<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____ to______
Commission file number 0-28654
--------------------------
CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1004490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 NW COMPTON DRIVE, SUITE 210
BEAVERTON, OREGON 97006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-690-4000
-----------------------------------------
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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports), 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.
Common stock without par value 8,521,221
(Class) (Outstanding at January 30, 1998)
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<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -December 31, 1997 and
June 30, 1997 2
Consolidated Statements of Operations - Three Months and
Six Months Ended December 31, 1997 and 1996 3
Consolidated Statements of Cash Flows - Six Months Ended
December 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
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ITEM 1. FINANCIAL STATEMENTS
CLAREMONT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,403 $ 15,240
Receivables:
Accounts receivable, net of allowances of $217 and $136 15,622 13,975
Revenue earned in excess of billings 11,624 6,537
Other 163 179
Prepaid expenses and other current assets 739 745
Refundable income taxes 2,397 2,745
Deferred income taxes 958 1,048
--------- ----------
Total Current Assets 35,906 40,469
Property and equipment, net of accumulated depreciation
of $6,399 and $4,487 6,815 5,844
Software development costs, net of accumulated amortization
of $1,305 and $554 11,003 8,554
Goodwill, net of accumulated amortization of $319 and $89 3,061 30
Other non-current assets, net of accumulated amortization
of $805 and $500 2,818 1,244
--------- ----------
Total Assets $ 59,603 $ 56,141
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,539 $ 1,975
Current installments of long-term debt 893 993
Accrued payroll and related liabilities 3,596 3,158
Accrued profit sharing 362 366
Other accrued expenses 30 40
Deferred revenue 376 763
--------- ----------
Total Current Liabilities 7,796 7,295
Long-term debt, excluding current installments 197 585
Deferred income taxes 2,856 2,856
--------- ----------
Total Liabilities 10,849 10,736
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value. Authorized 10,000
shares; no shares issued or outstanding - -
Common stock, no par value. Authorized 25,000 shares;
8,496 and 8,257 shares issued and outstanding at
Decebmer 31 and June 30, 1997, respectively 35,815 33,343
Retained earnings 13,091 12,043
Cumulative translation adjustment (152) 19
---------- ----------
Total Shareholders' Equity 48,754 45,405
---------- ----------
Total Liabilities and Shareholders' Equity $ 59,603 $ 56,141
---------- ----------
---------- ----------
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Professional fees $ 20,856 $ 15,566 $ 41,258 $ 29,103
Resold products and services 387 149 747 491
Other revenue 1,028 20 1,970 20
--------- --------- --------- ---------
Total revenue 22,271 15,735 43,975 29,614
--------- --------- --------- ---------
Costs and expenses:
Project costs and expenses 12,057 7,862 24,036 14,921
Resold products and services 364 142 68 452
Other costs of revenue 402 - 747 -
Selling, general and administrative 8,763 5,396 16,627 10,193
--------- --------- --------- ---------
Total costs and expenses 21,586 13,400 42,090 25,566
--------- --------- --------- ---------
Income from operations 685 2,335 1,885 4,048
--------- --------- --------- ---------
Other income (expense):
Interest income 58 189 153 348
Interest expense (24) (43) (64) (113)
Other, net - (22) (151) (14)
--------- --------- --------- ---------
Total other income (expense) 34 124 (62) 221
--------- --------- --------- ---------
Income before income taxes 719 2,459 1,823 4,269
Income tax expense 306 1,009 775 1,752
--------- --------- --------- ---------
Net income $ 413 $ 1,450 $ 1,048 $ 2,517
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic net income per common share $ 0.05 $ 0.19 $ 0.12 $ 0.35
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted net income per common share $ 0.04 $ 0.15 $ 0.10 $ 0.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in basic calculation 8,485 7,554 8,449 7,099
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in diluted calculation 10,114 9,973 10,074 9,552
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
------------------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,048 $ 2,517
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,907 1,309
Deferred income taxes - 1,400
Non-cash expense recognized 361 -
Changes in assets and liabilities:
Receivables (5,999) (5,660)
Prepaid expenses 21 (246)
Refundable income taxes, net 395 (4,039)
Accounts payable and accrued expenses 444 (58)
Deferred revenue (391) 151
------- -------
Net cash used in operating activities (1,214) (4,626)
------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired (3,152) -
Purchase of property and equipment (2,114) (1,922)
Expenditures for software development costs (3,201) (3,513)
Other non-current assets (234) (174)
------- -------
Net cash used in investing activities (8,701) (5,609)
------- -------
Cash flows from financing activities:
Proceeds/(payments) on line of credit, net - (4,600)
Payments of long-term debt (1,149) (464)
Proceeds from common stock offering, net - 26,867
Proceeds from exercise of stock options 177 332
Tax benefit related to stock option activity - 3,478
Payments (issuance) of notes receivable, net -
------- -------
Net cash provided by (used in) financing activities (972) 25,613
------- -------
Effect of exchange rate on cash 50 1
------- -------
Net increase (decrease) in cash and cash equivalents (10,837) 15,379
Cash and cash equivalents at beginning of period 15,240 526
------- -------
Cash and cash equivalents at end of period $ 4,403 $15,905
------- -------
------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein for the three-month and six-month
periods ended December 31, 1997 and 1996 is unaudited; however, such information
reflects all adjustments consisting only of normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The financial information as of June 30, 1997 is derived from the
audited financial statements included in Claremont Technology Group, Inc.'s (the
Company's) 1997 Annual Report on Form 10-K. The interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's 1997 Annual Report on
Form 10-K. The results of operations for the interim period presented are not
necessarily indicative of the results to be expected for the full year. For
ease of presentation, the periods ended December 26, 1997 and December 27, 1996
are referred to herein as ending December 31, 1997 and December 31, 1996,
respectively.
NOTE 2. NET INCOME PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128. Following
is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1997 1996
- ------------------------------- -------------------------------- --------------------------------
Per Per
Share Share
BASIC EPS Income Shares Amount Income Shares Amount
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income available to Common
Shareholders $ 413 8,485 $ 0.05 $ 1,450 7,554 $ 0.19
------- -------
EFFECT OF DILUTIVE SECURITIES
Stock Options - 1,629 - 2,419
--------------------- ----------------------
DILUTED EPS
Income available to Common
Shareholders $ 413 10,114 $ 0.04 $ 1,450 9,973 $ 0.15
------- -------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended December 31, 1997 1996
- ------------------------------- -------------------------------- --------------------------------
Per Per
Share Share
BASIC EPS Income Shares Amount Income Shares Amount
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income available to Common
Shareholders $ 1,048 8,449 $0.12 $ 2,517 7,099 $ 0.35
----- -------
EFFECT OF DILUTIVE SECURITIES
Stock Options - 1,625 - 2,453
----------------------- ----------------------
DILUTED EPS
Income available to Common
Shareholders $ 1,048 10,074 $0.10 $ 2,517 9,552 $ 0.26
----- -------
</TABLE>
NOTE 3. SUPPLEMENTAL CASH FLOW AND NON-CASH INVESTING AND FINANCING INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
Six months ended
December 31,
-------------------
1997 1996
------ -------
<S> <C> <C>
Cash paid during the period for income taxes $ 775 $ 796
Cash paid during the period for interest 48 135
Stock issued in connection with acquisition 2,295 -
</TABLE>
NOTE 4. ACQUISITIONS
In July 1997, the Company completed two business combinations that were
accounted for as purchases. The Company purchased Communications Informatiques
Trilan Canada, Inc. ("Trilan") and OpTex, Inc. ("OpTex"). The results of
operations of each acquisition are included in the Company's results of
operations from the date of acquisition. Trilan offers technology consulting
services specializing in network management, call and help center management and
outsourcing. OpTex develops billing and customer management software for the
communications industry and provides customer service and complete billing
services through its fully functional service bureau for communications industry
clients. The total purchase price for OpTex was $1,000 in cash and 240 shares
of unregistered common stock of the Company, with $360 of the purchase price
being allocated to in process research and development. The purchase of Trilan
was not considered a significant acquisition and therefore, the purchase price
is not disclosed.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains certain statements, trend analysis and other
information that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act, which involve risks and
uncertainties. Actual results may differ materially from the results described
in the forward-looking statements. Such forward looking statements include, but
are not limited to, statements including the words "anticipate," "believe,"
"estimate," "expect," "intend," "plan" and other similar expressions. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions that
include, but are not limited to, those discussed in Items 1 and 7 of the
Company's 1997 Annual Report on Form 10-K and in the following Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------- --------------------------
1997 1996 1997 1996
------ ------ ------- ------
<S> <C> <C> <C> <C>
Revenue:
Professional fees 94% 99% 94% 98%
Resold products and services 2 1 2 2
Other 4 - 4 -
--- --- --- ---
Total revenue 100 100 100 100
Costs and expenses:
Project costs and expenses 54 50 55 50
Resold products and services 2 1 2 2
Other costs of revenue 2 - 1 -
Selling, general and administrative 39 34 38 34
--- --- --- ---
Total costs and expenses 97 85 96 86
--- --- --- ---
Income from operations 3 15 4 14
Other income (expense), net - 1 - -
--- --- --- ---
Income before income taxes 3 16 4 14
Income tax expense 1 7 2 6
--- --- --- ---
Net income 2% 9% 2% 8%
--- --- --- ---
--- --- --- ---
</TABLE>
The Company's revenue consists primarily of professional fees (including license
fees for Claremont's reusable software modules), and to a lesser extent resold
hardware and software products and resold contract services and other revenue.
Other revenue consists of license fees and maintenance fees, which began in
December 1996 and service bureau revenue associated with the Company's
acquisition of OpTex in July 1997. The Company's professional fees increased 34%
to $20.9 million for the three months ended December 31, 1997 compared to $15.6
million for the three months ended December 31, 1996. Professional fees
increased 42% to $41.3 million for the six months ended December 31, 1997
compared to $29.1 million for the six months ended December 31, 1996.
Professional fees increased primarily due to an increase in the number of
projects performed, both for new and existing clients. Revenues during the
quarter were adversely effected by a $2.0 million software license sale that the
Company believed would be recorded in December. However, the state
7
<PAGE>
to which the license was being sold has determined that it is required to
follow a request for proposal process. The state review of that issue will
take some time to complete. Revenue from foreign operations increased to
$3.6 million for the six months ended December 31, 1997 compared to $2.5
million for the six months ended December 31, 1996. The increase resulted
primarily from recent foreign acquisitions. The Company's top five clients
accounted for 47% of revenues for the six months ended December 31, 1997
compared to 41% for the six months ended December 31, 1996. Resold products
and services are offered to clients on an as-needed basis and are resold with
little or no mark-up. The Company does not expect resold products and
services to contribute materially to its income from operations, and
generally expects to make little or no profit on such products and services.
The Company expects to provide such products and services only as an
accommodation to the Company's clients as requested for particular projects.
Project costs and expenses consist primarily of salaries and employee benefits
for personnel dedicated to client projects and associated overhead costs
including equipment depreciation and amortization. Project costs and expenses
increased to $12.1 million and $24.0 million (58% and 58% of professional fees,
respectively) for the three and six month periods ended December 31, 1997 from
$7.9 million and $14.9 million (50% and 51% of professional fees, respectively)
for the comparable periods ended December 31, 1996. The increase in project
costs and expenses was due primarily to the addition of project personnel
necessary to perform the larger number of client projects. The increase as a
percentage of professional fees is primarily a result of the hiring of several
new employees while certain anticipated projects have been delayed, therefore
lowering utilization rates during the quarter and year to date periods.
Selling, general and administrative costs and expenses consist of costs
associated with the Company's executive staff, finance, facilities and human
resources departments (collectively, "Administrative Personnel"), travel and
business development costs. Selling, general and administrative costs and
expenses increased to $8.8 million and $16.6 million (42% and 40% of
professional fees, respectively) for the three and six month periods ended
December 31, 1997 from $5.4 million and $10.2 million (35% and 35% of
professional fees, respectively) for the comparable periods ended December 31,
1996. The increase is primarily due to increases in professional development and
recruiting expenses associated with the increased professional personnel,
increased facility expenses associated with increased space needs resulting from
increased software development efforts performed at Company facilities rather
than at client locations and increased numbers of Administrative Personnel.
Selling, general and administrative costs and expenses in the first quarter of
fiscal 1998 also include $360,000 related to the write-off of purchased research
and development related to the OpTex acquisition. Without the $360,000,
selling, general and administrative costs and expenses would have been 39
percent of professional fees for the six months ended December 31, 1997.
The Company had a total of 887 professional and administrative personnel at
December 31, 1997.
Income tax expense represents combined federal, state and foreign taxes at an
effective rate of 42.5%, or $775,000, for the first six months of fiscal 1998
compared to 41.0%, or $1.8 million, for the comparable period ended December 31,
1996. The Company's tax rate is
8
<PAGE>
sensitive to shifts in income and losses among the various tax jurisdictions
in which the Company's operations are conducted.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $10.8 million during the first six months of fiscal 1998
primarily as a result of $1.4 million used in operations, $3.2 million
related to an acquisition, $2.1 million for the purchase of property and
equipment, $3.2 million for software development costs and $1.1 million
payments on debt.
At December 31, 1997, the Company had working capital of $28.1 million,
including $4.4 million of cash and cash equivalents. The Company's current
ratio decreased to 4.6:1 at December 31, 1997 from 5.5:1 at June 30, 1997.
Accounts receivable increased $1.6 million to $15.6 million at December 31,
1997 from $14.0 million at June 30, 1997 primarily as a result of growth in
revenues. Days sales outstanding were 69 at December 31, 1997 compared to 66
at June 30, 1997. The Company experienced an increase in past due accounts
(defined as accounts outstanding more than 60 days) to $5.0 million at
December 31, 1997 compared to $529,000 at June 30, 1997. Of the $5.0
million, $2.5 million was collected in January 1998. At December 31, 1997,
CalPERS represented $2.3 million of the $5.0 million past due and $1.0
million of the January 1998 collections.
Revenue earned in excess of billings, which represents amounts due to the
Company under contracts, primarily from communications and government
entities, that can not be billed until certain milestones are met, increased
$5.1 million to $11.6 million at December 31, 1997 from $6.5 million at June
30, 1997. The Company continues to work closely with its clients to attempt
to reduce the collection cycle of this asset group.
During the first six months of fiscal 1998, the Company had capital
expenditures of $2.1 million, primarily related to furniture and personal
computers, and $3.2 million associated with the capitalization of software
development costs. As of December 31, 1997 the Company did not have any
material commitments for capital expenditures.
As of December 31, 1997, the Company had a total of $11.0 million of
capitalized software development costs associated with the Company's reusable
software modules, including CLARETY and PREMOST. The Company expects
capitalized software development costs to continue to increase during the
remainder of fiscal 1998. To the extent capitalized software development
costs are greater than the potential revenue associated with the developed
software, the Company would be required to immediately expense such excess
amount under SFAS 86. The amount of the excess required to be expensed in
any particular period may be as much as the total amount of capitalized
software development costs then carried on the Company's balance sheet,
depending on the potential revenue associated with the developed software at
such time. Recognition of such expenses, if any, could have a material
adverse effect on the Company's results of operations.
Goodwill increased $3.0 million to $3.1 million at December 31, 1997 as a result
of acquisitions that occurred during the first quarter of fiscal 1998.
9
<PAGE>
On August 21, 1997, the Company signed a business loan agreement (the
"Agreement") with a commercial bank. This Agreement includes a $2.0 million
line of credit and a $750,000 standby letter of credit. The line of credit
and letter of credit bear interest at the bank's reference rate plus .25
percent, or, at the Company's option, at rates based on the Offshore Rate or
the LIBOR rate. The expiration date of this Agreement is September 1, 1999.
This Agreement also covers currently outstanding term loans for an original
principal amount of $5.0 million, which had previously been covered under the
Business Loan Agreement dated April 24, 1995. The Agreement is secured by
all machinery and equipment and receivables of the Company and contains
certain financial ratio and other covenants. As of the date of this report,
the Company was in compliance with all such covenants.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and
its components in a full set of general purpose financial statements. The
objective of SFAS 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with owners. The Company expects to adopt
SFAS 130 for its fiscal year beginning July 1, 1998 and does not expect
comprehensive income to be materially different from currently reported net
income.
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement establishes standards for the way that public
business enterprises report information about operating segments in interim
and annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company expects to adopt SFAS 131 for its fiscal year
beginning July 1, 1998.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on November 6,
1997, at which the following actions were taken:
1. The shareholders elected the six nominees for director to the Board of
Directors of the Company. The six directors elected, along with the
voting results are as follows:
<TABLE>
<CAPTION>
NAME NO. OF SHARES VOTING FOR NO. OF SHARES WITHHELD VOTING TERM EXPIRES
---- ------------------------ ----------------------------- ------------
<S> <C> <C> <C>
Stephen M. Carson 6,673,181 394,700 2000
Paul J. Cosgrave 6,673,781 394,100 2000
Dennis M. Goett 6,673,581 394,300 1999
Neil E. Goldschmidt 6,673,481 394,400 1999
Marilyn R. Seymann 6,672,981 394,900 1998
Jerry L. Stone 6,673,581 394,300 1998
</TABLE>
2. The shareholders approved amendments to the Claremont Technology Group, Inc.
1992 Stock Incentive Plan to, among other changes, increase the aggregate
number of shares of Common Stock that may be issued thereunder from 5,000,000
to 5,500,000 (3,679,198 shares were voted affirmatively, 1,644,435 shares
were voted negatively, 20,821 shares abstained from voting and there were
1,723,427 broker non-votes).
3. The shareholders approved the appointment of KPMG Peat Marwick LLP as the
independent accountants of the Company for the year ending June 30, 1998
(7,062,643 shares were voted affirmatively, 3,400 shares were voted
negatively and 1,838 shares abstained from voting).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
EXHIBIT NO. AND DESCRIPTION
---------------------------
10 Amendment No. 2 to Business Loan Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
11
<PAGE>
SIGNATURES
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.
Date: February 5, 1998 CLAREMONT TECHNOLOGY GROUP, INC.
By: /s/ STEPHEN M. CARSON
------------------------------------
Stephen M. Carson
President, Chief Operating Officer and
Chief Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting
Officer)
12
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of December 31, 1997, is
-----------
between Bank of America NT & SA (the "Bank") and Claremont Technology Group,
Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of August 21, 1997, (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Subparagraph 1.1(a) of the Agreement, the amount "Five
Million Dollars ($5,000,000)" is substituted for the amount "Two
Million Dollars ($2,000,000)".
2.2 In Subparagraph 1.3(a) of the Agreement, the rate "Reference
Rate" is substituted for the rate "Reference Rate plus .25
percentage point".
2.3 In Paragraph 1.6 of the Agreement, the rate "Offshore Rate
plus 1.75 percentage points" is substituted for the rate "Offshore
Rate plus 2.0 percentage points".
2.4 In Paragraph 1.7 of the Agreement, the rate "LIBOR Rate plus
1.75 percentage points" is substituted for the rate "LIBOR
Rate plus 2.0 percentage points".
2.5 Subparagraph 5.3(a) of the Agreement is amended in its entirety
to read as follows:
(a) The Borrower will repay principal and interest in
Twenty successive monthly installments of Sixty
Thousand Six Hundred Fifty Nine and 47/100 Dollars
($60,659.47) starting September 1, 1997. On
March 31, 2000, the Borrower will repay the remaining
principal balance plus any interest then due.
2.6 A new Article 5A is hereby added to the Agreement as follows:
5A. FACILITY NO. 6: LINE OF CREDIT AMOUNT AND TERMS
5A.1 LINE OF CREDIT AMOUNT.
- -------------------------------------------------------------------------------
-1-
<PAGE>
(a) During the availability period described below, the
Bank will provide a line of credit to the Borrower.
The amount of the line of credit (the "Facility No. 6
Commitment") is Three Million Dollars ($3,000,000).
Each advance shall be used to purchase equipment for
use in the Borrower's business. All equipment acquired
with the proceeds of such advances shall be free and
clear of any security interests, liens, encumbrances
or rights of others except the security interests of
the Bank under any security agreements required under
this Agreement. Each request for an advance shall be
accompanied by a detailed list of the equipment to
be purchased with the proceeds of the advance,
setting forth a brief description and the purchase
price of the equipment to be purchased. The amount
of each advance shall not exceed 75% of the purchase
price of such equipment.
(b) This is a non-revolving line of credit with a term
repayment option. Any amount borrowed, even if repaid
before the end of the availability period, permanently
reduces the remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding
principal balance of the line of credit to exceed the
Facility No. 6 Commitment.
5A.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this
Agreement and September 1, 1998 (the "Expiration Date")
unless the Borrower is in default.
5A.3 INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate
as described below, the interest rate is the Reference
Rate plus .25 percentage points.
5A.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on February 1, 1998,
and then monthly thereafter until payment in full of
any principal outstanding under this line of credit.
(b) The Borrower will repay the principal amount
outstanding on the Expiration Date in 36 successive
equal monthly installments starting October 1, 1998.
On September 1, 2001, the Borrower will repay the
remaining principal balance plus any interest then
due.
(c) The Borrower may prepay the loan in full or in part
at any time. The prepayment will be applied to the
most remote installment of principal due under this
Agreement.
5A.5. OPTIONAL INTEREST RATES. Instead of the interest
rate based on the Reference Rate, the Borrower may elect
to have all or portions of the line of credit (during the
availability period and during the term repayment period)
bear interest at the rate(s) described below during an
interest period agreed to by the Bank and the Borrower.
Each interest rate is a rate per year. Interest will be
paid on the first day of every month and on the last day of
each interest period. At the end of any interest period,
the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another
optional interest rate for the portion.
- -------------------------------------------------------------------------------
-2-
<PAGE>
5A.6 LONG TERM RATE. The Borrower may elect to have all or
portions of the principal balance of the term loan bear
interest at the Long Term Rate, subject to the following
requirements:
(a) The interest period during which the Long Term Rate
will be in effect will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate
the Bank and the Borrower agree will apply to the
portion during the applicable interest period.
(c) Each Long Term Rate portion will be for an amount not
less than One Hundred Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the term loan
already bearing interest at the Long Term Rate will
not be converted to a different rate during its
interest period.
(e) The Borrower may prepay the Long Term Rate portion in
whole or in part in the minimum amount of One Hundred
Thousand Dollars ($100,000). The Borrower will give
the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date
and amount of the prepayment. The notice must be
received by the Bank at least 5 banking days in
advance of the prepayment. All prepayments of
principal on the Long Term Rate portion will be
applied on the most remote principal installment or
installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether
voluntary, by reason of acceleration or otherwise, will
be accompanied by payment of all accrued interest on the
amount of the prepayment and the prepayment fee
described below.
(g) The prepayment fee will be the sum of fees calculated
separately for each Prepaid Installment, as follows:
(i) The Bank will first determine the amount of
interest which would have accrued each month for
the Prepaid Installment had it remained outstanding
until the applicable Original Payment Date, using
the Long Term Rate;
(ii) The Bank will then subtract from each monthly
interest amount determined in (i), above, the
amount of interest which would accrue for that
Prepaid Installment if it were reinvested from
the date of prepayment through the Original
Payment Date, using the following rate:
(A) If the Original Payment Date is more than 5 years
after the date of prepayment: the Treasury Rate
plus one-quarter of one percentage point;
(B) If the Original Payment Date is 5 years or less
after the date of prepayment: the Money Market
Rate.
(iii) If (i) minus (ii) for the Prepaid
Installment is greater than zero, the Bank
will discount the monthly differences to
the date of prepayment by the rate used in
(ii) above. The sum of the discounted
monthly differences is the prepayment fee
for that Prepaid Installment.
- -------------------------------------------------------------------------------
-3-
<PAGE>
(h) The following definitions will apply to the
calculation of the prepayment fee:
"Money Market" means the domestic certificate of deposit
market, the eurodollar deposit market or other appropriate
money market selected by the Bank.
"Money Market Rate" means the fixed interest rate per
annum which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in the Money
Market from the date of prepayment through the Original
Payment Date.
"Original Payment Dates" mean the dates on which principal
of the Long Term Rate portion would have been paid if there
had been no prepayment. If a portion of the principal would
have been paid later than the end of the interest period in
effect at the time of prepayment, then the Original Payment
Date for that portion will be the last day of the interest
period.
"Prepaid Installment" means the amount of the prepaid
principal of the Long Term Rate portion which would have
been paid on a single Original Payment Date.
"Treasury Rate" means the interest rate yield for U.S.
Government Treasury Securities which the Bank determines
could be obtained by reinvesting a specified Prepaid
Installment in such securities from the date of prepayment
through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money
Market Rate to reflect the compounding, accrual basis,
or other costs of the Long Term Rate portion. Each of
the rates is the Bank's estimate only and the Bank is
under no obligation to actually reinvest any
prepayment. The rates will be based on information
from either the TELERATE or REUTERS information
services, THE WALL STREET JOURNAL, or other information
sources the Bank deems appropriate.
5A.7 OFFSHORE RATE. Borrower may elect to have all or
portions of the principal balance of the line of credit
bear interest at the Offshore Rate plus 2.00 percentage
points.
Designation of an Offshore Rate portion is subject to the
following requirements:
(a) The interest period during which the Offshore Rate
will be in effect will be no shorter than 30 days and
no longer than one year. The last day of the interest
period will be determined by the Bank using the
practices of the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not
less than Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate
determined by the following formula, rounded upward to
the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the
first day of the interest period.)
Offshore Rate = Grand Cayman Rate
--------------------------
(1.00 - Reserve Percentage)
- -------------------------------------------------------------------------------
-4-
<PAGE>
Where,
(i) "Grand Cayman Rate" means the interest rate
(rounded upward to the nearest 1/16th of one
percent) at which the Bank's Grand Cayman Branch,
Grand Cayman, British West Indies, would offer
U.S. dollar deposits for the applicable interest
period to other major banks in the offshore
dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the
reserves to be maintained by member banks of the
Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve
Board Regulation D, rounded upward to the nearest
1/100 of one percent. The percentage will be
expressed as a decimal, and will include, but
not be limited to, marginal, emergency,
supplemental, special, and other reserve
percentages.
(d) The Borrower may not elect an Offshore Rate with
respect to any portion of the principal balance of the
line of credit which is scheduled to be repaid before
the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of
credit already bearing interest at the Offshore Rate
will not be converted to a different rate during its
interest period.
(f) Each prepayment of an Offshore Rate portion, whether
voluntary, by reason of acceleration or otherwise,
will be accompanied by the amount of accrued interest
on the amount prepaid, and a prepayment fee equal to
the amount (if any) by which
(i) the additional interest which would have been
payable on the amount prepaid had it not been
paid until the last day of the interest period,
exceeds
(ii) the interest which would have been recoverable
by the Bank by placing the amount prepaid on
deposit in the offshore dollar market for a
period starting on the date on which it was
prepaid and ending on the last day of the
interest period for such portion.
(g) The Bank will have no obligation to accept an
election for an Offshore Rate portion if any of the
following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an
Offshore Rate portion are not available in the
offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect
the cost of an Offshore Rate portion.
5A.81. LIBOR RATE. The Borrower may elect to have all
or portions of the principal balance of the line of credit
bear interest at the LIBOR Rate plus 2.00 percentage
points.
Designation of a LIBOR Rate portion is subject to the
following requirements:
(a) The interest period during which the LIBOR Rate will
be in effect will be 30, 60, 90, 180 or 365 days. The
last day of the interest period will be determined by
the Bank using the practices of the London inter-bank
market.
- -------------------------------------------------------------------------------
-5-
<PAGE>
(b) Each LIBOR Rate portion will be an amount not less
than Five Hundred Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a LIBOR Rate
portion no later than 9:00 a.m. San Francisco time
three (3) banking days before the commencement of the
interest period.
(d) The "LIBOR Rate" means the interest rate determined
by the following formula, rounded upward to the
nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Rate
--------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at
which the Bank's London Branch, London, Great
Britain, would offer U.S. dollar deposits for the
applicable interest period to other major banks
in the London inter-bank market at approximately
11:00 a.m. London time two (2) banking days before
the commencement of the interest period.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the
reserves to be maintained by the member banks of
the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve
Board Regulation D, rounded upward to the nearest
1/100 of one percent. The percentage will be
expressed as a decimal, and will include, but not
be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(e) The Borrower may not elect a LIBOR Rate with respect
to any portion of the appreciable balance of the line
of credit which is scheduled to be repaid before the
last day of the applicable interest period.
(f) Any portion of the principal balance of the line of
credit already bearing interest at the LIBOR Rate will
not be converted to a different rate during its
interest period.
(g) Each prepayment of a LIBOR Rate portion, whether
voluntary, by reason of acceleration or otherwise,
will be accompanied by the amount of accrued interest
on the amount prepaid, and a prepayment fee equal to
the amount (if any) by which:
(i) the additional interest which would have been
payable on the amount prepaid had it not been paid
until the last day of the interest period, exceeds
(ii) the interest which would have been recoverable
by the Bank by placing the amount prepaid on
deposit in the London inter-bank market for a
period starting on the date on which it was
prepaid and ending on the last day of the interest
period for such portion.
- -------------------------------------------------------------------------------
-6-
<PAGE>
(h) The Bank will have no obligation to accept an
election for LIBOR Rate portion if any of the following
described events has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR
Rate portion are not available in the London
inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the
cost of a LIBOR Rate portion.
2.6 Paragraph 6.1 of the Agreement is amended in its entirety
to read as follows:
(a) FACILITY NO. 1 UNUSED COMMITMENT FEE. The Borrower
agrees to pay a fee on any difference between the
Facility 1 Commitment and the amount of credit it
actually uses, determined by the weighted average loan
balance maintained during the specified period. The
fee will be calculated at .20% per year. This fee is
paid quarterly in arrears.
(b) FACILITY NO. 6 LOAN FEE. The Borrower agrees to pay a
Three Thousand Seven Hundred Fifty Dollar ($3,750) fee
due upon execution of this Agreement.
2.7 Paragraph 11.4 of the Agreement is amended in its entirety
to read as follows:
TANGIBLE NET WORTH. To maintain on a consolidated basis
tangible net worth equal to at least Thirty Million Dollars
($30,000,000) plus 75% of any new equity issued after
December 31, 1997.
"Tangible net worth" means the gross book value of the
Borrower's assets (excluding goodwill, patents, trademarks,
trade names, organization expense, treasury stock,
unamortized debt discount and expense, deferred research
and development costs, deferred marketing expenses, and
other like intangibles) less total liabilities, including
but not limited to accrued and deferred income taxes, and
any reserves against assets.
2.8 Paragraph 11.5 of the Agreement is amended in its
entirety to read as follows:
PROFITABILITY. Not to incur on a consolidated basis a net
loss after taxes and extraordinary items during any two
consecutive fiscal quarters, and to maintain on a
consolidated basis a positive net income after taxes and
extraordinary items as of fiscal year end.
2.9 A new Paragraph 11.5A is hereby added to the Agreement as
follows:
MAXIMUM FUNDED DEBT TO CAPITALIZATION. To maintain Maximum
Funded Debt to Capitalization of 50%.
"Funded Debt" is defined as the sum of all interest
bearing indebtedness plus capital lease obligations plus
outstanding letters of credit plus any obligations
guaranteed by the Borrower.
"Capitalization" is defined as the sum of Funded Debt plus
Consolidated Net Worth.
"Consolidated Net Worth" is defined as shareholders'
equity, as defined according to generally accepted
accounting principles.
- -------------------------------------------------------------------------------
-7-
<PAGE>
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA NT & SA CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ Robert Countryman X /s/ Barbara A. Chiapuzio
--------------------- -------------------------
By: Robert Countryman By: Barbara A. Chiapuzio
Title: Vice President Title: Vice President
- -------------------------------------------------------------------------------
-8-
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-26-1997
<CASH> 4,403
<SECURITIES> 0
<RECEIVABLES> 27,626
<ALLOWANCES> 217
<INVENTORY> 0
<CURRENT-ASSETS> 35,906
<PP&E> 13,214
<DEPRECIATION> 6,399
<TOTAL-ASSETS> 59,603
<CURRENT-LIABILITIES> 7,796
<BONDS> 1,090
0
0
<COMMON> 35,815
<OTHER-SE> 12,939
<TOTAL-LIABILITY-AND-EQUITY> 59,603
<SALES> 747
<TOTAL-REVENUES> 43,975
<CGS> 680
<TOTAL-COSTS> 25,463
<OTHER-EXPENSES> 16,627
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<INCOME-PRETAX> 1,823
<INCOME-TAX> 775
<INCOME-CONTINUING> 1,048
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