<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMPLETE BUSINESS SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MICHIGAN 7371 38-2606945
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
32605 WEST TWELVE MILE ROAD, FARMINGTON HILLS, MI 48334-3339
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RAJENDRA B. VATTIKUTI
32605 WEST TWELVE MILE ROAD, FARMINGTON HILLS, MI 48334-3339
(248) 488-2088
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
ARTHUR DUDLEY II WILLIAM C. CAMPBELL
DAVID B. BRAUN BRENDA L. MELTEBEKE
BUTZEL LONG ATER WYNNE HEWITT
150 WEST JEFFERSON, SUITE 900 DODSON & SKERRITT, LLP
DETROIT, MICHIGAN 48226-4430 222 S.W. COLUMBIA, SUITE 1800
PORTLAND, OREGON 97201
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT IS DECLARED
EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
CALCULATION OF REGISTRATION FEE
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================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED AMOUNT
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------
Common Stock, no par
value.................. 9,113,568 shares $27.00 $246,066,336 $72,590
================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of common stock issuable in the
Merger described herein.
(2) Estimated solely for purposes of calculating the registration fee.
The registration fee has been computed pursuant to Rule 457(f)(1) and Rule
457(c) under the Securities Act of 1933, as amended.
(3) The registration fee for CBSI Common Stock registered hereby of $72,590 has
been calculated by multiplying 1/33 of 1% times the proposed maximum
aggregate offering price. Pursuant to Rule 457(b), a registration fee of
$72,772 was paid on May 14, 1998 upon the filing under the Securities
Exchange Act of 1934, as amended, of preliminary copies of the proxy
materials of Complete Business Solutions, Inc. that are included in this
registration statement.
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 of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
CLAREMONT LOGO
June 12, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Claremont Special Meeting") of Claremont Technology Group, Inc.
("Claremont"), which will be held on Thursday, July 16, 1998, at 10:00 a.m.,
local time, at 1600 N.W. Compton Drive, Beaverton, Oregon 97006.
At the Claremont Special Meeting, you will be asked to consider and vote
upon the approval and adoption of an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of Claremont with a
subsidiary of Complete Business Solutions, Inc., a Michigan corporation
("CBSI"), as described in the accompanying Joint Proxy Statement/Prospectus.
Pursuant to the Merger, Claremont will become a wholly owned subsidiary of CBSI,
all outstanding shares of Claremont's common stock, no par value (the "Claremont
Common Stock") will be converted into and exchanged for that number of shares of
common stock, no par value, of CBSI (the "CBSI Common Stock") equal to the
"Conversion Number" determined in accordance with the Merger Agreement. The
Conversion Number will be equal to $27.00 divided by the average closing price
of CBSI Common Stock for the twenty consecutive trading days the last of which
is the fourth full trading day before the closing of the Merger (the "Closing
Value"); provided, however, that if the Closing Value is less than 85% of
$38.00, the Conversion Number will be fixed at .8359133 shares of CBSI Common
Stock, and if the Closing Value is more than 115% of $38.00, the Conversion
Number will be fixed at .617849 shares of CBSI Common Stock. In addition, all
outstanding options to acquire shares of Claremont Common Stock will be assumed
by CBSI and automatically converted into options to acquire that number of
shares of CBSI Common Stock as the holder of such options would have been
entitled to receive in accordance with the Merger Agreement had such holder
exercised such option in full immediately prior to closing of the Merger
(rounded down to the nearest whole number) at an exercise price which will be
determined in accordance with the Merger Agreement. For more information
regarding the consideration to be received by Claremont shareholders in the
Merger, please refer to the accompanying Joint Proxy Statement/Prospectus. See
THE MERGER AGREEMENT -- CONVERSION OF CLAREMONT COMMON STOCK IN THE MERGER AND
- -- CLAREMONT STOCK OPTIONS.
THE CLAREMONT BOARD OF DIRECTORS UNANIMOUSLY HAS APPROVED THE MERGER
AGREEMENT DESCRIBED IN THE ATTACHED MATERIAL AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF CLAREMONT
AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS
RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Claremont shareholders at the Claremont Special Meeting,
and a form of proxy. The Joint Proxy Statement/Prospectus more fully describes
the proposed Merger and includes information about CBSI and Claremont.
WHETHER OR NOT YOU PLAN TO ATTEND THE CLAREMONT SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE
IT IS VOTED BY SIGNING AND RETURNING A LATER-DATED PROXY WITH RESPECT TO THE
SAME SHARES, BY FILING WITH THE SECRETARY OF CLAREMONT A WRITTEN REVOCATION
BEARING A LATER DATE OR BY ATTENDING AND VOTING AT THE CLAREMONT SPECIAL
MEETING. IF YOU ATTEND THE CLAREMONT SPECIAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN THOUGH YOU PREVIOUSLY HAVE RETURNED YOUR PROXY CARD. YOUR PROMPT
COOPERATION WILL BE GREATLY APPRECIATED.
Sincerely,
Jerry L. Stone
Jerry L. Stone
Chairman of the Board
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE> 3
COMPLETE BUSINESS SOLUTIONS, INC. LOGO
June 12, 1998
Dear Complete Business Solutions, Inc. Shareholder:
A Special Meeting of the Shareholders of Complete Business Solutions, Inc.
("CBSI") will be held on Wednesday, July 22, 1998, at the offices of Butzel
Long, 150 West Jefferson, Detroit, Michigan 48226.
At the Special Meeting, you will be asked to consider and vote upon the
issuance of shares of CBSI Common Stock pursuant to an Agreement and Plan of
Merger dated as of April 8, 1998 among CBSI, CBSI Acquisition Corp. III, a
wholly-owned subsidiary of CBSI, and Claremont Technology Group, Inc.
("Claremont"). Pursuant to the Merger Agreement, CBSI Acquisition Corp. III will
be merged into Claremont and Claremont will become a wholly-owned subsidiary of
CBSI. In the Merger, each outstanding share of Claremont Common Stock will be
converted into the right to receive the number of shares of CBSI Common Stock
equal to $27.00 divided by the average per share closing price of CBSI Common
Stock for twenty consecutive trading days, the last of which is the fourth full
trading day prior to the consummation of the Merger (the "Closing Value" ). In
the event that the Closing Value is less than 85% of $38.00, each outstanding
share of Claremont will be converted into .8359133 shares of CBSI Common Stock.
If the Closing Value is more than 115% of $38.00, each outstanding share of
Claremont Common Stock will be converted into .617849 shares of CBSI Common
Stock. Outstanding Claremont options to purchase Claremont Common Stock will be
converted into options to purchase CBSI Common Stock on the same basis.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger and has received the opinion of UBS Securities LLC, its
financial advisor ("UBS"), that, as of April 8, 1998, the consideration to be
paid by CBSI in the Merger was fair to CBSI from a financial point of view. A
copy of the UBS opinion is attached as Annex B to the accompanying Joint Proxy
Statement/Prospectus. THE BOARD OF DIRECTORS OF CBSI HAS DETERMINED THAT THE
MERGER IS FAIR TO CBSI AND IN THE BEST INTEREST OF CBSI SHAREHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE ISSUANCE OF
SHARES OF CBSI COMMON STOCK IN CONNECTION WITH THE MERGER.
At the Special Meeting, you will also be asked to consider and vote upon a
proposal to approve an amendment to CBSI's Articles of Incorporation increasing
the number of authorized shares of CBSI Common Stock from 30,000,000 to
200,000,000.
Your vote is important regardless of how many shares you own. Please review
the proxy statement and then sign and date your proxy card and return it in the
envelope provided. You may attend the meeting and vote in person even if you
have previously returned your proxy card.
Sincerely,
RAJENDARA VATTIKUTI
Rajendra B. Vattikuti
President and Chief Executive Officer
<PAGE> 4
CLAREMONT TECHNOLOGY GROUP, INC.
1600 N.W. COMPTON DRIVE, SUITE 210
BEAVERTON, OREGON 97006
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 16, 1998
TO THE SHAREHOLDERS OF CLAREMONT TECHNOLOGY GROUP, INC.:
The Special Meeting of Shareholders (the "Claremont Special Meeting") of
Claremont Technology Group, Inc., an Oregon corporation ("Claremont"), will be
held on Thursday, July 16, 1998, at 10:00 a.m., local time, at 1600 N.W. Compton
Drive, Beaverton, Oregon 97006, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of April 8, 1998 by and among
Complete Business Solutions, Inc., a Michigan corporation ("CBSI"), CBSI
Acquisition Corp. III, an Oregon corporation and wholly owned subsidiary of
CBSI ("Merger Sub") and Claremont (the "Merger Agreement"). The Merger
Agreement provides for the merger of Merger Sub into Claremont, with
Claremont remaining as the surviving corporation (the "Merger"), and all
outstanding shares of Claremont's Common Stock, no par value (the
"Claremont Common Stock"), will be converted into and exchanged for shares
of the common stock, no par value, of CBSI (the "CBSI Common Stock"), and
all outstanding options to acquire shares of Claremont Common Stock (the
"Claremont Options") will be assumed by CBSI and automatically converted
into options to acquire shares of CBSI Common Stock. Each holder of
Claremont Common Stock will receive that number of shares of CBSI Common
Stock in exchange for shares of Claremont Stock owned by such shareholder
equal to the "Conversion Number" determined in accordance with the Merger
Agreement. The Conversion Number will be equal to $27.00 divided by the
average closing price of CBSI Common Stock for the twenty consecutive
trading days, the last of which is the fourth full trading day before the
closing of the Merger (the "Closing Value"); provided, however, that if the
Closing Value is less than 85% of $38.00, the Conversion Number will be
fixed at .8359133 shares of CBSI Common Stock, and if the Closing Value is
more than 115% of $38.00, the Conversion Number will be fixed at .617849
shares of CBSI Common Stock. Each holder of Claremont Options will receive
options to acquire that number of shares of CBSI Common Stock upon
conversion of the Claremont Options owned by such holder as such holder
would have been entitled to receive in accordance with the Merger Agreement
had such holder exercised such Claremont Options in full immediately prior
to the closing of the Merger (rounded down to the nearest whole number), at
an exercise price which will be determined in accordance with the Merger
Agreement. The exchange ratio is described in more detail in the
accompanying Joint Proxy Statement/Prospectus. See THE MERGER AGREEMENT --
CONVERSION OF CLAREMONT COMMON STOCK IN THE MERGER AND -- CLAREMONT STOCK
OPTIONS. The Merger is more fully described in, and the Merger Agreement is
attached in its entirety as Annex A to, the accompanying Joint Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Claremont Special Meeting or any adjournments or postponements thereof.
Only holders of record of Claremont Common Stock at the close of business
on May 29, 1998, the record date of the Claremont Special Meeting, are entitled
to notice of and to vote at the Claremont Special Meeting and any adjournments
or postponements thereof.
Whether or not you plan to attend the Claremont Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time before
it is voted by signing and returning a later-dated proxy with respect to the
same
<PAGE> 5
shares, by filing with the Secretary of Claremont a written revocation bearing a
later date or by attending and voting at the Claremont Special Meeting.
CLAREMONT TECHNOLOGY GROUP, INC.
Jerry L. Stone
Jerry L. Stone
Chairman of the Board
Beaverton, Oregon
June 12, 1998
================================================================================
IMPORTANT: EVEN IF YOU PLAN TO BE PRESENT AT THE CLAREMONT SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY OR PROXIES AND
RETURN PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED TO ENSURE THAT
YOUR SHARES ARE REPRESENTED AT THE CLAREMONT SPECIAL MEETING. IF YOU
ATTEND THE CLAREMONT SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH
TO DO SO EVEN THOUGH YOU HAVE PREVIOUSLY SENT IN YOUR PROXY OR PROXIES.
================================================================================
<PAGE> 6
COMPLETE BUSINESS SOLUTIONS, INC.
32605 W. TWELVE MILE ROAD, SUITE 250
FARMINGTON HILLS, MI 48334
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "CBSI
Special Meeting") of Complete Business Solutions, Inc. ("CBSI") will be held at
10:00 a.m. on Wednesday, July 22, 1998, at the offices of Butzel Long, 150 West
Jefferson, Suite 900, Detroit, Michigan 48226.
A meeting is called for the purpose of considering and voting upon:
1). A proposal to approve the issuance of shares of CBSI Common Stock,
no par value, (the "CBSI Merger Proposal") pursuant to an Agreement and
Plan of Merger, dated as of April 8, 1998, by and among CBSI, CBSI
Acquisition Corp. III and Claremont Technology Group, Inc. (the "Merger
Agreement"). A copy of the Merger Agreement is attached as Annex A to the
Joint Proxy Statement/Prospectus accompanying this Notice.
2). A proposal to amend the Articles of Incorporation of CBSI to
increase the authorized number of shares of CBSI Common Stock from
30,000,000 to 200,000,000 shares (the "CBSI Share Proposal").
3). Any matters incident to the conduct of the CBSI Special Meeting or
any adjournments or postponements thereof.
The proposed Merger and other related matters are more fully described in
the attached Joint Proxy Statement/Prospectus and the Annexes thereto.
The Board of Directors of CBSI has fixed the close of business on June 1,
1998 as the Record Date for the determination of the shareholders entitled to
notice of and to vote at the CBSI Special Meeting and any adjournments or
postponements thereof. Only holders of record of CBSI Common Stock on the Record
Date are entitled to vote at the CBSI Special Meeting.
If you would like to attend the CBSI Special Meeting and your shares are
held by a broker, bank or other nominee, you must bring to the meeting a recent
brokerage statement or letter from the nominee confirming your beneficial
ownership of the shares. You must also bring a form of personal identification.
In order to vote your shares at the CBSI Special Meeting, you must obtain from
the nominee a proxy issued in your name.
You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Returning a
signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by giving
written notice to the Secretary of CBSI at CBSI's corporate headquarters, 32605
W. Twelve Mile Road, Suite 250, Farmington Hills, MI 48334, by signing and
returning a later dated proxy or by voting in person at the CBSI Special
Meeting.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By order of the Board of Directors
RAJENDARA VATTIKUTI
Rajendra B. Vattikuti
President and Chief Executive Officer
Farmington Hills, Michigan
June 12, 1998
<PAGE> 7
COMPLETE BUSINESS SOLUTIONS, INC.
AND
CLAREMONT TECHNOLOGY GROUP, INC.
JOINT PROXY STATEMENT
- --------------------------------------------------------------------------------
COMPLETE BUSINESS SOLUTIONS, INC.
PROSPECTUS
- --------------------------------------------------------------------------------
This Joint Proxy Statement and Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to the shareholders of Complete
Business Solutions, Inc., a Michigan corporation ("CBSI") in connection with the
solicitation of proxies by the Board of Directors of CBSI for use at a Special
Meeting of Shareholders of CBSI to be held at the offices of Butzel Long, 150
West Jefferson, Detroit, Michigan 48226 on Wednesday, July 22, 1998 at 10:00
a.m., local time, and any and all adjournments or postponements thereof (the
"CBSI Special Meeting"). This Joint Proxy Statement/Prospectus also constitutes
the Prospectus of CBSI with respect to the issuance of shares of Common Stock of
CBSI, no par value ("CBSI Common Stock" ) to be issued to shareholders of
Claremont Technology Group, Inc., an Oregon corporation ("Claremont"), in
connection with the proposed merger (the "Merger") of CBSI Acquisition Corp.
III, an Oregon corporation, and a wholly-owned subsidiary of CBSI ("Merger
Sub"), with and into Claremont pursuant to the Agreement and Plan of Merger
dated as of April 8, 1998 (the "Merger Agreement") by and among CBSI, Merger Sub
and Claremont. CBSI Common Stock is traded on the Nasdaq National Market under
the symbol "CBSL". On June 8, 1998 the closing price per share of CBSI Common
Stock on the NASDAQ was $26 7/8.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of common stock, no par value, of Claremont ("Claremont Common Stock")
in connection with the solicitation of proxies by the Board of Directors of
Claremont for approval of the Merger Agreement and the Merger at a Special
Meeting of Shareholders of Claremont to be held at 1600 N.W. Compton Drive,
Beaverton, Oregon 97006, on Thursday, July 16, 1998 at 10:00 a.m., local time,
and any and all adjournments or postponements thereof (the "Claremont Special
Meeting").
Based upon the exchange ratio, each outstanding share of Claremont Common
Stock will be converted into the right to receive the number of shares of CBSI
Common Stock equal to $27.00 divided by the average per share closing price of
CBSI Common Stock for twenty consecutive trading days, the last of which is the
fourth full trading day prior to the consummation of the Merger (the "Closing
Value" ). In the event that the Closing Value is less than 85% of $38.00, each
outstanding share of Claremont Common Stock will be converted into .8359133
shares of CBSI Common Stock. In the event the Closing Value is more than 115% of
$38.00, each outstanding share of Claremont Common Stock will be converted into
.617849 shares of CBSI Common Stock. Outstanding options to purchase Claremont
Common Stock will be converted into options to purchase CBSI Common Stock on the
same basis. Based on the Closing Value as calculated on June 8, 1998, CBSI would
issue approximately 7,728,293 shares of CBSI Common Stock to Claremont
shareholders in the Merger and would assume options to purchase Claremont Common
Stock which would be converted into options to purchase approximately 1,385,275
shares of CBSI Common Stock. Based on the capitalization of CBSI as of June 1,
1998 (the record date for the CBSI Special Meeting), 9,113,568 shares of CBSI
Common Stock would represent approximately 23% of the outstanding CBSI Common
Stock immediately following the Effective Time on a diluted basis.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to shareholders of CBSI and Claremont on or about June
12, 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 30 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY SHAREHOLDERS OF CBSI AND CLAREMONT IN CONNECTION
WITH EVALUATION OF THE MERGER.
1
<PAGE> 8
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JUNE 12, 1998.
Upon consummation of the Merger, Claremont will be a wholly-owned
subsidiary of CBSI. Consummation of the Merger is subject to various conditions,
including the approval and adoption of the Merger Agreement and the Merger by
the holders of 67% of the issued and outstanding shares of Claremont Common
Stock and the approval by a majority of the outstanding shares of CBSI Common
Stock of the issuance of shares of CBSI Common Stock in connection with the
Merger. The holder of approximately ten percent (10%) of the Claremont Common
Stock issued and outstanding as of the date of the Merger Agreement has agreed
to vote in favor of the approval and adoption of the Merger and has granted CBSI
an irrevocable proxy to vote his shares of Claremont Common Stock in favor of
the Merger. The holder of approximately thirty-eight percent (38%) of CBSI
Common Stock as of the date of the Merger Agreement has agreed to vote in favor
of the issuance of the shares of CBSI Common Stock and has granted Claremont an
irrevocable proxy to vote his shares of CBSI Common Stock in favor of the
issuance.
All information contained in this Joint Proxy Statement/Prospectus about
CBSI and Merger Sub has been provided by CBSI. All information contained in this
Joint Proxy Statement/Prospectus about Claremont has been provided by Claremont.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO
PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, NOR SHALL THE ISSUANCE OR SALE
OF ANY SECURITIES HEREUNDER UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN.
FORWARD LOOKING STATEMENTS
Certain statements in this Joint Proxy Statement/Prospectus and in the
Exhibits attached to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21B of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). For this purpose, statements about the expected
impact of the Merger on CBSI's earnings per share and the extent of the charges
related to the Merger are forward-looking statements. Further, any statements
contained herein or incorporated herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of CBSI or Claremont to
differ materially from those indicated by such forward-looking statements,
including among others those set forth in this Joint Proxy Statement/Prospectus
under the caption "Risk Factors." Neither CBSI nor Claremont undertakes any
obligation to update any forward-looking statements.
2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information....................................... 7
Incorporation of Documents By Reference..................... 7
Summary..................................................... 8
Introduction.............................................. 8
The Meetings.............................................. 9
The Merger................................................ 11
Merger Consideration................................... 11
Exchange of Certificates............................... 11
Conditions to the Merger; Termination; Fees............ 11
Listing................................................ 12
Appraisal and Dissenters' Rights....................... 12
Governmental Approvals Required........................ 12
Anticipated Accounting Treatment....................... 13
Stock Options.......................................... 13
Opinions of Financial Advisors......................... 13
Interests of Certain Persons in the Merger............. 13
Certain Tax Consequences............................... 13
Comparative Rights of Shareholders........................ 13
Market Price Information.................................. 14
Dividend Policy -- CBSI................................... 15
Restriction on Resale of Securities Issued in the
Merger................................................. 15
Selected Historical and Pro Forma Financial Data............ 16
CBSI...................................................... 16
Claremont................................................. 18
Pro Forma Combined -- Historical.......................... 19
Unaudited Pro Forma Combined Condensed Financial
Information............................................ 20
Pro Forma Combined Condensed Balance Sheet................ 20
Pro Forma Combined Condensed Statements of Income......... 22
Comparative Per Share Data................................ 25
Introduction................................................ 26
CBSI Special Meeting........................................ 26
Record Date............................................... 26
Quorum.................................................... 26
Required Votes............................................ 26
Voting Rights; Proxies.................................... 27
Solicitation of Proxies................................... 27
Special Meeting of Claremont Shareholders................... 28
Date, Time and Place of Meeting........................... 28
Matters to be Considered at the Meeting................... 28
Record Date; Shares Entitled to Vote; Vote Required....... 28
Proxies; Proxy Solicitation; Expenses..................... 29
Risk Factors................................................ 30
Risks Relating to the Merger.............................. 30
Variability of Stock Prices............................ 30
Difficulties Integrating Claremont..................... 30
Incurrence of Significant Transaction Costs............ 30
Risks Relating to CBSI.................................... 30
Recruitment and Retention of IT Professionals.......... 30
Government Regulation of Immigration................... 31
Increasing Significance and Risks of Non-U.S.
Operations............................................ 31
</TABLE>
3
<PAGE> 10
<TABLE>
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Variability of Operating Results....................... 31
Decrease in Demand for Year 2000 Services.............. 32
Exposure to Conditions in India........................ 32
Fixed-Price Projects................................... 32
Competition............................................ 32
Management of Growth................................... 33
Rapid Technology Change................................ 33
Risks Related to Acquisitions and Mergers.............. 33
Potential Liability to Clients......................... 34
Absence of Long Term Contracts......................... 34
Risks Relating to Claremont............................... 34
Need to Attract and Retain Potential Staff............. 34
Variability of Quarterly Operating Results;
Seasonality........................................... 34
Computer Software Development.......................... 35
Client and Industry Concentration; Dependence on Large
Projects.............................................. 35
Management of Growth................................... 35
Fixed-Price Contracts and Other Project Risks.......... 36
Emerging Market; Technological Advances................ 36
Competition............................................ 37
Foreign Operations..................................... 37
Intellectual Property Rights........................... 37
The Merger.................................................. 39
General................................................... 39
Effective Time............................................ 39
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 39
Background of the Merger.................................. 40
Recommendation of the Board of Directors of CBSI; Reasons
for the Merger......................................... 41
Recommendation of the Board of Directors of Claremont;
Reasons for the Merger................................. 42
Opinion of CBSI's Financial Advisor....................... 43
Opinion of Claremont's Financial Advisor.................. 46
Interests of Certain Persons in the Merger................ 49
Conflicts of Interest..................................... 50
Certain United States Federal Income Tax Consequences..... 50
Anticipated Accounting Treatment.......................... 52
Effect on Stock Options................................... 53
Certain Legal Matters..................................... 53
Federal Securities Law Consequences....................... 54
Stock Listing............................................. 54
Dividends................................................. 54
Appraisal and Dissenters' Rights.......................... 54
Fees and Expenses......................................... 54
The Merger Agreement........................................ 55
Terms of the Merger....................................... 55
Exchange of Certificates.................................. 56
Representations and Warranties............................ 56
Conduct of Claremont Business Pending the Merger.......... 57
Conduct of CBSI Business Pending the Merger............... 58
Additional Agreements..................................... 59
Conditions to the Merger.................................. 61
Termination............................................... 62
Amendment and Waiver...................................... 63
Irrevocable Proxies......................................... 64
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Comparison of Rights of Shareholders of CBSI and
Claremont................................................. 64
Special Meeting of Shareholders........................... 64
Voting Requirements and Quorums for Shareholder
Meetings............................................... 64
Business Conducted at Shareholders Meeting................ 65
Nomination and Election of Directors...................... 65
Inspection Rights......................................... 65
Action by Consent of Shareholders......................... 66
Cumulative Voting......................................... 66
Dividends and Stock Repurchases........................... 66
Classification, Number, Vacancies and Qualification of the
Board of Directors..................................... 67
Removal of Directors...................................... 67
Indemnification of Directors, Officers and Others......... 68
Transactions with Interested Parties...................... 68
Fundamental Transactions.................................. 69
Appraisal Rights.......................................... 69
Complete Business Solutions, Inc............................ 71
Business of CBSI.......................................... 71
The CBSI Solution...................................... 72
CBSI Growth Strategies................................. 73
CBSI Services.......................................... 74
Software Products...................................... 75
Sales and Marketing.................................... 75
Human Resources........................................ 76
Competition............................................ 77
Intellectual Property Rights........................... 77
Properties of CBSI..................................... 78
Legal Proceedings of CBSI.............................. 78
CBSI's Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 79
Overview.................................................. 79
Results of Operations..................................... 80
Three Months Ended March 31, 1998 Compared to March 31,
1997................................................... 80
1997 Compared to 1996..................................... 81
1996 Compared to 1995..................................... 81
Liquidity and Capital Resources........................... 82
Recently Issued Financial Accounting Standards............ 83
CBSI Directors and Executive Officers....................... 84
CBSI Executive Compensation................................. 86
Option Grants in 1997..................................... 86
Aggregated Option Exercises in 1997 and 1997 Option
Values................................................. 87
Security Ownership of Certain Beneficial Owners and
Management of CBSI........................................ 88
Certain Transactions of CBSI.............................. 88
Description of CBSI Capital Stock........................... 90
General................................................... 90
Common Stock.............................................. 90
Preferred Stock........................................... 90
Transfer Agent and Registrar.............................. 90
Claremont Technology Group, Inc............................. 91
Business of Claremont..................................... 91
Overview............................................... 91
Industry Background.................................... 91
The Claremont Solution................................. 92
Claremont Services..................................... 92
</TABLE>
5
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Technological Expertise................................ 93
Markets and Clients.................................... 94
Intellectual Property Rights........................... 95
Business Development................................... 96
Competition............................................ 96
Claremont Personnel.................................... 97
Properties............................................. 97
Legal Proceedings...................................... 97
Claremont's Management's Discussion and Analysis of
Financial Conditions and Results of Operations............ 98
Results of Operations..................................... 98
Three Months and Nine Months Ended March 31, 1998 Compared
to March 31, 1997...................................... 98
Fiscal 1997 Compared to Fiscal 1996....................... 99
Fiscal 1996 Compared to Fiscal 1995....................... 100
Liquidity and Capital Resources........................... 101
New Accounting Pronouncements............................. 103
Claremont Directors and Executive Officers.................. 104
Claremont Executive Compensation............................ 106
Summary of Cash and Certain Other Compensation............ 106
Stock Options............................................. 107
Option Exercises and Holdings............................. 107
Director Compensation..................................... 107
Section 16(a) Beneficial Ownership Reporting Compliance... 108
Stock Owned by Claremont Management and Principal
Shareholders.............................................. 109
Approval of Amendment to CBSI's Restated Articles of
Incorporation to Increase the Number of Authorized Shares
of Common Stock........................................... 111
Experts..................................................... 111
Validity of Common Stock.................................... 112
Representatives of Independent Accountants.................. 112
Shareholder Proposals....................................... 112
Index to the Financial Statements........................... F-1
Annex A: Agreement and Plan of Merger dated as of April 8,
1998
Annex B: Fairness Opinion of UBS Securities L.L.C.
Annex C: Fairness Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation
</TABLE>
6
<PAGE> 13
AVAILABLE INFORMATION
CBSI and Claremont are each subject to the informational requirements of
the Exchange Act. Proxy and information statements and other information have
been filed with the Securities and Exchange Commission (the "Commission"). This
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549 and may be available at the following Regional
Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Each of CBSI and Claremont makes filings pursuant to the
Exchange Act with the Commission electronically, and such materials may be
inspected and copied at the Commission's Web site (http://www.sec.gov). Material
filed by CBSI and Claremont can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which this
Joint Proxy Statement/Prospectus is a part, and which CBSI has filed with the
Commission under the Securities Act. Reference is made to such Registration
Statement for further information with respect to CBSI and Claremont and the
CBSI Common Stock offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission or attached as an Annex hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
NONE
Clarety(TM), TISE(TM), Solutions @ The Speed of Business(TM) and iSTART(TM)
are United States trademarks of Claremont. APECS(R) is a registered trademark of
CBSI. COSMO(SM) and The Time Machine 2000(SM) are service marks of CBSI. All
trademarks, service marks and trade names referred to in this Joint Proxy
Statement/Prospectus are the property of their respective owners.
7
<PAGE> 14
SUMMARY
The following summary is intended to set forth certain facts and highlights
from the information contained elsewhere in this Joint Proxy
Statement/Prospectus. The information contained in this summary is qualified in
its entirety by the detailed information and financial statements appearing
elsewhere in this Joint Proxy Statement/Prospectus and the Annexes attached
hereto.
INTRODUCTION
This Joint Proxy Statement/Prospectus relates to an Agreement and Plan of
Merger dated April 8, 1998 (the "Merger Agreement") providing for the merger of
CBSI Acquisition Corp. III, ("Merger Sub") a wholly-owned subsidiary of CBSI and
an Oregon corporation with Claremont Technology Group, Inc., ("Claremont"), an
Oregon corporation. Upon the consummation of the Merger, Claremont will become a
wholly owned subsidiary of CBSI. The Merger Agreement will be submitted to a
vote of the shareholders of CBSI and Claremont at special meetings. See "CBSI
SPECIAL MEETING", and "SPECIAL MEETING OF CLAREMONT SHAREHOLDERS."
CBSI
CBSI is a worldwide provider of information technology ("IT") services to
large and mid-size organizations. CBSI offers its clients a broad range of IT
services, from advising clients on strategic technology plans to developing and
implementing appropriate IT applications solutions. CBSI's services include: (i)
Year 2000 conversion and testing services; (ii) applications development and
maintenance; (iii) reengineering legacy applications to client/server
technology; (iv) client/server applications development; (v) IT consulting
services; (vi) packaged software implementation; and (vii) contract programming
services.
CBSI has developed an extensive offshore infrastructure in India, including
two modern software development centers in Bangalore and Chennai (formerly
Madras) and an employee training center in Hyderabad. CBSI believes this
offshore infrastructure is one of the largest in the industry. With its offsite
and offshore development options, CBSI can quickly provide clients with IT
applications solutions on a cost-effective basis.
CBSI's revenues are generated primarily from professional services fees.
During fiscal year 1997, CBSI provided IT services to approximately 530 clients
in a diverse range of industries primarily under time and materials contracts.
CBSI's strategy is to maximize its client retention rate and secure additional
engagements by providing both quality services and client responsiveness. In
fiscal year 1997, existing clients from the previous fiscal year generated more
than 80% of CBSI's revenues. Over the past five fiscal years, CBSI has achieved
a 35% compound annual revenue growth rate. As of March 31, 1998, CBSI employed
2,824 IT professionals.
The executive offices of CBSI are located at 32605 West Twelve Mile Road,
Suite 250, Farmington Hills, Michigan, 48334, and its telephone number is (248)
488-2088. See "COMPLETE BUSINESS SOLUTIONS, INC., BUSINESS OF CBSI."
CLAREMONT
Claremont provides IT solutions based on client/server technology for
select industries focusing on customer care needs of their clients, including
customer service, order and transaction processing, billing and logistics.
Typically, Claremont provides its services to large corporations and government
organizations in the United States and certain foreign markets including Canada,
Australia and Mexico.
Claremont delivers its services on a fixed-price, fixed-delivery-schedule
basis or a time-and-materials basis.
During fiscal year 1997, Claremont provided IT solutions to approximately
100 clients primarily in the communications, financial services, state and local
government, manufacturing and utilities industries. As of May 22, 1998,
Claremont employed approximately 656 IT professionals.
8
<PAGE> 15
The executive offices of Claremont are located at 1600 N.W. Compton Drive,
Suite 210, Beaverton, Oregon, 97006 and its telephone number is (503) 748-8000.
See "CLAREMONT TECHNOLOGY GROUP, INC., BUSINESS OF CLAREMONT."
THE MEETINGS
Time, Place, Date
The Special Meeting of CBSI's shareholders will be held at the offices of
Butzel Long, 150 West Jefferson, Suite 900, Detroit, Michigan, 48226 on
Wednesday, July 22, 1998 at 10:00 a.m. local time.
The Special Meeting of Claremont's shareholders will be held at 1600 N.W.
Compton Drive, Beaverton, Oregon 97006, on Thursday, July 16, 1998 at 10:00 a.m.
local time.
Purpose of Meetings
CBSI SPECIAL MEETING
At the CBSI Special Meeting, holders of CBSI Common Stock will consider and
vote upon a proposal to amend the CBSI Articles of Incorporation to increase the
number of shares of CBSI Common Stock authorized for issuance from 30,000,000 to
200,000,000 (the "CBSI Share Proposal"). In addition, holders of CBSI Common
Stock will consider and vote upon the issuance of CBSI Common Stock in
connection with the Merger Agreement (the "CBSI Merger Proposal"). Approval of
the proposal amending the Articles of Incorporation to increase the number of
authorized shares is a condition to the consummation of the Merger. Based upon
the value of the shares of CBSI Common Stock, the number of shares of Claremont
Common Stock outstanding and the number of options to purchase Claremont Common
Stock under the Claremont stock option plans outstanding as of June 8, 1998 and
an exchange rate of between .8359133 and .617849 shares of CBSI Common Stock for
each share of Claremont Common Stock (the "Exchange Ratio"), CBSI would issue
from 7,728,293 shares to 5,712,217 shares of CBSI Common Stock. In addition,
CBSI would assume options to purchase Claremont Common Stock which would be
converted into options to purchase from 1,385,275 shares to 1,023,899 shares of
CBSI Common Stock. See "CBSI SPECIAL MEETING."
THE BOARD OF DIRECTORS OF CBSI HAS UNANIMOUSLY APPROVED THE MERGER AND THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT CBSI SHAREHOLDERS VOTE IN FAVOR
OF THE CBSI SHARE PROPOSAL AND THE CBSI MERGER PROPOSAL.
CLAREMONT SPECIAL MEETING
At the Claremont Special Meeting, holders of Claremont common stock will
consider and vote upon: (i) a proposal to approve and adopt the Merger Agreement
and the Merger (the "Claremont Merger Proposal"); and (ii) such other matters as
may be properly brought before the Claremont Special Meeting or any
postponements or adjournments thereof.
Only holders of record of Claremont common stock, no par value per share
("Claremont Common Stock") at the close of business on May 29, 1998, are
entitled to notice of and to vote at the Claremont Special Meeting. At the close
of business on that date, 9,245,329 shares of Claremont Common Stock, were
outstanding and entitled to vote. The affirmative vote of the holders of shares
representing sixty-seven percent (67%) of the number of shares of Claremont
Common Stock issued and outstanding is necessary to approve and adopt the Merger
Agreement and the Merger. See "SPECIAL MEETING OF CLAREMONT SHAREHOLDERS --
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED."
THE BOARD OF DIRECTORS OF CLAREMONT HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR
OF THE CLAREMONT MERGER PROPOSAL.
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<PAGE> 16
Votes Required; Record Date
CBSI
The CBSI Share Proposal will require the affirmative vote of a majority of
the issued and outstanding shares of CBSI Common Stock. The CBSI Merger Proposal
will require the affirmative vote of the holders of a majority of the votes cast
on the CBSI Merger Proposal. The Board of Directors of CBSI has fixed the close
of business on June 1, 1998 as the record date ("CBSI Record Date") for the
determination of shareholders entitled to notice of and to vote at the CBSI
Special Meeting. Accordingly, only holders of record at the close of business on
the CBSI Record Date will be entitled to notice of and to vote at the CBSI
Special Meeting.
On the CBSI Record Date, there were 27,222,900 shares of CBSI Common Stock
outstanding. Rajendra B. Vattikuti, President and Chief Executive Officer of
CBSI, who beneficially owns approximately 38% of the CBSI Common Stock entitled
to vote at the CBSI Special Meeting has agreed to vote in favor of the CBSI
Merger Proposal and the CBSI Share Proposal and has granted Claremont an
irrevocable proxy to vote his shares of CBSI Common Stock for the CBSI Share
Proposal and the CBSI Merger Proposal. As of the CBSI Record Date, the directors
and officers of CBSI owned approximately 47% of the outstanding shares of CBSI
Common Stock. The CBSI directors and officers have indicated that they presently
intend to vote all of their shares in favor of the CBSI Share Proposal and the
CBSI Merger Proposal.
CLAREMONT
The Claremont Merger Proposal will require the affirmative vote of the
holders of shares representing sixty-seven percent (67%) of the issued and
outstanding shares of Claremont Common Stock. The Board of Directors of
Claremont has fixed the close of business on May 29, 1998 as the record date
("Claremont Record Date") for the determination of shareholders entitled to
notice of and to vote at the Claremont Special Meeting. Accordingly, only
holders of record at the close of business on the Claremont Record Date will be
entitled to notice of and to vote at the Claremont Special Meeting.
On the Claremont Record Date, there were 9,245,329 shares of Claremont
Common Stock issued and outstanding. Jerry L. Stone, Chairman of the Claremont
Board of Directors, who beneficially owns approximately ten percent (10%) of the
Claremont Common Stock entitled to vote at the Claremont Special Meeting has
agreed to vote his shares in favor of the Claremont Merger Proposal and has
granted CBSI an irrevocable proxy to vote his shares of Claremont Common Stock
for the Claremont Merger Proposal. As of the Claremont Record Date, the
directors and officers of Claremont owned approximately seventeen percent (17%)
of the issued and outstanding shares of Claremont Common Stock. The Claremont
directors and officers have indicated that they presently intend to vote all of
their shares in favor of the Claremont Merger Proposal.
Voting; Quorum
CBSI
Each holder of record of CBSI Common Stock on the CBSI Record Date is
entitled to cast one vote per share, in person or by properly executed proxy, on
any matter that may come before the CBSI Special Meeting. The presence in person
or by properly executed proxy, of the holders of a majority of the shares of
CBSI Common Stock outstanding is necessary to constitute a quorum at the CBSI
Special Meeting.
CLAREMONT
Each holder of record of Claremont Common Stock on the Claremont Record
Date is entitled to cast one vote per share, in person or by properly executed
proxy on any matter that may properly come before the Claremont Special Meeting.
The presence in person or by properly executed proxy, of the holders of a
majority of the shares of Claremont Common Stock issued and outstanding is
necessary to constitute a quorum at the Claremont Special Meeting.
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<PAGE> 17
Change of Vote
CBSI
A CBSI shareholder who executes a proxy may revoke it at any time prior to
its exercise at the CBSI Special Meeting by giving notice to the Secretary of
CBSI at CBSI's headquarters at 32605 West Twelve Mile Road, Suite 250,
Farmington Hills, Michigan, 48334, by signing and returning a later dated proxy
or by voting in person at the CBSI Special Meeting.
CLAREMONT
A Claremont shareholder who executes a proxy may revoke it at any time
prior to its exercise at the Claremont Special Meeting by giving notice to the
Secretary of Claremont at Claremont's headquarters located at 1600 N.W. Compton
Drive, Suite 210, Beaverton, Oregon, 97006, by signing and returning a later
dated proxy with respect to the same shares, or by attending and voting at the
Claremont Special Meeting.
THE MERGER
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
Claremont and Claremont will become a wholly-owned subsidiary of CBSI.
MERGER CONSIDERATION
Each issued and outstanding share of Claremont Common Stock will be
converted into the right to receive the number of shares of CBSI Common Stock
equal to $27.00 divided by the average per share closing price of CBSI Common
Stock for the twenty consecutive trading days, the last of which is the fourth
full trading day prior to the consummation of the Merger. In the event that the
Closing Value is less than 85% of $38.00, each outstanding share of Claremont
Common Stock will be converted into .8359133 shares of CBSI Common Stock. If the
Closing Value is more than 115% of $38.00, each outstanding share of Claremont
Common Stock will be converted into .617849 shares of CBSI Common Stock.
Claremont shareholders will receive cash in lieu of any fractional shares of
CBSI Common Stock.
EXCHANGE OF CERTIFICATES
As soon as practicable after the filing of the Articles of Merger with the
State of Oregon, CBSI shall deposit with First Chicago Trust Company of New York
(the "Exchange Agent") certificates representing the shares of CBSI Common Stock
to be issued in exchange for the outstanding shares of Claremont Common Stock.
As soon as practicable after the filing of the Articles of Merger with the State
of Oregon, the Exchange Agent will send a transmittal letter with instructions
for effectuating the surrender of certificates representing Claremont Common
Stock to be exchanged for certificates representing CBSI Common Stock and a cash
payment in lieu of fractional shares.
CLAREMONT SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR CLAREMONT COMMON
STOCK TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS AND
SHOULD NOT RETURN STOCK CERTIFICATES WITH THEIR PROXY.
CONDITIONS TO THE MERGER; TERMINATION; FEES
The consummation of the Merger is subject to various conditions, including:
1) approval by the shareholders of Claremont of the Claremont Merger Proposal;
2) approval by the shareholders of CBSI of the CBSI Share Proposal and the CBSI
Merger Proposal; 3) the expiration of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); the
absence of any legal or regulatory restraint or prohibition preventing the
consummation of the Merger; 4) receipt of letters from Arthur Andersen LLP and
KPMG Peat Marwick LLP, the respective independent public accountants of CBSI and
Claremont, stating that they know of nothing that would prohibit the business
combination to be
11
<PAGE> 18
effected by the Merger from qualifying as a pooling of interest transaction
under generally accepted accounting principles.; and 5) the receipt by each
company of an opinion of counsel concerning the tax treatment of the Merger.
The Merger Agreement may be terminated at any time prior to the
consummation of the Merger, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of CBSI or
Claremont: (i) by mutual written consent of CBSI and Claremont; (ii) by either
CBSI or Claremont if the Merger has not been consummated by August 31, 1998;
however, this right is not available to a party whose failure to fulfill any
obligation under the Merger Agreement is the cause of the failure of the Merger
to occur on or before August 31, 1998; (iii) by either CBSI or Claremont if a
court or other governmental entity has issued a nonappealable final order,
decree or ruling permanently enjoining the Merger; however, this right is not
available to a party that has not complied with its obligations to hold the
special meeting of shareholders required by the Merger Agreement; (iv) by CBSI,
if the requisite vote of the shareholders of Claremont in favor of the Claremont
Merger Proposal is not obtained; (v) by Claremont, if the requisite vote of the
shareholders of CBSI in favor of the CBSI Share Proposal and the CBSI Merger
Proposal is not obtained; (vi) by CBSI, if the Claremont Board of Directors
withdraws or modifies its recommendation of the Merger Agreement in a manner
adverse to CBSI; (vii) by CBSI, if the Claremont Board of Directors recommends
to shareholders of Claremont an Alternative Transaction (as defined in the
Merger Agreement); (viii) by CBSI, if the Claremont Board of Directors
recommends a tender or exchange offer for more than 15% of the outstanding
shares of Claremont Common Stock; (ix) by CBSI, if a tender offer for Claremont
is successfully concluded whether or not recommended by the Claremont Board of
Directors; (x) by Claremont, if the CBSI Board of Directors withdraws or
modifies its recommendation of the CBSI Merger Proposal or the CBSI Share
Proposal in a manner that is adverse to Claremont for any reason other than the
occurrence of an event or discovery of the falsity of a representation or
warranty that has a material adverse effect on Claremont; and (xi) by CBSI or
Claremont if there has been a material breach of any representation or warranty
by the other, subject to the right to cure such a breach.
Claremont will pay CBSI a termination fee of $10 million if the Merger
Agreement is terminated due to: (i) the Claremont Board of Directors
recommending an Alternative Transaction; (ii) the Claremont Board of Directors
recommending a tender or exchange offer for more than 15% of the outstanding
shares of Claremont Common Stock; (iii) the successful completion of a tender
offer for Claremont whether or not recommended by the Claremont Board of
Directors; or (iv) the failure of Claremont to receive the requisite vote for
approval of the Merger Agreement if Claremont fails to hold a shareholders'
meeting as the result of an Alternative Transaction.
LISTING
It is a condition to the Merger that CBSI use its best efforts to cause the
shares of CBSI Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance.
APPRAISAL AND DISSENTERS' RIGHTS
Dissenter's rights are not applicable as shares of Claremont Common Stock
are quoted on the Nasdaq National Market.
GOVERNMENTAL APPROVALS REQUIRED
The consummation of the Merger is subject to certain regulatory approvals,
including compliance with applicable federal and state securities laws and the
HSR Act. On June 3, 1998, CBSI and Claremont filed a Notification and Report
form, together with a request for early termination of the waiting period, under
the HSR Act with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division"). The waiting period under the HSR Act with respect to such filings is
expected to expire on July 3, 1998.
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<PAGE> 19
ANTICIPATED ACCOUNTING TREATMENT
It is a condition of closing that the Merger qualify as a pooling of
interests, which means that the two companies will be treated as if they had
always been combined for accounting and financial reporting purposes.
STOCK OPTIONS
At the Effective Time (as defined in the Merger Agreement), outstanding
options to purchase Claremont Common Stock granted under Claremont's 1992 Stock
Incentive Plan (the "Claremont 1992 Plan") will be assumed by CBSI and will be
deemed to constitute options to purchase shares of CBSI Common Stock at the
Exchange Ratio. As of May 29, 1998, there were outstanding options to purchase
1,657,199 shares of Common Stock under the Claremont 1992 Plan.
OPINIONS OF FINANCIAL ADVISORS
UBS Securities LLC ("UBS"), financial advisor to CBSI, delivered its
written opinion dated April 8, 1998 to the Board of Directors of CBSI that, as
of such date, the consideration proposed to be paid by CBSI pursuant to the
Merger was fair to CBSI from a financial point of view. See "THE MERGER --
OPINION OF CBSI'S FINANCIAL ADVISOR".
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial
advisor to Claremont, delivered its written opinion dated April 8, 1998 to the
Board of Directors of Claremont that, as of such date, and based on, and subject
to, the assumptions, limitations and qualifications set forth in such opinion,
the Conversion Number was fair to the holders of Claremont Common Stock from a
financial point of view. DLJ subsequently reconfirmed its written opinion as of
June 8, 1998. See "THE MERGER -- OPINION OF CLAREMONT'S FINANCIAL ADVISOR".
For information on the assumptions made, matters considered and limits of
the review undertaken by UBS and DLJ, see the opinions of UBS and DLJ attached
as Annexes B and C, respectively, to this Joint Proxy Statement/Prospectus.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides for indemnification and insurance
arrangements for Claremont directors and officers.
CERTAIN TAX CONSEQUENCES
As more fully set forth under the heading "THE MERGER -- CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES" herein, it is expected that the Merger
will constitute a reorganization for federal income tax purposes and,
accordingly, no gain or loss will be recognized for federal income tax purposes
by holders of Claremont Common Stock upon the exchange of Claremont Common Stock
for CBSI Common Stock in the Merger (except with respect to any cash received in
lieu of a fractional share of CBSI Common Stock). The obligation of CBSI to
consummate the Merger is conditioned on the receipt by CBSI of an opinion of
Butzel Long, its counsel, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). The obligation of Claremont to consummate the
Merger is conditioned on the receipt by Claremont of an opinion of Ater Wynne
Hewitt Dodson & Skerritt, LLP, its counsel, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code.
Holders of Claremont Common Stock are urged to consult their own tax advisors as
to the specific tax consequences to them of the Merger.
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of shareholders of Claremont currently are governed by Oregon
law, and Claremont's Second Restated Articles of Incorporation and Second
Amended and Restated Bylaws. Upon consummation of the
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<PAGE> 20
Merger, shareholders of Claremont will become shareholders of CBSI, which is a
Michigan corporation, and their rights as shareholders of CBSI will be governed
by Michigan law and CBSI's Restated Articles of Incorporation and Bylaws. For a
discussion of various differences between the rights of shareholders of
Claremont and the rights of shareholders of CBSI, see "DESCRIPTION OF CBSI
CAPITAL STOCK" and "COMPARISON OF RIGHTS OF SHAREHOLDERS OF CBSI AND CLAREMONT".
MARKET PRICE INFORMATION
CBSI Common Stock is listed on the Nasdaq National Market under the symbol
"CBSL". Claremont Common Stock is listed on the Nasdaq National Market under the
symbol "CLMT." On February 18, 1998, the Board of Directors of CBSI declared a
two-for-one split of CBSI's Common Stock, effected in the form of a stock
dividend which was paid on March 19, 1998 to the shareholders of record on March
5, 1998.
The table below sets forth, for the fiscal quarters indicated, the reported
high and low closing prices of CBSI Common Stock and Claremont Common Stock on
the Nasdaq National Market.
On June 8, 1998, the most recent practicable date prior to the printing of
this Joint Proxy Statement/Prospectus, the last reported sales prices of CBSI
and Claremont Common Stock on the Nasdaq National Market were $26 7/8 per share
and $20 9/16 per share, respectively. On April 8, 1998, the last full trading
day prior to the public announcement of the Merger Agreement, the closing prices
of CBSI Common Stock and Claremont Common Stock were $39.31 per share and $22.25
per share, respectively.
Based on an exchange ratio of .8359133 shares of CBSI Common Stock for each
share of Claremont Common Stock, the equivalent pro forma per share value of
Claremont Common Stock on June 8, 1998 was $22 7/16.
CBSI COMMON STOCK
(AS ADJUSTED FOR THE MARCH 19, 1998 STOCK SPLIT)
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year Ending December 31, 1998
Second Quarter (through June 8, 1998)..................... $42.13 $23.50
First Quarter............................................. 35.88 19.56
Fiscal Year Ended December 31, 1997
Fourth Quarter............................................ 23.82 14.25
Third Quarter............................................. 16.19 12.00
Second Quarter............................................ 12.88 4.44
First Quarter (from March 5, 1997, date of I.P.O.)........ 6.13 4.38
</TABLE>
CLAREMONT COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year Ending June 30, 1998
Fourth Quarter (through June 8, 1998)..................... $24.38 $14.50
Third Quarter............................................. 19.00 10.38
Second Quarter............................................ 24.75 16.63
First Quarter............................................. 23.75 13.38
Fiscal Year Ended June 30, 1997
Fourth Quarter............................................ 24.75 13.50
Third Quarter............................................. 28.25 20.50
Second Quarter............................................ 36.75 23.50
First Quarter (from July 19, 1996, date of I.P.O.)........ 36.00 15.50
</TABLE>
14
<PAGE> 21
Because the market price of CBSI Common Stock is subject to fluctuation,
the number and market value of the shares of CBSI Common Stock that holders of
Claremont Common Stock will receive in the Merger may increase or decrease prior
to the Merger.
CBSI AND CLAREMONT SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR CBSI AND CLAREMONT COMMON STOCK.
DIVIDEND POLICY -- CBSI
CBSI currently intends to retain future earnings, if any, to fund the
development and growth of its business and does not anticipate paying any cash
dividends on CBSI Common Stock in the foreseeable future.
RESTRICTION ON RESALE OF SECURITIES ISSUED IN THE MERGER
Shares of CBSI Common Stock issued in the Merger will be freely
transferable, except for shares issued to persons who may be deemed "affiliates"
of CBSI or Claremont, which shares will be subject to restrictions on resale
under Rule 145 of the Securities Act, in addition to the restrictions agreed to
by such affiliates in the Merger Agreement in connection with the requirement
that the Merger be accounted for as a pooling of interests.
15
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The historical financial data included in this Joint Proxy
Statement/Prospectus is derived from the financial statements of CBSI and
Claremont. CBSI's fiscal year end is December 31. Claremont's fiscal year end is
June 30 or the Friday closest to June 30. For convenience, Claremont has
indicated that its fiscal year ends on June 30 for all years presented, and that
its interim periods end on September 30, December 31 and March 31.
On February 18, 1998, the Board of Directors of CBSI declared a two-for-one
split of CBSI's Common Stock, effected in the form of a stock dividend payable
on March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and per share information in this Joint
Proxy Statement/Prospectus related to CBSI have been adjusted to reflect the
stock split on a retroactive basis.
On November 20, 1997 and January 27, 1998, CBSI closed merger agreements
with Synergy Software, Inc. ("Synergy") and c.w. Costello & Associates, inc.
("Costello"), respectively. The mergers were accounted for by the pooling of
interests method of accounting, and accordingly, the consolidated balance
sheets, statements of income, cash flows and shareholders' equity and all
financial information of CBSI included in this Joint Proxy Statement/Prospectus
have been retroactively restated.
CBSI
The selected historical financial information of CBSI for each of the five
years ended December 31, 1997, are derived from CBSI's Consolidated Financial
Statements and related Notes thereto. The selected financial data as of and for
each of the interim periods ended March 31, 1998 and 1997, are derived from the
Unaudited Condensed Consolidated Financial Statements of CBSI, which in the
opinion of management, include all adjustments that are necessary for a fair
presentation of the results for the interim periods, and all such adjustments
that are of a normal recurring nature. The results of operations for the interim
period ended March 31, 1998 are not necessarily indicative of the results to be
expected for any other interim period or for the full year. The amounts provided
as pro forma statement of income data have been provided to reflect CBSI as if
it was a C corporation for the periods presented.
16
<PAGE> 23
The selected historical financial information should be read in conjunction
with "CBSI's Management Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated and Unaudited Condensed Consolidated
Financial Statements and related Notes thereto appearing elsewhere in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF INCOME DATA:
Revenues.................................... $57,497 $77,703 $98,086 $135,307 $193,950 $41,469 $60,537
Cost of revenues............................ 42,951 57,655 74,311 99,850 142,954 30,371 42,345
------- ------- ------- -------- -------- ------- -------
Gross profit................................ 14,546 20,048 23,775 35,457 50,996 11,098 18,192
Selling, general and administrative
expenses.................................. 11,779 16,075 19,573 28,194 40,385 8,551 11,990
Merger costs................................ -- -- -- -- 1,203 -- 3,421
------- ------- ------- -------- -------- ------- -------
Income from operations...................... 2,767 3,973 4,202 7,263 9,408 2,547 2,781
Other expense (income)...................... 221 385 738 765 (469) 92 (538)
------- ------- ------- -------- -------- ------- -------
Income before provision for income taxes and
minority interest......................... 2,546 3,588 3,464 6,498 9,877 2,455 3,319
Provision for income taxes.................. 232 282 138 194 4,234 1,135 3,048
Minority interest........................... 127 176 252 158 82 82 --
------- ------- ------- -------- -------- ------- -------
Net income.................................. $ 2,187 $ 3,130 $ 3,074 $ 6,146 $ 5,561 $ 1,238 $ 271
======= ======= ======= ======== ======== ======= =======
Pro forma incremental income tax benefit.............................................. $ (764) $ (315) $(1,417)
======== ======= =======
Pro forma net income.................................................................. $ 6,325 $ 1,553 $ 1,688
======== ======= =======
Pro forma diluted earnings per share.................................................. $ 0.26 $ 0.07 $ 0.06
======== ======= =======
Diluted weighted average shares outstanding........................................... 24,727 21,453 28,438
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
------------------------------------------------ ---------
1993 1994 1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 597 $ 1,438 $ 1,263 $ 3,937 $ 57,458 $ 49,674
Working capital.................................... 4,340 6,492 10,237 14,308 67,932 67,184
Total assets....................................... 18,809 26,063 31,317 45,582 112,384 111,006
Revolving credit facility and total debt........... 4,436 6,685 7,946 10,226 3,380 --
Total shareholders' equity......................... 7,908 10,607 12,637 19,606 79,921 80,354
</TABLE>
17
<PAGE> 24
CLAREMONT
The selected historical financial information of Claremont for each of the
five fiscal years ended June 30, 1997, are derived from Claremont Consolidated
Financial Statements and related Notes thereto.
The selected financial data as of and for each of the interim periods ended
March 31, 1998 and 1997, are derived from the Unaudited Condensed Consolidated
Financial Statements of Claremont, which in the opinion of management, include
all adjustments that are necessary for a fair presentation of the results for
the interim period, and all such adjustments that are of a normal recurring
nature. The results of operations for the interim period ended March 31, 1998
are not necessarily indicative of the results to be expected for any other
interim period or for the full year.
The selected historical financial information should be read in conjunction
with "Claremont's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated and Unaudited Condensed
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JUNE 30, MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenues...................................... $15,667 $15,713 $27,292 $47,325 $67,332 $48,091 $66,599
Cost of revenues.............................. 9,112 9,106 13,704 26,398 35,825 25,305 38,811
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 6,555 6,607 13,588 20,927 31,507 22,786 27,788
Selling, general and administrative
expenses.................................... 3,781 4,214 10,156 15,485 24,591 16,616 25,393
Non-recurring charges......................... -- -- -- -- -- -- 7,539
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations................. 2,774 2,393 3,432 5,442 6,916 6,170 (5,144)
Other expense (income)........................ (21) (12) (67) 169 (374) (298) (59)
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income
taxes....................................... 2,795 2,405 3,499 5,273 7,290 6,468 (5,085)
Provision for income taxes.................... 1,204 953 1,352 2,250 3,044 2,655 775
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................. $ 1,591 $ 1,452 $ 2,147 $ 3,023 $ 4,246 $ 3,813 $(5,860)
======= ======= ======= ======= ======= ======= =======
Diluted earnings (loss) per share............... $ 0.28 $ 0.24 $ 0.31 $ 0.40 $ 0.44 $ 0.40 $ (0.69)
======= ======= ======= ======= ======= ======= =======
Diluted weighted average shares outstanding..... 5,796 6,269 7,319 7,612 9,761 9,673 8,530
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
----------------------------------------------- ---------
1993 1994 1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,818 $ 1,870 $ 340 $ 526 $15,240 $10,521
Working capital..................................... 1,014 2,045 2,453 3,450 33,174 26,588
Total assets........................................ 4,620 5,492 9,578 22,965 56,141 54,764
Revolving credit facility and total debt............ 60 32 824 7,122 1,578 836
Total shareholders' equity.......................... 1,583 2,883 5,101 8,970 45,405 42,441
</TABLE>
18
<PAGE> 25
PRO FORMA COMBINED -- HISTORICAL
CBSI has a fiscal year ending December 31 and Claremont has a fiscal year
ending June 30. If the Merger is consummated, the fiscal year of Claremont will
be conformed to that of CBSI commencing with the fiscal year ending December 31,
1998. Accordingly, the unaudited pro forma combined statement of income data for
the year ended December 31, 1997 include Claremont's results of operation for
the same period.
The unaudited pro forma combined statement of income data for the year
ended December 31, 1997 combine CBSI's historical results for the year ended
December 31, 1997 with Claremont's historical results for the three month
periods ended March 31, 1997 and June 30, 1997, and the six month period ended
December 31, 1997. The unaudited pro forma combined statement of income data for
the years ended December 31, 1996, 1995, 1994 and 1993, respectively, combine
CBSI's historical results for the years ended December 31, 1996, 1995, 1994 and
1993, respectively, with Claremont's historical results for the years ended June
30, 1996, 1995, 1994 and 1993, respectively. The unaudited pro forma combined
statement of income data for the three month periods ended March 31, 1998 and
1997 combine CBSI and Claremont, historical results for those three month
periods. The unaudited pro forma combined statement of income data gives effect
to the Merger as if it occurred on July 1, 1992.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA(1):
Revenues................................... $73,164 $93,416 $125,378 $182,632 $275,122 $59,946 $83,161
Cost of revenues........................... 52,063 66,761 88,015 126,248 188,831 40,303 55,694
------- ------- -------- -------- -------- ------- -------
Gross profit............................... 21,101 26,655 37,363 56,384 86,291 19,643 27,467
Selling, general and administrative
expenses................................. 15,560 20,289 29,729 43,679 70,927 14,974 20,655
Merger costs and other..................... -- -- -- -- 1,203 -- 10,960
------- ------- -------- -------- -------- ------- -------
Income (loss) from operations.............. 5,541 6,366 7,634 12,705 14,161 4,669 (4,148)
Other expense (income)..................... 200 373 671 934 (560) 15 (559)
------- ------- -------- -------- -------- ------- -------
Income (loss) before provision for income
taxes and minority interest.............. 5,341 5,993 6,963 11,771 14,721 4,654 (3,589)
Provision for income taxes................. 1,436 1,235 1,490 2,444 6,301 2,038 3,048
Minority interest.......................... 127 176 252 158 82 82 --
------- ------- -------- -------- -------- ------- -------
Net income (loss).......................... $ 3,778 $ 4,582 $ 5,221 $ 9,169 $ 8,338 $ 2,534 $(6,637)
======= ======= ======== ======== ======== ======= =======
Pro forma incremental income tax benefit.............................................. $ (764) $ (315) $(1,417)
======== ======= =======
Pro forma net income (loss)........................................................... $ 9,102 $ 2,849 $(5,220)
======== ======= =======
Pro forma diluted earnings (loss) per share........................................... $ 0.28 $ 0.10 $ (0.15)
======== ======= =======
Diluted weighted average shares outstanding........................................... 32,886 29,539 34,032
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
------------ ---------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA(1):
Cash and cash equivalents................................. $ 61,861 $ 60,195
Working capital(2)........................................ 96,042 87,272
Total assets.............................................. 171,987 165,770
Revolving credit facility and total debt.................. 4,470 836
Total shareholders' equity(2)............................. 128,675 116,295
</TABLE>
- -------------------------
(1) In January 1996 and February 1997, Claremont purchased certain assets and
liabilities of two entities. Since the separate operations of these entities
are not material, no pro forma adjustments related to these acquisitions
have been provided.
(2) Adjusted to reflect the intent of the companies to incur an estimated $6.5
million of non-recurring merger costs.
19
<PAGE> 26
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet and
statements of income give pro forma effect to the Merger of CBSI and Claremont
as if it had occurred on the first day of each period presented. The Merger will
be accounted for by the pooling of interests method of accounting. The unaudited
pro forma combined condensed balance sheet and statements of income do not
purport to be indicative of the financial position or the results of operations
of CBSI had the transaction actually been completed on the first day of each
period presented, or which may be obtained in the future.
The unaudited pro forma combined condensed balance sheet as of March 31,
1998 combines CBSI and Claremont balance sheets as of that date.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL CLAREMONT MERGER
COMPLETE BUSINESS TECHNOLOGY PRO FORMA PRO FORMA
SOLUTIONS, INC. GROUP, INC. ADJUSTMENT(1) COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 49,674 $10,521 $ -- $ 60,195
Accounts receivable, net................. 45,858 22,062 -- 67,920
Prepaid expenses and other............... 2,139 3,737 -- 5,876
-------- ------- ------ --------
Total current assets................ 97,671 36,320 -- 133,991
-------- ------- ------ --------
Property and equipment, net................ 9,393 6,260 -- 15,653
Goodwill, net.............................. 2,772 3,027 -- 5,799
Computer software and other assets, net.... 1,170 9,157 -- 10,327
-------- ------- ------ --------
Total assets........................ $111,006 $54,764 $ -- $165,770
======== ======= ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll and related costs........ $ 14,629 $ 5,481 $ -- $ 20,110
Accounts payable......................... 6,863 2,536 -- 9,399
Note payable and other debt.............. -- 833 -- 833
Distribution payable to shareholders..... 1,458 -- -- 1,458
Deferred revenue......................... 1,810 760 -- 2,570
Other accrued liabilities................ 5,727 122 6,500 12,349
-------- ------- ------ --------
Total current liabilities........... 30,487 9,732 6,500 46,719
-------- ------- ------ --------
Other liabilities.......................... 165 2,591 -- 2,756
Commitments and contingencies
Shareholders' equity:
Preferred stock.......................... -- -- -- --
Common stock............................. -- -- -- --
Additional paid-in capital............... 74,180 36,301 -- 110,481
Retained earnings........................ 10,131 6,183 6,500 9,814
Stock subscriptions receivable........... (3,249) -- -- (3,249)
Cumulative translation adjustment........ (708) (43) -- (751)
-------- ------- ------ --------
Total shareholders' equity.......... 80,354 42,441 6,500 116,295
-------- ------- ------ --------
Total liabilities and shareholders'
equity........................... $111,006 $54,764 $ -- $165,770
======== ======= ====== ========
</TABLE>
- -------------------------
(1) The companies intend to incur an estimated $6.5 million of non-recurring
merger costs.
20
<PAGE> 27
The unaudited pro forma combined condensed statement of income for the year
ended December 31, 1997 combines CBSI's historical results for the year ended
December 31, 1997 with Claremont's historical results for the three month
periods ended March 31, 1997 and June 30, 1997, and the six month period ended
December 31, 1997. The unaudited pro forma combined condensed statements of
income for the years ended December 31, 1996 and 1995, respectively, combine
CBSI's historical results for the years ended December 31, 1996 and 1995,
respectively, with Claremont's historical results for the years ended June 30,
1996 and 1995, respectively. The unaudited pro forma combined condensed
statements of income for the three month periods ended March 31, 1998 and 1997
combine CBSI and Claremont, historical results for those three month periods.
The unaudited pro forma combined condensed statements of income shown below
for the three month periods ended March 31, 1998 and 1997, and the years ended
December 31, 1997, 1996, and 1995, give effect to the following transactions,
where applicable, 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
CBSI'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 CBSI's revolving credit facility and long-term debt;
(iii) provision/benefit for Federal and state income taxes at the
effective income tax rate as if CBSI, Synergy and Costello had been taxed
as C corporations and no foreign tax holidays had been granted during the
periods presented; and
(iv) merger with Claremont.
The pro forma combined condensed statements of income do not include any
one-time, non-recurring merger costs, currently estimated to be $6.5 million;
nor do they incorporate any benefits from any potential cost savings or
synergies following the Merger.
21
<PAGE> 28
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA CLAREMONT
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS TECHNOLOGY PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. GROUP, INC. COMBINED
<S> <C> <C> <C> <C> <C>
Revenues............................ $60,537 $ -- $60,537 $22,624 $83,161
Cost of revenues.................... 42,345 -- 42,345 13,349 55,694
------- ------- ------- ------- -------
Gross profit.................. 18,192 -- 18,192 9,275 27,467
Selling, general and administrative
expenses.......................... 11,990 -- 11,990 8,665 20,655
Merger costs and other.............. 3,421 -- 3,421 7,539 10,960
------- ------- ------- ------- -------
Income (loss) from
operations................. 2,781 -- 2,781 (6,929) (4,148)
Other expense (income).............. (538) -- (538) (21) (559)
------- ------- ------- ------- -------
Income (loss) before provision
for income taxes........... 3,319 -- 3,319 (6,908) (3,589)
Provision for income taxes.......... 3,048 (1,417) 1,631 -- 1,631
------- ------- ------- ------- -------
Net income (loss)............. $ 271 $ 1,417 $ 1,688 $(6,908) $(5,220)
======= ======= ======= ======= =======
Diluted earnings (loss) per share... $ 0.06 $ (0.15)
======= =======
Weighted average shares
outstanding....................... 28,438 34,032
======= =======
</TABLE>
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA CLAREMONT
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS TECHNOLOGY PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. GROUP, INC. COMBINED
<S> <C> <C> <C> <C> <C>
Revenues............................ $41,469 $ -- $41,469 $18,477 $59,946
Cost of revenues.................... 30,371 -- 30,371 9,932 40,303
------- ----- ------- ------- -------
Gross profit.................. 11,098 -- 11,098 8,545 19,643
Selling, general and administrative
expenses.......................... 8,551 24 8,575 6,423 14,998
------- ----- ------- ------- -------
Income from operations........ 2,547 (24) 2,523 2,122 4,645
Other expense (income).............. 92 (53) 39 (77) (38)
------- ----- ------- ------- -------
Income before provision for
income taxes and minority
interest................... 2,455 29 2,484 2,199 4,683
Provision for income taxes.......... 1,135 (295) 840 903 1,743
Minority interest................... 82 (82) -- -- --
------- ----- ------- ------- -------
Net income.................... $ 1,238 $ 406 $ 1,644 $ 1,296 $ 2,940
======= ===== ======= ======= =======
Diluted earnings per share.......... $ 0.08 $ 0.10
======= =======
Weighted average shares
outstanding....................... 21,453 29,539
======= =======
</TABLE>
22
<PAGE> 29
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA CLAREMONT
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS TECHNOLOGY PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. GROUP, INC. COMBINED
<S> <C> <C> <C> <C> <C>
Revenues............................ $193,950 $ -- $193,950 $81,172 $275,122
Cost of revenues.................... 142,954 -- 142,954 45,877 188,831
-------- ----- -------- ------- --------
Gross profit.................... 50,996 -- 50,996 35,295 86,291
Selling, general and administrative
expenses.......................... 40,385 24 40,409 30,542 70,951
Merger costs........................ 1,203 -- 1,203 -- 1,203
-------- ----- -------- ------- --------
Income from operations.......... 9,408 (24) 9,384 4,753 14,137
Other expense (income).............. (469) (53) (522) (91) (613)
-------- ----- -------- ------- --------
Income before provision for
income taxes and minority
interest...................... 9,877 29 9,906 4,844 14,750
Provision for income taxes.......... 4,234 (744) 3,490 2,067 5,557
Minority interest................... 82 (82) -- -- --
-------- ----- -------- ------- --------
Net income...................... $ 5,561 $ 855 $ 6,416 $ 2,777 $ 9,193
======== ===== ======== ======= ========
Diluted earnings per share.......... $ 0.26 $ 0.28
======== ========
Weighted average shares
outstanding....................... 24,727 32,886
======== ========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA CLAREMONT
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS TECHNOLOGY PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. GROUP, INC. COMBINED
<S> <C> <C> <C> <C> <C>
Revenues............................... $135,307 $ -- $135,307 $47,325 $182,632
Cost of revenues....................... 99,850 -- 99,850 26,398 126,248
-------- ------- -------- ------- --------
Gross profit....................... 35,457 -- 35,457 20,927 56,384
Selling, general and administrative
expenses............................. 28,194 147 28,341 15,485 43,826
-------- ------- -------- ------- --------
Income from operations............. 7,263 (147) 7,116 5,442 12,558
Other expense (income)................. 765 (610) 155 169 324
-------- ------- -------- ------- --------
Income before provision for income
taxes and minority interest...... 6,498 463 6,961 5,273 12,234
Provision for income taxes............. 194 2,400 2,594 2,250 4,844
Minority interest...................... 158 (158) -- -- --
-------- ------- -------- ------- --------
Net income......................... $ 6,146 $(1,779) $ 4,367 $ 3,023 $ 7,390
======== ======= ======== ======= ========
Diluted earnings per share............. $ 0.21 $ 0.27
======== ========
Weighted average shares outstanding.... 21,100 27,463
======== ========
</TABLE>
23
<PAGE> 30
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA CLAREMONT
COMPLETE BUSINESS PRO FORMA COMPLETE BUSINESS TECHNOLOGY PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS SOLUTIONS, INC. GROUP, INC. COMBINED
<S> <C> <C> <C> <C> <C>
Revenues................................. $98,086 $ -- $98,086 $27,292 $125,378
Cost of revenue.......................... 74,311 -- 74,311 13,704 88,015
------- ------ ------- ------- --------
Gross profit....................... 23,775 -- 23,775 13,588 37,363
Selling, general and administrative
expenses............................... 19,573 147 19,720 10,156 29,876
------- ------ ------- ------- --------
Income from operations............. 4,202 (147) 4,055 3,432 7,487
Other expense (income)................... 738 (724) 14 (67) (53)
------- ------ ------- ------- --------
Income before provision for income
taxes and minority interest..... 3,464 577 4,041 3,499 7,540
Provision for income taxes............... 138 1,177 1,315 1,352 2,667
Minority interest........................ 252 (252) -- -- --
------- ------ ------- ------- --------
Net income......................... $ 3,074 $ (348) $ 2,726 $ 2,147 $ 4,873
======= ====== ======= ======= ========
Diluted earnings per share............... $ 0.14 $ 0.19
======= ========
Weighted average shares outstanding...... 20,083 26,201
======= ========
</TABLE>
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<PAGE> 31
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of CBSI
and Claremont and combined per share data on an unaudited pro forma basis after
giving effect to the Merger accounted for under the pooling of interest method
of accounting and assuming that .8359133 shares of CBSI Common Stock, the lower
end of the conversion range, were issued in exchange for each share of Claremont
Common Stock issued and outstanding. If the highest end of the conversion range
were used .617849, the pro forma combined per Claremont Common Share net income
and book value would be approximately 20% less. This data should be read in
conjunction with the Selected Historical and Pro Forma Financial Data and the
historical audited and unaudited financial statements of CBSI and Claremont and
the notes thereto that are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected pro forma combined financial information of
CBSI and Claremont is derived from the unaudited pro forma condensed combined
financial statements and should be read in conjunction with such unaudited pro
forma statements and notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had CBSI and Claremont been a single
entity during the periods presented. Neither CBSI nor Claremont have paid any
cash dividends for the periods presented, other than distributions made by CBSI
to S corporation shareholders.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS(1) MARCH 31,
----------------------- ---------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
CBSI
HISTORICAL PER COMMON SHARE:
BASIC:
Net income per share...................................... $0.19 $0.38 $0.24 $0.06 $ 0.01
Pro forma net income...................................... 0.12 0.22 0.27 0.07 0.06
Book value as of period end............................... 3.00 2.97
DILUTED:
Net income per share...................................... 0.18 0.33 0.23 0.06 0.01
Pro forma net income...................................... 0.11 0.20 0.26 0.07 0.06
Book value as of period end............................... 2.94 2.81
PRO FORMA COMBINED PER CBSI COMMON SHARE:
BASIC:
Pro forma net income (loss)............................... 0.22 0.35 0.30 0.11 (0.15)
Book value as of period end............................... 3.81 3.57
DILUTED:
Pro forma net income (loss)............................... 0.18 0.28 0.28 0.10 (0.15)
Book value as of period end............................... 3.61 3.29
CLAREMONT
HISTORICAL PER COMMON SHARE:
BASIC:
Net income per share (loss)............................... 0.52 0.66 0.33 0.16 (0.79)
Book value as of period end............................... 5.74 4.79
DILUTED:
Net income per share (loss)............................... 0.31 0.40 0.28 0.13 (0.79)
Book value as of period end............................... 4.82 4.05
PRO FORMA COMBINED PER CLAREMONT COMMON SHARE:
BASIC:
Pro forma net income (loss)............................... 0.19 0.29 0.25 0.10 (0.13)
Book value as of period end............................... 3.19 2.98
DILUTED:
Pro forma net income (loss)............................... 0.15 0.24 0.23 0.08 (0.13)
Book value as of period end............................... 3.01 2.75
</TABLE>
- -------------------------
(1) The historical per share data for CBSI are as of and for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997
and March 31, 1998, respectively. The historical per share data for
Claremont are as of and for the years ended June 30, 1995, June 30, 1996 and
December 31, 1997 and the three months ended March 31, 1997 and March 31,
1998, respectively.
25
<PAGE> 32
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of CBSI in connection with the solicitation of proxies by the Board
of Directors of CBSI for use at the CBSI Special Meeting to be held at the
offices of Butzel Long, 150 West Jefferson, Suite 900, Detroit, Michigan, 48226
on Wednesday, July 22, 1998, at 10:00 a.m., local time, and any and all
adjournments or postponements thereof. This Joint Proxy Statement/Prospectus
also constitutes the Prospectus of CBSI with respect to the issuance of up to
7,728,293 shares of CBSI Common Stock to be issued to shareholders of Claremont
in connection with the Merger, as described below.
This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of Claremont in connection with the solicitation of proxies by the
Board of Directors of Claremont for use at the Claremont Special Meeting to be
held at 1600 N.W. Compton Drive, Beaverton, Oregon 97006, on Thursday, July 16,
1998, at 10:00 a.m., local time, and any and all adjournments or postponements
thereof.
CBSI SPECIAL MEETING
At the CBSI Special Meeting, holders of CBSI Common Stock will consider and
vote upon (i) the CBSI Share Proposal, and (ii) the CBSI Merger Proposal.
Michigan law and the Restated Articles of Incorporation of CBSI do not require
CBSI to obtain shareholder approval of the Merger; however, the rules of the
Nasdaq National Market require CBSI to obtain shareholder approval of the CBSI
Merger Proposal. Holders of CBSI Common Stock may also consider and vote upon
matters incident to the conduct of the CBSI Special Meeting.
THE BOARD OF DIRECTORS OF CBSI HAS UNANIMOUSLY APPROVED THE CBSI SHARE
PROPOSAL AND THE CBSI MERGER PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT CBSI
SHAREHOLDERS VOTE IN FAVOR OF THE CBSI SHARE PROPOSAL AND THE CBSI MERGER
PROPOSAL.
RECORD DATE
The CBSI Board of Directors has fixed the close of business on June 1, 1998
as the CBSI Record Date for determining holders entitled to notice of and to
vote at the CBSI Special Meeting.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of CBSI Common Stock is necessary
to constitute a quorum at the CBSI Special Meeting.
REQUIRED VOTES
The CBSI Share Proposal requires the affirmative vote of shareholders
owning a majority of the shares of CBSI Common Stock issued and outstanding.
Rajendra B. Vattikuti, President and Chief Executive Officer of CBSI and the
owner of approximately 38% of the outstanding CBSI Common Stock, has agreed with
Claremont to vote in favor of the CBSI Share Proposal and has given Claremont a
proxy to vote his shares on the proposal. The directors and officers of CBSI
(other than Mr. Vattikuti) own as a group approximately 9% of the outstanding
shares of CBSI Common Stock and have indicated their intention to vote in favor
of the CBSI Share Proposal.
The CBSI Merger Proposal requires the approval of the majority of shares of
CBSI Common Stock present and voting at the CBSI Special Meeting. The approval
of the CBSI Share Proposal is a condition to the consummation of the Merger.
Rajendra B. Vattikuti, President and Chief Executive Officer of CBSI and the
owner of approximately 38% of the outstanding CBSI Common Stock, has agreed with
Claremont to vote in favor of the CBSI Merger Proposal and has given Claremont a
proxy to vote his shares on such proposal. The directors and officers of CBSI
(other than Mr. Vattikuti) own as a group approximately 9% of the
26
<PAGE> 33
outstanding shares of CBSI Common Stock and have indicated their intention to
vote in favor of the CBSI Merger Proposal.
VOTING RIGHTS; PROXIES
As of the CBSI Record Date, there were 27,222,900 shares of CBSI Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote. All shares of CBSI Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF CBSI COMMON STOCK WILL BE VOTED IN FAVOR OF APPROVAL
OF THE CBSI SHARE PROPOSAL AND IN FAVOR OF THE CBSI MERGER PROPOSAL. CBSI does
not know of any matters other than as described in the accompanying Notice of
CBSI Special Meeting that are to come before the CBSI Special Meeting. If any
other matter or matters are properly presented for action at the CBSI Special
Meeting the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment, unless such authorization is withheld. A shareholder giving a proxy
pursuant to this proxy solicitation may revoke it at any time before it is
exercised by giving a subsequent proxy, delivering to the Secretary of CBSI a
written notice of revocation prior to the voting of the proxy at the CBSI
Special Meeting, or attending the CBSI Special Meeting and informing the
Secretary of CBSI in writing that such shareholder wishes to vote his or her
shares in person. However, mere attendance at the CBSI Special Meeting will not
in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the CBSI Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
SOLICITATION OF PROXIES
CBSI will bear its own cost of solicitation of proxies. Brokerage houses,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names. Certain directors, officers and employees of CBSI may solicit
proxies by facsimile, telephone or in person.
THE MATTERS TO BE CONSIDERED AT THE CBSI SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO SHAREHOLDERS OF CBSI. ACCORDINGLY, CBSI SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
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<PAGE> 34
SPECIAL MEETING OF CLAREMONT SHAREHOLDERS
DATE, TIME AND PLACE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished to holders of
Claremont Common Stock, in connection with the solicitation of proxies by the
Claremont Board of Directors for use at the Claremont Special Meeting to be held
on Thursday, July 16, 1998, at 1600 N.W. Compton Drive, Beaverton, Oregon,
97006, commencing at 10:00 a.m., local time, and any adjournments or
postponements thereof. This Joint Proxy Statement/Prospectus and the
accompanying form of proxy is first being mailed to shareholders of Claremont on
or about June 12, 1998.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Claremont Special Meeting, shareholders of record of Claremont as of
the close of business on May 29, 1998 will consider and vote (i) upon the
Claremont Merger Proposal, and (ii) such other business as may properly be
brought before the Claremont Special Meeting. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, Merger Sub will
merge with and into Claremont, Claremont will become a wholly owned subsidiary
of CBSI, all shares of Claremont Common Stock issued and outstanding immediately
prior to the Effective Time will be exchanged for that number of shares of CBSI
Common Stock equal to the "Conversion Number" determined in accordance with the
Merger Agreement. The Conversion Number will be equal to $27.00 divided by the
average closing price of CBSI Common Stock for the twenty consecutive trading
days, the last of which is the fourth full trading day before the closing of the
Merger (the "Closing Value"); provided, however, that if the Closing Value is
less than 85% of $38.00, the Conversion Number will be fixed at .8359133 shares
of CBSI Common Stock, and if the Closing Value is more than 115% of $38.00, the
Conversion Number will be fixed at .617849 shares of CBSI Common Stock. In
addition, the Merger Agreement provides that all outstanding options to purchase
shares of Claremont Common Stock will be assumed by CBSI and automatically
converted into options to purchase that number of shares of CBSI Common Stock as
the holder of such Claremont options would have been entitled to receive
pursuant to the Merger Agreement had such holder exercised such option in full
immediately prior to the closing of the Merger (rounded down to the nearest
whole number), at an exercise price determined in accordance with the Merger
Agreement. No fractional shares of CBSI Common Stock will be issued in the
Merger. The fair market value of any fractional share resulting from the Merger
will be paid in cash.
THE CLAREMONT BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT CLAREMONT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
CLAREMONT MERGER PROPOSAL.
As of the date of this Joint Proxy Statement/Prospectus, the Claremont
Board of Directors does not know of any other matters to be presented for action
by the shareholders at the Claremont Special Meeting. Claremont's Second Amended
and Restated Bylaws require that notice of shareholder proposals and nominations
for director be delivered to the Secretary of Claremont not less than 60 days
nor more than 90 days prior to the date of an annual meeting, unless notice or
public disclosure of the date of the meeting occurs less than 60 days prior to
the date of such meeting, in which event, shareholders may deliver such notice
not later than the 10th day following the day on which notice of the date of the
meeting was mailed or public disclosure thereof was made. If any other matters
are properly brought before the Claremont Special Meeting, the persons named in
the proxy will vote the shares represented by such proxy upon such matters as
determined by a majority of the Claremont Board of Directors.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on May 29, 1998 has been fixed as the record date for
determining the holders of Claremont Common Stock, who are entitled to notice of
and to vote at the Claremont Special Meeting. As of the Claremont Record Date,
there were 9,245,329 shares of Claremont Common Stock, issued and outstanding
and entitled to vote. The presence in person or by proxy of the holders of
shares representing a majority of the voting power of the Claremont Common Stock
entitled to vote, is necessary to constitute a
28
<PAGE> 35
quorum for the transaction of business at the Claremont Special Meeting. The
affirmative vote of holders of shares representing sixty-seven percent (67%) of
the number of shares of Claremont Common Stock issued and outstanding is
necessary to approve and adopt the Claremont Merger Proposal.
Abstentions from voting will have the practical effect of voting against
the approval of the Claremont Merger Proposal since they represent one less vote
for adoption of such proposal.
A shareholder of Claremont owning an aggregate of 940,200 shares of
Claremont Common Stock and representing approximately ten percent (10%) of the
outstanding shares of Claremont Common Stock, has given an irrevocable proxy to
CBSI to vote all of his shares of Claremont Common Stock for approval of the
Claremont Merger Proposal.
PROXIES; PROXY SOLICITATION; EXPENSES
Shares of Claremont Common Stock represented by properly executed proxies
received at or prior to the Claremont Special Meeting that have not been revoked
will be voted at the Claremont Special Meeting in accordance with the
instructions contained therein. Shares of Claremont Common Stock represented by
properly executed proxies for which no instruction is given will be voted "FOR"
approval and adoption of the Claremont Merger Proposal. Claremont shareholders
are requested to complete, sign, date and return promptly the enclosed proxy
card in the prepaid postage envelope provided for this purpose to ensure that
their shares are voted. A shareholder may revoke a proxy by submitting at any
time prior to the vote on the Claremont Merger Proposal a written notice of
revocation to the Secretary of Claremont or by attending the Claremont Special
Meeting and voting in person. Mere attendance at the Claremont Special Meeting
will not in and of itself revoke a proxy.
If the Claremont Special Meeting is postponed or adjourned for any reason,
at any subsequent reconvening of the Claremont Special Meeting all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the Claremont Special Meeting (except for any proxies that
have theretofore effectively been revoked or withdrawn), notwithstanding that
they may have been effectively voted on the same or any other matter at a
previous meeting.
Claremont will bear the cost of soliciting proxies from its shareholders.
In addition to solicitation by mail, directors, officers and employees of
Claremont may solicit proxies by telephone, telegram, facsimile or otherwise.
Such directors, officers and employees of Claremont will not be additionally
compensated for such solicitation, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith.
29
<PAGE> 36
RISK FACTORS
RISKS RELATING TO THE MERGER
VARIABILITY OF STOCK PRICES
The price of CBSI Common Stock at the Effective Time may vary from its
price on the date of this Joint Proxy Statement/Prospectus and on the date of
the Special Meetings. Such variation may be the result of changes in the
business, operations or prospects of CBSI or Claremont, market assessments of
the likelihood that the Merger will be consummated, general market and economic
conditions and other factors. Because the Effective Time will occur at a date
later than the CBSI and Claremont Special Meetings, there can be no assurance
that the price of CBSI Common Stock on the date of the CBSI and Claremont
Special Meetings will be indicative of its price at the Effective Time. The
Merger Agreement provides that the Effective Time will occur as soon as
practicable following the CBSI and Claremont Special Meetings and the
satisfaction or waiver of the other conditions set forth in the Merger
Agreement. Shareholders of CBSI and Claremont are urged to obtain current market
quotations for CBSI Common Stock and Claremont Common Stock prior to returning
their proxies.
DIFFICULTIES INTEGRATING CLAREMONT
The Merger involves the integration of two companies that have previously
operated independently. No assurance can be given that CBSI will integrate the
operations of CBSI and Claremont without encountering difficulties or
experiencing the loss of key Claremont personnel or that the benefits expected
by the CBSI Board of Directors will be realized. In addition, there can be no
assurance that CBSI will realize anticipated synergies from the Merger or that
the combination will be accretive to CBSI's earnings in 1998. In addition, CBSI
is currently integrating Synergy with which it merged in November of 1997 and
Costello with which it merged in January of 1998. There can be no assurance that
the integration of Synergy and Costello will not divert the attention of CBSI
management from the integration of Claremont.
INCURRENCE OF SIGNIFICANT TRANSACTION COSTS
CBSI and Claremont expect to incur charges to operations currently
estimated to total between approximately $6 million and $7 million in the
quarter ending September 30, 1998, the quarter in which the Merger is expected
to be consummated, to reflect direct transactions costs, primarily for
investment banking, legal, accounting and printing fees, and costs associated
with combining the operations of the two companies. Additional expenses may be
incurred relating to the integration of the businesses of CBSI and Claremont.
RISKS RELATING TO CBSI
RECRUITMENT AND RETENTION OF IT PROFESSIONALS
CBSI's business involves delivering IT services and is labor-intensive.
CBSI's continued success depends upon its ability to attract, develop, motivate
and retain highly-skilled IT professionals and project managers possessing the
technical skills and expertise necessary to deliver CBSI's services. Qualified
IT professionals are in high 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 CBSI in sufficient numbers, with
appropriate skill sets and at wages that CBSI is able to pass along to clients,
or that CBSI 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 CBSI's business, operating results and
financial condition. Historically, CBSI has conducted a significant portion of
its recruiting outside the countries where the client's work was performed.
Accordingly, any perception among CBSI's IT professionals, whether or not well
founded, that CBSI'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 CBSI incurring increased costs for IT
professionals.
30
<PAGE> 37
GOVERNMENT REGULATION OF IMMIGRATION
CBSI recruits its IT professionals on a global basis to create a work force
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 March 31, 1998, approximately 27% of CBSI's worldwide work force
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, CBSI may be unable to obtain enough
H-1B permits to meet its personnel requirements. If CBSI were unable to obtain
H-1B permits for its employees in sufficient quantities or at an adequate rate,
CBSI'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 United States. These
concerns have often resulted in proposed legislation, rules and regulations
aimed at reducing the number of work permits that may be issued. Any change in
such laws and regulations making it more difficult to hire foreign nationals or
limiting the ability of CBSI to retain foreign employees, could require CBSI to
incur additional unexpected labor costs and other expenses. Any such
restrictions or limitations on CBSI's hiring practices could have a material
adverse effect on CBSI's business, operating results and financial condition.
INCREASING SIGNIFICANCE AND RISKS OF NON-U.S. OPERATIONS
CBSI's international consulting and offshore software development
operations are important elements of its growth strategy. CBSI opened facilities
in the United Kingdom in 1990, in Chennai, India in 1992, in Bangalore, India in
1995 and in Hyderabad, India in 1996. These operations depend greatly upon the
political climate, business and technology transfer laws and related
restrictions in those countries, and upon the continued development of
technology infrastructure. There can be no assurance that CBSI's international
operations will continue to be profitable or support CBSI's growth strategy. The
risks inherent in CBSI's international business activities include regulatory
environments, foreign currency fluctuations, tariffs and other trade barriers,
difficulties in managing international operations and potential foreign tax
consequences, including repatriation of earnings, the burden of complying with a
wide variety of foreign laws, and regulations and unexpected changes in the
local and regional political climate and the possible reaction to those changes
by the international community, including economic sanctions. CBSI's failure to
manage growth, attract and retain personnel, manage major development efforts,
or profitably deliver services or a significant interruption in CBSI's ability
to transmit data via satellite, could have a material adverse impact on CBSI's
ability to maintain and develop successfully its international operations and
could have a material adverse effect on CBSI's business, operating results and
financial condition.
CBSI's international operations are subject to a number of special risks,
including currency exchange rate fluctuations, trade barriers, exchange
controls, political risk and risk of increasing duties, taxes and governmental
royalties, as well as changes in laws and policies governing operations of
foreign-based companies.
VARIABILITY OF OPERATING RESULTS
CBSI'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 CBSI's expenses, in particular personnel and facilities costs, are
relatively fixed, a variation in revenues may cause significant variations in
operating results. Additionally, CBSI 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 CBSI's financial condition.
31
<PAGE> 38
DECREASE IN DEMAND FOR YEAR 2000 SERVICES
CBSI expects that it will continue to receive increased revenues from
additional Year 2000 engagements in the near term. However, CBSI expects that
Year 2000 engagements and revenues derived from such engagements will peak prior
to calendar year 2000 as companies address their needs. Thereafter, CBSI expects
that revenues derived from Year 2000 engagements will steadily decline. In the
absence of additional revenues from other sources, a decline in such engagements
could have a material adverse effect on CBSI's business, operating results and
financial condition.
EXPOSURE TO CONDITIONS IN INDIA
A significant element of CBSI's business strategy is to continue to develop
its offshore software development centers in Bangalore and Chennai, India. As of
March 31, 1998, CBSI had approximately 30% of its workforce in India. The Indian
government, as a means of encouraging foreign investment, has provided
significant tax incentives and exemptions to regulatory restrictions. Certain of
these benefits that directly affect CBSI 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, CBSI must
meet certain conditions. Subject to certain conditions, goods, raw materials and
components for production imported by CBSI's offices in India are currently
exempt from the levy of a customs duty. 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 and import and export benefits will be continued in the
future or at their current levels.
Although wage costs in India are significantly lower than in the United
States and elsewhere for comparably skilled IT professionals, wages in India are
increasing at a faster rate than in the United States. 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
recently has not been significant, increases in inflation in the future could
have a material adverse effect on CBSI'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 CBSI's business, operating
results and financial condition.
FIXED-PRICE PROJECTS
CBSI undertakes certain projects on a fixed-price basis, as distinguished
from a time-and-materials basis. Significant cost overruns on fixed-price
projects could have a material adverse effect on CBSI's business, operating
results and financial condition. These risks may be heightened if CBSI acts as a
subcontractor in a fixed-price project because of its limited ability to control
project variables and to negotiate directly with the ultimate client. Although
CBSI intends to keep the number of fixed-price project engagements at
approximately current levels, there can be no assurance that any fixed-price
project engagements that are accepted by CBSI will be profitable. Failure to
achieve profitability on any fixed-price project engagement could have a
material adverse effect on CBSI's business, operating results and financial
condition.
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 CBSI. Primary competitors include Cambridge Technology
Partners, Information Management Resources, Inc., Keane, Inc. and 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 CBSI. In addition, there are relatively few barriers to entry
into CBSI's markets and CBSI has faced, and expects to continue to face,
additional competition from the 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 CBSI's
32
<PAGE> 39
ability to increase prices commensurate with increases in compensation. There
can be no assurance that CBSI will compete successfully with existing or new
competitors.
MANAGEMENT OF GROWTH
CBSI's rapid growth and recent mergers have placed significant demands on
CBSI's managerial, administrative and operational resources. Revenues have grown
from $57.5 million in fiscal year 1993 to $194 million in fiscal year 1997, and
the number of employees has grown from 480 as of December 31, 1992 to 3,323 as
of March 31, 1998. CBSI's continued growth depends on its ability to recruit and
retain IT professionals, to increase its international operations, to add
service lines and to further expand its offshore facilities. Effective
management of growth initiatives will require CBSI to continue to improve its
operational, financial and other management processes and systems and to train,
motivate and manage its IT professionals. Failure to manage growth effectively
and to train, motivate and manage its IT professionals could have a material
adverse effect on CBSI's business, operating results and financial condition.
RAPID TECHNOLOGY CHANGE
The IT industry is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product introductions.
CBSI'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 CBSI
will be successful in addressing these developments on a timely basis or that,
if these developments are addressed, CBSI will be successful in the marketplace.
In addition, there can be no assurance that products or technologies developed
by others will not render CBSI's services noncompetitive or obsolete. CBSI's
failure to address these developments could have a material adverse effect on
CBSI's business, operating results and financial condition.
A significant number of organizations are attempting to migrate business
applications from a mainframe environment to advanced technologies, including
client/server architectures and packaged software solutions. As a result, CBSI'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. CBSI's failure
to hire, train and retain employees with such skills could have a material and
adverse impact on CBSI's business. CBSI'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, packaged software or other advanced
architectures. The failure of CBSI to design and implement such transition
strategies in a timely and cost-effective manner could have a material adverse
effect on CBSI's business.
RISKS RELATED TO ACQUISITIONS AND MERGERS
As a significant part of its business strategy, CBSI has expanded and will
continue to seek to expand its operations through the acquisition of or merger
with additional businesses that complement its core skills and have the
potential to increase the overall value of CBSI. There can be no assurance that
CBSI will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into CBSI without
substantial expenses, delays or other operational or financial problems. CBSI
continuously evaluates potential business combinations. Future acquisitions and
mergers may involve a number of special risks, including diversion of
management's attention, failure to retain key and other 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 CBSI'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 CBSI as a whole. In addition, there
can be no assurance that acquired businesses, if any, will achieve anticipated
revenues and earnings. The failure of CBSI to manage its acquisition strategy
successfully could have a material adverse effect on CBSI's business, operating
results and financial condition. In addition, CBSI may issue additional shares
of its Common Stock to acquire such additional businesses which may dilute
earnings per share and reduce the percentage ownership of existing shareholders.
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POTENTIAL LIABILITY TO CLIENTS
Many of CBSI's engagements, including Year 2000 projects, involve projects
that are critical to the operations of its clients' businesses and provide
benefits that may be difficult to quantify. Although CBSI attempts to
contractually limit its liability for damages arising from errors, mistakes,
omissions or negligent acts in rendering its services, there can be no assurance
that its attempts to limit liability will be successful. CBSI'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 operations and, therefore,
could give rise to claims against CBSI or damage CBSI's reputation, adversely
affecting its business, operating results and financial condition.
ABSENCE OF LONG TERM CONTRACTS
The typical CBSI contractual engagement with a client is for a term of one
to three years. Generally, there is no assurance that a client will renew its
contract when it terminates. In addition, CBSI's contracts are generally
cancelable by the client with 30 to 60 days notice. Under such contracts,
clients may unilaterally reduce the use of CBSI's services without penalty.
Failure by CBSI to retain its existing clients could materially adversely affect
its business, operating results and financial condition.
RISKS RELATING TO CLAREMONT
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
Claremont's business is labor intensive and depends upon the delivery of
professional services. Professional fees represented 95%, 99% and 95% of
Claremont's revenue in fiscal year 1996, fiscal year 1997 and the nine months
ended March 31, 1998 respectively. Claremont's success will depend in large part
upon its ability to attract, train, retain and motivate highly-skilled
employees, particularly project managers and other senior technical personnel.
There is significant competition for employees with the skills required to
perform the services offered by Claremont. Qualified project managers and senior
technical and professional staff are in great demand and are likely to remain a
limited resource for the foreseeable future. Limitations in the number of
available project managers and senior technical and professional staff have
impaired Claremont's ability to take on available new projects. There can be no
assurance that Claremont will be successful in attracting a sufficient number of
highly-skilled employees in the future, or that it will be successful in
training, retaining and motivating them. Claremont's inability to attract, train
and retain skilled employees or Claremont's employees inability to achieve
expected levels of performance could impair Claremont's ability to adequately
manage and complete its existing projects and to bid for or obtain new projects.
This in turn could have a material adverse effect on Claremont's business,
financial condition and results of operations.
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
Claremont's revenue and operating results have fluctuated and may continue
to fluctuate from quarter to quarter based on a number of factors including the
number, size and scope of projects in which Claremont is engaged, the
contractual terms and degree of completion of such projects, payment of license
fees for Claremont software, any delays incurred in connection with a project,
employee hiring and utilization rates, the adequacy of provisions for losses,
the accuracy of estimates of resources required to complete ongoing projects and
general economic conditions. In addition, the timing of revenue is difficult to
forecast because Claremont's sales cycle is relatively long. A high percentage
of Claremont's operating expenses, particularly personnel and rent, are
relatively fixed in advance of any particular quarter. For example, while the
number of professional staff Claremont employs may be adjusted to reflect active
projects, such adjustments take time and Claremont must maintain a sufficient
number of senior professionals to oversee existing clients and to focus on
securing new client engagements. As a result, unanticipated variations in the
number of projects or progress toward completion of Claremont's projects or in
employee utilization rates may cause significant variations in operating results
in any particular quarter and could result in material adverse changes to
Claremont's business, financial condition and results of operation. Seasonal
factors such as weather related shut-downs in major markets, vacation days,
total business days in a quarter, or the business practices of clients such as
deferring commitments on new projects until after the end of the calendar or the
client's fiscal
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year could require Claremont to maintain under-utilized employees and could
therefore have a material adverse effect on Claremont's business, financial
condition and results of operations. Additionally, any shortfall in revenue or
earnings from expected levels or other failure to meet expectations of
securities analysts or the equity market in general regarding results of
operations could have an immediate and significant adverse effect on the market
price of Claremont's Common Stock. Given the possibility of such fluctuations,
Claremont believes that comparisons of its results of operations for preceding
quarters are not necessarily meaningful and that such results for one quarter
should not be relied upon as an indication of future performance.
COMPUTER SOFTWARE DEVELOPMENT
During the third quarter of fiscal year 1998, Claremont wrote off
approximately $4.3 million of capitalized software development costs related to
the Premost software modules. As of March 31, 1998, Claremont had net
capitalized software development costs of $7.4 million associated with
Claremont's Clarety reusable software module. To the extent capitalized software
development costs are greater than the potential revenue associated with the
developed software, Claremont would be required to immediately expense such
excess amount under Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" ("SFAS 86"). The amount of the excess required to be expensed in any
particular period may be as much as the total amount of capitalized software
development costs then carried on Claremont's balance sheet depending on the
potential revenue associated with related products at such time. Recognition of
such expenses, if any, could have a material adverse effect on Claremont's
results of operations.
CLIENT AND INDUSTRY CONCENTRATION; DEPENDENCE ON LARGE PROJECTS
Claremont has derived, and believes that it will continue to derive, a
significant portion of its revenue from a limited number of large client
projects and in a limited number of industries. Claremont's five largest clients
accounted for approximately 56%, 46% and 43% of its revenue in fiscal year 1996,
fiscal year 1997, and the nine months ended March 31, 1998, respectively. The
Ohio State Teachers' Retirement System ("Ohio STRS"), Lucent Technologies Inc.
("Lucent") and Mississippi Public Employees Retirement System ("Mississippi
PERS") accounted for 45% and 25% of Claremont's revenue in fiscal year 1996 and
fiscal year 1997, respectively. California Public Employees Retirement System
("CalPERS"), Lucent, Ohio STRS and Sprint accounted for 18%, 12%, 6%, and 5%,
respectively, of Claremont's revenue in the nine months ended March 31, 1998.
The volume of work performed for specific clients is likely to vary from year to
year, and a major client in one year may not use Claremont's services in a
subsequent year. The loss of any large client could have a material adverse
effect on Claremont's business, financial condition and results of operations.
Most of Claremont's contracts are terminable by the client following limited
notice and without significant penalty to the client. The cancellation of a
large project, increasing wages or a significant reduction in the scope of such
a project could have a material adverse effect on Claremont's business,
financial condition and results of operations, and in the past the cancellation
of a large project has had such an effect. Furthermore, a decision by any large
client not to proceed with a project to the stage anticipated by Claremont could
have a material adverse effect on Claremont's business, financial condition and
results of operations. As a result of Claremont's focus in specific industries,
Claremont's business, financial condition and results of operations are
influenced by economic and other conditions affecting these industries, such as
economic downturns in the communications or financial services industries. Such
downturns could lead to a reduction in capital spending on IT projects,
governmental spending cuts or general budgetary constraints in the state and
local government practice area, and could lead to fewer new projects being
undertaken. Changes in government regulations could make obsolete or require
substantial changes to Claremont's existing pre-developed proprietary software
products. Any such factors could have a material adverse effect on Claremont's
business, financial condition and results of operations.
MANAGEMENT OF GROWTH
Claremont's growth has placed significant demands on its management and
other resources. Claremont's revenue from professional fees increased 49% to
$66.8 million in fiscal year 1997, from $44.8 million for fiscal
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year 1996. During the same period, Claremont's staff increased from 519 to 749
full-time employees. During the nine months ended March 31, 1998, revenue from
professional fees increased 33% to $63.0 million, from $47.4 million during the
nine months ended March 31, 1997. Claremont's staff increased from 646 to 780
full-time employees over this same period. Claremont has also expanded
geographically by opening new offices both domestically and internationally.
Claremont's ability to manage its growth effectively will require it to continue
to develop and improve its operational, financial and other internal systems, as
well as its business development capabilities and to attract, train, retain,
motivate and manage its employees. In addition, Claremont's success will depend
in large part on its ability to maintain high rates of employee utilization, set
fixed-price fees accurately, maintain project quality and meet delivery dates
particularly if the average size of Claremont's projects increases. Failure by
Claremont to manage its growth and projects effectively could have a material
adverse effect on the quality of Claremont's services and products, its ability
to retain key personnel and its business, financial condition and results of
operations. No assurance can be given that Claremont's historical growth rates
will continue to be achieved, or if achieved, be maintained or that Claremont
will be successful in managing its growth.
FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS
For each of the fiscal years ended June 30, 1996 and 1997, and for the nine
months ended March 31, 1998, approximately 50% of Claremont's revenue from
professional fees were generated on a fixed-price, fixed-delivery schedule
("fixed-price") basis, rather than on a time and materials basis. Claremont's
failure to accurately estimate the resources required for a fixed-price project,
to accurately determine the scope of an engagement, or its failure to complete
its contractual obligation in a manner consistent with the project plan upon
which its fixed-price contract was based could have a material adverse effect on
Claremont's business, financial condition and results of operations. In the
past, Claremont has been required to commit unanticipated additional resources
to complete certain projects, which negatively affected the profitability of
such projects and has found it necessary to revise project plans during the
project and to change project managers to insure projects are completed on
schedule. Claremont may experience similar situations in the future. Failure to
anticipate such needs could have a material adverse effect on Claremont's
business, financial condition and results of operations. In addition, Claremont
may establish a price before the design specifications are finalized, which
could result in a fixed price that turns out to be too low and therefore
adversely affects Claremont's business, financial condition and results of
operations. Furthermore, many of Claremont's engagements involve projects which
are critical to the operations of its clients' businesses, including Year 2000
projects and which provide benefits that may be difficult to quantify.
Claremont's failure to meet a client's expectations in the performance of its
services could damage Claremont's reputation and adversely affect its ability to
attract new business, and may have a material adverse effect upon its business,
financial condition and results of operations. Claremont has undertaken and may
continue to undertake projects in which Claremont guarantees performance based
upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties in completing such
projects may result in client dissatisfaction and a reduction in payment to, or
payment of damages by, Claremont, any of which could have a material adverse
effect on Claremont's business, financial condition and results of operations.
EMERGING MARKET; TECHNOLOGICAL ADVANCES
Claremont has derived, and will continue to derive, a substantial portion
of its revenue from projects based on open computing systems and in certain
practice areas, including employee benefits and telecommunications. Claremont's
Clarety product includes various third party software components, some of which
have undergone technological advancements. Claremont is evaluating the design of
Clarety to quantify the amount of work necessary, if any, to stay abreast of the
technology of the market place and to keep Clarety as a viable solution. In
addition, the open computing systems market is continuing to develop and is
subject to rapid change. Claremont's success will also depend in part on its
ability to develop IT solutions which keep pace with continuing changes in
information processing technology, evolving industry standards and changing
client preferences. There can be no assurance that Claremont will be successful
in addressing these developments in a timely manner or that, if addressed,
Claremont will be successful in the marketplace. Claremont's delay or failure to
address these developments could have a material adverse effect on Claremont's
business, financial
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condition and results of operations. In addition, there can be no assurance that
products or technologies developed by third parties will not render Claremont's
services noncompetitive or obsolete.
COMPETITION
The markets for Claremont's services are highly competitive. Claremont
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting and the consulting groups of the
"Big Six" accounting firms, IBM Global Solutions, Computer Sciences Corporation,
and with other hardware and application software vendors. In addition there are
a number of systems integrators who serve similar markets or provide similar
services, such as Cambridge Technology Partners, Renaissance Solutions, Inc.,
SHL Systemhouse (a subsidiary of MCI), Sapient Corporation and Technology
Solutions Company. Many of these companies have significantly greater financial,
technical and marketing resources than Claremont, generate greater revenues and
have greater name recognition than Claremont. In addition, there are relatively
low barriers to entry into Claremont's markets, and Claremont has faced and
expects to continue to face additional competition from new entrants into its
markets.
Claremont believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. Claremont believes that its
ability to compete also depends in part on a number of competitive factors
outside of its control, including the ability of its competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership by
competitors of software used by potential clients; the development by others of
products and services that are competitive with Claremont's products and
services; the price at which others offer comparable services and the extent of
its competitors' responsiveness to client needs. There can be no assurance that
Claremont will be able to compete effectively in pricing or other requirements
with current and future competitors or that competitive pressures faced by
Claremont will not cause Claremont's revenue or gross margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations.
FOREIGN OPERATIONS
Claremont derived approximately 5%, 6% and 7% of its total revenue from
clients outside of the United States in fiscal year 1996, fiscal year 1997, and
in the nine months ended March 31, 1998, respectively. Claremont's international
business operations are subject to a number of risks, including difficulties in
building and managing foreign operations, in translating its methodologies into
foreign languages, in enforcing agreements and collecting receivables through
foreign legal systems; longer payment cycles; fluctuations in the value of
foreign currencies and unexpected regulatory, economic or political changes in
foreign markets. There can be no assurance that these factors will not have a
material adverse effect on Claremont's business, financial condition and results
of operations.
INTELLECTUAL PROPERTY RIGHTS
Claremont's success is dependent upon maintenance and protection of its
intellectual property rights. Claremont relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. Claremont has
applications pending at the United States Patent and Trademark Office with
respect to Clarety, TISE, Solutions @ The Speed of Business and iSTART
trademarks and has applications pending at the Canadian Intellectual Property
Office for Solutions @ The Speed of Business and Solutions @ La Vitesse des
Affaires. Claremont's practice has been to enter into confidentiality agreements
with its employees and into signed agreements with clients that include
nondisclosure provisions. Despite these precautions, no assurance can be given
that the steps taken by Claremont will provide adequate protection of its
intellectual property rights or that competitors will not be able to develop
similar or functionally equivalent methodologies or products. Additionally, no
assurance can be given that foreign copyright and trade secret laws will protect
Claremont's intellectual property rights. Furthermore, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. In addition, litigation may be necessary to enforce Claremont's
intellectual property rights, to protect Claremont's trade secrets, to determine
the validity and
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scope of the intellectual property rights of others or to defend against claims
of infringement. Such litigation could result in substantial costs and division
of resources and could have a material adverse effect on Claremont's business,
financial condition and results of operations. No assurance can be given that
infringement or invalidity claims will not be asserted against Claremont.
Litigation may be necessary to defend Claremont against such claims, and in
certain circumstances Claremont may choose to seek to obtain a license under the
third-party's intellectual property rights. There can be no assurance that such
licenses will be available on terms acceptable to Claremont, if at all.
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THE MERGER
This section of the Joint Proxy Statement/Prospectus as well as the next
two sections of the Joint Proxy Statement/Prospectus entitled "The Merger
Agreement" and "Other Agreements" describe certain aspects of the proposed
Merger. To the extent that it relates to the Merger Agreement, or the other
agreements described under "Other Agreements", the following description is not
intended to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. All shareholders
are urged to read the Merger Agreement and such other agreements in their
entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
required approvals of CBSI and Claremont shareholders are obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Merger Sub will be merged with and into Claremont, and Claremont will
become a wholly owned subsidiary of CBSI. Each issued and outstanding share of
Claremont Common Stock will be converted into the right to receive the number of
shares of CBSI Common Stock equal to $27.00 divided by the average per share
closing price of CBSI Common Stock for the twenty consecutive trading days, the
last of which is the fourth full trading day before the closing date of the
Merger (the "Closing Value"). In the event that the Closing Value is less than
85% of $38.00, each issued and outstanding share of Claremont Common Stock will
be converted into .8359133 shares of CBSI Common Stock. If the Closing Value is
more than 115% of $38.00, each issued and outstanding share of Claremont Common
Stock will be converted into .617849 shares of CBSI Common Stock (the "Merger
Consideration").
Based on the outstanding shares of CBSI Common Stock and Claremont Common
Stock as of June 1, 1998, the shareholders of Claremont immediately prior to the
consummation of the Merger will own approximately 23% of the outstanding CBSI
Common Stock following consummation of the Merger. This percentage could change
depending upon the number of shares of CBSI Common Stock and Claremont Common
Stock issued upon exercise of outstanding stock options and other rights.
EFFECTIVE TIME
Consummation of the Merger will occur upon the filing (the "Effective
Time") of the Articles of Merger, in such form as is required by the relevant
provisions of the Oregon Business Corporation Act with the Secretary of State of
the State of Oregon. The filing of the Articles of Merger will occur as soon as
practicable after satisfaction or waiver of all of the conditions to the closing
of the transactions contemplated by the Merger Agreement. The Merger Agreement
may be terminated by either party if the Merger has not been consummated on or
before August 31, 1998. The Merger Agreement may also be terminated under
certain other circumstances.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As of the Effective Time, without any action on the part of a holder of any
shares of Claremont Common Stock, by virtue of the Merger, each issued and
outstanding share of Claremont Common Stock will be converted into the right to
receive the Merger Consideration.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail a letter of transmittal and instructions to use in effecting
the surrender of stock certificates representing Claremont Common Stock to the
Exchange Agent. Upon surrender of a certificate for cancellation to the Exchange
Agent together with a duly executed letter of transmittal, the Exchange Agent
will deliver full shares of CBSI Common Stock to such shareholder and cash in
lieu of fractional shares pursuant to the terms of the Merger Agreement and in
accordance with the transmittal letter, together with any dividends or other
distributions.
If any issuance of shares of CBSI Common Stock in exchange for shares of
Claremont Common Stock is to be made to a person not registered as an owner of
Claremont Common Stock in the transfer records of Claremont, a certificate
representing the proper number of shares of CBSI Common Stock may be issued to
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such person provided that the certificate representing such Claremont Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid.
After the Effective Time, there will be no further registration of
transfers of Claremont Common Stock on the stock transfer books of Claremont.
If, after the Effective Time, any certificate representing Claremont Common
Stock is presented to Claremont for any reason, it will be canceled and
exchanged for a certificate representing the appropriate number of full shares
of CBSI Common Stock and cash in lieu of fractional shares.
No dividends or other distributions declared or made after the Effective
Time with respect to CBSI Common Stock with a record date after the Effective
Time will be paid to a holder of any certificate representing Claremont Common
Stock that is not surrendered. No cash payment in lieu of fractional shares
shall be paid to the holder of such unsurrendered certificate until the holder
surrenders such certificate.
CLAREMONT SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CLAREMONT
SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
In late February, 1998, at a special meeting of the Claremont Board of
Directors (the "Claremont Board") following significant changes in leadership at
Claremont, the Claremont Board elected to examine the potential for a
combination that would possibly combine Claremont's consulting, project
management, software architecture, and business process design skills with
complementary skills and assets of other IT consulting companies in the
marketplace. On March 4, 1998 the Claremont Board engaged DLJ as financial
advisor to Claremont. At Claremont's direction, during the period from March 10,
1998 through March 27, 1998 DLJ contacted approximately 39 companies, including
CBSI, of whom 21 expressed sufficient interest to execute a confidentiality
agreement. Of the 39 companies, six held in-depth meetings with Claremont. In
total, seven companies submitted preliminary indications of interest that
included, among other things, proposed exchange ratios at which a merger could
be accomplished.
Because an element of CBSI's growth strategy is to seek merger and
acquisition candidates that complement CBSI's core skills and that have the
potential to increase the overall value of CBSI, CBSI decided to investigate a
possible transaction with Claremont. An initial meeting was held on March 16,
1998, attended by Timothy Manney, Executive Vice President of Finance and
Administration of CBSI, Douglas Land, Director of CBSI, along with several other
representatives of CBSI; and Stephen Carson, President, Chief Operating Officer
and Chief Financial Officer of Claremont along with several other senior
representatives of Claremont, at which Mr. Carson gave an overview of
Claremont's business operations and his colleagues discussed business
opportunities with respect to Claremont's various practice areas.
Between March 17, 1998 and March 31, 1998 the two companies exchanged
confidential financial and business information. During this same period, CBSI
reviewed all public information on Claremont available to CBSI, including
filings with the Commission, news releases and investment banking analysts'
reports.
On March 23, 1998, the Board of Directors of CBSI (the "CBSI Board") held a
meeting during which the initial findings related to Claremont were discussed,
and at which time the CBSI Board authorized Rajendra Vattikuti, President and
Chief Executive Officer of CBSI, Mr. Manney and Mr. Land to continue CBSI's
efforts with respect to a possible acquisition of Claremont.
On April 1, 1998, Mr. Vattikuti, Mr. Manney and Mr. Land met with
representatives of DLJ and Claremont, including Mr. Carson; Jerry Stone,
Chairman of Claremont; and other senior executives of Claremont, at which time
additional confidential information was exchanged and the general terms of a
proposed transaction were discussed.
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On April 2, 1998 and April 3, 1998, senior executives and operating
personnel of both companies met repeatedly to continue to discuss the respective
operations of each company and the benefits and risks of a proposed transaction.
During the same period, executives of CBSI and Claremont, including Thomas
Sizemore, General Counsel of CBSI, along with representatives of UBS and DLJ,
met and discussed a merger agreement and negotiated a definitive proposal for
the Merger, covering the consideration to be paid in the Merger as well as the
other terms and conditions thereof, for presentation to the Claremont Board. The
principal areas of negotiation included the representations and warranties to be
made by CBSI and Claremont in the Merger Agreement; the conditions precedent to
closing the transaction; the business covenants to be made by CBSI and Claremont
in the Merger Agreement; the conditions required for a termination of the Merger
Agreement; and triggering events for the payment of a termination fee, and the
amount thereof.
On April 3, 1998, senior executives and operating personnel of Claremont
made presentations to UBS regarding the operational and financial aspects of
Claremont.
On April 3, 1998 and April 6, 1998, CBSI management contacted certain
clients of Claremont to determine that those clients were satisfied with the
services provided to them by Claremont.
The Claremont Board met in special session on April 6, 1998, and reviewed
in-depth presentations by DLJ concerning the nature of the sale process, the
number of companies contacted, the nature of the review afforded each company,
the access all companies had been afforded to due diligence information
concerning Claremont, and Claremont's and DLJ's review of various financial,
stock price, operational and ownership issues surrounding CBSI and the other
interested parties. Based on market values of the underlying securities and the
effects of any proposed mechanisms for adjusting exchange ratios based on market
price, CBSI's proposal along with one other indication of interest, were the two
most favorable. Claremont's internal management review of the potential for
strategic combination and business fit also had ranked CBSI at the top of the
preferred list.
On April 8, 1998, the Claremont Board met once again to consider the
proposed Merger. The Board reviewed the matters set forth under "RECOMMENDATION
OF THE BOARD OF DIRECTORS OF CLAREMONT; REASONS FOR THE MERGER," and the terms
of the Merger Agreement. DLJ rendered its oral opinion, confirmed by a
subsequent written opinion dated April 8, 1998 that, as of such date, and based
on, and subject to, the assumptions, limitations and qualifications set forth in
such opinion, the Conversion Number was fair to the holders of Claremont Common
Stock from a financial point of view. After discussion and consideration, the
Claremont Board voted unanimously to approve the Merger, the Merger Agreement
and related documents for the transaction.
In the afternoon of April 8, 1998, the CBSI Board held a special meeting by
teleconference to consider the proposed Merger. Members of CBSI's senior
management and financial advisors made presentations and reviewed the matters
set forth under "RECOMMENDATION OF THE BOARD OF DIRECTORS OF CBSI; REASONS FOR
THE MERGER." The terms of the Merger Agreement were reviewed with the directors.
UBS rendered its oral opinion, confirmed by a subsequent written opinion dated
April 8, 1998, that, as of such date, the consideration to be paid by CBSI was
fair from a financial point of view to CBSI. After discussion and consideration,
the CBSI Board voted unanimously to approve the Merger, the Merger Agreement and
related documents for the transaction.
Late on April 8, 1998, the parties executed the Merger Agreement. On April
9, 1998, the parties issued a joint press release announcing the execution of
the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CBSI; REASONS FOR THE MERGER
During the April 8, 1998 meeting, the CBSI Board voted to recommend the
Merger to CBSI's shareholders. The determination of the CBSI Board was based
upon consideration of a number of factors. The following list includes the
material factors the CBSI Board considered in its evaluation of the Merger:
1. Its conclusion that the complementary attributes of each business,
in terms of both their respective services and geographic base, would
enable the combined business to attract new clients.
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2. Its conclusion that the Merger would provide both companies'
customers with a wider range of services, capitalizing on the industry
trend of "one-stop shopping" from a small list of preferred vendors.
3. Its conclusion that Claremont would reduce CBSI's dependence on
Year 2000 engagements.
4. Its conclusion that Claremont would provide CBSI with a base of
clients that would benefit from CBSI's offshore development capabilities.
5. Its conclusion that CBSI's offshore development capabilities
potentially provide a more cost effective way for Claremont to provide IT
solutions.
6. Its conclusion that the high-end consulting services offered by
Claremont could be marketed to CBSI's existing clients.
7. Its conclusion that Claremont will add approximately 700 IT
professionals to CBSI's service business and continue to reduce its
dependence on H-1B visas.
8. Its conclusion that Claremont strengthens CBSI's mid-level
management team.
9. Its conclusion that the combined business of CBSI and Claremont
would have significantly greater financial resources and improved liquidity
for its shareholders.
10. Its receipt of the opinion of UBS that, as of April 8, 1998, the
consideration proposed to be paid by CBSI pursuant to the Merger was fair
to CBSI from a financial point of view.
11. Its knowledge of the business, operations, properties, assets,
financial condition and operating results of CBSI and Claremont.
12. The current industry, economic and market conditions.
13. The presentations by CBSI's management with respect to the
acquisition of Claremont, including the expectation that the combination
would be accretive to CBSI's earnings in 1998.
14. The terms of the Merger Agreement.
15. The expected accounting treatment of the transaction as a pooling
of interests and the intended tax-free nature of the transaction.
The foregoing discussion of the information and factors considered by the
CBSI Board is not intended to be exhaustive but is believed to include all
material factors considered by the CBSI Board. In view of the wide variety of
information and factors, both positive and negative, considered by the CBSI
Board, the CBSI Board did not find it practical to, and did not, quantify or
otherwise assign any relative or specific weights to the foregoing factors.
Further, the individual directors may have given differing weights to different
factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CLAREMONT; REASONS FOR THE MERGER
The Claremont Board, at its April 8, 1998 meeting, voted to recommend the
Merger to Claremont's shareholders. In addition to the reasons for the Merger
stated by the CBSI Board above, the Claremont Board believes the following
reasons support the Merger.
1. The IT industry has been undergoing a period of consolidation. Claremont
believes that larger companies with significant ability to put large teams of
skilled professionals to work on short notice will have significant competitive
advantage in this market. By merging with CBSI, and coupling CBSI's ability to
assemble delivery teams which include large numbers of skilled programmers with
Claremont's ability to sell strategically and to manage large projects
effectively, Claremont expects to enhance its ability to bid on, win, and
effectively perform large, complex projects on a basis that is cost-effective
for the client and profitable for the merged combined company.
2. The Merger will enable Claremont shareholders, and holders of options to
purchase shares of Claremont Common Stock, to convert all of their shares and
options into CBSI Common Stock on a tax-free basis. At exchange ratios in effect
under the Merger Agreement and on the expectation that CBSI's stock
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prices remain stable, Claremont's shareholders will receive a premium over the
general average of prices at which Claremont Common Stock was trading before the
announcement of the Merger. Also, Claremont shareholders will hold shares in a
company with greater "float" than Claremont alone had, which, Claremont
believes, will assist to create a more liquid market for its shareholders.
Other Factors. In reaching its unanimous decision to enter into and approve
the Merger Agreement, the Claremont Board reviewed and considered a number of
relevant factors in addition to those listed above. These factors included, but
were not limited to, (a) information concerning CBSI and Claremont's respective
businesses, historical financial performance, operations, products and
technologies; (b) current financial market conditions and historical market
prices, volatility and trading information with respect to both Claremont and
CBSI Common Stock; (c) the consideration to be received by Claremont
shareholders and option holders in the Merger and its relation to Claremont's
expected contribution to the earnings of the combined company; (d) the terms and
conditions of the Merger, including the parties' representations, warranties and
obligations thereunder and the fact that the Merger will enable the shareholders
and option holders to exchange their shares and options on a tax-free basis; (e)
the effects of the Merger on Claremont's customers and business; (f) the
prospects of Claremont as an independent company; and (g) the reports of
management and financial advisors regarding their investigations of CBSI.
OPINION OF CBSI'S FINANCIAL ADVISOR
On April 8, 1998, at the request of the CBSI Board, UBS rendered its oral
opinion to the CBSI Board (subsequently confirmed by delivery of a written
opinion dated April 8, 1998) to the effect that, as of the date of such opinion,
and subject to the various assumptions and limitations set forth in such
opinion, the Exchange Ratio was fair, from a financial point of view, to CBSI.
The full text of the opinion of UBS, dated April 8, 1998, which sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the review undertaken by UBS, is attached as Annex
B hereto and is incorporated herein by reference. Holders of CBSI Common Stock
are urged to read this opinion in its entirety. The opinion of UBS is directed
only to the Exchange Ratio and does not constitute a recommendation to any
holder of CBSI Common Stock as to how such holder should vote with respect to
the Merger. Furthermore, UBS expresses no view as to the price or trading range
for shares of CBSI Common Stock following the consummation of the Merger. The
summary set forth herein of the opinion of UBS is qualified in its entirety by
reference to the full text of the opinion attached hereto as Annex B.
In connection with its opinion, UBS reviewed and considered such financial
and other matters as it deemed relevant, including, among other things: (i) the
Merger Agreement; (ii) certain publicly available information for CBSI and
Claremont, including each of the annual reports of CBSI and Claremont filed on
Form 10-K for each of the fiscal years ended December 31, 1996 and 1997 for CBSI
and June 30, 1996 and 1997 for Claremont, and each of the quarterly reports of
CBSI and Claremont filed on Form 10-Q for each of the quarters ended March 31,
June 30, September 30 and December 31, 1997; (iii) certain internal financial
analyses, financial forecasts, reports and other information concerning CBSI and
Claremont furnished to UBS by the respective managements of CBSI and Claremont;
(iv) discussions UBS had with certain members of the managements of each of CBSI
and Claremont concerning the historical and current business operations,
financial conditions and prospects of CBSI and Claremont and such other matters
UBS deemed relevant; (v) the reported price and trading histories of the shares
of CBSI Common Stock and Claremont Common Stock as compared to the reported
price and trading histories of certain publicly traded companies UBS deemed
relevant; (vi) the respective financial conditions of CBSI and Claremont as
compared to the financial conditions of certain other companies UBS deemed
relevant; (vii) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations UBS deemed relevant; and
(viii) such other information, financial studies, analyses and investigations
and such other factors that UBS deemed relevant for the purposes of this
opinion.
In conducting its review and arriving at its opinion, UBS with CBSI's
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information
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that was provided to UBS by CBSI and Claremont, respectively, or publicly
available, and UBS did not undertake any responsibility for the accuracy,
completeness or reasonableness of, or independently to verify, such information.
UBS, with CBSI's consent, assumed that the financial forecasts which it examined
were reasonably prepared by the management of CBSI on bases reflecting the best
currently available estimates and good faith judgments of CBSI's management as
to the future performance of CBSI and Claremont. UBS was informed by CBSI, and
has assumed, that the Merger will be recorded as a pooling of interests under
generally accepted accounting principles and will qualify as a reorganization
within the meaning of Section 368(a) of the Code. UBS did not make or obtain any
independent evaluations, valuations or appraisals of the assets or liabilities
of CBSI and Claremont, nor was it furnished with any such materials. UBS's
services to CBSI with respect to the Merger were comprised solely of providing
financial advisory services, as described in the UBS Engagement Letter (as
defined below). The opinion of UBS is necessarily based upon economic and market
conditions and other circumstances existing on the date thereof. Additionally,
UBS was not authorized or requested to investigate other alternative
transactions that may have been available to CBSI.
In connection with rendering its opinion to the CBSI Board, UBS performed a
variety of financial analyses which are summarized below. The following summary
does not purport to be a complete description of all the analyses performed and
factors considered by UBS in connection with its opinion. UBS believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without consideration of all factors
and analyses, could create a misleading view of the analyses and the processes
underlying UBS's opinion. UBS arrived at its ultimate opinion based on the
results of all the analyses undertaken by it and assessed as a whole, and it did
not draw conclusions from or with regard to any one method of analysis. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the analysis of selected publicly traded companies
and the analysis of selected acquisitions summarized below, no company utilized
as a comparison is either identical or directly comparable to CBSI or Claremont
and such analyses necessarily involve complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the public trading or acquisition
values of the companies concerned. The estimates of future performance of CBSI
and Claremont provided by the management of CBSI in or underlying UBS analyses
are not necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates. In performing its
analyses, UBS made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of CBSI or Claremont. Estimates of values of companies or
assets do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities actually may be sold. None of the analyses
performed by UBS was assigned a greater significance by UBS than any other.
UBS discussed with the management of CBSI and Claremont internal earnings
estimates for CBSI and Claremont, respectively, and certain other prospective
information. CBSI and Claremont do not publicly disclose internal management
estimates of the type provided to UBS in connection with its review of the
financial terms of the Merger. Such estimates were preliminary in nature,
prepared solely for internal purposes, are subjective in many respects, and are,
therefore, susceptible to interpretations and periodic revisions based on actual
experience and business developments. Such estimates were based on numerous
variables and assumptions that are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those reflected in
such estimates.
The following is a brief summary of the analyses performed by UBS and
reviewed with the CBSI Board in connection with its opinion.
Comparative Stock Price Performance -- UBS reviewed the recent stock market
performance of CBSI Common Stock and Claremont Common Stock and compared such
performance to that of the Nasdaq Composite Index and a group of selected
publicly traded companies (collectively, the "Information Technology Services
Companies") deemed relevant by UBS for the purposes of its analysis: Computer
Horizons Corporation, Information Management Resources, Inc., Keane, Inc.,
Mastech Corporation, Syntel, Inc. and Whittman-Hart, Inc. UBS observed that over
the period from March 5, 1997 (CBSI's Initial Public
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Offering date), to April 6, 1998, CBSI Common Stock outperformed Claremont
Common Stock, an equally-weighted index of the common stocks of the Information
Technology Services Companies and the Nasdaq Composite Index by 572%, 284% and
512%, respectively. UBS also observed that over the period from March 5, 1997,
to April 6, 1998, Claremont Common Stock underperformed an equally-weighted
index of the common stocks of the Information Technology Services Companies and
the Nasdaq Composite Index by 288% and 60%, respectively.
Analysis of Selected Publicly Traded Companies -- UBS compared certain
financial information and operating statistics of CBSI and Claremont with
corresponding financial information and operating statistics of the Information
Technology Services Companies. Such financial information and operating
statistics included, among other things, certain historical profitability
margins, certain historical and projected growth rates, market values of equity,
total enterprise values and implied multiples of historical and estimated
revenues and earnings per share. Among other things, this analysis indicated
that the implied multiples for the Information Technology Services Companies
were as follows: (a) total enterprise value as a multiple of last twelve months
revenues ranged from 3.4x to 14.9x, with a median of 6.2x and an average of
7.6x; (b) total enterprise value as a multiple of estimated calendar 1998
revenues ranged from 2.5x to 9.2x, with a median of 4.3x and an average of 5.2x;
(c) total enterprise value as a multiple of estimated calendar 1999 revenues
ranged from 1.9x to 6.6x, with a median of 3.2x and an average of 4.0x; (d)
market price as a multiple of last twelve months earnings per share ("EPS")
ranged from 49.1x to 120.4x, with a median of 81.8x and an average of 85.9x; (e)
market price as a multiple of estimated calendar 1998 EPS ranged from 34.8x to
77.3x, with a median of 58.4x and an average of 57.8x; and (f) market price as a
multiple of estimated calendar 1999 EPS ranged from 26.2x to 62.0x, with a
median of 43.1x and an average of 43.3x. UBS observed that the implied financial
multiples for Claremont (based on the Exchange Ratio and a closing price for
CBSI Common Stock of $37.75 on April 7, 1998) were as follows: (a) total
enterprise value as a multiple of last twelve months revenues of 3.4x; (b) total
enterprise value as a multiple of estimated calendar 1998 revenues of 3.0x; (c)
total enterprise value as a multiple of estimated calendar 1999 revenues of
2.4x; (d) market price as a multiple of last twelve months EPS of 77.1x; (e)
market price as a multiple of estimated calendar 1998 EPS of 53.9x; and (f)
market price as a multiple of estimated calendar 1999 EPS of 38.9x. All
estimated data for the Information Technology Services Companies were based on
publicly available, independent estimates of selected investment banking firms,
all estimated data for CBSI were based on the estimates of the management of
CBSI, and all estimated data for Claremont were based on internal, models of
CBSI based on estimates furnished by the management of Claremont. All implied
financial multiples were based on closing market prices on April 6, 1998.
Analysis of Selected Acquisitions -- UBS reviewed 30 selected merger and
acquisition transactions involving Information Technology Services Companies,
all of which were announced since May 1996 (the "Selected Acquisitions"). UBS
analyzed the equity purchase price, total enterprise value, certain implied
financial multiples and the premium over the prevailing market price based on
certain public information for each of the Selected Acquisitions. This analysis
indicated that the implied financial multiples of the Selected Acquisitions were
as follows: (i) total enterprise value as a multiple of last twelve months
revenues ranged from 0.2x to 6.7x, with a median of 1.2x and an average of 1.7x;
(ii) total enterprise value as a multiple of last twelve months operating income
ranged from 12.8x to 52.2x, with a median of 18.4x and an average of 25.9x;
(iii) equity purchase price as a multiple of last twelve months net income
ranged from 6.1x to 130.3x, with a median of 22.5x and an average of 42.1x; and
(iv) enterprise value per employee ranged from $67.0 thousand to $1,312.0
thousand with a median of $162.0 thousand and an average of $293.0 thousand.
Additionally, this analysis indicated that the premium represented by the
purchase price to the market price, of the subject company one day prior to the
announcement of the subject transaction ranged from 1.1% to 31.1%. UBS observed
that the financial multiples of Claremont implied by the Exchange Ratio, based
on a closing price for CBSI Common Stock of $37.75 on April 7, 1998, were: (i)
total enterprise value as a multiple of last twelve months revenues of 3.4x;
(ii) total enterprise value as a multiple of last twelve months operating income
of 48.2x; (iii) equity purchase price as a multiple of last twelve months net
income of 77.1x; and (iv) enterprise value per employee of $334.0 thousand.
Additionally, UBS observed that the premium to the market price of Claremont
Common Stock on April 7, 1998, implied by the Exchange Ratio, based on closing
price for CBSI Common Stock of $37.75 on April 7, 1998, was 33.3%.
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In addition, UBS reviewed 2 selected merger and acquisition transactions
from the Selected Acquisitions involving the most comparable Information
Technology Services Companies (the "Direct Comparable Selected Acquisitions").
UBS analyzed the equity purchase price, total enterprise value and certain
implied financial multiples based on certain public information for each of the
Selected Acquisitions. This analysis indicated that the implied financial
multiples of the Direct Comparable Selected Acquisitions were as follows: (i)
total enterprise value as a multiple of last twelve months revenues ranged from
3.0x to 6.7x; (ii) total enterprise value as a multiple of last twelve months
operating income ranged from 40.1x to 52.2x; (iii) equity purchase price as a
multiple of last twelve months net income ranged from 111.8x to 130.3x; and (iv)
enterprise value per employee ranged from $362 thousand to $1,312 thousand.
Contribution Analysis -- UBS analyzed the pro forma contribution of
Claremont to the resultant combined company if the Merger were to be
consummated. Such analysis was based on historical information and the estimates
of the management of CBSI. Such analysis indicated that, on average, for the
calendar year 1997, and the calendar years 1998 and 1999, Claremont would
contribute approximately 28.1% of the revenues of the combined company,
approximately 39.0% of the gross profit of the combined company, approximately
29.1% of the operating income of the combined company and approximately 25.2% of
the net income of the combined company. UBS observed that the Exchange Ratio
implied pro forma ownership of the outstanding common stock of the combined
company of 21.6% for holders of Claremont Common Stock and pro forma ownership
of the outstanding common stock of the combined company, adjusted to include
options and warrants outstanding for each of CBSI and Claremont, of 20.5% for
holders of Claremont Common Stock.
Pro Forma Merger Analysis -- UBS analyzed certain pro forma financial
effects resulting from the Merger, including the impact of the Merger on CBSI's
projected earnings per share for the calendar years 1998 and 1999. Based on the
estimates of the management of CBSI and the Exchange Ratio, and assuming that
the Merger was treated as a pooling of interests for accounting purposes, the
results of the pro forma merger analysis suggested that, in the absence of any
potential operating synergies that may result from the Merger, the Merger will
be accretive to CBSI's earnings per share in each of the calendar years 1998 and
1999. The actual results achieved by the combination company could vary from
projected results and the variations could be material.
CBSI and UBS have entered into a letter agreement, dated April 7, 1998 (the
"UBS Engagement Letter"), relating to the services to be provided by UBS to CBSI
in connection with the Merger. Pursuant to the UBS Engagement Letter, CBSI has
agreed to pay UBS for its services a fee of $500,000 in connection with the
delivery of the opinion of UBS, 50% payable upon delivery by UBS of its opinion
and 50% payable upon consummation of the Merger. In addition, CBSI has agreed to
reimburse UBS for its expenses, including the reasonable fees and disbursements
of its counsel. Pursuant to an additional letter agreement dated April 7, 1998,
CBSI also has agreed to indemnify UBS against certain liabilities, including
liabilities under the federal securities laws arising in connection with its
engagement by CBSI.
UBS is an internationally recognized investment banking and financial
advisory firm. UBS, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. UBS performed investment banking services for CBSI's
secondary public offering in August 1997. In the ordinary course of its
business, UBS and its affiliates actively trade the shares of CBSI Common Stock
and Claremont Common Stock for their own accounts and for the accounts of their
customers, and, accordingly, may at any time hold a long or short position in
such securities.
OPINION OF CLAREMONT'S FINANCIAL ADVISOR
DLJ was retained by Claremont to, among other things, render an opinion as
to the fairness, from a financial point of view, to Claremont's shareholders of
the Conversion Number. On April 8, 1998, DLJ delivered a written opinion to the
Claremont Board to the effect that, as of such date and based upon and subject
to the assumptions, objectives and qualifications stated in its opinion, the
Conversion Number was fair
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to Claremont's shareholders from a financial point of view. DLJ subsequently
updated such opinion by delivering a written opinion dated June 8, 1998 to the
same effect.
A copy of DLJ's opinion dated June 8, 1998 is attached hereto as Annex C.
Claremont shareholders are urged to read DLJ's opinion in its entirety for
assumptions made, procedures followed, other matters considered and limits of
the review by DLJ.
DLJ's opinion was prepared for the Claremont Board and is directed only to
the fairness of the Conversion Number to the shareholders of Claremont from a
financial point of view and does not constitute a recommendation to any
Claremont shareholder as to how such shareholder should vote at the Claremont
Special Meeting. DLJ was not retained as an advisor or agent to Claremont
shareholders or any other person, other than as an advisor to the Claremont
Board. DLJ's opinion does not constitute an opinion as to the price at which
CBSI Common Stock will actually trade at any time. The Conversion Number was
determined in arm's-length negotiations between Claremont and CBSI, in which
negotiations DLJ advised Claremont. No restrictions or limitations were imposed
by Claremont upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering its opinion.
DLJ relied upon, and assumed the accuracy and completeness of, all of the
financial and other information that was available to DLJ from public sources,
or that was provided to DLJ by Claremont, CBSI, or their respective
representatives, or that was otherwise reviewed by DLJ. DLJ assumed also that
the financial projections supplied to it were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of Claremont and CBSI. DLJ did not make an independent evaluation of
any assets or liabilities or any independent verification of any of the
information it reviewed. DLJ also assumed that the Merger shall be accounted for
as a pooling of interests, and that the conversion of shares pursuant to the
Merger will take place as a tax-free exchange.
DLJ's opinion was necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available as
of, the date of the opinion. DLJ undertook no obligation to update the opinion.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwriting; sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
DLJ has performed investment banking and other services for Claremont, including
co-managing Claremont's initial public offering in July 1996 and advising the
Claremont Board with its implementation of a shareholder rights plan in February
1998. In addition, DLJ acted as a lead manager of CBSI's initial public offering
in March 1997, and lead managed CBSI's follow-on offering in August 1997.
Claremont paid DLJ $500,000 for its services in providing the fairness
opinions, which payment is not contingent upon the closing of the Merger.
Claremont also will provide DLJ with reimbursement for DLJ's out-of-pocket
expenses, including reasonable fees and disbursements of counsel, and, if the
Merger closes, DLJ will receive an additional fee of 1.25% of the transaction
value, as calculated under the fee agreement between Claremont and DLJ, less the
amounts paid for the fairness opinions. Claremont has also agreed to indemnify
DLJ and its affiliates, and the directors, officers, agents, and employees of
DLJ and its affiliates, against certain liabilities, including certain
liabilities under the federal securities laws, relating to or arising out of its
engagement.
The following is a summary of the material analyses performed by DLJ to
arrive at its opinion dated April 8, 1998, which was presented to the Claremont
Board at the April 8, 1998 board meeting. The summary also includes an update of
certain analyses which DLJ used to arrive at its opinion dated June 8, 1998
which was delivered to the Claremont Board at the June 8, 1998 board meeting.
Analysis of Comparable Publicly Traded Companies -- DLJ compared and
projected selected historical and projected earnings and historical operating
and financial ratios for both Claremont and CBSI to corresponding data and
ratios of certain Information Technology Services ("IT Services") companies
whose securities are publicly traded. In conducting its analysis, DLJ compared
the ratios implied by the Conversion Number based on closing market prices on
April 7, 1998 and June 3, 1998 to the ratios implied from the
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market valuation of publicly traded companies selected by DLJ for Claremont and
CBSI based upon qualitative factors which DLJ deemed relevant based upon its
expertise in the IT Services industry. The IT Services companies selected for
Claremont included: Cambridge Technology Partners, Inc.; Keane, Inc.; The
Metzler Group, Inc.; Sapient Corporation; and Technology Solutions Company. The
IT Services companies selected for CBSI included: Cambridge Technology Partners,
Inc.; Information Management Resources, Inc.; Keane, Inc.; Mastech Corporation;
and Syntel Inc. Data and ratios considered included: the ratio of enterprise
value to last 12 months ("LTM") revenues, EBITDA and EBIT; and the ratio of
market price to fiscal 1997, 1998 and 1999 projected earnings per share ("EPS").
DLJ's analysis of the Conversion Number using the comparable public company
analysis was based upon determining a range of per share values for both
Claremont and CBSI and then dividing the results to arrive at a range of implied
Conversion Numbers. In this case, DLJ relied on the average earnings estimates
for 1998 and 1999 using IBES for the IT Services companies, DLJ research
estimates for CBSI (which CBSI management informed DLJ were reasonable estimates
for CBSI) and both IBES and conservative-case internal management estimates for
Claremont. This analysis indicated a range of implied Conversion Numbers of (i)
0.491-0.583 based on closing market prices on April 7, 1998 and (ii) 0.522-0.688
based on closing market prices on June 3, 1998.
DLJ obtained all projected information for the IT Services companies from
IBES which summarizes the estimates made by analysts employed by several
investment banking firms and from the published reports of research analysts
employed by investment banking firms, including analysts employed by DLJ. No
company utilized in this analysis is identical to Claremont or CBSI.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of IT Services companies, compared to Claremont or
CBSI, as well as other factors that could affect the public trading value of the
IT Services companies.
Comparable Merger and Acquisition Analysis -- DLJ reviewed the implied
valuation multiples of 20 selected merger and acquisition transactions in the IT
Services industry (the "IT Services Transactions"). DLJ compared the value
implied by the Conversion Number based on closing market prices on April 7, 1998
and June 3, 1998 to certain ratios implied by the mean of certain ratios
relating to the IT Services Transactions. The ratios were the ratio of
enterprise value implied by the purchase price as a multiple of the LTM revenues
at the time of announcement or closing the ratio of enterprise value to LTM
EBITDA at the time of announcement or closing and the ratio of enterprise value
to LTM EBIT at the time of announcement or closing. In addition, DLJ also
analyzed the ratio of equity value to LTM net income at the time of announcement
or closing and the ratio of equity value to LTM book value at the time of
announcement or closing. DLJ's analysis of the proposed Conversion Number using
the acquisition comparable analysis was based on determining a range of per
share values for Claremont using selected acquisition comparables and dividing
such results by the implied public comparables price per share for CBSI and
obtaining a range of implied Conversion Numbers. This analysis indicated a range
of implied Conversion Numbers of (i) 0.465-0.639 based on closing market prices
on April 7, 1998 and (ii) 0.576-0.805 based on closing market prices on June 3,
1998. No transaction utilized in this analysis is identical to the Merger.
Accordingly an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of Claremont and the companies involved in the IT
Services Transactions and other factors that could affect the acquisition value
of the companies to which it is being compared. Mathematical analysis such as
determining the mean is not in itself a meaningful method of using comparable
transactions data.
Also, DLJ calculated the premium implied by the Conversion Number based on
closing market prices on April 7, 1998 and June 3, 1998 to the closing price of
Claremont Common Stock one day, one week and one month prior to the closing
price on April 8, 1998, the last trading day prior to the signing of the Merger
Agreement. The implied premium per share (based on closing market prices on
April 8, 1998) represents a premium of 33.3%, 86.2% and 105.7% to the closing
price one day, one week and one month prior to the closing price on April 8,
1998, respectively. The implied premium per share (based on closing market
prices on June 3, 1998) represents a premium of 8.3%, 51.2% and 67.1% to the
closing price one day, one week and one month prior to the closing price on
April 8, 1998, respectively. DLJ also reviewed the premiums paid in
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the IT Services Transactions. The average premium paid to the closing price of
the targets one day, one week, and one month prior to the announcement of such
transactions was 29.2%, 36.6% and 52.1%, respectively.
Hypothetical Future Stock Price Analysis -- DLJ's analysis of the
Conversion Number based on closing market prices on April 7, 1998 and June 3,
1998 using the hypothetical future stock price analysis was based upon applying
future earnings multiples to projected EPS estimates for both Claremont and
CBSI. Regarding Claremont, DLJ used the mean earnings estimates for 1998 and
1999 using both IBES and conservative-case internal management estimates. For
CBSI, DLJ used the DLJ research estimates described above. These end-of-year
indicated hypothetical future share price values were then discounted to present
value by applying a range of discount rates and calculating the implied
Conversion Numbers. This analysis indicated a range of implied Conversion
Numbers of (i) 0.533-0.640 based on closing market prices on April 7, 1998 and
(ii) 0.615-0.701 based on closing market prices on June 3, 1998.
Relative Contribution Analysis -- DLJ's analysis of the Conversion Number
based on closing market prices on April 7, 1998 and June 3, 1998 using relative
contribution analysis was based upon determining the average implied Conversion
Number based upon Claremont's respective EPS for 1997, 1998 and 1999. In this
case, DLJ relied on the average earnings estimates for 1998 and 1999 using IBES
and conservative-case internal management estimates for Claremont and the DLJ
research estimates described above for CBSI. This analysis indicated a range of
implied Conversion Numbers of (i) 0.635-1.541 based on closing market prices on
April 7, 1998 and (ii) 0.580-1.129 based on closing market prices on June 3,
1998.
Stock Trading Price History -- DLJ reviewed the history of the trading
prices for Claremont Common Stock since its initial public offering during which
time the stock has traded between $10.38 and $36.75 per share. Over the 52 weeks
prior to the announcement of the Merger, the Claremont Common Stock traded
between $10.38 and $24.75 per share and had a high price of $24.75 on October
22, 1997, 116 business days prior to the announcement of the Merger. Over the 90
days prior to the announcement of the Merger, the Claremont Common Stock traded
between $13.38 and $24.25 per share.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ, but describes, in summary form, the material
elements of the presentations made by DLJ to the Claremont Board in connection
with rendering its written opinions. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Each of the analyses conducted by DLJ was carried out in
order to provide a different perspective on the transaction and add to the total
mix of information available. DLJ did not attribute any particular weight to any
analysis or factor considered by it, but rather considered the results of the
analysis in light of each other and concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analysis must be considered as a
whole and that selecting portions of its analysis and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinions. The analyses performed
by DLJ are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Claremont Board with respect to
the Merger Agreement and the transactions contemplated thereby, Claremont
shareholders should be aware that certain members of the Claremont Board have
interests in the Merger in addition to those of Claremont shareholders
generally.
Claremont, and from and after the Effective Time, CBSI and the Surviving
Corporation (as defined in the Merger Agreement) shall, indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the
Effective Time, an officer, director or employee of Claremont or any of its
subsidiaries against all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer, or employee of
Claremont or any of its subsidiaries and arising out of or pertaining to
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the transactions contemplated by the Merger Agreement. Such indemnification is
given in each case to the full extent a corporation is permitted to do so under
the Oregon Business Corporation Act and the Surviving Corporation's Articles of
Incorporation and Bylaws.
The Merger Agreement also provides that CBSI will cause itself or the
Surviving Corporation to use its best efforts to maintain in effect for a period
of six years after the Effective Time, if available, directors' and officers'
liability insurance covering those persons who are currently covered by
Claremont's directors' and officers' liability insurance policy.
Jerry Stone, Claremont's Chairman and a director has provided CBSI with an
irrevocable proxy to vote his shares in favor of the Merger Agreement.
CONFLICTS OF INTEREST
Claremont Board of Directors and Management. As of the Claremont Record
Date, non-employee directors of the Claremont Board beneficially owned an
aggregate of 948,730 shares of Claremont Common Stock and held options to
acquire an aggregate of 108,125 shares of Claremont Common Stock, exercisable at
prices ranging from $1.73 to $23.00 per share. See "STOCK OWNED BY CLAREMONT
MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming a Closing Value of $26.60, the
aggregate dollar value of CBSI Common Stock to be received by these non-employee
directors in respect of issued and outstanding shares of Claremont Common Stock
would be approximately $21,095,290, representing approximately ten percent (10%)
of the aggregate consideration to be received by all holders of Claremont Common
Stock. Pursuant to the Merger Agreement, all outstanding options to purchase
shares of Claremont Common Stock, including those held by the non-employee
directors of Claremont, will be assumed by CBSI and automatically converted into
options to purchase shares of CBSI Common Stock. Assuming a Closing Value of
$26.60, the aggregate dollar value of options to purchase shares of CBSI Common
Stock to be received by these non-employee directors in respect of outstanding
options to purchase Claremont Common Stock would be approximately $2,404,191,
representing approximately seven percent (7%) of the aggregate consideration to
be received by all holders of options to purchase shares of Claremont Common
Stock.
As of the Claremont Record Date, the executive officers of Claremont
beneficially owned an aggregate of 552,486 shares of Claremont Common Stock and
held options to purchase an aggregate of 226,472 shares of Claremont Common
Stock, exercisable at prices ranging from $0.51 to $23.00 per share. See "STOCK
OWNED BY CLAREMONT MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming a Closing
Value of $26.60, the aggregate dollar value of CBSI Common Stock to be received
by these executive officers in respect of issued and outstanding shares of
Claremont Common Stock would be approximately $12,284,688, representing
approximately six percent (6%) of the aggregate consideration to be received by
all holders of Claremont Common Stock. Pursuant to the Merger Agreement, all
outstanding options to purchase shares of Claremont Common Stock, including
those held by the executive officers of Claremont, will be assumed by CBSI and
automatically converted into options to purchase shares of CBSI Common Stock.
Assuming a Closing Value of $26.60, the aggregate dollar value of options to
purchase CBSI Common Stock to be received by these executive officers in respect
of outstanding options to purchase shares of Claremont Common Stock would be
approximately $5,035,671, representing approximately fourteen percent (14%) of
the aggregate consideration to be received by all holders of options to purchase
shares of Claremont Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal United States Federal
income tax consequences associated with the Merger under the Internal Revenue
Code of 1986, as amended (the "Code"). The following discussion does not
describe all of the potentially relevant tax considerations; accordingly, each
holder of Claremont Common Stock should consult his or her own tax advisor
regarding the tax consequences of the Merger in light of such holder's own
situation, including the application and effect of any state, local or foreign
income and other tax laws. Information contained herein directed to holders of
Claremont Common
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Stock is only applicable to those holders who hold their shares of Claremont
Common Stock as "capital assets" within the meaning of Section 1221 of the Code.
Special tax consequences not described below may be applicable to
particular classes of taxpayers, including financial institutions,
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships or foreign estates or
trusts as to the United States, holders who acquired their Claremont Common
Stock through the exercise of an employee stock option or otherwise as
compensation, and persons who receive payments in respect of options to purchase
Claremont Common Stock.
No rulings have been or will be requested from the Internal Revenue Service
with respect to any of the matters discussed herein. The discussion is based
upon the Federal income tax laws in effect on the date hereof; there can be no
assurance that future legislation, regulations, administrative rulings or court
decisions will not adversely affect the accuracy of any of the statements
contained herein.
Qualification of the Merger as a Reorganization under the Code.
Butzel Long, counsel for CBSI, will render an opinion to CBSI that the
Merger will qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of Code. The opinion of Butzel Long will address
the material United States Federal income tax consequences of the treatment of
the Merger to CBSI and Merger Sub as more fully described herein under the
heading "Consequences to CBSI and Merger Sub."
Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel for Claremont will render
an opinion to Claremont that the Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code. The opinion of Ater Wynne Hewitt
Dodson & Skerritt, LLP, will address the material Federal income tax
consequences of the treatment of the Merger to Claremont and to holders of
Claremont Common Stock as more fully described under the heading "Consequences
to Claremont and Holders of Claremont Common Stock."
The opinions of Butzel Long and Ater Wynne Hewitt Dodson & Skerritt, LLP
are based on certain assumptions, including that the Merger will be consummated
in accordance with the terms of the Merger Agreement, and on certain
representations of CBSI, Merger Sub, Claremont and others. There can be no
assurance that the Merger will be consummated in accordance with the terms of
the Merger Agreement or that the foregoing assumptions will be fulfilled, and
there can be no assurance that the Merger will in fact qualify as an exchange
pursuant to a plan of reorganization under the Code.
(a) Consequences to CBSI and Merger Sub. Based on the opinion of
Butzel Long, the Merger will constitute a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code, and as a consequence no gain or
loss will be recognized by CBSI or Merger Sub as a result of the Merger.
(b) Consequences to Claremont and Holders of Claremont Common
Stock. Based on the opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP,
the Merger will constitute a reorganization under Section 368(a) of the
Code, and the following United States Federal income tax consequences will
apply:
(i) Consequences to Claremont. No gain or loss will be recognized
by Claremont as a result of the Merger.
(ii) Exchange of Claremont Common Stock for CBSI Common Stock. A
holder of Claremont Common Stock who receives CBSI Common Stock in
exchange for Claremont Common Stock in the Merger will not recognize
gain or loss. The aggregate tax basis of the CBSI Common Stock received
will be equal to the aggregate tax basis of the Claremont Common Stock
exchanged for CBSI Common Stock, and the holding period of the CBSI
Common Stock received will include the holding period of the Claremont
Common Stock exchanged. However, no opinion is given as to whether or
not gain or loss will be recognized by any holders of Claremont Common
Stock that directly or indirectly acquire any of the stock or assets of
Optex, Inc. from Claremont, CBSI, Optex, Inc., or a related entity in
connection with the Merger, and such holders of Claremont Common Stock
should consult their own tax advisors regarding the tax consequences of
the Merger.
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(iii) Cash Received in Lieu of Fractional CBSI Shares. No
fractional shares of CBSI Common Stock will be issued in the Merger. A
holder of Claremont Common Stock who receives cash in lieu of a
fractional share of CBSI Common Stock will be treated as having received
such fractional share of CBSI Common Stock and then having sold it to
CBSI. The holder generally will recognize capital gain or loss equal to
the difference between the basis he would have had for the fractional
share of CBSI Common Stock and the cash received.
(iv) Backup Withholding and Information Reporting. Certain
noncorporate holders of Claremont Common Stock may be subject to backup
withholding at a rate of 31% on cash payments received in lieu of
fractional shares of CBSI Common Stock. Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer
identification number ("TIN") and certifies that he or she is not
subject to backup withholding on the substitute Form W-9 included in the
transmittal letter, who provides a certificate of foreign status on Form
W-8, or who is otherwise exempt from backup withholding. A shareholder
who fails to provide the correct TIN on Form W-9 may be subject to a $50
penalty imposed by the Internal Revenue Service.
2. Tax Consequences if the Merger Does Not Qualify as a Reorganization
under the Code. If the Merger is determined not to qualify as a reorganization
for Federal income tax purposes, the exchange of Claremont Common Stock for CBSI
Common Stock pursuant to the Merger will be a taxable transaction for Federal
income tax purposes. In that event, each holder of Claremont Common Stock will
recognize gain or loss for Federal income tax purposes equal to the difference
between such holder's adjusted basis in the Claremont Common Stock exchanged and
the sum of the amount of cash (if any) plus the fair market value of CBSI Common
Stock received by such holder in the Merger. Such gain will be long-term gain if
such stock had been held for more than eighteen months and mid-term gain if held
for more than twelve months, and such loss will be long-term loss if held for
more than twelve months; all such time periods are determined as of the date of
consummation of the Merger. The fair market value of the CBSI Common Stock will
be the mean between the high and the low trading price of such shares on the
date of consummation of the Merger. The basis of CBSI Common Stock received in
the Merger will be its fair market value, determined as described above, on the
date of consummation of the Merger. The holding period of CBSI Common Stock
received in the Merger will begin the day after consummation of the Merger.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN
FAVOR OF THE CLAREMONT MERGER PROPOSAL. ACCORDINGLY, EACH HOLDER OF CLAREMONT
COMMON STOCK SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES OF THE MERGER AND THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
CBSI COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAW.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. CBSI and Claremont will receive letters from
Arthur Andersen LLP and KPMG Peat Marwick LLP, their respective independent
public accountants, stating that they know of nothing that would prohibit the
business combination to be effected by the Merger from qualifying as a pooling
of interests transaction under generally accepted accounting principles. It is a
condition to the Merger that CBSI and Claremont shall have received letters from
Arthur Andersen LLP and KPMG Peat Marwick LLP, dated as of the closing date of
the Merger. Under pooling of interests accounting, the recorded assets and
liabilities of CBSI and Claremont will be carried forward to the combined
company at their recorded amounts, income of the combined company will include
income of CBSI and Claremont for the entire fiscal year in which the combination
occurs and the reported income or loss of the separate companies for prior
periods will be combined and restated as income of the combined company.
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The letters from CBSI's and Claremont's independent public accountants are
based upon certain material representations provided by CBSI and Claremont. In
addition, to help ensure that the parties meet the prerequisites for pooling of
interests accounting treatment, certain CBSI shareholders and Claremont
shareholders who may be deemed to be affiliates of CBSI and Claremont prior to
the Effective Time have each executed a letter agreement to the effect that such
person will not sell, transfer or otherwise dispose of, or reduce such person's
interest in or risk relating to any shares of CBSI Common Stock or Claremont
Common Stock during the 30 days prior to and thereafter will not sell any shares
of CBSI Common Stock received in the Merger or otherwise beneficially owned by
such person, except in each case for amounts of Claremont Common Stock and CBSI
Common Stock not more than the minimal amount permitted by the rules and
releases of the Commission relating to pooling of interests accounting
treatment, until CBSI publishes financial statements which reflect 30 days of
combined operations of CBSI and Claremont. These restrictions lapse if the
Merger Agreement is terminated.
EFFECT ON STOCK OPTIONS
At the Effective Time, each outstanding option to purchase shares of
Claremont Common Stock will be assumed by CBSI and will constitute an option to
purchase, on the same terms and conditions as were applicable under such
Claremont stock option the same number of shares of CBSI Common Stock as the
holder of such Claremont stock option would have been entitled to receive
according to the Merger Agreement had such holder exercised such option in full
immediately prior to the Effective Time. The exercise price per share of such
option will equal the aggregate exercise price divided by the number of full
shares of CBSI Common Stock issuable under such option. As of May 29, 1998,
there were options to purchase 1,657,199 shares of Claremont Common Stock
outstanding under the Claremont 1992 Plan.
As soon as practicable after the Effective Time, CBSI will deliver to the
participants in the Claremont 1992 Plan, an appropriate notice setting forth
such participant's rights under the CBSI 1996 Stock Option Plan. Grants pursuant
to the Claremont 1992 Plan shall continue in effect on the same terms and
conditions after giving effect to the Merger. CBSI will comply with the
Claremont 1992 Plan and ensure that, to the extent required by, and subject to
the provisions of, the Claremont 1992 Plan, the Claremont stock options which
qualified as incentive stock options prior to the Effective Time will continue
to qualify as incentive stock options after the Effective Time.
CBSI will take all corporate action necessary to reserve for issuance a
sufficient number of shares of CBSI Common Stock for delivery under the
Claremont stock options assumed in accordance with the Merger Agreement. As soon
as practicable after the Effective Time, CBSI will file a registration statement
or statements on Form S-8 with respect to the shares of CBSI Common Stock
subject to such options and will use its best efforts to maintain the
effectiveness of such registration statement or statements for as long as such
options remain outstanding.
CERTAIN LEGAL MATTERS
Pursuant to the requirements of the HSR Act, CBSI and Claremont filed a
Notification and Report for review under the HSR Act with the FTC and the
Antitrust Division on June 3, 1998. The waiting period under the HSR Act with
respect to such filings is expected to expire on July 3, 1998.
CBSI and Claremont do not believe that any additional governmental filings
in the United States are required with respect to the Merger, other than filing
the Articles of Merger with the Secretary of State of the State of Oregon. The
FTC or the Antitrust Division could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including the
divestiture of substantial assets of CBSI or Claremont if the Merger is
consummated. Consummation of the Merger is conditioned upon, among other things,
the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of the
Merger or limiting or restricting CBSI's conduct or operation of the business of
CBSI after the Merger.
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FEDERAL SECURITIES LAW CONSEQUENCES
All of the CBSI Common Stock issued in connection with the Merger will be
freely transferable, except that any CBSI Common Stock received by persons who
are deemed to be "affiliates" (as defined under the Securities Act) of Claremont
or CBSI prior to the Merger may be sold by them only pursuant to an effective
registration statement under the Securities Act, in transactions permitted by
the resale provisions of Rule 145 under the Securities Act with respect to
affiliates of Claremont, or Rule 144 under the Securities Act with respect to
persons who are or become affiliates of CBSI, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of Claremont or
CBSI generally include individuals or entities that control, are controlled by,
or are under common control with, such corporation and may include certain
officers and directors of such corporation as well as shareholders owning more
than 10% of the voting stock of such corporation.
Affiliates of Claremont may not sell the shares of CBSI Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with the requirements of Rule 145 (or Rule 144 under the Securities
Act in the case of persons who are or become affiliates of CBSI) or another
applicable exemption from the registration requirements of the Securities Act.
Generally, under Rule 145, an affiliate may, within any three-month period, sell
an amount of shares not exceeding the greater of 1% of the outstanding shares of
CBSI Common Stock or the average weekly trading volume of such stock during the
four calendar weeks preceding such sale. Sales by such affiliates may only be
made through unsolicited "brokers' transactions" or in transactions directly
with a "market maker" as such terms are defined in Rule 145. Rule 145 would only
remain available, however, to affiliates if CBSI remains current with its
informational filings under the Exchange Act.
An affiliate of Claremont will be able to sell, one year from the Effective
Time, any CBSI Common Stock received without such limitations, provided CBSI is
current with its Exchange Act informational filings and was not an affiliate of
CBSI. Two years after the Effective Time, an affiliate of Claremont would be
able to sell CBSI shares without any restrictions so long as such person had not
been an affiliate of CBSI for at least three months prior to the date of sale.
STOCK LISTING
It is a condition to the Merger that the shares of CBSI Common Stock to be
issued in the Merger be approved for quotation on the Nasdaq National Market. An
application will be filed for such listing.
DIVIDENDS
It is a condition of the Merger Agreement that neither CBSI nor Claremont
is permitted to declare or pay any dividend or other distribution in respect to
any of its capital stock from the date of the Merger Agreement until the
termination of the Merger Agreement or the Effective Time.
APPRAISAL AND DISSENTER'S RIGHTS
Under the Oregon Business Corporation Act, the holders of Claremont Common
Stock are not entitled to any appraisal or dissenter's rights with respect to
the Merger.
FEES AND EXPENSES
Claremont has agreed to pay CBSI a fee of $10,000,000 if the Merger
Agreement is terminated under certain circumstances.
CBSI and Claremont have each agreed to pay its own fees and expenses in
connection with the Merger Agreement and the Merger; however, CBSI and Claremont
shall share equally all fees and expenses, other than attorney's fees, incurred
in relation to the printing and filing of this Joint Proxy Statement/Prospectus
(including any related preliminary materials) and the Registration Statement
(including financial statements and exhibits) and any amendments or supplements
thereto.
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THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Joint Proxy Statement/Prospectus
as Annex A and incorporated into this document by reference. All shareholders of
CBSI and Claremont are urged to read the Merger Agreement in its entirety.
TERMS OF THE MERGER
THE MERGER. At the Effective Time and subject to the terms and conditions
of the Merger Agreement and the Oregon Business Corporation Act, Merger Sub will
be merged with and into Claremont, the separate corporate existence of Merger
Sub will cease, and Claremont will continue as the surviving corporation (the
"Surviving Corporation") and a wholly-owned subsidiary of CBSI.
EFFECTIVE TIME. No later than the second business day after the
satisfaction or waiver of the conditions to the Merger as set forth in the
Merger Agreement, the Merger will be consummated by filing Articles of Merger
with the Secretary of State of the State of Oregon. The time of such filing is
referred to as the "Effective Time".
ARTICLES OF INCORPORATION AND BYLAWS. The Merger Agreement provides that
the Articles of Incorporation and Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, will be the Articles of Incorporation and Bylaws of
the Surviving Corporation until thereafter amended, except that the Article I of
the Articles will be amended so that the name of the Surviving Corporation will
be Claremont Technology Group, Inc.
DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation, and the officers of Merger Sub immediately prior
to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed.
CONVERSION OF CLAREMONT COMMON STOCK IN THE MERGER. At the Effective Time,
each issued and outstanding share of Claremont Common Stock will be converted
into the right to receive the number of shares of CBSI Common Stock equal to
$27.00 divided by the average per share closing price of CBSI Common Stock for
the twenty consecutive trading days, the last of which is the fourth full
trading day prior to the consummation of the Merger. In the event that the
Closing Value is less than 85% of $38.00, each outstanding share of Claremont
Common Stock will be converted into .8359133 shares of CBSI Common Stock. If the
Closing Value is more than 115% of $38.00, each outstanding share of Claremont
Common Stock will be converted into .617849 shares of CBSI Common Stock.
Claremont shareholders will receive cash in lieu of any fractional shares of
CBSI Common Stock.
CONVERSION OF CAPITAL STOCK OF MERGER SUB IN THE MERGER. Each share of
common stock, no par value, of Merger Sub issued and outstanding immediately
prior to the Effective Time will be converted into and become one fully paid and
nonassessable share of Common Stock, no par value, of the Surviving Corporation.
CLAREMONT STOCK OPTIONS. At the Effective Time, all then-outstanding
options to purchase Claremont Common Stock issued under the Claremont 1992 Plan
will be assumed by CBSI on the same terms and conditions as were applicable
under the Claremont 1992 Plan prior to the Effective Time. The holder of a
Claremont stock option will be entitled to receive the same number of shares of
CBSI Common Stock as such holder would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded down to the nearest whole number) at a price per
share equal to the aggregate exercise price for the shares of Claremont Common
Stock divided by the number of full shares of CBSI Common Stock deemed
purchasable pursuant to such Claremont stock option.
FRACTIONAL SHARES. No certificate or scrip representing less than one full
share (a "fractional share") of CBSI Common Stock will be issued in connection
with the Merger. Each holder of shares of Claremont Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
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fraction of a share of CBSI Common Stock will receive cash in an amount equal to
such fractional part of a share of CBSI Common Stock multiplied by the Closing
Value.
EXCHANGE OF CERTIFICATES
EXCHANGE AGENT. As of the Effective Time, CBSI shall deposit with the
Exchange Agent, for the benefit of the holders of shares of Claremont Common
Stock, for exchange in accordance with the Merger Agreement through the Exchange
Agent, certificates representing the shares of CBSI Common Stock issuable in
exchange for issued and outstanding shares of Claremont Common Stock.
EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective
Time, the Exchange Agent will mail to each holder of record of Claremont Common
Stock a letter of transmittal and instructions for use in effectuating the
surrender of a certificate representing Claremont Common Stock in exchange for a
certificate representing CBSI Common Stock. Upon surrender of a certificate
representing Claremont Common Stock for cancellation to the Exchange Agent,
together with a letter of transmittal, duly executed, the holder of Claremont
Common Stock will be entitled to receive in exchange a certificate representing
the number of whole shares of CBSI Common Stock which such holder shall have the
right to receive pursuant to the Merger Agreement. The certificate evidencing
the shares of Claremont Common stock will be immediately canceled. In the event
of a transfer of ownership of Claremont Common Stock which is not registered in
the transfer records of Claremont, a certificate representing the number of
shares of CBSI Common Stock may be issued to a transferee if the certificate
representing such Claremont Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF CLAREMONT COMMON
STOCK. No dividends or other distributions made after the Effective Time with
respect to CBSI Common Stock with a record date after the Effective Time will be
paid to the holder of any unsurrendered certificate representing shares of
Claremont Common Stock with respect to the shares of CBSI Common Stock
represented thereby that they are entitled to receive until the holder of record
of such certificate representing shares of Claremont Common Stock surrenders
such certificate. Subject to the effect of applicable laws, following the
surrender of any such certificate representing shares of Claremont Common Stock,
there will be paid to the record holders of such certificates representing whole
shares of CBSI Common Stock issued in exchange therefor, without interest, at
the time of surrender, the amount of dividends or other distributions with a
record date after the Effective Time paid with respect to such whole shares of
CBSI Common Stock.
TERMINATION OF THE EXCHANGE FUND. Any portion of the shares of CBSI Common
Stock deposited with the Exchange Agent which remains undistributed to
shareholders of Claremont for one year after the Effective Time shall be
delivered to CBSI, upon demand, and any shareholder of Claremont who has not
previously complied with the exchange procedures in the Merger Agreement shall
look only to CBSI for payment of their claim for CBSI Common Stock, any cash in
lieu of fractional shares of CBSI Common Stock, and any dividends or
distributions with respect to CBSI Common Stock. Neither CBSI nor Claremont will
be liable to any holders of Claremont Common Stock for any such shares delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
CLAREMONT SHAREHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF CLAREMONT COMMON STOCK.
CLAREMONT SHAREHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO
THE EXCHANGE AGENT PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties made by Claremont, in respect of itself and its subsidiaries, in
favor of CBSI and Merger Sub and by CBSI and Merger Sub in respect of CBSI and
Merger Sub in favor of Claremont relating to the following matters; i) corporate
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organization, good standing, qualification, approvals and similar matters; ii)
absence of need for additional consents to enter into the Merger Agreement; iii)
absence of conflicts between the Merger Agreement and the Articles of
Incorporation or Bylaws of either Company; iv) all required reports with the
Commission have been made and comply in all material respects with the Exchange
Act, do not contain any untrue statement of material fact or omit to state any
material fact and contain financial statements that are in accordance with
generally accepted accounting principles; v) absence of material adverse
changes; vi) the receipt of the opinion of the respective financial advisor of
each company as to the fairness of the consideration to be paid in the Merger;
vii) absence of undisclosed pending or threatened material litigation; viii)
absence of any action which could prevent CBSI from accounting for the Merger as
a pooling of interests; ix) absence of a breach, or claim of breach, of certain
material agreements; x) the capital structure of each company, and; xi)
ownership, right to use, absence of breach of license to use, validity, absence
of violations or claims of infringement with respect to intellectual property
owned or used by each company.
CONDUCT OF CLAREMONT BUSINESS PENDING THE MERGER
Claremont has agreed that, prior to the later of the Effective Time and the
Closing Date, except as contemplated by the Merger Agreement, each of Claremont
and its subsidiaries shall conduct its business and affairs in the usual,
regular and ordinary course in substantially the same manner as previously
conducted, to pay its debts and taxes when due, subject to good faith disputes
over such debts or taxes, to pay or perform other obligations when due, and, to
the extent consistent with such business, use all reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Claremont has undertaken promptly to notify CBSI of any material
event or occurrence not in the ordinary course of business of Claremont. Except
as expressly contemplated by the Merger Agreement, Claremont and its
subsidiaries have agreed not to do these things:
1. Accelerate, amend or change the period of exercisability of options
or restricted stock granted under any employee stock plan or authorize cash
payments in exchange for any options granted under any of such plans except
as required by the terms of such plans or any related agreements in effect
as of the date of the Merger Agreement;
2. Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to any Claremont intellectual property, other
than in the ordinary course of business consistent with past practices;
3. Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
4. Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than (i) the grant of options
under the Claremont 1992 Plan consistent with past practices to employees
or consultants and not exceeding in the aggregate 50,000 shares; (ii) the
issuance of shares of Claremont Common Stock issuable upon exercise of
options granted under the Claremont 1992 Plan, which options are
outstanding on the date of the Merger Agreement, or (iii) the repurchase of
shares of Claremont Common Stock from terminated employees pursuant to the
terms of outstanding stock restriction or similar agreements;
5. Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any
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corporation, partnership or other business organization or division, or
otherwise acquire or agree to acquire any assets other than in the ordinary
course of business;
6. Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Claremont, except in the ordinary course of business;
7. Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or
wages of employees in accordance with past practices, grant any severance
or termination pay to, or enter into any employment or severance agreement,
with any employee, except in accordance with past practices, enter into any
collective bargaining agreement, establish, adopt, enter into or amend in
any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
8. Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
9. Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than indebtedness incurred under outstanding lines of credit
consistent with past practice;
10. Amend or propose to amend its Articles of Incorporation or Bylaws;
or
11. Take, or agree in writing or otherwise to take, any of the actions
described in Items (1) through (10) above, or any action which is
reasonably likely to make any of Claremont's representations or warranties
contained in the Merger Agreement untrue or incorrect in any material
respect on the date made (to the extent so limited) or as of the Effective
Time.
NO SOLICITATION BY CLAREMONT. The Merger Agreement provides that Claremont
will not: i) directly or indirectly, through any officer, director, employee,
representative or agent, solicit, initiate or encourage any inquiries or
proposals regarding a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving Claremont
other than the Merger (the foregoing being referred to as "Acquisition
Proposals"); ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person relating to an Acquisition Proposal; or
iii) agree to, approve or recommend any Acquisition Proposal. The Claremont
Board, however, is not precluded from considering, negotiating or recommending
to the shareholders of Claremont an unsolicited bona fide written Acquisition
Proposal, provided that the Claremont Board determines in good faith (after
consultation with its financial advisor) that, if consummated, the Acquisition
Proposal would result in a transaction more favorable to Claremont shareholders
from a financial point of view than the Merger and the Claremont Board
determines in good faith after consultation with outside legal counsel that it
is required to recommend the Acquisition Proposal in order to discharge its
fiduciary duties.
The Merger Agreement requires Claremont to immediately notify CBSI in
writing after receipt of any Acquisition Proposal or any request for nonpublic
information in connection with an Acquisition Proposal or for access to
Claremont's properties, books or records by any person or entity that informs
Claremont that it is considering making, or has made, an Acquisition Proposal.
CONDUCT OF CBSI BUSINESS PENDING THE MERGER
The Merger Agreement provides that during the period between the signing of
the Merger Agreement and the Effective Time, unless Claremont otherwise consents
in writing, CBSI will and will cause each of its subsidiaries (including Merger
Sub) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts, consistent with past
practices and policies, to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers,
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distributors, licensors, licensees and others having business dealings with it.
Except as contemplated by the Merger Agreement, neither CBSI nor any of its
subsidiaries will, without the prior written consent of Claremont:
(1) declare or pay any dividends or make any other distribution in
respect to any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
capital stock, or purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of such agreements by such party;
(2) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to CBSI's intellectual property other than in
the ordinary course of business;
(3) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire any Common
Stock or other convertible securities, other than; 1) the grant of options
under the CBSI 1996 Stock Option Plan ("CBSI Option Plan") consistent with
past practices to employees or consultants and not exceeding in the
aggregate 600,000 shares; 2) the issuance of shares of CBSI Common Stock
issuable upon the exercise of options granted under the CBSI Option Plan,
3) the repurchase of shares of Common Stock from terminated employees or
consultants, or 4) options issued in connection with an acquisition or
merger permitted under the Merger Agreement;
(4) acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of any
business or corporation, partnership or other business organization or
division, or otherwise acquire any assets other than in the ordinary course
of business which would delay the consummation of the Merger;
(5) sell, lease, license or otherwise dispose of any material
properties or assets except for lease financing arrangements and
transactions entered into in the ordinary course of business;
(6) increase the compensation payable or to become payable to its
officers or employees, except in accordance with past practices, grant any
additional severance or termination pay except in accordance with past
practices, enter into any collective bargaining agreement, or amend any
bonus, profit sharing, thrift compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan for the benefit of any directors, officers or
employees;
(7) revalue any of its assets;
(8) incur any indebtedness for borrowed money or guarantee any
indebtedness, issue or sell any debt securities, warrants or rights to
acquire any debt securities other than indebtedness incurred under
outstanding lines of credit consistent with past practice;
(9) amend its Articles of Incorporation or Bylaws;
(10) take any action which is reasonably likely to make any of its
representations and warranties pursuant to the Merger Agreement untrue or
incorrect.
ADDITIONAL AGREEMENTS
PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. The Merger Agreement
provides that, as promptly as practical after the execution of the Merger
Agreement, CBSI and Claremont shall prepare and file with the Commission the
Joint Proxy Statement/Prospectus and the Registration Statement of CBSI in which
the Joint Proxy Statement/Prospectus shall constitute the prospectus of CBSI.
The Joint Proxy Statement/ Prospectus shall contain the recommendation of the
Claremont Board in favor of the Claremont Merger Proposal and the recommendation
of the CBSI Board in favor of the CBSI Share Proposal and the CBSI
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Merger Proposal. CBSI and Claremont shall make all necessary filings under the
Securities Act and the Exchange Act and applicable blue sky laws.
SHAREHOLDERS' MEETINGS. The Merger Agreement provides that CBSI and
Claremont each shall call a shareholders meeting as promptly as practicable for
the purpose of voting upon the approval of the Merger and the issuance of CBSI
Common Stock, and that CBSI and Claremont shall use their best efforts to hold
the shareholders meetings on the same day and as soon after the signing of the
Merger Agreement as practicable.
ACCESS TO INFORMATION. Upon reasonable notice, Claremont and CBSI shall
each afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Claremont and CBSI
shall furnish promptly to the other a copy of each report, schedule,
registration statement and other documents filed or received by it during such
period pursuant to the requirements of federal securities laws and all other
information concerning its business, properties and personnel as such other
party may reasonably request. Unless otherwise required by law the parties will
hold any such information which is nonpublic in accordance with the
Confidentiality Agreement, dated March 9, 1998 between CBSI and Claremont.
CONSENTS. CBSI and Claremont agree to use all reasonable efforts to obtain
all necessary consents, waivers and approvals under any of their respective
material agreements, contracts, licenses or leases in connection with the
Merger.
NASDAQ QUOTATION. During the period commencing on April 8, 1998 and ending
at the Effective Time, CBSI and Claremont have agreed to continue the quotation
of CBSI Common Stock and Claremont Common Stock, respectively, on the Nasdaq
National Market.
SHAREHOLDER RIGHTS PLAN. The Merger Agreement provides that as soon as
possible, and in any event prior to the Effective Time, Claremont shall take
such steps as may be required and sufficient either to redeem the outstanding
rights under its Shareholder Rights Plan or amend the plan so as to prevent its
application to the Merger.
LEGAL CONDITIONS TO MERGER. The Merger Agreement provides that CBSI and
Claremont will take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on either with respect to the Merger and
will promptly cooperate with and furnish information to each other in connection
with any requirements of the other. Each will take all reasonable actions
necessary to obtain any consent, authorization, order or approval of or any
exemption by any governmental entity or public third party, required to be
obtained.
PUBLIC DISCLOSURE. The Merger Agreement provides that CBSI and Claremont
shall agree before issuing any press release or otherwise making any public
statement with respect to the Merger or the Merger Agreement, except as may be
required by law.
TAX-FREE REORGANIZATION. CBSI and Claremont shall each use its best efforts
to cause the Merger to be treated as a reorganization within the meaning of
Section 368(a) of the Code.
POOLING OF INTERESTS ACCOUNTING. CBSI and Claremont shall each use its best
efforts to cause the Merger to be accounted for as a pooling of interests. Each
of CBSI and Claremont agree to use its best efforts to cause its respective
Affiliates not to take any action that would adversely affect the ability of
CBSI to account for the Merger as a pooling of interests. CBSI and Claremont
shall each cause its respective Affiliates to sign and deliver to CBSI a
"pooling letter" in a form and substance to be mutually agreed upon.
AFFILIATE AGREEMENTS. CBSI and Claremont will identify all persons who are
affiliates of CBSI or Claremont, respectively, within the meaning of Rule 145 of
the Securities Act. Claremont shall use its best efforts to deliver from each
Affiliate of Claremont, an executed Affiliate Agreement to CBSI by May 31,1998,
by which such Affiliate of Claremont agrees to comply with the requirements of
Rule 145.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that from and
after the Effective Time, CBSI and the Surviving Corporation shall, indemnify,
defend and hold harmless each person who is now, or
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has been at any time prior to the Effective Time, an officer, director or
employee of Claremont or any of its subsidiaries against all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or employee of Claremont or any of its subsidiaries and
arising out of or pertaining to the transactions contemplated by the Merger
Agreement. Such indemnification is in each case to the full extent a corporation
is permitted under the Oregon Business Corporation Act and the Articles of
Incorporation and Bylaws of the Surviving Corporation. In the event that any
claim, action, suit, proceeding, suit, proceeding or investigation is brought
against an indemnified party, the indemnified party may retain counsel of their
choice and CBSI or the Surviving Corporation shall pay the reasonable fees and
expenses of such counsel.
The Merger Agreement also provides that CBSI will cause itself or the
Surviving Corporation to use its best efforts to maintain in effect for a period
of six years after the Effective Time, if available, directors' and officers'
liability insurance covering those persons who are currently covered by
Claremont's directors' and officers' liability insurance policy.
HART SCOTT RODINO FILINGS. The Merger Agreement provides that CBSI and
Claremont will cooperate with each other so that each is provided with all
necessary information in a timely manner to permit a prompt and complete filing
under the HSR Act.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The Merger
Agreement provides that the respective obligations of each party to effect the
Merger shall be subject to satisfaction prior to the Closing Date of the
following conditions:
i) Shareholder Approval. The Claremont Merger Proposal shall have been
approved and adopted by the affirmative vote of the requisite vote of the
shareholders of Claremont and the CBSI Share Proposal and CBSI Merger
Proposal shall have been approved by the requisite vote of the shareholders
of CBSI.
ii) Approvals. All authorizations, consents, orders or approvals of
any governmental entity shall have been filed, occurred or been obtained.
iii) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
iv) No Injunctions or Restraints. There shall not have been any
temporary restraining order, preliminary or permanent injunction or other
order issued or pending by any court, administrative agency or commission
or other legal or regulatory restraint or prohibition preventing the
consummation of the Merger or limiting or restricting CBSI's conduct or
operation of the business of CBSI after the Merger.
v) Pooling Letters. CBSI and Claremont shall have received letters
from Arthur Andersen LLP and KPMG Peat Marwick LLP, the respective
independent public accountants of CBSI and Claremont, stating that they
know of nothing that would prohibit the business combination to be effected
by the Merger from qualifying as a pooling of interest transaction under
generally accepted accounting principles.
vi) Hart Scott Rodino Filings. Each of CBSI and Claremont shall have
received confirmation from its respective counsel that any necessary filing
under federal antitrust laws has been made and that the Merger has passed
Hart Scott Rodino review.
vii) Nasdaq. The CBSI Common Stock to be issued in the Merger shall
have been approved for quotation on the Nasdaq National Market.
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ADDITIONAL CONDITIONS AND OBLIGATIONS OF CBSI AND SUB. The obligation of
CBSI and Sub to effect the Merger is also subject to the satisfaction of each of
the following conditions:
i) Representations and Warranties. The representations and warranties
of Claremont contained in the Merger Agreement shall be true and correct in
all material respects as of the date of the Merger Agreement and as of the
Closing Date, except for a) changes contemplated by the Merger Agreement
and b) where failure to be true and correct would not be reasonably likely
to have a material adverse effect on Claremont or a material adverse effect
on the consummation of the transactions contemplated by the Merger
Agreement and CBSI shall have received a certificate signed on behalf of
Claremont by Claremont's president and its chief financial officer to that
effect.
ii) Performance of Obligations of Claremont. Claremont shall have
performed in all material respects all obligations required to be performed
by it under the Merger Agreement prior to the Closing Date and CBSI shall
have received a certificate signed on behalf of Claremont by its president
and its chief financial officer to that effect.
iii) Tax Opinion. CBSI shall have received a written opinion from
Butzel Long that for Federal income tax purposes the Merger will be treated
as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
iv) Substantial Continuity of Workforce. Substantially all of
Claremont's employees as of the date of the Merger Agreement shall remain
employed by Claremont as of the Closing Date.
v) Employment Agreements by Substantially All Claremont Vice
Presidents. Substantially all of Claremont's Vice President and Senior Vice
President level employees shall have signed Employment Agreements with
Claremont.
ADDITIONAL CONDITIONS AND OBLIGATIONS OF CLAREMONT. The obligation of
Claremont to effect the Merger is also subject to the satisfaction of each of
the following conditions:
i) Representations and Warranties. The representations and warranties
of CBSI and Merger Sub contained in the Merger Agreement shall be true and
correct in all material respects as of the date of the Merger Agreement and
as of the Closing Date, except for a) changes contemplated by the Merger
Agreement and b) where failure to be true and correct would not be
reasonably likely to have a material adverse effect on CBSI and its
subsidiaries or a material adverse effect upon the consummation of the
transactions contemplated by the Merger Agreement and Claremont shall have
received a certificate signed on behalf of CBSI by CBSI's chief executive
officer and its chief financial officer to that effect.
ii) Performance of Obligations of CBSI and Merger Sub. CBSI and Merger
Sub shall have performed in all material respects all obligations required
to be performed by them under the Merger Agreement prior to the Closing
Date and Claremont shall have received certificates signed on behalf of
CBSI, and Merger Sub by their respective chief executive officers and chief
financial officers to that effect.
iii) Tax Opinion. Claremont shall have received a written opinion from
Ater Wynne Hewitt Dodson & Skerritt, LLP that for Federal income tax
purposes the Merger will be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of CBSI or Claremont: (i) by mutual written
consent of CBSI and Claremont; (ii) by either CBSI or Claremont if the Merger
has not been consummated by August 31, 1998; however, this right is not
available to a party whose failure to fulfill any obligation under the Merger
Agreement is the cause of the failure of the Merger to occur on or before August
31, 1998; (iii) by either CBSI or Claremont if a court or other governmental
entity has issued a nonappealable final order, decree or ruling permanently
enjoining the Merger; however, this right is not available to a party that has
not complied with its obligations under Section 6.8 of the Merger Agreement;
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(iv) by CBSI, if the requisite vote of the shareholders of Claremont in favor of
the Claremont Merger Proposal is not obtained; (v) by Claremont, if the
requisite vote of the shareholders of CBSI in favor of the CBSI Share Proposal
and the CBSI Merger Proposal is not obtained; (vi) by CBSI, if the Claremont
Board withdraws or modifies its recommendation of the Merger Agreement in a
manner adverse to CBSI; (vii) by CBSI, if the Claremont Board recommends to
shareholders of Claremont an Alternative Transaction; (viii) by CBSI, if the
Claremont Board recommends a tender or exchange offer for more than 15% of the
outstanding shares of Claremont Common Stock; (ix) by CBSI, if a tender offer
for Claremont is successfully concluded whether or not recommended by the
Claremont Board; (x) by Claremont, if the CBSI Board withdraws or modifies its
recommendation of the CBSI Merger Proposal and the CBSI Share Proposal in a
manner that is adverse to Claremont for any reason other than the occurrence of
an event or discovery of the falsity of a representation or warranty that has a
material adverse effect on Claremont; (xi) by CBSI or Claremont if there has
been a material breach of any representation or warranty by the other, subject
to the right to cure such a breach.
Claremont will pay CBSI a termination fee of $10 million if the Merger
Agreement is terminated due to: (i) the Claremont Board recommending an
Alternative Transaction; (ii) the Claremont Board recommending a tender or
exchange offer for more than 15% of the outstanding shares of Claremont Common
Stock; (iii) the successful completion of a tender offer for Claremont whether
or not recommended by the Claremont Board; (iv) the failure of Claremont to
receive the requisite vote for approval of the Claremont Merger Proposal if
Claremont fails to hold a shareholders' meeting as the result of an Alternative
Transaction.
AMENDMENT AND WAIVER
The Merger Agreement may be amended, in writing, by the parties to the
Merger Agreement by action taken or authorized by their respective Boards of
Directors at any time prior to the Effective Time, provided that no amendment
requiring further shareholder approval may be made without such approval. In
addition, the parties may, prior to the Effective Time, acting through their
respective Boards of Directors, to the extent legally allowed i) extend the time
for the performance of any of the obligations or other acts of the other party;
ii) waive compliance with any of the agreements or conditions of the Merger
Agreement; or iii) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement.
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IRREVOCABLE PROXIES
Concurrently with the execution of the Merger Agreement, Jerry L. Stone,
Chairman of the Claremont Board and a shareholder of Claremont, granted an
irrevocable proxy to CBSI to vote in favor of all matters related to the
transaction contemplated by the Merger Agreement. Concurrently with the
execution of the Merger Agreement, Rajendra B. Vattikuti, President and Chief
Executive Officer of CBSI and a shareholder of CBSI, granted an irrevocable
proxy to Claremont to vote in favor of all matters related to the transaction
contemplated by the Merger Agreement.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF CBSI AND CLAREMONT
Until the Merger, the rights of Claremont's shareholders will continue to
be governed by the Second Restated Articles of Incorporation of Claremont, as
amended to date (the "Claremont Articles"), and the Second Amended and Restated
Bylaws of Claremont (the "Claremont Bylaws") and also by the laws of the State
of Oregon, including the Oregon Business Corporation Act (the "OBCA"). If the
Merger is consummated, holders of Claremont Common Stock will become holders of
CBSI Common Stock. Upon consummation of the Merger, the rights of former
Claremont shareholders will be governed by the laws of the State of Michigan,
including the Michigan Business Corporation Act (the "MBCA"), and by CBSI's
Restated Articles of Incorporation (the "CBSI Articles") and the Amended and
Restated Bylaws of CBSI (the "CBSI Bylaws"). The following is a summary of
certain of the material differences between the rights of holders of CBSI Common
Stock under the MBCA, the CBSI Articles and the CBSI Bylaws and the rights of
holders of Claremont Common Stock under the OBCA, the Claremont Articles and the
Claremont Bylaws. This summary is not intended to be complete and is qualified
in its entirety by reference to the corporate Statutes of Michigan and Oregon,
and the corporate charters and bylaws of CBSI and Claremont.
SPECIAL MEETING OF SHAREHOLDERS
The OBCA and Claremont Bylaws provide that special meetings of shareholders
may be called by the directors or upon the demand of the holders of at least 10%
of all votes entitled to be cast on any issue proposed.
The CBSI Bylaws provide that a special meeting of shareholders may be
called by the Chairman of the Board or President and shall be called by the
President or the Secretary upon the demand of not less than 25% of all the votes
entitled to vote at the meeting. The MBCA provides that upon the application to
the circuit court of the county in which the registered office is located, by
the holders of not less than 10% of all the shares entitled to vote at a
meeting, the circuit court may order a special meeting upon a showing of good
cause.
VOTING REQUIREMENTS AND QUORUMS FOR SHAREHOLDER MEETINGS
Under the Claremont Bylaws a majority of the votes entitled to be cast on a
matter constitutes a quorum of that voting group for action on that matter. A
majority of shares represented at the meeting, although less than a quorum, may
adjourn the meeting.
The OBCA provides that the articles of incorporation may provide for a
lesser or greater quorum requirement than is required by the OBCA, but in no
event shall a quorum consist of less than one-third of the votes entitled to be
cast on any matter by the shareholders. Any amendment to the articles of
incorporation that changes the quorum or voting requirements must meet the
quorum requirement and be adopted by the vote of the shareholders required to
take action immediately prior to the change.
The CBSI Bylaws provide that the holders of a majority of all the issued
and outstanding shares of each class of its capital stock entitled to vote at a
meeting whether present in person or represented by proxy constitute a quorum
unless the representation of a larger number of shares of each class is required
by law.
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The MBCA provides that unless a greater or lesser quorum is required in the
articles of incorporation or a bylaw adopted by the shareholders, shares
entitled to cast a majority of the votes at a meeting constitute a quorum at the
meeting.
BUSINESS CONDUCTED AT SHAREHOLDERS MEETING
The Claremont Bylaws provide that at an annual meeting of shareholders,
only business that has been specified in the notice of the meeting given by or
at the direction of the Board of Directors, otherwise properly brought before
the meeting by or at the direction of the Board of Directors or otherwise
properly brought before an annual meeting by a shareholder may be conducted at
the annual meeting. For business to be properly brought before an annual meeting
by a shareholder, the shareholder must have given notice thereof in writing to
the Secretary of Claremont not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event less than 60 days, notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by a shareholder must be received by Claremont by the close
of business on the 10th day following the day on which the notice of the annual
meeting was mailed or such public disclosure was made. A shareholder's notice to
the Secretary must set forth a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, the name and address of the shareholder proposing such
business as they appear on Claremont's books, the class and the number of shares
of stock owned by the shareholder, and any material interest of the shareholder
in the business being brought. The Chairman of the annual meeting determines and
declares to the meeting whether there was any business that was not properly
brought before the meeting.
The CBSI Bylaws provide that written notice of the time, place and purpose
of the meeting of shareholders shall be given not less than ten nor more than 60
days before the date of the meeting to each shareholder of CBSI entitled to vote
at the meeting. No notice of any adjourned meeting of shareholders need be given
if the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, only the
business that might have been transacted at the original meeting is addressed.
NOMINATION AND ELECTION OF DIRECTORS
The Claremont Bylaws provide that if a quorum exists, directors are to be
elected by a plurality of the votes cast by the shares entitled to vote.
Nominations of persons to the Board of Directors must be delivered to the
principal executive offices of Claremont not less than 60 days nor more than 90
days prior to a meeting of shareholders; provided, however, that in the event
that less than 60 days, notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder must be
received by Claremont by the close of business on the 10th day following the day
the notice of the meeting was mailed or public disclosure made. The notice must
set forth the name, age, business address and residence address of each nominee
along with the principal occupation or employment of the nominee, the class and
number of shares of Claremont stock beneficially owned by the nominee and such
other information as would be required to be included in a proxy statement
solicitation for the election of directors. The shareholder giving the notice
must provide his or her name and address, as they appear on the corporation's
books and the class and number of shares of Claremont stock he or she
beneficially owns. If the Chairman of a meeting of Claremont shareholders
determines that a person was not nominated in accordance with required
procedures, the Chairman must declare that the nomination was not in accordance
with the procedures and disregard the nomination.
Under the MBCA a vacancy on the board of directors may be filled by either
the shareholders or the board. If the directors remaining in office constitute
fewer than a quorum of the board, the remaining directors may fill the vacancy
by the affirmative vote of a majority of all the directors remaining in office.
INSPECTION RIGHTS
Under the OBCA, every shareholder has the right to inspect and copy the
corporation's articles of incorporation, bylaws, resolutions relating to
creation of one or more classes or series of stock, the minutes of
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all shareholders' meeting during the past three years, all written
communications to shareholders within the past three years, a list of the names
and current business addresses of the corporation's current officers and
directors and the corporation's most recent annual report if the shareholder
gives the corporation written notice of the intent to do so at least five
business days before the date on which the shareholder wishes to inspect and
copy the records. A shareholder may also inspect and copy excerpts from the
minutes of any board of directors meeting, records of any action of a committee
of the board of directors while acting in place of the board, minutes of any
meeting of the shareholders and records of action taken by the shareholders or
board of directors without a meeting, the accounting records of the corporation,
including tax returns of the corporation and the list of shareholders, if the
shareholder makes the demand for access to the records in good faith and for a
proper purpose which is described with reasonable particularity and the records
the shareholder desires to inspect are directly connected to the shareholder's
purpose.
Under the MBCA, any shareholder of record, in person or by attorney or
other agent has the right during the usual hours of business to inspect for any
proper purpose the corporation's stock ledger, a list of shareholders, and its
other books and records, if the shareholder gives the corporation a written
demand at its registered office describing the purpose with reasonable
particularity and the records the shareholder desires to inspect and the records
sought are directly connected with the purpose. If the corporation does not
permit an inspection within five business days after a demand has been received
or imposes unreasonable conditions upon the inspection, the shareholder may
apply to the circuit court of the county in which the principal place of
business or registered office of the corporation is located for an order to
compel the inspection. The right to inspect records includes the right to copy
and make extracts from the records and, if reasonable, the right to require the
corporation to supply copies made by photographic, xerographic or other means.
ACTION BY CONSENT OF SHAREHOLDERS
The OCBA provides that actions required or permitted to be taken at a
shareholders' meeting may be taken by all the shareholders entitled to vote on
such an action if the action is evidenced by one or more written consents
describing the actions taken, signed by all of the shareholders entitled to vote
on such action and delivered to the corporation for inclusion in the minutes or
filing with the corporate records. Actions taken in this manner are effective
when the last shareholder signs the consent, unless the consent specifies
otherwise.
The Claremont Bylaws provide that if the OCBA requires that notice of
proposed action be given to nonvoting shareholders and the action is to be taken
by unanimous consent of the voting shareholders, the corporation must give its
nonvoting shareholders written notice of the proposed action at least ten days
before the action is taken. The notice must contain or be accompanied by the
same material that, under the OBCA, would have been required to be sent to
nonvoting shareholders in a notice of meeting at which the proposed action would
have been submitted to the shareholders for action.
The MBCA provides that the articles of incorporation may provide that any
permitted or required action to be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote, if consents in writing setting forth the action taken, are signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take the action of the shareholders
entitled to vote.
The CBSI Articles do not provide for actions to be taken without a meeting.
CUMULATIVE VOTING
The OBCA and MBCA both provide that the articles of incorporation may allow
cumulative voting by shareholders. Neither the CBSI Articles nor the Claremont
Articles provide for cumulative voting.
DIVIDENDS AND STOCK REPURCHASES
Under the OBCA, a board of directors may authorize and the corporation may
make distributions to its shareholders. A distribution may be made only if,
after giving it effect, in the judgment of the board of
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directors, the corporation would be able to pay its debts as they become due in
the usual course of business and the corporation's total assets are at least
equal to the sum of its total liabilities plus the amount that would be needed
if the corporation were to be dissolved at the time of the distribution, to
satisfy any outstanding preferential rights upon dissolution.
Under the MBCA, a board of directors may authorize and a corporation may
make distributions to its shareholders. However, no distribution may be made if,
after giving it effect, the corporation would not be able to pay its debts as
they become due in the usual course of business or the corporation's total
assets would be less than the sum of its total liabilities, plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
The CBSI Bylaws provide that dividends or other distributions may be
declared and paid by the board of directors from funds legally available on a
date fixed by the board of directors.
CLASSIFICATION, NUMBER, VACANCIES AND QUALIFICATION OF THE BOARD OF DIRECTORS
The OBCA allows, but does not require, the classification of the board into
classes provided that the articles of incorporation or bylaws provide for at
least six directors. The board may be divided into two or three classes, with
each class to be as nearly equal in number as possible. The Claremont Bylaws
provide for the classification of the Claremont Board into three classes, each
as nearly equal in term as possible. The term of each class is staggered so that
only one class is elected each year, in each case for a three-year term or until
a successor is elected and qualified. The Claremont Bylaws provide for the
Claremont Board to be a minimum of three and a maximum of 12 members. Currently,
the Claremont Board is fixed at seven members. Vacancies on the Claremont Board,
however occurring, may be filled by the shareholders, the Claremont Board, or by
the affirmative vote of a majority of the directors then in office if there is
less than a quorum. A director elected to fill a vacancy is duly elected until
the next annual meeting of shareholders and until a successor is duly elected
and qualified.
The MBCA permits but does not require that the board of directors be
divided into two or three classes, each to be as nearly equal in number as
possible. Under the MBCA the number of directors is fixed in the bylaws unless
the articles of incorporation fixes the number of directors. The CBSI Bylaws
provide for the classification of the CBSI Board into three classes, each as
nearly equal in term as possible. The term of each class is staggered so that
only one class is elected each year, in each case for a three-year term or until
a successor is elected and qualified. The CBSI Bylaws provide that the size of
the CBSI Board is a minimum of one and a maximum of nine members. Currently, the
CBSI Board is fixed at seven members. Vacancies on the CBSI Board, however
occurring, may be filled by the affirmative vote of a majority of the directors
then in office; however, the term of any director elected to fill such a vacancy
expires at the next election of directors by the shareholders. Neither the CBSI
Articles nor the CBSI Bylaws sets forth any qualification requirements for
directors.
REMOVAL OF DIRECTORS
Under the OBCA, the shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may be
removed only for cause. A director may removed by the shareholders only at a
meeting called for the purpose of removing the director.
The Claremont Bylaws provide that any and all of the directors of Claremont
may be removed only for cause and at meeting called expressly for that purpose,
by the vote of 75 percent of the votes then entitled to be cast for the election
of directors.
Under the MBCA, the shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may be
removed only for cause. The vote for removal shall be by a majority of shares
entitled to vote at an election of directors except that the articles may
require a higher vote for removal without cause.
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The CBSI Bylaws provide that the holders of a majority of the votes
outstanding and entitled to vote at an election of directors may remove any
director or the entire CBSI Board with or without cause.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Both the MBCA and the OBCA provide that a corporation may indemnify
directors, officers or others against liability arising from the person's role
if the conduct of the individual was in good faith, the individual reasonably
believed that the conduct was not opposed to the best interest of the
corporation and in the case of a criminal proceeding, the individual had no
reasonable cause to believe the conduct was unlawful.
The Claremont Articles provide that Claremont shall indemnify any person
who was or is a party or threatened to be made a party to an action against all
expenses, judgments, fines and amounts paid in settlement actually or reasonably
incurred by the person in connection with the action. The Claremont Articles
also provide that to the fullest extent permitted by law, no director of
Claremont shall be personally liable to Claremont or its shareholders for
monetary damages for conduct as a director.
The CBSI Articles provide that to the fullest extent permitted by law, no
director of CBSI shall be liable to the corporation or its shareholders for
damages for a breach of fiduciary duty. The CBSI Articles also provide that a
director of CBSI shall not be personally liable to CBSI or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability for any breach of the director's duty of loyalty to CBSI or its
shareholders, for acts and omissions not in good faith or that involve
intentional misconduct, for paying an improper dividend or distribution or for
any transaction from which the director derived an improper benefit.
TRANSACTIONS WITH INTERESTED PARTIES
Under the OBCA, a transaction with a related party is not voidable solely
because of a director's interest in the transaction if the material facts of the
transaction and the director's interest were disclosed and known to the board of
directors or a disinterested committee of the board of directors and the board
of directors or a disinterested committee of the board of directors authorized,
approved or ratified the transaction or the material facts of the transaction
and the director's interest were disclosed or known to the shareholders entitled
to vote and the shareholders authorized, approved or ratified the transaction,
or the transaction was fair to the corporation.
The Claremont Bylaws provide that a transaction in which a director of the
corporation has a direct or indirect interest shall be valid notwithstanding the
director's interest in the transaction if the material facts of the transaction
and director's interest are disclosed or known to the board of directors or a
committee of the board of directors and it authorizes, approves, or ratifies the
transaction, or the material facts of the transaction and the director's
interest are disclosed or known to shareholders entitled to vote and they
authorize, approve, or ratify the transaction by a majority vote, or the
transaction is fair to the corporation.
Under the MBCA, a transaction with an interested party shall not, because
of the interest, be enjoined, set aside or give rise to an award of damages or
other sanctions, in a proceeding by a shareholder or by or in the right of the
corporation if the person interested in the transaction establishes that the
transaction was fair to the corporation at the time it was entered into, or the
material facts of the transaction and the director's interest were disclosed or
known to the board and the board approved, authorized or ratified the
transaction or the material facts of the transaction and the director's interest
were disclosed or known to the shareholders entitled to vote and they
authorized, approved or ratified the transaction.
The CBSI Bylaws provide that a contract or transaction between CBSI and one
or more of its directors or officers, or between CBSI and a domestic or foreign
corporation, firm or association of any type or kind in which one or more of
CBSI's directors or officers are directors or officers, or are otherwise
interested, is not void or voidable solely because of such common directorship,
officership or interest, or solely because such directors are present at the
meeting of the board at which such contract or transaction is acted upon or
solely
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because their votes are counted for such purpose if the transaction is fair and
reasonable to CBSI when it is authorized, approved or ratified or, the material
facts of the director's interest are disclosed or known to the board of
directors and the board of directors authorizes, approves or ratifies the
transaction by a vote sufficient for the purpose without counting the vote of
any common or interested director or the material facts of the director's
interest are disclosed or known to the shareholders and the shareholders
authorize, approve or ratify the transaction.
FUNDAMENTAL TRANSACTIONS
Under the OBCA, in order for one or more corporations to merge, the board
of directors of each corporation must adopt a plan of merger and generally the
board of directors of the corporation being acquired must submit the plan for
the approval of its shareholders. The OBCA also provides that when a merger
takes effect, the acquired corporation merges into the surviving corporation and
ceases to exist separately from the surviving corporation. In addition, the
surviving corporation inherits title to all real estate and other property owned
by the other corporation, as well as all such corporation's liabilities. The
OBCA also further provides that a corporation may sell, lease, exchange or
otherwise dispose of all or substantially all of its property, other than in
ordinary course of business, on the terms and conditions and for the
consideration determined by the corporation's board of directors, if the board
of directors proposes such transaction and those shareholders who are entitled
to vote approve it by vote.
The Claremont Articles provide that no agreement of merger or consolidation
that requires shareholder approval under the OBCA, sale, lease or exchange of
all or substantially all of Claremont's property and assets, or dissolution or
liquidation shall be approved or become effective unless the holders of
sixty-seven percent (67%) of the outstanding shares of Claremont entitled to
vote have voted for adoption of the agreement.
Under the MBCA, shareholders of a corporation which proposes to issue,
directly or through a subsidiary, its securities in the course of a merger,
acquisition of some or all of the outstanding shares of another corporation, or
some or all of the assets of a corporation shall only have the right to vote on
the proposed merger if the shares being issued in the acquisition are or may be
converted into, shares of the acquiring corporation's common stock and the
number of shares common stock being issued will exceed 100% of the number of its
common shares outstanding immediately prior to the acquisition. The MBCA also
provides that for a plan of merger to be approved, the board must recommend the
plan of merger to the shareholders, provide notice of the shareholders meeting
to each shareholder of record which must include, a copy of the plan of merger,
provide a statement informing shareholders that they have the right to dissent
and to be paid the fair value for their shares and receive the affirmative vote
of the holders of a majority of the outstanding shares of the corporation
entitled to vote on the plan of merger. The MBCA further provides that unless
required by the articles of incorporation, action by the shareholders of the
surviving corporation on a plan of merger is not required if the articles of the
surviving corporation will not differ from its articles before the merger and
each shareholder of the surviving corporation holds the same number of shares
with the same rights and preferences after the effective date of the merger as
they had before the effective date of the merger.
APPRAISAL RIGHTS
Under the OBCA, shareholders are entitled to dissent in certain limited
situations. No dissenter's rights are available to holders of shares which have
been registered on a national securities exchange or quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System-National
Market System on the record date for the meeting of shareholders at which the
corporate action giving rise to the dissenters' rights is to be approved. A
shareholder who properly dissents has the right to obtain payment of fair value
for his or her shares. The corporation is entitled to estimate the fair value of
the shareholder's shares, plus accrued interest. In the event the dissenter is
dissatisfied with the fair value as determined by the corporation, the
shareholder may notify the corporation of the dissenter's own estimate of the
fair value of shares and demand payment. In the event that the corporation and
the shareholder cannot agree, the corporation may petition the
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circuit court of the county where the corporation's principal office is located
for a determination of the fair value of the shares.
Under the MBCA, shareholders who dissent have the right to obtain payment
of the fair value for their shares. The corporation shall pay to each dissenter
who properly exercised his or her dissenter's rights the amount the corporation
estimates to be the fair value for the shares. A dissenter may notify the
corporation in writing of his or her own estimate of the fair value of his or
her shares and demand payment. If the corporation and the shareholder cannot
agree, the corporation must petition the circuit court of the county in which
the corporation's principal place of business or registered office is located to
determine the fair value of the shares. The court may appoint one or more
appraisers to recommend a determination of the fair value of the shares.
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COMPLETE BUSINESS SOLUTIONS, INC.
BUSINESS OF CBSI
Complete Business Solutions, Inc. and subsidiaries ("CBSI"), a Michigan
corporation founded in 1985, is a worldwide provider of IT services to large and
mid-size organizations. CBSI offers its clients a broad range of IT services,
from advising clients on strategic technology plans to developing and
implementing appropriate IT applications solutions. CBSI offers custom-tailored
solutions based on an assessment of each client's needs. CBSI's services include
(i) Year 2000 conversion and testing services; (ii) applications development and
maintenance (iii) reengineering legacy applications to client/server technology;
(iv) client/server applications development; (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 Year 2000 tools, client/server architectures,
object-oriented programming languages and tools, distributed database management
systems, and the latest network and communications technologies. CBSI 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 CBSI 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
partnership approach to IT solutions.
CBSI provides IT services to clients in a diverse range of industries. Its
clients include American President Lines, Chrysler Corporation, Citibank, Ford
Motor Company, IBM, Lands' End, the State of Indiana, the State of Nevada,
S.W.I.F.T., Spartan Stores and UNUM Ltd. During 1997, CBSI provided services to
approximately 530 clients in the U.S., Europe and Asia. CBSI'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
fiscal years 1997, 1996, and 1995 and the three month period ended March 31,
1998, existing clients from the previous fiscal year generated at least 80% of
CBSI's revenues. These recurring revenues have contributed significantly to
CBSI's 35% compound annual revenue growth rate over the past five fiscal years.
Since 1992, CBSI has developed an extensive offshore infrastructure in
India, including two modern software development centers in Bangalore and
Chennai (formerly Madras) and a training center in Hyderabad. CBSI believes this
established offshore infrastructure is one of the largest in the industry and
differentiates it from those competitors who have no offshore capability, have
recently established offshore capability or rely mostly on contract service
providers to offer such services. With its offsite and offshore development
options, CBSI can quickly provide clients with IT applications solutions on a
cost-effective basis.
In March 1997, CBSI completed an initial public offering of 5,000,000
shares of its Common Stock at a price of $6 per share. This offering consisted
of 4,600,000 shares of newly issued Common Stock and 400,000 shares sold by a
selling shareholder. This initial public offering generated net proceeds of
approximately $23.6 million which were used to repay outstanding debt, payment
of previously undistributed S corporation earnings, expansion of existing
operations, development of new service lines and other general working capital
purposes. In August 1997, CBSI completed a secondary offering of 5,200,000
shares of its Common Stock at a price of $14 1/8 per share. This secondary
offering consisted of 2,900,000 shares of newly issued Common Stock and
2,300,000 shares sold by selling shareholders. This offering generated net
proceeds of approximately $38 million to be used for the further expansion of
existing operations, possible acquisitions and mergers of related businesses and
other general corporate purposes.
On September 30, 1997 CBSI filed a shelf-registration statement covering
10,000,000 shares of its Common Stock to be issued in conjunction with the
future acquisition of assets, businesses or securities. In November 1997, a
portion of these shares were used to merge with Synergy Software, Inc., a
privately held Illinois corporation which specializes in packaged software
implementation, client server development and high-end IT consulting services.
In January 1998, CBSI used a portion of these shares to merge with c.w. Costello
& Associates, inc., a privately held Connecticut corporation. Costello is a
premiere provider of IT services to large and mid-sized corporations throughout
the United States. The mergers with Synergy and
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Costello further strengthened CBSI's service offerings, expanded CBSI's presence
in the eastern and Chicago areas of the United States, and added approximately
850 IT professionals to CBSI.
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 Board Range of IT Services. CBSI offers its clients a broad range
of IT services from development, reengineering and maintenance of legacy
applications systems to client/server applications development,
Internet/intranet and other emerging technologies. CBSI therefore can serve as
the single source for a client's IT applications solutions. CBSI 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, Year 2000 tools
and network and communications technologies.
Solve Year 2000 Problem. CBSI has developed a formal project management
methodology, known as The Time Machine 2000, that addresses all aspects of the
Year 2000 problem in mainframe, client/server and LAN environments. This
methodology helps assure a quality conversion process and addresses application
portfolio analysis, impact assessment, strategic planning, conversion, testing
and implementation. CBSI 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 United States and Indian headquarters, employ
professionals who have been specifically trained to meet the particular demands
of Year 2000 engagements. CBSI also provides Year 2000 enterprise-level
consulting and testing services. CBSI has already successfully completed all
phases of Year 2000 projects for a variety of clients.
Offer Flexible Project Delivery. CBSI 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 CBSI'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, CBSI has
invested in an extensive offshore infrastructure in India, including two ISO
9001 compliant software development centers in Chennai and Bangalore. In
contrast to competitors who have no offshore capability, have only recently
established offshore capability or rely mostly on contract service providers to
offer such services, CBSI has established an offshore infrastructure which it
believes is one of the largest in the industry. As of December 31, 1997, CBSI
employed over 800 professionals in these centers, which have the capacity to
accommodate in excess of 1,500 professionals. With its offsite and offshore
development options, CBSI can quickly provide solutions tailored to the IT needs
of its clients.
Recruit and Train Globally. CBSI has established a domestic and
international network to recruit employees of all experience levels, from recent
college graduates to seasoned IT professionals. CBSI provides new recruits with
up to two months of training in software engineering techniques and key
technologies. During 1997, CBSI expanded its training program to include
technically able students from the public at large. CBSI began a program to
provide these students with intensive, hands-on training in various programming
languages and Year 2000 conversion skills, all done in an industry-like
environment. CBSI then hires some of these individuals and places the rest with
other leading computer firms -- including customers and IT service companies. To
support this effort, CBSI receives tuition fees from students and a placement
fee from job recruitment agencies. To accommodate this expansion, CBSI made
significant investments in three training centers in the United States and nine
centers in India. These centers employ full-time instructors and are equipped
with client/server and mainframe hardware, software and development tools.
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CBSI GROWTH STRATEGIES
CBSI's goal is to become the preferred provider of IT services to an
expanding base of clients. CBSI's strategy to achieve this goal includes the
following elements:
Cross-Sell Services to Existing Clients. CBSI believes it will grow by
continuing to establish and maintain long-term client relationships. The access
and goodwill offered by these relationships provide CBSI with significant
advantages over its competitors in marketing additional services and solutions
to such clients. CBSI also believes its long-term client relationships and
ability to address all of its clients' IT applications needs distinguish CBSI
from many of its competitors.
Increase and Build Upon Year 2000 Engagements. CBSI is marketing its Year
2000 conversion capabilities and Year 2000 testing services to existing and new
clients. CBSI anticipates that Year 2000 conversion services will represent a
significant percentage of its revenues for the next few years. CBSI performs a
detailed analysis of clients' existing IT systems and applications in connection
with these services. CBSI intends to expand its Year 2000 enterprise-level
consulting and testing services in mainframe, client/server and LAN
environments. CBSI's strategy is to leverage its knowledge of clients' IT
applications systems obtained during Year 2000 projects into additional
engagements involving other services, including maintaining existing
applications systems and reengineering to client/server technology, implementing
ERP software packages and providing Internet/intranet applications solutions.
Capitalize and Expand on Significant Investments in Infrastructure and
Capabilities and Increase International Capabilities. CBSI has made and will
continue to make additional significant investments in its offsite and offshore
infrastructures as well as its systems, methodologies, training programs and
marketing efforts. These investments include two client/server labs, three U.S.
software development centers, two offshore software development centers, nine
training centers and dedicated, high-speed satellite communication links. CBSI
believes that its existing offshore investments can support a larger
organization and in addition, intends to significantly expand its U.S. and
offshore facilities.
Expand Service Offerings. CBSI evaluates emerging technologies as a source
of additional service offerings for its existing and prospective clients. For
example, during 1997 CBSI added new service offerings, including
Internet/intranet applications and implementations of ERP software packages such
as ORACLE, PEOPLESOFT and SAP. CBSI anticipates that its broad and expanding
range of services will minimize its dependence on any single technology.
Pursue Targeted Acquisitions and Mergers. Using either cash or its Common
Stock, or a combination thereof, CBSI continues to seek acquisitions and mergers
that complement its core skills and that have the potential to increase the
overall value of CBSI, rather than merely increase its revenues. Examples of
such companies would include those with specific industry or technical skills
that fit well with CBSI's existing and targeted client base, such as Synergy and
Costello.
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CBSI SERVICES
CBSI offers its clients a broad range of IT services, from advising clients
on strategic technology plans to developing and implementing appropriate IT
solutions. CBSI provides services in the following categories:
<TABLE>
<CAPTION>
===============================================================================================================
CBSI SERVICES DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year 2000 Conversion and Testing 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
- Enterprise-level consulting and testing
services
- PC/LAN distributed computing evaluation
services
- ---------------------------------------------------------------------------------------------------------------
Applications Development and Maintenance - Design large-scale, complex solutions capable
of managing transaction-intensive applications
- Develop and maintain applications using COBOL,
CICS, DB2 and other programming environments
- ---------------------------------------------------------------------------------------------------------------
Reengineering Legacy Applications to - Reengineer from centralized, mainframe-based
Client/Server Technology system 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, and Access databases; Visual
Basic, Powerbuilder, C++ as graphical user
interfacers; and UNIX, OS/2 and Windows NT
operating systems
- ---------------------------------------------------------------------------------------------------------------
Packaged Software Implementation - Implement packaged software solutions
(PEOPLESOFT, ORACLE, SAP)
- 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
- Design and develop 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>
CBSI uses both industry-proven and proprietary methodologies to enhance the
quality, consistency and efficiency of its projects. All levels of CBSI's IT
consultants, from entry-level programmers to project managers, are given formal
instruction in various aspects of these methodologies. A methodology used by
CBSI is METHOD/1, which CBSI licenses from Andersen Consulting. CBSI has
extended METHOD/1 to incorporate CBSI's Time Machine 2000 and COSMO
methodologies. The COSMO methodology is specifically designed to meet the needs
of offsite and offshore projects. This methodology contains the specific
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procedures required to coordinate the activities of multiple sites across
different time zones. All 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
CBSI's project management methodologies and assists project managers in
estimating costs and executing projects.
SOFTWARE PRODUCTS
CBSI's primary software product offering is the Advanced Program for
Educational Computer Solutions ("APECS") software which is licensed by
approximately 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. CBSI 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; and Monroe Community
College, Michigan. CBSI is currently reengineering this system to a
client/server environment. CBSI maintains this product at its Chennai, India and
Lombard, Illinois facilities.
SALES AND MARKETING
The majority of new sales are generated by CBSI'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 CBSI,
the unit and other contributions to CBSI. 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
CBSI's services. Such relationships as a result in a significant number of
client referrals.
CBSI also uses telemarketers to establish initial client contact and
prequalify potential new clients. Qualified prospective clients are referred to
CBSI's dedicated sales group, whose backgrounds include both technical and sales
experience. This sales group is responsible for identifying clients' needs and
promoting CBSI's services to potential clients. Once potential clients are
further qualified by the sales group, CBSI 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, CBSI 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 CBSI's services and
delivery methodologies.
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The following is a sample of the organizations to which CBSI provided
services during the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
YEAR OF
FIRST
CLIENT ENGAGEMENT
- ------------------------------------------------------------ ----------
<S> <C>
MANUFACTURING
Chrysler Corporation........................................ 1985
Ford Motor Company.......................................... 1989
Johnson Controls............................................ 1994
RETAIL DISTRIBUTIONS
Spartan Stores.............................................. 1992
The GAP..................................................... 1993
Lands' End.................................................. 1996
PUBLIC SECTOR
State of Michigan........................................... 1988
State of Indiana............................................ 1992
State of Nevada............................................. 1992
TRANSPORTATION
American President Lines.................................... 1990
FINANCIAL SERVICES
S.W.I.F.T................................................... 1985
Harris Bank................................................. 1993
Citibank.................................................... 1996
INSURANCE
UNUM Ltd.................................................... 1995
TECHNOLOGY
IBM......................................................... 1989
Tandem Computers............................................ 1989
Union Pacific Technology.................................... 1992
UTILITIES
Michigan Consolidated Gas Co................................ 1992
Southern California Edison.................................. 1994
South Carolina Electric & Gas............................... 1995
</TABLE>
HUMAN RESOURCES
CBSI's success depends in large part on its ability to attract, develop,
motivate and retain highly skilled IT professionals. CBSI'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. CBSI has used
employee stock options as part of its recruitment and retention strategy.
Effective January 1, 1998, CBSI established an Employee Stock Purchase Plan to
allow eligible employees to purchase Company stock at a discount and without the
use of a stock broker.
As of March 31, 1998, CBSI had 55 full-time employees dedicated to
recruiting IT professionals and managing its human resources. CBSI's recruiting
activities draw on an international pool of IT talent. CBSI has full-time
personnel dedicated to handling visa application and compliance issues for
international recruits. CBSI actively recruits in the United States, India,
United Kingdom, Australia, New Zealand, the Philippines, Mexico and Singapore.
Recruiting methods include advertisement in leading newspapers and trade
magazines, CBSI's web site and participation in career fairs. CBSI also
participates in on-campus recruiting for recent
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college graduates and has hired employees from various universities, including
the University of Michigan, the University of Alabama, Michigan State
University, the University of Notre Dame, University of Florida A&M, California
State University and Central Michigan University. In addition, current employees
receive bonuses for referring individuals and screening candidates for new
positions.
CBSI has established employee 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 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. CBSI'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, CBSI provides extensive
training in quality processes and cross-cultural communication skills. CBSI also
offers training courses to non-employees for a fee. CBSI may hire graduates of
these training programs.
As part of its retention efforts, CBSI has formulated a strategy for
minimizing turnover which emphasizes: (i) human resources management; (ii)
contractual limitations effective upon termination of employment; (iii)
competitive salaries; (iv) comprehensive benefits; (v) employee stock options;
and (vi) deferred compensation.
CBSI's IT professionals typically have Bachelor's or Master's degrees in
Computer Science or another technical discipline. As of March 31, 1998, CBSI had
3,131 employees comprised of 2,824 IT professionals, 79 sales and marketing
personnel, and 228 general and administrative personnel. As of March 31, 1998,
CBSI also had 192 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 CBSI. Primary competitors include Cambridge Technology
Partners, Information Management Resources, Inc. and Keane, Inc., along with
participants from a variety of market segments, including "Big Six" accounting
firms, and implementation firms, applications software firms, programming
companies and temporary staffing firms. CBSI 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 CBSI's
experience in competitive situations, CBSI believes that it competes favorably
with respect to these factors.
INTELLECTUAL PROPERTY RIGHTS
CBSI relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
propriety rights and the proprietary rights of third parties from whom CBSI
licenses intellectual property. CBSI enters into confidentiality agreements with
its employees and limits distribution of proprietary information. There can be
no assurance that the steps taken by CBSI in this regard will be adequate to
deter misappropriation of proprietary information or that CBSI will be able to
detect unauthorized use and taken appropriate steps to enforce its intellectual
property rights. In addition, the laws of certain foreign countries in which
CBSI's products are, or may be, developed or sold may not protect CBSI's
products or intellectual property rights to the same extent as do the laws of
the United States. This lack of protection may impair CBSI's ability to protect
its intellectual property adequately and could have a material adverse impact on
CBSI's business.
CBSI 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, CBSI owns service marks for The Time Machine
2000 and COSMO and has pending federal trademark applications for each.
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Software developed by CBSI in connection with a client engagement is
typically assigned to the client. In limited situations, CBSI 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. CBSI has also developed and copyrighted or acquired
software products which are generally licensed to users pursuant to a license
agreement. CBSI's software products include APECS, APECS Custom View and Micro
APECS Scheduler. APECS is a registered trademark of CBSI.
PROPERTIES OF CBSI
CBSI leases approximately 50,000 square feet of office space in Farmington
Hills, Michigan which is used for the development center and by CBSI's senior
management, administrative personnel, human resources, and sales and marketing
functions. This lease expires in June 2008. CBSI leases major facilities in
Schaumburg, Illinois; Milpitas, California; Providence, Rhode Island; Nashua,
New Hampshire; Phoenix, Arizona; Middletown, Connecticut; Springfield,
Massachusetts; Chicago, Illinois; Columbus, Ohio; Tampa, Florida; and Boston
Massachusetts. CBSI also leases smaller facilities throughout the United States.
In addition, CBSI has offshore offices. CBSI leases approximately 64,000
square feet of office space in Chennai, India which serves as its headquarters
India. This lease expires in 2003. CBSI owns a facility totaling approximately
7,000 square feet in Bangalore, India. CBSI also leases facilities in the United
Kingdom, Singapore, and Hyderabad, India.
LEGAL PROCEEDINGS OF CBSI
CBSI has received a third-party complaint filed against it and other
parties on February 3, 1997, by Network Six, Inc. ("NSI") in the Circuit Court
of the First Circuit for the State of Hawaii. The third-party claims are
asserted in an action that the State of Hawaii has brought against NSI. CBSI has
also received an answer and counterclaim, dated January 31, 1997, served by NSI
in an action brought by CBSI against NSI in the Superior Court of the State of
Rhode Island. CBSI acted as a subcontractor to NSI in connection with the
development of software for the State of Hawaii. Additionally, NSI and CBSI were
parties to a letter of intent, now terminated, for the purpose of exploring a
business combination or merger. CBSI's suit against NSI in Rhode Island, as well
as the State of Hawaii's suit against NSI in Hawaii, arise from the Hawaii
software project.
The allegations of NSI's third-party complaint in the Hawaii action and
NSI's counterclaim in the Rhode Island action are substantively identical. NSI
alleges that CBSI wrongfully used information gained in connection with the
letter of intent to attempt to gain control of the state of Hawaii project,
interfered with NSI's relationship with the State of Hawaii, employed or
solicited the employment of NSI employees in violation of contract, and
otherwise breached contractual or other obligations to NSI. NSI seeks damages of
approximately $481 thousand from CBSI for services and personnel allegedly
provided to it by NSI, damages of $60 million predicated on a decline in the
market value of NSI's publicly-traded stock, and other unspecified losses. On
May 30, 1997, the Circuit Court of the First Circuit for the State of Hawaii
granted CBSI's motion to dismiss claims asserting bad faith breach of contract
with prejudice, and conspiracy without prejudice.
CBSI believes that it has not breached any contractual or other obligation
to NSI as alleged either in the third-party complaint or the counterclaim, and
that it possesses meritorious defenses or set-offs to all of NSI's claims. CBSI
does not believe that NSI's actions will result in any material liability to it,
or that they will have a material adverse effect on its financial condition,
business, or operations, and intends to vigorously contest the claims asserted
in both actions.
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CBSI'S 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 should be read in conjunction with CBSI's consolidated
financial statements and notes thereto. With the exception of statements
regarding historical matters and statements regarding CBSI's current status,
certain matters discussed below and throughout this report are forward-looking
statements that involve substantial risks and uncertainties that could cause
actual results to differ materially from targets or projected results. Such
forward-looking statements regarding targets or projections may be identified by
the use of the words "anticipate", "believe", "estimate", "expect", "plan" and
similar expressions. Factors that could cause such differences include the
recruitment and retention of IT professionals, government regulation of
immigration, increasing significance and risks of non-U.S. operations,
variability of operating results, decrease in demand for Year 2000 services,
exposure to conditions in India, fixed-price projects, competition, management
of growth, rapid technological change, risks related to mergers and acquisitions
and potential liability to clients each of which are discussed herein under the
caption -- CBSI Risk Factors.
OVERVIEW
Complete Business Solutions, Inc. is a worldwide provider of IT services to
large and mid-size organizations. CBSI has been profitable every year since its
inception in 1985, and has experienced a compound annual revenue growth rate of
approximately 35% over the past five fiscal years. CBSI leverages its existing
client base by providing quality services and by being responsive to clients.
For each of the fiscal years 1997, 1996, and 1995, and the three month period
ended March 31, 1998, existing clients from the previous fiscal year generated
at least 80% of CBSI's revenues.
CBSI's revenues are generated primarily from professional services fees.
CBSI's service offerings include: (i) Year 2000 conversion and testing services;
(ii) applications development and maintenance; (iii) reengineering legacy
applications to client/server technology; (iv) client/server applications
development; (v) IT consulting services; (vi) packaged software implementation;
and (vii) contract programming services. Contract programming services are
typically provided as a member of a project team working under the direct
supervision of the client, are typically billed on a time-and-materials basis,
and have lower gross profit margins than other professional service offerings.
For all other professional service offerings, the CBSI generally assumes
responsibility for project management and may bill the client on either a
time-and-materials or fixed-price basis, although such projects are generally
billed on a time-and-materials basis. CBSI has been shifting its business away
from contract programming services toward higher margin service offerings.
CBSI recognizes revenues on a time-and-materials basis as the services are
performed. On fixed-price engagements, CBSI recognizes revenues under the
percentage of completion method.
CBSI's most significant cost is project personnel cost, which consists
primarily of salaries, wages and benefits for its IT professionals. CBSI strives
to maintain its gross profit margin by controlling project costs and offsetting
increases in salaries and benefits with increases in billing rates. CBSI 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, CBSI has realized higher gross profit
margins from CBSI'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.
In an effort to sustain its growth and profitability, CBSI has made and
continues to make substantial investments in infrastructure, including: (i)
software development centers in multiple locations in the U.S. and two locations
in India; (ii) Year 2000 conversion factories in the U.S. and India; (iii)
global recruiting and training centers; and (iv) expanded training programs.
CBSI believes that the results of these strategic investments have not yet been
fully realized.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
operational data from CBSI's consolidated statements of income as a percentage
of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 75.8 73.8 73.7 73.2 70.0
----- ----- ----- ----- -----
Gross profit............................... 24.2 26.2 26.3 26.8 30.0
Selling, general and administrative
expenses................................. 19.9 20.8 21.4 20.7 25.4
----- ----- ----- ----- -----
Income from operations..................... 4.3% 5.4% 4.9% 6.1% 4.6%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
Revenues. CBSI's revenues increased approximately 46% to $60.5 million for
the three month period ended March 31, 1998 from $41.5 million for the same
period in 1997. This growth in revenues is primarily attributable to increases
in CBSI's IT professional workforce, increases in average billing rates, further
expansion of CBSI's international operations and additional services provided to
existing clients. CBSI's IT professional workforce increased approximately 38%
for the three month period ended March 31, 1998 from the comparable three month
period in 1997. Revenues from international operations, principally offshore
development centers, increased approximately 341% to $7.7 million for the three
month period ending March 31, 1998 from $1.7 million for the same three month
period in 1997. Revenues from existing clients increased $15.2 million for the
three month period ended March 31, 1998 over the same period in 1997.
Gross Profit. Gross profit consists of revenues less cost of revenues. Cost
of revenues consists primarily of salaries (including nonbillable and training
time), benefits, travel and relocation for IT professionals. In addition, cost
of revenues includes depreciation and amortization, direct facility costs and
contractual services. Gross profit increased approximately 64% to $18.1 million
for the three month period ended March 31, 1998 from $11.1 million for the same
period in 1997. This increase is primarily attributable to increases in CBSI's
IT professional workforce and average U.S. billing rates, as well as the
continued expansion of CBSI's offshore development centers. Gross profit as a
percentage of revenues increased to approximately 30% for the three month period
ended March 31, 1998 from approximately 27% for the same period in 1997. This
increase in gross profit margin as a percentage is primarily attributable to
CBSI's continued strategic shift of its business toward higher margin service
offerings, including Year 2000 services, and the increasing utilization and
expansion of CBSI's offshore development centers which operate at higher gross
profit and operating margins. For the three month period ended March 31, 1998,
approximately 18% of revenues were generated from contract programming services,
as compared with approximately 27% for the three month period ended March 31,
1997. While Year 2000 services, a higher margin service offering, represented
20% of revenues for the three month period ended March 31, 1998 compared to 9%
for the same period in 1997.
Selling, General and Administrative. Selling, general and administrative
expenses consists primarily of costs associated with CBSI's direct selling and
marketing efforts, human resources and recruiting departments, administration
and indirect facility costs. Selling, general and administrative expenses
excluding approximately $3.4 million of merger costs, incurred in conjunction
with the merger with Costello, increased approximately 40% to $12.0 million for
the three month period ended March 31, 1998 from $8.6 million for the same
period in 1997. This increase resulted from the continued expansion of CBSI's
direct selling and marketing effort, further enhancement of the infrastructure,
and other general overhead cost increases necessary to support CBSI's continued
revenue growth. Exclusive of merger costs, as a percentage of revenues, selling,
general and administrative expenses represented approximately 20% for the three
month period ended March 31, 1998 compared to 21% for the same period in 1997.
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Other Expense (Income). Other expense (income) represents interest earned
on cash equivalents, net of interest expense on borrowings. Other income for the
three month period ended March 31, 1998 was $.5 million, as compared to other
expense of $.1 million for the three month period ended March 31, 1997. This
change is primarily due to reduced interest expense, resulting from the
repayment of CBSI outstanding debt in 1997 and the repayment of Costello's debt
in 1998 and interest earned from the investment of net proceeds from CBSI's
public offerings of Common Stock in 1997.
1997 COMPARED TO 1996
Revenues. CBSI's revenues increased approximately 43% to $194 million in
fiscal year 1997 from $135.3 million in fiscal year 1996. This growth in
revenues is primarily attributable to increases in CBSI's IT professional
workforce, increases in average billing rates, further expansion of CBSI's
international operations and additional services provided to existing clients.
CBSI's IT professional workforce increased approximately 30% during fiscal year
1997 from the previous fiscal year. Revenues from international operations,
principally offshore development centers, increased approximately 157% to $14.7
million in fiscal 1997 from $5.7 million in the previous fiscal year. Revenues
from existing clients increased approximately $31.3 million in fiscal 1997 from
the previous fiscal year.
Gross Profit. Gross profit increased approximately 44% to $51 million in
fiscal year 1997 compared to $35.5 million in fiscal year 1996. This increase in
gross profit is primarily attributable to increases in CBSI's IT professional
workforce and average U.S. billing rates, as well as the continued expansion of
CBSI's offshore development centers. Gross profit as a percentage of revenues
was approximately 26% in fiscal years 1997 and 1996. Increases in gross profit
as a percentage of revenues resulting from CBSI's continued strategic shift of
its business toward higher margin service offerings, including Year 2000
services, and the increasing utilization and expansion of CBSI's offshore
development centers which operate at higher gross profit and operating margins,
were offset by non-recurring deferred compensation arrangements, bonuses and
taxes related to the merger of Costello.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 43% to $40.4 million in fiscal
year 1997, excluding approximately $1.2 million of costs incurred in conjunction
with the merger with Synergy, from $28.2 million in fiscal year 1996. This
increase resulted from the continued expansion of CBSI's direct selling and
marketing effort, further enhancement of infrastructure, and other general
overhead cost increases necessary to support CBSI's continued revenue growth.
Exclusive of its merger costs in 1997, selling, general and administrative
expenses represented approximately 21% of revenues for fiscal years 1997 and
1996.
Other Expense (Income). Other expense (income) consists primarily of
interest income earned on short-term investments offset by interest expense
incurred on short-term borrowings. Other income for the year ended December 31,
1997 was $.5 million, as compared to other expense of $.8 million for the year
ended December 31, 1996. This change is primarily due to reduced interest
expense, resulting from the repayment of outstanding debt during the first
quarter of 1997, and interest earned from the investment of net proceeds from
CBSI's public offerings of Common Stock in 1997.
1996 COMPARED TO 1995
Revenues. CBSI's revenues increased approximately 38% to $135.3 million in
fiscal year 1996 from $98 million in 1995. This growth in revenues is primarily
attributable to additional services provided to existing clients and the
expansion of CBSI's client base. Revenues from existing clients in 1996
increased $18 million over revenues from those clients during 1995. Revenues
from CBSI's international operations increased 24% to $5.7 million in fiscal
year 1996 from $4.6 million in fiscal year 1995.
Gross Profit. Gross profit increased approximately 49% to $35.5 million in
fiscal year 1996 from $23.8 million in fiscal year 1995. This increase in gross
profit is attributable primarily to the expansion of CBSI's client base, and the
impact of CBSI incurring approximately $3.0 million in excess personnel cost,
primarily in 1995, to meet the demands of a fixed price project (the
"Fixed-Price Project") to design and develop a human services and child
enforcement system for a state government. Gross profit as a percentage of
revenues increased to 26.2% in fiscal year 1996 from 24.2% in fiscal year 1995.
This increase is due primarily to billing
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rate increases partially offset by salary increases to IT professionals in 1996
and the impact of the Fixed-Price Project on fiscal year 1995 results.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 44% to $28.2 million in fiscal year 1996 from
$19.6 million in fiscal 1995. This increase resulted from expenses incurred to
build and enhance the infrastructure necessary to support CBSI's continued
revenue growth. As a percentage of revenues, selling, general and administrative
expenses represented approximately 21% for fiscal year 1996 and 20% for fiscal
year 1995.
LIQUIDITY AND CAPITAL RESOURCES
From CBSI's inception in 1985 through March 5, 1997, CBSI generally funded
its operations and working capital needs through internally generated funds,
periodically supplemented by borrowings under CBSI's revolving credit facilities
with commercial banks. CBSI's cash provided by operations was $13.4 million and
$3.7 million for the fiscal years ending December 31, 1997 and 1996,
respectively. During the three month period ended March 31, 1998, cash flows
used in operating activities were approximately $3 million primarily the result
of payment of deferred compensation arrangements, bonuses and taxes related to
the merger of Costello.
The principal use of cash for investing activities during the three fiscal
years ending December 31, 1997 was for the purchase of property and equipment
and computer software primarily as part of the development and enhancement of
CBSI's offshore software development centers.
Historically, borrowings and repayments under CBSI's revolving credit
facilities represented the most significant components of cash provided or used
by financing activities. However, net cash provided by financing activities
increased to approximately $44.9 million in fiscal year 1997 primarily due to
CBSI realizing net proceeds of approximately $61.6 million from its public
offerings. All outstanding borrowings under the revolving credit facility as of
March 5, 1997 were repaid from the proceeds of the initial public offering. In
connection with the termination of CBSI's S corporation status, CBSI has made
partial distributions of its previously undistributed S corporation earnings
totaling approximately $10.6 million.
Under an arrangement with a commercial bank, CBSI may borrow an amount not
to exceed $21 million with interest at the bank's prime interest rate, or the
Libor rate plus 1 1/2 %. The borrowings under this facility are short-term,
payable on demand and are secured by trade accounts receivable and equipment of
CBSI. As of December 31, 1997 and March 31, 1998, there were no borrowings
outstanding under this facility. In recent years, CBSI has executed several
short-terms notes with the bank to finance the purchase of equipment and
software. During fiscal year 1997, the balances outstanding on these notes were
repaid. In 1997 and through February 1998, Costello had a line of credit with a
commercial bank which included a base borrowing line of $11 million and a
special advance of $1.5 million. As of December 31, 1997, approximately $3.4
million was outstanding under this line of credit. In conjunction with the
merger, the outstanding balance on this line of credit was repaid.
The international operations of CBSI, principally the offshore development
centers, accounted for approximately 4%, 8% and 12% of CBSI's total revenues in
fiscal years 1997 and 1996 and the three month period ended March 31, 1998,
respectively. Most of CBSI's revenues are billed in U.S. dollars. CBSI
recognizes transaction gains and losses in the period of occurrence. Foreign
currency fluctuations in fiscal years 1997 and 1996 and the three month period
ended March 31, 1998 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. CBSI 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 CBSI's revenues or income from
operations in fiscal years 1997 and 1996, and the three month period ended March
31, 1998.
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CBSI continues to address the impact of the year 2000 issue on its internal
systems. CBSI believes the cost associated with its plan to convert its internal
systems will not be material. In addition, CBSI anticipates that Year 2000
conversion services will represent a significant percentage of its revenues for
the next few years.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," was issued in February 1997. CBSI will be
required to adopt the new standard for the year ended December 31, 1998. This
statement requires specific disclosure regarding CBSI's capital structure,
including descriptions of the securities comprising the capital structure and
the contractual rights of the holders of such securities. CBSI's adoption of
this statement in fiscal year 1998 resulted in no significant changes to the
financial statements.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," was issued in June 1997. CBSI will be required to adopt
the new standard for the year ended December 31, 1998, although early adoption
is permitted. The primary objective of this statement is to report and disclose
a measure ("comprehensive income") of all changes in equity of a company that
result from transactions and other economic events of the period other than
transactions with owners. CBSI's adoption of this statement in fiscal year 1998
resulted in no significant changes to the financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997.
CBSI will be required to adopt the new standard for the year ended December 31,
1998, although early adoption is permitted. This statement requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way CBSI's management organizes segments within CBSI for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company. CBSI will adopt this
statement in fiscal year 1998.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued in
February 1998. CBSI will be required to adopt the new standard for the year
ended December 31, 1998. This statement standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer as useful as they were when Statement of
Financial Accounting Standards No. 87, 88 and 106 were issued. CBSI will adopt
this statement in fiscal year 1998.
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CBSI DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of CBSI as of May 31, 1998 were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CBSI
<S> <C> <C>
Rajendra B. Vattikuti..................... 47 President, Chief Executive Officer and Director
Timothy S. Manney......................... 39 Executive Vice President of Finance and
Administration, Treasurer and Director
Daniel S. Rankin.......................... 43 Vice President of Technical Services
Gena M. Lodolo............................ 49 Vice President of Sales
Nanjappa S. Venugopal..................... 45 Director of Human Resources
Douglas S. Land........................... 40 Director
Frank D. Stella........................... 79 Director
John A. Stanley........................... 60 Director
Charles Costello.......................... 59 Director
Ronald K. Machtley........................ 49 Director
</TABLE>
Rajendra B. Vattikuti, founded CBSI and has been its President and Chief
Executive Officer since February 1985.
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 CBSI,
most recently as Chief Financial Officer. Mr. Manney joined CBSI in 1990.
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. Mr. Rankin joined CBSI in 1994.
Gena Lodolo has served as Vice President of Sales since June 1997. From
April 1995 to June 1997, Ms. Lodolo was an independent marketing consultant to
manufacturing companies. From January 1986 to April 1995, Ms. Lodolo held
various sales related positions at Data General Corporation, including positions
as Sales Director, Reseller Division and District Manager, Midwest Division. Ms.
Lodolo joined CBSI in 1997.
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 CBSI from September 1991 to September 1996. Mr.
Venugopal joined CBSI in 1991.
Douglas S. Land has served as a Director since November 1993 and as an
advisor to CBSI since 1988. Mr. Land is the founder and President of Economic
Analysis Group, Ltd., a Washington DC-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 services 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.
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.
John A. Stanley has served as a Director since June 1997. Mr. Stanley has
served as President of European Operations of Lexmark International since March
1991. Previously, he was employed by IBM for
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<PAGE> 91
22 years. Mr. Stanley is a graduate of FitzWilliam College, University of
Cambridge, England with a Master of Arts degree, and holds a degree in Personnel
Management from The London School of Economics.
Charles Costello has served as a Director since May 1998. Mr. Costello was
the Founder, President and Chief Executive Officer of c.w. Costello &
Associates, inc. from December 1986 to December 1996.
Ronald K. Machtley has served as a Director since May 1998. Mr. Machtley
has been the President of Bryant College since 1996. From 1994 to 1995 Mr.
Machtley was a partner in the Washington, D.C. law firm of Wilkinson, Barker,
Knauer & Quinn. From 1988 to 1995 Mr. Machtley was a United States Congressman
from the State of Rhode Island.
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<PAGE> 92
CBSI EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to CBSI's Chief Executive Officer and
each of the four most highly compensated executive officers of CBSI as
determined at the end of the last two fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS(#)(5) COMPENSATION(3)
<S> <C> <C> <C> <C> <C> <C>
Rajendra B. Vattikuti......... 1997 $350,000 $350,000 $16,788(1) -- $3,800
President and 1996 411,000 288,000 14,729(2) -- 3,800
Chief Executive Officer
Timothy S. Manney............. 1997 180,000 108,000 -- -- 3,800
Executive Vice President of 1996 150,000 50,000 2,746(4) -- 3,800
Finance and Administration,
Treasurer
Daniel S. Rankin.............. 1997 180,000 50,000 -- -- 2,980
Vice President of Technical 1996 160,000 35,000 -- -- 3,800
Services
Gena M. Lodolo................ 1997 78,750 62,473 -- 50,000 --
Vice President of Sales 1996 -- -- -- -- --
Nanjappa S. Venugopal......... 1997 125,000 40,000 -- -- 692
Director of Human Resources 1996 100,000 35,000 -- 59,422 3,240
</TABLE>
- -------------------------
(1) Includes $4,688 representing the imputed value of certain health and life
insurance benefits provided by the Company to Mr. Vattikuti and $12,100
representing the personal use of corporate cars.
(2) Includes $3,576 representing the imputed value of certain health and life
insurance benefits provided by the Company to Mr. Vattikuti and $11,153
representing the personal use of corporate cars. It does not include
benefits from certain non-interest bearing loans outstanding during 1996.
(3) Represents amount of contribution by the Company on behalf of such
individual to the Company's 401(k) Plan.
(4) Represents the imputed value of certain health and life insurance benefits
provided by the Company.
(5) Adjusted for March 19, 1998 2 for 1 stock dividend.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO TERM(1)
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME OPTION GRANTED FISCAL YEAR PRICE(2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gena M. Lodolo(3)(4)........ 50,000 10% $9.19 9/12/06 $253,335 $623,977
</TABLE>
- -------------------------
(1) The potential realizable value is calculated based on the terms of the
option at the time of grant (nine years). Assumed stock price appreciation
of 5% and 10% is based on the fair value at the time of grant.
(2) The exercise price equals the fair market value of the Common Stock as of
the grant date as determined by the Board of Directors.
(3) Ms. Lodolo's options are exercisable in four equal annual installments
commencing on June 3, 1998.
(4) Share numbers and the exercise prices of Stock Options are adjusted to
reflect the March 19, 1998 2 for 1 stock dividend.
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<PAGE> 93
The following table sets forth certain information with respect to the
stock options held at December 31, 1997 by the executive officers below who
exercised options during 1997:
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END(2) YEAR END($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(2) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Daniel S. Rankin........ 70,000 $841,400 78,556 148,556 $1,708,637 $3,231,093
Nanjappa S. Venugopal... 19,806 198,951 -- 39,616 -- 861,648
Gena M. Lodolo.......... -- -- -- 50,000 -- 628,000
</TABLE>
- -------------------------
(1) Calculated based on December 31, 1997 stock price of $21.75 as adjusted for
March 19, 1998 2 for 1 stock dividend.
(2) All share numbers adjusted to reflect the March 19, 1998 2 for 1 stock
dividend.
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<PAGE> 94
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBSI
The following table set forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1998 (i) for 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 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
OWNERSHIP
---------------------
NUMBER OF
NAME SHARES(8) PERCENT
<S> <C> <C>
Rajendra B. Vattikuti(1)(9)................................. 10,219,550 38%
Putnam Investments Inc.(2).................................. 3,081,000 11%
Charles Costello(7)......................................... 1,405,484 5%
Timothy S. Manney(1)........................................ 449,004 2%
Douglas S. Land(3).......................................... 356,860 1%
Daniel S. Rankin(1)(4)...................................... 197,115 1%
Frank D. Stella(5).......................................... 25,750 *
Nanjappa S. Venugopal(1).................................... 19,806 *
John A. Stanley(6).......................................... 17,967 *
Gena Lodolo(1).............................................. 12,500 *
All directors and executive officers as a group (9
persons).................................................. 12,704,036 47%
</TABLE>
- -------------------------
* Less than 1%.
(1) The address of Mr. Vattikuti, Mr. Manney, Mr. Rankin, Mr. Venugopal and Ms.
Lodolo is c/o Complete Business Solutions, Inc., 32605 West Twelve Mile
Road, Suite #250, Farmington Hills, MI 48334.
(2) The address of Putnam Investments, Inc. is One Post Square, Boston, MA
02109.
(3) The address of Mr. Land is c/o the Chesapeake Group, 515 Madison Avenue,
21st Floor, New York, NY, 10022. Does not include 28,522 shares transferred
to certain family members. Mr. Land disclaims beneficial ownership of such
shares.
(4) Includes 557 shares subject to options immediately exercisable.
(5) The address of Mr. Stella is c/o F. D. Stella Products Company, 7000
Fenkell, Detroit, MI 48238.
(6) The address of Mr. Stanley is c/o Lexmark International, Immeuble Jean
Monnet, 11 Place des Vosques, Paris La Defense, France 92061.
(7) The address of Mr. Costello is 5583 Golf Pointe Dr., Sarasota, FL 34243.
Includes 113,834 shares owned by his spouse.
(8) Adjusted for the March 19, 1998 2 for 1 stock dividend.
(9) Does not include 40,580 shares owned by his spouse. Mr. Vattikuti disclaims
beneficial ownership of such shares.
CERTAIN TRANSACTIONS OF CBSI
During 1996, CBS India loaned approximately $.1 million to Vanaja
Gangavarupu, the mother-in-law of Rajendra Vattikuti. This loan was short-term,
payable on demand and noninterest bearing. The loan and accrued interest were
repaid during 1997.
During 1996 and 1997, Costello made interest bearing loans to the c.w.
Costello Realty Group, an entity affiliated with Charles Costello for the
purchase of real estate, of $.3 million and $.1 million, respectively. As of
December 31, 1997, $.3 million of these loans were outstanding. In connection
with these loans, Costello guaranteed the related real estate mortgage
obligation of approximately $.3 million as of December 31, 1997. Costello leased
this real estate from the c.w. Costello Realty Group for various marketing and
administrative
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<PAGE> 95
purposes. During 1996 and 1997, Costello incurred rent expense of $.1 million
and $.2 million, respectively. These leases were cancelled during 1998.
During 1995, 1996 and 1997, Costello made non-interest bearing loans to Mr.
Costello of $44 thousand, $39 thousand and $22 thousand, respectively. As of
December 31, 1997, $.1 million of these loans were outstanding.
CBSI incurred approximately $.5 million and $.2 million for the years ended
December 31, 1997 and 1996, respectively, for consulting services provided by
The Chesapeake Group, an entity affiliated with Douglas Land. No consulting
services were provided to the Company by The Chesapeake Group during 1995.
In August 1997, in connection with CBSI's secondary offering, Rajendra
Vattikuti paid CBSI approximately $.3 million as required under Section 16(b) of
the Exchange Act of 1934. This amount has been included in additional paid-in
capital in the accompanying consolidated balance sheets.
During 1997, Timothy Manney repaid approximately $.2 million of a
promissory note which was issued in 1996 in conjunction with the exercise of
nonqualified stock options.
During 1997, Douglas Land repaid approximately $.1 million of a promissory
note which was issued in 1996 in conjunction with the exercise of nonqualified
stock options.
During 1997, Nanjappa Venugopal exercised a portion of his stock options
and CBSI issued 19,806 shares of Common Stock for an aggregate purchase price of
approximately $83 thousand. Pursuant to the terms of the Incentive Stock Option
Agreement between Mr. Venugopal and CBSI, CBSI loaned Mr. Venugopal
approximately $83 thousand to purchase shares. The promissory note executed by
Mr. Venugopal provides that the loan matures in October 1999 and bears interest
at the rate of 6% per annum, payable semi-annually.
Subsequent to March 5, 1997, CBSI made partial distributions to certain
shareholders of $10.6 million as part of the termination of CBSI's S corporation
status.
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<PAGE> 96
DESCRIPTION OF CBSI CAPITAL STOCK
GENERAL
The authorized capital stock of CBSI currently 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 ("Preferred Stock"). The following
description of the capital stock of CBSI 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 CBSI Articles, and
the CBSI Bylaws, copies of each of which are incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part. As of
June 1, 1998, CBSI had outstanding 27,222,900 shares of Common Stock and no
shares of Preferred Stock. There were 202 record holders of Common Stock.
COMMON STOCK
The Company's authorized common stock currently consists of 30,000,000
shares of Common Stock which is traded on the Nasdaq National Market. CBSI is
proposing to amend the CBSI Articles to increase the number of shares authorized
of Common Stock to 200,000,000. The holders of Common Stock are entitled to one
vote for each share held of record on all matters 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 CBSI Board 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
CBSI is authorized to issue up to 1,000,000 shares of undesignated
Preferred Stock. The CBSI Board 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 CBSI Board, 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 CBSI. At present, CBSI has no
plans to issue any shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for CBSI Common Stock is First Chicago
Trust Company of New York.
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<PAGE> 97
CLAREMONT TECHNOLOGY GROUP, INC.
BUSINESS OF CLAREMONT
OVERVIEW
Claremont provides IT solutions based on client/server software for select
industries focusing on the customer care needs of its clients, including
customer service, order and transaction processing, billing and logistics.
Claremont typically provides its services to large organizations involved in
markets that are experiencing dynamic change, and that seek to master that
change in part through application of information technology solutions. For
example, Claremont clients have experienced competitive pressures arising from
recent deregulation (e.g. communications, financial services and utilities),
greater world-wide competition (e.g. manufacturing) or privatization (e.g. state
and local government, employee pension and retirement and health and human
services).
Claremont delivers its services, including IT planning, systems integration
and development and outsourcing, through a standard project management
methodology. Claremont's methodology stresses IT strategic planning and business
process re-engineering, and the rapid development of effective IT solutions
through use of standard solution components, in the form of Claremont
proprietary object oriented software modules and transferable design frameworks.
Depending on the client's preference, Claremont delivers its services on a
fixed-price, fixed-delivery-schedule basis or a time-and-materials basis.
Claremont's focus on opportunities within select vertical markets is
complemented by its expertise with the particular customer interface within
these markets and its dedication to partner with clients to co-develop large
scale business solutions.
Claremont's clients consist of large corporations and government
organizations in the United States and certain foreign markets including Canada,
Australia and Mexico. Claremont's clients include Benchmark Group, CalPERS,
Colonial Pacific Leasing, Columbia Forest Products, Lucent, Nevada PERS, Ohio
STRS, Sprint, State of Kentucky and Weyerhaeuser.
INDUSTRY BACKGROUND
Organizations today face constant pressure to improve the quality of
products and services, reduce cost and time to market and improve operating
efficiency while strengthening customer relationships. To compete effectively,
organizations must improve business processes in ways that give increasing power
to the organization's customers and constituents. Computer information systems
now often serve as the primary information resource through which organizations
serve their customers, and increasingly serve as the organization's primary
interface to its customers. Many organizations have found that among the most
compelling applications that employ client/server technology are solutions that
effectively distribute information directly to the business end user who
services customers, or directly to the customers themselves. Applications such
as customer service, order and transaction processing, billing, distribution and
logistics directly influence an organization's ability to generate customer
satisfaction and revenue, and therefore tend to be priorities for allocation of
any organization's capital budgets in both strong and slow economic climates.
Coupled with this distributed information need, is the need to gather
information back from the customer care systems so that good and timely
decisions can be made by managers throughout the organization. These
complementary needs mean that IT solutions have become pervasive, and in fact
are increasingly part of unified information systems that affect the entire
organization. IT systems and their rapid development and deployment have thus
become a source of strategic advantage and are increasingly mission-critical. As
a result, IT deployment decisions are increasingly made at the senior executive
level rather than at the departmental level, with respect to integrated
information systems that will be deployed in geographically and organizationally
diverse ways.
Accordingly the need has grown to design, develop and deploy integrated
business applications solutions rapidly, flexibly and in a technological
framework that supports a distributed business environment. Consequently, there
has been a shift in the past few years in the computing platforms favored by
large
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organizations, from single-vendor legacy mainframe-based systems to open,
multi-vendor client/server computing systems, and most recently to corporate
intranets.
However, the benefits of client/server and other advanced technologies can
be difficult to obtain, because designing, developing, deploying and managing
client/server systems is complex, time consuming and costly. In addition,
organizations often lack the range and depth of skills necessary to develop
these systems internally and often cannot effectively attract and retain
personnel with the required technological expertise.
The complexity of current technologies, the lack of sufficient in-house
resources, and the competitive pressures requiring rapid implementation of new
mission-critical systems in client/server and distributed technologies, have led
to increasing demand for third-party solution providers. To meet that demand
effectively, providers of applications and systems solutions require global
reach, a full range of technical skills, ability to provide the best available
technologies, in-depth knowledge of the customer interface in particular
industries and the ability to manage complex technological projects to
completion on time and within budget.
THE CLAREMONT SOLUTION
Claremont combines its expertise in IT consulting and large scale systems
integration to provide its clients business solutions that allow them to better
serve their customers. The following are key attributes of the Claremont
solution:
Mission-Critical Business Solutions. Claremont focuses on providing
enterprise-wide IT solutions that re-engineer core business processes such as
customer service, order and transaction processing, billing and logistics.
Claremont's approach minimizes project risk through use of a methodology that
emphasizes problem definition and solution design and can employ proven software
modules and design frameworks, and through use of experienced personnel with
applicable project management and industry expertise.
Vertical Market Expertise and Client Partnership. Claremont's vertical
market orientation offers applications solutions that are based on in-depth
knowledge of particular industries and a detailed understanding of the client's
business. By targeting specific industries and developing long-term client
relationships, Claremont is able to provide enterprise-wide business solutions
based on a detailed and thorough understanding of the industry in which the
client operates as well as the client's own business processes.
Reusable Software Modules and Transferable Design Frameworks. Claremont's
standard development methodology provides a structure through which Claremont's
skills and knowledge capital can be effectively leveraged in the form of
reusable software modules and transferable design frameworks. The ability to
employ previously constructed software modules and design frameworks in the form
of standard solution components provides Claremont leverage during the design
and integration phases, minimizes business risk and reduces both time to
solution and project costs.
CLAREMONT SERVICES
Claremont provides IT applications solutions encompassing IT planning, IT
systems integration and development, and IT outsourcing of IT
maintenance/enhancement services for large corporations and government
organizations in the United States and certain foreign markets including Canada,
Australia and Mexico. Claremont's methodology for delivering its services is
typically divided into the three phases illustrated below:
Phase I: IT Consulting. Generally, IT consulting precedes the actual
systems integration project and is completed in a timeframe of one to two
months. IT consulting typically concludes with a return-on-investment analysis
and a proposal, including budgets and anticipated timeframe for implementation
of the proposed solution. The purpose of this phase is to allow executives,
managers and end users from the client to work in partnership with Claremont
consultants to develop recommendations for strategic business process changes.
Claremont's preference is to also develop a high-level architectural
infrastructure design in this phase, which provides Claremont, and the client,
with a structural roadmap for approaching Phase II, the Systems
Development/Integration phase.
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Phase II: Systems Development/Integration. Systems Development/Integration
generally results in delivery of a fully implemented solution in six to 24
months. Appropriate application of Claremont's methodology during this phase
results in the development of the IT solution, as well as the effective
implementation of that solution and meaningful change in the client's business
processes. Systems Development/Integration involves these stages:
Process Design. To begin Phase II, Claremont assesses the operational
impact of a new system, and designs re-engineered business processes with
the client to insure that the solution developed will provide the desired
results. This process begins at the earliest stages of the design of the
application itself, and continues throughout the Systems
Development/Integration process. These processes lead to the generation of
a high-level object oriented business model and the development of an
architected system infrastructure, and can often draw on standard solution
components already developed by Claremont as central design elements.
System Development. Once the high-level system infrastructure is in
place, Claremont places an emphasis on solving detail-level system logic
and design problems before coding begins, and results in detailed
specifications that enable Claremont to complete the actual coding and
testing of the application's software objects in a highly controlled,
factory-like manufacturing process. In this process, where appropriate,
Claremont can incorporate previously developed and reusable software
modules. Because Claremont's solutions replace, rather than simply
surround, the client's old and often inflexible legacy code, system
development also includes the development of a significant number of
interfaces to other client systems. Claremont assembles all the code from
the previously completed tasks and conducts a functional test of the new
system.
System Deployment. Phase II is complete when the new solution is
implemented. That requires two final steps. The first is developing the new
job descriptions and operational procedures and training people in how to
take maximum advantage of the new system. The second is to put the entire
system through a complete test from the user's perspective, including
testing the software, as well as the new procedures and the interfaces with
existing systems.
Phase III: Outsourcing. Claremont's customers have increasingly asked
Claremont to provide ongoing support and enhancement for the client's new system
and, in some engagements, the total system environment. These ongoing
outsourcing relationships allow Claremont to assist its customers with
continuous improvement of their information systems, and provide opportunities
for Claremont to enhance client partnerships and broaden the scope of its
engagements.
While individual Phase I projects are small, typically $50,000 to $250,000,
total client engagements regularly involve multiple projects over several years
and can generate revenue in excess of $20 million. Claremont has been successful
in negotiating resale rights for several of its software solutions.
Claremont provides its services on both a time and materials and
fixed-price basis. Invoices for time and materials work are presented on a
bi-weekly or monthly basis. Invoices for fixed-price engagements are presented
in accordance with achievement of negotiated milestones or dates during the
development process.
TECHNOLOGICAL EXPERTISE
Claremont provides technological resources across all of its industry
practice areas and seeks to build and maintain expertise in leading edge
technologies. Technology personnel are located in Montreal, Canada; Basking
Ridge, New Jersey; Columbus, Cleveland and Dublin, Ohio; Beaverton, Oregon;
Sacramento and San Francisco, California; Tallahassee, Florida; Carson City,
Nevada; Jackson, Mississippi; Kansas City, Missouri; Bellevue, Washington and
North Sydney, Australia. Claremont's advanced technology groups are managed on a
world-wide basis so that clients, regardless of location, have access to
Claremont's technical expertise.
At present, Claremont focuses its advanced technology skills in four main
areas: object oriented systems development; electronic commerce
(internet/intranet and groupware solutions); client/server enterprise
architectures (complex network management); and on-line analytical processing
(executive support systems/data warehousing). Claremont uses its relationships
with hardware and software providers such as
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Arbor Software Corporation, Forte Software, Inc., Hewlett Packard Company, IBM,
Microsoft Corporation, Netscape Communications Corporation, Oracle, Silicon
Graphics, Inc., Sybase, Inc. and Sun Microsystems to help ensure that it remains
current with the latest technology and to serve as a source of new business
opportunities for Claremont's industry practice areas.
MARKETS AND CLIENTS
Claremont focuses its marketing efforts on clients in information-intensive
businesses, including communications, financial services, state and local
government services, manufacturing and utilities. Within these vertical markets,
Claremont targets clients for whom enterprise-wide IT solutions can provide a
competitive advantage. Claremont intends to continue to pursue opportunities to
provide its services in other industry sectors with similar needs.
Claremont's most significant clients, in terms of revenue earned in the
first nine months of fiscal year 1998 within its industry practice areas are
listed below:
<TABLE>
<CAPTION>
COMMUNICATIONS FINANCIAL SERVICES
- -------------- ------------------
<S> <C>
AllTel BancOne
Iusacell Colonial Pacific Leasing
LCI PEMCO
Lucent American Honda
Sprint Finance Corporation
</TABLE>
<TABLE>
<CAPTION>
STATE AND LOCAL GOVERNMENT SERVICES
- -----------------------------------
<S><C>
CalPERS
Ohio STRS
Mississippi PERS
Nevada PERS
State of Kentucky
</TABLE>
<TABLE>
<CAPTION>
MANUFACTURING UTILITIES
------------- ---------
<S> <C>
Columbia Forest Products American Electric Power
Lucent Puget Sound Energy
Microsoft Corporation Pacific Enterprises,
Weyerhaeuser a subsidiary of Southern
Willamette Industries California Gas Company
</TABLE>
Claremont has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively small number of clients.
During the first nine months of fiscal year 1998, Claremont had two clients who
represented at least 10% of Claremont's revenue: CalPERS, 18% and Lucent, 12%.
During the fiscal year ended June 30, 1997, Claremont had only one client who
represented at least 10% of Claremont's revenue: Lucent, 14%. During the fiscal
year ended June 30, 1996, Claremont had three clients each of whom represented
at least 10% of Claremont's revenue: Lucent, 20%; Ohio STRS, 14%; and
Mississippi PERS, 11%.
Claremont's IT consulting services focus on key industry sectors:
communications, financial services, state and local government, manufacturing
and utilities which represented approximately 15%, 10%, 34%, and 41%,
respectively, of Claremont's revenues for the first nine months of fiscal year
1998, 21%, 12%, 25% and 42%, respectively, of Claremont's revenue for fiscal
year 1997 and 30%, 5%, 34% and 31%, respectively, of Claremont's revenue for
fiscal year 1996.
Communications. During the last 12 months, Claremont has performed a number
of engagements, including assisting in the development of communications
products for Lucent, assisting AT&T in the redevelopment of its 900 number
billing system, supporting Sprint in a joint venture with TCI and Cox Cable to
deliver PCS services, providing business process reengineering services for
Rogers Cable and implementing its Provider product for Islacom in the
Philippines.
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Financial Services. Claremont's financial services practice is focused on
serving clients in the credit card, leasing and investment management businesses
as evidenced by its relationships with BancOne, Colonial Pacific Leasing and
Frank Russell, respectively. During the past 12 months, Claremont has rapidly
expanded its presence in the financial services industries. Claremont intends to
establish a leadership position in the credit card, leasing and investment
management sub-segments of the financial services market. Claremont believes
that its competitive advantage in these segments is derived from strategic
relationships focused on emerging technologies including e-cash solutions
endorsed by MasterCard, International; a unique knowledge of the use of data
warehousing technology within the credit card industry; strong knowledge capital
of the investment management business gained from pertinent experiences in the
public pension business; and a strategic relationship with an innovative
provider of leasing software.
State and Local Government. Claremont's state and local government practice
is anchored by its longstanding strategic relationship with Ohio STRS. The
relationship has produced a set of reusable software modules for the
pension/retirement systems industry, which is being marketed under the name
Clarety. The Clarety product was created using the Forte software development
client/server tool set. Claremont is currently engaged in projects to implement
Clarety software for Mississippi PERS, California PERS and Nevada PERS.
Claremont believes that Clarety software is the only object oriented
client/server product of its kind being marketed to the pension/retirement
systems market. Claremont also provides IT consulting and custom software
development services to environmental and health and human services departments
of state and local governments. Claremont is currently providing services to
state and local governments in California, Florida, Kentucky, Mississippi,
Missouri, Nevada, Oregon, Ohio, Tennessee and Washington. Claremont has also
developed a software product called HWIMSy for tracking hazardous waste, to
which Claremont has non-exclusive marketing rights.
Manufacturing. Claremont's manufacturing practice provides information
technology consulting services to manufacturers in the process, repetitive, and
discrete manufacturing environments. This practice area also services
distributors, due to the close ties between distributors and manufacturers from
a supply chain perspective and a system functionality perspective. Claremont's
service offerings in this segment include IT consulting, package selection and
implementation, systems integration services and process reengineering/ change
management.
Claremont's current client base in the manufacturing practice includes
Weyerhaeuser, where Claremont is leading a custom development project for a new
distribution management system. At Columbia Forest Products, Claremont completed
an Information Systems Planning initiative that has led to an Enterprise
Resource Planning ("ERP") Package Selection and Implementation project. At
Lucent, Claremont is performing program management of ERP & MES package
implementations.
Utilities. The foundation of Claremont's utility industry practice is based
on Claremont's vision of helping its clients better serve their customers.
Claremont expects to adapt many of the products and solutions that Claremont has
deployed for communications clients to the specific needs of utilities. Current
clients in the utilities practice include Southern California Gas Company, where
Claremont is developing and deploying a strategic customer care and billing
system for the company's deregulated and commercial/industrial business areas,
based on Claremont's Business Solutions Framework architecture. Claremont has
also provided innovative solutions based on leading-edge data warehousing
architectures at American Electric Power and Dayton Power and Light.
INTELLECTUAL PROPERTY RIGHTS
Claremont's success is dependent upon maintenance and protection of its
intellectual property rights. Claremont relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. Claremont has
applications pending at the United States Patent and Trademark Office with
respect to Claremont's Clarety, TISE, Solutions @ The Speed of Business and
iSTART trademarks and has applications pending at the Canadian Intellectual
Property Office for Solutions @ The Speed of Business and Solutions @ La Vitesse
des Affaires. Claremont's practice has been to enter into confidentiality
agreements with its employees and signed agreements that include nondisclosure
provisions with its clients.
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Despite these activities, no assurance can be given that the steps taken by
Claremont will provide adequate protection of its intellectual property rights
or that competitors will not be able to develop similar or functionally
equivalent methodologies or products. Furthermore, effective copyright and trade
secret protection may be unavailable or limited in certain foreign countries. In
addition, litigation may be necessary to enforce Claremont's intellectual
property rights, to protect Claremont's trade secrets, to determine the validity
and scope of the intellectual property rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on Claremont's
business, financial condition and results of operations. No assurance can be
given that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims against third parties, such as clients) will
not be asserted against Claremont or that any such assertions would not have a
material adverse effect on Claremont's business, financial condition or results
of operations. If infringement or invalidity claims are asserted against
Claremont, litigation may be necessary to defend Claremont against such claims,
and in certain circumstances Claremont may choose to seek to obtain a license
under the third-party's intellectual property rights. There can be no assurance
that such licenses will be available on terms acceptable to Claremont, if at
all.
BUSINESS DEVELOPMENT
Claremont's business development efforts are based primarily upon personal
contacts, the reputations of its senior personnel, industry marketing programs
and attendance at appropriate industry forums. Claremont believes that business
development is an integral part of the responsibility of practice area leaders
and other senior project managers. Claremont also follows a practice of
marketing its services through strategic alliances with a select list of
hardware and software providers.
Claremont employs an established selling methodology, the Miller-Heiman
process. The Miller-Heiman process is focused on sales that involve multiple
decisionmakers at different levels in large organizations. The process provides
an analytical approach to identifying the key decisionmakers, determining with
the client the value to be provided to the client and managing the sales process
through completion. Claremont maintains a corporate information database
referred to as the Opportunity Center to manage the selling process. The sale of
a new project generally involves a three to six month effort. At any given time
numerous Claremont professionals are active in the development of new business.
The coordination of their efforts, and the tracking of their results, is
critical to Claremont's ability to forecast and adequately staff future work.
Claremont's Opportunity Center is a critical management tool to assist
Claremont's senior executives in managing this process.
COMPETITION
The markets for Claremont's services are highly competitive. Claremont
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
IBM Global Solutions, Computer Sciences Corporation and with other hardware and
applications software vendors. In addition there are a number of systems
integrators who serve similar markets or provide similar services, such as
Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse (a
subsidiary of MCI), Sapient Corporation and Technology Solutions Company, with
whom Claremont competes or may compete in the future. Many of these companies
have significantly greater financial, technical and marketing resources than
Claremont, generate greater revenue and have greater name recognition than
Claremont. In addition, there are relatively low barriers to entry into
Claremont's markets and Claremont has faced, and expects to continue to face,
additional competition from new entrants into its markets.
Claremont believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. There can be no assurance
that Claremont will be able to compete effectively on pricing or other
requirements with current and future competitors or that competitive pressures
faced by Claremont will not cause Claremont's revenue or gross
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margins to decline or otherwise materially adversely affect its business,
financial condition and results of operations.
CLAREMONT PERSONNEL
The success of Claremont is based on attracting and retaining talented,
creative and experienced people at all levels. Claremont dedicates significant
senior resources to its recruiting effort, primarily recruiting professionals
with both IT consulting and industry experience. All of Claremont's managers and
senior managers have substantial expertise in designing and implementing
large-scale applications solutions, and many of them have relevant industry
experience. As a result, Claremont's consultants provide industry knowledge and
line management expertise, in addition to technical expertise, to Claremont's
clients.
As of May 22, 1998, Claremont had a total of 746 employees of whom there
were 656 individuals in the professional staff and 90 in administrative roles.
In order to accommodate typical project development lead time, Claremont
has found that it must recruit and hire additional personnel on the basis of
anticipated demand for their services. Although this practice has contributed to
Claremont's growth to date, there can be no assurance that demand for
Claremont's services will materialize as anticipated, and this practice could
result in under-utilized employees and consequently have a material adverse
effect upon Claremont's business, financial condition and results of operations.
Qualified project managers and senior technical and professional staff are
in great demand and are likely to remain a limited resource for the foreseeable
future. Limitations in the number of available qualified project managers and
senior technical and professional staff have impaired Claremont's ability to
take on available new projects. There can be no assurance that Claremont will be
successful in attracting a sufficient number of highly-skilled employees in the
future, or that it will be successful in training, retaining and motivating
them. Claremont's inability to attract, train and retain skilled employees or
Claremont's employees' inability to achieve expected levels of performance could
impair Claremont's ability to adequately manage and complete its existing
projects and to bid for or obtain new projects. This in turn could have a
material adverse effect on Claremont's business, financial condition and results
of operations.
PROPERTIES
Claremont's headquarters and principle administrative offices are located
in approximately 14,597 square feet of leased space located in Beaverton,
Oregon. In addition, Claremont has invested in four software development
centers, which Claremont refers to as "software factories." These centers are
located in Beaverton, Oregon; Montreal, Canada; Kansas City, Missouri; and
Columbus, Ohio.
Claremont's west coast business development and technical development
personnel operate from the Beaverton, Oregon location. Claremont occupies these
premises under a lease expiring in September 1999. In addition, Claremont leases
14,517 square feet in Columbus, Ohio for its retirement system national
practice, central region business development and technical lab. The lease
relating to these premises expires in November 2000. Claremont also leases
office space in 12 other locations, including Basking Ridge, New Jersey;
Bellevue, Washington; Cleveland and Dublin, Ohio; Overland Park, Kansas;
Jackson, Mississippi; Morristown, New Jersey; Tallahassee, Florida; Sacramento,
California; San Francisco, California; New York, New York; Montreal, Canada; and
North Sydney, Australia, from which regional project management and business
development is conducted. Leases for these premises range from 2,503 to 10,638
square feet. Claremont anticipates that additional space may be required as
Claremont's business operations expand and believes it will be able to obtain
suitable space as needed.
LEGAL PROCEEDINGS
As of May 31, 1998, there were no material pending legal proceedings to
which Claremont or its subsidiaries was a party. From time to time, Claremont
becomes involved in ordinary and routine legal and regulatory proceedings
incidental to the business of Claremont.
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CLAREMONT'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis contains certain statements,
trend analysis and other information that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act,
which involve risks and uncertainties. Actual results may differ materially from
the results described in the forward-looking statements. Such forward-looking
statements include, but are not limited to, statements including the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and other
similar expressions. Such statements reflect the current views of Claremont
Technology Group, Inc. with respect to future events and are subject to certain
risks, uncertainties and assumptions that include, but are not limited to, those
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED JUNE 30, MARCH 31, MARCH 31,
------------------------ -------------- --------------
1995 1996 1997 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Professional fees and other................. 100% 95% 99% 100% 99% 99% 99%
Resold products & services.................. -- 5 1 -- 1 1 1
--- --- --- --- --- --- ---
Total revenue............................ 100 100 100 100 100 100 100
Costs and expenses:
Project costs & expenses.................... 50 51 52 54 58 51 57
Resold products & services.................. -- 5 1 -- 1 1 2
Selling, general and administrative......... 37 33 37 35 38 35 38
Non-recurring charges....................... -- -- -- -- 34 -- 11
--- --- --- --- --- --- ---
Total costs and expenses................. 87 89 90 89 131 87 108
--- --- --- --- --- --- ---
Income (loss) from operations............ 13 11 10 11 (31) 13 (8)
Other income (expense), net................... -- -- 1 1 -- 1 --
--- --- --- --- --- --- ---
Income (loss) before income taxes........ 13 11 11 12 (31) 14 (8)
Income tax expense............................ 5 5 5 5 -- 6 1
--- --- --- --- --- --- ---
Net income (loss)...................... 8% 6% 6% 7% (31)% 8% (9)%
=== === === === === === ===
</TABLE>
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
Revenue. Claremont's revenue consists primarily of professional fees
(including license fees for Claremont's reusable software modules), and to a
lesser extent resold hardware and software products and resold contract services
and other revenue. Other revenue consists of license fees and maintenance fees,
which began in December 1996 and service bureau revenue associated with
Claremont's acquisition of OpTex in July 1997. Claremont's professional fees
increased 19% to $21.7 million for the three months ended March 31, 1998
compared to $18.2 million for the three months ended March 31, 1997.
Professional fees increased 33% to $63.0 million for the nine months ended March
31, 1998 compared to $47.4 million for the nine months ended March 31, 1997.
Professional fees increased primarily due to an increase in the number of
projects performed both for new and existing clients. The manufacturing and
state and local government practices contributed a majority of the increases.
Revenue from foreign operations increased to $1.2 million and $4.8 million,
respectively, for the three and nine month periods ended March 31, 1998,
compared to $0.9 million and $4.0 million, respectively, for the comparable
periods ended March 31, 1997. The increase resulted primarily
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from a full period inclusion of results from foreign acquisitions that occurred
in fiscal 1997. Claremont's top five clients accounted for 43% of revenues for
the nine months ended March 31, 1998 compared to 45% for the nine months ended
March 31, 1997. Resold products and services are offered to clients on an
as-needed basis and are resold with little or no mark-up. Claremont does not
expect resold products and services to contribute materially to its income from
operations, and generally expects to make little or no profit on such products
and services. Claremont expects to provide such products and services only as an
accommodation to Claremont's clients as requested for particular projects.
Project Costs and Expenses. Project costs and expenses consist primarily of
salaries and employee benefits for personnel dedicated to client projects and
associated overhead costs including equipment depreciation and amortization.
Project costs and expenses increased to $12.7 million and $36.8 million,
respectively (59% and 58% of professional fees, respectively), for the three and
nine month periods ended March 31, 1998 from $9.9 million and $24.8 million,
respectively (54% and 52% of professional fees, respectively), for the
comparable periods ended March 31, 1997. The increases in absolute dollars and
as a percentage of professional fees, are primarily a result of lower
utilization rates during the quarter and fiscal year to date 1998 periods
compared to the prior year periods as well as $0.2 million of severance, and
warranty costs recognized during the third quarter of 1998.
Selling, General and Administrative. Selling, general and administrative
costs and expenses consist of costs associated with the Company's executive
staff, finance, facilities and human resources departments (collectively,
"Administrative Personnel"), travel and business development costs. Selling,
general and administrative costs and expenses increased to $8.7 million and
$25.4 million, respectively (40% and 40% of professional fees, respectively),
for the three and nine month periods ended March 31, 1998 from $6.4 million and
$16.6 million, respectively (35% and 35% of professional fees, respectively),
for the comparable periods ended March 31, 1997. The increase is due to
increases in professional development and recruiting expenses associated with
the increased professional personnel, increased facility expenses associated
with increased space needs resulting from increased software development efforts
performed at Claremont facilities rather than at client locations and increased
numbers of Administrative Personnel. Additionally, there was approximately $0.6
million of bad debt expense and other costs associated with reserves established
against accounts receivable and revenue earned in excess of billings for certain
long-term contracts. Selling, general and administrative costs and expenses for
the nine months ended March 31, 1998 also include $0.4 million related to the
write-off of in-process research and development related to the OpTex
acquisition.
Non-recurring Charges. During the third quarter of fiscal 1998, Claremont
recorded a non-recurring charge of $7.5 million. The charge consisted primarily
of $1.2 million in severance payments associated with the executive changes
announced in February 1998 and a 5% reduction in force, $4.3 million reduction
in the capitalized software associated with the Communications Practice's
Premost billing product and $2.0 million associated with the streamlining of
worldwide operations and impairment of certain long-lived and fixed assets. The
reduction of the capitalized software amount associated with the Premost billing
product was based on management's identification of the lack of evidence of a
viable sales pipeline for this product.
Income Tax Expense. During the third quarter of fiscal 1998, Claremont did
not record a tax benefit associated with the loss for the period, as the benefit
of the loss in the U.S. jurisdictions was offset by the reversal of previously
recorded foreign tax benefits related to foreign loss carryforwards. During the
quarter, it was determined that it is no longer more likely than not that the
benefit of the available loss carryforwards will be realized. In addition,
Claremont did not record a benefit for current period foreign losses because
management believes it is more likely than not that no benefit for the losses
will be realized in the near-term.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue. Claremont's professional fees increased 49% to $66.8 million in
fiscal 1997 from $44.8 million in fiscal 1996. Professional fees increased
primarily due to an increase in the number of projects performed, both for new
and existing clients. In fiscal 1997 and 1996, $0.5 million, or 1% of revenue
and $2.6 million, or 5% of revenue, respectively, resulted from resold products
and services. Resold products and services are offered to clients on an as
needed project basis and are resold with little or no mark-up. Claremont does
not
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expect resold products and services to contribute materially to its income from
operations, and generally expects to make little or no profit on such products
and services. Claremont expects to provide such products and services only as an
accommodation to Claremont's clients as requested for particular projects.
Revenue from foreign operations increased 70% to $3.9 million in fiscal 1997
from $2.3 million in fiscal 1996.
Claremont's revenue has become decreasingly dependent upon its largest
clients, though such concentration remains a characteristic of Claremont's
business. The top five clients accounted for 46% of revenue in fiscal 1997, down
from 56% of revenue in fiscal 1996. In fiscal 1997 and 1996 the largest client
accounted for 14% and 20% of revenue, respectively. During fiscal 1997, 13
clients generated revenue in excess of $1.0 million, compared to 10 clients
during fiscal 1996. The cancellation of a large project or a significant
reduction in the scope of such a project could have a material adverse effect on
Claremont's business, financial condition and results of operations, and in the
past the cancellation of a large project has had such an effect. No assurance
can be given that such a reduction in concentration will continue or that client
concentration will not leave Claremont vulnerable to loss of projects or
clients, or that such a loss would not have a material adverse impact upon
Claremont's business, financial condition and results of operations.
Project Costs and Expenses. Project costs and expenses increased 47% to
$35.3 million in fiscal 1997 from $24.0 million in fiscal 1996, representing 53%
and 54% of professional fees in fiscal 1997 and 1996, respectively. The increase
in project costs and expenses was due primarily to the addition of project
personnel necessary to perform the larger number of client projects.
Selling, General and Administrative. Selling, general and administrative
costs and expenses increased 59% to $24.6 million (37% of professional fees) in
fiscal 1997 from $15.5 million (35% of professional fees) in fiscal 1996. The
increase is primarily due to increases in professional development and
recruiting expenses associated with the increased professional personnel,
increased facility expenses associated space needs resulting from the three
software development centers, increased numbers of Administrative Personnel,
costs related to acquisitions and increased costs associated with being a public
company.
Other Income (Expense), Net. Other income (expense) consists primarily of
interest income on cash and cash equivalents and interest expense associated
with short-term borrowings. Other income (expense), net changed to a net income
of $.4 million in fiscal 1997 from a net expense of $.2 million in fiscal 1996.
The increase is primarily due to the increase in interest income to $.7 million
for fiscal 1997 from $49 thousand for fiscal 1996, due to higher cash balances
resulting from the proceeds of Claremont's initial public offering, which
occurred in July 1996.
Income Tax Expense. Income tax expense represents combined federal, state
and foreign taxes at an effective rate of 42% for fiscal 1997 compared to 43%
for fiscal 1996. The slight decrease in the effective tax rate is due to a
change in the mix of jurisdictions in which Claremont does business.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenue. Claremont's professional fees increased 64% to $44.8 million in
fiscal 1996 from $27.3 million in fiscal 1995. Professional fees increased
primarily due to an increase in the number of projects performed, both for new
and existing clients. In fiscal 1996, $2.6 million, or 5% of revenue, resulted
from resold products and services; there was no similar revenue of a material
nature in fiscal 1995. Revenue from foreign operations increased 309% to $2.3
million in fiscal 1996 from $.6 million in fiscal 1995. The increase resulted
primarily from operations at Claremont's Montreal, Canada software factory,
which commenced operations during the third quarter of fiscal 1995, largely in
support of U.S. domestic clients.
Claremont's revenue has become decreasingly dependent upon its largest
clients, though such concentration remains a characteristic of Claremont's
business. The top five clients accounted for 56% of revenue in fiscal 1996, down
from 76% of revenue in fiscal 1995. In fiscal 1996 and 1995 the largest client
accounted for 20% and 38% of revenue, respectively. During fiscal 1996, ten
clients generated revenue in excess of $1.0 million, compared to seven clients
during fiscal 1995.
Project Costs and Expenses. Project costs and expenses increased 75% to
$24.0 million in fiscal 1996 from $13.7 million in fiscal 1995, representing 54%
and 50% of professional fees in fiscal 1996 and 1995,
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respectively. The increase in project costs and expenses was due primarily to
the addition of project personnel necessary to perform the larger number of
client projects.
Selling, General and Administrative. Selling, general and administrative
costs and expenses increased 52% to $15.5 million in fiscal 1996 from $10.2
million in fiscal 1995. The increase is primarily due to increases in
professional development and recruiting expenses associated with the increased
professional personnel, increased facility expenses associated space needs
resulting from new software development centers and increased numbers of
Administrative Personnel and expansion into international markets during the
quarter ended March 31, 1996. In addition, Claremont incurred approximately $.3
million in non-recurring charges attributable to separation agreements with two
terminated executives. Selling, general and administrative costs and expenses
declined to 35% of professional fees in fiscal 1996 from 37% of professional
fees in fiscal 1995, due to revenue increases outpacing selling, general and
administrative costs and expenses increases on a percentage basis in the period.
Other Income (Expense), Net. Other income (expense) consists primarily of
interest expense associated with short-term borrowings and interest income on
cash and cash equivalents. Other income (expense), net changed to a net expense
of $.2 million in fiscal 1996 from a net income of $.1 million in fiscal 1995.
The change is primarily attributable to interest expense associated with bank
borrowings incurred to finance Claremont's acquisition of computer equipment in
fiscal 1996.
Income Tax Expense. Income tax expense represents combined federal, state
and foreign taxes at an effective rate of 43% for fiscal 1996 compared to 39%
for fiscal 1995. The increase in the effective tax rate is due to a change in
the mix of jurisdictions in which Claremont does business, as well as changes in
certain federal tax laws.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Claremont has financed its operations and investments
in property and equipment primarily through cash generated from operations, bank
borrowings and capital lease financing. In July 1996, Claremont completed its
initial public offering and in August 1996, Claremont sold additional shares
pursuant to the exercise of the underwriters' over-allotment option. Net
proceeds from the offering and over-allotment totaled $26.9 million.
Cash increased $14.7 million during fiscal 1997 as a result of net cash
provided from financing activities of $26.7 million, offset by $.7 million used
in operations, $4.1 million for the purchase of property and equipment and $6.9
million for software development costs.
Accounts receivable increased $6.2 million to $14.0 million at June 30,
1997 from $7.8 million at June 30, 1996 primarily as a result of growth in
revenues. Days sales outstanding were 66 at June 30, 1997 compared to 64 at June
30, 1996. Claremont experienced a 62% reduction in past due accounts (defined as
accounts outstanding more than 60 days) to $.5 million at June 30, 1997 compared
to $1.4 million at June 30, 1996.
Revenue earned in excess of billings, which represents amounts due to
Claremont under contracts, primarily from government entities, that can not be
billed until certain milestones are met, increased $0.8 million to $6.5 million
at June 30, 1997 from $5.7 million at June 30, 1996. Claremont continues to work
closely with its clients to attempt to reduce the collection cycle of this asset
group.
Refundable income taxes increased to $2.7 million at June 30, 1997 from a
payable of $.6 million at June 30, 1996 primarily as a result of the income tax
benefit associated with certain stock option exercises.
Accounts payable increased $0.5 million to $2.0 million at June 30, 1997
from $1.5 million at June 30, 1996 primarily due to growth of the business.
During fiscal 1997, Claremont had capital expenditures of $4.1 million,
primarily related to furniture and personal computers, and $6.9 million
associated with the capitalization of software development costs. As of June 30,
1997 Claremont did not have any material commitments for capital expenditures.
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Claremont had a revolving line of credit with Bank of America Oregon, a
subsidiary of BankAmerica Corporation, providing for borrowings of up to $6.0
million. As of June 30, 1997, there were no borrowings against this line. This
revolving line of credit expired on August 1, 1997.
On August 21, 1997, Claremont signed a business loan agreement (the
"Agreement") with a commercial bank. This Agreement includes a $2.0 million line
of credit and a $750,000 standby letter of credit. The line of credit and letter
of credit bear interest at the bank's reference rate plus .25%, or, at
Claremont's option, at rates based on the Offshore Rate or the LIBOR rate. The
expiration date of this Agreement is September 1, 1999. This Agreement also
covers currently outstanding term loans for original principal amounts of $5
million which had previously been covered under the Business Loan Agreement
dated April 24, 1995. The Agreement is secured by all machinery and equipment
and receivables of Claremont and contains certain financial ratio and other
covenants. In December 1997, Claremont's business loan agreement (the
"Agreement"), dated August 21, 1997, was amended to increase the total amount of
available credit to $5.0 million and to decrease the interest rate to the bank's
reference rate, the offshore rate plus 1.75% or LIBOR plus 1.75%. In addition,
the term of the Agreement, as amended, calls for the repayment of principal and
interest in twenty successive monthly installments of $61,000 starting September
1, 1997. On March 31, 2000, any remaining principal and interest will be due.
The line of credit portion of the Agreement has $3.0 million available credit
through September 1, 1998. At March 31, 1998, Claremont had no balance
outstanding under the Agreement. The Agreement is secured by all machinery and
equipment and receivables of Claremont and contains certain financial ratio and
other covenants. Claremont was in compliance with all such covenants as of March
31, 1998.
Claremont has certain term loans with Bank of America Oregon primarily to
finance equipment purchases. As of June 30, 1997 there was $1.6 million of
related debt outstanding against these loans. Debt service under these lines is
payable over 36 months, including principal and interest. There are three
separate borrowings under this facility at interest rates ranging from 7.59% to
8.05%, and all such borrowings are secured by all of the assets of Claremont.
Claremont is a guarantor on a non-revolving line of credit with Bank of
America Oregon, which provided for borrowings of up to $2.0 million, for
purposes of facilitating the purchase of Claremont's Common Stock by Claremont
executives in July 1995. As of June 30, 1997 there was $.9 million of related
debt outstanding against the line. Advances under the line of credit were made
directly to Claremont executive with full recourse and bear interest at Bank of
America's NT&SA Reference Rate, plus one percentage point. Claremont's guaranty
is secured by a pledge of each borrower's shares of Claremont's Common Stock.
Advances under the line of credit are for 36 months and include monthly interest
payments, made by each Claremont executive, with principal repayment by each
Claremont executive due on or before July 31, 1998.
During the first nine months of fiscal 1998, cash decreased $4.7 million
primarily as a result of $3.2 million related to acquisitions, $3.3 million for
the purchase of property and equipment, $4.2 million for software development
costs and $1.4 million payments on debt, offset by $6.7 million provided by
operations and $0.7 million provided by the exercise of stock options.
At March 31, 1998, Claremont had working capital of $26.6 million,
including $10.5 million of cash and cash equivalents. Claremont's current ratio
decreased to 3.7:1 at March 31, 1998 from 5.5:1 at June 30, 1997.
Accounts receivable decreased $2.3 million to $11.5 million at March 31,
1998 from $13.8 million at June 30, 1997 primarily as a result of increased
collection efforts by Claremont. Days sales outstanding were 54 at March 31,
1998 compared to 66 at June 30, 1997. Claremont experienced an increase in past
due accounts (defined as accounts outstanding more than 60 days) to $1.0 million
at March 31, 1998 compared to $529,000 at June 30, 1997.
Revenue earned in excess of billings, which represents amounts due to
Claremont under certain long-term contracts, primarily from government entities,
that can not be billed until certain milestones are met, increased $3.2 million
to $9.7 million at March 31, 1998 from $6.5 million at June 30, 1997. Of the
$9.7 million, $8.1 million is related to two clients, CalPERS and Mississippi
PERS. Claremont continues to work closely with its clients to attempt to reduce
the collection cycle of this asset group.
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<PAGE> 109
During the first nine months of fiscal 1998, Claremont had capital
expenditures of $3.3 million, primarily related to furniture and personal
computers, and $4.2 million associated with the capitalization of software
development costs. As of March 31, 1998, Claremont did not have any material
commitments for capital expenditures.
As of March 31, 1998, Claremont had a total of $7.4 million of capitalized
software development costs associated with Clarety, one of Claremont's reusable
software modules. The Clarety product includes various third party software
components, some of which have incurred technological advancements. Claremont is
evaluating design work of Clarety to quantify the amount of rework necessary, if
any, to stay aligned with the technology market place and to keep Clarety as a
viable solution. To the extent capitalized software development costs are
greater than the potential revenue associated with the developed software,
Claremont would be required to immediately expense such excess amount under SFAS
86. The amount of the excess required to be expensed in any particular period
may be as much as the total amount of capitalized software development costs
then carried on Claremont's balance sheet, depending on the potential revenue
associated with the developed software at such time. Recognition of such
expenses, if any, could have a material adverse effect on Claremont's results of
operations.
Goodwill increased to $3.0 million at March 31, 1998 from $30,000 at June
30, 1997 as a result of acquisitions that occurred during the first quarter of
fiscal 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The objective of SFAS 130 is to report a measure
of all changes in equity of an enterprise that result from transactions and
other economic events of the period other than transactions with owners.
Claremont expects to adopt SFAS 130 for its fiscal year beginning July 1, 1998
and does not expect comprehensive income to be materially different from
currently reported net income.
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement establishes standards for the way that public
business enterprises report information about operating segments in interim and
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Claremont expects to adopt SFAS 131 for its fiscal year beginning July 1, 1998.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2,
"Software Revenue Recognition", which supercedes SOP 91-1. Claremont will adopt
SOP 97-2 for software transactions entered into beginning July 1, 1998. SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of
the elements. The revenue allocated to software products generally is recognized
upon delivery of the products. The revenue allocated to post-contract customer
support generally is recognized ratably over the term of the support and revenue
allocated to service elements generally is recognized as the services are
performed. The impact on Claremont's consolidated financial statements is not
expected to be material.
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CLAREMONT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of Claremont as of May 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Stephen M. Carson.................... 51 President, Chief Operating Officer, Chief Financial
Officer and Director
Karen Fast........................... 47 Senior Vice President, U.S. Operations
Neil E. Goldschmidt.................. 57 Director
Stephen D. Hawley.................... 49 Senior Vice President, State and Local
Government/Healthcare
Ross C. Kayuha....................... 40 Senior Vice President, Health and Human Services
Edwin J. O'Mara...................... 42 Senior Vice President, Corporate Marketing and Corporate
Secretary
Marilyn R. Seymann................... 55 Director
Jerry L. Stone....................... 55 Director
John R. Torell III................... 58 Director
</TABLE>
Information concerning the principal occupation during at least the last
five years of the directors and executive officers of Claremont is set forth
below:
Stephen M. Carson has served as a director of Claremont since April 1997,
and as President and Chief Operating Officer of Claremont since December 1997.
Mr. Carson has also served as Chief Financial Officer of Claremont since
February 1998. Mr. Carson retired from AT&T Corporation in April 1997, after
nearly 30 years of various financial positions. From January 1996 to April 1997,
Mr. Carson was Vice President and Chief Financial Officer of AT&T's Consumer
Long Distance Business. From 1988 to December 1995, he was Vice President and
Chief Financial Officer of Lucent Technologies Network Systems Equipment
Division.
Karen Fast has served as Senior Vice President, U.S. Operations of
Claremont since February 1997 and, prior to that, as Senior Vice President,
Market Development since April 1994. From April 1993 through April 1994, she
served as Vice President, Portland Practice of Claremont. From January 1991
through April 1993, she served as the Portland, Oregon Manager of the Open
Systems Consulting Group, the Systems Integration Practice of IBM.
Neil E. Goldschmidt has served as a director of Claremont since November
1993. Since January 1991, Mr. Goldschmidt has conducted a private law practice
focused primarily on strategic planning for national and international business
clients. From January 1987 to January 1991, Mr. Goldschmidt served as Governor
of the State of Oregon. Prior to his 1986 gubernatorial campaign, Mr.
Goldschmidt was an executive of Nike, Inc., serving as International Vice
President from 1981 to 1985 and as President of Nike Canada from 1986 to 1987.
Furthermore, Mr. Goldschmidt served as Secretary of Transportation in the Carter
Administration from 1979 to 1981. Mr. Goldschmidt also serves as a director of
Analogy, Inc.
Stephen D. Hawley has served as Senior Vice President, State and Local
Government/Healthcare of Claremont since February 1997 and, prior to that,
Senior Vice President, Pension and Retirement since February 1993. From
September 1988 through February 1993 he served as a Partner in Andersen
Consulting.
Ross C. Kayuha has served as Senior Vice President, Health and Human
Services of Claremont since January 1998. Prior to that, Mr. Kayuha served as
Senior Vice President, International Operations of Claremont from February 1997
to January 1998, and, prior to that, as Senior Vice President, Advanced
Technology of Claremont since January 1996. From January 1994 through January
1996, he served as Senior Vice President, Central Region of Claremont. From
January 1993 through January 1994, he served as Vice President, Central Region
of Claremont and from April 1992 through January 1993, he served as a Director
of Project Management of Claremont. From September 1985 through April 1992, he
served as a Senior Manager in Andersen Consulting.
Edwin J. O'Mara has served as Senior Vice President, Corporate Marketing of
Claremont since July 1997. Mr. O'Mara has also served as Corporate Secretary of
Claremont since December 1997. From
104
<PAGE> 111
November 1994 to April 1997, he served as Vice President, Strategic Marketing
and Planning for PacifiCorp, an electric utility. From March 1992 to November
1994, he served as Vice President, Small Business Sales and Marketing for Sprint
Communications Long Distance Division.
Marilyn Seymann has served as a director of Claremont since November 1997.
From January 1991 to the present, Ms. Seymann has been the President, Chief
Executive Officer and Owner of M ONE, Inc., a management and information systems
consulting firm specializing in the financial services industry. From December
1990 through December 1993, Ms. Seymann was the Director and Vice Chairman for
the Federal Housing Finance Board (formerly the Federal Home Loan Bank Board).
Ms. Seymann also serves on the boards of Beverly Enterprises, Inc. and
Telesphere Corporation.
Jerry L. Stone has served as a director of Claremont since November 1989.
Mr. Stone has been active as a private investor since 1989. From 1986 through
January 1989, he served as Chairman and Chief Executive Officer of Marketing
One, Inc.
John R. Torell III has served as a director of Claremont since February,
1998. From 1989 to the present, Mr. Torell has served as Chairman of Torell
Management, Inc., a financial advisory company. From November 1995 through July
1997, he served as Chairman of Telesphere Corporation, a financial information
provider. In addition, from 1990 through 1994, Mr. Torell served as Chairman and
Chief Executive Officer of Fortune Bancorp, from 1988 through 1989, Mr. Torell
served as Chairman and Chief Executive Officer of Cal Fed, Inc., and from 1982
through 1988, Mr. Torell served as President of Manufacturers Hanover
Corporation and Manufacturers Hanover Trust Company. Mr. Torell also serves as a
director of American Home Products Corporation, The PaineWebber Group, Heartland
Technology, Inc. and Volt Information Sciences, Inc.
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<PAGE> 112
CLAREMONT EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to Claremont's Chief Executive
Officer and each of the four other most highly compensated executive officers of
Claremont determined as of the end of the last fiscal year (hereafter referred
to as the "named executive officers") for the fiscal years ended June 30, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
-------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C>
Paul J. Cosgrave....................... 1997 $444,734 $ -- -- $8,275(1)
President and Chief 1996 447,200 150,000 -- 8,750(1)
Executive Officer 1995 415,000 100,000 650,000 8,724(1)
Stephen D. Hawley...................... 1997 314,156 -- -- 5,332(2)
Senior Vice President, 1996 301,600 -- -- 5,655(2)
Pension and Retirement 1995 270,000 -- -- 4,012(2)
Dennis M. Goett........................ 1997 297,589 -- -- 8,992(4)
Chief Financial Officer 1996 115,740(3) -- 100,000 4,067(4)
1995 -- -- -- --
Ross C. Kayuha......................... 1997 252,597 -- -- 3,663(5)
Senior Vice President, 1996 208,000 -- -- 3,660(5)
Advanced Technology 1995 187,500 250,000 -- 1,374(5)
Karen Fast............................. 1997 239,138 -- 20,000 3,565(6)
Senior Vice President, 1996 208,000 -- -- 3,940(6)
Market Development 1995 187,500 -- -- 3,864(6)
</TABLE>
- -------------------------
(1) Includes $7,800 attributable to an automobile allowance in each of fiscal
year 1997, 1996 and 1995 and $475, $950 and $924 attributable to 401(k)
matching contributions in fiscal year 1997, 1996 and 1995, respectively.
(2) Includes $3,173 in both fiscal year 1997 and 1996 and $1,586 in fiscal year
1995 attributable to golf club membership dues paid by Claremont, $1,867
attributable to life insurance premiums paid by Claremont in each of fiscal
year 1997, 1996 and 1995, and $292, $615 and $559 attributable to 401(k)
matching contributions in fiscal year 1997, 1996 and 1995, respectively.
(3) Mr. Goett joined Claremont in February 1996.
(4) Includes $8,450 and $3,250 attributable to an automobile allowance in fiscal
year 1997 and 1996, respectively and $817 and $542 attributable to 401(k)
matching contributions in fiscal year 1997 and 1996, respectively.
(5) Includes $3,188, $2,710 and $450 attributable to golf club membership dues
paid by Claremont in fiscal year 1997, 1996 and 1995, respectively, and
$475, $950 and $924 attributable to 401(k) matching contributions in fiscal
year 1997, 1996 and 1995, respectively.
(6) Includes $3,090, $2,990 and $2,940 attributable to golf club membership dues
paid by Claremont in fiscal year 1997, 1996 and 1995, respectively, and
$475, $950 and $924 attributable to 401(k) matching contributions in fiscal
year 1997, 1996 and 1995, respectively.
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<PAGE> 113
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Claremont 1992 Plan to the named executive officers in fiscal
year 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave.................. -- -- -- -- -- --
Stephen W. Hawley................. -- -- -- -- -- --
Dennis M. Goett................... -- -- -- -- -- --
Ross C. Kayuha.................... -- -- -- -- -- --
Karen Fast........................ 20,000 2.47% $15.00 07/18/06 $188,666 $478,121
</TABLE>
- -------------------------
(1) Options granted in fiscal year 1997 vest over a five-year period.
(2) These calculations are based on certain assumed annual rates of appreciation
as required by rules adopted by the Securities and Exchange Commission
requiring additional disclosure regarding executive compensation. Under
these rules, an assumption is made that the shares underlying the stock
options shown in this table could appreciate at rates of 5% and 10% per
annum on a compounded basis over the ten-year term of the stock options.
Actual gains, if any, on stock option exercises are dependent on the future
performance of Claremont's Common Stock and overall stock market conditions.
There can be no assurance that amounts reflected in this table will be
achieved.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of options
during fiscal year 1997 and unexercised options held as of the end of the fiscal
year, with respect to the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES JUNE 30, 1997 JUNE 30, 1997
ACQUIRED VALUE ---------------------------- -------------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(2)
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave...... -- $ -- 210,338 240,662 $4,719,721 $5,299,376
Stephen D. Hawley..... 187,974 4,482,508 10,000 33,500 232,400 771,520
Dennis M. Goett....... -- -- 34,073 65,927 672,260 1,300,739
Ross C. Kayuha........ 94,579 2,466,944 69,885 24,085 1,608,921 522,004
Karen Fast............ 4,000 88,880 113,965 32,035 2,594,186 469,533
</TABLE>
- -------------------------
(1) Market value of the underlying securities at exercise date, minus exercise
price of the options.
(2) Market value of the underlying securities at June 30, 1997, $23.75 per
share, minus exercise price of the unexercised options.
DIRECTOR COMPENSATION
Members of the Claremont Board are reimbursed for out-of-pocket and travel
expenses incurred in attending the Claremont Board meetings. Non-employee
members of the Claremont Board also receive an option to purchase 30,000 shares
of Claremont's Common Stock upon election to the Claremont Board, which option
vests over three years. Following the first annual meeting of shareholders after
the initial grant is vested, and at every third annual meeting of shareholders
thereafter, such non-employee member of the Claremont Board will receive an
option to purchase 15,000 shares of Claremont's Common Stock, which option vests
over three years.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires Claremont's directors and executive
officers and persons who own more than ten percent of the outstanding shares of
Claremont's Common Stock ("ten percent shareholders"), to file with the
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of shares of Claremont Common Stock and other equity
securities of Claremont. To Claremont's knowledge, based solely on review of the
copies of such reports furnished to Claremont or otherwise in its files and on
written representations from its directors, executive officers and ten percent
shareholders that no other reports were required, during the fiscal year ended
June 30, 1997, Claremont's officers, directors and ten percent shareholders
complied with all applicable Section 16(a) filing requirements.
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<PAGE> 115
STOCK OWNED BY CLAREMONT MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 29, 1998, certain information
with respect to ownership of Claremont's Common Stock of (i) each Director, (ii)
each of the "named executive officers" (as defined under "Executive
Compensation"), (iii) all persons known by Claremont to be beneficial owners of
more than five percent (5%) of the outstanding shares of Claremont Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF COMMON
NAME AND BUSINESS ADDRESS OWNED(1) STOCK OUTSTANDING
<S> <C> <C>
Jerry L. Stone(2)........................................... 940,200 10.2%
3024 Key Stone Drive
Cape Girardeau, MO 63701
GeoCapital LLC(3)........................................... 928,300 10.0
767 Fifth Avenue, 45th Floor
New York, NY 10153
Kopp Investment Advisors, Inc.(4)........................... 490,900 5.3
7701 France Avenue South, Ste 500
Edina, MN 55435
Stephen D. Hawley........................................... 217,255 2.3
Ross C. Kayuha.............................................. 209,539 2.3
Karen Fast(5)............................................... 137,264 1.5
Neil E. Goldschmidt......................................... 31,655 *
Stephen M. Carson........................................... 38,750 *
Marilyn R. Seymann.......................................... 10,000 *
Edwin J. O'Mara............................................. 2,000 *
John R. Torell III.......................................... 12,500 *
All directors and executive officers as a group (9
persons).................................................. 1,599,163 17.3
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with rules and regulations
promulgated under the Securities Act, and includes voting power and
investment power with respect to shares. Shares issuable upon the exercise
of outstanding stock options that are currently exercisable or become
exercisable within 60 days from May 29, 1998 are considered outstanding for
the purpose of calculating the percentage of Claremont Common Stock owned by
such person, but not for the purpose of calculating the percentage of
Claremont Common Stock owned by any other person. The number of shares that
are issuable upon the exercise of options that are currently exercisable or
exercisable within 60 days of May 29, 1998, is as follows: Ms. Fast --
11,572; Mr. Hawley -- 0; Mr. Kayuha -- 0; Mr. Carson -- 38,750; Mr. O'Mara
-- 2,000; Mr. Goldschmidt -- 28,125; Ms. Seymann -- 10,000; Mr. Stone -- 0;
Mr. Torell -- 7,500; and all directors and officers as a group -- 97,947.
(2) Includes 260,000 shares held by S. A. S. Investment Trust for which Mr.
Stone is the sole trustee, 65,200 shares held by the Stonebright Foundation
for which Mr. Stone is the sole trustee and 615,000 shares held by the Jerry
L. Stone Revocable Trust for which Mr. Stone is the sole trustee.
(3) This information as to beneficial ownership is based on a Schedule 13G filed
by GeoCapital LLC with the Securities and Exchange Commission on February
20, 1998. The Schedule 13G states that, as of December 31, 1997, GeoCapital
LLC had sole dispositive power with respect to 928,300 shares of Claremont
Common Stock.
(4) This information as to beneficial ownership is based on a Schedule 13G filed
by Kopp Investment Advisors, Inc., Kopp Holding Company and LeRoy C. Kopp
with the Securities and Exchange Commission on February 11, 1998. The
Schedule 13G states that, as of December 31, 1997, Kopp Investment Advisors,
Inc. had shared dispositive power with respect to 487,900 shares of
Claremont
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<PAGE> 116
Common Stock, Kopp Holding Company was the beneficial owner of 487,900
shares of Claremont Common Stock, and LeRoy C. Kopp had sole voting power
and sole dispositive power with respect to 3,000 shares of Claremont Common
Stock.
(5) Includes 500 shares held by Ms. Fast's spouse.
110
<PAGE> 117
APPROVAL OF AMENDMENT TO CBSI'S
RESTATED ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The CBSI Articles presently provide that CBSI is authorized to issue
30,000,000 shares of Common Stock, no par value. As of June 1, 1998, there were
27,222,900 shares of CBSI Common Stock outstanding. All outstanding shares of
CBSI Common Stock are fully paid and nonassessable and the holders thereof are
entitled to one vote for each share held. The CBSI Board of Directors has
proposed that the number of shares of authorized CBSI Common Stock be increased
to 200,000,000 (the "CBSI Share Proposal").
If the CBSI Share Proposal is approved, the additional shares of CBSI
Common Stock would be available for sale pursuant to public offerings, for use
in acquisitions, for stock dividends, for issuance pursuant to stock options and
other rights to purchase or receive shares and for any other purpose for which
shares of common stock may be issued under the laws of the State of Michigan.
Except for the shares to be issued pursuant to the Merger Agreement with
Claremont, CBSI has no other immediate plans for the issuance of any of its
authorized but unissued and unreserved shares of CBSI Common Stock.
The CBSI Board believes that approval of the CBSI Share Proposal is in the
best interest of CBSI's shareholders because it would help facilitate CBSI's
business and financial goals and objectives.
The authorization of additional shares of CBSI Common stock could make more
difficult, and therefore discourage attempts, to acquire control of CBSI. The
present ownership percentage of current shareholders may be diluted. The
increase in the number of authorized shares is not part of a plan by CBSI to
adopt a series of anti-takeover measures and CBSI has no present intentions to
propose any anti-takeover measures in future proxy solicitations.
The affirmative vote of a majority of the shares of CBSI Common Stock
outstanding is necessary to approve the CBSI Share Proposal. Because the CBSI
Share Proposal must receive the affirmative vote of a majority of the
outstanding CBSI Common Stock, abstentions and broker non-votes will have the
effect of a vote against the CBSI Share Proposal. Shares represented by proxies
in the form enclosed, if properly executed and returned and not revoked, will be
voted as specified, but where no specification is made, the shares will be voted
in favor of the CBSI Share Proposal.
THE CBSI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF CBSI
VOTE IN FAVOR OF THE CBSI SHARE PROPOSAL
EXPERTS
The consolidated financial statements of CBSI included in this Joint Proxy
Statement/Prospectus for the years ended December 31, 1995, 1996 and 1997 have
been audited by Arthur Andersen LLP, independent accountants. In their report,
that firm states that with respect to certain mergers accounted for as a pooling
of interest its opinion is based on the reports of other independent public
accountants, namely Coopers & Lybrand L.L.P. and Deloitte & Touche LLP. The
financial statements referred to above have been included herein in reliance
upon the reports of those firms given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Claremont Technology Group, Inc.
and subsidiaries as of June 30, 1996 and 1997 and for each of the years in the
three-year period ended June 30, 1997 have been included in this Joint Proxy
Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
111
<PAGE> 118
VALIDITY OF COMMON STOCK
The validity of the shares of CBSI Common Stock to be issued in connection
with the Merger will be passed upon for CBSI by Butzel Long, Detroit, Michigan.
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS
Representatives of Arthur Andersen LLP and KPMG Peat Marwick LLP expect to
be present at the CBSI Special Meeting and the Claremont Special Meeting,
respectively, to answer appropriate questions, and will be given the opportunity
to make a statement if they so desire.
SHAREHOLDER PROPOSALS
Shareholders of CBSI wishing to present proposals to the 1999 CBSI Annual
Meeting must submit the proposal in writing so as to be received at the
executive offices of CBSI prior to December 31, 1998. Such proposals must also
meet the other requirements of the rules of the Commission relating to proposals
of shareholders.
112
<PAGE> 119
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
COMPLETE BUSINESS SOLUTIONS, INC.
Audited Consolidated Financial Statements as of December
31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997
Reports of Independent Public Accountants................. F-2
Consolidated Balance Sheets............................... F-5
Consolidated Statements of Income......................... F-6
Consolidated Statements of Shareholders' Equity........... F-7
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements................ F-9
Unaudited Condensed Consolidated Financial Statements and
related Notes thereto as of March 31, 1998 and December
31, 1997 and for the three month periods ended March
31, 1998 and 1997...................................... F-21
CLAREMONT TECHNOLOGY GROUP, INC.
Audited Consolidated Financial Statements as of June 30,
1997 and 1996, and for each of the three years in the
period ended June 30, 1997
Report of Independent Auditors............................ F-27
Consolidated Balance Sheets............................... F-28
Consolidated Statements of Operations..................... F-29
Consolidated Statements of Shareholders' Equity........... F-30
Consolidated Statements of Cash Flows..................... F-31
Notes to Consolidated Financial Statements................ F-32
Unaudited Condensed Consolidated Financial Statements and
related Notes thereto as of March 31, 1998 and for the
three and nine month periods ended March 31, 1998 and
1997................................................... F-44
</TABLE>
F-1
<PAGE> 120
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, 1997 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, 1997. 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 did not audit the financial
statements of c.w Costello & Associates, inc. and Synergy Software, Inc.,
companies that Complete Business Solutions, Inc. merged with during 1998 and
1997, respectively, in transactions accounted for as poolings of interests, as
discussed in Note 1. Such statements are included in the related consolidated
financial statements of Complete Business Solutions, Inc. and reflect total
revenues and net income of 36% and (30%) in 1997, 38% and 56% in 1996, and 31%
and 75% in 1995, respectively, and 15% and 31% of total assets in 1997 and 1996,
respectively, of the consolidated totals. These statements were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to amounts included for c.w Costello & Associates, inc. and Synergy
Software, Inc., is based solely upon the report of the other auditors.
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 and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
May 8, 1998
F-2
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Synergy Software, Inc.
We have audited the balance sheet of Synergy Software, Inc., as of December
31, 1996 and the related statements of operations and retained earnings and cash
flows for the years ended December 31, 1996 and 1995 not presented separately
herein. 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 Synergy Software, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
October 25, 1997
F-3
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
c.w. Costello & Associates, inc.
Wethersfield, Connecticut
We have audited the balance sheets of c.w. Costello & Associates, inc. (an
"S" Corporation) (the "Company") as of December 31, 1997 and 1996, and the
related statements of operations, shareholders' equity and of cash flows for
each of the three years in the period ended December 31, 1997 not presented
separately herein. 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, such financial statements present fairly, in all material
respects, the financial position of c.w. Costello & Associates, inc. (an "S"
Corporation) as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 10 to those financial statements, on January 27, 1998,
the Company merged with Complete Business Solutions, Inc.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 9, 1998
F-4
<PAGE> 123
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 57,458 $ 3,937
Accounts receivable, net............................... 38,810 32,855
Deferred taxes......................................... 2,131 --
Prepaid expenses and other............................. 1,806 1,369
-------- -------
Total current assets.............................. 100,205 38,161
-------- -------
Property and equipment, net................................. 8,371 6,368
Goodwill, net............................................... 2,809 --
Other assets................................................ 999 1,053
-------- -------
Total assets...................................... $112,384 $45,582
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 4,370 $ 3,457
Accrued payroll and related costs...................... 15,630 6,694
Revolving credit facility.............................. 3,380 9,435
Other accrued liabilities.............................. 6,493 2,946
Distribution payable to shareholders................... 1,325 197
Deferred revenue....................................... 1,075 1,124
-------- -------
Total current liabilities......................... 32,273 23,853
-------- -------
Other liabilities........................................... 190 620
Minority interest........................................... -- 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, 26,653,406 and 17,387,734 shares issued
and outstanding as of December 31, 1997 and 1996,
respectively (Note 15)
Additional paid-in capital............................. 75,328 3,858
Retained earnings...................................... 7,779 18,072
Stock subscriptions receivable......................... (2,503) (2,125)
Cumulative translation adjustment...................... (683) (199)
-------- -------
Total shareholders' equity........................ 79,921 19,606
-------- -------
Total liabilities and shareholders' equity........ $112,384 $45,582
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE> 124
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $193,950 $135,307 $98,086
Cost of revenues:
Salaries, wages and employee benefits.................. 117,856 85,587 64,086
Contractual services................................... 15,886 7,654 4,709
Project travel and relocation.......................... 8,038 5,156 4,338
Depreciation and amortization.......................... 1,174 1,453 1,178
-------- -------- -------
Total cost of revenues............................ 142,954 99,850 74,311
-------- -------- -------
Gross profit...................................... 50,996 35,457 23,775
Selling, general and administrative expenses................ 40,385 28,194 19,573
Merger costs................................................ 1,203 -- --
-------- -------- -------
Income from operations............................ 9,408 7,263 4,202
Other expense (income)...................................... (469) 765 738
-------- -------- -------
Income before provision for income taxes and
minority interest............................... 9,877 6,498 3,464
Provision for income taxes.................................. 4,234 194 138
Minority interest........................................... 82 158 252
-------- -------- -------
Net income........................................ $ 5,561 $ 6,146 $ 3,074
======== ======== =======
Basic earnings per share --
Weighted-average shares outstanding....................... 23,249 16,280 15,817
======== ======== =======
Basic earnings per share.................................. $ 0.24 $ 0.38 $ 0.19
======== ======== =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 23,249 16,280 15,817
Dilutive effect of stock options.......................... 1,210 2,096 1,544
-------- -------- -------
Diluted weighted average shares outstanding............... 24,459 18,376 17,361
======== ======== =======
Diluted earnings per share................................ $ 0.23 $ 0.33 $ 0.18
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED) (NOTE 15 AND 17)
<S> <C> <C> <C>
Net income as reported...................................... $ 5,561 $ 6,146 $ 3,074
Pro forma incremental income tax provision (benefit)........ (764) 2,175 909
-------- -------- -------
Pro forma net income........................................ $ 6,325 $ 3,971 $ 2,165
======== ======== =======
Basic earnings per share --
Weighted-average shares outstanding....................... 23,517 17,894 17,429
-------- -------- -------
Pro forma basic earnings per share........................ $ 0.27 $ 0.22 $ 0.12
======== ======== =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 23,517 17,894 17,429
Dilutive effect of stock options.......................... 1,210 2,096 1,544
-------- -------- -------
Diluted weighted-average shares outstanding............... 24,727 19,990 18,973
-------- -------- -------
Pro forma diluted earnings per share........................ $ 0.26 $ 0.20 $ 0.11
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 125
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, 1994..... 15,581,058 $ 326 $ 10,282 $ -- $ -- $ 10,608
Net income..................... -- -- 3,074 -- -- 3,074
Distribution to shareholders... -- -- (1,007) -- -- (1,007)
Stock dividends................ 237,144 -- -- -- -- --
Stock options exercised........ 65,802 121 -- -- -- 121
Translation adjustment......... -- -- -- -- (159) (159)
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1995..... 15,884,004 447 12,349 -- (159) 12,637
Net income..................... -- -- 6,146 -- -- 6,146
Translation adjustment......... -- -- -- -- (40) (40)
Distribution to shareholders... -- -- (423) -- -- (423)
Capital contribution........... -- 1,100 -- -- -- 1,100
Stock dividends................ 404,623 -- -- -- -- --
Stock options exercised........ 1,099,107 2,311 -- (2,125) -- 186
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1996..... 17,387,734 3,858 18,072 (2,125) (199) 19,606
Net income..................... -- -- 5,561 -- -- 5,561
Translation adjustment......... -- -- -- -- (407) (407)
Stock options exercised........ 660,408 1,603 -- (685) -- 918
Repayment of stock
subscriptions receivable..... -- -- -- 307 -- 307
Conversion of minority
shareholder.................. 1,105,264 4,593 -- -- (77) 4,516
Issuances of common stock,
net.......................... 7,500,000 61,640 -- -- -- 61,640
Distributions to
shareholders................. -- -- (12,220) -- -- (12,220)
Recapitalizations.............. -- 3,634 (3,634) -- -- --
---------- ------- -------- ------- ----- --------
Balance -- December 31, 1997..... 26,653,406 $75,328 $ 7,779 $(2,503) $(683) $ 79,921
========== ======= ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 126
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 5,561 $ 6,146 $ 3,074
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 2,749 2,467 1,925
Provision for doubtful accounts........................ 828 483 145
Minority interest...................................... 82 158 252
Provision for deferred taxes........................... (2,734) 85 112
Equity in loss of investee and other................... 279 110 --
Stock option expense................................... 236 -- --
Change in assets and liabilities:
Accounts receivable.................................. (6,698) (9,489) (6,039)
Prepaid expenses and other current assets............ (760) (466) (259)
Other assets......................................... (54) 12 (4)
Accounts payable..................................... 872 1,521 629
Accrued payroll and related costs and other
liabilities....................................... 13,488 2,590 986
Deferred revenue..................................... (402) 80 312
-------- ------- -------
Net cash provided by operating activities....... 13,447 3,697 1,133
-------- ------- -------
Cash flows from investing activities:
Investment in property, equipment and other............... (4,291) (4,613) (1,972)
Investment in affiliate................................... (405) (195) --
Net repayments on notes receivable -- shareholder......... (107) (165) 387
-------- ------- -------
Net cash used in investing activities........... (4,803) (4,973) (1,585)
-------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) on revolving credit facility.... (6,055) 2,455 1,070
Payments on long-term debt................................ (791) (531) (638)
Proceeds from issuance of long-term debt.................. -- 356 828
Net proceeds from issuances of common stock............... 62,072 213 60
S corporation distributions and other, net................ (10,304) (423) (1,005)
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....... 44,922 3,962 315
-------- ------- -------
Effect of exchange rate changes on cash..................... (45) (12) (38)
-------- ------- -------
Increase (decrease) in cash and cash equivalents............ 53,521 2,674 (175)
Cash and cash equivalents at beginning of period............ 3,937 1,263 1,438
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 57,458 $ 3,937 $ 1,263
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 840 $ 751 $ 757
Income taxes........................................... $ 5,529 $ 135 $ 17
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 127
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. (CBSI) was founded in 1985. CBSI and its
subsidiaries (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.
Principles of Consolidation and Organization
The consolidated financial statements include the accounts of CBSI and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial statements.
On January 27, 1998, a subsidiary of CBSI closed an Agreement and Plan of
Merger with c.w. Costello & Associates, inc. (Costello), a privately held
Delaware corporation. The Merger with Costello was accounted for by the pooling
of interests method of accounting, and accordingly, the accompanying
consolidated balance sheets and statements of income, cash flows, and
shareholders' equity have been retroactively restated.
On November 20, 1997 a subsidiary of CBSI closed an Agreement and Plan of
Merger with Synergy Software, Inc., (Synergy) a privately held Illinois
corporation. The merger with Synergy was accounted for by the pooling of
interests method of accounting, and accordingly, the accompanying consolidated
balance sheets and statements of income, cash flows, and shareholders' equity
have been retroactively restated.
Through July 1996, CBSI held a 76% interest in Complete Business Solutions
(India) Private Limited (CBS India) with the remaining 24% interest held by an
entity affiliated with CBSI's shareholder (affiliated entity). In July 1996,
CBSI formed CBS Complete Business Solutions (Mauritius) Limited (CBS Mauritius)
and CBSI 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 CBSI made a capital contribution of $1,708 to CBS Mauritius. The net
loss on this transaction was not material. As of December 31, 1996, CBSI owned
72% and the unrelated entity owned 28% of CBS Mauritius, which owned 100% of CBS
India.
As authorized in the CBS Mauritius Shareholders agreement and in connection
with the initial public offering of CBSI's Common Stock, the 28% shareholder of
CBS Mauritius converted its ownership interest in CBS Mauritius into 1,105,264
shares of CBSI's Common Stock. The acquisition of the minority shares was
accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the fair value of the net assets acquired has been
recognized as goodwill of approximately $2,931 in the consolidated balance
sheets and is being amortized over 20 years. The impact of this transaction on
prior years was not significant, therefore pro forma information has not been
provided.
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 exchange rate during the
year for revenues and expenses. The resulting foreign currency translation
adjustment is reflected as a separate component of shareholders' equity as of
December 31, 1997 and 1996.
F-9
<PAGE> 128
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The carrying amount of the revolving credit facility approximates fair
value due primarily to the variable rate of interest on this credit facility.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
primarily 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. 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.
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.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation.
2. COMMON STOCK OFFERINGS
In March 1997, CBSI completed its initial public offering of 5,000,000
shares of its Common Stock at a price of $6 per share. This offering consisted
of 4,600,000 shares of newly issued Common Stock and 400,000 shares sold by a
selling shareholder. After underwriting discounts, commissions and other
issuance costs, net proceeds to the Company from this offering were
approximately $23,600. The net proceeds from this offering were used to repay
outstanding debt, payment of a portion of previously undistributed S corporation
earnings, and expansion of existing Company operations. The balance of these
proceeds have been invested and will be used for general corporate purposes,
including working capital needs.
F-10
<PAGE> 129
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1997, CBSI completed a secondary offering of 5,200,000 shares of
its Common Stock at a price of $14 1/8 per share. This offering consisted of
2,900,000 shares of newly issued Common Stock and 2,300,000 shares sold by
selling shareholders. After underwriting discounts, commissions and other
issuance costs, net proceeds to the Company from this offering were
approximately $38,000. The net proceeds from this secondary offering have been
invested and will be used for further expansion of Company operations;
development of new service lines and possible acquisition of related businesses;
and general corporate purposes, including working capital needs.
3. MERGERS
On September 30, 1997, CBSI filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 covering 10,000,000 shares of
Common Stock to be issued in conjunction with the future mergers or acquisition
of assets, businesses or securities.
On November 20, 1997, a subsidiary of CBSI closed a merger agreement with
Synergy. The merger agreement provided for all of the outstanding Synergy common
stock to be exchanged for 1,390,894 shares of CBSI's common stock. See Note 10.
Unaudited summarized results of operations and other changes in
shareholders' equity of the previously separate entities for the nine month
period ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
COMPLETE BUSINESS SYNERGY
SOLUTIONS, INC. SOFTWARE, INC.
<S> <C> <C>
Revenues................................................. $80,309 $9,252
======= ======
Gross profit............................................. $22,170 $2,643
======= ======
Income from operations................................... $ 7,629 $ 977
======= ======
Net income............................................... $ 5,085 $ 777
======= ======
Other significant changes to shareholders equity --
S Corporation distributions and other.................. $10,500 $ 395
======= ======
</TABLE>
On January 27, 1998, a subsidiary of CBSI closed a merger agreement with
Costello. This merger agreement provided for all of the outstanding Costello
common stock to be exchanged for 3,363,090 shares of CBSI's common stock. See
Note 10.
Audited summarized results of operations and other changes in shareholders'
equity of the previously separate entities for the year ended December 31, 1997
are as follows:
<TABLE>
<CAPTION>
COMPLETE BUSINESS C.W. COSTELLO &
SOLUTIONS, INC. ASSOCIATES, INC.
<S> <C> <C>
Revenues................................................ $123,775 $70,175
======== =======
Gross profit............................................ $ 34,175 $16,821
======== =======
Income (loss) from operations........................... $ 10,442 $(1,034)
======== =======
Net income (loss)....................................... $ 7,501 $(1,940)
======== =======
Other significant changes to shareholders equity --
S Corporation distributions and other................. $ 12,220 $ --
======== =======
</TABLE>
Accounting policies of CBSI, Synergy and Costello were substantially the
same, and all entities reported results of operations on a calendar year basis.
There were no significant intercompany transactions requiring elimination in any
period presented.
F-11
<PAGE> 130
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE AND CREDIT RISK
The allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance -- beginning of period.............................. $ 594 $ 233 $149
Provision................................................... 828 483 145
Charge-offs................................................. (437) (122) (61)
----- ----- ----
Balance -- end of period.................................... $ 985 $ 594 $233
===== ===== ====
</TABLE>
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. Over 80%, of total revenues in
each year for the years ended December 31, 1997, 1996 and 1995, respectively,
were generated from existing clients from the previous fiscal year.
5. PROPERTY AND EQUIPMENT
As of December 31, 1997 and 1996, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
----------------- USEFUL
1997 1996 LIVES
<S> <C> <C> <C>
Equipment and purchased software......................... $11,660 $ 8,702 3-5 years
Buildings................................................ 1,044 986 31 years
Furniture and fixtures................................... 1,997 1,296 5-7 years
Leasehold improvements................................... 860 558 5-7 years
Automobiles.............................................. 429 221 5 years
------- -------
15,990 11,763
Accumulated depreciation................................. (7,619) (5,395)
------- -------
Property and equipment, net.............................. $ 8,371 $ 6,368
======= =======
</TABLE>
6. RELATED PARTY TRANSACTIONS
CBSI 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 1995, CBSI made non-interest bearing advances totaling $177,
respectively, to a shareholder. The outstanding advances were repaid in 1995. In
1996, CBSI 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.
During 1995, 1996 and 1997, Costello made interest bearing loans to an
affiliate of a shareholder for the purchase of real estate, of $71, $25 and $98,
respectively. As of December 31, 1997 and 1996, $261 and $163, respectively, of
these loans were outstanding. In connection with these loans, Costello
guaranteed the related real estate mortgage obligation of approximately $270 as
of December 31, 1997 and 1996. Costello leased this real estate from the
affiliate for various marketing and administrative purposes. During 1997, 1996
and 1995, Costello incurred rent expense of $150, $102 and $36, respectively.
These leases were cancelled during 1998.
During 1995, 1996 and 1997, Costello made non-interest bearing loans to a
shareholder of $44, $39 and $22, respectively. As of December 31, 1997 and 1996,
$105 of these loans were outstanding.
F-12
<PAGE> 131
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, CBS India loaned approximately $100 to a related party. This
loan was short-term and payable on demand. This loan and accrued interest were
repaid during 1997.
During 1996, a shareholder loaned $608 to CBSI 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.
CBSI provided services to a client whose principal shareholder was a former
director of the Company. The Company earned approximately $129, $216 and $111
for these services in 1997, 1996 and 1995, respectively.
CBSI incurred approximately $478 and $182 for the years ended December 31,
1997 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.
In August 1997, in connection with CBSI's secondary offering, a related
party paid the Company approximately $300 as required under Section 16(b) of the
Exchange Act of 1934. This amount has been included in additional paid-in
capital in the accompanying consolidated balance sheets.
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.
7. REVOLVING CREDIT FACILITY
Under a credit arrangement with a commercial bank, the Company may borrow
an amount not to exceed $21,000 at the bank's prime interest rate, or Libor plus
1.5%. The borrowings under the facility are short-term, payable on demand and
are secured by trade accounts receivable and equipment of the Company. The
balance outstanding under this agreement at December 31, 1997 and 1996 was $0
and $5,400, respectively. The weighted average interest rate on the outstanding
borrowings was 7.7% at December 31, 1996. The credit agreement contains various
restrictive covenants which, among other items, require the Company to maintain
certain levels of tangible net worth, a debt to earnings ratio, and a funded
debt to capitalization ratio.
As of December 31, 1997, Costello had a line of credit arrangement with a
commercial bank which included a base borrowing line of $11,000 and a special
advance of $1,500. The line was secured by substantially all of the assets of
Costello and bore interest at the bank's prime rate. The balance outstanding
under this arrangement at December 31, 1997 was $3,380. The weighted average
interest rate on the outstanding borrowings was 8.5% at December 31, 1997. In
conjunction with the merger, the outstanding balance on this line of credit
arrangement was repaid.
As of December 31, 1996, Costello had a $5,000 line of credit arrangement
with a commercial bank. This line was secured by substantially all of the assets
of Costello and bore interest at the bank's prime rate. The balance outstanding
under this arrangement at December 31, 1996 was $4,035. The weighted average
interest rate on the outstanding borrowings was 8.25% at December 31, 1996. The
outstanding balance on this line of credit was repaid during 1997.
8. SELF-INSURANCE
CBSI and Costello are self-insured for health and dental benefits up to $80
and $75, respectively, per occurrence. Insurance coverage is carried for risks
in excess of this amount. CBSI and Costello, combined, recognized health and
dental benefits expense of approximately $4,582, $3,247 and $2,428 for the years
ended December 31, 1997, 1996 and 1995, respectively. Estimated claims incurred
but not reported were $945 and $300 as of December 31, 1997 and 1996,
respectively, and are included in other accrued liabilities in the accompanying
consolidated balance sheets.
F-13
<PAGE> 132
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases its headquarters, regional offices, equipment and
certain automobiles under noncancelable, long-term operating leases.
Rent expense for the years ended December 31, 1997, 1996 and 1995 amounted
to approximately $2,826, $1,771, and $1,428, respectively. The future minimum
lease payments required under these operating leases for the years ending
December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,577
1999........................................................ 2,491
2000........................................................ 2,281
2001........................................................ 2,028
2002........................................................ 1,442
Thereafter.................................................. 529
-------
$11,348
=======
</TABLE>
10. STOCK OPTIONS
CBSI 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 Compensation
Committee of the Board of Directors. There are 3,247,454 shares of Common Stock
authorized for grant under the Plan. Options under the Plan are granted at fair
value on the date of grant. The options vest over periods determined by the
Compensation Committee of the Company's Board of Directors. As a result of the
merger with Synergy, as discussed in Note 3, outstanding Synergy stock options
totalling 646,462 as of November 20, 1997 were converted into 418,210 options of
CBSI based on the exchange rate provided in the merger agreement. These options
retained their original terms and vesting periods. During 1997, Synergy
recognized approximately $236 of compensation expense related to these stock
options. As a result of the merger with Costello, as discussed in Note 3,
outstanding Costello stock options totalling 16,000 as of January 27, 1998 were
converted into 56,909 options of CBSI based on the exchange rate provided in the
merger agreement. These options retained their original terms and vesting
periods.
The Plan agreements provide for the option holder to exercise the options
in exchange for cash, or 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. Interest on the loans is payable every six months.
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 ("SFAS No. 123")". Accordingly, no
additional compensation expense 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
1997, 1996 and 1995 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>
1997 1996 1995
<S> <C> <C> <C>
Net income --
As reported............................................... $5,561 $6,146 $3,074
SFAS No. 123 pro forma.................................... $4,448 $5,491 $2,913
Pro forma diluted earnings per share --
As reported............................................... $ 0.23 $ 0.33 $ 0.18
SFAS No. 123 pro forma.................................... $ 0.18 $ 0.30 $ 0.17
</TABLE>
F-14
<PAGE> 133
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of option activity, restated to give effect to the Synergy and
Costello mergers, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ WEIGHTED AVERAGE
WEIGHTED AVERAGE OPTIONS FAIR VALUE OF
SHARES EXERCISE PRICE EXERCISABLE OPTIONS GRANTED
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995.................... 1,843,122 $ 1.79 273,494
=======
Options granted........... 610,488 4.10 $0.56
=====
Options exercised......... (1,099,107) 2.08
----------
BALANCE, DECEMBER 31,
1996.................... 1,354,503 2.60 335,343
---------- =======
Options granted........... 1,671,536 10.06 $5.32
=====
Options exercised......... (559,681) 1.82
Options cancelled......... (130,713) 5.51
----------
BALANCE, DECEMBER 31,
1997.................... 2,335,645 $ 7.96 361,885
========== ====== =======
</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 1997, 1996 and 1995 grants: risk-free rate of interest of 6.7%, 7.0% and
6.2%, respectively; dividend yield of 0%; and expected lives of 3 to 4 years. A
volatility factor of .67 was used in 1997.
A summary of options outstanding, adjusted to give effect to the Synergy
and Costello mergers, at December 31, 1997, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE OF WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, AVERAGE
EXERCISE PRICE 1997 LIFE PRICE 1997 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ .01 - 2.11.................. 539,991 8.0 $ 1.62 319,427 $1.57
$ 4.21 - 9.19.................. 821,654 9.0 $ 5.36 42,458 $5.04
$13.25 - 17.00.................. 974,000 9.7 $13.62 -- --
</TABLE>
11. BENEFIT PLAN
CBSI maintains the Complete Business Solutions, Inc. Incentive Savings Plan
and Trust (the 401(k) plan). All employees of CBSI 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
CBSI matching a percentage of the contributions. For the years ended December
31, 1997, 1996 and 1995, CBSI matched 40% of the employees' contribution up to a
maximum of 2.4% of the employees' compensation.
Matching contributions made by CBSI amounted to approximately $489, $406
and $301 for the years ended December 31, 1997, 1996 and 1995, respectively.
CBSI may also make an additional contribution, at its discretion, to the 401(k)
plan. No such additional contributions have been made to date.
Synergy maintained a defined contribution 401(k) plan for substantially all
of its employees during the years ended December 31, 1997, 1996 and 1995. Under
the plan, eligible employees could elect to contribute up to 15% of their base
compensation. Synergy contributed an additional 25% of the employees'
contributions up to 1% of the employees' aggregate base compensation. Synergy
contributions to this plan amounted to $34,
F-15
<PAGE> 134
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$26 and $16 for the years ended December 31, 1997, 1996 and 1995, respectively.
Effective January 1, 1998, Synergy employees became eligible to participate in
CBSI's 401(k) plan.
Costello maintained a retirement savings plan covering substantially all of
its employees during the years ended December 31, 1997, 1996 and 1995. Under the
plan, participants could elect to make 401(k) tax-deferred contributions from
their pay. Costello's contribution to this plan was discretionary. During the
years ended December 31, 1997, 1996 and 1995, Costello made profit-sharing
contributions to this plan of approximately $420, $369 and $270, respectively.
Effective February 23, 1998, Costello employees became eligible to participate
in CBSI's 401(k) plan.
The Company maintains various employee retention programs, including bonus
and deferred compensation. The expense related to these programs is recognized
as the compensation is earned.
12. INCOME TAXES
Prior to CBSI's initial public offering and the date of the merger with
Synergy, the shareholders of the respective companies had elected, under the
provisions of Subchapter S of the United States Internal Revenue Code, to have
income and related tax benefits of the company included in the taxable income of
the shareholders. As a result, no provision for U.S. federal income taxes and
only certain state income taxes have been included in the consolidated
statements of income prior to CBSI's initial public offering and the dates of
the mergers with Synergy.
Upon termination of the Subchapter S elections, future income of the
Company is subject to federal and state income taxes at the corporate level.
Accordingly, the application of the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," resulted in the
recognition of deferred tax assets and liabilities, and a corresponding charge
to the provision for income taxes of approximately $920 during 1997.
Subsequent to the terminations, the Company has provided federal and state
income taxes in the consolidated statements of income based on the effective tax
rate for fiscal year 1997. The unaudited pro forma net income in the
consolidated statements of income reflects applicable pro forma adjustments to
the provision for income taxes to reflect net income as if the Subchapter S
elections had been revoked prior to January 1, 1996.
CBS Mauritius is incorporated in Mauritius and is not subject to income
taxes. CBS India is an Indian corporation subject to income taxes and receives
certain exemptions from Indian income taxes under free trade zone and software
exporters provisions of Indian tax law. CBS-India's tax provision has been
included in the consolidated statements of income as part of the provision for
income taxes. The Company considers all undistributed earnings of its foreign
subsidiaries to be permanently invested. Therefore, no United States income
taxes have been provided on these earnings.
F-16
<PAGE> 135
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1997
<S> <C>
Federal:
Current................................................... $ 6,584
Deferred.................................................. (2,674)
-------
3,910
-------
State:
Current................................................... 385
Deferred.................................................. (61)
-------
324
-------
Total provision........................................ $ 4,234
=======
</TABLE>
The items accounting for the difference between income taxes computed at
the federal statutory rate and the provision for income taxes follow:
<TABLE>
<CAPTION>
1997
<S> <C>
Federal statutory rate...................................... 35.0%
Effect of:
Tax rate differences on foreign earnings not subject to
U.S. tax............................................... (7.2)
Other, net................................................ 4.8%
----
32.6%
S Corporation termination................................. 9.3
S Corporation earnings.................................... 1.0
----
42.9%
====
</TABLE>
The components of net deferred income taxes include the tax effect of
temporary differences arising from deferred revenue, employee benefits, computer
software and other non-deductible accruals.
F-17
<PAGE> 136
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,
-------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues --
United States........................................ $191,126 $134,339 $96,593
India................................................ 13,644 4,994 3,390
Other international.................................. 1,027 755 1,196
Intersegment......................................... (11,847) (4,781) (3,093)
-------- -------- -------
Total............................................. $193,950 $135,307 $98,086
======== ======== =======
Income From Operations --
United States........................................ $ 5,876 $ 6,226 $ 3,476
India................................................ 3,445 999 678
Other international.................................. 87 38 48
-------- -------- -------
Total............................................. $ 9,408 $ 7,263 $ 4,202
======== ======== =======
Identifiable Assets --
United States........................................ $100,983 $ 38,162 $29,501
India................................................ 6,697 3,966 1,320
Other international.................................. 4,704 3,454 496
-------- -------- -------
Total............................................. $112,384 $ 45,582 $31,317
======== ======== =======
</TABLE>
14. COMMITMENTS, CONTINGENCIES AND POTENTIAL LIABILITY TO CLIENTS
The Company has received a third-party complaint filed against it and other
parties on February 3, 1997, by Network Six, Inc. ("NSI") in the Circuit Court
of the First Circuit for the State of Hawaii. The third-party claims are
asserted in an action that the State of Hawaii has brought against NSI. The
Company has also received an answer and counterclaim, dated January 31, 1997,
served by NSI in an action brought by the Company against NSI in the Superior
Court of the State of Rhode Island. The Company acted as a subcontractor to NSI
in connection with the development of software for the State of Hawaii.
Additionally, NSI and the Company were parties to a letter of intent, now
terminated, for the purpose of exploring a business combination or merger. The
Company's suit against NSI in Rhode Island, as well as the State of Hawaii's
suit against NSI in Hawaii, arise from the Hawaii software project.
The allegations of NSI's third-party complaint in the Hawaii action and
NSI's counterclaim in the Rhode Island action are substantively identical. NSI
alleges that the Company wrongfully used information gained in connection with
the letter of intent to attempt to gain control of the State of Hawaii project,
interfered with NSI's relationship with the State of Hawaii, employed or
solicited the employment of NSI employees in violation of contract, and
otherwise breached contractual or other obligations to NSI. NSI seeks damages of
approximately $481 from the Company for services and personnel allegedly
provided to it by NSI, damages of $60,000 predicated on a decline in the market
value of NSI's publicly-traded stock, and other unspecified losses. On May 30,
1997, the Circuit Court of the First Circuit for the State of Hawaii granted the
Company's motion to dismiss claims asserting bad faith breach of contract with
prejudice, and conspiracy without prejudice.
The Company believes that it has not breached any contractual or other
obligation to NSI as alleged either in the third-party complaint or the
counterclaim, and that it possesses meritorious defenses or set-offs to all of
NSI's claims. The Company does not believe that NSI's actions will result in
material liability to it, or
F-18
<PAGE> 137
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that they will have a material adverse effect on its financial condition,
business, or operations, and intends to vigorously contest the claims asserted
in both actions.
The Company is also, 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 other
existing matter will have a material adverse effect on its financial condition,
results of operations or cash flows.
In addition, many of the Company's engagements, including Year 2000
projects, involve projects that are critical to the operations of its clients'
businesses and provide benefits that may be difficult to quantify. The Company
attempts to contractually limit its liability for damages arising from errors,
mistakes, omissions or negligent acts in rendering its services.
15. STOCK DIVIDEND
On February 18, 1998, the Board of Directors declared a two-for-one split
of the Company's common stock, effected in the form of a stock dividend payable
on March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and to per share information in the
consolidated financial statements and related notes have been adjusted to
reflect the stock split on a retroactive basis.
On December 30, 1995, Costello declared a two for 1 stock split payable to
shareholders of record as of December 31, 1995. All references to number of
shares, the number of options and to per share information in the consolidated
financial statements and related notes have been adjusted to reflect the stock
split on a retroactive basis.
Costello declared 15% and 10% stock dividends on December 31, 1996 and
1995, respectively.
16. SUBSEQUENT EVENT
On April 8, 1998, the Company signed an Agreement and Plan of Merger with
Claremont Technology Group, Inc., a publicly held Oregon Corporation. The
merger, which is subject to shareholder approval, will be accounted for by the
pooling of interest method of accounting.
17. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
The following quarterly information is unaudited and has been restated to
give effect to the Synergy and Costello mergers (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
1997 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $41,469 $46,850 $51,174 $54,457
Gross profit....................................... 11,098 12,826 14,919 12,153
Income (loss) from operations...................... 2,547 3,011 4,346 (496)
Net income (loss).................................. 1,238 2,051 3,142 (870)
Net income (loss) per weighted-average share....... $ 0.06 $ 0.09 $ 0.12 $ (0.03)
Pro forma net income (loss)........................ 1,553 1,944 2,877 (49)
Pro forma diluted earnings per share............... $ 0.07 $ 0.08 $ 0.11 $ --
</TABLE>
F-19
<PAGE> 138
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 QUARTER ENDED
- ---- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Revenues........................................... $29,509 $32,439 $35,045 $38,314
Gross profit....................................... 8,098 8,610 8,980 9,769
Income from operations............................. 1,905 1,922 1,855 1,581
Net income......................................... 1,646 1,587 1,545 1,368
Net income per weighted-average share.............. $ 0.09 $ 0.09 $ 0.08 $ 0.07
Pro forma net income............................... 1,049 987 969 966
Pro forma diluted earnings per share............... $ 0.05 $ 0.05 $ 0.05 $ 0.05
</TABLE>
18. PRO FORMA EARNINGS 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's Subchapter S elections had been revoked prior to January 1,
1995 and 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,
-------------------------
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 35.0% 34.0% 34.0%
State income taxes, net of Federal tax effect............... 2.0 3.0 3.0
Tax rate differences on foreign earnings not subject to U.S.
tax....................................................... (8.7) (3.3) (10.3)
Non-deductible merger costs................................. 3.1 -- --
Equity in loss of investee.................................. 0.9 0.6 --
Other....................................................... 3.1 3.1 5.9
---- ---- -----
35.4% 37.4% 32.6%
==== ==== =====
</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 preceding the
offering date (using the treasury stock method and 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.
F-20
<PAGE> 139
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 49,674 $ 57,458
Accounts receivable, net.................................. 45,858 38,574
Prepaid expenses and other................................ 2,139 2,042
-------- --------
Total current assets................................... 97,671 98,074
-------- --------
Property and equipment, net................................. 9,393 8,371
Goodwill, net............................................... 2,772 2,809
Other assets................................................ 1,170 999
-------- --------
Total assets........................................... $111,006 $110,253
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,863 $ 4,370
Accrued payroll and related costs......................... 14,629 15,630
Revolving credit facility................................. -- 3,380
Distribution payable to shareholders...................... 1,458 1,325
Current portion of deferred revenue....................... 1,810 1,075
Other accrued liabilities................................. 5,727 4,362
-------- --------
Total current liabilities.............................. 30,487 30,142
-------- --------
Other liabilities........................................... 165 190
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,
27,014,720 and 26,653,406 shares issued and outstanding
as of March 31, 1998 and December 31, 1997,
respectively........................................... -- --
Additional paid-in capital................................ 74,180 75,328
Retained earnings......................................... 10,131 7,779
Stock subscriptions receivable............................ (3,249) (2,503)
Cumulative translation adjustment......................... (708) (683)
-------- --------
Total shareholders' equity............................. 80,354 79,921
-------- --------
Total liabilities and shareholders' equity............. $111,006 $110,253
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-21
<PAGE> 140
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $60,537 $41,469
Cost of revenues:
Salaries, wages and employee benefits..................... 33,560 25,642
Contractual services...................................... 5,763 2,944
Project travel and relocation............................. 2,704 1,421
Depreciation and amortization............................. 318 364
------- -------
Total cost of revenues............................ 42,345 30,371
------- -------
Gross profit...................................... 18,192 11,098
Selling, general and administrative expenses................ 11,990 8,551
Merger Costs................................................ 3,421 --
------- -------
Income from operations............................ 2,781 2,547
Other expense (income)...................................... (538) 92
------- -------
Income before provision for income taxes and
minority interest................................ 3,319 2,455
Provision for income taxes.................................. 3,048 1,135
Minority interest........................................... -- 82
------- -------
Net income........................................ $ 271 $ 1,238
======= =======
Basic earnings per share --
Weighted-average shares outstanding....................... 26,902 19,810
======= =======
Basic earnings per share.................................. $ 0.01 $ 0.06
======= =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 26,902 19,810
Dilutive effect of stock options.......................... 1,536 569
------- -------
Diluted weighted-average shares outstanding............... 28,438 20,379
======= =======
Diluted earnings per share................................ $ 0.01 $ 0.06
======= =======
PRO FORMA INFORMATION
(UNAUDITED)
Net income as reported...................................... $ 271 $ 1,238
Pro forma incremental income tax benefit.................... (1,417) (315)
------- -------
Pro forma net income........................................ $ 1,688 $ 1,553
======= =======
Basic earnings per share --
Weighted-average shares outstanding....................... 26,902 20,884
======= =======
Basic earnings per share.................................. $ 0.06 $ 0.07
======= =======
Diluted earnings per share --
Weighted-average shares outstanding....................... 26,902 20,884
Dilutive effect of stock options.......................... 1,536 569
------- -------
Diluted weighted-average shares outstanding............... 28,438 21,453
======= =======
Pro forma diluted earnings per share...................... $ 0.06 $ 0.07
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE> 141
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 271 $ 1,238
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 750 677
Provision for doubtful accounts........................... 297 72
Equity in loss of investee................................ -- 72
Minority interest......................................... -- 82
Change in assets and liabilities --
Accounts receivable.................................... (7,645) 1,322
Prepaid expenses and other............................. (392) 320
Accounts payable....................................... 2,483 713
Accrued payroll and related costs and other
liabilities........................................... 497 173
Deferred revenue....................................... 710 (94)
------- -------
Net cash provided by (used in) operating
activities.......................................... (3,029) 4,575
------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,658) (701)
------- -------
Net cash used in investing activities................ (1,658) (701)
------- -------
Cash flows from financing activities:
Net payments on revolving credit facility................. (3,380) (2,635)
Payments on long-term debt................................ -- (791)
Net proceeds from issuance of common stock................ 269 24,392
S corporation distribution................................ -- (8,592)
------- -------
Net cash provided by (used in) financing
activities.......................................... (3,111) 12,374
------- -------
Effect of exchange rate changes on cash..................... 14 --
------- -------
Increase (decrease) in cash and cash equivalents............ (7,784) 16,248
------- -------
Cash and cash equivalents at beginning of period............ 57,458 3,937
------- -------
Cash and cash equivalents at end of period.................. $49,674 $20,185
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 76 $ 141
Income taxes........................................... $ 1,777 $ 483
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE> 142
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by management, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of Complete Business Solutions, Inc. and
subsidiaries (CBSI) as of March 31, 1998, the results of its operations for the
three-month periods ended March 31, 1998 and 1997, and cash flows for the three
month periods ended March 31, 1998 and 1997. These financial statements should
be read in conjunction with the consolidated financial statements and footnotes
thereto included in CBSI's Joint Proxy Statement/Prospectus, dated May 14, 1998.
The results of operations for the three month period ended March 31, 1998
are not necessarily indicative of the results to be expected in future quarters
or for the full fiscal year ending December 31, 1998.
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the accounts of CBSI. All
significant intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
On January 27, 1998, a subsidiary of CBSI closed an agreement and plan of
merger with c.w. Costello & Associates, inc. (Costello), a privately held
Delaware corporation. The merger agreement provided for all of the outstanding
Costello Common Stock to be exchanged for 3,363,090 of CBSI's Common Stock. In
addition, outstanding Costello options totaling 16,000 as of January 27, 1998
were converted into 56,909 options of CBSI. These options retained their
original terms and vesting periods. The merger with Costello was accounted for
by the pooling of interests method of accounting, and accordingly, the
accompanying condensed consolidated balance sheets and statements of income,
cash flows, and shareholders' equity have been retroactively restated.
On November 20, 1997 a subsidiary of CBSI closed an agreement and plan of
merger with Synergy Software, Inc., (Synergy) a privately held Illinois
corporation. The merger agreement provided for all of the outstanding Synergy
Common Stock to be exchanged for 1,390,894 shares of CBSI's Common Stock. In
addition, outstanding Synergy options totaling 646,462 as of November 20, 1997
were converted into 418,210 options of CBSI. These options retained their
original terms and vesting periods. The merger with Synergy was accounted for by
the pooling of interests method of accounting, and accordingly, the accompanying
condensed consolidated balance sheets and statements of income, cash flows, and
shareholders' equity have been retroactively restated.
Through July 1996, CBSI held a 76% interest in Complete Business Solutions
(India) Private Limited (CBS India) with the remaining 24% interest held by an
entity affiliated with CBSI's shareholder (affiliated entity). In July 1996,
CBSI formed CBS Complete Business Solutions (Mauritius) Limited (CBS Mauritius)
and CBSI 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 CBSI made a capital contribution of $1,708 to CBS Mauritius. The net
loss on this transaction was not material. As of December 31, 1996, CBSI owned
72% and the unrelated entity owned 28% of CBS Mauritius, which owned 100% of CBS
India.
F-24
<PAGE> 143
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As authorized in the CBS Mauritius Shareholders agreement and in connection
with the initial public offering of CBSI's Common Stock, the 28% shareholder of
CBS Mauritius converted its ownership interest in CBS Mauritius into 1,105,264
shares of CBSI's Common Stock. The acquisition of the minority shares was
accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the fair value of the net assets acquired has been
recognized as goodwill of approximately $2,931 in the condensed consolidated
balance sheets and is being amortized over 20 years.
3. COMMON STOCK OFFERINGS
In March 1997, CBSI completed an initial public offering of 5,000,000
shares of its Common Stock at a price of $6.00 per share. That offering
consisted of 4,600,000 shares of newly issued Common Stock and 400,000 shares
sold by a selling shareholder. After underwriting discounts, commissions and
other issuance costs, net proceeds to CBSI from that offering were approximately
$23,792. The net proceeds from that offering have been invested in cash
equivalents with an initial maturity of three months or less.
In August 1997, CBSI completed a secondary offering of 5,200,000 shares of
its Common Stock at a price of $14 1/8 per share. This offering consisted of
2,900,000 shares of newly issued Common Stock and 2,300,000 shares sold by
selling shareholders. After underwriting discounts, commissions and other
issuance costs, net proceeds to CBSI from this offering were approximately
$38,000. The net proceeds from this secondary offering have been invested and
will be used for further expansion of CBSI operations; development of new
service lines and possible acquisition of related businesses; and general
corporate purposes, including working capital needs.
4. STOCK DIVIDEND
On February 18, 1998, the Board of Directors declared a two-for-one split
of the Company's common stock, effected in the form of a stock dividend payable
on March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and to per share information in the
condensed consolidated financial statements and related notes have been adjusted
to reflect the stock split on a retroactive basis.
5. INCOME TAXES
Prior to March 4, 1997, the shareholders of CBSI had elected, under the
provisions of Subchapter S of the United States Internal Revenue Code, to have
income and related tax benefits of CBSI included in the taxable income of the
shareholders. As a result, no provision for U.S. federal or state income taxes
has been included in the condensed consolidated statements of income prior to
March 4, 1997.
On March 4, 1997, in connection with the initial public offering discussed
in Note 3, the shareholders and CBSI revoked the Subchapter S election, thereby
subjecting future income of CBSI to federal and state income taxes at the
corporate level. Accordingly, the application of the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No.
109) resulted in the recognition of deferred tax assets and liabilities, and a
corresponding charge to the provision for income taxes of approximately $920
during the three-month period ended March 31, 1997.
As discussed in Note 2, on January 27, 1998, the Company merged with
Costello, an S corporation. As a result of the merger, the S corporation status
was terminated thereby subjecting future income of Costello to federal and state
income taxes at the corporate level. Accordingly, the application of SFAS No.
109 resulted in the recognition of deferred tax assets and liabilities, and a
corresponding charge to the provision for income taxes of approximately $1,400
during the three month period ended March 31, 1998.
F-25
<PAGE> 144
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CBSI has provided federal and state income taxes in the condensed
consolidated statements of income based on the anticipated effective tax rate
for fiscal years 1998 and 1997. The unaudited pro forma net income in the
condensed consolidated statements of income reflect applicable after pro forma
adjustments to the provision for income taxes to reflect net income as if the
Subchapter S elections had been revoked prior to January 1, 1997.
CBS Mauritius is incorporated in Mauritius and is not subject to income
taxes. CBS India is an Indian corporation subject to income taxes and receives
exemptions from Indian income taxes under free trade zone and software exporters
provisions of Indian tax law. CBSI considers all undistributed earnings of its
foreign subsidiaries to be permanently invested. Therefore, no United States
income taxes have been provided on these earnings.
6. SUBSEQUENT EVENT -- MERGER WITH CLAREMONT TECHNOLOGY GROUP, INC.
On April 8, 1998, CBSI signed an agreement and Plan of Merger with
Claremont Technology Group, Inc. (Claremont), a publicly traded Oregon
corporation and with the holders of the issued and outstanding capital stock of
Claremont.
This merger agreement provides for all of the outstanding Claremont common
stock to be exchanged for approximately 7.2 million shares of CBSI's common
stock. In negotiating the purchase price, CBSI considered the current market
value of its common stock, Claremont's reputation as a premier provider of IT
services to large and mid-sized corporations, the minimal overlap of Claremont
and CBSI's clients, the broad range of IT services provided by Claremont,
Claremont's 700 IT professionals and Claremont's experience in ERP and
client/server technology.
The merger with Claremont is expected to be accounted for by the pooling of
interests method of accounting.
F-26
<PAGE> 145
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
Claremont Technology Group, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
August 14, 1997
F-27
<PAGE> 146
CLAREMONT TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $15,240 $ 526
Receivables:
Accounts receivable, net............................... 13,767 7,811
Revenue earned in excess of billings................... 6,537 5,653
Other.................................................. 387 153
Prepaid expenses and other current assets................. 745 683
Refundable income taxes................................... 2,745 --
Deferred income taxes..................................... 1,048 266
------- -------
Total current assets................................. 40,469 15,092
Property and equipment, net................................. 5,844 4,069
Software development costs, net of accumulated amortization
of $554 and $61........................................... 8,554 2,146
Other non-current assets, net of accumulated amortization of
$589 and $194............................................. 1,274 1,658
------- -------
Total assets......................................... $56,141 $22,965
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,975 $ 1,464
Line of credit............................................ -- 4,600
Current installments of long-term debt.................... 993 944
Accrued expenses.......................................... 3,564 3,354
Income taxes payable...................................... -- 619
Deferred revenue.......................................... 763 661
------- -------
Total current liabilities............................ 7,295 11,642
Long-term debt, excluding current installments.............. 585 1,578
Deferred income taxes....................................... 2,856 775
------- -------
Total liabilities.................................... 10,736 13,995
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value. Authorized 10,000 shares;
no shares issued or outstanding........................ -- --
Common stock, no par value. Authorized 25,000 shares;
8,257 and 4,832 shares issued and outstanding at 1997
and 1996, respectively................................. 33,343 1,331
Retained earnings......................................... 12,043 7,649
Cumulative translation adjustment......................... 19 (10)
------- -------
Total shareholders' equity........................... 45,405 8,970
------- -------
Total liabilities and shareholders' equity........... $56,141 $22,965
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 147
CLAREMONT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Professional fees......................................... $66,811 $44,769 $27,292
Resold products and services.............................. 521 2,556 --
------- ------- -------
Total revenue.......................................... 67,332 47,325 27,292
------- ------- -------
Costs and expenses:
Project costs and expenses................................ 35,335 23,988 13,704
Resold products and services.............................. 490 2,410 --
Selling, general and administrative....................... 24,591 15,485 10,156
------- ------- -------
Total costs and expenses............................... 60,416 41,883 23,860
------- ------- -------
Income from operations.................................... 6,916 5,442 3,432
------- ------- -------
Other income (expense):
Interest income........................................... 664 49 83
Interest expense.......................................... (185) (182) (31)
Other, net................................................ (105) (36) 15
------- ------- -------
Total other income (expense)........................... 374 (169) 67
------- ------- -------
Income before income taxes............................. 7,290 5,273 3,499
Income tax expense.......................................... 3,044 2,250 1,352
------- ------- -------
Net income............................................. $ 4,246 $ 3,023 $ 2,147
======= ======= =======
Net income per common share................................. $ 0.44 $ 0.40 $ 0.31
======= ======= =======
Weighted average number of common and common equivalent
shares outstanding........................................ 9,761 7,612 7,319
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 148
CLAREMONT TECHNOLOGY GROUP, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON CUMULATIVE TOTAL
STOCK STOCK RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994.................... 3,949 $ 47 $ 2,836 $ -- $ 2,883
Net income................................ -- -- 2,147 -- 2,147
Tax benefit of stock options exercised.... -- 83 -- -- 83
Stock options exercised................... 339 102 -- -- 102
Purchase of common stock.................. (55) (30) (85) -- (115)
Foreign currency translation adjustment... -- -- -- 1 1
----- ------- ------- ---- -------
Balance at June 30, 1995.................... 4,233 202 4,898 1 5,101
Net income................................ -- -- 3,023 -- 3,023
Tax benefit of stock options exercised.... -- 525 -- -- 525
Stock options exercised................... 668 500 -- -- 500
Stock compensation recognized............. -- 107 -- -- 107
Purchase of common stock.................. (69) (3) (272) -- (275)
Foreign currency translation adjustment... -- -- -- (11) (11)
----- ------- ------- ---- -------
Balance at June 30, 1996, as previously
reported.................................. 4,832 1,331 7,649 (10) 8,970
Acquisition of business................... 60 -- 148 -- 148
----- ------- ------- ---- -------
Balance at June 30, 1996, as restated....... 4,892 1,331 7,797 (10) 9,118
Net income................................ -- -- 4,246 -- 4,246
Tax benefit of stock options exercised.... -- 4,136 -- -- 4,136
Stock options exercised................... 1,070 1,006 -- -- 1,006
Proceeds from issuance of common stock,
net of issuance costs of $1,204........ 2,012 26,870 -- -- 26,870
Warrants exercised, net................... 283 -- -- -- --
Foreign currency translation adjustment... -- -- -- 29 29
----- ------- ------- ---- -------
Balance at June 30, 1997.................... 8,257 $33,343 $12,043 $ 19 $45,405
===== ======= ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 149
CLAREMONT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,246 $ 3,023 $ 2,147
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.......................... 3,211 1,376 467
Deferred income taxes.................................. 1,285 699 (423)
Non-cash expenses recognized........................... 356 107 --
Changes in assets & liabilities, net of effect of
acquisitions:
Receivables.......................................... (7,243) (7,625) (3,565)
Prepaid expenses and other current assets............ 16 (688) 5
Other non-current assets............................. (9) (1,030) (90)
Accounts payable and accrued expenses................ 666 1,858 1,451
Deferred revenue..................................... 102 366 (3)
Refundable income taxes.............................. (2,745) -- --
Income taxes payable................................. (601) 201 242
-------- -------- -------
Net cash provided (used) by operating activities..... (716) (1,713) 231
-------- -------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired......................... (291) (130) (204)
Purchase of property and equipment........................ (4,068) (3,663) (1,498)
Capitalized software development costs.................... (6,901) (2,077) (122)
-------- -------- -------
Net cash used by investing activities................ (11,260) (5,870) (1,824)
-------- -------- -------
Cash flows from financing activities:
Payments on line of credit................................ (5,900) (12,025) (4,200)
Proceeds from line of credit.............................. 1,300 16,425 4,400
Payments of long-term debt................................ (944) (671) (39)
Proceeds from issuance of long-term debt.................. -- 2,570 500
Payments of obligations under capital leases.............. -- (3) (83)
Purchases of common stock................................. -- (275) (115)
Proceeds from exercise of stock options................... 1,006 500 102
Adjustment for pooling of interest........................ 148 -- --
Net proceeds from common stock offering................... 26,870 -- --
Tax benefit of stock option exercises..................... 4,136 525 83
Payments (issuance) of notes receivable, net.............. 76 720 (575)
-------- -------- -------
Net cash provided by financing activities............ 26,692 7,766 73
-------- -------- -------
Effect of exchange rate changes on cash..................... (2) 3 (10)
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 14,714 186 (1,530)
Cash and cash equivalents at beginning of year.............. 526 340 1,870
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 15,240 $ 526 $ 340
======== ======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 209 $ 144 $ 31
Cash paid for taxes....................................... $ 849 $ 804 $ 1,319
Supplemental disclosure of non-cash investing and financing
activities:
Net liabilities assumed in merger......................... $ -- $ 57 $ 151
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 150
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
(In thousands, except per share amounts)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Claremont Technology Group, Inc. (the Company) provides enterprise-wide
information technology (IT) Solutions that reengineer mission-critical business
processes such as customer service, order and transaction processing, billing
and logistics. Claremont services include IT planning, systems integration and
development and outsourcing, through a project management methodology that
employs reusable object oriented software modules and transferable design
frameworks.
Claremont provides solutions to large organizations in select IT intensive
vertical markets including commercial services, communications, financial
services and state and local government. Claremont's clients consist of large
corporations and government organizations in the United States and certain
foreign markets.
Fiscal Periods
For 1997 and 1996, the Company's fiscal year ended on the Friday closest to
June 30. The Company's fiscal year for 1995 ended on June 30. The fiscal year
will generally be 52 weeks and periodically will consist of 53 weeks. All years
presented consist of 52 weeks. For convenience the Company has indicated in
these financial statements that its fiscal year ends on June 30.
Principles of Consolidation
The consolidated financial statements include the financial statements of
Claremont Technology Group, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents. Cash equivalents consist of commercial paper, bankers'
acceptances, and other highly liquid investments.
Financial Instruments
The carrying amount of cash equivalents, trade receivables, accounts
payable and short-term borrowings approximate fair value because of the
short-term nature of these instruments. The fair value of long-term debt was
estimated by discounting the future cash flows using market interest rates and
does not differ significantly from that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost incurred to
date to the estimated total cost at completion. This method is used because
management considers accumulated costs to be the best available measure of
progress on these contracts. The cumulative impact of any revision in estimates
of the percent complete is reflected in the year in which the changes become
known. Losses on projects in progress are recognized when known. Revenue
F-32
<PAGE> 151
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
earned in excess of billings is comprised of earnings on certain contracts in
excess of contractual billings on such contracts. Billings in excess of earnings
are classified as deferred revenues.
Revenues from time and materials contracts are recognized during the period
in which the services are provided.
Accounts Receivable
Accounts receivable are shown net of allowance for doubtful accounts of
$136 and $110 at June 30, 1997 and 1996, respectively.
Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of future minimum lease payments at the inception
of the lease.
Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets ranging from three to five
years. Equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or estimated useful
lives of the assets.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Foreign Currency Translation
The local currency is the functional currency in the Company's foreign
subsidiaries. Assets and liabilities of the foreign subsidiaries are translated
to U.S. dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates, in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation." Gains and
losses from foreign currency translation are included as a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
as a component of other income and expense.
Intangible Assets
Software development costs incurred subsequent to establishing a product's
technological feasibility are capitalized until such product is available for
general release to customers in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed". Capitalized software costs are amortized
on a product-by-product basis. Amortization is recorded based on the greater of
(a) the estimated economic life of the software (generally five years or less)
or (b) the ratio of current gross revenues for each product to the total of
current and anticipated gross revenues for each product, commencing when such
product is available for general release.
Other intangibles include purchased technology and a covenant not to
compete, which are amortized over periods ranging from two to five years using
the straight-line method. Total amortization costs for other intangibles were
$395 in fiscal 1997 and were immaterial in fiscal 1996 and 1995.
F-33
<PAGE> 152
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Computation of Net Income Per Share
Net income per share is computed using the weighted average number of
shares of common and common equivalent shares outstanding. Common equivalent
shares from stock options and warrants are excluded from the computation if
their effect is antidilutive, except that pursuant to the Securities and
Exchange Staff Accounting Bulletins, common and common equivalents shares issued
at prices below the public offering price during the twelve months immediately
preceding the initial filing date have been included in the calculation as if
they were outstanding for all periods presented using the treasury stock method
and the initial public offering price.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15, "Earnings
per Share." SFAS 128 simplifies the standards for computing earnings per share
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented. Following is the
pro forma effect of adoption on the Company's earnings per share for the years
ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1996 1995
<S> <C> <C> <C>
Primary EPS as reported.................................. $0.44 $ 0.40 $0.31
Effect of SFAS 128....................................... 0.12 0.26 0.21
----- ------ -----
Basic EPS as restated.................................... $0.56 $ 0.66 $0.52
===== ====== =====
Fully diluted EPS as reported............................ $0.44 $ 0.41 $0.31
Effect of SFAS 128....................................... 0.00 (0.01) 0.00
----- ------ -----
Diluted EPS as restated.................................. $0.44 $ 0.40 $0.31
===== ====== =====
</TABLE>
2. ACQUISITIONS
In January 1996, the Company purchased certain assets of The Node
Connection (TNC). The acquisition has been accounted for as a purchase, and the
financial results of TNC have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the acquisition
has been allocated on the basis of the estimated fair value of the assets
acquired and the liabilities assumed.
In February 1997, the Company acquired certain assets and liabilities of
Pacific Star Technologies Pty. Limited from Queensland Systems Integration Pty.
Limited ("QSI") a software and systems integration company, for $291. The
acquisition has been accounted for as a purchase, and financial results have
been included in the accompanying consolidated financial statements since the
date of acquisition. The cost of the
F-34
<PAGE> 153
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
acquisition has been allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed.
The separate operational results of QSI are not material and accordingly
pro-forma financial results have been omitted.
In April 1997, the Company issued 60 shares of common stock in exchange for
all of the outstanding common stock of the TDS Group, Inc. ("TDS"). TDS
specializes in developing comprehensive information systems for government and
non-profit organizations. The acquisition has been accounted for as a pooling of
interests and accordingly, the Company's consolidated financial statements have
been restated to include the results of TDS for fiscal 1997. Results of TDS
prior to fiscal 1997 were immaterial, thus prior periods presented have not been
restated.
Merger costs of $140 were incurred and charged to expense in the fourth
quarter of 1997 for services rendered to facilitate completion of the
transaction.
3. BALANCE SHEET COMPONENTS
Property and Equipment, Net
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
<S> <C> <C>
Furniture and equipment..................................... $ 1,538 $ 1,147
Computer equipment and software............................. 8,428 4,759
Leased equipment............................................ 216 216
Leasehold improvements...................................... 149 108
------- -------
10,331 6,230
Less accumulated depreciation and amortization.............. (4,487) (2,161)
------- -------
Property and equipment, net................................. $ 5,844 $ 4,069
======= =======
</TABLE>
Depreciation expense for the years ended June 30, 1997, 1996 & 1995 was
$2,326, $1,178 & $469, respectively.
Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
<S> <C> <C>
Accrued payroll............................................. $ 885 $ 787
Accrued vacation............................................ 1,854 1,105
Accrued payroll taxes....................................... 418 710
Accrued profit sharing...................................... 366 682
Accrued other............................................... 41 70
------ ------
$3,564 $3,354
====== ======
</TABLE>
F-35
<PAGE> 154
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
4. INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. (the Partnership) was formed with one
of the Company's major customers to receive royalties from Claremont Retirement
Technologies, Inc. (CRTI) for future sales of a pension/retirement system
template to other public and private pension funds. CRTI has obtained licensing
rights from the Partnership to remarket the template. CRTI's initial equity
contribution to the Partnership represents approximately 1 percent of the
Partnership's total capital.
5. LEASES
The Company leases certain of its office space through noncancelable
operating lease arrangements. The leases expire May 31, 1998 through September
30, 2002, and are net leases with the Company paying all executory costs,
including insurance, utilities, and maintenance. Rental expense for operating
leases during the years ended June 30, 1997, 1996 and 1995 was approximately
$793, $820 and $404, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
<S> <C>
1998........................................................ $ 856
1999........................................................ 743
2000........................................................ 524
2001........................................................ 373
2002........................................................ 203
Thereafter.................................................. 31
------
Total minimum lease payments................................ $2,730
======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1997 1996
<S> <C> <C>
7.6% installment loan payable in monthly installments of
$61, including interest, with final payment due April
1999, secured by certain furniture and equipment.......... $1,189 $1,799
7.59% installment loan payable in monthly installments of
$14 with final payment due November 1998, secured by
certain furniture and equipment........................... 222 334
8.05% installment loan payable in monthly installments of
$16, including interest, with final payment due May 1998,
secured by certain furniture and equipment................ 167 389
------ ------
1,578 2,522
Less current installment of long-term debt.................. (993) (944)
------ ------
Long-term debt, excluding current installments.............. $ 585 $1,578
====== ======
</TABLE>
F-36
<PAGE> 155
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
The aggregate maturities of long-term debt for years subsequent to June 30,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
<S> <C>
1998........................................................ $ 993
1999........................................................ 585
------
Total payments on long-term debt............................ $1,578
======
</TABLE>
During 1995, the Company entered into a $2 million line of credit with a
bank, which was subsequently increased to $6 million in June 1996, with an
interest rate of .25 percentage points above the bank's reference rate (8.75
percent at June 30, 1997). This line of credit is secured by furniture,
equipment, and accounts receivable. At June 30, 1997, there were no amounts
outstanding on this line of credit. This line of credit expired on August 1,
1997 and the Company entered into a new line of credit agreement in August 1997.
The Company is a guarantor on a nonrevolving line of credit with a bank,
which provided for borrowings of up to $2 million for purposes of facilitating
the purchase of Company common stock by Company executives. As of June 30, 1997,
there was $923 of related debt outstanding against the line. Advances under the
line of credit were made directly to the Company executive with full recourse
and bear interest. Advances under the line of credit were for 36 months and
include monthly interest payments, made by each Company executive, with
principal repayment by each Company executive on or before July 31, 1998.
The various lines of credit with Bank of America Oregon are contained in a
master Business Loan Agreement, which includes covenants relating to the
maintenance of certain financial ratios and minimum net worth. The Company was
in compliance with these covenants at June 30, 1997.
The Company has available a standby letter of credit for up to $125. As of
June 30, 1997, there were no amounts outstanding under the line of credit.
In August 1997, the Company signed a business loan agreement (the
"Agreement") with a commercial bank. This Agreement includes a $2.0 million line
of credit and a $750 standby letter of credit. The line of credit and letter of
credit bear interest at the bank's reference rate plus .25 percent, or, at the
Company's option, at rates based on the Offshore Rate or the LIBOR rate. The
expiration date of this Agreement is September 1, 1999. This Agreement also
covers currently outstanding term loans for an original principal amount of
$5,000 which had previously been covered under the Business Loan Agreement dated
April 24, 1995. The Agreement is secured by all machinery and equipment and
receivables of the Company and contains certain financial ratio and other
covenants.
F-37
<PAGE> 156
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal............................................... $ 967 $1,232 $1,351
State and local....................................... 300 319 398
Foreign............................................... -- -- 26
------ ------ ------
1,267 1,551 1,775
Deferred:
Federal............................................... 1,930 552 (314)
State and local....................................... 494 147 (109)
Foreign............................................... (647) -- --
------ ------ ------
1,777 699 (423)
------ ------ ------
$3,044 $2,250 $1,352
====== ====== ======
</TABLE>
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal and corporate income tax rate of 34
percent to net income before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
Computed expected income tax expense.................... $2,479 $1,793 $1,190
Increase (reduction) in income tax expense resulting
from:
State income tax expense.............................. 518 292 214
Other................................................. 47 165 (52)
------ ------ ------
Income tax expense...................................... $3,044 $2,250 $1,352
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 342 $ 215
Expenses deductible in future periods..................... -- 42
State net operating loss carryforward..................... 358 --
Alternative minimum tax credit carryforward............... 120 --
Foreign net operating losses.............................. 647 --
Other..................................................... 90 61
------- -----
Total gross deferred tax assets........................ 1,557 318
Deferred tax liability:
Capitalized software development costs.................... (3,360) (812)
Property and equipment, due to differences in
depreciation........................................... (5) (15)
------- -----
Total gross deferred tax liabilities................... (3,365) (827)
------- -----
Net deferred tax liabilities......................... $(1,808) $(509)
======= =====
</TABLE>
F-38
<PAGE> 157
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
8. STOCK INCENTIVE PLANS
During fiscal 1992, the Company adopted, and the Board of Directors
approved, a stock incentive plan for eligible employees, directors and outside
consultants of the Company (the 1992 Plan). Either non-qualified or incentive
stock options may be issued under this plan and are exercisable for a period of
up to ten years from the date of grant. Certain of these options are subject to
acceleration clauses. As of June 30, 1996, the Company had authorized issuance
of such options to purchase up to an aggregate of 5,000 shares of its common
stock. The options vest and are exercisable over various periods from the
initial grant date.
During fiscal 1996, the Company also adopted and the Board of Directors
approved the 1996 Stock Option Plan for Nonemployee Directors (the 1996
Nonemployee Director Plan). Under the terms of the 1996 Nonemployee Director
Plan, directors of the Company who are not employees of the Company or any
subsidiary of the Company are eligible to receive nonqualified options to
purchase shares of common stock. A total of 200 shares of common stock have been
reserved for issuance upon exercise of stock options granted under the 1996
Nonemployee Director Plan. Upon election to the Board of Directors, each
director is granted an option to purchase 20 shares, which option will vest over
a three-year period (each a "Recruitment Grant"). Following the first annual
meeting of shareholders after a Recruitment Grant is fully vested, the
nonemployee director holding such fully-vested Recruitment Grant will receive an
option to purchase an additional 15 shares of common stock, which option will
vest over a three-year period (a "First Renewal Grant"). Furthermore, following
the first annual meeting of shareholders after a nonemployee director's First
Renewal Grant is fully vested, and following every third annual meeting of
shareholders thereafter, such nonemployee director will be granted an option to
purchase an additional 15 shares of common stock, which option will vest over a
three-year period. The exercise price of options granted under the 1996
Nonemployee Director Plan may not be less than the fair market value of a share
of common stock on the date of the grant of the option.
The following table summarizes stock option activity through June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PRICE
<S> <C> <C>
Outstanding options at June 30, 1994........................ 2,501 $ 0.67
Granted................................................... 1,323 2.08
Exercised................................................. (332) 0.29
Canceled.................................................. (108) 1.59
------ ------
Outstanding options at June 30, 1995........................ 3,384 1.23
Granted................................................... 543 3.90
Exercised................................................. (668) 0.75
Canceled.................................................. (167) 3.35
------ ------
Outstanding options at June 30, 1996........................ 3,092 1.69
Granted................................................... 810 17.61
Exercised................................................. (1,070) 0.95
Canceled.................................................. (393) 12.37
------ ------
Outstanding options at June 30, 1997........................ 2,439 $ 5.59
====== ======
</TABLE>
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123) which defines a fair value
based method of accounting for an employee stock option and similar equity
instrument and encourages all entities to adopt that method of accounting for
all of
F-39
<PAGE> 158
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board 25 (APB 25). Entities
electing to remain with the accounting in APB 25 must make pro forma disclosures
of net income and, if presented, earnings per share, as if the fair value based
method of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1997 and 1996 using the
following weighted average assumptions for grants:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED JUNE 30,
-----------------
1997 1996
<S> <C> <C>
Risk-free interest rate..................................... 6.0% 6.0%
Expected dividend yield..................................... 0% 0%
Expected lives.............................................. 5 years 5 years
Expected volatility......................................... 70% n/a
</TABLE>
Using the Black-Scholes methodology for 1997 and the minimum value method
for 1996, the total value of options granted during fiscal 1997 and 1996 was
$4,460 and $259, respectively, which would be amortized on a pro forma basis
over the vesting period of the options (typically five years). The weighted
average fair value of options granted during fiscal 1997 and 1996 was $5.50 per
share and $0.48 per share, respectively. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------
1997 1996
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
<S> <C> <C> <C> <C>
Net income................................ $4,246 $4,003 $3,023 $2,997
Net income per share...................... $ 0.44 $ 0.42 $ 0.40 $ 0.39
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. SFAS 123 does not apply to awards prior to July 1,
1995.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
REMAINING NUMBER OF
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
$0.136- 1.73 1,198 6.4 $ 1.33 761 $ 1.20
$ 1.74- 3.55 320 7.7 $ 2.89 128 $ 2.70
$ 3.56- 8.00 288 8.5 $ 4.09 63 $ 4.04
$ 8.01-15.00 567 9.5 $14.19 16 $14.79
$15.01-25.00 29 9.5 $22.91 2 $22.41
$25.01-36.00 37 9.2 $32.99 0 $27.75
------------ ----- --- ------ --- ------
$0.136-36.00 2,439 7.6 $ 5.59 970 $ 1.85
============ ===== === ====== === ======
</TABLE>
F-40
<PAGE> 159
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
9. EMPLOYEE STOCK OWNERSHIP PLAN
In June 1995, the Company established an Employee Stock Ownership Plan
(ESOP) for all non-union U.S. employees. The ESOP is designed to invest
primarily in common stock of the Company. Each nonunion employee of the Company
or any affiliated company automatically participates in the ESOP on the January
1 or July 1 following such employee's date of hire.
A participant's account becomes fully vested and nonforfeitable after seven
years of service with the Company, or earlier if the participant attains age 65,
becomes totally disabled or dies. The participant's account vests at the rate of
10 percent per year for the first four years of employment, and at the rate of
20 percent per year for each year thereafter, until fully vested. The Company
pays all administrative costs of the ESOP.
The Company makes all contributions to the ESOP, which may be made in
either cash or shares of common stock. The contributions to the ESOP for the
years ended June 30, 1997, 1996 and 1995 consisted of cash of $150, $448 and
$300 respectively. Future contributions to the ESOP will be made at the
Company's discretion.
10. PROFIT SHARING PLAN
In January 1990, the Company adopted a qualified profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. The plan requires
participants to be at least 21 years of age and have completed at least one hour
of service. Employees can make voluntary contributions up to limitations
prescribed by the Internal Revenue Code. Company matching contributions are
discretionary. For the years ended June 30, 1997, 1996 and 1995, the Company
recognized discretionary matching contributions of $117, $129 and $75,
respectively.
11. STOCK WARRANT
On May 20, 1996, the Company issued a five-year warrant to purchase 400
shares of common stock at an exercise price of $10.33 per share. The warrant was
exercised on October 23, 1996 using a net exercise provision, for a total of
283,029 shares of the Company's Common Stock. As of June 30, 1997, the warrant
was fully exercised and no shares of the Company's Common Stock remain issuable
under this warrant.
12. BUSINESS AND CREDIT CONCENTRATION
Revenues from certain of the Company's largest customers individually
exceeded 10 percent of revenues as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
<S> <C> <C> <C>
Ohio State Teachers Retirement System....................... 8% 14% 38%
Lucent Technologies......................................... 14% 20% 19%
Mississippi Public Employee Retirement System............... 3% 11% --
</TABLE>
At June 30, 1997 and 1996, the accounts receivable and revenue in excess of
billings balances from these customers were $5,425 and $5,882, respectively.
13. RELATED PARTY TRANSACTIONS
The Company issued promissory notes totaling $514 and $385 to certain
employees during the fiscal years ended June 30, 1996 and 1995, respectively.
The notes are due at varying dates through July 31, 1997 and bear interest at
rates ranging from 4% to 7.1%.
F-41
<PAGE> 160
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
The Company entered into a retirement and severance agreement with its
founder, Steven L. Darrow, and (as of the date of the agreement, March 15, 1996)
largest shareholder. Under that agreement, in exchange for his commitment not to
compete with the Company for five years, the Company agreed to pay an amount
equal to one year's salary, provide a continuation of medical benefits during
his lifetime, forgive certain loans from the Company and pay resulting
withholding taxes, and grant him and certain trusts and individuals to whom he
had transferred stock certain "piggyback" registration rights. With respect to
this agreement, the Company recorded $966 as a covenant not to compete and
classified such amount under "other noncurrent assets". Additionally, the
agreement provided for the acceleration of the exercisability of otherwise not
yet exercisable stock options for the 35.8 shares of the Company's common stock
with an exercise price of $1.03 each, resulting in noncash compensation expense
of $107.
The Company retained a board member as a consultant through his consulting
firm, and also directly as a part-time employee, for payments aggregating $73 in
fiscal year 1996 and $113 in fiscal 1995. The consulting and employment
arrangement with the board member ended effective April 26, 1996.
14. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
The Company has approximately $500 of performance bonds outstanding as of
June 30, 1997.
The Company has entered into three-year employment agreements with its
president and chief financial officer. These agreements became effective upon
retaining these individuals and provide for an initial base salary of $400 and
$295, respectively. Each agreement states that if the executive's employment is
terminated by the Company for reasons other than cause, the executive's base
salary will continue for the longer of three years from the start date or six
months from the termination date. Regardless of the reason for termination, each
agreement contains commitments of noncompetition and nonsolicitation of the
Company's personnel. These commitments last the longer of 18 months after
departure from the Company, or for as long as base salary continues to be paid.
15. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, providing systems
integration services.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1997 1996 1995
<S> <C> <C> <C>
United States....................................... $63,388 $45,004 $26,730
Canada.............................................. 3,363 2,321 562
Australia........................................... 581 -- --
------- ------- -------
Total............................................. $67,332 $47,325 $27,292
======= ======= =======
</TABLE>
16. SUBSEQUENT EVENTS
Acquisitions
In July 1997, the Company completed two business combinations that were
accounted for as purchases. The Company purchased Communications Informatiques
Trilan Canada, Inc. ("Trilan") and OpTex, Inc. ("OpTex"). The results of
operations of each acquisition will be included in the Company's results of
F-42
<PAGE> 161
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997, 1996 AND 1995
operations from the date of acquisition. Trilan offers technology consulting
services specializing in network management, call and help center management and
outsourcing. OpTex develops billing and customer management software for the
communications industry and provides customer service and complete billing
services through its fully functional service bureau for communications industry
clients.
F-43
<PAGE> 162
CLAREMONT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31,
1998
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,521
Receivables:
Accounts receivable, net of allowances of $417......... 11,503
Revenue earned in excess of billings, net of allowances
of $400............................................... 9,732
Other.................................................. 827
Prepaid expenses and other current assets................. 546
Refundable income taxes................................... 2,872
Deferred income taxes..................................... 319
-------
Total current assets................................... 36,320
-------
Property and equipment, net of accumulated depreciation of
$8,199.................................................... 6,260
Software development costs, net of accumulated amortization
of $1,672................................................. 7,379
Goodwill, net of accumulated amortization of $377........... 3,027
Other non-current assets, net of accumulated amortization of
$863...................................................... 1,778
-------
Total assets........................................... $54,764
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,536
Current installments of long-term debt.................... 833
Accrued payroll and related liabilities................... 5,237
Accrued profit sharing.................................... 244
Other accrued expenses.................................... 122
Deferred revenue.......................................... 760
-------
Total current liabilities.............................. 9,732
-------
Long-term debt, excluding current installments.............. 3
Deferred income taxes....................................... 2,588
-------
Total liabilities...................................... 12,323
Shareholders' equity:
Preferred stock, no par value. Authorized 10,000 shares;
no shares issued or outstanding........................ --
Common stock, no par value. Authorized 25,000 shares;
8,861 shares issued and outstanding at March 31,
1998................................................... 36,301
Retained earnings......................................... 6,183
Cumulative translation adjustment......................... (43)
-------
Total shareholders' equity............................. 42,441
-------
Total liabilities and shareholders' equity............. $54,764
=======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-44
<PAGE> 163
CLAREMONT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1998 1997 1998 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Professional fees.................................... $21,695 $18,234 $62,952 $47,337
Resold products and services......................... 301 -- 1,049 491
Other revenue........................................ 628 243 2,598 263
------- ------- ------- -------
Total revenue..................................... 22,624 18,477 66,599 48,091
------- ------- ------- -------
Costs and expenses:
Project costs and expenses........................... 12,746 9,879 36,782 24,798
Resold products and services......................... 282 -- 962 454
Other costs of revenue............................... 321 53 1,067 53
Selling, general and administrative.................. 8,665 6,423 25,393 16,616
Non-recurring charges................................ 7,539 -- 7,539 --
------- ------- ------- -------
Total costs and expenses.......................... 29,553 16,355 71,743 41,921
------- ------- ------- -------
Income (loss) from operations........................ (6,929) 2,122 (5,144) 6,170
------- ------- ------- -------
Other income (expense):
Interest income...................................... 43 152 197 500
Interest expense..................................... (20) (38) (84) (151)
Other, net........................................... (2) (37) (54) (51)
------- ------- ------- -------
Total other income (expense)...................... 21 77 59 298
------- ------- ------- -------
Income (loss) before income taxes................. (6,908) 2,199 (5,085) 6,468
Income tax expense..................................... -- 903 775 2,655
------- ------- ------- -------
Net income (loss)................................. $(6,908) $ 1,296 $(5,860) $ 3,813
======= ======= ======= =======
Basic net income (loss) per common share............... $ (0.79) $ 0.16 $ (0.69) $ 0.52
======= ======= ======= =======
Diluted net income (loss) per common share............. $ (0.79) $ 0.13 $ (0.69) $ 0.40
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-45
<PAGE> 164
CLAREMONT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (5,860) $ 3,813
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 4,274 2,356
Deferred income taxes.................................. 382 1,678
Non-cash stock compensation recognized................. 361 --
Impairment of long-term assets......................... 5,915 --
Changes in assets and liabilities:
Receivables.......................................... (627) (7,851)
Prepaid expenses..................................... 214 (37)
Refundable income taxes.............................. (81) (3,861)
Other non-current assets............................. 47 (134)
Accounts payable and accrued expenses................ 2,058 1,634
Deferred revenue..................................... 6 138
-------- -------
Net cash provided by (used in) operating
activities.......................................... 6,689 (2,264)
-------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired......................... (3,153) --
Purchase of property and equipment........................ (3,332) (3,393)
Expenditures for software development costs............... (4,229) (5,135)
-------- -------
Net cash used by investing activities................ (10,714) (8,528)
-------- -------
Cash flows from financing activities:
Payments on line of credit, net........................... -- (4,600)
Payments of long-term debt................................ (1,403) (702)
Proceeds from common stock offering, net.................. -- 26,870
Proceeds from exercise of stock options................... 664 838
Tax benefit related to stock option activity.............. -- 3,904
Payments on notes receivable, net......................... -- 75
-------- -------
Net cash provided (used) by financing activities..... (739) 26,385
-------- -------
Effect of exchange rate on cash............................. 45 7
-------- -------
Net increase (decrease) in cash and cash
equivalents......................................... (4,719) 15,600
-------- -------
Cash and cash equivalents at beginning of period............ 15,240 526
-------- -------
Cash and cash equivalents at end of period.................. $ 10,521 $16,126
======== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-46
<PAGE> 165
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by management, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
The financial information included herein for the three-month and
nine-month periods ended March 31, 1998 and 1997 is unaudited; however, such
information reflects all adjustments consisting only of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods. The interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Joint Proxy Statement/Prospectus.
The results of operations for the interim period presented are not
necessarily indicative of the results to be expected for the full year. For ease
of presentation, the periods ended March 27, 1998 and March 28, 1997 are
referred to herein as ending March 31, 1998 and March 31, 1997, respectively.
2. BUSINESS LOAN AGREEMENT
In December 1997, Claremont's business loan agreement (the "Agreement"),
dated August 21, 1997, was amended to increase the total amount of available
credit to $5,000 and to decrease the interest rate to the bank's reference rate,
the offshore rate plus 1.75 percent of LIBOR plus 1.75 percent. In addition, the
term of the Agreement, as amended, calls for the repayment of principal and
interest in twenty successive monthly installments of $61 starting September 1,
1997. On March 31, 2000, any remaining principal and interest will be due. The
line of credit portion of the Agreement has $3,000 available credit through
September 1, 1998. At March 31, 1998, Claremont had no amounts outstanding under
the Agreement.
3. SHAREHOLDER RIGHTS PLAN
On February 5, 1998, the Board of Directors of Claremont entered into a
Rights Agreement and declared a dividend distribution of one Right for each
outstanding share of Claremont's Common Stock, no par value, on February 20,
1998. Each Right, when exercisable, entitles the registered holder to purchase
from Claremont one one-hundredth of a share of Series A Junior Participating
Preferred Stock ("Preferred Stock") at a price of $82.50 per one-hundredth
share, subject to adjustment. Initially, the Rights will be attached to all
certificates representing shares of Claremont's Common Stock, and no separate
certificates evidencing the Rights will be distributed. The Rights will separate
from the Common Stock and a distribution of Rights certificates will occur upon
the earlier to occur of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15 percent
or more of the outstanding shares of Claremont's Common Stock (the "Stock
Acquisition Date") or (ii) 10 business days (or such later date as the Board of
Directors may determine) following the commencement of a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person of 15 percent or more of the outstanding shares of
Claremont's Common Stock (the earlier of such dates being called the
"Distribution Date").
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on February 5, 2008, unless earlier redeemed or
exchanged by Claremont. Claremont may redeem the Rights in whole, but not in
part, at any time until ten days following the Stock Acquisition Date, at a
price of $0.01 per
F-47
<PAGE> 166
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Right (payable in cash, Common Stock of Claremont or other consideration deemed
appropriate by the Board of Directors).
On April 8, 1998 the Company entered into an Amendment (the "First
Amendment") to the Rights Agreement dated February 5, 1998 between the Company
and ChaseMellon Shareholder Services, L.L.C. to the effect that neither Complete
Business Solutions, Inc. ("CBSI") or any of their affiliates shall become an
Acquiring Person (as defined in the Rights Agreement) by reason of the execution
of a merger agreement. (See Note 6).
4. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1998 1997
<S> <C> <C>
Cash paid during the period for income taxes................ $ 875 $818
Cash paid during the period for interest.................... 76 175
Stock issued in conjunction with acquisition................ 2,295 --
</TABLE>
5. EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS
are computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, Earnings per Share (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128. Following is
a reconciliation of basic EPS and diluted EPS.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 1997
---------------------------- ------------------------- ------------------------
PER PER
INCOME SHARE INCOME SHARE
(LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available to Common
Shareholders............................... $(6,908) 8,690 $(0.79) $1,296 7,913 $0.16
------ -----
DILUTED EPS
Effect of dilutive stock options............. -- -- -- 2,011
---------------- ---------------
Income (loss) available to Common
Shareholders............................... $(6,908) 8,690 $(0.79) $1,296 9,924 $0.13
------ -----
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1998 1997
--------------------------- ------------------------- ------------------------
PER PER
INCOME SHARE INCOME SHARE
(LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available to Common
Shareholders............................... $(5,860) 8,530 $(0.69) $3,813 7,366 $0.52
------ -----
DILUTED EPS
Effect of dilutive stock options............. -- -- -- 2,307
---------------- ---------------
Income (loss) available to Common
Shareholders............................... $(5,860) 8,530 $(0.69) $3,813 9,673 $.040
------ -----
</TABLE>
6. SUBSEQUENT EVENT
On April 9, 1998, Claremont announced the signing of a definitive merger
agreement with CBSI for approximately 7.2 million shares of CBSI common stock,
recently valued at approximately $285 million.
F-48
<PAGE> 167
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Completion of the merger is subject to governmental filings and formal approval
of both CBSI's and Claremont shareholders. The merger is currently expected to
close in the third calendar quarter of 1998. Based on CBSI's average per share
closing price for the 20 consecutive trading days ending on the fourth full
trading day prior to final closing of the merger, shareholders of Claremont
Common Stock will receive between 0.617849 and 0.8359133 shares of CBSI Common
Stock for each share of the Claremont's Common Stock. Based on a recent CBSI
price of $30.219 per share, shareholders of Claremont's Common Stock would
receive 0.8359133 shares of CBSI for each share of Claremont Common Stock held.
The merger is expected to be accounted for as a pooling of interests.
F-49
<PAGE> 168
ANNEX A
AGREEMENT
AND
PLAN OF MERGER
BETWEEN
CLAREMONT TECHNOLOGY GROUP, INC.
AND
CBSI ACQUISITION CORP. III
AND
COMPLETE BUSINESS SOLUTIONS, INC.
DATED APRIL 8, 1998
<PAGE> 169
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger................................ A-1
Section 1.2 Closing..................................................... A-1
Section 1.3 Effects of the Merger....................................... A-1
Section 1.4 Directors and Officers...................................... A-2
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock................................. A-2
(a) Capital Stock of Sub........................................ A-2
(b) Cancellation of Treasury Stock and CBSI-Owned Stock......... A-2
(c) Exchange Ratios for Claremont Common Stock.................. A-2
(d) Closing Value............................................... A-3
(e) Conversion Number, Collar................................... A-3
(f) Effect of Conversion........................................ A-3
(g) Claremont Stock Options..................................... A-3
Section 2.2 Exchange of Certificates.................................... A-3
(a) Exchange Agent.............................................. A-3
(b) Exchange Procedures......................................... A-3
(c) Distributions with Respect to Unexchanged Shares............ A-4
(d) No Further Ownership Rights in Claremont Common Stock....... A-4
(e) No Fractional Shares........................................ A-4
(f) Termination of Exchange Fund................................ A-4
(g) No Liability................................................ A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLAREMONT
Section 3.1 Organization, Good Standing, Power, Etc..................... A-5
Section 3.2 Power, Due Authorization.................................... A-5
Section 3.3 No Consents................................................. A-5
Section 3.4 No Conflict................................................. A-5
Section 3.5 Securities Matters.......................................... A-5
Section 3.6 Brokers..................................................... A-5
Section 3.7 SEC Reports................................................. A-6
Section 3.8 No Material Change.......................................... A-6
Section 3.9 Registration Statement; Proxy Statement/Prospectus.......... A-6
Section 3.10 Opinion of Financial Advisor................................ A-6
Section 3.11 Agreements, Contracts and Commitments....................... A-6
Section 3.12 Litigation.................................................. A-7
Section 3.13 Pooling of Interests........................................ A-7
Section 3.14 Claremont Capital Structure................................. A-7
Section 3.15 Intellectual Property....................................... A-7
</TABLE>
(i)
<PAGE> 170
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI AND SUB
Section 4.1 Organization, Good Standing, Power, Etc..................... A-8
Section 4.2 Merger Stock................................................ A-8
Section 4.3 Power, Due Authorization.................................... A-8
Section 4.4 No Consents................................................. A-8
Section 4.5 No Conflict................................................. A-8
Section 4.6 Securities Matters.......................................... A-9
Section 4.7 Brokers..................................................... A-9
Section 4.8 SEC Reports................................................. A-9
Section 4.9 No Material Change.......................................... A-9
Section 4.10 Registration Statement; Proxy Statement/Prospectus.......... A-9
Section 4.11 Opinion of Financial Advisor................................ A-10
Section 4.12 Agreements, Contracts and Commitments....................... A-10
Section 4.13 Litigation.................................................. A-10
Section 4.14 Pooling of Interests........................................ A-10
Section 4.15 CBSI and Sub Capital Structure.............................. A-10
Section 4.16 Intellectual Property....................................... A-11
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of Claremont...................................... A-11
Section 5.2 Covenants of CBSI........................................... A-13
Section 5.3 Cooperation................................................. A-14
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation............................................. A-14
Section 6.2 Proxy Statement/Prospectus; Registration Statement.......... A-15
Section 6.3 Consents.................................................... A-15
Section 6.4 Shareholder Rights Plan..................................... A-15
Section 6.5 Current Nasdaq Quotation.................................... A-15
Section 6.6 Access to Information....................................... A-15
Section 6.7 Shareholders' Meetings...................................... A-15
Section 6.8 Legal Conditions to Merger.................................. A-16
Section 6.9 Public Disclosure........................................... A-16
Section 6.10 Tax-Free Organization....................................... A-16
Section 6.11 Pooling Accounting.......................................... A-16
Section 6.12 Affiliate Agreements........................................ A-16
Section 6.13 Nasdaq Quotation............................................ A-16
Section 6.14 Stock Options............................................... A-16
Section 6.15 Brokers or Finders.......................................... A-17
Section 6.16 Indemnification............................................. A-17
Section 6.17 Additional Agreements; Reasonable Efforts................... A-18
Section 6.18 Hart Scott Rodino Filings................................... A-18
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-19
</TABLE>
(ii)
<PAGE> 171
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a) Shareholder Approval........................................ A-19
(b) Approvals................................................... A-19
(c) Registration Statement...................................... A-19
(d) No Injunctions or Restraint; Illegality..................... A-19
(e) Pooling Letters............................................. A-19
(f) Hart Scott Rodino Filings................................... A-19
(g) Nasdaq...................................................... A-19
Section 7.2 Additional Conditions to Obligations of CBSI and Sub........ A-19
(a) Representations and Warranties.............................. A-19
(b) Performance of Obligations of Claremont..................... A-20
(c) Tax Opinion................................................. A-20
(d) Blue Sky Laws............................................... A-20
(e) Substantial Continuity of Workforce......................... A-20
(f) Employment Agreements by Substantially All Vice
Presidents.................................................. A-20
Section 7.3 Additional Conditions to Obligations of Claremont........... A-20
(a) Representations and Warranties.............................. A-20
(b) Performance of Obligations of CBSI and Sub.................. A-20
(c) Tax Opinion................................................. A-20
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination................................................. A-20
Section 8.2 Effect of Termination....................................... A-21
Section 8.3 Fees and Expenses........................................... A-21
Section 8.4 Amendment................................................... A-22
Section 8.5 Extension; Waiver........................................... A-22
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations, Warranties and Agreements... A-22
Section 9.2 Waiver...................................................... A-23
Section 9.3 Governing Law, Jurisdiction, Fees........................... A-23
Section 9.4 Notices..................................................... A-23
Section 9.5 Interpretation.............................................. A-23
Section 9.6 Counterparts................................................ A-23
Section 9.7 Entire Agreement; No Third Party Beneficiaries.............. A-24
Section 9.8 Governing Law............................................... A-24
Section 9.9 Assignment.................................................. A-24
</TABLE>
(iii)
<PAGE> 172
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 8, 1998,
by and among Complete Business Solutions, Inc., a Michigan corporation ("CBSI"),
CBSI Acquisition Corp. III, a Michigan corporation and a wholly-owned subsidiary
of CBSI ("Sub") and Claremont Technology Group, Inc., an Oregon Corporation
("Claremont").
WHEREAS, the Boards of Directors of CBSI, Sub and Claremont deem it
advisable and in the best interests of each corporation and its respective
shareholders that CBSI and Claremont combine in order to advance the long-term
business interests of CBSI and Claremont;
WHEREAS, the combination of CBSI and Claremont shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with and
into Claremont, Claremont will become a wholly owned subsidiary of CBSI and the
shareholders of Claremont will become shareholders of CBSI (the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, Articles of Merger in such form as are required by the relevant
provisions of the Oregon Business Corporation Act ("OBCA") (the "Articles of
Merger") and a Certificate of Merger in such form as is required by the relevant
provisions of the Michigan Business Corporation Act ("MBCA") shall be duly
prepared, executed and acknowledged by Sub and Claremont and thereafter
delivered to the Corporation Commissioner of the State of Oregon and the
[Secretary of State?] for the State of Michigan for filing, as provided in the
OBCA and MBCA, as soon as practicable on or after the Closing Date (as defined
in Section 1.2). The Merger shall become effective upon the filing of the
Articles of Merger with the State of Oregon and Certificate of Merger with the
State of Michigan or at such time thereafter as is provided in the Articles of
Merger and Certificate of Merger. (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., P.S.T., on a date to be specified by CBSI and Claremont,
which shall be no later than the second business day after satisfaction of the
latest to occur of the conditions set forth in Sections 7.1, 7.2(b) (other than
the delivery of the officers' certificate referred to therein) and 7.3(b)
((other than the delivery of the officers' certificate referred to therein)
(provided that the other closing conditions set forth in Article VII have been
met or waived as provided in Article VII at or prior to the Closing) (the
"Closing Date"), at the offices of Ater Wynne Hewitt Dodson & Skerritt, LLP, 222
S.W. Columbia, Suite 1800, Portland, Oregon 97201, unless another date or place
is agreed to in writing by CBSI and Claremont.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Claremont (Sub and Claremont are sometimes
referred to below as the "Constituent Corporations" and Claremont is sometimes
referred to below as the "Surviving Corporation"), (ii) the Articles of
Incorporation of Sub shall be the Articles of Incorporation of the Surviving
Corporation, except that Article I thereof shall be amended to read as follows:
"The name of the corporation (the "Corporation") is Claremont
A-1
<PAGE> 173
Technology Group, Inc.," and (iii) the Bylaws of Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
Section 1.4 Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed. Claremont's Senior Vice Presidents and Vice Presidents
will retain their titles, which shall not be regarded as corporate titles unless
expressly so awarded by the Surviving Corporation's Board of Directors following
the merger.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, no par value, of Claremont ("Claremont Common Stock") or
capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, no par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and CBSI-Owned Stock. All shares
of Claremont Common Stock owned by CBSI, Sub or any other wholly-owned
Subsidiary (as defined below) of CBSI shall be cancelled and retired and
shall cease to exist and no stock of CBSI or other consideration shall be
delivered in exchange therefor. All shares of Common Stock, no par value,
of CBSI ("CBSI Common Stock") owned by Claremont shall remain unaffected by
the Merger. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding partnerships,
where the general partnership interests held by such party or any
Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or
other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one
or more of its Subsidiaries.
(c) Exchange Ratios for Claremont Common Stock. Subject to Section
2.2, each issued and outstanding share of Claremont Common Stock (other
than shares to be cancelled in accordance with Section 2.1(b)) shall be
converted into the right to receive the "Conversion Number" (as defined
below) of fully paid and unassessable shares of CBSI Common Stock (subject
to adjustment for any stock splits,
A-2
<PAGE> 174
stock dividends, recapitalizations, reclassifications and similar events
which affect the Claremont Common Stock or the CBSI Common Stock).
(d) Closing Value. The "Closing Value" shall mean the average of the
per share closing trading prices for CBSI Common Stock (without weighting
for trading volume) for the twenty consecutive trading days the last of
which is the fourth full trading day before the Closing Date.
(e) Conversion Number, Collar. The "Conversion Number" shall be that
number of shares of CBSI common stock equal to $27.00 divided by the
Closing Value. However, if the Closing Value is less than 85% of $38.00,
the Conversion Number shall be fixed at .8359133 shares of CBSI Common
Stock. If the Closing Value is more than 115% of $38.00, the Conversion
Number shall be fixed at .617849 shares of CBSI Common Stock.
(f) Effect of Conversion. All such shares of Claremont Common Stock
when so converted, shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the applicable number of
shares of CBSI Common Stock (based on the Conversion Number) and any cash
in lieu of fractional shares of CBSI Common Stock to be issued or paid in
consideration therefor pursuant to subsection 2.2(e) upon the surrender of
such certificate in accordance with Section 2.2, without interest.
(g) Claremont Stock Options. At the Effective Time, all
then-outstanding options to purchase Claremont Common Stock issued under
Claremont's 1992 Stock Incentive Plan (the "Claremont Option Plans") will
be assumed by CBSI in accordance with Section 6.13.
Section 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of Claremont Common Stock for CBSI Common Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, CBSI shall deposit with
a bank or trust company designated by CBSI and Claremont (the "Exchange
Agent"), for the benefit of the holders of shares of Claremont Common Stock
for exchange in accordance with this Section 2.2, through the Exchange
Agent, certificates representing the shares of CBSI Common Stock (such
shares of CBSI Common Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.1 in exchange for outstanding shares of
Claremont Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Claremont Common Stock (each a
"Certificate" and collectively, the "Certificates") whose shares were
converted pursuant to Section 2.1 into the right to receive shares of CBSI
Common Stock (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as CBSI and Claremont
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of CBSI Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by CBSI, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
CBSI Common Stock which such holder has the right to receive pursuant to
the provisions of this Article II, and the Certificate so surrendered shall
immediately be cancelled. In the event of a transfer of ownership of
Claremont Common Stock which is not registered in the transfer records of
Claremont, a certificate representing the proper number of shares of CBSI
Common Stock may be issued to a transferee if the Certificate representing
such Claremont Common Stock is presented to the Exchange Agent, accompanied
by all documents required to evidence and effect such transfer and by
evidence that any applicable stock transfer taxes have been paid.
A-3
<PAGE> 175
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to CBSI Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of CBSI Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to
subsection (e) below until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of CBSI Common
Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional
share of CBSI Common Stock to which such holder is entitled pursuant to
subsection (e) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of CBSI Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of CBSI
Common Stock.
(d) No Further Ownership Rights in Claremont Common Stock. All shares
of CBSI Common Stock issued upon the surrender for exchange of shares of
Claremont Common Stock in accordance with the terms hereof (including any
cash paid pursuant to subsection (c) or (e) of this Section 2.2) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Claremont Common Stock subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Claremont on such shares of Claremont Common Stock
in accordance with the terms of this Agreement on or prior to the date
hereof and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Claremont Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this
Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of CBSI Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
CBSI. Notwithstanding any other provision of this Agreement, each holder of
shares of Claremont Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of CBSI
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of CBSI Common Stock
multiplied by the Closing Value.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of Claremont for one year
after the Effective Time shall be delivered to CBSI, upon demand, and any
shareholders of Claremont who have not previously complied with this
Section 2.2 shall thereafter look only to CBSI for payment of their claim
for CBSI Common Stock, any cash in lieu of fractional shares of CBSI Common
Stock, and any dividends or distributions with respect to CBSI Common
Stock.
(g) No Liability. Neither CBSI nor Claremont shall be liable to any
holder of shares of Claremont Common Stock or CBSI Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLAREMONT
In order to induce CBSI to enter into this Agreement, Claremont warrants to
CBSI and Sub, subject to the matters set forth in the Claremont Disclosure
Letter delivered herewith, as follows:
A-4
<PAGE> 176
Section 3.1 Organization, Good Standing, Power, Etc. Claremont is a
corporation duly organized and validly existing under the laws of the State of
Oregon, has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted, and is
duly qualified and in good standing in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition or results of operations
("Material Adverse Effect") of Claremont. Each of Claremont's subsidiaries is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Claremont.
Section 3.2 Power, Due Authorization. Claremont has the power and
authority to execute and deliver this Agreement and to perform all of its
obligations hereunder in accordance with the terms hereof, and all necessary
corporate action to authorize the consummation of the transactions contemplated
by this Agreement on the part of Claremont has been duly and effectively taken,
including, without limiting the generality of the foregoing, the approval
thereof by the Board of Directors of Claremont, excepting only the approval of
the shareholders of Claremont.
Section 3.3 No Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Claremont in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing by CBSI of a Registration
Statement on Form S-4 with the Securities and Exchange Commission ("SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
(ii) the filing of the Articles of Merger with the Oregon Corporation
Commissioner, (iii) the filing of a Joint Proxy Statement with the SEC in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iv) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, and under the federal Hart Scott Rodino Premerger Notification
Act, and the laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Material Adverse Effect on
Claremont.
Section 3.4 No Conflict. Neither the execution and delivery of this
Agreement nor the performance of Claremont's obligations hereunder will (i)
violate any provision of the Articles of Incorporation or Bylaws of Claremont,
(ii) violate any material provision of any applicable statute or law or any
judgment, decree, order, regulation or rule of any court or governmental body
applicable to Claremont, or (iii) constitute a material breach or default (or an
event which, with notice or lapse of time or both, would constitute a material
default) under any material contract, commitment, agreement, lease or other
obligation to which Claremont is a party.
Section 3.5 Securities Matters. Claremont has delivered (or will deliver)
to CBSI copies of the proxy statement and all other written materials sent or
made available or to be sent or made available to the holders of its capital
stock in connection with this Agreement and the Merger. The proxy statement
notice and such other material complied with or will comply in all material
respects with the applicable requirements of the OBCA and applicable federal and
state securities laws and did not (or will not) contain any untrue statement of
a material fact or omit to state any material fact necessary, in light of the
circumstances, in order to make the statements therein not misleading, provided
that in the proxy material delivered or to be delivered to its shareholders,
Claremont has relied or will rely upon CBSI with respect to factual matters
concerning CBSI and Sub contained in such material, and with respect to matters
as to which such reliance is made, Claremont represents and warrants only that
Claremont has or will accurately and completely present such factual matters
concerning CBSI as CBSI provided to it for that purpose.
Section 3.6 Brokers. Other than Donaldson, Lufkin & Jenrette, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Claremont.
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Section 3.7 SEC Reports.
(a) Claremont has filed with the SEC all reports (the "Claremont SEC
Reports") required to be filed by it under the Exchange Act. Claremont has
furnished to CBSI or will furnish to CBSI on request prior to the Closing a copy
of all Claremont SEC Reports. All of the Claremont SEC Reports filed by
Claremont complied in all material respects with the requirements of the
Exchange Act. None of the Claremont SEC Reports contained, as of the respective
dates thereof, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made.
All financial statements contained in the Claremont SEC Reports have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the applicable periods ("GAAP"). Each
consolidated balance sheet included in the Claremont SEC Reports presents fairly
in accordance with GAAP the consolidated financial position of Claremont as of
the date of such balance sheet, and each consolidated statement of operations,
shareholders' equity and cash flows presents fairly in accordance with GAAP the
consolidated results of operations, shareholders' equity and cash flow of
Claremont for the periods then ended.
(b) No event has occurred since December 31, 1997 which requires the filing
of a Claremont SEC Report that has not heretofore been filed and furnished to
CBSI, excepting only the end of the third quarter of Claremont's fiscal year
1998 on March 31, 1998. There are no material liabilities of Claremont that have
not been disclosed in the SEC reports, except as are disclosed in the Disclosure
Letter.
Section 3.8 No Material Change. As of the date hereof, there has been no
material adverse change in Claremont's financial condition, results of
operations, business or prospects since December 31, 1997, nor will there be any
material adverse change in Claremont's financial condition, results of
operations, business or prospects from the date hereof through the Effective
Time except such as are promptly disclosed to CBSI.
Section 3.9 Registration Statement; Proxy Statement/Prospectus. The
written information supplied by Claremont for inclusion in the registration
statement on Form S-4 pursuant to which shares of CBSI Common Stock issued in
the Merger will be registered with the SEC (the "Registration Statement"), shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The written
information supplied by Claremont for inclusion in the joint proxy
statement/prospectus to be sent to the shareholders of CBSI and Claremont in
connection with the meeting of Claremont's shareholders to consider this
Agreement and the Merger (the Claremont Shareholders' Meeting") and in
connection with the meeting of CBSI's shareholders (the "CBSI Shareholders'
Meeting") to consider the issuance of shares of CBSI Common Stock pursuant to
the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to shareholders of Claremont or CBSI, at the time of
the Claremont Shareholders' Meeting and the CBSI Shareholders' Meeting and at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it was made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the CBSI
or Claremont Shareholders' Meetings which has become false or misleading. If at
any time prior to the Effective Time any event relating to Claremont or any of
its Affiliates (as defined in Section 6.11), officers or directors should be
discovered by Claremont which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Claremont
shall promptly inform CBSI.
Section 3.10 Opinion of Financial Advisor. The financial advisor of
Claremont, Donaldson, Lufkin & Jenrette, has delivered to Claremont an opinion
dated the date of this Agreement to the effect that the aggregate Merger
consideration to be received by the holders of the issued and outstanding Common
Stock of Claremont is fair in the aggregate from a financial point of view to
the equity holders of Claremont as a group.
Section 3.11 Agreements, Contracts and Commitments. Claremont is not in
breach of, nor has it received in writing any claim or threat that it has
breached, any of the terms or conditions of any agreement,
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contract or commitment with any Claremont customer that represents revenue of or
in excess of $250,000 in calendar year 1998 ("Claremont Material Contracts") in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to seek material damages from Claremont under any
Claremont Material Contract. Except as set forth on the Claremont Disclosure
Letter, on which all Claremont Material Contracts are listed, each Claremont
Material Contract that has not expired or been terminated is in full force and
effect and is not subject to any material default thereunder of which Claremont
is aware by any party obligated to Claremont pursuant to the Claremont Material
Contract. Claremont's twenty largest revenue customers (as judged from
anticipated 1998 revenue) are listed in the Disclosure Letter. Claremont has no
reason to believe any of its twenty largest customers will terminate its
relationship with Claremont within one year from the date hereof.
Section 3.12 Litigation. Except as described in the Claremont SEC
Reports, there is no action, suit or proceeding, claim, arbitration or
investigation against Claremont pending, or as to which Claremont has received
any written notice of assertion, or as to which Claremont has a reasonable basis
to believe it will be asserted or brought, which is reasonably likely to have a
Material Adverse Effect on Claremont, or a material adverse effect on the
ability of Claremont to consummate the transactions contemplated by this
Agreement.
Section 3.13 Pooling of Interests. Neither Claremont nor any of its
Affiliates has, through the date of this Agreement, taken or agreed to take any
action which would prevent CBSI from accounting for the business combination to
be effected by the Merger as a pooling of interests.
Section 3.14 Claremont Capital Structure.
(a) The authorized capital stock of Claremont consists of 25,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of preferred stock, no par
value ("Claremont Preferred Stock"). As of March 31, 1998, 8,981,240 shares of
Claremont Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Claremont Preferred
Stock were issued and outstanding, (iii) 2,119,468 shares of Claremont Common
Stock were reserved for future issuance pursuant to stock options granted and
outstanding under the Claremont Option Plans, and (iv) no shares of Claremont
Common Stock were reserved for future issuance pursuant to outstanding warrants
to purchase Claremont Common Stock. No material change in such capitalization
has occurred between March 31, 1998, and the date of this Agreement. All shares
of Claremont Common Stock subject to issuance as specified above, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in the Claremont Disclosure Letter, there are
no obligations, contingent or otherwise, of Claremont to repurchase, redeem or
otherwise acquire any shares of Claremont Common Stock or Claremont Preferred
Stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity.
(b) Except as set forth in this Section 3.14 or as reserved for future
grants of options under the Claremont Option Plans, there are no equity
securities of any class of Claremont, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.14 or in the Claremont
Disclosure Letter, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Claremont is a party
or by which it is bound obligating Claremont to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of Claremont
or obligating Claremont to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. To the best knowledge of Claremont, there are no voting trusts,
proxies or other agreements or understandings with respect to the shares of
capital stock of Claremont.
Section 3.15 Intellectual Property
(a) Claremont owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications for such patents, trademarks, trade names,
service marks and copyrights, processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material that are necessary to conduct the
business of Claremont as currently conducted, or proposed to be conducted, the
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absence of which would be reasonably likely to have a Material Adverse Effect on
Claremont (the "Claremont Intellectual Property Rights").
(b) Claremont is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Claremont Intellectual Property Rights or the intellectual property rights
of any third party, the breach of which would be reasonably likely to have a
Material Adverse Effect on Claremont.
(c) To Claremont's knowledge, all patents, registered trademarks, service
marks and copyrights held by Claremont are valid and subsisting. Except as set
forth on the Claremont Disclosure Letter, Claremont (i) has not been sued in any
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party; and (ii) has no knowledge that
the manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party, which such infringement would reasonably be expected
to have a Material Adverse Effect on Claremont.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI AND SUB
In order to induce Claremont to enter into this Agreement, CBSI and Sub
warrant to Claremont, subject to the matters set forth in the CBSI Disclosure
Letter delivered herewith, as follows:
Section 4.1 Organization, Good Standing, Power, Etc. CBSI is a
corporation duly organized and validly existing under the laws of the State of
Michigan, and Sub is a corporation duly organized and validly existing under the
laws of the State of Oregon. Each of CBSI and Sub has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on CBSI.
Section 4.2 Merger Stock. The shares of common stock of CBSI to be issued
to the shareholders of Claremont in connection with the Merger will have been
duly authorized prior to the effective time by all necessary corporate action by
CBSI and, when issued and delivered by CBSI pursuant to this Agreement, will be
validly issued, fully paid and non-assessable.
Section 4.3 Power, Due Authorization. Each of CBSI and Sub has the power
and authority to execute and deliver this Agreement and to perform all of its
obligations hereunder in accordance with the terms hereof, and all necessary
corporate action to authorize the consummation of the transactions contemplated
by this Agreement on the part of each of CBSI and Sub has been duly and
effectively taken, including, without limiting the generality of the foregoing,
the approval thereof by the Boards of Directors of CBSI and Sub and by CBSI as
the sole shareholder of Sub, excepting only the approval of the Shareholders of
CBSI.
Section 4.4 No Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental Entity is required
by or with respect to CBSI or Sub in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing by CBSI of a Registration Statement on Form S-4 with
the SEC in accordance with the Securities Act, (ii) the filing of the Articles
of Merger with the Oregon Corporation Commissioner, (iii) the filing of a Joint
Proxy Statement with the SEC in accordance with the Exchange Act, (iv) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws,
and under the federal Hart Scott Rodino Premerger Notification Act, and the laws
of any foreign country and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Material Adverse Effect on CBSI or Sub.
Section 4.5 No Conflict. Neither the execution and delivery of this
Agreement nor the performance of CBSI's or Sub's obligations hereunder will (i)
violate any provision of the Articles of Incorporation or Bylaws
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of CBSI or Sub, (ii) violate any material provision of any applicable statute or
law or any judgment, decree, order, regulation or rule of any court or
governmental body applicable to CBSI or Sub, or (iii) constitute a material
breach or default (or an event which, with notice or lapse of time or both,
would constitute a material default) under any material contract, commitment,
agreement, lease or other obligation to which CBSI or Sub is a party.
Section 4.6 Securities Matters. CBSI has delivered (or will deliver) to
Claremont copies of the proxy statement and all other written materials sent or
made available or to be sent or made available to the holders of its capital
stock in connection with this Agreement and the Merger. The proxy statement
notice and such other material complied with or will comply in all material
respects with the applicable requirements of the MBCA and applicable federal and
state securities laws and did not (or will not) contain any untrue statement of
a material fact or omit to state any material fact necessary, in light of the
circumstances, in order to make the statements therein not misleading, provided
that in the proxy material delivered or to be delivered to its shareholders,
CBSI has relied or will rely upon Claremont with respect to factual matters
concerning Claremont contained in such material, and with respect to matters as
to which such reliance is made, CBSI represents and warrants only that CBSI has
or will accurately and completely present such factual matters concerning
Claremont as Claremont provided to it for that purpose.
Section 4.7 Brokers. Other than UBS Securities LLC, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of CBSI.
Section 4.8 SEC Reports.
(a) CBSI has filed with the SEC all reports (the "CBSI SEC Reports")
required to be filed by it under the Exchange Act. All of the CBSI SEC Reports
filed by CBSI complied in all material respects with the requirements of the
Exchange Act. None of the CBSI SEC Reports contained as of the respective dates
thereof, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made.
All financial statements contained in the CBSI SEC Reports have been prepared in
accordance with GAAP consistently applied throughout the applicable periods.
Each consolidated balance sheet included in the CBSI SEC Reports presents fairly
in accordance with GAAP the consolidated financial position of CBSI as of the
date of such balance sheet, and each consolidated statement of operations,
shareholders' equity and cash flows presents fairly in accordance with GAAP the
consolidated results of operations, shareholders' equity and cash flow of CBSI
for the periods then ended.
(b) No event has occurred since December 31, 1997 which requires the filing
of a CBSI SEC Report that has not heretofore been filed and furnished to
Claremont, excepting only the end of the first quarter of CBSI's fiscal year
ending on March 31, 1998. There are no material liabilities of CBSI that have
not been disclosed in the CBSI SEC Reports, except as are disclosed in the
Disclosure Letter.
Section 4.9 No Material Change. As of the date hereof, there has been no
material adverse change in CBSI's financial condition, results of operations,
business or prospects since December 31, 1997, nor will there be any material
adverse change in CBSI's financial condition, results of operations, business or
prospects from the date hereof through the Effective Time except such as are
promptly disclosed to Claremont.
Section 4.10 Registration Statement; Proxy Statement/Prospectus. The
written information supplied by CBSI for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by CBSI for inclusion in the Joint Proxy Statement shall not, on the
date the Joint Proxy Statement is first mailed to shareholders of CBSI or
Claremont, at the time of the CBSI Shareholders' Meeting and Claremont
Shareholders' Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the
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Joint Proxy Statement not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the CBSI or Claremont Shareholders'
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to CBSI or any of its Affiliates, officers or
directors should be discovered by CBSI which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy Statement, CBSI
shall promptly inform Claremont.
Section 4.11 Opinion of Financial Advisor. The financial advisor of CBSI,
UBS Securities LLC, has delivered, or will deliver within two business days of
the date hereof, to CBSI an opinion dated the date of this Agreement to the
effect that the financial terms of the Merger are fair to CBSI from a financial
point of view.
Section 4.12 Agreements, Contracts and Commitments. CBSI is not in breach
of,nor has it received in writing any claim or threat that it has breached, any
of the terms or conditions of any agreement, contract or commitment with any
CBSI customer that represents revenue of or in excess of $1,000,000 in calendar
year 1998 ("CBSI Material Contracts") in such a manner as would permit any other
party to cancel or terminate the same or would permit any other party to seek
material damages from CBSI under any CBSI Material Contract. Except as set forth
on the Disclosure Letter, on which all CBSI Material Contracts are listed, each
CBSI Material Contract that has not expired or been terminated is in full force
and effect and is not subject to any material default hereunder of which CBSI is
aware by any party obligated to CBSI pursuant to the CBSI Material Contract.
CBSI's twenty largest revenue customers (as judged from anticipated 1998
revenue) are listed in the Disclosure Letter. CBSI has no reason to believe any
of its twenty largest customers will terminate their relationship with CBSI
within one year from the date hereof.
Section 4.13 Litigation. Except as described in the CBSI SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against CBSI pending or as to which CBSI has received any written notice of
assertion, or as to which CBSI has a reasonable basis to believe it will be
asserted or brought, which is reasonably likely to have a Material Adverse
Effect on CBSI and its Subsidiaries, taken as a whole, or a material adverse
effect on the ability of CBSI to consummate the transactions contemplated by
this Agreement.
Section 4.14 Pooling of Interests. Neither CBSI nor any of its Affiliates
has, through the date of this Agreement, taken or agreed to take any action
which would prevent CBSI from accounting for the business combination to be
effected by the Merger as a pooling of interests.
Section 4.15 CBSI and Sub Capital Structure.
(a) The authorized capital stock of CBSI consists of 30,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of Preferred Stock, no par
value ("CBSI Preferred Stock"). As of March 31, 1998 (i) 26,996,408 shares of
CBSI Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no shares of CBSI Preferred Stock were issued
and outstanding, (iii) no shares of CBSI Common Stock were held in the treasury
of CBSI or by Subsidiaries of CBSI, (iv) 3,247,454 shares of CBSI Common Stock
were reserved for future issuance pursuant to stock options granted and
outstanding under the CBSI Option Plans, and (v) no shares of CBSI Common Stock
were reserved for future issuance pursuant to outstanding warrants to purchase
CBSI Common Stock. The authorized capital stock of Sub consists of 60,000 shares
of Common Stock, no par value. As of April 7, 1998 there are, and as of Closing
there will be, 100 shares of Sub Common Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable. No material change in
such capitalization has occurred between March 31, 1998, and the date of this
Agreement. All shares of CBSI Common Stock subject to issuance as specified
above, upon issuance on the terms and conditions specified in the instruments
pursuant to which they were issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. There are no obligations, contingent or otherwise,
of CBSI or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of CBSI Common Stock or the capital stock of any Subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock of each of
CBSI's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares in
the case of foreign
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subsidiaries) are owned by CBSI or another Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in CBSI's
voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.15 or as reserved for future
grants of options under the CBSI Option Plans or the CBSI Director Option Plan,
there are no equity securities of any class of CBSI or any of its Subsidiaries,
or any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except as set forth in this
Section 4.15 or in the CBSI Disclosure Letter, there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which CBSI or any of its Subsidiaries is a party or by which it is bound
obligating CBSI or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of CBSI or
any of its Subsidiaries or obligating CBSI or any of its Subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best knowledge of CBSI,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of CBSI.
Section 4.16 Intellectual Property.
(a) CBSI owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications for such patents, trademarks, trade names, service marks
and copyrights, processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are necessary to conduct the business
of CBSI as currently conducted or proposed to be conducted, the absence of which
would be reasonably likely to have a Material Adverse Effect on CBSI and the
Subsidiaries, taken as a whole (the "CBSI Intellectual Property Rights").
(b) CBSI is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the CBSI
Intellectual Property Rights or any third party's intellectual property rights,
the breach of which would be reasonably likely to have a Material Adverse Effect
on CBSI and its Subsidiaries, taken as a whole.
(c) To CBSI's knowledge, all patents, registered trademarks, service marks
and copyrights held by CBSI are valid and subsisting. Except as set forth in the
CBSI Disclosure Letter, CBSI (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party; and (ii) has no knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party, which such infringement would be reasonably likely to have a Material
Adverse Effect on CBSI and its Subsidiaries, taken as a whole.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of Claremont. During the period from the date of
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Claremont shall and shall cause each of its
Subsidiaries (except to the extent that CBSI shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due, subject to good faith disputes over such debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practices and policies
to preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Claremont shall
promptly notify CBSI of any material event or occurrence not in the ordinary
course of business of Claremont. Except as expressly contemplated by this
Agreement, subject to Section 6.1, Claremont shall not, and shall not permit its
Subsidiaries to, without the prior written consent of CBSI:
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(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such
party or authorize cash payments in exchange for any options granted under
any of such plans except as required by the terms of such plans or any
related agreements in effect as of the date of this Agreement.
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to any Claremont intellectual property, other
than in the ordinary course of business consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of such party, or purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(d) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than (i) the grant of options
under the Claremont Option Plans consistent with past practices to
employees or consultants and not exceeding in the aggregate 50,000 shares,
(ii) the issuance of shares of Claremont Common Stock issuable upon
exercise of options granted under the Claremont Option Plans, which options
are outstanding on the date hereof, or (ii) the repurchase of shares of
Common Stock from terminated employees pursuant to the terms of outstanding
stock restriction or similar agreements.
(e) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets other than in the ordinary course of
business;
(f) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Claremont, except in the ordinary course of business;
(g) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in accordance with past practices, (ii) grant any
severance or termination pay to, or enter into any employment or severance
agreement, with any employee, except in accordance with past practices,
(iii) enter into any collective bargaining agreement, (iv) establish,
adopt, enter into or amend in any material respect any bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than indebtedness incurred under outstanding lines of credit
consistent with past practice;
(j) Amend or propose to amend its Articles of Incorporation or Bylaws;
or
(k) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (j) above, or any action which is
reasonably likely to make any of Claremont's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
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Section 5.2 Covenants of CBSI. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, CBSI shall, and shall cause its subsidiaries (including
without limitation Sub) (except to the extent that Claremont shall otherwise
consent in writing), to carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, to pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Effective Time. CBSI
shall promptly notify Claremont of any event or occurrence not in the ordinary
course of business of CBSI. Except as expressly contemplated by this Agreement,
CBSI shall not (and shall not permit any of its Subsidiaries to), without the
prior written consent of Claremont;
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service by such
party;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the CBSI's intellectual property other than in the
ordinary course of business consistent with past practices;
(c) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the grant of options under the CBSI 1996
Stock Option Plan ("CBSI Option Plans") consistent with past practices to
employees or consultants and in an aggregate not exceeding 600,000 shares, or
(ii) the issuance of shares of Common Stock issuable upon exercise of options
granted under the CBSI Option Plans, or (iii) options issued in connection with
a transaction permitted by Section 5.2(d), or (iv) the repurchase of shares of
CBSI Common Stock from terminated employees or consultants;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division, or otherwise acquire or
agree to acquire any assets, which, in each case, would delay the consummation
of the Merger;
(e) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
CBSI and its Subsidiaries, taken as a whole, except for lease financing
arrangements and transactions entered into in the ordinary course of business;
(f) Amend or proposed to amend its Articles of Incorporation or Bylaws,
except as contemplated by this Agreement;
(g) Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees in accordance with past practices, (ii) grant any additional severance
or termination pay to, or enter into any employment or severance agreements
with, officers, (iii) grant any severance or termination pay to, or enter into
any employment or severance agreement, with any employee, except in accordance
with past practices, (iv) enter into any collective bargaining agreement, (v)
except as contemplated by this Agreement, establish, adopt, enter into or amend
in any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
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(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of CBSI or any of its Subsidiaries or guarantee any
debt securities of others, other than indebtedness incurred under outstanding
lines of credit consistent with past practice; or
(j) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (i) above, or any action which is reasonably
likely to make any of CBSI's representations or warranties contained in this
Agreement untrue or incorrect in any material respect on the date made (to the
extent so limited) or as of the Effective Time.
Section 5.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of CBSI and Claremont shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
(a) Claremont shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving
Claremont, other than the transactions contemplated by this Agreement (any of
the foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), engage in negotiations or discussions concerning, or
provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve or recommend any Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent Claremont or its Board of Directors from (A) furnishing public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity or recommending an unsolicited bona fide written
Acquisition Proposal to the shareholders of Claremont, if and only to the extent
that (1) the Board of Directors of Claremont believes in good faith (after
consultation with its financial adviser) that such Acquisition Proposal would,
if consummated, result in a transaction more favorable to Claremont's
shareholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as a "Superior Proposal") and the Board of Directors of
Claremont determines in good faith after consultation with outside legal counsel
that such action is necessary for Claremont to comply with its fiduciary duties
to shareholders under applicable law, and (2) prior to furnishing such
non-public information to, or entering into discussions or negotiations with,
such person or entity, such Board of Directors receives from such person or
entity an executed confidentiality agreement with terms no less favorable to
such party than those contained in the Confidentiality Agreement dated March 9,
1998, between CBSI and Claremont (the "Confidentiality Agreement"); or (B)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
(b) Claremont shall notify CBSI in writing immediately after receipt by
Claremont (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Claremont by any person or entity that
informs Claremont that it is considering making, or has made, an Acquisition
Proposal.
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Section 6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement, CBSI
and Claremont shall prepare and file with the SEC the Joint Proxy Statement, and
CBSI shall prepare and file with the SEC the Registration Statement, in which
the Joint Proxy Statement will be included as a prospectus. CBSI and Claremont
shall use all reasonable efforts to cause the Registration Statement to become
effective as soon after such filing as practical. Unless otherwise required to
comply with the applicable fiduciary duties of the respective directors of
Claremont and CBSI, determined by such directors in good faith after
consultation with and based upon the advice of independent legal counsel, the
Joint Proxy Statement shall include the recommendation of the Board of Directors
of Claremont in favor of this Agreement and the Merger and the recommendation of
the Board of Directors of CBSI in favor of the issuance of shares of CBSI Common
Stock pursuant to the Merger.
(b) CBSI and Claremont shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.
Section 6.3 Consents. Each of CBSI and Claremont shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
CBSI's or Claremont's material agreements, contracts, licenses or leases in
connection with the Merger.
Section 6.4 Shareholder Rights Plan. As soon as possible, and in any
event prior to the Effective Time, Claremont shall take such steps as may be
required and sufficient either to redeem the outstanding rights under its
Shareholder Rights Plan or to amend that plan so as to prevent its application
to this transaction, without cost to CBSI.
Section 6.5 Current Nasdaq Quotation. Each of CBSI and Claremont agrees
to continue the quotation of CBSI Common Stock and Claremont Common Stock,
respectively, on the Nasdaq National Market during the term of the Agreement so
that, to the extent necessary, appraisal rights will not be available to
shareholders of Claremont under Section 60.554 of the OBCA.
Section 6.6 Access to Information. Upon reasonable notice, Claremont and
CBSI shall each (and CBSI shall cause each of its Subsidiaries) to afford to the
officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, each of Claremont and CBSI shall (and CBSI shall cause
each of its Subsidiaries) to furnish promptly to the other (a) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
and (b) all other information concerning its business, properties and personnel
as such other party may reasonably request. Unless otherwise required by law,
the parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations or the parties to consummate the Merger.
Section 6.7 Shareholders' Meetings.
(a) Claremont and CBSI each shall call a meeting of its respective
shareholders to be held as promptly as practicable for the purpose of voting, in
the case of Claremont, upon this Agreement and the Merger and, in the case of
CBSI, upon the increase in authorized common stock in order to effect the Merger
and the issuance of shares of CBSI Common Stock pursuant to the Merger (the
"CBSI Voting Proposal"). Subject to Sections 6.1 and 6.2, Claremont and CBSI
will, through their respective Boards of Directors recommend to their respective
shareholders approval of such matters and will coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day and as soon as practicable after the date hereof.
Unless otherwise required to comply with the applicable fiduciary duties of the
respective directors of Claremont and CBSI, as determined by such directors in
good faith after consultation with and based upon the advice of independent
legal counsel, each party shall use all reasonable efforts to solicit from
shareholders of such party proxies in favor of such matters.
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(b) CBSI shall also propose to its shareholders at the CBSI Shareholders'
Meeting or at an earlier-called meeting, as proposals separate from the CBSI
Voting Proposal, (i) an amendment to the CBSI Articles of Incorporation to
increase the number of authorized shares of CBSI Common Stock to 200,000,000 and
(ii) to increase the number of shares of CBSI Common Stock reserved for issuance
under the CBSI Stock Option Plans by 4,000,000 shares of CBSI Common Stock.
Section 6.8 Legal Conditions to Merger. Each of CBSI and Claremont will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
in connection with approvals of or filings with any other Governmental Entity)
and will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger. Each of CBSI and Claremont will, and
CBSI will cause its Subsidiaries to, take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public third party, required to be obtained or made by CBSI or
any of its Subsidiaries or Claremont in connection with the Merger or the taking
of any action contemplated thereby or by this Agreement.
Section 6.9 Public Disclosure. CBSI and Claremont shall agree with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such agreement, except as may
be required by law.
Section 6.10 Tax-Free Organization. CBSI and Claremont shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
Section 6.11 Pooling Accounting. CBSI and Claremont shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of CBSI and Claremont shall use
its best efforts (i) to cause its respective Affiliates not to take any action
that would adversely affect the ability of CBSI to account for the business
combination to be effected by the Merger as a pooling of interests and (ii) to
cause its respective Affiliates to sign and deliver to CBSI a customary "pooling
letter" in form and substance agreed upon by Claremont and CBSI.
Section 6.12 Affiliate Agreements. Upon the execution of this Agreement,
CBSI and Claremont will provide each other with a list of those persons who are,
in CBSI's or Claremont's respective reasonable judgment, "affiliates" of CBSI or
Claremont, respectively, within the meaning of Rule 145 (each such person who is
an "affiliate" of CBSI or Claremont within the meaning of Rule 145 is referred
to as an "Affiliate") promulgated under the Securities Act ("Rule 145"). CBSI
and Claremont shall provide each other such information and documents as
Claremont or CBSI shall reasonably request for purposes of reviewing such list
and shall notify the other party in writing regarding any change in the identity
of its Affiliates prior to the Closing Date. Claremont shall use its best
efforts to deliver or cause to be delivered to CBSI by May 31, 1998 (and in any
case shall deliver to CBSI prior to the Effective Time) from each of the
Affiliates of Claremont, an executed Affiliate Agreement, in form and substance
satisfactory to CBSI and Claremont, by which such Affiliate of Claremont agrees
to comply with the applicable requirements of Rule 145 ("Affiliates Agreement").
CBSI shall be entitled to place appropriate legends on the certificates
evidencing any CBSI Common Stock to be received by such Affiliates of Claremont
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the CBSI Common Stock, consistent with
the terms of the Affiliates Agreements.
Section 6.13 Nasdaq Quotation. CBSI shall use its best efforts to cause
the shares of CBSI Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
Section 6.14 Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Claremont Common Stock (a "Claremont Stock Option") under the Claremont Option
Plans shall be assumed by CBSI and shall thereafter constitute an option to
acquire, on the same terms and conditions as were applicable under the Claremont
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Stock Option the same number of shares of CBSI Common Stock as the holder of
such Claremont Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (rounded down to the nearest whole number), at a price per share
equal to (y) the aggregate exercise price for the shares of Claremont Common
Stock otherwise purchasable pursuant to such Claremont Stock Option divided by
(z) the number of full shares of CBSI Common Stock deemed purchasable pursuant
to such CBSI Stock Option in accordance with the foregoing; provided, however,
that, in the case of any Claremont Stock Option to which Section 422 of the Code
applies ("incentive stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code.
(b) As soon as practicable after the Effective Time, CBSI shall deliver to
the participants in the Claremont Option Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
Claremont Option Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.13 after giving effect to
the Merger). CBSI shall comply with the terms of the Claremont Option Plans and
ensure, to the extent required by, and subject to the provisions of, such
Claremont Option Plans, that Claremont Stock Options which qualified as
incentive stock options prior to the Effective Time continue to qualify as
incentive stock options after the Effective Time.
(c) CBSI shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of CBSI Common Stock for delivery under Claremont
Stock Options assumed in accordance with this Section 6.13. As soon as
practicable after the Effective Time, CBSI shall file a registration statement
or registration statements on Form S-8 (or any successor or other appropriate
forms), or another appropriate form with respect to the shares of CBSI Common
Stock subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, CBSI
shall administer Claremont Stock Options assumed pursuant to this Section 6.13
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to
the extent the Claremont Option Plans complied with the such rule prior to the
Merger.
Section 6.15 Brokers or Finders. Each of CBSI and Claremont represents,
as to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Donaldson, Lufkin & Jenrette, whose fees and expenses will be paid by Claremont
in accordance with Claremont's agreement with such firm (copies of which have
been delivered by Claremont to CBSI prior to the date of this Agreement), and
except UBS Securities LLC, whose fees and expenses will be paid by CBSI in
accordance with CBSI's agreement with such firm, and each of CBSI and Claremont
agrees to indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any other fees, commissions
or expenses asserted by any person on the basis of any act or statement alleged
to have been made by such party or its Affiliate.
Section 6.16 Indemnification.
(a) Claremont shall and, from and after the Effective Time, CBSI and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of
Claremont or any of its Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or employee of Claremont or any of its Subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities") including, without limitation, all losses, claims,
damages, costs, expenses, liabilities or judgments based in whole or in part on,
or arising in whole or in part out of, or
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pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent a corporation is permitted under the OBCA to indemnify
its own directors, officers and employees, as the case may be (Claremont, CBSI
and the Surviving Corporation, as the case may be, will pay expenses in advance
of the final disposition by any such action or proceeding to each Indemnified
Party to the full extent permitted by law upon receipt of any undertaking
contemplated by Section 60.397 of the OBCA). Without limiting the foregoing, in
the event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Party (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to them and
Claremont (or them and CBSI and the Surviving Corporation after the Effective
Time, (ii) Claremont (or after the Effective Time, CBSI and the Surviving
Corporation) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, and (ii)
Claremont (or after the Effective Time, CBSI and the Surviving Corporation) will
use all reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of Claremont, CBSI or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 6.15, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
Claremont, CBSI or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 6.16 except to the extent such failure prejudices such
party), and shall deliver to Claremont (or after the Effective Time, CBSI and
the Surviving Corporation) the undertaking contemplated by Section 60.397 of the
OBCA. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(b) For a period of 6 years after the Effective Time, CBSI shall cause
itself or the Surviving Corporation to use its best efforts to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Claremont's directors' and officers'
liability insurance policy (a copy of which has heretofore been delivered to
CBSI) on terms and in an amount comparable to those now applicable to directors
and officers of Claremont.
(c) In the event that CBSI or the Surviving Corporation or any of their
respective successors and assigns consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or transfers and conveys all or substantially all
of its property and assets to any person, then, and in each case, proper
provisions shall be made so that the successor and assigns of CBSI and the
Surviving Corporation assume the obligations set forth in this Section 6.15.
(d) The provisions of this Section 6.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives, each of whom is an intended third party beneficiary, and may
not be amended, altered or repealed without the written consent of any affected
Indemnified Party.
Section 6.17 Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of CBSI and
Claremont described in Section 6.6, including cooperating fully with the other
party, including by provision of information. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
either of the Constituent Corporations, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
Section 6.18 Hart Scott Rodino Filings. The parties shall cooperate with
each other such that each is timely provided all necessary information to permit
it to make prompt and complete filings under, and to permit it to comply fully
with, the requirements of the Hart Scott Rodino Premerger Notification Act.
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ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of 67% of
the outstanding shares of Claremont Common Stock present or represented at
the Claremont Shareholders' Meeting and the CBSI Voting Proposal shall have
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of CBSI Common Stock present or represented at the CBSI
Shareholders' Meeting.
(b) Approvals. Other than the filing provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declaration or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
the failure of which to obtain would be reasonably likely to have a
Material Adverse Effect on CBSI and its Subsidiaries, taken as a whole, or
Claremont shall have been filed, occurred or been obtained.
(c) Registration Statement. The Registration Statement shall have
become and shall be effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
(d) No Injunctions or Restraint; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting CBSI's conduct or operation of the business of CBSI after the
Merger shall have been issued, nor shall any proceeding brought by a
domestic administrative agency or commission or other domestic Governmental
Entity, seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of
the Merger illegal.
(e) Pooling Letters. CBSI and Claremont shall have received letters
from Arthur Andersen, LLP and KPMG Peat Marwick LLP, respectively, each
dated the date of the Joint Proxy Statement and confirmed in writing at the
Effective Time and addressed to CBSI and Claremont, respectively, stating
that the business combination to be effected by the Merger will qualify as
a pooling of interests transaction under generally accepted accounting
principles.
(f) Hart Scott Rodino Filings. CBSI and Claremont shall have received
letters from their respective counsel confirming that any necessary filing
under federal antitrust laws has been made and that the transaction has
passed Hart Scott Rodino review.
(g) Nasdaq. The shares of CBSI Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National
Market.
Section 7.2 Additional Conditions to Obligations of CBSI and Sub. The
obligations of CBSI and Sub to effect the Merger are subject to the satisfaction
of each of the following conditions, any of which may be waived in writing
exclusively by CBSI and Sub:
(a) Representations and Warranties. The representations and
warranties of Claremont set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement and (ii) where the failure to be
true and correct would not be reasonably likely to have a Material Adverse
Effect on Claremont or a material adverse effect upon the consummation of
the transactions contemplated hereby; and CBSI shall have received a
certificate signed on behalf of Claremont by the president and the chief
financial officer of Claremont to such effect.
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(b) Performance of Obligations of Claremont. Claremont shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and CBSI shall
have received a certificate signed on behalf of Claremont by the president
and the chief financial officer of Claremont to such effect.
(c) Tax Opinion. CBSI shall have received a written opinion from
Butzel Long, 150 W. Jefferson, Suite 900, Detroit, Michigan 48226 to the
effect that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
(d) Blue Sky Laws. CBSI shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
CBSI Common Stock pursuant to the Merger.
(e) Substantial Continuity of Workforce. Substantially all of
Claremont's employees as of the date hereof remain employed by Claremont as
of the Closing Date.
(f) Employment Agreements by Substantially All Vice
Presidents. Substantially all of Claremont's Vice President and all
Claremont's Senior Vice President level employees shall have signed
Employment Agreements with Claremont, in substantially the form approved by
CBSI.
Section 7.3 Additional Conditions to Obligations of Claremont. The
obligation of Claremont to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Claremont:
(a) Representations and Warranties. The representations and
warranties of CBSI and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except
for (i) changes contemplated by this Agreement and (ii) where the failure
to be true and correct would not be reasonably likely to have a Material
Adverse Effect on CBSI and its Subsidiaries, taken as a whole, or a
material adverse effect upon the consummation of the transactions
contemplated hereby; and Claremont shall have received a certificate signed
on behalf of CBSI by the chief executive officer and the chief financial
officer of CBSI to such effect.
(b) Performance of Obligations of CBSI and Sub. CBSI and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Claremont shall have received a certificate signed on behalf of CBSI by the
chief executive officer and the chief financial officer of CBSI to such
effect.
(c) Tax Opinion. Claremont shall have received the opinion of Ater
Wynne Hewitt Dodson & Skerritt, LLP, counsel to Claremont, to the effect
that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(g), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Claremont or CBSI:
(a) by mutual written consent of CBSI and Claremont; or
(b) by either CBSI or Claremont if the Merger shall not have been
consummated by August 31, 1998 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date);
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(c) by either CBSI or Claremont, if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under Section 6.7 of this
Agreement; or
(d) by CBSI, if, at the Claremont Shareholders' Meeting (including any
adjournment or postponement), the requisite vote of the shareholders of
Claremont in favor of this Agreement and the Merger shall not have been
obtained, or by Claremont, if, at the CBSI Shareholders' Meeting (including
adjournment or postponement), the requisite vote of the shareholders of
CBSI in favor of the CBSI Voting Proposal shall not have been obtained; or
(e) by CBSI, if (i) the Board of Directors of Claremont shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to CBSI or shall have resolved to do any of the foregoing,
for any reason other than the occurrence of an event or discovery of the
falsity of a Representation or Warranty relating to CBSI which has a
Material Adverse Effect on CBSI and its Subsidiaries, taken as a whole;
(ii) the Board of Directors of Claremont shall have recommended to the
shareholders of Claremont an Alternative Transaction (as defined in Section
8.3(d)); or (iii) a tender offer or exchange offer for 15 percent or more
of the outstanding shares of Claremont Common Stock and/or shares of
Claremont Preferred Stock (on an as converted basis) is commenced (other
than by CBSI or an Affiliate of CBSI) and the Board of Directors of
Claremont recommends that the shareholders of Claremont tender their shares
in such tender or exchange offer; or (iv) a tender offer or exchange offer
for a majority of the outstanding shares of Claremont Common Stock and/or
shares of Claremont Preferred Stock (on an as converted basis) is
successfully concluded, whether or not the Board of Directors of Claremont
has recommended that the shareholders of Claremont tender their shares in
such a tender or exchange offer;
(f) by Claremont, if the Board of Directors of CBSI shall have
withdrawn or modified its recommendation of the CBSI Voting Proposal in a
manner adverse to Claremont or shall have resolved to do any of the
foregoing, for any reason other than the occurrence of an event or
discovery of the falsity of a Representation or Warranty relating to
Claremont which has a Material Adverse Effect on Claremont; or
(g) by CBSI or Claremont, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach shall not have been cured,
in the case of a representation or warranty, prior to the Closing or, in
the case of a covenant or agreement, within 10 business days following
receipt by the breaching party of written notice of such breach from the
other party.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of CBSI,
Claremont, Sub or their respective officers, directors, shareholders or
Affiliates, except as set forth in Section 8.3 and further except to the extent
that such termination results from the willful breach by a party of any of its
representations, warranties, covenants or obligations set forth in this
Agreement; provided that, the provisions of Sections 6.6 (2nd sentence), 6.15
and 8.3 of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
Section 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that CBSI and Claremont shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Joint Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
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(b) Claremont shall pay CBSI a termination fee of $10,000,000 upon the
earliest to occur of the following events. In such case, the fee thus due shall
be liquidated damages and shall be the full and complete and final amount due
and owing to CBSI as a result of:
(i) the termination of this Agreement by CBSI pursuant to Section
8.1(e)(ii), (iii), or (iv); or
(ii) the termination of this Agreement by CBSI pursuant to Section
8.1(d) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the shareholders of Claremont
at the Claremont Shareholders' Meeting if, at the time of such failure,
there shall have been announced an Alternative Transaction or Claremont
shall fail to hold the Claremont Shareholders' Meeting as a result of an
Alternative Transaction.
(c) The fee payable pursuant to Sections 8.3(b) shall be paid within five
business days after the first to occur of the events described in Section
8.3(b)(i) or (ii); provided that, in no event shall Claremont be required to pay
the termination fees to CBSI if, immediately prior to the termination of this
Agreement, CBSI was in breach of any of its material obligations under this
Agreement.
(d) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than CBSI
or its respective Affiliates (a "Third Party"), acquires more than 15 percent of
the outstanding shares of Claremont Common Stock and/or shares of Claremont
Preferred Stock (on an as converted basis), pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Claremont pursuant to which any Third Party acquires more than 15
percent of the outstanding equity securities of Claremont or the entity
surviving such merger or business combination, (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of Subsidiaries of Claremont, and the
entity surviving any merger or business combination including any of them) of
Claremont having a fair market value (as determined by the Board of Directors of
Claremont in good faith) equal to more than 15 percent of the fair market value
of all the assets of Claremont immediately prior to such transaction, or (iv)
any public announcement made directly or indirectly by anyone of a proposal,
plan or intention to do any of the foregoing of which either Claremont or CBSI
has knowledge (and promptly informs the other), or any agreement by Claremont to
engage in any of the foregoing.
Section 8.4 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of Claremont or of CBSI, but, after any such
approval, no amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of any party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for the agreements contained
in Sections 1.3, 1.4, 2.1, 2.2, 6.13, 6.15, 6.16, 6.17, the last sentence of
Section 8.4 and Article IX, and the agreements of the Affiliates of
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Claremont delivered pursuant to Section 6.11. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement.
Section 9.2 Waiver. A waiver of one or more breaches of any clause of
this Agreement shall not act to waive any other breach, whether of the same or
different clauses.
Section 9.3 Governing Law, Jurisdiction, Fees. This Agreement is governed
by the laws of the State of Michigan. Any action brought between the parties may
be brought only in the state or federal courts located in Portland, Oregon, and
in no other place unless the parties expressly agree in writing to waive this
requirement. Each party consents to jurisdiction in that location. Each party
consents to service of process through the method prescribed for notice in this
Agreement. The prevailing party in any suit, action, arbitration, or appeal
filed or held concerning this Agreement shall be entitled to reasonable
attorneys' fees.
Section 9.4 Notices. Notice for each party shall be sent to the person
and address listed below, or to such other person or address as the parties may
from time to time by Notice provide. Notice shall be effective when actually
received by the party this Agreement designates for Notice, if sent by any means
that leaves a hard-copy record in the hands of the recipient. If sent properly
addressed by certified or registered mail, postage prepaid, return receipt
requested, Notice shall be deemed effective on the date the return receipt shows
the Notice was accepted, refused, or returned undeliverable.
(A) IF TO CBSI OR SUB, TO:
Complete Business Solutions, Inc.
32605 W. Twelve Mile Road, Suite 250
Farmington Hills Michigan, 48334
Attention: Tim Manney, Chief Financial Officer
Attention: Tom Sizemore, General Counsel
Phone 248-488-2088
(B) IF TO CLAREMONT, TO:
Claremont Technology Group, Inc.
1600 NW Compton Drive, Suite 210
Beaverton, Oregon 97006
Attention: Stephen Carson, President
WITH A COPY TO:
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 S.W. Columbia, Suite 1800
Portland, OR 97201
Attn: William C. Campbell
Section 9.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to April
8, 1998.
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 9.7 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.15 are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
Section 9.8 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Oregon without regard to any
applicable conflicts of law.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, CBSI, Sub and Claremont have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
<TABLE>
<S> <C>
CLAREMONT TECHNOLOGY GROUP, INC. COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ Stephen M. By: Rajendra B.
Carson Vattikuti
Title: President, Chief Operating Title: President, Chief Executive
Officer, Officer
Chief Financial CBSI ACQUISITION CORP. III
Officer
By: Timothy S.
Manney
Title: President
</TABLE>
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<PAGE> 196
ANNEX B
UBS LOGO
April 8, 1998
Board of Directors
Complete Business Solutions, Inc.
32605 W. Twelve Mile Road, Suite 250
Farmington Hills, MI 48334
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to Complete Business Solutions, Inc., a Michigan corporation (the
"Company"), of the Exchange Ratio (as defined below) provided for pursuant to
that certain Agreement and Plan of Merger, dated as of April 8, 198 (the "Merger
Agreement"), by and among the Company, Claremont Technology Group, Inc., an
Oregon corporation ("Claremont") and CBSI Acquisition Corp. III, a Michigan
corporation ("Company Sub"). The Transaction Agreement provides, among other
things, for the merger of Company Sub with and into Claremont (the "Merger"). In
the Merger, each share of common stock, no par value per share, of Claremont
(the "Claremont Common Stock") outstanding at the Effective Time (as defined in
the Merger Agreement) shall be converted into the right to receive the
Conversion Number (the "Exchange Ratio") of common stock, no par value per
share, of the Company (the "Company Common Stock"). The Exchange Ratio shall be
that number of shares of Company common stock equal to $27.00 divided by the
Closing Value. However, if the Closing Value is less than 85% of $38.00, the
Exchange Ratio shall be fixed at .8359133 shares of Company Common Stock. If the
Closing Value is more than 115% of $38.00, the Conversion number shall be fixed
at .617849 shares of Company Common Stock. The terms and conditions of the
Transaction are more fully set forth in the Transaction Agreement.
UBS Securities LLC ("UBS"), as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of our
business, we and our affiliates actively trade the securities of the Company for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities. We are acting as
exclusive financial advisor to the Board of Directors of the Company in
connection with the Merger and will receive a fee from the Company for our
services pursuant to the terms of our engagement letter with the Company, dated
as of April 7, 1998 (the "Engagement Letter"). In the past, UBS has provided
other investment banking and financial advisory services to the Company for
which we have received compensation. UBS may provide investment banking and
financial advisory services to the Company in the future.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things: (i) the Merger Agreement; (ii) certain publicly available information
for the Company and Claremont, including each of the annual reports of the
Company and Claremont filed on Form 10- for each of the financial years ended
December 31, 1996 and 1997 for the Company and June 30, 1996 and 1997 for
Claremont, and each of the quarterly reports of the Company and Claremont field
on form 10-Q for each of the quarters ended March 31, June 30, September 30 and
December 31, 1997; (iii) certain internal financial analyses, financial
forecasts, reports and other information concerning the Company and Claremont
prepared by the respective managements of the Company and Claremont; (iv)
discussions we have had with certain members of the managements of each of the
Company
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and Claremont concerning the historical and current business operations,
financial conditions and prospects of the Company and Claremont and such other
matters we deemed relevant; (v) the reported price and trading histories of the
shares of the Company Common Stock and Claremont Common Stock as compared to the
reported price and trading histories of certain publicly traded companies we
deemed relevant; (vi) the respective financial conditions of the Company and
Claremont as compared to the financial conditions of certain other companies we
deemed relevant; (vii) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations we deemed relevant; and
(viii) such other information, financial studies, analyses and investigations
and such other factors that we deemed relevant for the purposes of this opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by the Company and Claremont, respectively, or publicly available, and we have
not undertaken any responsibility for the accuracy, completeness or
reasonableness of, or independently to verify, such information. We have further
relied upon the assurance of management of the Company that they are unaware of
any facts that would make the information provided to us incomplete or
misleading in any respect. We have, with your consent, assumed that the
financial forecasts which we examined were reasonably prepared by the respective
managements of the Company and Claremont on bases reflecting the best currently
available estimates and good faith judgment of such managements as to the future
performance o the Company and Claremont. In rendering our opinion, we have
assumed that the Merger will be consummated on the terms described in the Merger
Agreement, without any waiver of any material term or condition by the Company
or Claremont and that obtaining the necessary regulatory approvals for the
Merger will not have a material adverse effect on the Company or Claremont. You
have informed us, and we have assumed, that the Transaction will be recorded as
a pooling-of-interests under generally accepted accounting principles and will
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986 as amended. We have not made or obtained any independent
evaluations, valuations or appraisals of the assets or liabilities of the
Company or Claremont, nor have we been furnished with such materials. Our
services to the Company in connection with the Merger have been comprised solely
of financial advisory services, as described in the Engagement Letter. Our
opinion is necessarily based upon economic and market conditions and other
circumstances as they exist and can be evaluated by us on the date hereof.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of the Company in its consideration of the Merger and may
not be used for any other purpose or reproduced, disseminated, quoted or
refereed to at any time, in any manner or for any purpose without our prior
written consent; provided, however, that this letter may be included or referred
to in any filing with the Securities and Exchange Commission of the Joint Proxy
Statement-Prospectus of the Company and Claremont relating to the Merger. This
letter does not constitute a recommendation to any shareholder as to how such
shareholder should vote with respect to the Transaction or to take any other
action in connection with the Transaction or otherwise. Furthermore, we express
no view as to the price or trading range for shares of the common stock of the
Company following the consummation of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth therein, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
Company.
Very truly yours,
TOR BRAHAM, MANAGING DIRECTOR
UBS SECURITIES LLC
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<PAGE> 198
ANNEX C
DONALDSON, LUFKIN & JENRETTE LETTERHEAD
June 8, 1998
Board of Directors
Claremont Technology Group, Inc.
1600 N.W. Compton Drive, Suite 210
Beaverton, Oregon 97006
Dear Gentlemen and Madam:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Claremont Technology Group, Inc. (the "Company")
of the Conversion Number to be received by such shareholders pursuant to the
terms of the Agreement and Plan of Merger, dated as of April 8, 1998 (the
"Agreement"), by and among the Company, Complete Business Solutions, Inc.
("CBSI"), and CBSI Acquisition Corp. III ("Merger Sub"), a wholly owned
subsidiary of CBSI, pursuant to which Merger Sub will be merged (the "Merger")
with and into the Company.
Pursuant to the Agreement, each share of common stock, no par value, of the
Company ("Company Common Stock") will be converted into the right to receive
that number (the "Conversion Number") of shares of common stock, no par value,
of CBSI ("CBSI Common Stock") equal to $27.00 divided by the Closing Value (as
defined below); provided (i) if the Closing Value is less than 85% of $38.00,
the Conversion Number shall be fixed at 0.8359133 shares of CBSI Common Stock
and (ii) if the Closing Value is more than 115% of $38.00, the Conversion Number
shall be fixed at 0.617849 shares of CBSI Common Stock. The "Closing Value"
shall mean the average of the per share closing trading prices for CBSI Common
Stock (without weighting for trading volume) for the twenty consecutive trading
days, the last of which is the fourth full trading day before the closing date.
In arriving at our opinion, we have reviewed the Agreement and certain
irrevocable proxies. We also have reviewed financial and other information that
was publicly available or furnished to us by the Company and CBSI including
information provided during discussions with their respective managements.
Included in the information provide during discussions with the respective
managements were certain financial projections of the Company for the period
beginning January 1, 1998 and ending December 31, 1999 prepared by the
management of the Company and certain financial projections of CBSI for the
period beginning January 1, 1998 and ending December 31, 1999 provided by the
management of CBSI. In addition, we have compared certain financial and
securities data of the Company and CBSI with various other companies whose
securities area traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of the Company and CBSI reviewed prices
and premiums paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and CBSI or their
respective representatives, or that was otherwise reviewed by us. With respect
to the financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and CBSI as to the
future operating and financial performance of the Company and CBSI,
respectively. We have not
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<PAGE> 199
assumed any responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have further assumed that the Merger shall be accounted for
as a pooling-of-interests and that the conversion of shares of Company Common
Stock pursuant to the Merger will take place as a tax-free exchange.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company Common Stock or CBSI Common Stock will actually
trade at any time. Our opinion does not address the relative merits of the
Merger and the other business strategies being considered by the Company's Board
of Directors, nor does it address the Board's decision to proceed with the
Merger. Our opinion does not constitute a recommendation to any shareholder as
to how such shareholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company including co-managing the Company's
initial public offering in July 1996 and advising the Company's Board of
Directors with its implementation of a shareholder rights plan in February 1998.
In addition, DLJ acted as a lead manager of CBSI's initial public offering in
March 1997, and lead managed CBSI's follow-on offering in August 1997. DLJ has
received usual and customary compensation for services provided to both
companies.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Conversion Number is fair to the shareholders of the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: PETER B. POND
--------------------------------------
Peter B. Pond
Managing Director
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<PAGE> 200
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 is 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 extends 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
2.1 Agreement and Plan of Merger dated April 8, 1998, by and
among the Registrant, CBSI Acquisition Corp. III and
Claremont Technology Group, Inc.
2.2 Amendment to Agreement and Plan of Merger dated June 8,
1998.
3.1(1) Restated Articles of Incorporation of the Registrant, as
amended.
3.2 Bylaws of the Registrant as amended and restated May 8,
1998.
4.1(1) See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the
Registrant defining the rights of the holders of Common
Stock of the Registrant.
4.2(1) Specimen of Stock Certificate.
5 Opinion of Butzel Long, counsel to the Registrant, as to the
legality of the shares being registered.
8.1 Opinion of Butzel Long regarding certain tax matters.
8.2 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP,
regarding certain tax matters.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Coopers & Lybrand LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Butzel Long (contained in Exhibit 5 and Exhibit
8.1).
23.6 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP
(contained in Exhibit 8.2).
23.7 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
23.8 Consent of UBS Securities LLC.
24 Power of Attorney (included in signature page).
99.1 Form of Proxy of the Registrant.
99.2 Form of Proxy of Claremont
99.3 Form of correspondence to Claremont Beneficial Owners.
</TABLE>
- -------------------------
(1) Incorporated herein by reference to the exhibit of same number in the
Registrant's Registration Statement on Form S-1 (File No. 333-18413) dated
as of December 20, 1996, as amended.
<PAGE> 201
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
of the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Exchange Act
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement 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.
(5) That, prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
<PAGE> 202
(6) That every prospectus (i) that is filed pursuant to the
immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the bona fide offering
thereof.
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Farmington Hills, State of
Michigan on June 8, 1997.
COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ RAJENDRA B. VATTIKUTI
------------------------------------
Rajendra B. Vattikuti
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Rajendra B. Vattikuti and Timothy S. Manney and each of them individually as his
true and lawful attorney-in-fact and agent to act in his name, place and stead,
and to execute in the name and on behalf of each person individually and in each
capacity stated below, and to file, any and all amendments to this Registration
Statement, including any and all post-effective amendments and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED BELOW AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
<C> <S> <C>
/s/ RAJENDRA B. VATTIKUTI President, Chief Executive Officer and June 8, 1998
- --------------------------------------------- Director (Principal Executive Officer)
Rajendra B. Vattikuti
/s/ TIMOTHY S. MANNEY Executive Vice President for Finance and June 8, 1998
- --------------------------------------------- Administration, Treasurer and Director
Timothy S. Manney (Principal Financial and Accounting
Officer)
Director June , 1998
- ---------------------------------------------
Charles Costello
/s/ DOUGLAS S. LAND Director June 8, 1998
- ---------------------------------------------
Douglas S. Land
Director June , 1998
- ---------------------------------------------
Ronald K. Machtley
/s/ JOHN A. STANLEY Director June 8, 1998
- ---------------------------------------------
John A. Stanley
/s/ FRANK D. STELLA Director June 8, 1998
- ---------------------------------------------
Frank D. Stella
</TABLE>
<PAGE> 204
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
2.1 Agreement and Plan of Merger dated April 8, 1998, by and
among the Registrant, CBSI Acquisition Corp. III and
Claremont Technology Group, Inc.
2.2 Amendment to Agreement and Plan of Merger dated June 8,
1998.
3.1(1) Restated Articles of Incorporation of the Registrant, as
amended.
3.2 Bylaws of the Registrant as amended and restated May 8,
1998.
4.1(1) See Exhibits 3.1 and 3.2 for provisions of the Restated
Articles of Incorporation and Restated Bylaws of the
Registrant defining the rights of the holders of Common
Stock of the Registrant.
4.2(1) Specimen of Stock Certificate.
5 Opinion of Butzel Long, counsel to the Registrant, as to the
legality of the shares being registered.
8.1 Opinion of Butzel Long regarding certain tax matters.
8.2 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP,
regarding certain tax matters.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Coopers & Lybrand LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Butzel Long (contained in Exhibit 5 and Exhibit
8.1).
23.6 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP
(contained in Exhibit 8.2).
23.7 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
23.8 Consent of UBS Securities LLC.
24 Power of Attorney (included in signature page).
99.1 Form of Proxy of the Registrant.
99.2 Form of Proxy of Claremont
99.3 Form of Correspondence to Claremont Beneficial Owners.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT
AND
PLAN OF MERGER
BETWEEN
CLAREMONT TECHNOLOGY GROUP, INC.
AND
CBSI ACQUISITION CORP. III
AND
COMPLETE BUSINESS SOLUTIONS, INC.
DATED APRIL 8, 1998
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger................................ 1
Section 1.2 Closing..................................................... 1
Section 1.3 Effects of the Merger....................................... 1
Section 1.4 Directors and Officers...................................... 2
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock................................. 2
(a) Capital Stock of Sub........................................ 2
(b) Cancellation of Treasury Stock and CBSI-Owned Stock......... 2
(c) Exchange Ratios for Claremont Common Stock.................. 2
(d) Closing Value............................................... 3
(e) Conversion Number, Collar................................... 3
(f) Effect of Conversion........................................ 3
(g) Claremont Stock Options..................................... 3
Section 2.2 Exchange of Certificates.................................... 3
(a) Exchange Agent.............................................. 3
(b) Exchange Procedures......................................... 3
(c) Distributions with Respect to Unexchanged Shares............ 4
(d) No Further Ownership Rights in Claremont Common Stock....... 4
(e) No Fractional Shares........................................ 4
(f) Termination of Exchange Fund................................ 4
(g) No Liability................................................ 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLAREMONT
Section 3.1 Organization, Good Standing, Power, Etc..................... 5
Section 3.2 Power, Due Authorization.................................... 5
Section 3.3 No Consents................................................. 5
Section 3.4 No Conflict................................................. 5
Section 3.5 Securities Matters.......................................... 5
Section 3.6 Brokers..................................................... 5
Section 3.7 SEC Reports................................................. 6
Section 3.8 No Material Change.......................................... 6
Section 3.9 Registration Statement; Proxy Statement/Prospectus.......... 6
Section 3.10 Opinion of Financial Advisor................................ 6
Section 3.11 Agreements, Contracts and Commitments....................... 6
Section 3.12 Litigation.................................................. 7
Section 3.13 Pooling of Interests........................................ 7
Section 3.14 Claremont Capital Structure................................. 7
Section 3.15 Intellectual Property....................................... 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI AND SUB
Section 4.1 Organization, Good Standing, Power, Etc..................... 8
Section 4.2 Merger Stock................................................ 8
Section 4.3 Power, Due Authorization.................................... 8
Section 4.4 No Consents................................................. 8
Section 4.5 No Conflict................................................. 8
Section 4.6 Securities Matters.......................................... 9
Section 4.7 Brokers..................................................... 9
Section 4.8 SEC Reports................................................. 9
Section 4.9 No Material Change.......................................... 9
Section 4.10 Registration Statement; Proxy Statement/Prospectus.......... 9
Section 4.11 Opinion of Financial Advisor................................ 10
Section 4.12 Agreements, Contracts and Commitments....................... 10
Section 4.13 Litigation.................................................. 10
Section 4.14 Pooling of Interests........................................ 10
Section 4.15 CBSI and Sub Capital Structure.............................. 10
Section 4.16 Intellectual Property....................................... 11
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of Claremont...................................... 11
Section 5.2 Covenants of CBSI........................................... 13
Section 5.3 Cooperation................................................. 14
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation............................................. 14
Section 6.2 Proxy Statement/Prospectus; Registration Statement.......... 15
Section 6.3 Consents.................................................... 15
Section 6.4 Shareholder Rights Plan..................................... 15
Section 6.5 Current Nasdaq Quotation.................................... 15
Section 6.6 Access to Information....................................... 15
Section 6.7 Shareholders' Meetings...................................... 15
Section 6.8 Legal Conditions to Merger.................................. 16
Section 6.9 Public Disclosure........................................... 16
Section 6.10 Tax-Free Organization....................................... 16
Section 6.11 Pooling Accounting.......................................... 16
Section 6.12 Affiliate Agreements........................................ 16
Section 6.13 Nasdaq Quotation............................................ 16
Section 6.14 Stock Options............................................... 16
Section 6.15 Brokers or Finders.......................................... 17
Section 6.16 Indemnification............................................. 17
Section 6.17 Additional Agreements; Reasonable Efforts................... 18
Section 6.18 Hart Scott Rodino Filings................................... 18
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... 19
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a) Shareholder Approval........................................ 19
(b) Approvals................................................... 19
(c) Registration Statement...................................... 19
(d) No Injunctions or Restraint; Illegality..................... 19
(e) Pooling Letters............................................. 19
(f) Hart Scott Rodino Filings................................... 19
(g) Nasdaq...................................................... 19
Section 7.2 Additional Conditions to Obligations of CBSI and Sub........ 19
(a) Representations and Warranties.............................. 19
(b) Performance of Obligations of Claremont..................... 20
(c) Tax Opinion................................................. 20
(d) Blue Sky Laws............................................... 20
(e) Substantial Continuity of Workforce......................... 20
(f) Employment Agreements by Substantially All Vice
Presidents.................................................. 20
Section 7.3 Additional Conditions to Obligations of Claremont........... 20
(a) Representations and Warranties.............................. 20
(b) Performance of Obligations of CBSI and Sub.................. 20
(c) Tax Opinion................................................. 20
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination................................................. 20
Section 8.2 Effect of Termination....................................... 21
Section 8.3 Fees and Expenses........................................... 21
Section 8.4 Amendment................................................... 22
Section 8.5 Extension; Waiver........................................... 22
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations, Warranties and Agreements... 22
Section 9.2 Waiver...................................................... 23
Section 9.3 Governing Law, Jurisdiction, Fees........................... 23
Section 9.4 Notices..................................................... 23
Section 9.5 Interpretation.............................................. 23
Section 9.6 Counterparts................................................ 23
Section 9.7 Entire Agreement; No Third Party Beneficiaries.............. 24
Section 9.8 Governing Law............................................... 24
Section 9.9 Assignment.................................................. 24
</TABLE>
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 8, 1998,
by and among Complete Business Solutions, Inc., a Michigan corporation ("CBSI"),
CBSI Acquisition Corp. III, a Michigan corporation and a wholly-owned subsidiary
of CBSI ("Sub") and Claremont Technology Group, Inc., an Oregon Corporation
("Claremont").
WHEREAS, the Boards of Directors of CBSI, Sub and Claremont deem it
advisable and in the best interests of each corporation and its respective
shareholders that CBSI and Claremont combine in order to advance the long-term
business interests of CBSI and Claremont;
WHEREAS, the combination of CBSI and Claremont shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with and
into Claremont, Claremont will become a wholly owned subsidiary of CBSI and the
shareholders of Claremont will become shareholders of CBSI (the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, Articles of Merger in such form as are required by the relevant
provisions of the Oregon Business Corporation Act ("OBCA") (the "Articles of
Merger") and a Certificate of Merger in such form as is required by the relevant
provisions of the Michigan Business Corporation Act ("MBCA") shall be duly
prepared, executed and acknowledged by Sub and Claremont and thereafter
delivered to the Corporation Commissioner of the State of Oregon and the
[Secretary of State?] for the State of Michigan for filing, as provided in the
OBCA and MBCA, as soon as practicable on or after the Closing Date (as defined
in Section 1.2). The Merger shall become effective upon the filing of the
Articles of Merger with the State of Oregon and Certificate of Merger with the
State of Michigan or at such time thereafter as is provided in the Articles of
Merger and Certificate of Merger. (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., P.S.T., on a date to be specified by CBSI and Claremont,
which shall be no later than the second business day after satisfaction of the
latest to occur of the conditions set forth in Sections 7.1, 7.2(b) (other than
the delivery of the officers' certificate referred to therein) and 7.3(b)
((other than the delivery of the officers' certificate referred to therein)
(provided that the other closing conditions set forth in Article VII have been
met or waived as provided in Article VII at or prior to the Closing) (the
"Closing Date"), at the offices of Ater Wynne Hewitt Dodson & Skerritt, LLP, 222
S.W. Columbia, Suite 1800, Portland, Oregon 97201, unless another date or place
is agreed to in writing by CBSI and Claremont.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Claremont (Sub and Claremont are sometimes
referred to below as the "Constituent Corporations" and Claremont is sometimes
referred to below as the "Surviving Corporation"), (ii) the Articles of
Incorporation of Sub shall be the Articles of Incorporation of the Surviving
Corporation, except that Article I thereof shall be amended to read as follows:
"The name of the corporation (the "Corporation") is Claremont
1
<PAGE> 6
Technology Group, Inc.," and (iii) the Bylaws of Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
Section 1.4 Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed. Claremont's Senior Vice Presidents and Vice Presidents
will retain their titles, which shall not be regarded as corporate titles unless
expressly so awarded by the Surviving Corporation's Board of Directors following
the merger.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, no par value, of Claremont ("Claremont Common Stock") or
capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, no par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and CBSI-Owned Stock. All shares
of Claremont Common Stock owned by CBSI, Sub or any other wholly-owned
Subsidiary (as defined below) of CBSI shall be cancelled and retired and
shall cease to exist and no stock of CBSI or other consideration shall be
delivered in exchange therefor. All shares of Common Stock, no par value,
of CBSI ("CBSI Common Stock") owned by Claremont shall remain unaffected by
the Merger. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding partnerships,
where the general partnership interests held by such party or any
Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or
other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one
or more of its Subsidiaries.
(c) Exchange Ratios for Claremont Common Stock. Subject to Section
2.2, each issued and outstanding share of Claremont Common Stock (other
than shares to be cancelled in accordance with Section 2.1(b)) shall be
converted into the right to receive the "Conversion Number" (as defined
below) of fully paid and unassessable shares of CBSI Common Stock (subject
to adjustment for any stock splits,
2
<PAGE> 7
stock dividends, recapitalizations, reclassifications and similar events
which affect the Claremont Common Stock or the CBSI Common Stock).
(d) Closing Value. The "Closing Value" shall mean the average of the
per share closing trading prices for CBSI Common Stock (without weighting
for trading volume) for the twenty consecutive trading days the last of
which is the fourth full trading day before the Closing Date.
(e) Conversion Number, Collar. The "Conversion Number" shall be that
number of shares of CBSI common stock equal to $27.00 divided by the
Closing Value. However, if the Closing Value is less than 85% of $38.00,
the Conversion Number shall be fixed at .8359133 shares of CBSI Common
Stock. If the Closing Value is more than 115% of $38.00, the Conversion
Number shall be fixed at .617849 shares of CBSI Common Stock.
(f) Effect of Conversion. All such shares of Claremont Common Stock
when so converted, shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the applicable number of
shares of CBSI Common Stock (based on the Conversion Number) and any cash
in lieu of fractional shares of CBSI Common Stock to be issued or paid in
consideration therefor pursuant to subsection 2.2(e) upon the surrender of
such certificate in accordance with Section 2.2, without interest.
(g) Claremont Stock Options. At the Effective Time, all
then-outstanding options to purchase Claremont Common Stock issued under
Claremont's 1992 Stock Incentive Plan (the "Claremont Option Plans") will
be assumed by CBSI in accordance with Section 6.13.
Section 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of Claremont Common Stock for CBSI Common Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, CBSI shall deposit with
a bank or trust company designated by CBSI and Claremont (the "Exchange
Agent"), for the benefit of the holders of shares of Claremont Common Stock
for exchange in accordance with this Section 2.2, through the Exchange
Agent, certificates representing the shares of CBSI Common Stock (such
shares of CBSI Common Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.1 in exchange for outstanding shares of
Claremont Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Claremont Common Stock (each a
"Certificate" and collectively, the "Certificates") whose shares were
converted pursuant to Section 2.1 into the right to receive shares of CBSI
Common Stock (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as CBSI and Claremont
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of CBSI Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by CBSI, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
CBSI Common Stock which such holder has the right to receive pursuant to
the provisions of this Article II, and the Certificate so surrendered shall
immediately be cancelled. In the event of a transfer of ownership of
Claremont Common Stock which is not registered in the transfer records of
Claremont, a certificate representing the proper number of shares of CBSI
Common Stock may be issued to a transferee if the Certificate representing
such Claremont Common Stock is presented to the Exchange Agent, accompanied
by all documents required to evidence and effect such transfer and by
evidence that any applicable stock transfer taxes have been paid.
3
<PAGE> 8
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to CBSI Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of CBSI Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to
subsection (e) below until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of CBSI Common
Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional
share of CBSI Common Stock to which such holder is entitled pursuant to
subsection (e) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of CBSI Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of CBSI
Common Stock.
(d) No Further Ownership Rights in Claremont Common Stock. All shares
of CBSI Common Stock issued upon the surrender for exchange of shares of
Claremont Common Stock in accordance with the terms hereof (including any
cash paid pursuant to subsection (c) or (e) of this Section 2.2) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Claremont Common Stock subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Claremont on such shares of Claremont Common Stock
in accordance with the terms of this Agreement on or prior to the date
hereof and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Claremont Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this
Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of CBSI Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
CBSI. Notwithstanding any other provision of this Agreement, each holder of
shares of Claremont Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of CBSI
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of CBSI Common Stock
multiplied by the Closing Value.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of Claremont for one year
after the Effective Time shall be delivered to CBSI, upon demand, and any
shareholders of Claremont who have not previously complied with this
Section 2.2 shall thereafter look only to CBSI for payment of their claim
for CBSI Common Stock, any cash in lieu of fractional shares of CBSI Common
Stock, and any dividends or distributions with respect to CBSI Common
Stock.
(g) No Liability. Neither CBSI nor Claremont shall be liable to any
holder of shares of Claremont Common Stock or CBSI Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLAREMONT
In order to induce CBSI to enter into this Agreement, Claremont warrants to
CBSI and Sub, subject to the matters set forth in the Claremont Disclosure
Letter delivered herewith, as follows:
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Section 3.1 Organization, Good Standing, Power, Etc. Claremont is a
corporation duly organized and validly existing under the laws of the State of
Oregon, has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted, and is
duly qualified and in good standing in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition or results of operations
("Material Adverse Effect") of Claremont. Each of Claremont's subsidiaries is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Claremont.
Section 3.2 Power, Due Authorization. Claremont has the power and
authority to execute and deliver this Agreement and to perform all of its
obligations hereunder in accordance with the terms hereof, and all necessary
corporate action to authorize the consummation of the transactions contemplated
by this Agreement on the part of Claremont has been duly and effectively taken,
including, without limiting the generality of the foregoing, the approval
thereof by the Board of Directors of Claremont, excepting only the approval of
the shareholders of Claremont.
Section 3.3 No Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Claremont in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing by CBSI of a Registration
Statement on Form S-4 with the Securities and Exchange Commission ("SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
(ii) the filing of the Articles of Merger with the Oregon Corporation
Commissioner, (iii) the filing of a Joint Proxy Statement with the SEC in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iv) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, and under the federal Hart Scott Rodino Premerger Notification
Act, and the laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Material Adverse Effect on
Claremont.
Section 3.4 No Conflict. Neither the execution and delivery of this
Agreement nor the performance of Claremont's obligations hereunder will (i)
violate any provision of the Articles of Incorporation or Bylaws of Claremont,
(ii) violate any material provision of any applicable statute or law or any
judgment, decree, order, regulation or rule of any court or governmental body
applicable to Claremont, or (iii) constitute a material breach or default (or an
event which, with notice or lapse of time or both, would constitute a material
default) under any material contract, commitment, agreement, lease or other
obligation to which Claremont is a party.
Section 3.5 Securities Matters. Claremont has delivered (or will deliver)
to CBSI copies of the proxy statement and all other written materials sent or
made available or to be sent or made available to the holders of its capital
stock in connection with this Agreement and the Merger. The proxy statement
notice and such other material complied with or will comply in all material
respects with the applicable requirements of the OBCA and applicable federal and
state securities laws and did not (or will not) contain any untrue statement of
a material fact or omit to state any material fact necessary, in light of the
circumstances, in order to make the statements therein not misleading, provided
that in the proxy material delivered or to be delivered to its shareholders,
Claremont has relied or will rely upon CBSI with respect to factual matters
concerning CBSI and Sub contained in such material, and with respect to matters
as to which such reliance is made, Claremont represents and warrants only that
Claremont has or will accurately and completely present such factual matters
concerning CBSI as CBSI provided to it for that purpose.
Section 3.6 Brokers. Other than Donaldson, Lufkin & Jenrette, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Claremont.
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Section 3.7 SEC Reports.
(a) Claremont has filed with the SEC all reports (the "Claremont SEC
Reports") required to be filed by it under the Exchange Act. Claremont has
furnished to CBSI or will furnish to CBSI on request prior to the Closing a copy
of all Claremont SEC Reports. All of the Claremont SEC Reports filed by
Claremont complied in all material respects with the requirements of the
Exchange Act. None of the Claremont SEC Reports contained, as of the respective
dates thereof, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made.
All financial statements contained in the Claremont SEC Reports have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the applicable periods ("GAAP"). Each
consolidated balance sheet included in the Claremont SEC Reports presents fairly
in accordance with GAAP the consolidated financial position of Claremont as of
the date of such balance sheet, and each consolidated statement of operations,
shareholders' equity and cash flows presents fairly in accordance with GAAP the
consolidated results of operations, shareholders' equity and cash flow of
Claremont for the periods then ended.
(b) No event has occurred since December 31, 1997 which requires the filing
of a Claremont SEC Report that has not heretofore been filed and furnished to
CBSI, excepting only the end of the third quarter of Claremont's fiscal year
1998 on March 31, 1998. There are no material liabilities of Claremont that have
not been disclosed in the SEC reports, except as are disclosed in the Disclosure
Letter.
Section 3.8 No Material Change. As of the date hereof, there has been no
material adverse change in Claremont's financial condition, results of
operations, business or prospects since December 31, 1997, nor will there be any
material adverse change in Claremont's financial condition, results of
operations, business or prospects from the date hereof through the Effective
Time except such as are promptly disclosed to CBSI.
Section 3.9 Registration Statement; Proxy Statement/Prospectus. The
written information supplied by Claremont for inclusion in the registration
statement on Form S-4 pursuant to which shares of CBSI Common Stock issued in
the Merger will be registered with the SEC (the "Registration Statement"), shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The written
information supplied by Claremont for inclusion in the joint proxy
statement/prospectus to be sent to the shareholders of CBSI and Claremont in
connection with the meeting of Claremont's shareholders to consider this
Agreement and the Merger (the Claremont Shareholders' Meeting") and in
connection with the meeting of CBSI's shareholders (the "CBSI Shareholders'
Meeting") to consider the issuance of shares of CBSI Common Stock pursuant to
the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to shareholders of Claremont or CBSI, at the time of
the Claremont Shareholders' Meeting and the CBSI Shareholders' Meeting and at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it was made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the CBSI
or Claremont Shareholders' Meetings which has become false or misleading. If at
any time prior to the Effective Time any event relating to Claremont or any of
its Affiliates (as defined in Section 6.11), officers or directors should be
discovered by Claremont which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Claremont
shall promptly inform CBSI.
Section 3.10 Opinion of Financial Advisor. The financial advisor of
Claremont, Donaldson, Lufkin & Jenrette, has delivered to Claremont an opinion
dated the date of this Agreement to the effect that the aggregate Merger
consideration to be received by the holders of the issued and outstanding Common
Stock of Claremont is fair in the aggregate from a financial point of view to
the equity holders of Claremont as a group.
Section 3.11 Agreements, Contracts and Commitments. Claremont is not in
breach of, nor has it received in writing any claim or threat that it has
breached, any of the terms or conditions of any agreement,
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contract or commitment with any Claremont customer that represents revenue of or
in excess of $250,000 in calendar year 1998 ("Claremont Material Contracts") in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to seek material damages from Claremont under any
Claremont Material Contract. Except as set forth on the Claremont Disclosure
Letter, on which all Claremont Material Contracts are listed, each Claremont
Material Contract that has not expired or been terminated is in full force and
effect and is not subject to any material default thereunder of which Claremont
is aware by any party obligated to Claremont pursuant to the Claremont Material
Contract. Claremont's twenty largest revenue customers (as judged from
anticipated 1998 revenue) are listed in the Disclosure Letter. Claremont has no
reason to believe any of its twenty largest customers will terminate its
relationship with Claremont within one year from the date hereof.
Section 3.12 Litigation. Except as described in the Claremont SEC
Reports, there is no action, suit or proceeding, claim, arbitration or
investigation against Claremont pending, or as to which Claremont has received
any written notice of assertion, or as to which Claremont has a reasonable basis
to believe it will be asserted or brought, which is reasonably likely to have a
Material Adverse Effect on Claremont, or a material adverse effect on the
ability of Claremont to consummate the transactions contemplated by this
Agreement.
Section 3.13 Pooling of Interests. Neither Claremont nor any of its
Affiliates has, through the date of this Agreement, taken or agreed to take any
action which would prevent CBSI from accounting for the business combination to
be effected by the Merger as a pooling of interests.
Section 3.14 Claremont Capital Structure.
(a) The authorized capital stock of Claremont consists of 25,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of preferred stock, no par
value ("Claremont Preferred Stock"). As of March 31, 1998, 8,981,240 shares of
Claremont Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Claremont Preferred
Stock were issued and outstanding, (iii) 2,119,468 shares of Claremont Common
Stock were reserved for future issuance pursuant to stock options granted and
outstanding under the Claremont Option Plans, and (iv) no shares of Claremont
Common Stock were reserved for future issuance pursuant to outstanding warrants
to purchase Claremont Common Stock. No material change in such capitalization
has occurred between March 31, 1998, and the date of this Agreement. All shares
of Claremont Common Stock subject to issuance as specified above, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in the Claremont Disclosure Letter, there are
no obligations, contingent or otherwise, of Claremont to repurchase, redeem or
otherwise acquire any shares of Claremont Common Stock or Claremont Preferred
Stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity.
(b) Except as set forth in this Section 3.14 or as reserved for future
grants of options under the Claremont Option Plans, there are no equity
securities of any class of Claremont, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.14 or in the Claremont
Disclosure Letter, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Claremont is a party
or by which it is bound obligating Claremont to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of Claremont
or obligating Claremont to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. To the best knowledge of Claremont, there are no voting trusts,
proxies or other agreements or understandings with respect to the shares of
capital stock of Claremont.
Section 3.15 Intellectual Property
(a) Claremont owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications for such patents, trademarks, trade names,
service marks and copyrights, processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material that are necessary to conduct the
business of Claremont as currently conducted, or proposed to be conducted, the
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absence of which would be reasonably likely to have a Material Adverse Effect on
Claremont (the "Claremont Intellectual Property Rights").
(b) Claremont is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Claremont Intellectual Property Rights or the intellectual property rights
of any third party, the breach of which would be reasonably likely to have a
Material Adverse Effect on Claremont.
(c) To Claremont's knowledge, all patents, registered trademarks, service
marks and copyrights held by Claremont are valid and subsisting. Except as set
forth on the Claremont Disclosure Letter, Claremont (i) has not been sued in any
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party; and (ii) has no knowledge that
the manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party, which such infringement would reasonably be expected
to have a Material Adverse Effect on Claremont.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI AND SUB
In order to induce Claremont to enter into this Agreement, CBSI and Sub
warrant to Claremont, subject to the matters set forth in the CBSI Disclosure
Letter delivered herewith, as follows:
Section 4.1 Organization, Good Standing, Power, Etc. CBSI is a
corporation duly organized and validly existing under the laws of the State of
Michigan, and Sub is a corporation duly organized and validly existing under the
laws of the State of Oregon. Each of CBSI and Sub has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on CBSI.
Section 4.2 Merger Stock. The shares of common stock of CBSI to be issued
to the shareholders of Claremont in connection with the Merger will have been
duly authorized prior to the effective time by all necessary corporate action by
CBSI and, when issued and delivered by CBSI pursuant to this Agreement, will be
validly issued, fully paid and non-assessable.
Section 4.3 Power, Due Authorization. Each of CBSI and Sub has the power
and authority to execute and deliver this Agreement and to perform all of its
obligations hereunder in accordance with the terms hereof, and all necessary
corporate action to authorize the consummation of the transactions contemplated
by this Agreement on the part of each of CBSI and Sub has been duly and
effectively taken, including, without limiting the generality of the foregoing,
the approval thereof by the Boards of Directors of CBSI and Sub and by CBSI as
the sole shareholder of Sub, excepting only the approval of the Shareholders of
CBSI.
Section 4.4 No Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental Entity is required
by or with respect to CBSI or Sub in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing by CBSI of a Registration Statement on Form S-4 with
the SEC in accordance with the Securities Act, (ii) the filing of the Articles
of Merger with the Oregon Corporation Commissioner, (iii) the filing of a Joint
Proxy Statement with the SEC in accordance with the Exchange Act, (iv) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws,
and under the federal Hart Scott Rodino Premerger Notification Act, and the laws
of any foreign country and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Material Adverse Effect on CBSI or Sub.
Section 4.5 No Conflict. Neither the execution and delivery of this
Agreement nor the performance of CBSI's or Sub's obligations hereunder will (i)
violate any provision of the Articles of Incorporation or Bylaws
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of CBSI or Sub, (ii) violate any material provision of any applicable statute or
law or any judgment, decree, order, regulation or rule of any court or
governmental body applicable to CBSI or Sub, or (iii) constitute a material
breach or default (or an event which, with notice or lapse of time or both,
would constitute a material default) under any material contract, commitment,
agreement, lease or other obligation to which CBSI or Sub is a party.
Section 4.6 Securities Matters. CBSI has delivered (or will deliver) to
Claremont copies of the proxy statement and all other written materials sent or
made available or to be sent or made available to the holders of its capital
stock in connection with this Agreement and the Merger. The proxy statement
notice and such other material complied with or will comply in all material
respects with the applicable requirements of the MBCA and applicable federal and
state securities laws and did not (or will not) contain any untrue statement of
a material fact or omit to state any material fact necessary, in light of the
circumstances, in order to make the statements therein not misleading, provided
that in the proxy material delivered or to be delivered to its shareholders,
CBSI has relied or will rely upon Claremont with respect to factual matters
concerning Claremont contained in such material, and with respect to matters as
to which such reliance is made, CBSI represents and warrants only that CBSI has
or will accurately and completely present such factual matters concerning
Claremont as Claremont provided to it for that purpose.
Section 4.7 Brokers. Other than UBS Securities LLC, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of CBSI.
Section 4.8 SEC Reports.
(a) CBSI has filed with the SEC all reports (the "CBSI SEC Reports")
required to be filed by it under the Exchange Act. All of the CBSI SEC Reports
filed by CBSI complied in all material respects with the requirements of the
Exchange Act. None of the CBSI SEC Reports contained as of the respective dates
thereof, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made.
All financial statements contained in the CBSI SEC Reports have been prepared in
accordance with GAAP consistently applied throughout the applicable periods.
Each consolidated balance sheet included in the CBSI SEC Reports presents fairly
in accordance with GAAP the consolidated financial position of CBSI as of the
date of such balance sheet, and each consolidated statement of operations,
shareholders' equity and cash flows presents fairly in accordance with GAAP the
consolidated results of operations, shareholders' equity and cash flow of CBSI
for the periods then ended.
(b) No event has occurred since December 31, 1997 which requires the filing
of a CBSI SEC Report that has not heretofore been filed and furnished to
Claremont, excepting only the end of the first quarter of CBSI's fiscal year
ending on March 31, 1998. There are no material liabilities of CBSI that have
not been disclosed in the CBSI SEC Reports, except as are disclosed in the
Disclosure Letter.
Section 4.9 No Material Change. As of the date hereof, there has been no
material adverse change in CBSI's financial condition, results of operations,
business or prospects since December 31, 1997, nor will there be any material
adverse change in CBSI's financial condition, results of operations, business or
prospects from the date hereof through the Effective Time except such as are
promptly disclosed to Claremont.
Section 4.10 Registration Statement; Proxy Statement/Prospectus. The
written information supplied by CBSI for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by CBSI for inclusion in the Joint Proxy Statement shall not, on the
date the Joint Proxy Statement is first mailed to shareholders of CBSI or
Claremont, at the time of the CBSI Shareholders' Meeting and Claremont
Shareholders' Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the
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Joint Proxy Statement not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the CBSI or Claremont Shareholders'
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to CBSI or any of its Affiliates, officers or
directors should be discovered by CBSI which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy Statement, CBSI
shall promptly inform Claremont.
Section 4.11 Opinion of Financial Advisor. The financial advisor of CBSI,
UBS Securities LLC, has delivered, or will deliver within two business days of
the date hereof, to CBSI an opinion dated the date of this Agreement to the
effect that the financial terms of the Merger are fair to CBSI from a financial
point of view.
Section 4.12 Agreements, Contracts and Commitments. CBSI is not in breach
of,nor has it received in writing any claim or threat that it has breached, any
of the terms or conditions of any agreement, contract or commitment with any
CBSI customer that represents revenue of or in excess of $1,000,000 in calendar
year 1998 ("CBSI Material Contracts") in such a manner as would permit any other
party to cancel or terminate the same or would permit any other party to seek
material damages from CBSI under any CBSI Material Contract. Except as set forth
on the Disclosure Letter, on which all CBSI Material Contracts are listed, each
CBSI Material Contract that has not expired or been terminated is in full force
and effect and is not subject to any material default hereunder of which CBSI is
aware by any party obligated to CBSI pursuant to the CBSI Material Contract.
CBSI's twenty largest revenue customers (as judged from anticipated 1998
revenue) are listed in the Disclosure Letter. CBSI has no reason to believe any
of its twenty largest customers will terminate their relationship with CBSI
within one year from the date hereof.
Section 4.13 Litigation. Except as described in the CBSI SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against CBSI pending or as to which CBSI has received any written notice of
assertion, or as to which CBSI has a reasonable basis to believe it will be
asserted or brought, which is reasonably likely to have a Material Adverse
Effect on CBSI and its Subsidiaries, taken as a whole, or a material adverse
effect on the ability of CBSI to consummate the transactions contemplated by
this Agreement.
Section 4.14 Pooling of Interests. Neither CBSI nor any of its Affiliates
has, through the date of this Agreement, taken or agreed to take any action
which would prevent CBSI from accounting for the business combination to be
effected by the Merger as a pooling of interests.
Section 4.15 CBSI and Sub Capital Structure.
(a) The authorized capital stock of CBSI consists of 30,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of Preferred Stock, no par
value ("CBSI Preferred Stock"). As of March 31, 1998 (i) 26,996,408 shares of
CBSI Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no shares of CBSI Preferred Stock were issued
and outstanding, (iii) no shares of CBSI Common Stock were held in the treasury
of CBSI or by Subsidiaries of CBSI, (iv) 3,247,454 shares of CBSI Common Stock
were reserved for future issuance pursuant to stock options granted and
outstanding under the CBSI Option Plans, and (v) no shares of CBSI Common Stock
were reserved for future issuance pursuant to outstanding warrants to purchase
CBSI Common Stock. The authorized capital stock of Sub consists of 60,000 shares
of Common Stock, no par value. As of April 7, 1998 there are, and as of Closing
there will be, 100 shares of Sub Common Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable. No material change in
such capitalization has occurred between March 31, 1998, and the date of this
Agreement. All shares of CBSI Common Stock subject to issuance as specified
above, upon issuance on the terms and conditions specified in the instruments
pursuant to which they were issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. There are no obligations, contingent or otherwise,
of CBSI or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of CBSI Common Stock or the capital stock of any Subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock of each of
CBSI's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares in
the case of foreign
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subsidiaries) are owned by CBSI or another Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in CBSI's
voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.15 or as reserved for future
grants of options under the CBSI Option Plans or the CBSI Director Option Plan,
there are no equity securities of any class of CBSI or any of its Subsidiaries,
or any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except as set forth in this
Section 4.15 or in the CBSI Disclosure Letter, there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which CBSI or any of its Subsidiaries is a party or by which it is bound
obligating CBSI or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of CBSI or
any of its Subsidiaries or obligating CBSI or any of its Subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best knowledge of CBSI,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of CBSI.
Section 4.16 Intellectual Property.
(a) CBSI owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications for such patents, trademarks, trade names, service marks
and copyrights, processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are necessary to conduct the business
of CBSI as currently conducted or proposed to be conducted, the absence of which
would be reasonably likely to have a Material Adverse Effect on CBSI and the
Subsidiaries, taken as a whole (the "CBSI Intellectual Property Rights").
(b) CBSI is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the CBSI
Intellectual Property Rights or any third party's intellectual property rights,
the breach of which would be reasonably likely to have a Material Adverse Effect
on CBSI and its Subsidiaries, taken as a whole.
(c) To CBSI's knowledge, all patents, registered trademarks, service marks
and copyrights held by CBSI are valid and subsisting. Except as set forth in the
CBSI Disclosure Letter, CBSI (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party; and (ii) has no knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party, which such infringement would be reasonably likely to have a Material
Adverse Effect on CBSI and its Subsidiaries, taken as a whole.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of Claremont. During the period from the date of
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Claremont shall and shall cause each of its
Subsidiaries (except to the extent that CBSI shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due, subject to good faith disputes over such debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practices and policies
to preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Claremont shall
promptly notify CBSI of any material event or occurrence not in the ordinary
course of business of Claremont. Except as expressly contemplated by this
Agreement, subject to Section 6.1, Claremont shall not, and shall not permit its
Subsidiaries to, without the prior written consent of CBSI:
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(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such
party or authorize cash payments in exchange for any options granted under
any of such plans except as required by the terms of such plans or any
related agreements in effect as of the date of this Agreement.
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to any Claremont intellectual property, other
than in the ordinary course of business consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of such party, or purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(d) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than (i) the grant of options
under the Claremont Option Plans consistent with past practices to
employees or consultants and not exceeding in the aggregate 50,000 shares,
(ii) the issuance of shares of Claremont Common Stock issuable upon
exercise of options granted under the Claremont Option Plans, which options
are outstanding on the date hereof, or (ii) the repurchase of shares of
Common Stock from terminated employees pursuant to the terms of outstanding
stock restriction or similar agreements.
(e) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets other than in the ordinary course of
business;
(f) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Claremont, except in the ordinary course of business;
(g) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in accordance with past practices, (ii) grant any
severance or termination pay to, or enter into any employment or severance
agreement, with any employee, except in accordance with past practices,
(iii) enter into any collective bargaining agreement, (iv) establish,
adopt, enter into or amend in any material respect any bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than indebtedness incurred under outstanding lines of credit
consistent with past practice;
(j) Amend or propose to amend its Articles of Incorporation or Bylaws;
or
(k) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (j) above, or any action which is
reasonably likely to make any of Claremont's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
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Section 5.2 Covenants of CBSI. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, CBSI shall, and shall cause its subsidiaries (including
without limitation Sub) (except to the extent that Claremont shall otherwise
consent in writing), to carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, to pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Effective Time. CBSI
shall promptly notify Claremont of any event or occurrence not in the ordinary
course of business of CBSI. Except as expressly contemplated by this Agreement,
CBSI shall not (and shall not permit any of its Subsidiaries to), without the
prior written consent of Claremont;
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service by such
party;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the CBSI's intellectual property other than in the
ordinary course of business consistent with past practices;
(c) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the grant of options under the CBSI 1996
Stock Option Plan ("CBSI Option Plans") consistent with past practices to
employees or consultants and in an aggregate not exceeding 600,000 shares, or
(ii) the issuance of shares of Common Stock issuable upon exercise of options
granted under the CBSI Option Plans, or (iii) options issued in connection with
a transaction permitted by Section 5.2(d), or (iv) the repurchase of shares of
CBSI Common Stock from terminated employees or consultants;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division, or otherwise acquire or
agree to acquire any assets, which, in each case, would delay the consummation
of the Merger;
(e) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
CBSI and its Subsidiaries, taken as a whole, except for lease financing
arrangements and transactions entered into in the ordinary course of business;
(f) Amend or proposed to amend its Articles of Incorporation or Bylaws,
except as contemplated by this Agreement;
(g) Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees in accordance with past practices, (ii) grant any additional severance
or termination pay to, or enter into any employment or severance agreements
with, officers, (iii) grant any severance or termination pay to, or enter into
any employment or severance agreement, with any employee, except in accordance
with past practices, (iv) enter into any collective bargaining agreement, (v)
except as contemplated by this Agreement, establish, adopt, enter into or amend
in any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
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(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of CBSI or any of its Subsidiaries or guarantee any
debt securities of others, other than indebtedness incurred under outstanding
lines of credit consistent with past practice; or
(j) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (i) above, or any action which is reasonably
likely to make any of CBSI's representations or warranties contained in this
Agreement untrue or incorrect in any material respect on the date made (to the
extent so limited) or as of the Effective Time.
Section 5.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of CBSI and Claremont shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
(a) Claremont shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving
Claremont, other than the transactions contemplated by this Agreement (any of
the foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), engage in negotiations or discussions concerning, or
provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve or recommend any Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent Claremont or its Board of Directors from (A) furnishing public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity or recommending an unsolicited bona fide written
Acquisition Proposal to the shareholders of Claremont, if and only to the extent
that (1) the Board of Directors of Claremont believes in good faith (after
consultation with its financial adviser) that such Acquisition Proposal would,
if consummated, result in a transaction more favorable to Claremont's
shareholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as a "Superior Proposal") and the Board of Directors of
Claremont determines in good faith after consultation with outside legal counsel
that such action is necessary for Claremont to comply with its fiduciary duties
to shareholders under applicable law, and (2) prior to furnishing such
non-public information to, or entering into discussions or negotiations with,
such person or entity, such Board of Directors receives from such person or
entity an executed confidentiality agreement with terms no less favorable to
such party than those contained in the Confidentiality Agreement dated March 9,
1998, between CBSI and Claremont (the "Confidentiality Agreement"); or (B)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
(b) Claremont shall notify CBSI in writing immediately after receipt by
Claremont (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Claremont by any person or entity that
informs Claremont that it is considering making, or has made, an Acquisition
Proposal.
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Section 6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement, CBSI
and Claremont shall prepare and file with the SEC the Joint Proxy Statement, and
CBSI shall prepare and file with the SEC the Registration Statement, in which
the Joint Proxy Statement will be included as a prospectus. CBSI and Claremont
shall use all reasonable efforts to cause the Registration Statement to become
effective as soon after such filing as practical. Unless otherwise required to
comply with the applicable fiduciary duties of the respective directors of
Claremont and CBSI, determined by such directors in good faith after
consultation with and based upon the advice of independent legal counsel, the
Joint Proxy Statement shall include the recommendation of the Board of Directors
of Claremont in favor of this Agreement and the Merger and the recommendation of
the Board of Directors of CBSI in favor of the issuance of shares of CBSI Common
Stock pursuant to the Merger.
(b) CBSI and Claremont shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.
Section 6.3 Consents. Each of CBSI and Claremont shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
CBSI's or Claremont's material agreements, contracts, licenses or leases in
connection with the Merger.
Section 6.4 Shareholder Rights Plan. As soon as possible, and in any
event prior to the Effective Time, Claremont shall take such steps as may be
required and sufficient either to redeem the outstanding rights under its
Shareholder Rights Plan or to amend that plan so as to prevent its application
to this transaction, without cost to CBSI.
Section 6.5 Current Nasdaq Quotation. Each of CBSI and Claremont agrees
to continue the quotation of CBSI Common Stock and Claremont Common Stock,
respectively, on the Nasdaq National Market during the term of the Agreement so
that, to the extent necessary, appraisal rights will not be available to
shareholders of Claremont under Section 60.554 of the OBCA.
Section 6.6 Access to Information. Upon reasonable notice, Claremont and
CBSI shall each (and CBSI shall cause each of its Subsidiaries) to afford to the
officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, each of Claremont and CBSI shall (and CBSI shall cause
each of its Subsidiaries) to furnish promptly to the other (a) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
and (b) all other information concerning its business, properties and personnel
as such other party may reasonably request. Unless otherwise required by law,
the parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations or the parties to consummate the Merger.
Section 6.7 Shareholders' Meetings.
(a) Claremont and CBSI each shall call a meeting of its respective
shareholders to be held as promptly as practicable for the purpose of voting, in
the case of Claremont, upon this Agreement and the Merger and, in the case of
CBSI, upon the increase in authorized common stock in order to effect the Merger
and the issuance of shares of CBSI Common Stock pursuant to the Merger (the
"CBSI Voting Proposal"). Subject to Sections 6.1 and 6.2, Claremont and CBSI
will, through their respective Boards of Directors recommend to their respective
shareholders approval of such matters and will coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day and as soon as practicable after the date hereof.
Unless otherwise required to comply with the applicable fiduciary duties of the
respective directors of Claremont and CBSI, as determined by such directors in
good faith after consultation with and based upon the advice of independent
legal counsel, each party shall use all reasonable efforts to solicit from
shareholders of such party proxies in favor of such matters.
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(b) CBSI shall also propose to its shareholders at the CBSI Shareholders'
Meeting or at an earlier-called meeting, as proposals separate from the CBSI
Voting Proposal, (i) an amendment to the CBSI Articles of Incorporation to
increase the number of authorized shares of CBSI Common Stock to 200,000,000 and
(ii) to increase the number of shares of CBSI Common Stock reserved for issuance
under the CBSI Stock Option Plans by 4,000,000 shares of CBSI Common Stock.
Section 6.8 Legal Conditions to Merger. Each of CBSI and Claremont will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
in connection with approvals of or filings with any other Governmental Entity)
and will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger. Each of CBSI and Claremont will, and
CBSI will cause its Subsidiaries to, take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public third party, required to be obtained or made by CBSI or
any of its Subsidiaries or Claremont in connection with the Merger or the taking
of any action contemplated thereby or by this Agreement.
Section 6.9 Public Disclosure. CBSI and Claremont shall agree with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such agreement, except as may
be required by law.
Section 6.10 Tax-Free Organization. CBSI and Claremont shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
Section 6.11 Pooling Accounting. CBSI and Claremont shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of CBSI and Claremont shall use
its best efforts (i) to cause its respective Affiliates not to take any action
that would adversely affect the ability of CBSI to account for the business
combination to be effected by the Merger as a pooling of interests and (ii) to
cause its respective Affiliates to sign and deliver to CBSI a customary "pooling
letter" in form and substance agreed upon by Claremont and CBSI.
Section 6.12 Affiliate Agreements. Upon the execution of this Agreement,
CBSI and Claremont will provide each other with a list of those persons who are,
in CBSI's or Claremont's respective reasonable judgment, "affiliates" of CBSI or
Claremont, respectively, within the meaning of Rule 145 (each such person who is
an "affiliate" of CBSI or Claremont within the meaning of Rule 145 is referred
to as an "Affiliate") promulgated under the Securities Act ("Rule 145"). CBSI
and Claremont shall provide each other such information and documents as
Claremont or CBSI shall reasonably request for purposes of reviewing such list
and shall notify the other party in writing regarding any change in the identity
of its Affiliates prior to the Closing Date. Claremont shall use its best
efforts to deliver or cause to be delivered to CBSI by May 31, 1998 (and in any
case shall deliver to CBSI prior to the Effective Time) from each of the
Affiliates of Claremont, an executed Affiliate Agreement, in form and substance
satisfactory to CBSI and Claremont, by which such Affiliate of Claremont agrees
to comply with the applicable requirements of Rule 145 ("Affiliates Agreement").
CBSI shall be entitled to place appropriate legends on the certificates
evidencing any CBSI Common Stock to be received by such Affiliates of Claremont
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the CBSI Common Stock, consistent with
the terms of the Affiliates Agreements.
Section 6.13 Nasdaq Quotation. CBSI shall use its best efforts to cause
the shares of CBSI Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
Section 6.14 Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Claremont Common Stock (a "Claremont Stock Option") under the Claremont Option
Plans shall be assumed by CBSI and shall thereafter constitute an option to
acquire, on the same terms and conditions as were applicable under the Claremont
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Stock Option the same number of shares of CBSI Common Stock as the holder of
such Claremont Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (rounded down to the nearest whole number), at a price per share
equal to (y) the aggregate exercise price for the shares of Claremont Common
Stock otherwise purchasable pursuant to such Claremont Stock Option divided by
(z) the number of full shares of CBSI Common Stock deemed purchasable pursuant
to such CBSI Stock Option in accordance with the foregoing; provided, however,
that, in the case of any Claremont Stock Option to which Section 422 of the Code
applies ("incentive stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code.
(b) As soon as practicable after the Effective Time, CBSI shall deliver to
the participants in the Claremont Option Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
Claremont Option Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.13 after giving effect to
the Merger). CBSI shall comply with the terms of the Claremont Option Plans and
ensure, to the extent required by, and subject to the provisions of, such
Claremont Option Plans, that Claremont Stock Options which qualified as
incentive stock options prior to the Effective Time continue to qualify as
incentive stock options after the Effective Time.
(c) CBSI shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of CBSI Common Stock for delivery under Claremont
Stock Options assumed in accordance with this Section 6.13. As soon as
practicable after the Effective Time, CBSI shall file a registration statement
or registration statements on Form S-8 (or any successor or other appropriate
forms), or another appropriate form with respect to the shares of CBSI Common
Stock subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, CBSI
shall administer Claremont Stock Options assumed pursuant to this Section 6.13
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to
the extent the Claremont Option Plans complied with the such rule prior to the
Merger.
Section 6.15 Brokers or Finders. Each of CBSI and Claremont represents,
as to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Donaldson, Lufkin & Jenrette, whose fees and expenses will be paid by Claremont
in accordance with Claremont's agreement with such firm (copies of which have
been delivered by Claremont to CBSI prior to the date of this Agreement), and
except UBS Securities LLC, whose fees and expenses will be paid by CBSI in
accordance with CBSI's agreement with such firm, and each of CBSI and Claremont
agrees to indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any other fees, commissions
or expenses asserted by any person on the basis of any act or statement alleged
to have been made by such party or its Affiliate.
Section 6.16 Indemnification.
(a) Claremont shall and, from and after the Effective Time, CBSI and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of
Claremont or any of its Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or employee of Claremont or any of its Subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities") including, without limitation, all losses, claims,
damages, costs, expenses, liabilities or judgments based in whole or in part on,
or arising in whole or in part out of, or
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pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent a corporation is permitted under the OBCA to indemnify
its own directors, officers and employees, as the case may be (Claremont, CBSI
and the Surviving Corporation, as the case may be, will pay expenses in advance
of the final disposition by any such action or proceeding to each Indemnified
Party to the full extent permitted by law upon receipt of any undertaking
contemplated by Section 60.397 of the OBCA). Without limiting the foregoing, in
the event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Party (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to them and
Claremont (or them and CBSI and the Surviving Corporation after the Effective
Time, (ii) Claremont (or after the Effective Time, CBSI and the Surviving
Corporation) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, and (ii)
Claremont (or after the Effective Time, CBSI and the Surviving Corporation) will
use all reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of Claremont, CBSI or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 6.15, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
Claremont, CBSI or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 6.16 except to the extent such failure prejudices such
party), and shall deliver to Claremont (or after the Effective Time, CBSI and
the Surviving Corporation) the undertaking contemplated by Section 60.397 of the
OBCA. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(b) For a period of 6 years after the Effective Time, CBSI shall cause
itself or the Surviving Corporation to use its best efforts to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Claremont's directors' and officers'
liability insurance policy (a copy of which has heretofore been delivered to
CBSI) on terms and in an amount comparable to those now applicable to directors
and officers of Claremont.
(c) In the event that CBSI or the Surviving Corporation or any of their
respective successors and assigns consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or transfers and conveys all or substantially all
of its property and assets to any person, then, and in each case, proper
provisions shall be made so that the successor and assigns of CBSI and the
Surviving Corporation assume the obligations set forth in this Section 6.15.
(d) The provisions of this Section 6.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives, each of whom is an intended third party beneficiary, and may
not be amended, altered or repealed without the written consent of any affected
Indemnified Party.
Section 6.17 Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of CBSI and
Claremont described in Section 6.6, including cooperating fully with the other
party, including by provision of information. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
either of the Constituent Corporations, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
Section 6.18 Hart Scott Rodino Filings. The parties shall cooperate with
each other such that each is timely provided all necessary information to permit
it to make prompt and complete filings under, and to permit it to comply fully
with, the requirements of the Hart Scott Rodino Premerger Notification Act.
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ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of 67% of
the outstanding shares of Claremont Common Stock present or represented at
the Claremont Shareholders' Meeting and the CBSI Voting Proposal shall have
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of CBSI Common Stock present or represented at the CBSI
Shareholders' Meeting.
(b) Approvals. Other than the filing provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declaration or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
the failure of which to obtain would be reasonably likely to have a
Material Adverse Effect on CBSI and its Subsidiaries, taken as a whole, or
Claremont shall have been filed, occurred or been obtained.
(c) Registration Statement. The Registration Statement shall have
become and shall be effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
(d) No Injunctions or Restraint; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting CBSI's conduct or operation of the business of CBSI after the
Merger shall have been issued, nor shall any proceeding brought by a
domestic administrative agency or commission or other domestic Governmental
Entity, seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of
the Merger illegal.
(e) Pooling Letters. CBSI and Claremont shall have received letters
from Arthur Andersen, LLP and KPMG Peat Marwick LLP, respectively, each
dated the date of the Joint Proxy Statement and confirmed in writing at the
Effective Time and addressed to CBSI and Claremont, respectively, stating
that the business combination to be effected by the Merger will qualify as
a pooling of interests transaction under generally accepted accounting
principles.
(f) Hart Scott Rodino Filings. CBSI and Claremont shall have received
letters from their respective counsel confirming that any necessary filing
under federal antitrust laws has been made and that the transaction has
passed Hart Scott Rodino review.
(g) Nasdaq. The shares of CBSI Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National
Market.
Section 7.2 Additional Conditions to Obligations of CBSI and Sub. The
obligations of CBSI and Sub to effect the Merger are subject to the satisfaction
of each of the following conditions, any of which may be waived in writing
exclusively by CBSI and Sub:
(a) Representations and Warranties. The representations and
warranties of Claremont set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement and (ii) where the failure to be
true and correct would not be reasonably likely to have a Material Adverse
Effect on Claremont or a material adverse effect upon the consummation of
the transactions contemplated hereby; and CBSI shall have received a
certificate signed on behalf of Claremont by the president and the chief
financial officer of Claremont to such effect.
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<PAGE> 24
(b) Performance of Obligations of Claremont. Claremont shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and CBSI shall
have received a certificate signed on behalf of Claremont by the president
and the chief financial officer of Claremont to such effect.
(c) Tax Opinion. CBSI shall have received a written opinion from
Butzel Long, 150 W. Jefferson, Suite 900, Detroit, Michigan 48226 to the
effect that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
(d) Blue Sky Laws. CBSI shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
CBSI Common Stock pursuant to the Merger.
(e) Substantial Continuity of Workforce. Substantially all of
Claremont's employees as of the date hereof remain employed by Claremont as
of the Closing Date.
(f) Employment Agreements by Substantially All Vice
Presidents. Substantially all of Claremont's Vice President and all
Claremont's Senior Vice President level employees shall have signed
Employment Agreements with Claremont, in substantially the form approved by
CBSI.
Section 7.3 Additional Conditions to Obligations of Claremont. The
obligation of Claremont to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Claremont:
(a) Representations and Warranties. The representations and
warranties of CBSI and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except
for (i) changes contemplated by this Agreement and (ii) where the failure
to be true and correct would not be reasonably likely to have a Material
Adverse Effect on CBSI and its Subsidiaries, taken as a whole, or a
material adverse effect upon the consummation of the transactions
contemplated hereby; and Claremont shall have received a certificate signed
on behalf of CBSI by the chief executive officer and the chief financial
officer of CBSI to such effect.
(b) Performance of Obligations of CBSI and Sub. CBSI and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Claremont shall have received a certificate signed on behalf of CBSI by the
chief executive officer and the chief financial officer of CBSI to such
effect.
(c) Tax Opinion. Claremont shall have received the opinion of Ater
Wynne Hewitt Dodson & Skerritt, LLP, counsel to Claremont, to the effect
that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(g), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Claremont or CBSI:
(a) by mutual written consent of CBSI and Claremont; or
(b) by either CBSI or Claremont if the Merger shall not have been
consummated by August 31, 1998 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date);
20
<PAGE> 25
(c) by either CBSI or Claremont, if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under Section 6.7 of this
Agreement; or
(d) by CBSI, if, at the Claremont Shareholders' Meeting (including any
adjournment or postponement), the requisite vote of the shareholders of
Claremont in favor of this Agreement and the Merger shall not have been
obtained, or by Claremont, if, at the CBSI Shareholders' Meeting (including
adjournment or postponement), the requisite vote of the shareholders of
CBSI in favor of the CBSI Voting Proposal shall not have been obtained; or
(e) by CBSI, if (i) the Board of Directors of Claremont shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to CBSI or shall have resolved to do any of the foregoing,
for any reason other than the occurrence of an event or discovery of the
falsity of a Representation or Warranty relating to CBSI which has a
Material Adverse Effect on CBSI and its Subsidiaries, taken as a whole;
(ii) the Board of Directors of Claremont shall have recommended to the
shareholders of Claremont an Alternative Transaction (as defined in Section
8.3(d)); or (iii) a tender offer or exchange offer for 15 percent or more
of the outstanding shares of Claremont Common Stock and/or shares of
Claremont Preferred Stock (on an as converted basis) is commenced (other
than by CBSI or an Affiliate of CBSI) and the Board of Directors of
Claremont recommends that the shareholders of Claremont tender their shares
in such tender or exchange offer; or (iv) a tender offer or exchange offer
for a majority of the outstanding shares of Claremont Common Stock and/or
shares of Claremont Preferred Stock (on an as converted basis) is
successfully concluded, whether or not the Board of Directors of Claremont
has recommended that the shareholders of Claremont tender their shares in
such a tender or exchange offer;
(f) by Claremont, if the Board of Directors of CBSI shall have
withdrawn or modified its recommendation of the CBSI Voting Proposal in a
manner adverse to Claremont or shall have resolved to do any of the
foregoing, for any reason other than the occurrence of an event or
discovery of the falsity of a Representation or Warranty relating to
Claremont which has a Material Adverse Effect on Claremont; or
(g) by CBSI or Claremont, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach shall not have been cured,
in the case of a representation or warranty, prior to the Closing or, in
the case of a covenant or agreement, within 10 business days following
receipt by the breaching party of written notice of such breach from the
other party.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of CBSI,
Claremont, Sub or their respective officers, directors, shareholders or
Affiliates, except as set forth in Section 8.3 and further except to the extent
that such termination results from the willful breach by a party of any of its
representations, warranties, covenants or obligations set forth in this
Agreement; provided that, the provisions of Sections 6.6 (2nd sentence), 6.15
and 8.3 of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
Section 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that CBSI and Claremont shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Joint Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
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(b) Claremont shall pay CBSI a termination fee of $10,000,000 upon the
earliest to occur of the following events. In such case, the fee thus due shall
be liquidated damages and shall be the full and complete and final amount due
and owing to CBSI as a result of:
(i) the termination of this Agreement by CBSI pursuant to Section
8.1(e)(ii), (iii), or (iv); or
(ii) the termination of this Agreement by CBSI pursuant to Section
8.1(d) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the shareholders of Claremont
at the Claremont Shareholders' Meeting if, at the time of such failure,
there shall have been announced an Alternative Transaction or Claremont
shall fail to hold the Claremont Shareholders' Meeting as a result of an
Alternative Transaction.
(c) The fee payable pursuant to Sections 8.3(b) shall be paid within five
business days after the first to occur of the events described in Section
8.3(b)(i) or (ii); provided that, in no event shall Claremont be required to pay
the termination fees to CBSI if, immediately prior to the termination of this
Agreement, CBSI was in breach of any of its material obligations under this
Agreement.
(d) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than CBSI
or its respective Affiliates (a "Third Party"), acquires more than 15 percent of
the outstanding shares of Claremont Common Stock and/or shares of Claremont
Preferred Stock (on an as converted basis), pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Claremont pursuant to which any Third Party acquires more than 15
percent of the outstanding equity securities of Claremont or the entity
surviving such merger or business combination, (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of Subsidiaries of Claremont, and the
entity surviving any merger or business combination including any of them) of
Claremont having a fair market value (as determined by the Board of Directors of
Claremont in good faith) equal to more than 15 percent of the fair market value
of all the assets of Claremont immediately prior to such transaction, or (iv)
any public announcement made directly or indirectly by anyone of a proposal,
plan or intention to do any of the foregoing of which either Claremont or CBSI
has knowledge (and promptly informs the other), or any agreement by Claremont to
engage in any of the foregoing.
Section 8.4 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of Claremont or of CBSI, but, after any such
approval, no amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of any party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for the agreements contained
in Sections 1.3, 1.4, 2.1, 2.2, 6.13, 6.15, 6.16, 6.17, the last sentence of
Section 8.4 and Article IX, and the agreements of the Affiliates of
22
<PAGE> 27
Claremont delivered pursuant to Section 6.11. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement.
Section 9.2 Waiver. A waiver of one or more breaches of any clause of
this Agreement shall not act to waive any other breach, whether of the same or
different clauses.
Section 9.3 Governing Law, Jurisdiction, Fees. This Agreement is governed
by the laws of the State of Michigan. Any action brought between the parties may
be brought only in the state or federal courts located in Portland, Oregon, and
in no other place unless the parties expressly agree in writing to waive this
requirement. Each party consents to jurisdiction in that location. Each party
consents to service of process through the method prescribed for notice in this
Agreement. The prevailing party in any suit, action, arbitration, or appeal
filed or held concerning this Agreement shall be entitled to reasonable
attorneys' fees.
Section 9.4 Notices. Notice for each party shall be sent to the person
and address listed below, or to such other person or address as the parties may
from time to time by Notice provide. Notice shall be effective when actually
received by the party this Agreement designates for Notice, if sent by any means
that leaves a hard-copy record in the hands of the recipient. If sent properly
addressed by certified or registered mail, postage prepaid, return receipt
requested, Notice shall be deemed effective on the date the return receipt shows
the Notice was accepted, refused, or returned undeliverable.
(A) IF TO CBSI OR SUB, TO:
Complete Business Solutions, Inc.
32605 W. Twelve Mile Road, Suite 250
Farmington Hills Michigan, 48334
Attention: Tim Manney, Chief Financial Officer
Attention: Tom Sizemore, General Counsel
Phone 248-488-2088
(B) IF TO CLAREMONT, TO:
Claremont Technology Group, Inc.
1600 NW Compton Drive, Suite 210
Beaverton, Oregon 97006
Attention: Stephen Carson, President
WITH A COPY TO:
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 S.W. Columbia, Suite 1800
Portland, OR 97201
Attn: William C. Campbell
Section 9.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to April
8, 1998.
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 9.7 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.15 are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
Section 9.8 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Oregon without regard to any
applicable conflicts of law.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, CBSI, Sub and Claremont have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
<TABLE>
<CAPTION>
<S> <C>
CLAREMONT TECHNOLOGY GROUP, INC. COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ Stephen M. Carson By: /s/ Rajendra B. Vattikuti
-------------------------------------- --------------------------------------
Title: President, Chief Operating Officer Title: President, Chief Executive Officer
---------------------------------- -----------------------------------
Chief Financial Officer
----------------------------------
CBSI ACQUISITION CORP. III
By: /s/ Timothy S. Manney
-------------------------------------
Title: President
-------------------------------------
</TABLE>
24
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of
June 8, 1998, by and among Complete Business Solutions, Inc., a Michigan
corporation ("CBSI"), CBSI Acquisition Corp. III, a Michigan corporation and a
wholly-owned subsidiary of CBSI ("Sub"), CBSI Acquisition Corp. III, an Oregon
corporation and a wholly-owned subsidiary of CBSI ("Sub 2") and Claremont
Technology Group, Inc., an Oregon corporation ("Claremont")
WHEREAS, CBSI, Sub and Claremont entered into that certain Agreement
and Plan of Merger, dated April 8, 1998 (the "Merger Agreement"); and
WHEREAS, CBSI, Sub and Claremont desire to amend the Merger Agreement
in certain respects as provided for in Section 8.4 of the Merger Agreement (as
amended, the "Amended Merger Agreement") and Sub 2 desires to become a party to
the Amended Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Sub 2 shall become a party to the Amended Merger Agreement, and Sub
shall cease to be a party thereto, and every occurrence therein of "CBSI
Acquisition Corp. III" and "Sub" shall be deemed to refer to Sub 2.
2. Section 1.1 shall be amended to read in its entirety as follows:
Section 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the
provisions of this Agreement, Articles of Merger in such form as are
required by the relevant provisions of the Oregon Business Corporation
Act ("OBCA") (the "Articles of Merger") shall be duly prepared,
executed and acknowledged by Sub and Claremont and thereafter delivered
to the Corporation Commissioner of the State of Oregon for filing, as
provided in the OBCA, as soon as practicable on or after the Closing
Date (as defined in Section 1.2). The Merger shall become effective
upon the filing of the Articles of Merger with the State of Oregon or
at such time thereafter as is provided in the Articles of Merger (the
"Effective Time").
3. Except as amended hereby, the Merger Agreement shall remain in full
force and effect.
<PAGE> 2
EXHIBIT 2.2
IN WITNESS WHEREOF, CBSI, Sub, Sub 2 and Claremont have caused this
Amendment to Merger Agreement to be signed by their respective officers
thereunto duly authorized as of the date first above written.
CLAREMONT TECHNOLOGY GROUP COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ Stephen M. Carson By: Rajendra B. Vattikuti
------------------------------- --------------------------------
Title: President, Chief Operating Title: President, Chief Executive
---------------------------- -----------------------------
Officer, Chief Financial Officer
---------------------------- -----------------------------
Officer
----------------------------
CBSI ACQUISITION CORP. III,
a Michigan corporation
By: Timothy S. Manney
--------------------------------
Title: President
-----------------------------
CBSI ACQUISITION CORP. III,
an Oregon corporation
By: Timothy S. Manney
--------------------------------
Title: President
-----------------------------
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
COMPLETE BUSINESS SOLUTIONS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I Shareholders . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Place and Time of Meetings . . . . . . . . . . . . . . . . 1
Section 4. Notice of Meetings. . . . . . . . . . . . . . . . . . . . 2
Section 5. Fixing of Record Dates . . . . . . . . . . . . . . . . . . 2
Section 6. List of Shareholders . . . . . . . . . . . . . . . . . . . 2
Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Organization . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 10. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II Board of Directors . . . . . . . . . . . . . . . . . . . . 3
Section 1. Number and Term of Office . . . . . . . . . . . . . . . . 3
Section 2. Qualification . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Removal, Vacancies, and Additional Directors . . . . . . . 4
Section 4. Place of Meeting . . . . . . . . . . . . . . . . . . . . . 4
Section 5. Regular Meetings . . . . . . . . . . . . . . . . . . . . . 4
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . 5
Section 7. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Compensation of Directors . . . . . . . . . . . . . . . . 5
Section 10. Organization . . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Dissents . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III Committees . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. Appointment and Powers . . . . . . . . . . . . . . . . . . 6
ARTICLE IV Officers . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Chairman of the Board . . . . . . . . . . . . . . . . . . 7
Section 3. President . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. Vice Presidents . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Secretary . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. Assistant Secretary and Assistant Treasurer . . . . . . . 8
Section 8. Giving of Bond by Officers . . . . . . . . . . . . . . . . 8
Section 9. Absence or Disability . . . . . . . . . . . . . . . . . . 9
Section 10. Voting Upon Stocks . . . . . . . . . . . . . . . . . . . . 9
Section 11. Compensation of Officers . . . . . . . . . . . . . . . . . 9
ARTICLE V Capital Stock . . . . . . . . . . . . . . . . . . . . . . 9
Section 1. Certificates for Shares . . . . . . . . . . . . . . . . . 9
Section 2. Lost, Stolen or Destroyed Certificates . . . . . . . . . . 10
Section 3. Transfer of Shares . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5. Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. Checks, Notes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. Loans, Contracts and Conveyances . . . . . . . . . . . . . . . . . . . . 11
Section 5. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7. Participation by Communication Equipment . . . . . . . . . . . . . . . . 12
Section 8. Indemnification by the Corporation . . . . . . . . . . . . . . . . . . . 13
Section 9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10. Dealing with Corporation . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 4
BYLAWS
OF
COMPLETE BUSINESS SOLUTIONS, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the
Corporation shall be held at such time and place as shall be determined
by resolution of the Board of Directors.
SECTION 2. SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time by a majority of the Board of Directors acting with
or without a meeting, by the Chairman of the Board of Directors (if such office
is filled), or by the President, and shall be called by the President or
Secretary at the written request of any number of shareholders holding together
not less than 25% of the total outstanding shares of any class of stock of the
Corporation entitled to vote at such meeting. Each such request shall state the
purpose or purposes for which the meeting is to be called.
Upon request in writing delivered either in person or by registered
mail to the President or Secretary by any person or persons entitled to call a
meeting of shareholders, such officer shall forthwith cause to be given to the
shareholders entitled thereto notice of such meeting to be held on a date not
less than ten nor more than 60 days after the delivery or mailing of such
request, as such officer may fix. If such notice is not given within 15 days
after the delivery or mailing of such request, then the person or persons
making such request may call a meeting and give or cause to be given notice in
the manner as provided in the Bylaws.
SECTION 3. PLACE AND TIME OF MEETINGS. Any meeting of shareholders
may be held at the principal office of the Corporation, or at such other
place either within or without the State of Michigan and at such time as shall
be designated in the notice of the meeting.
SECTION 4. NOTICE OF MEETINGS. Written notice of the time, place and
purposes of a meeting of shareholders shall be given, except as
otherwise required by law or provided in the Articles of Incorporation or
Bylaws, not less than ten nor more than 60 days before the date of such meeting
to each shareholder of the Corporation entitled to vote at such meeting, either
personally or by mailing such notice to each such shareholder's address as the
same appears upon the books of the Corporation. No notice need be given of any
adjourned meeting of shareholders if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is taken and at
the adjourned
<PAGE> 5
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment the Board of Directors
fixes a new record date for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record on the new record date
entitled to notice as provided in this Section 4.
SECTION 5. FIXING OF RECORD DATES. The Board of Directors may fix in
advance a date as the record date for the purpose of determining
shareholders entitled to notice of and to vote at a meeting of shareholders or
an adjournment thereof, or to express consent or dissent from a proposal without
a meeting, or for the purpose of determining shareholders entitled to receive
payment of a dividend or allotment of a right, or for the purpose of any other
action. The date shall not be more than 60 nor less than ten days before the
date of the meeting, nor more than 60 days before any other action. This
Section 5 shall not affect the rights between a shareholder and his transferor
or transferee.
SECTION 6. LIST OF SHAREHOLDERS. The Secretary of the Corporation
shall make and certify, or cause any agent having charge of the stock
transfer books for the Corporation to make and certify, a complete list of the
shareholders entitled to vote at a meeting of shareholders or any adjournment
thereof. Such list shall be arranged alphabetically within each class and
series, with the address of and number of shares held by, each shareholder; be
produced at the time and place of the meeting; be subject to inspection by any
shareholder during the whole time of the meeting; and be prima facie evidence as
to the names of the shareholders entitled to examine the list or to vote at the
meeting.
SECTION 7. QUORUM. At any meeting of shareholders, the holders of a
majority in number of all the shares of each class of the capital stock
of the Corporation issued and outstanding, entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum of the
shareholders for all purposes, unless the representation of a larger number of
shares of each class shall be required by law, by the Articles of Incorporation
or by a Bylaw adopted by the shareholders, and in that case the representation
of the number of shares so required shall constitute a quorum.
The shareholders present in person or by proxy at a meeting at which a
quorum is initially present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Whether or not a quorum is present, the meeting may be adjourned by a
vote of the shareholders present.
SECTION 8. ORGANIZATION. The Chairman of the Board (if such office
is filled), the President, or a Vice-President, shall call
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meetings of shareholders to order, and shall act as chairman of such meetings.
The Secretary of the Corporation shall act as secretary of all meetings of
shareholders; but in the absence of the Secretary, the chairman may appoint any
person to act as secretary of the meeting.
SECTION 9. PROXIES. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may
authorize other persons to act for such shareholder by proxy. A proxy shall be
signed by the shareholder or such shareholder's authorized agent or
representative. A proxy is not valid after the expiration of three years from
its date unless otherwise provided in the proxy. A proxy is revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
SECTION 10. VOTING. Each outstanding share of capital stock is
entitled to one vote on each matter submitted to a vote, unless otherwise
provided in the Articles of Incorporation. The vote upon any matter as to
which a vote by ballot is required by law, and, upon the demand of any
shareholder, the vote upon any other matter before the meeting, shall be cast
by ballot; otherwise all votes shall be cast orally. Except as to the election
of the Directors and as otherwise provided by law or by the Articles of
Incorporation, when an action is to be taken by a vote of the shareholders it
shall be authorized by a majority of the votes cast by the holders of the
shares entitled to vote thereon. Except as otherwise provided by the Articles
of Incorporation, Directors shall be elected by a plurality of the votes cast
at an election.
Shares of the capital stock of the Corporation belonging to the
Corporation shall not be voted, nor shall any stock so owned be counted in
determining whether a quorum is present at any meeting.
Shares of the capital stock held by a person in a representative or
fiduciary capacity may be voted by such person without a transfer of the shares
into such person's name. Except as otherwise provided by law, shares of the
capital stock held by two or more persons as joint tenants or as tenants in
common may be voted at a meeting of shareholders by any of such persons. A
shareholder whose shares are pledged is entitled to vote the shares unless or
until such shares have been transferred into the name of the pledgee or a
nominee or proxy of such pledgee.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The business,
affairs and property of the Corporation shall be managed and controlled
by a Board of at least one but not more than nine
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<PAGE> 7
Directors, as determined by the Board of Directors or shareholders from time to
time. The Directors shall be divided into three classes, each as nearly equal
in number as possible. The term of office of Directors of the first class
shall expire at the first annual meeting of shareholders after their election,
that of the second class shall expire at the second annual meeting after their
election, and that of the third class shall expire at the third annual meeting
after their election. At each annual meeting of shareholders after such
classification, a number of Directors equal to the number of the class whose
term expires at the time of the meeting shall be elected to hold office until
the third succeeding annual meeting. Directors need not be shareholders of the
Corporation or residents of the State of Michigan. A Director shall hold
office for the term for which such Director is elected and until such
Director's successor is elected and qualified, or until such Director's
resignation or removal. A Director may resign by written notice to the
Corporation.
SECTION 2. QUALIFICATION. Each Director shall qualify either by
accepting the election as a Director in writing, or by acting at a
meeting of the Board of Directors.
SECTION 3. REMOVAL, VACANCIES, AND ADDITIONAL DIRECTORS. The holders
of a majority in number of the shares of the capital stock of the
Corporation outstanding and entitled to vote at an election of Directors may
remove any Director or the entire Board of Directors with or without cause and
fill the vacancy or vacancies thereby created. Vacancies caused by such removal
and not filled by the shareholders at the meeting at which such removal shall
have been made, or any vacancy caused by the death or resignation of any
Director, the creation of additional directorships, or for any other reason, may
be filled by the affirmative vote of a majority of the Directors then in office
though less than a majority of the number of Directors authorized by Section 1
of this Article II; provided, however, that the term of office of any Director
so elected to fill such vacancy shall expire at the next election of Directors
by the shareholders.
SECTION 4. PLACE OF MEETING. The Board of Directors may hold their
meetings in such place or places in the State of Michigan or outside the
State of Michigan as the Board of Directors from time to time shall determine.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time
to time by resolution shall determine. No notice shall be required for any
regular meeting of the Board of Directors; but a copy of every resolution fixing
or changing the time or place of regular meetings shall be delivered personally
or by mail to each Director at least 15 days before the first meeting held
pursuant such resolution.
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<PAGE> 8
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board (if
such office is filled), the President, or by a majority of the Directors then in
office. Notice of the time and place of holding each special meeting shall be
given to each Director at least three days before the meeting. Any and all
business may be transacted at any special meeting.
SECTION 7. NOTICE. Notice of regular or special meetings of the
Board of Directors need not specify the purpose of the meeting or the
business that may be transacted thereat, and may be personally delivered or
transmitted by mail, facsimile or telephone.
SECTION 8. QUORUM. Subject to the provisions of Section 3 of this
Article II, a majority of the members of the Board of Directors then in
office, or a majority of the members of a committee thereof, shall constitute a
quorum for the transaction of business. The vote of a majority of the Directors
present at any meeting of the Board of Directors, or of a committee thereof, at
which a quorum is present, constitutes the action of the Board of Directors or
of the committee, unless the vote of a larger number is required by the Articles
of Incorporation, the Bylaws, or applicable law, or in the case of a committee,
by resolution of the Board of Directors. If at any meeting of the Board of
Directors there be less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 9. COMPENSATION OF DIRECTORS. Directors shall not be
entitled to receive compensation for their services except as expressly
authorized by the Board of Directors from time to time.
SECTION 10. ORGANIZATION. The Chairman of the Board (if such office
is filled) shall preside and act as chairman at all meetings of the Board of
Directors. In the event there is no Chairman of the Board or in the absence of
the Chairman of the Board, the President shall so preside, and in the absence
of the President, a chairman shall be elected from the Directors present. If
present, the Secretary of the Corporation shall act as secretary of all
meetings of the Board of Directors; but in the absence of the Secretary, the
chairman may appoint any person to act as secretary of the meeting.
SECTION 11. DISSENTS. A Director who is present at a meeting of the
Board of Directors, or of a committee thereof, at which action on any matter is
taken shall be presumed to have assented to the action unless such Director's
dissent shall be entered in the minutes of the meeting or unless such Director
shall file a written dissent to such action with the person acting as secretary
of the meeting before the adjournment thereof, or shall send such dissent by
registered mail to the Secretary of the Corporation promptly
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<PAGE> 9
after the adjournment of the meeting. It shall be the duty of the Secretary to
record such dissents in or with, as the case may be, the minutes of the meeting
at which the action to which the dissent relates was taken. Such right to
dissent shall not apply to a Director who voted in favor of or consented in
writing to such action. A Director who is absent from a meeting of the Board
of Directors or a committee thereof of which such Director is a member, at
which any action is taken, is presumed to have concurred in the action unless
such Director files a written dissent with the Secretary of the Corporation
within a reasonable time after such Director obtains knowledge of the action.
ARTICLE III
COMMITTEES
SECTION 1. APPOINTMENT AND POWERS. Unless otherwise provided in the
Articles of Incorporation, the Board of Directors may designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation. The Board of Directors may designate one or more Directors as
alternate members of a committee who shall replace an absent or disqualified
member at a meeting of the committee. A majority of any such committee may
determine its action and fix the time and place of its meetings unless otherwise
provided by the Board of Directors, the Articles of Incorporation, the Bylaws,
or law. The Board of Directors shall have the power at any time to fill
vacancies in, to change the size or membership of, and to discharge any such
committee. In the absence or disqualification of a member, or alternate member,
if any, of a committee, the members thereof present at a meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of such absent or disqualified member. A committee, to the
extent provided in the resolution of the Board of Directors, may exercise all
powers and authority of the Board of Directors in management of the business,
affairs and property of the Corporation, subject to any limitations provided by
law or the Articles of Incorporation. Each such committee shall keep a written
record of its acts and proceedings and shall submit such record to the Board of
Directors at such time and from time to time as requested by the Board of
Directors. Failure to submit such record will not invalidate such acts and
proceedings to the extent such acts and proceedings have been carried out by the
Corporation prior to the time the record of such action should have been
submitted to the Board of Directors.
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<PAGE> 10
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Treasurer. All such officers shall be
elected or appointed by the Board of Directors. The Board of Directors may from
time to time elect or appoint other officers including a Chairman of the Board,
one or more Vice-Presidents, Assistant Treasurers and Assistant Secretaries, and
such other officers as the Board of Directors may deem advisable. The Chairman
of the Board (if such office is filled) shall be a member of the Board of
Directors. Any two or more offices may be held by the same person; provided
that no officer shall execute, acknowledge or verify an instrument in more than
one capacity if the instrument is required by law, the Articles of Incorporation
or the Bylaws to be executed, acknowledged or verified by two or more officers.
The term of office of each officer shall be the term for which such officer is
elected or appointed and until such officer's successor is elected or appointed
and qualified, or until such officer's resignation or removal. Each officer
shall qualify either by accepting the election or appointment of an office in
writing, or by acting on behalf of the Corporation in the capacity of such
office. An officer may resign by written notice to the Corporation.
Except where otherwise expressly provided in a written contract duly
authorized by the Board of Directors, all officers, agents and employees shall
be subject to removal at any time, with or without cause, by the Board of
Directors. The election or appointment of an officer for a given term, or a
general provision in the Articles of Incorporation or the Bylaws with respect
to term of office, shall not be deemed to create contract rights.
In addition to the powers, authority and duties of the officers of the
Corporation as set forth in the Bylaws, each officer shall have such other
powers and authority, and perform such other duties, as may be assigned to or
vested in such officer by the Board of Directors from time to time.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board (if
such office is filled) shall preside at all meetings of shareholders
and of Directors. He shall have such other powers and duties as may from time
to time be prescribed by these Bylaws or by resolution of the Board of
Directors.
SECTION 3. PRESIDENT. Subject to the direction of the Board of
Directors, the President shall be the chief executive officer of the
Corporation and as such shall supervise and direct the Corporation's affairs and
the administration thereof by the other executive officers of the Corporation.
The President shall from
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<PAGE> 11
time to time make such reports of the business of the Corporation as the Board
of Directors may require. In the absence or disability of the Chairman of the
Board, or if that office has not been filled, the President shall also perform
the duties and execute the powers and authority of the Chairman of the Board as
provided in the Bylaws and by resolution of the Board of Directors.
SECTION 4. VICE PRESIDENTS. In case the office of President shall
become vacant by death, resignation, or otherwise, or in case of the
absence of the President or of the President's disability to discharge the
duties of such office, such duties shall, for the time being, devolve upon the
Vice President, if any, having seniority by designation, or if not designated,
in order of seniority of election in such office.
SECTION 5. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of
shareholders in books provided for that purpose. The Secretary shall attend to
the giving or serving of all notices of the Corporation. The Secretary shall
have charge of the stock certificate books, transfer books and stock ledgers and
such other books and papers as the Board of Directors shall direct. The
Secretary shall have charge of the corporate seal, if any. The Board of
Directors shall have power by resolution to delegate any of the powers or duties
of the Secretary to other officers.
SECTION 6. TREASURER. The Treasurer shall be the financial officer
of the Corporation. The Treasurer shall have custody of all the funds
and securities of the Corporation. The Treasurer may endorse on behalf of the
Corporation for collection checks, notes and other obligations and shall deposit
the same to the credit of the Corporation in such bank or banks or depository or
depositories as the Board of Directors may designate. The Treasurer may sign
all receipts and vouchers for payments made to the Corporation. The Treasurer
shall enter or cause to be entered regularly in the books of the Corporation
kept for the purpose full and accurate accounts of all moneys received and paid
on account of the Corporation, and whenever required by the Board of Directors
shall render statements of such accounts. The Board of Directors shall have
power by resolution to delegate any of the powers or duties of the Treasurer to
other officers.
SECTION 7. ASSISTANT SECRETARY AND ASSISTANT TREASURER. The Assistant
Secretary and Assistant Treasurer, having seniority by designation, or
if not designated in order of seniority of election, shall perform the duties
and exercise the powers of the Secretary and Treasurer, respectively, in case of
the absence or disability of the Secretary or Treasurer.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the
Corporation, if required to do so by the Board of Directors, shall
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<PAGE> 12
furnish bonds to the Corporation for the faithful performance of their duties,
in such amounts and with such conditions and security as the Board of Directors
shall require.
SECTION 9. ABSENCE OR DISABILITY. In case of the absence or
disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such period of absence or
disability, the Board of Directors may from time to time delegate the powers and
duties of such officer to any of the officers or any Director, or any person
whom it may select.
SECTION 10. VOTING UPON STOCKS. The Chairman of the Board (if such
office is filled) and the President, or either of them, shall have the full
power and authority on behalf of the Corporation to vote the stock of any other
corporation owned by the Corporation, or in the name of the Corporation to
execute proxies to vote such stock or execute waivers and consents with respect
to such stock or the voting thereof, and to attend meetings of shareholders of
any such other corporations and at each such meeting, such officer or officers
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may by resolution from time to time confer like powers upon any other
person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the
Corporation shall be entitled to receive such compensation for their services
as shall from time to time be determined by the Board of Directors.
ARTICLE V
CAPITAL STOCK
SECTION 1. CERTIFICATES FOR SHARES. The interest of each shareholder
of the Corporation shall be evidenced by certificates for shares of the
capital stock of the Corporation certifying the number of shares represented
thereby and in such form, consistent with the Articles of Incorporation and the
laws of the State of Michigan, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board (if such office is
filled) or the President or a Vice President and may be signed by another
officer of the Corporation, and shall not be valid unless so signed. The
signatures of the officers may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar other than the Corporation
itself or its employee. In case any officer or officers who shall have signed
or whose facsimile signature has been placed upon any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or
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<PAGE> 13
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued
and delivered as though the person or persons who signed or whose facsimile
signature has been placed upon such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the shareholder owning the shares
represented thereby with the number of shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as otherwise provided in the Bylaws, all certificates
surrendered to the Corporation for transfer shall be cancelled, and no new
certificates shall be issued until former certificates for the same number of
shares have been surrendered and cancelled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate of stock of the Corporation alleges that it has
been stolen, lost, or destroyed, such person shall file in the office of the
Corporation an affidavit setting forth, to the best of such person's knowledge
and belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity sufficient in
the opinion of the Board of Directors to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss. Thereupon the
Board of Directors may cause to be issued to such person a new certificate or a
duplicate of the certificate alleged to have been lost, stolen or destroyed.
Upon the ledger of each new or duplicate certificate so issued shall be noted
the fact of such issue and the number, date, and the name of the registered
owner of the lost, stolen or destroyed certificate in lieu of which the new or
duplicate certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of the capital stock of the
Corporation shall be transferred on the books of the Corporation by the
holder thereof, in person or by such holder's attorney duly authorized in
writing, upon surrender and cancellation of certificates for the number of
shares to be transferred properly endorsed for transfer, except as provided in
the preceding Section 2 of this Article V. Books for the transfer of shares of
its capital stock shall be kept by the Corporation or by one or more transfer
agents appointed by it.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem appropriate
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Corporation.
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SECTION 5. LIEN. The Corporation shall have a lien upon all capital
stock and property invested in the Corporation for all debts due it from
the owners thereof.
SECTION 6. DIVIDENDS. Subject to the Articles of Incorporation, the
Board of Directors shall have the power to determine whether any, and if
so, what part, of the funds legally available for the payment of dividends shall
be declared in dividends, and to declare and pay dividends or make other
distributions in cash property or other assets of the Corporation, including
securities of other corporations and of the Corporation, upon outstanding shares
of the capital stock of the Corporation, but only as provided by law.
Subject to the Articles of Incorporation, any dividends declared upon
the capital stock of the Corporation shall be payable on such date or dates as
the Board of Directors shall determine. If the date fixed for the payment of
any dividend shall in any year fall upon a legal holiday, then the dividend
payable on such date shall be paid on the next day not a legal holiday.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall
be in the charge of the Secretary. If and when so directed by the Board of
Directors, a duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board of Directors.
SECTION 2. CHECKS, NOTES, ETC. All checks, drafts, bills of
exchange, acceptances, notes, bonds or other obligations or orders for
the payment of money shall be signed and if so required countersigned by such
officer or officers of the Corporation or other persons as the Board of
Directors shall from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
determined from time to time by the Board of Directors.
SECTION 4. LOANS, CONTRACTS AND CONVEYANCES. No loans and no
renewals of any loans shall be contracted on behalf of the Corporation
except as authorized by the Board of Directors, or as otherwise provided by
these Bylaws. When so authorized, any officer or agent of the Corporation may
obtain loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory
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notes, bonds or other evidences of indebtedness of the Corporation. When so
authorized, any officer or agent of the Corporation may pledge, mortgage,
hypothecate or transfer, as security for the payment of any and all loans,
advances, indebtedness and liabilities of the Corporation, any and all stocks,
securities and other personal or real property at any time held by the
Corporation, and to that end may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances. The Board of
Directors may from time to time designate the officer or agent who shall have
authority to execute any contract, conveyance, mortgage or other instrument on
behalf of the Corporation. When the execution of an instrument has been
authorized without specification of the executing officer or agent, the
Chairman of the Board (if such office is filled), the President, any Vice
President or the Secretary may execute the same in the name and on behalf of
the Corporation.
SECTION 5. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the Bylaws to any person or persons, a
waiver of such notice in writing signed by the person or persons entitled to the
notice, whether signed before or after the time stated in the notice, shall be
deemed equivalent to such notice. Attendance at any meeting, in person or, in
the case of a shareholder, by proxy, without objection to the manner in which
notice of the meeting has been given, shall be deemed a waiver of notice
thereof; except that where such attendance is for the express purpose of
objecting at the beginning of such meeting to the transaction of any business
because the meeting is not lawfully called or convened, then such attendance
shall not constitute a waiver of notice.
SECTION 6. ACTION WITHOUT MEETING. Any action required or permitted
to be taken pursuant to authorization voted at a meeting of the Board of
Directors or a committee thereof may be taken without a meeting if, before or
after the action, all members of the Board of Directors or of the committee
consent thereto in writing. The consent has the same effect as a vote of the
Board of Directors or of the committee for all purposes.
All written consents shall be promptly filed with the Corporation.
Failure to so file any such written consent shall not affect the validity of
the action authorized or taken thereby.
SECTION 7. PARTICIPATION BY COMMUNICATION EQUIPMENT. A shareholder
or Director may participate in a meeting of shareholders or Directors
(or a committee thereof), respectively, by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting may hear each other, if all participants are advised of the
communications equipment and the names of the participants in the conference are
divulged to all participants.
-12-
<PAGE> 16
Participation in a meeting pursuant to this Section 7 constitutes
presence in person at the meeting.
SECTION 8. INDEMNIFICATION BY THE CORPORATION.
(a) The Corporation shall indemnify to the full extent permitted
by law, as the same exists or may hereafter be amended, every person who was or
is a party, or is threatened to be made a party, to a threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative and whether formal or informal, including actions by or in the
right of the Corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, judgments, penalties, fines and amounts
paid in settlement incurred by such person in connection with the action, suit
or proceeding; provided, however, that, except as provided in paragraph (b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this Section
shall be a contract right and, subject to the limitations set forth above,
shall include the right, to the fullest extent permitted by law, as the same
exists or may hereafter be amended, to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition.
(b) If a claim under paragraph (a) of this Section is not paid in
full by the Corporation within 30 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under applicable law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
-13-
<PAGE> 17
conduct set forth by applicable law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Notwithstanding anything contained in these Bylaws to the
contrary, the affirmative vote of the holders of at least two thirds of the
voting power of all of the shares of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, shall be
required to alter, amend, adopt any provision inconsistent with or repeal this
Section 8.
SECTION 9. INSURANCE. The Corporation shall have power, to the
extent now or hereafter provided by law, to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such.
SECTION 10. DEALING WITH CORPORATION. A contract or other
transaction between the Corporation and one or more of its Directors or
officers, or between the Corporation and a domestic or foreign corporation,
firm or association of any type or kind in which one or more of the
Corporation's Directors or officers are directors or officers, or are otherwise
interested, is not void or voidable solely because of such common directorship,
officership or interest, or solely because such Directors are present at the
meeting of the Board of Directors or committee thereof at which such contract
or transaction is acted upon or solely because their votes are counted for such
purpose if any of the following conditions is satisfied:
(a) The contract or other transaction is fair and
reasonable to the Corporation when it is authorized, approved or
ratified;
(b) The material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or known to the Board of Directors or committee thereof
and the Board of Directors or committee thereof authorizes,
approves or ratifies the contract or transaction by a vote
sufficient for the purpose without counting the vote of any common
or interested Director; or
-14-
<PAGE> 18
(c) The material facts as to such Director's
relationship or interest and as to the contract or transaction are
disclosed or known to the shareholders, and they authorize approve
or ratify the contract or transaction.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENT. The shareholders or the Board of Directors
may from time to time amend or repeal the Bylaws or adopt new Bylaws.
-15-
<PAGE> 1
EXHIBIT 5
[BUTZEL LONG LETTERHEAD]
Detroit Office
June 4, 1998
Complete Business Solutions, Inc.
32605 West Twelve Mile Road
Farmington Hills, MI 48334-3339
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended for the registration of 9,113,568 shares of common stock, no par value
(the "Shares") of Complete Business Solutions, Inc., a Michigan corporation (the
"Company"). The Shares are to be issued in exchange for shares of common stock,
no par value of Claremont Technology Group, Inc. ("Claremont") pursuant to an
Agreement and Plan of Merger dated as of April 8, 1998 (the "Merger Agreement")
by and among the Company, Claremont and CBSI Acquisition Corp. III, ("Sub") a
wholly owned subsidiary of the Company and an Oregon corporation. The Merger
Agreement provides for Sub to merge with and into Claremont (the "Merger") and
for Claremont to survive the Merger as a wholly-owned subsidiary of the Company.
We have acted as counsel for the Company in connection with the issuance of
the Shares pursuant to the Merger. For purposes of our opinion, we have examined
and relied upon such documents, records, certificates and other instruments as
we have deemed necessary. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies.
We express no opinion as to the applicability of, compliance with or effect
of federal law or the law of any jurisdiction other than the State of Michigan.
Based upon the foregoing, we are of the opinion that the Shares being
issued by the Company have been duly authorized and, when issued in accordance
with the Merger Agreement, will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
proxy statement/prospectus under the caption "Validity of Common Stock." In
doing so, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Act or the applicable rules.
This opinion is to be used only in connection with the issuance of the
Shares while the Registration Statement is in effect.
Very truly yours,
/s/ BUTZEL LONG
Butzel Long
<PAGE> 1
EXHIBIT 8.1
Detroit Office
June 8, 1998
COMPLETE BUSINESS SOLUTIONS, INC.
32605 West Twelve Mile Road, Suite 250
Farmington Hills, MI 48334
RE: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Complete Business Solutions, Inc., a
Michigan corporation (the "Company"), in connection with the proposed merger
(the "Merger") pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") between Claremont Technology Group, Inc., an Oregon corporation
("Claremont"), the Company, and CBSI Acquisition Corp. III, an Oregon
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), the
Registration Statement filed with the Securities and Exchange Commission on Form
S-4 (the "Registration Statement"). All capitalized terms used herein, unless
otherwise stated, have the meaning set forth in the Registration Statement.
In rendering this Opinion, we have examined and relied upon originals
or copies, certified or otherwise to our satisfaction, of the Merger Agreement,
the Registration Statement and all Exhibits thereto, the representations as set
forth in the Certificate of Timothy S. Manney, Vice President, Secretary, and
Treasurer of CBSI Acquisition Corp. III dated June 8, 1998, the Certificate of
Timothy S. Manney Executive Vice-President of Finance and Administration and
Treasurer of Complete Business Solutions, Inc. dated June 8, 1998 and the
Certificate of Stephen M. Carson, President, Chief Operating Officer and Chief
Financial Officer of Claremont Technology Group, Inc. dated June 8,
1998, and considered such matters of law and of fact and relied upon such
other information furnished to us, as we have deemed appropriate as a basis for
our opinion set forth below, and have assumed that all documents submitted to
us as originals are authentic and all documents submitted to us are certified
or notarial copies or as photo or facsimile copies conform with the originals
thereof. We have not undertaken any independent investigation of any formal
matter set forth in any of the foregoing documents.
The law covered in this Opinion is limited to the Federal income tax
law of the United States.
<PAGE> 2
Based upon and subject to the foregoing, we are of the opinion that the
section entitled "Consequences to CBSI and Merger Sub" under the heading
"CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - Qualification of the
Merger as a Reorganization under the Codes" in the Joint Proxy
Statement/Prospectus, contains an accurate general description, under currently
applicable law, of the principal United States Federal income tax consequences
that apply to CBSI and Merger Sub as a result of the Merger.
This opinion is being rendered to you solely in connection with the
above-referenced matter and may not be relied upon by your or any other person
for any other purpose without our prior consent.
We consent to the filing of this Opinion as an exhibit to the
Registration Statement and to the use of our name in the section entitled
"CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES" in the Joint
Proxy/Statement Prospectus. In giving this consent, we do no acknowledge that we
come within the category of persons whose consent is required under the
Securities Act or the rules and regulations thereunder.
Very truly yours,
/s/ Butzel Long
BUTZEL LONG
<PAGE> 1
EXHIBIT 8.2
June 8, 1998
Claremont Technology Group, Inc.
1600 N.W. Compton Drive
Suite 210
Beaverton, Oregon 97006
Gentlemen and Ladies:
We are acting as tax counsel to Claremont Technology Group, Inc.
("Claremont") in connection with a proposed transaction (the "Merger")
involving Claremont, a corporation organized under the laws of the State of
Oregon, CBSI Acquisition Corp. III ("Merger Sub"), a corporation organized
under the laws of the State of Oregon, and Complete Business Solutions, Inc.
("CBSI"), a corporation organized under the laws of the State of Michigan.
The Merger is structured as a statutory merger of Merger Sub with and
into Claremont, in which Claremont will be the surviving entity (Claremont,
following the Merger will be referred to as the "Surviving Corporation"), in
accordance with that certain Agreement and Plan of Merger by and among CBSI,
Merger Sub and Claremont, dated as of April 8, 1998, as amended on June 8,
1998, and the exhibits thereto (the "Agreement"). Except as otherwise
indicated herein, capitalized terms used in this opinion are defined in the
Agreement.
Our opinion has been requested in connection with the filing of a
Registration Statement with the Securities and Exchange Commission on
June 9, 1998 on Form S-4 (as thereafter amended at any time up to and
including the date hereof, the "Registration Statement"). We have functioned
solely as counsel to Claremont, and this opinion shall not be construed to
reflect or create an attorney client relationship between ourselves and either
CBSI or holders of CBSI stock or options to acquire shares of CBSI stock.
For purposes of rendering this opinion, we have examined and are
relying upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, representations
and warranties contained in the following documents:
<PAGE> 2
Claremont Technology Group Inc.
June 8, 1998
Page 2
1. The Agreement (including exhibits thereto);
2. A Certificate of Claremont, dated June 8, 1998, signed
by an authorized officer of Claremont and
delivered to us by Claremont and incorporated herein by
reference;
3. A Certificate of CBSI, dated June 8, 1998, signed by an
authorized officer of CBSI and delivered to us
by CBSI and incorporated herein by reference;
4. A Certificate of Merger Sub, dated June 8, 1998, signed
by an authorized officer of Merger Sub, and
delivered to us by Merger Sub and incorporated herein
by reference;
5. Such other instruments and documents related to the
formation, organization and operation of
Claremont, Merger Sub and CBSI or the consummation of
the Merger and the transactions contemplated thereby
as we have deemed necessary or appropriate.
In rendering this opinion, we have assumed or obtained representations
and are relying thereon (without any independent investigation or review
thereof) that:
1. Original documents (including signatures) are
authentic, documents submitted to us as copies
conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due
execution and delivery of all documents where due
execution and delivery are prerequisites to
effectiveness thereof;
2. Any representation or statement referred to above made
"to the best of knowledge" or otherwise
similarly qualified is correct without such
qualification;
3. The Merger will be effective under the applicable
states' laws;
<PAGE> 3
Claremont Technology Group Inc.
June 8, 1998
Page 3
4. The fair market value of the CBSI Common Stock and other
consideration to be received by each Claremont
shareholder in the Merger will be approximately equal
to the fair market value of Claremont Common Stock
surrendered in exchange therefor;
5. At the Effective Time of the Merger, Claremont will not
have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to
which any person could acquire Claremont Common Stock
that, if exercised or converted, would affect CBSI's
acquisition or retention of control of the Surviving
Corporation. For this purpose, "control" means the
direct ownership of stock possessing at least eighty
percent (80%) of the total combined voting power for
the election of directors of all classes of the
Surviving Corporation stock entitled to vote and at
least eighty percent (80%) of the total number of shares
of each nonvoting class of stock of the Surviving
Corporation;
6. Following the Merger of Merger Sub with and into
Claremont, the Surviving Corporation will hold at least
(a) ninety percent (90%) of the fair market value of the
net assets held by Claremont immediately prior to the
Merger, (b) seventy percent (70%) of the fair market
value of the gross assets held by Claremont immediately
prior to the Merger, (c) ninety percent (90%) of the
fair market value of the net assets held by Merger Sub
immediately prior to the Merger, and (d) seventy percent
(70%) of the fair market value of the gross assets held
by Merger Sub immediately prior to the Merger. For
purposes of this representation, the assets of Claremont
shall include assets disposed of by Claremont prior to
or subsequent to the Merger and in contemplation thereof
(including without limitation any asset disposed of by
Claremont, other than in the ordinary course of
business, pursuant to a plan or intent existing during
the period ending on the Effective Time and beginning
with the commencement of negotiations (whether formal or
informal) with CBSI regarding the Merger). For purposes
of this representation amounts paid by Claremont or
Merger Sub to shareholders who receive cash or other
property, amounts used by Claremont or Merger Sub to pay
Merger expenses, and all redemptions or distributions
(except for
<PAGE> 4
Claremont Technology Group Inc.
June 8, 1998
Page 4
regular, normal dividends) made by Claremont or
Merger Sub will be included as assets of Claremont or
Merger Sub, respectively, immediately prior to the
Merger;
7. Following the Merger, either CBSI or a corporation
controlled by CBSI will continue a historic
significant line of business of Claremont or use a
significant portion of Claremont's historic business
assets in a business. For this purpose, a "corporation
controlled by CBSI" means one or more chains of
corporations connected through stock ownership with
CBSI, but only if CBSI directly owns stock meeting the
requirements of Section 368(c) of the Internal Revenue
Code in at least one other corporation in the chain,
and stock meeting the requirements of Section 368(c) of
the Internal Revenue Code in each of the corporations
is owned directly by one of the other corporations in
the chain. The requirements of Section 368(c) of the
Internal Revenue Code will be satisfied if a
corporation owns stock possessing at least eighty
percent (80%) of the total combined voting power of all
classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of each
nonvoting class of stock of the corporation;
8. CBSI, Merger Sub, Claremont and the Claremont
shareholders will each pay their respective expenses,
if any, with respect to the Merger;
9. No outstanding indebtedness of Claremont has or
will represent equity for tax purposes; no
outstanding equity of Claremont has represented
indebtedness for tax purposes; no outstanding security,
instrument, agreement or arrangement that provides for,
contains, or represents a right to acquire Claremont
Common Stock (or to share in the appreciation thereof)
constitutes "stock" for purposes of Section 368(c) of
the Code;
10. CBSI has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or
into another corporation except CBSI; to sell or
otherwise dispose of the stock of the Surviving
Corporation; or to cause the Surviving Corporation to
sell or otherwise
<PAGE> 5
Claremont Technology Group Inc.
June 8, 1998
Page 5
dispose of any of its assets or of any of the assets
acquired from Merger Sub, except for (i) a sale of the
stock or assets of OpTex, Inc., (ii) dispositions made
in the ordinary course of business, or (iii) transfers
of assets to a corporation controlled by the Surviving
Corporation. For this purpose, a "corporation
controlled by the Surviving Corporation" is a
corporation in which the Surviving Corporation directly
owns stock possessing eighty percent (80%) of the total
combined voting power for the election of directors of
the corporation and at least eighty percent (80%) of
the total number of shares of each nonvoting class of
stock of the corporation;
11. Prior to the Merger, CBSI will be in control of Merger
Sub. For this purpose, "control" means the direct
ownership of stock possessing at least eighty percent
(80%) of the total combined voting power of all classes
of Merger Sub stock entitled to vote and at least
eighty percent (80%) of the total number of shares of
each nonvoting class of stock of Merger Sub;
12. Merger Sub has been formed solely in order to
consummate the transactions contemplated by the
Agreement, and Merger Sub has not conducted and will
not conduct any business activities or other operations
of any kind other than the issuance of its stock
to CBSI, prior to the Effective Time of the
Merger;
13. No Claremont shareholder is acting as an agent for CBSI
in connection with the Merger or approval thereof, and
CBSI will not reimburse any Claremont shareholder for
shares of Claremont Common Stock such shareholder may
have purchased or for other obligations such
shareholder may have incurred;
14. Any purchase of Claremont Common Stock by CBSI
stockholders, other than Doug Land, prior to
the Merger was made by such CBSI stockholders on their
own behalf and with their own funds and not as a
representative or agent of CBSI;
15. CBSI has no present plan or intention to cause the
Surviving Corporation to issue additional shares of
Surviving Corporation stock that
<PAGE> 6
Claremont Technology Group Inc.
June 8, 1998
Page 6
would result in CBSI losing control of the Surviving
Corporation. For this purpose, "control" means the
direct ownership of stock possessing at least eighty
percent (80%) of the total combined voting power for
the election of directors of all classes of stock of
the Surviving Corporation entitled to vote and at least
eighty percent (80%) of the total number of shares of
each nonvoting class of stock of the Surviving
Corporation;
16. Other than amounts paid in lieu of fractional shares,
the only consideration to be received, directly
or indirectly, by Claremont shareholders in the Merger
for their Claremont Common Stock is CBSI Common Stock.
CBSI has not agreed to assume, nor will it directly or
indirectly assume, any expense or liability, whether
contingent or fixed, of any holder of Claremont Common
Stock. CBSI has no present plan or intention to
contribute any additional capital to the Surviving
Corporation or to make any loans to the Surviving
Corporation for the purpose of directly or indirectly
paying any additional consideration to any holders of
Claremont Common Stock. None of the Claremont Common
Stock exchanged for CBSI Common Stock in the Merger
will be subject to any liabilities;
17. No part of the consideration to be exchanged for
Claremont Common Stock will be received by a
Claremont shareholder as a creditor, employee, or in
any capacity other than that of a Claremont
shareholder;
18. There is no intercorporate indebtedness existing
between CBSI and Claremont or between Merger Sub and
Claremont that was issued, acquired or will be settled
at a discount;
19. In the Merger, shares of Claremont Common Stock
representing control of Claremont will be exchanged
solely for voting stock of CBSI. For this purpose,
"control" means the direct ownership of stock
possessing at least eighty percent (80%) of the total
combined voting power for the election of directors of
all classes of Claremont Common Stock entitled to vote
and at least eighty percent (80%) of the total number of
shares of each nonvoting class of stock of Claremont.
Furthermore, it is assumed that shares of Claremont
Common Stock exchanged for cash or other property
<PAGE> 7
Claremont Technology Group Inc.
June 8, 1998
Page 7
originating with CBSI and shares of Claremont
Common Stock canceled and retired pursuant to the
Agreement will be treated as outstanding Claremont
Common Stock on the date of the Effective Time of the
Merger;
20. Claremont is not under the jurisdiction of the court
in a case under Title 11 of the United States Code, or
a receivership, foreclosure, or similar proceeding in
a federal or state court;
21. On the Effective Date of the Merger, the fair market
value of the assets of Claremont will exceed the sum
of its liabilities, plus the amount of liabilities, if
any, to which the assets of Claremont are subject;
22. Neither Claremont nor CBSI is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the
Internal Revenue Code;
23. Neither CBSI, nor a related party to CBSI, nor a
partnership of which CBSI is a partner has a present
plan or intention to reacquire any of the CBSI Common
Stock issued in the Merger to Claremont shareholders.
For this purpose, "related party" means (i) any
corporation that is a member of the same affiliated
group as CBSI as defined in Section 1504 of the
Internal Revenue Code (determined without regard to
Section 1504(b)), either before or after the
Merger, or (ii) any corporation in which CBSI owns,
directly or indirectly, at least fifty percent (50%) of
the total combined voting power of all classes of stock
entitled to vote, or at least fifty percent (50%) of
the total value of shares of all classes of stock,
either before or after the Merger;
24. In the Merger, the Claremont shareholders (other than a
related party to CBSI or a partnership of which CBSI is
a partner) will receive CBSI Common Stock with an
aggregate value, as of the date of the Merger, of not
less than fifty percent (50%) of the value of all the
formerly outstanding Claremont Common Stock as of the
same date. For this purpose, (i) it is assumed that
shares of Claremont Common Stock exchanged for cash or
other property and shares of Claremont Common Stock
canceled and retired pursuant to the Agreement will be
treated as
<PAGE> 8
Claremont Technology Group Inc.
June 8, 1998
Page 8
outstanding Claremont Common Stock on the date of the Merger,
and (ii) shares of CBSI Common Stock received by a Claremont
shareholder and subsequently sold, exchanged, or otherwise
transferred to a related party of CBSI or a partnership of which
CBSI is a partner will not be treated as received in the Merger
by such Claremont shareholder. For purposes of this
representation, "related party" means (i) any corporation that
is a member of the same affiliated group as CBSI as defined in
Section 1504 of the Internal Revenue Code (determined without
regard to Section 1504(b)), either before or after the Merger, or
(ii) any corporation in which CBSI owns, directly or indirectly,
at least fifty percent (50%) of the total combined voting power
of all classes of stock entitled to vote, or at least fifty
percent (50%) of the total value of shares of all classes of
stock, either before or after the Merger;
25. Neither Claremont, a related party to Claremont, a
partnership of which Claremont is a partner, nor a predecessor
of Claremont has redeemed or purchased any of Claremont's
outstanding Common Stock during the past five years. For this
purpose, "related party" means (i) any corporation that is a
member of the same affiliated group as Claremont as defined in
Section 1504 of the Internal Revenue Code (determined without
regard to Section 1504(b)), either before or after the Merger, or
(ii) any corporation in which Claremont owns, directly or
indirectly, at least fifty percent (50%) of the total combined
voting power of all classes of stock entitled to vote, or at
least fifty percent (50%) of the total value of shares of all
classes of stock, either before or after the Merger;
26. At all times during the five year period ending on the
Effective Time of the Merger, the fair market value of all of
Claremont's United States real property interests was and will
have been less than fifty percent (50%) of the total fair market
value of (a) its United States real property interests, (b) its
interests in real property located outside the United States,
plus (c) any other of its assets which are used or held for use
in a trade or business. United States real property interests
(other than an interest solely as a creditor) is real property
and associated personal property (such as movable walls and
furnishings) located in the United States or the
<PAGE> 9
Claremont Technology Group Inc.
June 8, 1998
Page 9
Virgin Islands and interests in any corporation
(other than a controlled corporation) owning any United
States real property interest. Claremont is treated as
owning its proportionate share (based on the relative
fair market value of its ownership interest to all
ownership interests) of the assets owned by and
controlled by any controlled corporation or any
partnership, trust, or estate in which Claremont is a
partner or beneficiary, and any such entity in turn is
treated as owning its proportionate share of the assets
owned by any controlled corporation or any partnership,
trust, or estate in which the entity is a partner or
beneficiary. As used in this paragraph, "controlled
corporation" means any corporation at least fifty
percent (50%) of the fair market value of the stock of
which is controlled by Claremont, in the case of a
first-tier subsidiary of Claremont, or by a controlled
corporation, in the case of a lower-tier subsidiary;
27. Any liabilities of Claremont in existence at the
Effective Time of the Merger and any
liabilities to which the assets of Claremont are
subject as of the Effective Time of the Merger were
incurred by Claremont in the ordinary course of
business;
28. Claremont has not made any extraordinary distributions
to its shareholders subsequent to the commencement of
negotiations with CBSI regarding the Merger or in
anticipation of the Merger;
29. Any payments of cash by CBSI to Claremont shareholders
in lieu of fractional shares of CBSI Common Stock will
be made by CBSI solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring
fractional shares, and is not separately bargained-for
consideration;
30. Neither CBSI, Merger Sub, nor any other wholly-owned
Subsidiary (as defined in Section 2.1(b) of the
Agreement) has sold, exchanged, or otherwise
transferred any Claremont stock subsequent to the
commencement of negotiations with Claremont regarding
the Merger or in anticipation of the Merger; and
<PAGE> 10
Claremont Technology Group Inc.
June 8, 1998
Page 10
31. No liabilities of Merger Sub will be assumed by
Claremont or the Surviving Corporation, and Merger Sub
will not transfer to Claremont or the Surviving
Corporation any assets subject to liabilities.
Based on the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth
herein, it is our opinion that, if the Merger is consummated in accordance with
the provisions of the Agreement and the exhibits thereto:
(1) the Merger of Merger Sub with and into Claremont, with
Claremont surviving the Merger, will qualify as a reorganization within the
meaning of Section 368(a) of the Code;
(2) each of CBSI, Merger Sub, and Claremont will be a party to
a reorganization within the meaning of Section 368(b) of the Code; and
(3) no gain or loss will be recognized by the Claremont
shareholders as a result of the Merger with respect to the shares of Claremont
Common Stock converted into shares of CBSI Common Stock (except to the extent
of cash received in lieu of fractional shares); however, no opinion is given as
to whether or not gain or loss will be recognized by any holders of Claremont
Common Stock that directly or indirectly acquire any of the stock or assets of
OpTex, Inc. from Claremont, CBSI, OpTex, Inc. or a related entity in
connection with the Merger, and such holders of Claremont Common Stock should
consult their own tax advisors regarding the tax consequences of the Merger.
Our opinions set forth above are based on the existing provisions of
the Code, Treasury Regulations (including Temporary and Proposed
Treasury Regulations) promulgated under the Code, published Revenue Rulings,
Revenue Procedures and other announcements of the Internal Revenue Service (the
"IRS") and existing court decisions, any of which could be changed at any time.
Any such changes might be retroactive with respect to transactions entered into
prior to the date of such changes and could significantly modify the tax
results described in the opinions set forth above. We undertake no
responsibility to advise you of any subsequent developments in the application,
operation or interpretation of the federal income tax laws.
Our opinion concerning certain of the federal income tax consequences
of the Merger is limited to the specific federal income tax consequences
presented above. No opinion is expressed as to any transaction other than the
Merger, including any transaction undertaken in connection with the Merger. In
addition, this opinion does not address any estate, gift, state, local or
foreign tax consequences that may result from the Merger. In particular, we
express no opinion regarding (1) the amount, existence, or availability after
the Merger, of any of the federal income tax attributes of Claremont, Merger
Sub or CBSI (including, without limitation, foreign tax credits or net operating
loss carryforwards, if any, of Claremont, Merger Sub, or CBSI);
<PAGE> 11
Claremont Technology Group Inc.
June 8, 1998
Page 11
(2) any transaction in which Claremont Common Stock is acquired or CBSI Common
Stock is disposed of, (3) the potential application of the "disqualifying
disposition" rules of Section 421 of the Code to dispositions of Claremont
Common Stock; (4) the effects of any Claremont Common Stock acquired by the
holder thereof in exchange for stock acquired subject to the provisions of
Section 83(a) of the Code; (5) the effects of the Merger on any payment that is
or may be subject to Section 280G of the Code; or (6) the effects of the Merger
on a holder of options to acquire Claremont Common Stock, whether vested or
nonvested, compensatory or noncompensatory, incentive stock options or
nonqualified stock options.
In addition to your request for our opinion on these specific matters
of federal income tax law, you have asked us to review the discussion of
federal income tax issues contained in the Registration Statement. We have
reviewed the discussion entitled "Certain United States Federal Income Tax
Consequences contained in the Registration Statement and believe that such
information fairly presents the current federal income tax law applicable to
the Merger, and the material federal income tax consequences to Claremont,
Merger Sub, CBSI, and Claremont shareholders as a consequence of the Merger.
No ruling has or will be requested from the IRS concerning the federal
income tax consequences of the Merger. In reviewing this opinion, you should be
aware that the opinions set forth above represent our conclusions regarding the
application of existing federal income tax law to the Merger. If the facts vary
from those relied upon (including if any representations, covenants, warranties
or assumptions upon which we have relied are inaccurate, incomplete, breached
or ineffective), our opinions contained herein could be inapplicable. You
should be aware that an opinion of counsel represents only the best legal
judgment of counsel, and has no binding official status of any kind, and that
no assurance can be given that contrary positions may not be taken by the IRS
or that a court considering the issues would not hold otherwise.
This opinion is being delivered solely for the purposes of (1) being
included as an exhibit to the Registration Statement and (2) satisfying the
conditions set forth in Section 7.3(c) of the Agreement; it may not be relied
upon or utilized for any other purpose or by any other person or entity, and
may not be made available to any other person or entity, without our prior
written consent. We do however, consent to (a) the use of this opinion to
satisfy the conditions set forth in Section 7.3(c) of the Agreement, (b) the
use of this opinion as an exhibit to the Registration Statement, (c) the
reliance upon this opinion by holders of Claremont Common Stock and holders of
options to acquire Claremont Common Stock, and (d) to the use of our name in
the
<PAGE> 12
Claremont Technology Group Inc.
June 8, 1998
Page 12
Registration Statement wherever it appears. In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
/s/ Scott E. Schickli
Scott E. Schickli
<PAGE> 1
EXHIBIT 23.1
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 ANDERSON LLP
ARTHUR ANDERSEN LLP
Detroit, Michigan
June 5, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report, and incorporation by reference,
in this registration statement of Complete Business Solutions, Inc. on Form S-4
of our report dated October 25, 1997, on our audits of the financial statements
of Synergy Software, Inc. as of December 31, 1996 and for the years ended
December 31, 1996 and 1995, which report is included in this registration
statement and incorporated by reference in the most recent Annual Report on Form
10-K of Complete Business Solutions, Inc. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
June 8, 1998
<PAGE> 1
EXHIBIT 23.3
DELOITTE & TOUCHE LOGO ---------------------------------------------
City Place
185 Asylum Street
Hartford, Connecticut 06103-3402
Telephone: (860)
280-3000
Facsimile: (860)
280-3051
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Complete Business
Solutions, Inc. on Form S-4 of our report dated February 9, 1998 on the balance
sheets of c.w. Costello & Associates, inc. as of December 31, 1997 and 1996 and
the related statements of operations, stockholders' equity and of cash flows for
each of the three years in the period ended December 31, 1997 appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE
June 5, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Claremont Technology Group, Inc.:
We consent to the use of our report incorporated herein and to the
reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
KPMG PEAT MARWICK LLP
Portland, Oregon
June 5, 1998
<PAGE> 1
EXHIBIT 23.7
DONALDSON, LUFKIN & JENRETTE LETTERHEAD
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated June 8,
1998, to the Board of Directors of Claremont Technology Group, Inc. (the
"Company") as Annex C to the Joint Proxy Statement/Prospectus relating to the
merger of the Company with a subsidiary of Complete Business Solutions, Inc.,
and (ii) all references to DLJ in the sections captioned Summary -- "Opinions of
Financial Advisors" and The Merger -- "Opinion of Claremont's Financial Advisor"
of the Joint Proxy Statement/Prospectus which forms a part of this Registration
Statement on Form S-4. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: PETER B. POND
--------------------------------------
New York, New York
June 8, 1998
<PAGE> 1
EXHIBIT 23.8
UBS Securities LLC
UBS LOGO
June 4, 1998
Board of Directors
Complete Business Solutions, Inc.
32605 W. Twelve Mile Road, Suite 250
Farmington Hills, MI 48334
CONSENT OF UBS SECURITIES LLC
We hereby consent to the inclusion of our opinion letter dated April 8,
1998 to the Board of Directors of Complete Business Solutions, Inc. as Annex B
to the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of CBSI Acquisition Corp.
III, a wholly-owned subsidiary of Complete Business Solutions, Inc. with and
into Claremont Technology Group, Inc. and to the references to such opinion in
the Joint Proxy Statement/Prospectus. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations issued by the Securities and Exchange Commission thereunder.
UBS Securities LLC
By: TOR BRAHAM, MANAGING DIRECTOR
<PAGE> 1
EXHIBIT 99.1
COMPLETE BUSINESS SOLUTIONS, INC.
P
R Special Meeting of Stockholders - July 22, 1998
O
X THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Y
The undersigned stockholder of Complete Business Solutions, Inc. does
hereby nominate, constitute and appoint Rajendra B. Vattikuti and
Timothy S. Manney or either of them, the true and lawful proxies, agents
and attorneys of the undersigned, with full power of substitution, to
vote for the undersigned all of the common stock of said corporation
standing in the name of the undersigned on its books at the close of
business on June 8, 1998 at the Special Meeting of Stockholders to be
held at 10:00 a.m. local time on Wednesday, July 22, 1998 at 150 West
Jefferson, Suite 900, Detroit, Michigan 48226 at 10:00 a.m., local time,
or any adjournment thereof, with all of the powers which would be
possessed by the undersigned if personally present as follows on the
reverse side.
CONTINUED AND TO BE SIGNED ON THE OTHER SIDE
<PAGE> 2
<TABLE>
<S><C>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR AGAINST ABSTAIN
1. To approve issuance of shares of CBSI's common stock, / / / / / / 3. To transact any other business that may
no par value, pursuant to an Agreement and Plan of properly come before the meeting or any
Merger, dated as of April 8, 1998, among CBSI, CBSI adjournment thereof.
Acquisition Corp. III, a wholly-owned subsidiary of
CBSI, and Claremont Technology Group, Inc.
2. To amend CBSI's Restated Articles of Incorporation to / / / / / /
increase the authorized shares of the CBSI's common
stock, no par value, from 30,000,000 to 200,000,000
shares.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT
OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND THE PROXY STATEMENT
FURNISHED THEREWITH.
PLEASE FILL IN DATE, SIGN AND MAIL THIS
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
Note: Please sign name exactly as your name
appears on the Stock Certificate. When
signing as attorney, executor, administrator,
trustee or guardian please give full title.
If more than one trustee, all should sign.
All joint owners must sign.
____________________________________________
TYPE OR PRINTED NAME(S) AND TITLE (IF
APPLICABLE)
____________________________________________
AUTHORIZED SIGNATURES DATE
</TABLE>
<PAGE> 1
EXHIBIT 99.2
CLAREMONT TECHNOLOGY GROUP, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Claremont Technology Group, Inc., an
Oregon corporation (the "Company"), hereby appoints Jerry L. Stone and Stephen
M. Carson, or either of them, with full power of substitution in each, as
proxies to cast all votes which the undersigned shareholder is entitled to cast
at the Special Meeting of Shareholders (the "Special Meeting") to be held at
10:00 a.m. local time, on Thursday, July 16, 1998 at 1600 N.W. Compton Drive,
Beaverton, Oregon 97006, and any adjournments or postponements thereof upon the
matters listed herein.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. UNLESS DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY
OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS. The undersigned hereby
acknowledges receipt of the Company's Proxy Statement and hereby revokes any
proxy or proxies previously given.
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 2
<TABLE>
<S><C>
Please mark /X/
your votes as
indicated in
this example
FOR AGAINST ABSTAIN
1. Approval and adoption of the Agreement and / / / / / / PLEASE SIGN, DATE AND RETURN THIS PROXY CARD
Plan of Merger, dated as of April 8, 1998, by TODAY, USING THE ENCLOSED ENVELOPE.
and among the Company, Complete Business Solutions,
Inc., a Michigan corporation ("CBSI"), and CBSI Please sign below exactly as your name
Acquisition Corp. III, an Oregon corporation and appears on this Proxy Card. If shares are
a wholly owned subsidiary of CBSI ("Merger Sub"), registered in more than one name, the
and approval of the merger of Merger Sub into the signatures of all such persons are required.
Company. A corporation should sign in its full
corporate name by a duly authorized officer,
2. In their discretion, the proxies are authorized to vote upon such other matters stating his/her title. Trustees, guardians,
as may properly come before the meeting or any adjournments or postponements executors and administrators should sign in
thereof. their official capacity, giving their full
title as such. If a partnership, please sign
in the partnership name by authorized
person(s).
If you receive more than one Proxy Card,
please sign and return all such cards in the
accompanying envelope.
TYPE OR PRINTED NAME(S) __________________________ AUTHORIZED SIGNATURE ___________________________
TITLE OR AUTHORITY, IF APPLICABLE ____________________________ DATE __________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- ------------------------------------------------------------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
</TABLE>
<PAGE> 1
EXHIBIT 99.3
Institution June 12, 1998
DRAFT
Dear
Since your organization is a substantial investor in the Common Stock of
Claremont Technology Group, Inc., I am enclosing with this letter a copy of the
proxy statement for the upcoming Special Meeting of Shareholders to be held on
July 16, 1998. Knowing that your shares are held through a custodian bank and
that the normal path of distribution of these items could result in some delay,
I thought you would appreciate receiving your personal copy of the materials at
the same time they are being sent to holders of record.
Any comments or questions you may have concerning the proposal described in the
proxy statement are welcome and I would very much appreciate the opportunity to
discuss them with you. Please feel free to call Elise Caffrey, VP of Investor
Relations at 888-543-9010 or me at (503) 748-8217.
On behalf of our Board of Directors and management of Claremont Technology
Group, Inc., thank you for your continued interest and support.
Sincerely,
Jerry Stone
Chairman of the Board
