SEC Filing | CBIZ, Inc.

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------- 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 September 30, 2000 ----------------------------------- 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 ------------------- ------------------- Commission file number 0-25890 ------------------ CENTURY BUSINESS SERVICES, INC. ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 22-2769024 - --------------------------------------------- ----------------------------- (State or Other Jurisdiction of Incorporation (I.R.S. Employer or Organization) Identification No.) 6480 Rockside Woods Boulevard South, Suite 330, Cleveland, Ohio 44131 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (Registrant's Telephone Number, Including Area Code) 216-447-9000 -------------------------- - -------------------------------------------------------------------------------- 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 October 31, 2000 --------------------- ---------------- Par value $.01 per share 95,479,629 ---------- Exhibit Index is on page 16 of this report. 1

2 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 5 Notes to the Condensed Consolidated Financial Statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 Item 3. Quantitative and Qualitative Information about Market Risk 14 PART II OTHER INFORMATION : Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 15 Signature 15 Exhibit Index 16 2

3 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) SEPTEMBER 30, 2000 DECEMBER 31, (Unaudited) 1999 ----------- ------------ ASSETS Cash and cash equivalents $ 39,051 $ 48,906 Restricted cash 17,567 17,246 Receivables, net of allowance of $14,549 and $13,272 205,541 188,359 Notes receivable - current 2,850 3,209 Income taxes recoverable 6,506 14,835 Deferred income taxes 7,212 9,912 Other current assets 11,966 13,001 Net assets of discontinued operations 28,000 36,813 --------- --------- Total current assets 318,693 332,281 Goodwill, net of accumulated amortization of $32,506 and $18,527 366,692 379,922 Fixed assets, net of accumulated depreciation and amortization of $31,079 and $21,792 63,857 56,148 Notes receivable - non-current 5,946 4,856 Other assets 17,425 14,136 --------- --------- TOTAL ASSETS $ 772,613 $ 787,343 ========= ========= LIABILITIES Accounts payable $ 41,237 $ 41,228 Notes payable and capitalized leases - current 5,242 6,534 Accrued expenses 38,573 50,833 --------- --------- Total current liabilities 85,052 98,595 Bank debt 145,000 144,000 Notes payable and capitalized leases - long term 2,137 1,345 Deferred income taxes 11,085 11,968 Accrued expenses 16,238 18,303 --------- --------- TOTAL LIABILITIES 259,512 274,211 --------- --------- STOCKHOLDERS' EQUITY Common stock 936 933 Additional paid-in capital 439,339 443,052 Retained earnings 75,207 74,170 Unearned ESOP (1,795) (1,795) Treasury stock (754) (754) Accumulated other comprehensive income (loss) 168 (2,474) --------- --------- TOTAL STOCKHOLDERS' EQUITY 513,101 513,132 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 772,613 $ 787,343 ========= ========= See the accompanying notes to the condensed consolidated financial statements. 3

4 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 --------- --------- --------- --------- Revenue $ 139,434 138,119 $ 459,818 408,743 Expenses: Operating 120,166 106,414 375,331 312,460 Corporate general and administrative 4,512 3,101 18,099 8,841 Merger-related - 2,595 - 5,280 Depreciation and amortization 11,201 4,857 32,431 13,487 Interest expense 3,102 1,691 9,294 4,460 Other income, net (666) (1,281) (2,795) (3,989) --------- --------- --------- --------- Total expenses 138,315 117,377 432,360 340,539 Income from continuing operations before income tax expense 1,119 20,742 27,458 68,204 Income tax expense 2,538 7,661 17,024 25,460 --------- --------- --------- --------- Net income (loss) from continuing operations (1,419) 13,081 10,434 42,744 Income (loss) from operations of discontinued business, net of tax 546 (1,417) (1,214) (548) Gain (loss) on disposal of discontinued business, net of tax 238 - (8,183) - --------- --------- --------- --------- Net income (loss) $ (635) $ 11,664 $ 1,037 $ 42,196 ========= ========= ========= ========= Earnings (loss) per share: Basic: Continuing operations $ (0.02) $ 0.15 $ 0.11 $ 0.51 Discontinued operations 0.01 (0.02) (0.10) (0.01) --------- --------- --------- --------- Net income $ (0.01) $ 0.13 $ 0.01 $ 0.50 ========= ========= ========= ========= Diluted: Continuing operations $ (0.02) $ 0.14 $ 0.11 $ 0.47 Discontinued operations 0.01 (0.02) (0.10) (0.01) --------- --------- --------- --------- Net income (loss) $ (0.01) $ 0.12 $ 0.01 $ 0.46 ========= ========= ========= ========= Pro forma income data (from continuing operations): Net income as reported $ (1,419) $ 13,081 $ 10,434 $ 42,744 Pro forma adjustment to provision for income taxes - 389 - 1,762 --------- --------- --------- --------- Pro forma net income (loss) $ (1,419) $ 12,692 $ 10,434 $ 40,982 ========= ========= ========= ========= Pro forma earnings per share: Basic $ (0.02) $ 0.15 $ 0.11 $ 0.48 ========= ========= ========= ========= Diluted $ (0.02) $ 0.14 $ 0.11 $ 0.45 ========= ========= ========= ========= Basic weighted average shares outstanding 93,645 87,014 93,615 84,557 ========= ========= ========= ========= Diluted weighted average shares outstanding 94,345 94,011 94,577 91,249 ========= ========= ========= ========= See the accompanying notes to the condensed consolidated financial statements. 4

5 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 2000 1999 --------- --------- NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES $ 18,425 $ (4,047) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from (additions to) notes receivable (731) 926 Business acquisitions, net of cash acquired (5,090) (31,009) Purchases of property and equipment (18,317) (27,614) Proceeds from dispositions of property and equipment 711 337 --------- --------- Net cash used in investing activities (23,427) (57,360) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank debt 87,500 197,000 Payment of bank debt (86,500) (126,000) Proceeds from notes payable 3,349 12,933 Payment of notes payable and capitalized leases (9,326) (53,169) Proceeds from stock issuances, net 17 24,572 Proceeds from exercise of stock options and warrants, net 107 9,479 Pre-merger equity transactions - (2,363) --------- --------- Net cash provided by (used in) financing activities (4,853) 62,452 --------- --------- Net increase (decrease) in cash and cash equivalents (9,855) 1,045 Cash and cash equivalents at beginning of period 48,906 43,593 --------- --------- Cash and cash equivalents at end of period $ 39,051 $ 44,638 ========= ========= See the accompanying notes to the condensed consolidated financial statements. 5

6 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 September 30, 2000 and December 31, 1999, and the results of their operations for the three and nine-month periods ended September 30, 2000 and 1999, and cash flows for the nine-month periods ended September 30, 2000 and 1999. 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 1999 condensed consolidated balance sheet was derived from Century's audited consolidated balance sheet included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 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 1999 financial statements to conform to the 2000 presentation. Operating revenues are seasonal in nature with peak revenues occurring in the months of January through April. Thus, the three-month results are not indicative of results to be expected for the year. 2. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents consist of funds held on deposit and short-term highly liquid investments with a maturity of three months or less at the date of purchase. At various times during the year, Century had deposits with financial institutions in excess of the $100,000 federally insured limit. Restricted cash represents funds on deposit from clients for which the Company is administering and settling claims. A related liability for these funds is recorded in accrued expenses in the balance sheet. 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 of such litigation will not have a material adverse effect on Century's financial condition, results of operations or cash flows. See "Part II - Other Information, Item 1. Legal Proceedings" for additional information. 4. COMPREHENSIVE INCOME 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 (loss) for the three months ended September 30, 2000 and 1999, was ($0.6 million) and $11.3 million, respectively. Comprehensive income for the nine months ended September 30, 2000 and 1999, was $3.7 million and $40.2 million, respectively. 6

7 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (continued) 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 or exceeded. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------ ------ ------ ------ Denominator Basic Weighted average common shares 93,645 87,014 93,615 84,557 ------ ------ ------ ------ Diluted Warrants - 6,359 - 6,164 Options 43 397 305 287 Contingent shares 657 241 657 241 ------ ------ ------ ------ Total 94,345 94,011 94,577 91,249 ====== ====== ====== ====== 6. CONSOLIDATION AND INTEGRATION CHARGES Consolidation and integration reserve balances as of December 31, 1999, activity during the nine-month period ended September 30, 2000, and the remaining reserve balances as of September 30, 2000, were as follows (in thousands): Lease Consolidation Severance & (1) Benefits (2) ------- ------- Reserve balance at December 31, 1999 $ 9,400 4,150 Amounts adjusted (5,901) (2,445) Amounts charged to income 7 3,579 Amounts utilized (56) (2,733) ------- ------- Reserve balance at September 30, 2000 $ 3,450 2,551 ======= ======= (1) Amounts designated as "adjusted" and "charged to income" are included in operating expense in the accompanying condensed consolidated statement of operations for the nine-month period ended September 30, 2000. (2) Amounts designated as "adjusted" of ($2.4 million) are included in corporate general and administrative expense in the accompanying condensed consolidated statement of operations for the nine-month period ended September 30, 2000. Included in the $3.6 million designated as "amounts charged to income" are $3.0 million and $0.6 million, which are reported in corporate general and administrative expense and operating expense, respectively, in the accompanying condensed consolidated statement of operations for the same period. During the fourth quarter of fiscal 1999, Century's Board of Directors approved a plan to consolidate several operations in multi-office markets and integrate certain back-office functions into a shared-services center. The plan included the consolidation of at least 60 office locations, the elimination of more than 200 positions (including Corporate), and the divestiture of four small, non-core businesses. Pursuant to the plan, Century recorded a consolidation and integration pre-tax charge of $27.4 million, which included $4.8 million for severance and $9.4 million for obligations under various noncancellable leases that were committed to prior to plan approval, for which no economic benefit to Century would be subsequently realized. 7

8 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued) 6. CONSOLIDATION AND INTEGRATION CHARGES (continued) As a result of executive management changes (including the replacement of Century's President and Chief Operating Officer) and certain strategic changes in the first quarter of fiscal 2000, Century revisited the extent of its planned integration and consolidation initiatives and extended the timing of certain office consolidations beyond one year. Century's Board of Directors approved the revision to the plan on March 31, 2000. Accordingly, Century reduced approximately $4.4 million of accruals originally provided for in the plan related to the aforementioned noncancellable lease obligations. During the third quarter of 2000, Century reduced the lease accrual by $1.5 million for the planned consolidation in the Philadelphia market place that has been postponed. The consolidation of offices in Atlanta, Dallas, and Orlando were completed during the third quarter, with the remaining planned consolidations in progress. Severance amounts of $1.1 million were reversed during the third quarter, representing several business managers originally accrued for in the plan, which were either not terminated or did not receive a severance package. At the same time, the Company incurred $1.1 million of expense for several employees that were not accrued for under the original plan. For the three-months ended September 30, 2000, Century recorded on a pre-tax basis net severance expense of $0.1 million, net credits of $1.5 million related to lease expense, and $0.1 million for other consolidation related charges. For the nine-months ended September 30, 2000, Century recorded on a pre-tax basis net severance expense of $1.7 million, net credits of $5.7 million related to lease expense, $1.5 million for other consolidation related charges, and $1.0 million related to the write-down on the divestiture of four non-core businesses. At September 30, 2000, Century had a $3.5 million reserve for lease consolidation obligations, and a $2.6 million reserve for severance and benefits, designated to cover 112 employees. 7. 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 Company, 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. On June 26, 2000, Century entered into a binding agreement for the sale of its risk-bearing specialty insurance segment, as well as American Inspection and Audit Services, Inc. and CSC Insurance Agency, Inc. (collectively, the Divested Entities) with Avalon National Corporation (ANC), subject to regulatory approval. ANC assigned its rights under the purchase agreement to ProFinance Holdings Corporation (which is a consortium of financial entities) and certain members of the risk-bearing division's management. On October 5, 2000, Century completed the sale of the Divested Entities for $28.0 million. Revenues from the discontinued operations for the three-month periods ended September 30, 2000 and 1999 were $12.0 million and $12.4 million, respectively, and $34.0 million and $37.1 million for the nine-month periods ended September 30, 2000 and 1999, respectively. 8

9 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (continued) 8. SEGMENT REPORTING On July 3, 2000, Century approved a plan to operate under a regional structure rather than by service line. Regional Directors were appointed to the following regions: Northeast, Great Lakes, Southeast, Midwest, Rocky Mountain, and Western. In addition to the six regions, certain business units will report under the National Practices group, as these units have a national platform to provide services to customers. Century has decided to manage the business by region effective July 3, 2000, although that the financial reports will not be fully functional to report by location until January 1, 2001. Therefore, the segment disclosures below depict the business by service lines, as previously reported. Century's business units have been aggregated into four reportable segments: business solutions; benefits and insurance; performance consulting and technology solutions services. Segment information for the three and nine-month periods ended September 30, 2000 and 1999 is as follows: For the Three Months Ended September 30, 2000 ---------------------------------------------------------------------------------------------- Business Benefits & Perform. Technology Corporate Solutions Insurance Consult. Solutions and Other Total ---------- ------------- ----------- ------------- ----------- ------------- Revenue 79,991 44,930 4,013 10,500 - 139,434 Operating income (1) 7,080 10,531 697 720 240 19,268 Corporate gen. and admin. (1) - - - - 4,512 4,512 Depreciation and amortization 1,679 960 45 138 8,379 11,201 Interest expense 47 48 - 6 3,001 3,102 Other expense (income), net (263) (1,249) (7) 254 599 (666) Pre-tax income (loss) 5,617 10,772 659 322 (16,251) 1,119 For the Three Months Ended September 30, 1999 ---------------------------------------------------------------------------------------------- Business Benefits & Perform. Technology Corporate Solutions Insurance Consult. Solutions and Other Total ---------- ------------- ----------- ------------- ----------- ------------- Revenue 78,591 42,120 5,863 11,545 - 138,119 Operating income 16,224 11,245 2,551 1,559 126 31,705 Corporate gen. and admin. - - - - 3,101 3,101 Merger-related - - - - 2,595 2,595 Depreciation and amortization 1,443 813 31 101 2,469 4,857 Interest expense 75 103 - 37 1,476 1,691 Other expense (income), net (1,058) 212 (20) (57) (358) (1,281) Pre-tax income (loss) 15,764 10,117 2,540 1,478 (9,157) 20,742 For the Nine Months Ended September 30, 2000 ---------------------------------------------------------------------------------------------- Business Benefits & Perform. Technology Corporate Solutions Insurance Consult. Solutions and Other Total ---------- ------------- ----------- ------------- ----------- ------------- Revenue 274,837 139,041 13,750 32,190 - 459,818 Operating income (1) 52,833 29,087 3,226 202 (861) 84,487 Corporate gen. and admin. (1) - - - - 18,099 18,099 Depreciation and amortization 4,984 2,302 122 382 24,641 32,431 Interest expense 374 178 8 8 8,726 9,294 Other income, net (780) (2,232) (21) (271) 509 (2,795) Pre-tax income (loss) 48,255 28,839 3,117 83 (52,836) 27,458 For the Nine Months Ended September 30, 1999 ---------------------------------------------------------------------------------------------- Business Benefits & Perform. Technology Corporate Solutions Insurance Consult. Solutions and Other Total ---------- ------------- ----------- ------------- ----------- ------------- Revenue 240,920 121,462 14,708 31,653 - 408,743 Operating income 61,197 29,887 6,193 1,997 (2,991) 96,283 Corporate gen. and admin. - - - - 8,841 8,841 Merger-related - - - - 5,280 5,280 Depreciation and amortization 3,860 2,245 85 270 7,027 13,487 Interest expense 208 481 - 184 3,587 4,460 Other income, net (1,750) (901) (23) (213) (1,102) (3,989) Pre-tax income (loss) 58,879 28,062 6,131 1,756 (26,624) 68,204 (1) Includes consolidation and integration charges (credits) as discussed in Footnote 6 to the condensed consolidated financial statements. 9

10 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (continued) 9. NEW ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued SAB No. 101A that delayed the implementation date of SAB 101. In June 2000, the SEC issued SAB 101B that further delayed the implementation date of SAB No. 101. Century must adopt SAB 101 no later than the fourth quarter of 2000. Century is currently evaluating the impact of adopting these statements on its financial position and operating results. The effect of the change, if any, would be recognized as a cumulative effect of a change in accounting principle as of January 1, 2000. Prior year financial statements will not be restated. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including some derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Company will adopt SFAS 133 in 2001, in accordance with SFAS 137, which deferred the effective date of SFAS 133. The adoption of this standard in 2001 is not expected to have a material impact on Century's consolidated financial statements. 10. SUBSEQUENT EVENTS On October 5, 2000, Century completed the sale of its risk-bearing insurance segment. See Footnote 7, "Discontinued Operations", for additional information. On November 1, 2000, the Company completed the asset sale of its franchise operation of Century Small Business Solutions, Inc, to Fiducial Triple Check Inc., for approximately $5.4 million in cash, resulting in an estimated pretax loss of approximately $3.4 million. The sale transaction does not include the eight CBIZ-owned franchisee offices. Net proceeds from the sale will be used for debt reduction. 10

11 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 and tax; employee benefits; wealth management; property and casualty insurance; payroll; information systems consulting and human resource consulting. Century also provides valuation; litigation advisory; performance consulting; government relations; commercial real estate; wholesale insurance; healthcare consulting; medical practice management; worksite marketing; and capital advisory services. RESULTS OF OPERATIONS - --------------------- Revenue Revenue increased to $139.4 million for the three-month period ended September 30, 2000, from $138.1 million for the comparable period in 1999, an increase of $1.3 million, or 1.0%. Such increase was primarily attributable to Century's acquisitions completed subsequent to the second quarter of 1999 that were accounted for under the purchase method of accounting, offset by a decline in revenue on a same-store sales basis. Revenue increased to $459.8 million for the nine-month period ended September 30, 2000, from $408.7 million for the comparable period in 1999, an increase of $51.1 million, or 12.5%. Such increase was primarily attributable to Century's acquisitions completed subsequent to 1999 that were accounted for under the purchase method of accounting, which accounted for $33.3 million of such increase, and internal growth. For the companies with a full period of operations for the three-month period ended September 30, 2000 and 1999, revenue declined 1.5%, primarily due to revenue shortfalls in certain business units, including the performance consulting, valuation, and capital management business lines. For the companies with a full period of operations for the nine-month period ended September 30, 2000 and 1999, Century achieved an internal growth rate of 4.7%. The internal growth rate calculation includes all acquisitions accounted for as pooling-of-interests. Expenses Total expenses increased to $138.3 million for the three-month period ended September 30 2000, from $117.4 million for the comparable period in 1999, an increase of $20.9 million, or 17.8%. As a percentage of revenue, total expenses were 99.2% for the three-month period ended September 30, 2000 compared to 85.0% for the comparable period in 1999. Total expenses increased to $432.4 million for the nine-month period ended September 30 2000, from $340.5 million for the comparable period in 1999, an increase of $91.8 million, or 27.0%. As a percentage of revenue, total expenses were 94.0% for the nine-month period ended September 30, 2000 compared to 83.3% for the comparable period in 1999. The increase in total expense is related to the increase in operating expense, the change in the goodwill amortization period from 40 years to 15 years adopted October 1, 1999, and increased interest expense associated with Century's bank debt. Operating expense increased to $120.2 million for the three-month period September 30, 2000, from $106.4 million for the comparable period in 1999, an increase of $13.8 million, or 12.9%. Operating expense increased to $375.3 million for the nine-month period ended September 30, 2000, from $312.5 million for the comparable period in 1999, an increase of $62.8 million, or 20.1%. As a percentage of revenue, operating expense for the three and nine-month periods ended September 30, 2000 was 86.2% and 81.6%, respectively, compared to 77.0% and 76.0% for the comparable periods. The increase in operating expense during 2000 was primarily due to acquisitions completed in 1999 and 2000 that were accounted for under the purchase method of accounting, increased compensation costs as a percentage of revenue, increased bad debt expense, and higher health care costs due to unfavorable claims experience, offset by consolidation and integration credits of $1.5 million related to the reversal of the lease accrual for the consolidation of the Philadelphia market that has been postponed. 11

12 Corporate general and administrative expense increased to $4.5 million for the three-month period ended September 30, 2000, from $3.1 million for the comparable period in 1999, an increase of $1.4 million. Corporate general and administrative expense increased to $18.1 million for the nine-month period ended September 30, 2000, from $8.8 million for the comparable period in 1999, an increase of $9.3 million. Such changes over the three and nine-month periods ended September 30, 2000, were primarily due to a) costs incurred in connection with the start-up of the shared services center, support of the Oracle application and other LINCS initiatives, b) legal fees associated with ongoing litigation, and c) severance expense (credits) related to Century's consolidation and integration initiatives. Century incurred merger-related expenses of $2.6 million and $5.3 million for the three and nine-month periods ended September 30, 1999. Merger-related expenses are comprised primarily of professional fees incurred in transactions accounted for as poolings-of-interests and the salaries of internal employees dedicated to merger and acquisition activities. There were no merger-related expenses in 2000 as a result of the significant reduction in Century's acquisition program, and there were no transactions recorded as poolings-of-interests in such period. Depreciation and amortization expense increased to $11.2 million for the three-month period ended September 30, 2000, from $4.9 million for the comparable period in 1999, an increase of $6.3 million, or 130.6%. Depreciation and amortization expense increased to $32.4 million for the nine-month period ended September 30, 2000, from $13.5 million for the comparable period in 1999, an increase of $18.9 million, or 140.5%. The increase in depreciation and amortization expense in 2000 is a result of a) goodwill associated with acquisitions completed in 1999 and 2000, b) the change in the goodwill amortization period from 40 years to 15 years beginning October 1, 1999, and c) increased depreciation expense related to the Oracle application placed into service on January 1, 2000, and other capital expenditures. The change in the goodwill amortization period resulted in an additional $3.6 million and $10.5 million of goodwill amortization expense for the three and nine-month periods ended September 30, 2000, respectively. Interest expense increased to $3.1 million for the three-month period ended September 30, 2000, from $1.7 million for the comparable periods in 1999, an increase of $1.4 million, or 82.4%. Interest expense increased to $9.3 million for the nine-month period ended September 30, 2000, from $4.5 million for the comparable periods in 1999, an increase of $4.8 million, or 106.7%. The increase in interest expense is attributable to both the increase in the average bank debt outstanding for the period, as well as an increase in the interest rate from the prior year. The average bank debt balance and weighted-average interest rate for the three-month period ended September 30, 2000, was $147.1 million and 8.7%, respectively, compared to $93.8 million and 6.3% for the corresponding period in 1999. Century recorded income taxes from continuing operations of $2.5 million and $17.0 million for the three and nine-month periods ended September 30, 2000, and $8.1 million and $27.2 million (including pro forma adjustments) for the three and nine-month periods ended September 30, 1999. Including pro forma adjustments, the effective tax rate increased to 226.8% from 38.8% for the three-month period ended September 30, 2000 and 1999, respectively, and to 62.0% from 39.9% (including pro forma adjustments) for the nine-month period ended September 30, 2000 and 1999, respectively. The increase in the effective tax rate is primarily attributable to increased goodwill amortization, as a result of the change in our goodwill amortization period from 40 years to 15 years effective October 1, 1999, the majority of which is not deductible for tax purposes. Income taxes are provided based on Century's anticipated annual effective rate. The discontinued operation generated net operating income of $0.5 million compared to a net operating loss of $1.4 million for the three-month period ended September 30, 2000 and 1999, respectively, and a net operating loss of $1.2 million compared to a net operating loss of $0.5 million for the nine-month period ended September 30, 2000 and 1999, respectively. The $0.5 million net income from operations of the discontinued operations represents the recovery of the business, after incurring general operating losses and a write-off of deferred acquisition costs related to its the exit of the transportation line of business during the second quarter of 2000. 12

13 OTHER - ----- Total assets decreased to $772.6 million at September 30, 2000, from $787.3 million at December 31, 1999, which is primarily attributable to the write-down of the net assets of the discontinued operation from $36.8 at December 31, 1999, to $28.0 million at September 30, 2000. See Note 7, "Discontinued Operations", to the Condensed Consolidated Financial Statements. Total liabilities decreased to $259.5 million at September 30, 2000, from $274.2 million at December 31, 1999, which is primarily attributable to a decrease in accrued expenses of $14.3 million. Total stockholders' equity remained at $513.1 at September 30, 2000, and is attributable to net income for the first nine months of 2000 of $1.0 million, the adjustment of $2.5 million for unrealized losses on available-for-sale securities that were realized as the loss on sale of the discontinued operation, and a decrease in additional paid-in-capital of $3.7 million. The decrease in paid-in-capital is comprised of an increases of approximately $1.4 million related to stock released for additional purchase price, offset by a decrease of $5.1 million in the first quarter of 2000 related to a change in the purchase price composition (i.e. cash and common stock) of an acquisition that was completed near the end of 1999. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Century has two primary sources of liquidity: cash provided by operations and funds available from the bank credit facility. We may also generate liquidity from the sale of assets. During the quarter ended September 30, 2000, cash provided by operations was sufficient to fund our working capital requirements. As a result, we paid down borrowings under our credit agreement. Our principal uses of cash are to provide working capital for operations, service our obligations to pay interest and principal on our debt, and to provide funds for capital expenditures. During the nine-month period ended September 30, 2000, cash and cash equivalents decreased $9.9 million to $39.1 million, from $48.9 million at December 31, 1999, as cash used in investing activities of $23.4 million and cash used in financing activities of $4.9 million exceeded cash provided by operating activities of $18.4 million. Cash used in investing activities during the nine-month period ended September 30, 2000 were $23.4 million and consisted primarily of cash used in business acquisitions (related to the release of contingent purchase price for previously acquired businesses) and purchases of property and equipment. Significant purchases of property and equipment in the first nine months of 2000 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. Cash used in financing activities during the nine-month period ended September 30, 2000 was $4.9 million and consisted primarily of proceeds of $90.8 million from the revolving credit facility and notes payable, less repayments of bank debt, notes payable and capitalized leases of $95.8 million. As acquisition activity has slowed, Century is currently focusing on growing the core business, controlling costs, and paying down the bank debt with excess cash from operations, as well as cash received from divestitures. During the third quarter of 2000, Century completed an amendment to its existing credit facility with the banking group. Century is now in compliance with all debt covenants under the amended credit facility. A copy of the amendment is filed as an exhibit to this report. In the amendment Century agreed to use 75% of the net proceeds received from the disposition of the risk-bearing insurance company to pay down debt and permanently reduce the facility commitment amount. Covenants relating to the leverage ratio for permitted acquisitions, specified dispositions and permitted investment were changed, and a new covenant ties the level of borrowings to the level of accounts receivable. Interest rates were increased by 37.5 basis points. 13

14 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) the risk of professional errors and omissions; (vii) the nature of the competitive and fragmented outsourcing industry; (viii) market fluctuations in the values or returns on assets in Century's investment portfolios; (ix) government regulations and interpretations are subject to changes; (x) Century's principal shareholders have substantial control over its operations; (xi) shares eligible for future sale could adversely affect the price of Century's common stock; (xii) Century may not pay dividends; and (xiii) 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, 2000, 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 1. LEGAL PROCEEDINGS During the third quarter ended September 30, 2000, there were no material developments in previously reported legal proceedings other than as follows: On July 31, 2000, Century moved to dismiss the action pending against it in the United States District Court for the Northern District of Ohio, which was filed by certain former owners of a business Century acquired in 1999. The court's ruling on Century's motion to dismiss is pending. During the pendency of this motion, discovery has been stayed. Discovery is also currently stayed in the parallel state court action pending in the Circuit Court for St. Louis County, Missouri. Century intends to continue vigorously defending against the allegations against it. On October 10, 2000, the Court of Common Pleas, Cuyahoga County, Ohio denied Century's motion to dismiss the complaint filed against it by certain former owners of a business acquired by Century. On October 24, 2000, Century sought reconsideration of this order, which is pending. Discovery in this action has commenced, and Century intends to continue vigorously defending against the allegations against it. 14

15 On April 11, 2000, Century and a wholly-owned subsidiary initiated a lawsuit in Toronto, Canada against former owners of a business acquired by Century, claiming (1) that the former shareholders breached representations and warranties in the purchase agreement and (2) that a company owned by one of the shareholders owed Century payment for services rendered. In addition, Century asked the Ontario Court to declare that Century justifiably terminated the employment contract of one of the former shareholders. On August 1, 2000 the former shareholders and the company owned by a former shareholder filed counterclaims against Century in the Ontario action, seeking damages from Century for breach of contract, wrongful termination of employment, and defamation. The case is in its early stages and discovery has just commenced. Century intends to vigorously pursue its complaint and defend the counterclaims. In addition to the above-described items, Century is from time to time subject to claims and suits arising in the ordinary course of business. Although the ultimate disposition of such proceedings is not presently determinable, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the financial condition, results of operations or cash flows of Century. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule 99.6 The Third Amendment to Amended and Restated Credit Agreement, dated as of September 22, 2000, by and among Century Business Services, Inc., the Lenders party to the Credit agreement, Bank of America, N.A. as Agent, and Fleet National Bank, Bank One, Michigan, Lasalle Bank National Association and PNC Bank, National Association, each as Co-Agent. (b) Reports on Form 8-K The following Current Reports on Form 8-K filed during the three months ended September 30, 2000: (i) On July 11, 2000, the Company filed a Current Report on Form 8-K, announcing that on June 26, 2000, Avalon National Corporation and a consortium of financial entities entered into an agreement to purchase the risk-bearing insurance operations for $31 million in cash, contingent upon regulatory approval. (ii) On July 12, 2000, the Company filed a Current Report on Form 8-K/A, to amend the Form 8-K filed on July 11, 2000, to include the text of the Exhibit, Stock Purchase Agreement by and among Century Business Services, Inc., CBSI Management Co. and Avalon National Corporation dated June 26, 2000. 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: November 14, 2000 By: /s/ Chris Spurio ------------------- ---------------- Chris Spurio Vice President, Acting Chief Financial Officer 15

16 CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number: --------------- 27.1 Financial Data Schedule (SEC only)............................. 17 99.6 Third Amendment to the Amended and Restated Credit Agreement... 18 16

5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 56,618 0 220,090 14,549 0 318,693 94,936 31,079 772,613 85,052 0 0 0 936 512,165 772,613 0 459,818 0 375,331 47,735 0 9,294 27,458 17,024 10,434 (9,397) 0 0 1,037 0.01 0.01

1 Exhibit 99.6 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 22, 2000 (this "AGREEMENT"), is by and among CENTURY BUSINESS SERVICES, INC., a Delaware corporation (the "COMPANY"), the Lenders party to the Credit Agreement referred to below (the "LENDERS"), BANK OF AMERICA, N.A. as agent (the "AGENT"), and FLEET NATIONAL BANK, BANK ONE, MICHIGAN, LASALLE BANK NATIONAL ASSOCIATION AND PNC BANK, NATIONAL ASSOCIATION, each as Co-Agent (the "CO-AGENTS"). RECITALS: WHEREAS, the Company, Agent, Co-Agents and the Lenders are parties to that certain Amended and Restated Credit Agreement dated as of October 3, 1997, as amended and restated as of August 10, 1998, as amended and restated as of August 24, 1999 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Company, Agent, Co-Agents and the Lenders wish to amend the Credit Agreement in certain respects as set forth herein, subject to the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings given them in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, as of the Effective Date (as defined below), hereby amended as follows: (a) THE DEFINITIONS OF "APPLICABLE MARGIN," "CHANGE OF CONTROL," "EBIT," "EBITDA" AND "INTEREST COVERAGE RATIO" IN ARTICLE I OF THE CREDIT AGREEMENT ARE HEREBY AMENDED BY DELETING SAID DEFINITIONS IN THEIR ENTIRETY AND INSERTING THE FOLLOWING IN LIEU THEREOF:

2 "APPLICABLE MARGIN" shall mean on any date the applicable percentage set forth below based upon the Level as shown in the Compliance Certificate then most recently delivered to the Lenders: Revolving Loans Letters of Credit --------------- ----------------- Base Offshore Commitment Level Rate Rate Non-financial Financial Fee ----- ---- ----------- ------------- --------- ---- I 1.125% 2.375% 1.1875% 2.375% .45% II 1.000% 2.125% 1.0625% 2.125% .40% III .875% 1.875% .9375% 1.875% .35% IV .625% 1.625% .8125% 1.625% .30% ; PROVIDED HOWEVER that, (i) for the period from the date of the Third Amendment to and including the date of the delivery of the Compliance Certificate for the period ending December 31, 2000, the Applicable Margin shall be deemed to be Level I and (ii) if the Company shall have failed to deliver to the Lenders by the date required hereunder any Compliance Certificate pursuant to SECTION 7.02(b), then from the date such Compliance Certificate was required to be delivered until the date of such delivery the Applicable Margin shall be deemed to be Level I. Each change in the Applicable Margin shall take effect with respect to all outstanding Loans on the third Business Day immediately succeeding the day on which such Compliance Certificate is received by the Agent. Notwithstanding the foregoing, no reduction in the Applicable Margin shall be effected if a Default or an Event of Default shall have occurred and be continuing on the date when such change would otherwise occur, it being understood that on the third Business Day immediately succeeding the day on which such Default or Event of Default is either waived or cured (assuming no other Default or Event of Default shall be then pending), the Applicable Margin shall be reduced (on a prospective basis) in accordance with the then most recently delivered Compliance Certificate. "CHANGE OF CONTROL" means (a) any Person or any two or more Persons (in each case other than a Person that is a stockholder of the Company as of the date of this Agreement) acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act), directly or indirectly, of capital stock of the Company (or other securities convertible into such capital stock) representing 25% or more of the combined voting power of all capital stock of the Company entitled to vote in the election of directors, other than capital stock having such power only by reason of the happening of a contingency, or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Company's board of directors (together with any new directors whose election by the Company's board of directors or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reasons other than death or disability to constitute a majority of the directors then in office, or (c) during any period of twelve consecutive calendar months (other than pursuant to a disposition permitted pursuant to SECTION 8.02), the ceasing of more than 25% of the 2

3 individuals who hold an office possessing the title Regional Directors or Local Directors Senior Vice President, Executive Vice President or such title that ranks senior thereto of the Company and the Company's direct Subsidiaries (collectively, "KEY MANAGEMENT"), on the first day of each such period to be part of the Key Management of the Company and its Subsidiaries taken as a whole. "EBIT" means, for any period, for the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, the sum of (a) Net Income (or net loss) for such period PLUS (b) all amounts treated as expenses for interest to the extent included in the determination of such Net Income (or loss), PLUS (c) all accrued taxes on or measured by income to the extent included in the determination of such Net Income (or loss); PROVIDED, HOWEVER, that Net Income (or loss) shall be computed for these purposes without giving effect to extraordinary losses or extraordinary gains; and PROVIDED FURTHER, that for purposes of determining compliance with SECTION 8.17, (x) for any period which includes the fourth fiscal quarter of the Company's 1999 fiscal year, there shall be excluded in determining EBIT any non-recurring restructuring expense recorded in such fiscal quarter to the extent excluded from the determination of Net Income, PROVIDED, that such restructuring expenses shall not be in excess of $36,400,000, (y) for any period which includes the fourth fiscal quarter of the Company's 1999 fiscal year or the first, second or third fiscal quarter of the Company's 2000 fiscal year, there shall be excluded in determining EBIT any charges recorded in such fiscal quarter relating to the loss on the sale or transfer of any Insurance Subsidiary to the extent excluded from the determination of Net Income, PROVIDED, that the aggregate amount of such charges shall not exceed $10,321,556 and (z) EBIT for any periods occurring after January 1, 2000 through March 31, 2001 shall be determined as above, PLUS all amounts treated as expenses for the amortization of intangibles of any kind to the extent included in the determination of Net Income based on a fifteen (15) year amortization schedule. "EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, the sum of (a) the Net Income (or net loss) for such period PLUS (b) all amounts treated as expenses for depreciation and interest and the amortization of intangibles of any kind to the extent included in the determination of such Net Income (or loss), PLUS (c) all accrued taxes on or measured by income to the extent included in the determination of such net income (or loss); PROVIDED, HOWEVER, that net income (or loss) shall be computed for these purposes without giving effect to extraordinary losses or extraordinary gains; and PROVIDED FURTHER, that for purposes of determining compliance with SECTION 8.16, (x) for any period which includes the fourth fiscal quarter of the Company's 1999 fiscal year, there shall be excluded in determining EBITDA any non-recurring restructuring expense recorded in such fiscal quarter to the extent excluded from the determination of Net Income, PROVIDED, that such restructuring expenses shall not be in excess of $36,400,000 and (y) for any period which includes the fourth fiscal quarter of the Company's 1999 fiscal year or the first, second or third fiscal quarter of the Company's 2000 fiscal year, there shall be excluded in determining EBITDA any charges recorded in such fiscal quarter relating to the loss on the sale or other transfer of any Insurance Subsidiary to the extent excluded from the determination of Net Income, PROVIDED, that the aggregate amount of such charges shall not exceed $10,321,556. 3

4 (b) ARTICLE I OF THE CREDIT AGREEMENT IS AMENDED BY INSERTING THE FOLLOWING DEFINITIONS IN ALPHABETICAL ORDER: "ELIGIBLE RECEIVABLES" means (i) at any time on or prior to March 31, 2001, (x) WIP of each such Person less than or equal to 120 days plus (y) the total face of the trade receivables less than or equal to 120 days (related to the sale of goods and services other than to affiliates of the Company) of the Company and its Wholly Owned Subsidiaries which are a party to a Security Agreement, calculated in accordance with GAAP, consistently applied, and (ii) at any time thereafter, (x) work-in-progress of each such Person less than or equal to 90 days plus (y) the total face of the trade receivables less than or equal to 90 days (related to the sale of goods and services other than to affiliates of the Company) of the Company and its Wholly Owned Subsidiaries which are a party to a Security Agreement, calculated in accordance with GAAP, consistently applied. "ELIGIBLE RECEIVABLES RATIO" means, as of the last Business Day of each calendar month, the ratio of (a) Eligible Receivables as of such date to (b) the outstanding principal amount of Loans as of such date. "NET PROCEEDS" means the sum of cash or readily marketable cash equivalents received (including by way of a cash generating note or discounting of a note or receivable when received in cash, but excluding any other consideration received in the form of assumption by the acquiring Person of debt or other obligations relating to the properties or assets so disposed of or received in any other non-cash form) therefrom, whether at the time of such disposition or subsequent thereto (but, in the case of amounts received subsequent thereto, excluding interest on such amounts), net all federal, state, local and other taxes required to be accrued as a liability as a consequence of such transaction. "SPECIFIED ASSET SALE" means each Asset disposition described in Schedule A to the Third Amendment. "SPECIFIED JOINT VENTURE" means each Joint Venture described on Schedule B to the Third Amendment. "THIRD AMENDMENT" means the Third Amendment to the Amended and Restated Credit Agreement, dated as of September 22, 2000. (c) ARTICLE II OF THE CREDIT AGREEMENT IS HEREBY AMENDED BY (i) REDESIGNATING SECTION 2.05 AS "VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS; MANDATORY REDUCTION OF COMMITMENTS", (ii) REDESIGNATING SECTION 2.05 AS CLAUSE (a) OF SECTION 2.05 AND (iii) ADDING THE FOLLOWING NEW CLAUSE (b) TO SECTION 2.05: "(b) On the date of receipt thereof by the Company or any of its Subsidiaries, the Company shall permanently reduce the Revolving Loan Commitment by an amount equal to (x) 100% of the Net Proceeds received by any such Person from the sale or other disposition of an Insurance Subsidiary (including any sale of any asset of an Insurance Subsidiary) and (y) 75% of the Net Proceeds from any Specified Asset Sale or any other Disposition". 4

5 (d) ARTICLE VII OF THE CREDIT AGREEMENT IS HEREBY AMENDED BY DELETING CLAUSE (f) OF SECTION 7.02 IN ITS ENTIRETY AND INSERTING THE FOLLOWING NEW CLAUSE (f): "(f) ACCOUNT RECEIVABLE AGING REPORT. Within thirty (30) days after the end of each calendar month (commencing with the calendar month ended August 31, 2000), an account receivable aging report (the "Account Receivable Aging Report") of the Company by business region. Each Account Receivable Aging Report shall include such detail as the Agent may reasonably require (including, without limitation, information relating to compliance with Section 8.18) and shall be signed by the president or the chief financial officer or treasurer of the Company; and". (e) ARTICLE VIII OF THE CREDIT AGREEMENT IS HEREBY AMENDED BY: (i) DELETING SECTION 8.02 IN ITS ENTIRETY AND INSERTING THE FOLLOWING IN LIEU THEREOF: "8.02 DISPOSITION OF ASSETS. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment (including, without limitation, demonstration or pilot plants), all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and (c) dispositions of Investments and insurance contracts by any Insurance Subsidiary in the ordinary course of business; (d) the sale of the capital stock of, or any asset of, an Insurance Subsidiary; (e) each Specified Asset Sale; PROVIDED that such specified Asset Sale is completed on or prior to June 30, 2001, PROVIDED however, that in the case of a Specified Asset Sale of an Insurance Subsidiary, such Sale is completed on or prior to October 31, 2000; and (f) dispositions not otherwise permitted hereunder which are made for fair market value; PROVIDED that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) not less than 80% of the aggregate sales price from such disposition shall be paid in cash, and (iii) the aggregate value of all assets so sold by the 5

6 Company and its Subsidiaries, together, shall not exceed (x) 5% of the net tangible assets of the Company and its Subsidiaries on a consolidated basis during any twelve month period with net tangible assets to be measured as of the beginning of such period, and (y) 15% of the net tangible assets of the Company and its Subsidiaries on a consolidated basis during the term of this Agreement, with net tangible assets to be measured as of the Closing Date"; (ii) DELETING CLAUSE (d) OF SECTION 8.04 IN ITS ENTIRETY AND INSERTING THE FOLLOWING IN LIEU THEREOF: "(d) Investments, subject to SECTION 8.09, incurred in order to consummate Acquisitions otherwise permitted herein, PROVIDED that in the event that the Leverage Ratio, both before and after giving effect to such Acquisition, is at any time more than 1:25:1.0, any such Acquisition shall not be permitted without the prior written approval of the Majority Lenders;"; (iii) INSERTING THE FOLLOWING TO THE END OF SECTION 8.09: "; and PROVIDED FURTHER, that each Specified Joint Venture shall be permitted"; and (iv) deleting Section 8.15 in its entirety and inserting the following in lieu thereof: "8.15 MINIMUM NET WORTH. The Company shall not permit its Consolidated Net Worth at any time (a) for the period from and including the Closing Date to but excluding the last day of the fiscal quarter ended on June 30, 2000, to be less than $512,000,000, and (b) for the period from and including the last day of the fiscal quarter ended on June 30, 2000 and thereafter, to be less than an amount equal to the sum of (x) $512,000,000 PLUS (y) 70% of the Company's positive Net Income, if any, for each such fiscal quarter PLUS (2) an amount equal to 100% of the net cash and non-cash proceeds of any equity securities issued by the Company after the date of the Third Amendment."; and (iv) INSERTING THE FOLLOWING AS A NEW SECTION 8.18: "8.18 ELIGIBLE RECEIVABLES RATIO. The Company shall not permit, at any time, its Eligible Receivables Ratio as of the end of any calendar month to be less than (i) for each calendar month ended on or prior to September 30, 2000, .85:1.0, PROVIDED, that in the event that all of the Insurance Subsidiaries and/or all of each Insurance Subsidiary's assets are sold on or prior to September 30, 2000, then such ratio shall be determined pursuant to clause (ii) of the definition of Eligible Receivables contained herein, and (ii) for each calendar month thereafter, 1.0:1.0." 6

7 (f) EXHIBIT C OF THE CREDIT AGREEMENT IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS SET FORTH ON EXHIBIT A HERETO. SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective upon the date (the "EFFECTIVE DATE") each of the following conditions have been satisfied: (a) EXECUTION AND DELIVERY. The Company and the Majority Lenders shall have executed and delivered this Agreement. (b) NO DEFAULTS. No Default or Event of Default under the Credit Agreement (as amended hereby) shall have occurred and be continuing. (c) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement, the Credit Agreement (as amended hereby) and the other Loan Documents shall be true and correct in all material respects as of the Effective Date, with the same effect as though made on such date, except to the extent that any such representation or warranty expressly refers to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. (d) AMENDMENT FEE. The receipt by the Agent, for distribution to the relevant Lender, from the Company of an amendment fee payable to each Lender executing this Amendment in an amount equal to .15% of such Lender's Revolving Loan Commitment. SECTION 4. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and warrants (i) that it has full power and authority to enter into this Agreement and perform its obligations hereunder in accordance with the provisions hereof, (ii) that this Agreement has been duly authorized, executed and delivered by such party and (iii) that this Agreement constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and by general principles of equity. (b) The Company represents and warrants that the following statements are true and correct: (i) The representations and warranties contained in the Credit Agreement and each of the other Loan Documents are and will be true and correct in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date. (ii) No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Agreement that would constitute an Event of Default. 7

8 (iii) The execution, delivery and performance of this Agreement by the Company do not and will not violate its respective certificate or articles of incorporation or by-laws, any law, rule, regulation, order, writ, judgment, decree or award applicable to it or any contractual provision to which it is a party or to which it or any of its property is subject. (iv) No authorization or approval or other action by, and no notice to or filing or registration with, any governmental authority or regulatory body is required in connection with its execution, delivery and performance of this Agreement and all agreements, documents and instruments executed and delivered pursuant to this Agreement. SECTION 5. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT. (a) On and after the Effective Date each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference to the Credit Agreement in the Loan Documents and all other documents (the "ANCILLARY DOCUMENTS") delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement, the Loan Documents and all other Ancillary Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver (except as specifically waived above) of any right, power or remedy of the Lenders or the Agent under the Credit Agreement, the Loan Documents or the Ancillary Documents. SECTION 6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF. SECTION 8. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. [signature pages to follow] 8

9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the date above first written. CENTURY BUSINESS SERVICES, INC. By /s/ Jerome P. Grisko, Jr. --------------------------------------------- Name: Jerome P. Grisko, Jr. Title: President & Chief Operating Officer BANK OF AMERICA, N.A., as Agent By /s/ Kristine D. Hyde --------------------------------------------- Name: Kristine D. Hyde Title: Vice President BANK OF AMERICA, N.A., Individually as a Lender and as the Issuing Bank By /s/ Jennifer L Gerdes --------------------------------------------- Name: Jennifer L. Gerdes Title: Vice President

10 FLEET NATIONAL BANK, as a Co-Agent and individually as a Lender By /s/ Walter J. Marillo --------------------------------------------- Name: Walter J. Marillo Title: Director

11 BANK ONE, MICHIGAN, as a Co-Agent and individually as a Lender By /s/ William J. McCaffrey --------------------------------------------- Name: William J. McCaffrey Title: First Vice President

12 LASALLE BANK NATIONAL ASSOCIATION, as a Co-Agent and individually as a Lender By /s/ David A. Chaika --------------------------------------------- Name: David A. Chaika Title: Assistant Vice President

13 PNC BANK, NATIONAL ASSOCIATION, as a Co- Agent and individually as a Lender By /s/ Bryon A. Pike --------------------------------------------- Name: Bryon A. Pike Title: Vice President

14 COMERICA BANK By /s/ Jeffrey J. Judge --------------------------------------------- Name: Jeffrey J. Judge Title: Vice President

15 FIFTH THIRD BANK, NORTHEASTERN OHIO By /s/ David J. Williams --------------------------------------------- Name: David J. Williams Title: Vice President

16 HUNTINGTON NATIONAL BANK By /s/ Laura Conway --------------------------------------------- Name: Laura Conway Title: Vice President

17 FIRSTAR BANK, N.A. By /s/ David J. Dannemiller --------------------------------------------- Name: David J. Dannemiller Title: Vice President

18 FIRSTMERIT BANK, N.A. By /s/ Keith J. Comtois --------------------------------------------- Name: Keith J. Comtois Title: Vice President

19 FIRST UNION NATIONAL BANK By /s/ Mark B. Felker --------------------------------------------- Name: Mark B. Felker Title: Senior Vice President

20 U.S. BANK, N.A. By /s/ Carol A. Morse --------------------------------------------- Name: Carol A. Morse Title: Senior Vice President

21 EXHIBIT A TO THIRD AMENDMENT ---------------------------- EXHIBIT C --------- TO CREDIT AGREEMENT ------------------- FORM OF COMPLIANCE CERTIFICATE ------------------------------ Bank of America, N.A., as Agent for the Lenders party to the Credit Agreement referred to below 231 South LaSalle Street Chicago, Illinois 60697 Attn: Ladies and Gentlemen: This certificate is furnished to you by Century Business Services, Inc. (the "Company"), pursuant to Section 7.02(b) of that certain Amended and Restated Credit Agreement, dated as of October 3, 1997, as amended and restated as of August 10, 1998 and as amended and restated as of August 24, 1999, among the Company, the financial institutions party thereto (the "Lenders"), and Bank of America, N.A., as agent for such Lenders (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), concurrently with the delivery of the financial statements required pursuant to SECTION 7.01 [(a)][(b)] of the Credit Agreement. Terms not otherwise defined herein are used herein as defined in the Credit Agreement. The undersigned, on behalf of the Company, hereby certifies that: (A) no Default or Event of Default has occurred and is continuing, except as described in ATTACHMENT 1 hereto; (B) the financial data and computations set forth in Schedule 1 below, evidencing compliance with the covenants set forth in [SECTIONS 8.01(i), (j) and (m), 8.02, 8.05(d), 8.15, 8.16, 8.17, and 8.18](1) of the Credit Agreement, are true and correct as of ________________, ____(2) (the "Computation Date"); (C) if the financial statements of the Company being concurrently delivered were not prepared in accordance with GAAP, ATTACHMENT 2 hereto sets forth any derivations required to conform the relevant data in such financial statements to the computations set forth below; and - ---------- (1) Insert Section numbers as appropriate. Section 8.18 is computed on a monthly basis. (2) The last day of the accounting period for which financial statements are being concurrently delivered.

22 (D) during the preceding 12 month period there has been a ___% turnover in Key Management. The foregoing certifications, together with the computations set forth in SCHEDULE 1 hereto and the financial statements delivered with this Compliance Certificate in support hereof, are made and delivered as of this _____ day of ___________, ____. CENTURY BUSINESS SERVICES, INC. By: ----------------------------------------------- Name: ----------------------------------------------- Its: (3) ----------------------------------------------- - ---------- (3) To be executed by a Responsible Officer of the Company. 2

23 SCHEDULE 1 ---------- COMPUTATIONS I. SECTION 8.01 LIENS A. Clauses (a), (i) and (j) 1. Aggregate amount of Indebtedness permitted to be secured: $_________(4) 2. Actual amount of Indebtedness secured as of the date of determination: - Attributable to 8.01(a): $_________ - Attributable to 8.01(i): $_________ - Attributable to 8.01(j): $_________ $_________ B. CLAUSE (m) 1. Aggregate amount of obligations permitted to be secured: $1,000,000 2. Actual amount of obligations secured as of the date of determination: $_________ II. SECTION 8.02 DISPOSITION OF ASSETS A. Aggregate amount permitted during the immediately preceding twelve month period: $_________(5) B. Actual amount during the immediately preceding twelve month period: $_________ C. Aggregate amount permitted from August 24, 1999: $_________(6) D. Actual amount from August 24, 1999: $_________ III. SECTION 8.05 INDEBTEDNESS A. CLAUSE (d) 1. Aggregate principal amount of Indebtedness permitted: $_________ - ---------- (4) Insert amount equal to 3% of total tangible assets as of the end of the most recent fiscal quarter. (5) Insert amount equal to 5% of net tangible assets as of the end of the most recent fiscal quarter. (6) Insert amount equal to 15% of net tangible assets as of the Closing Date.

24 2. Actual amount of Indebtedness as of the date of determination: - Attributable to 8.01(a): $_________ - Attributable to 8.01(i): $_________ - Attributable to 8.01(j): $_________ - Attributable to Section 8.05(d): $_________ $_________ IV. SECTION 8.15 MINIMUM NET WORTH 1. Required Net Worth: (a) Base Amount: $512,000,000 (b) 70% of the Company's Positive Net Income for each fiscal quarter $_________ ending after June 30, 2000: (c) 100% of the net cash and non-cash proceeds of any equity securities issued by the Company after September 22, 2000; $_________ (d) The sum of (a) PLUS (b) PLUS (c): $_________ V. SECTION 8.16 LEVERAGE RATIO Period: Twelve months ended ____________ ___, ______. 1. Required: 2.5:1.0 2. Actual: ______:__ (a) Consolidated Indebtedness as of the end of the period referred to above: $_________ - Attributable to the fiscal quarter ended: - _____________: $_________ - _____________: $_________ - _____________: $_________ - _____________: $_________ (b) EBITDA for the period referred to above: $_________ - Attributable to Insurance Subsidiaries: $_________ - Attributable to the fiscal quarter ended: - _____________: $_________ - _____________: $_________ - _____________: $_________ - _____________: $_________ (c) Ratio of (a) TO (b): ______:1.0 -- VI. SECTION 8.17 INTEREST COVERAGE RATIO Period: Twelve months ended ____________ ___, _____. 1. Required: ______:1.0 2. Actual: 2

25 (a) EBIT for the period referred to above: $_________ - Attributable to Insurance Subsidiaries $_________ (b) Consolidated Interest Expense for the period referred to above: $_________ VII. SECTION 8.18 ELIGIBLE RECEIVABLES RATIO Period: Month ended ____________ ___, _____. 1. Required: ______:1.0 2. Actual: (a) Trade Receivables (less than or equal to 90 or 120 days, as provided $_________ in the definition "ELIGIBLE RECEIVABLES") (b) Work-in-progress (less than or equal to 90 or 120 days, as provided $_________ in the definition "ELIGIBLE RECEIVABLES") (c) The sum of (a) plus (b) $_________ (d) Outstanding Principal of Loans $_________ (e) Ratio of (c) to (d) ______:1.0 3

26 ATTACHMENT 1 ------------ DESCRIPTION OF ANY DEFAULTS OR EVENTS OF DEFAULT ------------------------------------------------ 4

27 ATTACHMENT 2 ------------ DERIVATIONS REQUIRED TO CONFORM RELEVANT DATA IF FINANCIAL STATEMENTS WERE NOT PREPARED IN ACCORDANCE WITH GAAP ---------------------------------------------------- 5