholders,
predecessors, corporate affiliates, agents and employees (each in their
individual and corporate capacities) (hereinafter, the "Released Parties")
from any and all claims, charges, complaints, demands, actions, causes of
action, suits, rights, debts, sums of money, costs, accounts, reckonings,
covenants, contracts, agreements, promises, doings, omissions, damages,
executions, obligations, liabilities, and expenses (including attorneys'
fees and costs), of every kind and nature which he or she ever had or now
has against the Released Parties arising out of the Merger and/or his or
her employment with the Company and/or Metro, including, but not limited
to, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. (S)2000e et seq., the Age Discrimination in
Employment Act, 29 U.S.C. (S)621 et seq., the Americans With Disabilities
Act of 1990, 42 U.S.C., (S)12101 et seq., the Family and Medical Leave Act,
29 U.S.C. (S)2601 et seq., the Rehabilitation Act of 1973, 29 U.S.C. (S)701
et seq., the Massachusetts Fair Employment Practices Act, M.G.L. c.151B,
(S)1 et seq., and the Virginia Human Rights Act, Va. Code Ann. (S)2,1-714,
et seq., all as amended; all claims arising out of the Fair Credit
Reporting Act, 15 U.S.C. (S)1681 et seq., the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. (S)1001 et seq., the
Massachusetts Civil Rights Act, M.G.L. c.12 (S)(S)11H and 11I, the
Massachusetts Equal Rights Act, M.G.L. c.93, (S)102 and M.G.L. c.214,
(S)1C, the Massachusetts Labor and Industries Act, M.G.L. c.149, (S)1 et
seq., and the Massachusetts Privacy Act,
E-16
M.G.L. c. 214, (S)1B, all as amended; all common law claims including, but
not limited to, actions in tort, defamation and breach of contract; all
claims to the Retention Payment; all claims to any ownership interest in
the Company, contractual or otherwise, (except to the extent the Employee
is entitled by virtue of his or her continued employment with the Company
and/or Metro and the terms of any governing plan documents to continue to
participate in any stock, stock option and/or benefit plans established and
maintained by the Company); and any claim or damage arising out of the
Merger and/or his or her employment with the Company and/or Metro
(including a claim for retaliation) under any common law theory or any
federal, state or local statute or ordinance not expressly referenced
above; provided, however, that nothing in this Agreement prevents the
Employee from filing, cooperating with, or participating in any proceeding
before the EEOC or a state Fair Employment Practices Agency (except that
the Employee acknowledges that he or she may not be able to recover any
monetary benefits in connection with any such claim, charge or proceeding);
and provided further, however, that nothing in this Agreement shall be
deemed to waive any of the Employee's rights to indemnification set forth
in Section 6.14(a) of the Merger Agreement.
3. Non-Disclosure, Non-Competition and Non-Solicitation. The Employee
acknowledges his or her continuing obligation to keep confidential all non-
public information concerning the Company and/or Metro and their respective
subsidiaries which he or she has acquired during the course of his or her
employment with the Company and/or Metro and their respective subsidiaries.
The Employee further acknowledges and reaffirms his or her obligations
under the non-competition and non-solicitation covenants contained in
Paragraph 8 of the Executive Retention Agreement he or she previously
executed for the benefit of the Company and Metro in connection with the
Merger Agreement and the inception of his or her employment with the
Company and/or Metro which remain in full force and effect.
4. Non-disparagement. The Employee understands and agrees that as a
condition for payment to him or her of the consideration described herein,
he or she will not make any false, disparaging or derogatory statements to
any media outlet, industry group, financial institution or current or
former employee, consultant, client or customer of the Company, Metro or
their respective subsidiaries regarding the Company, Metro or their
respective subsidiaries or any of their respective directors, officers,
employees, agents or representatives or about the business affairs and
financial condition of the Company, Metro, and their respective
subsidiaries.
5. Nature of Agreement. The Employee understands and agrees that this
Agreement is a general release agreement and does not constitute an
admission of liability or wrongdoing on the part of the Company.
6. Amendment. This Agreement shall be binding upon the parties and may
not be abandoned, supplemented, changed or modified in any manner, orally
or otherwise, except by an instrument in writing of concurrent or
subsequent date signed by a duly authorized representative of the parties
hereto. This Agreement is binding upon and shall inure to the benefit of
the parties and their respective agents, assigns, heirs, executors,
successors and administrators.
7. Waiver of Rights. No delay or omission by the Company in exercising
any rights under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one occasion
shall be effective only in that instance and shall not be construed as a
bar or waiver of any right on any other occasion.
8. Validity. Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be illegal or invalid,
the validity of the remaining parts, terms, or provisions shall not be
affected thereby and said illegal or invalid part, term or provision shall
be deemed not to be a part of this Agreement.
9. Applicable Law. This Agreement shall be interpreted and construed by
the laws of the Commonwealth of Massachusetts, without regard to conflict
of laws provisions. The Employee hereby irrevocably submits to and
acknowledges and recognizes the jurisdiction of the courts of the
E-17
Commonwealth of Massachusetts, or if appropriate, a federal court located
in Massachusetts (which courts, for purposes of this Agreement, are the
only courts of competent jurisdiction), over any suit, action or other
proceeding arising out of, under or in connection with this Agreement or
the subject matter hereof.
10. Eligibility for Retention Benefit Program. Attached to this
Agreement as Attachment A is a description of (i) any class, unit or group
of individuals covered by the Retention Benefit program which the Company
has offered to the Employee, and any applicable time limits regarding such
program; and (ii) the job title and ages of all individuals eligible or
selected for such program, and the ages of all individuals in the same job
classification or organizational unit who are not eligible or who were not
selected for such program as required by the Older Workers Benefit
Protection Act ("OWBPA material").
11. Acknowledgments. The Employee acknowledges that he or she has been
given at least forty-five (45) days to consider this General Release
Agreement, including Attachment A, and that the Company advised the
Employee to consult with an attorney of his or her own choosing prior to
signing this Agreement. The Employee understands that he may revoke this
Agreement for a period of seven (7) days after he or she signs this
Agreement, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period. The Employee
understands and agrees that by entering into this Agreement he or she is
waiving any and all rights or claims he or she might have under The Age
Discrimination in Employment Act, as amended by The Older Workers Benefit
Protection Act, and that the Employee has received consideration beyond
that to which he or she was previously entitled.
12. Voluntary Assent. The Employee affirms that no other promises or
agreements of any kind have been made to or with him by any person or
entity whatsoever to cause him to sign this Agreement, and that he fully
understands the meaning and intent of this Agreement. The Employee states
and represents that he has had an opportunity to fully discuss and review
the terms of this Agreement, with an attorney. The Employee further states
and represents that he has carefully read this Agreement, understands the
contents therein, freely and voluntarily assents to all of the terms and
conditions of this Agreement, and signs his or her name to this Agreement
as his or her own free act.
13. Entire Agreement. This Agreement, together with the Executive
Retention Agreement, contains and constitutes the entire understanding and
agreement between the parties hereto with respect to the General Release
and supersedes all previous oral and written negotiations, agreements,
commitments, and writings in connection therewith. Nothing in this Section
13 shall, however, modify, cancel, or supersede the Employee's obligations
set forth in Section 3.
14. No Employment Contract. Nothing contained in this Agreement shall
constitute or be construed as an agreement by the Company to employ the
Employee for any specific period of time. The Employee and the Company
remain free to terminate the employment relationship at any time, with or
without notice and with or without cause.
15. Counterparts. This Agreement may be executed in two (2) signature
counterparts, each of which shall constitute an original, but both of which
taken together shall constitute but one and the same instrument.
E-18
In Witness Whereof, all parties have set their hand and seal to this
Agreement as of the date written above.
The Employee
_____________________________________
[NAME]
Keane, Inc.
By: _________________________________
Name:
Title:
E-19