<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
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Commission file number 0-25890
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CENTURY BUSINESS SERVICES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2769024
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
6480 Rockside Woods Boulevard South, Suite 330, Cleveland, Ohio 44131
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(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-447-9000
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Former Name, Former Address and Former Fiscal Year, if Changed since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class of Common Stock August 10, 1999
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Par value $.01 per share 84,985,265
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Exhibit Index is on page 15 of this report.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 5
Notes to the Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
Item 3. Quantitative and Qualitative Information about Market Risk 12
PART II . OTHER INFORMATION :
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 56,484 $ 43,103
Accounts receivable, less allowance for doubtful
accounts of $8,534 and $5,258 152,120 108,958
Investments available for sale, at fair value 396 328
Notes receivable - current 14,742 15,563
Other current assets 10,704 7,466
Net assets of discontinued operations 45,014 45,883
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Total current assets 279,460 221,301
Goodwill, net of accumulated amortization of 325,427 293,374
$ 9,835 and $5,838
Fixed assets, net of accumulated depreciation of
$16,411 and $13,715 40,340 28,427
Notes receivable - non-current 3,447 3,116
Other assets 9,435 6,939
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Total non-current assets 378,649 331,856
TOTAL ASSETS $ 658,109 $ 553,157
========= =========
LIABILITIES
Accounts payable $ 30,906 $ 36,520
Income taxes - current -- 3,345
Notes payable and capitalized leases - current 7,140 31,430
Accrued expenses and other liabilities 31,774 34,729
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Total current liabilities 69,820 106,024
Bank debt 88,000 44,000
Notes payable and capitalized leases - long term 3,309 5,700
Income taxes - deferred 4,076 3,312
Accrued expenses and other liabilities 23,823 239
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Total non-current liabilities 119,208 53,251
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TOTAL LIABILITIES 180,028 159,275
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STOCKHOLDERS' EQUITY
Common stock 803 748
Additional paid-in capital 380,428 331,408
Retained earnings 91,950 64,230
Unearned ESOP (1,794) (2,549)
Treasury stock (754) (74)
Accumulated other comprehensive income (loss) (1,552) 119
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TOTAL STOCKHOLDERS' EQUITY 469,081 393,882
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 658,109 $ 553,157
========= =========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
3
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 30, JUNE 30
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue $ 121,288 $ 72,209 $ 249,292 $ 141,934
Expenses:
Operating 92,323 56,689 187,825 111,763
Corporate general and administrative 3,180 1,071 6,556 2,606
Merger and acquisition 694 710 1,870 713
Depreciation and amortization 4,152 2,087 8,439 4,281
Interest expense (income), net 127 (84) 19 (186)
--------- --------- --------- ---------
Total expenses 100,476 60,473 204,709 119,177
Income from continuing operations before
income tax expense 20,812 11,736 44,583 22,757
Income tax expense 8,231 3,981 17,633 7,799
--------- --------- --------- ---------
Income from continuing operations 12,581 7,755 26,950 14,958
Income from discontinued operations, net of income
taxes 164 1,747 870 3,341
--------- --------- --------- ---------
Net income $ 12,745 $ 9,502 $ 27,820 $ 18,299
========= ========= ========= =========
Basic earnings per share:
Continuing operations $ 0.16 $ 0.13 $ 0.35 $ 0.27
Discontinued operations -- 0.03 0.01 0.06
--------- --------- --------- ---------
Net income $ 0.16 $ 0.16 $ 0.36 $ 0.33
========= ========= ========= =========
Diluted earnings per share:
Continuing operations $ 0.15 $ 0.10 $ 0.32 $ 0.21
Discontinued operations -- 0.03 0.01 0.05
--------- --------- --------- ---------
Net income $ 0.15 $ 0.13 $ 0.33 $ 0.26
========= ========= ========= =========
Pro forma income data from continuing operations:
Net income as reported $ 12,581 $ 7,755 $ 26,950 $ 14,958
Pro forma adjustment to provision for income taxes -- 436 133 872
--------- --------- --------- ---------
Pro forma net income $ 12,581 $ 7,319 $ 26,817 $ 14,086
========= ========= ========= =========
Pro forma earnings per share:
Basic $ 0.16 $ 0.13 $ 0.34 $ 0.25
========= ========= ========= =========
Diluted $ 0.15 $ 0.10 $ 0.32 $ 0.20
========= ========= ========= =========
Weighted average common shares 79,409 58,538 78,125 56,008
========= ========= ========= =========
Weighted average common shares and dilutive
potential common shares 85,970 74,215 84,711 71,507
========= ========= ========= =========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
4
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1999 1998
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<S> <C> <C>
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES $ 3,162 $ (378)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities -- (238)
Proceeds from (additions to) notes receivable (187) 560
Business acquisitions, net of cash acquired (15,591) (34,462)
Purchases of property and equipment (14,036) (5,482)
Proceeds from dispositions of property and equipment 56 395
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Net cash used in investing activities (29,758) (39,227)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank debt 72,000 59,500
Proceeds from notes payable and capitalized leases 3,664 479
Payment of bank debt (28,000) (34,200)
Payment of notes payable and capitalized leases (35,095) (12,013)
Proceeds from stock issuances, net 24,735 47,695
Proceeds from exercise of stock options and warrants, net 2,744 8,798
Pre-merger equity transactions (71) (1,450)
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Net cash provided by financing activities 39,977 68,809
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Net increase in cash and cash equivalents 13,381 29,204
Cash and cash equivalents at beginning of period 43,103 22,754
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Cash and cash equivalents at end of period $ 56,484 $ 51,958
======== ========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
5
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statements reflect all adjustments
(consisting of only normal and recurring adjustments) necessary to
present fairly the financial position of Century Business Services,
Inc. and Subsidiaries ("Century") as of June 30, 1999 and December 31,
1998, and the results of their operations for the three and six-month
periods ended June 30, 1999 and 1998, and cash flows for the six-month
periods ended June 30, 1999 and 1998. The results of operations for
such interim periods are not necessarily indicative of the results for
the full year. The accompanying unaudited condensed consolidated
interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
reporting and with instructions to Form 10-Q and accordingly do not
include all disclosures required by generally accepted accounting
principles. The 1998 condensed consolidated balance sheet was derived
from Century's audited consolidated balance sheet which has been
restated to include the results of acquisitions accounted for under the
pooling-of-interests method of accounting and gives effect to the
planned divestiture of its specialty insurance segment, which is being
accounted for as a discontinued operation. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Certain reclassifications have been made to the 1998
financial statements to conform to the 1999 presentation.
2. ACQUISITIONS
During the second quarter 1999, the Company continued its strategic
acquisition program, acquiring the businesses of seven complementary
companies. These acquisitions comprised of the following: two
accounting, tax, valuation and advisory firms, four benefits
administration and insurance firms, and one information technology
firm.
Five of the acquisitions were accounted for as purchases, and
accordingly, the operating results of the acquired companies have been
included in the accompanying condensed consolidated financial
statements since the dates of acquisition. The aggregate purchase price
of these acquisitions was approximately $9.6 million, comprised of $3.8
million in cash and 0.8 million shares of restricted common stock, fair
value of $5.8 million. The aggregate purchase prices exclude future
contingent consideration consisting of $1.6 million in cash and 0.4
million shares of restricted common stock, fair value of $3.1 million,
which is based on the acquired companies' ability to meet or exceed
certain performance goals. Goodwill is being amortized over periods not
exceeding forty years. As a result of the nature of the assets and
liabilities of the businesses acquired, there were no material
identifiable intangible assets. The aggregate purchase price, excluding
future contingent consideration, has been allocated to the net assets
of the companies acquired based upon their respective fair values.
Future contingent consideration is recorded when earned as additional
purchase price.
The unaudited pro forma information for the periods set forth below
give effect to 1999 acquisitions accounted for under the purchase
method of accounting as if they had occurred on January 1, 1999 and
January 1, 1998. The pro forma information is presented for
informational purposes only and is not necessarily indicative of the
results of operations that actually would have been achieved had these
transactions been consummated at the beginning of the periods presented
(in thousands, except per share data):
6
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
2. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Pro forma from continuing operations:
Revenue $ 123,426 $ 80,298 $ 257,518 $158,111
Net income $ 12,925 $ 9,142 $ 27,948 $ 17,733
Earnings per share
Basic
$ 0.16 $ 0.15 $ 0.35 $ 0.31
Diluted $ 0.15 $ 0.12 $ 0.33 $ 0.24
</TABLE>
Century exchanged approximately 1.4 million shares of its common stock
for all of the common stock of two acquisitions completed in the second
quarter, which were accounted for under the pooling-of-interests method
of accounting for business combinations. Accordingly, Century's
financial statements have been restated to include the results of the
pooled entities for all periods presented.
3. CONTINGENCIES
Century is involved in litigation, arising in the normal course of
business. While it cannot be predicted with certainty, management
believes that the outcome will not have a material adverse effect on
Century's financial condition or results of operations.
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", requires reporting the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the Balance Sheet.
Items considered other comprehensive income are the adjustments made
for unrealized holding gains and losses on available-for-sale
securities (primarily held by the discontinued operations) and foreign
currency translation adjustments. Comprehensive income for the three
months ended June 30, 1999 and 1998 was $11.4 million and $9.3
million. Comprehensive income for the six months ended June 30, 1999
and 1998 was $26.1 million and $17.6 million.
5. EARNINGS PER SHARE
For the periods presented, Century presents both basic and diluted
earnings per share. The following data shows the amounts (in thousands)
used in computing earnings per share and the effect on the weighted
average number of dilutive potential common shares. Included in
potential dilutive common shares are contingent shares, which represent
shares issued and placed in escrow that will not be released until
certain performance goals have been met.
7
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
5. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Denominator
Basic
Weighted average common shares 79,409 58,538 78,125 56,008
------ ------ ------ ------
Diluted
Warrants 6,020 15,362 6,032 15,181
Options 225 120 238 123
Contingent shares 316 195 316 195
====== ====== ====== ======
Total 85,970 74,215 84,711 71,507
====== ====== ====== ======
</TABLE>
6. DISCONTINUED OPERATIONS
In April 1999, Century adopted a formal plan to divest its risk-bearing
specialty insurance segment, which is no longer part of Century's
strategic long-term growth objectives. The risk-bearing specialty
insurance segment, which includes Century Surety Company, Evergreen
National Indemnity, and Continental Heritage Insurance Company, is
reported as a discontinued operation and its net assets and results of
operations are reported separately in the unaudited condensed
consolidated financial statements. Revenues from the discontinued
operations for the three-month periods ended June 30, 1999 and 1998
were $13.1 million and $13.4 million, respectively, and for the
six-month periods ended June 30, 1999 and 1998 were $24.7 million and
$26.0 million, respectively. The divestiture of the specialty insurance
segment is not expected to result in a loss, and the sale is expected
to be completed prior to December 31, 1999.
7. SUBSEQUENT EVENTS
Since June 30, 1999, Century completed the acquisition of five benefits
administration and insurance firms, and one accounting, tax, valuation
and advisory firm. The aggregate purchase price of these acquisitions
was approximately $14.0 million, comprised of $6.1 million in cash and
one million shares of restricted common stock, fair value of $7.9
million. The aggregate purchase prices exclude future contingent
consideration consisting of $1.4 million in cash and 0.3 million shares
of restricted common stock, fair value of $2.6 million, which is based
on the acquired companies' ability to meet or exceed certain
performance goals. All of the aforementioned acquisitions will be
accounted for under the purchase method of accounting.
8. SEGMENT REPORTING
Century adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in 1998. As previously reported,
Century's business units have been aggregated into two reportable
segments: specialty insurance and business services. The planned
divestiture of the specialty insurance segment has reduced the number
of segments to one, and therefore there is no segment information to
report.
8
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Century Business Services, Inc. ("Century") is a diversified services company
which, acting through its subsidiaires, provides professional outsourced
business services to small and medium-sized companies, as well as individuals,
government entities, and not-for-profit enterprises predominantly throughout the
United States. Century provides integrated services in the following areas:
accounting, tax, valuation, and advisory services; benefits services;
insurance services and human resources; performance consulting services; and
information technology and payroll services.
RESULTS OF OPERATIONS
Revenues
Business service fees and commissions increased to $121.3 million for
the three-month period ended June 30, 1999, from $72.2 million for the
comparable period in 1998, an increase of $49.1 million, or 68.0%. The $49.1
million increase was primarily attributable to (i) Century's acquisitions
completed subsequent to the second quarter of 1998 that were accounted for under
the purchase method of accounting, which increased total revenues in 1999 by
$38.8 million, and (ii) internal growth. For the companies with a full period of
operations for the three-month periods ended June 30, 1999 and 1998, Century
achieved an internal growth rate of 15.6%. For the six-month period ended June
30, 1999, revenues increased to $249.3 million from $141.9 million for the
comparable period in 1998, an increase of $107.4 million, or 75.7%. The $107.4
million increase was primarily attributable to (i) Century's acquisitions
completed subsequent to the second quarter of 1998 that were accounted for under
the purchase method of accounting, which increased total revenues in 1999 by
$80.3 million, and (ii) internal growth. For the companies with a full period of
operations in for the six-month periods ended June 30, 1999 and 1998, Century
achieved an internal growth rate of 14.6%.
Expenses
Total expenses increased to $100.5 million and $204.7 million for the
three and six-month periods ended June 30, 1999, from $60.5 million and $119.2
million for the comparable periods in 1998. Such increase was primarily
attributable to the increase in operating expenses, which reflects the impact of
Century's acquisitions made subsequent to the second quarter of 1998. As a
percentage of revenue, total expenses decreased to 82.8% and 82.1% for the three
and six-month periods ended June 30, 1999, from 83.7% and 84.0% for the three
and six-month periods ended June 30, 1998.
Operating expenses increased to $92.3 million and $187.8 million for
the three and six-month periods ended June 30, 1999, from $56.7 million and
$111.8 million for the comparable periods in 1998, primarily due to acquisitions
completed subsequent to the second quarter of 1998 that were accounted for under
the purchase method of accounting. As a percentage revenue, operating expenses
decreased to 76.1% and 75.3% for the three and six-month periods ended June 30,
1999, from 78.5% and 78.7% for the comparable periods. The primary components of
operating expenses are compensation expense and occupancy expense. Compensation
expense increased due to purchase acquisitions. Occupancy expense increased due
to additional expense from purchase acquisitions, but remained consistent as a
percentage of revenue from 4.5% and 4.3% for the three and six-month periods
ended June 30, 1999, to 4.3% and 3.8% for the comparable periods in 1998.
Corporate general and administrative expenses increased to $3.2 million
and $6.6 million for the three and six-month periods ended June 30, 1999, from
$1.1 million and $2.6 million for the comparable periods in 1998. Such increase
was attributable to the expansion of the corporate function to accommodate
Century's infrastructure, corporate initiatives, and integration costs.
Substantial costs associated with corporate initiatives were incurred in the
second quarter of 1999, which included certain costs associated with the
enterprise-wide solution to integrate back office operations. Corporate general
and administrative expenses represented 2.6% of total revenues for the three and
six-month periods ended June 30, 1999, up from 1.5% and 1.8% for the comparable
periods in 1998.
For the three-month periods ended June 30, 1999 and 1998, merger and
acquisitions costs remained consistent at $0.7 million. For the six-month
periods ended June 30, 1999 and 1998, merger and acquisition costs were $1.9
million and $0.7 million, respectively. Merger and acquisition costs are
comprised primarily of professional fees incurred in transactions accounted for
as pooling-of-interests and the salaries of employees dedicated to those merger
activities. The increase in merger and acquisitions costs for the six-month
period is due to the build out of the mergers and acquisitions department
throughout 1998 resulting in the full utilization of the department in 1999.
9
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Merger costs for the three-month period were consistent as the increase in
internal costs in 1999 to fully develop the merger and acquisition department
were offset by lower costs incurred from pooling-of-interests transactions in
1999. (There were two pooling transactions completed for the three-months ended
June 30, 1999, compared to five pooling transactions completed in the comparable
period in 1998.)
Depreciation and amortization expenses increased to $4.2 million and
$8.4 million for the three and six-month periods ended June 30, 1999, from $2.1
million and $4.3 million for the comparable periods in 1998. The increase is
primarily a result of the increase in goodwill amortization resulting from the
acquisitions completed by Century subsequent to the second quarter of 1998, as
well as additional depreciation expense associated with purchases. As a
percentage of total revenues, depreciation and amortization expense was 3.4% for
the three and six-month periods ended June 30, 1999, compared to 2.9% and 3.0%
for the comparable periods in 1998.
Century recorded income taxes from continuing operations of $8.2
million ($8.2 million on a pro forma basis) and $17.6 million ($17.8 million on
a pro forma basis) for the three and six-month periods ended June 30, 1999
compared to $4.0 million ($4.4 million on a pro forma basis) and $7.8 million
($8.7 million on a pro forma basis) for the comparable periods in 1998. The
effective tax rate increased to 39.5% (39.5% on a pro forma basis) and 39.6%
(39.8% on a pro forma basis) for the three and six-month periods ended June 30,
1999, from 33.9% (37.6% on a pro forma basis) and 34.3% (38.1% on a pro forma
basis) for the comparable periods in 1998. Income taxes are provided based on
Century's anticipated annual effective rate.
OTHER
Total assets increased to $658.1 million at June 30, 1999, from $553.2
million at December 31, 1998, primarily attributable to purchase acquisitions
completed in the first half of 1999. Total assets increased $104.9 million,
primarily due to increases in cash and cash equivalents of $13.4 million,
accounts receivable of $43.2 million, goodwill of $32.1 million and fixed assets
of $11.9 million. Total liabilities increased approximately $28.2 million,
primarily due to the increase in bank debt of $44.0 million, and an increase in
accrued expenses and other liabilities of $20.6 million, offset by the
decrease in notes payable and capitalized leases of $26.7 million, and the
decrease in accounts payable of $5.6 million. Total stockholders' equity
increased $75.2 million due to net income for the first half of 1999 of $27.8
million, proceeds from the investment of $25 million by an outside investor, the
proceeds from the exercise of options and warrants, and business acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 1999, cash and cash
equivalents increased $13.4 million to $56.5 million, from $43.1 million at
December 31, 1998, as cash provided by continuing operating activities of
$3.2 million and financing activities of $40.0 million exceeded cash used in
investing activities of $29.8 million. Cash and cash equivalents includes
$36.6 million of restricted cash at June 30, 1999. These funds are restricted
as to Century's use, and consist primarily of monies held as fiduciary funds.
Cash used in investing activities from continuing operations consisted
primarily of cash used in business acquisitions and purchases of property and
equipment. Significant purchases of property and equipment in the first half of
1999 are primarily attributable to the purchase of software from Oracle and
related capital costs incurred to implement the enterprise-wide solution to
integrate back office operations.
During the six months ended June 30, 1999, cash provided by financing
activities consisted primarily of proceeds of $27.5 million from stock issuances
and exercise of stock options and warrants, proceeds from the revolving credit
facility of $72.0 million, and repayment of bank debt, notes payable, and
capital leases. The primary source of cash from stock issuances resulted from
the $25.0 million investment in Century by an outside investor, in exchange for
1.8 million restricted shares of common stock and 900,000 warrants. Fifty
percent of the common stock is subject to a one-year lock-up restriction, while
the remaining common stock is subject to a two-year lock-up restriction, and the
warrants to purchase shares of common stock may be exercised under the following
terms: 300,000 shares at $20 per share for 3 years; 300,000 shares at $25 per
share for 4 years; and 300,000 shares at $30 per share for 5 years. The proceeds
from these financing activities were used for general corporate purposes,
working capital requirements, repayment of debt, and the cash portion of
business acquisitions.
During 1998, Century received net proceeds of $47.7 million from a
private placement of 3.8 million shares. Cash provided by financing activities
consisted primarily of net proceeds received from this private placement, which
together with warrants exercised, raised approximately $56.5 million during the
six months ended June 30, 1998.
10
<PAGE> 11
The proceeds from stock issuances, together with the proceeds from the revolving
credit facility of $59.5 million, were used for repayment of debt and notes
payable.
YEAR 2000
To minimize or eliminate the effect of the Y2K risk on our business
systems and applications, we are continually identifying, evaluating,
implementing and testing our computer systems, applications and software in
order to achieve Y2K compliance. Century implemented a Y2K Compliance Project in
March 1998 that has been adopted by all of our subsidiaries. As part of this
initiative, we have identified key contact individuals within each subsidiary to
identify, evaluate and implement a plan to bring all of our business systems and
applications into Y2K compliance by June 30, 1999. We have achieved this goal
with limited exceptions. These exceptions, such as telephone PBX replacements
and less-critical internal reporting systems, are largely an effort to maintain
an efficient schedule of deployment in conjunction with office consolidation
strategies.
Century's Y2K Compliance Project consists of four phases: (i) inventory
and assessment of all business systems and applications subject to Y2K risk;
(ii) identification of such business systems and applications to determine the
method of correcting any Y2K problems (ready now, repair, reconcile, replace or
retire); (iii) remediation and testing of all business systems and applications
that have Y2K problems; and (iv) implementation of corrective measures and
certification of Y2K compliance through internal and external audits. We have
completed the inventory and assessment phase and have identified and assessed
seven areas of risk: a) internally developed business applications; b) third
party vendor software, such as business applications, operating systems and
special function software; c) computer hardware components; d) networks and
network related equipment; e) telecommunications systems and associated
equipment, such as phones and PBX switches; f) Century's own products and
services that are software based; and g) embedded technology, such as microchips
and security systems. Although we cannot be certain, we believe substantially
that all our systems, applications and related software that are subject to Y2K
compliance risk have been identified and that actions were or are currently
being taken to complete the remediation on time. The initial implementation and
verification phase has been completed. Our planned schedule of inter-dependency
testing is on track to be completed in October. We also plan to continue
strategic testing and audit reviews throughout 1999 to ensure against
re-introducing potential exposures, to validate readiness of new acquisitions,
and to remain current with industry best practices.
We have sought compliance verification for 100% of vendor supported
technology inventoried, local public utilities and services, banking and
financial institutions, telecommunications services, property management
companies (where our facilities are leased), and other material third parties on
whom or on whose systems we rely. Significant business customers and clients are
presently being contacted for compliance status and to coordinate Y2K
contingency strategies. We received a written or verbal response on
approximately 75% of our requests from vendors, approximately 80% of which
stated they are Y2K compliant, and 20% of which stated that they had a plan for
compliance in place. None of the responses indicated that they had not yet
addressed the Y2K issue. Vendors that had not responded or did not provide
compliant upgrades or patches were removed from our configuration standards and
replaced by compliant systems or other vendors. Some property management
companies, however, have delayed in responding. In many cases, we have made four
written requests for compliance. We intend to continue requesting Y2K compliance
status responses from these property management companies.
We rely on third-party service providers for services such as
telecommunications, internet service and components for our business systems and
other key services. Interruption of those services due to Y2K issues could
affect our operations. Thus, we have initiated an evaluation of the status of
such third-party service providers' efforts to determine alternative and
contingency requirements. Development of a template for contingency planning was
completed and disseminated to the subsidiaries of Century in April 1999. The
subsidiaries and the corporate office have begun to consolidate contingency
plans and will continue to modify and enhance these plans as industry expertise
and situational conditions warrant. Century's Y2K Contingency Plan supplements
disaster recovery plans already in place. While approaches to reducing risks of
interruption of business operations vary by subsidiary, options in Century's Y2K
Contingency Plan include measures such as identification of alternative service
providers, new channels of distribution, and backup manual procedures.
We are continuing to review the potential overall impact of Y2K risks
on our business, financial condition and results of operations. To date, we have
not encountered any material Y2K problems with our computer systems, networks,
and other related equipment. We expect to incur $3 to $4 million in capital
expenditures in 1999 with respect to system upgrades and/or replacements, which
are designed in part to address specific Y2K requirements. One of the reasons
that the number of Y2K remediation has increased is due to our continued growth
through acquisitions. We do not expect expenditures after 1999 for Y2K
compliance to be significant.
We cannot assure you that our systems or the systems of other companies
on which our systems rely on or are interconnected will be timely installed or
converted. Major efforts are in place to ensure that our own systems, the
systems of our key partners and suppliers and our strategic customers are Y2K
compliant, along with the
11
<PAGE> 12
communication links between all of them. Although we are not certain of the
impact on us of the failure of our significant customers, partners, or vendors
to achieve Y2K compliance in a timely or effective manner, such failure could
adversely affect our business and results of operations.
FORWARD-LOOKING STATEMENTS
Statements included in the Form 10-Q, which are not historical in
nature, are forward-looking statements made under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward looking statements
are commonly identified by the use of such terms as "intends", "estimates",
"expects", "projects", "anticipates", "foreseeable future," "seeks", "believes",
and words and phrases of similar import. Such statements are subject to certain
risks, uncertainties or assumptions. Should one or more of these risks or
assumptions materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurance
that such assumptions will prove to be correct. Factors that could cause actual
results to differ materially from the Century's expectations ("Cautionary
Statements") include: (i) Century's ability to acquire and finance additional
businesses; (ii) Century's ability to adequately manage growth; (iii) Century's
dependence on the current trend of outsourcing business services; (iv) Century's
dependence on the services of key employees; (v) Century's ability to realize
the full value of goodwill; (vi) risk of professional errors and omissions;
(vii) the nature of the competitive and fragmented outsourcing industry; (viii)
year 2000 noncompliance may cause operational problems; (ix) market fluctuations
in the values or returns on assets in Century's investment portfolios; (x)
government regulations and interpretations are subject to changes; (xi)
Century's principal shareholders have substantial control over its operations;
(xii) shares eligible for future sale could adversely affect the price of
Century's common stock; (xiii) Century may not pay dividends; and (xiv)
Century's ability to manage risks associated with its discontinued specialty
insurance business, such as risk of inadequate insurance premiums,
underestimating reserves, and the risk that reinsurers may fail. All
forward-looking statements in this Form 10-Q are expressly qualified by the
Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company's exposure to market risk, including interest rate risk, is
immaterial. If market interest rates were to increase or decrease immediately
and uniformly by 100 basis points from the levels at June 30, 1999, in each case
the impact on the Company's financial condition and results of operations would
be immaterial. The Company does not engage in trading market risk sensitive
instruments and does not purchase hedging instruments or "other than trading"
instruments that are likely to expose the Company to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk.
The Company has not issued debt instruments, entered into forward or futures
contracts, purchased options or entered into swaps. The Company's primary market
risk exposure is that of interest rate risk. A change in the Federal Funds Rate,
or the Reference Rate set by the Bank of America (San Francisco), would affect
the rate at which the Company could borrow funds under its Credit Facility.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Issuance of unregistered shares during the three months ended June 30, 1999,
were as follows:
All transactions listed below involve the issuance of shares of Common Stock by
Century in reliance upon Section 4(2) of the Securities Act of 1933, as amended.
12
<PAGE> 13
On June 22, 1999, in connection with the acquisition of Wolf & Cohen, Inc.,
Century issued 105,846 shares of Common Stock in exchange for all the
outstanding shares of Wolf & Cohen, Inc.
On June 23, 1999, in connection with the acquisition of Sanderson, Thompson,
Ratledge & Zimny, P.A., Century issued 95,000 shares of Common Stock in exchange
for all the outstanding shares of Sanderson, Thompson, Ratledge & Zimny, P.A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on April 30, 1999, the
following matters were submitted to a vote of stockholders:
1) The election of the following individuals to the Board of
Directors to serve until the 2002 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Shares For Shares Withheld
---------- ---------------
<S> <C> <C>
Richard C. Rochon 47,084,220 187,426
Joseph D. DiMartino 47,133,471 138,175
</TABLE>
2) The approval of the appointment of KPMG LLP as independent accountants for
fiscal year 1999.
<TABLE>
<CAPTION>
Shares For Shares Against Shares Abstained
---------- -------------- ----------------
<S> <C> <C>
47,048,231 184,089 39,326
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.6 Employment Agreement
99.7 Amended and Restated 1996 Employee Stock Option
Plan
13
<PAGE> 14
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed
during the three months ended June 30, 1999:
(i) On April 9, 1999, the Company filed a Current
Report on Form 8-K, announcing its intention to
explore strategic alternatives for the
divestiture of its specialty insurance segment.
(ii) On April 22, 1999, the Company filed a Current
Report on Form 8-K, announcing the appointment
of Fred M. Winkler, former Chief Executive
Officer of First Union Corporation's Customer
Direct Access Division, to President and Chief
Operating Officer.
(iii) On June 22, 1999, the Company filed a Current
Report on Form 8-K, announcing the agreement to
a term sheet with Banc of America Securities,
LLC to arrange an increase in its revolving
credit facility from $100 million to $200
million, with an option for an additional $50
million. The Company also announced that it
filed an S-4 registration statement with the
Securities and Exchange Commission for 15
million new shares of its common stock for
suitable acquisitions.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century Business Services, Inc.
-------------------------------
(Registrant)
Date: August 13, 1999 By: /s/ Charles D. Hamm, Jr.
--------------- -------------------------------
Charles D. Hamm, Jr.
Chief Financial Officer
14
<PAGE> 15
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
------------------------------------------------
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number:
---------------
<C> <C>
27.1 Financial Data Schedule (SEC only)...................................16
99.6 Employment Agreement........................................17
99.7 Amended and Restated 1996 Employee Stock Option Plan........28
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 56,484
<SECURITIES> 397
<RECEIVABLES> 160,654
<ALLOWANCES> 8,534
<INVENTORY> 0
<CURRENT-ASSETS> 279,460
<PP&E> 56,751
<DEPRECIATION> 16,411
<TOTAL-ASSETS> 658,109
<CURRENT-LIABILITIES> 69,820
<BONDS> 0
0
0
<COMMON> 803
<OTHER-SE> 468,278
<TOTAL-LIABILITY-AND-EQUITY> 658,109
<SALES> 0
<TOTAL-REVENUES> 249,292
<CGS> 0
<TOTAL-COSTS> 187,825
<OTHER-EXPENSES> 16,865
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 44,583
<INCOME-TAX> 17,633
<INCOME-CONTINUING> 26,950
<DISCONTINUED> 870
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,820
<EPS-BASIC> .36
<EPS-DILUTED> .33
</TABLE>
<PAGE> 1
EXHIBIT 99.6
EMPLOYMENT AGREEMENT
This agreement (this "AGREEMENT") is made effective as of April 12,
1999, between Century Business Services, Inc., a Delaware corporation (the
"COMPANY"), and Fred M. Winkler ("EXECUTIVE").
PRELIMINARY STATEMENT
---------------------
The Company and Executive desire to enter into certain agreements
providing for Executive's employment with the Company and that Executive serve
in an executive capacity with the Company on the terms hereinafter set forth.
STATEMENT OF AGREEMENT
----------------------
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT. The Company agrees to employ Executive as described
below, and Executive accepts such employment for the period beginning as of the
date hereof and ending upon termination pursuant to PARAGRAPHS 1(d) OR 1(e)
hereof(the "EMPLOYMENT PERIOD").
(a) SERVICES. During the Employment Period, Executive will render such
services of an executive and administrative character to the Company and its
affiliates as the Board of Directors of the Company (the "BOARD") may from time
to time direct and will have the title and status of President and Chief
Operating Officer. Executive will also be elected to the Board of the Company
and be renominated for election as appropriate during the Employment Period.
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacity) to the business of the Company and its affiliates
and will faithfully and diligently carry out such duties and have such
responsibilities as are customary among persons employed in substantially
similar capacities for similar companies. Executive will report to the Chief
Executive Officer and shall faithfully and diligently comply with all of his
reasonable and lawful directives. For purposes of this Agreement, the term
"affiliates" means any corporation, limited partnership, limited liability
company or other entity engaged in the same business as the Company or a related
business, which is controlled by or under common control with the Company.
Executive's primary location for the performance of the services assigned to him
shall be the Company's corporate headquarters located in Cleveland, Ohio.
(b) SALARY. Executive's compensation shall be determined and payable as
follows:
(i) During the Employment Period and thereafter as provided in
paragraph 1(d) hereof, the Company will pay Executive a base salary at
the rate of not less than $340,000 per annum, as adjusted pursuant to
subparagraph (ii) below (or such higher amount as the Board may
establish from time to time). Executive's base salary for any partial
year will be prorated based upon the number of days elapsed in
Exhibit 99.6 Page 1 of 11
<PAGE> 2
EXHIBIT 99.6
such year and will be payable in accordance with the Company's
customary payroll practices.
(ii) (A) commencing January 1, 2000, and on January 1 of each
subsequent year as long as Executive remains an employee of the Company
(each such January 1 being herein referred to as an "ADJUSTMENT DATE"),
the base salary of Executive shall be adjusted to reflect increases in
the Consumer Price Index for all urban consumers in the regional area
including the Cleveland-Akron-Lorain, Ohio region (1982-84 = 100),
published by the Bureau of Labor Statistics, United States Department
of Labor (the "INDEX"). On each Adjustment Date, his base salary shall
be increased by multiplying his base salary for the fiscal year
preceding the Adjustment Date (computed on an annualized basis), by a
fraction, the numerator of which shall be the Index most recently
published prior to the Adjustment Date then at hand and the denominator
of which shall be the Index of the immediately preceding Adjustment
Date (or in the case of the First Adjustment Date occurring hereunder,
the denominator shall be the most recently published Index as of the
last day of the month immediately preceding the effective date hereof
(the "BASE INDEX"). The result of such multiplications shall constitute
Executive's base salary, as adjusted, commencing on the Adjustment Date
then at hand and continuing until the next Adjustment Date.
(B) If (1) the Index ceases using the 1982-84 average of 100
as the basis of calculation, (2) a significant change is made in the
number or nature (or both) of items used in determining the Index, (3)
the parties agree that the Index does not accurately reflect, in
relationship to the Base Index, the purchasing power of the dollar, or
(4) the Index is discontinued for any reason, then the Company, in its
discretion, shall adopt a substitute Index or procedure which
reasonably reflects and monitors the salaries of urban consumers in the
region that includes Cleveland, Ohio.
(c) BENEFITS. In addition to the compensation described above in this
PARAGRAPH 1, Executive will be entitled during the Employment Period to the
following benefits:
(i) such health insurance and other benefits as are available
from time to time to the Company's key executive employees generally;
(ii) vacation, sick leave and personal time in accordance with
the Company's vacation and absence policies as in effect from time to
time for the Company's Key executive employees, provided that
Executive shall have no less than three (3) weeks vacation each year,
with salary;
(iii) reimbursement, upon submission of documentation in
accordance with the Company's regular expense policies, for reasonable
business expenses incurred on the Company's behalf by Executive;
Exhibit 99.6 Page 2 of 11
<PAGE> 3
EXHIBIT 99.6
(iv) participation in any savings plan or 401(k) plan as is
available from time to time to the Company's salaried employees
generally;
(v) participation in the Company's 1996 Employee Stock Option
Plan, as amended, with eligibility for annual grants of options
beginning January 1,2000, with terms and amounts determined by the
Compensation Committee of the Board consistent with those granted to
the Company's other key executive employees; and
(vi) such additional benefits as are set forth on EXHIBIT A
attached hereto.
(d) TERMINATION. Executive's employment with the Company will continue
until terminated by Executive's death, disability, which cannot be reasonably
accommodated, or termination of Executive's employment pursuant to any of the
following provisions:
(i) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
at any time terminate Executive's employment without Cause (as defined
below) by giving Executive notice of the effective date of termination
(which effective date may be the date of such notice). In the event of
such termination, each of the following shall occur: (A) the Company
shall make payments of base salary in accordance with PARAGRAPH 1(b)
above at the rate in effect at the effective date of such termination
for a period of twenty-four (24) months following the effective date of
such termination; (B) the Company shall make available to Executive its
medical plan, at a cost to the Executive equal to the Company's cost to
obtain such medical plan, until the earlier of Executive's death or
attainment of age 65; and (C) vesting with regard to the stock options
granted pursuant to PARAGRAPH 1(c)(v) and described in EXHIBIT A shall
be accelerated such that for purposes of determining the number of
options exercisable as of the termination date, two additional years
shall be considered to have passed ((A), (B) and (C) collectively
referred to herein as the "SEVERANCE PACKAGE"); PROVIDED, HOWEVER that
in the event that Executive breaches any of the representations,
warranties and covenants set forth in PARAGRAPHS 2, 3 and 5 below, the
Company will have no further obligation to make payments of the base
salary or provide medical coverage at cost as described above, and may
pursue all other available remedies.
For purposes of this PARAGRAPH 1 (d)(i), Executive shall be
deemed to have been terminated without Cause upon the occurrence of all
of the following conditions:
(x) Michael G. DeGroote is no longer the Chief
Executive Officer of the Company, whether through resignation
or removal;
(y) Michael G. DeGroote no longer beneficially owns
(as defined for purposes of Rules 13(d) and 13(g) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) 10% or more of the voting stock of the Company; and
Exhibit 99.6 Page 3 of 11
<PAGE> 4
EXHIBIT 99.6
(z) any person or entity beneficially owns (as
defined for purposes of Rules 13(d) and 13(g) of the Exchange
Act) 10% or more of the voting stock of the Company.
(ii) TERMINATION BY THE COMPANY FOR CAUSE. The Company shall
have the right to terminate Executive's employment at any time for any
of the following reasons (each of which is referred to herein as
"CAUSE") by giving Executive written notice of the effective date of
termination (which effective date may be the date of such notice):
(A) the willful breach of any provision of paragraphs 1(a), 2,
3, 4 or 5 (including but not limited to a refusal to follow reasonable
and lawful directives of the Board); provided, however, that to the
extent that such breach is curable, the Board will give Executive
written notice of such breach and Executive will have 15 days from the
receipt of such notice to cure such breach;
(B) any act of fraud or dishonesty with respect to any aspect
of the Company's or any affiliate's business;
(C) continued use of illegal drugs;
(D) as a result of Executive's gross negligence or willful
misconduct, Executive shall violate, or cause the Company to violate,
any applicable federal or state securities or banking law or regulation
and as a result of such violation, shall become, or shall cause the
Company or any affiliate to become the subject of any legal action or
administrative proceeding seeking an injunction from further violations
or a suspension of any right or privilege;
(E) as a result of Executive's gross negligence or willful
misconduct, Executive shall commit any act that causes, or shall
knowingly fail to take reasonable and appropriate action to prevent,
any material injury to the financial condition or business reputation
of the Company or any affiliate;
(F) substantial failure of performance, repeated or continued
after written notice of such failure and explanation of such failure of
performance, which is reasonably determined by the Board to be
materially injurious to the business or interests of the Company or any
affiliate; or
(G) conviction of a felony or of a crime involving moral
turpitude.
If the Company terminates Executive's employment for any of
the reasons set forth above in this paragraph 1 (d)(ii), the Company
shall have no further obligations hereunder from and after the
effective date of termination and shall have all other rights and
remedies available under this or any other agreement and at law or in
equity.
Exhibit 99.6 Page 4 of 11
<PAGE> 5
EXHIBIT 99.6
(e) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive's
employment with the Company is terminated by Executive, the Company shall have
no further obligations hereunder from and after the date of such termination.
Notwithstanding the foregoing, if Executive terminates his employment for Good
Reason, such termination shall be deemed to be a termination without Cause. For
purposes of this Agreement, the term "Good Reason" shall mean: within sixty (60)
days of and in connection with or based upon (A) a material breach by the
Company of any material provision of this Agreement, (B) a material decrease in
Executive's base salary, (C) a material decrease in Executive's employee
benefits which is materially different from such decreases which are applicable
to senior management personnel taken as a whole, (D) an overall substantial and
material reduction in the nature or scope of Executive's duties and
responsibilities, (E) the permanent non-voluntary relocation of Executive's work
place for the Company to a location more than 50 miles from Executive's current
principal place of performance of services for the Company, or (F) the
assignment to Executive of duties and responsibilities that are materially
inconsistent with the position referred to in PARAGRAPH 1 (a); provided,
however, that, prior to Executive's termination of employment for Good Reason,
Executive must give written notice to the Company of any such breach, reduction
or assignment and such breach, reduction or assignment remains uncorrected for
thirty (30) days following such written notice.
2. NONDISCLOSURE. Executive acknowledges that during the course of his
performance of services for the Company he will acquire technical knowledge with
respect to the Company's business operations, including, by way of illustration,
the Company's investment plans or strategies, trade secrets, customer lists,
customer or consultant contracts and the details thereof, pricing policies,
operational methods, marketing and merchandising plans or strategies, business
acquisition plans, personnel acquisition plans, and all other information
pertaining to the business of the Company or any affiliate that is not publicly
available (all of such information herein referred to as the "CONFIDENTIAL
INFORMATION"); provided, however that the term "CONFIDENFIAL INFORMATION" shall
not include (a) any information which is or becomes publicly available otherwise
than through breach of this Agreement or (b) any information which is or becomes
known or available to Executive on a non-confidential basis and not in
contravention of applicable law from a source which is entided to disclose such
information to Executive. Executive agrees that he will not, while he is
employed by the Company, divulge to any person, directly or indirectly, except
to the Company or its officers and agents or as reasonably required in
connection with his duties on behalf of the Company, or use, except on behalf of
the Company, any Confidential Information acquired by Executive during the term
of his employment. Executive agrees that he will not, at any time after his
employment with the Company has ended, divulge to any person directly or
indirectly any Confidential Information nor use the Confidential Information in
any way detrimental to the Company. Executive further agrees that if his
relationship with the Company is terminated (for whatever reason) he shall not
take with him but will leave with the Company all records, papers and computer
software and data and any copies thereof relating to the Confidential
Information (or if such papers, records, computer software and data or copies
are not on the premises of the Company, Executive agrees to return such papers,
records and computer software and data immediately upon his termination).
Executive acknowledges that all such papers, records, computer software and data
or copies thereof are and remain the property of the Company.
Exhibit 99.6 Page 5 of 11
<PAGE> 6
EXHIBIT 99.6
3. INVENTIONS AND PATENTS. Executive agrees that all inventions,
innovations or improvements relating to the Company's business or method of
conducting business (including new contributions, improvements, ideas and
discoveries, whether patentable or not) conceived or made by him during his
employment with the Company belong to the Company. Executive will promptly
disclose such inventions, innovations or improvements to the Board and perform
all actions reasonably requested by the Board to establish and confirm such
ownership.
4. OTHER BUSINESSES. During the Employment Period, Executive agrees
that he will not, directly or indirectly except with the express written consent
of the Board, become engaged in, render services for, or permit his name to be
used in connection with, or directly or indirectly counsel or consult with, any
business other than the business of the Company and its affiliates; provided
that Executive may (a) serve as trustee or on the board of directors, or in
other similar capacities, for charitable organizations or trusts in which
Executive has no pecuniary interest, and (b) engage in activities related to
Executive's personal passive investments, in all such cases so long as such
activities do not materially impact Executive's ability to perform his
obligations and duties under this Agreement or result in a breach of PARAGRAPHS
2 or 5.
5. NONCOMPETITION. Executive agrees that:
(a) During the term he performs services for the Company and for a
period of two (2) years after the termination thereof(for whatever reason), he
will not interfere with the relationship of the Company and any employee, agent
or representative.
(b) During the term he performs services for the Company and for a
period of two (2) years after the termination thereof (for whatever reason), he
will not directly or indirectly interfere with the relationships of the Company
with customers, dealers, distributors, vendors or sources of supply.
(c) A. (i) Executive further agrees that during the term he performs
services for the Company and, if Executive terminates this Agreement pursuant to
paragraph 1(e), for a period of two (2) years after the termination thereof, he
will not directly or indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation or control of, any business or enterprise which provides outsourced
business services to small and medium sized businesses, including but not
limited to services in the following areas: accounting Systems, advisory and
tax; employee benefits design and administration; human resources; information
technology systems; payroll; specialty insurance; valuation; and workers'
compensation (the "BUSINESS") within the United States/a thirty-mile radius of
the city limits of the cities in which the Company or any affiliate of the
Company conducts the Business, or for which the Company had, prior to the
termination of Executive's employment, developed a written business plan to
conduct the Business.
(ii) If the Company actively engages in any other business (in addition
to or in lieu of the Business), Executive further agrees that during the term he
performs services for the Company and, if Executive terminates this Agreement
pursuant to PARAGRAPH 1(e), for a period of two (2) years after the termination
thereof, he will not directly or indirectly own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the ownership,
Exhibit 99.6 Page 6 of 11
<PAGE> 7
EXHIBIT 99.6
management, operation or control of, any business or enterprise which competes
with such other business within the United States/a thirty-mile radius of the
city limits of the cities in which the Company or any affiliate of the Company
conducts the Business, or for which the Company had, prior to the termination of
Executive's employment, developed a written business plan to conduct the
Business.
B. (i) Executive further agrees that, in the event Executive's
employment is terminated other than pursuant to PARAGRAPH 1(e), for a period of
two (2) years after the termination of his employment he will not directly or
indirectly own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation or control of,
any business or enterprise which is in the Business within the United States/a
thirty-mile radius of the city limits of the cities in which the company or any
affiliate of the Company conducts the Business, or for which the Company had,
prior to the termination of Executive's employment, developed a written business
plan to conduct the Business, unless Executive first provides (x) written notice
to the Company of his intent to do so and (y) an opportunity for the Company to
either continue paying Executive base salary in accordance with PARAGRAPH 1(b)
at the rate in effect at the effective time of his termination for the remainder
of such two (2) year period or to waive the Company's rights pursuant to this
PARAGRAPH 5(c). The Company shall have seven (7) business days following receipt
of such notice to make such election.
(ii) If the Company actively engages in any other business (in addition
to or in lieu of the Business), Executive further agrees that, in the event
Executive's employment is terminated other than pursuant to PARAGRAPH 1(e), for
a period of two (2) years after the termination thereof, he will not directly or
indirectly own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation or control of,
any business or enterprise which competes with such other business within the
United States/a thirty-mile radius of the city limits of the cities in which the
Company or any affiliate of the Company conducts the Business, or for which the
Company had, prior to the termination of Executive's employment, developed a
written business plan to conduct the Business, unless Executive first provides
(x) written notice to the Company of his intent to do so and (y) an opportunity
for the Company to either continue paying Executive base salary in accordance
with PARAGRAPH 1(b) at the rate in effect at the effective time of his
termination for the remainder of such two (2) year period or to waive the
Company's rights pursuant to this PARAGRAPH 5(c). The Company shall have seven
(7) business days following receipt of such notice to make such election.
C. For purposes of this PARAGRAPH 5(c), the reference to business or
enterprise in lines 5 of PARAGRAPH (c)(A)(i), and line 6 of PARAGRAPH
(c)(A)(ii), line 5 of PARAGRAPH (c)(B)(i) and line 6 of PARAGRAPH (c)(B)(ii)
shall mean the specific business unit in which Executive is employed or
otherwise affiliated.
(d) After discussing the matter with Executive, the Company shall have the
right, subject to applicable law, to inform any other third party that the
Company reasonably believes to be, or to be contemplating, participating with
Executive or receiving from Executive assistance in violation of this Agreement,
of the terms of this Agreement and of the rights of the Company hereunder, and
that participation by any such third party with Executive in activities in
violation of this PARAGRAPH 5 may give rise to claims by the Company against
such third party.
Exhibit 99.6 Page 7 of 11
<PAGE> 8
EXHIBIT 99.6
6. TERMINATION OF AGREEMENT. This Agreement shall terminate on the fifth
anniversary of the date hereof, unless extended by mutual consent.
7. GENERAL PROVISIONS.
(a) NOTICES. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, or mailed by first class mail (postage
prepaid and return receipt requested) or sent by reputable overnight courier
service, to the recipient at the address below indicated:
To the Company:
Century Business Services, Inc.
6480 Rockside Woods Boulevard South, Suite 330
Cleveland, Ohio 44131
Telephone: 216-447-9000
Attn: Michael G. DeGroote
Barbara A. Rutigliano, Esq.
Telecopy: (216)447-9007
To Executive:
At Executive's last known
address as listed with
the Company
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or if mailed, five days after so mailed.
(b) SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein except that
any court having jurisdiction shall have the power to reduce the duration, area
or scope of such invalid, illegal or unenforceable provision and, in its reduced
form, it shall be enforceable.
(c) COMPLETE AGREEMENT. This Agreement embodies the complete agreement and
understanding between the parties and supersedes and preempts any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way. Any
employment, benefit or bonus arrangements or agreements between the Company and
Executive that existed at any time prior to the execution and
Exhibit 99.6 Page 8 of 11
<PAGE> 9
EXHIBIT 99.6
delivery of this Agreement are hereby terminated by Executive; provided,
however, that Executive shall remain liable for any breach of such arrangements
or agreements occurring during the term of such arrangement or agreement. From
and after the date of this Agreement, Executive shall not be entitled to any
compensation from the Company on account of any such arrangement or agreement.
(d) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to
the benefit of and be enforceable by Executive, his heirs and the Company,
except that Executive may not assign (other than by operation of law, will, or
the laws of descent) any of his rights or obligations under this Agreement. The
Company may assign its rights under this Agreement, as security, to any lender
to the Company, and in the event of a sale of the stock, or substantially all of
the stock, of the Company, or consolidation or merger of the Company into
another corporation or entity, or the sale of substantially all of the operating
assets of the Company to another corporation, entity or individual, the Company
may assign its rights and obligations under this Agreement to its
successor-in-interest, in which event such successor-in-interest shall be deemed
to have acquired all rights and assumed all obligations of the Company
hereunder.
(e) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND THE
NOT THE LAW OF CONFLICTS, OF THE STATE OF OHIO.
(f) REMEDIES. Each of the parties to this Agreement will be entitled to
enforce his or its rights under this Agreement specifically, to recover damages
(including, without limitation, reasonable fees and expenses of counsel) by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in his or its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach or
threatened breach of the provisions of this Agreement and that any party may in
his or its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement. Such
injunction or decree shall be available without the posting of any bond or other
security.
(g) AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended
or waived only with the prior written consent of (i) Executive and (ii) the
Chief Executive Officer of the Company or a majority of the Board.
(h) ABSENCE OF CONFLICTING AGREEMENTS. Executive hereby warrants and
covenants that his employment by the Company does not result in a breach of the
terms, conditions or provisions of any agreement to which Executive is subject.
(i) SURVIVAL. No termination of Executive's employment by either or both
parties shall reduce or terminate Executive's covenants and agreements in
paragraphs 2, 3 and 5.
[SIGNATURE PAGE FOLLOWS]
Exhibit 99.6 Page 9 of 11
<PAGE> 10
EXHIBIT 99.6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered effective as of the day and year first above written.
CENTURY BUSINESS SERVICES, INC.
By: /s/ Michael G. DeGroote
-----------------------
Michael G. DeGroote
Chief Executive Officer and
Chairman of the Board
EXECUTIVE
/s/ Fred Winkler
----------------
Name: Fred Winkler
Title: President & Chief Operating Officer
Address: 822 Summer Bay Dr.
St. Augustine, FL 32084
Exhibit 99.6 Page 10 of 11
<PAGE> 11
EXHIBIT 99.6
EXHIBIT A
ADDITIONAL BENEFITS
-------------------
1. The Company will provide a vehicle for use by Executive.
2. The Company will pay membership expenses for Executive and Executive's
spouse at a country club or fitness club to be agreed upon by the parties.
3. Upon the effective date of this Agreement, Executive shall be granted
options to purchase 200,000 shares of the Company's common stock at a price
of $11.875 per share (the closing sale price on April 14, 1999). Such
options shall be issued pursuant to the Company's 1996 Employee Stock
Option Plan, as amended, and an Option Agreement to be entered into between
the Company and Executive pursuant thereto. Such options shall vest
according to the following schedule:
- Options to purchase 50,000 shares of the Company's common stock
shall not be subject to vesting and shall be immediately
exercisable upon grant; and
- Options to purchase 30,000 shares of the Company's common stock
shall vest on January 1 of each of 2000, 2001, 2002, 2003 and
2004.
Exhibit 99.6 Page 11 of 11
<PAGE> 1
EXHIBIT 99.7
CENTURY BUSINESS SERVICES, INC.
AMENDED AND RESTATED
1996 EMPLOYEE STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. This 1996 Employee Stock Option Plan (the
"Plan") is to benefit Century Business Services, Inc. fka International Alliance
Services, Inc., a Delaware corporation and its subsidiaries (collectively, the
"Company"), through the maintenance and development of their respective
businesses by offering certain present and future key employees and officers,
non-employee directors and independent contractors providing services to the
Company, a favorable opportunity to become holders of stock in the Company over
a period of years, thereby giving them a permanent stake in the growth and
prosperity of the Company and encouraging the continuance of their involvement
with the Company.
2. ELIGIBILITY. Options shall be granted only to key employees,
including officers and independent contractors or consultants and non-employee
directors performing services for the Company (the "Employees") selected from
time to time by the Committee (or, in the case of awards to non-employee
directors, the Board of Directors (the "Board")) on the basis of their
importance to the business of the Company (collectively, the "Participants"or
"Optionees").
3. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee"), consisting of two or more persons appointed by the Board who are
both outside directors (as defined under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code")) and non-employee directors within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934
Act"). The Committee's interpretation of the terms and provisions of the Plan
shall be final and conclusive. The selection of Employees, for participation in
the Plan and all decisions concerning the terms, timing, pricing and amount of
any grant or award to Employees under the Plan shall be made solely by the
Committee. The selection, terms, timing, pricing and amount of any grant or
award to non-employee directors, including members of the Committee, shall be
made solely by the Board.
4. GRANTING OF OPTIONS. Options under which a total of not in excess of
7,000,000 shares of the $.01 par value common stock of the Company ("Common
Stock") may be purchased from the Company, subject to adjustment as provided in
Section 10. In the event that an option expires or is terminated, canceled or
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock. Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any Optionee any right to be
Exhibit 99.7 Page 1 of 6
<PAGE> 2
EXHIBIT 99.7
continued in the employment of the Company or as a director or consultant to the
Company, or interfere in any way with the right of the Company to terminate his
employment or consulting relationship at any time.
5. OPTION PRICE. The option price shall be determined by the Committee
(or, in the case of awards to non-employee directors, the Board) at the time the
option is granted and, subject to the provisions of Section 10 hereof, shall be
not less than the fair market value at the time the option is granted of the
shares of Common Stock subject to the Option. The date of grant shall be the
date of the Committee or Board action, unless a subsequent date is specified by
the Committee.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such term of not more
than six years, as shall be determined by the Committee (or, in the case of
awards to non-employee directors, the Board) at the time the option is granted,
which termination date shall be set forth in the Option Agreement. Each option
shall vest and become exercisable with respect to 20% of the total number of
shares subject to the option on the first anniversary of its grant and with
respect to each additional 20% at the end of each of the succeeding four such
anniversary dates. Notwithstanding the foregoing, the Committee (or, in the case
of awards to non-employee directors, the Board) may in its discretion: (i)
specifically provide for another time or times of exercise at the time the
option is granted; (ii) accelerate the exerciseability of any option subject to
such terms and conditions as the Committee (or, in the case of awards to
non-employee directors, the Board) deems necessary and appropriate; or (iii) at
any time prior to the expiration or termination of any option previously
granted, extend the term of any option (including such options held by officers)
for such additional period as the Committee (or, in the case of awards to
non-employee directors, the Board) in its discretion shall determine. In no
event, however, shall the aggregate option period with respect to any option,
including the original term of the option and any extensions thereof, exceed six
years. Subject to the foregoing, all or any part of the shares to which the
right to purchase has vested may be purchased at the time of such vesting or at
any time or times thereafter during the option period. Without limiting the
foregoing, the Committee (or, in the case of awards to non-employee directors,
the Board), subject to the terms and conditions of the Plan, may in its sole
discretion, provide that an option may be exercised immediately upon grant or
that it may not be exercised in whole or in part for any period or periods of
time during which such option is outstanding; provided, however, that any
vesting requirement or other such limitation on the exercise of an option may be
rescinded, modified or waived by the Committee (or, in the case of awards to
non-employee directors, the Board), in its sole discretion, at any time and from
time to time after the date of grant of such option, so as to accelerate the
time at which the option may be exercised.
7. EXERCISE OF OPTION. As a condition to the exercise of any option,
the "Quoted Price" (as defined below) per share of Common Stock on the date of
exercise must be equal to or exceed the option price referred to in Section 5
hereof. An option may be exercised by giving written notice to the Company,
attention of the Secretary, in the form of an Exercise Notice, specifying the
number
Exhibit 99.7 Page 2 of 6
<PAGE> 3
EXHIBIT 99.7
of shares to be purchased, accompanied by the full purchase price for the shares
to be purchased either: (i) in cash; (ii) by check; (iii) if so approved by the
Committee, by a promissory note in a form specified by the Company and payable
to the Company no later than fifteen business days after the date of exercise of
the option; (iv) if so approved by the Committee, by shares of the Common Stock
of the Company; or (v) by a combination of these methods of payment. The "Quoted
Price" and the per share value of Common Stock for purposes of paying the option
price in accordance with the immediately preceding sentence shall equal the
closing selling price per share of Common Stock on the date in question on the
Nasdaq Stock Market or the principal stock exchange upon which the Company's
Common Stock is listed (the "Exchange"). The right to pay the purchase price of
shares by delivery of a promissory note shall not be available to any Optionee
who is a person described in Section 16(a) of the 1934 Act.
At the time of the exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the Optionee (or his
heirs, legatees, or legal representatives, as the case may be) as a condition
upon the exercise thereof, to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the Optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
At the time of the exercise of any option the Committee may require, as
a condition of the exercise of such option, the Optionee to: (i) pay the Company
an amount equal to the amount of tax the Company may be required to withhold for
federal income tax purposes as a result of the exercise of such option by the
Optionee; (ii) make such other arrangements with the Company which would enable
the Company to pay such withholding tax, including, without limitation, holding
back a number of shares issuable upon exercise of the option equal to the amount
of such withholding tax, or permitting the Optionee to deliver a promissory note
in a form specified by the Committee or withhold taxes from other compensation
payable to the Optionee by the Company; or (iii) a combination of the foregoing.
8. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. Except as otherwise
specifically provided in any Option Agreement evidencing an option granted
hereunder (or an amendment thereto), in the event the relationship between the
Company and an Optionee is
Exhibit 99.7 Page 3 of 6
<PAGE> 4
EXHIBIT 99.7
terminated for any reason other than death, permanent disability, voluntary
termination or willful misconduct, gross negligence or other termination for
cause, such Optionee's unvested options shall immediately terminate and the
Optionee's vested options shall thereafter expire and all rights to purchase
shares pursuant thereto shall terminate three (3) months following the date of
termination of the relationship, but in no event after the expiration date of
the option. Temporary absence from employment or as a consultant because of
illness, vacation, approved leaves of absence, and transfers of employment among
the Company and its subsidiaries, shall not be considered to terminate
employment or consulting relationship or to interrupt continuous employment or
consulting relationship. Notwithstanding the foregoing provisions of this
Section 8, the Committee, in its sole discretion, may provide that following the
termination of employment or service of an Optionee with the Company absent
cause (such as in the case of a sale or transfer of a unit or division of the
Company or the spin-off of a corporation of the Company), such Optionee may
exercise an option, in whole or in part, at any time subsequent to such
termination of employment or service and prior to expiration of the option
pursuant to its original terms (as specified in the Option Agreement setting
forth the terms of such option grant) either subject to or without regard to any
vesting or other limitations on exercise. The Committee shall be specifically
empowered to extend the term of an option (but not beyond six years from the
date of grant thereof) and modify the vesting provisions of the option in the
event the corporation or unit or division for whom the Optionee provides
services is sold or otherwise transferred such that it is no longer a part of
the Company.
In the event of termination of said relationship because of death or
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), the option may be exercised in
full, without regard to any installments established under Section 6 hereof, by
the Optionee or, if he is not living, by his heirs, legatees or legal
representative (as the case may be) during its specified term prior to three
years after the date of death, permanent disability or retirement, or such
longer period as the Committee may prescribe, but in no event after the
expiration date of the option.
If the employment or rendering of services to the Company, of a
Participant to whom an option shall have been granted under this Plan
terminates: (i) for any reason prior to the vesting of such option; (ii) as a
result of such person's willful misconduct, gross negligence, or any other
termination for cause; or (iii) as a result of the voluntary termination of
employment or service by the Participant, then anything to the contrary herein
notwithstanding, all such unvested options or portions of options held by such
Participant shall terminate on the date notice is given either to or from the
Company of termination of employment by or service to the Company; provided,
however, that in the event of a termination under clause (iii) above, the
Committee may, but shall not be required to, allow the Participant to exercise
the Option (to the extent exercisable on the date of termination) at any time
within three (3) months after the date of termination (but not beyond the
original term of the Option). All factual determinations with respect to the
termination of a
Exhibit 99.7 Page 4 of 6
<PAGE> 5
EXHIBIT 99.7
Participant's employment by, or rendering of services to, the Company that may
be relevant under this Section 8 shall be made by the Committee in its sole
discretion.
9. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
options shall be exercisable only by the Optionee, and options shall not be
assignable or transferable by the Optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by the Code, or Title I of the Employee Retirement Income Security
Act of 1974, as amended, or the rules thereunder.
10. ADJUSTMENT. The number of shares available under the Plan and
available for grant to any Employee shall be adjusted as follows: (a) in the
event that the number of outstanding shares of Common Stock of the Company is
changed by any stock dividend, stock split or combination of shares, the number
of shares subject to the Plan and to options granted hereunder shall be
proportionately adjusted; (b) in the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
may be substituted, on an equitable basis as determined by the Committee in its
sole discretion, for each share of Common Stock then subject to the Plan,
whether or not at the time subject to outstanding options, the number and kind
of shares of stock or other securities to which the holders of shares of Common
Stock of the Company will be entitled pursuant to the transaction, if any; and
(c) in the event of any other relevant change in the capitalization of the
Company, the Committee may provide for such adjustment in the number of shares
of Common Stock then subject to the Plan as the Committee shall in its sole
discretion determine, whether or not then subject to outstanding options. In the
event of any such adjustment, the purchase price per share shall be
proportionately adjusted.
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any
option granted pursuant to the Plan shall confer upon any Optionee any right to
be continued in the employment of the Company or to be continued as a director
or consultant to the Company or interfere in any way with the right of the
Company to terminate such employment or consulting relationship and/or to remove
any Optionee who is a director from service on the Board at any time in
accordance with the provisions of applicable law.
12. AMENDMENT OF PLAN. The Board may amend or discontinue the Plan at
any time. However, no such amendments or discontinuance shall be made without
the requisite stockholder approval of the stockholders of the Company if
stockholder approval is required as a condition to the Plan continuing to comply
with the provisions of Rule 16b-3 or Section 162(m) of the Code. No amendment to
the Plan or any Option shall impair the rights of any outstanding Option holder,
without such holder's consent.
Exhibit 99.7 Page 5 of 6
<PAGE> 6
EXHIBIT 99.7
13. GOVERNANCE. The Plan is intended to comply with the provisions of
Rule 16b-3 promulgated under the 1934 Act. The Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
Exhibit 99.7 Page 6 of 6
