<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-18413
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMPLETE BUSINESS SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN
(State or Other Jurisdiction
of Incorporation or Organization)
7371
(Primary Standard Industrial
Classification Code Number)
38-2606945
(I.R.S. Employer
Identification No.)
32605 WEST TWELVE MILE ROAD
SUITE 250
FARMINGTON HILLS, MICHIGAN 48334
(810) 488-2088
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Executive Offices)
------------------------------
RAJENDRA B. VATTIKUTI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMPLETE BUSINESS SOLUTIONS, INC.
32605 WEST TWELVE MILE ROAD
SUITE 250
FARMINGTON HILLS, MICHIGAN 48334
(810) 488-2088
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
With Copies to:
DANIEL I. DE WOLF, ESQ.
WILLIE E. DENNIS, ESQ.
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
(212) 977-6600
DOUGLAS R. NEWKIRK, ESQ.
J. TODD ARKEBAUER, ESQ.
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, 29th Floor
Chicago, Illinois 60606
(312) 207-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED AMOUNT
AMOUNT MAXIMUM MAXIMUM OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value..................... 4,255,000 $15.00 $63,825,000 $19,431
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</TABLE>
(1) Includes 555,000 shares which are subject to an over-allotment option
granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1997
PROSPECTUS
, 1997
3,700,000 SHARES
CBSI LOGO
COMMON STOCK
Of the 3,700,000 shares of Common Stock offered hereby, 3,000,000 shares
are being sold by Complete Business Solutions, Inc. ("CBSI" or the "Company")
and 700,000 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." The Company will not receive any part of the proceeds
from the sale of shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $13.00 and $15.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market upon issuance under the symbol "CBSL."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses, estimated at $1,400,000, which will be paid by
the Company.
(3) The Selling Shareholders have granted to the Underwriters a 30-day option to
purchase up to 555,000 additional shares of Common Stock at the Price to the
Public, less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, Proceeds to the
Company and Proceeds to the Selling Shareholders will be $ , $ ,
$ and $ , respectively. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholders
pursuant to the Underwriters' over-allotment, if exercised. See "Principal
and Selling Shareholders" and "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE FERRIS, BAKER WATTS
SECURITIES CORPORATION INCORPORATED
<PAGE> 3
FULL SERVICE PROVIDER
LONG-TERM
CLIENT
RELATIONSHIPS
Contract Programming ---> Application Maintenance ---> IT Consulting
- ---> Packaged Software Implementation ---> Client/Server Development --->
Reengineering ---> Year 2000 Services
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------------
APECS(R) is a registered trademark of the Company. COSMO(SM) and The Time
Machine 2000(SM) are service marks of the Company. All trademarks, service marks
and trade names referred to in this Prospectus are the property of their
respective owners.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, all information contained in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised. All share and per share data in this Prospectus have been adjusted to
give retroactive effect to the conversion by JF Electra (Mauritius) Limited ("JF
Electra") of its shares of stock in CBS Complete Business Solutions (Mauritius)
Limited ("CBS Mauritius") into 552,632 shares of common stock of the Company, no
par value (the "Common Stock"). Unless otherwise indicated, the terms "Company"
and "CBSI" refer collectively to Complete Business Solutions, Inc. and its
subsidiaries.
THE COMPANY
CBSI is a worldwide provider of information technology ("IT") services to
large and mid-size organizations. The Company offers its clients a broad range
of IT services, from advising clients on strategic technology plans to
developing and implementing appropriate IT solutions. CBSI offers
custom-tailored solutions based on an assessment of each client's needs. The
Company's services include: (i) large systems applications development and
maintenance; (ii) reengineering legacy applications to client/server technology;
(iii) client/server applications development; (iv) Year 2000 conversion
services; (v) IT consulting services; (vi) packaged software implementation; and
(vii) contract programming services.
CBSI provides services in a wide variety of computing environments and uses
leading technologies, including client/server architectures, object-oriented
programming languages and tools, distributed database management systems and the
latest network and communications technologies. The Company believes that the
breadth of its service offerings fosters long-term client relationships, affords
cross-selling opportunities, minimizes dependence on any single technology or
client and enables the Company to serve as a single source provider for its
clients' IT applications solutions. This single or preferred provider approach
is consistent with CBSI's full life-cycle, client-oriented approach to IT
solutions.
CBSI provides IT services to clients in a diverse range of industries. Its
clients include American President Lines, Chrysler Corporation, Ford Motor
Company, IBM, ISSC/Foremost Insurance, the State of Indiana, the State of
Nevada, S.W.I.F.T., Spartan Stores and UNUM Ltd. During 1996, the Company
provided services to over 220 clients in the U.S., Europe and Asia. The
Company's strategy is to maximize its client retention rate and secure
additional engagements by providing both quality services and client
responsiveness. For each of the years 1994, 1995 and 1996, existing clients from
the previous fiscal year generated at least 80% of the Company's revenues. These
recurring revenues have contributed significantly to the Company's 29% compound
annual revenue growth rate over the past five years.
Since 1992, CBSI has developed an extensive offshore infrastructure in
India, including two modern software development centers in Bangalore and Madras
and a training center in Hyderabad. The Company believes this established
offshore infrastructure is one of the largest in the industry and differentiates
it from those competitors who either have no offshore capability or depend on
subcontractor relationships to offer such services. With its offsite and
offshore development options, the Company can quickly provide clients with IT
solutions on a cost-effective basis.
The Company's goal is to become the preferred provider of IT services to an
expanding base of clients. The Company's strategy to achieve this goal is to:
(i) cross-sell services to existing clients; (ii) increase and build upon Year
2000 engagements; (iii) capitalize on significant investments in infrastructure
and capabilities; (iv) develop new and expand recently added service offerings
such as Enterprise Resource Planning software package installation,
Internet/intranet applications and Electronic Data Interchange applications; (v)
increase its international presence; and (vi) pursue targeted acquisitions.
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THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 3,000,000 shares
Common Stock offered by the Selling Shareholders............ 700,000 shares
Common Stock to be outstanding after the offering........... 10,000,000 shares(1)
Use of proceeds............................................. Payment of undistributed S corporation
earnings; repayment of existing debt;
expansion of existing operations,
including the Company's offshore
software development operations,
development of new service lines and
possible acquisitions of related
businesses; and general corporate
purposes, including working capital.
Proposed Nasdaq National Market symbol...................... CBSL
</TABLE>
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(1) Excludes: (i) options outstanding on the date hereof to purchase 460,824
shares of Common Stock at a weighted average exercise price of $6.92 per
share; and (ii) 657,810 additional shares of Common Stock reserved for
issuance upon exercise of options that may be granted in the future under
the Company's 1996 Stock Option Plan. See "Management -- Employee Benefit
Plans."
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF INCOME DATA:
Revenues...................................... $32,382 $43,795 $56,358 $67,399 $83,241
Gross profit.................................. 7,159 10,290 13,522 13,790 19,939
Income from operations........................ 1,410 1,937 2,635 1,966 4,484
Interest expense.............................. 185 197 345 692 539
Provision for income taxes.................... -- -- -- -- 84
Minority interest............................. 36 127 176 252 158
Net income.................................... $ 1,189 $ 1,613 $ 2,114 $ 1,022 $ 3,703
PRO FORMA STATEMENT OF INCOME DATA:
Revenues............................................................................. $67,399 $83,241
Gross profit......................................................................... 13,790 19,939
Income from operations(1)............................................................ 1,773 4,291
Interest income(2)................................................................... (32) (71)
Provision for income taxes(3)........................................................ 381 1,566
Net income(4)........................................................................ $ 1,424 $ 2,796
Net income per common share.......................................................... $ 0.18 $ 0.35
Weighted average shares outstanding(5)............................................... 7,795 8,054
<CAPTION>
AS OF
DECEMBER 31, 1996
--------------------
AS
ACTUAL ADJUSTED(6)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 3,382 $25,851
Working capital...................................................................... 10,077 37,665
Total assets......................................................................... 31,258 57,583
Revolving credit facility and long-term debt......................................... 6,191 --
Minority interest.................................................................... 1,503 --
Total shareholders' equity........................................................... 13,951 46,864
</TABLE>
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(1) Reflects the amortization of goodwill over a period of 20 years as a
result of the Company's purchase of the 28% minority interest in CBS
Mauritius.
(2) Reflects the elimination of interest expense to give effect to the
repayment of the Company's revolving credit facility and long-term debt.
See "Use of Proceeds."
(3) Reflects provision for federal and state income taxes at the effective
income tax rate as if the Company had been taxed as a C corporation and
no foreign tax holidays had been granted during the periods presented.
The effective tax rate was 21.1% and 35.9% for the years ended December
31, 1995 and 1996, respectively.
(4) Reflects the elimination of minority interest due to the issuance of
552,632 shares of Common Stock in exchange for the minority interest in
CBS Mauritius.
(5) Reflects pro forma weighted average shares of Common Stock, plus the
portion of the Common Stock offered hereby needed to generate proceeds
sufficient to repay the Company's revolving credit facility and
long-term debt at the end of each period. See "Use of Proceeds" and
"Capitalization."
(6) Adjusted to give effect to: (i) the recording of an estimated $1.1
million deferred tax liability upon termination of the Company's S
corporation status; (ii) the issuance of 552,632 shares of Common Stock
in connection with the conversion of JF Electra's minority interest in
CBS Mauritius, including the elimination of the minority interest; and
(iii) the sale of 3,000,000 shares of Common Stock by the Company (at an
assumed initial public offering price of $14.00 per share) and the
application of the estimated net proceeds therefrom as described in "Use
of Proceeds." See "S Corporation Distribution" and "Certain
Transactions."
5
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RISK FACTORS
RECRUITMENT AND RETENTION OF IT PROFESSIONALS
The Company's business involves delivering IT services and is
labor-intensive. The Company's success depends upon its ability to attract,
develop, motivate and retain highly-skilled IT professionals and project
managers, who possess the technical skills and experience necessary to deliver
the Company's services. Qualified IT professionals are in great demand worldwide
and are likely to remain a limited resource for the foreseeable future. There
can be no assurance that qualified IT professionals will continue to be
available to the Company in sufficient numbers, or that the Company will be
successful in retaining current or future employees. Failure to attract or
retain qualified IT professionals in sufficient numbers could have a material
adverse effect on the Company's business, operating results and financial
condition. Historically, the Company has accomplished a significant portion of
its recruiting outside of the countries where the client work was performed.
Accordingly, any perception among the Company's IT professionals, whether or not
well founded, that the Company's ability to assist them in obtaining H-1B
temporary work permits and permanent residency status has diminished could lead
to significant employee attrition which could result in the Company incurring
increased costs for IT professionals. See "Business -- Human Resources" and
"Business -- Competition."
GOVERNMENT REGULATION OF IMMIGRATION
The Company recruits its IT professionals on a global basis to create a
workforce that it can deploy wherever required and, therefore, must comply with
the immigration laws in the countries in which it operates, particularly the
United States. As of December 31, 1996, approximately 45% of CBSI's worldwide
workforce was working under H-1B temporary work permits in the United States.
There is a limit on the number of new H-1B permits that may be approved in a
fiscal year. In years in which this limit is reached, the Company may be unable
to obtain enough H-1B permits to meet its requirements. If the Company were
unable to obtain H-1B permits for its employees in sufficient quantities or at a
sufficient rate, the Company's business, operating results and financial
condition could be materially and adversely affected. Furthermore, Congress and
administrative agencies with jurisdiction over immigration matters have
periodically expressed concerns over the levels of legal and illegal immigration
into the U.S. These concerns have often resulted in proposed legislation, rules
and regulations aimed at reducing the number of work permits that may be issued.
Any changes in such laws and regulations making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain foreign
employees, could require the Company to incur additional unexpected labor costs
and other expenses. Any such restrictions or limitations on the Company's hiring
practices could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Human Resources."
INCREASING SIGNIFICANCE AND RISKS OF NON-U.S. OPERATIONS
The Company's international consulting and offshore software development
operations are important elements of its growth strategy. The Company opened
offices in the United Kingdom in 1990, in Madras, India in 1992, in Bangalore,
India in 1995 and in Hyderabad, India in 1996. The international operations of
the Company accounted for 4.7%, 6.8% and 6.9% of the Company's total revenues in
fiscal years 1994, 1995 and 1996, respectively. These operations depend greatly
upon business and technology transfer laws in those countries, and upon the
continued development of technology infrastructure. There can be no assurance
that the Company's international operations will continue to be profitable or
support the Company's growth strategy. The risks inherent in the Company's
international business activities include unexpected changes in regulatory
environments, foreign currency fluctuations, tariffs and other trade barriers,
difficulties in managing international operations and potential foreign tax
consequences, including repatriation of earnings and the burden of complying
with a wide variety of foreign laws and regulations. The Company's failure to
manage growth, attract and retain personnel, manage major development efforts,
or profitably deliver services or a significant interruption in the Company's
ability to transmit data via satellite, could have a material adverse impact on
the Company's ability to maintain and develop successfully its international
operations and could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- CBSI Growth
Strategies."
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The Company's international operations are subject to a number of special
risks, including currency exchange rate fluctuations, trade barriers, exchange
controls, political risks and risk of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the timing and number of client projects commenced and completed during the
quarter, the number of working days in a quarter, employee hiring, attrition and
utilization rates and progress on fixed-price projects during the quarter.
Because a high percentage of the Company's expenses, in particular personnel and
facilities costs, are relatively fixed, a variation in revenues may cause
significant variations in operating results. Additionally, the Company
periodically incurs cost increases due to both the hiring of new employees and
strategic investments in its infrastructure in anticipation of future
opportunities for revenue growth. No assurances can be given that quarterly
results will not fluctuate, causing a material adverse effect on the Company's
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results."
EXPOSURE TO REGULATORY AND GENERAL ECONOMIC CONDITIONS IN INDIA
A significant element of the Company's business strategy is to continue to
develop its offshore software development centers in Bangalore and Madras,
India. As of December 31, 1996, the Company had approximately 28% of its
workforce in India. The Indian government, as a means of encouraging foreign
investment, provides significant tax incentives and exemptions to regulatory
restrictions. Certain of these benefits that directly affect the Company
include, among others, tax holidays (temporary exemptions from taxation on
operating income) and liberalized import and export duties. To be eligible for
certain of these tax benefits, the Company must continue to meet certain
conditions. A failure to meet such conditions in the future could result in the
cancellation of the benefits. There can be no assurance that such tax benefits
will be continued in the future at their current levels. With respect to duties,
subject to certain conditions, goods, raw materials and components for
production imported by the Company's offices in India are exempt from the levy
of a customs duty.
Although wage costs in India are significantly lower than in the U.S. and
elsewhere for comparably skilled IT professionals, wages in India are increasing
at a faster rate than in the U.S. In the past, India has experienced significant
inflation and shortages of foreign exchange, and has been subject to civil
unrest and acts of terrorism. Although the inflation rate for the periods
discussed in this Prospectus has been insignificant, increases in inflation in
the future could have a material adverse effect on the Company's business,
operating results and financial condition. Additionally, changes in interest
rates, taxation or other social, political, economic or diplomatic developments
affecting India in the future could also have a material adverse effect on the
Company's business, operating results and financial condition. See "Business --
The CBSI Solution."
FIXED-PRICE PROJECTS
The Company undertakes certain projects on a fixed-price basis, as
distinguished from billing on a time-and-materials basis. Significant cost
overruns on fixed-price projects could have a material adverse effect on the
Company's business, operating results and financial condition. These risks may
be heightened if the Company acts as a subcontractor on a fixed-price project
because of its limited ability to control project variables and to negotiate
directly with the ultimate client. For example, in 1994 and 1995, the Company
provided services as a subcontractor on a fixed-price project to design and
develop a human services and child support enforcement system for a state
government. The Company incurred approximately $3.0 million in excess personnel
costs, primarily in 1995, to meet the demands of this project and the Company's
overall gross profit margin therefore declined from 24% in 1994 to 21% in 1995.
Excluding the excess costs associated with this project, the Company's gross
profit margins would have remained constant from 1994 to 1995. Although the
Company intends to solicit fewer fixed-price project engagements in the future,
there can be no assurance that those fixed-price project engagements accepted by
the Company will be profitable, which could have a
7
<PAGE> 9
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
within a variety of market segments, including "Big Six" accounting firms,
implementation firms, software applications firms, service groups of computer
equipment companies, general management consulting firms, programming companies
and temporary staffing firms. Many of these competitors have substantially
greater financial, technical and marketing resources and greater name
recognition than the Company. In addition, there are relatively few barriers to
entry into the Company's markets and the Company has faced, and expects to
continue to face, additional competition from new entrants into its markets.
Moreover, there is a risk that clients may elect to increase their internal IT
resources to satisfy their applications solutions needs. Further, the IT
services industry is undergoing consolidation which may result in increasing
pressure on margins. These factors may limit the Company's ability to increase
prices commensurate with increases in compensation. There can be no assurance
that the Company will compete successfully with existing or new competitors. See
"Business -- Competition."
CONCENTRATION OF REVENUES; RISK OF TERMINATION
The Company's ten largest clients accounted for approximately 59% and 49%
of revenues in fiscal years 1995 and 1996, respectively. International Business
Machines and its affiliates accounted for approximately 19% and 12% of the
Company's revenues in fiscal years 1995 and 1996, respectively. Revenues from
this client are generated by multiple projects for various end users. Most of
the Company's projects are terminable by the client without penalty. An
unanticipated termination of a major project could result in the loss of
revenues and could require the Company to maintain or terminate a number of
unassigned IT professionals. The loss of any significant client or project could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Clients."
MANAGEMENT OF GROWTH; CHANGING NATURE OF BUSINESS
The Company has experienced rapid growth that has placed significant
demands on the Company's managerial, administrative and operational resources.
Revenues have grown from $32.4 million in 1992 to $83.2 million in 1996, and the
number of employees has grown from 480 as of December 31, 1992 to 1,431 as of
December 31, 1996. The Company's continued growth depends on its ability to add
managers, to increase its international operations, to add service lines and to
expand further its offshore facilities. None of the Company's senior management
has managed a public company. Effective management of growth initiatives will
require the Company to continue to improve its operational, financial and other
management processes and systems. Failure to manage growth effectively could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- CBSI Growth Strategies."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
The IT industry is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product introductions.
The Company's success will depend in part on its ability to develop IT solutions
that keep pace with changes in the IT industry. There can be no assurance that
the Company will be successful in addressing these developments on a timely
basis or that, if these developments are addressed, the Company will be
successful in the marketplace. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
services noncompetitive or obsolete. The Company's failure to address these
developments could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- The IT Services
Industry."
In general, a significant number of organizations are attempting to migrate
business applications from a mainframe environment to advanced technologies,
including client/server architectures. As a result, the
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Company's ability to remain competitive will be dependent on several factors,
including its ability to help existing employees maintain or develop mainframe
skills and to train and hire employees with skills in advanced technologies. The
Company's failure to hire, train and retain employees with such skills, could
have a material and adverse impact on the Company's business. See "Business --
Human Resources." The Company's ability to remain competitive will also be
dependent on its ability to design and implement, in a timely and cost effective
manner, effective transition strategies for clients moving from the mainframe
environment to client/server or other advanced architectures. The failure of the
Company to design and implement such transition strategies in a timely and cost
effective manner could have a material adverse effect on the Company's business.
See "Business -- The IT Services Industry."
DEPENDENCE ON PRINCIPALS
The success of the Company is highly dependent on the efforts and abilities
of Rajendra B. Vattikuti and Timothy S. Manney, the Company's Chief Executive
Officer and President, and Executive Vice President of Finance and
Administration, respectively. Although Messrs. Vattikuti and Manney have entered
into employment agreements containing noncompetition covenants that extend for a
period of one year following termination of employment and nondisclosure
covenants, such agreements do not guarantee that Messrs. Vattikuti and Manney
will continue their employment with the Company nor that such covenants will be
enforceable. The loss of the services of either of these key executives for any
reason could have a material adverse effect on the Company's business, operating
results and financial condition. The Company maintains key man life insurance on
Mr. Vattikuti in the amount of $2.0 million. In the event of Mr. Vattikuti's
death, that sum would be paid to the Company to offset the financial effect of
his death. No assurance can be given, however, that such amount of insurance
would be adequate for that purpose. See "Management -- Executive Officers and
Directors."
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations through the acquisition of additional
businesses. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate any
acquired businesses into the Company without substantial expenses, delays or
other operational or financial problems. Further, acquisitions may involve a
number of special risks, including diversion of management's attention, failure
to retain key acquired personnel, unanticipated events or circumstances, legal
liabilities and amortization of acquired intangible assets, some or all of which
could have a material adverse effect on the Company's business, operating
results and financial condition. Client satisfaction or performance problems
within an acquired firm could have a material adverse impact on the reputation
of the Company as a whole. In addition, there can be no assurance that acquired
businesses, if any, will achieve anticipated revenues and earnings. The failure
of the Company to manage its acquisition strategy successfully could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- CBSI Growth Strategies."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part upon certain methodologies it
utilizes in designing, developing and implementing applications systems and
other proprietary intellectual property rights. The Company has developed and
owns proprietary rights for The Time Machine 2000 and COSMO methodologies. In
addition, the Company owns service marks for The Time Machine 2000 and COSMO and
has submitted federal trademark applications for each. The Company has also
developed and copyrighted or acquired software products which are generally
licensed to users pursuant to a license agreement. The Company's software
products include APECS, APECS Custom View and Micro APECS Scheduler. APECS is a
registered trademark of the Company. The Company relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. The Company
enters into confidentiality agreements with its employees and limits
distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use of and take appropriate
9
<PAGE> 11
steps to enforce its intellectual property rights. In addition, the laws of
certain foreign countries in which the Company's products are, or may be,
developed or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the U.S. This lack of
protection may impair the Company's ability to protect its intellectual property
adequately and could have a material adverse impact on the Company's business.
Although the Company does not believe that its products infringe on the rights
of third parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future, or that such assertions
will not result in costly litigation or require the Company to obtain a license
for the intellectual property rights of third parties. There can be no assurance
that such licenses will be available on reasonable terms or at all. See
"Business -- The CBSI Solution" and "Business -- Intellectual Property Rights."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price per share of the Common
Stock will be determined by negotiations among management of the Company, the
Selling Shareholders and the Underwriters. There can be no assurance that an
active public market in the Common Stock will develop or be sustained. The
Nasdaq National Market has from time to time experienced extreme price and
volume fluctuations that have often been unrelated to the operating performance
of particular companies. In addition, factors such as announcements of
technological innovations, new products or services or new client engagements by
the Company or its competitors or third parties, as well as market conditions in
the IT industry, may have a significant impact on the market price of the Common
Stock. See "Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, Mr. Vattikuti will beneficially own
approximately 55.4% of the outstanding shares of Common Stock. As a result, Mr.
Vattikuti will be able to elect the entire Board of Directors, and will retain
the voting power to control all matters requiring shareholder approval,
including approval of significant corporate transactions. Such a concentration
of ownership may have the effect of delaying or preventing a change in control
of the Company, and may also impede or preclude transactions in which
shareholders might otherwise receive a premium for their shares over then
current market prices. See "The Company," "Management -- Executive Officers and
Directors" and "Principal and Selling Shareholders."
LIMITATIONS ON DIRECTORS' LIABILITIES
The Company's Restated Articles of Incorporation provide that, to the full
extent permitted by law, a director of the Company will not be personally liable
to the Company or its shareholders for damages for breach of fiduciary duty as a
director. This provision would ordinarily eliminate the liability of directors
for monetary damages to the Company and its shareholders even in instances in
which the directors had been negligent or grossly negligent. Under the Michigan
Business Corporation Act ("MBCA"), a director's liability may not be limited:
(i) for any breach of the director's duty of loyalty to the Company or its
shareholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) for a violation of
Section 551(1) of the MBCA; (iv) for any transaction from which the director
derived any improper personal benefit; or (v) for any act or omission occurring
prior to the date when the provision becomes effective.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles of Incorporation, as amended (the
"Articles"), and Bylaws and the MBCA include provisions that may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that shareholders might consider in their best interests. Directors of the
Company are divided into three classes and are elected to serve staggered
three-year terms. The Articles provide for 1,000,000 authorized shares of
Preferred Stock, the rights, preferences, qualifications, limitations and
restrictions of which may be fixed by the Board of Directors without any vote or
action by the shareholders, which could have the effect of diluting the Common
Stock or reducing working capital that would otherwise be available to the
Company. Chapter 7A of the MBCA provides, with certain exceptions, that business
10
<PAGE> 12
combinations between a Michigan corporation and an "interested shareholder"
generally require the approval of 90% of the votes of each class of stock
entitled to be cast by the shareholders of the corporation, and not less than
2/3 of the votes of each class of stock entitled to be cast by the shareholders
of the corporation other than voting shares owned by such interested
shareholder. An "interested shareholder" is a person directly or indirectly
owning 10% or more of a corporation's outstanding voting power, or an affiliate
of a corporation who at any time within two years prior to the date in question
directly or indirectly owned 10% or more of such voting power. These provisions
may have the effect of delaying or preventing a change in control of the Company
without action by the shareholders, may discourage bids for the Common Stock at
a premium over the market price and may deter efforts to obtain control of the
Company.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
10,000,000 shares of Common Stock outstanding, of which the 3,700,000 shares
sold pursuant to this offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except those shares acquired by affiliates of the Company.
The remaining shares will be "restricted securities" within the meaning of Rule
144 under the Securities Act. The Company has granted Messrs. Land, Manney and
Rankin certain demand and piggyback registration rights covering an aggregate of
539,389 shares of Common Stock (469,389 if the Underwriters' over-allotment
option is exercised in full). In addition, 460,824 shares of Common Stock are
issuable upon the exercise of outstanding stock options (4,952 of which are
currently exercisable), which shares may be registered by the Company under the
Securities Act and become freely tradeable without restriction. The Company and
all of its current shareholders, holding an aggregate of 6,300,000 shares of
Common Stock upon consummation of this offering, have agreed not to offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, until 180 days after the date of this Prospectus, without the
prior consent of Donaldson, Lufkin & Jenrette Securities Corporation, on behalf
of the Underwriters. Following the 180 day period, 5,933,107 of the restricted
securities will become immediately eligible for sale, subject to the manner of
sale, volume, notice and information requirements of Rule 144. Sales of
substantial amounts of such shares in the public market or the availability of
such shares for future sale could adversely affect the market price of the
shares of Common Stock and the Company's ability to raise additional capital at
a price favorable to the Company. See "Shares Eligible for Future Sale" and
"Underwriting."
BENEFITS OF OFFERING TO SELLING SHAREHOLDERS
The Selling Shareholders will receive proceeds from this offering and
certain other material benefits in connection with this offering including
dedication of a portion of the proceeds to the payment of certain federal taxes
resulting from the Company's conversion from an S corporation to a C corporation
and payment of undistributed S corporation earnings. This offering will
establish a public market for the Common Stock and provide significantly
increased liquidity to the Selling Shareholders for the shares of Common Stock
they will own after this offering. See "Use of Proceeds," "Dilution" and
"Principal and Selling Shareholders."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. At an assumed initial public offering price of $14.00 per share,
purchasers of shares of Common Stock in this offering will experience immediate
and substantial dilution of $9.70 in the pro forma net tangible book value per
share of Common Stock. See "Dilution."
POTENTIAL LIABILITY TO CLIENTS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the execution of its services could result in a material adverse change to
the client's
11
<PAGE> 13
operations and, therefore, could give rise to claims against the Company or
damage the Company's reputation, adversely affecting its business, operating
results and financial condition.
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors will
have broad discretion with respect to the use of the net proceeds of this
offering. See "Use of Proceeds."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."
THE COMPANY
Complete Business Solutions, Inc. was incorporated under the laws of the
State of Michigan in 1985. The Company maintains its principal executive offices
at 32605 West Twelve Mile Road, Suite 250, Farmington Hills, Michigan 48334. The
Company's web site is www.cbsinc.com. The Company's web site is not part of this
Prospectus. The Company's telephone number is (810) 488-2088.
Immediately prior to the effective date of this offering, the Company will
become the sole shareholder of its subsidiary, CBS Mauritius, which in turn owns
all of the issued and outstanding shares of Complete Business Solutions (India)
Private Limited ("CBS India"), a corporation organized under the laws of India.
Upon completion of the conversion by JF Electra of its shares in CBS Mauritius
into Common Stock, JF Electra will own 552,632 shares of Common Stock,
representing approximately 7.9% of the outstanding shares of Common Stock. CBS
India provides offshore software development services and recruiting and
training services for CBSI in India.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company (after deduction of estimated underwriting discounts and
commissions and offering expenses payable by the Company) are estimated to be
approximately $37.7 million, assuming an initial public offering price of $14.00
per share. The Company expects to use the net proceeds from this offering for:
(i) payment of undistributed S corporation earnings, estimated to be $9.0
million; (ii) repayment in full to NBD Bank (the "Bank") of existing debt,
bearing interest at floating rates based on such Bank's prime rate or a
Eurodollar rate, the majority of which matures on demand, which the Company
estimates will be $3.0 million at the date of the closing of this offering;
(iii) expansion of existing operations, including the Company's offshore
software development operations, development of new service lines and possible
acquisitions of related businesses; and (iv) general corporate purposes,
including working capital. Although the Company actively seeks the acquisition
of related businesses, it currently has no understandings, commitments or
agreements with respect to any acquisitions. Pending their application as
described above, such proceeds will be invested in short-term, investment grade,
interest-bearing securities. See "S Corporation Distribution," "Business -- CBSI
Growth Strategies" and Notes 6 and 7 of Notes to Consolidated Financial
Statements. The principal purposes of this offering are to obtain additional
working capital, create a public market for the Common Stock, provide liquidity
to the Company's shareholders and facilitate future access by the Company to
public equity markets.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
S CORPORATION DISTRIBUTION
Since February 1, 1988, the Company has been a corporation subject to
income taxation under Subchapter S of the Internal Revenue Code of 1986, as
amended. As a result, substantially all of the Company's net income has been
attributed, for income tax purposes, directly to the Company's shareholders
rather than to the Company. The Company's S corporation status will terminate in
connection with this offering and thereupon the Company will make a final
distribution (the "Distribution") to its existing shareholders in an aggregate
amount representing substantially all of the S corporation's undistributed
earnings taxed or taxable to its shareholders through the closing of this
offering. The Distribution is estimated to be approximately $9.0 million.
Purchasers of Common Stock in this offering will not receive any portion of the
Distribution.
Following termination of its S corporation status, the Company will be
subject to corporate income taxation under Subchapter C of the Internal Revenue
Code of 1986, as amended. In connection with the termination of its S
corporation status, the Company estimates that it will record, in the period in
which this offering occurs, a deferred tax liability and a corresponding income
tax expense of approximately $1.1 million. The deferred tax liability will be
paid within one year. The deferred tax liability will be recorded in accordance
with Statement of Financial Accounting Standards No. 109. See Note 1 of Notes to
Consolidated Financial Statements.
13
<PAGE> 15
DIVIDEND POLICY
The Company intends to retain all of its future earnings to fund growth and
the operation of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of December 31, 1996, and as adjusted to give effect to: (i) the
recording of an estimated $1.1 million deferred tax liability upon termination
of the Company's S corporation status (see "S Corporation Distribution"); (ii)
the issuance of 552,632 shares of Common Stock in connection with the conversion
of JF Electra's minority interest in CBS Mauritius, including the elimination of
the minority interest; and (iii) the sale of 3,000,000 shares of Common Stock by
the Company (at an assumed initial public offering price of $14.00 per share)
and the application of the estimated net proceeds therefrom as described in "Use
of Proceeds." The following table should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving credit facility................................. $ 5,400 $ --
Current portion of long-term debt......................... 486 --
------- ---------
Total short-term debt................................ $ 5,886 $ --
======= =========
Long-term debt, less current portion........................ $ 305 $ --
Minority interest........................................... 1,503 --
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares
authorized; no shares issued........................... -- --
Common stock, no par value; 30,000,000 shares authorized;
6,447,368 shares
issued and outstanding; 10,000,000 shares issued and
outstanding,
as adjusted(1)......................................... -- --
Additional paid-in capital................................ 3,226 49,188
Retained earnings......................................... 13,049 --
Stock subscriptions receivable............................ (2,125) (2,125)
Cumulative translation adjustment......................... (199) (199)
------- ---------
Total shareholders' equity........................... 13,951 46,864
------- ---------
Total capitalization............................ $15,759 $46,864
======= =========
</TABLE>
- -------------------------
(1) Excludes: (i) options outstanding on the date hereof to purchase 460,824
shares of Common Stock at a weighted average exercise price of $6.92 per
share; and (ii) 657,810 additional shares of Common Stock reserved for
issuance upon exercise of options that may be granted in the future under
the Company's 1996 Stock Option Plan. See "Management -- Employee Benefit
Plans."
14
<PAGE> 16
DILUTION
As of December 31, 1996, the Company's net tangible book value was
approximately $14.0 million or $2.17 per share. Net tangible book value per
share represents the Company's total tangible assets less the Company's total
liabilities, divided by the aggregate number of shares of Common Stock
outstanding. After giving effect to: (i) the recording of an estimated $1.1
million deferred tax liability upon termination of the Company's S corporation
status; (ii) the issuance of 552,632 shares of Common Stock in connection with
the conversion of JF Electra's minority interest in CBS Mauritius, including the
elimination of the minority interest; and (iii) the sale of 3,000,000 shares of
Common Stock by the Company (at an assumed initial public offering price of
$14.00 per share) and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds," the pro forma net tangible book value of the
Company at December 31, 1996 would have been $43.0 million or $4.30 per share.
This amount represents an immediate increase in net tangible book value of $2.13
per share to existing shareholders and an immediate dilution of $9.70 per share
to purchasers of Common Stock in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock..................................................... $14.00
Net tangible book value per share at December 31, 1996.... $2.17
Increase in net tangible book value per share attributable
to new investors....................................... 2.13
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.30
------
Dilution in net tangible book value per share to new
investors................................................. $ 9.70
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996 and after giving effect to the conversion into Common Stock of JF Electra's
shares in CBS Mauritius, the differences in the number of shares of capital
stock purchased from the Company, the total consideration paid and the average
price paid per share by existing shareholders and new investors at the assumed
initial public offering price of $14.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............... 7,000,000 70.0% $ 6,126,000 12.7% $ 0.88
New investors(1)....................... 3,000,000 30.0 42,000,000 87.3 $14.00
---------- ----- ----------- -----
Total............................. 10,000,000 100.0% $48,126,000 100.0%
========== ===== =========== =====
</TABLE>
- -------------------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders of the Company to 6,300,000 shares or
63.0% of the total number of shares outstanding after this offering
(5,745,000 shares or 57.5% if the Underwriters' over-allotment option is
exercised in full) and will increase the number of shares held by new
investors to 3,700,000 shares or 37.0% of the total number of shares
outstanding after this offering (4,255,000 shares or 42.5% if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Shareholders."
15
<PAGE> 17
SELECTED FINANCIAL DATA
The selected historical financial data presented below for the five years
ended December 31, 1996, are derived from the Company's Consolidated Financial
Statements and related Notes thereto which have been audited by Arthur Andersen
LLP, independent public accountants. The amounts provided as pro forma statement
of income data have been adjusted to reflect this offering and related
transactions. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF INCOME DATA:
Revenues.............................................. $32,382 $43,795 $56,358 $67,399 $83,241
Cost of revenues...................................... 25,223 33,505 42,836 53,609 63,302
------- ------- ------- ------- -------
Gross profit.......................................... 7,159 10,290 13,522 13,790 19,939
Selling, general and administrative
expenses............................................ 5,749 8,353 10,887 11,824 15,455
------- ------- ------- ------- -------
Income from operations................................ 1,410 1,937 2,635 1,966 4,484
Interest expense...................................... 185 197 345 692 539
------- ------- ------- ------- -------
Income before provision for income taxes and minority
interest............................................ 1,225 1,740 2,290 1,274 3,945
Provision for income taxes............................ -- -- -- -- 84
Minority interest..................................... 36 127 176 252 158
------- ------- ------- ------- -------
Net income............................................ $ 1,189 $ 1,613 $ 2,114 $ 1,022 $ 3,703
======= ======= ======= ======= =======
PRO FORMA STATEMENT OF INCOME DATA:
Revenues............................................................................... $67,399 $83,241
Gross profit........................................................................... 13,790 19,939
Income from operations(1).............................................................. 1,773 4,291
Interest income(2)..................................................................... (32) (71)
Provision for income taxes(3).......................................................... 381 1,566
Net income(4).......................................................................... $ 1,424 $ 2,796
Net income per common share............................................................ $ 0.18 $ 0.35
Weighted average shares outstanding(5)................................................. 7,795 8,054
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 66 $ 425 $ 319 $ 830 $ 3,382
Working capital....................................... 1,961 2,420 3,745 5,799 10,077
Total assets.......................................... 11,021 16,031 20,740 23,423 31,258
Revolving credit facility and long-term debt.......... 2,754 4,189 5,933 6,316 6,191
Minority interest..................................... 48 175 350 552 1,503
Total shareholders' equity............................ 4,598 6,211 8,325 9,188 13,951
</TABLE>
- -------------------------
(1) Reflects the amortization of goodwill over a period of 20 years as a result
of the Company's purchase of the 28% minority interest in CBS Mauritius.
(2) Reflects the elimination of interest expense to give effect to the repayment
of the Company's revolving credit facility and long-term debt. See "Use of
Proceeds."
(3) Reflects provision for federal and state income taxes at the effective
income tax rate as if the Company had been taxed as a C corporation and no
foreign tax holidays had been granted during the periods presented. The tax
provision was computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
Statutory federal income tax rate........................... 34.0% 34.0%
State income taxes, net of federal tax effect............... 1.7 2.7
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (19.6) (3.0)
Amortization of goodwill.................................... 3.4 1.4
Other....................................................... 1.6 0.8
----- ----
21.1% 35.9%
===== ====
</TABLE>
(4) Reflects the elimination of minority interest due to the issuance of 552,632
shares of Common Stock in exchange for the minority interest in CBS
Mauritius.
(5) Reflects pro forma weighted average shares of Common Stock, plus the portion
of Common Stock offered hereby needed to generate proceeds sufficient to
repay the Company's revolving credit facility and long-term debt at the end
of each period. See "Use of Proceeds" and "Capitalization."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this section, the
words "anticipate," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
OVERVIEW
Complete Business Solutions, Inc. is a worldwide provider of IT services to
large and mid-size organizations. The Company has been profitable every year
since its inception in 1985, and has experienced a compound annual revenue
growth rate of 29% over the past five years. The Company leverages its existing
client base by providing quality services and client responsiveness. For each of
the years 1994, 1995 and 1996, existing clients from the previous fiscal year
generated at least 80% of the Company's revenues.
The Company's revenues are generated primarily from professional services
fees provided through either client-managed or CBSI-managed projects. For the
year ended December 31, 1996, the percentage of professional service fees
generated from client-managed projects and CBSI-managed projects was
approximately 54% and 46%, respectively. Historically, the majority of the
Company's revenues have been generated from client-managed projects. On
client-managed projects, CBSI provides professional services as a member of the
project team working under the direct supervision of the client, typically on a
time-and-materials basis. The Company recognizes revenues on time-and-materials
projects as the services are performed. On CBSI-managed projects, the Company
assumes responsibility for project management and may bill the client on either
a time-and-materials or fixed-price basis, although such projects are primarily
billed on a time-and-materials basis. The Company recognizes fixed-price
revenues under the percentage of completion method. The Company is seeking to
shift a larger portion of its business to CBSI-managed projects which have
higher gross profit margin potential. For the year ended December 31, 1996, the
gross profit for CBSI-managed projects was approximately 27% and the gross
profit for client-managed projects was approximately 20%.
CBSI's most significant cost is project personnel cost, which consists
primarily of salaries, wages and benefits for its IT professionals. The Company
strives to maintain its gross profit margin by controlling project costs and
offsetting increases in salaries and benefits with increases in billing rates.
The Company has also established a human resource allocation team to ensure that
IT professionals are quickly placed on assignments to minimize nonbillable time
and are placed on assignments that utilize their technical skills and allow for
maximum billing rates. In addition, the Company has realized higher gross profit
margins from the Company's shift to offshore projects in India, where the
salaries of IT professionals are lower as a percentage of professional service
fees. This benefit is partially offset due to additional coordination efforts
and costs for offshore projects. For example, for fiscal year 1996, CBSI's
operating income as a percentage of revenues overall was 5%, whereas operating
income as a percentage of revenues for work performed offshore in India was 20%.
In 1994, the Company began to provide services as a subcontractor on a
fixed-price project (the "Fixed-Price Project") to design and develop a human
services and child support enforcement system for a state government. The
Company incurred $3.0 million in excess personnel costs, primarily in 1995, to
meet the demands of this project and overall gross profit margin therefore
declined from 24% in 1994 to 21% in 1995. Excluding the excess costs associated
with this project, gross profit margins would have remained constant from 1994
to 1995. In addition, although the Company's revenues increased 20% from 1994 to
1995, the Company's income from operations decreased approximately 25% for the
same period as a result of the Fixed-Price Project.
In an effort to sustain its growth and profitability, the Company has made
substantial investments in infrastructure, including: (i) software development
centers in three locations in the U.S. and two locations in
17
<PAGE> 19
India; (ii) Year 2000 conversion factories in the U.S. and India; (iii) global
recruiting and training centers; (iv) a local technical charter school; and (v)
an expanded training program for recent U.S. college graduates. The Company
believes that the results of these strategic investments have not yet been fully
realized.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of income data as a percentage of revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Revenues.................................................... 100% 100% 100% 100%
Cost of revenues............................................ 77 76 79 76
---- ---- ---- ----
Gross profit................................................ 23 24 21 24
Selling, general and administrative expenses................ 19 19 18 19
---- ---- ---- ----
Income from operations...................................... 4% 5% 3% 5%
</TABLE>
1996 COMPARED TO 1995
Revenues. The Company's revenues increased 23% to $83.2 million in 1996
from $67.4 million in 1995. This growth in revenues is primarily attributable to
additional services provided to existing clients and the expansion of the
Company's client base to 222 as of December 31, 1996 from 209 as of December 31,
1995. Revenues from existing clients in 1996 increased $7.5 million over
revenues from those clients during 1995. Revenues from the Company's
international operations increased 24% to $5.7 million in 1996 from $4.6 million
in 1995.
Gross Profit. Gross profit consists of revenues less cost of revenues. Cost
of revenues consists primarily of salaries (including nonbillable time),
benefits, travel and relocation for IT professionals. In addition, cost of
revenues includes the cost of software products sold, depreciation and
amortization and contractual services. Gross profit increased approximately 44%
to $19.9 million in 1996 from $13.8 million in 1995. This increase in gross
profit is attributable primarily to the expansion of the Company's client base
and the impact of the Fixed-Price Project on 1995 results. Gross profit as a
percentage of revenues increased to 24% in 1996 from 21% in 1995. This increase
is due primarily to billing rate increases partially offset by salary increases
to IT professionals in 1996 and the impact of the Fixed-Price Project on 1995
results.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of costs associated with the Company's
direct selling and marketing efforts, human resources and recruiting
departments, administration, training and facilities costs. Selling, general and
administrative expenses increased 31% to $15.5 million in 1996 from $11.8
million in 1995. This increase resulted from expenses incurred to build and
enhance the infrastructure necessary to support the Company's continued revenue
growth. As a percentage of revenues, selling, general and administrative
expenses increased to 19% in 1996 from 18% in 1995.
1995 COMPARED TO 1994
Revenues. The Company's revenues increased 20% to $67.4 million in 1995
from $56.4 million in 1994. This growth in revenues is primarily attributable to
additional services provided to existing clients, the expansion of the Company's
client base to 209 as of December 31, 1995 from 187 as of December 31, 1994, and
the expansion of the Company's international operations. Revenues from existing
clients in 1995 increased $5.6 million over revenues from those clients during
1994. Revenues from the Company's international operations increased 77% to $4.6
million in 1995 from $2.6 million in 1994.
Gross Profit. Gross profit increased 2% to $13.8 million in 1995 from $13.5
million in 1994, despite the impact of the Fixed-Price Project on 1995 results.
Gross profit represented 21% of total revenues in 1995 as
18
<PAGE> 20
compared to 24% in 1994. Excluding the excess costs associated with the
Fixed-Price Project, gross profit margins would have remained constant from 1994
to 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8% to $11.8 million in 1995 from $10.9 million
in 1994. This increase was primarily attributable to infrastructure investments
in CBSI's offshore facilities and general overhead cost increases. As a
percentage of revenues, these expenses decreased to 18% in 1995 from 19% in
1994.
1994 COMPARED TO 1993
Revenues. The Company's revenues increased 29% to $56.4 million in 1994
from $43.8 million in 1993. This growth in revenues is primarily due to the
addition of four major projects which amounted to $7.6 million and included a
Year 2000 conversion for an automotive manufacturer, additional services
provided to existing clients and the expansion of the Company's client base to
187 as of December 31, 1994 from 152 as of December 31, 1993. Revenues from
existing clients in 1994 increased $11.0 million over revenues from those
clients during 1993. Revenues from the Company's international operations
increased 100% to $2.6 million in 1994 from $1.3 million in 1993.
Gross Profit. Gross profit increased 31% to $13.5 million in 1994 from
$10.3 million in 1993. Gross profit increased to 24% of total revenues in 1994
as compared to 23% in 1993. This increase is associated with higher gross profit
margins resulting from the Company's shift to offshore projects in India.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 30% to $10.9 million in 1994 from $8.4 million
in 1993. As a percentage of revenues, selling, general and administrative
expenses represented 19% in both 1994 and 1993.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending with the quarter ended
December 31, 1996. This information has been prepared on the same basis as the
audited consolidated financial statements contained elsewhere in this Prospectus
and includes, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
information for the periods presented. This information should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto. Results of operations for any previous fiscal quarter are not
indicative of results for the full year or any future quarter. See "Risk Factors
- -- Variability of Quarterly Operating Results."
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $16,959 $17,050 $16,487 $16,903 $19,128 $20,420 $21,951 $21,742
Cost of revenues.............. 12,746 13,882 13,245 13,736 14,284 15,518 16,737 16,763
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 4,213 3,168 3,242 3,167 4,844 4,902 5,214 4,979
Selling, general and
administrative expenses..... 3,087 3,063 2,928 2,746 3,613 3,618 3,855 4,369
------- ------- ------- ------- ------- ------- ------- -------
Income from operations........ 1,126 105 314 421 1,231 1,284 1,359 610
Interest expense.............. 140 192 205 155 141 159 146 93
Provision for income taxes.... -- -- -- -- 17 19 24 24
Minority interest............. 212 (86) (6) 132 35 78 67 (22)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 774 $ (1) $ 115 $ 134 $ 1,038 $ 1,028 $ 1,122 $ 515
======= ======= ======= ======= ======= ======= ======= =======
Pro forma incremental income
tax provision............... 102 -- 15 18 358 353 383 166
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income (loss)... $ 672 $ (1) $ 100 $ 116 $ 680 $ 675 $ 739 $ 349
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
From the Company's inception in 1985 through December 31, 1996, the Company
generally financed its working capital needs through internally generated funds,
periodically supplemented by borrowings under the Company's revolving credit
facility with a commercial bank. The Company's cash provided by operations was
$0.6 million, $1.3 million and $4.5 million for the years ended December 31,
1994, 1995 and 1996, respectively.
The principal use of cash for investing activities during the three years
ended December 31, 1996 was for the purchase of equipment, software and property
as part of the creation and enhancement of the Company's software development
centers. As of December 31, 1996, the net book value of investments in
equipment, software and property total $2.3 million in India, $1.7 million for
existing projects and $0.4 million for the client/server labs. Included in the
net $2.3 million investment in India is approximately $1.2 million of recent
investments in the Bangalore and Hyderabad facilities.
Borrowings under the revolving credit facility represented the most
significant component of cash provided by financing activities. Under an
arrangement with the Bank, the Company may borrow an amount not to exceed the
lesser of $16.0 million or 80% of trade accounts receivable less than 90 days
outstanding, with interest at the Bank's prime interest rate or a Eurodollar
rate. At December 31, 1996, the permitted borrowings under this facility were
$15.2 million. The borrowings under this facility are short-term, payable on
demand and are secured by trade accounts receivable of the Company. As of
December 31, 1996, $5.4 million was outstanding under this revolving credit
facility (the "facility"). A portion of the proceeds of this offering will be
used to repay the amount outstanding under the facility. The Company also has a
working capital facility (the "Second facility") aggregating $3.0 million with
the Bank with interest at the Bank's prime interest rate. The borrowings under
the Second facility are short-term, payable on demand and are secured by all
assets of the Company. There have been no borrowings under the Second facility.
In addition, the Company has an equipment line of credit (the "Third facility")
aggregating $2.0 million with the Bank with interest at the Bank's prime
interest rate. The borrowings under the Third facility are short term, payable
on demand and are secured by all assets of the Company. There have been no
borrowings under the Third facility. In recent years, the Company has executed
several term notes with the Bank to finance the purchase of equipment and
software. As of December 31, 1996, approximately $0.8 million was outstanding
under the notes which was repaid in January 1997.
During 1996, CBS Mauritius repurchased its stock held by an affiliated
entity for approximately $2.7 million. Concurrently therewith, CBS Mauritius
sold a 28% ownership interest to JF Electra for approximately $4.0 million, with
proceeds of approximately $3.5 million, net of transaction costs.
In 1996, Mr. Vattikuti made a capital contribution to CBSI of approximately
$1.1 million and loaned the Company approximately $0.6 million. This loan,
including interest of approximately $23,000 at 8.25% per annum, was repaid on
December 30, 1996.
The international operations of the Company accounted for 4.7%, 6.8% and
6.9% of the Company's total revenues in fiscal years 1994, 1995 and 1996,
respectively. Most of the Company's international revenues are billed in U.S.
dollars. The Company recognizes transaction gains and losses in the period of
occurrence. Foreign currency fluctuations in 1994, 1995 and 1996 did not have a
material impact on income from operations as currency fluctuations on revenue
denominated in a foreign currency were offset by currency fluctuations on
expenses denominated in a foreign currency. There were no material operating
trends or effects on liquidity as a result of fluctuations in the functional
currency due to the insignificance of the revenues and expenses denominated in
foreign currencies. In addition, all significant monetary assets and liabilities
are denominated in U.S. dollars, and therefore, the Company does not generally
use any types of derivatives to hedge against foreign currency fluctuations, nor
does it speculate in foreign currency.
Inflation did not have a material impact on the Company's revenues or
income from operations in 1994, 1995 and 1996.
20
<PAGE> 22
The Company currently anticipates that the proceeds from this offering,
together with existing sources of liquidity and cash generated from operations,
will be sufficient to satisfy its cash needs at least through the next twelve
months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" was issued in October 1995. The Company adopted the new
standard for the year ended December 31, 1996. This standard establishes the
fair value based method (the "SFAS 123 Method") rather than the intrinsic value
based method as the preferred accounting methodology for stock based
compensation arrangements. Entities are allowed to: (i) continue to use the
intrinsic value based methodology in their basic financial statements and
provide in the footnotes pro forma net income and earnings per share information
as if the SFAS 123 Method had been adopted; or (ii) adopt the SFAS 123 Method.
The Company adopted this statement by providing the required pro forma
disclosures in the footnotes. See Note 10 of Notes to Consolidated Financial
Statements.
21
<PAGE> 23
BUSINESS
SUMMARY
CBSI is a worldwide provider of IT services to large and mid-size
organizations. The Company offers its clients a broad range of IT services, from
advising clients on strategic technology plans to developing and implementing
appropriate IT solutions. CBSI offers custom-tailored solutions based on an
assessment of each client's needs. The Company's services include: (i) large
systems applications development and maintenance; (ii) reengineering legacy
applications to client/server technology; (iii) client/server applications
development; (iv) Year 2000 conversion services; (v) IT consulting services;
(vi) packaged software implementation; and (vii) contract programming services.
CBSI provides services in a wide variety of computing environments and uses
leading technologies, including client/server architectures, object-oriented
programming languages and tools, distributed database management systems and the
latest network and communications technologies. The Company believes that the
breadth of its service offerings fosters long-term client relationships, affords
cross-selling opportunities, minimizes dependence on any single technology or
client and enables the Company to serve as a single source provider for its
clients' IT applications solutions. This single or preferred provider approach
is consistent with CBSI's full life-cycle, client-oriented approach to IT
solutions.
CBSI provides IT services to clients in a diverse range of industries. Its
clients include American President Lines, Chrysler Corporation, Ford Motor
Company, IBM, ISSC/Foremost Insurance, the State of Indiana, the State of
Nevada, S.W.I.F.T., Spartan Stores and UNUM Ltd. During 1996, the Company
provided services to over 220 clients in the U.S., Europe and Asia. The
Company's strategy is to maximize its client retention rate and secure
additional engagements by providing both quality services and client
responsiveness. For each of the years 1994, 1995 and 1996, existing clients from
the previous fiscal year generated at least 80% of the Company's revenues. These
recurring revenues have contributed significantly to the Company's 29% compound
annual revenue growth rate over the past five years. As the Company has grown,
the Company has aggressively marketed CBSI-managed projects, which generally are
more profitable than client-managed projects, and the percentage of revenues
generated from CBSI-managed projects has increased each year since 1994.
Since 1992, CBSI has developed an extensive offshore infrastructure in
India, including two modern software development centers in Bangalore and Madras
and a training center in Hyderabad. The Company believes this established
offshore infrastructure is one of the largest in the industry and differentiates
it from those competitors who either have no offshore capability or depend on
subcontractor relationships to offer such services. With its offsite and
offshore development options, the Company can quickly provide clients with IT
solutions on a cost-effective basis.
The Company's goal is to become the preferred provider of IT services to an
expanding base of clients. The Company's strategy to achieve this goal is to:
(i) cross-sell services to existing clients; (ii) increase and build upon Year
2000 engagements; (iii) capitalize on significant investments in infrastructure
and capabilities; (iv) develop new and expand recently added service offerings
such as Enterprise Resource Planning ("ERP") software package installation,
Internet/intranet applications and Electronic Data Interchange ("EDI")
applications; (v) increase its international presence; and (vi) pursue targeted
acquisitions.
THE IT SERVICES INDUSTRY
Heightened competition, deregulation, globalization and rapid technological
advances are forcing organizations to make fundamental changes in their business
processes. These pressures have compelled organizations to improve the quality
of products and services, shorten time to market, reduce costs and strengthen
client relationships. Increasingly, organizations are addressing these issues by
utilizing IT solutions that facilitate the rapid and flexible collection,
analysis and dissemination of information. Accordingly, an organization's
ability to integrate and deploy new information technologies in a cost-effective
manner has become critical to competing successfully in today's rapidly changing
business environment.
22
<PAGE> 24
During this time of increasing reliance on IT, rapid technological change
is challenging the capabilities of MIS departments within these organizations.
The pace of this change quickly renders existing IT infrastructure obsolete and
makes it more difficult for organizations to maintain the requisite internal
expertise needed to evaluate, develop and integrate new technologies. As a
result, organizations are increasingly turning to third-party IT service
providers to help them develop and support complex IT systems and applications.
Due to the foregoing factors, demand for IT services has grown
significantly. According to industry sources, the worldwide market for IT
services was approximately $185 billion in 1995, and is projected to increase to
$292 billion in 2000. The worldwide market for systems integration, consulting
applications development and outsourcing services was approximately $91 billion
in 1994 according to industry sources and is estimated to grow by 16.5% annually
through 1999. The domestic IT services market is projected to grow from
approximately $75 billion in 1995 to approximately $130 billion in 2000.
The Year 2000 problem, which prevents existing applications from properly
interpreting dates after 1999, represents a significant opportunity for IT
services providers. The prevalence and interdependence of date-dependent
applications in complex control systems is expected to cause the Year 2000
problem to have a widespread impact on technology-dependent organizations.
Industry sources estimate that a Fortune 100 company will spend between $50
million and $100 million for Year 2000 services. Smaller companies will also
spend significant amounts to solve this problem. Solutions to the Year 2000
problem include: (i) renovation of existing applications with Year 2000
compliant code; (ii) replacement of existing software with Year 2000 compliant
software packages; and (iii) reengineering of legacy applications to Year 2000
compliant client/server technologies.
While the general industry trend is toward client/server architectures,
many organizations choose to maintain certain legacy mainframe systems because
such systems provide a superior solution to their specific needs or because of
the costs required to replace such systems. As university programs cease
teaching mainframe related skills and programmers cross-train away from these
areas, MIS managers are experiencing increasing difficulty finding affordable,
qualified personnel to support the vast number of legacy systems. For these
reasons, the maintenance and reengineering of legacy systems continues to
represent a substantial opportunity for IT services providers.
THE CBSI SOLUTION
The CBSI solution enables its clients to use IT as a more effective
business tool consistent with their evolving business needs. The following are
key attributes of the CBSI solution:
Provide a Broad Range of IT Services. The Company offers its clients a
broad range of IT services along the IT continuum, from development,
reengineering and maintenance of legacy systems to client/server applications
development, Internet/intranet and other emerging technologies. The Company
therefore can serve as the single source for a client's IT applications
solutions. The Company provides its services in a wide variety of computing
environments and uses technologies that include mainframe and client/server
architectures, object-oriented programming languages and tools, distributed
database management systems and network and communications technologies.
Offer Flexible Project Delivery. The Company offers its clients a choice
among any combination of the following three options for delivery of project
work: (i) onsite at the client facility; (ii) offsite at a CBSI development
facility in Michigan, California or Illinois; and (iii) offshore at CBSI
development facilities in India. These options enable the Company's clients to
determine their degree of project oversight and to control the costs and speed
of project delivery. Execution of all or part of IT projects offshore can result
in significant time and cost savings when compared to domestic delivery of such
services. CBSI has developed a formal project management methodology, CBSI
Offsite Success Management Methodology ("COSMO"), which is specifically designed
to meet the needs of offsite and offshore projects.
To meet the growing worldwide demand for offshore IT services, the Company
has invested in an extensive offshore infrastructure in India, including two ISO
9001 compliant software development centers in Madras and Bangalore. In contrast
to competitors who have no offshore capability or depend on subcontractor
23
<PAGE> 25
relationships to offer such services, the Company has established an offshore
infrastructure which it believes is one of the largest in the industry. The
Company employs over 410 professionals in these centers which have the capacity
to accommodate approximately 800 professionals. With its offsite and offshore
development options, the Company can quickly provide solutions tailored to the
IT needs of its clients.
Recruit and Train Globally. The Company has established a domestic and
international network to recruit employees of all experience levels, from recent
college graduates to seasoned IT professionals. The Company provides new
recruits with up to two months of training in software engineering techniques
and key technologies. The Company has made significant investments in two
training centers, located in Michigan and India. These centers employ full-time
instructors and are equipped with client/server and mainframe hardware, software
and development tools. These training resources provide the Company with
qualified IT professionals to service its clients' needs.
Solve Year 2000 Problem. The Company has developed a formal project
management methodology, known as The Time Machine 2000, that addresses all
aspects of the Year 2000 problem. This methodology helps assure a quality
conversion process and addresses application portfolio analysis, impact
assessment, strategic planning, conversion, testing and implementation. The
Company has developed Year 2000 conversion factories to provide cost-effective
and timely conversion solutions for its clients. The conversion factories,
located at both CBSI's U.S. and Indian headquarters, employ professionals who
have been specifically trained to meet the particular demands of Year 2000
engagements. CBSI has already successfully completed all phases of Year 2000
projects for a division of Chrysler Corporation and for ISSC/Foremost Insurance
and is currently working on eleven additional Year 2000 projects.
CBSI GROWTH STRATEGIES
The Company's goal is to become the preferred provider of IT services to an
expanding base of clients. The Company's strategy to achieve this goal includes
the following elements:
Cross-Sell Services to Existing Clients. The Company believes it will grow
by continuing to establish and maintain long-term client relationships. The
access and goodwill offered by these relationships provide the Company with
significant advantages over its competitors in marketing additional services and
solutions to such clients. The Company also believes its long-term client
relationships and ability to address its clients' needs along the IT continuum
distinguish the Company from many of its competitors. During 1996, the Company
provided services to over 220 clients in the U.S., Europe and Asia. The
Company's strategy is to maximize its client retention rate and secure
additional engagements by providing quality services and client responsiveness.
For each of the years 1994, 1995 and 1996, existing clients from the previous
fiscal year generated at least 80% of the Company's revenues.
Increase and Build Upon Year 2000 Engagements. The Company is actively
marketing its Year 2000 conversion capabilities to existing and new clients.
CBSI anticipates that Year 2000 conversion services will represent an increasing
percentage of its revenues for the next few years. The Company performs a
detailed analysis of clients' existing IT systems and applications in connection
with these services. The Company's strategy is to leverage its knowledge of
clients' IT systems obtained during Year 2000 projects into additional
engagements involving other services, including maintenance of existing systems
and reenginering to client/server technology.
Capitalize on Significant Investments in Infrastructure and
Capabilities. The Company has made significant investments in its offsite and
offshore infrastructures as well as its systems, methodologies and training
programs. These investments include two client/server labs, three U.S. software
development centers, two offshore software development centers, two training
centers and dedicated, high-speed satellite communication links. The Company
believes that these investments can support a larger organization.
Expand Service Offerings. The Company evaluates emerging technologies as a
source of additional service offerings for its existing and prospective clients.
For example, the Company recently added new service offerings including
Internet/intranet, Year 2000 and implementation of ERP software packages such as
24
<PAGE> 26
ORACLE, PEOPLESOFT and SAP. The Company anticipates that its broad and expanding
range of services will minimize its dependence on any single technology.
Increase International Presence. The Company opened offices in the United
Kingdom in 1990; in Madras, India in 1992; in Bangalore, India in 1995; and in
Hyderabad, India in 1996. The international operations of the Company accounted
for 4.7%, 6.8% and 6.9% of the Company's total revenues in fiscal years 1994,
1995 and 1996, respectively. The Company plans to enhance its international
presence by expanding existing sales forces based in India and the U.K. and
opening new sales offices in Singapore and Continental Europe. The Company
believes that these regions represent significant potential markets for the
Company's services.
Pursue Targeted Acquisitions. CBSI seeks acquisitions that complement its
core skills and that have the potential to increase the overall value of the
Company, rather than merely increase its sales revenues. Examples of such
companies would include those with specific industry or technical skills that
fit well with the Company's existing and targeted client base.
25
<PAGE> 27
CBSI SERVICES
The Company offers its clients a broad range of IT services, from advising
clients on strategic technology plans to developing and implementing appropriate
IT solutions. The Company provides services in the following categories:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CBSI SERVICES DESCRIPTION
- ---------------------------------------------------- -------------------------------------------------------
<S> <C>
Large Systems Applications Development, - Design large-scale, complex solutions capable of
Reengineering and Maintenance managing transaction-intensive applications
- Develop and maintain applications using COBOL,
CICS, DB2 and other mainframe programming
environments
- -----------------------------------------------------------------------------------------------------------------
Reengineer Legacy Applications to Client/Server - Reengineer from centralized, mainframe-based
Technology systems to open, distributed architecture
- Preserve core application logic
- Reengineer existing legacy systems into
mainframe-based super server in multi-tiered,
distributed architecture
- -----------------------------------------------------------------------------------------------------------------
Client/Server Applications Development - Conceptualize and design systems based on
distributed object-oriented technologies and
methodologies such as BOOCH and RAMBAUGH
- Develop applications using SYBASE, SQL Server,
ORACLE, INFORMIX, Access databases; Visual
Basic, Powerbuilder, C++ as graphical user
interfaces; and UNIX, OS/2 and Windows NT
operating systems
- -----------------------------------------------------------------------------------------------------------------
Year 2000 Conversion Services - Conduct impact assessments and assist clients
with strategic planning for Year 2000 compliance
- Renovate existing applications to make them Year
2000 compliant
- Replace existing software with Year 2000
compliant software packages
- Reengineer legacy applications to Year 2000
compliant client/server technology
- -----------------------------------------------------------------------------------------------------------------
Packaged Software Implementation - Implement packaged software solutions
(PEOPLESOFT, ORACLE, SAP, WALKER)
- Customize software packages to client
specifications
- Provide user group training
- -----------------------------------------------------------------------------------------------------------------
IT Consulting Services - Provide technical architecture and network
design, information technology planning, data
warehousing and business process reengineering
consulting services
- Conceptualize and design Internet and intranet
solutions using Java/Java Script/Java applets
and HTML
- -----------------------------------------------------------------------------------------------------------------
Contract Programming Services - Develop software applications (client/server and
mainframe)
- Reengineer software applications across
platforms
- Maintain and enhance software applications
(client/server and mainframe)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company uses both industry-proven and proprietary methodologies to
enhance the quality, consistency and efficiency of its CBSI-managed projects.
All levels of the Company's IT consultants, from entry-level programmers to
project managers, are given formal instruction in various aspects of these
26
<PAGE> 28
methodologies. A methodology used by the Company is METHOD/1, which the Company
licenses from Andersen Consulting. CBSI has extended METHOD/1 to incorporate the
Company's Time Machine 2000 and COSMO methodologies. These three methodologies
enable CBSI to provide applications development in a controlled manner with
repeatable and proven processes. Quality assurance is handled by a common
centralized unit. A team of quality specialists performs project quality reviews
and inspections, maintains the Company's project management methodologies and
assists project managers in estimating costs and executing projects.
SOFTWARE PRODUCTS
The Company's primary software product offering is the Advanced Program for
Educational Computer Solutions ("APECS") software which is licensed by 70
different users. Clients use APECS to manage the business and student records of
educational institutions for K-12 school districts and for higher education. The
Company provides periodic enhancements to the product and maintenance to the
users. APECS systems are installed at major sites throughout the United States.
Among the current users are Allentown High School District, Pennsylvania;
University of Detroit Mercy, Michigan; Martin County Schools, Florida; and
Monroe Community College, Michigan. The Company is currently reengineering this
system to a client/server environment. The Company maintains this product at its
Madras, India and Lombard, Illinois facilities.
SALES AND MARKETING
The majority of new sales are generated by the Company's business units,
each of which focuses on clients within a geographic area or industry group. The
manager of each business unit is compensated based on the financial performance
of the unit and other contributions to the Company. The business unit manager is
responsible for managing client relationships, ensuring the delivery team is
performing as expected and identifying new business opportunities. This
structure fosters an entrepreneurial atmosphere within each business unit.
Because of the relationships the business unit managers maintain with their
clients, these managers are positioned to identify opportunities to cross-sell
the Company's services. Such relationships also result in a significant number
of client referrals.
The Company also uses telemarketers to establish initial client contact and
prequalify potential new clients. Qualified prospective clients are referred to
the Company's dedicated sales group, whose backgrounds include both technical
and sales experience. This sales group is responsible for identifying clients'
needs and promoting the Company's services to potential clients. Once potential
clients are further qualified by the sales group, the Company assembles a team
consisting of sales group members, the appropriate business unit manager and a
project delivery manager. This team makes the client sales call and is
ultimately responsible for closing the sale.
In addition to its sales group, the Company has a dedicated marketing
department which works in conjunction with an outside public relations firm. The
marketing department is responsible for coordination of all corporate
communications, including the scheduling of press conferences to promote the
Company's services and delivery methodologies.
CLIENTS
The Company's largest client, International Business Machines and its
affiliates ("IBM"), accounted for 29%, 19% and 12% of the Company's total
revenues for the years ended December 31, 1994, 1995 and 1996, respectively. The
IT services provided to IBM were divided among several divisions and
subsidiaries. No other client accounted for more than 10% of the Company's
revenues for the same period. During 1996, the Company provided services to over
220 clients in the U.S., Europe and Asia. The Company's strategy is to maximize
its client retention rate and secure additional engagements by providing quality
services and client responsiveness.
27
<PAGE> 29
Organizations to which the Company provided services in 1996 include:
<TABLE>
<CAPTION>
YEAR OF
FIRST
CLIENT ENGAGEMENT
<S> <C>
Manufacturing:
Chrysler Corporation......... 1985
Ford Motor................... 1989
Johnson Controls............. 1994
Retail Distribution:
Spartan Stores............... 1992
The Gap...................... 1993
Handleman Company............ 1995
Public Sector:
State of Michigan............ 1988
State of Indiana............. 1992
State of Nevada.............. 1992
Transportation:
American President Lines..... 1990
</TABLE>
<TABLE>
<CAPTION>
YEAR OF
FIRST
CLIENT ENGAGEMENT
<S> <C>
Financial Services:
S.W.I.F.T.................... 1985
Harris Bank.................. 1993
Bank of America.............. 1995
Insurance:
UNUM Ltd. ................... 1995
ISSC/Foremost Insurance...... 1996
Technology:
Tandem Computers............. 1989
IBM Corporation.............. 1989
Union Pacific Technology..... 1992
Utilities:
Michigan Consolidated Gas
Co........................ 1992
Southern California Edison... 1994
</TABLE>
REPRESENTATIVE ENGAGEMENTS
Examples of the Company's engagements, which are representative of the
nature of CBSI services and client relationships, are set forth below:
CLIENT/SERVER-BASED APPLICATIONS DEVELOPMENT/END-TO-END YEAR 2000 CONVERSION
PROJECT (OFFSITE/ONSITE)
Problem. A division of a manufacturer required software enhancements
in order to properly process expanded part number codes and dates beyond
the year 1999.
Solution. The Company provided impact assessment, strategic planning,
coding, testing and implementation of the required software enhancements.
Year 2000 modifications were carried out in accordance with the Company's
Time Machine 2000 methodology. The project environment included IMS/DB,
DB2, CICS, IMS/DC and COBOL on an IBM mainframe. The majority of work was
completed offsite at one of the Company's U.S. software development
centers. At its peak, 75 Company IT professionals were assigned to this
project, which was completed in nine months.
LARGE-SCALE APPLICATIONS DEVELOPMENT IN CLIENT/SERVER TECHNOLOGY (OFFSITE)
Problem. A manufacturing company required IT systems which would tie
production volume to international sales forecasts, thereby eliminating
undesired inventory build-up.
Solution. The Company provided a team of project managers,
client/server architects and software developers to design, code, test and
implement a forecasting tool using C++, Powerbuilder, APOL, ENTERA and
SYBASE. Software design was carried out using object-oriented
methodologies, Erwin for database design and Rational Rose for data
modeling. At its peak, the project team consisted of 30 Company IT
professionals. Two versions of the forecasting tool have already been
delivered, and the Company is currently developing an enhanced version. The
project, which is being conducted offsite, has an expected duration of two
years.
REENGINEERING LEGACY APPLICATIONS TO CLIENT/SERVER TECHNOLOGY
(ONSITE/OFFSHORE)
Problem. An insurance company wanted to replace existing
mainframe-based applications with client/server-based applications in order
to reduce software maintenance costs.
28
<PAGE> 30
Solution. The Company has partnered with this client to redesign its
existing systems in a client/server environment under OS/2, SYBASE, and SQL
Server as RDBMS using NS-DK as the graphical user interface ("GUI") and C
as the development language. Using a combination of onsite and offshore
project teams, the Company is responsible for requirements analysis, as
well as for designing, coding, testing and implementing systems.
LARGE SYSTEMS APPLICATIONS MAINTENANCE (ONSITE/OFFSHORE)
Problem. A financial services organization wanted to outsource
maintenance of a software application in order to reduce costs and
re-deploy its internal IT professionals on new projects.
Solution. The Company is executing the project both onsite at the
client's facilities and offshore at CBSI's Bangalore, India facility. The
client uses the Company as the "center of expertise" with respect to the
application. A team of 15 Company IT professionals has been assigned to
this project for two years. The project environment includes VAX/VMS, Open
VMS, DOS, UNIX, Novell Netware, PROIV, ANSI C and Pascal.
REENGINEERING LEGACY APPLICATIONS TO CLIENT/SERVER TECHNOLOGY (ONSITE)
Problem. A grocery wholesaler wanted to reengineer all of its business
applications, including Year 2000 conversion.
Solution. The Company provided the client with the necessary technical
expertise onsite to redesign, program, test and implement all of its core
software applications. The Company has deployed a project team of 30 IT
professionals, which is expected to grow to 60 IT professionals once the
Year 2000 conversion commences. The Company has executed strategic studies
through joint application development ("JAD") sessions, business process
reengineering and phased design, development and implementation. Some of
the client's systems are being reengineered to a client/server platform
under a UNIX operating system, using INFORMIX as the database and Visual
Basic as the graphical user interface. Mainframe applications to undergo
Year 2000 conversion will include systems running under DB2, ADABAS,
NATURAL and COBOL.
HUMAN RESOURCES
The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. The Company's
strategy for achieving "career-based employment" includes career planning,
thorough initial and ongoing training, allocation of assignments in accordance
with employee skills and career objectives and a comprehensive benefits package
including a Company-matched 401(k) plan, health and dental insurance, short-term
disability insurance, a flexible spending account and tuition reimbursement.
Following this offering, the Company intends to increase the use of employee
stock options as part of its recruitment and retention strategy.
The Company has 28 full-time employees dedicated to recruiting IT
professionals and managing its human resources. The Company's recruiting
activities draw on an international pool of IT talent. The Company has full-time
personnel dedicated to handling visa application and compliance issues for
international recruits. CBSI actively recruits in the United States, India,
England, Australia, New Zealand, the Philippines, Mexico and Singapore.
Recruiting methods include advertisement in leading newspapers, trade magazines,
the Company's web site and participation in career fairs. The Company also
participates in on-campus recruiting for recent college graduates and has hired
employees from various schools, including the University of Michigan, Michigan
State University, Ohio State University, the University of Notre Dame, Albion
College, Loyola College, Indiana University, the University of California and
the University of Illinois. During the past two years, the Company has hired 120
recent U.S. college graduates. In addition, the Company's employees are actively
involved in referring individuals and screening candidates for new positions.
The Company has established two training centers located in Michigan and
India. These training centers employ full-time instructors and are equipped with
client/server and mainframe hardware, software and
29
<PAGE> 31
development tools. New college graduates receive two months of full-time
classroom instruction in mainframe (IMS, DB2, CICS, COBOL) or client/server
(UNIX, C, C++, OS/2 Presentation Manager) skills. This training is followed by
one month of self-study. Employees receive full salary and benefits during this
training period. Between projects and after business hours, all IT professionals
receive ongoing training on a variety of technology platforms. The Company's
education and training department helps employees make the transition from
legacy to client/server skills by providing cross-platform training in new
technologies. In addition to comprehensive technical training, the Company
provides extensive training in quality processes and cross-cultural
communication skills.
As part of its retention efforts, the Company has formulated a strategy for
minimizing turnover which emphasizes: (i) human resource management; (ii)
contractual limitations effective upon termination of employment; (iii)
competitive salaries; (iv) comprehensive benefits; and (v) employee stock
options.
CBSI's IT professionals typically have Bachelor's or Master's degrees in
Computer Science or another technical discipline. As of December 31, 1996, the
Company had 1,431 employees comprised of 1,272 IT professionals, 27 sales and
marketing personnel and 132 general and administrative personnel. As of December
31, 1996, the Company also had 75 independent contractors working on client
engagements.
COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
from a variety of market segments, including "Big Six" accounting firms, and
implementation firms, applications software firms, service groups of computer
equipment companies, general management consulting firms, programming companies
and temporary staffing firms. The Company believes that the principal
competitive factors in the IT services industry include the range of services
offered, technical expertise, responsiveness to client needs, speed in
delivering IT solutions, quality of service and perceived value. Based on the
Company's experience in competitive situations, the Company believes that it
competes favorably with respect to these factors. See "Risk Factors --
Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. In addition, the
laws of certain foreign countries in which the Company's products are, or may
be, developed or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the U.S. This lack of
protection may impair the Company's ability to protect its intellectual property
adequately and could have a material adverse impact on the Company's business.
The Company has developed and owns the proprietary rights for The Time
Machine 2000 and COSMO methodologies; however, the copyrights to such
methodologies have not been registered. In addition, the Company owns service
marks for The Time Machine 2000 and COSMO and has submitted federal trademark
applications for each.
Software developed by the Company in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may retain
ownership, or obtain a license from its client, which permits CBSI or a third
party to market the software for the joint benefit of the client and CBSI or for
the sole benefit of CBSI. The Company has also developed and copyrighted or
acquired software products which are generally licensed to users pursuant to a
license agreement. The Company's software products include APECS, APECS Custom
View and Micro APECS Scheduler. APECS is a registered trademark of the Company.
30
<PAGE> 32
FACILITIES
The Company leases approximately 42,000 square feet of office space in
Farmington Hills, Michigan which serves as its headquarters. The Company's
senior management, administrative personnel, human resources and sales and
marketing functions are housed in this facility. This lease expires on June 15,
2003. The Company also leases facilities in Lombard, Illinois and Milpitas,
California.
In addition, the Company has offshore offices. The Company leases
approximately 24,530 square feet of office space in Madras, India which serves
as its headquarters in India. This lease expired on January 13, 1997. The
Company intends to execute a new lease for a term of five years with an option
to renew at the end of such term. The Company owns a facility totaling
approximately 6,375 square feet in Bangalore, India. The Company also leases
facilities in the United Kingdom and Bangalore and Hyderabad, India.
The Company believes that these facilities are adequate for its anticipated
future needs.
LITIGATION
The Company is not a party to any litigation that is expected to have a
material adverse effect on the Company or its business.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors and their respective ages
and positions as of February 4, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Rajendra B. Vattikuti............. 45 President, Chief Executive Officer and Director
Timothy S. Manney................. 38 Executive Vice President of Finance and Administration,
Treasurer and Director
Daniel S. Rankin.................. 42 Vice President of Technical Services
Nanjappa S. Venugopal............. 44 Director of Human Resources
Douglas S. Land................... 39 Director
Frank D. Stella................... 77 Director
</TABLE>
Rajendra B. Vattikuti, the founder of the Company, has served as President
and Chief Executive Officer and as a Director since the Company's formation in
February 1985. From 1983 to 1985, Mr. Vattikuti was Director of M.I.S. for
Yurika Foods Corporation. From 1977 to 1983, Mr. Vattikuti was a M.I.S. Project
Leader for Chrysler Corporation. Mr. Vattikuti holds a Bachelor of Science
degree in Electrical Engineering from the College of Engineering, Guindy (India)
and a Master of Science degree in Electrical and Computer Engineering from Wayne
State University.
Timothy S. Manney has served as Executive Vice President of Finance and
Administration and Treasurer and as a Director since November 1993. From
February 1990 to November 1993, Mr. Manney held various positions with the
Company, most recently as Chief Financial Officer. From 1980 until 1990, Mr.
Manney was an Audit Manager at Arthur Andersen LLP. He is a member of the
Michigan Association of Certified Public Accountants. Mr. Manney holds a
Bachelor of Business Administration degree from the University of Michigan.
Daniel S. Rankin has served as Vice President of Technical Services since
September 1994. From September 1990 to September 1994, Mr. Rankin served as
Director of Insurance Services for Medstat, Inc. From July 1989 to September
1990, Mr. Rankin held the position of Vice President of Turnkey Systems for the
Company. From May 1978 to July 1989, Mr. Rankin served in various positions at
Andersen Consulting, during which time he managed several large, multi-year
systems-development projects in a variety of computer hardware and software
environments. Mr. Rankin holds a Bachelor of Business Administration degree and
Master of Business Administration degree from the University of Michigan.
Nanjappa S. Venugopal has served as Director of Human Resources since
October 1996. Mr. Venugopal also served as the business unit manager for the
manufacturing sector of the Company from September 1991 to September 1996. From
December 1975 to August 1991, he held several technical and managerial positions
at Tata Consultancy Services in the U.S., Asia and Europe. From October 1988 to
August 1991, Mr. Venugopal was regional manager of Tata's New York office. Mr.
Venugopal holds a Bachelor of Mechanical Engineering degree from Bangalore
University and a Master of Aeronautical Engineering degree from the Indian
Institute of Technology.
Douglas S. Land has served as a Director since November 1993 and an advisor
to the Company since 1988. Mr. Land is the founder and President of Economic
Analysis Group, Ltd., a Washington D.C.-based consulting firm that has been
providing financial and economic consulting services since 1983. Mr. Land is
also the President and founder of The Chesapeake Group, a financial advisory
firm that has been providing consulting to start-up and middle-market firms
since 1985. From January 1992 to February 1993, Mr. Land was an Executive Vice
President of Hambro Resource Development Incorporated, an affiliate of Hambros
Bank London, which provides investment and merchant banking services. Mr. Land
holds a Bachelor of Science degree in Economics, a Master of Business
Administration degree in Finance and a Master of Arts degree in International
Relations from the University of Pennsylvania.
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<PAGE> 34
Frank D. Stella has served as a Director since November 1993. Mr. Stella
has served as President of F.D. Stella Products Company, a food service and
dining equipment company, since 1946. Mr. Stella was appointed to the Commission
for White House Fellows by President Ronald W. Reagan in 1983 and has served as
Chairman of the Income Tax Board of Review, City of Detroit, since 1965. Mr.
Stella is also a board member of VFS, Inc., an insurance holding company, and a
former board member of the Federal Home Loan Bank of Indianapolis. He is also on
the boards of several medical and charitable organizations. Mr. Stella holds a
degree from the College of Commerce and Finance at the University of Detroit.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. The Company's Board of Directors is divided into three
classes. The Board of Directors currently consists of four members. Upon
completion of this offering, the Board of Directors will be increased from four
to seven members. The Board is divided into three classes, whose members serve
for staggered three year terms. Rajendra Vattikuti and Timothy Manney are Class
I Directors and will serve an initial one-year term. Douglas Land and Frank
Stella are Class II Directors and will serve an initial two-year term. The three
vacancies for the Class III Directors will be filled by appointment by the
current Board of Directors and the appointees will serve an initial three-year
term. At each annual meeting of shareholders after this offering, the
appropriate number of directors will be elected for a three-year term to succeed
the directors of the same class whose terms are then expiring. There are no
family relationships between any director or executive officer of the Company.
BOARD COMMITTEES
The Audit Committee is responsible for reviewing with management the
financial controls, accounting, audit and reporting activities of the Company.
The Audit Committee reviews the qualifications of the Company's independent
auditors, makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the scope, fees and results of any
audit and reviews non-audit services provided by the independent auditors. The
members of the Audit Committee are Frank Stella and Douglas Land. All members of
the Audit Committee are independent directors.
The Compensation Committee is responsible for the administration of all
salary and incentive compensation plans for the officers and key employees of
the Company, including bonuses. The Compensation Committee also administers the
Company's 1996 Plan (as hereinafter defined). The members of the Compensation
Committee are Frank Stella and Douglas Land. All members of the Compensation
Committee are independent directors.
DIRECTOR COMPENSATION
During 1996, Mr. Land and Mr. Stella were each paid $24,000 for their
services provided as directors. During 1996, Mr. Stella was granted a
non-incentive stock option to acquire 8,913 shares of Common Stock at an
exercise price of $8.41 per share. All directors are reimbursed for travel
expenses incurred in connection with attending board and committee meetings.
Directors are not entitled to additional fees for serving on committees of the
Board of Directors. After the effective date of this offering, the Company shall
issue options each year to purchase up to 10,000 shares of Common Stock, as a
formula grant, to directors who are not executive officers of the Company.
33
<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and each of the other executive
officers whose salary and bonus compensation for the fiscal year ended December
31, 1996 exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS(#) COMPENSATION(3)
<S> <C> <C> <C> <C> <C>
Rajendra B. Vattikuti.................. $411,000 $288,000 $20,697(1) -- $3,800
President and Chief Executive Officer
Timothy S. Manney...................... 150,000 50,000 5,000(2) -- 3,800
Executive Vice President of
Finance and Administration, Treasurer
Daniel S. Rankin....................... 160,000 35,000 5,000(2) -- 3,800
Vice President of Technical Services
Nanjappa S. Venugopal.................. 100,000 35,000 -- 29,711 3,240
Director of Human Resources
Roy Ely................................ 160,621 -- -- -- --
Executive Vice President of Sales(4)
Jennifer Grey.......................... 102,102 -- -- -- 2,450
Director of Operations(4)
</TABLE>
- -------------------------
(1) Includes $11,000 representing the imputed value of certain health and life
insurance benefits provided by the Company to Mr. Vattikuti and $9,697
representing the personal use of corporate cars. Does not include benefits
from certain non-interest bearing loans outstanding during 1996. See
"Certain Transactions."
(2) Represents the imputed value of certain health and life insurance benefits
provided by the Company.
(3) Represents amount of contribution by the Company on behalf of such
individual to the Company's 401(k) Plan.
(4) No longer an employee of the Company.
The following table sets forth certain information with respect to the
grant of incentive stock options by the Company during 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
----------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTION EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PRICE(2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Nanjappa S. Venugopal(3)....... 29,711 10% $8.41 9/12/06 $157,142 $398,228
</TABLE>
- -------------------------
(1) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Assumed stock price appreciation of 5% and
10% is based on the fair value at the time of grant.
(2) The exercise price equals the fair market value of the Common Stock as of
the grant date as determined by the Board of Directors, based upon a
contemporaneous independent appraisal.
(3) Mr. Venugopal's options are exercisable in three equal annual installments
commencing on September 12, 1997.
34
<PAGE> 36
The following table sets forth certain information with respect to the
stock options held at December 31, 1996 by the Named Executive Officers below
who held options during 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END(#) AT YEAR END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Timothy S. Manney............ 267,402 $2,617,865 -- -- $-- $ --
Daniel S. Rankin............. -- -- -- 148,557 -- 1,454,797
Nanjappa S. Venugopal........ -- -- -- 29,711 -- 165,957
</TABLE>
- -------------------------
(1) Calculated based on the assumed initial public offering price of $14.00 per
share, less the exercise price payable for such shares.
EMPLOYEE BENEFIT PLANS
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") provides for the granting of incentive stock options to employees within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
for the granting to employees, directors and consultants of nonstatutory stock
options. The 1996 Plan was adopted by the Board of Directors on July 10, 1996
and approved by the sole shareholder on September 10, 1996. Unless terminated
sooner, the 1996 Plan will terminate automatically on December 31, 2006. The
Board of Directors has the authority to amend, suspend or terminate the 1996
Plan, subject to any required shareholder approval under applicable law.
Notwithstanding the foregoing, no amendment, suspension or termination of the
1996 Plan, without the consent of the holder of a previously granted option, may
adversely affect such holder's right under such option.
A total of 1,623,727 shares of Common Stock are authorized for issuance
pursuant to the 1996 Plan. As of December 31, 1996, options to purchase 460,824
shares were outstanding, and 657,810 shares remained available for future grant
under the 1996 Plan.
The 1996 Plan may be administered by the Board of Directors or a committee
of the Board of Directors (in either case, the "Committee") consisting of two or
more members of the Board of Directors. The Committee has the power to determine
the terms of the options granted, including the exercise price, the number of
shares subject to the option and the exercisability thereof, and the form of
consideration payable upon exercise. Options granted under the 1996 Plan are not
generally transferable by the optionee, and each option is exercisable during
the lifetime of the optionee only by such optionee. Incentive stock options
granted under the 1996 Plan must be exercised within three months of such
optionee's termination by death or within twelve months of such optionee's
termination by disability, but in no event later than the expiration of the
option's term. The exercise price of all incentive stock options granted under
the 1996 Plan must be at least equal to the greater of the par value or the fair
market value of the Common Stock on the date of grant. With respect to any
employee who owns stock possessing more than 10% of the voting power of all
classes of the Company's outstanding capital stock, the exercise price of any
incentive stock option granted to such employee must equal or exceed 110% of the
fair market value of the Common Stock on the grant date and the term of the
option must not exceed five years. The aggregate fair market value of the Common
Stock (determined at the time the option is granted) with respect to which
incentive stock options granted to an individual first become exercisable in any
calendar year shall not exceed $100,000. The term of all options (other than the
incentive stock options referred to in the second preceding sentence) may not
exceed ten years.
The 1996 Plan provides that in the event of a merger, consolidation or sale
or transfer by the Company of substantially all its assets, the date of
termination of any outstanding options and the date on or after which such
options, or any portion of such options not then exercisable may be exercised,
shall be advanced to a date fixed by the Committee which date shall be no more
than 15 days prior to the date of such merger, consolidation, sale or transfer.
35
<PAGE> 37
The Company has agreed to indemnify certain holders of the options against
certain liabilities resulting from the holders' involvement with the Company.
401(k) Plan. The Company maintains a 401(k) profit sharing and defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and who have completed one year of employment are
eligible to participate in the 401(k) Plan, pursuant to which each participant
may contribute up to 18% of eligible compensation (up to a statutorily
prescribed annual limit of $9,500 in 1996). The Company matches 40% of the
contributions made by employees to the 401(k) Plan (up to 6% of eligible
compensation). All amounts contributed by employee participants and earnings on
these contributions are fully vested at all times. Employee participants may
elect to invest their contributions in various established funds.
EMPLOYMENT AGREEMENTS
In December 1996, the Company entered into an agreement with Rajendra B.
Vattikuti that will become effective concurrently with this offering, which
provides for his employment as President and Chief Executive Officer for an
initial term ending on December 31, 2001. Effective January 1, 1998, the term is
automatically extended for an additional year, unless before such date either
party shall notify the other of its refusal to extend the term, so that the term
of this agreement upon such renewal is always five years. The agreement provides
for an annual base salary of $350,000, a bonus in an amount not to exceed the
base annual salary, to be determined by the Compensation Committee, and benefits
under the Company's benefit plans. Special death and disability benefits also
are included. The agreement also provides, among other things, that, if Mr.
Vattikuti's employment is terminated by the Company with or without cause for
any reason other than willful misconduct, or by Mr. Vattikuti under certain
conditions (including a change in control as defined in the agreement), the
Company will pay to him an amount equal to 2.99 times his annual base salary and
bonus in effect immediately prior to such termination. If the Company terminates
Mr. Vattikuti's employment for any reason other than willful misconduct, the
Company is obligated to provide certain benefits to Mr. Vattikuti over a period
of time. The agreement contains a restrictive covenant that prohibits Mr.
Vattikuti from competing anywhere in the world with the Company's business
during any period in which he receives compensation and for one year after the
cessation of such compensation.
In December 1996, the Company entered into an agreement with Timothy Manney
which provides for his employment as Executive Vice President of Finance and
Administration for an initial term ending on December 31, 1999. Effective
January 1, 1998, the term is automatically extended for an additional year,
unless before such date either party shall notify the other of its refusal to
extend the term, so that the term of this agreement upon such renewal is always
five years. The agreement provides for an annual base salary of not less than
$180,000, a bonus in an amount not to exceed 60% of his base annual salary, to
be determined by the Compensation Committee, and benefits under the Company's
benefit plans. Special death and disability benefits also are included. The
agreement also provides, among other things, that, if Mr. Manney's employment is
terminated by the Company without cause, or by Mr. Manney under certain
conditions (including a change in control as defined in the agreement), the
Company will pay to him an amount equal to 2.5 times his base salary in effect
immediately prior to such termination and the greater of his most recent bonus
or the bonus received immediately prior to his most recent annual bonus. The
agreement contains a restrictive covenant that prohibits Mr. Manney from
competing anywhere in the world with the Company's business during any period in
which he receives compensation and for one year after the cessation of such
compensation.
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<PAGE> 38
CERTAIN TRANSACTIONS
Pursuant to an Agreement (the "Acquisition Agreement") among the Company,
JF Electra, CBS Mauritius and Rajendra Vattikuti, on July 19, 1996, JF Electra
acquired a 28% interest in CBS Mauritius for approximately $4.0 million. CBS
Mauritius concurrently redeemed, for a purchase price of approximately $2.7
million, all of the shares of CBS Mauritius then owned by the Indian Investment
Trust, a revocable grantor trust of which Padmaja Vattikuti, Rajendra
Vattikuti's wife, was the grantor and trustee. Also concurrently, Mr. Vattikuti
made a capital contribution to CBSI of approximately $1.1 million and loaned the
Company approximately $0.6 million. This loan, including interest of
approximately $23,000 at 8.25% per annum, was repaid on December 30, 1996.
In connection with the investment by JF Electra, the parties to the
Acquisition Agreement and CBS India entered into a Shareholders Agreement (the
"Shareholders Agreement") which gives JF Electra the right, under certain
conditions, to convert its shares of CBS Mauritius into 552,632 shares of Common
Stock. JF Electra has elected to convert all of its CBS Mauritius shares into
Common Stock and to sell a portion of such shares in this offering. The
Shareholders Agreement will terminate upon the completion of the stock
conversion. See "Principal and Selling Shareholders."
The Company entered into two note arrangements aggregating $660,000 with
Mr. Vattikuti with a weighted average interest rate of approximately 6%. The
amount outstanding on these notes was approximately $574,000 as of December 31,
1994. These notes were repaid during 1995.
During 1994 and 1995, the Company made non-interest bearing advances
totaling approximately $87,000 and approximately $177,000, respectively to Mr.
Vattikuti for his personal use. The outstanding advances were repaid in full in
1995. In 1996, the Company made non-interest bearing advances totaling
approximately $46,000 to Mr. Vattikuti for his personal use. The outstanding
advances were repaid by Mr. Vattikuti on December 30, 1996. In addition, during
1996 CBSI made personal loans in the aggregate amount of approximately $100,000
to Vanaja Gangavarapu. Ms. Gangavarapu is the mother-in-law of Mr. Vattikuti.
These loans are short-term, payable on demand and non-interest bearing.
On December 30, 1996, Timothy Manney exercised his stock options and the
Company issued an aggregate of 267,402 shares of Common Stock for an aggregate
purchase price of $1,125,000 to Mr. Manney. Pursuant to the terms of the
Nonqualified Stock Option Agreement between Mr. Manney and the Company, the
Company loaned Mr. Manney $1,125,000 to purchase the shares. The promissory note
executed by Mr. Manney provides that the loan matures on April 25, 2006 and
bears interest at the rate of 8.25% per annum. Interest on the loan is payable
on January 1 and July 1 of each year. Interest payments are not required to be
made until Mr. Manney's shares have been registered under the Securities Act.
On December 30, 1996, Douglas Land exercised his stock options and the
Company issued an aggregate of 237,691 shares of Common Stock for an aggregate
purchase price of $1,000,000 to Mr. Land. Pursuant to the terms of the
Nonqualified Stock Option Agreement between Mr. Land and the Company, the
Company loaned Mr. Land $1,000,000 to purchase the shares. The promissory note
executed by Mr. Land provides that the loan matures on April 25, 2006 and bears
interest at the rate of 8.25% per annum. Interest on the loan is payable on
January 1 and July 1 of each year. Interest payments are not required to be made
until Mr. Land's shares have been registered under the Securities Act.
In 1994, 1995 and 1996, Douglas Land and certain entities affiliated with
Mr. Land, earned collectively approximately $226,000, $96,000, and $244,000,
respectively, for serving as a Director and providing consulting services to the
Company.
During 1995 and 1996, CBSI provided consulting services to Little Caesars
Enterprises, of which one of the former directors of the Company is a principal
shareholder. For services rendered, the Company earned approximately $111,000 in
1995 and $216,000 in 1996.
37
<PAGE> 39
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 4, 1997, and as adjusted
to reflect the sale of the shares offered hereby, by: (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each of the Named Executive
Officers; and (iv) by all executive officers and directors as a group. Except as
noted, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO OFFERING NUMBER AFTER OFFERING(1)
-------------------- OF SHARES --------------------
NUMBER OF BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Rajendra B. Vattikuti(2)....................... 5,942,275 92.2% 400,000 5,542,275 55.4%
JF Electra (Mauritius) Limited(3).............. 552,632 7.9% 200,000 352,632 3.5%
Timothy S. Manney.............................. 267,402 4.1% 60,000 207,402 2.1%
Douglas S. Land(4)............................. 223,430 3.5% 40,000 183,430 1.8%
Daniel S. Rankin(5)............................ 74,279 1.1% -- 74,279 *
Frank D. Stella(6)............................. 4,952 * -- 4,952 *
Nanjappa S. Venugopal.......................... -- -- -- -- --
Roy Ely........................................ -- -- -- -- --
Jennifer Grey.................................. -- -- -- -- --
All directors and executive officers as a group
(8 persons).................................. 6,512,338 99.8% 500,000 6,012,338 59.7%
</TABLE>
- -------------------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 555,000 shares of Common Stock from the following
Selling Shareholders: Rajendra Vattikuti - 435,000; JF Electra - 50,000;
Timothy Manney - 30,000; and Douglas Land - 40,000.
(2) The address of Mr. Vattikuti is c/o Complete Business Solutions, Inc., 32605
West Twelve Mile Road, Suite #250, Farmington Hills, Michigan 48334.
(3) The address of JF Electra is 4/F Les Cascades Building, Edith Cavell Street,
Port Louis, Mauritius. Represents shares to be received by JF Electra upon
conversion of its shares of stock in CBS Mauritius into shares of Common
Stock of the Company.
(4) Does not include 14,261 shares transferred to certain family members. Mr.
Land disclaims beneficial ownership of such shares.
(5) Consists of 74,279 shares subject to options which are exercisable beginning
on April 24, 1997.
(6) Consists of 4,952 shares subject to currently exercisable options.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, no par value per share, and 1,000,000 shares of Preferred
Stock, no par value per share. The following description of the capital stock of
the Company is a summary, and as such, does not purport to be complete and is
subject, and qualified in its entirety by reference to, the more complete
descriptions contained in the Restated Articles of Incorporation of the Company,
as amended (the "Articles"), and the Bylaws of the Company, as amended (the
"Bylaws"), copies of each of which are incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part. The Company
currently has outstanding 6,447,368 shares of Common Stock and no shares of
Preferred Stock. Upon completion of this offering, the Company will have
10,000,000 outstanding shares of Common Stock and no outstanding shares of
Preferred Stock. As of February 4, 1997, there were nine record holders of
Common Stock.
38
<PAGE> 40
COMMON STOCK
The Company's authorized common stock consists of 30,000,000 shares of
Common Stock. The holders of Common Stock are entitled to one vote for each
share held of record on all matter submitted to a vote of shareholders. Subject
to preferences that may be applicable to outstanding shares of Preferred Stock,
if any, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Company's Board of Directors out of funds
legally available therefor. Holders of Common Stock have no preemptive,
subscription or redemption rights, and there are no conversion or similar rights
with respect to such shares. The outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock, as well as to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the shareholders. The Board of Directors, without
shareholder approval, may issue Preferred Stock with voting and conversion
rights which could materially adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock could also decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. At present, the
Company has no plans to issue any shares of Preferred Stock. See "Risk
Factors -- Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,000,000 shares
of Common Stock outstanding. See "Capitalization." Of these shares, the
3,700,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined under
the Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below. All of the remaining shares of
Common Stock are restricted securities (the "Restricted Shares") within the
meaning of Rule 144 ("Rule 144") under the Securities Act, and may not be sold
in the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption offered by Rule 144.
The Company's current shareholders have agreed not to sell or otherwise
dispose of any of their shares of Common Stock for a period of 180 days after
the effective date of this offering (the "Lock-Up Period") without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ").
Because of these restrictions, on the date of this Prospectus, none of the
shares, other than the 3,700,000 shares offered hereby, will be eligible for
sale. Beginning after the expiration of the Lock-Up Period (or earlier upon the
prior written consent of DLJ), 5,933,107 of the Restricted Shares may be sold in
the public market subject to Rule 144.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, one (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including a person who may be deemed an Affiliate of the Company, may sell
within any three-month period a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock of the
Company (100,000 shares after giving effect to this offering) or the average
weekly trading volume of the Common Stock as reported through the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales under
Rule 144 of the Securities Act are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
39
<PAGE> 41
the Company. In addition, under Rule 144(k) of the Securities Act, a person who
is not an Affiliate of the Company at any time 90 days preceding a sale, and who
has beneficially owned shares for at least three years, would be entitled to
sell such shares immediately following this offering without regard to the
volume limitations, manner of sale provisions or notice or other requirements of
Rule 144. The Commission has proposed to amend the holding period required by
Rule 144 to permit sales of "restricted" securities after one year rather than
two years (and two years rather than three years for "non-affiliates" under Rule
144(k)).
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. In both cases, a holder of Rule 701 shares is required to wait until
90 days after the date of this Prospectus before selling such shares.
REGISTRATION RIGHTS
The Company has entered into stock option agreements with Timothy S.
Manney, Douglas S. Land, and Daniel S. Rankin, pursuant to which the Company has
granted them certain registration rights. Pursuant to the terms of the stock
option agreements with Messrs. Manney and Land, at any time beginning six months
after the completion of this offering, each has the right, subject to certain
restrictions set forth in their respective agreements, to require the Company to
register under the Securities Act the Common Stock owned by such holders on the
date of this offering at the Company's expense. Pursuant to the terms of the
stock option agreement with Mr. Rankin, at any time beginning six months after
he exercises his options, he will have the right, subject to certain conditions
set forth in his agreement, to require the Company to register his Common Stock.
In addition, the Company, pursuant to the terms of the stock option agreements,
agrees to indemnify Messrs. Manney, Land and Rankin against, among other things,
any and all claims, suits, actions or proceedings and against any payments in
satisfaction of any related judgment, fine or penalty caused by or resulting
from any of their acts, omissions, negligence or wilful conduct resulting from
their respective involvement with the Company and its subsidiaries and
affiliates.
The Company intends to file a registration statement on Form S-8 under the
Securities Act, approximately 180 days after closing of this offering, to
register an aggregate of 1,118,634 shares of Common Stock reserved for issuance
under the Company's 1996 Plan. See "Management -- Employee Benefit Plans -- 1996
Stock Option Plan." Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company or the lock-up agreements described above.
As of February 4, 1997, options to purchase 460,824 shares of Common Stock were
outstanding and 657,810 shares of Common Stock remained available for future
grant under the 1996 Plan.
Prior to this offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of significant numbers of shares of the Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors -- Shares Eligible for Future Sale."
40
<PAGE> 42
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and Ferris, Baker Watts, Incorporated
are acting as representatives (collectively, the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders, and
the Company and the Selling Shareholders have agreed severally to sell to each
of the Underwriters, the number of shares of Common Stock (the "Shares") set
forth opposite their respective names at the initial public offering price per
share less the underwriting discounts and commissions set forth on the cover of
this Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Ferris, Baker Watts, Incorporated...........................
--------
Total.................................................. 3,700,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by their counsel and to certain other conditions. If any of the Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, the
Underwriters are obligated to purchase all Shares (other than those covered by
the over-allotment option described below).
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Shares to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession not in excess of $ per
Share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per Share to certain other dealers. After this
offering, the offering price and other selling terms may be changed by the
Underwriters.
Pursuant to the Underwriting Agreement, the Selling Shareholders have
granted to the Underwriters an option, exercisable not later than 30 calendar
days from the date of the Underwriting Agreement, to purchase up to an aggregate
of 555,000 additional shares at the initial offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions,
solely to cover over-allotments.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a commitment to purchase approximately the same
percentage of the option shares as the number of Shares to be purchased by it
shown in the above table bears to the total number of Shares shown in the above
table, and the Selling Shareholders will be obligated, pursuant to the option,
to sell such Shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Shares. If purchased, the Underwriters will sell such additional 555,000 shares
on the same terms as those on which the Shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and all of its current shareholders have agreed that during the
Lock-Up Period they will not, without the prior written consent of DLJ, on
behalf of the Underwriters, sell, offer to sell, contract to sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
other than the Shares, except that the Company may
41
<PAGE> 43
grant options under its 1996 Plan, provided that, without the prior written
consent of DLJ, such options shall not be exercisable during such period.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any discretionary
accounts without prior specific written approval of the customer.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Shareholders and the Underwriters. Among the factors to be
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuations of companies in related
businesses.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby and certain
other legal matters in connection with this offering will be passed upon for the
Company by Camhy Karlinsky & Stein LLP, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements included in this Prospectus and the
Consolidated Financial Statement Schedule included in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods as indicated in their reports
with respect thereto, and are included therein in reliance upon the authority of
said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement, of which the
Prospectus constitutes a part, on Form S-1 under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, may
be inspected without charge at the Commission's principal office in Washington,
D.C., public reference facilities maintained by the Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices
of the Commission: Seven World Trade Center, Room 1400, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street N.W., Washington, D.C.
20549, Room 1024, at prescribed rates. The Registration Statement, including the
exhibits and schedules thereto, is also available at the Commission's web site
at www.sec.gov. Copies of reports, proxy and information statements and other
information regarding the Company will be available at the Commission's web
site.
42
<PAGE> 44
GLOSSARY OF CERTAIN TECHNICAL TERMS
Architecture. A particular design for bringing together and utilizing
selected computer hardware, network systems software and applications software
to achieve an overall objective.
Client/server. The linking or networking of two or more computers to allow
multiple users to access and share information. Client/server design is
contrasted with "mainframe" design.
Conversion. The process of converting data and applications from one format
to another in connection with an organization's adoption of different, usually
more technologically advanced, hardware or software.
Distributed computing environments. The distribution of hardware and
software applications within an organization, across multiple hardware
platforms, thereby contributing to overall processing power. Distributed
computer environments can use client/server architectures or more proprietary
architectures.
Electronic Data Interchange. Industry standard methods and formats for
electronic exchange of business documents such as purchase orders.
Enterprise Resource Planning. Large, integrated application packages used
to manage information on an enterprise-wide basis.
Graphical user interface. A user interface which typically uses a mouse as
a pointing device, icons representing basic computer operations,
"what-you-see-is-what-you-get" on-screen page representation and multiple
on-screen windows. A graphical user interface is designed to make computer
applications easier to operate. Examples of graphical user interfaces are
Microsoft Windows and the Macintosh user interface.
Internet. An open global network of interconnected commercial, educational
and governmental computer networks which utilize a common communications
protocol.
Intranet. An organization's private network of its local area networks
which utilizes Internet data formats and communications protocols and which may
use the Internet's facilities as the backbone for network communications.
Legacy. As in hardware and applications, which are information technology
systems based on older proprietary technologies.
Mainframe. A centralized computer, capable of handling large amounts of
data and interfacing with numerous terminals (end-users), on which an
organization maintains information.
Migration. The process of moving applications and data from one computing
environment, such as a mainframe environment, to another, such as client/server
environment. Also called reengineering.
Object-oriented programming. A type of software design in which software
elements are linked together as needed to achieve the desired programming
result. This style of programming promotes re-usability of objects (data
combined with a procedural code) to improve programmer efficiency.
Operating System. The software that controls the allocation of computer
resources to various software applications in order to maximize the efficiency
of those resources.
Relational database management system (RDBMS). A particular style of
database management system in which computer data is stored in two-dimensional
tables. Each table defines the relationship between the items listed in the rows
(data records) and columns (data fields). Data from two or more tables can be
related and accessed through common data fields to permit multi-dimensional
searching.
Year 2000. Refers to the software problems resulting from the date change
on December 31, 1999 to the year 2000. Many software applications must be
modified in order to operate properly after this date.
43
<PAGE> 45
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 46
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1995 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Complete Business Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Complete
Business Solutions, Inc. (a Michigan corporation) and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 financial statements referred to above present fairly,
in all material respects, the financial position of Complete Business Solutions,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 29, 1997.
F-2
<PAGE> 48
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------- -----------
DECEMBER 31,
-----------
1995 1996 1996 (NOTE 14)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 830 $ 3,382 $ 3,382
Accounts receivable, net........................... 16,759 19,114 19,114
Unbilled revenues.................................. 534 1,627 1,627
Prepaid expenses and other......................... 531 1,136 1,136
------- ------- --------
Total current assets.......................... 18,654 25,259 25,259
------- ------- --------
Property and equipment, net............................. 3,571 5,167 5,167
Computer software, net.................................. 992 639 639
Other assets............................................ 206 193 193
------- ------- --------
Total assets.................................. $23,423 $31,258 $31,258
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 1,562 $ 2,304 $ 2,304
Accrued payroll and related costs.................. 3,895 4,907 4,907
Revolving credit facility.......................... 5,350 5,400 14,400
Other accrued liabilities.......................... 549 961 961
Deferred taxes..................................... -- -- 767
Current portion of deferred revenue................ 1,062 1,124 1,124
Current portion of long-term debt.................. 437 486 486
------- ------- --------
Total current liabilities..................... 12,855 15,182 24,949
------- ------- --------
Deferred revenue, less current portion.................. 299 317 317
Long-term debt, less current portion.................... 529 305 305
Deferred taxes.......................................... -- -- 339
Minority interest....................................... 552 1,503 1,503
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, none issued.......................... -- -- --
Common stock, no par value, 30,000,000 shares
authorized, 5,942,275 and 6,447,368 shares issued
and outstanding as of December 31, 1995 and 1996,
respectively..................................... -- -- --
Additional paid-in capital......................... 1 3,226 6,169
Retained earnings.................................. 9,346 13,049 --
Stock subscriptions receivable..................... -- (2,125) (2,125)
Cumulative translation adjustment.................. (159) (199) (199)
------- ------- --------
Total shareholders' equity.................... 9,188 13,951 3,845
------- ------- --------
Total liabilities and shareholders' equity.... $23,423 $31,258 $31,258
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 49
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Professional service fees.............................. $53,696 $64,635 $80,601
Software products...................................... 2,662 2,764 2,640
------- ------- -------
Total revenues.................................... 56,358 67,399 83,241
------- ------- -------
Cost of revenues:
Salaries, wages and employee benefits.................. 35,219 45,888 53,504
Contractual services................................... 2,487 1,909 3,712
Project travel and relocation.......................... 3,144 3,126 3,458
Cost of software products sold......................... 1,802 1,879 1,546
Depreciation and amortization.......................... 184 807 1,082
------- ------- -------
Total cost of revenues............................ 42,836 53,609 63,302
------- ------- -------
Gross profit...................................... 13,522 13,790 19,939
Selling, general and administrative expenses................ 10,887 11,824 15,455
------- ------- -------
Income from operations............................ 2,635 1,966 4,484
Interest expense............................................ 345 692 539
------- ------- -------
Income before provision for income taxes and
minority interest.............................. 2,290 1,274 3,945
Provision for income taxes.................................. -- -- 84
Minority interest........................................... 176 252 158
------- ------- -------
Net income........................................ $ 2,114 $ 1,022 $ 3,703
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
INFORMATION
(UNAUDITED)
(NOTE 14)
<S> <C> <C>
Net income as reported...................................... $ 1,022 $ 3,703
Pro forma incremental income tax provision.................. 135 1,260
------- -------
Pro forma net income........................................ $ 887 $ 2,443
======= =======
Pro forma net income per common share....................... $ .12 $ .32
======= =======
Pro forma weighted average shares outstanding............... 7,310 7,579
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 50
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL STOCK CUMULATIVE TOTAL
SHARES PAID-IN RETAINED SUBSCRIPTIONS TRANSLATION SHAREHOLDERS'
OUTSTANDING CAPITAL EARNINGS RECEIVABLE ADJUSTMENT EQUITY
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1993........ 5,942,275 $ 1 $ 6,210 $ -- $ -- $ 6,211
Net income........................ -- -- 2,114 -- -- 2,114
--------- ------ ------- ------- ----- -------
Balance -- December 31, 1994........ 5,942,275 1 8,324 -- -- 8,325
Net income........................ -- -- 1,022 -- -- 1,022
Translation adjustment............ -- -- -- -- (159) (159)
--------- ------ ------- ------- ----- -------
Balance -- December 31, 1995........ 5,942,275 1 9,346 -- (159) 9,188
Net income........................ -- -- 3,703 -- -- 3,703
Translation adjustment............ -- -- -- -- (40) (40)
Capital contribution.............. -- 1,100 -- -- -- 1,100
Stock options exercised........... 505,093 2,125 -- (2,125) -- --
--------- ------ ------- ------- ----- -------
Balance -- December 31, 1996........ 6,447,368 $3,226 $13,049 $(2,125) $(199) $13,951
========= ====== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 51
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................. $ 2,114 $ 1,022 $ 3,703
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,082 1,812 2,221
Provision for doubtful accounts........................ 100 105 120
Minority interest...................................... 176 252 158
Change in assets and liabilities --
Accounts receivable and unbilled revenues............ (3,503) (3,164) (3,601)
Prepaid expenses and other........................... (170) 29 (614)
Other assets......................................... (33) (4) 12
Accounts payable..................................... 83 641 752
Accrued payroll and related costs and other accrued
liabilities....................................... 340 261 1,625
Deferred revenue..................................... 251 312 80
Other................................................ 125 -- --
------- ------- -------
Net cash provided by operating activities......... 565 1,266 4,456
------- ------- -------
Cash flows from investing activities:
Investment in computer software........................ (313) -- (566)
Purchases of property and equipment.................... (2,155) (1,618) (3,097)
Net repayments on notes receivable -- shareholder...... 54 519 4
------- ------- -------
Net cash used in investing activities............. (2,414) (1,099) (3,659)
------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) on revolving credit
facility............................................. 1,500 (100) 50
Proceeds from issuance of long-term debt............... 500 828 356
Payments on long-term debt............................. (257) (346) (531)
Proceeds from sale of stock in subsidiary, net......... -- -- 3,500
Repurchase of stock in subsidiary...................... -- -- (2,708)
Capital contribution................................... -- -- 1,100
------- ------- -------
Net cash provided by financing activities......... 1,743 382 1,767
------- ------- -------
Effect of exchange rate changes on cash..................... -- (38) (12)
------- ------- -------
Increase (decrease) in cash and cash equivalents............ (106) 511 2,552
Cash and cash equivalents at beginning of period............ 425 319 830
------- ------- -------
Cash and cash equivalents at end of period.................. $ 319 $ 830 $ 3,382
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 52
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Complete Business Solutions, Inc. (the Company) was founded in 1985. The
Company is a worldwide provider of information technology (IT) services to large
and mid-size organizations. The Company offers its clients a broad range of IT
services, from advising clients on strategic technology plans to developing and
implementing appropriate IT solutions.
The Risk Factors on pages 6 to 12 of this Registration Statement are
incorporated herein by reference.
Common Stock
The Company, through two resolutions, has effected a 5,942-for-1 forward
stock split and an increase in the authorized capital to 30,000,000 shares of
Common Stock. Accordingly, the Company's shareholders' equity accounts and the
number of shares in the accompanying consolidated financial statements and notes
thereto have been retroactively restated to give effect to the forward stock
split and the increase in the number of authorized shares of Common Stock.
Principles of Consolidation and Organization
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in the accompanying consolidated financial statements.
Through July 1996, the Company held a 76% interest in Complete Business
Solutions (India) Private Limited (CBS India) with the remaining 24% interest
held by an entity affiliated with the Company's shareholder (affiliated entity).
In July 1996, the Company formed CBS Complete Business Solutions (Mauritius)
Limited (CBS Mauritius) and the Company and the affiliated entity each
contributed its ownership interest in CBS India for a similar interest in CBS
Mauritius.
In July 1996, CBS Mauritius sold an ownership interest to an unrelated
entity for approximately $3,500, net of transaction costs. Simultaneously, CBS
Mauritius repurchased its stock held by the affiliated entity for approximately
$2,708 and the Company made a capital contribution of $1,708 to CBS Mauritius.
The net loss on this transaction was not material. As of December 31, 1996, the
Company owns 72% and the unrelated entity owns 28% of CBS Mauritius, which owns
100% of CBS India.
The 28% shareholder of CBS Mauritius has an option to convert its ownership
interest in CBS Mauritius into an 8.5% ownership interest in the Company during
the option period as specified in the CBS Mauritius shareholders' agreement.
This 8.5% ownership interest was calculated based upon the outstanding shares of
the Company on the date of the shareholders' agreement. This option will be
exercised in connection with the Company's contemplated initial public offering.
Upon conversion, the Company will issue additional shares of Common Stock and
acquire all outstanding minority shares of CBS Mauritius. The acquisition of the
minority shares will be accounted for under the purchase method of accounting.
The excess of the aggregate purchase price over the fair value of the net assets
acquired will be recognized as goodwill. See Note 16 for further discussion on
the pro forma effects of this transaction.
Foreign Currency
For significant foreign operations, the local currencies have been
designated as the functional currencies. The financial statements of these
subsidiaries are translated into U.S. dollars using exchange rates in effect at
year end for assets and liabilities and at the average rate during the year for
revenues and expenses. The resulting foreign currency translation adjustment is
reflected as a separate component of shareholders' equity
F-7
<PAGE> 53
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as of December 31, 1995 and 1996. The translation adjustment for the year ended
December 31, 1994 was not material.
Transaction gains and losses, which were not significant in the years
presented, are reflected in the consolidated statements of income.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid money market
funds with an initial maturity of three months or less.
Financial Instruments
The fair values and carrying amounts of certain of the Company's financial
instruments, primarily accounts receivable and payable, are approximately
equivalent. These financial instruments are classified as current and will be
liquidated within the next operating cycle.
The carrying amount for the revolving credit facility and certain long-term
debt approximates fair value due to the variable rate of interest on these
notes. The fair value of the fixed-rate debt, which approximates the carrying
value, has been estimated based on current rates offered to the Company for debt
of the same remaining maturities.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the expected life of the asset or term
of the lease, whichever is shorter.
Revenue Recognition
The Company recognizes professional service fee revenue on
time-and-materials contracts as the services are performed for the clients.
Revenues on fixed-priced contracts are recognized using the percentage of
completion method. Percentage of completion is determined by relating the actual
cost of work performed to date to the estimated total cost for each contract. If
the estimate indicates a loss on a particular contract, a provision is made for
the entire estimated loss without reference to the percentage of completion.
Retainages, which are not material for any of the years presented, are included
in accounts receivable in the accompanying consolidated balance sheets. The
Company does not have significant contracts whose original duration is in excess
of twelve months.
Software products revenue consists of both license revenue and maintenance
revenue. License revenue is recognized when both a software license agreement is
signed and the software has been shipped and made available to the customer.
Maintenance revenue is recorded as deferred revenue in the consolidated balance
sheets when invoiced and is recognized over the term of the maintenance
contract, generally one year.
Unbilled Revenues
Unbilled revenues represent costs incurred and related earnings not
currently billable under the terms of the contract. These amounts are expected
to be billed and collected over a period of less than twelve months.
Computer Software
The Company performs research to develop software for various business
applications. The costs of such research are charged to expense when incurred.
When the technological feasibility of the product is established, subsequent
costs are capitalized and amortized using the straight-line method over the
estimated
F-8
<PAGE> 54
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
economic life of the product, generally three years. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic product lives and changes in software and
hardware technology. The policy is reevaluated and adjusted as necessary at the
end of each accounting period. On an ongoing basis, management reviews the
valuation and amortization of capitalized development costs. As part of this
review, the Company considers the value of future cash flows attributable to the
capitalized development costs in evaluating potential impairment of the asset.
The amortization of software development costs was $371, $551 and $719 for the
years ended December 31, 1994, 1995 and 1996, respectively.
Accumulated amortization on computer software amounted to $1,392 and $2,111
as of December 31, 1995 and 1996, respectively.
Amounts capitalized were $313 and $566 for the years ended December 31,
1994 and 1996, respectively. No amounts were capitalized during the year ended
December 31, 1995.
Amounts charged to expense for research and development of computer
software were not material in the periods presented.
Cost of Software Products Sold
Cost of software products sold includes salaries, contractual services,
project travel and amortization expense related to the Company's software
products.
Income Taxes
The Company and its shareholders have elected to be taxed under the
provisions of Sub-Chapter S of the United States Internal Revenue Code. Under
those provisions, the shareholders are liable for individual Federal income
taxes on the Company's taxable income. As a result, no provision for United
States income taxes has been included in the accompanying consolidated
statements of income.
CBS Mauritius is incorporated in Mauritius and is not subject to income
taxes. CBS India is an Indian corporation subject to income taxes. CBS India's
operating facilities are located in a free trade zone. Under the Indian Income
Tax Act of 1961, the entire profits of a company situated in a free trade zone
are exempt from income tax for a period of five consecutive years within the
first eight years of operations, at the option of the Company. The Company has
opted for this exemption for the years ended March 31, 1992 to March 31, 1996
for its original facility in India. Two other facilities were opened during 1995
and 1996. These facilities may be exempt from income tax until 2002 and 2003,
respectively. CBS India also receives various export deductions at all three
facilities reducing its regular taxable income. As a result, other than the
minimum alternative tax discussed below, no tax provision related to the CBS
India income has been required.
During 1996, the government of India instituted a minimum alternative tax
with an effective rate of approximately 13% of CBS India's income. This tax
provision has been included in the consolidated statement of income for the year
ended December 31, 1996 as a provision for income taxes.
Termination of S Corporation Election
Certain events, including the public offering of the Company's Common
Stock, will automatically terminate its S corporation status, thereby subjecting
future income to Federal and state income taxes at the corporate level. Due to
temporary differences in recognition of revenue and expenses, income for
financial reporting purposes has exceeded income for income tax purposes.
Accordingly, the application of the provisions of SFAS No. 109, "Accounting for
Income Taxes" will result in the recognition of deferred tax liabilities and a
corresponding charge to expense in the period in which the initial public
offering occurs. If the S corporation status had been terminated as of December
31, 1996, this liability would have been
F-9
<PAGE> 55
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $4,982. As a result of certain tax elections made by the Company,
approximately $3,876 of this liability will be payable by the shareholders. The
remaining liability of approximately $1,106 will be paid by the Company in 1997.
This liability has been reflected as deferred taxes in the accompanying
consolidated pro forma balance sheet as of December 31, 1996.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Allowance for doubtful accounts was $162 and $214 at December 31, 1995 and
1996, respectively.
The Company's largest client represents 18%, and 5% of accounts receivable
as of December 31, 1995 and 1996, respectively, and represents 29%, 19% and 12%
of total revenues for the years ended December 31, 1994, 1995 and 1996,
respectively. Revenues from this client are generated by multiple projects for
various end users. No other client accounted for more than 10% of total revenues
for the three years ended December 31, 1996. In addition, 80%, 82% and 84% of
total revenues in each year for the years ended December 31, 1994, 1995 and
1996, respectively, were generated from existing clients from the previous
fiscal year.
The Company grants credit to clients based upon management's assessment of
their creditworthiness. Substantially all of the Company's revenues (and the
resulting accounts receivable) are from large and mid-size companies, major
systems integrators and governmental agencies.
3. PROPERTY AND EQUIPMENT
As of December 31, 1995 and 1996, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
----------------- USEFUL
1995 1996 LIVES
<S> <C> <C> <C>
Equipment................................................ $ 4,422 $ 5,549 3-5 years
Buildings................................................ 58 986 31 years
Purchased software....................................... 1,432 1,915 3-5 years
Furniture and fixtures................................... 656 970 5-7 years
Leasehold improvements................................... 230 340 5 years
Automobiles.............................................. 84 219 5 years
------- -------
6,882 9,979
Accumulated depreciation................................. (3,311) (4,812)
------- -------
Property and equipment, net.............................. $ 3,571 $ 5,167
======= =======
</TABLE>
4. RELATED PARTY TRANSACTIONS
During July 1996, a shareholder loaned $608 to the Company in exchange for
a note. The note was short-term and bore interest at 8.25%. This note and
accrued interest of $23 were repaid in December 1996.
During 1996, CBS India loaned approximately $100 to a related party. This
loan was short term, payable on demand and noninterest bearing.
F-10
<PAGE> 56
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into two note arrangements aggregating $660 with a
shareholder with a weighted average interest rate of approximately 6%. The
amount outstanding on the notes was $574 as of December 31, 1994. These notes
were repaid during 1995.
During 1994 and 1995, the Company made non-interest bearing advances
totaling $87 and $177, respectively, to a shareholder. The outstanding advances
were repaid in 1995. In 1996, the Company made non-interest bearing advances of
$46 to the same shareholder for his personal use. The outstanding advances were
repaid by the shareholder in December, 1996.
The Company provided services to a client whose principal shareholder was a
former director of the Company. The Company earned approximately $111 and $216
for these services in 1995 and 1996, respectively. No services were provided to
this client for the year ended December 31, 1994.
The Company incurred approximately $135 and $182 for the years ended
December 31, 1994 and 1996, respectively, for consulting services provided by an
affiliate of an outside director. No consulting services were provided to the
Company by the director's affiliate during 1995.
The above transactions were at prices and terms believed to be equivalent
to those available from unrelated parties.
See Note 1 for additional related party disclosures.
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest for the years ended December 31, 1994, 1995 and 1996
was $404, $705 and $553, respectively. Cash paid for income taxes for the year
ended December 31, 1996 was $134. There were no income taxes paid during 1994
and 1995.
6. REVOLVING CREDIT FACILITY
Under a credit arrangement with a commercial bank, the Company may borrow
an amount not to exceed the lesser of $16,000 or 80% of trade accounts
receivable less than 90 days outstanding at the bank's prime interest rate, or a
Eurodollar rate. At December 31, 1995 and 1996, the permitted borrowings under
the agreement were approximately $10,500, and $15,187, respectively. The
borrowings under the facility are short-term, payable on demand and are secured
by trade accounts receivable of the Company.
The balance outstanding under this agreement at December 31, 1995 and 1996
was $5,350 and $5,400, respectively. Average month-end outstanding borrowings
under these arrangements were $4,862, $7,231 and $5,988 for the years ended
December 31, 1994, 1995 and 1996, respectively. The weighted average interest
rate on the outstanding borrowings was 7.9% and 7.7% at December 31, 1995 and
1996.
The Company also has a working capital facility and an equipment
line-of-credit aggregating $3,000 and $2,000, respectively, with a commercial
bank at the bank's prime interest rate (8.5% and 8.25% at December 31, 1995 and
1996, respectively). The borrowings under the facility and the equipment
line-of-credit are short-term, payable on demand and secured by all assets of
the Company. No amounts have been borrowed under the working capital facility or
the equipment line-of-credit during the years presented.
The credit agreements contain various restrictive covenants which, among
other items, require the Company to maintain certain levels of tangible net
worth and a current ratio.
F-11
<PAGE> 57
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
As of December 31, 1995 and 1996, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Note payable to a bank, payable in monthly installments of
$15 plus interest at 9.6% through March, 1988
collateralized by equipment............................... $ 408 $ 219
Note payable to a bank, payable in monthly installments of
$14 plus interest at prime plus .25% (8.75% and 8.5% at
December 31, 1995 and 1996, respectively) through July
1997, collateralized by equipment......................... 278 97
Note payable to a bank, payable in monthly installments of
$8 plus interest at prime (8.5% and 8.25% at December 31,
1995 and 1996, respectively) through August 1998,
collateralized by equipment............................... 262 159
Note payable to a bank, payable in monthly installments of
$10 plus interest at prime (8.25% at December 31, 1996)
through August 1999, collateralized by equipment.......... -- 316
Other....................................................... 18 --
----- -----
966 791
Less -- Current portion..................................... (437) (486)
----- -----
$ 529 $ 305
===== =====
</TABLE>
Maturities of the principal amounts outstanding at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $486
1998........................................................ 226
1999........................................................ 79
----
$791
====
</TABLE>
8. SELF-INSURANCE
The Company is self-insured for health and dental benefits up to $70 per
occurrence. Insurance coverage is carried for risks in excess of this amount.
The Company has recognized health and dental benefits expense of approximately
$1,702, $1,691 and $2,266 for the years ended December 31, 1994, 1995 and 1996,
respectively. Estimated claims incurred but not reported were $282 and $300 as
of December 31, 1995 and 1996, respectively, and are included in other accrued
liabilities in the accompanying consolidated balance sheets. There are no
receivables from insurance carriers as of December 31, 1995 and 1996.
9. LEASES
The Company leases its headquarters, regional offices, equipment and
certain automobiles under noncancelable, long-term operating leases.
F-12
<PAGE> 58
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the years ended December 31, 1994, 1995 and 1996 amounted
to approximately $720, $1,005, and $1,030 respectively. The future minimum lease
payments required under these operating leases for the years ending December 31,
are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 970
1998........................................................ 828
1999........................................................ 904
2000........................................................ 938
2001........................................................ 942
Thereafter.................................................. 1,356
------
$5,938
======
</TABLE>
10. STOCK OPTIONS
The Company maintains a Stock Option Plan (the Plan). Under the Plan,
eligible employees and directors may be granted either Incentive Stock Options
(ISOs) or Non-Incentive Stock Options (NISOs) at the discretion of the Board of
Directors. There are 1,623,727 shares of Common Stock authorized for grant under
the Plan. Options under the Plan are granted at fair value on the date of grant
as determined by an independent appraisal, therefore, no compensation expense
has been recognized. The options vest over periods ranging from one to four
years.
The stock option agreements provide for the option holder to exercise the
options in exchange for a promissory note payable to the Company over a period
of at least five years for NISOs and at least two years for ISOs. These notes
are full recourse and bear interest at the prime rate of interest determined at
the date of exercise. In December 1996, 505,093 NISOs were exercised. In
connection therewith, the Company loaned the option holders approximately $2,125
to purchase the shares, which has been reflected as stock subscriptions
receivable as of December 31, 1996 in the shareholders' equity section of the
accompanying consolidated balance sheet. The promissory notes executed by the
option holders provide that the loans mature on April 25, 2006 and bear interest
at the rate of 8.25% per annum. Interest on the loans is payable on January 1
and July 1 of each year. Interest payments are not required to be made until the
shares have been registered under the Securities Act.
The Company has elected to provide the pro forma disclosures, as permitted
under the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the Plan within the accompanying consolidated statements of
income. Had compensation expense for the Plan been determined based on the fair
value at the grant date for awards in 1995 and 1996 consistent with the
provisions of SFAS No. 123, the Company's pro forma net income and pro forma net
income per common share would have been reduced to the amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Pro forma net income --
As reported............................................... $887 $2,443
SFAS No. 123 pro forma.................................... 772 1,844
Pro forma net income per common share --
As reported............................................... .12 .32
SFAS No. 123 pro forma.................................... .11 .24
</TABLE>
F-13
<PAGE> 59
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Plan at December 31, 1995 and 1996 and
changes during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1995 1996
-------------------- ---------------------
WTD. AVG. WTD. AVG.
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding, beginning of year................ -- $ -- 668,506 $4.21
Granted....................................... 668,506 4.21 297,411 8.41
Exercised..................................... -- -- (505,093) 4.21
------- ----- -------- -----
Outstanding, end of year...................... 668,506 $4.21 460,824 $6.92
======= ===== ======== =====
Exercisable, end of year...................... -- $ -- 4,952 $4.21
======= ===== ======== =====
Weighted average fair value of options
granted..................................... $1.11 $1.90
===== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the 1995 and 1996 grants: risk-free rate of interest of 6.20% and 7.04%,
respectively; dividend yield of 0%; and expected lives of 10 years.
11. COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to ordinary, routine litigation
incidental to the Company's business. After discussion with its legal counsel,
the Company does not believe that the ultimate resolution of any existing matter
will have a material adverse effect on its financial condition, results of
operations or cash flows.
12. BENEFIT PLAN
The Company maintains the Complete Business Solutions, Inc. Incentive
Savings Plan and Trust (the 401(k) Plan). All employees of the Company are
eligible to participate in the 401(k) Plan once they have completed one year of
service and have attained age 21.
The 401(k) Plan is a defined contribution plan, qualified as a profit
sharing plan under Section 401(k) of the Internal Revenue Code. The 401(k) Plan
allows eligible employees to contribute up to 18% of their compensation with the
Company matching a percentage of the contributions. The matching contribution
percentages and maximum Company match (as a percentage of the participant's
compensation) for each plan year are as follows:
<TABLE>
<CAPTION>
MATCHING MAXIMUM
COMPANY COMPANY
CONTRIBUTION MATCH
<S> <C> <C>
1994........................................................ 30% 1.8%
1995........................................................ 40% 2.4%
1996........................................................ 40% 2.4%
</TABLE>
Matching contributions made by the Company amounted to approximately $183,
$301 and $406 for the years ended December 31, 1994, 1995 and 1996,
respectively. The Company may also make an additional contribution, at its
discretion, to the 401(k) Plan. No such additional contributions have been made
to date.
F-14
<PAGE> 60
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. GEOGRAPHIC OPERATIONS INFORMATION
The following table summarizes selected financial information of the
Company's operations by geographic location:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues --
United States.......................................... $55,220 $65,906 $80,678
India.................................................. 1,885 3,390 3,399
Other international.................................... 760 1,196 2,350
Intersegment........................................... (1,507) (3,093) (3,186)
------- ------- -------
Total............................................. $56,358 $67,399 $83,241
======= ======= =======
Income From Operations --
United States.......................................... $ 1,927 $ 846 $ 3,708
India.................................................. 568 897 680
Other international.................................... 140 223 96
------- ------- -------
Total............................................. $ 2,635 $ 1,966 $ 4,484
======= ======= =======
Identifiable Assets --
United States.......................................... $19,509 $21,607 $23,838
India.................................................. 980 1,320 3,966
Other international.................................... 251 496 3,454
------- ------- -------
Total............................................. $20,740 $23,423 $31,258
======= ======= =======
</TABLE>
14. PRO FORMA AND SUPPLEMENTAL NET INCOME PER COMMON SHARE (UNAUDITED)
Pro Forma Statement of Income Information
The pro forma adjustments for the incremental income tax provision included
in the accompanying consolidated statements of income reflects the additional
provision for Federal and state income taxes at the effective income tax rate as
if the Company had been taxed as a C corporation and no foreign tax holidays had
been granted during the periods presented. The differences between the United
States Federal statutory rate and the consolidated effective rate are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
<S> <C> <C>
Statutory Federal income tax rate........................... 34.0% 34.0%
State income taxes, net of Federal tax effect............... 3.0 3.0
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (26.6) (2.4)
Other....................................................... 2.8 0.9
------ -----
13.2% 35.5%
====== =====
</TABLE>
The Company considers all undistributed earnings of foreign subsidiaries to
be permanently invested. Therefore, no United States income taxes have been
provided on these earnings.
Pro forma weighted average shares outstanding is based on the following:
(i) the weighted average number of shares of Common Stock outstanding; (ii) the
dilutive effect of outstanding Common Stock equivalents; (iii) the stock options
and convertible shares issued during the twelve months immediately
F-15
<PAGE> 61
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preceding the offering date (using the treasury stock method and the mid-point
of the proposed initial public offering price per share) for all periods
presented; and (iv) the sale of a sufficient number of shares of the Company's
common stock necessary to provide funds to pay the cash portion of the S
corporation distribution.
Pro forma fully diluted earnings per share approximates primary earnings
per share for the years ended December 31, 1995 and 1996.
Pro Forma Balance Sheet
Due to the anticipated termination of the Company's S corporation status,
the accompanying pro forma consolidated balance sheet as of December 31, 1996
reflects the distribution to the Company's shareholders of $9,000 through
additional borrowings under the revolving credit facility, along with the
recording of deferred tax liabilities. The pro forma consolidated balance sheet
also reflects the reclassification of undistributed earnings in the Company to
additional paid-in capital.
Supplemental
Supplemental net income per common share reflects: (i) pro forma net
income; (ii) the elimination of interest expense related to the use of proceeds,
net of related income tax effects using an assumed effective tax rate; and (iii)
the issuance of shares of Common Stock, the net proceeds of which are used to
repay indebtedness. Supplemental net income for the years ended December 31,
1995 and 1996 was $1,515, and $2,836 respectively. Supplemental net income per
common share for the same periods was $.19, and $.35, respectively.
15. SUBSEQUENT EVENTS
In connection with the proposed initial public offering by the Company,
subsequent to December 31, 1996, the following transactions are anticipated to
occur:
(i) termination of the Company's S corporation status as described in
Note 1. In connection with this termination, the Company will be required
to record deferred tax liabilities with a corresponding tax provision in
accordance with SFAS 109 in the period the termination occurs; and
(ii) the issuance of 552,632 shares of the Company's Common Stock in
exchange for the 28% minority interest in CBS Mauritius.
16. INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (UNAUDITED)
On December 20, 1996, the Company filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission for the sale of its Common
Stock. The net proceeds to the Company from this offering are intended to be
used for: payment of undistributed S corporation earnings estimated to be
$9,000; the repayment of existing debt, estimated to be $3,000 at the closing
date ($6,191 at December 31, 1996); expansion of existing operations, including
the Company's offshore software development operations; development of new
service lines and possible acquisitions of related businesses; and general
corporate purposes, including working capital.
The unaudited pro forma consolidated balance sheet shown below as of
December 31, 1996 gives effect to the following transactions as if such
transactions occurred on that date: (i) the sale of shares of Common Stock by
the Company, assuming an initial public offering price of $14.00 per share and
the application of the estimated net proceeds therefrom; (ii) recording of
deferred tax liabilities upon termination of the Company's S corporation status;
(iii) the transfer of undistributed retained earnings to additional paid-in
capital; and
F-16
<PAGE> 62
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(iv) issuance of 552,632 shares of Common Stock in exchange for the 28% minority
interest in CBS Mauritius, including the elimination of the minority interest.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 3,382 $ 22,469 $25,851
Other............................................... 21,877 -- 21,877
------- --------- --------
Total current assets........................... 25,259 22,469 47,728
------- --------- --------
Property and equipment, net........................... 5,167 -- 5,167
Computer software, net................................ 639 -- 639
Goodwill.............................................. -- 3,856 3,856
Other assets.......................................... 193 -- 193
------- --------- --------
Total assets................................... $31,258 $ 26,325 $57,583
======= ========= ========
Current liabilities:
Current portion of long-term debt................... $ 486 $ (486) $ --
Revolving credit facility........................... 5,400 (5,400) --
Deferred taxes...................................... -- 767 767
Other............................................... 9,296 -- 9,296
------- --------- --------
Total current liabilities...................... 15,182 (5,119) 10,063
------- --------- --------
Deferred revenue, less current portion................ 317 -- 317
Long-term debt, less current portion.................. 305 (305) --
Deferred taxes........................................ -- 339 339
Minority interest..................................... 1,503 (1,503) --
Shareholders' equity:
Common and preferred stock.......................... -- -- --
Additional paid-in capital.......................... 3,226 45,962 49,188
Retained earnings................................... 13,049 (13,049) --
Stock subscriptions receivable...................... (2,125) -- (2,125)
Cumulative translation adjustment................... (199) -- (199)
------- --------- --------
Total shareholders' equity..................... 13,951 32,913 46,864
------- --------- --------
Total liabilities and shareholders' equity..... $31,258 $ 26,325 $57,583
======= ========= ========
</TABLE>
The unaudited pro forma consolidated statements of income shown below for
the years ended December 31, 1995 and 1996, give effect to the following
transactions as if such transactions had occurred as of the beginning of the
periods:
(i) amortization of goodwill over a period of 20 years as a result of
the Company's purchase of the 28% minority interest in CBS Mauritius,
including the elimination of the minority interest;
(ii) elimination of interest expense to give effect to the repayment
of the Company's revolving credit facility and long-term debt;
(iii) provision for Federal and state income taxes at the effective
income tax rate as if the Company had been taxed as a C corporation and no
foreign tax holidays had been granted during the periods presented. The tax
provision was computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
Statutory Federal income tax rate........................... 34.0% 34.0%
State income taxes, net of Federal tax effect............... 1.7 2.7
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (19.6) (3.0)
Amortization of goodwill.................................... 3.4 1.4
Other....................................................... 1.6 0.8
----- ----
21.1% 35.9%
===== ====
</TABLE>
F-17
<PAGE> 63
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(iv) reflects pro forma weighted average shares of Common Stock, plus
the portion of Common Stock offered hereby needed to generate proceeds
sufficient to repay the Company's revolving credit facility and long-term
debt at the end of each period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
<S> <C> <C> <C>
Revenues............................................ $67,399 $ -- $ 67,399
Cost of revenues.................................... 53,609 -- 53,609
------- --------- ---------
Gross profit...................................... 13,790 -- 13,790
Selling, general and administrative expenses........ 11,824 -- 11,824
Amortization of goodwill............................ -- 193 193
------- --------- ---------
Income from operations............................ 1,966 (193) 1,773
Interest expense (income)........................... 692 (724) (32)
------- --------- ---------
Income before provision for income taxes and
minority interest.............................. 1,274 531 1,805
Provision for income taxes.......................... -- 381 381
Minority interest................................... 252 (252) --
------- --------- ---------
Net income........................................ $ 1,022 $ 402 $ 1,424
======= ========= =========
Pro forma net income per share...................... $ .18
=========
Pro forma weighted average shares outstanding....... 7,795,000
=========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
<S> <C> <C> <C>
Revenues............................................ $83,241 $ -- $ 83,241
Cost of revenues.................................... 63,302 -- 63,302
------- --------- ---------
Gross profit...................................... 19,939 -- 19,939
Selling, general and administrative expenses........ 15,455 -- 15,455
Amortization of goodwill............................ -- 193 193
------- --------- ---------
Income from operations............................ 4,484 (193) 4,291
Interest expense (income)........................... 539 (610) (71)
------- --------- ---------
Income before provision for income taxes and
minority interest.............................. 3,945 417 4,362
Provision for income taxes.......................... 84 1,482 1,566
Minority interest................................... 158 (158) --
------- --------- ---------
Net income........................................ $ 3,703 $(907) $ 2,796
======= ========= =========
Pro forma net income per share...................... $ .35
=========
Pro forma weighted average shares outstanding....... 8,054,000
=========
</TABLE>
F-18
<PAGE> 64
IBC
[PHOTO] [PHOTO]
64KB High Speed Client Site/CBSI Team
Data Lines
FLEXIBLE
GLOBAL DELIVERY
CAPABILITY
[PHOTO] [PHOTO]
CBSI Offsite Team CBSI
Offshore
Team
<PAGE> 65
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
The Company............................... 12
Use of Proceeds........................... 13
S Corporation Distribution................ 13
Dividend Policy........................... 14
Capitalization............................ 14
Dilution.................................. 15
Selected Financial Data................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 22
Management................................ 32
Certain Transactions...................... 37
Principal and Selling Shareholders........ 38
Description of Capital Stock.............. 38
Shares Eligible for Future Sale........... 39
Underwriting.............................. 41
Legal Matters............................. 42
Experts................................... 42
Additional Information.................... 42
Glossary of Certain Technical Terms....... 43
Index to Financial Statements............. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,700,000 SHARES
CBSI LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FERRIS, BAKER WATTS
INCORPORATED
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be incurred in connection with the offering are
as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,341
National Association of Securities Dealers, Inc. fee........ 6,882
Nasdaq National Market listing fee.......................... 42,500
Printing expenses and other................................. 260,000
Legal fees and expenses..................................... 275,000
Blue sky fees and expenses.................................. 6,000
Accountants' fees and expenses.............................. 250,000
Miscellaneous............................................... 140,277
Insurance................................................... 400,000
---------
Total.................................................. $1,400,000
=========
</TABLE>
- -------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws require the Company to indemnify any director,
officer, former director or officer of the Company or any person who may have
served at the request of the Company as a director or officer of another
corporation in which the Company owns shares of capital stock, or of which it is
a creditor, against reasonable expenses (including attorneys' fees) actually and
necessarily incurred by such person in connection with the defense of any civil,
criminal or administrative action, suit or proceeding in which such person is
made a party or with which such person is threatened by reason of being or
having been or because of any act as a director or officer of the Company within
the course of such person's duties or employment, except in relation to matters
as to which such person is adjudged to be liable for negligence or misconduct in
the performance of such person's duties. The Company may also reimburse any
director or officer for the reasonable costs of settlement of any such action,
suit or proceeding, if it is found by a majority of a committee composed of the
directors not involved in the matter in controversy (whether or not a quorum)
that it was in the interests of the Company that such settlement be made and
that the director or officer was not guilty of negligence or misconduct. The
right of indemnification will extend to the estate, personal representative,
guardian and conservator of any deceased or former director or officer or person
who would have been entitled to indemnification. Such rights of indemnification
and reimbursement will not be deemed exclusive of any other rights to which such
director or officer may be entitled under any statute, agreement, vote of
shareholders, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
In September 1996, the Company effected a 10,000 for 1 stock split. In
February 1997, the Company filed an amendment to its Articles of Incorporation
to effect a .5942275 for 1 reverse stock split. All share numbers in this
Registration Statement have been retroactively restated to give effect to these
transactions.
On October 27, 1995, the Company granted non-incentive stock options
representing an aggregate of 267,402 shares of Common Stock to Timothy Manney.
The options were exercisable on the first anniversary from the date of the grant
at the purchase price of $4.21 per share. On December 30, 1996, Mr. Manney
exercised such stock options and the Company issued an aggregate of 267,402
shares of Common Stock for an aggregate purchase price of $1,125,000 to Mr.
Manney.
II-1
<PAGE> 67
On October 27, 1995, the Company granted non-incentive stock options
representing an aggregate of 237,691 shares of Common Stock to Douglas Land. The
options were exercisable on the first anniversary from the date of the grant at
the purchase price of $4.21 per share. On December 30, 1996, Mr. Land exercised
such stock options and the Company issued an aggregate of 237,691 shares of
Common Stock for an aggregate purchase price of $1,000,000 to Mr. Land.
On October 27, 1995, the Company granted non-incentive stock options
representing an aggregate of 148,557 shares of Common Stock to Daniel Rankin.
The options are exercisable in two equal annual installments, commencing April
26, 1997, at an exercise price of $4.21.
On October 27, 1995, the Company granted non-incentive stock options
representing an aggregate of 14,856 shares of Common Stock to Frank Stella. The
options are exercisable on the first three anniversaries of the date of the
grant, at an exercise price of $4.21. On September 12, 1996, the Company granted
non-incentive stock options representing an aggregate of 8,913 shares of Common
Stock to Mr. Stella. The options are exercisable on the first three
anniversaries of the date of the grant, at an exercise price of $8.41.
On September 12, 1996, the Company also granted non-incentive stock options
representing an aggregate of 14,856 shares to Sreedhar Kajeepeta. The options
are exercisable in four equal annual installments, commencing one year from the
date of the grant, at an exercise price of $8.41.
On September 12, 1996, the Company also granted incentive stock options
representing an aggregate of 273,642 shares to various employees of the Company.
All the options are exercisable in either three or four annual installments,
commencing one year from the date of the grant, at an exercise price of $8.41.
Pursuant to an Agreement (the "Acquisition Agreement") among the Company,
JF Electra (Mauritius) Limited ("JF Electra"), CBS Complete Business Solutions
(Mauritius) Limited ("CBS Mauritius") and Rajendra Vattikuti, on July 19, 1996,
JF Electra acquired a 28% interest in CBS Mauritius.
The sales and issuances of the shares of the Common Stock discussed above
were exempt from registration by virtue of Sections 3(a), 3(b) and 4(2) of the
Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Articles of Incorporation of the Company, as
amended.
3.2* Bylaws of the Company.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the Company
defining rights of the holders of Common Stock of the
Company.
4.2** Specimen Stock Certificate.
5.1* Opinion of Camhy Karlinsky & Stein LLP, counsel to the
Company, as to the legality of the shares being registered.
10.1* Employment Agreement dated December 12, 1996 between the
Company and Rajendra B. Vattikuti.
10.2* Employment Agreement dated December 12, 1996 between the
Company and Timothy S. Manney.
10.3* Lease dated October 22, 1992 and its seven amendments dated
October 1, 1993, June 14, 1994, June 28, 1994, September 30,
1994, October 14, 1994, August 10, 1995 and August 6, 1996,
between the Company and Orchard Ridge Office Park Limited
Partnership.
10.4* Lease Agreement dated March 26, 1993 between the Company and
President of India through the Development Commissioner and
Madras, India Lease Letters No. MEPZ/Appln/31/84(1) dated
September 23, 1986, No. 2 LA (18) 92-EM/2458, No.
2/28/93-EM/251, No. 2/LA (18) 92-EM/8872, No. 8/25/84 - MEPZ
dated January 13, 1992, No. 8/25/84 - MEPZ dated May 14,
1985, No. 2 LA (18) 92-EM dated August 3, 1993 from
Government of India, Ministry of Commerce, Madras Export
Processing Zone.
</TABLE>
II-2
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.5* 1996 Stock Option Plan.
10.6* Form of Incentive Stock Option Agreement.
10.7* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Dan Rankin.
10.8* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Douglas S. Land.
10.9* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Timothy S. Manney.
10.10* U.S. License Agreement dated November 3, 1995 between the
Company and Andersen Consulting LLP, as amended.
10.11** Acquisition Agreement, dated as of July 19, 1996 between the
Company, JF Electra (Mauritius) Limited, CBS Complete
Business Solutions (Mauritius) Limited and Raj Vattikuti
(without Exhibits).
10.12** Shareholders Agreement dated as of July 19, 1996 between JF
Electra (Mauritius) Limited, CBS Complete Business Solutions
(Mauritius) Limited, Complete Business Solutions (India)
Private Limited and Raj Vattikuti (without Exhibits).
10.13** Agreement dated September 14, 1995 between the Company and
NBD Bank N.A., as amended.
10.14** Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Douglas S. Land.
10.15** Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Timothy S. Manney.
10.16** Incentive Stock Option Agreement dated September 12, 1996
between the Company and Nanjappa Venugopal.
11.1** Statement re Computation of Per Share Earnings for Pro Forma
Net Income.
11.1(a)** EPS Calculation for Supplemental Net Income.
11.1(b)** EPS Calculation for Pro Forma Net Income.
21.1* Subsidiaries of Registrant.
23.1* Consent of Camhy Karlinsky & Stein LLP (included as part of
Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
24.1* Powers of Attorney (included on signature page).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKING
The undersigned Registrant hereby undertakes:
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(2) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) of 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective; and
(3) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement
II-3
<PAGE> 69
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described above or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Farmington
Hills, State of Michigan, on February 4, 1997.
COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ RAJENDRA B. VATTIKUTI
------------------------------------
Rajendra B. Vattikuti
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ RAJENDRA B. VATTIKUTI President, Chief Executive Officer February 4, 1997
- --------------------------------------------- and Director
Rajendra B. Vattikuti
* Executive Vice President of February 4, 1997
- --------------------------------------------- Finance and Administration,
Timothy Manney Treasurer and Director
* Director February 4, 1997
- ---------------------------------------------
Frank Stella
* Director February 4, 1997
- ---------------------------------------------
Douglas Land
*By: /s/ RAJENDRA B. VATTIKUTI
--------------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Complete Business Solutions, Inc. and
subsidiaries included in this Registration Statement and have issued our report
thereon dated January 29, 1997. Our audits were made for the purpose of forming
an opinion on the basic consolidated financial statements as a whole. The
schedule of Valuation and Qualifying Accounts -- Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and
regulations and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Detroit, Michigan,
January 29, 1997.
II-6
<PAGE> 72
SCHEDULE II
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DEDUCTIONS -
BALANCE AT CHARGED TO AMOUNTS BALANCE AT
BEGINNING COSTS AND DEEMED TO BE END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES UNCOLLECTIBLE PERIOD
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1994......... Allowance for uncollectible accounts $ 62 $100 $ (62) $100
December 31, 1995......... Allowance for uncollectible accounts 100 105 (43) 162
December 31, 1996......... Allowance for uncollectible accounts 162 120 (68) 214
</TABLE>
II-7
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1** Restated Articles of Incorporation of the Company, as
amended.
3.2* Bylaws of the Company.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the Company
defining rights of the holders of Common Stock of the
Company.
4.2** Specimen Stock Certificate.
5.1* Opinion of Camhy Karlinsky & Stein LLP, counsel to the
Company, as to the legality of the shares being registered.
10.1* Employment Agreement dated December 12, 1996 between the
Company and Rajendra B. Vattikuti.
10.2* Employment Agreement dated December 12, 1996 between the
Company and Timothy S. Manney.
10.3* Lease dated October 22, 1992 and its seven amendments dated
October 1, 1993, June 14, 1994, June 28, 1994, September 30,
1994, October 14, 1994, August 10, 1995 and August 6, 1996,
between the Company and Orchard Ridge Office Park Limited
Partnership.
10.4* Lease Agreement dated March 26, 1993 between the Company and
President of India through the Development Commissioner and
Madras, India Lease Letters No. MEPZ/Appln/31/84(1) dated
September 23, 1986, No. 2 LA (18) 92-EM/2458, No.
2/28/93-EM/251, No. 2/LA (18) 92-EM/8872, No. 8/25/84 - MEPZ
dated January 13, 1992, No. 8/25/84 - MEPZ dated May 14,
1985, No. 2 LA (18) 92-EM dated August 3, 1993 from
Government of India, Ministry of Commerce, Madras Export
Processing Zone.
10.5* 1996 Stock Option Plan.
10.6* Form of Incentive Stock Option Agreement.
10.7* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Dan Rankin.
10.8* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Douglas S. Land.
10.9* Nonqualified Stock Option Agreement dated April 25, 1996
between the Company and Timothy S. Manney.
10.10* U.S. License Agreement dated November 3, 1995 between the
Company and Andersen Consulting LLP, as amended.
10.11** Acquisition Agreement, dated as of July 19, 1996 between the
Company, JF Electra (Mauritius) Limited, CBS Complete
Business Solutions (Mauritius) Limited and Raj Vattikuti
(without Exhibits).
10.12** Shareholders Agreement dated as of July 19, 1996 between JF
Electra (Mauritius) Limited, CBS Complete Business Solutions
(Mauritius) Limited, Complete Business Solutions (India)
Private Limited and Raj Vattikuti (without Exhibits).
10.13** Agreement dated September 14, 1995 between the Company and
NBD Bank N.A., as amended.
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.14** Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Douglas S. Land.
10.15** Promissory Note dated December 30, 1996 and Exercise and
Loan Notice and Stock Pledge dated December 30, 1996, each
executed by Timothy S. Manney.
10.16** Incentive Stock Option Agreement dated September 12, 1996
between the Company and Nanjappa Venugopal.
11.1** Statement re Computation of Per Share Earnings for Pro Forma
Net Income.
11.1(a)** EPS Calculation for Supplemental Net Income.
11.1(b)** EPS Calculation For Pro Forma Net Income.
21.1* Subsidiaries of Registrant.
23.1* Consent of Camhy Karlinsky & Stein LLP (included as part of
Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
24.1* Powers of Attorney (included on signature page).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 3.1
C&S 515 (5/95)
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES -- CORPORATION, SECURITIES &
LAND DEVELOPMENT BUREAU
- --------------------------------------------------------------------------------------
Date Received
(FOR BUREAU USE ONLY)
- ------------------------------------------------------
- ---------------------------------------------------------------------------------
Name
ARTHUR DUDLEY II EFFECTIVE DATE:
BUTZEL LONG
- ---------------------------------------------------------------------------------
Address
150 W. JEFFERSON, SUITE 900
- ---------------------------------------------------------------------------------
City State Zip
DETROIT, MI 48226
- ---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES -- CORPORATION, SECURITIES &
LAND DEVELOPMENT BUREAU
- --------------------------------------------------------------------------------------
Date Received
- ----------------------------
- ----------------------------
Name
ARTHUR DUDLEY II
BUTZEL LONG
- ----------------------------
Address
150 W. JEFFERSON, SUI
- ----------------------------
City State
DETROIT, MI 48226
- ----------------------------
- --------------------------------------------------------------------------------------
</TABLE>
Document will be returned to the name and address you enter above.
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC CORPORATIONS
(Please read information and instructions on last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
- --------------------------------------------------------------------------------
1. The present name of the corporation is:
COMPLETE BUSINESS SOLUTIONS, INC.
2. The identification number assigned by the Bureau is: 095-049
--------------------------------------------
3. The location of its registered office is:
32605 W. TWELVE MILE ROAD, SUITE 250, FARMINGTON HILLS, MICHIGAN
48334
-------------------------------------------------------------------------
---------------------------------
(Street Address) (City) (ZIP Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. Article III of the Restated Articles of Incorporation is hereby amended
to add a new Section 3 to read in its entirety as follows:
Section 3. Effective immediately, each issued and outstanding share of
the common stock of the corporation shall be consolidated and combined
into .5942275 share of common stock of the corporation. No fractional
shares shall remain outstanding after the foregoing consolidation and
combination. Any fractional share which would have resulted from such
consolidation and combination shall be rounded up to the nearest whole
share. Any options or other rights to acquire common stock from the
corporation which were outstanding immediately prior to the effectiveness
of such consolidation and combination shall be appropriately adjusted.
- --------------------------------------------------------------------------------
<PAGE> 2
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF
THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR
TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a.
------ The foregoing amendment to the Articles of Incorporation were duly
adopted on the
---------------- day of
------------------------------------- , 19
----------------- , in accordance with the provisions of the Act by the
unanimous consent of the incorporator(s) before the first meeting of
the Board of Directors or Trustees.
Signed this
------------------- day of
------------------------------------- , 19
-----------------
<TABLE>
<C> <S>
--------------------------------------------------- ---------------------------------------------------
(Signature) (Signature)
--------------------------------------------------- ---------------------------------------------------
(Type or Print Name) (Type or Print Name)
--------------------------------------------------- ---------------------------------------------------
(Signature) (Signature)
--------------------------------------------------- ---------------------------------------------------
(Type or Print Name) (Type or Print Name)
</TABLE>
b. X
- --- The foregoing amendment to the Articles of Incorporation was duly adopted on
30(th) day of January, 1997. The amendment: (check one of the following)
X
------ was duly adopted in accordance with Section 611(2) of the Act by the
vote of the shareholders if a profit corporation, or by the vote of the
shareholders or members if a nonprofit corporation, or by the vote of
the directors if a nonprofit corporation organized on a non-stock
directorship basis. The necessary votes were cast in favor of the
amendment.
- --- was duly adopted by the written consent of all the directors pursuant to
Section 525 of the Act and the corporation is a nonprofit corporation
organized on a non-stock directorship basis.
- --- was duly adopted by the written consent of the shareholders or members
having not less than the minimum number of votes required by statute in
accordance with Section 407(1) and (2) of the Act if a nonprofit
corporation, and Section 407(1) of the Act if a profit corporation. Written
notice to shareholders who have not consented in writing has been given.
(Note: Written consent by less than all of the shareholders or members is
permitted only if such provision appears in the Articles of Incorporation.)
- --- was duly adopted by the written consent of all the shareholders or members
entitled to vote in accordance with Section 407(3) of the Act if a
non-profit corporation, and Section 407(2) of the Act if a profit
corporation.
31st January
Signed this
--------------------------------------- day of
------------------------------------------------------------ ,
1997
By: /s/ Timothy S. Manney
---------------------------------------------------------
(Signature)
Timothy S. Manney, Executive Vice President
--------------------------------------------------------------
Type or Print Name and Title)
<PAGE> 3
C&S 515
<TABLE>
<S> <C>
Name of Person or Organization Preparer's Name and Business
Remitting Fees: Telephone Number:
BUTZEL LONG ARTHUR DUDLEY II
- -------------------------------------------------------- ------------------------------------
(313) 225-7070
150 W. Jefferson, Ste. 900, Detroit, MI 48226
- -------------------------------------------------------- ----------------------------------
</TABLE>
INFORMATION AND INSTRUCTIONS
1. The amendment cannot be filed until this form, or a comparable document, is
submitted.
2. Submit one original copy of this document. Upon filing, the document will be
added to the records of the Corporation and Securities Bureau. The original
copy will be returned to the address appearing in the box on front as
evidence of filing.
Since this document will be maintained on optical disk media, it is important
that the filing be legible. Documents with poor black and white contrast, or
otherwise illegible, will be rejected.
3. This document is to be used pursuant to the provisions of section 631 of the
Act for the purpose of amending the articles of incorporation of a domestic
profit or nonprofit corporation. Do not use this form for restated articles.
4. Item 2 -- Enter the identification number previously assigned by the Bureau.
If this number is unknown, leave it blank.
5. Item 4 -- The article(s) being amended must be set forth in its entirety.
However, if the article(s) being amended is divided into separately
identifiable sections, only the sections being amended need be included.
6. This document is effective on the date endorsed "filed" by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may be
stated as an additional article.
7. Amendments adopted before the first meeting of the board of directors must be
adopted by all incorporators with Item 5(a) being completed and signed in ink
by at least a majority of the incorporators of profit corporations and by all
incorporators of nonprofit corporations. One signature is not sufficient if
Article V of the Articles of Incorporation names more than one incorporator.
Item 5(b) must be completed for amendments adopted after the first meeting of
the board of directors and must be signed in ink by the president,
vice-president, chairperson or vice-chairperson of the corporation.
8. FEES: Make remittance payable to the State of Michigan. Include corporation
name and identification number on check or money order.
NON-REFUNDABLE FEE......................................... $10.00
TOTAL MINIMUM FEE.......................................... $10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES OF PROFIT CORPORATIONS
ARE:
each additional 20,000 authorized shares or portion
thereof......................................................... $30.00
maximum fee for first 10,000,000 authorized shares....... $5,000.00
each additional 20,000 authorized shares or portion thereof in excess of
10,000,000 shares $30.00
maximum fee per filing for authorized shares in excess of 10,000,000
shares $200,000.00
9. Mail form and fee to: The office is located at:
<TABLE>
<S> <C>
Michigan Department of Consumer & Industry 6546 Mercantile Way
Corporation, Securities & Land Development Bureau Lansing, MI 48910
Corporation Division Telephone: (517) 334-6302
P.O. Box 30054
Lansing, Michigan 48909-7554
</TABLE>
<PAGE> 1
EXHIBIT 4.2
[CBSI COMPLETE BUSINESS SOLUTIONS, INC. LOGO]
<TABLE>
<S><C>
NUMBER SHARES
C
COMMON STOCK COMPLETE BUSINESS SOLUTIONS, INC. COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF MICHIGAN SEE REVERSE FOR
CERTAIN DEFINITIONS
This certifies that CUSIP
20452F 10 7
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, AT NO PAR VALUE, OF
Complete Business Solutions, Inc., transferable on the books of the Corporation in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile signature of its duly authorized officer.
Dated
COUNTERSIGNED AND REGISTERED
/s/ R. B. VATTIKUTI FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
President and Chief Executive Officer AND REGISTRAR
BY /s/ Joseph F. Spadaford
AUTHORIZED OFFICER
AMERICAN BANK NOTE COMPANY
</TABLE>
<PAGE> 2
COMPLETE BUSINESS SOLUTIONS, INC.
Complete Business Solutions, Inc. will furnish without charge to each
stockholder who so requests a statement of the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof of the corporation, and the
qualifications, limitations or restrictions of such preferences and/or rights.
Such request may be made to the corporation or the transfer agent. The Board
of Directors has authority to fix, before issuance of any shares of a
particular series, the rights, preferences and limitations pertaining to such
series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian _____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
| |
|______________________________________|
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________
______________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
______________________________________________________
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<TABLE>
<S> <C>
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR SUSAN MCNAMEE - 215 830 215B
500 BLAIR MILL ROAD PROOF OF JANUARY 31, 1997
HORSHAM, PA 19044 COMPLETE
215-557-3480 H 48767bk
SALESPERSON- R JOHNS - 717-337-9700 Opr eg/h rev 1
/home/ed/inprogress/home 11/Complete 18767 /nsl/banknote/home 11/C
</TABLE>
<PAGE> 1
EXHIBIT 10.11
DATED: 19 JULY 1996
C/2554/1/AW/RZH DR D1-68605-1
AGREEMENT
between
JF ELECTRA (MAURITIUS) LIMITED
as Investor
COMPLETE BUSINESS SOLUTIONS, INC.
as Parent
CBS COMPLETE BUSINESS SOLUTIONS (MAURITIUS) LIMITED
as Company
and
RAJ VATTIKUTI
SIMMONS & SIMMONS
24th Floor Jardine House One Connaught Place Central Hong Kong
Tel: (852) 2868 1131 Fax: (852) 2810 5040 DX009121 Central 1
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. Provisions relating to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Costs and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SCHEDULE 1 : WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SCHEDULE 2: DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SCHEDULE 3: CORPORATE DETAILS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
i
<PAGE> 3
THIS AGREEMENT dated the 19th day of July 1996 and made
BETWEEN:
(1) JF ELECTRA (MAURITIUS) LIMITED, a company incorporated and existing
under the laws of Mauritius whose registered office is at 4/F, Les
Cascades Building, Edith Cavell Street, Port Louis, Mauritius ("the
Investor");
(2) COMPLETE BUSINESS SOLUTIONS, INC. , a corporation incorporated and
existing under the laws of the state of Michigan whose registered office
is at 32605 West Twelve Mile Road, Suite 250, Farmington Hills, Michigan
48334-3339, U.S.A. ("the Parent") ; and
(3) CBS COMPLETE BUSINESS SOLUTIONS (MAURITIUS) LIMITED, a company
incorporated and existing under the laws of Mauritius whose registered
office is at Les Jamalacs Building, Vieux Conseil Street, Port Louis,
Mauritius (the "Company"); and
(4) RAJ VATTIKUTI of 32605 West Twelve Mile Road, Suite 250, Farmington
Hills, Michigan 48334-3339, U.S.A. ("Mr Vattikuti").
WHEREAS:
(A) The Parent is the beneficial owner of the entire issued share capital of
the Company.
(B) The Investor wishes to subscribe for new shares in the capital of the
Company in the amount of US$4,000,000 on the terms of this Agreement.
(C) The Company wishes to use part of the proceeds of the subscription
referred to in Recital (B) above (and other funds available to it) to
(I) repay a loan in the amount of US$2,760,000 outstanding to the Parent
and (ii) make a capital contribution to, or subscribe for new shares in
the capital of, the Subsidiary (as defined herein) in the amount of
US$2,500,000 on the terms of this Agreement.
(D) The Parent wishes to subscribe for additional new shares in the capital
of the Company in the amount of US$1,709,040 on the terms of this
Agreement.
(E) Mr Vattikuti and the Parent have agreed to give certain warranties and
representations in connection with the subscription for shares by the
Investor as described in Recital (B) above.
1
<PAGE> 4
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement where the context admits:
"Completion" means completion of the Subscription and the Top Up
Subscription in accordance with Clause 5;
"Due Diligence" means the due diligence conducted by the Investor prior
to execution of this Agreement, comprising a review of the Due Diligence
Bundle;
"Due Diligence Bundle" means the agreed form bundle of documents
reviewed by the Investor as part of the Due Diligence, comprising copies
of the documents listed in Schedule 2;
"India Shares" means equity shares of Rs100 each in the capital of the
Subsidiary;
"Loan" means the loan in the amount of US$2,760,000 made by the Parent
to the Company and outstanding at the date of this Agreement;
"Parties" means the named parties to this Agreement and their respective
successors and assigns and "Party" shall be construed accordingly;
"Shares" means ordinary shares of US$1 each in the capital of the
Company;
"Shareholders Agreement" means the shareholders agreement in an agreed
form marked "A" to be entered into by the Parties and the Subsidiary on
Completion;
"Subscription" means the subscription by the Investor for the
Subscription Shares on the terms of this Agreement;
"Subscription Price" means the price of US$291.3965 per Subscription
Share;
"Subscription Shares" means the 13,727 new Shares to be subscribed for
by the Investor pursuant to this Agreement;
"Subsidiary" means Complete Business Solutions (India) Private Limited,
a wholly owned subsidiary of the Company;
"Top Up Subscription" means the subscription by the Parent for the Top
Up Subscription Shares on the terms of this Agreement;
"Top Up Subscription Price" means the price of US$291.3965 per Top Up
Subscription Share;
2
<PAGE> 5
"Top Up Subscription Shares" means the 5,865 new Shares to be subscribed
for by the Parent pursuant to this Agreement;
"Warranties" means the warranties and representations set out in
Schedule 1;
"Warrantors" means the Parent and Mr Vattikuti;
"Rs" means Indian rupees; and
"US$" means United States dollars.
1.2 CONSTRUCTION OF CERTAIN REFERENCES
In this Agreement where the context admits:
(A) references to statutory provisions shall be construed as references
to those provisions as amended or re-enacted or as their
application is modified by other provisions from time to time and
shall include references to any provisions of which they are
re-enactments (whether with or without modification);
(B) references to Clauses and Schedules are references to clauses
hereof and schedules hereto, references to Sub-Clauses or
Paragraphs are, unless otherwise stated, references to sub-clauses
or paragraphs of the Clause or Schedule in which the reference
appears, and references to this Agreement include the Schedules;
and
(C) references to any document being in agreed terms or in agreed form
are to that document in the form signed or initialled by or on
behalf of the Parties for identification.
1.3 JOINT AND SEVERAL LIABILITIES
All warranties, representations, indemnities, covenants, agreements and
obligations given or entered into by more than one person in this
Agreement are given or entered into jointly and severally.
1.4 HEADINGS
The headings and sub-headings are inserted for convenience only and
shall not affect the construction of this Agreement.
1.5 SCHEDULES
Each of the Schedules shall have effect as if set out herein.
3
<PAGE> 6
2. SUBSCRIPTIONS
2.1 SUBSCRIPTION
The Investor agrees to subscribe for, and the Company agrees to issue,
the Subscription Shares at the Subscription Price, on the terms and
subject to the conditions of this Agreement.
2.2 TOP UP SUBSCRIPTION
The Parent agrees to subscribe for, and the Company agrees to issue, the
Top Up Subscription Shares at the Top Up Subscription Price, on the
terms and subject to the conditions of this Agreement.
2.3 PARI PASSU
The Company hereby covenants and undertakes that the Subscription Shares
and the Top Up Subscription Shares shall rank pari passu and as a single
class with the existing Shares in issue at the date of Completion.
3. CAPITAL CONTRIBUTION
3.1 Subject to and conditional upon Completion, the Company hereby covenants
and undertakes that it will subscribe for new India Shares or (if
appropriate and permissible) make capital contributions to the
Subsidiary in the aggregate amount of US$2,500,000 in such manner as is
set out in the section headed "Sources and Uses of Funds" in the
Business Plan (as defined in the Shareholders Agreement).
4. CONDITION
4.1 CONDITION
Completion of the Subscription and the Top Up Subscription are each
conditional upon receipt by the Investor of foreign legal opinions in a
form reasonably acceptable to it in connection with the transactions
contemplated by this Agreement and the Shareholders Agreement, and dated
at the date of Completion.
4.2 SATISFACTION
The Investor shall use all reasonable endeavours to procure the
satisfaction of the condition set out in Clause 4.1 (the "Completion
Condition").
4.3 WAIVER
The Investor may waive in whole or in part the Completion Condition.
4
<PAGE> 7
4.4 LAPSE
If the Completion Condition has not been satisfied or otherwise waived
by the Investor on or before 26th July 1996 (or such later date as the
Investor and Mr Vattikuti shall agree in writing), this Agreement shall
lapse and no Party shall be entitled to make any claim against any other
in respect hereof, save for any antecedent breach.
5. COMPLETION
5.1 DATE OF COMPLETION
Completion shall take place as soon as practicable after satisfaction
(or waiver by the Investor, as the case may be) of the Completion
Condition at the offices of Simmons & Simmons, 21 Wilson Street, London
EC2M 2TX.
5.2 SUBSCRIPTION
Subject to fulfilment of the Completion Condition (or waiver by the
Investor, as the case may be), on Completion :-
(A) The Company shall:-
(1) allot and issue to the Investor the Subscription Shares and
shall promptly thereafter register the Investor as a member of
the Company; and
(2) deliver to Maigrot Koenig, the Investor's lawyers in
Mauritius, share certificates in respect of the Subscription
Shares.
(B) The Investor shall pay to the Company the aggregate Subscription
Price for the Subscription Shares to the bank account nominated by
the Company which shall constitute a complete discharge of the
Investor's obligations in respect thereof.
5.3 TOP UP SUBSCRIPTION
Subject to the completion of the Subscription as set out in Clause 5.2
above:-
(A) The Company shall:-
(1) allot and issue to the Parent the Top Up Subscription Shares;
and
(2) deliver to the secretary of the Company, as agent for the
Parent, share certificates in respect of the Top Up
Subscription Shares.
5
<PAGE> 8
(B) The Company shall pay to the Parent a net amount equal to the
amount of the Loan less the aggregate Top Up Subscription Price for
the Top Up Subscription Shares, to the bank account nominated by
the Parent which shall constitute:-
(1) a complete discharge of the Parent's obligations (as the
Company hereby acknowledges) in respect of the Top Up
Subscription; and
(2) a complete discharge of the Company's obligations (as the
Parent hereby acknowledges) in respect of repayment of the
Loan.
5.4 SHAREHOLDERS AGREEMENT
Subject to the fulfilment of the Completion Conditions set out in Clause
4.1 and subject to the completion of all the matters set out in Clauses
5.2 and 5.3, all the Parties shall, and Mr Vattikuti shall procure that
the Subsidiary shall, enter into the Shareholders Agreement.
5.5 COVENANTS AND UNDERTAKINGS
Mr Vattikuti hereby irrevocably covenants and undertakes to and for the
benefit of the Investor to procure the due and punctual performance by
the Parent, the Company and the Subsidiary of all acts, covenants and
obligations to be performed, given or observed by each of them under
this Agreement.
5.6 FAILURE TO COMPLETE
If in any respect the preceding provisions of this Clause are not
complied with on the date for Completion set by Clause 5.1 the Party not
in default may:
(A) defer Completion to a date not more than 28 days after the date set
by Clause 5.1 (and so that the provisions of this Clause 5.6, apart
from this Clause 5.6(A), shall apply to Completion as so deferred);
or
(B) proceed to Completion so far as practicable (without prejudice to
its rights hereunder); or
(C) rescind this Agreement.
6. WARRANTIES
6.1 INVESTOR'S KNOWLEDGE
(A) The Warranties are given subject to matters fairly disclosed in
this Agreement and the Due Diligence Bundle. No other information
relating to the Parent, the Company or the Subsidiary of which the
Investor has knowledge (actual or constructive) shall prejudice any
claim made by the
6
<PAGE> 9
Investor under the Warranties or operate to reduce any amount
recoverable.
(B) The Investor acknowledges that at the date hereof it is not aware
of any claim that it would be entitled to bring against the
Warrantors in respect of a breach of the Warranties at the date of
this Agreement.
(C) The Investor further acknowledges that the projections provided by
the Company and the Parent to it are subject to a high degree of
uncertainty and do not necessarily reflect the actual performance
that the Company may achieve in the future.
6.2 WARRANTIES TO BE INDEPENDENT
Each of the Warranties shall be separate and independent and, save as
expressly provided, shall not be limited by reference to any other
Warranty or anything in this Agreement.
6.3 DAMAGES
Without restricting the rights of the Investor or the ability of the
Investor to claim damages on any basis in the event that any of the
Warranties is broken or proves to be untrue or misleading, the
Warrantors shall, on demand, pay to the Investor:
(A) the amount necessary to put the Investor into the position which
would have existed if the Warranties had not been broken and had
been true and not misleading; and
(B) all costs and expenses incurred by the Investor as a result of the
breach.
6.4 LIMITATION
Notwithstanding the provisions of Clause 6.3:
(A) the maximum aggregate liability of the Warrantors under or in
connection with the Warranties shall not exceed a sum equal to the
aggregate of (I) US$4,000,000 (the "Principal Sum") and (ii)
interest in respect of the Principal Sum (accruing daily and
compounded quarterly) at a rate of five per cent. (5%) above LIBOR
from the date of this Agreement up to (and including) the date
payment is made to the Investor in respect of any claim
successfully brought by it against the Warrantors under this
Agreement; and
(B) notwithstanding Sub-Clause (A), the maximum liability of Mr
Vattikuti under or in connection with the Warranties shall not
exceed the sum of US$1,000,000.
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6.5 INVESTOR'S REPRESENTATIONS AND WARRANTIES
The Investor hereby represents and warrants to and for the benefit of
the Parent as follows:
(A) The Investor is a company duly incorporated and validly existing
under the laws of Mauritius.
(B) (1) The Investor has the power, legal capacity and authority to
execute, deliver and perform this Agreement and the
Shareholders Agreement and necessary in order for it to
perform any of its obligations under this Agreement and the
Shareholders Agreement.
(2) The execution, delivery and performance of this Agreement and
the Shareholders Agreement have been duly authorised by
appropriate action of the Investor.
(C) The execution, delivery and performance of this Agreement and the
Shareholders Agreement does not conflict with or constitute a
violation or breach of the Company's organisational documents, or
any law, regulation, order, writ, agreement, understanding,
document or instrument binding upon the Investor. No governmental
authorisation, permit or registration is required in connection
with the execution, delivery and performance by the Investor of
this Agreement or the Shareholders Agreement.
6.6 PENDING COMPLETION
Mr Vattikuti shall procure that (save only as may be necessary to give
effect to this Agreement) neither the Parent, the Company nor the
Subsidiary shall do, allow or procure any act or omission before
Completion which would constitute a breach of any of the
Warranties if they were given at any and all times from the date
hereof down to Completion or which would make any of the Warranties
inaccurate or misleading if they were so given.
7. CONFIDENTIALITY
7.1 CONFIDENTIALITY
Subject to sub-clause 7.2 and 7.3, each Party:-
(A) shall treat as strictly confidential information obtained or
received by it as a result of entering into or performing its
obligations under this Agreement and relating to the negotiations
relating to, or the provisions or subject matter of, this Agreement
or the other Parties ("confidential information"); and
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(B) shall not, except with the prior written consent of the other
Parties, publish or otherwise dispose to any person any
confidential information.
7.2 PERMITTED DISCLOSURES
Any Party may disclose confidential information which would otherwise be
subject to sub-clause 7.1 if but only to the extent that it can
demonstrate that:-
(A) such disclosure is required by law or by any securities exchange or
regulatory or governmental body having jurisdiction over it,
wherever situated and whether or not the requirement has the force
of law;
(B) the confidential information was lawfully in its possession prior
to its disclosure by any other Party (as evidenced by written
records) and has not been obtained from such other Party; or
(C) the confidential information has come into the public domain other
than through its fault or the fault of any person to whom the
confidential information has been disclosed in accordance with
Clause 7.3.
7.3 DISCLOSURES TO CERTAIN PARTIES
Any Party may for the purposes contemplated by this Agreement disclose
confidential information to the following persons:-
(A) its professional advisers, auditors, bankers and insurers, acting
as such; and
(B) its directors, officers and senior employees.
7.4 PERSISTENCE OF RESTRICTIONS
The restrictions contained in this Clause shall survive the termination
of this Agreement.
7.5 DUTY OF CARE
In fulfilling its obligations under this clause, each Party shall only
be required to use the same degree of care to prevent unauthorised
disclosure of confidential information as it would use to prevent the
disclosure of confidential information relating to itself.
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8. PROVISIONS RELATING TO THIS AGREEMENT
8.1 ASSIGNMENT
This Agreement shall be binding upon and enure for the benefit of the
successors of the Parties but shall not be assignable, save that the
Investor may assign the benefit of the Warranties to any transferee of
the Subscription Shares.
8.2 WHOLE AGREEMENT
This Agreement (together with any documents referred to herein)
constitutes the whole agreement between the Parties relating to its
subject matter and no variations hereof shall be effective unless made
in writing and signed by or on behalf of all the Parties.
8.3 AGREEMENT SURVIVES COMPLETION
The Warranties and all other provisions of this Agreement, in so far as
the same shall not have been performed at Completion, shall remain in
full force and effect notwithstanding Completion.
8.4 RIGHTS OF RESCISSION
Any right of rescission conferred upon any Party hereby shall be in
addition to and without prejudice to all other rights and remedies
available to it and no exercise or failure to exercise such a right of
rescission shall constitute a waiver by such Party of any such other
right or remedy. Completion shall not constitute a waiver by any Party
of any breach of any provision of this Agreement whether or not known to
such Party at the date of Completion.
8.5 FURTHER ASSURANCE
At any time after the date hereof the Company shall, and Mr Vattikuti
shall procure that the Company shall, at the request of the Investor,
execute such documents and do such acts and things as the Investor may
reasonably require for the purpose of vesting the Subscription Shares in
the Investor and giving to the Investor the full benefit of all the
provisions of this Agreement.
8.6 INVALIDITY
If any provision of this Agreement shall be held to be illegal or
unenforceable, the enforceability of the remainder of this Agreement
shall not be affected.
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8.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, which
shall together constitute one Agreement.
8.8 NOTICES
(A) As between the Parties, for the purposes of this Agreement, all
notices shall be given in accordance with this Clause 8.8. Any
notice (which term shall include any other communication) required
to be given under this Agreement or in connection with the matters
contemplated by it shall, except where otherwise specifically
provided, be in writing in the English language.
(B) Any such notice shall be addressed as provided in Clause 8.8(C) and
may be:-
(1) personally delivered, in which case it shall be deemed to have
been given upon delivery at the relevant address; or
(2) sent by international express mail service in which case it
shall be deemed to have been given seven days after the date
of posting; or
(3) sent by facsimile, in which case it shall be deemed to have
been given when despatched, subject to confirmation of
uninterrupted transmission by a transmission report provided
that any notice despatched by facsimile after 17.00 hours
(Hong Kong time) on any day shall be deemed to have been
received at 09.00 hours (Hong Kong time) on the next day.
(C) The addresses and other details of the Parties referred to in
Clause 8.8 are, subject to Clause 8.8(D):-
(1) Name: JF Electra (Mauritius) Limited
For the attention of: John Levack
Address: 4/F, Les Cascades Building
Edith Cavell Street
Port Louis
Mauritius
Facsimile number: (230) 212 9833
With a copy to:- JF Electra Limited
For the attention of: John Levack/Lucian Wu
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<PAGE> 14
Address: 47/F, Jardine House
One Connaught Place
Central
Hong Kong
Facsimile number: (852) 2530 5525
(2) Name: Complete Business Solutions,
Inc.
For the attention of: Raj Vattikuti/Tim Manney
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0109
With a copy to:- Butzel Long
For the attention of: Arthur Dudley II
Address: Suite 900
150 West Jefferson
Detroit
Michigan 48226-4430
U.S.A.
Facsimile Number: (1) 313 225 7080
(3) Name: CBS Complete Business
Solutions
(Mauritius) Limited
For the attention of: The Company Secretary
Address: Les Jamalacs Building
Vieux Conseil Street
Port Louis
Mauritius
Facsimile number: (230) 212 5265
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<PAGE> 15
With a copy to:- Butzel Long
For the attention of: Arthur Dudley II
Address: Suite 900
150 West Jefferson
Detroit
Michigan 48226-4430
U.S.A.
Facsimile Number: (1) 313 225 7080
With a copy to: Complete Business Solutions,
Inc.
For the attention of: Raj Vattikuti/Tim Manney
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0109
(4) Name: Raj Vattikuti
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0439
(D) Any Party may notify the other Parties of any change to the
address or any of the other details specified in sub-clause
8.8(C), provided that such notification shall only be
effective on the date specified in such notice or five days
after the notice is given, whichever is later.
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9. ANNOUNCEMENTS
9.1 The Parties shall be entitled to make or permit or authorise the making
of any press release or other public statement or disclosure concerning
this Agreement or any of the transactions contemplated herein.
10. COSTS AND COMMISSIONS
10.1 Each Party shall bear its own costs in connection with the preparation
and execution of this Agreement and the Shareholders Agreement.
10.2 As authorised by Article 13 of the Company's Articles of Association,
the Company shall pay the following commissions to the Investor and the
Parent in consideration of each one subscribing the Shares subscribed by
it and each one procuring the subscription by the other of those Shares
subscribed by the other in connection with this Agreement:-
(A) a commission of US$140,000 to the Investor, representing
approximately two and forty-five hundredths per cent.
(2.45%) of the aggregate subscription proceeds pursuant to
the Subscription and the Top Up Subscription; and
(B) a commission of US$360,000 to the Parent, representing
approximately six and thirty-one hundredths per cent.
(6.31%) of the aggregate subscription proceeds pursuant to
the Subscription and the Top Up Subscription.
11. LAW
11.1 This Agreement shall be governed by and construed in accordance with
the laws of England.
11.2 Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration which shall be conducted in accordance with the
UNCITRAL Arbitration Rules in force at the date of this Agreement (the
"UNCITRAL Rules") in the English language. The appointing authority
shall be the International Chamber of Commerce ("ICC") and the
arbitration will take place in London. There shall be three
arbitrators. One arbitrator shall be appointed by each of the Investor
and the Parent and the third arbitrator shall be appointed by the first
two arbitrators. If the first two arbitrators shall fail to agree on
the appointment of a third arbitrator within 30 days of their own
appointments, the third arbitrator shall be appointed in accordance
with the UNCITRAL Rules. Any such arbitration shall be conducted in
accordance with the ICC arbitration procedures in force at the date of
this Agreement, including such additions to the UNCITRAL Rules as are
therein contained.
11.3 The decision of the arbitration will be final and binding and not
subject to appeal.
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<PAGE> 17
AS WITNESS the hands of the parties or their duly authorised representatives
the day and year first before written.
15
<PAGE> 18
SCHEDULE 1 : WARRANTIES AND REPRESENTATIONS
1. INTERPRETATION
In this schedule where the context admits:-
(1) "Audited Accounts" means the audited consolidated balance sheet of the
Parent and the audited balance sheet of the Subsidiary made up as at
the Balance Sheet Date and the audited consolidated profit and loss
account of the Parent and the audited profit and loss account of the
Subsidiary for the year ended on the Balance Sheet Date, including the
notes thereto, copies of which have been disclosed to the Investor in
the Due Diligence Bundle;
(2) "Balance Sheet Date" means 31st December 1995;
(3) "Company Accounts" means the unaudited balance sheet of the Company
made up as at 19th July 1996, a copy of which has been disclosed to
the Investor in the Due Diligence Bundle;
(4) "Computer Systems" means all computer systems used by or for the
benefit of the Company at any time, including computer processors,
associated and peripheral equipment, computer programs, technical and
other documentation, and data entered into or created by the foregoing
from time to time, but excluding any computer systems owned by clients
of the Company or provided by such clients for use by the Company;
(5) "Companies Acts" means the Companies Act 1984 of Mauritius, the
Companies Act 1956 of India and any other statutes from time to time
in force concerning companies in Mauritius and India (as appropriate);
(6) "encumbrance" includes any interest or equity of any person
(including, without prejudice to the generality of the foregoing, any
right to acquire, option or right of pre-emption) or any mortgage,
charge, pledge, lien, assignment, hypothecation, security interest,
title retention or any other security agreement or arrangement;
(7) "environmental liability" includes liability for any form of damage to
the environment and for any of the following: damage to living
organisms or persons (including impairment of health and interference
with amenity); damage to land or personal property; interference with
riparian or other proprietary or possessory rights; and public or
private nuisance;
(8) "intellectual property" means patents, trade marks, service marks,
rights (whether registered or unregistered) in any designs,
applications for any of the foregoing, trade or business names and
copyright;
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(9) "intellectual property agreements" means agreements or arrangements
relating (wholly or partly) to intellectual property or to the
disclosure, use, assignment or patenting of any inventions, discovery,
improvements, processes, formulae or other knowhow;
(10) "Management Accounts" means the management accounts of the Subsidiary
for the period ended on the Management Accounts Date, copies of which
have been disclosed to the Investor in the Due Diligence Bundle;
(11) "Management Accounts Date" means 30th April 1996;
(12) "Parent's Group" means the Parent and its subsidiaries and associated
companies at the date of this Agreement;
(13) "Properties" means the properties owned or occupied by the Subsidiary
for the purposes of carrying on its business, details of which have
been disclosed to the Investor in the Due Diligence Bundle;
(14) "Reorganisation" means the corporate reorganisation of the share
capitals of the Parent, the Company and the Subsidiary carried out
prior to execution of this Agreement, copies of documents in relation
to which have been provided to the Investor;
(15) "GAAP" means Generally Accepted Accounting Principles in force at the
date hereof in any applicable territory;
(16) any question whether a person is connected with another shall be
determined in accordance with s.839 of the United Kingdom Income and
Corporation Taxes Act 1988 which shall apply in relation to this
schedule as it applies in relation to that Act;
(17) references to "the Company" include the Subsidiary;
(18) where any statement is qualified by the expression "so far as the
Warrantors are aware" or "to the best of the Warrantors' knowledge and
belief" or any similar expression, that statement shall be deemed to
include an additional statement that it has been made after due and
careful enquiry; and
(19) reference to any Act, statutory instrument, regulation, bye-law or
other requirement of English law and to any English legal term for any
action, remedy, method of judicial proceeding, legal document, legal
status, court, official or any legal concept or thing shall in respect
of any jurisdiction other than England be deemed to include that which
most nearly approximates in that jurisdiction to the English legal
term.
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2. WARRANTIES AND REPRESENTATIONS
The Warrantors hereby jointly and severally warrant and represent to and for
the benefit of the Investor in the following terms.
(A) THE COMPANY AND THE PARENT
(1) Capacity
The Parent, the Company and the Subsidiary have full power to
enter into and perform this Agreement and this Agreement
constitutes binding obligations on the Parent, the Company and
the Subsidiary in accordance with its terms.
(2) Liabilities Owing to or by Company
Except as disclosed, contained or accrued in the Audited
Accounts and the Management Accounts, there is not outstanding
any material indebtedness or other material liability (actual
or contingent) owing by the Company to any member of the
Parent's Group or any director or any person connected with
any of them, nor is there any material indebtedness owing to
the Company by any such person, and no promise or
representation has been made to the Warrantors in connection
with the Warranties in respect of which the Company might be
liable.
(3) Parent's Other interests
Neither Mr Vattikuti nor any member of the Parent's Group
(save for the Company and the Subsidiary) nor any person
connected with Mr Vattikuti or any such member has any
interest, direct or indirect, in any business other than that
now carried on by the Company which is or is likely to be or
become competitive with the business or any proposed business
of the Company (save for a holding of shares in any company
not exceeding five per cent. (5%) of such company's issued
share capital).
(4) Reorganisation
The Reorganisation was properly carried out in compliance with
the Companies Acts and all other applicable laws and
regulations and all consents, approvals and permissions were
duly obtained and all relevant filings were duly made in
connection with the Reorganisation.
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(B) THE COMPANY'S CONSTITUTION
(1) Share Capital
Parts I and II of Schedule 3 contain true particulars of the
authorised and issued share capital and other corporate
details of the Company and the Subsidiary and all the shares
there shown as issued are in issue fully paid and are
beneficially owned and registered as set out therein free from
any encumbrance.
(2) Memorandum and Articles
The copy of the memorandum and articles of association of the
Company disclosed to the Investor in the Due Diligence Bundle
is true and complete and has embodied therein or annexed
thereto a copy of every such resolution or agreement as is
required by applicable laws.
(3) Company Resolutions
Neither the Company nor any class of its members has passed
any resolution (other than resolutions relating to business at
annual general meetings which was not special business or
those resolutions specifically passed in connection with the
transactions contemplated by this Agreement).
(4) Options
No person has the right (whether exercisable now or in the
future and whether contingent or not) to call for the
allotment, issue, sale, transfer or conversion of any share or
loan capital of the Company under any option or other
agreement (including conversion rights and rights of
pre-emption), other than those Shares which may be issued and
allotted pursuant to the Company's management stock option
plan.
(C) THE COMPANY AND THE LAW
(1) Compliance with Laws
The Company and the Parent have conducted their businesses in
all material respects in accordance with all applicable laws
and regulations of their respective countries of incorporation
and any relevant foreign country and there is no order, decree
or judgment of any Court or any governmental agency of or any
country outstanding against the Company or the Parent or which
may have a material adverse effect upon the assets or business
of the Company or the Parent.
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(2) Investment Holding
The Company (which, for the purpose of this Paragraph (2),
shall not include the Subsidiary) carries on no business other
than as an investment holding company.
(3) Licences
All necessary licences, consents, permits and authorities
(public and private) have been obtained by the Subsidiary and
the Parent to enable them to carry on their respective
businesses effectively in the places and in the manner in
which such businesses are now carried on and all such
licences, consents, permits and authorities are valid and
subsisting and to the best of the Warrantors' knowledge and
belief there is no reason why any of them should be suspended,
cancelled or revoked.
(4) Breach of Statutory Provisions
Neither the Company nor the Parent, nor any of their
respective officers, agents or employees (during the course of
their duties in relation to the Company or the Parent) have
committed, or omitted to do, any act or thing the commission
or omission of which is, or could be, in contravention of any
Act, Order, Regulation, or the like in any country which is
punishable by fine or other penalty.
(5) Litigation
Neither the Company nor the Parent is engaged in any
litigation or arbitration proceedings and so far as the
Warrantors are aware no litigation or arbitration proceedings
are pending or threatened by or against the Company or the
Parent and there are no facts which the Warrantors believe are
likely to give rise to any litigation or arbitration and
neither the Company nor the Parent has been a party to any
undertaking or assurance given to any Court or governmental
agency or the subject of any injunction which is still in
force.
(6) Insolvency
(a) No order has been made or petition presented or
resolution passed for the winding up of the Company
or the Parent, nor has any distress, execution or
other process been levied against the Company or the
Parent or action taken to repossess goods in the
Company's or the Parent's possession.
(b) No steps have been taken for the appointment of an
administrator or receiver of any part of the
Company's or the Parent's property.
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<PAGE> 23
(c) No floating charge created by the Company or the
Parent has crystallised and, so far as the Warrantors
are aware, there are no circumstances likely to cause
such a floating charge to crystallise.
(d) Neither the Company nor the Parent has been a party
to any transaction which could be avoided in a
winding up.
(e) Neither the Company nor the Parent has made or
proposed any arrangement or composition with its
creditors or any class of its creditors.
(7) Defective Products
Neither the Subsidiary nor the Parent has provided any
services which are or were below the standard of services
generally provided within the industry sector in which those
companies operate and to the best of the Warrantors' knowledge
and belief all such services provided by the Parent and/or the
Subsidiary comply or complied in all material respects with
any warranties or representations expressly or impliedly made
by the Subsidiary or the Parent (as the case may be) or with
all applicable regulations, standards and requirements in
respect thereof. Neither the Subsidiary nor the Parent has
undertaken any contract where a customer has challenged or is
challenging the quality standards or cost estimates provided
by the Subsidiary or the Parent (as the case may be), other
than to the extent normally experienced within the relevant
industry sector.
(8) Inducements
So far as the Warrantors are aware no officer, agent or
employee of the Company or the Parent has paid any bribe or
used any of the Company's or the Parent's assets unlawfully to
obtain an advantage for any person.
(D) THE COMPANY'S ACCOUNTS AND RECORDS
(1) Books and Records
All accounts, books, ledgers, financial and other records of
whatsoever kind ("records") of the Parent and the Company:-
(a) have been fully, properly and accurately maintained,
are in the possession of the Parent and the Company
and contain true and accurate records of all matters
required by law to be entered therein;
(b) do not contain or reflect any material inaccuracies
or discrepancies; and
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(c) give and reflect a true and fair view of the matters
which ought to appear therein
and no notice or allegation that any of the records is
incorrect or should be rectified has been received.
(2) Accounts Warranty
(a) The Audited Accounts have been prepared in accordance
with the requirements of all relevant statutes and
generally accepted accounting principles and present
fairly, in all material respects, the assets and
liabilities of the Parent and the Subsidiary at the
Balance Sheet Date and the profits of the Parent and
the Subsidiary for the year ended on the Balance
Sheet Date and apply bases and policies of accounting
which have been consistently applied in the audited
balance sheet and profit and loss accounts for the
three financial years prior to the Balance Sheet
Date.
(b) The Company Accounts present fairly, in all material
respects, the assets and liabilities of the Company
at 19th July 1996.
(3) Provision for Liabilities
Full provision has been made in the Audited Accounts for all
material actual liabilities of the Parent and the Subsidiary
outstanding at the Balance Sheet Date and proper provision (or
note) in accordance with generally accepted accounting
principles has been made therein for all other liabilities of
the Parent and the Subsidiary then outstanding whether
contingent, quantified, disputed or not, including (without
limitation) the cost of any work or material for which payment
has been received or credit taken, any future loss which may
arise in connection with uncompleted contracts and any claims
against the Parent and/or the Subsidiary in respect of
completed contracts and, taken as a whole, the aggregate
liabilities of the Parent and the Subsidiary are not
materially higher than as disclosed in the Audited Accounts.
(4) Stock Valuation and Accounting Policies
For the purposes of the Audited Accounts, the Parent and the
Subsidiary's stock in trade and work in progress has been
valued in accordance with applicable GAAP and on a basis in
all material respects consistent with that adopted for the
purpose of the Parent's audited consolidated accounts in
respect of the beginning and end of each of the three last
preceding accounting periods and the value of redundant or
obsolete materials and materials below standard has been
written down to realisable market value or adequate provision
has been made therefor.
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(5) Management Accounts
The Management Accounts have been prepared in accordance with
the Subsidiary's normal practices and the Warrantors do not
consider them misleading.
(6) Returns
The Company has complied with the provisions of the Companies
Acts and all returns, particulars, resolutions and other
documents required under any legislation to be delivered on
behalf of the Company to the Registrar of Companies or to any
other authority whatsoever in any applicable territory have
been properly made and delivered. All such documents
delivered to the Registrar of Companies or to any other
authority whatsoever in any applicable territory, whether or
not required by law, were true and accurate when so delivered.
(E) THE SUBSIDIARY'S BUSINESS
(1) Business since the Balance Sheet Date
Since the Balance Sheet Date:-
(a) the Subsidiary has carried on its business in the
ordinary and usual course and without entering into
any transaction, assuming any liability or making any
payment which is not in the ordinary course of its
business and without any interruption or alteration
in the nature, scope or manner of its business;
(b) the Company has not borrowed or raised any money or
taken any financial facility;
(c) the Company has paid its creditors within the times
agreed with such creditors and so that there are no
debts outstanding by the Company which have been due
for more than eight weeks;
(d) the Company has not entered into, or agreed to enter
into, any capital commitments;
(e) no share or loan capital has been issued or agreed to
be issued by the Company;
(f) save for the payment by the Subsidiary of a dividend
in the aggregate amount of Rs1,435,000 in respect of
the year ended on the Balance Sheet Date, no
distribution of capital or income has been declared,
made or paid in respect of any share capital of the
Company and (excluding fluctuations in overdrawn
current accounts with bankers)
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no loan or share capital of the Company has been
repaid in whole or part or has become liable to be
repaid; and
(g) there has been no material deterioration in the
financial position, prospects or turnover of the
Company.
(2) Working Capital
Having regard to existing bank and other facilities, the
Company has sufficient working capital for the purposes of
continuing to carry on its business in its present form and at
its present level of turnover for the foreseeable future and
for the purposes of executing, carrying out and fulfilling in
accordance with their terms all orders, projects and
contractual obligations which have been placed with, or
undertaken by the Company.
(3) Commission
No one is entitled to receive from the Company any finder's
fee, brokerage, or other commission in connection with this
Agreement or the Shareholders Agreement.
(4) Consequence of the Subscription and the Top Up Subscription
The subscription for the Subscription Shares by the Investor,
the subscription for the Top Up Subscription Shares by the
Parent or compliance with the terms of this Agreement:-
(a) will not cause the Company to lose the benefit of any
right or privilege it presently enjoys or so far as
the Warrantors are aware, cause any person who
normally does business with the Company not to
continue to do so on the same basis as previously;
(b) will not relieve any person of any obligation to the
Company or enable any person to determine any such
obligation or any right or benefit enjoyed by the
Company or to exercise any right whether under an
agreement with or otherwise in respect of the
Company;
(c) will not result in any present or future indebtedness
of the Company becoming due or capable of being
declared due and payable prior to its stated
maturity; and
(d) will not give rise to or cause to become exercisable
any right of pre-emption,
and, to the best of the knowledge and belief of the
Warrantors, the Company's relationships with clients,
customers, suppliers and employees will not be adversely
affected thereby.
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(5) Grants
The Company has not applied for or received any financial
assistance from any supranational, national or local authority
or government agency.
(6) Insurances
(a) Full particulars of all the Subsidiary's insurances
(including, without limitation, the limit of cover
and the basis of cover under each policy and the
amount of excess applicable thereto) have been
provided to the Investor and the insurances which are
maintained by the Subsidiary afford the Subsidiary
adequate cover against such risks as companies
carrying on the same type of business as the
Subsidiary commonly cover by insurance and in
particular:
(i) the assets of the Subsidiary are insured
against fire in their full replacement value;
(ii) the Computer Systems are adequately insured
for all material risks; and
(iii) the Subsidiary is now, and has at all
material times been, adequately covered
against accident, damage, injury, third party
loss (including product liability), loss of
profits and other risks normally covered by
insurance.
(b) All the Subsidiary's insurances (details of which
have been disclosed to the Investor in the Due
Diligence Bundle) are in full force and effect, and
so far as the Warrantors are aware there are no
circumstances which might lead to any liability under
any of the Subsidiary's insurances being avoided by
the insurers or the premiums being materially
increased and, there are no special or unusual terms,
restrictions or rates of premium, all premiums have
been paid on time and there is no claim outstanding
under any such insurance nor are the Warrantors aware
of any circumstances likely to give rise to a claim.
(7) Trading Name
The Subsidiary does not trade under any name other than "Total
Business Solutions", "CBSI" or "CBS India".
25
<PAGE> 28
(F) THE COMPANY'S ASSETS
(1) Net Asset Value
The value of the net tangible assets of the Parent and the
Subsidiary at Completion determined in accordance with the
same accounting policies as those applied in the Audited
Accounts (and on the basis that each fixed asset is valued at
a figure no greater than the value attributed to it in the
Audited Accounts or, in the case of any fixed asset acquired
by the Parent and the Subsidiary after the Balance Sheet Date,
at a figure no greater than cost) will not be less than the
value (subject to normal depreciation charges) of the net
tangible assets of the Parent and the Subsidiary at the
Balance Sheet Date as shown in the Audited Accounts.
(2) Assets and Charges
(a) Except for current assets disposed of by the Parent
or the Subsidiary in the ordinary course of its
business, the Parent and the Subsidiary are the
owners of and have good marketable title to all
assets included in the Audited Accounts and all
assets which have been acquired by the Parent or the
Subsidiary since the Balance Sheet Date and no such
asset, nor any of the undertaking, goodwill or
uncalled capital of the Parent or the Subsidiary is
subject to any encumbrance or any agreement or
commitment to give or create any encumbrance.
(b) Since the Balance Sheet Date, save for disposals in
the ordinary course of its business, the assets of
the Parent and the Subsidiary have been in the
possession of, or under the control of, the Parent
and the Subsidiary.
(c) No asset is shared by the Subsidiary with any other
person and the Subsidiary does not depend for its
business upon any assets, facilities or services
owned or supplied by other members of the Parent's
Group.
(d) No charge in favour of the Company is void or
voidable for want of registration.
(3) Debts
Any debts owed to the Company as recorded in the Company's
books and records are good and collectable in the ordinary
course of business and not subject to any defence, right of
set-off or counter-claim of any kind arising from an act or
omission occurring prior to the date of this Agreement and no
amount included in the Audited Accounts as owing to the Parent
or the Subsidiary at the Balance Sheet Date has been released
for an amount less than the value at which it was included in
the Audited Accounts or is now
26
<PAGE> 29
regarded by the Warrantors as irrecoverable in whole or in
part. The Subsidiary has not factored or discounted any of
its debts or agreed to do so.
(4) Title Retention
The Company has not acquired or agreed to acquire any material
asset on terms that property therein does not pass until full
payment is made.
(5) Intellectual Property Rights
(a) All the intellectual property used by the Subsidiary
is owned or properly licenced by it and it does not
use any intellectual property in respect of which any
third party has any right, title or interest.
(b) So far as the Warrantors are aware, none of the
processes or products of the Subsidiary infringes any
right of any other person relating to intellectual
property or involves the unlicensed use of
confidential information disclosed to the Subsidiary
by any person in circumstances which might entitle
that person to a claim against the Subsidiary.
(c) There are no outstanding claims against the
Subsidiary for infringement of any intellectual
property used (or which has been used) by it and no
such claims have been settled by the giving of any
undertakings which remain in force.
(d) Confidential information and knowhow used by the
Subsidiary is kept strictly confidential and the
Subsidiary operates and fully complies with
procedures which maintain such confidentiality. The
Warrantors are not aware of any such confidentiality
having been breached.
(e) Any computer software licensed by the Subsidiary for
use by third parties has and is being used by those
third parties within and in accordance with any
conditions imposed by such licence.
(6) Plant
The machinery and plant, including fixed plant and machinery,
and all vehicles and the Computer Systems and other office and
other equipment used in connection with the business of the
Company:-
(a) is (subject to fair wear and tear) in good repair and
condition and in satisfactory working order;
(b) is capable, and will (subject to fair wear and tear)
be capable, over the period of time during which it
will be written down to a nil value
27
<PAGE> 30
in the accounts of the Company, of doing the work for
which it was designed or purchased;
(c) is not surplus to the Company's requirements in the
ordinary course of its business; and
(d) is in the possession and control of, and is the
absolute property free from any encumbrance of, the
Company save for those items held under hire purchase
or rental agreements the value of which items in the
aggregate does not exceed US$1,000,000.
(7) Computer Systems
(a) The Computer Systems have been satisfactorily
maintained and supported.
(b) The Computer Systems have adequate capability and
capacity for the projected requirements of the
Company for the processing and other functions
required to be performed for the purposes of the
business of the Company.
(c) Disaster recovery plans are in effect and are
adequate to ensure that the Computer Systems can be
replaced or substituted without material disruption
to the business of the Company.
(d) The Company has sufficient technically competent and
trained employees to ensure proper handling,
operation, monitoring and use of the Computer
Systems.
(e) The Company has adequate procedures to ensure
internal and external security of the Computer
Systems, including procedures for taking and storing
on-site and off-site back-up copies of computer
programs and data.
(f) Where any of the records of the Company are kept on
Computer Systems, the Company is the owner of all
hardware and all software licences necessary to
enable it to keep, copy, maintain and use the records
(as defined in paragraph (D)(1)) in the course of its
business and does not share any hardware or software
relating to the records with any person.
(8) Title to Properties
The particulars of the Properties disclosed to the Investor in
the Due Diligence Bundle are true and correct and the
Subsidiary has good and marketable title to each Property
which it is said to own free from any encumbrance, sub-lease,
tenancy or right of occupation, reservation,
28
<PAGE> 31
easement, quasi-easement or privilege in favour of any third
party and there are appurtenant to each Property all rights
and easements necessary for its use and enjoyment and except
as shown the Company has no other interest in land and does
not occupy any other property.
(10) Matters affecting Properties
(a) No Property or any part thereof is affected by any of
the following matters or is to the knowledge of the
Warrantors likely to become so affected:-
(I) any outstanding dispute, notice or complaint
or any exception, reservation, right,
covenant, restriction or condition which is
of an unusual nature or which affects or
might in the future affect the use of any of
the Properties for the purpose for which it
is now used or which affects or might in the
future affect the value of the Properties; or
(ii) any notice, order, demand, requirement or
proposal of which the owner has notice or of
which the Warrantors are aware made or issued
by or on behalf of any government or
statutory authority, department or body for
acquisition, clearance, demolition or
closing, the carrying out of any work upon
any building, the modification of any
planning permission, the discontinuance of
any use or the imposition of any building or
improvement line; or
(iii) any compensation received as a result of any
refusal of any application for planning
consent or the imposition of any restrictions
in relation to any planning consent; or
(iv) any commutation or agreement for the
commutation of rent or payment of rent in
advance of the due dates of payment thereof.
(b) Each of the Properties is in a good and substantial
state of repair and condition and fit for the
purposes for which it is at present used.
(c) All material restrictions conditions and covenants
(including any imposed by or pursuant to any lease)
affecting any of the Properties have been observed
and performed and no notice of any breach of any of
the same has been received or is to the Warrantors'
knowledge likely to be received.
(d) The use of the Properties and all machinery and
equipment therein and the conduct of any business
therein complies in all material respects with all
relevant statutes and regulations and with all rules
29
<PAGE> 32
regulations and delegated legislation thereunder and
all necessary licences and consents required
thereunder have been obtained.
(e) There are no material restrictive covenants or
provisions, legislation or orders, charges,
restrictions, agreements, conditions or other matters
which preclude the use of any of the Properties for
the purposes for which the Properties are now used
and each such user is the permitted user under the
provisions of applicable legislation and all material
restrictions, conditions and covenants imposed by or
pursuant to the said applicable legislation been
observed and performed.
(f) All replies by or on behalf of the Warrantors or the
Company to enquiries relating to any of the
Properties made by or on behalf of the Investor were
when given and are now true and correct.
(11) Properties Previously Owned
The Company has no existing or contingent liabilities in
respect of any properties previously occupied by it or in
which it owned or held any interest, including, without
limitation, leasehold premises assigned or otherwise disposed
of.
(G) THE COMPANY AND THE ENVIRONMENT
(1) Compliance with Environmental Protection Laws
(a) The Company has not committed any breach of statutory
requirements for the protection of the environment or
of human health or amenity, and has acted at all
times in conformity with all relevant codes or
practice, guidance, notes, standards and other
advisory material issued by any competent authority.
(b) The Company has not received any communication from
any competent authority in respect of the Company's
business, failure to comply with which would
constitute breach of any statutory requirements or
compliance with which could be secured by further
proceedings. The Warrantors are not aware of any
circumstances which might give rise to any such
communication being received.
(H) THE COMPANY'S CONTRACTS
(1) Documents
All title deeds and agreements to which the Company is a party
and other documents owned by or which ought to be in the
possession of the
30
<PAGE> 33
Company are in the possession of the Company and are properly
stamped and are free from any encumbrance.
(2) Contracts and Terms of Business
Details of all material contracts of the Company, together
with details of the business principles which will govern
future business between the Subsidiary and the Parent, have
been disclosed to the Investor in the Due Diligence Bundle.
(3) Material Contracts
The Company is not a party to or subject to any material
agreement, transaction, obligation, commitment, arrangement or
liability which:
(a) is incapable of complete performance in accordance
with its terms within thirty-six months after the
date on which it was entered into or undertaken; or
(b) is known by the Warrantors or by the Company to be
likely to result in a loss to the Company on
completion of performance; or
(c) involves or is likely to involve obligations,
restrictions, expenditure or receipts of an unusual,
onerous or exceptional nature and not in the ordinary
course of the Company's business; or
(d) is with any trade union or body or organisation
representing its employees; or
(e) requires an aggregate consideration payable by the
Company in excess of US$1 million; or
(f) involves or is likely to involve the supply of
services by or to the Company the aggregate sales
value of which will represent in excess of twenty per
cent. (20%) of the turnover of the Company for its
last financial year; or
(g) in any way restricts the Company's freedom to carry
on the whole or any part of its business in any part
of the world in such manner as it thinks fit; or
(h) are hedging, futures, options or other derivative
contracts; or
(I) is a contract for the sale of shares or assets which
contains warranties or indemnities; or
31
<PAGE> 34
(j) is in any way otherwise than in the ordinary course
of the Company's business.
(3) Defaults
Neither the Company nor any other party to any agreement with
the Company is in default thereunder, being a default which
would be material in the context of the financial or trading
position of the Company nor (so far as the Warrantors are
aware) are there any circumstances likely to give rise to such
a default.
(4) Sureties
No person other than the Company has given any guarantee of or
security for any overdraft loan or loan facility granted to
the Company.
(5) Powers of Attorney
No powers of attorney given by the Company (other than to the
holder of an encumbrance solely to facilitate its enforcement)
are now in force. No person, as agent or otherwise, is
entitled or authorised to bind or commit the Company to any
obligation not in the ordinary course of the Company's
business, and the Warrantors are not aware of any person
purporting to do so.
(6) Insider Contracts
Other than transactions carried out between the Company and
the Parent:-
(a) there is not outstanding, and there has not at any
time during the last six years been outstanding, any
agreement or arrangement to which the Company is a
party and in which the Warrantors, any person
beneficially interested in the Company's share
capital or any director or any person connected with
any of them is or has been interested, whether
directly or indirectly;
(b) the Company is not a party to, nor have its profits
or financial position during such period been
affected by, any agreement or arrangement which is
not entirely of an arm's length nature; or
(c) all costs incurred by the Company have been charged
to the Company and not borne by any other member of
the Parent's group.
32
<PAGE> 35
(7) Debts
There are no debts owing by or to the Company other than debts
which have arisen in the ordinary course of business, nor has
the Company lent any material amounts of money which have not
been repaid.
(8) Options and Guarantees
The Company is not a party to any option or pre-emption right,
or a party to any guarantee, suretyship, comfort letter or any
other obligation (whatever called) to pay, provide funds or
take action in the event of default in the payment of any
indebtedness of any other person or default in the performance
of any obligation of any other person.
(9) Tenders
No offer, tender, or the like is outstanding which is capable
of being converted into an obligation of the Company by an
acceptance or other act of some other person.
(I) THE COMPANY AND ITS BANKERS
(1) Borrowings
The total amount borrowed by the Company from its bankers does
not exceed its facilities and the total amount borrowed by the
Company from whatsoever source does not exceed any limitation
on its borrowing contained in its articles of association, or
in any debenture or loan stock deed or other instrument.
(2) Continuance of Facilities
Full and accurate details of all overdrafts, loans or other
financial facilities outstanding or available to the Company
have been provided to the Investor and neither the Warrantors
nor the Company has done anything whereby the continuance of
any such facilities in full force and effect might be affected
or prejudiced.
(3) Off-Balance Sheet Financing
Neither the Parent nor the Subsidiary has engaged in any
borrowing or financing not required to be reflected in the
Audited Accounts.
(4) Bank Accounts
A statement of all the bank accounts of the Company and of the
credit or debit balances on such accounts as at a date not
more than seven days before
33
<PAGE> 36
the date hereof has been provided to the Investor. The
Company has no other bank or deposit accounts (whether in
credit or overdrawn) and since such statement there have been
no payments out of any such accounts except for routine
payments and the balances on current account are not now
substantially different from the balances shown on such
statements.
(J) THE COMPANY AND ITS OFFICERS
(1) Directors
The particulars shown in Schedule 3 are true and complete and
no person not named therein as such is a director or shadow
director of the Company.
(2) Particulars of Officers
(a) The particulars shown in the schedule of officers
disclosed to the Investor in the Due Diligence Bundle
show all remuneration payable and other benefits
provided or which the Company is bound to provide
(whether now or in the future) to each officer or
consultant of the Company or any person connected
with any such person and are true and complete and
include particulars of all profit sharing incentive
and bonus arrangements to which the Company is a
party whether legally binding on the Company or not.
(b) Since the Management Accounts Date no change has
been made in the rate of remuneration, or the
emoluments or pension benefits of any officer or
ex-officer of the Company and no change has been made
in the terms of engagement of any such officer and no
additional officer has been appointed.
(c) No present officer of the Company has given or
received notice terminating his employment except as
expressly contemplated under this Agreement.
(d) The Company has not given notice of any redundancies
to any government department or started
consultations with any trade union pursuant to any
statute or regulation.
(3) Service Contracts
There is not outstanding any contract of service between the
Company and any of its directors or officers which is not
terminable by the Company without compensation (other than any
compensation payable by statute) on not more than three
months' notice given at any time.
34
<PAGE> 37
(4) Disputes with Employees
The Warrantors are not aware of any outstanding material claim
against the Company by any person who is now or has been an
officer or employee of the Company or any material dispute
between the Company and a material number or class of its
employees and no payments are due by the Company to employees
or ex-employees for redundancy, severance pay, long service
payments or similar payments.
(K) THE COMPANY AND ITS SUBSIDIARIES
(1) Particulars of Subsidiaries
The Company has no other subsidiary other than the Subsidiary.
(2) Investments, Associations and Branches
The Company:-
(a) is not the holder or beneficial owner of, and has not
agreed to acquire, any class of the share or other
capital of any other company or corporation (whether
incorporated in Mauritius or elsewhere) other than
the Subsidiary and has not entered into any forward
contracts, options, hedging agreements or similar
financial instruments;
(b) is not and has not agreed to become a member of any
partnership, joint venture, consortium or other
unincorporated association or arrangement for sharing
commissions or income; and
(c) has no branch, agency or place of business outside
Mauritius and no permanent establishment (as that
expression is defined in the relevant double taxation
relief orders current at the date hereof) outside
Mauritius.
(L) MISCELLANEOUS
(1) All Material Matters Disclosed
All information contained or referred to in this Agreement and
the Due Diligence Bundle or in any annexure thereto is
accurate in all material respects and the Warrantors are not
aware of any other fact or matter which renders any such
information misleading or which might reasonably affect the
willingness of a subscriber to subscribe for the Subscription
Shares on the terms, including price, of this Agreement.
35
<PAGE> 38
(M) TAXATION
(1) Residence
The Parent and the Company are and always have been resident
for taxation purposes only in the national jurisdiction in
which they are incorporated.
(2) Tax Provisions
Full provision or reserve has been made in the Audited
Accounts for all taxation liable to be assessed on the Parent
and/or the Subsidiary or for which they (or either of them)
are accountable in respect of income, profits or gains earned,
accrued or received on or before the Balance Sheet Date or any
event on or before the Balance Sheet Date including
distributions made down to such date or provided for in the
Audited Accounts and full provision has been made in the
Audited Accounts for deferred taxation calculated in
accordance with generally accepted accounting principles.
(3) Returns
The Parent and the Company have properly and punctually made
all returns and provided all information required for taxation
purposes and none of such returns is subject to a dispute by
the relevant taxation authorities or any other authority
concerned (in the United States of America, Mauritius, India
or elsewhere) which has had or may have a material adverse
effect on the Company and the Warrantors are not aware that
any such dispute is likely in respect thereof.
(4) Payment of Tax
The Parent and the Company have duly and punctually paid all
taxation which they have become liable to pay and are under no
liability to pay any penalty or interest in connection with
any claim for taxation and have not paid any tax which they
were and are not properly due to pay.
(5) Audits
Neither the Parent nor the Subsidiary has in the last six
years received any inspection from any taxation authority.
36
<PAGE> 39
SCHEDULE 2: DUE DILIGENCE
<TABLE>
<CAPTION>
DOCUMENT DESCRIPTION DATE
-------------------- ----
<S> <C> <C>
1 CBS Complete Business Solutions (Mauritius) Limited Balance Sheet 7/19/96
2 Complete Business Solutions (India) Private Limited employee listing with details of 6/30/96
compensation as of June 30, 1996
3 Addendum to June 30, 1996 employee listing 7/17/96
4 Complete Business Solutions (India) Private Limited 1995 Draft Audited Financial 7/18/96
Statements
5 Complete Business Solutions, Inc.1994 and 1995 Audited Financial Statements 4/11/96
6 Complete Business Solutions, Inc. 1992 and 1993 Audited Financial Statements 4/29/94
7 Complete Business Solutions (India) Private Limited minutes for Board of Directors 1/24/95
meeting
8 Complete Business Solutions (India) Private Limited minutes for Board of Directors 3/29/95
meeting
9 Complete Business Solutions (India) Private Limited minutes for Board of Directors 6/2/95
meeting
10 Complete Business Solutions (India) Private Limited minutes for Board of Directors 6/26/95
meeting
11 Complete Business Solutions (India) Private Limited minutes for Board of Directors 7/28/95
meeting
12 Complete Business Solutions (India) Private Limited minutes for Board of Directors 8/1/95
meeting
13 Complete Business Solutions (India) Private Limited minutes for Board of Directors 12/11/95
meeting
14 Complete Business Solutions (India) Private Limited minutes for Board of Directors 1/8/96
meeting
15 Complete Business Solutions (India) Private Limited minutes for Board of Directors 1/17/96
meeting
16 Complete Business Solutions (India) Private Limited minutes for Board of Directors 5/16/96
meeting
</TABLE>
37
<PAGE> 40
<TABLE>
<S> <C> <C>
17 List of assets loaned by Complete Business Solutions, Inc. to Complete Business 7/15/96
Solutions India (Private) Limited through June 1996
18 Complete Business Solutions (India) Private Limited fixed asset list, up to June 30, 7/10/96
1996
19 Letter from Arthur Andersen re: explanation of Subchapter S rules 7/16/96
20 Complete Business Solutions (India) Private Limited details of insurance in place as of
June 30, 1996
21 List of ongoing litigation to which Complete Business Solutions, Inc. is a party as of 7/10/96
July 10, 1996
22 Complete Business Solutions, Inc. tax and other audits that have occurred since 1990 7/10/96
as of July 10, 1996
23 Complete Business Solutions (India) Private Limited bank balances as of July 16, 1996 7/17/96
24 Sale Deed between Mukund Rubber Private Limited and Complete Business Solutions (India) 6/2/95
Private Limited
25 Letter from Government of India, Ministry of Commerce, Madras Export Processing Zone to 8/3/93
Total Business Solutions (India) Private Limited re: allotment of additional SDF
building
26 Lease cum sale agreement between Tamil Nadu Housing Board and Complete Business 4/23/96
Solutions (India) Private Limited
27 Lease cum sale agreement between Tamil Nadu Housing Board and Complete Business 4/23/96
Solutions (India) Private Limited
28 Letter from Government of India, Ministry of Commerce, Madras Export Processing Zone to 4/21/95
Complete Business Solutions (India) Private Limited re: transfer of lease plot
29 Memo to Tim Manney from P Gunasagar re: Transfer of Funds for Bangalore Property 7/1/96
30 Government of India, Income Tax Department No Objection Certificate 6/24/96
31 Government of India, Income Tax Department No Objection Certificate 6/24/96
32 Application for Certificate Under Section 230A of the Income Tax Act 4/18/96
33 Agreement for Sale between Jaiprakash Industries Limited and Complete Business 4/12/96
Solutions (India) Private Limited
</TABLE>
38
<PAGE> 41
<TABLE>
<S> <C> <C>
34 Agreement of Sale between Jaiprakash Industries Limited and Complete Business Solutions 4/12/96
(India) Private Limited
35 Letter to Complete Business Solutions (India) Private Limited from Jayanth M. 1/23/96
Pattanshetti re: Scrutiny and Legal Opinion of documents
36 Lease Deed between Vidya Devi Shenoy and Complete Business Solutions (India) Private 4/3/96
Limited
37 Lease Deed between A.S.R. Prasad and Complete Business Solutions (India) Private 4/3/96
Limited
38 Complete Business Solutions (India) Private Limited Audited 1994 Financial Statements 6/2/95
</TABLE>
39
<PAGE> 42
SCHEDULE 3: CORPORATE DETAILS
Part I - The Company
NAME: CBS Complete Business Solutions (Mauritius)
Limited
REGISTERED OFFICE: Les Jamalacs Building, Vieux Conseil Street,
Port Louis, Mauritius
AUTHORISED CAPITAL: 100,000 ordinary shares of US$1 each
ISSUED AND OUTSTANDING
CAPITAL: 29,433 ordinary shares of US$1 each
DIRECTORS: Pierre Dinan, Uday Kumar Gujadhur, Raj
Vattikuti, Tim Manney, Doug Land
SECRETARY: Vinay Juwaheer c/o Multiconsult Limited
ACCOUNT REFERENCE DATE: 31st December
Part II - The Subsidiary
NAME: Complete Business Solutions (India) Private
Limited
REGISTERED OFFICE: Unit 13, Block 2, SDF Buildings, Madras
Export Processing Zone, Tambaram, Madras
600 045, India
AUTHORISED CAPITAL: 1,000,000 equity shares of Rs 100 each
ISSUED CAPITAL: 410,000 equity shares of Rs 100 each
DIRECTORS: B. Venkateshwar Rao, S. Ramanathan, Dr,
N.R. Sivaswamy, Raj Vattikuti, Tim Manney
SECRETARY: P. Gunasayar
ACCOUNT REFERENCE DATE: 31st December
AUDITORS: Arthur Andersen & Co.
40
<PAGE> 43
SIGNED by John Levack ) John Levack
and duly )
authorised for and on behalf of )
JF ELECTRA (MAURITIUS) LIMITED )
in the presence of :- )
Robert Hanka
ROBERT HANKA
24/F Jardine House
1 Connaught Place
Central, Hong Kong
SIGNED by Tim Manney ) Tim Manney
and RAJ VATTIKUTI duly )
authorised for and on behalf of ) Raj Vattikuti
COMPLETE BUSINESS SOLUTIONS INC. )
in the presence of :- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
SIGNED by Tim Manney ) Tim Manney
and RAJ VATTIKUTI duly )
authorised for and on behalf of ) Raj Vattikuti
CBS COMPLETE BUSINESS SOLUTIONS )
(MAURITIUS) LIMITED in the presence of :- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
SIGNED by RAJ VATTIKUTI ) Raj Vattikuti
in the presence of :- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
41
<PAGE> 1
EXHIBIT 10.12
DATED: 19 JULY 1996
C/2554/1/AW/RZH/D1-68683-1
SHAREHOLDERS AGREEMENT
between
JF ELECTRA (MAURITIUS) LIMITED
as Investor
COMPLETE BUSINESS SOLUTIONS, INC.
as Parent
CBS COMPLETE BUSINESS SOLUTIONS
(MAURITIUS) LIMITED
as Company
COMPLETE BUSINESS SOLUTIONS (INDIA)
PRIVATE LIMITED
as Subsidiary
and
RAJ VATTIKUTI
relating to
CBS COMPLETE BUSINESS SOLUTIONS
(MAURITIUS) LIMITED
SIMMONS & SIMMONS
24th Floor Jardine House One Connaught Place Central Hong Kong
Tel: (852) 2868 1131 Fax: (852) 2810 5040 DX009121 Central 1
<PAGE> 2
THIS AGREEMENT is dated the 19th day of July 1996 and made
BETWEEN:-
(1) JF ELECTRA (MAURITIUS) LIMITED, a company incorporated and existing under
the laws of Mauritius whose registered office is at 4/F, Les Cascades
Building, Edith Cavell Street, Port Louis, Mauritius (the "Investor");
(2) COMPLETE BUSINESS SOLUTIONS, INC., a corporation incorporated and existing
under the laws of the state of Michigan whose registered office is at
32605 West Twelve Mile Road, Suite 250, Farmington Hills, Michigan
48334-3339, U.S.A. (the "Parent");
(3) CBS COMPLETE BUSINESS SOLUTIONS (MAURITIUS) LIMITED, a company
incorporated and existing under the laws of Mauritius whose registered
office is at Les Jamalacs Building, Vieux Conseil Street, Port Louis,
Mauritius (the "Company");
(4) COMPLETE BUSINESS SOLUTIONS (INDIA) PRIVATE LIMITED, a company
incorporated and existing under the laws of India whose registered office
is at Unit 13, Block 2, SDF Buildings, Madras Export Processing Zone,
Tambaram, Madras 600 045, India (the "Subsidiary"); and
(5) RAJ VATTIKUTI of 32605 West Twelve Mile Road, Suite 250, Farmington Hills,
Michigan 48334-3339, U.S.A. ("Mr Vattikuti").
WHEREAS:-
(A) The Subsidiary carries on the Business in the Territory and is a wholly
owned subsidiary of the Company.
(B) The entire issued share capital of the Parent is beneficially owned by Mr
Vattikuti.
(C) The Investor and the Parent are the registered holders and beneficial
owners of such number of Shares as are set out opposite their respective
names in the Schedule to this Agreement.
(D) The Shareholders have agreed to regulate the relationship between
themselves as shareholders of the Company and the conduct of the Business
in the manner hereinafter appearing.
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NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
(A) In this Agreement and in the Recitals to this Agreement, unless the
context otherwise requires:-
(1) "Articles" means the new articles of association of the Company,
being in the agreed form marked "A", to be adopted by the
Shareholders pursuant to Clause 2(A);
(2) "Board" means the board of Directors or the Directors present at a
duly convened meeting of the Directors at which a quorum is present;
(3) "Business" means the business presently carried on by the Subsidiary,
namely the provision of information technology services and software
development services, including systems development, contract
programming and the development and maintenance of software products;
(4) "Business Day" means any day (excluding Saturdays) when banks are
open for general banking business in the state of Michigan, U.S.A.;
(5) "Business Plan" means the business plan of the Subsidiary, being in
the agreed form marked "C";
(6) "Companies Acts" means the Companies Act 1984 of Mauritius, the
Companies Act 1956 of India and any other statutes from time to time
in force concerning companies in Mauritius and India (as
appropriate);
(7) "Directors" means the directors for the time being of the Company;
(8) "financial year" means any accounting reference period of the
Company;
(9) "First Conversion Option" means the option granted pursuant to Clause
12(A);
(10) "GAAP" means Generally Accepted Accounting Principles in force at the
date hereof in any applicable territory;
(11) "Guidelines" means the business principles governing transactions
between the Parent and the Subsidiary, being in the agreed form
marked "B";
(12) "India Articles" means the new articles of association of the
Subsidiary (being substantially in the form of the Articles, subject
to the requirements of applicable Indian legislation), to be adopted
by the shareholders of the
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Subsidiary pursuant to Clause 2(B);
(13) "India Board" means the board of India Directors or the India
Directors present at a duly convened meeting of the India Directors
at which a quorum is present;
(14) "India Directors" means the directors for the time being of the
Subsidiary;
(15) "India Shares" means equity shares of Rs100 each in the capital of
the Subsidiary;
(16) "Parties" means the parties to this Agreement and "Party" shall be
construed accordingly;
(17) "RBI" means the Reserve Bank of India;
(18) "Second Conversion Option" means the option granted pursuant to
Clause 12(E);
(19) "Secretary" means the secretary of the Company for the time being;
(20) "Shares" means ordinary shares of US$1 each in the capital of the
Company;
(21) "Shareholders" means the Investor and the Parent (for so long as they
shall respectively hold any Shares) and any other person for the time
holding any Shares as a consequence of a transfer thereof (and
"Shareholder" shall be construed accordingly);
(22) "subsidiary" and "holding company" shall bear the same respective
meanings as in the Companies Acts;
(23) "Territory" means India;
(24) "Trust" means Indian Investment Trust, a revocable grantor trust
created under an agreement dated 9 September 1991;
(25) "Rs" means Indian rupees; and
(26) "US$" means United States dollars.
(B) References to statutory provisions shall be construed as references to
those provisions as respectively amended or re-enacted or as their
application is modified by other provisions (whether before or after the
date hereof) from time to time and shall include any provisions of which
they are re-enactments (whether with or without modification).
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(C) Any document referred to as being "in the agreed form" shall mean a
document in a form agreed by the Parties at the date hereof and initialled
by or on their behalf for identification purposes.
(D) References to Clauses are to Clauses of this Agreement and references to
sub-clauses are to sub-clauses of the Clause in which the reference
appears.
2. CONSTITUTION
The Shareholders shall:-
(A) forthwith upon execution of this Agreement, unanimously adopt the Articles
as the new articles of association of the Company; and
(B) as soon as reasonably practicable (and in any event no later than 14
Business Days after execution of this Agreement), procure that the India
Articles (being substantially in the form of the Articles, subject to the
requirements of applicable Indian legislation) shall be unanimously
adopted as the new articles of association of the Subsidiary.
3. DIRECTORS AND MEETINGS OF THE BOARD
(A) At all times while the Investor is a Shareholder it shall have the right,
by notice in writing to all the other Shareholders and the Company to
appoint one Director to the Board and to have any such Director removed
and replaced.
(B) At all times while this Agreement remains in force, the Shareholders shall
procure that the number of Directors shall be not less than three nor more
than eight. Any Director may by notice in writing to the Board request it
to appoint an alternate to attend and vote at meetings of the Board in his
place.
(C) At all times while this Agreement remains in force, the chairman of the
Board, who shall preside over meetings of the Board shall be a Director
nominated by the Board from time to time. In the case of an equality of
votes, the chairman shall not be entitled to a second or casting vote.
(D) Matters of business arising at any meeting of the Board shall be decided
by a majority of votes and each Director (or his alternate) shall be
entitled to one vote.
(E) The quorum necessary for the transaction of business at any duly convened
meeting of the Board shall be not less than fifty per cent. (50%) of the
total numbers of Directors. In default of a quorum the meeting shall
stand adjourned to such time and place as the Directors present may
determine and such adjourned meeting shall be duly convened as provided in
sub-clause (F) below. If at any such duly convened adjourned meeting a
quorum (as defined above) is not present within thirty minutes of the time
appointed for the adjourned meeting, then the Director or Directors
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present shall constitute a quorum.
(F) Subject to the provisions of sub-clause (E), meetings of the Board shall
be deemed to have been duly convened if, and only if at the request of any
one Director made to the Secretary (and the Secretary shall be obliged to
act on such request):-
(1) written notice of such meeting, specifying in reasonable detail an
agenda of the matters to be considered by such meeting, has been
dispatched to each of the Directors at least 7 Business Days prior to
the day appointed for the holding of the meeting (or such shorter
period of notice as may be agreed by all the Directors in writing);
and
(2) prior to such meeting, the Company has given notice of the meeting in
question in accordance with the terms of this Agreement to:-
(a) the Director appointed to the Board by the Investor pursuant to
sub-clause (A) above; and
(b) the chairman of the Board.
(G) While this Agreement remains in force, the Parties shall procure that,
except with the consent of the Director (or his alternate) appointed to
the Board by the Investor pursuant to sub-clause (A) above (which consent
may be given subject to such terms and conditions as the Director giving
such consent may think fit, but which consent shall not be unreasonably
withheld):-
(1) save in connection with an acquisition or disposal permitted without
the aforesaid approval pursuant to sub-clause (3)(f), no new equity
interest in the Company or the Subsidiary shall be created or (except
as otherwise provided for in the provisions of Clauses 11 and 12
below and subject as provided in paragraph (2) below) conferred on
any person (including any of the Shareholders) whether in the form of
shares, warrants, convertible securities, loan stock or capital or
other obligations convertible into shares;
(2) save in connection with an acquisition or disposal permitted without
the aforesaid approval pursuant to sub-clause (3)(f), no change shall
be made (except as otherwise provided for in the provisions of
Clauses 11 and 12 below) in the issued share or loan capital of the
Company or the Subsidiary, provided that this paragraph (2) shall be
subject to the provisions of Clause 6(A)(3); and
(3) the Company or the Subsidiary (as the case may be) shall not:-
(a) borrow any sums or incur any debts in any financial year or part
(other than from such company's bankers in the ordinary and
usual course of business) in excess of the amounts set out in
the Business
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<PAGE> 7
Plan or create or issue any debenture, mortgage, charge, lien,
encumbrance or other security over any of the assets of either
such company (other than in the ordinary and usual course of
such company's business);
(b) undertake in any financial year or part any single item or
series of items of capital expenditure involving an aggregate
liability during that financial year in excess of the amounts
set out in the Business Plan;
(c) make any loan or advance or otherwise give credit in any
financial year or part (other than credit given in the ordinary
and usual course of such company's business or for the purpose
of making deposits with its bankers) to any person in excess of
the amounts set out in the Business Plan;
(d) adopt any budget in respect of any financial year which
contemplates the borrowing of any sum, the undertaking of any
item of capital expenditure or the making of any advance in an
amount in excess of the amounts contemplated by the Business
Plan;
(e) give any guarantee, bond or indemnity in respect of or to secure
the liabilities or obligations of any person in excess of US$2.8
million (other than, in the case of the Company, any guarantee,
bond or indemnity in respect of or to secure the liabilities and
obligations of the Subsidiary or, in the case of the Subsidiary,
those guarantees or bonds required to carry on its normal
business activities);
(f) acquire or dispose of any business, assets, share or loan
capital of any body corporate whether by a single transaction or
a series of related transactions in excess of US$2.8 million or
enter into, vary or terminate any partnership or profit sharing
arrangement with any person (other than an employee and/or
director of either such company);
(g) enter into or make any material change to any contract or
transaction which is material in the context of such company's
business with (I) any of the Shareholders (except as expressly
authorised herein) or (ii) any other persons except on normal
arm's length commercial terms;
(h) introduce any executive or employee stock or share option scheme
of any nature (other than the Company's or the Subsidiary's (but
not both) employee share option scheme in respect of ten per
cent. (10%) of the Company's or the Subsidiary's authorised
share capital (as the case may be)); and
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(I) commence or discontinue any litigation or arbitration which is
material in the context of such company's business and not in
the ordinary and usual course of such business.
(H) If the Company or the Subsidiary (as the case may be) shall decide to:-
(1) enter into, vary or terminate any profit sharing, commission or bonus
scheme or arrangement with any employee and/or director of either the
Company or the Subsidiary (other than any such scheme or arrangement
in relation to employees and/or directors whose annual remuneration
is less than US$75,000 and whose profit sharing, commission or bonus
arrangements amount to less than fifty per cent. (50%) of base
salary); and/or
(2) engage, dismiss or materially change the terms of employment of any
employee whose aggregate annual emoluments are in excess of
US$75,000,
the Company or the Subsidiary (as appropriate) shall first serve not less
than 10 Business Days' written notice on the Investor informing the
Investor of such decision.
(I) Meetings of the Board shall be convened and held in Mauritius (and, in the
case of the India Board, in India) at such times as the Board shall
determine, but not less than three times in each calendar year (and, in
the case of the India Board, not less than four times in each calendar
year). Any Director or Shareholder may convene a meeting of the Board in
the manner specified in sub-clause (F) above. Minutes of every meeting of
the Board shall be sent to each Director as soon as practicable after the
conclusion of such meeting.
(J) Directors (or their alternates) may participate in a meeting of the Board
chaired from Mauritius (and, in the case of the India Board, in India) by
means of conference telephone or similar communications equipment whereby
all persons participating in the meeting can hear each other and such
participation shall constitute presence in person. In exceptional
instances, resolutions of the Board may be passed by a circular resolution
signed by all of the Directors (or their alternates).
(K) The provisions of sub-clauses (A) to (J) (inclusive) of this Clause 3
shall apply, mutatis mutandis, to the Subsidiary as if references therein
to the "Board" and "Directors" were references to the "India Board" and
"India Directors" respectively.
4. AUDIT COMMITTEE AND THE INVESTOR'S RIGHT TO RECEIVE INFORMATION
(A) Forthwith upon execution of this Agreement the Parties shall establish an
audit committee (the "Audit Committee") which shall comprise a maximum of
five persons, two of whom shall be persons nominated by the Investor. The
remaining members shall be nominated by the Shareholders (other than the
Investor) in such
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<PAGE> 9
manner as they shall determine.
(B) Meetings of the Audit Committee shall be convened and held at such times
and places as the Audit Committees shall determine, but not less than once
each calendar year. Any three members of the Audit Committee may convene
a meeting of the Audit Committee by the giving of not less than 7 Business
Days' notice in writing to all the other members. There shall be no quorum
for a meeting of the Audit Committee to be held.
(C) The function and purpose of the Audit Committee shall be as follows:-
(1) to review the conduct of the Business in the light of the Guidelines;
(2) to review all books and records pertaining to the Company and/or the
Subsidiary and the conduct of the Business; and
(3) to review all management letters, reports and other information
provided by the auditors of the Company and/or the Subsidiary.
(D) Each of the Parties hereby covenants promptly to provide such information
(including annual audited accounts, annual budgets and quarterly
management reports) and assistance as may reasonably be requested by the
Audit Committee in connection with the exercise of its functions.
(E) The Investor shall have the right to receive a copy of the consolidated
annual audited accounts of the Parent (within two weeks of their
preparation) and a copy of the annual audited accounts (within two weeks
of their preparation) the annual budget (within 45 days following the end
of the preceding financial year) and quarterly management reports (within
one week of their preparation) in respect of the Subsidiary, the Company
and the Parent and each of the Subsidiary, the Company and the Parent
hereby undertake to provide such information and documentation direct to
the Investor within the time limits stipulated.
(F) The Parent hereby undertakes to inform the Investor immediately of any
material events occurring in relation to or affecting the nature of its
business or that of the Company or the Subsidiary.
5. BUSINESS
(A) The business of the Company shall, unless and until the Shareholders
otherwise agree, be confined to the holding of India Shares and acting as
the holding company for the Subsidiary. The business of the Subsidiary
shall, unless and until the Shareholders otherwise agree, be confined to
carrying on the Business. The Parties confirm that it is their intention
to conduct the Business in the best interests of the Subsidiary on sound
commercial profit-making principles in accordance with the Guidelines so
as to enhance the value of the Subsidiary for the benefit of the
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<PAGE> 10
Company and thereby the Shareholders.
(B) The central management and control of the Company shall be exercised in
Mauritius and the Shareholders shall use their best endeavours to ensure
that the Company is treated by all relevant authorities as being resident
for taxation and other purposes in Mauritius. The Company shall establish
such offices or other premises as the Board may decide.
(C) Each of the Shareholders hereby covenants to use his or its best
endeavours to promote the successful operation of the Subsidiary and the
Company and, to develop the Business to the best advantage.
(D) Unless otherwise agreed by all the other Shareholders in writing:-
(1) the Parent and Mr Vattikuti hereby severally undertake that, during
the continuance of this Agreement, they will not be engaged or
involved (whether directly or indirectly) in any company, business or
enterprise in the Territory or with any person in the Territory whose
business or activities competes or may compete (whether directly or
indirectly) with the Business; and
(2) the Investor undertakes to procure that, during the continuance of
this Agreement, no person appointed by the Investor to the Board and
the Indian Board pursuant to Clause 3(A) shall while he remains a
Director or an Indian Director (as the case may be) and for a period
of six months after the cessation of such appointment, take up an
appointment as a director of any company, business or enterprise in
the Territory whose business or activities compete or may compete
(whether directly or indirectly) with the Business.
(E) The Parties shall use their best endeavours to procure that:-
(1) the Subsidiary carries on and conducts the Business and its affairs
in a proper and efficient manner;
(2) the Subsidiary transacts all its business with the Parent in
accordance with the Guidelines and otherwise on arm's length terms;
(3) the Business shall be carried on pursuant to policies laid down from
time to time by the India Board;
(4) the Subsidiary shall maintain with well established and reputable
insurers adequate insurance against all risks usually insured against
by companies carrying on the same or similar business to the
Business;
(5) the Subsidiary shall keep books of account and therein make true and
complete entries of all its dealings and transactions of and in
relation to the
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Business; and
(6) the Company shall keep each of the Shareholders fully informed of its
and the Subsidiary's financial and business affairs.
(F) Both the Parent and Mr Vattikuti hereby confirm and acknowledge their
commitment to a public flotation of the Company (subject to approval of
the Mauritius Offshore Business Activities Authority) or the Subsidiary on
a recognised stock exchange within five years of the date of this
Agreement, failing which they acknowledge and undertake to procure that
the Company and/or the Subsidiary (as appropriate) shall adopt a
progressive dividend policy in accordance with the provisions set out in
Clause 8(B).
6. CONDUCT
(A) While this Agreement remains in force, the Parties shall procure that
except with the consent of the Investor:-
(1) the general nature of the Business shall not be materially changed;
(2) no change shall be made in the authorised share or loan capital of
the Company or the Subsidiary nor shall any option be granted to any
person over any share or loan capital of the Company or the
Subsidiary (except as otherwise provided for in Clause 12 and other
than the Company's or the Subsidiary's (but not both) employee share
scheme in respect of up to ten per cent. (10%) of the Company's or
the Subsidiary's authorised share capital (as the case may be));
(3) no new Shares shall be issued in excess of 15,000 Shares, and no new
India Shares shall be issued other than to the Company, in each case
from the date of this Agreement;
(4) no alteration shall be made to the Articles or the memorandum of
association of the Company or the India Articles or memorandum of
association of the Subsidiary or the rights attaching to any class of
shares in either such company;
(5) no resolution shall be passed for the winding-up of the Company or
the Subsidiary (unless it shall have become insolvent) nor shall any
of the Shareholders present or cause to be presented any petition for
the winding-up of the Company or the Subsidiary;
(6) the Company or the Subsidiary (as the case may be) shall not:-
(a) acquire any business, assets, share or loan capital of any body
corporate, whether by a single transaction or a series of
related
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transactions in excess of US$2.8 million;
(b) dispose of any business, assets, share or loan capital of any
body corporate, whether by a single transaction or a series of
related transactions in excess of US$1.4 million;
(c) appoint and/or change the auditors of such company to a firm of
accountants other than Arthur Andersen, Price Waterhouse,
Coopers & Lybrand, KPMG, Ernst & Young or Deloitte Touche
Tohmatsu or their respective Mauritius or Indian affiliates; and
(d) change the financial year of such company or effect any
significant change in the accounting principles and practices
for the time being adopted by such company.
(B) No business shall be transacted at any general meeting of the Company
unless a quorum of Shareholders is present at the time when the meeting
proceeds to business. Two persons (one of whom must be a representative
of the Investor) entitled to vote upon the business to be transacted, each
being a Shareholder or a proxy for a Shareholder or a duly authorised
representative of a Shareholder which is a corporation, shall be a quorum.
In default of a quorum the meeting shall be adjourned to such time and
place as the Directors or Shareholders present may determine and notice of
such adjourned meeting shall be given in the same manner to the same
persons as the notice of the original meeting. If at any such adjourned
meeting a quorum (as defined above) is not present within thirty minutes
of the time appointed for the adjourned meeting then any Shareholder or
Shareholders present at such meeting in person or by proxy shall
constitute a quorum. Save in respect of the Subsidiary, resolutions of
the Shareholders may be passed by circular resolution signed by or on
behalf of all the Shareholders and the said circular resolution shall be
pasted or otherwise permanently affixed in the minute book of the Company
in compliance with section 124 of the Companies Act 1984 of Mauritius.
7. FINANCE FOR THE COMPANY
(A) The Shareholders intend that the finance requirements of the Company and
the Subsidiary shall be consistent with the Business Plan and be met by a
combination of:-
(1) cash generated through the carrying on of the Business; and/or
(2) further cash subscriptions for Shares or India Shares by the Company
or each of the Shareholders in proportion to their then existing
shareholdings in the capital of the Company or the Subsidiary (as the
case may be); and/or
(3) loans from such companies' bankers.
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(B) Any such funding as is referred to in sub-clause (A)(3) above which may be
required by the Company or the Subsidiary shall insofar as possible be
provided by way of non-recourse or limited recourse third party loans or
other financial accommodation, including, letters of credit, from banks
and other financial institutions on the most favourable terms reasonably
obtainable.
8. ACCOUNTING MATTERS AND DIVIDEND POLICY
(A) The Shareholders shall procure that:-
(1) the Company and the Subsidiary shall at all times maintain accurate
and complete accounting and other financial records in accordance
with the requirements of applicable GAAP.
(2) quarterly management accounts containing such information as the
Shareholders may reasonably require shall be prepared and despatched
by the Company and the Subsidiary to the Shareholders within 30 days
of the end of the quarter in question; and
(3) each Shareholder and its respective authorised representatives shall
be allowed access at all reasonable times to examine the books and
records of the Company and the Subsidiary.
(B) Subject to circumstances prevailing at the relevant time, it is the
intention of the Shareholders that in the financial year ending 31
December 2001, the Company or the Subsidiary (as appropriate) shall
distribute by way of dividend (provided the same will not contravene the
Companies Acts) such percentage of its profits as are then available for
distribution as would result in the Investor receiving, as its pro rata
share of such dividend, US$200,000 and that in each subsequent financial
year the amount distributed to the Investor by way of dividend shall
increase by US$40,000 in each such financial year.
9. ADJUSTMENT
(A) If the Cumulative Profits (as defined in sub-clause (D) below) of CBS
India shall exceed the Budgeted Cumulative Profits (as defined in
sub-clause (D) below), the Parent shall have the option by notice in
writing served at any time from the date the audited annual accounts of
the Subsidiary for the year ending 31st December 1997 are adopted by the
shareholders of the Subsidiary in general meeting (the "Approval Date")
until the expiry of a period of two months thereafter, to require the
Investor to transfer to it for a consideration of US$1 such number of
Shares (or, in the event that the First Conversion Option has been
exercised, such number of India Shares), as represent a percentage of the
issued share capital of the Company or the Subsidiary (as the case may be)
equal to A x B where A is the percentage by which the Cumulative Profits
exceed the Budgeted Cumulative Profits (subject to a maximum of twenty per
cent. (20%)) and B is the percentage of the issued share
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capital of the Company or the Subsidiary (as the case may be) held by the
Investor at the time such notice is served. By way of illustration, if at
the Approval Date the Investor holds Shares representing twenty-eight per
cent. (28%) of the issued share capital of the Company and the Cumulative
Profits exceed the Budgeted Cumulative Profits by five per cent. (5%),
then the number of Shares over which the Parent may exercise its option
shall be:-
5% x 28%
= 1.4% of the issued share capital of the Company at the Approval Date.
(B) If the Cumulative Profits (as defined in sub-clause (D) below) of CBS
India shall be less than the Budgeted Cumulative Profits (as defined in
sub-clause (D) below), the Investor shall have the option by notice in
writing served at any time from the Approval Date until the expiry of a
period of two months thereafter to require the Parent to transfer to it
for a consideration of US$1 such number of Shares (or, in the event that
the First Conversion Option has been exercised, such number of India
Shares), as represent a percentage of the issued share capital of the
Company or the Subsidiary (as the case may be) equal to A x B where A is
the percentage by which the Cumulative Profits are less than the Budgeted
Cumulative Profits (subject to a maximum of twenty per cent. (20%)) and B
is the percentage of the issued share capital of the Company or the
Subsidiary (as the case may be) held by the Investor at the time such
notice is served. By way of illustration, if at the Approval Date the
Investor holds Shares representing twenty-eight per cent. (28%) of the
issued share capital of the Company and the Cumulative Profits are less
than the Budgeted Cumulative Profits by twenty-two per cent. (22%), then
the number of Shares over which the Investor may exercise its option shall
be:-
20% x 28%
= 5.6% of the issued share capital of the Company at the Approval Date.
N.B. The figure of 20% is used because the amount by which the Cumulative
Profits are less than the Budgeted Cumulative Profits exceeds the
maximum adjustment permissible under this provision.
(C) Any transfer of Shares or India Shares pursuant to sub-clause (A) or (B)
above shall take place at a time and place as to be appointed by the
Directors being not less than five days nor more than ten days after the
date of such option notice (or, in the case of a transfer of India Shares,
the date of receipt of approval from the RBI), whereupon the Investor and
the Parent shall deliver such documents (including waivers of pre-emption
rights, instruments of transfer and, in the case of a transfer of India
Shares, approval from the RBI) as are necessary to give effect to such
transfer. The options referred to in sub-clauses (A) and (B) shall be
exercisable once only and, if not exercised before the expiry of a period
of two months after the Approval Date, shall lapse.
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(D) For the purposes of this Clause 9 the following expressions shall bear the
following respective meanings:-
(1) "Cumulative Profits" means the aggregate profit after tax and all
exceptional and/or extraordinary items of the Subsidiary (but before
dividends) for the two financial years ending 31st December 1996 and
31st December 1997; and
(2) "Budgeted Cumulative Profits" means Rs 150 million.
10. CONFIDENTIALITY
(A) Each of the Shareholders hereto shall at all times use its best endeavours
to keep confidential any confidential information which it or they may
acquire in relation to the Company and the Subsidiary or in relation to
the clients, business or affairs of any other Shareholder hereto or of the
Parent, the Company or the Subsidiary and shall not use or disclose such
information except with the consent of every other Shareholder hereto
and/or of the Company or the Subsidiary (as appropriate) or in accordance
with the order of a court of competent jurisdiction or, in the case of
information relating to the Subsidiary, for the advancement of the
Business.
(B) The Company and the Subsidiary shall use all reasonable endeavours to
ensure that the officers, employees and agents of each of them shall
observe a similar obligation of confidence in favour of the Shareholders.
(C) The obligations of each of the Shareholders contained in sub-clause (A)
shall continue without limit in point of time, but shall cease to apply to
any information coming into the public domain otherwise than by breach by
any such Party of its obligations therein contained.
(D) For the purposes of this Clause 10 the expression "Shareholder" shall
include, where such Shareholder is a corporation, the subsidiary companies
of any Shareholder and any other company controlled (the word "control"
having the meaning attributed to it in Clause 13(C)(3)) by that
Shareholder and the employees or agents of that Shareholder and of such
subsidiary or controlled companies.
11. NEW ISSUES AND TRANSFERS OF SHARES
(A) Subject to the provisions of the Companies Acts and sub-clause (B) below,
any unissued shares in the capital of the Company (whether forming part of
the original or any increased capital) ("shares") shall be at the disposal
of the Directors who may offer, allot, grant options over or grant any
right or rights to subscribe for such shares or any right or rights to
convert any security into such shares or otherwise dispose of them to such
persons, at such times and for such consideration and upon such terms and
conditions as the Board may determine.
(B) Any shares in the capital of the Company for the time being unissued shall
before
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they are issued, be offered to the Shareholders holding shares in
proportion (as nearly as the circumstances admit) to their existing
holdings of shares respectively. Such offer shall be made by notice
specifying the number of shares offered and limited to a time within which
the offer, if not accepted, will be deemed to be declined. After the
expiration of such period or, if earlier, on the receipt of an intimation
from the Shareholder to whom the offer has been made that he declines to
accept the shares offered, such shares shall be issued at the discretion
of the Directors who may dispose of the same in such manner as they think
most beneficial to the Company.
(C) Save as otherwise herein expressly provided and, in the case of a transfer
of India Shares, subject to approval from the RBI, no Shareholder shall be
entitled during the term of this Agreement to either sell, transfer,
charge, encumber (save for encumbrances in existence at the date of this
Agreement), grant options over or otherwise dispose of, or of any
beneficial interest in, any of the Shares now owned or shares hereafter
acquired by it under or pursuant to this Agreement or by virtue of its
shareholding therein otherwise than in compliance with the following
provisions of this Clause 11.
(D) (1) Every Shareholder (and every person entitled to a share or shares by
operation of law) who intends to transfer or otherwise dispose of
shares of any class in the capital of the Company or any interest
therein (the "proposing transferor") shall, before so doing or
agreeing so to do, inform the Company of his intention by giving it
notice in writing (the "Transfer Notice"), specifying the identity
and contact details of the proposing transferee and the price per
share at which such transfer or disposal of shares is proposed to
take place (the "prescribed price"). The Transfer Notice shall
constitute the Company as the proposing transferor's agent empowered
to sell all (but not some only) of the shares therein referred to
(together with all rights then attached thereto) at the prescribed
price to any Shareholder in the manner hereinafter appearing and
shall not be revocable except with the unanimous agreement of the
Shareholders.
(2) Within five days of receipt by the Company of the Transfer Notice,
all shares included in such Transfer Notice shall be offered for
purchase at the prescribed price by notice in writing (the "Offer
Notice") to all the Shareholders (other than the proposing
transferor) in proportion (as nearly as the circumstances admit) to
their then existing holdings of shares in the capital of the Company.
Any such Offer Notice shall specify the prescribed price and a period
(being not less than fourteen days and not more than twenty-eight
days after the date of the Offer Notice) within which such offer must
be accepted or will lapse. For the purpose of this sub-clause (D)(2)
an offer shall be deemed to be accepted on the day on which the
acceptance is received by the Company.
(3) If any Shareholders (the "purchasing Shareholders") shall within the
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appropriate period specified above agree to purchase the shares
comprised in the Transfer Notice the Company shall within five days
of the appropriate period give notice in writing (the "Sale Notice")
to that effect to the proposing transferor and to the purchasing
Shareholders and upon payment of the prescribed price the proposing
transferor shall be bound to transfer such shares to the respective
purchasing Shareholders accordingly. Every such Sale Notice shall
state the name and address of each purchasing Shareholder and the
number of shares agreed to be purchased by him and the sale and
purchase shall be completed at a place and time to be appointed by
the Directors being not less than five days or more than ten days
after the date of such Sale Notice PROVIDED always that if the
Transfer Notice shall state that the proposing Transferor is not
willing to transfer part only of the shares the subject thereof this
sub-clause shall not apply unless the Company shall have found
purchasing Shareholders for all of such shares and (unless as
aforesaid) any offer referred to in the preceding sub-clause shall be
deemed to have lapsed without having been validly accepted.
(4) If a proposing transferor shall fail or refuse to transfer any shares
to a purchasing Shareholder hereunder the Board may authorise some
person to execute the necessary transfer and may deliver it on his
behalf and the Company may receive the purchase money in trust for
the proposing transferor (which it shall pay into a separate bank
account in the Company's name) and cause the purchasing Shareholder
to be registered as the holder of such shares. The receipt by the
Company of the purchase money shall be a good discharge to the
purchasing Shareholder (who shall not be bound to see the application
thereof) and after the purchasing Shareholder has been registered in
purported exercise of the aforesaid powers the validity of the
proceedings shall not be questioned by any person.
(5) If at the expiry of the appropriate period specified in sub-clause
(2) above, Shareholders shall not have agreed to purchase all the
shares so offered the Company shall forthwith give notice in writing
thereof to the proposing transferor and he shall then be at liberty
at any time thereafter up to the expiration of one month after the
giving of such notice to transfer those shares which Shareholders
shall not have so agreed to purchase to any person on a bona fide
sale at any price not being less than the prescribed price PROVIDED
that:-
(a) if the Transfer Notice shall state that the proposing transferor
is not willing to transfer part only of the shares the subject
of the Transfer Notice he shall not be entitled hereunder to
transfer any of such shares unless in aggregate the whole of
such shares are so transferred;
(b) subject to sub-clause (c) below, the Board may require to be
satisfied that such shares are being transferred in pursuance of
a bona fide sale for the consideration stated in the instrument
of transfer without any
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deduction, rebate or allowance whatsoever being given to the
purchaser or the proposing transferor and if not so satisfied
may refuse to register the instrument of transfer; and
(c) in relation to the transfer of shares by the Parent, the
Director appointed to the Board by the Investor pursuant to
Clause 3(A) may require to be satisfied that such shares are
being transferred in pursuance of a bona fide sale for the
consideration stated in the instrument of transfer without any
deduction, rebate or allowance whatsoever being given to the
purchaser or the proposing transferor and if such Director shall
notify the Board in writing that he is not so satisfied and
provide a bona fide explanation of the reasons for such
dissatisfaction, the Parties shall procure that the Board shall
refuse to register the instrument of transfer.
(E) If a Shareholder, or other person entitled to transfer a share, at any
time attempts to deal with or dispose of a share or any interest therein
otherwise than in accordance with the provisions of this Clause 11, he
shall be deemed immediately prior to such attempt to have served a
Transfer Notice on the Company in respect of such share and the provisions
of this Clause 11 shall thereupon apply to the share. Any such Transfer
Notice shall be deemed to have been served on the date on which the Board
shall receive actual notice of such attempt.
(F) Any Shareholder (being a corporation) shall be entitled to sell or
transfer all (but not some only) of its shares in the capital of the
Company (or any beneficial interest therein) to another company in the
same group of companies (as such term is defined in the Companies Act) and
the Shareholders shall procure that the provisions of this Clause 11 shall
not apply to such transfer.
(G) In the event that Transfer Notices are issued by the Parent which would
(when taken together with all previous transfers of shares by the Parent)
effect a transfer by it of more than fifty per cent. (50%) of the issued
share capital of the Company ("Controlling Shares") to the same third
party or to any connected person of such third party (and, for the
purposes of this Clause 11(E), "connected person" shall be determined in
accordance with s.839 of the United Kingdom Income and Corporation Taxes
Act 1988) then the Parent shall not be entitled to transfer such
Controlling Shares unless, contemporaneously with such transfer, the
Parent procures that an offer is made by the prospective purchaser of the
Controlling Shares to acquire all (but not some only) of the shares in the
capital of the Company held by the Investor on terms as to price at a
price per share equal to whichever is the higher of:-
(1) the price at which the Controlling Shares are being sold under the
relevant Transfer Notice; and
(2) the average price obtained by the Parent in respect of all its shares
sold to
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such third party and any connected person of such third party
and otherwise on such terms and conditions (including manner of payment)
as are no less favourable than those agreed between the Parent and such
prospective purchaser in respect of the sale and purchase of the
Controlling Shares.
(H) Each Shareholder shall take all steps available to it to procure that the
Board shall refuse to register any transfer of shares unless it is shown
to its satisfaction that:-
(1) all restrictions on transfer and pre-emption rights of the other
Shareholders as provided by this Agreement and/or the Articles have
been complied with, satisfied or, as the case may be, exhausted; and
(2) the transferee in question has entered into an agreement to be bound
by the terms of this Agreement as amended from time to time in the
agreed form marked "D".
12. OPTIONS
(A) At any time after the date of this Agreement, the Investor shall have the
option (the "First Conversion Option") by notice in writing to all the
other Parties to convert all or any part of its shareholding in the
capital of the Company (the "First Option Shares") into a proportionately
identical shareholding in the capital of the Subsidiary (without taking
into account any increases in the share capital of the Subsidiary which
have been agreed by all the Shareholders, such as the issues of shares
under an approved share option scheme) (the "Identical Proportion").
(B) As soon as reasonably practicable after service of the notice referred to
in sub-clause (A) above:-
(1) the Company shall, and the Parent and Mr Vattikuti shall procure that
the Company shall, repurchase from the Investor the First Option
Shares; and
(2) as consideration for the repurchase referred to in sub-clause (B)(1),
the Company shall, subject to approval from the RBI, and the Parent
and Mr Vattikuti shall procure that the Company shall, transfer to
the Investor or its nominee such number of India Shares as represent
the Identical Proportion.
(C) Upon exercise of the First Conversion Option by the Investor, the
provisions of this Agreement (including, without limitation, Clauses 11,
12 and 13), shall apply mutandis mutatis to the shareholders of the
Subsidiary as if references to "Shares", "Board" and "Directors" were to
"India Shares", "India Board" and "India Directors" respectively.
(D) For the purposes of sub-clauses(E) to (N) (inclusive), unless the context
otherwise requires:-
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(1) "Independent Adviser" means an independent investment bank or
accountant agreed upon by both the Investor and the Parent or,
failing agreement, nominated (at the request of either the Investor
or the Parent) by the President for the time being of the Institute
of Chartered Accountants in England and Wales;
(2) "Option Period" means the period from 1st February 1998 or such time
as the Parent ceases to be a Sub-S corporation (whichever is earlier)
up to the US Flotation Date or the Other Flotation Date (whichever is
earlier), both dates inclusive;
(3) "Other Flotation Date" means 180 days after the date on which any
flotation of the share capital of the Parent, the Company or the
Subsidiary takes place on any recognised stock exchange (other than
the New York Stock Exchange);
(4) "Parent Conversion Shares" means the 93 new Parent Shares (as
adjusted pursuant to the provisions of this Clause 12) to be allotted
to the Investor upon exercise of the Second Conversion Option,
representing approximately 8.5% of the issued share capital of the
Parent at the date of this Agreement;
(5) "Parent Shares" means shares of US$1 each in the capital of the
Parent;
(6) "Related Party" means, in relation to Mr Vattikuti:-
(a) his spouse, parent(s) and any child or step child ("family
interests");
(b) the trustees, acting in their capacity as such trustees, of any
trust of which he or any of his family interests is a
beneficiary or, in the case of a discretionary trust, is a
discretionary object; and
(c) any company in the equity capital of which he and/or his family
interests taken together are directly or indirectly interested
so as exercise or control the exercise of 35 per cent. or more
of the voting power at general meetings, or to control the
composition of a majority of the board of directors and any
other company which is a subsidiary or a holding company or a
fellow subsidiary of any such holding company.
(7) "Second Option Shares" means those shares held by the Investor in the
capital of the Company and/or (in the event that the First Conversion
Option has been exercised) the Subsidiary, at the time the Second
Conversion Option is exercised; and
(8) "US Flotation Date" means 90 days after the date on which any
flotation of the share capital of the Parent, the Company or the
Subsidiary takes place on
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<PAGE> 21
the New York Stock Exchange.
(E) At any time during the Option Period, the Investor shall have the option
(the "Second Conversion Option") by notice in writing to all the other
Parties, to convert all (but not some only) of its Second Option Shares
into the Parent Conversion Shares upon and subject to the terms and
conditions of sub-clauses (F) to (N) (inclusive) below. If the Second
Conversion Option is not exercised within the Option Period it shall
expire immediately thereafter and all rights of the Investor in respect of
the Second Conversion Option shall cease.
(F) Subject as hereinafter provided, the number of Parent Conversion Shares
shall from time to time be adjusted in accordance with the following
paragraphs:-
(1) If and whenever the Parent Shares, by reason of any consolidation or
sub-division, become of a different nominal amount, the number of
Parent Conversion Shares shall be adjusted by multiplying it by the
former nominal amount of the Parent Shares and dividing the result by
the revised nominal amount. Each such adjustment shall become
effective on the day on which the consolidation or sub-division
becomes effective.
(2) If and whenever the Parent shall issue (other than in lieu of a cash
dividend) any Parent Shares credited as fully paid by way of
capitalisation of profits or reserves (including any contributed
surplus or share premium account or capital redemption reserve fund)
to holders of Parent Shares without payment or other consideration
being made or given by such holders ("Bonus Issue"), the number of
Parent Conversion Shares shall be adjusted by multiplying it by a
factor equal to (1+A), where A is the number of additional Parent
Shares (whether a whole or a fraction) received by a holder of Parent
Shares for each Parent Share held prior to such Bonus Issue.
(3) If and whenever the Parent shall:-
(a) purchase any Parent Shares or securities convertible into Parent
Shares or any rights to acquire Parent Shares; or
(b) make any capital distribution (whether in cash or in specie) to
holders (in their capacity as such) of Parent Shares (whether on
a reduction of capital or otherwise); or
(c) grant to holders of Parent Shares rights to acquire for cash
assets of the Parent or any of its subsidiaries; or
(d) in any way modify the rights attaching to any share or loan
capital so as wholly or partly to convert or make convertible
such share or loan capital into (or attach thereto any rights to
acquire) Parent Shares,
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<PAGE> 22
and the Parent or the Investor considers that it may be appropriate
to make an adjustment to the number of Parent Conversion Shares, they
shall use their best endeavours to agree such adjustment or, failing
such agreement, an Independent Adviser shall be appointed to consider
whether an adjustment should fairly and appropriately be made to the
number of Parent Conversion Shares and, if such Independent Adviser
shall consider in its opinion that a transaction under sub-clauses
(a) or (c) above was made at other than fair value or, in the case of
a transaction under sub-clauses (b) or (d), that it is appropriate to
make an adjustment to the number of Parent Conversion Shares, in the
case of a transaction under sub-clauses (a) or (c) made at other than
fair value, an adjustment to the number of Parent Conversion Shares
shall be made such that the value of the Parent Conversion Shares is,
in the opinion of the Independent Adviser, the same as it would have
been if such transaction had been made at fair value and, in the case
of a transaction under sub-clauses (b) or (d), an adjustment to the
number of Parent Conversion Shares shall be made in such manner as
the Independent Adviser shall certify to be, in its opinion, fair and
appropriate. Such adjustment shall become effective (if appropriate,
retroactively) on the day on which the action in question by the
Parent is completed.
(G) The following provisions of this sub-clause (G) shall apply if and
whenever the Parent issues new Parent Shares (or other securities which
by their terms are convertible into or exchangeable for or carry rights of
subscription for new Parent Shares) or grants options or warrants to
subscribe for new Parent Shares, in each case for consideration wholly or
partly other than cash (a "Share Transaction"):-
(1) In the case of a Share Transaction between the Parent and a party or
parties, one or more of whom is a Related Party, an Independent
Adviser shall be appointed to give an opinion on the valuation of the
Parent Shares being issued, and the assets being acquired, under the
Share Transaction and the fairness thereof.
(2) In the case of a Share Transaction between the Parent and a party or
parties, none of whom is a Related Party, the Investor shall in its
sole discretion be entitled to request that an Independent Adviser be
appointed to give an opinion on the valuation of the Parent Shares
being issued, and the assets being acquired, under the Share
Transaction and the fairness thereof.
At the request of the Investor, the Independent Adviser appointed under
paragraphs (1) and/or (2) above may also be asked to consider whether, in
the case of a Share Transaction made at other than fair value, an
adjustment should fairly and appropriately be made to the number of Parent
Conversion Shares and, if such Independent Adviser shall consider in its
opinion that it is appropriate to make an adjustment to the number of
Parent Conversion Shares, an adjustment to the number of Parent Conversion
Shares shall be made such that the value of the Parent Conversion Shares
is, in the opinion of the Independent Adviser, the same as it
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would have been if such Share Transaction had been made at fair value.
Such adjustment shall become effective (if appropriate, retroactively) on
the day on which the Share Transaction in question is completed.
(H) In any capital transaction undertaken by the Parent not contemplated by
the provisions of sub-clauses (F) and (G) above, where the Investor shall
consider that, at the time such capital transaction is undertaken, the
value of the Parent Conversion Shares may be adversely affected and that
an adjustment to the number of Parent Conversion Shares should be made,
the Investor may call for an Independent Adviser to be appointed to
consider whether an adjustment would or might fairly and appropriately be
necessary to reflect the Investor's interests under this Agreement and, if
the Independent Adviser shall consider this to be the case, the
Independent Adviser shall certify what adjustment to the number of Parent
Conversion Shares is in its opinion fair and appropriate in relationship
specifically to the capital transaction in question.
(I) Any adjustment to the number of Parent Conversion Shares under this Clause
12 shall be rounded to the nearest whole Parent Share and shall be (upon
the request of either the Investor or the Parent) certified by an
Independent Adviser. Any Independent Adviser appointed under this Clause
12 shall act as expert and not as arbitrator, and its decision shall (save
in respect of manifest error) be final and binding on the Investor and the
Parent for all purposes.
(J) If and whenever :-
(1) the Parent shall offer new Parent Shares (other than Parent Shares
issued to employees or directors of the Parent pursuant to any share
option scheme) for subscription at a fixed subscription price to
holders of existing Parent Shares pro rata to their existing holdings
or shall grant to holders of Parent Shares any options or warrants to
subscribe for new Parent Shares or shall issue to such holders wholly
for cash any securities which by their terms are convertible into or
exchangeable for or carry rights of subscription for new Parent
Shares (a "Rights Issue"); or
(2) the Investor shall acquire, whether by subscription, transfer
(including pursuant to Clause 9 of this Agreement) or otherwise,
additional Shares or India Shares in excess of the Shares held by it
at the date of this Agreement,
the Parent shall grant to the Investor a further option (the "Additional
Option") to subscribe for additional Parent Shares, or (as the case may
be) other securities convertible into or exchangeable for or carrying
rights to subscribe for new Parent Shares. The terms and conditions
(including the number of additional Parent Shares and the adjustment
provisions, if any) of such Additional Option shall be agreed between the
Parent and the Investor acting in good faith, provided that, in the case
of a Rights Issue, the terms and conditions of the Additional Option shall
be no less favourable than the terms and conditions on which the new
Parent
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<PAGE> 24
Shares, options, warrants or convertible securities were offered to the
holders of existing Parent Shares. The Additional Option shall be granted
to the Investor by way of a deed and shall be evidenced in writing. If
and to the extent that the Parent and the Investor are unable to agree
upon the terms and conditions of any Additional Option (including the
number of additional Parent Shares), an Independent Adviser shall be
appointed to consider and certify what terms and conditions are, in its
opinion, fair and appropriate in the circumstances.
(K) For the avoidance of doubt, any Additional Option granted to the Investor
pursuant to sub-clause (J) need not be exercised by the Investor but, if
exercised, may only be exercised at the same time as the Investor
exercises its Second Conversion Option, failing which any such Additional
Option will lapse. Any Additional Option, if not exercised during the
Option Period, shall expire immediately thereafter and all rights of the
Investor in respect of any such Additional Option shall cease.
(L) The Second Conversion Option and (if appropriate) any Additional Option
shall be exercisable by the Investor serving notice in writing on all the
Parties, whereupon, as soon as reasonably practicable thereafter:-
(1) the Investor shall transfer to the Parent (subject to, in the case of
a transfer of India Shares, approval from the RBI) all its Shares or
India Shares (as the case may be);
(2) as consideration for the transfer referred to in paragraph (1) above,
the Parent shall, and Mr Vattikuti shall procure that the Parent
shall, forthwith issue to the Investor or its nominee the Parent
Conversion Shares (as adjusted pursuant to this Clause 12), credited
as fully paid, at par; and
(3) (if appropriate) the Investor and the Parent shall comply with their
respective obligations in respect of the exercise of any Additional
Option.
(M) In the event that there shall be received a bona fides offer from a third
party (the "Third Party") to acquire in excess of fifty per cent. (50%) of
the issued share capital for the time being of the Parent ("Controlling
Interest") and it is the intention of the recipient of such offer to
accept the same, Mr Vattikuti shall procure that forthwith upon receipt of
such offer written notification shall be given to the Investor of the
same, whereupon the Investor will be entitled, within 7 Business Days of
receipt of such notice, by notice in writing to the Parent to:-
(1) exercise the Second Conversion Option and (if appropriate) any
Additional Option upon the terms of this Clause 12 (whether such
exercise occurs within the Option Period or not); and
(2) require the Parent and/or Mr Vattikuti to procure that an offer is
made to the Investor by the Third Party to acquire all (but not some
only) of its
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Parent Conversion Shares on terms no less favourable than the terms
on which the Third Party has offered to acquire the Controlling
Interest.
Mr Vattikuti hereby covenants and undertakes to the Investor that he will
procure that a Controlling Interest will not be disposed of to any such
Third Party unless and until he or the Parent has procured that an offer
is made to the Investor as contemplated by paragraph (2) above. For the
avoidance of doubt, where an offer is made by a Third Party to acquire a
Controlling Interest as contemplated above and the Investor does not elect
to exercise the Second Conversion Option and (if appropriate) any
Additional Option pursuant to paragraph (1) within the period specified,
the Second Conversion Option and (if appropriate) any Additional Option
shall lapse and all rights of the Investor in respect of the Second
Conversion Option and (if appropriate) any Additional Option shall cease.
(N) Any dispute between the Parties (or any of them) in relation to the
operation of this Clause 12 shall be referred to an Independent Adviser
who shall be instructed to resolve such dispute in whatever manner it
thinks fit. In so acting, the Independent Adviser shall act as expert and
not as arbitrator and its decision shall (save in respect of manifest
error) be final and binding on the Investor and the Parent for all
purposes and its costs shall be borne by the Company.
13. TERMINATION
(A) This Agreement shall continue in full force and effect until terminated in
accordance with the provisions of this Clause 13.
(B) This Agreement shall terminate forthwith upon:-
(1) one Shareholder acquiring all the Shares or India Shares (as the case
may be) held by the other Shareholder; or
(2) the public flotation of the Company or the Subsidiary on any
recognised stock exchange; or
(3) the making of an order or the passing of an effective resolution for
the winding up of the Company or the Subsidiary; or
(4) the execution of a written agreement between the Shareholders
terminating this Agreement; or
(5) the exercise of the Second Conversion Option.
(C) Any of the Shareholders shall be entitled to terminate this Agreement
forthwith by notice (but not after 90 days of the event in question first
coming to the attention of the Shareholder entitled to give the notice) if
any of the events set out below shall occur. If a Shareholder entitled to
give notice of termination shall fail to do so
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within such 90 day period, such Shareholder shall be deemed to have waived
its remedies with respect to such event. Such notice shall be served upon
the Shareholder in respect of which the event or events relate ("such
other Shareholder") and copies of such notice shall be given to all other
Shareholders (if any). The effect of such notice shall be to terminate
this Agreement as between such other Shareholder and the remaining
Shareholder or Shareholders but this Agreement shall continue in full
force and effect as between such remaining Shareholders (if more than one)
but not if otherwise. The said events are:-
(1) if such other Shareholder shall commit any material breach of any of
its obligations under this Agreement (or of any other agreement made
between such other Shareholder and the Company or the Subsidiary) and
shall fail to remedy such breach (if capable of remedy) within 30
days after being given notice by the first Shareholder or the Company
or the Subsidiary (as appropriate) so to do; or
(2) if such other Shareholder (being a company) shall go into liquidation
whether compulsory or voluntary (except for the purposes of a bona
fide reconstruction or amalgamation with the consent of the first
Shareholder, such consent not to be unreasonably withheld) or if such
other Shareholder shall have an administrator appointed or if a
receiver, administrative receiver or manager shall be appointed over
any part of the assets or undertaking of such other Shareholder; or
(3) if (being a company) there should be any change of control of such
other Shareholder (and for the purposes of this sub-clause (D)(3)
"control" shall be determined by reference to s.416 of the United
Kingdom Income and Corporation Taxes Act 1988 and a "change of
control" when applied to any Shareholder shall be deemed to have
occurred if any person or persons who control such Shareholder at the
date of execution of this Agreement (or the date such Shareholder
becomes bound by the terms hereof (if later)) subsequently cease to
control it).
(D) This Agreement shall terminate in respect of any Shareholder (but shall
continue between the other Shareholders (if more than one) but not
otherwise) if, at any time as a result of a transfer of shares made in
accordance with this Agreement, that Shareholder holds no shares in the
capital of the Company or the Subsidiary, but without prejudice to any
rights which any party may have against any other Shareholder (including,
but not limited to, any claim for damages) arising prior to such
termination.
(E) If the Investor shall serve a valid notice of termination under
paragraphs (1) to (3) (inclusive) of sub-clause (C), the Investor shall be
entitled by that notice to require the Parent to purchase all (but not
some only) of the Shares of the Investor at a price determined in
accordance with the provisions of Clause 14(A). Upon exercise of any such
right by the Investor, the Investor and the Parent shall thereupon become
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respectively bound to buy or sell accordingly and the provisions of
sub-clauses (B) to (D) (inclusive) of Clause 14 shall then have effect.
(F) If the Parent shall serve a valid notice of termination under paragraphs
(1) to (3) (inclusive) of sub-clause (C), the Parent shall be entitled by
that notice to require the Investor to sell to the Parent all (but not
some only) of the Shares of the Investor at a price determined in
accordance with the provisions of Clause 14(A). Upon exercise of any such
right by the Parent, the Parent and the Investor shall thereupon become
respectively bound to buy or sell accordingly and the provisions of
sub-clauses (B) to (D) (inclusive) of Clause 14 shall then have effect.
(G) The termination of this Agreement (howsoever arising):-
(1) shall be without prejudice to the rights of any of the Shareholders
accrued hereunder as at the date of termination or to any claim which
any such Shareholder may have for damages or otherwise arising from
any antecedent breach thereof by any such other Shareholder; and
(2) shall not operate to affect such of the provisions hereof as in
accordance with their terms are expressed to operate or have effect
thereafter.
14. SALES AND PURCHASES UNDER CLAUSE 13
(A) The purchase price of the Shares to be bought and sold pursuant to Clause
13 shall be the fair value thereof as agreed between the parties to such
sale and purchase or, in default of agreement, such sum as shall be
certified (at the request of any such party) by an independent investment
bank/firm of accountants ("valuers") appointed by the President for the
time being of the Institute of Chartered Accountants in England and Wales
to be the fair value thereof on the date when the termination notice was
served. In so certifying the valuers are hereby irrevocably instructed to
value the Shares to be bought and sold as the same proportion of the
market value of the Company as a whole on that date as the relevant
shareholding bears to the whole issued share capital of the Company on
that date but otherwise the valuers shall take into account all such
circumstances as shall seem to them relevant. In so acting such valuers
shall act as experts and not as arbitrators and their decision shall (save
in respect of manifest error) be final and binding on the parties to such
sale and purchase for all purposes and their costs shall be borne in equal
shares by such parties.
(B) Completion of the sale and purchase of Shares pursuant to Clause 13 shall
take place, subject, in the case of a transfer of India Shares, to
approval from the RBI, at a time and place as to be appointed by the
Directors being not less than five days and not more than ten days after
the price payable therefor has been agreed or determined in accordance
with the provisions of sub-clause (A).
(C) If any Shareholder ("the outgoing Shareholder") shall elect or become
bound to
26
<PAGE> 28
transfer all its Shares to any other Shareholder hereto under or pursuant
to the foregoing provisions of Clause 13, that other Shareholder shall
upon or immediately prior to completion of such transfer procure (i) the
immediate release of all guarantees, indemnities and similar covenants (if
any) given by the outgoing Shareholder in favour or for the benefit of the
Company under or pursuant to Clause 7 and (ii) pending such release, shall
indemnify and keep the outgoing Shareholder fully and effectively
indemnified from and against all claims arising thereunder.
(D) The Shareholders shall exercise all voting and other rights available to
them to ensure the implementation of the foregoing provisions of this
Clause 13 and any provisions contained in the Articles restricting
transfers of shares shall be waived or suspended to allow such sales and
purchases to proceed as provided above and the Shareholders shall procure
the registration of any transfer of any shares in the capital of the
Company pursuant hereto accordingly.
15. SUPREMACY AND GENERAL COVENANT
(A) If any provisions of the Articles or the memorandum of association of the
Company or the India Articles or the memorandum of association of the
Subsidiary at any time conflict with any of the provisions of this
Agreement, the provisions of this Agreement shall prevail as between the
Parties and the Shareholders shall whenever necessary exercise all voting
and other rights and powers available to them to procure the amendment of
the Articles or the memorandum of association of the Company or the India
Articles or the memorandum of association of the Subsidiary to the extent
necessary to permit the Company and/or the Subsidiary and their affairs to
be carried out as provided herein.
(B) Each of the Shareholders shall exercise all voting rights and other powers
of control available to them in relation to the Company and/or the
Subsidiary so as to procure (so far as each is respectively able by the
exercise of such rights and powers) that at all times during the term of
this Agreement the provisions concerning the structure and organisation of
the Company and/or the Subsidiary and the regulation of their affairs set
out in this Agreement are duly observed and given full force and effect
and all actions required of the Shareholders hereunder are carried out in
a timely manner.
(C) Each of the Shareholders shall exercise all voting rights and other powers
of control available to them to ensure that any meeting of the Board or
the India Board and every general meeting of the Company and the
Subsidiary has the necessary quorum throughout.
27
<PAGE> 29
16. GENERAL
(A) This Agreement shall be binding upon the Parties but shall not be
assignable.
(B) Save as specifically referred to in Clause 13(C), no exercise or failure
to exercise or delay in exercising any right power or remedy vested in any
Party under or pursuant hereto shall constitute a waiver by that Party of
that or any other right power or remedy.
(C) Nothing in this Agreement shall be deemed to constitute a partnership
between the Parties hereto nor constitute any Party the agent of the other
Party or otherwise entitle any Party to have authority to bind the other
Party hereto for any purpose.
(D) No Party shall be entitled to make or permit or authorise the making of
any press release or other public statement or disclosure concerning this
Agreement without the prior written consent of the other Parties.
(E) This Agreement (together with all agreements and documents executed
contemporaneously herewith or referred to herein) constitutes the entire
Agreement between the Parties in relation to the subject matter hereof and
supersedes all prior agreements and understandings whether oral or written
with respect thereto and no variation of this Agreement shall be effective
unless reduced to writing and signed by or on behalf of each of the
Parties hereto.
(F) In the event that any term, condition or provision of this Agreement is
held to be a violation of any applicable law, statute or regulation the
same shall be deemed to be deleted from this Agreement and shall be of no
force and effect and this Agreement shall remain in full force and effect
as if such term, condition or provision had not originally been contained
in this Agreement. Notwithstanding the foregoing, in the event of any
such deletion the Parties shall negotiate in good faith in order to agree
the terms of a mutually acceptable and satisfactory alternative provision
in place of the provision so deleted.
(G) This Agreement may be executed in any number of counterparts or duplicates
each of which shall be an original but such counterparts or duplicates
shall together constitute one and the same Agreement.
(H) Any date or period mentioned in any Clause may be extended by mutual
agreement between the Parties but, as regards any date or period
originally fixed or any date or period so extended as aforesaid, time
shall be of the essence.
17. NOTICES
(A) As between the Parties, for the purposes of this Agreement, all notices
shall be given in accordance with this Clause 17. Any notice to be given
by any Party shall be in writing in the English language and shall be
deemed duly served if delivered
28
<PAGE> 30
personally or sent by facsimile transmission or by prepaid commercial
express courier to the addressee at the address or (as the case may be)
the facsimile number of that Party set opposite its name below:-
(1) Name: JF Electra (Mauritius) Limited
For the attention of: John Levack
Address: 4/F, Les Cascades Building
Edith Cavell Street
Port Louis
Mauritius
Facsimile number: (230) 212 9833
With a copy to:- JF Electra Limited
For the attention of: John Levack/Lucian Wu
Address: 47/F, Jardine House
One Connaught Place
Central
Hong Kong
Facsimile number: (852) 2530 5525
(2) Name: Complete Business Solutions, Inc.
For the attention of: Raj Vattikuti/Tim Manney
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0109
With a copy to:- Butzel Long
For the attention of: Arthur Dudley II
Address: Suite 900
150 West Jefferson
Detroit
29
<PAGE> 31
Michigan 48226-4430
U.S.A.
Facsimile Number: (1) 313 225 7080
(3) Name: CBS Complete Business Solutions
(Mauritius) Limited
For the attention of: The Company Secretary
Address: Les Jamalacas Building
Vieux Conseil Street
Port Louis
Mauritius
Facsimile number: (230) 212 5265
With a copy to:- Butzel Long
For the attention of: Arthur Dudley II
Address: Suite 900
150 West Jefferson
Detroit
Michigan 48226-4430
U.S.A.
Facsimile Number: (1) 313 225 7080
With a copy to: Complete Business Solutions, Inc.
For the attention of: Raj Vattikuti/Tim Manney
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0109
(4) Name: Complete Business Solutions (India) Private
Limited
30
<PAGE> 32
For the attention of: VV Sundaram
Address: Unit 13, Block 2
SDF Buildings
Madras Export Processing Zone
Tambaram
Madras 600 045
India
Facsimile Number: (91) 44 236 8171
With a copy to: Complete Business Solutions, Inc.
For the attention of: Raj Vattikuti/Tim Manney
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0109
(5) Name: Raj Vattikuti
Address: 32605 West Twelve Mile Road
Suite 250
Farmington Hills
Michigan 48334-3339
U.S.A.
Facsimile number: (1) 810 488 0439
or at such other address (or facsimile number) as the Party to be served
may have notified (in accordance with the provisions of this Clause 17)
for the purposes of this Agreement.
(B) Any such notice shall be addressed as provided in sub-clause (A) and may
be:
(1) personally delivered, in which case it shall be deemed to have been
given upon delivery at the relevant address; or
(2) sent by international express mail service, in which case it shall be
deemed to have been given seven days after the date of posting; or
31
<PAGE> 33
(3) sent by facsimile, in which case it shall be deemed to have been
given when despatched, subject to confirmation of uninterrupted
transmission by a transmission report, provided that any notice
despatched by facsimile after 17:00 hours (Hong Kong time) on
any day shall be deemed to have been received at 09:00 hours
(Hong Kong time) on the next day.
18. LAW
(A) This Agreement shall be governed by and construed in accordance with the
laws of England.
(B) Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration which shall be conducted in accordance with the
UNCITRAL Arbitration Rules in force at the date of this Agreement (the
"UNCITRAL Rules") in the English language. The appointing authority shall
be the International Chamber of Commerce ("ICC") and the arbitration will
take place in London. There shall be three arbitrators. One arbitrator
shall be appointed by each of the Investor and the Parent and the third
arbitrator shall be appointed by the first two arbitrators. If the first
two arbitrators shall fail to agree on the appointment of a third
arbitrator within 30 days of their own appointments, the third arbitrator
shall be appointed in accordance with the UNCITRAL Rules. Any such
arbitration shall be conducted in accordance with the ICC arbitration
procedures in force at the date of this Agreement, including such
additions to the UNCITRAL Rules as are therein contained.
(C) The decision of the arbitration will be final and binding and not subject
to appeal.
(D) In relation to the enforcement of any arbitration award in India, for the
avoidance of doubt, such award shall be a foreign award and not a domestic
award and may be enforced under Part II, Chapter I of the Arbitration and
Conciliation Ordinance 1996 of India as a "New York Convention Award".
SCHEDULE
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES %
- ----------- ---------------- -
<S> <C> <C>
Complete Business
Solutions, Inc. 35,298 72
JF Electra (Mauritius) Limited 13,727 28
------ ---
49,025 100%
</TABLE>
32
<PAGE> 34
AS WITNESS the hands of the parties the day and year first above written.
33
<PAGE> 35
SIGNED by John Levack ) John Levack
duly )
authorised for and on behalf of )
JF ELECTRA (MAURITIUS) LIMITED )
in the presence of:- )
Robert Hanka
ROBERT HANKA
24/F Jardine House
1 Connaught Place
Central, Hong Kong
SIGNED by Tim Manney ) Tim Manney
and RAJ VATTIKUTI duly )
authorised for and on behalf of ) Raj Vattikuti
COMPLETE BUSINESS SOLUTIONS, INC. )
in the presence of:- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
SIGNED by Tim Manney ) Tim Manney
and RAJ VATTIKUTI duly )
authorised for and on behalf of ) Raj Vattikuti
CBS COMPLETE BUSINESS SOLUTIONS )
(MAURITIUS) LIMITED in the presence of:- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
34
<PAGE> 36
SIGNED by Tim Manney ) Tim Manney
and RAJ VATTIKUTI duly )
authorised for and on behalf of ) Raj Vattikuti
COMPLETE BUSINESS SOLUTIONS (INDIA) )
PRIVATE LIMITED in the presence of:- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
SIGNED by RAJ VATTIKUTI ) Raj Vattikuti
in the presence of:- )
Arthur Dudley II
ARTHUR DUDLEY II
150 W. JEFFERSON SUITE 900
DETROIT, MICHIGAN 48226, USA
35
<PAGE> 1
EXHIBIT 10.13
CREDIT AUTHORIZATION AGREEMENT
NBD Bank (the "Bank"), 611 Woodward Avenue, Detroit, Michigan 48226-3947, has
approved the credit facilities listed below (collectively, the "Credit
Facilities," and individually, as designated below) to Complete Business
Solutions, Inc. (the "Borrower"), a Michigan corporation, 32605 West Twelve
Mile Road, Suite 250, Farmington Hills, Michigan 48334, subject to the terms
and conditions set forth in this agreement.
1.0 CREDIT FACILITIES.
UNCOMMITTED CREDIT AUTHORIZATIONS. The Bank has approved the
uncommitted credit authorizations listed below (collectively, the "Credit
Authorizations," and individually, as designated below) subject to the terms and
conditions of this agreement and the Bank's continuing satisfaction with the
Borrower's financial status. Disbursements under the Credit Authorizations are
solely at the Bank's discretion. Any disbursement on one or more occasions
shall not commit the Bank to make any subsequent disbursement.
A. FACILITY A. The Bank has approved an uncommitted Credit
Authorization to the Borrower in the principal sum not to exceed $2,500,000.00
in the aggregate at any one time outstanding ("Facility A"). Credit under
Facility A shall be in the form of disbursements evidenced by credits to the
Borrower's account and shall be repayable as set forth in a Master Demand
Business Loan Note (Facility A) executed concurrently (referred to in this
agreement both singularly and together with any other promissory notes
referenced in this Section 1.0 as the "Notes.") The proceeds of Facility A
shall be used for the following purposes: special business purposes, including,
without limitation, the carrying of unbilled receivables in preparation for
large contracts, the purchase of proprietary software and approved acquisitions.
Facility A shall expire on August 31, 1996 unless earlier withdrawn.
B. FACILITY B (INCLUDING LETTERS OF CREDIT).
1. Authorization to Extend Credit. The Bank has approved
an uncommitted Credit Authorization to the Borrower in the principal sum not to
exceed $16,000,000.00 in the aggregate at any one time outstanding ("Facility
B"). Facility B shall include the issuance of commercial and standby letters of
credit not exceeding $3,000,000 in the aggregate at any one time outstanding
(the "Letters of Credit"). Each commercial Letter of Credit shall expire not
later than six (6) months from its date of issue. Each standby Letter of Credit
shall expire not later than one (1) year from its date of issue. Each Letter of
Credit shall be in form acceptable to the Bank. Standby Letters of Credit shall
bear a fee of 1% per year of the face amount of each standby Letter of Credit.
Commercial Letters of Credit shall bear a fee in accordance with the Bank's
standard pricing schedule for commercial letters of credit on the date any
commercial letter of credit is issued. Credit under Facility B shall be in the
form of disbursements evidenced by credits to the Borrower's account and shall
be repayable as set forth in a Master Promissory Note (Facility B) executed
concurrently (referred to in this agreement both singularly and together with
any other promissory notes referenced in this Section 1.0 as the "Notes") or by
the issuance of a commercial or standby Letter of Credit upon completion of an
application
<PAGE> 2
acceptable to the Bank. The proceeds of Facility B shall be used for the working
capital purposes. Facility B shall expire on August 31, 1996, unless earlier
withdrawn.
2. Interest. Loans under Facility B shall bear interest,
at the Borrower's option, but subject to the Bank's approval, at either:
(a) The rate announced from time to time by the Bank
as its "prime rate" (the "Prime Rate"); or
(b) the per annum rate that is equal to the sum of (i)
two percent (2%) per annum, plus (ii) the rate obtained by dividing (I) the per
annum rate of interest at which deposits in U.S. Dollars in an aggregate amount
of, and with a maturity comparable to, the loan are offered to the Bank by other
prime banks in an offshore interbank market selected by the Bank in its sole
discretion at approximately 10:00 a.m. New York time on the second Business Day
(as defined below) prior to the disbursement of the loan, by (II) an amount
equal to one minus the stated maximum rate (expressed as a decimal) of all
reserve requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) specified on the date of the loan
disbursement by the Board of Governors of the Federal Reserve System (or any
successor agency) for determining the maximum reserve requirement with respect
to Eurocurrency funding required to be maintained by a Federal Reserve System
member bank (the "Eurodollar Rate"). The Banks determination of all of the
foregoing shall be conclusive and, in making such determinations, the Bank
shall, if necessary, round up to the nearest whole multiple of one one-hundredth
of one percent (1/100 of 1%).
The interest rate options that the Bank makes available to the
Borrower from time to time will not necessarily be the most favorable of the
options listed above. The Bank, in its sole discretion, may decline to make any
of the foregoing interest rate options available to the Borrower at any given
time. Any rate under this agreement is not necessarily the lowest rate charged
by the Bank to any of its customers.
Notwithstanding the foregoing, if there is a draw under any
Letter of Credit, such draw shall bear interest at the Prime Rate until it is
repaid in full.
3. Maturities
(a) Maturities of Prime Rate Loans. Each loan under
this Facility B that bears interest at the Prime Rate shall be payable on demand
and the Prime Rate shall be subject to change daily.
(b) Maturities of Eurodollar Rate Loans. Each loan
under this Facility B bearing interest at the Eurodollar Rate shall be repayable
at a stated maturity of one, three or six months, as selected by the Borrower no
later than 11:00 a.m. Eastern Time on the third Business Day prior to the
advance and approved by the Bank in its sole discretion. Upon the maturity of a
Eurodollar Rate Loan under this Facility B, the Borrower may reborrow such loan
as either the Prime Rate or Eurodollar Rate if (i) it has satisfied all of the
conditions under this agreement (including, without limitation, the loan request
and notice conditions under subsection 5 below) and (ii) the Bank is willing to
extend or continue such credit. If no notice for a reborrowing at a Eurodollar
Rate is received by the Bank on or before 11:00 a.m. Eastern Time on the date
that is at least three Business Days before the maturity of any Eurodollar Rate
loan under this Facility B, such
2
<PAGE> 3
Eurodollar Rate loan shall, upon its maturity (if it is not repaid in full), be
converted to a Prime Rate loan under this Facility B that is due upon demand as
provided in subsection (a) above.
4. Interest Payments. Interest on each loan under this
Facility B shall be due and payable at the stated maturity, if any, or, if the
loan is payable on demand, on the 15th day of each month commencing on the first
such day following the advance of the loan. In addition, for each loan under
this Facility B that is payable at a stated maturity greater than three months,
additional interest payments shall be due every three months, beginning with the
date three months from the date the loan is advanced.
5. Loan Request. Upon request given by telephone, fax or
letter, by a person designated to the Bank as the Borrower's duly authorized
representative, for a loan under this Facility B, the Bank may advance and
credit to the Borrower's account at the Bank, or transfer to another bank
designated by the Borrower, such sums of money as may mutually be agreed upon at
the time of the request.
Notwithstanding the foregoing, any request for a loan
under this Facility B at the Eurodollar Rate must be received by the Bank no
later than 11:00 a.m. Eastern Time on the third Business Day preceding the
proposed funding date.
The Borrower and the Bank each shall, upon the other's
request, forward to the other a written confirmation of any loan under this
Facility B, including confirmation of the date, maturity, interest rate and
amount of the loan.
The Borrower shall provide the Bank with a list of the
persons designated by the Borrower as its duly authorized representatives. The
Bank may act upon the written or oral instructions of any person designated by
the Borrower as its authorized representative.
Each disbursement and repayment of a loan under this
Facility B bearing interest at the Eurodollar Rate shall be in a minimum amount
of $1,000,000.00 and in integral multiples of $1,000,000.00 in excess thereof.
Each disbursement and repayment of a loan under this Facility B shall be made in
immediately available funds at the principal office of the Bank in Detroit,
Michigan.
6. Additional Costs. If any applicable domestic or
foreign law, treaty, rule or regulation now or later in effect (whether or not
it now applies to the Bank) or the interpretation or administration thereof by a
governmental authority charged with such interpretation or administration, or
compliance by the Bank with any guideline, request or directive of such an
authority (whether or not having the force of law), including any risk based
capital guidelines, shall: (a) affect the basis of taxation of payments to the
Bank of any amounts payable by the Borrower under this Facility B (other than
taxes imposed on the overall net income of the Bank by the jurisdiction or by
any political subdivision or taxing authority of the jurisdiction in which the
Bank has its principal office); or (b) impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by the Bank under Facility B; or (c)
impose any other condition with respect to this Facility B or the Master
Promissory Note (Facility B); or (d) affect the amount of capital required or
expected to be maintained by the Bank, if the Bank determines that the amount of
such capital is increased by or based upon the existence of the
3
<PAGE> 4
Bank's obligations under this Facility B and has the effect of reducing the
rate of return on the Bank's capital, as a consequence of the obligations under
this Facility B, to a level below that which the Bank could have achieved but
for such circumstances (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by the Bank to be material; and, in any
of cases (a) through (d) above, the result of any of the foregoing is to
increase the cost to the Bank of maintaining any loan under this Facility B on
which interest is calculated at the Eurodollar Rate or to reduce the amount of
any sum receivable by the Bank on such a loan, then the Borrower shall pay to
the Bank, from time to time, upon request by the Bank, additional amounts
sufficient to compensate the Bank for the increased cost or reduced sum
receivable. A statement as to the amount of the increased cost or reduced sum
receivable, prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Borrower, shall be conclusive and binding for all
purposes absent manifest error in computation.
7. ILLEGALITY. Without limitation any other provision in this
agreement allowing the Bank to decline to allow loans under this Facility B at
the Eurodollar Rate, if: (a) the Bank determines (which determination shall be
conclusive) that the quotations of interest rates for U.S. Dollar deposits
referred to in the definition of "Eurodollar Rate" are not being provided in the
relevant amount or for the relevant maturity; or (b) it becomes unlawful for the
Bank to honor its obligation to make, maintain or renew Eurodollar Rate loans
under this Facility B; then, in any such case, (i) the Bank shall promptly
notify the Borrower of such facts, (ii) the Bank's obligation to make, maintain
or renew Eurodollar Rate loans under this Facility B, shall be suspended until
such time as the Bank may again make, renew and maintain Eurodollar Rate loans
and (iii) all then existing Eurodollar Rate loans shall, if reborrowed in
accordance with subsection 3(b) above, become Prime Rate loans upon their
maturity.
8. BROKERAGE COSTS. The Borrower shall pay to the Bank, upon the
request of the Bank, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Bank) to compensate the Bank for any loss, cost or
expense which the Bank determines is attributable to: (a) any payment or
prepayment of a Eurodollar Rate loan under this Facility B on a date other than
its maturity date (whether by reason of acceleration, mandatory prepayment or
otherwise); or (b) any failure by the Borrower to borrow a Eurodollar Rate loan
under this Facility B on the date set forth in the Borrower's loan request for
such Eurodollar Rate loan. Without limiting the foregoing, such compensation
shall include an amount equal to the excess, if any, of: (i) the amount of
interest which otherwise would have accrued on the principal amount so paid,
prepaid or not borrowed, for the period from and including the date of such
payment, prepayment or failure to borrower, to but excluding the maturity date
of such Eurodollar Rate loan (or the date of such maturity specified on the loan
request therefore in the case of "unborrowed" Eurodollar Rate loans), at the
applicable rate of interest for such Eurodollar Rate loan provided for herein;
over (ii) the amount of interest (as reasonably determined by the Bank) the Bank
would have bid in the applicable interbank market for U.S. Dollar deposits for a
comparable amount and maturity. A determination of the Bank as to the amounts
payable pursuant to this subsection 9 shall be conclusive absent manifest error.
4
<PAGE> 5
9. DEFAULT RATE INTEREST. After the maturity of the loans under
this Facility B, whether by demand, acceleration, expiration of time, or
otherwise (except for the maturity of any Eurodollar Rate loan that has been
renewed under section 3(b) above): (a) all existing Eurodollar Rate loans will
be converted to the Prime Rate loans upon the expiration of the current interest
period with respect thereto; (b) the Prime Rate loans will bear interest at the
Prime Rate, plus three percent; and (c) all the existing Eurodollar Rate loans
shall bear interest at the applicable Eurodollar Rate, plus three percent (3%),
until they are converted as provided in clause (a) above, after which they will
bear interest at the Floating Rate, plus three percent (3%) (the rates of
interest described in clauses (b) and (c) of this subsection (9) being called
the "Default Rate").
10. PAYMENTS DUE ON DAY OTHER THAN BUSINESS DAY. Whenever any
payment under this Facility B becomes due and payable on a day that is not a
Business Day, if no event of acceleration has occurred and is continuing, the
maturity of the payment shall be extended to the next succeeding Business Day,
except that, in the case of a loan under this Facility B accruing interest at
the Eurodollar Rate, if the result of the extension would be to extend the
payment into another calendar month, the payment must be made on the immediately
preceding Business Day. As used in this agreement, "Business Day" means a day
other than a Saturday, a Sunday or any other day that commercial banks in
Detroit, Michigan are authorized or required to close under the laws of the
state of Michigan and, with respect to any loan under this Facility B accruing
interest at the Eurodollar Rate, on which dealings in United States Dollar
deposits are carried out in the interbank market selected by the Bank for
purposes of determining the Eurodollar Rate.
C. FACILITY C (PURCHASE MONEY TERM LOANS). The Bank has approved an
uncommitted credit authorization to the Borrower in the principal sum not to
exceed $2,000,000.00 in the aggregate at any one time outstanding ("Facility
C"). Facility C shall be in the form of loans evidenced by the Borrower's notes
on the Bank's form that is attached hereto as Exhibit A (referred to in this
agreement both singularly and together with any other promissory notes
referenced in this Section 1 as the "Notes"), the proceeds of which shall be
used to purchase the business equipment of the Borrower approved by the Bank.
Interest on each loan under this Facility C shall accrue, at the election of the
Borrower (which election shall be made by the Borrower at the time that a loan
is authorized under this Facility C), at: (1) the Prime Rate (as defined
above); or (2) a fixed rate quoted to the Borrower by the Bank, in the Bank's
discretion, at the time that each loan under this Facility C is requested. The
maturity of each Note under this Facility C note shall not exceed sixty (60)
months from the Note date. Payments under each loan under this Facility C
shall: (a) be made monthly commencing one (1) month after the date such loan is
made and continuing on the same day of each month thereafter until the maturity
date of such loan; and (b) each be in an amount equal to the sum of (i) the
principal amount of the loan divided by the number of months between the advance
and the maturity of the loan (both inclusive), plus (ii) all accrued but unpaid
interest on the loan as of the date such monthly payment is due.
Notwithstanding the aggregate amount of this Facility C stated above, the
original principal amount of each loan under this Facility C shall not exceed
the lesser of (I) 100% of the cost of the equipment purchased with loan proceeds
or (II) $2,000,000.00. Facility C shall expire on August 31, 1996 unless
earlier withdrawn.
5
<PAGE> 6
1.2 Term Loans. Intentionally Omitted.
2.0 Conditions Precedent.
2.1 Conditions Precedent to Initial Extension of Credit. Before the
first extension of credit under this agreement, whether by disbursement of a
loan, issuance of a letter of credit or otherwise, the Borrower shall deliver
to the Bank, in form and substance satisfactory to the Bank:
A. Loan Documents. The Notes; the letter of credit applications
required by Section 1.2; the security agreements and financing statements
required by Section 5.1; and any other loan documents which the Bank may
reasonably require to give effect to the transactions contemplated by this
agreement;
B. Evidence of Due Organization and Good Standing. Evidence
satisfactory to the Bank of the due organization and good standing of the
Borrower and every other business entity that is a party to this agreement or
any other loan document required by this agreement; and
C. Evidence of Authority to Enter into Loan Documents. Evidence
satisfactory to the Bank that (i) each party to this agreement or any other
loan document required by this agreement is authorized to enter into the
transactions contemplated by this agreement and the other loan documents, and
(ii) the person signing on behalf of each such party is authorized to do so.
2.2 Conditions Precedent to Each Extension of Credit. Before any
extension of credit under this agreement, whether by disbursement of a loan,
issuance of a letter of credit or otherwise, the following conditions shall
have been satisfied:
A. Representations. The representations contained in Section 10
shall be true on and as of the date of the extension of credit;
B. No Event of Acceleration. No event of acceleration shall have
occurred and be continuing or would result from the extension of credit;
C. Continued Satisfaction. The Bank shall have remained
satisfied with the Borrower's managerial and financial status; and
D. Additional Approvals, Opinions, and Documents. The Bank shall
have received such other approvals, opinions and documents as it may reasonably
request.
3.0 Borrowing Base. Notwithstanding any other provision of this
agreement, the aggregate principal amount outstanding at any one time under
Facility B shall not exceed the lesser of the Borrowing Base or $16,000,000.00.
"Borrowing Base" means 80% of the Borrower's trade accounts receivable in which
the bank has a perfected, first priority security interest, excluding accounts
more than 90 days past due from the date of invoice, accounts subject to offset
or defense, government, bonded, affiliate and foreign accounts, and accounts
otherwise unacceptable to the Bank.
4.0 Fees and Expenses.
4.1 Fees. The Borrower shall pay the Bank, on the date a loan is
advanced under Facility C, a fee equal to one half of one percent (1/2%) of
such loan. The Borrower acknowledges that all such fees shall have been earned
by the Bank on the date of their payment.
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<PAGE> 7
4.2 Out-of-Pocket Expenses. In addition to any fee set forth in
Section 4.1 above, the Borrower shall reimburse the Bank for its out-of-pocket
expenses and reasonable attorney's fees (including the fees of in-house
counsel) allocated to the Credit Facilities.
5.0 Security.
5.1 Payment of the borrowings under the Credit Facilities shall be
secured by a first security interest, covering the following property and all
its additions, substitutions, increments, proceeds and products, whether now
owned or later acquired ("Collateral"):
A. Accounts Receivable. All of the Borrower's accounts, chattel
paper, general intangibles, instruments, and documents (as those terms are
defined in the Michigan Uniform Commercial Code), rights to refunds of taxes
paid at any time to any governmental entity, and any letters of credit and
drafts under them given in support of the foregoing, wherever located. The
Borrower shall deliver to the Bank executed security agreements and financing
statements in form and substance satisfactory to the Bank.
B. Inventory. All of the Borrower's inventory, wherever
located. The Borrower shall deliver to the Bank executed security agreements
and financing statements in form and substance satisfactory to the Bank.
C. Equipment. All of the Borrower's equipment, wherever
located. The Borrower shall deliver to the Bank executed security agreements
and financing statements in form and substance satisfactory to the Bank.
The Bank and the Borrower acknowledge that: (a) the foregoing security
interests have already been granted to the Bank pursuant to (i) Continuing
Security Agreements from the Borrower to the Bank, dated May 13, 1988, March
23, 1992 and September 20, 1994 (the "Security Agreements") and (ii) Financing
Statements in favor of the Bank that have been filed with the Secretary of
State of Michigan as document nos. C074583, C706862, C585024 and C891951 (the
"Financing Statements"); (b) the Security Agreements and Financing Statements
secure all of the Borrower's liabilities to the Bank, including, without
limitation, the Credit Facilities, the Notes and all costs and expenses
incurred by the Bank, including, without limitation, the Credit Facilities, the
Notes and all costs and expenses incurred by the Bank in connection therewith;
and (c) no additional security agreements or financing statements are required
as of the date of this agreement.
5.2 No forbearance or extension of time granted any subsequent
owner of the Collateral shall release the Borrower from liability.
5.3 Additional Collateral/Setoff. To further secure payment of the
borrowings under the Credit Facilities and all of the Borrower's other
liabilities to the Bank, the Borrower grants to the Bank a continuing security
interest in: (i) all securities and other property of the Borrower in the
custody, possession or control of the Bank (other than property held by the
Bank solely in a fiduciary capacity); and (ii) all balances of deposit accounts
of the Borrower with the Bank. The Bank shall have the right at any time to
apply its own debt or liability to the Borrower, or to any other party liable
for payment of the borrowings under the Credit Facilities, in whole or partial
payment of such borrowings or other present or future liabilities, without any
requirement of mutual maturity.
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<PAGE> 8
5.4 CROSS LIEN. Any of the Borrower's other property in which the
Bank has a security interest to secure payment of any other debt, whether
absolute, contingent, direct or indirect, including the Borrower's guaranties
of the debts of others, shall also secure payment of and be part of the
Collateral for the Credit Facilities.
6.0 GUARANTIES. Intentionally Omitted.
7.0 SUBORDINATION. Intentionally Omitted.
8.0 AFFIRMATIVE COVENANTS. So long as any debt remains outstanding
under the Credit Facilities, the Borrower, and each of its subsidiaries, if
any, shall:
8.1 INSURANCE. Maintain insurance with financially sound and
reputable insurers covering its properties and business against those
casualties and contingencies and in the types and amounts as shall be in
accordance with sound business and industry practices.
8.2 EXISTENCE. Maintain its existence and business operations as
presently in effect in accordance with all applicable laws and regulations, pay
its debts and obligations when due under normal terms, and pay on or before
their due date, all taxes, assessments, fees and other governmental monetary
obligations, except as they may be contested in good faith if they have been
properly reflected on its books and, at the Bank's request, adequate funds or
security has been pledged to insure payment.
8.3 FINANCIAL RECORDS. Maintain proper books and records of account,
in accordance with generally accepted accounting principles where applicable,
and consistent with financial statements previously submitted to the Bank.
8.4 NOTICE. Give prompt notice to the Bank of the occurrence of (i)
any event of acceleration, and (ii) any other development, financial or
otherwise, which would affect the Borrower's business, properties or affairs in
a materially adverse manner.
8.5 FINANCIAL REPORTS. Furnish to the Bank whatever information,
books, and records the Bank may reasonably request, including at a minimum (If
the Borrower has subsidiaries, all financial statements required will be
provided on a consolidated and on a separate basis):
A. within sixty (60) days after each quarterly period, a balance
sheet as of the end of that period and statements of income, cash flows, and
retained earnings from the beginning of that fiscal year to the end of that
period, certified as correct by one of its authorized agents;
B. within one hundred twenty (120) days after, and as of the end
of, each of its fiscal years, detailed financial statements including a balance
sheet and statements of income, retained earnings, and cash flows, audited by
an independent certified public accountant of recognized standing; and
C. within thirty (30) days after, and as of the end of, each
calendar month, a list of accounts receivable, aged from date of invoice,
certified as correct by one of its authorized agents.
9.0 NEGATIVE COVENANTS
9.1 DEFINITIONS. As used in this agreement, the following terms shall
have the following respective meanings:
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<PAGE> 9
A. "Subordinated Debt" means debt subordinated to the Bank in
manner and by agreement satisfactory to the Bank.
B. "Tangible Net Worth" means total assets less intangible assets
and total liabilities. Intangible assets include goodwill, parents, copyrights,
mailing lists, catalogs, trademarks, bond discount and underwriting expenses,
organization expenses, and all other intangibles.
9.2 Unless otherwise noted, the financial requirements set forth in
this section shall be computed in accordance with generally accepted accounting
principles applied on a basis consistent with financial statements previously
submitted by the Borrower to the Bank.
9.3 Without the written consent of the Bank, so long as any debt
remains outstanding under the Credit Facilities, the Borrower shall not (where
appropriate, covenants apply on a consolidated basis);
A. SALE OF SHARES. Issue, sell or otherwise dispose of any
shares of its capital stock or other securities, or rights, warrants or options
to purchase or acquire any such shares or securities.
B. DEBT. Incur, or permit to remain outstanding, debt for
borrowed money or installment obligations, except debt reflected in the latest
financial statement of the Borrower furnished to the Bank prior to execution of
this agreement and not to be paid with proceeds of borrowings under the Credit
Facilities. For purposes of this covenant, the sale of any accounts receivable
shall be deemed the incurring of debt for borrowed money.
C. LIENS. Create or permit to exist any lien on any of its
property, real or personal, except existing liens known to the Bank, liens to
the Bank; liens incurred in the ordinary course of business securing current
nondelinquent liabilities for taxes, worker's compensation, unemployment
insurance, social security and pension liabilities and liens for taxes being
contested in good faith.
D. ADVANCES AND INVESTMENTS. Purchase or acquire any securities
of, or make any loans or advances to, or investments in, any person, firm or
corporation, except obligations of the United States Government, open market
commercial paper rated one of the top two ratings by a rating agency of
recognized standing, or certificates of deposit in insured financial
institutions.
E. USE OF PROCEEDS. Use, or permit any proceeds of the Credit
Facilities to be used, directly or indirectly, for the purpose of "purchasing
or carrying any margin stock" within the meaning of Federal Reserve Board
Regulation U. At the Bank's request, the Borrower shall furnish to the Bank a
completed federal Reserve Board Form U-1.
F. TANGIBLE NET WORTH [Plus Subordinated Debt]. Permit its
Tangible Net Worth [plus Subordinated Debt] to be less than $8,500,000.
G. CURRENT RATIO. Permit the ratio of its current assets to its
current liabilities to be less than 1.0 to 1.00.
10.0 REPRESENTATIONS BY BORROWER. Borrower represents that: (A) the
execution and delivery of this agreement and the Notes and the performance of
the obligations they impose do not violate any law, conflict with any agreement
by which the Borrower is bound, or require the consent or approval of any
governmental
9
<PAGE> 10
authority or other third party; (B) this agreement, the Notes, the Security
Agreements and the Financing Statements are valid and binding agreements,
enforceable in accordance with their terms; and (C) all balance sheets, profit
and loss statements, and other financial statements furnished to the Bank are
accurate and fairly reflect the financial condition of the organizations and
persons to which they apply on their effective dates, including contingent
liabilities of every type, which financial condition has not changed materially
and adversely since those dates. Borrower further represents that: (1) it is
duly organized, existing and in good standing under the laws of the jurisdiction
under which it was organized; and (2) the execution and delivery of this
agreement and the Notes and the performance of the obligations they impose (a)
are within its powers, (b) have been duly authorized by all necessary action of
its governing body and (c) do not contravene the terms of its articles of
incorporation or organization, its bylaws, or any partnership, operating or
other agreement governing its affairs.
11.0 Acceleration.
11.1 Events of Acceleration. If any of the following events occurs,
the Credit Facilities shall terminate and all borrowings under them shall be due
immediately, without notice, at the Bank's option, whether or not the Bank has
made demand.
A. The Borrower or any guarantor of any of the Credit Facilities
or the Notes ("Guarantor") fails to pay when due any amount payable under the
Credit Facilities or under any agreement or instrument evidencing debt to any
creditor;
B. The Borrower or any Guarantor (a) fails to observe or perform
any other term of this agreement or the Notes; (b) makes any materially
incorrect or misleading representation, warranty, or certificate to the Bank;
(c) makes any materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults under the
terms of any agreement or instrument relating to any debt for borrowed money
(other than borrowings under the Credit Facilities, but including other
obligations and liabilities owing from the Borrower to the Bank), such that the
creditor declares the debt due before its maturity;
C. There is a default under the terms of any loan agreement,
security agreement or any other document executed as part of the Credit
Facilities, or any guaranty of the borrowings under the Credit Facilities
becomes unenforceable in whole or in part, or any Guarantor fails to promptly
perform under its guaranty;
D. A "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of the
Borrower or any affiliate of the Borrower;
E. The Borrower or any Guarantor becomes insolvent or unable to
pay its debts as they become due;
F. The Borrower or any Guarantor (a) makes an assignment for the
benefit of creditors, (b) consents to the appointment of a custodian, receiver
or trustee for it or for a substantial part of its assets or (c)
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<PAGE> 11
commences any preceding under any bankruptcy, reorganization, liquidation or
similar laws of any jurisdiction;
G. A custodian, receiver or trustee is appointed for the Borrower
or any Guarantor or for a substantial part of its assets without its consent
and is not removed within 60 days after such appointment;
H. Proceedings are commenced against the Borrower or any
Guarantor under any bankruptcy, reorganization, liquidation, or similar laws of
any jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement of such
proceedings;
I. Any judgment is entered against the Borrower or any Guarantor,
or any attachment, levy or garnishment is issued against any property of the
Borrower or any Guarantor, in each case in an aggregate amount in excess of
$250,000.00;
J. The Borrower or any Guarantor dies;
K. The Borrower or any Guarantor, without the Bank's written
consent, (a) is dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or business
outside the ordinary course of business, (d) leases, purchases, or otherwise
acquires a material part of the assets of any other corporation or business
entity, except in the ordinary course of business, or (e) agrees to do any of
the foregoing, (notwithstanding the foregoing, any subsidiary may merge or
consolidate with any other subsidiary, or with the Borrower, so long as the
Borrower is the survivor);
L. There is a substantial change in the existing or prospective
financial condition of the Borrower or any Guarantor which the Bank in good
faith determines to be materially adverse; or
M. The Bank in good faith shall deem itself insecure.
11.2 Remedies. If the borrowings under the Credit Facilities are not
paid at maturity, whether by demand, acceleration or otherwise, the Bank shall
have all of the rights and remedies provided by any law or agreement. Any
requirement of reasonable notice shall be met if the Bank sends the notice to
the Borrower at least seven (7) days prior to the date of sale, disposition or
other event giving rise to the required notice. The Bank is authorized to cause
all or any part of the Collateral to be transferred to or registered in its
name or in the name of any other person, firm or corporation, with or without
designation of the capacity of such nominee. The Borrower shall be liable for
any deficiency remaining after disposition of any Collateral. The Borrower is
liable to the Bank for all reasonable costs and expenses of every kind incurred
in the making or collection of the Credit Facilities, including, without
limitation, reasonable attorney's fees and court costs (whether attributable to
the Bank's in-house or outside counsel). These costs and expenses shall
include, without limitation, any costs or expenses incurred by the Bank in any
bankruptcy, reorganization, insolvency or other similar proceeding.
12.0 Miscellaneous.
12.1 Notice from one party to another relating to this agreement
shall be deemed effective if made in writing (including telecommunications) and
delivered to the recipient's address, telex number of fax number set forth
under its name below by any of the following means: (a) hand delivery, (b)
registered or certified mail, postage prepaid, with return receipt requested,
(c) first class or express mail, postage prepaid, (d) Federal Express, or like
overnight courier service or (e) fax, telex or other wire transmission with
request for assurance
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<PAGE> 12
of receipt in a manner typical with respect to communication of that type.
Notice made in accordance with this section shall be deemed delivered upon
receipt if delivered by hand or wire transmission, 3 business days after mailing
if mailed by first class, registered or certified mail, or one business day
after mailing or deposit with an overnight courier service if delivered by
express mail or overnight courier.
12.2 No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by the Bank of
any right or remedy shall preclude any other future exercise of it or the
exercise of any other right or remedy. No waiver or indulgence by the Bank of
any default shall be effective unless in writing and signed by the Bank, nor
shall a waiver on one occasion be construed as a bar to or waiver of that right
on any future occasion.
12.3 This agreement, the Notes, and any related loan documents embody the
entire agreement and understanding between the Borrower and the Bank and
supersede all prior agreements and understandings relating to their subject
matter. If any one or more of the obligations of the Borrower under this
agreement or the Notes shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Borrower shall not in any way be affected or impaired, and
such validity, illegality or unenforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations of the
Borrower under this agreement or the Notes in any other jurisdiction.
12.4 The Borrower, if more than one, shall be jointly and severally liable.
12.5 This agreement is delivered in the State of Michigan and governed by
Michigan law. This agreement is binding on the Borrower and its successors, and
shall inure to the benefit of the Bank, its successors and assigns.
12.6 Section headings are for convenience of reference only and shall not
affect the interpretation of this agreement.
13.0 Waiver of Jury Trial. The Bank and the Borrower, after consulting or
having had the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this agreement or any related instrument
or agreement or any of the transactions contemplated by this agreement or any
course of conduct, dealing, statements (whether oral or written), or actions of
either of them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived. These
provisions shall not be deemed to have been modified in any respect or
relinquished by either the Bank or the Borrower except by a written instrument
executed by both of them.
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<PAGE> 13
Executed by the parties on: September 14, 1995.
"BANK" "BORROWER"
NBD BANK COMPLETE BUSINESS SYSTEMS, INC.
By: /s/ Jean Davis By: /s/ Rajendra Vattikuti
----------------------- -------------------------
Name: Jean Davis Name: Rajendra Vattikuti
Its: Second Vice President Its: President
ADDRESS FOR NOTICES: ADDRESS FOR NOTICES:
28660 Northwestern Highway 32605 West Twelve Mile Road, Suite 250
Southfield, Michigan 48034 Farmington Hills, Michigan 48334
Fax/Telex No. 810-799-5826 Fax/Telex No. 810-488-2089
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EXHIBIT A
INSTALLMENT BUSINESS LOAN NOTE
Due__________________ $____________________
No.__________________ ________________, 1995
PROMISE TO PAY: For value received, the undersigned (the "Borrower") promises to
pay to NBD Bank (the "Bank"), or order, at any office of the Bank in the State
of Michigan, the sum of ___________________________________________________ AND
__/100 DOLLARS ($____________________) plus interest computed on the basis of
the actual number of days elapsed in a year of 360 days at the rate of:
________% per annum (the "Note Rate") until maturity, whether by
acceleration or otherwise, and at the rate of 3% per annum above
the Note Rate on overdue principal from the date when due until
paid; or
0% per annum above the rate announced from time to time by the Bank
as its "prime" rate (the "Note Rate"), which rate may not be the
lowest rate charged by the Bank to any of its customers, until
maturity, whether by acceleration or otherwise, and at the rate
of 3% per annum above the Note Rate on overdue principal from
the date when due until paid. Each change in the "prime" rate
will immediately change the Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
The Borrower will pay this sum in _________________ (_____) equal monthly
installments of $___________________, plus all accrued but unpaid interest as
of each payment date, commencing on ____________, 199__, and continuing on the
___ day of each month thereafter until _____________, at which time the entire
balance of unpaid principal plus accrued interest shall be due and payable
immediately. Each payment will be applied first to accrued interest, then to
principal.
CREDIT AGREEMENT: This note evidences debt under Facility A of a Credit
Authorization Agreement between the Bank and the Borrower, dated _____________,
19___, and any amendments thereto from time to time (the "Credit Agreement").
PREPAYMENT: If a fixed interest rate is specified above, the Borrower may
prepay all or any part of the principal balance of this note on one business
day's notice provided that, in addition to all principal, interest and costs
owing at the time of prepayment, the Borrower pays a prepayment premium equal
to the Current Value of (i) the interest that would have
<PAGE> 15
accrued on the amount prepaid at the Note Rate, minus (ii) the interest that
could accrue on the amount prepaid at the Treasury Rate. In both cases,
interest will be calculated from the prepayment date to the maturity dates of
the installments being prepaid. Such maturity dates shall be determined by
applying the prepayment to the scheduled installments of principal in their
inverse order of maturity. "Treasury Rate" means the yield, as of the date of
prepayment, on United States Treasury bills, notes or bonds, selected by the
Bank in its discretion, having maturities comparable to the scheduled maturities
of the installments being prepaid. "Current Value" means the net present value
of the dollar amount of the interest to be earned, discounted at the Treasury
Rate. In no event shall the prepayment premium be less than zero. The
Borrower's notice of its intent to prepay shall be irrevocable. If the balance
of this note is accelerated in accordance with the terms of this note, the
resulting balance due shall be considered a prepayment due and payable as of
the date of acceleration. The Borrower agrees that the prepayment premium is a
reasonable estimate of loss and not a penalty. The prepayment premium is
payable as liquidated damages for the loss of bargain and its payment shall not
in any way reduce, affect or impair any other obligation of the Borrower under
this note.
SECURITY: To secure the payment of this note and any other present or future
liability of the Borrower, whether several, joint, or joint and several, the
Borrower pledges and grants to the Bank a continuing security interest in the
following described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later acquired
("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute security
for any past, present or future liability of the Borrower to the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: all of the accounts receivable,
equipment and inventory of the Borrower, all as more completely described
in the Credit Agreement and the Security Agreements (as defined in the
Credit Agreement).
BANK'S RIGHT TO SETOFF: The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future
liabilities, without any requirement of mutual maturity.
REPRESENTATIONS BY BORROWER: Borrower represents: (a) that the execution and
delivery of this note and the performance of the obligations it imposes do not
violate any law, conflict with any agreement by which it is bound, or require
the consent or approval of any governmental authority or any third party; (b)
that this note is a valid and binding agreement, enforceable according to its
terms; and (c) that all balance sheets, profit and loss statements, and other
financial statements furnished to the Bank are accurate and fairly reflect the
financial condition of the organizations and persons to which they apply on
their effective dates, including contingent liabilities of every type, which
financial condition has not changed materially and adversely since those dates.
Borrower further represents: (i) that it is
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<PAGE> 16
duly organized, existing and in good standing pursuant to the laws under which
it is organized; and (ii) that the execution and delivery of this note and the
performance of the obligations it imposes (A) are within its powers and have
been duly authorized by all necessary action of its governing body; and (B) do
not contravene the terms of its articles of incorporation or organization, its
by laws, or any partnership, operating or other agreement governing its affairs.
EVENTS OF ACCELERATION: If any of the following events occurs:
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay when
due any amount payable under this note or under any agreement or instrument
evidencing debt to any creditor;
2. The Borrower or any Guarantor(a) fails to observe or perform any other term
of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults under
the terms of any agreement or instrument relating to any debt for borrowed
money (other than the debt evidenced by this note, but including other
obligations and liabilities owing from the Borrower to the Bank) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, security
agreement, or any other document executed as part of the loan evidenced by
this note, or any guaranty of the loan evidenced by this note becomes
unenforceable in whole or in part, or any Guarantor fails to promptly
perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income Security
Act of 1974 as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of the Borrower
or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its debts
as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit of
creditors, (b) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets or (c) commences
any proceeding under any bankruptcy, reorganization, liquidation,
insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent of
the party against which the appointment is made and is not removed within
60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under any
bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement of
such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor; in each case in an aggregate amount in excess of
$250,000.00;
10. The Borrower or any Guarantor dies;
11. The Borrower or any Guarantor, without the Bank's written consent, (a) is
dissolved, (b) mergers or consolidates with any third party, (c) leases,
sells or otherwise conveys a material part of its assets or business
outside the ordinary course of business, (d) leases,
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<PAGE> 17
purchases or otherwise acquires a material part of the assets of any other
corporation or business entity except in the ordinary course of business,
or (e) agrees to do any of the foregoing (notwithstanding the foregoing,
any subsidiary may merge or consolidate with any other subsidiary, or with
the Borrower so long as the Borrower is the survivor);
12. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
13. The Bank in good faith deems itself insecure;
then this note shall become due immediately, without notice, at the Bank's
option.
REMEDIES: If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the
Bank sends the notice to the Borrower at least seven (7) days prior to the date
of sale, disposition or other event giving rise to the required notice. The
Bank is authorized to cause all or any part of the Collateral to be transferred
to or registered in its name or in the name of any other person, firm or
corporation, with or without designation of the capacity of such nominee. The
Borrower shall be liable for any deficiency remaining after disposition of any
Collateral. The Borrower is liable to the Bank for all reasonable costs and
expenses of every kind incurred in the making or collection of this note,
including, without limitation, reasonable attorneys' fees and court costs.
These costs and expenses shall include, without limitation, any costs or
expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or
other similar proceeding.
WAIVER: Each endorser and any other party liable on this note severally: (a)
waives demand, presentment, notice of dishonor and protest; and (b) consents to
(i) any extension or postponement of time of its payment without limit as to the
number or period, (ii) any substitution, exchange or release of all or part of
the Collateral, (iii) the addition of any party and (iv) the release or
discharge of, or suspension of any rights and remedies against, any person who
may be liable for the payment of this note. No delay on the part of the Bank in
the exercise of any right or remedy shall operate as a waiver. No single or
partial exercise by the Bank of any right or remedy shall preclude any other
future exercise of it or the exercise of any other right or remedy. No waiver
or indulgence by the Bank of any default shall be effective unless in writing
and signed by the Bank, nor shall a waiver on one occasion be construed as a bar
to or waiver of that right on any future occasion.
MISCELLANEOUS: The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank
shall include any holder of this note. This note is delivered in the State of
Michigan and governed by Michigan law. Section headings are for convenience of
reference only and shall not affect the interpretation of this note.
4
<PAGE> 18
WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or having
had the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this note or any related instrument or
agreement or any of the transactions contemplated by this note or any course of
conduct, dealing, statements whether oral or written, or actions of either of
them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has been waived
with any other action in which a jury trial cannot be or has not been waived.
These provisions shall not be deemed to have been modified in any respect
or relinquished by either the Bank or the Borrower except by a
written instrument executed by both of them.
ADDRESS BORROWER:
32605 W. Twelve Mile Road COMPLETE BUSINESS SOLUTIONS,
Suite 250 INC.
Farmington Hills, Michigan 48334
Fax No. 810-488-2089 By: __________________________
Name: Rajendra Vattikuti
Its: President
5
<PAGE> 19
[NBD BANK LETTERHEAD]
September 5, 1996
Mr. Timothy Manney
Chief Financial Officer
Complete Business Solutions, Inc.
32605 W. Twelve Mile Road, Suite 250
Farmington Hills, Michigan 48334
Dear Tim:
This letter is to serve as an amendment to the Credit Authorization Agreement
(the "Agreement") executed on September 14, 1995 between NBD Bank (the "Bank")
and Complete Business Solutions, Inc. (the "Borrower").
Facility A is increased to a limit of $3,000,000 principal in the aggregate at
any one time outstanding as evidenced by credits to the Borrower's account and
shall be repayable as set forth in a Master Demand Business Loan Note executed
concurrent with this amendment. The expiries of Facilities A, B, and C shall
be amended to August 31, 1997 unless earlier withdrawn. All other terms and
conditions remain in full force and effect.
We are proud of our association with CBSI and look forward to the opportunity to
continue to assist with the company's credit and banking needs.
Please have Raj sign below and on the enclosed Master Demand Business Loan Note
to signify acceptance of this amendment.
Sincerely,
NBD BANK
By: /s/Jean A. Davis
----------------------
Jean A. Davis
Its: Vice President
----------------------
JAD: nal
Enclosure
Accepted and Agreed to this 10th day of September, 1996
COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ Rajendra B. Vattikuti
--------------------------
Rajendra B. Vattikuti
Its: President
-------------------------
<PAGE> 20
MASTER DEMAND BUSINESS LOAN NOTE (FACILITY A)
Due on Demand Detroit, Michigan
$3,000,000.00 September 5, 1996
PROMISE TO PAY: For value received, the undersigned (the "Borrower") promises
to pay ON DEMAND TO NBD BANK (the "Bank"), or order, at the Bank's principal
office in the State of Michigan, the sum of THREE MILLION AND 00/100 DOLLARS
($3,000,000.00), or such lesser sum as is indicated on Bank records, plus
interest computed on the basis of the actual number of days elapsed in a year
of 360 Days at the rate announced from time to time by the Bank as its "prime"
rate (the "Note Rate"), which rate may not be the lowest rate charged by the
Bank to any of its customers, until maturity, whether by demand, acceleration
or otherwise, and at the rate of 3% per annum above the Note Rate on overdue
principal from the date when due until paid. Each change in the "prime" rate
will immediately change the Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of each
borrowing.
The Borrower will pay this sum on demand. Until demand, the Borrower will pay
consecutive monthly installments of interest only commencing on the fifteenth
(15th) day of the first month after the first advance has been made under this
Note.
MASTER DEMAND NOTE: The Bank has authorized a discretionary credit facility
(Facility A under the Credit Agreement -- as defined below) to the Borrower in
a principal amount not to exceed the face amount of this note. Said Facility A
is in the form of loans made from time to time by the Bank to the Borrower at
the Bank's sole discretion. This note evidences the Borrower's obligation to
repay loans under Facility A. The aggregate principal amount of debt evidenced
by this note shall be the amount reflected from time to time in the records of
the Bank but shall not exceed the face amount of this note. The Borrower
acknowledges and agrees that no provision of this note and no course of dealing
by the Bank shall commit the Bank to make loans to the Borrower and that
notwithstanding any provision of this note or any other instrument or document,
all loans evidenced by this note are due and payable on demand, which may be
made by the Bank at any time, whether or not any event of acceleration then
exists.
<PAGE> 21
CREDIT AGREEMENT: This note evidences the debt under Facility A of a Credit
Authorization Agreement between the Bank and the Borrower, dated September 14,
1995, and any amendments thereto from time to time (the "Credit Agreement").
SECURITY: To secure the payment of this note and any other present or future
liability of the Borrower, whether several, joint, or joint and several, the
Borrower pledges and grants to the Bank a continuing security interest in the
following described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later acquired
("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2 All property or secutities declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to
the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: all of the accounts receivable,
equipment and inventory of the Borrower, all as more completely
described in the Credit Agreement and the Security Agreements (as
defined in the Credit Agreement).
BANK'S RIGHT TO SETOFF: The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future
liabilities, without any requirement of mutual maturity.
REPRESENTATIONS BY BORROWER: Borrower represents: (a) that the execution and
delivery of this note and the performance of the obligations it imposes do not
violate any law, conflict with any agreement by which it is bound, or require
the consent or approval of any governmental authority or any third party; (b)
that this note is a valid and binding agreement, enforceable according to its
terms; and (c) that all balance sheets, profit and loss statements, and other
financial statements furnished to the Bank are accurate and fairly reflect the
financial condition of the organizations and persons to which they apply on
their effective dates, including contingent liabilities of every type, which
financial condition has not changed materially and adversely since those dates.
Each Borrower further represents: (i) that it is duly organized, existing and in
good standing pursuant to the laws under which it is organized; and (ii) that
the execution and delivery of this note and the performance of the obligations
it imposes (A) are within its powers and have been duly authorized by all
necessary action of its governing body; and (B) do not contravene the terms of
its articles of incorporation or organization, its by laws, or any partnership,
operating or other agreement governing its affairs.
EVENTS OF ACCELERATION: If any of the following events occurs, this note shall
be due immediately without notice at the Bank's option whether or not the Bank
has made demand.
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay when
due any amount payable under this note or under any agreement or instrument
evidencing debt to any creditor;
2
<PAGE> 22
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults under
the terms of any agreement or instrument relating to any debt for borrowed
money (other than the debt evidenced by this note, but including other
obligations and liabilities owing from the Borrower to the Bank) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, security
agreement, or any other document executed as part of the loan evidenced by
this note, or any guaranty of the loan evidenced by this note becomes
unenforceable in whole or in part, or any Guarantor fails to promptly
perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income Security
Act of 1974 as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of the Borrower
or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its debts
as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit of
creditors, (b) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets or (c) commences
any proceeding under any bankruptcy, reorganization, liquidation,
insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent of
the party against which the appointment is made and is not removed within
60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under any
bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement of
such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor, in each case, in an aggregate amount in
excess of $250,000.00;
10. The Borrower or any Guarantor dies;
11. The Borrower or any Guarantor, without the Bank's written consent, (a) is
dissolved, (b) mergers or consolidates with any third party, (c) leases,
sells or otherwise conveys a material part of its assets or business
outside the ordinary course of business, (d) leases, purchases or
otherwise acquires a material part of the assets of any other corporation
or business entity except in the ordinary course of business, or (e)
agrees to do any of the foregoing (notwithstanding the foregoing, any
subsidiary may merge or consolidate with any other subsidiary, or with the
Borrower so long as the Borrower is the survivor);
12. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
13. The Bank in good faith deems itself insecure.
3
<PAGE> 23
REMEDIES: If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the Collateral to be transferred to or
registered in its name or in the name of any other person, firm or corporation,
with or without designation of the capacity of such nominee. The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and expenses of every
kind incurred in the making or collection of this note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and expenses
shall include, without limitation, any costs or expenses incurred by the Bank in
any bankruptcy, reorganization, insolvency or other similar proceeding.
WAIVER: Each endorser and any other party liable on this note severally: (a)
waives demand, presentment, notice of dishonor and protest; and (b) consents to
(i) any extension or postponement of time of its payment without limit as to the
number or period, (ii) any substitution, exchange or release of all or part of
the Collateral, (iii) the addition of any party and (iv) the release or
discharge of, or suspension of any rights and remedies against, any person who
may be liable for the payment of this note. No delay on the part of the Bank in
the exercise of any right or remedy shall operate as a waiver. No single or
partial exercise by the Bank of any right or remedy shall preclude any other
future exercise of it or the exercise of any other right or remedy. No waiver or
indulgence by the Bank of any default shall be effective unless in writing and
signed by the Bank, nor shall a waiver on one occasion be construed as a bar to
or waiver of that right on any future occasion.
MISCELLANEOUS: The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank
shall include any holder of this note. This note is delivered in the State of
Michigan and governed by Michigan law. Section headings are for convenience of
reference only and shall not affect the interpretation of this note.
WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or having had
the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this note or any related instrument or
agreement or any of the transactions contemplated by this note or any course of
conduct, dealing, statements whether oral or written, or actions of either of
them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived. These
provisions shall not be deemed to have been modified in any respect or
relinquished by either the Bank or the Borrower except by a written instrument
executed by both of them.
4
<PAGE> 24
ADDRESS: BORROWER:
32605 W. Twelve Mile Road COMPLETE BUSINESS SOLUTIONS,
Suite 250 INC.
Farmington Hills, Michigan 48334
Fax No. 810-488-2089 By: /s/ Rajendra Vattikuti
------------------------
Title: Rajendra Vattikuti
Its: President
5
<PAGE> 25
MASTER PROMISSORY NOTE (FACILITY B)
$16,000,000 Detroit, Michigan
September 14, 1995
For value received, on demand or at such other maturity or maturities
as are set forth in the Bank's records, Complete Business Solutions, Inc. (the
"Borrower") promises to pay to the order of NBD Bank (the "Bank"), at the
Bank's principal office in the State of Michigan, in lawful money of the United
States of America and in immediately available funds, the principal sum of
SIXTEEN MILLION AND 00/100 DOLLARS ($16,000,000), or such lesser amount as is
indicated on the Bank's records, together with interest computed on the balance
from time to time unpaid on the basis of the actual number of days elapsed in a
year of 360 days at the rate(s) per annum determined from time to time pursuant
to the Credit Agreement (as defined below) and reflected on the Bank's records,
which interest shall be payable in accordance with the terms set forth in the
Credit Agreement, and to pay interest on overdue principal at the Default Rate
provided in the Credit Agreement.
In no event shall the interest rate exceed the maximum rate allowed by
law. Any interest which would for any reason be deemed unlawful under
applicable law shall be applied to principal.
Waiver: The Borrower and each endorser of this note and any other
party liable for the debt evidenced by this note severally: (a) waives demand,
presentment, notice of dishonor and protest of this note; and (b) consents to
(i) any extension or postponement of time of its payment without limit as to
number or period, (ii) any substitution, exchange or release of all or any part
of any collateral securing this note, (iii) the addition of any party and (iv)
the release, discharge, or suspension of any rights and remedies against any
person who may be liable for the payment of this note. No delay on the part of
the holder in the exercise of any right or remedy shall operate as a waiver.
No single or partial exercise by the holder of any right or remedy shall
preclude any future exercise of that right or remedy or the exercise of any
other right or remedy. No waiver or indulgence by the holder of any default
shall be effective unless it is in writing and signed by the holder, nor shall
a waiver on one occasion be construed as a bar to or waiver of any right on
any future occasion.
This note evidences debt under Facility B of a certain Credit
Authorization Agreement between the Bank and the Borrower, dated September 14,
1995, as amended from time to time (the "Credit Agreement"), all of the terms
of which Credit Agreement are incorporated by reference into this note.
Reference should be made to the Credit Agreement for additional terms and
conditions, including, without limitation, interest rate, maturity, default and
acceleration provisions.
6
<PAGE> 26
WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or
having had the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this note, or any related instrument or
agreement, or any of the transactions contemplated by this note, or any course
of conduct, dealing, statements (whether oral or written), or actions of either
of them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any such action in which a jury trial has been
waived with any other action in which a jury trial cannot be or has not been
waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by either the Bank or the Borrower except by a written
instrument executed by both of them.
ADDRESS: COMPLETE BUSINESS SOLUTIONS,
INC.
32605 W. Twelve Mile Road By: /s/ Rajendra Vattikuti
Suite 250 --------------------------
Farmington Hills, Michigan 48334 Name: Rajendra Vattikuti
Fax No: 810-488-2089 Its: President
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
FOR VALUE RECEIVED, Douglas S. Land (the "Maker"), hereby promises to pay
to Complete Business Solutions, Inc., a Michigan corporation (the "Company"),
at the times and in the manner provided in this Note, the principal amount of
One Million Dollars ($1,000,000), together with simple interest on such
principal amount at the rate of 8.25% per annum from the date of this Note
until this Note is paid in full.
The entire principal amount plus any unpaid interest shall be due on April
25, 2006. Interest payments shall be paid semi-annually on the first business
day of January and July of each year while this Note is outstanding; provided
that no interest shall be paid prior to the Purchased Shares being registered
with the Securities and Exchange Commission under the Securities Act of 1933.
No interest shall be paid on interest.
Simultaneously with the execution and delivery of this Note, the Maker is
executing and delivering to the Company an Exercise and Loan Notice and Stock
Pledge of even date (the "Notice and Pledge") pursuant to which the Maker is
granting to the Company a security interest in the Purchased Shares until the
principal of and interest on this Note is paid in full.
The Maker shall be entitled to prepay the principal of and interest on
this Note at any time without premium or penalty. Any payments made on this
Note shall be applied first to accrued interest and then to outstanding
principal. In the event of any default by the Maker under this Note, the
Company may retain the Purchased Shares in full satisfaction of the obligations
of the Maker under this Note. The Maker shall be liable for all costs of
collection of this Note, including reasonable attorneys' fees of the Company.
The Maker hereby waives demand, presentment for payment, notice of
dishonor, protest and notice of protest, and diligence in collection or
bringing suit. The Company may extend the time for payment or accept partial
payment without discharging or releasing the Maker.
Unless otherwise defined herein, capitalized terms used herein shall have
the meaning ascribed to them in the Notice and Pledge.
Dated: December 30, 1996
MAKER:
/s/ Douglas S. Land
-------------------------------------
Douglas S. Land
<PAGE> 2
EXERCISE AND LOAN NOTICE
AND STOCK PLEDGE
The undersigned (the "Option Holder") hereby exercises the Option Holder's
right pursuant to Section 2 of the Option Agreement (the "Agreement"), dated
April 25, 1996 between the Option Holder and Complete Business Solutions, Inc.,
a Michigan corporation (the "Company"), to purchase 400,000 shares of Common
Stock of the Company (the "Purchased Shares"), as adjusted for a 10,000 for 1
stock split on September 10, 1996, for a purchase price of $2.50 per share or
an aggregate purchase price of $1,000,000.
Pursuant to Section 5 of the Agreement, the Option Holder elects to borrow
from the Company $1,000,000 (the "Loan") to purchase the Purchased Shares.
Simultaneously with the execution and delivery of this Notice and Pledge, the
Option Holder is executing and delivering to the Company the Option Holder's
Promissory Note of even date herewith in the original principal amount of the
Loan (the "Note").
The Option Holder hereby pledges the Purchased Shares and any Proceeds (as
defined below) to the Company and grants to the Company a first priority
security interest in the Purchased Shares and any Proceeds as security for the
performance of the obligations of the Option Holder under the Note. For
purposes of this Notice and Pledge, "Proceeds" shall mean all property
substituted for the Purchased Shares or any part of the Purchased Shares, and
all cash or noncash proceeds of the Purchased Shares up to a maximum of $2.50
per share resulting from any sale, exchange or transfer of the Purchased Shares
or arising by virtue of the ownership of the Purchased Shares, including
without limitation cash or noncash dividends, or the rights to additional or
other securities upon any corporate reorganization, merger or consolidation,
offering of stock rights, stock split or stock dividend. Notwithstanding the
foregoing, for so long as the Note shall remain outstanding and the Option
Holder shall not be in default thereunder, the Option Holder shall have the
right to vote the Purchased Shares and to receive any cash dividends declared
and paid upon the Purchased Shares.
Simultaneously with the execution and delivery of this Notice and Pledge,
the Option Holder is executing and delivering to the Company a Stock Power
(Separate from Certificate) to enable the Company to effect the transfer of all
or any part of the Purchased Shares in the event of a default by the Option
Holder in any of the Option Holder's obligations under the Note.
No delay on the part of the Company in the exercise of any right shall
operate as a waiver of such right and no single or partial exercise by the
Company of any right or remedy shall preclude other or further exercise of such
right or remedy or the exercise of any other right or remedy. This Notice and
Pledge shall be governed by and construed in accordance with the laws of the
State of Michigan, without giving effect to any conflicts of laws rules.
OPTION HOLDER:
/s/ Douglas S. Land
Dated: December 30, 1996 -------------------------------------
Douglas S. Land
<PAGE> 1
EXHIBIT 10.15
PROMISSORY NOTE
FOR VALUE RECEIVED, Timothy S. Manney (the "Maker"), hereby promises to
pay to Complete Business Solutions, Inc., a Michigan corporation (the
"Company"), at the times and in the manner provided in this Note, the principal
amount of One Million One Hundred Twenty Five Thousand Dollars ($1,125,000),
together with simple interest on such principal amount at the rate of 8.25% per
annum from the date of this Note until this Note is paid in full.
The entire principal amount plus any unpaid interest shall be due on April
25, 2006. Interest payments shall be paid semi-annually on the first business
day of January and July of each year while this Note is outstanding; provided
that no interest shall be paid prior to the Purchased Shares being registered
with the Securities and Exchange Commission under the Securities Act of 1933.
No interest shall be paid on interest.
Simultaneously with the execution and delivery of this Note, the Maker is
executing and delivering to the Company an Exercise and Loan Notice and Stock
Pledge of even date (the "Notice and Pledge") pursuant to which the Maker is
granting to the Company a security interest in the Purchased Shares until the
principal of and interest on this Note is paid in full.
The Maker shall be entitled to prepay the principal of and interest on
this Note at any time without premium or penalty. Any payments made on this
Note shall be applied first to accrued interest and then to outstanding
principal. In the event of any default by the Maker under this Note, the
Company may retain the Purchased Shares in full satisfaction of the obligations
of the Maker under this Note. The Maker shall be liable for all costs of
collection of this Note, including reasonable attorneys' fees of the Company.
The Maker hereby waives demand, presentment for payment, notice of
dishonor, protest and notice of protest, and diligence in collection or
bringing suit. The Company may extend the time for payment or accept partial
payment without discharging or releasing the Maker.
Unless otherwise defined herein, capitalized terms used herein shall have
the meaning ascribed to them in the Notice and Pledge.
Dated: December 30, 1996
MAKER:
/s/ Timothy S. Manney
-------------------------------------
Timothy S. Manney
<PAGE> 2
EXERCISE AND LOAN NOTICE
AND STOCK PLEDGE
The undersigned (the "Option Holder") hereby exercises the Option Holder's
right pursuant to Section 2 of the Option Agreement (the "Agreement"), dated
April 25, 1996 between the Option Holder and Complete Business Solutions, Inc.,
a Michigan corporation (the "Company"), to purchase 450,000 shares of Common
Stock of the Company (the "Purchased Shares"), as adjusted for a 10,000 for 1
stock split on September 10, 1996, for a purchase price of $2.50 per share or
an aggregate purchase price of $1,125,000.
Pursuant to Section 5 of the Agreement, the Option Holder elects to borrow
from the Company $1,125,000 (the "Loan") to purchase the Purchased Shares.
Simultaneously with the execution and delivery of this Notice and Pledge, the
Option Holder is executing and delivering to the Company the Option Holder's
Promissory Note of even date herewith in the original principal amount of the
Loan (the "Note").
The Option Holder hereby pledges the Purchased Shares and any Proceeds (as
defined below) to the Company and grants to the Company a first priority
security interest in the Purchased Shares and any Proceeds as security for the
performance of the obligations of the Option Holder under the Note. For
purposes of this Notice and Pledge, "Proceeds" shall mean all property
substituted for the Purchased Shares or any part of the Purchased Shares, and
all cash or noncash proceeds of the Purchased Shares up to a maximum of $2.50
per share resulting from any sale, exchange or transfer of the Purchased Shares
or arising by virtue of the ownership of the Purchased Shares, including
without limitation cash or noncash dividends, or the rights to additional or
other securities upon any corporate reorganization, merger or consolidation,
offering of stock rights, stock split or stock dividend. Notwithstanding the
foregoing, for so long as the Note shall remain outstanding and the Option
Holder shall not be in default thereunder, the Option Holder shall have the
right to vote the Purchased Shares and to receive any cash dividends declared
and paid upon the Purchased Shares.
Simultaneously with the execution and delivery of this Notice and Pledge,
the Option Holder is executing and delivering to the Company a Stock Power
(Separate from Certificate) to enable the Company to effect the transfer of all
or any part of the Purchased Shares in the event of a default by the Option
Holder in any of the Option Holder's obligations under the Note.
No delay on the part of the Company in the exercise of any right shall
operate as a waiver of such right and no single or partial exercise by the
Company of any right or remedy shall preclude other or further exercise of such
right or remedy or the exercise of any other right or remedy. This Notice and
Pledge shall be governed by and construed in accordance with the laws of the
State of Michigan, without giving effect to any conflicts of laws rules.
OPTION HOLDER:
/s/ Timothy S. Manney
Dated: December 30, 1996 -------------------------------------
Timothy S. Manney
<PAGE> 1
EXHIBIT 10.16
AGREEMENT
This Incentive Stock Option Agreement ("Agreement") dated as of September
12, 1996 by and between COMPLETE BUSINESS SOLUTIONS, INC. ("Company"), a
Michigan corporation, having an office at 32605 West 12 Mile Road, Suite 250,
Farmington Hills, Michigan 48334 and NANJAPPA VENUGOPAL ("Holder"), an
individual.
WITNESSETH:
WHEREAS, the Company is a privately held Subchapter S corporation;
WHEREAS, the Complete Business Solutions, Inc. Stock Option Plan was
adopted by the Board of Directors on July 10, 1996;
WHEREAS, the Company has the authority to issue additional shares of the
Company's common stock (all of the Company's shares of common stock being
hereinafter referred to as "Common Stock");
WHEREAS, Holder is an employee of the Company and has provided valuable
services to the Company.
WHEREAS, the Company desires to grant Holder an option to purchase a
portion of the Company's Common Stock, upon the price, terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the terms and covenants contained
herein, and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Option.
Holder shall have the right, at his sole and absolute option, to
purchase on terms and conditions hereinafter set forth, all or any part of the
aggregate of 50,000 shares of Common Stock of the Company (collectively, the
"Option Shares") at the purchase price of $5.00 per share (each an "Option
Price") (the "Option").
2. Exercise; Expiration Date.
(a) EXERCISE: To exercise any portion of the Option, Holder must
remain in the continuous employ of the Company, or a subsidiary of the Company
for at least one year from the date of this Agreement. After each year of such
employment after the date of this Agreement, the employee may purchase a
cumulative installment of one third of the Option
1
<PAGE> 2
Shares, so that after three years of such employment Holder may purchase all of
the Shares. In no event, however, may Holder exercise the Option after 10 years
from the date of this Agreement. The Option may be exercised in whole or in
part, at the option of Holder by delivering to the Company written notice of
Holder's exercise ("Exercise Notice") stating the amount of Option Shares to be
purchased thereby, accompanied by either (i) payment to the Company in full, in
cash of the aggregate sum due for the Option Shares then being purchased, or
(ii) notice to the Company that Holder elects to borrow the funds for such
purchase in accordance with Paragraph 4 below ("Loan Notice"). As soon as
practicable thereafter, and in any event within ten (10) business days of the
Company's receipt of the Exercise Notice and payment, the Company shall issue
and deliver to Holder a certificate representing the Option Shares being
purchased pursuant to such Exercise Notice. Each such certificate shall bear
the legend or legends required by applicable securities laws as well as such
other legends the Company requires to be included on certificates for its Common
Stock. Such certificate or certificates shall be deemed to have been issued and
Holder or any other persons so designated to be named therein shall be deemed
for all purposes to have become a holder of record of such shares as of the
date the Exercise Notice is delivered to the Company. In the case of an
exercise for less than all of the Option Shares permitted to be purchased
hereunder, the Holder shall reserve the right to exercise its Option at any time
and from time to time prior to the Expiration Date for the remainder of the
Option Shares.
(b) Except in the event of the death of the Holder: (1) the Option
may not be exercised by the Holder unless the Holder shall have been in the
employ of the Company or a subsidiary of the Company continuously from the date
of this Agreement to the date of the exercise of the Option; and (2) as soon as
the Holder shall for any reason cease to be employed by the Company or a
subsidiary of the Company, the Option will automatically terminate to the
extent that it has not been previously exercised. No change of employment will
affect the Option if after such change the Holder continues to be an employee
of the Company or a subsidiary of the Company.
(c) EXPIRATION DATE: The term "Expiration Date" shall mean the
earlier of 90 days following the date on which holder is no longer an employee
of the Company or ten (10) years from the date hereof, at 5:00 P.M. Detroit
time on such date or if such date shall be a federal holiday, a Saturday or a
Sunday, then 5:00 P.M. Detroit time the next following day which is not a
federal holiday, a Saturday or a Sunday.
3. Repurchase Rights.
If Holder's employment with the Company is terminated for any reason,
the Company shall have the right, but not the obligation, for a period of 60
days after such termination to repurchase any shares of the Company owned by
Holder. Such repurchase right shall expire and be null and void at such time
as the Company has filed a registration statement to issue additional shares
or is otherwise listed on any public exchange. The shares shall be repurchased
from Holder at their fair value as mutually determined between Company
2
<PAGE> 3
and Holder, provided, however, that if such shares shall have been acquired by
the Holder less than one year before the date of the Holder's termination of
employment, then the Company shall have the right to purchase such shares, for
a period of sixty days after the end of such one year period at a price equal
to the fair market value of the shares at the date of the expiration of the one
year period. In the absence of agreement between the parties as to the fair
value of the shares, Holder or the Company may request the auditor of the
Company to select a recognized valuation firm to determine the fair value of
the shares to be repurchased. The selection of a valuation firm and the
determination of the valuation firm shall be final and binding on the parties.
4. Loan
At Holder's sole and absolute discretion as exercised by the Loan
Notice, Holder shall have the right from time to time and at any time to borrow
from the Company the necessary funds to purchase the Option Shares. In such
event, the Company shall loan to Holder and Holder shall borrow from the
Company, the aggregate sum of money required to buy the Option Shares then being
purchased ("Loan"), which Loan shall be upon terms and conditions to be mutually
agreed upon by the parties hereto except that the following shall apply to any
and each such Loan: (i) the interest rate shall be no more than the "prime rate
of interest" as set forth in the Wall Street Journal on the date of the Exercise
Notice or if the Wall Street Journal shall not exist at such time, such
comparable publication publishing the "prime rate of interest", (ii) the Loan
shall have a term of not less than two (2) years, (iii) the Loan shall be repaid
at "interest only" until the maturity date of the Loan at which time the
principal shall be due, such interest to be paid no more frequently than
semi-annually but no interest shall be paid on interest, and (iv) the Loan shall
be with recourse to the Holder and the Company shall have a security interest in
Holder's Option Shares.
5. Holder's Income Tax Coverage.
For so long as the Company shall be a Subchapter S corporation, the
Company agrees that notwithstanding any of its distributions, dividends or
payments made to the shareholders of the Company, the Company shall make a
distribution of income to Holder after any exercise of the Option, an amount not
less than Holder's federal, state and local personal income tax liability in the
aggregate as a result of the Company's income for the preceding calendar year.
Distributions will be made on a pro-rata basis based upon percentage ownership
of stock of the Company. Nothing in this Agreement is intended to create a
second class of stock in accordance with Section 1361 (b) (1) (D) of the
Internal Revenue Code of 1986 as amended, which would result in the termination
of the Company's S Corporation election. Any provision in this Agreement which
is deemed to create such a second class of stock is null and void.
3
<PAGE> 4
6. Change of Ownership Protection.
If fifty percent (50%) or more of the ownership of the Company is
transferred, sold or otherwise disposed of in one (1) or more transactions,
then as part of such transfer, sale or other disposition, any and all shares of
Common Stock held by Holder shall be simultaneously transferred, sold or
disposed of therewith at a per share price no less than the highest per share
price paid for the other shares of Common Stock then being transferred, sold or
otherwise disposed of.
7. Assignability.
The Option granted herein may not be assigned, transferred, sold or
otherwise disposed of by Holder without the prior written consent of the
Company other than by Will or by the laws of descent and distribution.
8. Reservation of Shares.
The Company covenants that it will, at all times, reserve and keep
available out of its authorized Common Stock solely for the purpose of issuance
upon exercise of the Option, such number of shares of Common Stock as shall
then be issuable upon the exercise of the Option. The Company agrees that all
Option Shares shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof.
9. Loss or Mutilation.
Upon receipt by the Company of reasonable evidence of the loss, theft,
destruction, or mutilation of this Agreement, the Company shall execute and
deliver in lieu thereof a new Agreement representing an equal number of Option
Shares exercisable thereunder.
10. Transfer Taxes; Expenses.
The Company shall pay any and all brokerage fees, transfer taxes and
expenses incidental to the sale or exercise of the Option or the sale of the
underlying Option Shares and shall pay all the fees and expenses of any special
attorneys or accountants retained by it in connection therewith.
4
<PAGE> 5
11. Employment.
Nothing contained in this Agreement shall confer on Holder any right
to continue in the employ of the Company or any of its subsidiaries or shall
interfere in any way with the absolute right of the Company or its subsidiaries
(which is hereby confirmed by Holder) to terminate Holder's employment or change
Holder's responsibilities, duties or compensation at any time.
12. Notice.
Any notice and other communication given pursuant to the provisions of
this Agreement shall be in writing and shall be given (i) by mailing the same by
certified mail or registered mail, return receipt requested, postage prepaid,
(ii) by hand, providing for receipted delivery, or (iii) by reputable overnight
courier providing for receipted delivery. Except as may be expressly otherwise
provided in this Agreement, any such notice or other communication given by mail
shall be deemed given two (2) business days after same is mailed and any such
notice or other communication given by hand or overnight courier as aforesaid
shall be deemed given when received or when receipt is refused. If sent to the
Company, such notices or other communication shall be sent to the Company at
32605 West 12 Mile Road, Suite 250, Farmington Hills, Michigan 48334, or at such
other address or addresses as the Company may hereafter designate by notice to
Holder. If sent to Holder, such notices or other communications shall be sent
to 1885 Midchester Drive, West Bloomfield, Michigan 48324 or at such other
address or addresses as Holder may hereafter designate by notice to the Company.
13. Governing Law.
This Agreement shall be governed by and construed in accordance with,
the laws of the State of Michigan, without reference to the conflicts of laws.
14. Nonqualification.
Notwithstanding anything to the contrary contained herein, the Company
shall have no liability, responsibility or obligation of any kind if any or all
of the Option does not qualify as an "Incentive Stock Option" within the meaning
of Section 422 (b) of the Internal Revenue Code of 1986, as amended.
15. Successors and Assigns.
This Agreement shall inure to the benefit of the Company and Holder
and their respective successors and permitted assigns.
5
<PAGE> 6
16. Confidentiality.
This Agreement and its terms and conditions is deemed to be Confidential
Information. Holder agrees not to disclose any such Confidential Information
to any third party other than to Holder's spouse or to Holder's tax, financial
and legal advisors without the express written consent of the Company. It is
understood that Confidential Information does not include information that is
in or subsequently becomes part of the public domain through no fault of the
Holder or information that is obligated to be produced under order of a court
of competent jurisdiction.
17. Entire Agreement.
This Agreement constitutes the entire agreement of the Company and Holder
as to its subject matter.
18. Counterparts.
This Agreement may be executed in duplicate originals, each of which when
taken together shall be deemed an original.
19. Amendment.
This Agreement may not be modified except in a writing signed by both
parties hereto.
COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ Rajendra B. Vattikuti
-----------------------------
Name: Rajendra B. Vattikuti
Title: President
/s/ Nanjappa Venugopal
-----------------------------
Holder
6
<PAGE> 1
EXHIBIT 11.1
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
PRO FORMA NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996
<S> <C> <C>
Weighted average number of shares of
common stock outstanding 5,942,275 5,943,659
Common stock equivalents calculated
using the weighted average stock price
per share for the years presented 5,307 272,524
Stock options and convertible stock
issued during the twelve months
immediately preceding the offering date
(using the treasury stock method and
the estimated mid-point of the proposed
initial public offering price per share) 671,293 671,293
Stock issued to satisfy S Corporation
distribution based upon the estimated
initial public offering price per share 691,244 691,244
-------------------------------
Pro forma weighted average shares
outstanding 7,310,119 7,578,720
===============================
Pro forma net income (Note B) $ 887,000 $ 2,443,000
===============================
Pro forma net income common share $ 0.12 $ 0.32
===============================
</TABLE>
Note A: The pro forma fully-diluted computations for the year ended December
31, 1995 and 1996, respectively, are not reported as the calculation
did not exceed 3% of the pro forma primary calculation.
Note B: The pro forma net income shown above reflects the incremental provision
for Federal and state income taxes at the effective income tax rate as
if the Company had been taxed as a C corporation and no foreign tax
holidays had been granted during the years presented.
<PAGE> 1
EXHIBIT 11.1(a)
EXHIBIT 11.1 (a) - COMPUTATION OF PER SHARE EARNINGS
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
<S> <C> <C>
1995 1996
Weighted average number of shares of
common stock outstanding 5,942,275 5,943,659
Common stock equivalents calculated
using the weighted average stock price
per share for the years presented 5,307 272,524
Stock options and convertible stock
issued during the twelve months
immediately preceding the offering date
(using the treasury stock method and
the estimated mid-point of the proposed
initial public offering price per share) 671,293 671,293
Stock issued to satisfy S Corporation
distribution based upon the estimated
initial public offering price per share 691,244 691,244
Stock issued to repay indebtedness
based upon the estimated intial public
offering price per share 485,100 475,499
-------------------------------
Supplemental weighted average shares
outstanding 7,795,219 8,054,219
===============================
Supplemental net income (Note A) $ 1,515,000 $ 2,836,000
===============================
Supplemental net income per common share $ 0.19 $ 0.35
===============================
</TABLE>
Note A: Supplemental net income reflects pro forma net income from Exhibit 11.1
and the elimination of interest expense related to the use of
proceeds, net of related income tax effects using an assumed
effective tax rate.
<PAGE> 1
EXHIBIT 11.1(b)
EXHIBIT 11.1 (b) - COMPUTATION OF PER SHARE EARNINGS
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
PRO FORMA NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996
<S> <C> <C>
Weighted average number of shares of
common stock outstanding 5,942,275 5,943,659
Common stock equivalents calculated
using the weighted average stock price
per share for the years presented 5,307 272,524
Stock options and convertible stock
issued during the twelve months
immediately preceding the offering date
(using the treasury stock method and
the estimated mid-point of the proposed
initial public offering price per share) 671,293 671,293
Stock issued to satisfy S Corporation
distribution based upon the estimated
initial public offering price per share 691,244 691,244
Stock issued to repay indebtedness based
upon the estimated initial public
offering price per share 485,100 475,499
---------------------------
Pro forma weighted average shares
outstanding 7,795,219 8,054,219
===========================
Pro forma net income (Note A) $1,424,000 $2,796,000
===========================
Pro forma net income per common share $ 0.18 $ 0.35
===========================
</TABLE>
Note A: The pro forma net income shown above reflects: (i) amortization of
goodwill over a period of 20 years as a result of the Company's
purchase of the 28% minority interest in CBS Mauritius, including the
elimination of the minority interest; (ii) the elimination of interest
expense to give effect to the repayment of the Company's
revolving credit facility and long-term debt; and (iii) provision for
Federal and state income taxes at the effective income tax rate as if
the Company had been taxed as a C corporation and no foreign tax
holidays had been granted during the periods presented.
<PAGE> 1
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 3,382 830
<SECURITIES> 0 0
<RECEIVABLES> 20,955 17,455
<ALLOWANCES> (214) (162)
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,259 18,654
<PP&E> 9,979 6,882
<DEPRECIATION> (4,812) (3,311)
<TOTAL-ASSETS> 31,258 23,423
<CURRENT-LIABILITIES> 15,182 12,855
<BONDS> 6,191 6,316
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 13,951 9,188
<TOTAL-LIABILITY-AND-EQUITY> 31,258 23,423
<SALES> 0 0
<TOTAL-REVENUES> 83,241 67,399
<CGS> 0 0
<TOTAL-COSTS> 63,302 53,609
<OTHER-EXPENSES> 15,493 11,971
<LOSS-PROVISION> 120 105
<INTEREST-EXPENSE> 539 692
<INCOME-PRETAX> 3,787 1,022
<INCOME-TAX> 84 0
<INCOME-CONTINUING> 3,703 1,022
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,703 1,022
<EPS-PRIMARY> .32 .12
<EPS-DILUTED> 0 0
</TABLE>
