<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
-----------------
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 No. 1-9410
COMPUTER TASK GROUP, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of New York 16-0912632
- ---------------------------------- -------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 882-8000
-------------------------------------
Registrant's telephone number,
including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 15, 2000 was $197,645,761. Solely for the purposes of
this calculation, all persons who are or may be executive officers or directors
of the Registrant and all persons who have filed a Schedule 13D with respect to
the Registrant's stock have deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
March 15, 2000 was 20,875,056.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this report: Parts I, II and IV - the Registrant's 1999
Annual Report to Shareholders; Parts II and III - the Registrant's definitive
Proxy Statement as filed with the Securities and Exchange Commission and as used
in connection with the solicitation of proxies for the Registrant's annual
meeting of shareholders to be held on April 26, 2000.
<PAGE> 2
PART I
------
FORWARD-LOOKING STATEMENTS
Statements included in this document, or incorporated herein by
reference, that do not relate to present or historical conditions are "forward
looking statements" within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21F of the Securities Exchange
Act of 1934, as amended. Additional oral or written forward looking statements
may be made by the Company from time to time, and such statements may be
included in documents that are filed with the Securities and Exchange
Commission. Such forward looking statements involve risks and uncertainties
which could cause results or outcomes to differ materially from those expressed
in such forward looking statements. Forward-looking statements may include,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations and intentions and are intended to be made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as "believes," "forecasts," "intends," "possible," "expects,"
"estimates," "anticipates," or "plans" and similar expressions are intended to
identify forward-looking statements. Among the important factors on which such
statements are based are assumptions concerning the anticipated growth of the
information technology industry, the continued need of current and prospective
customers for the Company's services, the availability of qualified professional
staff, and price and wage inflation.
ITEM 1. BUSINESS
Computer Task Group, Incorporated (the Company, CTG, or the Registrant)
was incorporated in Buffalo, New York on March 11, 1966, and its corporate
headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209
(716-882-8000). CTG provides information technology (IT) professional services.
CTG employs approximately 5,200 people worldwide and serves customers through an
international network of offices in North America and Europe. The Company has
nine operating subsidiaries: CTG Services, Inc., CTG HealthCare Solutions
(Kansas), Inc., CTG HealthCare Solutions (Ohio), Inc., and Zenius, Inc.,
providing services primarily in North America, Inc.; Computer Task Group of
Canada, Inc.; Computer Task Group (U.K.) Ltd.; Computer Task Group Nederland
B.V.; Computer Task Group Luxembourg S.A.; and Computer Task Group Belgium N.V.
BACKGROUND
The Company operates in one industry segment, providing IT professional
services. A typical customer is an organization with large, complex information
and data processing requirements. Approximately 82.9 percent of consolidated
1999 revenue of $472.0 million was generated in North America, and 17.1 percent
in Europe. In order to better market its services, in 2000 CTG trademarked its
four primary services.
CTG Exemplar(TM) plans, designs, implements, and maintains
start-to-finish application and IT solutions for some of the world's leading
companies. At the planning stage, Exemplar helps clients assess their IT needs.
Exemplar's IT and vertical industry experts examine the client organization's
current technology, application portfolio, and data architecture. Solutions
ranging from selection and implementation of existing software to the
construction of new systems are then recommended. Once a solution has been
defined, CTG Exemplar's state-of-the-art design, development, and testing
services are delivered by skilled technicians supported by intensive training
programs and proprietary best practices. During a project's implementation
phase, new technology is integrated seamlessly into existing systems. Once
implementation is complete, CTG Exemplar supports the requirements of managing
and maintaining enterprise software, from rollout to subsequent updates,
conversions, hosting, and help desk activities.
CTG ITCapital(TM) recruits, retains, and manages IT talent for our
clients. While our Global 1000 customers focus on their core businesses, CTG
manages the acquisition and deployment of the professionals they depend on for
IT solutions. Using an assessment methodology to define each client's staffing
needs, IT Capital builds a customized supply model to streamline everything from
technical requisitions to invoices. IT Capital's strategic staffing Web tool,
CTG ITCapital Select(TM), allows our clients to submit requests for help, review
progress on their requisitions, and access candidate resumes online.
2
<PAGE> 3
ITCapital assets include Internet-based requisitions, service level agreements,
customized reporting, vendor management programs, and EDI payments. Internet
recruiting, recruiting to hot skills, hiring to profile, and a centralized
global recruiting center define our approach. Hiring and retaining prime IT
resources is closely linked with effectively managing those resources. Clients
receive the benefit of a sole source provider who is closely aligned to their
strategies and who can deliver resources on a national basis.
CTG HealthCare Solutions(TM), is a leading provider of information
technology consulting services to health care providers and payors in North
America. Using its proprietary Intellectual Advantage(TM) storehouse of
knowledge and experience and its AssureWare(TM) Web-enabled
engagement-management methodology, CTG HealthCare Solutions delivers services
that include software application support, systems integration, information
technology management, infrastructure support, and a full suite of e-business
solutions. Software expertise includes SMS(R), McKessonHBOC, Lawson Software(R),
IDX(TM), Cerner(R), MEDITECH, STC, HIE, and Neon, among others. In a climate of
new legislation such as the Health Insurance Portability and Accountability Act
of 1996 (HIPAA) and the Balanced Budget Act of 1997, health care industry
clients rely on CTG HealthCare Solutions to help them attain their financial and
clinical objectives by maximizing their return on their IT hardware and software
investments.
In early 2000 CTG created Zenius to capitalize on the e-commerce market
place. CTG Zenius(TM) leverages CTG's expertise in supply chain management,
enterprise resource planning, and customer relationship management to capitalize
on the growing demand for integrated e-commerce solutions. Zenius's ability to
address the enterprise integration needs behind the Web site sets Zenius apart
in the marketplace. Our experience with legacy systems is a significant
advantage for e-commerce initiatives of established enterprises -- the `bricks
and mortar' market. Zenius' approach protects the investments companies have
made in enterprise-wide applications while taking full advantage of the power of
the Internet. Applying business and industry knowledge, along with our unique
strategic approach using solution architects and Web developers at our Zenius
High-Performance Institute, Zenius enables our clients to win in the Internet
economy. We do this by adapting our clients' business strategy and building a
comprehensive solution. Zenius draws on CTG's network of alliances to deliver
the best combination of products, tools, and expertise to support customized
e-business solutions.
International Business Machines Corporation (IBM) is CTG's largest
customer. CTG's IT Capital and Exemplar businesses provide services to various
IBM divisions in approximately 50 locations. In January 1999, CTG renewed a
contract with IBM for one year as one of IBM's national technical service
providers for the United States. In December 1999, this contract was extended
until March 2000. The contract represents 81.6 percent of the total services
provided to IBM by CTG in 1999. IBM accounted for a total of $128.9 million or
27.3 percent of 1999 consolidated revenue; a total of $151.4 million or 32.4
percent of 1998 consolidated revenue; and a total of $142.2 million or 34.9
percent of CTG's 1997 consolidated revenue. Although revenues from IBM were
constrained in 1999, the Company expects to continue to derive a significant
portion of its business from IBM in 2000 and future years. While the decline in
revenue from IBM has had an adverse impact on the Company's revenue and profits,
the Company believes the simultaneous loss of all IBM business is unlikely to
occur due to the existence of the national contract, the diversity of the
projects performed for IBM, and the number of locations and divisions involved.
The Company has registered its symbol and logo with the U.S. Patent and
Trademark Office. It has entered into agreements with various software and
hardware vendors from time to time in the normal course of business, none of
which are material to the business.
No employees are covered by a collective bargaining agreement or are
represented by a labor union. CTG is an equal opportunity employer.
ACQUISITION
On February 23, 1999, the Company acquired the stock of Elumen
Solutions, Inc. (Elumen). The transaction was valued at $89 million, of which
$86 million was paid in cash or through the assumption of debt, and the
remainder was satisfied through the issuance of approximately 128,000 shares of
CTG common stock. The acquisition was accounted for as a purchase, and the
results of Elumen have been included in the Company's consolidated financial
statements since the date of acquisition. CTG recorded
3
<PAGE> 4
approximately $84.9 million of goodwill and other identifiable intangibles from
the transaction, which are being amortized on a straight-line basis over periods
ranging from 10 years to 25 years.
PRICING AND BACKLOG
The majority of CTG's IT professional services business is performed on
a time-and-materials basis. Rates vary based on the type and level of skill
required by the customer, as well as geographic location. Agreements for work
performed on a time-and-materials basis generally do not specify any dollar
amount as services are rendered on an "as required" basis.
The Company performs a portion of its business on a monthly fee basis,
as well as a portion of its project business on a fixed-price basis. These
contracts generally have different terms and conditions regarding cancellation
and warranties, and are usually negotiated based on the unique aspects of the
project. Contract value for fixed-price contracts is generally a function of the
type and level of skills required to complete the related project and the risk
associated with the project. Risk is a function of the project deliverable,
completion date and CTG's management and staff performance. Fixed-price
contracts accounted for under the percentage of completion method represented
approximately two percent, one percent and two percent of the Company's 1999,
1998 and 1997 consolidated revenue, respectively. Revenue from all fixed-price
and monthly-fee contracts represented 11 percent, 16 percent and 17 percent of
consolidated revenue in 1999, 1998, and 1997, respectively. As of December 31,
1999 and 1998, the backlog for fixed-price and managed-support contracts was
approximately $42 million in both years. Approximately 78 percent of the
December 31, 1999 backlog of $42 million, or $33 million, is expected to be
earned in 2000. Of the $42 million of backlog at December 31, 1998,
approximately 78 percent, or $33 million was earned in 1999. Revenue is subject
to seasonal variations, with a minor downturn in months of high vacation and
legal holidays (July, August, and December). Backlog does not tend to be
seasonal, however, it does fluctuate based upon the timing of long-term
contracts.
COMPETITION
The IT services market is highly competitive. The market is also highly
fragmented among many providers with no single competitor maintaining a clear
market leadership. The Company's competition varies by location, the type of
service provided, and the customer to whom services are provided. Competition
comes from four major channels: large national or international vendors,
including major accounting and consulting firms; hardware vendors and suppliers
of packaged software systems; small local firms or individuals specializing in
specific programming services or applications; and, a customer's internal data
processing staff. CTG competes against all four of these for its share of the
market.
CTG has implemented a Global Management System, with a goal to achieve
continuous, measured improvements in services and deliverables. As part of this
program, CTG has developed specific methodologies for providing high value
services that result in unique solutions and specified deliverables for its
clients. The Company believes these methodologies will enhance its ability to
compete. Most of CTG's offices are already ISO 9001 certified and others are
preparing for certification.
The Company believes that to compete successfully it is necessary to
have a local geographic presence, offer appropriate IT solutions, provide
skilled professional resources, and price its services competitively.
4
<PAGE> 5
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
<TABLE>
<CAPTION>
(amounts in thousands)
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenue from Unaffiliated Customers:
North America $ 391,496 $ 394,609 $ 360,849
Europe 80,512 73,229 46,739
--------- --------- ---------
$ 472,008 $ 467,838 $ 407,588
========= ========= =========
Operating Income (Expense):
North America $ 36,434 $ 46,427 $ 36,324
Europe 9,860 8,243 3,663
Corporate and other (15,461) (14,819) (11,031)
--------- --------- ---------
$ 30,833 $ 39,851 $ 28,956
========= ========= =========
Identifiable Assets:
North America (1) $ 154,951 $ 67,128 $ 57,519
Europe 22,736 22,999 15,777
Corporate and Other (2)(3) 21,472 66,682 34,445
--------- --------- ---------
$ 199,159 $ 156,809 $ 107,741
========= ========= =========
</TABLE>
(1) When comparing 1999 to 1998, the increase in 1999 is due to the
goodwill resulting from the acquisition of Elumen.
(2) Corporate and other identifiable assets consists principally of cash
and temporary cash investments and other assets.
(3) When comparing 1999 to 1998, the decrease is due to the acquisition of
Elumen, where the Company used the majority of its available cash and
temporary cash investment balances to satisfy a portion of the purchase
price.
5
<PAGE> 6
EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
<TABLE>
<CAPTION>
PERIOD DURING OTHER POSITIONS
WHICH SERVED AS AND OFFICES WITH
NAME AGE OFFICE EXECUTIVE OFFICER (1) REGISTRANT
- ---- --- ------ --------------------- ----------------
<S> <C> <C> <C> <C>
Gale S. Fitzgerald 49 Chairman of the Board May 6, 1991 to date Director
and Chief Executive Officer
Jonathan R. Asher 54 Vice President December 16, 1996 to date None
James R. Boldt 48 Vice President and February 12, 1996 to date Treasurer
Chief Financial Officer
Janice M. Cole 54 Vice President July 2, 1998 to date None
Gary M. Gershon 51 Vice President January 1, 1999 to date None
Nico H. Molenaar 44 Vice President January 1, 1996 to date None
John F. Moore 44 Vice President July 2, 1998 to date None
Thomas J. Niehaus 38 Vice President July 22, 1999 to date None
Peter P. Radetich 46 General Counsel April 28, 1999 to date Secretary
</TABLE>
(1) BUSINESS EXPERIENCE
Ms. Fitzgerald was appointed chairman of the board and chief executive
officer as of October 3, 1994 and president and chief operating officer as of
July 1, 1993. She joined the Company in May 1991 as senior vice president
responsible for the Company's Northeastern U.S. and Canadian operations. She was
previously vice president, Professional Services at International Business
Machines Corporation (IBM).
Mr. Asher joined the Company as a vice president in December 1996 and
is currently responsible for CTG's North American Exemplar business. He was
previously director of information technology services with IBM.
Mr. Boldt joined the Company as a vice president, chief financial
officer and treasurer in February 1996. He was previously vice president of
finance, secretary and chief financial officer of Pratt and Lambert United, Inc.
Ms. Cole joined the Company in April 1980, and was promoted to vice
president, career development in July 1998. Prior to her promotion, Ms. Cole was
a director of training services.
Mr. Gershon joined the Company as a vice president in January 1999.
Prior to that he was a founder of an advanced software and consulting company.
Mr. Molenaar was promoted to vice president in January 1996 and has
been employed by the Company since 1985. He has held a variety of management
positions and is presently responsible for CTG's European Exemplar business.
Mr. Moore joined the Company in November 1984, and was promoted to vice
president in July 1998. He is responsible for CTG's ITCapital business. Prior to
his promotion, Mr. Moore was a director of business development with CTG's IBM
National Team.
Mr. Niehaus joined the Company in February 1999, and was promoted to
vice president of CTG HealthCare Solutions in July 1999. Previously, Mr. Niehaus
was executive vice president of Elumen Solutions, Inc. from September 1997 to
February 1999. Prior to that, Mr. Niehaus was vice president of Exemplar
Systems.
6
<PAGE> 7
Mr. Radetich joined the Company in June 1988, and was promoted to
general counsel and secretary in April 1999. Previously, Mr. Radetich was
associate general counsel.
ITEM 2. PROPERTIES
The Company occupies a headquarters building at 800 Delaware Avenue,
and an office building at 700 Delaware Avenue, both located in Buffalo, New
York. Corporate headquarters consists of approximately 40,000 square feet and is
occupied by the corporate administrative operations. The office building
consists of approximately 39,000 square feet and is also occupied by corporate
administrative operations. There are no mortgages on either of these buildings.
The Company also owns a 37,000 square foot building in Melbourne,
Florida with a net book value of $1.9 million which it has leased to a third
party under a five-year lease. This lease expires in 2000.
The remainder of the Company's locations are leased facilities. Most of
these facilities serve as sales and support offices and their size varies,
generally in the range of 1,000 to 16,000 square feet, with the number of people
employed at each office. The Company's lease terms generally vary from periods
of less than a year to five years and generally have flexible renewal options.
The Company believes that its present owned and leased facilities are adequate
to support its current and anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, including
litigation arising in the normal course of business. In the opinion of
management, an adverse outcome to any of these proceedings will not have a
material effect on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
<PAGE> 8
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Information relating to the market for, and market prices of, the
Company's Common Stock, the approximate number of Company shareholders, and the
Company's dividend history for the past two years is included under the caption
"Stock Market Information" in the Company's Annual Report to Shareholders for
the year ended December 31, 1999, submitted herewith as an exhibit, and
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
A five-year summary of certain financial information relating to the
financial condition and results of operations of the Company is included under
the caption "Consolidated Summary - Five-Year Selected Financial Information" in
the Company's Annual Report to Shareholders for the year ended December 31,
1999, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is included in the Company's Annual Report to Shareholders for the
year ended December 31, 1999, under the heading "Management's Discussion and
Analysis of Results of Operations and Financial Condition," submitted herewith
as an exhibit, and incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not have any on or off balance sheet market risk
sensitive instruments for which disclosure is required, and historically the
Company has not been subject to material effects from foreign currency exchange
rate fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the required
Supplementary Data information are included in the Company's Annual Report to
Shareholders for the year ended December 31, 1999, submitted herewith as an
exhibit, and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information in response to this item is incorporated by reference
to the information under the caption "Change in Independent Accountants from
Prior Periods" presented in the Company's definitive Proxy Statement filed or to
be filed under Regulation 14A and used in connection with the Company's 2000
Annual Meeting of Shareholders to be held on April 26, 2000.
8
II-1
<PAGE> 9
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is incorporated herein by
reference to the information set forth on pages 2 and 4 in the Company's
definitive Proxy Statement filed or to be filed under Regulation 14A and used in
connection with the Company's 2000 annual meeting of shareholders to be held on
April 26, 2000, except insofar as information with respect to executive officers
is presented in Part I, Item 1 hereof pursuant to General Instruction G(3) of
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information in response to this item is incorporated herein by
reference to the information under the caption "Information about Management"
presented in the Company's definitive Proxy Statement filed or to be filed under
Regulation 14A and used in connection with the Company's 2000 annual meeting of
shareholders to be held on April 26, 2000, excluding the Compensation Committee
Report on Executive Compensation and the Company's Performance Graph.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in response to this item is incorporated herein by
reference to the information under the caption "Security Ownership of the
Company's Common Shares by Certain Beneficial Owners and by Management"
presented in the Company's definitive Proxy Statement filed or to be filed under
Regulation 14A and used in connection with the Company's 2000 annual meeting of
shareholders to be held on April 26, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is incorporated herein by
reference to the information under the captions "Indebtedness of Management" and
"Compensation Committee Interlocks and Insider Participation" presented in the
Company's definitive Proxy Statement filed or to be filed under Regulation 14A
and used in connection with the Company's 2000 annual meeting of shareholders to
be held on April 26, 2000, excluding the Compensation Committee Report on
Executive Compensation and the Company's Performance Graph.
9
III-1
<PAGE> 10
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(1) The following Consolidated Financial Statements and related information are
incorporated by reference from the 1999 Annual Report to Shareholders:
1999 ANNUAL REPORT
PAGE REFERENCE
--------------
Independent Auditors' Report 16
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Changes in
Shareholders' Equity 20
Notes to Consolidated Financial Statements 22
(2) Index to Consolidated Financial Statement Schedules
1999 FORM 10-K
PAGE REFERENCE
--------------
Report of Independent Auditors IV-2
Report of Independent Auditors on
Financial Statement Schedule IV-3
Report of Independent Auditors on
Financial Statement Schedule IV-4
Financial statement schedule:
Valuation and Qualifying Accounts
(Schedule VIII) IV-5
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
The Exhibits to this Form 10-K Annual Report are listed on the attached
Exhibit Index appearing on pages E-1 to E-3.
(D) OTHER FINANCIAL STATEMENT SCHEDULES
None
10
IV-1
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Computer Task Group, Incorporated:
We have audited the consolidated statements of income, changes in shareholders'
equity and cash flows of Computer Task Group, Incorporated and subsidiaries for
the year ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Computer Task Group, Incorporated and subsidiaries for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
KPMG LLP
February 4, 1998
Rochester, New York
IV-2
11
<PAGE> 12
REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Computer Task Group, Incorporated:
Under date of February 4, 1998, we reported on the consolidated statement of
income, changes in shareholders' equity, and cash flows of Computer Task Group,
Incorporated and subsidiaries, for the year ended December 31, 1997, as
contained in the 1999 Annual Report on Form 10-K. In connection with our audit
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule insofar as it relates to the
year ended December 31, 1997 as listed in Item 14(A) of this Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
insofar as it relates to the year ended December 31, 1997 based on our audit.
In our opinion, such financial statement schedule, insofar as it relates to the
year ended December 31, 1997 when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
February 4, 1998
Rochester, New York
IV-3
12
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Computer Task Group, Incorporated
Buffalo, New York
We have audited the consolidated financial statements of Computer Task Group,
Incorporated and subsidiaries as of December 31, 1999 and 1998 and for the years
then ended, and have issued our report thereon dated February 4, 2000. Such
financial statements and report are included in your 1999 Annual Report to
Shareholders and are incorporated herein by reference. Our audit also included
the consolidated financial statement schedule of Computer Task Group,
Incorporated and subsidiaries, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Buffalo, New York
February 4, 2000
IV-4
13
<PAGE> 14
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
BALANCE AT NET BALANCE AT
DESCRIPTION JANUARY 1 CHANGE DECEMBER 31
- ----------- ---------- ------ -----------
<S> <C> <C> <C>
1999
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 1,105 $ 1,205 (A) $ 2,310
Reserve for Projects $ 1,000 $ (109) $ 891
1998
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 951 $ 154 (A) $ 1,105
Reserve for projects $ 1,000 $ - $ 1,000
Net Deferred Tax Assets Valuation Allowance $ 927 $ (927) (B) $ 0
1997
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 975 $ (24) (A) $ 951
Reserve for projects $ - $ 1,000 (C) $ 1,000
Net Deferred Tax Assets Valuation Allowance $ 495 $ 432 (D) $ 927
</TABLE>
(A) Reflects additions charged to costs and expenses, additions as part of the
acquisition of Elumen, less accounts written off and translation
adjustments.
(B) Reflects utilization of foreign net operating losses that were previously
offset completely by the valuation allowance.
(C) Reflects additions charged to costs and expenses.
(D) Reflects a provision for additional foreign net operating losses for which
no benefit was anticipated.
IV-5
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMPUTER TASK GROUP, INCORPORATED
By /s/ GALE S. FITZGERALD
-------------------------------
Gale S. Fitzgerald, Chairman of
the Board and Chief Executive Officer
Dated: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
(i) Principal Executive Officer: Chairman of the March 29, 2000
Board and Chief
/s/ GALE S. FITZGERALD Executive Officer
-----------------------------------
(Gale S. Fitzgerald)
(ii) Principal Accounting and Vice President, March 29, 2000
Financial Officer Chief Financial
Officer
/s/ JAMES R. BOLDT
------------------
(James R. Boldt)
(iii) Directors
/s/ GEORGE B. BEITZEL Director March 29, 2000
-----------------------------------
(George B. Beitzel)
/s/ RICHARD L. CRANDALL Director March 29, 2000
-----------------------------------
(Richard L. Crandall)
/s/ R. KEITH ELLIOTT Director March 29, 2000
-----------------------------------
(R. Keith Elliott)
/s/ GALE S. FITZGERALD Director March 29, 2000
-----------------------------------
(Gale S. Fitzgerald)
/s/ RANDOLPH A. MARKS Director March 29, 2000
-----------------------------------
(Randolph A. Marks)
/s/ BARBARA Z. SHATTUCK Director March 29, 2000
-----------------------------------
(Barbara Z. Shattuck)
</TABLE>
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE OR
EXHIBIT DESCRIPTION (REFERENCE)
- ------- ----------- -----------
<S> <C> <C>
2. Plan of acquisition, reorganization, arrangement, *
liquidation or succession.
3. (a) Restated Certificate of Incorporation of Registrant. (1)
(b) Restated By-laws of Registrant. (2)
4. (a) Specimen Common Stock Certificate. (3)
(b) Rights Agreement dated as of January 15, 1989, and (1)
amendment dated June 28, 1989, between Registrant
and The First National Bank of Boston, as Rights Agent.
(c) Form of Rights Certificate. (3)
9. Voting Trust Agreement. *
10. (a) Non-Compete Agreement, dated as of March 1, 1984, (3)
between Registrant and Randolph A. Marks.
(b) Stock Employee Compensation Trust Agreement, dated (3)
May 3, 1994, between Registrant and Thomas R. Beecher,
Jr., as trustee.
(c) Promissory Notes, dated May 3, 1994, and December 7, 1994, (3)
between Registrant and Thomas R. Beecher, Jr., as Trustee
of the Computer Task Group, Incorporated Stock Employee
Compensation Trust
(d) Severance Compensation Agreement dated October 31, 1994, (3)
between Registrant and Gale S. Fitzgerald.
(e) Stock Purchase Agreement, dated as of February 25, 1981, (4)
between Registrant and Randolph A. Marks.
- -------------------------------------------------------------------------------------------
* None or requirement not applicable.
(1) Filed as an Exhibit to the Registrant's Form 8-A/A filed
on January 13, 1999, and incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
(4) Filed as an Exhibit to the Registrant's Registration
Statement No. 2- 71086 on Form S-7 filed on February 27,
1981, and incorporated herein by reference.
</TABLE>
E-1
16
<PAGE> 17
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
PAGE OR
EXHIBIT DESCRIPTION (REFERENCE)
- ------- ----------- -----------
<S> <C> <C>
10. (f) Description of Disability Insurance and Health (5)
Arrangements for Executive Officers.
(g) Nondisclosure and Nonsolicitation Agreement, dated (6)
July 1, 1993, between Registrant and Gale S. Fitzgerald.
(h) 1999 Key Employee Compensation Plans. (7)
(i) Management Stock Purchase Plan. (8)
(j) CTG Non-Qualified Key Employee Deferred Compensation Plan (9)
(k) 1991 Employee Stock Option Plan, as Amended (10)
(l) 1991 Restricted Stock Plan (10)
(m) Executive Supplemental Benefit Plan 1997 Restatement (11)
(n) Executive Compensation Plans and Arrangements. 19
(o) Credit Agreement among Computer Task Group, Incorporated
and The Chase Manhattan Bank, as administrative agent. 20
- ----------------------------------------------------------------------------------------------
(5) Filed as an Exhibit to Amendment No. 1 to Registration
Statement No. 2-71086 on Form S-7 filed on March 24, 1981,
and incorporated herein by reference.
(6) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference.
(7) Included in the Registrant's definitive Proxy Statement
dated March 29, 2000 on page 8 under the caption entitled
"Annual Cash Incentive Compensation," and incorporated
herein by reference.
(8) Filed as an Appendix to the Registrant's definitive Proxy
Statement dated March 27, 1992, and incorporated herein by
reference.
(9) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
(10) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
(11) Filed as an Exhibit to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1997, and
incorporated herein by reference.
</TABLE>
E-2
17
<PAGE> 18
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
PAGE OR
EXHIBIT DESCRIPTION (REFERENCE)
- ------- ----------- -----------
<S> <C> <C>
11. Statement re: computation of per share earnings 94
12. Statement re: computation of ratios *
13. Annual Report to Shareholders 95
16. Letter re: change in certifying accountant. (12)
18. Letter re: change in accounting principles. *
21. Subsidiaries of the Registrant. 131
22. Published report regarding matters submitted to a vote *
of security holders.
23. (a) Consent of experts and counsel. 132
(b) Consent of experts and counsel. 133
24. Power of Attorney. *
27. (a) Financial Data Schedules - 1999. 134
(b) Financial Data Schedules - 1998. 135
28. Information from reports furnished to state insurance
regulatory authorities *
99. Additional exhibits. *
- -------------------------------------------------------------------------------------------
(12) Filed as an Exhibit to the Registrants Current Report on
Form 8-K as of July 7, 1998, and incorporated herein by
reference.
</TABLE>
E-3
18
<PAGE> 1
EXHIBIT 10 (n)
--------------
COMPUTER TASK GROUP, INCORPORATED
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all plans, management contracts and compensatory
arrangements in which the executive officers of the Company participate and
where they can be found:
Stock Purchase Agreement with Randolph A. Marks - Registration Statement
No. 2-71086 on Form S-7 filed on February 27, 1981.
First Employee Stock Purchase Plan (Eighth Amendment and Restatement) -
Annual Report on Form 10-K for the year ended December 31, 1996, Exhibit
10(p).
Disability Insurance and Health Arrangements - Amendment No. 1 to
Registration Statement No. 2-71086 on Form S-7 filed on March 24, 1981.
Executive Supplemental Benefit Plan 1997 Restatement, - Quarterly Report on
Form 10-Q for the quarter ended March 28, 1997.
1991 Employee Stock Option Plan, as Amended - Annual Report on Form 10-K
for the year ended December 31, 1996, Exhibit 10(o).
1991 Restricted Stock Plan - Annual Report on Form 10-K for the year ended
December 31, 1996, Exhibit 10(q).
Management Stock Purchase Plan - definitive Proxy Statement dated March 27,
1992, Appendix A.
CTG Non-Qualified Key Employee Deferred Compensation Plan - Annual Report
on Form 10-K for the year ended December 31, 1995, Exhibit 10(cc).
19
<PAGE> 1
EXHIBIT 10 (o)
--------------
COMPUTER TASK GROUP, INCORPORATED
Credit Agreement among Computer Task Group, Incorporated and The Chase Manhattan
Bank, as Administrative Agent.
================================================================================
CREDIT AGREEMENT
dated as of
August 24, 1999
among
COMPUTER TASK GROUP, INCORPORATED
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
---------------------------
THE CHASE MANHATTAN BANK,
as Arranger
================================================================================
20
<PAGE> 2
ARTICLE I
DEFINITIONS.........................................................1
SECTION 1.01. DEFINED TERMS........................................1
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS..............15
SECTION 1.03. TERMS GENERALLY.....................................16
SECTION 1.04. ACCOUNTING TERMS; GAAP..............................16
ARTICLE II
THE CREDITS........................................................17
SECTION 2.01. COMMITMENTS.........................................17
SECTION 2.02. LOANS AND BORROWINGS................................17
SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS...................17
SECTION 2.04 UTILIZATION OF COMMITMENTS IN OPTIONAL
CURRENCIES..........................................18
SECTION 2.05. SWINGLINE LOANS.....................................21
SECTION 2.06. LETTERS OF CREDIT...................................22
SECTION 2.07. FUNDING OF BORROWINGS...............................26
SECTION 2.08. INTEREST ELECTIONS..................................26
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS............27
SECTION 2.10. REPAYMENT OF LOANS; EVIDENCE OF DEBT................28
SECTION 2.11. PREPAYMENT OF LOANS.................................29
SECTION 2.12. FEES................................................29
SECTION 2.13. INTEREST............................................30
SECTION 2.14. ALTERNATE RATE OF INTEREST..........................31
SECTION 2.15. INCREASED COSTS.....................................31
SECTION 2.16. BREAK FUNDING PAYMENTS..............................32
SECTION 2.17. TAXES...............................................33
SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT;
SHARING OF SET-OFFS.................................33
SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF
LENDERS.............................................35
SECTION 2.20. JUDGMENT CURRENCY...................................35
ARTICLE III
REPRESENTATIONS AND WARRANTIES.....................................36
SECTION 3.01. ORGANIZATION; POWERS................................36
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY.......................36
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS................36
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE
CHANGE..............................................36
SECTION 3.05. PROPERTIES..........................................37
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS................37
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS.................37
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS...............37
SECTION 3.09. TAXES...............................................38
SECTION 3.10. ERISA...............................................38
SECTION 3.11. DISCLOSURE..........................................38
SECTION 3.11. LABOR CONTROVERSIES.................................38
SECTION 3.12. BURDENSOME OBLIGATIONS..............................38
SECTION 3.13. DISCLOSURE..........................................38
SECTION 3.14. YEAR 2000...........................................38
21
<PAGE> 3
ARTICLE IV
CONDITIONS.........................................................39
SECTION 4.01. EFFECTIVE DATE......................................39
SECTION 4.02. EACH CREDIT EVENT...................................40
ARTICLE V
AFFIRMATIVE COVENANTS..............................................40
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION..........40
SECTION 5.02. NOTICES OF MATERIAL EVENTS..........................41
SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS......................42
SECTION 5.04. PAYMENT OF OBLIGATIONS..............................42
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE................42
SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS................42
SECTION 5.07. COMPLIANCE WITH LAWS................................42
SECTION 5.08. USE OF PROCEEDS AND LETTERS OF CREDIT...............42
SECTION 5.09. UPDATES TO SCHEDULE.................................43
ARTICLE VI
NEGATIVE COVENANTS.................................................43
SECTION 6.01. INDEBTEDNESS........................................43
SECTION 6.02. LIENS...............................................44
SECTION 6.03. FUNDAMENTAL CHANGES.................................44
SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND
ACQUISITIONS........................................45
SECTION 6.05. HEDGING AGREEMENTS..................................46
SECTION 6.06. [RESERVED]..........................................46
SECTION 6.07. TRANSACTIONS WITH AFFILIATES........................46
SECTION 6.08. RESTRICTIVE AGREEMENTS..............................46
SECTION 6.09. SUBSIDIARY INDEBTEDNESS.............................46
SECTION 6.10. FINANCIAL COVENANTS.................................46
SECTION 6.11. SALE LEASEBACK......................................47
SECTION 6.12. SUBORDINATED INDEBTEDNESS PREPAYMENTS...............47
SECTION 6.13. FISCAL YEAR.........................................47
ARTICLE VII
EVENTS OF DEFAULT..................................................47
ARTICLE VIII
THE ADMINISTRATIVE AGENT...........................................49
22
<PAGE> 4
ARTICLE IX
MISCELLANEOUS......................................................51
SECTION 9.01. NOTICES.............................................51
SECTION 9.02. WAIVERS; AMENDMENTS.................................52
SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER..................52
SECTION 9.04. SUCCESSORS AND ASSIGNS..............................54
SECTION 9.05. SURVIVAL............................................55
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS............56
SECTION 9.07. SEVERABILITY........................................56
SECTION 9.08. RIGHT OF SETOFF.....................................56
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO
SERVICE OF PROCESS..................................57
SECTION 9.10. WAIVER OF JURY TRIAL................................57
SECTION 9.11. HEADINGS............................................57
SECTION 9.12. CONFIDENTIALITY.....................................57
SECTION 9.13. INTEREST RATE LIMITATION............................58
EXHIBIT A
[Form of] Assignment and Acceptance
EXHIBIT B
[Form of] Promissory Note
EXHIBIT C
Opinion of Counsel for the Borrower
23
<PAGE> 5
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.08 -- Existing Restrictions
24
<PAGE> 6
CREDIT AGREEMENT dated as of August 24, 1999, among COMPUTER TASK
GROUP, INCORPORATED, the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as
Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ADJUSTED EUROCURRENCY RATE" means the Eurocurrency Rate for such Loan
divided by one minus the Reserve Requirement
"ADJUSTED LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to
(a) the LIBO Rate for such Interest Period multiplied by
(b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in
a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the
greatest of
(a) the Prime Rate in effect on such day,
(b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%.
Any change in the Alternate Base Rate due to a change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective
from and including the effective date of such change in the Prime Rate, the Base
CD Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or
25
<PAGE> 7
expired, the Applicable Percentages shall be determined based upon the
Commitments most recently in effect, giving effect to any assignments.
"APPLICABLE RATE" means, for any day, with respect to any ABR Loan,
Eurocurrency Loan or Eurodollar Revolving Loan, or with respect to the facility
fees payable hereunder, as the case may be, the applicable rate per annum set
forth below under the caption "ABR Spread", "Eurocurrency Spread", "Eurodollar
Spread" or "Facility Fee Rate", as the case may be, set forth in the chart below
which corresponds to the range of ratios in which the Borrower's Total Funded
Debt to Consolidated EBITDA Ratio as at the end of the preceding Fiscal Quarter
falls:
<TABLE>
<CAPTION>
=========================================================================================================
ABR LIBOR EUROCURRENCY FACILITY FEE
TOTAL FUNDED DEBT SPREAD SPREAD SPREAD RATE
TO CONSOLIDATED EBITDA RATIO ------ ------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equal to or Less than 0.75 to 1.0 0.0% 0.325% 0.325% 0.100%
- ---------------------------------------------------------------------------------------------------------
Greater than 0.75 to 1.0 but equal to 0.0% 0.460% 0.460% 0.125%
or less than 1.50 to 1.0
- ---------------------------------------------------------------------------------------------------------
Greater than 1.50 to 1.0 but equal to 0.0% 0.600% 0.600% 0.150%
or less than 2.25 to 1.0
- ---------------------------------------------------------------------------------------------------------
Greater than 2.25 to 1.0 0.0% 1.25% 1.25% 0.300%
=========================================================================================================
</TABLE>
For purposes of the foregoing, all adjustments under this definition
shall be determined as of the first day of the Fiscal Quarter following the date
the Borrower's financial statements and Compliance Certificate are required to
be delivered pursuant to items (a), (b) and (c) of Section 5.01.
"ASSESSMENT RATE" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; PROVIDED that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"AVAILABILITY PERIOD" means the period from and including the Effective
Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"BASE CD RATE" means the sum of
(a) the Three-Month Secondary CD Rate multiplied by the Statutory
Reserve Rate plus
(b) the Assessment Rate.
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States of America.
"BORROWER" means COMPUTER TASK GROUP, INCORPORATED, a New York
corporation.
26
<PAGE> 8
"BORROWING" means
(a) Revolving Loans of the same Type, made, converted or continued on
the same date and, in the case of Eurocurrency Loans or Eurodollar Loans, as to
which a single Interest Period is in effect, or
(b) a Swingline Loan.
"BORROWING REQUEST" means a request by the Borrower for a Revolving
Borrowing in accordance with Section 2.03.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which commercial banks are not authorized or required to close in New
York and whenever such day relates to an Eurocurrency Loan or Eurodollar Loan or
notice with respect to any Eurocurrency Loan or Eurodollar Loan, a day on which
dealings in the Optional Currency are also carried out in the London interbank
market and banks are open for business in London and in the country of issue of
the currency of such Eurocurrency Loan (or, in the case of a Loan denominated in
the euro, shall be deemed to be Frankfurt, Germany)
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CASH EQUIVALENTS" means
(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within one
year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 180 days from the
date of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in clause (c);
(e) interests in pooled investment funds the assets of which are
invested in investments referred to in clauses (a) through (d) above, including
without limitation money market funds maintained by a bank or other financial
institution; and
(f) money market funds rated with the highest credit rating obtainable
from S&P or from Moody's.
"CHANGE IN CONTROL" means
(a) the acquisition of ownership, directly or indirectly, beneficially
or of record, by any Person or group (within the meaning of the Securities
Exchange Act of 1934 and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof), of shares representing
27
<PAGE> 9
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of the Borrower; or
(b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of the Borrower by Persons who were neither
(i) nominated by the board of directors of the Borrower nor
(ii) appointed by directors so nominated.
"CHANGE IN LAW" means
(a) the adoption of any law, rule or regulation after the date of this
Agreement,
(b) any change in any law, rule or regulation or in the interpretation
or application thereof by any Governmental Authority after the date of this
Agreement or
(c) compliance by any Lender or the Issuing Bank (or, for purposes of
Section 2.15(b), by any lending office of such Lender or by such Lender's or the
Issuing Bank's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"CLASS", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Swingline Loans.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans and to acquire participations in Letters of
Credit and Swingline Loans hereunder, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder,
as such commitment may be
(a) reduced from time to time pursuant to Section 2.09 and
(b) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04.
The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or
in the Assignment and Acceptance pursuant to which such Lender shall have
assumed its Commitment, as applicable. The initial aggregate amount of the
Lenders' Commitments is $100,000,000.
"CONSIDERATION" means, with respect to any acquisition, the aggregate
of
(i) the cash paid by Borrower or any of its Subsidiaries,
directly or indirectly, to the seller in connection therewith,
(ii) the Indebtedness incurred or assumed by Borrower or any
of its Subsidiaries, whether in favor of the seller or otherwise and whether
fixed or contingent,
(iii) any Guaranty given or incurred by Borrower or any of its
Subsidiaries in connection therewith, and
(iv) any other consideration given or obligation incurred by
Borrower or any of its Subsidiaries in connection therewith.
"CONSOLIDATED CASH" means the Borrower's and its Subsidiaries cash
consolidated in accordance with GAAP.
"CONSOLIDATED CASH EQUIVALENTS" means the Borrower's and its
Subsidiaries Cash Equivalents consolidated in accordance with GAAP.
"CONSOLIDATED EBITDA" means, for any period, the consolidated net
income (or net loss) of the Borrower and its Subsidiaries for such period as
determined in accordance with GAAP, plus
28
<PAGE> 10
(a) the sum of
(i) depreciation expense,
(ii) amortization expense,
(iii) Consolidated Interest Expense,
(iv) total income tax expense,
(v) extraordinary or unusual losses (including after tax losses
on sales of assets outside of the ordinary course of business and not otherwise
included in GAAP extraordinary or unusual losses),
(vi) other non-cash charges, and
(vii) the net loss of any Person that is accounted for by the
equity method of accounting, except to the extent of the amount of dividends or
distributions paid to the Borrower, less
(b) the sum of
(i) extraordinary or unusual gains (including after tax
gains on sales of assets outside of the ordinary course of business and not
otherwise included in GAAP extraordinary or nonrecurring gains),
(ii) other noncash credits, and
(iii) the net income of any Person that is accounted for
by the equity method of accounting, except to the extent of the amount of
dividends or distributions paid to the Borrower; provided, that for purposes of
calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any
period, (x) the Consolidated EBITDA of any Person disposed of by the Borrower or
its Subsidiaries during such period shall be excluded for such period and (y)
the Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries during such period shall be included on a pro forma basis for such
period (and assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith occurred on
the first day of such period) if the consolidated balance sheet of such acquired
Person and its consolidated Subsidiaries as at the end of the period preceding
the acquisition of such Person and related consolidated statements of income and
stockholders' equity and of cash flows for such period (i) have been previously
provided to the Administrative Agent and the Lenders and (ii) either (A) have
been reported on without qualification arising out of the scope of the audit by
independent certified accountants of nationally recognized standing or (B) have
been found acceptable by the Administrative Agent, and the Required Lenders.
"CONSOLIDATED INTEREST EXPENSE" means any Person's interest expense, as
determined in accordance with GAAP, as appearing on the Borrower's financial
statements.
"CONSOLIDATED NET WORTH" means stockholders' equity of any Person
determined on a consolidated basis, as determined in accordance with GAAP
consistently applied, less any Redeemable Preferred Shares.
"CONSOLIDATED RECEIVABLES" means the Borrower's and its Subsidiaries
Receivables consolidated in accordance with GAAP.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"CURRENCY EQUIVALENT" means, on any date of determination, the
equivalent in any Optional Currency of an amount in Dollars, or in Dollars of an
amount in any Optional Currency, determined by using the quoted spot rate at
which the London office of the Administrative Agent offers to exchange Dollars
for such Optional Currency or such Optional Currency for Dollars, as applicable,
in London prior to 11:00 a.m. (London time) on such date.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DISCLOSED MATTERS" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
29
<PAGE> 11
"DOLLARS" or "$" refers to lawful money of the United States of
America.
"DOLLAR EQUIVALENT" means, with respect to any amount of any currency,
the Equivalent Amount of such currency expressed in Dollars.
"EFFECTIVE DATE" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon
(a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment
or disposal of any Hazardous Materials,
(c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into
the environment or
(e) any contract, agreement or other consensual arrangement pursuant to
which liability is assumed or imposed with respect to any of the foregoing.
"EQUIVALENT AMOUNT" means, at any time, as determined by the
Administrative Agent (which determination shall be conclusive absent manifest
error), with respect to an amount of any currency (the "Reference Currency")
which is to be computed as an equivalent amount of another currency (the
"Equivalent Currency"):
(i) if the Reference Currency and the Equivalent Currency are
the same, the amount is such Reference Currency; or
(ii) if the Reference Currency and the Equivalent Currency are
not the same, the amount of such Equivalent Currency converted from such
Reference Currency at the Administrative Agent's spot selling rate (based on the
market rates then prevailing and available to the Administrative Agent) for the
sale of such Equivalent Currency for such Reference Currency at 11:00 A.M.
London, England time, on the second Business Day immediately preceding the event
for which such calculation is made
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA EVENT" means
(a) any "reportable event", as defined in Section 4043 of ERISA or the
regulations issued thereunder with respect to a Plan (other than an event for
which the 30-day notice period is waived);
(b) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived;
30
<PAGE> 12
(c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan;
(d) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability under Title IV of ERISA with respect to the termination of any
Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or
a plan administrator of any notice relating to an intention to terminate any
Plan or Plans or to appoint a trustee to administer any Plan;
(f) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability with respect to the withdrawal or partial withdrawal from any Plan
or Multiemployer Plan; or
(g) the receipt by the Borrower or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from the Borrower or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"EURO" means the single currency of participating member states of the
European Union.
"EUROCURRENCY LOAN" means any Loan denominated in Dollars or an
Optional Currency that bears interest at the Adjusted Eurocurrency Rate.
"EUROCURRENCY RATE" shall mean the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) quoted by the Administrative Agent
(i) for any Loan denominated in other than the euro, at
approximately 11:00 a.m. London time (or Paris time, if the Loan is denominated
in Pounds Sterling) (or as soon thereafter as practicable) two Business Days
prior to the first day of such Loan for the offering by the Administrative Agent
to leading banks in the London (or Paris, as the case may be) interbank market
of deposits in the currency of the Loan having a term comparable to such Loan
and in an amount comparable to the principal amount of such Loan, or
(ii) for any Loan denominated in the euro, at approximately
11:00 a.m. Frankfurt time two TARGET Days prior to the first day of such Loan
for the offering by the Administrative Agent to leading banks in TARGET of
deposits having a term comparable to such Loan and in an amount comparable to
the principal amount of such Loan
"EURODOLLAR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"EURODOLLAR LOAN" means any Loan denominated in Dollars or an Optional
Currency that bears interest at the Adjusted LIBO Rate.
"EVENT OF DEFAULT" has the meaning assigned to such term in Article
VII.
"EXCLUDED TAXES" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder,
(a) income or franchise taxes imposed on (or measured by) its net
income by the United States of America, or by the jurisdiction under the laws of
which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its applicable lending office is
located,
(b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which the Borrower is
located and
(c) in the case of a Foreign Lender (other than an assignee pursuant to
a request by the Borrower under Section 2.19(b)), any withholding tax that is
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or designates a new lending
31
<PAGE> 13
office) or is attributable to such Foreign Lender's failure to comply with
Section 2.17(e), except to the extent that such Foreign Lender (or its assignor,
if any) was entitled, at the time of designation of a new lending office (or
assignment), to receive additional amounts from the Borrower with respect to
such withholding tax pursuant to Section 2.17(a).
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or corporate controller of the Borrower.
"FIXED RATE LOAN" means any Swingline Loan with bears interest for a
fixed rate for a period of time in excess of one (1) day.
"FOREIGN LENDER" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"FOREIGN SUBSIDIARY" means any Subsidiary organized under the laws of a
jurisdiction outside than the United States.
"FOREIGN SUBSIDIARY BORROWER" means each Foreign Subsidiary to which a
Revolving Loan is made pursuant to Section 2.03(h).
"GAAP" means generally accepted accounting principles in the United
States of America.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"GOVERNMENTAL RULE" means any law, statute, rule, regulation,
ordinance, order, judgment, guideline or decision of any Governmental Authority.
"GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment thereof,
(b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment thereof,
(c) to maintain working capital, equity capital or any other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other obligation or
(d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation; PROVIDED, that the
term Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
32
<PAGE> 14
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" of any Person means, without duplication,
(a) all obligations of such Person for borrowed money or with respect
to deposits or advances of any kind,
(b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments,
(c) all obligations of such Person upon which interest charges are
customarily paid,
(d) all obligations of such Person under conditional sale or other
title retention agreements relating to property acquired by such Person,
(e) all obligations of such Person in respect of the deferred purchase
price of property or services (excluding current accounts payable incurred in
the ordinary course of business),
(f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed,
(g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person,
(i) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty,
(j) all obligations, contingent or otherwise, of such Person in respect
of bankers' acceptances and
(k) any Redeemable Preferred Shares.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general partner) to
the extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INFORMATION MEMORANDUM" means the Confidential Information Memorandum
dated July, 1999 relating to the Borrower and the Transactions.
"INTEREST ELECTION REQUEST" means a request by the Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.08.
"INTEREST PAYMENT DATE" means
(a) with respect to any ABR Loan (other than a Swingline Loan), the
last day of each month,
33
<PAGE> 15
(b) with respect to any Eurocurrency Loan or Eurodollar Loan, the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurocurrency Borrowing or Eurodollar Borrowing with
an Interest Period of more than three months' duration, each day prior to the
last day of such Interest Period that occurs at intervals of three months'
duration after the first day of such Interest Period and
(c) with respect to any Swingline Loan, the day that such Loan is
required to be repaid.
"INTEREST PERIOD" means with respect to any Eurocurrency Borrowing or
Eurodollar Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day in the calendar month that is one,
two, three or six months thereafter, as the Borrower may elect; PROVIDED, that
(i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurodollar or Eurocurrency Borrowing only,
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day and
(ii) any Interest Period pertaining to a Eurocurrency Borrowing
or Eurodollar Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made
and, in the case of a Revolving Borrowing, thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"ISSUING BANK" means The Chase Manhattan Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.06(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.
"LC DISBURSEMENT" means a payment made by the Issuing Bank pursuant to
a Letter of Credit.
"LC EXPOSURE" means, at any time, the sum of
(a) the aggregate undrawn amount of all outstanding Letters of Credit
at such time plus
(b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any
Lender at any time shall be its Applicable Percentage of the total LC Exposure
at such time.
"LENDERS" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"LETTER OF CREDIT" means any letter of credit issued pursuant to this
Agreement.
34
<PAGE> 16
"LIBO RATE" means, with respect to any Eurodollar Borrowing for any
Interest Period
(a) with respect to Loans denominated in dollars, the rate appearing on
Page 3750 of the Telerate Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such Service,
as determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period, and
(b) with respect to Loans denominated in an Optional Currency, the rate
appearing on the relevant display page of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or substitute
for such Service, providing rate quotations comparable to those currently
provided on such page of such Service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates
applicable to the relevant Optional Currency deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period . In the event that such rates are
not available at such time for any reason, then the "LIBO RATE" with respect to
such Eurodollar Borrowing for such Interest Period shall be the rate at which
the relevant dollar or Optional Currency deposits of $5,000,000 and for a
maturity comparable to such Interest Period are offered by the principal London
office of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period.
"LIEN" means, with respect to any asset,
(a) any mortgage, deed of trust, lien, pledge, hypothecation,
encumbrance, charge or security interest in, on or of such asset,
(b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and
(c) in the case of securities, any purchase option, call or similar
right of a third party with respect to such securities.
"LOANS" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"LOAN DOCUMENTS" means this Agreement, any application for Letter of
Credit, any Hedging Agreement executed by a Lender or an Affiliate of a Lender
and the Borrower, any foreign exchange contract executed by a Lender or an
Affiliate of a Lender and the Borrower, and any other agreements, instruments,
certificates or documents contemplated thereby, as any of the same may be
supplemented or amended from time to time in accordance herewith or therewith;
and Loan Document means any of the Loan Documents.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, assets, operations, prospects or condition, financial
or otherwise, of the Borrower and the Subsidiaries taken as a whole,
(b) the ability of the Borrower to perform any of its obligations under
this Agreement or
(c) the rights of or benefits available to the Lenders under this
Agreement or any Loan Document.
"MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of the Borrower and its Subsidiaries in an aggregate
principal amount exceeding $3,000,000. For purposes of determining
35
<PAGE> 17
Material Indebtedness, the "principal amount" of the obligations of the Borrower
or any Subsidiary in respect of any Hedging Agreement at any time shall be the
maximum aggregate amount (giving effect to any netting agreements) that the
Borrower or such Subsidiary would be required to pay if such Hedging Agreement
were terminated at such time.
"MATURITY DATE" means August 24, 2004.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"OPTIONAL CURRENCY" means
(i) the British Pound Sterling and the Euro, or
(ii) any other lawful currency (other than Dollars) that has
been approved by the Administrative Agent and the Required Lenders pursuant to
2.04 (d).
"OTHER TAXES" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"PERMITTED ENCUMBRANCES" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the ordinary
course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the ordinary
conduct of business of the Borrower or any Subsidiary;
PROVIDED that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
36
<PAGE> 18
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by, any domestic office of any commercial
bank organized under the laws of the United States of America or any State
thereof which has a combined capital and surplus and undivided profits of not
less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and entered
into with a financial institution satisfying the criteria described in clause
(c) above;
(e) interests in pooled investment funds the assets of which
are invested in investments referred to in clauses (a) through (d) above,
including without limitation money market funds maintained by a bank or other
financial institution; and
(f) money market funds rated with the highest credit rating
obtainable from S&P or from Moody's.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"PRIME RATE" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"RECEIVABLE" means, with respect to the Borrower or any Subsidiary, all
accounts receivable, contract rights related to such account receivable,
instruments, chattel paper, general intangibles related to such Receivables and
all other rights to payments of moneys for any reason (whether or not evidenced
by a contract, instrument, chattel paper or document), and all other rights,
powers and privileges of the Borrower or any Subsidiary, as the case may be,
arising thereunder or related thereto (including but not limited to all
guarantees, collateral security, surety bonds, rights under letters of credit,
insurance or other direct or indirect security), assertible against any Person
whatever and all rebates, refunds, adjustments and returned, rejected, or
repossessed goods relating thereto and all proceeds of any of the foregoing.
"REDEEMABLE PREFERRED SHARES" means any capital stock of the Borrower
or a Subsidiary which is redeemable, payable or required to be purchased or
otherwise retired or extinguished, or convertible into any Indebtedness at the
option of the holder of such capital stock, whether or not it pays dividends at
a specified or non-specified rate, and whether or not such capital stock has
preference over common stock in any respect
"REGISTER" has the meaning set forth in Section 9.04.
"RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing at least 66 2/3% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time.
37
<PAGE> 19
"REVOLVING CREDIT EXPOSURE" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its LC Exposure and Swingline Exposure at such time.
"REVOLVING LOAN" means a Loan made pursuant to Section 2.03.
"S&P" means Standard & Poor's.
"STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject
(a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months, and
(b) with respect to the Adjusted Eurocurrency Rate and Adjusted LIBO
Rate, for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurocurrency Loans and
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"SUBORDINATED INDEBTEDNESS" means all Indebtedness incurred at any time
by the Borrower or any Subsidiary, the repayment of which is subordinated to the
Loans in form and manner satisfactory to the Administrative Agent and the
Required Lenders.
"SUBSIDIARY" means, with respect to any Person (the "PARENT") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity
(a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or
(b) that is, as of such date, otherwise Controlled, by the parent or
one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"SUBSIDIARY" means any subsidiary of the Borrower.
"SWINGLINE EXPOSURE" means, at any time, the aggregate principal amount
of all Swingline Loans outstanding at such time. The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.
"SWINGLINE LENDER" means The Chase Manhattan Bank, in its capacity as
lender of Swingline Loans hereunder.
"SWINGLINE LOAN" means a Loan made pursuant to Section 2.05.
"TARGET" means the trans-euro real time gross settlement system.
"TARGET DAY" means any day of operation of TARGET.
38
<PAGE> 20
"TAXES" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"TOTAL FUNDED DEBT" means Indebtedness of the Borrower and its
Subsidiaries consolidated in accordance with GAAP, which Indebtedness by its
terms is not explicitly subordinated in a manner in form and substance
satisfactory to the Administrative Agent and the Required Lenders to the payment
in full of the Lender Obligations.
"TOTAL FUNDED DEBT TO CONSOLIDATED EBITDA RATIO" means, as of any date
of determination, the ratio of the Borrower's Total Funded Debt as of the end of
the Borrower's most recently completed Fiscal Quarter to the Borrower's
Consolidated EBITDA for the Borrower's four most recently completed Fiscal
Quarters treated as a single accounting period.
"TRANSACTIONS" means the execution, delivery and performance by the
Borrower of this Agreement, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder.
"TYPE", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Adjusted
Eurocurrency Rate, the Alternate Base Rate.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of
this Agreement, Loans may be classified and referred to by Class (E.G., a
"Revolving Loan") or by Type (E.G., a "Eurodollar Loan") or by Class and Type
(E.G., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (E.G., a "Revolving Borrowing") or by Type (E.G., a
"Eurodollar Borrowing") or by Class and Type (E.G., a "Eurodollar Revolving
Borrowing").
SECTION 1.03. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include
such Person's successors and assigns,
(c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof,
39
<PAGE> 21
(d) all references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, this Agreement and
(e) the words "asset" and "property" shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; PROVIDED
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
40
<PAGE> 22
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans in Dollars or Optional
Currency to the Borrower from time to time during the Availability Period in an
aggregate principal Dollar Equivalent that will not result in
(a) such Lender's Revolving Credit Exposure exceeding such Lender's
Commitment,
(b) the sum of the total Revolving Credit Exposures exceeding the total
Commitments, or
(c) the aggregate principal Dollar Equivalent of such Lender's
Revolving Loans in Optional Currencies exceeding 50% of such Lender's
Commitment. Within the foregoing limits and subject to the terms and conditions
set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. LOANS AND BORROWINGS.
(a) Each Revolving Loan shall be made as part of a Borrowing consisting
of Revolving Loans made by the Lenders ratably in accordance with their
respective Commitments. The failure of any Lender to make any Loan required to
be made by it shall not relieve any other Lender of its obligations hereunder;
PROVIDED that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing shall be
comprised entirely of ABR Loans, Eurocurrency Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. Subject to Section 2.05, each
Swingline Loan shall be an ABR Loan. Each Lender at its option may make any
Eurocurrency Loan or Eurodollar Loan by causing any domestic or foreign branch
or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan
in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurocurrency
Revolving Borrowing or Eurodollar Revolving Borrowing, such Borrowing shall be
in an aggregate amount that is an integral multiple of $500,000 and not less
than $2,500,000. At the time that each ABR Revolving Borrowing is made, such
Borrowing shall be in an aggregate amount that is an integral multiple of
$500,000 and not less than $1,000,000; PROVIDED that an ABR Revolving Borrowing
may be in an aggregate amount that is equal to the entire unused balance of the
total Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in
an amount that is an integral multiple of $500,000 and not less than $1,000,000.
Borrowings of more than one Type and Class may be outstanding at the same time;
PROVIDED that there shall not at any time be more than a total of 5 Eurocurrency
and Eurodollar Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone
(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing,
(b) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing,
(c) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time, one Business Day before the date of the proposed Borrowing, or
41
<PAGE> 23
(d) in the case of an Optional Currency Borrowing, not later than 11:00
a.m., New York City time, four Business Days before the date of the proposed
Borrowing; PROVIDED that any such notice of an ABR Revolving Borrowing to
finance the reimbursement of an LC Disbursement as contemplated by Section 2.06
(e) may be given not later than 10:00 a.m., New York City time, on the
date of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) the aggregate Dollar or Dollar Equivalent amount of the
requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing, a
Eurocurrency Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurocurrency Borrowing or a Eurodollar
Borrowing, the initial Interest Period to be applicable thereto, which shall be
a period contemplated by the definition of the term "Interest Period";
(v) for Borrowings to be funded in an Optional Currency, the
currency in which the Borrowing is to be funded and
(vi) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of Section
2.07.
If no election as to the Type of Revolving Borrowing is specified, then
the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest
Period is specified with respect to any requested Eurocurrency or Eurodollar
Revolving Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration. Promptly following receipt of a
Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04 UTILIZATION OF COMMITMENTS IN OPTIONAL CURRENCIES.
(a) PERIODIC COMPUTATIONS OF DOLLAR EQUIVALENT AMOUNTS OF LOANS AND
LETTERS OF CREDIT OUTSTANDING. The Administrative Agent will determine the
Dollar Equivalent amount of
(i) proposed Loans to be denominated in an Optional Currency as
of the date of the requested Borrowing,
(ii) outstanding Loans denominated in an Optional Currency as
of the last Business Day of each month, and
(iii) outstanding Loans denominated in an Optional Currency as
of the end of each Interest Period (each such date under clauses (i) through
(iii), a "Computation Date").
(b) NOTICES FROM LENDERS THAT OPTIONAL CURRENCIES ARE UNAVAILABLE TO
FUND NEW LOANS. The Lenders shall be under no obligation to make the Loans
requested by the Borrower which are denominated in an Optional Currency if any
Lender notifies the Administrative Agent by 9:00 a.m. New York City time three
(3) Business Days prior to the date of the proposed Borrowing for such Loans
that such Lender cannot provide its share of such Loans in such Optional
Currency by reason of
(i) a Governmental Rule or
(ii) circumstances affecting foreign exchange markets generally.
In the event the Administrative Agent timely receives a notice from a Lender
pursuant to the preceding sentence, the Administrative Agent will notify the
Borrower no later than 10:00 a.m. New York City time three (3) Business Days
prior to the date of the proposed Borrowing that the Optional Currency is not
then available for such Loans, and the Administrative Agent shall promptly
thereafter notify the Lenders of the same. If the Borrower receives a notice
described in the preceding sentence, the Borrower may, by notice to the
Administrative Agent not later than 11:00 a.m. New York City time three (3)
Business Days prior to the date of the proposed Borrowing for such Loans,
withdraw the Loan request for such Loans.
If the Borrower withdraws such Loan request, the Administrative Agent
will promptly notify each Lender of the same and the Lenders shall not make such
Loans. If the Borrower does not withdraw such Loan Request before such time,
42
<PAGE> 24
(i) the Borrower shall be deemed to have requested that the
Loans referred to in its application shall be made in Dollars in an amount equal
to the Dollar Equivalent amount of such Loans and such Loans will bear interest
at the Adjusted Base Rate, and
(ii) the Administrative Agent shall promptly deliver a notice to
each Lender stating: (A) that such Loans shall be made in Dollars and the Loans
shall bear interest under the ABR, (B) the aggregate amount of such Loans, and
(C) such Lender's Applicable Percentage of such Loans.
(c) NOTICES FROM LENDERS THAT OPTIONAL CURRENCIES ARE UNAVAILABLE TO
FUND RENEWALS OF EURO-RATE OPTION LOANS. If the Borrower delivers a Loan Request
requesting that the Lenders renew any Eurocurrency Loan or Eurodollar Loan any
portion of which is denominated in an Optional Currency, the Lenders shall be
under no obligation to renew such Eurocurrency Loan or Eurodollar Loan if any
Lender delivers to the Administrative Agent a notice by 9:00 a.m. New York City
time three (3) Business Days prior to effective date of such renewal that such
Lender cannot continue to provide Loans in such Optional Currency by reason of
(i) a Governmental Rule or
(ii) circumstances affecting foreign exchange markets generally.
In the event the Administrative Agent timely receives a notice from a
Lender pursuant to the preceding sentence, the Administrative Agent will notify
the Borrower no later than 10:00 a.m. New York City time three (3) Business Days
prior to the renewal date that the renewal of such Loans in such Optional
Currency is not then available, and the Administrative Agent shall promptly
thereafter notify the Lenders of the same. If the Administrative Agent shall
have so notified the Borrower that any such continuation of Loans denominated in
an Optional Currency is not then available, any notice of renewal with respect
thereto shall be deemed withdrawn, and such Loans denominated in an Optional
Currency shall be re-denominated into ABR Loans with effect from the last day of
the Interest Period with respect to any such Loans denominated in an Optional
Currency. The Administrative Agent will promptly notify the Borrower and the
Lenders of any such re-denomination, and in such notice, the Administrative
Agent will state the aggregate Dollar Equivalent amount of the re-denominated
Loans denominated in an Optional Currency as of the Computation Date with
respect thereto and such Lender's Applicable Percentage thereof.
(d) REQUESTS FOR ADDITIONAL OPTIONAL CURRENCIES. The Borrower may
deliver to the Administrative Agent a written request that Revolving Loans
hereunder also be permitted to be made in any other lawful currency (other than
Dollars), in addition to the currencies specifically identified in the
definition of "Optional Currency"; provided that such currency must be freely
traded in the offshore interbank foreign exchange markets, freely transferable,
freely convertible into Dollars and available to the Lenders in the applicable
interbank market. The Administrative Agent will promptly notify the Lenders of
any such request promptly after the Administrative Agent receives such request.
Each Lender may grant or deny such request in its sole discretion. The
Administrative Agent will promptly notify the Borrower of the acceptance or
rejection by each of the Lenders of the Borrower's request. The requested
currency shall be approved as an Optional Currency hereunder only if the
Required Lenders approve of the Borrower's request.
(e) OPTIONAL CURRENCY FEE. The Borrower shall pay to the Administrative
Agent in Dollars for the Administrative Agent's sole account the Administrative
Agent's then current customary fees payable with respect to Revolving Loans
denominated in an Optional Currency as the Administrative Agent may generally
charge or incur in connection with the funding, maintenance, modification (if
any), assignment or transfer (if any), negotiation, and administration of Loans
denominated in an Optional Currency.
43
<PAGE> 25
(f) CURRENCY REPAYMENTS. Notwithstanding anything contained herein to
the contrary, the entire amount of principal of and interest on any Revolving
Loan made in an Optional Currency shall be repaid in the same Optional Currency
in which such Revolving Loan was made and shall be repaid at the office
designated by Administrative Agent in the country of issue of each such Optional
Currency, provided, however, that if it is impossible or illegal for the
Borrower to effect payment of a Revolving Loan in the Optional Currency in which
such Revolving Loan was made, or if the Borrower defaults in its obligation to
do so, the Lenders may at their option permit such payment to be made
(i) at and to a different location, subsidiary, affiliate or
correspondent of the Administrative Agent, or
(ii) in the Equivalent Amount of Dollars or
(iii) in an Equivalent Amount of such other currency (freely
convertible into Dollars) as the Lenders may solely at their option designate.
Upon any events described in (i) through (iii) of the preceding
sentence, the Borrower shall make such payment and the Borrower agrees to hold
each Lender harmless from and against any loss incurred by any Lender arising
from the cost to such Lender of any premium, any costs of exchange, the cost of
hedging and covering the Optional Currency in which such Revolving Loan was
originally made, and from any change in the value of Dollars, or such other
currency, in relation to the Optional Currency that was due and owing. Such loss
shall be calculated for the period commencing with the first day of the Interest
Period for such Revolving Loan and continuing through the date of payment
thereof. Without prejudice to the survival of any other agreement of the
Borrower hereunder, the Borrower's obligations under this Section 2.04(f) shall
survive termination of this Agreement.
(g) OPTIONAL CURRENCY AMOUNTS. Notwithstanding anything contained
herein to the contrary, the Administrative Agent may, with respect to notices by
the Borrower for Revolving Loans in an Optional Currency or voluntary
prepayments of less than the full amount of an Optional Currency Borrowing,
engage in reasonable rounding of the Optional Currency amounts requested to be
loaned or repaid; and, in such event, the Administrative Agent shall promptly
notify the Borrower and the Lenders of such rounded amounts and the Borrower's
request or notice shall thereby be deemed to reflect such rounded amounts.
(h) CURRENCY FLUCTUATIONS. If on any Computation Date the sum of the
Dollar Equivalent of all Revolving Loans made in an Optional Currency is greater
than the sum of 50% of the Revolving Credit Commitments, as a result of a change
in exchange rates between one (1) or more Optional Currencies and Dollars, then
the Administrative Agent shall notify the Borrower of the same. Within one (1)
Business Day after receiving such notice, the Borrower shall pay or prepay
(subject to the Borrower's indemnity obligations under this Agreement) Revolving
Loans denominated in an Optional Currency in amounts such that the sum of the
Dollar Equivalent of all Revolving Loans denominated in an Optional Currency
does not exceed 50% of the Revolving Credit Commitments, all after giving effect
to such payments or prepayments.
(i) LOANS TO FOREIGN SUBSIDIARIES. Upon the request of the Borrower and
with the consent of the Required Lenders, the Administrative Agent shall use its
best efforts (but shall have no obligation) to arrange for the Banks to make
Revolving Loans denominated in an Optional Currency to various Foreign
Subsidiaries in lieu of the Borrower. Any Foreign Subsidiary Borrower shall
become a party hereto by execution of a joinder agreement in form and content
satisfactory to the Administrative Agent and the Required Banks. The Borrower
shall guaranty unconditionally the repayment of all such Loans to Foreign
Subsidiary Borrowers by execution of a guarantee agreement in form and content
satisfactory to the Administrative Agent and the Required Banks. The Borrower
shall cause to be made all payments required in connection with any such Loan to
a Foreign Subsidiary Borrower on or before the due date therefor. If any such
payment is not paid when due, the Administrative Agent may make such payment.
Any such payment made by the Administrative Agent shall be deemed to be a
Revolving Loan made ratably by the Banks based upon their respective Commitments
and for the purposes of payment of interest an Alternate Base Rate Loan.
SECTION 2.05. SWINGLINE LOANS.
(a) Subject to the terms and conditions set forth herein, the Swingline
Lender agrees to make Swingline Loans to the Borrower from time to time during
the Availability Period, in an aggregate principal amount at any time
outstanding that will not result in
44
<PAGE> 26
(i) the aggregate principal amount of outstanding Swingline
Loans exceeding $10,000,000 or
(ii) the sum of the total Revolving Credit Exposures exceeding
the total Commitments; PROVIDED that the Swingline Lender shall not be required
to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.06(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Lenders to acquire participations on such Business Day
in all or a portion of the Swingline Loans outstanding. Such notice shall
specify the aggregate amount of Swingline Loans in which Lenders will
participate. Promptly upon receipt of such notice, the Administrative Agent will
give notice thereof to each Lender, specifying in such notice such Lender's
Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby
absolutely and unconditionally agrees, upon receipt of notice as provided above,
to pay to the Administrative Agent, for the account of the Swingline Lender,
such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this paragraph is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including the occurrence
and continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever. Each Lender shall comply with its obligation under this
paragraph by wire transfer of immediately available funds, in the same manner as
provided in Section 2.07 with respect to Loans made by such Lender (and Section
2.07 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders),
and the Administrative Agent shall promptly pay to the Swingline Lender the
amounts so received by it from the Lenders. The Administrative Agent shall
notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this paragraph, and thereafter payments in respect of such Swingline
Loan shall be made to the Administrative Agent and not to the Swingline Lender.
Any amounts received by the Swingline Lender from the Borrower (or other party
on behalf of the Borrower) in respect of a Swingline Loan after receipt by the
Swingline Lender of the proceeds of a sale of participations therein shall be
promptly remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Lenders that shall have made their payments pursuant to this paragraph and
to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower of any default in the payment thereof. Notwithstanding the
foregoing, a Lender shall not have any obligation to acquire a participation in
a Swingline Loan pursuant to this paragraph if an Event of Default shall have
occurred and be continuing at the time such Swingline Loan was made and such
Lender shall have notified the Swingline Lender in writing, at least one
Business Day prior to the time such Swingline Loan was made, that such Event of
Default has occurred and that such Lender will not acquire participations in
Swingline Loans made while such Event of Default is continuing.
(d) At the request of the Borrower, interest on a Swingline Loan shall
bear interest at a rate per annum other than the Alternate Base Rate as may be
offered by the Swingline Lender and accepted by the Borrower, but in no event
with a maturity date more than seven (7) days from the date of the Swingline
Loan. Any such Swingline Loan bearing interest at a rate other than the
Alternate Base Rate shall be subject to the customary terms and conditions of
the Swingline Lender for loans bearing interest at a similar rate, including
without limitation, any requirement for the payment of indemnification or fees
for prepayment.
45
<PAGE> 27
SECTION 2.06. LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, the
Borrower may request the issuance of Letters of Credit for its own account, in a
form reasonably acceptable to the Administrative Agent and the Issuing Bank, at
any time and from time to time during the Availability Period. In the event of
any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(A) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension
(i) the LC Exposure shall not exceed $10,000,000 and
(ii) the sum of the total Revolving Credit Exposures shall not
exceed the total Commitments.
(c) EXPIRATION DATE. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of
(i) the date one year after the date of the issuance of such
Letter of Credit (or, in the case of any renewal or extension thereof, one year
after such renewal or extension) and
(ii) the date that is five Business Days prior to the Maturity
Date.
(d) PARTICIPATIONS. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.
(e) REIMBURSEMENT. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on
46
<PAGE> 28
(i) the Business Day that the Borrower receives such notice, if
such notice is received prior to 10:00 a.m., New York City time, on the day of
receipt, or
(ii) the Business Day immediately following the day that the
Borrower receives such notice, if such notice is not received prior to such time
on the day of receipt; PROVIDED that ,if such LC Disbursement is not less than
$1,000,000, the Borrower may, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 or 2.05 that such payment be
financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent
amount and, to the extent so financed, the Borrower's obligation to make such
payment shall be discharged and replaced by the resulting ABR Revolving
Borrowing or Swingline Loan.
If the Borrower fails to make such payment when due, the Administrative
Agent shall notify each Lender of the applicable LC Disbursement, the payment
then due from the Borrower in respect thereof and such Lender's Applicable
Percentage thereof. Promptly following receipt of such notice, each Lender shall
pay to the Administrative Agent its Applicable Percentage of the payment then
due from the Borrower, in the same manner as provided in Section 2.07 with
respect to Loans made by such Lender (and Section 2.07 shall apply, MUTATIS
MUTANDIS, to the payment obligations of the Lenders), and the Administrative
Agent shall promptly pay to the Issuing Bank the amounts so received by it from
the Lenders. Promptly following receipt by the Administrative Agent of any
payment from the Borrower pursuant to this paragraph, the Administrative Agent
shall distribute such payment to the Issuing Bank or, to the extent that Lenders
have made payments pursuant to this paragraph to reimburse the Issuing Bank,
then to such Lenders and the Issuing Bank as their interests may appear. Any
payment made by a Lender pursuant to this paragraph to reimburse the Issuing
Bank for any LC Disbursement (other than the funding of ABR Revolving Loans or a
Swingline Loan as contemplated above) shall not constitute a Loan and shall not
relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) OBLIGATIONS ABSOLUTE. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of
(i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect,
(iii) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or other document that does not comply with the
terms of such Letter of Credit, or
(iv) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section, constitute a legal or equitable discharge of, or provide a right of
setoff against, the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor
any of their Related Parties, shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of Credit
or any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in the preceding sentence), or any error,
omission, interruption, loss or delay in transmission or delivery of any draft,
notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank; PROVIDED that the foregoing shall not be
construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank's
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that, in the absence of gross negligence or willful
misconduct on the part of the Issuing Bank (as finally determined by a court of
competent jurisdiction), the Issuing Bank shall be deemed to have exercised care
in each such determination. In furtherance of the foregoing and without limiting
the generality thereof, the parties agree that, with respect to documents
presented which appear on their face to be in substantial compliance with the
terms of a Letter of Credit, the Issuing Bank may, in its sole discretion,
either accept and make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to the contrary,
or refuse to accept and make
47
<PAGE> 29
payment upon such documents if such documents are not in strict compliance with
the terms of such Letter of Credit.
(g) DISBURSEMENT PROCEDURES. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; PROVIDED that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h) INTERIM INTEREST. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
PROVIDED that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.13(e) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing
Bank shall be for the account of such Lender to the extent of such payment.
(i) REPLACEMENT OF THE ISSUING BANK. The Issuing Bank may be replaced
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.12(b). From and after the effective date of any such replacement,
(i) the successor Issuing Bank shall have all the rights and
obligations of the Issuing Bank under this Agreement with respect to Letters of
Credit to be issued thereafter and
(ii) references herein to the term "Issuing Bank" shall be
deemed to refer to such successor or to any previous Issuing Bank, or to such
successor and all previous Issuing Banks, as the context shall require.
After the replacement of an Issuing Bank hereunder, the replaced
Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement with respect to
Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) CASH COLLATERALIZATION. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposure representing greater than 66 2/3%
of the total LC Exposure) demanding the deposit of cash collateral pursuant to
this paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders, an amount in cash equal to the LC Exposure as of such date plus any
accrued and unpaid interest thereon; PROVIDED that the obligation to deposit
such cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Borrower
described in clause (h) or (i) of Article VII. Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
obligations of the Borrower under this Agreement. Subject to the terms and
conditions contained in this Subsection (j), the Administrative Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account. Other than any interest earned on the investment of such
deposits, which investments shall be made at the option and sole discretion of
the Administrative Agent and at the Borrower's risk and expense, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the Issuing Bank for LC Disbursements for
which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for
the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure representing
greater than 66 2/3% of the total LC Exposure), be applied to
48
<PAGE> 30
satisfy other obligations of the Borrower under this Agreement. If the Borrower
is required to provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Business Days after
all Events of Default have been cured or waived.
SECTION 2.07. FUNDING OF BORROWINGS.
(a) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds by 12:00
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders; PROVIDED
that Swingline Loans shall be made as provided in Section 2.05. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request; PROVIDED that ABR Revolving Loans
made to finance the reimbursement of an LC Disbursement as provided in Section
2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or
(ii) in the case of the Borrower, the interest rate applicable
to ABR Loans. If such Lender pays such amount to the Administrative Agent, then
such amount shall constitute such Lender's Loan included in such Borrowing.
SECTION 2.08. INTEREST ELECTIONS.
(a) Each Revolving Borrowing initially shall be of the Type specified
in the applicable Borrowing Request and, in the case of a Eurocurrency or
Eurodollar Revolving Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurocurrency or Eurodollar Revolving Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
49
<PAGE> 31
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to clauses
(iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing,
a Eurocurrency Borrowing or a Eurodollar Borrowing;
(iv) if the resulting Borrowing is a Eurocurrency Borrowing or a
Eurodollar Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the definition
of the term "Interest Period"; and.
(v) in which Optional Currency, if any, is the Borrowing to be
denominated..If any such Interest Election Request requests a Eurocurrency
Borrowing or a Eurodollar Borrowing but does not specify an Interest Period,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurocurrency or Eurodollar Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing
(i) no outstanding Revolving Borrowing may be converted to or
continued as a Eurocurrency or Eurodollar Borrowing and
(ii) unless repaid, each Eurocurrency and Eurodollar Revolving
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS.
(a) Unless previously terminated, the Commitments shall terminate on
the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; PROVIDED that
(i) each reduction of the Commitments shall be in an amount that
is an integral multiple of $10,000,000 and not less than $10,000,000 and
(ii) the Borrower shall not terminate or reduce the Commitments
if, after giving effect to any concurrent prepayment of the Loans in accordance
with Section 2.11, the sum of the Revolving Credit Exposures would exceed the
total Commitments.
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; PROVIDED that a notice of termination of
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.10. REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) The Borrower hereby unconditionally promises to pay
50
<PAGE> 32
(i) to the Administrative Agent for the account of each Lender
the then unpaid principal amount of each Revolving Loan on the Maturity Date,
and
(ii) to the Swingline Lender the then unpaid principal amount of
each Swingline Loan on the earlier of the Maturity Date and the first date after
such Swingline Loan is made that is the 15th or last day of a calendar month and
is at least two (2) Business Days after such Swingline Loan is made; PROVIDED
that on each date that a Revolving Borrowing is made, the Borrower shall repay
all Swingline Loans then outstanding other than Swingline Loans bearing interest
at other than the Alternate Base Rate whose applicable interest period has not
expired.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record
(i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto,
(ii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent
hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and
amounts of the obligations recorded therein; PROVIDED that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in the
form of Exhibit B, with blanks appropriately completed. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.11. PREPAYMENT OF LOANS.
(a) The Borrower shall have the right at any time and from time to time
to prepay any Borrowing in whole or in part, subject to prior notice in
accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder
(i) in the case of prepayment of a Eurodollar Revolving
Borrowing, not later than 11:00 a.m., New York City time, three Business Days
before the date of prepayment,
(ii) in the case of prepayment of a Eurocurrency Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of prepayment,
(iii) in the case of prepayment of an ABR Revolving Borrowing,
not later than 11:00 a.m., New York City time, one Business Day before the date
of prepayment or
(iv) in the case of prepayment of a Swingline Loan, not later
than 12:00 noon, New York City time, on the date of prepayment. Each such notice
shall be irrevocable and shall specify the prepayment date and the principal
amount of each Borrowing or portion thereof to be prepaid; PROVIDED that, if a
notice of prepayment is given in connection with a conditional notice of
termination of the Commitments as contemplated by Section 2.09, then such notice
of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.09. Promptly following receipt of any such notice
relating to a Revolving Borrowing, the Administrative Agent shall advise the
Lenders of the contents thereof. Each partial prepayment of any Revolving
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Revolving Borrowing of the same Type as provided in Section
51
<PAGE> 33
2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the
Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.13.
SECTION 2.12. FEES.
(a) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a facility fee, which shall accrue at the Applicable Rate
on the daily amount of the unused Commitment of such Lender during the period
from and including Effective Date to but excluding the date on which such
Commitment terminates; PROVIDED that, if such Lender continues to have any
Revolving Credit Exposure after its Commitment terminates, then such facility
fee shall continue to accrue on the daily amount of such Lender's Revolving
Credit Exposure from and including the date on which its Commitment terminates
to but excluding the date on which such Lender ceases to have any Revolving
Credit Exposure. Accrued facility fees shall be payable in arrears on the last
day of March, June, September and December of each year and on the date on which
the Commitments terminate, commencing on the first such date to occur after the
date hereof; PROVIDED that any facility fees accruing after the date on which
the Commitments terminate shall be payable on demand. All facility fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b) The Borrower agrees to pay
(i) to the Administrative Agent for the account of each Lender a
participation fee with respect to its participations in Letters of Credit, which
shall accrue at the same Applicable Rate as interest on Eurodollar Revolving
Loans on the average daily amount of such Lender's LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the Effective Date to but excluding the later of the date on
which such Lender's Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and
(ii) to the Issuing Bank a fronting fee, which shall accrue at
the rate of 0.125% per annum on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date of termination of the Commitments and the date on which there
ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with
respect to the issuance, amendment, renewal or extension of any Letter of Credit
or processing of drawings thereunder. Participation fees and fronting fees
accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day, commencing on the first such date to occur after the Effective Date;
PROVIDED that all such fees shall be payable on the date on which the
Commitments terminate and any such fees accruing after the date on which the
Commitments terminate shall be payable on demand. Any other fees payable to the
Issuing Bank pursuant to this paragraph shall be payable within 10 days after
demand. All participation fees and fronting fees shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
facility fees and participation fees, to the Lenders. Fees paid shall not be
refundable under any circumstances.
SECTION 2.13. INTEREST.
(a) The Loans comprising each ABR Borrowing (including each Swingline
Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall bear
interest at the Adjusted Eurocurrency Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate.
52
<PAGE> 34
(c) The Loans comprising each Eurodollar Borrowing shall bear interest
at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.
(d) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to
(i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or
(ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Commitments; PROVIDED that
(i) interest accrued pursuant to paragraph (d) of this Section
shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan
(other than a prepayment of an ABR Revolving Loan prior to the end of the
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and
(iii) in the event of any conversion of any Eurocurrency or
Eurodollar Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f) All interest hereunder shall be computed on the basis of a year of
360 days, except that
(i) interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and
(ii) all Loans denominated in British Pounds Sterling shall be
computed on the basis of a year of 365 days (or 366 days in a leap year).
Interest in all cases shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable Alternate
Base Rate, Adjusted Eurocurrency Rate, Adjusted LIBO Rate or LIBO Rate shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.14. ALTERNATE RATE OF INTEREST. If prior to the commencement
of any Interest Period for a Eurocurrency Borrowing or Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted Eurocurrency Rate, the Adjusted LIBO Rate or
the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted Eurocurrency Rate, the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders (or Lender) of making or maintaining their Loans (or its
Loan) included in such Borrowing for such Interest Period; then the
Administrative Agent shall give notice thereof to the Borrower and the Lenders
by telephone or telecopy as promptly as practicable thereafter and, until the
Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist,
(i) any Interest Election Request that requests the conversion
of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a
Eurocurrency Borrowing or Eurodollar Borrowing shall be ineffective, and
(ii) if any Borrowing Request requests a Eurocurrency or
Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR
Borrowing; PROVIDED that if the circumstances giving rise to such notice affect
only one Type of Borrowings, then the other Type of Borrowings shall be
permitted.
53
<PAGE> 35
SECTION 2.15. INCREASED COSTS.
a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender (except any such reserve
requirement reflected in the Adjusted Eurocurrency Rate or the Adjusted LIBO
Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or Eurocurrency
Loans, Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of
Credit or participation therein; and the result of any of the foregoing shall be
to increase the cost to such Lender of making or maintaining any Eurocurrency
Loan, Eurodollar Loan (or of maintaining its obligation to make any such Loan)
or to increase the cost to such Lender or the Issuing Bank of participating in,
issuing or maintaining any Letter of Credit or to reduce the amount of any sum
received or receivable by such Lender or the Issuing Bank hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be, for such
additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender's or the Issuing Bank's capital or on the capital of
such Lender's or the Issuing Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; PROVIDED
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; PROVIDED FURTHER that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 270-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of
(a) the payment of any principal of any Eurocurrency Loan, Eurodollar
Loan or Fixed Rate Loan other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default),
(b) the conversion of any Eurocurrency Loan or Eurodollar Loan other
than on the last day of the Interest Period applicable thereto,
(c) the failure to borrow, convert, continue or prepay any Revolving
Loan on the date specified in any notice delivered pursuant hereto (regardless
of whether such notice may be revoked under Section 2.11(b) and is revoked in
accordance therewith), or
54
<PAGE> 36
(d) the assignment of any Eurocurrency Loan, or Eurodollar Loan other
than on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.19, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurocurrency Loan or Eurodollar
Loan, such loss, cost or expense to any Lender shall be deemed to include an
amount determined by such Lender to be the excess, if any, of
(i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted
Eurocurrency Rate (in the case of a Eurocurrency Loan) or the Adjusted LIBO Rate
(in the case of a Eurodollar Loan) that would have been applicable to such Loan,
for the period from the date of such event to the last day of the then current
Interest Period therefor (or, in the case of a failure to borrow, convert or
continue, for the period that would have been the Interest Period for such
Loan), over
(ii) the amount of interest which would accrue on such principal
amount for such period at the interest rate which such Lender would bid were it
to bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market. A certificate of
any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof.
SECTION 2.17. TAXES.
(a) Any and all payments by or on account of any obligation of the
Borrower hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; PROVIDED that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made,
(ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender or the Issuing Bank,
or by the Administrative Agent on its own behalf or on behalf of a Lender or the
Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly
55
<PAGE> 37
completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.
SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS.
(a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. Except as
set forth in Section 2.04 (f), all payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC
Disbursements then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements then
due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements or
Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations in
LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and participations in LC Disbursements and Swingline Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans and
participations in LC Disbursements and Swingline Loans; PROVIDED that
(i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to
apply to any payment made by the Borrower pursuant to and in accordance with the
express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in LC Disbursements to any assignee or participant,
other than to the Borrower or any Subsidiary or Affiliate thereof (as to which
the provisions of this paragraph shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the
56
<PAGE> 38
amount due. In such event, if the Borrower has not in fact made such payment,
then each of the Lenders or the Issuing Bank, as the case may be, severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or Issuing Bank with interest thereon, for each day
from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal
Funds Effective Rate and a rate determined by the Administrative Agent in
accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by
it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b) or 2.18(d), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to
Section 2.15 or 2.17, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that
(i) the Borrower shall have received the prior written consent
of the Administrative Agent (and, if a Commitment is being assigned, the Issuing
Bank and Swingline Lender), which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal
to the outstanding principal of its Loans and participations in LC Disbursements
and Swingline Loans, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrower (in the
case of all other amounts) and
(iii) in the case of any such assignment resulting from a claim
for compensation under Section 2.15 or payments required to be made pursuant to
Section 2.17, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
SECTION 2.20. JUDGMENT CURRENCY.
(a) CURRENCY CONVERSION PROCEDURES FOR JUDGMENTS. If for the purposes
of obtaining judgment in any court it is necessary to convert a sum due
hereunder or under any note issued hereunder in any currency (the "Original
Currency") into another currency (the "Other Currency"), the parties hereby
agree, to the fullest extent permitted by Law, that the rate of exchange used
shall be that at which in accordance with normal banking procedures each Lender
could purchase the Original Currency with the Other Currency after any premium
and costs of exchange on the Business Day preceding that on which final judgment
is given.
57
<PAGE> 39
(b) INDEMNITY IN CERTAIN EVENTS. The obligation of the Borrower in
respect of any sum due from the Borrower to any Lender hereunder shall,
notwithstanding any judgment in an Other Currency, whether pursuant to a
judgment or otherwise, be discharged only to the extent that, on the Business
Day following receipt by any Lender of any sum adjudged to be so due in such
Other Currency, such Lender may in accordance with normal banking procedures
purchase the Original Currency with such Other Currency. If the amount of the
Original Currency so purchased is less than the sum originally due to such
Lender in the Original Currency, the Borrower agrees, as a separate obligation
and notwithstanding any such judgment or payment, to indemnify such Lender
against such loss.
58
<PAGE> 40
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required. The chief executive office of the Borrower and each of its domestic
subsidiaries is 800 Delaware Avenue, Buffalo, New York 14209.
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY. The Transactions are
within the Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions
(a) do not require any consent or approval of, registration or filing
with, or any other action by, any Governmental Authority, except such as have
been obtained or made and are in full force and effect,
(b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority,
(c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and
(d) will not result in the creation or imposition of any Lien on any
asset of the Borrower or any of its Subsidiaries.
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) The Borrower has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders equity and
cash flows (i) as of and for the fiscal year ended December 31, 1998, reported
on by Deloitte & Touche LLP, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended March 26, 1999,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) Since December 31, 1998, there has been no material adverse change
in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole.
59
<PAGE> 41
SECTION 3.05. PROPERTIES.
(a) Each of the Borrower and its Subsidiaries has good title to, or
valid leasehold interests in, all its real and personal property material to its
business, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries
(i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or
(ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Subsidiaries
(i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law,
(ii) has become subject to any Environmental Liability,
(iii) has received notice of any claim with respect to any
Environmental Liability or
(iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the Borrower
and its Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS. Neither the
Borrower nor any of its Subsidiaries is
(a) an "investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940 or
(b) a "holding company" as defined in, or subject to regulation under,
the Public Utility Holding Company Act of 1935.
SECTION 3.09. TAXES. Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except
(a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or
(b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.
60
<PAGE> 42
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $3,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $3,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. LABOR CONTROVERSIES. There are no labor controversies
pending or, to the best of the Company's knowledge, threatened against the
Company or any Subsidiary, which could have a Material Adverse Effect.
SECTION 3.12. BURDENSOME OBLIGATIONS. The Company does not presently
anticipate that future expenditures needed to meet the provisions of federal or
state statutes, orders, rules or regulations will be so burdensome as to cause a
Material Adverse Effect.
SECTION 3.13. DISCLOSURE. The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither the Information Memorandum nor any of the other
reports, financial statements, certificates or other information furnished by or
on behalf of the Borrower to the Administrative Agent or any Lender in
connection with the negotiation of this Agreement or delivered hereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.14. YEAR 2000. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (i) the Borrower's
mission critical computer systems and (ii) mission critical equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Borrower's systems interface) and the testing of all such systems and
equipment, as so reprogrammed, was completed by June 30, 1999. The cost to the
Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) will not
result in a Default or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and its Subsidiaries
are and, with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient to permit the Borrower to conduct its
business without Material Adverse Effect.
61
<PAGE> 43
ARTICLE IV
CONDITIONS
SECTION 4.01. EFFECTIVE DATE. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received from
each party hereto either
(i) a counterpart of this Agreement signed on behalf of such
party or
(ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the
Effective Date) of Hodgson, Russ Andrews, Woods & Goodyear, counsel for the
Borrower, substantially in the form of Exhibit C, and covering such other
matters relating to the Borrower, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of the Borrower, the
authorization of the Transactions and any other legal matters relating to the
Borrower, this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received Certificates of
insurance evidencing the existence of all insurance required to be maintained
pursuant to Section 5.05(b), such certificates to be in form and content
satisfactory to the Administrative Agent, along with a certificate of a
Financial Officer of the Borrower setting forth the insurance obtained by it in
accordance with Section 5.05(b) and stating the such insurance is in full force
and effect and that all premiums due and payable thereon have been paid.
(f) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder. The Administrative Agent
shall notify the Borrower and the Lenders of the Effective Date, and such notice
shall be conclusive and binding. Notwithstanding the foregoing, the obligations
of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
York City time, on August 24, 1999 (and, in the event such conditions are not so
satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. EACH CREDIT EVENT. The obligation of each Lender to make
a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Borrower set forth in
this Agreement shall be true and correct on and as of the date of such Borrowing
or the date of issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, except to the extent such representations and warranties
solely relate to an earlier date or time, in which event such representations
and warranties shall be true and correct as of the earlier date or time.
62
<PAGE> 44
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a
Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
63
<PAGE> 45
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been paid
in full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower,
its audited consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
all reported on by Deloitte & Touche LLP or other independent public accountants
of recognized national standing (without a "going concern" or like qualification
or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance sheet and
related statements of operations and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by one of its Financial Officers as presenting fairly
in all material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause
(a) or (b) above, a certificate of a Financial Officer of the Borrower
(i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 6.10 and
(iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of the audited financial statements referred
to in Section 3.04 and, if any such change has occurred, specifying the effect
of such change on the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under clause
(a) above, a certificate of the accounting firm that reported on such financial
statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default (which certificate may
be limited to the extent required by accounting rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by the
Borrower or any Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by the
Borrower to its shareholders generally, as the case may be; and
(f) promptly following any request therefore, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement, as
the Administrative Agent or any Lender may reasonably request.
64
<PAGE> 46
SECTION 5.02. NOTICES OF MATERIAL EVENTS. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
$3,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a
statement of a Financial Officer or other executive officer of the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.
SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS. The Borrower will, and
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; PROVIDED that the foregoing shall not prohibit
any merger, consolidation, liquidation or dissolution permitted under Section
6.03.
SECTION 5.04. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause
each of its Subsidiaries to, pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where
(a) the validity or amount thereof is being contested in good faith by
appropriate proceedings,
(b) the Borrower or such Subsidiary has set aside on its books adequate
reserves with respect thereto in accordance with GAAP and
(c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will,
and will cause each of its Subsidiaries to,
(a) keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and
(b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations.
SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS. The Borrower will,
and will cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.07. COMPLIANCE WITH LAWS. The Borrower will, and will cause
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority
65
<PAGE> 47
applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
SECTION 5.08. USE OF PROCEEDS AND LETTERS OF CREDIT. The proceeds of
the Loans will be used only for financing the working capital needs and for
general corporate purposes, including acquisitions to the extent permitted
hereunder, of the Borrower and its Subsidiaries in the ordinary course of their
respective businesses. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations G, U and X. Letters of Credit
will be issued only to support the working capital needs of the Borrower and its
Subsidiaries in the ordinary course of their respective businesses.
SECTION 5.09. UPDATES TO SCHEDULES. Should any of the information or
disclosures provided on any of the Schedules attached hereto become outdated or
incorrect in an material way, the Borrower shall promptly provide the
Administrative Agent and the Lenders in writing with such revisions or updates
to such Schedule as may be necessary of appropriate to update and correct the
same; PROVIDED, however, that no such Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update, nor shall any
breach of warranty or representation resulting from the inaccuracy of
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Lenders, in their sole and absolute discretion, shall
have accepted in writing such revisions or updates to such Schedule.
66
<PAGE> 48
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:
SECTION 6.01. INDEBTEDNESS. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule
6.01 and extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof; provided, however, that
the Indebtedness set forth in Section A of Schedule 6.01 shall not be extended,
renewed or replaced;
(c) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by
any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
(e) Indebtedness of the Borrower or any Subsidiary incurred to finance
the acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations and any Indebtedness assumed in connection
with the acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof, and extensions, renewals and replacements of
any such Indebtedness that do not increase the outstanding principal amount
thereof; PROVIDED that
(i) such Indebtedness is incurred prior to or within 90 days
after such acquisition or the completion of such construction or improvement and
(ii) the aggregate principal amount of Indebtedness permitted by
this clause (e) shall not exceed $6,000,000 at any time outstanding;
(f) Indebtedness of any Person that becomes a Subsidiary after the date
hereof; PROVIDED that
(i) such Indebtedness exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in connection with such
Person becoming a Subsidiary and
(ii) the aggregate principal amount of Indebtedness permitted by
this clause (f) shall not exceed $5,000,000 at any time outstanding;
(g) other unsecured Indebtedness of the Borrower for lines of credit
for the purpose of funding payroll and working capital in an aggregate principal
amount not exceeding $20,000,000 at any time outstanding; and
(h) other unsecured Indebtedness of foreign Subsidiaries of the
Borrower for lines of credit for the purpose of funding payroll and working
capital in an aggregate principal amount not exceeding $5,000,000 at any time
outstanding.
SECTION 6.02. LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any Subsidiary
existing on the date hereof and set forth in Schedule 6.02; PROVIDED that
67
<PAGE> 49
(i) such Lien shall not apply to any other property or asset of
the Borrower or any Subsidiary and
(ii) such Lien shall secure only those obligations which it
secures on the date hereof and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(c) any Lien existing on any property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary or existing on any property or asset
of any Person that becomes a Subsidiary after the date hereof prior to the time
such Person becomes a Subsidiary; PROVIDED that
(i) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary , as the
case may be,
(ii) such Lien shall not apply to any other property or assets
of the Borrower or any Subsidiary and
(iii) such Lien shall secure only those obligations which it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary, as the case may be and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(d) Liens on fixed or capital assets acquired, constructed or improved
by the Borrower or any Subsidiary; PROVIDED that
(i) such security interests secure Indebtedness permitted by
clause (e) of Section 6.01,
(ii) such security interests and the Indebtedness secured
thereby are incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement,
(iii) the Indebtedness secured thereby does not exceed 100% of
the cost of acquiring, constructing or improving such fixed or capital assets
and
(iv) such security interests shall not apply to any other
property or assets of the Borrower or any Subsidiary.
SECTION 6.03. FUNDAMENTAL CHANGES.
(a) The Borrower will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(in one transaction or in a series of transactions) all or any substantial part
of its assets, or all or substantially all of the stock of any of its
Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing
(i) any Person may merge into the Borrower in a transaction in
which the Borrower is the surviving corporation,
(ii) any Person may merge into any Subsidiary in a transaction
in which the surviving entity is a Subsidiary,
(iii) any Subsidiary may sell, transfer, lease or otherwise
dispose of its assets to the Borrower or to another Subsidiary and
(iv) any Subsidiary may liquidate or dissolve if the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to the Lenders;
PROVIDED that any such merger involving a Person that is not a wholly owned
Subsidiary immediately prior to such merger shall not be permitted unless also
permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of its Subsidiaries
to, engage to any material extent in any business other than businesses of the
type conducted by the Borrower and its Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND
ACQUISITIONS. The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
68
<PAGE> 50
(a) Permitted Investments;
(b) investments by the Borrower in the capital stock of its
Subsidiaries;
(c) loans or advances made by the Borrower to any Subsidiary and made
by any Subsidiary to the Borrower or any other Subsidiary;
(d) Guarantees constituting Indebtedness permitted by Section 6.01; and
(e) the acquisition by the Borrower or any Subsidiary of the assets or
securities of any other Person provided that (A) at the time of such acquisition
no Default or Event of Default shall have occurred and be continuing or be
caused by such acquisition, (B) the Borrower's or the relevant Subsidiary's
equity ownership interest in the acquired Person, if a foreign Person owned by
the Borrower or a Subsidiary and the aggregate amount of Consideration paid,
incurred, given or assumed by any one or more of Borrower or its Subsidiaries in
connection with such an acquisition shall exceed the Equivalent Amount of
$15,000,000, shall be pledged to the Administrative Agent for the benefit of the
Lenders; provided, however, the maximum amount of such acquired Person's equity
pledged to the Administrative Agent shall not exceed 65% of the acquired
Person's equity capitalization or such lesser amount as is the maximum amount
allowed to be pledged pursuant to the laws of the jurisdiction of such
Subsidiary's organization, (C) the board of directors or other equivalent
governing body of such acquired Person shall have approved such acquisition, (D)
the acquired Person is engaged in the information technology business or a
business related thereto, and (E) the Borrower shall have delivered to the
Administrative Agent and each Lender, at least five (5) Business Days prior to
such acquisition, with a certificate stating that
(i) such acquisition will not violate any covenants of this
Agreement and
(ii) establishing that, on a pro forma basis after taking into
account the acquisition, the Borrower is in compliance with the financial
covenants set forth in Section 6.10; provided, however, for the purposes of this
Section 6.04, the ratio of the Borrower's pro forma Total Funded Debt to pro
forma Consolidated EBITDA for the four (4) most recently completed Fiscal
Quarters shall not exceed 1.75:1.00.
SECTION 6.05. HEDGING AGREEMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any Hedging Agreement, other than
Hedging Agreements entered into in the ordinary course of business to hedge or
mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct
of its business or the management of its liabilities.
SECTION 6.06. [Reserved].
SECTION 6.07. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except
(a) in the ordinary course of business at prices and on terms and
conditions not less favorable to the Borrower or such Subsidiary than could be
obtained on an arm's-length basis from unrelated third parties and
(b) transactions between or among the Borrower and its wholly owned
Subsidiaries not involving any other Affiliate.
SECTION 6.08. RESTRICTIVE AGREEMENTS. The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits, restricts
or imposes any condition upon
(a) the ability of the Borrower or any Subsidiary to create, incur or
permit to exist any Lien upon any of its property or assets, or
69
<PAGE> 51
(b) the ability of any Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
Indebtedness of the Borrower or any other Subsidiary; PROVIDED that
(i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement,
(ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.08 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition),
(iii) the foregoing shall not apply to customary restrictions
and conditions contained in agreements relating to the sale of a Subsidiary
pending such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions
or conditions imposed by any agreement relating to secured Indebtedness
permitted by this Agreement if such restrictions or conditions apply only to the
property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary
provisions in leases and other contract] restricting the assignment thereof.
SECTION 6.09. SUBSIDIARY INDEBTEDNESS. The Borrower will not permit the
aggregate principal amount of Indebtedness of its Subsidiaries (excluding any
Indebtedness of a Subsidiary owed to the Borrower or another Subsidiary, but
including any Guarantee by a Subsidiary of Indebtedness of the Borrower) at any
time to exceed $5,000,000.
SECTION 6.10. FINANCIAL COVENANTS.
(a) INTEREST COVERAGE. As of the last day of each Fiscal Quarter, the
Borrower shall not permit its ratio, measured on a rolling four Fiscal Quarter
basis, of Consolidated EBITDA to Consolidated Interest Expense to be less than
5.0:1.0.
(b) TOTAL FUNDED DEBT TO CONSOLIDATED EBITDA RATIO. As of the last day
of each Fiscal Quarter, the Borrower shall not permit its Total Funded Debt to
Consolidated EBITDA Ratio to exceed 2.5 to 1.0.
(c) TOTAL FUNDED DEBT TO TOTAL FUNDED DEBT PLUS CONSOLIDATED NET WORTH
RATIO. As of the last day of each Fiscal Quarter, the Borrower shall not permit
its ratio of Total Funded Debt to Total Funded Debt plus Consolidated Net Worth
to exceed 0.55 to 1.0.
(d) LIQUIDITY RATIO. The Borrower shall not permit the ratio of the (A)
the sum of its (1) Consolidated Cash, (2) Consolidated Cash Equivalents, and (3)
Consolidated Receivables to (B) its Total Funded Debt to be less than 1.1:1.0 as
of the last day of each Fiscal Quarter ending on or before December 31, 1999 and
1.25:1.00 as of the last day of each Fiscal Quarter ending thereafter.
SECTION 6.11. SALE LEASEBACK. Neither the Borrower nor any Subsidiary
shall enter into any arrangement, directly or indirectly, with any person
whereby the Borrower or any of its Subsidiaries shall sell or transfer any
property, real or personal, and used and useful in its business, whether now
owned or hereafter acquired, and thereafter rent or lease such property or other
property which the Borrower or any of its Subsidiaries intends to use for
substantially the same purpose or purposes as the property being sold or
transferred other than transactions not exceeding an aggregate sale price during
the term hereof of $10,000,000.
SECTION 6.12. SUBORDINATED INDEBTEDNESS PREPAYMENTS. Neither the
Borrower nor any Subsidiary shall make any principal or interest payment of any
Subordinated Indebtedness prior to its due date nor modify, amend or restructure
in any manner any Subordinated Indebtedness so as to the date upon which any
such payment is due.
SECTION 6.13. FISCAL YEAR. Neither the Borrower nor any Subsidiary of
the Borrower shall change its Fiscal Year from a period beginning January 1 and
ending on the immediately succeeding December 31.
70
<PAGE> 52
ARTICLE VII
Events of Default
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with this Agreement or any
amendment or modification hereof or waiver hereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof or waiver
hereunder, shall prove to have been incorrect in any material respect when made
or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to the
Borrower's existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those specified
in clause (a), (b) or (d) of this Article), and such failure shall continue
unremedied for a period of 30 days after notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable (after
giving effect to any applicable grace period);
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity, or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due and which
continues unwaived for a period in excess of thirty (30) days, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity and which continues unwaived for a period in excess of thirty (30)
days; PROVIDED that this clause (g) shall not apply to secured Indebtedness that
becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of the
Borrower or any Subsidiary or its debts, or of a substantial part of its assets,
under any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered;
(i) the Borrower or any Subsidiary shall
(i) voluntarily commence any proceeding or file any petition
seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect,
(ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in clause
(h) of this Article,
71
<PAGE> 53
(iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the
foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $3,000,000 shall be rendered against the Borrower, any
Subsidiary or any combination thereof which judgments are not discharged,
vacated, bonded, or stayed pending appeal within a period of thirty (30) days
from the date of entry of the same, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Borrower
and its Subsidiaries in an aggregate amount exceeding (i) $3,000,000 in any year
or (ii) $3,000,000 for all periods; or
(m) a Change in Control shall occur; then, and in every such event
(other than an event with respect to the Borrower described in clause (h) or (i)
of this Article), and at any time thereafter during the continuance of such
event, the Administrative Agent may, and at the request of the Required Lenders
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate the Commitments, and thereupon the
Commitments shall terminate immediately, and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; and in case of any event with
respect to the Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
72
<PAGE> 54
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing,
(a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing,
(b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and
(c) except as expressly set forth herein, the Administrative Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent
or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own gross
negligence or willful misconduct. The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into
(i) any statement, warranty or representation made in or in
connection with this Agreement,
(ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith,
(iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein,
(iv) the validity, enforceability, effectiveness or genuineness
of this Agreement or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
73
<PAGE> 55
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
74
<PAGE> 56
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Computer Task Group, Incorporated, 800
Delaware Avenue, Buffalo, New York 14209, Attention of James R. Boldt, Chief
Financial Officer (Telecopy No. (716) 887-7370);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Attention: James Tabois (Telecopy No. (212) 552-5650), with a copy
to The Chase Manhattan Bank, 2300 Main Place Tower, Buffalo, New York 14202,
Attention: Computer Task Group, Incorporated Account Officer (Telecopy No. (716)
843-4939);
(c) if to the Issuing Bank, to it at The Chase Manhattan Bank, 2300
Main Place Tower, Buffalo, New York 14202, Attention: Computer Task Group,
Incorporated Account Officer (Telecopy No. (716) 843-4939);
(d) if to the Swingline Lender, to it at The Chase Manhattan Bank, 2300
Main Place Tower, Buffalo, New York 14202, Attention: Computer Task Group,
Incorporated Account Officer (Telecopy No. (716) 843-4939); and
(e) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. WAIVERS; AMENDMENTS.
(a) No failure or delay by the Administrative Agent, the Issuing Bank
or any Lender in exercising any right or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Administrative Agent, the
Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; PROVIDED that no
such agreement shall
(i) increase the Commitment of any Lender without the written
consent of such Lender,
75
<PAGE> 57
(ii) reduce the principal amount of any Loan or LC Disbursement
or reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal
amount of any Loan or LC Disbursement, or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby,
(iv) change Section 2.18(b) or (c) in a manner that would alter
the pro rata sharing of payments required thereby, without the written consent
of each Lender, or
(v) change any of the provisions of this Section or the
definition of "Required Lenders" or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, without the
written consent of each Lender; PROVIDED FURTHER that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent, the Issuing Bank or the Swingline Lender hereunder without the prior
written consent of the Administrative Agent, the Issuing Bank or the Swingline
Lender, as the case may be.
SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) The Borrower shall pay
(i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of this Agreement or any amendments, modifications or waivers
of the provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated),
(ii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder and
(iii) all out-of-pocket expenses incurred by the Administrative
Agent, the Issuing Bank or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent, the Issuing Bank or
any Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement, including its rights under this Section, or in
connection with the Loans made or Letters of Credit issued hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent, the Issuing
Bank and each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "INDEMNITEE") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of
(i) the execution or delivery of this Agreement or any agreement
or instrument contemplated hereby, the performance by the parties hereto of
their respective obligations hereunder or the consummation of the Transactions
or any other transactions contemplated hereby (other than out-of-pocket expenses
incurred by such parties, including the reasonable fees, charges and
disbursements of their respective counsel, in connection with the syndication of
the credit facilities provided for herein, the preparation and administration of
this Agreement or any amendments, modifications or waivers of the provisions
hereof),
(ii) any Loan or Letter of Credit or the use of the proceeds
therefrom (including any refusal by the Issuing Bank to honor a demand for
payment under a Letter of Credit if the documents presented in connection with
such demand do not strictly comply with the terms of such Letter of Credit),
(iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or
(iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory and regardless of whether any Indemnitee is a party thereto;
PROVIDED that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of
76
<PAGE> 58
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required to
be paid by it to the Administrative Agent, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as
the case may be, such Lender's Applicable Percentage (determined as of the time
that the applicable unreimbursed expense or indemnity payment is sought) of such
unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent, the Issuing Bank or the Swingline
Lender in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable not later than
10 days after written demand therefor.
SECTION 9.04. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the
extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it); PROVIDED that
(i) except in the case of an assignment to a Lender or an
Affiliate of a Lender, each of the Borrower and the Administrative Agent (and,
in the case of an assignment of all or a portion of a Commitment or any Lender's
obligations in respect of its LC Exposure or Swingline Exposure, the Issuing
Bank and the Swingline Lender) must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender's Commitment, the amount of the Commitment of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent,
(iii) each partial assignment shall be made as an assignment of
a proportionate part of all the assigning Lender's rights and obligations under
this Agreement,
(iv) the parties to each assignment shall execute and deliver to
the Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to
the Administrative Agent an Administrative Questionnaire; and PROVIDED FURTHER
that any consent of the Borrower otherwise required under this paragraph shall
not be required if an Event of Default under clause (h) or (i) of Article VII
has occurred and is continuing. Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and
77
<PAGE> 59
the assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "REGISTER"). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "PARTICIPANT") in all
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
PROVIDED that
(i) such Lender's obligations under this Agreement shall remain
unchanged,
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and
(iii) the Borrower, the Administrative Agent, the Issuing Bank
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; PROVIDED that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.18(c) as though it were a
Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.15 or 2.17 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment
78
<PAGE> 60
to secure obligations to a Federal Reserve Bank, and this Section shall not
apply to any such pledge or assignment of a security interest; PROVIDED that no
such pledge or assignment of a security interest shall release a Lender from any
of its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
SECTION 9.05. SURVIVAL. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. SEVERABILITY. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and Enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in Erie and New York Counties and of the United
States District Court of the Western and Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby
79
<PAGE> 61
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Administrative Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement
against the Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. CONFIDENTIALITY. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and
agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential),
(b) to the extent requested by any regulatory authority,
(c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process,
(d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any
suit, action or proceeding relating to this Agreement or the enforcement of
rights hereunder,
(f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement,
(g) with the consent of the Borrower or
80
<PAGE> 62
(h) to the extent such Information
(i) becomes publicly available other than as a result of a
breach of this Section or
(ii) becomes available to the Administrative Agent, the Issuing
Bank or any Lender on a nonconfidential basis from a source other than the
Borrower. For the purposes of this Section, "INFORMATION" means all information
received from the Borrower relating to the Borrower or its business, other than
any such information that is available to the Administrative Agent, the Issuing
Bank or any Lender on a nonconfidential basis prior to disclosure by the
Borrower; PROVIDED that, in the case of information received from the Borrower
after the date hereof, such information is clearly identified at the time of
delivery as confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "CHARGES"), shall exceed the
maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
81
<PAGE> 63
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
COMPUTER TASK GROUP, INCORPORATED, THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By By
------------------------------- -------------------------------
Name: James R. Boldt Name: Alan E. Boyce
Title: Vice-President and Title: Vice-President
Chief Financial Officer
FLEET NATIONAL BANK KEY BANK NATIONAL ASSOCIATION
By By
------------------------------- -------------------------------
Name: Name: Mark F. Wachowiak
Title: Title: Assistant Vice-President
HSBC BANK USA MANUFACTURERS AND TRADERS
TRUST COMPANY
By By
-------------------------------- -------------------------------
Name: Carol V. Kociela Name: Robert J. Daigler
Title: Senior Vice-President Title: Vice-President
By
-------------------------------
Name: Stephen O. Schlosser
Title: Banking Officer
82
<PAGE> 64
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of August 24, 1999
(as amended and in effect on the date hereof, the "Credit Agreement"), among
Computer Task Group, Incorporated, the Lenders named therein and The Chase
Manhattan Bank, as Administrative Agent for the Lenders. Terms defined in the
Credit Agreement are used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and assigns,
without recourse, to the Assignee named on the reverse hereof, and the Assignee
hereby purchases and assumes, without recourse, from the Assignor, effective as
of the Assignment Date set forth on the reverse hereof, the interests set forth
on the reverse hereof (the "Assigned Interest") in the Assignor's rights and
obligations under the Credit Agreement, including, without limitation, the
interests set forth on the reverse hereof in the Commitment of the Assignor on
the Assignment Date and Revolving Loans owing to the Assignor which are
outstanding on the Assignment Date, together with the participations in Letters
of Credit, LC Disbursements and Swingline Loans held by the Assignor on the
Assignment Date, but excluding accrued interest and fees to and excluding the
Assignment Date. The Assignee hereby acknowledges receipt of a copy of the
Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a
party to and be bound by the provisions of the Credit Agreement and, to the
extent of the Assigned Interest, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest,
relinquish its rights and be released from its obligations under the Credit
Agreement.
This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is a Foreign Lender, any documentation
required to be delivered by the Assignee pursuant to Section 2.17(e) of the
Credit Agreement, duly completed and executed by the Assignee, and (ii) if the
Assignee is not already a Lender under the Credit Agreement, an Administrative
Questionnaire in the form supplied by the Administrative Agent, duly completed
by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the
Administrative Agent pursuant to Section 9.04(b) of the Credit Agreement.
This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date"):
83
<PAGE> 65
<TABLE>
=========================================================================================================
Percentage Assigned of
Facility/Commitment (set forth,
to at least 8 decimals, as a
Principal Amount Assigned percentage of the Facility and
the aggregate Commitments of all
Lenders THEREUNDER)
<S> <C> <C>
FACILITY
- ----------------------------------------------------------------------------------------------------------
Commitment Assigned: $ %
- ----------------------------------------------------------------------------------------------------------
Revolving Loans:
- ----------------------------------------------------------------------------------------------------------
Swingline Exposure
- ----------------------------------------------------------------------------------------------------------
L/C Exposure
==========================================================================================================
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[NAME OF ASSIGNOR] , as Assignor
------------------
By:
---------------------------------
Name:
Title:
[NAME OF ASSIGNEE] , as Assignee
---------------------
By:
---------------------------------
Name:
Title:
84
<PAGE> 66
The undersigned hereby consent to the within assignment: 8/
-
Computer Task Group, Incorporated The Chase Manhattan Bank,
as Administrative Agent,
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
The Chase Manhattan Bank, as The Chase Manhattan Bank,
as Swingline Lender, as Issuing Bank
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
- ---------------------
/Consents to be included to the extent required by Section 9.04(b) of
the Credit Agreement.
85
<PAGE> 67
EXHIBIT B
PROMISSORY NOTE
(REVOLVING LOAN)
$20,000,000 August 24, 1999
Buffalo, New York
FOR VALUE RECEIVED, COMPUTER TASK GROUP, INCORPORATED, a New York
corporation (the "Borrower"), hereby promises to pay to ____________ (the
"Lender"), at such of the offices of The Chase Manhattan Bank as shall be
notified to the Borrower from time to time, the principal sum of Twenty Million
and no/100 Dollars ($20,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Revolving Loans made by the Lender to
the Borrower under the Credit Agreement) in lawful money of the United States of
America (or if such Revolving Loan was made in an Optional Currency, in the
Optional currency of such Loan) and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Loan, at such
office, in like money and funds, for the period commencing on the date of such
Revolving Loan until such Revolving Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date, amount and currency, type, interest rate and duration of
Interest Period (if applicable) of each Revolving credit Loan made by the Lender
to the Borrower, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books, and, prior to any transfer of this
Note, endorsed by the Lender on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Borrower to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Revolving Loans made by the Lender.
This Note is one of the notes referred to in the Credit Agreement dated
as of August 24, 1999 (as modified and supplemented and in effect from time to
time, the "CREDIT AGREEMENT") between the Borrower, the lenders party thereto,
and The Chase Manhattan Bank, as Administrative Agent and evidences Revolving
Loans made by the Lender thereunder. Terms used but not defined in this Note
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 9.04 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with the
laws of the State of New York.
COMPUTER TASK GROUP, INCORPORATED
By:
Title:
86
<PAGE> 68
SCHEDULE OF REVOLVING CREDIT LOANS
This Note evidences the Revolving Loans made, continued or converted
under the within-described Credit Agreement to the Borrower, on the dates, in
the principal amounts and currencies, of the Types, bearing interest at the
rates and having Interest Periods (if applicable) of the durations set forth
below, subject to the payments, continuations, conversions and prepayments of
principal set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Date Made, Principal Type of Interest Rate if Duration of Amount Paid, Unpaid Notation
Continued or Amount of Loan Loan Eurodollar or Interest Prepaid, Principal Made By
Converted and Optional Eurocurrency Loan Period Continued or Amount
Currency, if Converted
any
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE> 69
EXHIBIT C
OPINION OF COUNSEL FOR THE BORROWER
88
<PAGE> 70
Computer Task Group, Incorporated
Schedule 3.06
to
Credit Agreement
Commitments
THE CHASE MANHATTAN BANK $ 20,000
FLEET NATIONAL BANK $ 20,000
KEY BANK NATIONAL ASSOCIATION $ 20,000
HSBC BANK USA $ 20,000
MANUFACTURERS AND TRADERS TRUST COMPANY $ 20,000
89
<PAGE> 71
Computer Task Group, Incorporated
Schedule 3.06
to
Credit Agreement
Disclosed Matters
None
90
<PAGE> 72
Computer Task Group, Incorporated
Schedule 6.01
to
Credit Agreement
Existing Indebtedness
Balances Presented on a Consolidated
Basis As of August 11, 1999
Section A
Unsecured lines of credit in North America, as follows:
HSBC Bank USA $ 23,700,000
M&T Bank 5,000,000
The Chase Manhattan Bank 5,000,000
33,700,000
Section B
CTG Belgium bank debt 97,425
Assets under capital leases 392,140
Total Outstanding Indebtedness $ 34,189,565
91
<PAGE> 73
Computer Task Group, Incorporated
Schedule 6.02
to
Credit Agreement
Existing Liens
Assets under capital leases
The lessor has a security interest for those assets, which CTG has under capital
leases, which leases have an aggregate unpaid balance as of August 11, 1999 of
$392,140 on a consolidated basis.
92
<PAGE> 74
Computer Task Group, Incorporated
Schedule 6.08
to
Credit Agreement
Existing Restrictions
None
93
<PAGE> 1
EXHIBIT 11
----------
COMPUTER TASK GROUP, INCORPORATED
COMPUTATION OF DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE"
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
- ----------------------
1999 1998 1997* 1996* 1995*
---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Weighted-average number of shares
outstanding during year................. 16,401 16,216 16,758 16,980 16,658
Add Common Stock equivalents,
Incremental shares under
stock option plans............... 279 697 857 620 741
------ ------- ------ ------ ------
Number of shares on which
diluted earnings per
share is based.......................... 16,680 16,913 17,615 17,600 17,399
Net income for the year................... $ 16,701 $ 24,045 $ 17,862 $ 11,080 $ 10,776
Diluted earnings per share................ $ 1.00 $ 1.42 $ 1.01 $ 0.63 $ 0.62
Basic earnings per share.................. $ 1.02 $ 1.48 $ 1.07 $ 0.65 $ 0.65
* Restated to reflect a 2-for-1 stock split effective June 2, 1997.
</TABLE>
94
<PAGE> 1
EXHIBIT 13
----------
COMPUTER TASK GROUP, INCORPORATED
1999 ANNUAL REPORT TO SHAREHOLDERS.
We were IT
We are IT
For more than 30 years, information technology (IT) consulting has been CTG's
core competency. Founded in 1966, CTG today is a $472 million information
technology and e-business solutions firm helping Global 2000 clients achieve
competitive advantage through the use of IT. Our 55 offices in North America and
Europe, 5,000+ IT professionals, and suite of proprietary, ISO 9001-certified
service methodologies enable us to manage knowledge globally and deliver
high-value IT solutions when and where our clients need them. CTG clients
include some of the world's leading companies, in industries such as health
care, retail, manufacturing and distribution, financial services, and
telecommunications. As a strategic partner with our clients, CTG provides IT
services tailored to their needs at every phase of the business life cycle.
TABLE OF CONTENTS
1 Message from the CEO
2 ZeniusTM.
4 ExemplarTM
6 ITCapitalTM
8 CTG HealthCare SolutionsTM
10 Financial Section
11 Consolidated Summary--Five-Year Selected Financial Information
12 Management's Discussion and Analysis
16 Auditors' Report
17 Consolidated Financial Statements
22 Notes to Consolidated Financial Statements
32 Corporate Information
33 Officers & Board of Directors
OFFICERS:
Jonathan R. Asher
Vice President, CTG Exemplar North America
Henri Bersoux
Vice President, CTG Zenius
James R. Boldt
Vice President, Global Support Services and Chief Financial Officer
Janice M. Cole
Vice President, Global Career Development
Gale S. Fitzgerald
Chairman and Chief Executive Officer
Joel I. Ivers
Chief Marketing Officer
Nico Molenaar
Vice President, CTG Exemplar Europe
John F. Moore
Vice President, CTG ITCapital
Thomas Niehaus
Vice President, CTG HealthCare Solutions
95
<PAGE> 2
BOARD OF DIRECTORS
George B. Beitzel
Retired Senior Vice President and Director of IBM
Richard L. Crandall
Managing Director of Arbor Partners LLC
Retired Chairman and Chief Executive Officer of Comshare, Inc.
R. Keith Elliott
Chairman and former Chief Executive Officer of
Hercules Incorporated
Gale S. Fitzgerald
Chairman and Chief Executive Officer of CTG
Randolph A. Marks
Co-Founder and former Chairman, President, and Chief Executive Officer of CTG
Retired Chairman of American Brass Company
Barbara Z. Shattuck
Managing Director of Shattuck Hammond, a division of
PriceWaterhouseCoopers Securities
We will be IT
As the second century of information technology begins, the vast opportunity of
the Internet is driving our business and the new economy. In February 2000, CTG
aligned its business to capitalize on that opportunity and to focus on the
markets where we are strongest and where there is the greatest potential to grow
our business. As one of the largest and most responsive IT services and
solutions firms in the industry, CTG now provides its services through three
major businesses: ZeniusTM, ExemplarTM, and ITCapitalTM, along with a focus on
the health care market through CTG HealthCare SolutionsTM. Each of these
businesses provides IT solutions to help our clients compete in their respective
marketplaces:
ZeniusTM develops end-to-end e-business solutions, empowering clients to win in
the Internet economy and enhance their relationships with customers, suppliers,
partners, and employees through the creation of a unique, Web-based
communication system called the Zenius WebTM.
ExemplarTM designs, implements, and manages comprehensive application and IT
solutions--encompassing software applications, technology assessments and
selections, project management, and outsourcing--which are in demand by clients
with critical IT needs.
ITCapitalTM delivers IT talent management and professional services solutions.
With a long record of success in supporting the large and complex IT talent
needs of Global 1000 companies, CTG provides a valuable talent deployment and
management solution for its clients. As a result, clients can focus on their
core businesses.
CTG HealthCareSolutionsTM brings CTG's Zenius, Exemplar, and ITCapital services
and solutions to the health care provider and payor to help its clients achieve
their IT and business goals.
CTG has a strong track record and foundation upon which to build our business.
With a more than 30-year history in IT behind us, we've been where you want to
goTM. We were, we are, and we will be IT.
96
<PAGE> 3
FROM THE CEO
Dear Fellow Shareholder,
Nineteen ninety-nine was a challenging year for our business and our industry.
CTG held its own in this environment, generating revenues of $472.0 million
compared to revenues of $467.8 million in 1998. Net income for 1999 was $16.7
million or $1.00 per diluted share compared to $24.0 million or $1.42 per
diluted share in 1998. CTG's 1999 financial performance reflects the dramatic
slowdown in information technology (IT) spending in 1999 and the important
investments we are making to position our business for future growth.
As many of you are aware, the focus of the Y2K issue shifted in 1999 from
companies preparing their systems for Y2K compliance to their widespread
reluctance to undertake any major systems work until after the actual transition
into 2000. The magnitude of the resulting slowdown in IT activity and projects
surprised everyone, although it was difficult to predict given the extraordinary
nature of the Y2K event and the heightened level of Y2K-related anxiety that
took hold as the year 2000 approached. In hindsight, CTG's decision to limit
Y2K-related work to no more than 15% of our business was a sound one, because it
allowed us to focus our energies and talents on the areas of our business where
there are the greatest opportunities for sustained long-term growth.
While the actual event of Y2K passed without major incident, it remains with us
in its impact on IT activity, which is currently expected to remain at reduced
levels through the first half of this year. Beyond 2000, however, we see
enormous long-term opportunity to build our business, given the power of
information technology to increase competitive advantage and the growing impact
of the Internet and e-commerce on the global economy.
The IT services market served by Exemplar and ITCapital is projected to grow at
an approximate annual rate of 15% (Source: Dataquest). Growth projections for
the Internet and e-commerce development market served by CTG's newly formed
Zenius business are significantly higher, with that sector projected to grow at
a compound annual rate of 58.7% by 2003 (Source: International Data
Corporation). We have positioned CTG to capitalize on these opportunities by
concentrating our business focus on the markets where we are strongest and where
there is the greatest potential to add value for our clients and to support them
in their growth.
In our over 30-year history, CTG has evolved and functioned as a provider of IT
solutions on many levels. By forming Zenius in February 2000, we have further
extended CTG's strengths into the Internet arena to capture today's highest
growth opportunity in IT services on a global basis. As we establish Zenius as
an important business for CTG and as a major driver of our future growth, we
also remain focused on generating growth in our ongoing IT solutions and
services business through Exemplar and ITCapital.
We are confident in our ability to win a greater share of the IT solutions and
e-business segments for the following reasons:
- - Intellectual capital: The collective experience and expertise of CTG's
more than 5,000 colleagues in a broad range of IT and business disciplines,
called our Intellectual AdvantageTM, is an important differentiator in our
ability to add value for clients. Our commitment to knowing our clients'
business enables us to focus on and extend our clients' value chain and
consistently produce workable solutions.
- - Industry-specific expertise: CTG has a significant depth of experience
in several high-growth industries, including health care, retail, financial
services, telecommunications, and manufacturing and distribution. Our
industry-specific expertise has been and will continue to be an important
differentiator in winning new business.
- - Strong client relationships: As a consulting organization with a long
history of success, our delivery organization is adept in meeting client
expectations and building client relationships. With thousands of successful
engagements behind us, CTG has many established client relationships to leverage
as we expand our focus on e-business.
- - E-commerce capabilities: CTG has significant expertise in several
e-commerce-related competencies, including supply chain, customer relationship,
and enterprise resource management. The combination of this expertise with CTG's
substantial experience in interfacing with enterprise-wide
97
<PAGE> 4
systems will be an important contributor to our success in serving the
e-business needs of large, established organizations--our target market.
- - Global business experience: CTG has a strong European presence and has
significant business experience with multinational clients. Our track record and
ability to work on an international level are important assets as enterprises
continue to seek IT and business solutions that consider an increasingly global
marketplace.
- - Strong training and recruiting organizations: CTG's commitment to
training and colleague professional development is widely known throughout the
industry, giving us an advantage in attracting top-level talent and skills to
our organization. Our world-class training and career development organization,
coupled with our strong recruiting capabilities, provide CTG with an effective
solution to address IT skill needs.
- - Ability to partner: CTG has developed a network of alliances and
partnerships to deliver the best combination of products, tools, and expertise
to support customized solutions. CTG also significantly increased its e-business
resources and capabilities in 1999 by partnering with several software and
e-business service providers.
There were also a number of developments in our business during 1999 that bode
well for CTG in 2000 and beyond. CTG secured a number of significant contracts
in 1999 with a broad range of clients, including a major textile manufacturer,
two large regional health care providers, a leading retail grocery chain, two
large steel industry companies, a global oil and gas enterprise, a large
software developer, an energy services company, a global networking solutions
provider, and a global communications services company. We also expanded our
business in the financial services sector, reaching significant agreements with
KeyCorp, a leading U.S. financial services company, and Liberty Insurance
Services, one of North America's largest third-party life and health insurance
administrators.
CTG also continues to extend our business reach through partnerships and
alliances. One of our most successful strategic partnerships has been with
Longview Solutions, a software solution provider in the intelligent e-business
marketplace, for its KhalixTM product. Khalix is an industry-leading technology
that supports planning, budgeting, consolidation, and analytics for Global 2000
companies. During 1999, the CTG Exemplar team successfully implemented Khalix in
27 companies.
In February 1999, CTG added substantially to our vertical business expertise and
our client base with the acquisition of Elumen Solutions, which we combined with
our own health care practice to form CTG HealthCare Solutions. This acquisition
established CTG as one of the largest health care IT consulting firms in North
America. We are optimistic that the long-term growth prospects for IT investment
in health care are strong based on industry consolidation, the value IT brings
to productivity and cost management, and the opportunity to help clients address
issues related to the Health Information Portability and Accountability Act
(HIPAA).
In the fourth quarter of 1999, CTG created a global marketing organization to
drive revenue growth and increase our visibility and brand equity in all the
markets we serve. Joel Ivers was appointed as Chief Marketing Officer in January
2000. Joel brings over 20 years of marketing and sales management experience to
CTG with a significant focus on technology marketing and new business, product,
and service launches. In February 2000, Henri Bersoux joined CTG as a Vice
President leading our newly launched Zenius business. Henri comes to CTG from
Ernst & Young, LLP, and brings extensive experience in e-commerce, digital
strategy, and Web development, as well as strategic marketing and
communications. Both Joel and Henri are excellent additions to CTG's executive
team with strong track records of executing new growth strategies quickly and
successfully.
Although the after-effect of Y2K continues to have an industry-wide impact on IT
activity, we remain very confident in CTG's strategy and long-term growth
prospects. This year will be one where we will make significant investments in
e-business to ensure that we are well positioned to capitalize on the
significant opportunity it holds for us. CTG has a very solid business and
financial foundation, along with many other strengths, to leverage for the
benefit of our shareholders. Foremost among these strengths are the more than
5,000 colleagues of CTG who continue to make the greatest contribution to our
success, delivering IT solutions in 1999 to nearly 800 clients, including many
of the world's leading companies.
Thank you for your interest and continued support of CTG.
98
<PAGE> 5
CTG ZeniusTM leverages CTG's expertise in supply chain management, enterprise
resource planning, and customer relationship management to capitalize on the
growing demand for integrated e-commerce solutions.
Our ability to address the enterprise integration needs behind the Web site sets
Zenius apart in the marketplace. Our experience with legacy systems is a
significant advantage for e-commerce initiatives of established enterprises--the
`clicks and mortar' market. Zenius' approach protects the investments companies
have made in enterprise-wide applications while taking full advantage of the
power of the Internet.
Applying business and industry knowledge, along with our unique strategic
approach using solution architects and Web developers at our Zenius
AcceleratorTM, Zenius enables our clients to win in the Internet economy. We do
this by adapting our clients' business strategy and building a comprehensive Web
solution. Zenius draws on CTG's network of alliances to deliver the best
combination of products, tools, and expertise to support customized e-business
solutions.
BUSINESS TO BUSINESS FOR SEIC:
Delivering a Global Intranet/Extranet Solution
Sakhalin Energy Investment Company (SEIC), a joint venture company operating in
the Russian Far East, called on CTG Zenius to recommend, design, and implement a
global intranet/extranet solution that would meet its aggressive security and
time requirements. The CTG Zenius solution enabled SEIC to safely distribute
highly sensitive information to its shareholders via the Internet, saving
valuable time and money over manual distribution. Additionally, it enabled SEIC
to share information with multiple business units worldwide.
BUSINESS TO EMPLOYEE FOR BP AMOCO:
Building an Online Job Fair
For the last three years, CTG Zenius has been providing intranet-related
services to British Petroleum (BP). When BP and Amoco merged in early 1999, the
$174 billion petroleum giant called on CTG Zenius to create an application that
would help employees affected by the merger find new opportunities. The CTG
Zenius solution, a Web-based `Continuous Job Fair,' provides an exclusive, free
service that enables eligible client employees to post resumes and search job
listings, and enables employers to post job openings. The Web site has received
international media attention. More than 1,900 resumes have been posted on the
site since it was piloted in February 1999, and roughly 1,100 companies have
listed job opportunities.
BUSINESS TO CONSUMER FOR PROCARE:
Maximizing Web Power
PROCARE, a chain of automotive service centers in the eastern U.S., called on
CTG Zenius to help upgrade its image on the Internet. PROCARE wanted a Web site
with consumer and market appeal that would provide accurate, up-to-date
information about its services and locations. CTG Zenius created an information-
and marketing-oriented Web site that is easily searchable and maintainable, and
that incorporates customer feedback mechanisms. The CTG Zenius solution helped
PROCARE maximize the effectiveness of its Web site as a marketing and customer
service tool.
CTG ExemplarTM plans, designs, implements, and maintains start-to-finish
application, application management, and IT solutions for clients in industries
worldwide.
At the planning stage, CTG Exemplar helps clients assess their IT needs. Our IT
and vertical industry experts examine the client organization's current
technology, application portfolio, and data architecture. Then we recommend
solutions ranging from selection and implementation of existing software to the
construction of new systems.
99
<PAGE> 6
Once a solution has been defined, CTG Exemplar's state-of-the-art design,
development, and testing services are delivered by skilled technicians supported
by intensive training programs and proprietary best practices.
During a project's implementation phase, new technology is integrated seamlessly
into existing systems. Once implementation is complete, CTG Exemplar supports
the requirements of managing and maintaining enterprise software, from rollout
to subsequent updates, conversions, hosting, and help desk activities.
A SEVEN-YEAR IT PARTNERSHIP WITH LONE STAR STEEL
Lone Star Steel is a $500 million U.S. manufacturer and distributor of tubular
steel products. To improve IT services, Lone Star outsourced all IT functions to
CTG, including application management, operations, network management,
telephony, help desk, and PC repair. According to Byron Dunn, Lone Star Steel's
President and CEO, "The relationship with CTG has been very important to Lone
Star--from everyday hardware maintenance to legacy systems Y2K compliance. But
even more importantly, we look to CTG Exemplar's expertise to help ensure the
success of our current ERP implementation project and other future strategic IT
initiatives."
PROTECTING ALYESKA'S PIPELINE
As a major Alaska-based pipeline system operator, Alyeska spends approximately
$30 million annually on corrosion management and systems integrity. To ensure
safe operation of its pipeline system, Alyeska asked CTG Exemplar to help
develop a corrosion management system with maximal functionality to integrate
corrosion data from several sources.
CTG Exemplar managed a project to design, develop, and implement an application
that monitors corrosion data and acts as a decision support tool. The new system
has improved user productivity and efficiency, has enabled the client to realize
substantial cost savings, and has helped increase the level of pipeline safety,
while enhancing Alyeska's reputation as a leader in the field of pipeline
corrosion management.
MAKING THE TELECOM CONNECTION WITH ONE 2 ONE
One 2 One is a major U.K. digital mobile phone service provider owned by
Deutsche Telekom, one of the world's largest telecommunications companies. In
this competitive, fast-changing industry, One 2 One has encountered critical
speed-to-market challenges and unprecedented growth in its customer base,
placing increasing demands on the smooth interaction between One 2 One's
business operations and its IT systems. Through a range of business consultancy
services--including e-business strategy development, project management, systems
and business analysis, applications management, and data warehousing--CTG
Exemplar and One 2 One have worked together in partnership to succeed in meeting
those challenges.
SUPPORTING THE ARTHRITIS FOUNDATION
In 1997 the Arthritis Foundation, a U.S. nonprofit health organization, called
on CTG Exemplar to assess its business and technology strategies. The assessment
led to a variety of projects for CTG, including standardization of the client's
technical environment across its headquarters and 55 local chapters, 69
branches, and other locations. Currently CTG Exemplar manages and supports the
majority of the Arthritis Foundation's portfolio of IT needs.
CTG ITCapitalTM recruits, retains, and manages IT talent for our clients. While
our Global 1000 customers focus on their core businesses, CTG manages the
acquisition and deployment of the professionals they depend on for IT solutions.
Using an assessment methodology to define each client's staffing needs, we build
a customized supply model to streamline everything from technical requisitions
to invoices. Our strategic staffing Web tool, CTG ITCapital SelectTM, allows our
clients to submit requests for help, review progress on their requisitions, and
access candidate resumes online. ITCapital assets include Internet-based
requisitions, service level agreements, customized reporting, vendor management
programs, and EDI payments.
100
<PAGE> 7
Internet recruiting, recruiting to hot skills, hiring to profile, and a
centralized global recruiting center define our approach. Hiring and retaining
qualified IT professionals is closely linked with effectively managing those
professionals. We give our clients the benefit of a sole source provider who is
closely aligned to their strategies and who can deliver resources on a national
basis.
A PREFERRED PROVIDER FOR IBM
In 1995, CTG ITCapital was chosen as one of nine vendors in the U.S. to provide
technical services to IBM. Vendor selection was based on price, quality, and the
ability to respond quickly to IBM's high-volume requirements. CTG remains
committed to IBM's service level agreements and has a dedicated team serving the
corporation's needs. Under a recently extended contract, CTG ITCapital will
continue as one of IBM's key providers of technical services.
PROVIDING IT SERVICES TO LIBERTY INSURANCE SERVICES
Liberty Insurance Services (LIS), one of North America's largest third-party
life and health insurance administrators, expressed interest in reducing
contingent workforce dollars and cutting the number of its IT vendors without
sacrificing quality. Using our PartnerProcess methodology, CTG ITCapital
assessed LIS' current staffing processes through facilitated sessions and
one-on-one interviews. Based on our findings and recommendations, the company
developed a leading-edge strategy to serve its IT consulting needs over the
coming years.
IT SUPPORT FOR ELI LILLY AND COMPANY
Eli Lilly and Company, a global pharmaceutical company, selected CTG ITCapital
as one of only nine preferred IT services vendors in the U.S. CTG's IT services
include project management, application management, and help desk support. In
addition, CTG ITCapital was selected as one of three companies in the U.S. to
provide contracted statistical sciences and consulting services to this
pharmaceutical giant.
As a preferred vendor, CTG ITCapital's services are customized to Eli Lilly and
Company's industry, environment, and work approaches. This level of interaction
requires a strong business understanding and effective communication that
fosters trust and generates results.
AN APPROVED SUPPLIER FOR KPN TELECOM
KPN Telecom is the Netherlands' largest telecommunications firm, with 1998
revenues of $8 billion. CTG has provided flexible staffing services to KPN since
1994. The relationship was recently expanded when CTG ITCapital was named an
approved supplier, partnering with KPN to provide a wide range of services on
strategic, tactical, and operational levels. Currently, CTG ITCapital is
managing multiple LAN migration projects for KPN, which regards us as one of its
primary partners for information technology services.
HEALTHCARE SOLUTIONSTM
CTG HealthCare SolutionsTM is a leading provider of information technology
consulting services to health care providers and payors in North America. Using
its proprietary Intellectual AdvantageTM storehouse of knowledge and experience
and its AssureWareTM Web-enabled engagement-management methodology, CTG
HealthCare Solutions delivers services that include software application
support, systems integration, information technology management, infrastructure
support, and a full suite of e-business solutions. Software supported includes
SMS(R), McKessonHBOC, Lawson Software(R), IDXTM, Cerner(R), MEDITECH, STC, HIE,
and Neon, among others.
In a climate of new legislation such as HIPAA and the Balanced Budget Act of
1997, health care industry clients rely on CTG HealthCare Solutions to help them
attain their financial and clinical objectives by maximizing the return on their
IT hardware and software investments.
101
<PAGE> 8
A SEAMLESS SYSTEMS SWITCH FOR OHIO HEALTH NETWORK
Ohio Health Network, an integrated delivery network of six hospitals, decided to
migrate from an SMS Medical Information System to a new McKessonHBOC system for
its registration, business office, and financial accounting needs. The dilemma
was how to continue supporting the SMS system while learning and developing the
new McKessonHBOC system. CTG HealthCare Solutions' comprehensive solution:
outsource all of Ohio Health's SMS needs with 24-hour, on-call support.
IMPLEMENTING HNA MILLENNIUMTM FOR AURORA HEALTHCARE
Aurora Healthcare--a 13-hospital, 200-clinic health system headquartered in
Milwaukee, Wisconsin--asked CTG HealthCare Solutions to meet the challenge of
implementing and seamlessly integrating the latest version of HNA MillenniumTM
services across multiple environments. CTG HealthCare Solutions trained the
project team, developed system management procedures, and converted and tested
the new systems.
UPGRADING BLOOD BANK TECHNOLOGY FOR THE NEW ENGLAND MEDICAL CENTER
New England Medical Center's (NEMC) Blood Bank performs testing to determine
blood product donor/recipient compatibility. CTG HealthCare Solutions performed
critical MEDITECH system upgrades for this client--including a conversion of the
system's blood bank module--while ensuring the highest standards of accuracy and
consistency for the blood bank's performance and maintaining rigorous safety
measures for patient care. The conversions met strict regulatory agency
requirements for blood bank validation and enabled the NEMC Blood Bank to
maintain daily operations throughout the project.
visit us on the web at www.ctg.com
102
<PAGE> 9
FINANCIAL SECTION
Table of Contents
11 Consolidated Summary--Five-Year Selected Financial Information
12 Management's Discussion and Analysis
16 Auditors' Report
17 Consolidated Financial Statements
22 Notes to Consolidated Financial Statements
REVENUE IN MILLIONS OPERATING INCOME IN MILLIONS
$ 472.0 '99 $ 30.8* '99
$ 467.8 '98 $ 39.9 '98
$ 407.6 '97 $ 29.0 '97
$ 365.1 '96 $ 18.5 '96
$ 339.4 '95 $ 12.8 '95
DILUTED NET INCOME PER SHARE
$ 1.00* '99
$ 1.42 '98
$ 1.01 '97
$ 0.63 '96
$ 0.62** '95
* Includes the expense of a non-recurring arbitration award, which
lowered operating income by approximately $2.5 million, and diluted net income
per share by $0.09
** Includes a non-recurring tax benefit of $0.18 diluted net income per
share related to losses associated with the Company's European operations
CONSOLIDATED SUMMARY -
Five-Year Selected Financial Information
(amounts in millions, except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenue $ 472.0 $ 467.8 $ 407.6 $ 365.1 $ 339.4
Operating income $ 30.8* $ 39.9 $ 29.0 $ 18.5 $ 12.8
Income before
income taxes $ 29.9* $ 40.8 $ 30.3 $ 18.5 $ 12.0
Net income $ 16.7* $ 24.0 $ 17.9 $ 11.1 $ 10.8**
Basic net income
per share $ 1.02* $ 1.48 $ 1.07 $ 0.65 $ 0.65**
Diluted net income
per share $ 1.00* $ 1.42 $ 1.01 $ 0.63 $ 0.62**
Cash dividend per $ 0.05* $ 0.05 $ 0.05 $ 0.05 $ 0.05
per share
FINANCIAL POSITION
Working capital $ 35.2 $ 74.9 $ 47.1 $ 61.5 $ 49.5
Total assets $ 199.2 $ 156.8 $ 107.7 $ 121.3 $ 104.8
Long-term debt $ 31.4 $ - $ - $ $ 3.6
Shareholders' equity $ 94.9 $ 83.4 $ 55.3 $ 71.5 $ 61.5
</TABLE>
* Includes the expense of a non-recurring arbitration award, which
lowered operating income and income before income taxes by approximately $2.5
million, net income by approximately $1.5 million, and basic and diluted net
income per share by $0.09
** Includes a non-recurring tax benefit of $3.2 million ($0.19 basic net
income per share and $0.18 diluted net income per share) related to losses
associated with the Company's European operations
103
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Results of Operations and Financial Condition
FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of Results of
Operations and Financial Condition and elsewhere in this document that do not
relate to present or historical conditions are "forward-looking statements"
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended, and Section 21F of the Securities Exchange Act of 1934, as amended.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents that are
filed with the Securities and Exchange Commission. Such forward-looking
statements involve risks and uncertainties that could cause results or outcomes
to differ materially from those expressed in such forward-looking statements.
Forward-looking statements may include, without limitation, statements relating
to the Company's plans, strategies, objectives, expectations, and intentions and
are intended to be made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts,"
"intends," "possible," "expects," "estimates," "anticipates," or "plans" and
similar expressions are intended to identify forward-looking statements. Among
the important factors on which such statements are based are assumptions
concerning the anticipated growth of the information technology (IT) industry,
the continued need of current and prospective customers for the Company's
services, the availability of qualified professional staff, and price and wage
inflation.
Results of Operations
To better understand the financial trends of the Company, the following table
sets forth data as contained on the consolidated statements of income, with the
information calculated as a percentage of consolidated revenues.
Year ended December 31, 1999 1998 1997
(percentage of revenue)
Revenue 100.0% 100.0% 100.0%
Direct costs 67.0% 68.6% 70.9%
Selling, general, and
administrative expenses,
less non-recurring
charge 26.0% 22.9% 22.0%
Non-recurring charge 0.5% - -
Operating income 6.5% 8.5% 7.1%
Interest and other
income (expense) (0.2)% 0.2% 0.3%
Income before income
taxes 6.3% 8.7% 7.4%
Provision for income
taxes 2.8% 3.6% 3.0%
Net income 3.5% 5.1% 4.4%
1999 AS COMPARED TO 1998
In 1999, CTG recorded revenue of $472.0 million, an increase of 0.9 percent when
compared to 1998 revenue of $467.8 million. North American revenue decreased by
$3.1 million or (0.8) percent during the year, while revenue from European
operations increased by $7.3 million, or 9.9 percent. In 1999, European revenues
are 17.1 percent of total Company revenues.
While the Company's revenues benefited in 1999 from the acquisition of Elumen
Solutions, Inc. (Elumen) and from providing higher-value services to its
customers, similar to other companies in the IT professional services industry,
CTG's revenues were negatively impacted as companies deferred systems
development and integration work until the actual impact of year 2000 on their
systems could be assessed and resolved. CTG believes that this industry-wide
slowdown is a short-term phenomenon and that the long-term growth prospects for
its business remain strong for 2000 and beyond.
104
<PAGE> 11
The 1998 to 1999 year-to-year revenue growth rate was impacted slightly by the
strengthening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no
change in these foreign currency exchange rates from 1998 to 1999, total
consolidated revenues would have been $3.2 million higher, resulting in a
year-to-year consolidated revenue growth rate of 1.6 percent. This additional
$3.2 million increase in European revenue would have increased the European
revenue growth rate to 14.3 percent.
In January 1999, the Company renewed a contract with IBM for one year as one of
IBM's national technical service providers for the United States. In December
1999, this contract was extended until March 2000. The contract covered 81.6
percent of the total services provided to IBM by the Company in 1999. In 1999,
IBM continued to be the Company's largest customer, accounting for $128.9
million or 27.3 percent of total revenue as compared to $151.4 million or 32.4
percent of 1998 revenue. Although revenues from IBM have been constrained in
1999, CTG expects to continue to derive a significant portion of its revenue
from IBM in 2000 and future years. While the decline in revenue from IBM has had
an adverse effect on the Company's revenues and profits, the Company believes a
simultaneous loss of all IBM business is unlikely to occur due to the existence
of the national contract, the diversity of the projects performed for IBM, and
the number of locations and divisions involved.
Direct costs, defined as costs for billable staff, were 67.0 percent of revenue
in 1999 compared to 68.6 percent of revenue in 1998. The decrease in direct
costs as a percentage of revenue in 1999 as compared to 1998 is primarily due to
the continuing trend of the Company providing higher-value services to its
clients.
Selling, general, and administrative expenses, excluding the non-recurring
charge of $2.5 million taken in the first quarter of 1999, were 26.0 percent of
revenue in 1999 compared to 22.9 percent of revenue in 1998. The increase from
1998 to 1999 is primarily due to investments in 1999 in sales and marketing,
recruiting, and training programs. Additionally, goodwill amortization expense
related to the acquisition of Elumen increased selling, general and
administrative expense year over year.
During the first quarter of 1999, CTG recorded a non-recurring charge of $2.5
million to provide for an arbitration award related to a contract dispute
between the Company and one of its customers. As a percentage of consolidated
revenue, this charge lowered operating income and income before taxes in 1999 by
0.5 percent, net income by 0.3 percent, and basic and diluted earnings per share
by $0.09.
Operating income was 6.5 percent of revenue in 1999 compared to 8.5 percent of
revenue in 1998. Without the non-recurring charge, operating income would have
been 7.0 percent of revenue in 1999. The year-over-year decrease is primarily
due to the non-recurring charge, and the investments discussed above. Operating
income from North American and Corporate operations decreased $10.6 million or
33.6 percent from 1998 to 1999. European operations recorded operating income of
$9.9 million in 1999 as compared to $8.2 million in 1998. The European
improvement in profitability is primarily due to the 9.9 percent increase in
revenue disclosed above and an increase in higher-value services performed in
1999.
Interest and other income (expense) was (0.2) percent of revenue for 1999, and
0.2 percent in 1998. In 1999, interest expense on indebtedness related to the
acquisition of Elumen was partially offset by interest income on available cash
and temporary cash investments.
Income before income taxes was 6.3 percent of revenue in 1999 compared to 8.7
percent of revenue in 1998. Without the non-recurring charge, income before
income taxes would have been 6.8 percent of revenue in 1999. The provision for
income taxes was 44.1 percent in 1999 and 41 percent in 1998. The increase in
the effective income tax rate in 1999 was due to an increase in non-deductible
expenses related to the Elumen acquisition.
Net income for 1999 was 3.5 percent of revenue, or $1.02 basic earnings per
share (EPS) and $1.00 diluted EPS, compared to 5.1 percent of revenue or $1.48
basic EPS and $1.42 diluted EPS in 1998. Earnings per share was calculated using
16.4 million (basic EPS) and 16.7 million (diluted EPS) and 16.2 million (basic
EPS) and 16.9 million (diluted EPS) equivalent shares outstanding in 1999 and
1998,
105
<PAGE> 12
respectively. The decrease in equivalent shares outstanding for diluted
earnings per share is primarily due to the stock purchases by the Company's
Stock Trusts in 1999.
Relative to year 2000 computer concerns, the Company had completed all of its
remediation and systems testing with respect to its mission critical computer
systems and mission critical non-IT systems prior to December 31, 1999. The
Company had determined that mission critical systems or vendors were those that
were vital to the operations of the Company. As part of CTG's year 2000
compliance program, the Company has not made any changes to its hardware or
software for its mission critical computer systems since June 30, 1999 and into
the year 2000. The total amount spent and expensed in 1998 and 1999 to address
year 2000 issues totaled less than $500,000. As of the date of the filing of
these consolidated financial statements with the Securities and Exchange
Commission, the Company has had no material disruptions in its mission critical
systems.
CTG operates in one industry segment, providing IT professional services to its
clients. The services provided typically encompass the IT business solution life
cycle, including phases for planning, development, and managing and maintaining
the IT solution. A portion of the IT professional services the Company
previously provided included assessment, planning, remediation, testing, and
contingency planning services for year 2000 compliance. CTG actively managed the
inherent risk in the services it provided to its clients through a thorough
contract review process, and by including contractual provisions in its
contracts that were designed to mitigate risk to the Company. Revenue generated
from year 2000 compliance services was approximately 10 percent of CTG's
consolidated revenues in 1999 and 1998.
1998 AS COMPARED TO 1997
In 1998, CTG recorded revenue of $467.8 million, an increase of 14.8 percent
when compared to 1997 revenue of $407.6 million. North American revenue
increased by $33.8 million or 9.4 percent during the year, while revenue from
European operations increased by $26.5 million, or 56.7 percent. In 1998,
European revenues were 15.7 percent of total Company revenues. Overall, the
consolidated revenue increase in 1998 as compared to 1997 was mainly due to the
Company providing higher-value services to its customers, and additional
billable personnel.
During 1998, and for several years prior to that, the Company implemented its
Key Client strategy. The first phase of the strategy was to identify and focus
on selected Key Clients. To that end, CTG reduced the number of customers that
it served from 1,200 in 1995 to approximately 430 by the end of 1997. The next
phase of the strategy was to increase the percentage of higher-value services in
the company's sales mix. CTG believes that its successful implementation of its
Key Client strategy caused earnings to increase significantly faster than
revenues during 1998 and 1997, and that the strategy continued to add to the
Company's financial performance in 1999 through an improved direct margin.
The 1997 to 1998 year-to-year revenue growth rate was impacted slightly by the
strengthening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no
change in these foreign currency exchange rates from 1997 to 1998, total
consolidated revenues would have been $0.4 million higher, resulting in a
year-to-year consolidated revenue growth rate of 14.9 percent. This additional
$0.4 million increase in revenue in Europe would have increased the European
revenue growth rate to 57.6 percent.
In January 1999, CTG renewed a contract with IBM for one year as one of IBM's
national technical service providers for the United States. The contract covered
59 percent of the total services provided to IBM by the Company in 1998. IBM
continued to be the Company's largest customer, accounting for $151.4 million or
32.4 percent of 1998 total revenue as compared to $142.2 million or 34.9 percent
of 1997 revenue. The Company continued to derive a significant portion of its
revenue from IBM in 1999.
Direct costs, defined as costs for billable staff, were 68.6 percent of revenue
in 1998 compared to 70.9 percent of revenue in 1997. The decrease in direct
costs as a percentage of revenue in 1998 as compared to 1997 was primarily due
to a trend toward CTG providing higher-value services to its clients, consistent
with CTG's Key Client focus.
106
<PAGE> 13
Selling, general, and administrative expenses were 22.9 percent of revenue in
1998 compared to 22.0 percent of revenue in 1997. The increase from 1997 to 1998
was primarily due to additional investments in 1998 in sales and marketing,
recruiting, and training programs.
Operating income was 8.5 percent of revenue in 1998 compared to 7.1 percent of
revenue in 1997. In dollars, there was a 37.6 percent increase year over year
from $29.0 million in 1997 to $39.9 million in 1998. As mentioned above, CTG
continued its focus on Key Clients, with particular emphasis on those
relationships that were mutually profitable for CTG and its clients. The fourth
quarter of 1998 marked the 17th straight quarter of operating income improvement
for CTG. Operating income from North American and Corporate operations increased
$6.3 million or 25 percent from 1997 to 1998. European operations recorded
operating income of $8.2 million in 1998 as compared to $3.7 million in 1997.
The European improvement in profitability was primarily due to the 56.7 percent
increase in revenue discussed above and an increase in higher-value services
performed in 1998.
Due to its European operations, CTG was moderately affected by the
implementation of the Euro currency in most of the countries in which it
operates. However, this effect was financially immaterial as the Company had
upgraded its internal systems to be Euro-compliant with nominal cost to the
company. Additionally, the Company did not experience pricing or competitive
pressures from other IT professional services providers that materially affected
either revenues or profits for CTG as a whole.
Interest and other income and expense was 0.2 percent of revenue in 1998
compared to 0.3 percent of revenue in 1997. This decrease was a result of having
less cash and temporary cash investments on hand for most of 1998, as the
Company's Stock Employee Compensation Trust (SECT) utilized a significant
portion of the Company's available cash and temporary cash investments in the
fourth quarter of 1997 to purchase CTG's stock on the open market.
Income before income taxes was 8.7 percent of revenue in 1998 compared to 7.4
percent of revenue in 1997. The provision for income taxes for 1998 and 1997 was
41 percent.
Net income for 1998 was 5.1 percent of revenue, or $1.48 basic EPS and $1.42
diluted EPS, compared to 4.4 percent of revenue or $1.07 basic EPS and $1.01
diluted EPS in 1997. Earnings per share was calculated using 16.2 million (basic
EPS) and 16.9 million (diluted EPS) and 16.8 million (basic EPS) and 17.6
million (diluted EPS) equivalent shares outstanding in 1998 and 1997,
respectively. The decrease in equivalent shares outstanding for diluted earnings
per share was primarily due to the stock purchases by the Company's SECT in the
fourth quarter of 1997.
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires all items recognized as components
of comprehensive income, such as foreign currency or minimum pension liability
adjustments, to be reported in a financial statement equal to that of the other
financial statements. The adoption of SFAS No. 130 resulted in additional
disclosures, including a revision of previously disclosed information, but had
no effect on the financial condition or results of operations of the Company.
During 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of the Enterprise and Related Information." SFAS No. 131 requires
disclosure of segments of a company's business based upon how a company is
organized for making operating decisions and assessing performance. As the
Company's disclosure of business segments did not change in 1998 from that
disclosed in previous years, the adoption of SFAS No. 131 resulted in additional
disclosures, but had no effect on the financial condition or results of
operations of the Company.
During 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." The adoption of
SFAS No. 132 resulted in additional disclosures about the Company's
non-qualified defined-benefit plan and postretirement benefit plan, but had no
effect on the financial condition or results of operations of the Company.
107
<PAGE> 14
FINANCIAL CONDITION
Cash provided by operating activities was $21.8 million in 1999. Net income
totaled $16.7 million, and non-cash adjustments for depreciation expense,
amortization expense, and deferred compensation expense totaled $9.3 million.
Overall, accounts receivable increased due to a decline in accounts receivable
turnover, and the acquisition of Elumen. Deferred income taxes increased $2.0
million due to the liabilities acquired with the acquisition of Elumen and the
accrual of an arbitration award related to a contract dispute between the
Company and one of its customers. Accounts payable decreased by $4.4 million due
to the timing of payments at year-end 1999 as compared to year-end 1998. Accrued
compensation decreased $3.6 million due to a decrease in the total number of
employees year over year. Advanced billings on contracts increased $0.4 million
due to the mix of the contracts outstanding at December 31, 1999, as compared to
December 31, 1998. Other current liabilities increased $1.7 million primarily
due to the arbitration award discussed above. At December 31, 1999, the
Company's current ratio was 1.6 to 1.
Net property and equipment increased $0.3 million. Additions to property and
equipment were $4.5 million, and assets acquired with the acquisition of Elumen
were $1.1 million, offset by depreciation of $5.0 million and foreign currency
translation adjustments of $0.3 million. The Company had no material commitments
for capital expenditures at December 31, 1999. Net acquired intangibles
increased $81.2 million, caused primarily by the acquisition of Elumen.
Financing activities provided $24.0 million of cash in 1999. Long-term debt
increased to $31.4 million from zero due to the acquisition of Elumen. The
Company borrowed $52.0 million in February 1999 under its lines of credit and
made payments on the debt to reduce it to the $31.4 million mentioned above at
year-end. CTG had no long-term debt prior to the acquisition.
During 1999, the Company entered into a $100 million, five-year revolving credit
agreement with a bank group. At December 31, 1999, including unsecured lines of
credit, the Company had $132.0 million in total credit, of which $31.4 million
was outstanding.
During 1999, a total of 0.7 million shares of the Company's stock were purchased
on the open market by the Company's Stock Trusts for $9.9 million. The Company
received $1.1 million from employees for 64,000 shares of stock purchased under
the Employee Stock Purchase Plan, and the Company also received $1.1 million for
the exercise of 129,000 stock options, inclusive of the related tax benefit. The
Company paid an annual dividend of $0.05 per share, totaling $0.8 million in
1999.
On October 26, 1994, the Company authorized the repurchase of 2.0 million shares
and on July 21, 1995 authorized the repurchase of another 1.4 million shares of
its common stock for treasury and by the Company's Stock Trusts. At December 31,
1999, approximately 3.2 million shares have been repurchased under the
authorizations, leaving 0.2 million shares remaining authorized for future
purchases.
At December 31, 1999, consolidated shareholders' equity totaled $94.9 million,
which is an increase of $11.5 million, or 13.8 percent, from December 31, 1998.
The increase is primarily due to 1999 net income of $16.7 million, offset by the
stock purchases by the Company's Stock Trusts.
The Company believes existing internally available funds, cash generated by
operations, and available borrowings will be sufficient to meet foreseeable
working capital, stock repurchase, and capital expenditure requirements and to
allow for future internal growth and expansion.
108
<PAGE> 15
INDEPENDENT
AUDITORS' REPORT
Board of Directors and Shareholders
Computer Task Group, Incorporated
Buffalo, New York
We have audited the accompanying consolidated balance sheets of Computer Task
Group, Incorporated and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements as of December 31, 1997 were audited by other auditors
whose report, dated February 4, 1998, expressed an unqualified opinion of those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1999 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of Computer Task Group,
Incorporated and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Buffalo, New York
February 4, 2000
Consolidated Statements of
Income
(amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $ 472,008 $ 467,838 $ 407,588
Direct costs 316,304 320,673 288,848
Selling, general, and
administrative expenses 124,871 107,314 89,784
Operating income 30,833 39,851 28,956
Interest and other income 1,369 1,445 2,151
Interest and other expense (2,338) (539) (839)
Income before income taxes 29,864 40,757 30,268
Provision for income taxes 13,163 16,712 12,406
Net income $ 16,701 $ 24,045 $ 17,862
Net income per share:
Basic $ 1.02 $ 1.48 $ 1.07
Diluted $ 1.00 $ 1.42 $ 1.01
The accompanying notes are an integral part of these consolidated financial
statements.
109
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS
(amounts in thousands, except share balances)
December 31, 1999 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments $ 10,684 $ 57,748
Accounts receivable, net of allowances and reserves 80,773 73,932
Prepaids and other 2,821 4,000
Deferred income taxes 3,041 1,654
Total current assets 97,319 137,334
Property and equipment, net of accumulated
depreciation and amortization 13,483 13,146
Acquired intangibles, net of accumulated
amortization of $9,151 and $6,002 respectively 84,008 2,808
Deferred income taxes 3,685 2,801
Other assets 664 720
Total assets $ 199,159 $ 156,809
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,834 $ 14,265
Accrued compensation 27,567 29,258
Income taxes payable 10,423 9,157
Advance billings on contracts 761 384
Other current liabilities 12,532 9,409
Total current liabilities 62,117 62,473
Long-term debt 31,380 -
Deferred compensation benefits 9,953 10,300
Other long-term liabilities 785 587
Total liabilities 104,235 73,360
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share,
150,000,000 shares authorized;
27,017,824 shares issued 270 270
Capital in excess of par value 110,895 106,010
Retained earnings 82,046 66,172
Less: Treasury stock of 6,141,823 and 6,269,668
shares, at cost (31,279) (31,850)
Stock Trusts of 4,823,173 and 4,422,500
shares, at cost (61,306) (52,463)
Unearned portion of restricted stock to
related parties (43) (69)
Other comprehensive income:
Foreign currency adjustment (4,786) (2,374)
Minimum pension liability adjustment (873) (2,247)
Accumulated other comprehensive
income (5,659) (4,621)
Total shareholders' equity 94,924 83,449
Total liabilities and shareholders' equity $ 199,159 $ 156,809
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
110
<PAGE> 17
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 16,701 $ 24,045 $ 17,862
Adjustments:
Depreciation expense 5,009 4,406 4,532
Amortization expense 3,471 596 896
Loss on sales or disposals of assets 23 10 30
Deferred compensation expense 797 216 542
Changes in assets and liabilities, net of assets
acquired and liabilities assumed:
(Increase) decrease in accounts receivable 837 (12,830) (5,692)
(Increase) decrease in prepaids and other 984 (1,551) 16
Increase in deferred income taxes (1,988) (665) (94)
(Increase) decrease in other assets 319 (123) (19)
Increase (decrease) in accounts payable (4,356) 4,805 267
Increase (decrease) in accrued
compensation (3,647) 7,431 4,493
Increase (decrease) in income
taxes payable 1,638 4,546 (555)
Increase (decrease) in advance
billings on contracts 377 (774) (1,326)
Increase in other current liabilities 1,681 4,179 390
Decrease in other long-term liabilities (39) (304) (345)
Net cash provided by operating activities 21,807 33,987 20,997
Cash flows from investing activities:
Acquisition, net of cash acquired (86,775) -- --
Additions to property and equipment (4,509) (5,057) (4,770)
Proceeds from sales or disposals of property
and equipment 39 22 15
Net cash used in investing activities (91,245) (5,035) (4,755)
Cash flows from financing activities:
Proceeds from long-term revolving debt, net 31,380 -- --
Proceeds from Employee Stock Purchase Plan 1,094 1,448 1,155
Purchase of stock for treasury (13) (77) (118)
Purchase of stock by Stock Trusts (9,940) (2,455) (37,018)
Proceeds from other stock plans, inclusive
of the related tax benefit 2,298 5,474 4,266
Dividends paid (827) (812) (837)
Net cash provided by (used in) financing activities 23,992 3,578 (32,552)
Effect of exchange rate changes on cash and
temporary cash investments (1,618) 185 (173)
Net increase (decrease) in cash and temporary
cash investments (47,064) 32,715 (16,483)
Cash and temporary cash investments at beginning of year 57,748 25,033 41,516
Cash and temporary cash investments at end of year $ 10,684 $ 57,748 $ 25,033
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
111
<PAGE> 18
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands, except per data share)
Capital in
Common Stock Excess of Retained Stock Trusts
Shares Amount Par Value Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 13,467 $135 $159,512 $25,914 3,131 $(31,655)
Two-for-one stock split 13,467 135 (135) - 3,131 -
Employee Stock Purchase Plan share issuance - - - - - -
Stock Option Plan share issuance 82 - 3,228 - - -
Deferred Compensation Plan share issuance - - - - - -
Purchase of stock - - - - 5 (118)
Restricted Stock Plan:
Award 2 - 44 - - -
Amortization - - - - - -
Stock Employee Compensation Trust adjustment to - - 53,379 - - -
fair value
Cash dividends - $.05 per share - - - (837) - -
Comprehensive Income:
Net income - - - 17,862 - -
Foreign currency adjustment - - - - - -
Minimum pension liability adjustment - - - - - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Total Comprehensive Income - - - 17,862 - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Balance as of December 31, 1997 27,018 270 216,028 42,939 6,267 (31,773)
Employee Stock Purchase Plan share issuance - - - - - -
Stock Option Plan share issuance - - 2,359 - - -
Other share issuance - - - - - -
Purchase of stock - - - - 3 (77)
Restricted Stock Plan:
Award - - - - - -
Amortization - - - - - -
Stock Employee Compensation Trust adjustment to cost - - (112,377) - - -
Management Stock Purchase Plan repayments - - - - - -
Cash dividends - $.05 per share - - - (812) - -
Comprehensive Income:
Net income - - - 24,045 - -
Foreign currency adjustment - - - - - -
Minimum pension liability adjustment - - - - - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Total comprehensive income - - - 24,045 - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Balance as of December 31, 1998 27,018 270 106,010 66,172 6,270 (31,850)
Acquisition - - 2,616 - (129) 584
Employee Stock Purchase Plan share issuance - - 824 - - -
Stock Option Plan share issuance - - 564 - - -
Other share issuance - - 881 - - -
Purchase of stock - - - - 1 (13)
Restricted Stock Plan - Amortization - - - - - -
Cash dividends - $.05 per share - - - (827) - -
Comprehensive Income:
Net income - - - 16,701 - -
Foreign currency adjustment - - - - - -
Minimum pension liability adjustment - - - - - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Total comprehensive income - - - 16,701 - -
- ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Balance as of December 31, 1999 27,018 $270 $110,895 $82,046 6,142 $(31,279)
====== ==== ======== ======= ===== =========
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands, except per data share)
Unearned Minimum
Portion of Loans to Foreign Pension
Stock Trusts Restricted Related Currency Liability
Shares Amount Stock Parties Adjustment Adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 1,825 $(78,715) $ - $ (54) $(2,039) $(1,594)
-
Two-for-one stock split 1,825 - - - - -
Employee Stock Purchase Plan share issuance (39) 1,155 - - - -
Stock Option Plan share issuance (207) 955 - - - -
Deferred Compensation Plan share issuance (3) 73 - - - -
Purchase of stock 1,293 (37,018) - - - -
Restricted Stock Plan:
Award - - (44) - - -
Amortization - - 10 - - -
Stock Employee Compensation Trust adjustment to - (53,379) - - - -
fair value
Cash dividends - $.05 per share - - - - - -
Comprehensive Income:
Net income - - - - - -
Foreign currency adjustment - - - - (1,167) -
Minimum pension liability adjustment - - - - - (321)
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Total Comprehensive Income - - - - (1,167) (321)
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Balance as of December 31, 1997 4,694 (166,929) (34) (54) (3,206) (1,915)
Employee Stock Purchase Plan share issuance (45) 1,448 - - - -
Stock Option Plan share issuance (272) 1,985 - - - -
Other share issuance (32) 1,051 - - - -
Purchase of stock 80 (2,455) - - - -
Restricted Stock Plan:
Award (2) 60 (60) - - -
Amortization - - 25 - - -
Stock Employee Compensation Trust adjustment to cost - 112,377 - - - -
Management Stock Purchase Plan repayments - - - 54 - -
Cash dividends - $.05 per share - - - - - -
Comprehensive Income:
Net income - - - - - -
Foreign currency adjustment - - - - 832 -
Minimum pension liability adjustment - - - - - (332)
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Total comprehensive income - - - - 832 (332)
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Balance as of December 31, 1998 4,423 (52,463) (69) - (2,374) (2,247)
Acquisition - - - - - -
Employee Stock Purchase Plan share issuance (64) 270 - - - -
Stock Option Plan share issuance (129) 550 - - - -
Other share issuance (65) 277 - - - -
Purchase of stock 658 (9,940) - - - -
Restricted Stock Plan - Amortization - - 26 - - -
Cash dividends - $.05 per share - - - - - -
Comprehensive Income:
Net income - - - - - -
Foreign currency adjustment - - - - (2,412) -
Minimum pension liability adjustment - - - - - 1,374
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Total comprehensive income - - - - (2,412) 1,374
- ----------------------------------------------------- ----------- ------------ ----------- ----------- ------------ -----------
Balance as of December 31, 1999 4,823 $(61,306) $(43) $- $(4,786) $(873)
===== ========= ===== == ======== ======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands, except per data share)
Total
Shareholders'
Equity
- -------------------------------------------------------------------------------
<S> <C>
Balance as of December 31, 1996 $71,504
Two-for-one stock split -
Employee Stock Purchase Plan share issuance 1,155
Stock Option Plan share issuance 4,183
Deferred Compensation Plan share issuance 73
Purchase of stock (37,136)
Restricted Stock Plan:
Award -
Amortization 10
Stock Employee Compensation Trust adjustment to -
fair value
Cash dividends - $.05 per share (837)
Comprehensive Income:
Net income 17,862
Foreign currency adjustment (1,167)
Minimum pension liability adjustment (321)
- ----------------------------------------------------- -----------
Total Comprehensive Income 16,374
- ----------------------------------------------------- -----------
Balance as of December 31, 1997 55,326
Employee Stock Purchase Plan share issuance 1,448
Stock Option Plan share issuance 4,344
Other share issuance 1,051
Purchase of stock (2,532)
Restricted Stock Plan:
Award -
Amortization 25
Stock Employee Compensation Trust adjustment to cost -
Management Stock Purchase Plan repayments 54
Cash dividends - $.05 per share (812)
Comprehensive Income:
Net income 24,045
Foreign currency adjustment 832
Minimum pension liability adjustment (332)
- ----------------------------------------------------- -----------
Total comprehensive income 24,545
- ----------------------------------------------------- -----------
Balance as of December 31, 1998 83,449
Acquisition 3,200
Employee Stock Purchase Plan share issuance 1,094
Stock Option Plan share issuance 1,114
Other share issuance 1,158
Purchase of stock (9,953)
Restricted Stock Plan - Amortization 26
Cash dividends - $.05 per share (827)
Comprehensive Income:
Net income 16,701
Foreign currency adjustment (2,412)
Minimum pension liability adjustment 1,374
- ----------------------------------------------------- -----------
Total comprehensive income 15,663
- ----------------------------------------------------- -----------
Balance as of December 31, 1999 $94,924
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
113
<PAGE> 19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Computer Task
Group, Incorporated, and its subsidiaries (the Company or CTG), located
primarily in North America and Europe. All intercompany accounts and
transactions have been eliminated. Certain amounts in the prior years'
consolidated financial statements and notes have been reclassified to conform to
the current year presentation. Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Such estimates primarily relate to allowances for
doubtful accounts and deferred tax assets, a reserve for projects, and estimates
of progress toward completion and direct profit or loss on fixed-price
contracts. Actual results could differ from those estimates.
CTG operates in one industry segment, providing information technology (IT)
professional services to its clients. The services provided typically encompass
the IT business solution life cycle, including phases for planning, development
and implementation, and managing and maintaining the IT solution.
REVENUE AND COST RECOGNITION
The Company primarily recognizes revenue on monthly fee and time-and-materials
contracts as hours are expended and costs are incurred. Fixed-price contracts
accounted for under the percentage-of-completion method represented 2 percent of
1999, 1 percent of 1998, and 2 percent of 1997 revenue, respectively. Such
revenue is determined by the percentage of labor and overhead costs incurred to
date to total estimated labor and overhead costs for each contract. Fixed-price
contract costs include all direct labor and material costs and those indirect
costs related to contract performance.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. In addition to an allowance for doubtful
accounts of approximately $2.3 million and $1.1 million at December 31, 1999 and
1998, respectively, accounts receivable is further reduced by a reserve for
projects of $0.9 million at December 31, 1999 and $1.0 million at December 31,
1998, respectively. Selling, general, and administrative costs are charged to
expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 1999 and 1998, the carrying amounts of the Company's financial
instruments, which include cash and temporary cash investments, accounts
receivable, and long-term debt approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on estimated
useful lives of two years to 30 years. The cost of property or equipment sold or
otherwise disposed of, along with related accumulated depreciation, is
eliminated from the accounts, and the resulting gain or loss is reflected in
current earnings. Maintenance and repairs are charged to expense when incurred,
while significant betterments are capitalized.
ACQUIRED INTANGIBLES
Acquired intangibles consist of goodwill and other identifiable intangibles.
Amortization is computed using the straight-line method based on estimated
useful lives of 10 years to 25 years.
114
<PAGE> 20
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of, if any, are reported at the lower of the
carrying amount or fair value less costs to sell. There were no adjustments to
long-lived assets or identifiable intangibles in either 1999 or 1998.
INCOME TAXES
The Company provides deferred income taxes for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred income taxes relate principally to deferred compensation,
non-deductible accrued expenses, and accelerated depreciation and amortization
methods.
Tax credits are accounted for as a reduction of the income tax provision in the
year in which they are realized (flow-through method).
STOCK-BASED COMPENSATION
The Company accounts for its Stock-Based Compensation Plans in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense, over the vesting period, the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
STOCK SPLIT
During 1997, the Board of Directors approved a 2-for-1 split of the Company's
common stock, effective June 2, 1997, to shareholders of record as of May 19,
1997. Shares of common stock, treasury stock, and shares held by the Stock
Employee Compensation Trust (SECT) at December 31, 1996, have been restated to
reflect this split on the Company's consolidated balance sheets. All references
elsewhere throughout this annual report to the number of shares, per share
amounts, stock option data, and market prices of the Company's common stock give
effect to the stock split.
115
<PAGE> 21
NET INCOME PER SHARE
Basic and diluted earnings per share for the years ended December 31, 1999,
1998, and 1997 are as follows:
(amounts in thousands, Weighted Earnings
except per share data) Income Average per Share
FOR THE YEAR ENDED DECEMBER 31, 1999
Basic EPS $ 16,701 16,401 $ 1.02
Dilutive effect of outstanding
stock options - 279
Diluted EPS $ 16,701 16,680 $ 1.00
FOR THE YEAR ENDED DECEMBER 31, 1998
Basic EPS $ 24,045 16,216 $ 1.48
Dilutive effect of outstanding
stock options - 697
Diluted EPS $ 24,045 16,913 $ 1.42
FOR THE YEAR ENDED DECEMBER 31, 1997
Basic EPS $ 17,862 16,758 $ 1.07
Dilutive effect of outstanding
stock options - 857
Diluted EPS $ 17,862 17,615 $ 1.01
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the applicable
local currency. The translation of the applicable foreign currencies into U.S.
dollars is performed for assets and liabilities using current exchange rates in
effect at the balance sheet date, for equity accounts using historical exchange
rates, and for revenue and expense activity using the applicable month's average
exchange rates.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash and temporary cash investments
are defined as cash on hand, demand deposits, and short-term, highly liquid
investments with a maturity of three months or less.
Interest paid during 1999, 1998, and 1997 amounted to $2.0 million, $0.1
million, and $0.3 million, respectively, while net income tax payments totaled
$12.9 million, $10.4 million, and $9.7 million for the respective years.
During 1998, as a non-cash financing activity, the shares of common stock held
by the Company's Stock Employee Compensation Trust were adjusted to original
cost basis, with a decrease to capital in excess of par value of $(112.4)
million. During 1997, as a non-cash financing activity, the shares of common
stock of the SECT were adjusted to fair value, with an increase to capital in
excess of par value of $53.4 million (see Note 9, Stock Trusts).
ACCOUNTING STANDARDS PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires all items
recognized as components of comprehensive income, such as foreign currency or
minimum pension liability adjustments, to be reported in a financial statement
equal to that of the other financial statements. The adoption of SFAS No. 130
resulted in additional disclosures, including a revision of previously disclosed
information, but had no effect on the financial condition or results of
operations of the Company.
116
<PAGE> 22
For the years ended December 31, 1999, 1998, and 1997, the tax benefit (expense)
associated with the minimum pension liability adjustment was $0.3 million,
$(0.1) million, and $(0.1) million, respectively.
During 1998, the company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of the Enterprise and Related Information." SFAS No. 131 requires
disclosure of segments of a company's business based upon how a company is
organized for making operating decisions and assessing performance. As the
Company's disclosure of business segments did not change in 1998 from that
disclosed in previous years, the adoption of SFAS No. 131 resulted in additional
disclosures, but had no effect on the financial condition or results of
operations of the Company.
During 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosure About Pensions and Other Postretirement Benefits." The adoption of
SFAS No. 132 resulted in additional disclosures about the Company's
non-qualified defined-benefit plan and postretirement benefit plan, but had no
effect on the financial condition or results of operations of the Company.
2. Acquisition
On February 23, 1999, the Company acquired the stock of Elumen Solutions, Inc.
(Elumen). The transaction was valued at $89 million, of which $86 million was
paid in cash or through the assumption of debt, and the remainder was satisfied
through the issuance of approximately 128,000 shares of CTG common stock. The
fair value of the assets acquired totaled $11.2 million, while liabilities
assumed totaled $7.1 million.
The acquisition was accounted for as a purchase, and the results of Elumen have
been included in the accompanying consolidated financial statements since the
date of acquisition. CTG recorded approximately $84.9 million of goodwill and
other identifiable intangibles from the transaction, which are being amortized
on a straight-line basis over periods ranging from 10 years to 25 years.
The unaudited pro forma consolidated results of operations as though Elumen had
been acquired as of January 1, 1998, are as follows:
(amounts in thousands, 1999 1998
except per share data)
Revenue $ 479,935 $ 504,689
Net income $ 16,523 $ 22,188
Net income per share:
Basic $ 1.01 $ 1.36
Diluted $ 0.99 $ 1.30
These pro forma results are not necessarily indicative of what would have
actually occurred if the acquisition had been completed as of the beginning of
the periods presented, nor do they purport to be indicative of the results that
will be obtained in the future.
117
<PAGE> 23
3. Property and Equipment
Property and equipment at December 31, 1999 and 1998 are summarized as follows:
December 31, 1999 1998
(amounts in thousands)
Land $ 886 $ 886
Buildings 6,515 6,515
Equipment 21,879 23,984
Furniture 6,188 5,447
Software 3,442 3,739
Leasehold improvements 1,050 1,031
39,960 41,602
Less accumulated depreciation (26,477) (28,456)
$ 13,483 $ 13,146
At December 31, 1999, the Company owned three buildings, two of which are in use
by the Company. The third building, with a net book value of $1.9 million, is
leased to a third party under a five-year lease, which ends in 2000. Receipts
under this lease are estimated at approximately $0.2 million in 2000.
4. Debt
During 1999, the Company refinanced its short-term debt by entering into a
five-year revolving line of credit with a bank group. Under the agreement, the
Company may borrow up to $100 million through August 24, 2004. At the Company's
discretion, interest may be based upon the LIBOR rate, the prime rate, or other
rates as quoted by the agent bank. In addition, the Company is subject to a
commitment fee varying from 10 to 30 basis points of the unused available
credit. There were no commitment fees paid or due during 1998 or 1997. The
agreement requires the Company to maintain certain financial ratios, all of
which were met by the Company.
At December 31, 1999, there was $20.0 million outstanding under the revolving
credit agreement mentioned above. This outstanding debt is due in full on August
24, 2004. No amounts are due under the agreement until that time. There was no
long-term debt outstanding at December 31, 1998.
The Company also has lines of credit available outside of the revolving credit
agreement mentioned above, totaling $32.0 million, renewable annually at various
times throughout the year, with interest at or below the equivalent of the prime
rate. All borrowings under these agreements are unsecured and payable upon
demand. The Company intends to refinance its borrowings under these lines of
credit, totaling $11.4 million at December 31, 1999, under the revolving credit
agreement discussed above. There were no borrowings under these arrangements at
December 31, 1998.
The maximum amounts outstanding under borrowings during 1999, 1998, and 1997
were $59.0 million, $0.1 million, and $2.2 million, respectively. Average bank
borrowings outstanding for the years 1999, 1998, and 1997 were $40.9 million,
$0.1 million, and $0.7 million, and carried weighted average interest rates of
5.75 percent, 5.50 percent, and 5.00 percent, respectively.
The carrying amount of long-term debt, as determined by a comparison to similar
instruments, approximates fair value at December 31, 1999.
118
<PAGE> 24
5. Income Taxes
The provision (benefit) for income taxes for 1999, 1998, and 1997 consists of
the following: (amounts in thousands)
Domestic and foreign components of income before income taxes are as follows:
1999 1998 1997
-------------------------------------------------
Domestic $ 21,168 $ 34,027 $ 28,825
Foreign 8,696 6,730 1,443
$ 29,864 $ 40,757 $ 30,268
The provision (benefit) for income taxes consists of:
1999 1998 1997
-------------------------------------------------
Current Tax:
U.S. Federal $ 8,359 $ 11,920 $ 10,176
Foreign 3,631 1,782 90
U.S. State and Local 2,194 3,675 2,234
14,184 17,377 12,500
Deferred Tax:
U.S. Federal (836) (579) (82)
U.S. State and Local (185) (86) (12)
(1,021) (665) (94)
$ 13,163 $ 16,712 $ 12,406
The effective and statutory income tax rate can be reconciled as follows:
1999 1998 1997
-------------------------------------------------
Tax at statutory rate of
34 percent $ 10,153 $ 13,857 $ 10,291
Rate differential 299 408 303
State tax, net of federal
benefits 1,224 2,333 1,445
Expenses for which no tax
benefit is available 1,579 472 658
Change in estimate of
nondeductible expenses - (927) (475)
Other, net (92) 569 184
$ 13,163 $ 16,712 $ 12,406
Effective income tax rate 44.1% 41.0% 41.0%
119
<PAGE> 25
The Company's deferred tax assets and liabilities at December 31, 1999 and 1998
consist of the following:
December 31, 1999 1998
(amounts in thousands)
ASSETS
Deferred compensation $3,563 $2,835
Accruals deductible for tax
purposes when paid 2,527 1,561
Allowance for doubtful accounts 650 292
Other 668 444
Gross deferred tax assets 7,408 5,132
LIABILITIES
Amortization 236 204
Depreciation 446 473
Gross deferred tax liabilities 682 677
Deferred tax assets
valuation allowance - -
Net deferred tax assets $6,726 $4,455
Net deferred assets and liabilities are recorded at December 31, 1999 and 1998
as follows:
Net current assets $3,041 $1,654
Net non-current assets 3,685 2,801
$6,726 $4,455
In assessing the realizability of deferred tax assets, management considers,
within each taxing jurisdiction, whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the years in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences at December 31, 1999. Accordingly, no
valuation allowance is required.
Undistributed earnings of the Company's foreign subsidiaries were minimal at
December 31, 1999, and are considered to be indefinitely reinvested.
Accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of these earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. In the event that the other foreign entities'
earnings were distributed, it is estimated that U.S. federal and state income
taxes, net of foreign credits, would be immaterial.
In 1999, 1998, and 1997, 264,900, 193,000, and 233,000 shares of common stock,
respectively, were issued through the exercise of non-qualified stock options or
through the disqualifying disposition of incentive stock options. The total tax
benefit to the Company from these transactions, which is credited to capital in
excess of par value rather than recognized as a reduction of income tax expense,
was $1.4 million, $2.4 million, and $2.9 million in 1999, 1998, and 1997,
respectively. These tax benefits have also been recognized in the consolidated
balance sheets as a reduction of current taxes payable.
120
<PAGE> 26
6. Lease Commitments
At December 31, 1999, the Company was obligated under a number of long-term
operating leases. Minimum future obligations under such leases are summarized as
follows:
Year ended December 31,
(amounts in thousands)
2000 $ 8,508
2001 6,493
2002 3,861
2003 1,094
2004 878
Later years 1,019
Minimum future obligations $21,853
The operating lease obligations relate to the rental of office space, office
equipment, and automobiles. Total rental expense under such operating leases for
1999, 1998, and 1997 was approximately $11.0 million, $9.0 million, and $6.8
million, respectively.
7. Deferred Compensation Benefits
The Company maintains a non-qualified defined-benefit Executive Supplemental
Benefit Plan that previously provided certain current and former key executives
with deferred compensation benefits, based on years of service and base
compensation, payable during retirement. The plan was amended as of November 30,
1994, to freeze benefits for participants at that time.
Net periodic pension cost for 1999, 1998, and 1997 is as follows:
Net Periodic Pension Cost 1999 1998 1997
(amounts in thousands)
Interest cost $641 $655 $633
Amortization of unrecognized
net loss 85 66 48
$726 $721 $681
The change in benefit obligation at December 31, 1999 and 1998 is as follows:
Change in Benefit Obligation 1999 1998
(amounts in thousands)
Benefit obligation at beginning of year $ 9,720 $ 9,258
Interest cost 641 655
Amortization of unrecognized net loss 85 66
Benefits paid (435) (591)
Adjustment to minimum liability (791) 332
Benefit obligation at end of year 9,220 9,720
Fair value of plan assets at end of year - -
Funded status 9,220 9,720
Unrecognized net actuarial loss (1,455) (2,247)
Accrued benefit cost $ 7,765 $ 7,473
Weighted average discount rate 7.50% 6.75%
Salary increase rate 0% 0%
Benefits paid to participants are funded by the Company as needed. The plan is
deemed unfunded as the Company has not specifically identified Company assets to
be used to discharge the deferred compensation benefit liabilities. The Company
has purchased insurance on the lives of certain plan
121
<PAGE> 27
participants in amounts considered sufficient to reimburse the Company for the
costs associated with the plan for those participants.
The Company maintains a non-qualified defined-contribution deferred compensation
plan for certain key executives. The Company contributions to this plan, which
were $71,000, $107,000, and $241,000 in 1999, 1998, and 1997, respectively, are
based on annually defined financial performance objectives.
8. Employee Benefits
401(K) PROFIT-SHARING RETIREMENT PLAN
The Company maintains a contributory 401(k) profit-sharing retirement plan
covering substantially all U.S. employees. Company contributions of cash and the
Company's stock, which are discretionary, were funded and charged to operations
in the amounts of $3.5 million, $3.8 million, and $2.4 million for 1999, 1998,
and 1997, respectively.
OTHER RETIREMENT PLANS
The Company maintains various retirement plans covering substantially all of its
European employees. Company contributions charged to operations were $0.5
million, $0.5 million, and $0.1 million in 1999, 1998, and 1997, respectively.
OTHER POSTRETIREMENT BENEFITS
The Company provides limited health care and life insurance benefits to 13
retired employees and their spouses, totaling 20 participants, pursuant to
contractual agreements.
Net periodic postretirement benefit cost for 1999, 1998, and 1997 is as follows:
Net Periodic Postretirement 1999 1998 1997
Benefit Cost (amounts in thousands)
Interest cost $ 35 $ 33 $ 41
Amortization of transition amount 29 29 29
Amortization of gain (6) (14) (4)
$ 58 $ 48 $ 66
122
<PAGE> 28
The change in postretirement benefit obligation at December 31, 1999 and 1998 is
as follows:
Change in Postretirement 1999 1998
Benefit Obligation (amounts in thousands)
Postretirement benefit obligation at beginning
of year $ 552 $ 485
Interest cost 35 33
Amortization of transition amount 29 29
Benefits paid (38) (32)
Amortization of gain (6) (14)
Adjustment to unrecognized transition obligation (29) (29)
Adjustment to unrecognized gain (43) 80
Postretirement benefit obligation at end of year 500 552
Fair value of plan assets at end of year -- --
Funded status 500 552
Unrecognized transition obligation (380) (409)
Unrecognized gain 192 149
Accrued postretirement benefit cost $ 312 $ 292
Weighted average discount rate 7.50% 6.75%
Salary increase rate 0% 0%
Benefits paid to participants are funded by the Company as needed.
The rate of increase in health care costs is assumed to be 6.8 percent and 7.1
percent in 2000 for pre-age 65 and post-age 65 benefits, respectively, gradually
declining to 5 percent by the year 2003 and remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation by $27,000 at
December 31, 1999 and the net periodic cost by $2,000 for the year, while a one
percentage point decrease in the health care cost trend would decrease the
accumulated postretirement benefit obligation by $24,000 at December 31, 1999,
and the net periodic pension by $2,000 for the year.
9. Shareholders' Equity
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's First Employee Stock Purchase Plan, employees may apply up
to 10 percent of their compensation to purchase the Company's common stock.
Shares are purchased at the market price on the business day preceding the date
of purchase. As of December 31, 1999, 178,000 shares remain unissued under the
Plan, of the total of 11 million shares that have been authorized under the
Plan. During 1999, 1998, and 1997, 63,000, 45,000, and 39,000 shares were
purchased under the plan at an average price of $17.30, $32.40, and $29.96 per
share, respectively.
MANAGEMENT STOCK PURCHASE PLAN
Under the Company's Management Stock Purchase Plan approved in 1992, 800,000
common shares have been designated (up to 400,000 shares from treasury) for
purchase by certain key employees using loans from the Company. During 1999 and
1998, no loans were made to employees. In 1998, an employee repaid a loan
representing 3,174 shares with a value of $54,900, reducing the outstanding loan
balance to $0. The loans were classified as a reduction of shareholders' equity
as they were used to purchase and were secured by common stock previously held
in treasury. Interest was charged at 4 percent per annum, and the loan principal
was payable in full no later than three years from the date of the loan.
SHAREHOLDER RIGHTS PLAN
The Board of Directors adopted a Shareholder Rights Plan in January 1989. Under
the plan, one right was distributed for each share of common stock outstanding
on January 27, 1989, and on each additional share of common stock issued after
that date and prior to the date the rights become exercisable. The
123
<PAGE> 29
rights become exercisable when 20 percent or more of the Company's outstanding
common stock is acquired by a person or group, other than Company provided
employee benefit plans, and when an offer to acquire is made. Each right
entitles the holder to purchase Series A preferred stock (which is essentially
equivalent to common stock) at a 50 percent discount from the then-market price
of the common stock or, in the event of a merger, consolidation, or sale of a
major part of the Company's assets, to purchase common stock of the acquiring
company at a 50 percent discount from its then-market price. The Shareholder
Rights Plan was amended to provide that the rights expire in November 2008. The
rights may be redeemed by the Company at a price of $.01 per right.
STOCK TRUSTS
The Company maintains a Stock Employee Compensation Trust (SECT) to provide
funding for existing employee stock plans and benefit programs. Shares are
purchased by and released from the SECT by the trustee of the SECT at the
request of the Compensation Committee of the Board of Directors. As of December
31, 1999, all shares remaining in the SECT were unallocated and therefore are
not considered outstanding for purposes of calculating earnings per share.
SECT activity for 1999, 1998, and 1997 is as follows:
(amounts in thousands) 1999 1998 1997
Share balance at beginning of year 4,423 4,694 3,650
Shares purchased 599 80 1,293
Shares released:
Stock option plans (129) (272) (207)
Employee Stock Purchase Plan (64) (45) (39)
Other stock plans (65) (34) (3)
Share balance at end of year 4,764 4,423 4,694
During 1999, 1998, and 1997, shares were purchased by the SECT at an average
price of $14.92, $30.69, and $28.63, respectively.
In 1998, the SECT was adjusted through a decrease to capital in excess of par
value totaling $(112.4) million, from fair value to original cost basis, based
upon new interpretive guidance issued by the Financial Accounting Standards
Board. The cost basis of the shares held by the SECT is reported as a reduction
to shareholders' equity. During 1997, as a non-cash financing activity, the
shares of common stock of the SECT were adjusted to fair value, with an increase
to capital in excess of par value of $53.4 million.
During 1999, the Company created an Omnibus Stock Trust (OST) to provide funding
for various employee benefit programs. Shares are released from the OST by the
trustee at the request of the compensation committee of the Board of Directors.
During 1999, the OST purchased 59,000 shares for $1 million. No shares were
released from the trust.
RESTRICTED STOCK PLAN
Under the Company's Restricted Stock Plan, 800,000 shares of restricted stock
may be granted to certain key employees. During 1998 and 1997, 1,500 and 2,000
shares, respectively, were granted to an employee of the Company. The shares
vest to the employee over 48 months from the date of grant, and are forfeited if
the employee is no longer employed by the Company at the end of the vesting
period.
10. Stock Option Plans
On April 24, 1991, the shareholders approved the Company's 1991 Employee Stock
Option Plan (1991 Plan), which came into effect after the Company's 1981
Employee Stock Option Plan (1981 Plan) terminated on April 21, 1991. Under the
provisions of the plan, options may be granted to employees and directors of the
Company. The option price for options granted under each plan is equal to or
greater than the fair market value of the Company's common stock on the date the
option is granted. Incentive stock options generally become exercisable in four
annual installments of 25 percent of the shares covered by
124
<PAGE> 30
the grant, beginning one year from the date of grant, and expire six years after
becoming exercisable. Nonqualified stock options generally become exercisable in
either four or five annual installments of 20 or 25 percent of the shares
covered by the grant, beginning one year from the date of grant, and expire up
to 15 years from the date of the grant. All options remain in effect until the
earlier of the expiration, exercise, or surrender date.
The per share weighted-average fair value on the date of grant of stock options
granted in 1999, 1998, and 1997, using the Black-Scholes option pricing model,
was $10.77, $10.64, and $12.95, respectively. The fair value of the options at
the date of grant was estimated with the following weighted-average assumptions:
1999 1998 1997
Expected life (years) 5.4 5.4 5.9
Dividend yield 0.23% 0.23% 0.19%
Risk-free interest rate 4.98% 4.62% 6.15%
Expected volatility 47.75% 46.36% 42.36%
The Company applies APB Opinion No. 25 in accounting for the 1991 and 1981 Plans
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and basic and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
(amounts in thousands, 1999 1998 1997
except per share data)
Net income
As reported $ 16,701 $ 24,045 $ 17,862
Pro forma $ 14,525 $ 21,626 $ 15,959
Basic earnings per share
As reported $ 1.02 $ 1.48 $ 1.07
Pro forma $ 0.89 $ 1.33 $ 0.95
Diluted earnings per share
As reported $ 1.00 $ 1.42 $ 1.01
Pro forma $ 0.87 $ 1.28 $ 0.91
1998 and 1997 pro forma net income reflects only options granted subsequent to
December 31, 1994. Accordingly, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above as compensation cost is reflected over the
options' vesting period as discussed above, and compensation cost for options
granted prior to January 1, 1995 is not considered. Pro forma amounts for
compensation cost may not be indicative of the effects on earnings for future
years.
125
<PAGE> 31
A summary of stock option activity under these plans is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
1981 Plan Average 1991 Plan Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding at December 31, 1997 14,372 $ 5.58 1,864,226 $ 14.81
Granted -- $ -- 507,000 $ 22.39
Exercised (11,397) $ 5.63 (261,025) $ 7.36
Canceled, expired, and forfeited -- $ -- (163,875) $ 17.76
Outstanding at December 31, 1998 2,975 $ 5.40 1,946,326 $ 17.54
Granted -- $ -- 132,750 $ 23.13
Exercised (1,750) $ 5.55 (127,025) $ 7.33
Canceled, expired, and forfeited -- $ -- (94,500) $ 22.24
Outstanding at December 31, 1999 1,225 $ 5.17 1,857,551 $ 18.48
</TABLE>
At December 31, 1999 and 1998, the number of options exercisable under the 1991
Plan was 1,150,815 and 871,075, respectively, and the weighted average exercise
price of those options was $16.03 and $13.84, respectively. At December 31, 1999
and 1998, the number of options exercisable under the 1981 Plan was 1,225 and
2,975, respectively, and the weighted average exercise price of those options
was $5.17 and $5.40, respectively.
A summary of the range of exercise prices and the weighted average remaining
contractual life of outstanding options at December 31, 1999 for the 1991 and
1981 Plans is as follows:
<TABLE>
<CAPTION>
Options Weighted Weighted Average
Range of Outstanding at Average Remaining Contractual
Exercise Prices December 31, 1999 Exercise Price Life (years)
<S> <C> <C> <C> <C>
1991 PLAN
$3.4375 to $4.8125 96,076 $ 3.99 5.0
$6.125 to $9.00 345,950 $ 7.76 4.4
$9.4375 to $9.75 45,200 $ 9.51 3.8
$14.875 to $21.9375 1,006,625 $ 19.75 7.5
$26.00 to $37.1875 363,700 $ 30.09 8.8
1981 PLAN
$4.5625 to $5.3125 1,225 $ 5.17 0.6
</TABLE>
At December 31, 1999, there were 541,000 and 0 shares available for grant under
the 1991 Plan and 1981 Plan, respectively.
During 1999 and 1998, the Company acquired stock for treasury valued at $13,000
and $77,000, respectively, from employees through stock option exercise
transactions.
11. Significant Customer
International Business Machines (IBM) is the Company's largest customer. IBM
accounted for $128.9 million or 27.3 percent, $151.4 million or 32.4 percent,
and $142.2 million or 34.9 percent of consolidated 1999, 1998, and 1997 revenue,
respectively. The Company's accounts receivable from IBM at December 31, 1999
and 1998 amounted to $19.7 million and $20.8 million, respectively. No other
customer accounted for more than 10 percent of revenue in 1999, 1998, or 1997.
126
<PAGE> 32
12. Litigation
The Company is involved in litigation arising in the normal course of business.
In the opinion of management, an adverse outcome to any of this litigation would
not have a material effect on the financial condition of the Company.
13. Segment Information
The Company operates in one industry segment, providing IT professional services
to its clients. The services provided typically encompass the IT business
solution life cycle, including phases for planning, development and
implementation, and managing and maintaining the IT solution. All of the
Company's revenues are generated from these services. CTG's two reportable
segments are based on geographical areas, which is consistent with prior years
and prior to the adoption of SFAS No. 131, "Disclosure about Segments of the
Enterprise and Related Information."
The accounting policies of the individual segments are the same as those
described in note one, "Summary of Significant Accounting Policies." CTG
evaluates the performance of its segments at the operating income level.
Corporate and other identifiable assets consist principally of cash and
temporary cash investments and other assets.
<TABLE>
<CAPTION>
(amounts in thousands)
Financial Information Relating to
Domestic and Foreign Operations 1999 1998 1997
<S> <C> <C> <C>
REVENUE
North America 391,496 394,609 360,849
Europe 80,512 73,229 46,739
Total Revenue 472,008 467,838 407,588
DEPRECIATION AND AMORTIZATION
North America $ 5,801 $ 2,404 $ 2,872
Europe 1,004 848 630
Corporate and Other 1,675 1,750 1,926
Total Depreciation and Amortization $ 8,480 $ 5,002 $ 5,428
OPERATING INCOME (EXPENSE)
North America $ 36,434 $ 46,427 $ 36,324
Europe 9,860 8,243 3,663
Corporate and Other (15,461) (14,819) (11,031)
Total Operating Income $ 30,833 $ 39,851 $ 28,956
IDENTIFIABLE ASSETS
North America 154,951 $ 67,128 $ 57,519
Europe 22,736 22,999 15,777
Corporate and Other 21,472 66,682 34,445
Total Identifiable Assets 199,159 156,809 107,741
CAPITAL EXPENDITURES
North America $ 2,295 $ 2,591 $ 2,226
Europe 1,038 1,158 648
Corporate and Other 1,176 1,308 1,896
Total Capital Expenditures $ 4,509 $ 5,057 $ 4,770
</TABLE>
127
<PAGE> 33
14. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
Quarters First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
1999
Revenue $116,618 125,464 $114,526 $115,400 $472,008
Direct costs 78,197 82,672 75,429 80,006 316,304
Selling, general, and
administrative expenses 30,405 31,052 31,969 31,445 124,871
Operating income 8,016* 11,740 7,128 3,949 30,833
Net interest and other
income (expense) 180 (644) (584) 79 (969)
Income before income taxes 8,196* 11,096 6,544 4,028 29,864
Net income $ 4,699* $ 6,317 $ 3,530 $ 2,155 $ 16,701
Basic net income per share $ 0.29* $ 0.38 $ 0.21 $ 0.13 $ 1.02
Diluted net income per share $ 0.28* $ 0.38 $ 0.21 $ 0.13 $ 1.00
Quarters First Second Third Fourth Total
1998
Revenue $109,683 117,646 $116,174 $124,335 $467,838
Direct costs 76,074 80,472 79,396 84,731 320,673
Selling, general, and
administrative expenses 25,220 27,359 26,491 28,244 107,314
Operating income 8,389 9,815 10,287 11,360 39,851
Net interest and other income 216 73 246 371 906
Income before income taxes 8,605 9,888 10,533 11,731 40,757
Net income $ 5,077 $ 5,834 $ 6,216 $ 6,918 $ 24,045
Basic net income per share $ 0.32 $ 0.36 $ 0.38 $ 0.42 $ 1.48
Diluted net income per share $ 0.30 $ 0.34 $ 0.37 $ 0.41 $ 1.42
</TABLE>
* Includes the expense of a non-recurring arbitration award which lowered
operating income and income before income taxes by $2.5 million, net income by
$1.5 million, and basic and diluted net income per share by $0.09
128
<PAGE> 34
CORPORATEINFORMATION
Stock Market Information High Low
YEAR ENDED DECEMBER 31, 1999
First Quarter $ 29 1/2 $ 16 1/16
Second Quarter $ 21 7/8 $ 15 3/8
Third Quarter $ 18 1/4 $ 13 1/8
Fourth Quarter $ 15 13/16 $ 12 5/16
YEAR ENDED DECEMBER 31, 1998
First Quarter $ 45 $ 32 9/16
Second Quarter $ 42 1/2 $ 28 3/4
Third Quarter $ 40 7/8 $ 23
Fourth Quarter $ 34 1/2 $ 18 1/2
The Company's common shares are traded on the New York Stock Exchange under the
symbol TSK, commonly abbreviated Cptr Task. The shares are listed on the
Amsterdam Stock Exchange and are traded by means of the Amsterdam Security
Account System (ASAS).
On February 18, 2000, there were 3,409 record holders of the Company's common
shares. The Company paid an annual cash dividend of $.05 per share from 1993 to
1999 and, prior to that, had paid $.025 per share annually since 1976 plus a 10
percent share dividend in 1980. The Company expects to continue to pay cash
dividends subject to the availability of earnings, the financial condition of
the Company, and other relevant factors at the time.
ANNUAL MEETING
The annual meeting of shareholders has been scheduled for April 26, 2000 in
Buffalo, New York for shareholders of record on March 15, 2000.
FORM 10-K AVAILABLE
Copies of the Company's Form 10-K Annual Report, which is filed with the
Securities and Exchange Commission, may be obtained without charge upon written
or verbal request to:
Computer Task Group, Incorporated
Investor Relations Department
800 Delaware Avenue
Buffalo, NY 14209-2094
(716) 887-7400
129
<PAGE> 35
TRANSFER AGENT AND REGISTRAR
EquiServe
Our Transfer Agent is responsible for our shareholder records, issuance of stock
certificates, and distribution of our dividends and the IRS Form 1099. Your
requests, as shareholders, concerning these matters are most efficiently
answered by corresponding directly with EquiServe:
Bank Boston, N.A.
c/o EquiServe - Boston Division
P.O. Box 8040
Boston, Massachusetts 02266-8040
(781) 575-3170 (MA residents)
(800) 730-4001
(781) 828-8813 (fax)
www.equiserve.com
Independent Certified Public Accountants
Deloitte & Touche LLP
Key Bank Tower, Suite 250
50 Fountain Plaza
Buffalo, NY 14202
CTG
800 Delaware Avenue
Buffalo, New York 14209-2094
716.882.8000
800.992.5350
NYSE:TSK
0554-AR-00
130
<PAGE> 1
EXHIBIT 21
----------
COMPUTER TASK GROUP, INCORPORATED
SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED
The following is a list of all of the subsidiaries of the Registrant as
of December 31, 1999. All financial statements of such subsidiaries are included
in the consolidated financial statements of the Registrant, and all of the
voting securities of each subsidiary are wholly-owned by the Registrant:
State/Country
or Jurisdiction
of Incorporation
----------------
- - Computer Task Group of Delaware, Inc. Delaware
- - CTG Services, Inc. New York
- - Computer Task Group (Holdings) Ltd. United Kingdom
- - Computer Task Group of Kansas, Inc. (a subsidiary Missouri
of Computer Task Group (Holdings) Ltd.)
- - Computer Task Group of Canada, Inc. Canada
- - Computer Task Group International, Inc. Delaware
- - Computer Task Group Europe B.V. (a subsidiary The Netherlands
of Computer Task Group International, Inc.)
- - Computer Task Group (U.K.) Ltd. (a subsidiary United Kingdom
of Computer Task Group Europe B.V.)
- - Computer Task Group Nederland B.V. (a subsidiary The Netherlands
of Computer Task Group Europe B.V.)
- - Computer Task Group Belgium N.V. (a subsidiary Belgium
of Computer Task Group Europe B.V.)
- - Rendeck Macro-4 Software B.V. (a subsidiary The Netherlands
of Computer Task Group Europe B.V.)
- - Computer Task Group of Luxembourg S.A. (a subsidiary Luxembourg
of Computer Task Group Europe B.V.)
- - CTG HealthCare Solutions, Inc. Delaware
- - CTG HealthCare Solutions (Kansas), Inc. Kansas
- - CTG HealthCare Solutions (Ohio), Inc. Delaware
131
<PAGE> 1
EXHIBIT 23 (a)
--------------
COMPUTER TASK GROUP, INCORPORATED
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-41995, No. 33-61493, No. 33-50160 and No. 333-12237 on Form S-8 and No.
333-43263 on Form S-3 of Computer Task Group, Incorporated and Subsidiaries of
our report dated February 4, 2000, appearing in the 1999 Annual Report to
Shareholders, which is incorporated by reference in the Annual Report on Form
10-K of Computer Task Group, Incorporated and Subsidiaries for the year ended
December 31, 1999. We also consent to the incorporation by reference of our
report on the consolidated financial statement schedule of Computer Task Group,
Incorporated and Subsidiaries, listed in Item 14 in the Annual Report on Form
10-K for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Buffalo, New York
March 29, 2000
132
<PAGE> 1
EXHIBIT 23 (b)
--------------
COMPUTER TASK GROUP, INCORPORATED
CONSENT OF INDEPENDENT ACCOUNTANTS
Computer Task Group, Incorporated:
We consent to the incorporation by reference in the Registration Statements No.
33-41995, No. 33-61493, No. 33-50160 and No. 333-12237 on Form S-8, and No.
333-43263 on Form S-3 of Computer Task Group, Incorporated of our report dated
February 4, 1998 which appears on page IV-2 in Computer Task Group,
Incorporated's Annual Report on Form 10-K for the year ended December 31, 1999.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page IV-3 of such Annual Report on Form
10-K.
KPMG LLP
March 29, 2000
Rochester, New York
133
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,684,000
<SECURITIES> 0
<RECEIVABLES> 83,083,000
<ALLOWANCES> 2,310,000
<INVENTORY> 0
<CURRENT-ASSETS> 97,319,000
<PP&E> 39,960,000
<DEPRECIATION> 26,477,000
<TOTAL-ASSETS> 199,159,000
<CURRENT-LIABILITIES> 62,117,000
<BONDS> 0
0
0
<COMMON> 270,000
<OTHER-SE> 94,654,000
<TOTAL-LIABILITY-AND-EQUITY> 199,159,000
<SALES> 0
<TOTAL-REVENUES> 472,008,000
<CGS> 0
<TOTAL-COSTS> 316,304,000
<OTHER-EXPENSES> 124,871,000
<LOSS-PROVISION> 1,205,000
<INTEREST-EXPENSE> 2,129,000
<INCOME-PRETAX> 29,864,000
<INCOME-TAX> 13,163,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,701,000
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 57,748,000
<SECURITIES> 0
<RECEIVABLES> 75,037,000
<ALLOWANCES> 1,105,000
<INVENTORY> 0
<CURRENT-ASSETS> 137,334,000
<PP&E> 41,602,000
<DEPRECIATION> 28,456,000
<TOTAL-ASSETS> 156,809,000
<CURRENT-LIABILITIES> 62,473,000
<BONDS> 0
0
0
<COMMON> 270,000
<OTHER-SE> 83,179,000
<TOTAL-LIABILITY-AND-EQUITY> 156,809,000
<SALES> 0
<TOTAL-REVENUES> 467,838,000
<CGS> 0
<TOTAL-COSTS> 320,673,000
<OTHER-EXPENSES> 107,314,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,000
<INCOME-PRETAX> 40,757,000
<INCOME-TAX> 16,712,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,045,000
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.42
</TABLE>
