<PAGE>
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________.
COMMISSION FILE NUMBER 0-21040
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-132-0610
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
304 VASSAR STREET
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 374-9800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK, $.01 PAR VALUE
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 Common Stock held by non-affiliates of the
registrant was $1,936,721,833 based on the last reported sale price of $45.50 on
The Nasdaq National Market on February 27, 1998 as reported by Nasdaq.
As of February 27, 1998, there were 55,870,389 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1997. Portions of such proxy statement are incorporated by reference into Part
III of this report.
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge Technology
Partners" or the "Company") is an international management consulting and
systems integration firm. The Company combines management consulting, IT
strategy, process innovation and implementation, custom and package software
deployment, network services, and training to rapidly deliver end-to-end
business solutions for clients. The Company provides the majority of its
services on a fixed-time, fixed-price model with client involvement at all
stages of the process. In performing its services, the Company employs a rapid
development methodology that features an iterative approach and conducts
facilitated workshops that bring together key client users, executives, and IT
professionals to achieve consensus on the business case, strategic objectives,
and functionality of a business solution. The Company believes that this
approach permits the delivery of results in unprecedented time frames -
typically within three to twelve months.
In the fourth quarter of 1997, the Company strengthened its management
consulting practice through the acquisition of Peter Chadwick Holdings Limited
("Peter Chadwick"). Based in the United Kingdom, Peter Chadwick provides change
implementation services for operational strategies and performance improvement.
Peter Chadwick enhances the Company's ability to provide end-to-end business
transformation services to clients by identifying opportunities for business
operations change, implementing those changes, and deploying supporting
applications. Peter Chadwick's service offerings will be provided through the
Company's Cambridge Management Consulting business unit.
The Company's management consulting and information technology services are
offered at three levels - the enterprise-wide, specific business process and
application software levels of an organization. Upon completion of initial
consulting engagements, the Company typically designs and develops one or more
strategic software applications, which often include custom and third-party
package software, and then rolls-out such applications to the organization's
end-users. These software applications are selected and designed to achieve a
competitive advantage, enhance the efficiency and functionality of specific
business processes, and support financial goals. The Company may also assist
its clients in providing end-user training and in managing the organizational
changes that accompany the roll-out of new applications and the assimilation of
such applications into production environments. The Company also provides
network services and IT strategy services to help clients establish their
internal IT strategies and implement the recommended technology solutions.
While the early stages of a client engagement may result in a relatively small
amount of revenues, a client engagement which involves the design and
development of a strategic software application typically results in fees
ranging from $1 to $6 million.
-1-
<PAGE>
The Company's headquarters are located in Cambridge, Massachusetts. The Company
has established regional sales offices in Bridgewater and Redbank, NJ, Detroit,
Minneapolis, Phoenix, and Philadelphia, as well as sales and operations
facilities in the Atlanta, Cambridge, Chicago, Columbus, OH, Dallas, Los
Angeles, Miami, New York, Newport Beach, CA, Pittsburgh, San Francisco, San Juan
PR, San Mateo and San Ramon, CA, Seattle and Washington D.C. metropolitan areas.
As part of the Company's strategy to capitalize on opportunities for growth in
international markets, the Company has established sales and operations
facilities in Australia, Austria, Brazil, Canada, England, Germany, India,
Ireland, Japan, Mexico, Norway, the Netherlands, Sweden, Switzerland, and
Venezuela. International revenues were 32% of total consolidated net revenues
for 1997. Approximately 1,100 of the Company's 3,222 employees were in offices
located outside the United States as of January 31, 1998. See the Company's
Consolidated Financial Statements and the notes thereto included as part of this
Form 10-K.
STRATEGY
The Company's objective is to transform the way its clients do business by being
a leading provider of management consulting and systems integration services.
By adhering to its core values of speed, fixed time/fixed price services,
knowledge transfer, behavior-driven methodologies, and integrated, open
technologies, the Company believes it can quickly adapt to changing technologies
and new solutions to deliver applications faster and with high success factors.
The Company's strategy for achieving this objective includes the following
elements:
Structure Client Projects at Fixed Prices and Fixed Timetables.
The Company helps clients identify business objectives and strategic uses of
technology; align technology initiatives with business objectives; and develop
and deploy high-impact, business solutions, in rapid time frames. The Company
delivers the majority of its services on a fixed time/fixed price basis with the
remaining services delivered on a time and material basis. In addition, the
Company transfers methodologies and technical expertise to its clients. At the
commencement of a typical project engagement, the Company and its clients agree
on the nature of project deliverables and a fixed price and fixed timetable for
the project. The Company's goal is to keep individual business solutions
development under nine months in duration in order to increase the client's
ability to utilize the solution to maximum competitive advantage. The Company
continually updates its library of object-oriented software components that are
reused in the software development process in order to improve further the
efficiency, speed and quality of the development process.
Knowledge Transfer to Clients.
The Company's interactive approach to problem solving and creating business
solutions, which involves consensus building among a client's executives, end-
users and IT professionals, helps strengthen client relationships. This approach
also enables the Company to effectively evaluate, design, develop and implement
business and IT solutions that allow the client to achieve a competitive
advantage, enhance the efficiency and functionality of specific business
processes, and support financial goals. Whether providing consulting services,
developing custom applications or implementing third-party software solutions
for client/server or Internet environments, the Company seeks to establish
itself as the client's preferred source for
-2-
<PAGE>
management consulting and IT solutions. The Company also extends its partnering
relationships with clients beyond specific engagements by offering education and
training services to shorten the learning curve associated with implementing and
maintaining new applications. In addition, the Company shares its business and
information technology experience through its Management Lab programs and the
Cambridge Information Network ("CIN"), a Web-based interactive forum. These
forums provide clients with opportunities to exchange ideas with their peers, as
well as learn about business challenges and information technology,
client/server and Internet trends.
Promote Open Computing Environments.
The Company's methodologies enable clients to operate in an open computing
environment incrementally by implementing strategic software applications that
can operate across existing hardware platforms and leverage existing information
processing infrastructure. The Company's approach to implementing IT solutions
in most cases involves the introduction or further implementation of
client/server and Internet architectures. In the early 1990s, the Company worked
with clients to assist in their migration to client/server systems from
mainframe-based computing. As client/server has become a preferred computing
environment, the Company is working with clients to deploy client/server
applications, as well as Internet-based applications. In 1997, many of the
applications deployed by the Company contained an Internet component. The
Company believes that this trend will continue as Internet applications become
more widely utilized.
Develop Business Case and Utilize Behavior Driven Methodologies.
To ensure that clients maximize developed solutions, the Company addresses a
client's people, behavioral, and organizational issues in addition to technical
issues. The Company builds consensus on objectives and functionality and obtains
buy-in from client constituencies to ensure project success. The Company crafts
solutions that support business requirements and prioritize functionality to
ensure that all components of a solution create business value. This strategy
keeps the organization focused and enables the Company to deliver a meaningful
return on investment.
Provide Dynamic Service Offerings.
The Company continually reevaluates the needs of its client base and its service
offerings. In 1997, the Company introduced its Cambridge Momentum(SM) service
offering. Cambridge Momentum(SM) is a packaged suite of innovative, fixed-
time/fixed-price Enterprise Resource Planning application deployment
methodologies and services. Cambridge Momentum(SM) incorporates the Company's
core values to help ensure the success of the rapid, fixed-time/fixed-price
model with manageable project phases. Also in 1997, the Company introduced CoRad
(customer-oriented rapid application development), a methodology for delivering
electronic commerce solutions. The CoRad methodology brings together technical,
business, creative, and cognitive disciplines to deliver a high return on
investment for the Company's clients. The CoRad methodology allows the Company
to deliver high-impact electronic commerce solutions in rapid time frames. In
addition, the Company expanded its management consulting practice through its
combination with Peter Chadwick. The Company believes that an agile corporate
structure and culture enable it to continue to provide dynamic services in order
to satisfy the business needs of its clients.
-3-
<PAGE>
. Capitalize on Domain Expertise. As a result of the Company's information
technology consulting and development activities, the Company has developed
strategic expertise in certain client applications. The areas of expertise, or
domains, include Customer Management Solutions, Data Warehousing, Interactive
Solutions, Enterprise Resource Solutions, Money Management and Trading
Solutions, and Supply Chain Management Solutions. Although the Company believes
that domain expertise in a particular industry is not always required to develop
and deploy effective IT applications in that industry, it intends to capitalize
on its experience in these domains and deliver this expertise to clients in
diverse industries.
. Market Expansion. The Company believes that a strong domestic and
international presence enhances its competitiveness. The Company has
established regional sales offices in Bridgewater and Redbank, NJ, Detroit,
Minneapolis, Phoenix, and Philadelphia, as well as sales and operations
facilities in the Atlanta, Cambridge, Chicago, Columbus, Ohio, Dallas, Los
Angeles, Miami, New York, Newport Beach, CA, Pittsburgh, San Francisco, San
Juan, PR, San Mateo and San Ramon, CA, Seattle, and Washington D.C. metropolitan
areas. The Company plans to continue to expand domestically through the
establishment of additional regional sales offices and operations facilities in
major North American cities.
To capitalize on market opportunities in the Pacific Rim, Europe and Latin
America, the Company has established sales and operations facilities in
Australia, Austria, Brazil, Canada, England, Germany, India, Ireland, Japan,
Mexico, Norway, the Netherlands, Sweden, Switzerland, and Venezuela. The
Company had approximately 1,100 employees as of January 31, 1998 in offices
located outside the United States. The Company also plans to continue to
increase its international presence in the Pacific Rim, Europe and Latin America
through the establishment of additional sales offices and operations facilities
and possibly through joint ventures.
SERVICES
The Company combines management consulting, IT strategy, process innovation and
implementation, custom and package software deployment, network services, and
training to rapidly deliver end-to-end business systems that create bottom-line
impact for clients. In performing its services, the Company utilizes its rapid
deployment methodologies. The Company believes that this approach enables it to
deliver results in time frames which are significantly shorter than those of its
competitors, typically within three to twelve months. The Company offers a
comprehensive set of services that can be deployed individually or in
combination.
For most services, the Company and its clients agree on a fixed price prior to
the commencement of each stage of the project. The commencement of a particular
stage of a project does not necessarily result in the commencement of any other
stage. Client engagements which involve the implementation of a custom
strategic software application typically result in fees to the Company ranging
from approximately $1,000,000 to $6,000,000. Software design and development
services generate the largest portion of these fees and typically range from
$750,000 to $5,500,000 depending on the type of application and the anticipated
complexity of
-4-
<PAGE>
the development process. The stages for management consulting services and
package implementation are similar to those for custom software development,
however the range of fees is typically lower.
SERVICE OFFERINGS
MANAGEMENT CONSULTING
The Company's management consulting services help its clients quickly achieve
tangible, high pay-back operational improvements, developed through intensive
client team participation, sustained by behavioral change in the client's
management and staff, and impacting business processes, measurement and
management systems, and roles and responsibilities. The Company's existing
management consulting services have been strengthened by the addition of Change
Implementation services through its combination with Peter Chadwick.
RAPID BUSINESS RENEWAL (RBR) is a proprietary management consulting
methodology developed by the Company's Cambridge Management Consulting
business unit. RBR assists in the identification, design and
implementation of improvements to the client's business operations, through
change in business processes, organizational structures, people and
culture, and technology within the context of the client's strategic
business goals. RBR focuses on identifying and instituting targeted,
innovative improvements, especially in customer-facing processes.
PHASES OF RBR:
. DISCOVERY is the first phase of RBR, and typically lasts three to five
weeks. During Discovery, the Company gathers information and analyzes the
client's current processes, technology, people and organizational
structure in order to identify operational issues and opportunities. Once
these opportunities are prioritized, the Company develops a business case
and a workplan to illustrate and quantify the changes required to achieve
targeted results that will benefit the client's business.
. INNOVATION is the second phase of RBR, and lasts eight to twelve weeks.
During Innovation, the Company and client employees work together in
intensive workshops to develop innovative solutions for business
opportunities identified in Discovery. In most cases, this will involve
the adoption of a new business process, modified employee roles and
responsibilities, and potentially modified or new enabling technology.
Once the solution is designed, the Company and client analyze the
viability of the solution during a Simulation Workshop in which the
future business operation is visualized early through role-playing and
other techniques. Once the Company and client employees determine that
the new solution is viable (from financial, cultural and other
perspectives), the Company further details the business case and develops
a detailed workplan and costs to implement the solution.
-5-
<PAGE>
. IMPLEMENTATION AND ROLL-OUT are the final phases, leading to a fully
functional new business operation in the targeted areas. The Company and
client team develop a prototype of the business solution and test it
"live" at a pilot location. The team completes design and testing of
detailed processes, roles, methods and procedures, training and
communications materials. The team also works where appropriate, using
RAD techniques, to develop any technological solutions necessary to
support the innovated operations. At the conclusion of Implementation,
the business operation has been tested, "tweaked" and proven in the
"live" pilot. Roll-Out, the final stage of RBR, implements the
solution across all targeted areas in the client's organization.
CHANGE IMPLEMENTATION is an integrated approach to implementing operational
strategy, designed to deliver major improvements in business performance.
The operational and financial improvements delivered to the client are
rapid, measurable and sustainable. These improvements are agreed upon in
advance by the client and the Company, and are delivered within a fixed
timeframe and at a fixed cost. Change Implementation focuses on
improvements to operational performance such as reducing time from design
to market, increasing operating capacity, reducing operating costs,
shortening of product cycle times, or reducing inventory, and are achieved
and sustained by a developed behavioral change in the client's management
and employees. A successful Change Implementation solution is dependent
upon the full participation of the client according to the changes outlined
in the solution. The Company's implementation process involves the
Company's consultants working full-time, on site with the client at all
levels of its business to develop and implement those changes.
PHASES OF CHANGE IMPLEMENTATION:
. ANALYSIS, the first phase of Change Implementation, typically lasts three
to six weeks. Analysis first identifies, confirms and quantifies the
scale and nature of the improvement potential within the client's
business. Then the Company develops a detailed implementation plan to
deliver the benefits identified. As in the rest of the Change
Implementation processes, a client's staff is fully involved during the
Analysis in developing the understanding of current business performance
and in the formulation of the plan to move the business forward.
The Analysis stage utilizes interviews with staff, statistical analysis
of historical and forecast data and on-site observations to identify the
root causes, not just the effects, of under-performance. The
implementation plan details the project objectives (both operational and
financial), the project schedule (outlining weekly activities and
delivery milestones), the resource requirement of both consultants and
client task force staff, and a full, detailed business case for the
project.
. IMPLEMENTATION, the second phase of Change Implementation, typically
lasts six to nine months. During this phase, the Company works with the
client to develop and install the operational and organizational changes
identified during the Analysis
-6-
<PAGE>
phase, which will deliver the required business improvement. The changes
will be driven largely by the clients themselves, focused on improving
key business processes, enhancing the quality of management information
and decision making, and the development of management skills at all
levels of the business through classroom training and on-the-job coaching
and support. The Company's consultants work alongside client personnel,
on site, full-time, to train, coach and mentor them to achieve the
behavioral changes required. This capability and the commitment of the
Company to transfer knowledge to its clients help ensure that all the
people in the business "own" the program, and therefore, that the
improvements delivered are sustained after the consultants leave. Also,
the Company ensures that the changes in the business happen at a
significantly accelerated pace, supporting the success of the change
program itself and rapidly delivering competitive advantage to its
clients.
In 1998, the Company will deliver Rapid Business Renewal and Change
Implementation services and offer these services in combination, where
appropriate, to best serve its clients. The Company anticipates that the
process of combining the competencies and methodologies of Cambridge Management
Consulting and the Peter Chadwick businesses will be completed during 1998.
This will create an integrated consulting business able to support clients
across sectors and across the entire scope of the value chain in the rapid
implementation of sustainable improvements capable of transforming their
businesses. Service offerings of the combined organizations will be provided
under the tradename of Cambridge Management Consulting.
RAPID APPLICATION DEPLOYMENT ("RAD")
RAD is the Company's flexible approach to application software deployment,
incorporating package implementation, custom development, or a combination of
both. The Company leverages reusable components and pre-existing frameworks to
speed development. An integral step in the Company's methodology is a
facilitated workshop that brings together key users, executives, and IT
professionals to reach agreement on an application's business case, strategic
objectives, and functionality.
PHASES OF RAD:
The SCOPE phase, which typically lasts one to two weeks, is a critical
first step in the Company's RAD process. During a Scope, the Company works
with a client's users, IT professionals, and executives to:
. Clarify business goals
. Establish critical success factors
. Build cross-functional consensus on the application
. Develop the business case with cost/benefit analysis
. Define technical architecture
. Review fit between application and business processes
-7-
<PAGE>
The Company also matrices the application's functionality and prioritizes
each function by its business benefit and technical complexity. This
provides the team with a "road map" for deployment that eliminates non-
strategic steps, prevents "scope creep," and enables rapid, on-time
delivery of the solution. The functionality matrix also helps the team
determine if a package solution can meet any or all of the proposed
functionality, or if custom development is necessary.
CUSTOM RAPID APPLICATION DEPLOYMENT is the Company's solution to custom
application software development. If a custom solution is required, the
Company conducts a RAPID SOLUTIONS WORKSHOP (RSW) that brings together key
client staff to reach consensus on the technology, processes, and
methodology required to deploy strategic applications. The interactive
three-week workshop delivers a fully-functional prototype of the
application's critical functionality, a detailed business case, a
functionality matrix, and a project plan with proposed time frames and
costs for the next step, along with time frames and price estimates for
subsequent steps. At the RSW's conclusion, client participants demonstrate
the team's commitment by presenting the prototype of the application to the
client's senior executives. The presentation demonstrates the strategic
benefits of the new business application, generates excitement among the
client team, and builds consensus. This step also builds top-level support
for continuing on with the design and development of the application.
During the DESIGN phase, the Company defines architectures, recommends
technical solutions, and develops external system specifications. Since
the network infrastructure is critical to the success of a distributed
application, the Company may call on its Network Services Group to evaluate
network design, deployment, and support for the application. During
Design, the team also explores opportunities for leveraging a number of
development opportunities - reusable code, objects, and pre-existing
frameworks - to maximize efficiencies and speed deployment. The result is
reduced project start-up preparation time, shortened development and roll-
out phases, and project teams that devote more time to developing
application functionality that delivers strategic benefits.
During the DEVELOPMENT phase, the Company builds and tests the fully
functional application and develops all the necessary documentation.
Frequent checkpoints bring together the Company's staff and key client
users and IT personnel to ensure that applications adhere to the
functionality matrix and business case set out in the Scope and RSW phases.
PACKAGE RAPID APPLICATION DEPLOYMENT is the Company's solution to package
application software development. If a package solution is appropriate,
the Company conducts either a PACKAGE SELECTION WORKSHOP or a PACKAGE
EVALUATION WORKSHOP. The Package Selection Workshop is intended for
clients who have already chosen, or significantly narrowed, their choice of
package application. The Package Evaluation Workshop is designed for
clients who have not previously explored their package application options.
-8-
<PAGE>
During the Package Evaluation Workshop, a joint Company/client team rapidly
uncovers and defines required business processes and outlines the
functionality, performance, support, and standards required from a package.
The Company then creates business scenarios that represent the strategic
business processes that the package application must meet. The team
evaluates and selects a package application based on the vendor's ability
to support the client organization's vision and business goals. Both the
Package Selection and Package Evaluation Workshops deliver a functionality
matrix, a business case outlining return on investment, business scenarios,
vendor score cards, a technical readiness review, and a project plan for
implementation.
The next phase of the Package Rapid Application Development process, the
PACKAGE OPTIMIZATION WORKSHOP, typically lasts from two to four weeks and
"kick-starts" the Package Rapid Application Deployment process. During
this phase, the Company reviews business needs and existing infrastructure
including hardware, applications, and interfaces. The Company uses the
business process scenarios created during the Package Evaluation/Selection
process to establish the application and related business processes, then
performs a detailed process mapping and gap analysis. The joint
Company/client team delivers a fully functional pilot, which is presented
to key client executives to gain buy-in and sponsorship for the project.
During the PACKAGE ENHANCEMENT/IMPLEMENTATION phase, a six-to eight-month
phase that follows the Package Optimization Workshop, the Company uses a
parallel deployment methodology to quickly enhance and deploy the package
application. Deliverables of this phase include establishment of the
application business rules; technical and architectural integration;
conversion of all legacy data; interfaces with existing systems; user and
administration documentation; and testing of network and system
performance.
APPLICATION ROLL-OUT: RAPID ASSIMILATION AND EMPOWERMENT is the Company's
assimilation service that integrates the client and new technologies.
Whether the new IT solution is a custom-built application or an enhanced
package, implementing new technology requires changing the ways people
work, feel, and interact. The Company's assimilation services speed
implementation of the application by addressing the change management
issues faced by the user community, the IT community, and the executive
team. The Company works closely with key client staff to provide technical
and project planning expertise to completely integrate applications with
clients' business and computer operations.
CUSTOMER-ORIENTED RAPID APPLICATION DEVELOPMENT ("CORAD")
CoRAD is the Company's rapid application development process for delivering
electronic commerce solutions. This approach brings together technical,
business, creative, and cognitive disciplines, the necessary skills to build
successful electronic commerce solutions.
-9-
<PAGE>
PHASES OF CORAD:
PRODUCT DEFINITION is a five-week workshop during which the Company
produces the first prototype. The process begins by defining the scope and
identifying targeted customers, their needs and what functions the site
must perform. During this workshop the Company interacts with client
customers to understand the design context. In addition, the Company looks
at several technology choices and uses a gap analysis to begin a selection
of tools and packages, resulting in the technology framework for the
product. The Company analyzes the client's business environment to
identify process and organizational changes that must be made. The Company
also evaluates the client's network and security infrastructure.
During the PRODUCT DESIGN phase, the emphasis is on architecture. The
Company's technologists architect an infrastructure and an application to
be secure, scalable, and reliable. The creative and cognitive designers
build on the work begun in the prototype to architect an interface that is
powerful and effective for the customer. The business consultants
architect new processes to align the functionality in the application with
the delivery capabilities of the organization. At the same time, the
Company interacts with the client's customers, showing them the prototype
and getting feedback.
PRODUCT DEVELOPMENT is the final stage during which the focus turns to
implementation. The Company writes software, refines content, creates
training materials and prepares the organization to assimilate the changes
in time for the product launch. During this stage, customers are
significantly involved in pilot tests of the new system, and from the
feedback, the Company modifies the product to meet the requirements for
release.
NETWORK SERVICES
The Company's NETWORK SERVICES offerings combine network assessment, design, and
deployment services with a comprehensive set of integration skills to support
clients' open systems. Network Services are offered either as an integral part
of RAD or as an independent service offering. The Company's services range from
assessment projects, such as performance analysis, to network design,
deployment, and support. Analysis services are designed to help clients gain a
detailed understanding of their current network environment and include
reviewing the architecture and security of the existing client network, and
analyzing the costs and risks associated with that network. Design services
assist clients in defining a network infrastructure capable of supporting
strategic business goals and developing plans to build and manage this network.
Deployment services help ensure that network hardware and software are installed
correctly and within the fixed time frame. Throughout a networking engagement,
the Company transfers technical expertise and methodologies to the client to
enable them to maintain the deployed network. The Company believes that network
performance and reliability are critical in a distributed computing environment
and that its Network Services provide clients with expertise that helps ensure
applications perform as planned.
-10-
<PAGE>
IT STRATEGY SERVICES
The Company's IT STRATEGY SERVICES begin with workshops involving the client's
business executives, end users, and IT staff. During the workshops, the Company
works with the client to identify business drivers and critical success factors
and define the strategic results expected from IT. The information obtained in
the workshop forms the foundation for the analysis of the client's business-
focused IT capabilities in an open systems, distributed environment. During the
subsequent assessment phase, the Company evaluates how well the client's current
applications and data support business goals. The Company then develops a plan
for improving the strategic value of the application portfolio by prioritizing
new applications to be developed, ranking application enhancements, and
identifying applications to retire. The next stage in the process is the
evaluation of the technology architecture to determine which technologies should
be replaced and the recommendation of future investments in networks, databases,
tools, servers, and software. Because changes in technology have an impact on
an organization's people and processes, the Company develops an IT organization
strategy to establish the technical skills and management practices needed to
manage an open environment effectively.
EDUCATIONAL SERVICES
The Company's EDUCATIONAL SERVICES allow the Company's clients to maximize their
investment in their people, processes, and technology. The Company offers an
integrated set of training solutions that empowers end users and IT
professionals and ensures the fit between business processes and technology
solutions. Educational Services shorten the learning curves for implementing
and maintaining new applications, decrease the risks of migrating to a new
technology environment, and reduce the dependency of the client on outside
vendors. The Educational Services the Company offers are RAPID ROLL-OUT
ASSIMILATION AND SUPPORT (RRAS), IT SKILLS-BASED MANAGEMENT (SBM), and the
CAMBRIDGE BOOT CAMP. The Company can deploy these services individually or in
combination.
Rapid Roll-out Assimilation and Support (RRAS) Services are designed to
ensure that newly-implemented technologies are used completely and
correctly. RRAS facilitates all aspects of training, development, and
support. The Company evaluates training needs and delivers a detailed
project plan and price estimate for the training. Next, the Company
develops courses, curriculum, and materials; manages training logistics;
and conducts instructor-lead training. In addition, the Company offers
other creative delivery methods including computer-based training,
Internet-based training, and distance learning. To ensure that training
delivers anticipated results, the Company reviews the program's quality,
conducts focus groups, and tests students to gauge the effectiveness of
knowledge transfer.
IT Skills-Based Management (SBM) assesses the skills of an entire IT
department based on the client's strategic objectives, develops a
comprehensive training program, and conducts the necessary training.
The objective of SEM is to cross train the IT department
-11-
<PAGE>
employees such that they possess a combination of professional,
methodological, and technical skills.
The Cambridge Boot Camp is geared toward rapidly training new employees or
re-training existing employees in a corporation's IT department. As with
IT Skills-Based Management, the Boot Camp incorporates technical,
professional, and methodology skills with training in the client's cultural
issues.
THE MANAGEMENT LAB
The MANAGEMENT LAB is the Company's research and education arm, chartered with
providing intellectual guidance and thought leadership to clients struggling
with the issues associated with adopting advanced information technology. Its
programs include the LYCEUM, RESEARCH WORKING GROUPS, EXECUTIVE EDUCATION
PROGRAMS, and CUSTOMIZED LEARNING PROGRAMS. The Lyceum is an interactive forum
that provides senior business and technology executives with insight from
industry thought leaders, the Company's experts, and their peers. Research
Working Groups are in-depth research initiatives designed to give teams within
organizations the opportunity to work together to find solutions to technology
and business issues impacting several departments. Teams of colleagues as well
as peers explore issues, techniques, and experiences and leave with a customized
action plan for implementing management practices and strategies. Executive
Education Programs provide high-quality training and instruction to IT
executives on broad topics relating to managing the global information resource.
Customized Learning Programs are tailored to meet any organizational need a
client may face. Recent Management Lab topics include "Celebrating Carbon in a
Silicon Economy: Managing the Human Side of Cyber-Space," "The Battle for
Virtual Turf: Driving Brand Vision/Value in a Web-Enabled Economy," and "Fast,
Smart, and Rich: Making Technology Pay."
CAMBRIDGE INFORMATION NETWORK (CIN)
CIN is the Company's Internet-based community of more than 1,200 senior
information technology professionals. CIN provides a forum for these executives
to discuss key business, technology, and career management issues. The Company
created CIN in response to a need expressed by the CIO community to help solve
the problems CIOs face: too much information, not enough insight, and not enough
time. CIN acts as an information filter, providing an editorial focus and a
pragmatic, real-world view of the key issues facing today's CIO. CIN's features
include on-line events and interviews, insight on technology strategy, help with
"people" issues, columns, surveys, news, and analysis.
MARKETS AND CLIENT PROJECTS
The Company markets its services to a wide variety of industries, and its
clients include a diverse group of business organizations seeking to achieve
competitive advantage. To date, the Company's marketing efforts have been
directed toward clients on the basis of business needs rather than industry
group and the Company believes that no single industry has been material to the
Company's success. The projects described below are representative of the types
of projects undertaken by the Company's clients. Because of the costs involved
in implementing a strategic
-12-
<PAGE>
solution, clients may undertake projects on an irregular basis and level of
services performed for clients varies from year to year.
Since its inception, the Company has utilized client/server technology, and,
increasingly in 1997, the Internet, to deliver innovative IT solutions for
clients. The Company believes that these solutions have helped provide clients
with competitive advantages by focusing on high value-added areas such as
distribution, sales and marketing, and customer management.
BRITISH TELECOM (BT)
Together, BT and the Company developed a customer service solution that
links customer and product data across the globe and enables BT partners
around the world to work together to solve problems. The solution has
enabled more than a dozen BT partners across Europe and Asia to quickly
share customer solutions. In addition, customer service representatives
save valuable time by being armed with necessary information to deliver
excellent customer service.
SYBASE, INC.
Sybase, Inc. knew that if it wanted its growing sales force to excel at a
global level, they had to have the right information on products,
customers, competitors, and opportunities at any moment. The Company
worked with Sybase to build a cohesive system that provides consistent
information to hundreds of sales representatives. The new system allows
Sybase's sales force to use their laptops to get at a wealth of critical
marketing data, account profiles, and the latest product prices. This
vital information is helping Sybase sales representatives to close sales
and identify new selling opportunities while still face-to-face with a
customer.
STANDARD & POOR'S
With a growing number of people making their own investment decisions,
Standard & Poor's, one of the leading financial information firms in the
world, turned to the Company to develop S&P Personal Wealth. S&P Personal
Wealth is a first-of-its-kind, Internet service that gives investment
advice and recommendations, and tracks and updates investment choices based
on information provided by the individual. S&P Personal Wealth enables
anyone with access to the Web to take advantage of Standard & Poor's 125
years of experience, have access to the same caliber of financial
information available to sophisticated brokers, and get personalized
financial advice.
SHELL BRENT
The Brent field, the UK's largest oil and gas field, is operated by Shell
UK Exploration and Production on behalf of Royal Dutch/Shell and Esso.
Shell UK Exploration and Production was committed to making significant
improvements in business performance. It asked the Company to help it
accomplish its goal by changing the behavior of its offshore workforce and
supervision. The Company's team worked on the four Brent platforms for
eighteen months to help the entire workforce look at the business in a new
way. Working with Shell UK Exploration and Production in teams, the Company
trained staff and upgraded skills, analyzed business opportunities,
identified ways to improve performance, and redesigned business
-13-
<PAGE>
processes. Now with new business skills in place, Shell UK Exploration and
Production has an empowered organization that can drive business
performance into the next millennium.
DOMINO'S PIZZA
Committed to maintaining its high standards of efficiency to its customers,
Domino's Pizza realized it needed to streamline product manufacturing and
distribution processes affecting 25 distribution centers, a number of
suppliers, and 5,700 stores worldwide. Domino's also wanted to resolve
Year 2000 issues that could cause inaccuracies in its accounts payable and
billing systems. Domino's asked the Company to use its unique methodology
to drive the project planning, project management, and implementation of
several financial, manufacturing, distribution, and workflow applications
throughout its organization. Once the project is completed, Domino's will
have improved, streamlined processes for its corporate, distributor,
production, and international operations, helping it continue to be a
leader in pizza delivery.
CONCENTRATION OF REVENUES
No customer accounted for more than 5% of net revenues in 1997, 1996 or 1995.
The Company has in the past derived, and may in the future derive, a significant
portion of its net revenues from a relatively small number of major projects.
In many cases the Company's consulting and software development and
implementation services are delivered in connection with a major information
technology project initiated by a customer's line of business executive or MIS
department. Since the implementation of a strategic business solution may
result in fees to the Company ranging from $1 million to $6 million, most
customers undertake these projects on an irregular basis. Accordingly, the
Company expects that the existence and identity of its largest customers may
change from year to year.
SALES AND MARKETING
Unlike many professional services firms, the Company has a dedicated sales and
marketing organization to market and sell its services. This organization
consists of 147 employees operating out of its domestic offices and 75 employees
operating from its European, Latin American, and Pacific Rim offices. During
1997, the Company combined its sales and field marketing organizations to create
integrated business development teams within each regional business unit. This
approach ensures alignment between regional revenue generation goals and
business development activities and makes each business development team
responsive to local market needs.
As the Company and its offerings have grown, its sales and marketing
organizations have matured. In addition to a regionally based business
development organization, the Company has marketing and sales personnel
dedicated to each of its specific service and domain offerings. These marketing
and sales employees work with local business development resources to build
market awareness of the Company's offerings; form partnerships with the
appropriate hardware, software, and consulting vendors; build a pipeline of
demand for these offerings; and help
-14-
<PAGE>
qualify leads and conduct sales calls. By dedicating specific marketing and
sales resources to each area of focus, the Company ensures that each of its
offerings is marketed aggressively.
Unlike many of its competitors, the Company does not organize or market its
services around vertical, or industry, expertise. The Company has developed
expertise in horizontal business applications that are useful across a wide
range of industry groups and believes that this expertise will enable it to
expand into new industries. For example, the Company intends to capitalize on
its expertise with respect to customer management solutions, data warehousing,
interactive solutions, enterprise resource solutions, money management and
trading solutions, and supply chain management solutions. The Company believes
that this approach is more efficient and allows it to market itself more
broadly, extend its expertise across different industries, and seek and obtain
more business from individual clients.
While the growth of the Company's business development organizations has kept
pace with the breadth of services and revenue growth, it strives to keep
business development costs low by following a highly leveraged business
development model rather than emphasizing traditional, high-cost marketing
approaches. The Company seeks to build strong market awareness through unique
and innovative thought leadership programs such as those conducted by its
Management Lab and the Cambridge Information Network (CIN). Both the Management
Lab and CIN enable the Company to maintain significant mind-share within its
target audience and position itself as a thought leader through events,
research, publications, and studies.
The Company's vendor relationships provide another highly leveraged approach to
building awareness. The Company has built strong relationships with many of the
industry's leading hardware and software providers, including Arbor, Aurum,
Baan, Broadvision, CBT Systems, Clarify, Commerce One, Documentum, Hewlett-
Packard, Informix, Lotus, Microsoft, Netscape, New Era of Networks, Novasoft,
Oracle, PeopleSoft, Scopus, Siebel, Sun Microsystems, Trilogy and Vantive.
These vendors provide a source of leads for the Company in addition to providing
joint funding, content expertise and additional name recognition for marketing
events and programs. These vendors are not contractually obligated to continue
to participate in any of these programs and are not prohibited from entering
into similar arrangements with the Company's competitors. The Company receives
commissions on the sale of hardware manufactured by certain of these vendors.
The amount of these commissions is not material to the Company's results of
operations.
The Company also holds marketing seminars to promote its service offerings and
provide clients with insight on key business and technology issues. These
seminars, which are conducted throughout the world, provide the business
development organization with a source of leads for the Company's services. The
Company also, from time to time, sponsors industry conferences and trade shows
and places Company spokespeople as expert speakers at industry events. Existing
clients are also an important component of the Company's marketing strategy. The
Company's breadth of services and modular service offerings can support
additional projects as a client's needs develop or change. To facilitate this,
the Company invests significant time and effort in building client relationships
and conducting in-client marketing events. The Management Lab and CIN programs
are examples of services that are available to the Company's
-15-
<PAGE>
clients and provide them with additional value from their relationships with
the Company. In addition, the Company conducts on-site educational events for
senior management in client organizations; hosts marketing events geared towards
client needs; and takes additional steps to build relationships with its key
clients. This approach also allows the Company to cross-sell its services and
solutions so that clients can take advantage of the full breadth of its
offerings.
BACKLOG
For a majority of the Company's services, the Company and its clients generally
agree on a contractually-fixed price for each stage of the software development
or management consulting process. The Company only includes in backlog that
stage of the software development or management consulting process for which it
has obtained a signed contract. Accordingly, backlog does not reflect revenues
expected to be derived from future stages of a software development or
management consulting engagement. The Company's fixed-price contract backlog
totaled $59.4 million at January 31, 1998, compared to $29.5 million at January
31, 1997. The increase in backlog is due to numerous engagements for which
contracts were signed in January 1998. Because the Company employs a rapid
deployment methodology providing for completion periods of approximately nine
months, contracts included in backlog are generally performed within 12 months.
In accordance with industry practice, many of the Company's contracts are
terminable by the Company or the client upon short notice. There can be no
assurance that contracts reflected in backlog will not be canceled or delayed
and, therefore, backlog is not necessarily a measure of future revenues. Those
services which the Company performs on a time and materials basis generally can
be terminated by the Company or the client at any time. Therefore, estimated
backlog amounts for these services are not included in the Company's backlog
amount.
COMPETITION
The management and information technology consulting and software development
market comprises a large number of participants, is subject to rapid changes,
and is highly competitive. The market includes participants from a variety of
market segments, including systems consulting and integration firms, contract
programming companies, application software firms, the professional service
groups of computer equipment companies such as Hewlett-Packard Company, IBM, and
Digital Equipment Corporation, facilities management and MIS outsourcing
companies, "Big Five" accounting firms, and general management consulting firms.
The Company's competitors also include companies such as Andersen Consulting,
Technology Solutions Corporation, American Management Systems, Cap Gemini
America, the consulting division of Computer Sciences Corporation, Electronic
Data Systems Corporation, Sapient Corporation, Renaissance Worldwide Inc. and
Claremont Technology Group, Inc. The Company also faces competition from
information services organizations within potential clients.
Some participants in the management and information technology consulting and
software development market have significantly greater financial, technical and
marketing resources and greater name recognition than the Company, and generate
greater management and information technology consulting and systems
integration revenues than does the Company. In addition, the custom software
development and
-16-
<PAGE>
systems integration market is highly fragmented and served by numerous firms,
many of which serve only their respective local markets. However, the Company
believes that its rapid development methodology, coupled with its high quality
standards, open systems philosophy, client/server and Internet architecture
approach, and fixed-price contracting practices, distinguish it from its
competitors. The Company believes that the principal competitive factors in the
consulting and information technology industry include responsiveness to client
needs, speed of application software development, quality of service, price,
project management capability and technical expertise. The Company believes it
competes favorably with respect to these factors.
The Company also believes that its ability to compete depends in part on a
number of competitive factors outside its control, including the ability of its
competitors to hire, retain and motivate senior project managers, the ownership
by competitors of software used by potential clients, the development by others
of software that is competitive with the Company's products and services, the
price at which others offer comparable services, and the extent of its
competitors' responsiveness to customer needs.
HUMAN RESOURCES
As of January 31, 1998, the Company had a total staff of 3,222 employees,
comprised of 14 senior executives, 45 vice presidents, 139 client partners, 248
project managers, 2,250 application developers and systems consultants, 222
sales and marketing personnel, and an administrative staff of 304 employees.
A project manager oversees all phases of a client assignment. Project managers
are typically responsible for a single client assignment. At any one time,
clients may be involved with the Company on the implementation of more than one
strategic business solution. Client partners are responsible for coordinating
all of the Company's services to a client, ensuring the solution meets the
client's business needs and maintaining client relationships.
The Company's success will depend in large part upon its ability to attract,
retain and motivate highly-skilled employees, particularly project managers and
client partners and other senior technical personnel. Qualified project
managers are in particularly great demand and are likely to remain a limited
resource for the foreseeable future. However, the Company believes that it has
been successful in its efforts to attract, develop and retain the number of
high-quality professionals needed to support present operations and future
growth, in part because of its emphasis on training, its policy of promoting
from within, and its methodology, which allows associates to progress with one
client through multiple phases of a project, thereby maximizing the learning
process and maintaining the professional challenge. Although the Company
expects to continue to attract sufficient numbers of highly-skilled employees
and to retain its existing project managers and other senior personnel for the
foreseeable future, there can be no assurance that the Company will be able to
do so.
None of the Company's employees is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are excellent.
-17-
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon its software deployment and consulting
methodologies and other proprietary intellectual property rights. The Company
relies upon a combination of trade secret, nondisclosure and other contractual
arrangements and technical measures, and copyright and trademark laws, to
protect its proprietary rights. The Company holds no patents or registered
copyrights. The Company generally enters into confidentiality agreements with
its employees, consultants, clients and potential clients and limits access to
and distribution of its proprietary information. There can be no assurance that
the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.
The Company's business includes the development of custom software applications
in connection with specific client engagements. Ownership of such software is
generally assigned to the client. In addition, the Company also develops
object-oriented software components that can be reused in software application
development and certain foundation and application software products, or
software "tools," most of which remain the property of the Company.
Although the Company believes that its services and products do not infringe on
the intellectual property rights of others, there can be no assurance that such
a claim will not be asserted against the Company in the future.
ITEM 2. PROPERTIES.
The Company's headquarters and principal administrative and sales and marketing
operations are located in approximately 62,000 square feet of leased space in
Cambridge, Massachusetts. The lease for this space expires in 2007, but permits
two five-year term extensions. In January 1998, the Company completed a Lease
Agreement with Boston Properties, Inc. for a building to be constructed at Eight
Cambridge Center, Cambridge, Massachusetts. The building is expected to contain
177,000 rentable square feet and is expected to be available to the Company on
or about June 1, 1999.
The Company also maintains offices and leases office space in the various
locations in which it maintains sales and operations facilities and in which its
subsidiaries operate. Management of the Company believes that its facilities
are suitable and adequate for its near term needs.
ITEM 3. LEGAL PROCEEDINGS.
In July 1996, a suit was filed against the Company in the United States District
Court for the District of Colorado in Denver by Rocky Mountain Healthcare
Corporation ("RMHC"). RMHC was seeking, among other things, a refund of $1.7
million of contract payments and related damages arising from the Company's
alleged breach of an agreement pursuant to which the Company provided software
system design and consulting services to RMHC. The suit included breach of
contract and tort claims. In April 1997, the Company and RMHC agreed to dismiss
-18-
<PAGE>
with prejudice all claims and counterclaims. The terms of the dismissal
agreement did not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
In July 1996, Axiom Management Consulting, Inc. ("Axiom") (now operating as
Cambridge Management Consulting) was served a demand for arbitration by a former
shareholder of Axiom. The claims arose from Axiom's alleged failure to inform
such shareholder of the Company's interest in acquiring Axiom at the time he
sold his stock back to Axiom. The demand sought damages in excess of $3.3
million plus punitive damages, costs and attorney's fees. The American
Arbitration Association (the "AAA") arbitration was conducted in April and
October 1997. Upon completion of the arbitration, the AAA determined that there
was no failure to inform and no compensable damages resulting from breach of
contract. The AAA also determined that Axiom was the prevailing party in the
arbitration and was entitled to compensation from such shareholder for
attorneys' fees and costs. Such shareholder has paid to the Company a
substantial portion of the related attorneys' fees and costs in settlement of
these amounts.
The Company is involved in litigation and various other legal matters which have
arisen in the ordinary course of business. The Company does not believe that
the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended December 31, 1997.
-19-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently included in the Nasdaq National Market
system under the symbol CATP. The following table sets forth, on a per share
basis for the periods shown, the range of high and low sales prices of the
Company's Common Stock as reported by Nasdaq. All such prices have been
adjusted for the three-for-one stock split, effected in the form of a stock
dividend, in the second quarter of 1996.
<TABLE>
<CAPTION>
HIGH LOW
----------------- ---------------
FISCAL YEAR
<S> <C> <C>
1996:
First Quarter $19.25 $14.63
Second Quarter 30.75 17.75
Third Quarter 37.25 22.25
Fourth Quarter 35.75 25.50
1997:
First Quarter 36.00 21.25
Second Quarter 34.94 21.75
Third Quarter 38.94 30.25
Fourth Quarter 43.63 34.13
1998:
First Quarter (through February 27, 1998) 48.50 35.25
</TABLE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company's current borrowing arrangements prohibit the payment of dividends
without the lender's prior consent. The Company currently intends to retain
future earnings for use in its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
STOCKHOLDERS
As of February 27, 1998, there were approximately 1,935 stockholders of record.
RECENT SALES OF UNREGISTERED SECURITIES
On November 24, 1997, the Company issued 3,255,731 shares of its Common Stock in
connection with its acquisition of all of the outstanding capital stock of Peter
Chadwick Holdings
-20-
<PAGE>
Limited ("Peter Chadwick"). Of the 3,255,731 shares of the Company's Common
Stock issued to the Peter Chadwick shareholders and option holders, (i)
3,117,705 shares were issued pursuant to Regulation S under the Securities Act
of 1933, as amended (the "Securities Act"), and (ii) 138,026 shares were issued
pursuant to Regulation D, Rule 506 under the Securities Act.
In December 1997, the Company issued 900,000 shares of its Common Stock to
Safeguard Scientifics (Delaware), Inc., a wholly-owned subsidiary of Safeguard
Scientifics, Inc. (which is a publicly traded company) and the Company's largest
stockholder, at a price of $2.00 per share upon exercise of a warrant originally
issued in December 1992. These shares were issued in reliance upon the
exemption from registration under Section 4(2) of the Securities Act relating to
sales by an issuer not involving a public offering.
-21-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below as of and for the fiscal years ended
December 31, 1997, 1996, 1995, 1994, and 1993*, have been derived from the
Company's consolidated financial statements, which have been audited by Coopers
& Lybrand L.L.P., independent accountants. This data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company's Consolidated Financial Statements, and
other financial information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995 1994 1993*
------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenues $406,672 $272,878 $179,667 $112,590 $76,760
Costs and expenses:
Project personnel 183,587 124,544 83,273 53,469 36,273
General and administration 44,511 32,019 22,906 14,314 9,942
Sales and marketing 37,580 23,127 18,647 13,402 9,502
Other costs 80,220 52,537 29,223 18,760 12,348
Business combination costs 4,760 1,195 1,333 - -
------------------------------------------------------------------
Total operating expenses 350,658 233,422 155,382 99,945 68,065
------------------------------------------------------------------
Income from operations 56,014 39,456 24,285 12,645 8,695
Other income (expense):
Interest income 2,323 1,009 817 393 177
Interest expense (232) (71) (373) (166) (123)
Gain on sale of AdValue - - 909 - -
Foreign exchange (loss) gain (122) (141) 92 28 7
------------------------------------------------------------------
Income before income taxes 57,983 40,253 25,730 12,900 8,756
Provision for income taxes 25,054 16,228 10,072 4,791 3,453
------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 32,929 24,025 15,658 8,109 5,303
Cumulative effect of change in accounting for
income taxes - - - - 1,204
Net income $ 32,929 $ 24,025 $ 15,658 $ 8,109 $ 6,507
==================================================================
Basic net income per share:
Income before
cumulative effect of change in
accounting principle $.62 $.48 $.32 $.17 $ .12
Cumulative effect of
change in accounting
for income taxes - - - - .03
Net income $.62 $.48 $.32 $.17 $ .15
==================================================================
Diluted net income per share:
Income before
cumulative effect of change
in accounting principle $.57 $.42 $.28 $.16 $ .11
Cumulative effect of change in
accounting for income taxes - - - - .03
Net income $.57 $.42 $.28 $.16 $ .14
==================================================================
Weighted average number of common shares
outstanding 52,952 50,374 48,312 46,999 43,696
==================================================================
Weighted average number of common and common
equivalent shares outstanding 59,095 57,893 55,118 51,383 47,435
==================================================================
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995 1994 1993*
------------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 39,496 $ 26,087 $ 11,081 $ 5,676 $ 5,969
Investments held to maturity 15,824 12,727 8,544 10,311 500
Working capital 107,930 72,253 37,233 22,609 9,772
Total assets 237,242 147,644 88,172 58,398 28,685
Stockholders' equity 149,787 98,185 55,363 34,701 14,829
</TABLE>
- ----------------------
* 1993 data includes the results of Peter Chadwick, which results were not
audited by Coopers & Lybrand L.L.P.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Cambridge Technology Partners (Massachusetts), Inc. (the "Company") is an
international management consulting and systems integration firm. The Company
combines management consulting, IT strategy, process innovation and
implementation, custom and package software deployment, network services, and
training to rapidly deliver end-to-end business systems for clients. In
performing its services, the Company employs a rapid development methodology
that features an iterative approach and conducts facilitated workshops that
bring together key client users, executives, and IT professionals to achieve
consensus on the business case, strategic objectives, and functionality of a
business solution. The Company believes that this approach permits the delivery
of results in unprecedented time frames, typically within three to twelve
months. Working with primarily a fixed-price, fixed-timetable model with client
involvement at all stages of the process, the Company continued to record strong
operating results for the year ended December 31, 1997. Net revenues for 1997
increased 49% to $406.7 million compared to $272.9 million for the same period
in 1996, reflecting increased demand for the Company's services worldwide. Net
income for the year ended December 31, 1997, increased 37% to $32.9 million, or
$.57 per share (diluted) compared to $24.0 million, or $.42 per share (diluted),
for the same period in 1996. Excluding the effect of business combination
costs, net income for the year ended December 31, 1997, increased 52% to $37.7
million, or $.65 per share (diluted), compared to $24.7 million, or $.43 per
share (diluted), for the same period in 1996.
On November 24, 1997, the Company acquired all of the outstanding capital stock
of Peter Chadwick Holdings Limited ("Peter Chadwick"). This acquisition was
accomplished through an exchange of 3,255,731 shares of the Company's common
stock for all outstanding shares of capital stock and options to purchase
ordinary shares of Peter Chadwick. This acquisition has been accounted for
using the pooling of interests method of accounting. Founded in 1987 and based
in the United Kingdom, Peter Chadwick specializes in change implementation
strategies and performance improvement programs. Peter Chadwick currently has
offices in the United Kingdom, Germany, Holland, France, and the U.S. and had
approximately 325 employees at the time of the acquisition. The Company
currently expects to continue seeking opportunities for potential acquisitions
of companies or technologies that may complement or enhance the Company's global
growth initiatives.
During 1997, the Company continued to expand its business in Latin America,
Canada, and the Pacific Rim demonstrating increased acceptance of the Company's
service offerings in these markets. The Company opened offices in Melbourne,
Australia, Tokyo, Japan, and Bangalore, India, and added offices in Newport
Beach, California, and Washington, D.C., bringing worldwide locations to 45
offices at December 31, 1997.
As part of the Company's strategy to continually better serve its clients, the
Company expanded its service offerings, bringing Cambridge Momentum (SM) (fixed
time/fixed price Enterprise Resource Planning deployment methodologies) to
market in 1997. The Company also expanded
-23-
<PAGE>
its Rapid Application Deployment methodology (RAD), and developed and introduced
CoRad (customer-oriented rapid application development), a methodology for
building electronic commerce and interactive solutions. With additional service
capabilities and 45 offices worldwide, the Company believes it is well
positioned for the next stage of growth.
In order to meet increased demand for its services, the Company increased its
staff by 49% to 3,071 at December 31, 1997, from 2,065 at December 31, 1996.
The Company currently expects to increase headcount in 1998 at approximately the
1997 rate to support the anticipated demand for its services.
The Company supplements its internal growth initiatives with selected strategic
acquisitions. Since 1993, the Company has acquired six companies, three in
Europe and three in the U.S. The following table compares the Company's
reported income from operations as a percentage of net revenues to pro forma
information excluding the results of all acquisitions and the related costs and
restatements required in accordance with the purchase and pooling of interests
methods of accounting for the years ended December 31, 1997, 1996, and 1995.
Beginning in 1996, The Systems Consulting Group, Inc. ("SCG"), acquired by the
Company in August 1995, was integrated into the Company's existing operating
structure, and therefore, SCG's results are included in the pro forma net
revenues and income from operations information presented below for the years
ended December 31, 1997 and 1996. The pro forma net revenues and operating
income information described below is for informational purposes only and is not
indicative of results in future periods.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
As reported:
Net revenues $406,672 $272,878 $179,667
Income from operations $ 56,014 $ 39,456 $ 24,285
Income from operations as a
percentage of net revenues 14% 14% 14%
Pro forma (unaudited):
Net revenues $260,164 $141,700 $ 84,000
Income from operations $ 47,202 $ 28,100 $ 16,900
Income from operations as a
percentage of net revenues 18% 20% 20%
</TABLE>
RESULTS OF OPERATIONS
To facilitate comparisons, the following table sets forth selected statements of
operations data as a percentage of net revenues and the period-to-period
percentage changes for net revenues, costs and expenses, and income from
operations.
-24-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Percentage Increase
-------------------------- ---------------------------
1997 1996 1995 `96 to `97 `95 to `96
------ ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues 100% 100% 100% 49% 52%
Costs and expenses:
Project personnel 45 46 46 47 50
General and administration 11 12 13 39 40
Sales and marketing 9 9 10 62 24
Other costs 20 19 16 53 80
Business combination costs 1 - 1 298 (10)
---- ---- ---
Total operating expenses 86 86 86 50 50
---- ---- ---
Income from operations 14 14 14 42% 62%
Other income, net - 1 -
---- ---- ---
Income before income taxes 14% 15% 14%
==== ==== ===
</TABLE>
All prior period amounts have been restated to reflect the acquisition of Peter
Chadwick in November 1997, accounted for using the pooling of interests method
of accounting (see Note B of Notes to Consolidated Financial Statements).
A majority of the Company's revenues historically have been generated from
software development activities. Software development revenues are primarily
recognized on the percentage of completion method, which requires revenues to be
recorded over the term of a client contract based on the percentage of work
performed. The cumulative impact of any revision in estimates of the percentage
of work completed is reflected in the fiscal quarter in which the changes become
known. The Company's operating results may be adversely affected by inaccurate
estimates of contract completion costs. Although the Company from time to time
is required to make revisions to its work completion estimates, to date, none of
these revisions has had a material adverse effect on the Company's operating
results. There can be no assurance of the accuracy of the Company's future work
completion estimates. Losses expected to be incurred on projects in progress
are recognized when known. Revenues related to time and materials engagements
are recognized when services are performed.
A major portion of the Company's services are provided on a fixed-price basis
and, therefore, the Company bears the risk of cost overruns and inflation.
Client project margins and personnel utilization are critical components of the
Company's financial performance. The Company regularly reviews staff
compensation and overhead costs to ensure that its consulting and software
development services are properly priced. In addition, management monitors the
progress of client projects on a monthly basis. The Company attempts to manage
its personnel utilization rates by closely monitoring project timetables and
staffing requirements for new projects. Because the Company's client
engagements are generally terminable without client penalty, an unanticipated
termination of a client project could require the Company to maintain or
terminate under-utilized employees, resulting in a higher than expected number
of unassigned persons or higher severance expenses. While the level of
professional staff must be adjusted to reflect active projects, the Company must
maintain a sufficient number of senior professionals to oversee existing client
projects and participate with the Company's sales force in securing new client
assignments.
-25-
<PAGE>
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net revenues increased 49% to $406.7 million in 1997 compared to $272.9 million
in 1996 due principally to an increase in the volume of services delivered to
new clients, leveraging the existing client base by undertaking additional
projects for existing clients, as well as expanding the Company's service
offerings to include new services such as Cambridge Momentum (SM) and CoRad.
North American net revenues for 1997 remained strong, growing 56% to $275.9
million from $177.3 million in 1996. This increase reflects the continued
marketplace demand for information technology services in North America.
International operations continued to make significant contributions to the
growth in net revenues, accounting for $130.8 million or 32% of net revenues in
1997 compared to $95.6 million or 35% for the same period in 1996. The
percentage decrease in international net revenues as a percentage of
consolidated net revenues from 1996 to 1997 is primarily due to the continued
increase in the delivery of the Company's services in North America in 1997 and
the resulting increase in North American net revenues in 1997. As the Company
grows its international business, the impact of changes in foreign currency
exchange rates on revenues continues to be monitored. For the year ended
December 31, 1997, excluding a negative $5.4 million impact of changes in
foreign exchange rates in 1997, the Company's net revenues would have been
$412.1 million, or a 51% increase from 1996 net revenues.
Project personnel costs consist principally of payroll and payroll-related
expenses for personnel dedicated to client assignments and are directly
associated with, and vary with, the level of client services being delivered.
Project personnel costs were $183.6 million or 45% of net revenues in 1997
compared to $124.5 million or 46% of net revenues in 1996. The dollar increase
resulted from the hiring of additional project personnel over 1996 staff levels,
the related increase in payroll and payroll-related expenses, and increased use
of skilled subcontractors on projects. Worldwide project personnel headcount
increased 47% to 2,520 employees at December 31, 1997, from 1,720 employees at
December 31, 1996. The decrease as a percentage of net revenues is primarily
due to the significant increase in net revenues. While the Company anticipates
meeting its hiring goals for 1998, competition for personnel with information
technology skills is intense and the Company expects salaries and wages to
continue to increase. The Company periodically reviews and updates its billing
rates to cover the expected increase in costs. The Company currently expects
that project personnel costs as a percentage of annual net revenues will
increase to approximately 46% in 1998 as the Company invests in hiring and
assimilating its employees to support its business growth.
In 1997, the Company experienced increased usage of subcontractors to complement
its internal skill sets. The Company has introduced staffing control
initiatives to better monitor its subcontractor costs. Other initiatives, which
are part of the Company's focus on containing project personnel costs, include
the continuous review and measurement of utilization, employee retention, and
billability. In January 1998, the Company implemented an improved worldwide
time-entry system to serve as the basis for its productivity measurements.
General and administration expenses were $44.5 million or 11% of net revenues in
1997 compared to $32.0 million or 12% of net revenues in 1996. The percentage
decrease from 1996
-26-
<PAGE>
is primarily attributable to the Company's continued focus on cost containment
and the significant increase in net revenues. The dollar increase reflects
expenses associated with increased staff headcount and increased company-wide
recruiting and relocation expenses to support the Company's continued growth and
geographic expansion in North America and internationally. General and
administration headcount increased 50% to 340 employees at December 31, 1997,
from 227 at December 31, 1996. The Company currently expects to maintain general
and administration expenses as a percentage of net revenues at approximately the
1997 level while providing sufficient support for the Company's global growth
strategy.
Sales and marketing expenses were $37.6 million in 1997 compared to $23.1
million in 1996, reflecting 9% of net revenues for both periods. The dollar
increase is primarily attributable to an increase in payroll and payroll-related
expenses associated with the increase in sales and marketing personnel from 118
at December 31, 1996, to 211 at December 31, 1997, and the increase in sales
commissions related to the significant increase in net revenues. The increased
headcount enables the Company to maximize potential client lead generation
through its regional field marketing staff with subsequent services coordinated
by its sales personnel. This increase also resulted from increased
participation in trade shows and marketing publications in order to provide
existing and potential clients with essential information about the Company and
its service offerings. The Company continued its investment in marketing
initiatives and educational and training programs through those conducted by the
Management Lab and the Cambridge Information Network (CIN). The Management Lab
and CIN enable clients to participate in both physical and virtual interactive
forums to discuss issues associated with adopting advanced information
technology, as well as key business, technology, and career management issues.
The Company expects to maintain sales and marketing expenses as a percentage of
net revenues at approximately the 1997 level in 1998.
Other costs consist of non-billable expenses directly incurred for client
projects and other associated business costs, including facilities costs and
related expenses, non-billable staff travel, and staff training. Other costs
were $80.2 million or 20% of net revenues in 1997 compared to $52.5 million or
19% of net revenues in 1996. The dollar and percentage increase from 1996
resulted principally from increased facility, travel, and employee training
costs, including costs related to maintaining newly opened and expanded offices
in North America and internationally as the Company continues to expand
globally. As the Company continues its headcount and facilities growth to
support current and anticipated increases in demand for its services, the
Company expects to maintain its other costs as a percentage of net revenues at
approximately 20% of net revenues in 1998.
Business combination costs of $4.8 million in 1997 and $1.2 million in 1996,
which consist primarily of investment banking, legal, accounting, and consulting
fees, were incurred in connection with the acquisitions of Peter Chadwick in
1997 and NatSoft and Ramos in 1996 (see Note B of Notes to Consolidated
Financial Statements).
Interest income increased to $2.3 million in 1997 from $1.0 million in 1996.
This increase is principally due to increased cash and investment balances and
higher average interest rates obtained in 1997 compared to 1996. The Company's
cash and investments consist primarily of
-27-
<PAGE>
tax exempt investment grade municipal bonds that mature within one year from the
date of purchase, overnight repurchase agreements, and short-term commercial
paper.
Interest expense in 1997 was $232,000 compared to $71,000 in 1996. The increase
is primarily due to interest expense related to a loan obtained by Peter
Chadwick in April 1997 to finance the purchase of a training facility (see Note
F of Notes to Consolidated Financial Statements).
Foreign exchange loss was $122,000 in 1997 compared to a loss of $141,000 in
1996 related to foreign currency exchange rate fluctuations associated with
intercompany balances. The Company maintains monthly foreign exchange forward
contracts to hedge against the risk of changes in foreign exchange rates
associated with intercompany balances. This risk coverage is dependent upon
forecasted intercompany activities at the beginning of each month and the
exchange rate gains and losses are directly related to the accuracy of such
forecasted amounts. As of December 31, 1997, the Company held foreign exchange
contracts of approximately $4.1 million.
The Company's effective income tax rate in 1997 increased to 43.2% from 40.3% a
year ago. This increase is primarily due to the non-deductible acquisition
costs incurred related to acquiring Peter Chadwick in the fourth quarter of 1997
which resulted in a 3.7% increase in the effective tax rate for 1997. The
effective tax rate before non-deductible pooling costs was 39.5% in 1997
compared to 40.3% in 1996. The decrease is primarily due to favorable effects
of state tax rate minimization initiatives put in place in 1997. The Company's
effective tax rate may vary from period to period based on the Company's future
expansion into areas of varying country, state, and local statutory income tax
rates.
Net income was $32.9 million or $.57 per share (diluted) for 1997 compared to
$24.0 million or $.42 per share (diluted) for the same period in 1996. Net
income per share (diluted) increased 36% from 1996. Excluding business
combination costs, net income per share (diluted) for 1997 increased 51% to $.65
from $.43 in 1996.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues increased 52% to $272.9 million in 1996 compared to $179.7 million
in 1995. The increase in net revenues resulted principally from an increase in
the volume of services delivered to new clients, leveraging the client base by
undertaking additional projects for existing clients, as well as expanding the
Company's service offerings to include new services such as Rapid Business
Renewal, Rapid Process Implementation, and the deployment of Enterprise Resource
Solutions. North American net revenues grew 53% to $177.3 million in 1996 from
$115.4 million in 1995. International operations made significant contributions
to the growth in net revenues accounting for $95.6 million or 35% of net
revenues in 1996, compared to $64.3 million or 36% of net revenues in 1995.
Project personnel costs were $124.5 million and $83.3 million in 1996 and 1995,
respectively, reflecting 46% of net revenues for both periods. The dollar
increase resulted from the hiring of additional project personnel over 1995
staff levels, the related increase in payroll and payroll-
-28-
<PAGE>
related expenses, and increased use of skilled subcontractors on projects.
Worldwide project personnel headcount increased 37% to 1,720 employees at
December 31, 1996, from 1,254 employees at December 31, 1995.
General and administration expenses were $32.0 million or 12% of net revenues in
1996 compared to $22.9 million or 13% of net revenues in 1995. The percentage
decrease from 1995 is primarily attributable to the Company's continued focus on
cost containment and the significant increase in net revenues. The dollar
increase reflects expenses associated with increased staff headcount and
increased company-wide recruiting and relocation expenses to support the
Company's continued growth and geographic expansion in North America and
internationally. General and administration headcount increased 30% to 227
employees at December 31, 1996, from 174 at December 31, 1995.
Sales and marketing expenses were $23.1 million or 9% of net revenues in 1996
compared to $18.6 million or 10% in 1995. The dollar increase is primarily
attributable to an increase in payroll and payroll-related expenses associated
with the increase in sales and marketing personnel from 80 at December 31, 1995,
to 118 at December 31, 1996, and the increased participation in trade shows and
marketing publications in order to provide existing and potential clients with
essential information about the Company and its service offerings. The Company
continued its investment in marketing initiatives and educational and training
programs through those conducted by the Management Lab and the Cambridge
Information Network (CIN). The Management Lab and CIN enable clients to
participate in both physical and virtual interactive forums to discuss issues
associated with adopting advanced information technology, as well as key
business, technology, and career management issues. The percentage decrease is
due principally to the significant increase in net revenues from 1995 and the
addition of NatSoft and Ramos whose sales and marketing expenses as a percentage
of net revenues are lower than the Company's historical level.
Other costs were $52.5 million or 19% of net revenues in 1996 compared to $29.2
million or 16% of net revenues in 1995. The dollar and percentage increase from
1995 resulted principally from increased facility, travel, and employee training
costs, including costs related to maintaining newly opened and expanded offices
in North America and internationally as the Company continued to execute its
global expansion strategy.
Business combination costs of $1.2 million in 1996 and $1.3 million in 1995,
which consist primarily of legal, accounting, and consulting fees, were incurred
in connection with the acquisitions of NatSoft and Ramos in 1996 and SCG and
Axiom in 1995 (see Note B of Notes to Consolidated Financial Statements).
Interest income increased to $1.0 million in 1996 from $817,000 in 1995. This
increase is principally due to increased cash and investment balances and higher
average interest rates obtained in 1996 compared to 1995. The Company's
investments consist primarily of tax exempt investment grade municipal bonds
that mature within one year from the date of purchase, overnight repurchase
agreements, and short-term commercial paper.
-29-
<PAGE>
Interest expense in 1996 amounted to $71,000 compared to $373,000 in 1995.
Interest expense for both periods consisted primarily of interest on amounts
outstanding under revolving credit facilities maintained by SCG, Axiom, and
Ramos. Following the acquisitions, all outstanding amounts were repaid and the
Company terminated these revolving credit facilities.
The Company recorded a gain of $909,000 in the second quarter of 1995 related to
the sale of its 6.3% interest in AdValue Media Technologies, Inc. (formed in
1991 to develop, test, and market a centralized spot advertising computer
software package) (see Note D of Notes to Consolidated Financial Statements).
Foreign exchange loss was $141,000 in 1996 compared to a gain of $92,000 in 1995
related to foreign currency exchange rate fluctuations associated with
intercompany balances. The 1996 loss is primarily due to more unfavorable
fluctuations in European currencies in the fourth quarter of 1996. The Company
maintains monthly foreign exchange forward contracts to hedge against the risk
of changes in foreign exchange rates associated with intercompany balances.
This risk coverage is dependent upon forecasted intercompany activities at the
beginning of each month and the exchange rate gains and losses are directly
related to the accuracy of such forecasted amounts. As of December 31, 1996,
the Company held foreign exchange contracts of approximately $7.9 million.
The Company's effective income tax rate in 1996 increased to 40.3% from 39.1% in
1995. This increase is primarily due to SCG's non-taxable S-Corporation income,
prior to the acquisition, of $569,000 in 1995.
Net income was $24.0 million or $.42 per share (diluted) for 1996 compared to
$15.7 million or $.28 per share (diluted) for the same period in 1995. The
Company increased its net income per share by 50% despite a 5% increase in the
number of common and common equivalent shares outstanding due to stock options
granted to employees and shares issued under the Company's employee stock
purchase plan. Excluding business combination costs, net income per share
(diluted) in 1996 was $.43 compared to $.30 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate cash flow from operations to fund its business
growth and strategic acquisitions. In addition, the Company continues to
operate primarily debt free and enhance its working capital position. Working
capital increased to $107.9 million at December 31, 1997, from $72.3 million at
December 31, 1996. This increase was primarily due to positive cash flows from
operations, increases in accounts receivable, and proceeds from exercise of
stock options, partially offset by cash used for capital expenditures related to
office expansions and computer equipment for new employees. The Company's days
sales in accounts receivable was 75 days during 1997 compared to 71 days for the
same period in 1996. This increase is primarily due to the Company performing
larger projects for major corporations in the 1997 period. The outstanding
receivable balances from these clients are greater as a result of the higher
billing amounts per project compared to smaller projects in 1996, coupled with
the more time consuming payment processes of these major corporations. The
Company continued to focus on
-30-
<PAGE>
its outstanding receivables by involving its project management staff in the
collection process. In 1998, the Company is including reduction in days sales
outstanding as an individual metric for its annual bonus program. Despite the
increased days in sales outstanding, the Company's cash equivalent and
investment balances increased 43% to $55.3 million at December 31, 1997, from
$38.8 million at December 31, 1996.
Net cash provided by operating activities decreased by $2.2 million to $22.3
million in 1997 from $24.5 million for the comparable period in 1996. This
decrease is primarily the result of a significant increase in accounts
receivable compared to the prior period, an increase in unbilled revenue on
contracts, and a decrease in tax benefits from the exercise of stock options,
which were partially offset by an increase in net income, accrued expenses, and
income taxes payable.
Capital expenditures, which totaled $22.7 million in 1997, were principally for
computer equipment to support the company's expanding operations, employee
workstations, and leasehold improvements for the company's expanding and new
offices in North America and internationally. Capital expenditures for 1998 are
expected to approximate $30.0 million, principally for leasehold improvements,
personal computers, employee workstations, telecommunication and video
conferencing equipment, and other equipment to support both current and
anticipated levels of customer activities in North America and internationally.
The Company maintains an uncollateralized revolving credit facility (the
"Facility") with Fleet National Bank ("Fleet Bank"), which was amended on June
26, 1996. Among other things, the amendments increased the amount available
under the Facility from $10.0 million to $20.0 million, extended the expiration
date to June 30, 1998, from June 30, 1996, and decreased the Facility cost to
.15% from .25%. The Facility was also amended to permit the Company to elect an
interest rate of either, Fleet Bank's prime rate in effect from time to time or
a eurodollar rate, as defined, payable monthly in arrears commencing with the
advance of funds. The increase in the amount under the Facility established
sufficient support for the Company's growth strategy beyond the Company's cash
flows from operations. The Facility requires, among other things, the Company
to maintain certain financial ratios including tangible net worth, debt to
equity, and operating profitability. At December 31, 1997, and 1996, the
Company was in compliance with these financial ratio requirements and no
borrowings have been made under the Facility. Currently, the Company expects to
extend and increase the amount available under the Facility in the second
quarter of 1998 that will be commensurate with the Company's business growth.
In October 1997, Cambridge Technology Capital Fund I, L.P. (the "Fund") was
formed as a limited partnership with committed capital of approximately $25.3
million at December 31, 1997. The Fund intends to invest in expansion-stage,
private companies providing products and services within areas of the Company's
strategic expertise. A wholly owned subsidiary of the company acts as the sole
general partner of the Fund's general partner. The Company's capital commitment
to the fund is approximately $6.0 million. No more than two-thirds of the
Fund's committed capital may be called before October 1999 without approval of
the Fund's partners. The balance of the Fund's capital has been provided by
institutional investors and directors and employees of the Company. At December
31, 1997, the Company's investment in the Fund
-31-
<PAGE>
amounted to $307,500. Operating results of the Fund for the period ended
December 31, 1997, were immaterial.
In January 1998, the Company entered into an agreement with Boston Properties
Limited Partnership ("Boston Properties") to lease a building to be constructed
and developed by Boston Properties. This approximately 177,000 square foot
building, which will be located in Cambridge, Massachusetts, will serve as the
new corporate headquarters for the Company. The lease agreement is for a ten-
year period that is expected to commence in June 1999. Pursuant to the terms of
the lease agreement, the Company has paid a $1.3 million security deposit in
January 1998. The Company's current headquarters building is expected to
continue to be used for project development activities through its lease term.
The Company expects that cash flows from operations will provide the principal
source of future liquidity for the Company. However, the Company is currently
experiencing a period of growth which could place a strain on the Company's
financial resources. The Company currently anticipates that existing cash and
investment balances combined with cash generated from operations and amounts
available under the facility will be sufficient, at least through 1998, to meet
the Company's working capital requirements and to fund the expansion of the
Company's business. In order to meet client demand for the Company's services
in 1998, the Company expects to continue to increase its professional staff and
to open additional sales and operations offices in North America and
internationally. Although the Company's plans to open offices and hire
personnel are driven in response to increased demand for the Company's services,
a portion of these expenses will be incurred in anticipation of increased
demand. Operating results and liquidity may be adversely affected if market
demand and revenues do not increase as anticipated. As the Company expands its
international operations, a number of factors including market acceptance of the
Company's services, significant fluctuations in currency exchange rates, and
changes in general economic, political, or regulatory conditions could also
adversely affect future results and liquidity.
THE YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's internal
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company is in the process of conducting an assessment of its computer
information systems and is commencing the necessary steps to determine the
nature and extent of the work required to make its systems Year 2000 compliant,
where necessary. These steps may require the company to modify, upgrade or
replace some of its internal systems. The Company continues to evaluate the
estimated cost of bringing all internal systems, equipment, and operations into
Year 2000 compliance, but has not yet finished determining the total cost of
these compliance efforts. While these efforts will involve additional costs,
the Company believes, based upon currently
-32-
<PAGE>
available information, that these costs will not have a material adverse effect
on its business, financial condition, or results of operations. However, if
these efforts are not completed on time, or if the cost of updating or replacing
the Company's information systems exceeds the Company's current estimates, the
Year 2000 issue could have a material adverse impact on the Company's business,
financial condition, or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the financial accounting standards board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which is effective for fiscal years beginning after December 15, 1997,
including interim periods (see Note A of Notes to Consolidated Financial
Statements).
In July 1997, the financial accounting standards board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997 (see Note A of Notes to Consolidated
Financial Statements).
FORWARD-LOOKING STATEMENTS
This Form 10-K includes forward-looking statements (statements which are not
historical facts) such as statements about future net revenues and profits,
capital expenditures, liquidity sources and needs, working capital needs,
increases in headcount, the Year 2000 issue, and project personnel costs,
general and administrative expenses, sales and marketing expenses, and other
costs as a percentage of net revenues. These forward-looking statements are
subject to several risks and uncertainties and the Company's actual future
results may differ significantly from those stated in any forward-looking
statements. While it is impossible to identify each factor and event that could
affect the Company's results, variations in the Company's revenues and operating
results occur from time to time as a result of a number of factors, such as the
significance of client engagements commenced and completed during the year, the
number of working days in a year, employee hiring, retention, and utilization
rates, acceptance and profitability of the Company's services in new
territories, and integration of companies acquired. The timing of revenues is
difficult to forecast because the Company's sales cycle is relatively long in
the case of new clients and may depend on factors such as the size and scope of
the assignments and general economic conditions. Because a high percentage of
the Company's expenses are relatively fixed, a variation in the timing of the
initiation or the completion of client assignments, particularly at or near the
end of any year, can cause significant variations in operating results from year
to year.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the financial
statements and schedules set forth in Item 14(a) under the captions
"Consolidated Financial Statements" and "Financial Statement Schedules" as a
part of this report.
-33-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this item may be found under the sections
captioned "Election of Directors," "Election of Directors -- Directors and
Executive Officers," and "Section 16(a) Beneficial Ownership Reporting
compliance" in the Company's definitive proxy statement pursuant to regulation
14A (the "1998 Proxy Statement"), which the company intends to file with the
securities and exchange commission not later than 120 days after the close of
the company's fiscal year ended December 31, 1997, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item may be found under the sections
captioned "compensation and other information concerning executive officers and
directors" in the 1998 Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item may be found under the sections
captioned "Principal Holders of Voting Securities" and "Election of Directors --
Stock Ownership of Directors and Executive Officers" in the 1998 Proxy
Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item may be found under the section
captioned "Election of Directors -- Certain Relationships and Related
Transactions" in the 1998 Proxy Statement, and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Consolidated Financial Statements.
-34-
<PAGE>
For the following consolidated financial information included herein, see
Index on Page F-1:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1997
and 1996.
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statement schedule is included in
Item 8 of this form 10-K:
II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since
they are either not required or the information is otherwise included.
3. LIST OF EXHIBITS.
EXHIBIT NO. DESCRIPTION
2.1(8) - Share and Option Purchase Agreement, dated as of November 24,
1997, by and among the Company, the former shareholders and
optionholders of Peter Chadwick Holdings Limited, and the other
parties named therein (including Schedule 4 attached thereto).
2.2(8) - Registration Rights Agreement, dated as of November 24, 1997,
by and among the Company and the other parties named therein.
2.3(8) - Escrow Agreement, dated as of November 24, 1997, by and among
the Company and other parties named therein.
3.1(9) - Amended and Restated Certificate of Incorporation of the
Company, as amended.
3.2(1) - Amended and Restated By-laws of the Company.
4(7) - Rights Agreement dated June 23, 1997 between the Company and
ChaseMellon Shareholders Services, LLC.
10.1(1) - Lease dated June 4, 1992, as amended, between 304 Vassar Street
Realty Trust and the Company, for 304 Vassar Street, Cambridge,
Massachusetts.
10.2* - Amended and Restated 1991 Stock Option Plan as amended.
10.3(6)* - Form of Non-Qualified Stock Option Agreement of the Company for
-35-
<PAGE>
Executive Officers.
10.4(6)* - Form of Non-Qualified Stock Option Agreement of the Company for
Non-Executive Officers.
10.5* - Form of Incentive Stock Option Agreement of the Company for
Executive Officers.
10.6* - Form of Incentive Stock Option Agreement of the Company for
Non-Executive Employees.
10.7(1)* - Agreement dated December 1992 between the Company and James K.
Sims.
10.8(4)* - Amendment to Agreement between the Company and James K. Sims
dated December 15, 1994.
10.9(1)* - Agreement dated December 1992 between the Company and Arthur M.
Toscanini.
10.10(1) - Loan and Security Agreement dated February 1, 1993 by and
between the Company and Fleet Bank of Massachusetts, N.A.
10.11(2) - First Amendment to Loan and Security Agreement by and between
the Company and Fleet Bank of Massachusetts, N.A. dated
September 1993.
10.12(3) - Second Amendment to Loan and Security Agreement by and between
the Company and Fleet Bank of Massachusetts, N.A. dated July
11, 1994.
10.13(5) - Third Amendment to Loan and Security Agreement by and between
the Company and Fleet Bank N.A. dated June 26, 1996.
10.14* - Description of 1997 Executive Bonus Plan.
10.15* - Deferred Compensation Plan for Key Employees.
10.16* - Form of Split-Dollar Life Insurance Agreement for Executive
Officers and Vice Presidents.
10.17* - Service Agreement with Quentin Baer, as amended.
10.18* - Service Agreement with Ian Clarkson, as amended.
10.19(7) - Rights Agreement dated June 23, 1997 between the Company and
ChaseMellon Shareholders Services, LLC.
10.20(8) - Share and Option Purchase Agreement, dated as of November 24,
1997, by and among the Company, the former shareholders and
optionholders of Peter Chadwick Holdings Limited, and the other
parties named therein (including Schedule 4 attached thereto).
10.21(8) - Escrow Agreement, dated as of November 24, 1997, by and among
the Company and other parties named therein.
11 - Statement Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Company.
23 - Consent of Coopers & Lybrand L.L.P.
24 - Power of Attorney (Included on Signature Page to this Report).
27.1 - Financial Data Schedule.
27.2 - Financial Data Schedule.
27.3 - Financial Data Schedule.
- -------------------------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-56338).
-36-
<PAGE>
(2) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended September 30, 1993.
(3) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1994.
(4) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-K for the twelve-month period ended December 31, 1994.
(5) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1996.
(6) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1997.
(7) Incorporated herein by reference to the exhibits to the Company's Report on
Form 8-K dated June 23, 1997, and filed on July 1, 1997.
(8) Incorporated herein by reference to the exhibits to the Company's Report on
Form 8-K Dated December 8, 1997.
(9) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-3 (File No. 333-43127).
* Indicates a management contract or any compensatory plan, contract or
arrangement.
(B) REPORTS ON FORM 8-K.
On December 8, 1997, the Company filed a Current Report on Form 8-K
announcing that the Company had acquired all of the outstanding capital stock of
Peter Chadwick Holdings Limited ("Peter Chadwick") pursuant to a Share and
Option Purchase Agreement by and among the Company and the parties listed
therein. On November 20, 1997, the Company filed a Current Report on Form 8-K
announcing its offer to acquire all of Peter Chadwick's outstanding capital
stock.
(C) EXHIBITS.
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) above. Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission (the "Commission"), 450 Fifth Street, N.W.,
Washington, D.C., 20549 and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition the Company is required to file electronic versions of
certain of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Common Stock of
the Company is traded on the Nasdaq National Market. Reports and other
information concerning the Company
-37-
<PAGE>
may be inspected at the National Association of Securities Dealers, Inc. 1735 K
Street, N.W., Washington, D.C. 20006.
(D) FINANCIAL STATEMENT SCHEDULES.
The Company hereby files as part of this Form 10-K the consolidated financial
statement schedules listed in Item 14(a)(2) above, which are attached hereto.
-38-
<PAGE>
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, in the City of
Cambridge, Commonwealth of Massachusetts, on the 27th day of March, 1998.
Cambridge Technology Partners
(Massachusetts), Inc.
By: /s/ James K. Sims
-----------------------------
James K. Sims
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Cambridge Technology
Partners (Massachusetts), Inc., hereby severally constitute and appoint James K.
Sims and Arthur M. Toscanini, and each of them singly, our true and lawful
attorneys, with full power to them and each of them singly, to sign for us in
our names in the capacities indicated below, amendments to this report, and
generally to do all things in our names and on our behalf in such capacities to
enable Cambridge Technology Partners (Massachusetts), Inc. to comply with the
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James K. Sims President (Chief Executive Officer) March 27, 1998
- --------------------------- and Director
James K. Sims
/s/ Arthur M. Toscanini Executive Vice President - Finance March 27, 1998
- --------------------------- and Treasurer (Chief Financial
Arthur M. Toscanini Officer and Chief Accounting Officer)
/s/ Warren V. Musser Director March 27, 1998
- ---------------------------
Warren V. Musser
/s/ Jack L. Messman Director March 27, 1998
- ---------------------------
Jack L. Messman
/s/ John W. Poduska, Sr. Director March 27, 1998
- ---------------------------
John W. Poduska, Sr.
/s/ Robert E. Keith, Jr. Director March 27, 1998
- ---------------------------
Robert E. Keith, Jr.
/s/ James D. Robinson III Director March 27, 1998
- ---------------------------
James D. Robinson III
</TABLE>
-39-
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
We have audited the accompanying consolidated balance sheets of Cambridge
Technology Partners (Massachusetts), Inc. as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cambridge
Technology Partners (Massachusetts), Inc. as of December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 2, 1998
F-2
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,496 $ 26,087
Investments held to maturity 15,824 12,727
Accounts receivable, less allowance of $2,607 and $1,670
at December 31, 1997 and 1996, respectively 101,887 60,186
Unbilled revenue on contracts 8,231 4,087
Deferred income taxes 950 161
Prepaid expenses and other current assets 27,733 17,831
-------- --------
Total current assets 194,121 121,079
Property and equipment, net 35,403 20,591
Other assets 5,624 3,462
Goodwill, net 2,094 2,512
-------- --------
Total assets $237,242 $147,644
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,998 $ 12,938
Accrued expenses 36,235 24,188
Deferred revenue 9,502 5,453
Income taxes payable 19,361 6,173
Obligations under capital leases, current 143 74
Other current liabilities 1,952 -
-------- --------
Total current liabilities 86,191 48,826
Obligations under capital leases 341 162
Deferred income taxes 923 471
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 120,000,000 shares;
issued and outstanding 54,969,004 and 51,687,220
at December 31, 1997 and 1996, respectively 550 517
Additional paid-in capital 75,253 49,385
Retained earnings 76,445 48,158
Foreign currency translation adjustment (2,461) 125
-------- --------
Total stockholders' equity 149,787 98,185
-------- --------
Total liabilities and stockholders' equity $237,242 $147,644
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenues $406,672 $272,878 $179,667
Costs and expenses:
Project personnel 183,587 124,544 83,273
General and administration 44,511 32,019 22,906
Sales and marketing 37,580 23,127 18,647
Other costs 80,220 52,537 29,223
Business combination costs 4,760 1,195 1,333
-------- -------- --------
Total operating expenses 350,658 233,422 155,382
-------- -------- --------
Income from operations 56,014 39,456 24,285
Other income (expense):
Interest income 2,323 1,009 817
Interest expense (232) (71) (373)
Gain on sale of AdValue - - 909
Foreign exchange (loss) gain (122) (141) 92
-------- -------- --------
Income before income taxes 57,983 40,253 25,730
Provision for income taxes 25,054 16,228 10,072
-------- -------- --------
Net income $ 32,929 $ 24,025 $ 15,658
======== ======== ========
Basic net income per share $.62 $.48 $.32
======== ======== ========
Diluted net income per share $.57 $.42 $.28
======== ======== ========
Weighted average number of
common shares outstanding 52,952 50,374 48,312
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 59,095 57,893 55,118
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
UN- FOREIGN
ADDITIONAL EARNED RECEIVABLE CURRENCY
NUMBER OF PAR PAID-IN COMP- FROM TRANSLATION RETAINED
SHARES VALUE CAPITAL ENSATION OFFICER ADUSTMENT EARNINGS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 19,047,069 $191 $16,218 $(9) $(8) $ (187) $18,461
Exercise of stock options 342,051 4 1,788 - - - -
Income tax benefit related to
stock option exercises - - 3,753 - - - -
Shares issued under employee
stock purchase plan 29,650 - 579 - - - -
Repurchase of Axiom common stock - - (53) - - - -
Repayment of note payable
related to repurchase of Axiom common stock - - (284) - - - -
Issuance of Axiom common stock under stock
agreement - - 66 - - - -
Issuance of Ramos stock under restricted
stock plan - - 17 - - - -
Effect of Peter Chadwick recapitalization, net - - 3,763 - - - (3,763)
Exercise of Peter Chadwick stock options - - 12 - - - -
Foreign currency translation adjustment - - - - - 447 -
Payment on note receivable from employees for
stock purchased under employee stock
purchase plan - - 36 - - - -
Amortization of unearned compensation
associated with stock options - - - 9 - - -
Amortization of note receivable from officer - - - - 8 - -
SCG conversion to C Corporation - - 2,079 - - - (2,079)
Dividend distribution (Peter Chadwick) - - - - - - (744)
Dividend distribution (SCG) - - - - - - (599)
Net income - - - - - - 15,658
---------------------------------------------------------------------------------
Balance, December 31, 1995 19,418,770 195 27,974 - - 260 26,934
Exercise of stock options 1,776,193 18 8,297 - - - -
Income tax benefit related to stock
option exercises - - 10,555 - - - -
Shares issued under employee stock
purchase plan 124,123 1 2,070 - - - -
Issuance of Ramos stock under restricted
stock plan - - 5 - - - -
Shares to effect stock split 30,368,134 303 (303) - - - -
Foreign currency translation adjustment - - - - - (135) -
Accretion of Peter Chadwick preferred stock - - 787 - - - (787)
Dividend distribution (Peter Chadwick) - - - - - - (1,999)
Dividend distribution (NatSoft) - - - - - - (15)
Net income - - - - - - 24,025
---------------------------------------------------------------------------------
Balance, December 31, 1996 51,687,220 517 49,385 - - 125 48,158
Exercise of stock options 2,170,050 22 12,690 - - - -
Income tax benefit related
to stock option exercises - - 5,807 - - - -
Shares issued under employee
stock purchase plan 211,734 2 4,934 - - - -
Exercise of warrants 900,000 9 1,791 - - - -
Exercise of Peter Chadwick stock option - - 89 - - - -
Foreign currency translation adjustment - - - - - (2,586) -
Accretion of Peter Chadwick
preferred stock - - 557 - - - (557)
Dividend distribution (Peter Chadwick) - - - - - - (4,085)
Net income - - - - - - 32,929
---------------------------------------------------------------------------------
Balance, December 31, 1997 54,969,004 $550 $75,253 $ - $ - $(2,461) $76,445
=================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,929 $ 24,025 $ 15,658
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,407 6,582 4,310
Tax benefit from exercise of stock options 5,807 10,555 3,753
(Benefit) provision for deferred income taxes (337) (566) 425
Gain on sale of AdValue - - (909)
Changes in assets and liabilities:
Increase in accounts receivable (43,463) (21,508) (14,315)
Increase in unbilled revenue on contracts (4,436) (1,203) (595)
Increase in prepaid expenses and other current assets (10,450) (9,385) (5,472)
Increase in other assets (2,560) (1,826) (240)
Increase in accounts payable 6,496 5,366 3,329
Increase in accrued expenses 11,669 7,807 4,622
Increase in deferred revenue 4,217 2,371 807
Increase in income taxes payable 12,924 2,199 2,283
Other, net 1,129 124 (309)
-------- -------- --------
Net cash provided by operating activities 22,332 24,541 13,347
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (22,654) (12,880) (9,213)
Purchase of investments held to maturity (18,261) (18,467) (22,140)
Maturity of investments held to maturity 15,164 14,284 24,075
Proceeds from sale of AdValue - - 909
-------- -------- --------
Net cash used in investing activities (25,751) (17,063) (6,369)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under credit arrangements, net - (325) (1,256)
Issuance of common stock, net of issuance costs - 5 17
Issuance of Peter Chadwick stock under recapitalization - - 4,350
Acquisition of stock from Peter Chadwick recapitalization - - (4,350)
Proceeds from long-term loan arrangement 823 - -
Repayment of long-term debt and capital leases (149) (183) (1,160)
Dividend distributions (2,956) (2,014) (1,343)
Proceeds from employee stock purchase plan 4,936 2,071 579
Proceeds from exercise of stock options 12,800 8,315 1,804
Proceeds from exercise of warrants 1,800 - -
Other, net - - (235)
-------- -------- --------
Net cash provided by (used in) financing activities 17,254 7,869 (1,594)
-------- -------- --------
Effect of foreign exchange rate changes on cash (426) (341) 21
Net increase in cash and cash equivalents 13,409 15,006 5,405
Cash and cash equivalents at beginning of period 26,087 11,081 5,676
-------- -------- --------
Cash and cash equivalents at end of period $ 39,496 $ 26,087 $ 11,081
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS DESCRIPTION
Cambridge Technology Partners (Massachusetts), Inc. (the "Company") is an
international management consulting and systems integration firm. The Company
combines management consulting, IT strategy, process innovation and
implementation, custom and package software deployment, network services, and
training to rapidly deliver end-to-end business systems for clients. The
Company provides the majority of its services on a fixed-price, fixed-timetable
model with client involvement at all stages of the process. In performing its
services, the Company employs a rapid development methodology that features an
iterative approach and conducts facilitated workshops that bring together key
client users, executives, and IT professionals to achieve consensus on the
business case, strategic objectives, and functionality of a business solution.
BASIS OF REPORTING
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
balances have been eliminated in consolidation. In November 1997, the Company
acquired all of the outstanding capital stock of Peter Chadwick Holdings Limited
("Peter Chadwick"). The acquisition of Peter Chadwick was accounted for using
the pooling of interests method of accounting (see Note B). All prior period
historical consolidated financial statements presented herein have been restated
to include the financial position, results of operations, and cash flows of
Peter Chadwick. Certain prior period amounts have also been reclassified to
conform with current period presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase and whose carrying
amount approximates market value due to the short maturity of the investments.
During 1996, in accordance with the terms of a client contract, the Company
received a prepayment for services being performed which is included in cash and
cash equivalents in the amount of $790,000 and $900,000 at December 31, 1997 and
1996, respectively. The use of this cash is restricted pending completion of
the project, which is expected in the second quarter of 1998.
INVESTMENTS
The Company accounts for its investments under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's investments are classified as
investments held to maturity and mature within one year from the date of
purchase. At December 31, 1997 and 1996, the Company held investment grade
municipal bonds of $15.8 million and $12.7 million, respectively, and are
carried at amortized cost that approximates market value.
F-7
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Repairs and maintenance costs are
charged to operations when incurred, while betterments are capitalized.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets which range from three to fifteen years for
equipment, furniture and fixtures, leasehold improvements, and motor vehicles.
Buildings are being depreciated over an estimated useful life of forty years.
Upon retirement or disposal, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in income.
INTANGIBLE ASSETS
Goodwill of approximately $4.8 million, related to the acquisition of IOS Group
AB (now CTP Scandinavia) in February 1994, is being amortized over six years on
a straight-line basis. The Company recorded amortization expense of $798,000
for each of the years ended December 31, 1997, 1996, and 1995. As of December
31, 1997 and 1996, accumulated amortization was $3.1 million and $2.3 million,
respectively.
In April 1997, Peter Chadwick acquired the assets of a training facility located
in the United Kingdom. The purchase price of approximately $1.9 million was
allocated to land and buildings and Peter Chadwick recorded goodwill of $404,000
which is being amortized on a straight-line basis over ten years. For the year
ended and as of December 31, 1997, amortization expense and accumulated
amortization were each $31,260.
The carrying values of goodwill are subject to periodic review of realizability.
REVENUE RECOGNITION
The Company operates in one industry segment, the design, development, and
implementation of information technology solutions. Revenues derived from any
software maintenance and support services are immaterial to the consolidated
financial statements of the Company. Revenues from software design,
development, and implementation contracts are recognized primarily on the
percentage of completion method. The cumulative impact of any revision in
estimates of the percent complete is reflected in the period in which the
changes become known. Losses on projects in progress are recognized when known.
Revenues from management consulting and package software evaluation and
implementation services are recognized as the service is provided, principally
on a time and materials basis. Net revenues exclude reimbursable expenses
charged to clients.
Deferred revenue consists of amounts received or billed in advance of services
to be provided. Unbilled revenue represents amounts recognized based on
services performed in excess of billings in accordance with terms of client
contracts.
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," ("SFAS 128") for the year ended December 31, 1997, which
included retroactively restating earnings per share for all prior periods for
which earnings per share (EPS) data is presented. SFAS 128 requires the
presentation of basic and diluted EPS. Basic net income per
F-8
<PAGE>
share is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted net income per share data is computed using the weighted average number
of common shares outstanding plus the dilutive effect of common stock
equivalents (using the treasury stock method).
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS
For non-U.S. operations, the functional currency is the applicable local
currency. The translation of the functional currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using average rates
of exchange prevailing during the reporting period. Adjustments resulting from
the translation of foreign currency financial statements are accumulated in a
separate component of stockholders' equity until the entity is sold or
substantially liquidated. Gains or losses resulting from foreign currency
transactions are included in the results of operations.
FOREIGN EXCHANGE CONTRACTS
The Company maintains foreign exchange contracts to mitigate the risk of changes
in foreign exchange rates associated with intercompany balances. The contracts
relate primarily to European currencies and generally have maturities of one
month. The impact of exchange rate movements on contracts are recorded in other
income in the period in which the exchange rates change, generally consistent
with the term of the contract. As of December, 31, 1997, the Company held
foreign exchange forward contracts of approximately $4.1 million and there were
no related deferred gains and losses. The Company does not hold foreign
exchange contracts for trading purposes.
CONCENTRATION OF CREDIT RISK
The Company provides its services primarily to Fortune 1000 companies. The
Company performs ongoing credit evaluations of its major customers and maintains
reserves for potential credit losses. Such losses have been immaterial and are
within management's expectation. No single customer accounted for 5% or more of
total net revenues for the years ended 1997, 1996, and 1995.
The Company may be exposed to credit-related losses in the event of
nonperformance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Company continually
monitors its positions and credit ratings of its counterparties and limits the
amount of contracts it enters into with any one party.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to provide estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future results
of operations and cash flows.
F-9
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which is effective for fiscal years beginning after December 15, 1997,
including interim periods. SFAS 130 requires the presentation of comprehensive
income and its components. Comprehensive income presents a measure of all
changes in equity that result from recognized transactions and other economic
events during the period other than transactions with stockholders. SFAS 130
requires restatement of all prior-period statements presented after the
effective date. The Company will adopt SFAS 130 in the first quarter of 1998
and expects the impact of such adoption to be related primarily to the inclusion
of foreign currency translation adjustments in comprehensive income.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997. Interim reporting disclosures are not
required in the first year of adoption. SFAS 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed. SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting. The
management approach expands the required disclosures for each segment. The
Company will adopt SFAS 131 in its fiscal year ending December 31, 1998, and has
not yet determined the impact of such adoption on its reporting as currently
presented.
B. ACQUISITIONS
------------
On November 24, 1997, the Company acquired all of the outstanding capital stock
of Peter Chadwick. This acquisition was accomplished through an exchange of
3,255,731 shares of the Company's common stock for all outstanding shares of
capital stock and options to purchase ordinary shares of Peter Chadwick. This
acquisition has been accounted for using the pooling of interests method of
accounting. Founded in 1987 and based in the United Kingdom, Peter Chadwick
specializes in change implementation strategies and performance improvement
programs. Peter Chadwick currently has offices in the U.K, Germany, Holland,
France, and the U.S. and had approximately 325 employees at the time of the
acquisition.
On November 18, 1996, the Company acquired all the outstanding capital stock of
Ramos & Associates, Inc. ("Ramos"). This acquisition was accomplished through a
merger of the Company's acquisition subsidiary and Ramos in an exchange of
1,175,119 shares of the Company's common stock for all outstanding shares of
capital stock of Ramos. Ramos, founded in 1991 and based in San Ramon,
California, specializes in the Enterprise Resource Planning service market.
This acquisition has been accounted for using the pooling of interests method of
accounting. Ramos was renamed Cambridge Technology Partners - Enterprise
Resource Solutions, Inc. in March 1997.
On October 15, 1996, the Company acquired all the outstanding capital stock of
NatSoft S.A. ("NatSoft"), a Switzerland-based information technology consulting
and software implementation firm. This acquisition was accomplished through an
exchange of 271,714 shares
F-10
<PAGE>
of the Company's common stock for all outstanding shares of capital stock of
NatSoft. This acquisition established the Company's entry into the Swiss market
and provided the Company with a pool of multi-lingual professionals who can
support projects in Southern Europe. The acquisition of NatSoft has been
accounted for using the pooling of interests method of accounting. In March
1997, NatSoft was renamed Cambridge Technology Partners Switzerland, S.A.
On October 17, 1995, the Company acquired Axiom Management Consulting, Inc.
("Axiom"). This acquisition was accomplished through an exchange of 1,007,898
shares (consisting of 978,360 shares of the Company's common stock and options
to purchase 29,538 shares of the Company's common stock) of the Company's common
stock for all of the outstanding shares of capital stock of Axiom and the
assumption of all outstanding options to acquire shares of capital stock of
Axiom. This transaction has been accounted for using the pooling of interests
method of accounting. Axiom currently operates under the name Cambridge
Management Consulting.
On August 14, 1995, the Company acquired The Systems Consulting Group, Inc.
("SCG"). The acquisition was accomplished through an exchange of 2,273,994
shares (consisting of 2,168,292 shares of the Company's common stock and an
option to purchase 105,702 shares of the Company's common stock) of the
Company's common stock for all of the outstanding capital stock of SCG and the
assumption of all outstanding options to acquire shares of capital stock of SCG.
This transaction has been accounted for using the pooling of interests method of
accounting. In 1996, the Company integrated SCG into its operational structure.
The accompanying consolidated financial statements of the Company have been
prepared to give retroactive effect to the acquisitions of Peter Chadwick,
Ramos, NatSoft, Axiom, and SCG in accordance with the pooling of interests
requirements. All prior period historical consolidated financial statements
presented herein have been restated to include the financial position, results
of operations, and cash flows of these acquisitions. Costs related to these
acquisitions have been charged to business combination costs in the consolidated
statements of operations.
The following information presents certain statement of operations data (in
thousands) of the Company, SCG, Axiom, NatSoft, Ramos, and Peter Chadwick for
the periods prior to the acquisitions. SCG and Axiom information is presented
through September 30, 1995, which represents the interim period end nearest to
the date of the acquisitions. NatSoft and Ramos information is presented
through September 30, 1996, which represents the interim period end nearest to
the date of these acquisitions. Peter Chadwick information is presented through
September 30, 1997.
F-11
<PAGE>
<TABLE>
<CAPTION>
Cambridge
Technology Peter Combined
Partners SCG Axiom NatSoft Ramos Chadwick Total
------------------- ------- ------- ------- ------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues for the:
Nine months ended
September 30, 1995 $ 70,052 $13,484 $10,723 $ 9,211 $ 7,651 $16,531 $127,652
Year ended
December 31, 1995 $132,416 $12,254 $11,596 $23,401 $179,667
Nine months ended
September 30, 1996 $141,862 $ 8,046 $17,497 $26,384 $193,789
Year ended
December 31, 1996 $236,554 $36,324 $272,878
Nine months ended
September 30, 1997 $250,501 $36,841 $287,342
Net income for the:
Nine months ended
September 30, 1995 $ 7,632 $ 1,381 $ 57 $ 141 $ 203 $ 1,408 $ 10,822
Year ended
December 31, 1995 $ 12,683 $ 205 $ 460 $ 2,310 $ 15,658
Nine months ended
September 30, 1996 $ 14,042 $ 163 $ 853 $ 2,049 $ 17,107
Year ended
December 31, 1996 $ 21,100 $ 2,925 $ 24,025
Nine months ended
September 30, 1997 $ 24,623 $ 2,365 $ 26,988
</TABLE>
C. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Contracts in process $ 66,526 $48,534
Completed contracts 37,968 13,322
-------- -------
104,494 61,856
Less: Allowance for doubtful accounts 2,607 1,670
-------- -------
$101,887 $60,186
======== =======
</TABLE>
In accordance with state government practices, a governmental client withholds a
percentage of invoiced receivables as retention until final review of completed
projects. At December 31, 1997 and 1996, this retention receivable totaled $2.4
million and $1.8 million, respectively, and was included in other assets. The
Company expects payment to be received in the summer of 1998. The Company does
not include client reimbursable expenses or other non-trade receivables as a
component of net revenues. At December 31, 1997 and 1996, approximately $14.0
million and $5.9 million, respectively, of client reimbursable expenses and
other non-trade receivables are included in prepaid expenses and other current
assets.
F-12
<PAGE>
D. INVESTMENT IN AFFILIATES
------------------------
The Company had a 6.3% investment interest in AdValue Media Technologies, Inc.
("AdValue") (formerly AdValue Network ("AVN"), a partnership which was formed in
1991 to develop, test, and market a centralized spot advertising computer
software package). AdValue was incorporated in December 1993 to serve as the
successor entity to AVN. The investment was accounted for using the equity
method. On May 19, 1995, the Company sold its interest in AdValue for $909,000
in cash. The investment balance in AdValue at the time of the sale was zero,
and accordingly, the Company recognized a gain of $909,000 for the period ended
December 31, 1995.
E. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Equipment $37,078 $23,059
Furniture and fixtures 8,338 5,892
Leasehold improvements 7,568 3,676
Motor vehicles 1,137 1,238
Other 1,438 -
------- -------
Total cost 55,559 33,865
Less accumulated depreciation 20,156 13,274
------- -------
$35,403 $20,591
======= =======
</TABLE>
Depreciation expense for 1997, 1996, and 1995 was $6.9 million, $5.6 million,
and $3.5 million, respectively.
Equipment under capital leases, included in property and equipment, amounted to
$714,000 and $756,000 at December 31, 1997 and 1996, respectively, and the
related accumulated depreciation was $546,000 and $440,000 at December 31, 1997
and 1996, respectively.
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Accrued payroll and payroll-related expenses $19,657 $10,642
Other accrued expenses 13,530 8,975
Accrued value added tax 3,048 4,571
------- -------
$36,235 $24,188
======= =======
</TABLE>
In April 1997, Peter Chadwick acquired the assets of a training facility located
in the United Kingdom for $1.9 million (see Note A). Peter Chadwick entered
into a Loan Agreement with National Westminister Bank (the "Loan Agreement") to
finance this acquisition. As of
F-13
<PAGE>
December 31, 1997, the principal amount due under the Loan Agreement was
$823,000. Interest payments, at a rate of 2% above the Bank of England base rate
(7.25% at December 31, 1997), are payable in monthly installments. A balloon
payment for the entire outstanding balance is due in 2005. This amount is
classified as other current liabilities in the accompanying consolidated balance
sheets as the Company expects to repay all outstanding amounts and terminate
this loan agreement in the first half of 1998.
G. REVOLVING CREDIT FACILITY
-------------------------
The Company maintains an uncollateralized revolving credit facility (the
"Facility") with Fleet National Bank ("Fleet Bank"), which was amended on June
26, 1996, among other things, to increase the amount available under the
Facility from $10.0 million to $20.0 million, to extend the expiration date to
June 30, 1998, from June 30, 1996, and to decrease the facility cost to .15%
from .25%. The Facility was also amended to permit the Company to elect an
interest rate of either Fleet Bank's prime rate in effect from time to time or a
eurodollar rate, as defined, payable monthly in arrears commencing with the
advance of funds. The Facility requires, among other things, the Company to
maintain certain financial ratios including tangible net worth, debt to equity,
and operating profitability. At December 31, 1997 and 1996, the Company was in
compliance with these financial ratio requirements and no borrowings have been
made under the Facility.
H. STOCKHOLDERS' EQUITY AND OTHER STOCK-RELATED INFORMATION
--------------------------------------------------------
STOCK SPLIT
In March 1996, the Board of Directors approved a three-for-one stock split of
the Company's common stock and an amendment to the Company's corporate charter
to increase authorized common stock from 30 million to 120 million shares.
Following stockholder approval in May 1996, the stock split was completed on
June 19, 1996, in the form of a 200% stock dividend to stockholders of record on
May 29, 1996. All references in the Consolidated Financial Statements and the
related notes to applicable share and per share data, stock option data, and
market prices per share of the Company's common stock, for all periods
presented, have been retroactively restated to reflect the stock split.
STOCK OPTION PLANS
Under the Company's amended 1991 Stock Option Plan (the "Option Plan"), the
Company may grant incentive stock options to employees and nonqualified stock
options to employees, directors, officers, and other key individuals. The
Management Resource Committee of the Board of Directors administers the Option
Plan, subject to approval by the Board of Directors with respect to certain
matters. Options granted under the Option Plan prior to 1997 generally vest
ratably over a four-year period and expire ten years from the date of grant.
Options granted under the Option Plan in 1997 generally vest ratably over a
four-year period and expire in installments five to eight years from the date of
grant. At December 31, 1997, 1996, and 1995, options to purchase 4,063,342,
4,014,783, and 4,288,638 shares, respectively, were exercisable under the Option
Plan. In December 1995 and 1996, the Company's Board of Directors amended the
Option Plan, with subsequent stockholder approval, to increase the number of
shares of
F-14
<PAGE>
common stock authorized for issuance under the Option Plan from twelve million
to fifteen million shares in 1995 and fifteen million to nineteen million in
1996.
During 1995, the Company established the 1995 Non-employee Director Stock Option
Plan ("Non-employee Director Option Plan"). The Non-employee Director Option
Plan authorizes the grant of non-qualified options for up to 150,000 shares of
the Company's common stock. Each member of the Company's Board of Directors who
was neither (I) an employee nor an officer of the Company or Safeguard
Scientific, Inc. ("Safeguard"), nor (II) an affiliate of Technology Leaders II
L.P. or any related entity and was serving on the Board of Directors on March
21, 1995, was granted an option to purchase 30,000 shares of the Company's
common stock. Each person who is neither (I) an employee nor an officer of the
Company or Safeguard nor (II) an affiliate of Technology Leaders II L.P. or any
related entity who is first elected to the Board of Directors after March 21,
1995, is automatically granted, on the date of such election without further
action by the Board of Directors, an option to purchase 30,000 shares of the
Company's common stock. Options generally vest ratably over a four-year period
and expire ten years from the date of grant. At December 31, 1997, 1996 and
1995, options to purchase 73,121, 43,122, and zero shares, respectively, were
exercisable.
In November 1997, the Board of Directors adopted the 1997 Stock Option Plan (the
"1997 Option Plan") under which the Company may grant nonqualified stock options
to purchase up to 450,000 shares of common stock to employees (other than
officers) and consultants of the Company. Options granted under the 1997 Option
Plan generally vest ratably over a four-year period and expire in installments
five to eight years from the date of grant. At December 31, 1997, no options
under the 1997 Option Plan were exercisable.
F-15
<PAGE>
Stock option activity under the Company's stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
Weighted Average
Option Exercise Price
Shares Per Share
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994 8,548,980 $ 3.45
Granted 4,115,352 14.64
Exercised 1,026,906 1.75
Canceled 283,215 5.98
---------- ------
Outstanding at December 31, 1995 11,354,211 7.48
Granted 2,922,675 25.71
Exercised 2,660,679 3.18
Canceled 902,252 10.97
---------- ------
Outstanding at December 31, 1996 10,713,955 13.27
Granted 6,281,988 29.89
Exercised 2,170,050 5.86
Canceled 2,768,753 26.31
---------- ------
Outstanding at December 31, 1997 12,057,140 $20.16
========== ======
</TABLE>
The above table reflects the cancellation and re-issuance of options to purchase
2,051,286 shares of common stock under the Option Plan. These options were
granted in April 1997 at fair market value in exchange for options granted from
October 1996 through March 1997 with exercise prices above April 1997 fair
market values. Vesting schedules for those options re-started at April 1997 and
option lives were shortened compared to the original grants.
The following summarizes information about the Company's stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------- -----------------------------
Weighted Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Price at 12/31/97 Life Price at 12/31/97 Price
- ---------------- ------------ ---------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$ .16 - $ 1.34 659,329 4.2 Years $ .59 695,329 $ .59
$ 1.67 - $ 6.32 2,083,326 6.5 Years $ 5.59 1,678,435 $ 5.47
$10.00 - $ 17.30 3,212,700 7.8 Years $ 15.10 1,609,878 $14.95
$22.88 - $ 28.13 2,530,025 6.0 Years $ 23.51 152,821 $25.46
$31.15 - $ 36.00 3,535,760 5.8 Years $ 34.78 - $ -
- ---------------- ----------- ------------ ------- --------- -------
$ .16 - $ 36.00 12,057,140 6.4 Years $ 20.16 4,136,463 $ 9.08
================ =========== ============ ======= ========= ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
option plans. Accordingly, no compensation expense has been recognized. Had
compensation expense for the Company's stock option plans and employee stock
purchase plan been determined based on the fair value at the grant date for
awards under these plans consistent with the methodology proscribed under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
F-16
<PAGE>
Compensation" ("SFAS 123"), the Company's consolidated net income and net income
per share would have been reduced to the pro forma amounts indicated as follows
for the years ended December 31, 1997, 1996, and 1995 (in thousands except per
share data):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
As reported net income $32,929 $24,025 $15,658
Pro forma net income for SFAS 123 $26,039 $18,725 $14,553
Net income per share:
As reported basic net income per share $ .62 $ .48 $ .32
Pro forma basic net income per
share for SFAS 123 $ .49 $ .37 $ .30
As reported diluted net income per share $ .57 $ .42 $ .28
Pro forma diluted net income per
share for SFAS 123 $ .44 $ .32 $ .26
</TABLE>
The following assumptions were used by the Company to determine the fair value
of stock options granted using the Black-Scholes options-pricing model:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected volatility 45% 45% 45%
Average expected option life 4 Years 5 Years 5 Years
Average expected life for employee
stock purchase plan shares .5 Year .5 Year .5 Year
Risk-free interest rate 6.2% 6.2% 5.9%
Dividend yield 0% 0% 0%
</TABLE>
Pro forma net income reflects only options granted and shares issued under the
employee stock purchase plan in 1995, 1996, and 1997. Consistent with the
requirements of SFAS 123, the full impact of calculating the compensation cost
of stock options and shares issued under the employee stock purchase plan under
SFAS 123 is not reflected in the pro forma net income and pro forma net income
per share amounts presented above because compensation cost is recognized over
an option's vesting period and compensation cost for options granted prior to
January 1, 1995 is not considered.
EMPLOYEE STOCK PURCHASE PLAN
On December 14, 1994, the Board of Directors adopted the Company's 1994 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), which was subsequently approved
by stockholders at the annual meeting of stockholders in May 1995. The Company
has authorized 1,500,000 shares of the Company's common stock for purchases
under the Stock Purchase Plan. The Stock Purchase Plan permits eligible
employees to purchase shares of common stock, subject to limitations provided by
Section 423(b) of the Internal Revenue Code, through accumulated payroll
deductions. Each participating employee may purchase up to 1,500 shares per
payment period and purchases by any one employee may not exceed $25,000 in fair
market value of the
F-17
<PAGE>
stock purchased in any one year. The purchases are made twice per year at a
price equal to the lesser of (i) 85% of the average market price of the Company'
common stock on the first business day of the payment period and (ii) 85% of the
average market price of the Company's common stock on the last day of the
payment period. Annual payment periods consists of two six-month periods,
January 15 through July 14 and July 15 through January 14. For the years ended
December 31, 1997, 1996, and 1995, 211,734, 124,123, and 29,650 shares,
respectively, were issued under the Stock Purchase Plan.
PREFERRED STOCK
The certificate of incorporation was amended and restated, in December 1992, to
increase the number of authorized shares of capital stock to include two million
shares of preferred stock, par value $.01 per share, in one or more series. The
Board of Directors is authorized, subject to certain limitations prescribed by
law, to fix or alter the designations, preferences, rights and any
qualifications, limitations, or restrictions of the shares of each such series.
The Company has not issued and, except pursuant to the preferred stock purchase
rights described in the Rights Plan section of this note, has no present plans
to issue any shares of preferred stock.
WARRANTS
In December 1992, the Company issued warrants to Safeguard for the purchase of
900,000 shares of common stock at a price of $2.00 per share. The warrants were
exercisable for a five-year period from the date of issuance. In December 1997,
all warrants were exercised for common stock.
DIVIDENDS
The Facility with Fleet Bank prohibits the Company from paying any dividends or
making any distributions either in cash or in kind on any class of its capital
stock without Fleet Bank's prior consent. The Company currently intends to
retain future earnings for use in its business and, therefore, does not expect
to pay dividends in the foreseeable future.
Dividend distributions made by Peter Chadwick were made in accordance with the
Peter Chadwick shareholder agreements in effect prior to the acquisition, and
amounted to $3.0 million, $2.0 million, and $744,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, an
additional $1.1 million of declared dividends reflecting amounts owed up to the
date of acquisition (see Note A) is included in other current liabilities and is
payable in the first quarter of 1998.
Dividend distributions totaling $599,000 made by SCG in 1995, prior to the
acquisition, were principally for reimbursement of income tax liabilities of its
former stockholders due to SCG's S-Corporation tax status.
RIGHTS PLAN
On June 23, 1997, the Board of Directors of the Company approved and adopted a
Rights Plan pursuant to a Rights Agreement, and in connection therewith,
declared a dividend of one preferred stock purchase right for each outstanding
share of the Company's common stock, which dividend was paid on July 3, 1997 to
holders of record of the Company at the close of business on July 3, 1997. One
preferred stock purchase right will also be attached to each share
F-18
<PAGE>
of the Company's common stock issued after July 3, 1997. The rights are not
presently transferable separate from the share of common stock with respect to
which they were issued. The rights are subject to adjustment and become
exercisable upon the occurrence of certain events described in the Rights
Agreement. In general, the Company is entitled to redeem the rights at $.01 per
right. The rights will expire on June 23, 2007, unless earlier redeemed or
exchanged. As part of the Rights Plan, the Company designated 100,000 shares of
its preferred stock as Series A Junior Participating Preferred Stock and
reserved such shares for issuance upon exercise of the rights.
RECAPITALIZATION
In November 1995, Peter Chadwick effected a recapitalization which included the
exchange of 14,000,000 outstanding ordinary shares for 10,061,615 Class B
Preference Shares, 1,044,837 ordinary shares, and $4,350,000 in cash. In
addition, Peter Chadwick issued 256,250 Preferred Shares and 2,543,750 Class A
Preference Shares to a new investor for total consideration of $4,350,000.
The effect of the recapitalization on the statement of stockholders' equity
includes a reclassification of $3,763,000 from retained earnings to additional
paid-in capital, primarily related to an increase in the par value amounts for
the shares issued to effect the recapitalization. In addition, the issuance of
the Preferred Shares and Class A Preference Shares and corresponding purchase of
ordinary shares have been reflected as a net activity due to the offsetting
effect on additional paid-in capital.
The classes of preferred shares had various redemption and conversion
privileges, and rights to cumulative dividends. All classes of ordinary and
preferred shares were exchanged for common stock of the Company in connection
with the combination (see Note B).
I. LEASE COMMITMENTS
-----------------
On June 4, 1992, the Company entered into, among other building and equipment
leases, a lease for a building in Cambridge, Massachusetts, that is used as its
corporate headquarters. The building is owned by a trust, the sole beneficiary
of which is the Chairman of the Board of Directors of the Company. The initial
lease expires in August 2007, and is renewable for two additional five-year
terms. The lease provides for increases, which began in September 1995, based
upon increases in the Consumer Price Index-Urban Wage Earners and Clerical
Workers, U.S. City Average, All Items ("CPI").
In January 1998, the Company entered into an agreement with Boston Properties
Limited Partnership ("Boston Properties") to lease a building to be constructed
and developed by Boston Properties. This approximately 170,000 square foot
building, which will be located in Cambridge, Massachusetts, will serve as the
corporate headquarters for the Company. The lease agreement is for a ten-year
period which is expected to commence in June 1999. Pursuant to the terms of the
lease agreement, the Company has paid a $1.3 million security deposit in January
1998. The Company's current headquarters building is expected to continue to be
used for project development activities through its lease term.
F-19
<PAGE>
Minimum future lease commitments under noncancelable operating leases for
buildings and equipment in effect at December 31, 1997, are presented as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $10,946
1999 9,761
2000 7,924
2001 7,092
2002 6,205
Thereafter 14,594
-------
Total minimum lease payments $56,522
=======
</TABLE>
For the years ended December 31, 1997, 1996, and 1995, rental expense under all
leases was approximately $10.6 million, $6.3 million, and $5.1 million,
respectively, of which approximately $859,000, $785,000, and $765,000,
respectively, related to the trust described above.
Minimum future lease commitments under noncancelable capital leases for
equipment at December 31, 1997, are presented as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 158
1999 139
2000 82
2001 78
2002 67
-------
Total minimum payments 524
Less amounts representing interest 40
-------
Present value of minimum lease payments 484
Current portion 143
-------
Long-term obligation $ 341
=======
J. OTHER COSTS
------------
Other costs consist of the following (in thousands):
1997 1996 1995
------- ------- -------
Facility costs and related expenses $41,473 $30,318 $14,055
Non-billable project expenses 17,165 10,339 7,239
Non-billable staff travel 15,479 7,473 5,696
Education and training 6,103 4,407 2,233
------- ------- -------
$80,220 $52,537 $29,223
======= ======= =======
</TABLE>
F-20
<PAGE>
K. INCOME TAXES
------------
The components of income before income taxes and the related provision for
income taxes for the years ended December 31, 1997, 1996, and 1995, are
presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Income before income taxes:
Domestic $48,487 $33,164 $19,904
Foreign 9,496 7,089 5,826
------- ------- -------
$57,983 $40,253 $25,730
======= ======= =======
Provision for income taxes:
Current:
Federal $17,769 $10,351 $ 5,860
Foreign 3,881 3,420 2,192
State 3,741 3,023 1,595
------- ------- -------
25,391 16,794 9,647
Deferred:
Federal (308) (311) 363
Foreign 10 (207) 28
State (39) (48) 34
------- ------- -------
(337) (566) 425
------- ------- -------
Total $25,054 $16,228 $10,072
======= ======= =======
</TABLE>
The Company's deferred tax assets and (liabilities) are comprised of the
following as of December 31, 1997 and 1996, respectively (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Bad debt reserves $ 442 $ 339
Vacation accrual 177 262
Fixed asset depreciation (923) (471)
Cash to accrual adjustments (476) (829)
Other accruals 807 389
----- -----
$ 27 $(310)
===== =====
</TABLE>
F-21
<PAGE>
The table below reconciles the expected U.S. federal statutory income tax rate
to the recorded income tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
- -
U.S. Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 5.0 5.5 5.4
Goodwill amortization 0.4 0.7 1.1
Non-taxable S-Corporation income - - (1.0)
Other, net (0.9) (0.9) (1.4)
---- ---- ----
Effective tax rate before non-
deductible pooling costs 39.5 40.3 39.1
Non-deductible pooling costs 3.7 - -
---- ---- ----
Effective tax rate 43.2% 40.3% 39.1%
==== ==== ====
</TABLE>
L. NET INCOME PER SHARE
--------------------
The following table presents the calculation of per share earnings for the years
ended December 31, 1997, 1996, and 1995 (see Note A) (in thousands except per
share data):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income $32,929 $24,025 $15,658
======= ======= =======
Basic:
Weighted average common shares outstanding 52,952 50,374 48,312
======= ======= =======
Net income per common share $ .62 $ .48 $ .32
======= ======= =======
Diluted:
Weighted average common shares outstanding 52,952 50,374 48,312
Dilutive effects of stock options and warrants 6,143 7,519 6,806
------- ------- -------
Weighted average common and common
equivalent shares outstanding 59,095 57,893 55,118
======= ======= =======
Net income per common and common
equivalent share $ .57 $ .42 $ .28
======= ======= =======
</TABLE>
M. EMPLOYEE BENEFIT PLANS
----------------------
In 1992, the Company established a savings and profit-sharing plan (the "401(k)
Plan") covering substantially all of the Company's employees. The 401(k) Plan
is qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. The Company may elect to make contributions under the 401(k) Plan.
Starting in 1994, the Company elected to make matching contributions based on a
percentage of employees' contributions, subject to limitations as defined in the
401(k) Plan. In 1996, the Company completed the rollover of assets held under
the SCG Profit-sharing Plan and the Axiom Profit-sharing Plan to the 401(k)
Plan. In January 1998, the
F-22
<PAGE>
Company completed the rollover of assets held under the Ramos profit sharing
plan to the 401 (k) Plan. Company matching contributions amounted to $1.5
million, $845,000, and $499,000 in 1997, 1996, and 1995, respectively.
NatSoft sponsors a defined contribution retirement plan (the "NatSoft Plan") for
its employees. Under the NatSoft Plan, employees can contribute between 5% to
11% of salary depending on age and other factors. All employee contributions
are matched by NatSoft. Employer matching contribution amounted to $249,000,
$202,000, and $181,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. NatSoft also sponsored a defined contribution retirement plan for
three executives who were also stockholders of NatSoft. NatSoft's contribution
to this plan amounted to $150,000 for the year ended December 31, 1995. In June
1996, the defined contribution retirement plan for these executives was
terminated.
In 1992, Ramos established a savings and profit-sharing plan (the "Ramos Profit-
Sharing Plan") covering substantially all of Ramos's employees. The Ramos
Profit-sharing Plan is qualified under Section 401 (a) of the Internal Revenue
Code of 1986, as amended. Ramos may elect to make contributions under the Ramos
Profit-sharing Plan. Ramos elected to make matching contributions based on a
percentage of employees' contributions. Ramos's matching contributions amounted
to $538,000, $455,000, and $227,000 for the years ended December 31, 1997,
1996, and 1995, respectively. The Company completed the rollover of assets held
under the Ramos Profit-sharing Plan to the 401(k) Plan in January 1998.
In November 1995, Peter Chadwick Limited Employee Trust (the "Trust") was formed
for the purpose of providing benefits to Peter Chadwick employees and
facilitating the acquisition of Peter Chadwick shares by, or for the benefit of,
employees. The Trust is controlled by an independent trustee and, accordingly,
the activity of the Trust is not reflected in the consolidated financial
statements presented.
As a result of the acquisition, the Trustees have elected to terminate the Trust
with dissolution expected in 1998.
N. COMMITMENTS AND CONTINGENCIES
-----------------------------
In July 1996, a suit was filed against the Company in the United States District
Court for the District of Colorado in Denver by Rocky Mountain Healthcare
Corporation ("RMHC"). RMHC was seeking, among other things, a refund of $1.7
million of contract payments and related damages arising from the Company's
alleged breach of an agreement pursuant to which the Company provided software
system design and consulting services to RMHC. The suit included breach of
contract and tort claims. In April 1997, the Company and RMHC agreed to dismiss
with prejudice all claims and counterclaims. The terms of the dismissal
agreement did not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
In July 1996, Axiom was served a demand for arbitration by a former shareholder
of Axiom. The claims arose from Axiom's alleged failure to inform such
shareholder of the Company's interest in acquiring Axiom at the time he sold his
stock back to Axiom. The demand sought damages in excess of $3.3 million plus
punitive damages, costs, and attorney's fees. The American Arbitration
Association (the "AAA") arbitration was conducted in April and October
F-23
<PAGE>
1997. Upon completion of the arbitration, the AAA determined that there was no
failure to inform and no compensable damages resulting from breach of contract.
The AAA also determined that Axiom was the prevailing party in the arbitration
and was entitled to compensation from such shareholder for attorneys' fees and
costs. Such shareholder has paid to the Company a substantial portion of the
related attorneys' fees and costs in settlement of these amounts.
The Company is involved in litigation and various other legal matters that have
arisen in the ordinary course of business. The Company does not believe that
the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.
O. CAMBRIDGE TECHNOLOGY CAPITAL FUND I, L.P.
- --- ------------------------------------------
Cambridge Technology Capital Fund I, L.P. (the "Fund") was formed in October
1997 as a limited partnership with committed capital of approximately $25.3
million at December 31, 1997. The Fund intends to invest in expansion-stage,
private companies providing products and services within areas of the Company's
strategic expertise. A wholly owned subsidiary of the Company acts as the sole
general partner of the Fund's general partner. The Company's capital commitment
to the Fund is approximately $6.0 million. No more than two-thirds of the
Fund's committed capital may be called before October 1999 without approval of
the Fund's partners. The balance of the Fund's capital has been provided by
institutional investors and directors and employees of the Company. At December
31, 1997, the Company's investment in the Fund amounted to $307,500. The Fund's
operating results for the period ended December 31, 1997 were immaterial.
P. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental disclosures of cash flow information are presented as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 232 $ 46 $ 343
Income taxes 5,320 4,428 3,671
</TABLE>
During 1995, capital lease obligations of $357,000 in the aggregate were
incurred by SCG, Axiom, and Ramos for the acquisition of certain equipment.
F-24
<PAGE>
Q. GEOGRAPHIC INFORMATION
----------------------
Information about the Company's operations and total assets in North America,
Europe, Latin America, and the Pacific Rim is presented as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net revenues:
North America $275,855 $177,310 $115,430
Europe 121,630 93,578 64,237
Latin America 8,852 1,990 -
Pacific Rim 335 - -
-------- -------- --------
Consolidated $406,672 $272,878 $179,667
======== ======== ========
Income (loss) from operations:
North America $ 45,218 $ 29,758 $ 18,429
Europe 13,470 10,526 5,856
Latin America (827) (828) -
Pacific Rim (1,847) - -
-------- -------- --------
Consolidated $ 56,014 $ 39,456 $ 24,285
======== ======== ========
Total assets at December 31:
North America $170,927 $105,766 $ 60,135
Europe 62,215 41,878 28,037
Latin America 3,318 - -
Pacific Rim 782 - -
-------- -------- --------
Consolidated $237,242 $147,644 $ 88,172
======== ======== ========
</TABLE>
North American operations consist of services provided in the United States and
Canada. European operations consist of services delivered principally in the
United Kingdom, the Netherlands, Switzerland, Sweden, Norway, Ireland, Germany,
France, and Austria, which have similar business environments. Latin American
operations include services provided primarily in Mexico, Brazil, and Venezuela.
Pacific Rim represents operations principally in Japan, Australia, and India.
There are no intra-enterprise sales for the periods presented.
F-25
<PAGE>
R. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
The following table presents unaudited supplemental quarterly financial
information for the years ended 1997 and 1996 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------- ----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $82,222 $55,866 $96,526 $65,341 $108,594 $72,582 $119,330 $79,089
Income from operations 13,046 8,979 14,600 9,239 16,010 10,100 12,358 11,138
Income before income taxes 13,324 9,138 15,252 9,509 16,546 10,340 12,861 11,266
Net income 7,954 5,424 9,121 5,595 9,913 6,088 5,941 6,918
Basic net income per share .15 .11 .17 .11 .19 .12 .11 .14
Diluted net income per share .14 .10 .16 .10 .17 .10 .10 .12
</TABLE>
F-26
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.
Our report on the consolidated financial statements of Cambridge Technology
Partners (Massachusetts), Inc. is included on page F-2 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statements schedule listed in Item 14(a) of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 2, 1998
S-1
<PAGE>
SCHEDULE II
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(in thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
ALLOWANCES FOR BEGINNING CHARGED TO OTHER END OF
DOUBTFUL ACCOUNTS OF PERIOD COST AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $1,003 $304 $ - $155 $1,152
Year ended December 31, 1996 1,152 518 - - 1,670
Year ended December 31, 1997 1,670 937 - - 2,607
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
2.1(8) - Share and Option Purchase Agreement, dated as of November 24, 1997, by and
among the Company, the former shareholders and optionholders of Peter Chadwick
Holdings Limited, and the other parties named therein (including Schedule 4
attached thereto).
2.2(8) - Registration Rights Agreement, dated as of November 24, 1997, by and among
the Company and the other parties named therein.
2.3(8) - Escrow Agreement, dated as of November 24, 1997, by and among the Company
and other parties named therein.
3.1(9) - Amended and Restated Certificate of Incorporation of the Company, as
amended.
3.2(1) - Amended and Restated By-laws of the Company.
4(7) - Rights Agreement dated June 23, 1997 between the Company and ChaseMellon
Shareholders Services, LLC.
10.1(1) - Lease dated June 4, 1992, as amended, between 304 Vassar Street Realty
Trust and the Company, for 304 Vassar Street, Cambridge, Massachusetts.
10.2* - Amended and Restated 1991 Stock Option Plan as amended.
10.3(6)* - Form of Non-Qualified Stock Option Agreement of the Company for Executive
Officers.
10.4(6)* - Form of Non-Qualified Stock Option Agreement of the Company for Non-
Executive Officers.
10.5* - Form of Incentive Stock Option Agreement of the Company for Executive
Officers.
10.6* - Form of Incentive Stock Option Agreement of the Company for Non-Executive
Employees.
10.7(1)* - Agreement dated December 1992 between the Company and James K. Sims.
10.8(4)* - Amendment to Agreement between the Company and James K. Sims dated
December 15, 1994.
10.9(1)* - Agreement dated December 1992 between the Company and Arthur M. Toscanini.
10.10(1) - Loan and Security Agreement dated February 1, 1993 by and between the
Company and Fleet Bank of Massachusetts, N.A.
10.11(2) - First Amendment to Loan and Security Agreement by and between the Company
and Fleet Bank of Massachusetts, N.A. dated September 1993.
10.12(3) - Second Amendment to Loan and Security Agreement by and between the Company
and Fleet Bank of Massachusetts, N.A. dated July 11, 1994.
10.13(5) - Third Amendment to Loan and Security Agreement by and between the Company
and Fleet Bank N.A. dated June 26, 1996.
10.14* - Description of 1997 Executive Bonus Plan.
10.15* - Deferred Compensation Plan for Key Employees.
10.16* - Form of Split-Dollar Life Insurance Agreement for Executive Officers and
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vice Presidents.
10.17* - Service Agreement with Quentin Baer, as amended.
10.18* - Service Agreement with Ian Clarkson, as amended.
10.19(7) - Rights Agreement dated June 23, 1997 between the Company and ChaseMellon
Shareholders Services, LLC.
10.20(8) - Share and Option Purchase Agreement, dated as of November 24, 1997, by and
among the Company, the former shareholders and optionholders of Peter Chadwick
Holdings Limited, and the other parties named therein (including Schedule 4
attached thereto).
10.21(8) - Escrow Agreement, dated as of November 24, 1997, by and among the Company
and other parties named therein.
11 - Statement Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Company.
23 - Consent of Coopers & Lybrand L.L.P.
24 - Power of Attorney (Included on Signature Page to this Report).
27.1 - Financial Data Schedule.
27.2 - Financial Data Schedule.
27.3 - Financial Data Schedule.
</TABLE>
- ---------------------------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-56338).
(2) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended September 30, 1993.
(3) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1994.
(4) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-K for the twelve-month period ended December 31, 1994.
(5) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1996.
(6) Incorporated herein by reference to the exhibits to the Company's Report on
Form 10-Q for the three-month period ended June 30, 1997.
(7) Incorporated herein by reference to the exhibits to the Company's Report on
Form 8-K dated June 23, 1997, and filed on July 1, 1997.
(8) Incorporated herein by reference to the exhibits to the Company's Report on
Form 8-K dated December 8, 1997.
(9) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-3 (File No. 333-43127).
<PAGE>
EXHIBIT 10.2
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1991 STOCK OPTION PLAN
1. PURPOSE
The name of this plan is the Cambridge Technology Partners (Massachusetts),
Inc. 1991 Stock Option Plan (the "Plan"). The purpose of the Plan is to
promote the long-term success of Cambridge Technology Partners (Massachusetts),
Inc., a Delaware corporation (the "Company"), by providing financial
incentives to the officers, employees, directors and consultants of the Company
who are in positions to make significant contributions toward such success. The
Plan is designed to attract individuals of outstanding ability to become or to
continue as officers, employees, directors or consultants of the Company, to
enable such individuals to acquire or increase proprietary interests in the
Company through the ownership of shares of Common Stock of the Company, and to
render superior performance during their associations with the Company. The
Company intends that this purpose will be effected by the granting pursuant to
the Plan of options for shares of the Company's Common Stock (hereinafter
referred to as "Options") that either do meet the definition of "incentive
stock options" ("Incentive Options") in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), or do not meet such definition
("Nonqualified Options").
References herein to "the Company" shall include any successor corporation
to the Company and also any subsidiary of the Company (such that, if the Company
has one or more subsidiaries, individuals who are officers or key employees
thereof are eligible to be granted Options under the Plan).
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options. An Option shall not be considered to be an Incentive
Option unless designated as such at the time of grant or in the option agreement
relating to such option, and any option that is not so designated (or even if so
designated fails to meet the definition of "incentive stock option" under
Section 422(b) of the Code) shall be a Nonqualified Option. Unless otherwise
specified in a particular grant, Options granted under the Plan are intended to
qualify as performance-based compensation to the extent required under Section
162(m) of the Code and the regulations thereunder.
(b) The Plan shall be administered by a committee (the "Option Committee")
of not less than two members of the Board of Directors of the Company selected
by and from the members of the Company's Board of Directors in accordance with
the provisions of the Company's By-Laws relating to the appointment of
Committees; provided, however, that the Plan shall be administered so that
Options granted under the Plan will qualify for the benefits provided by Rule
16b-3 (or any successor rule to the same effect) under the
<PAGE>
Securities Exchange Act of 1934 and by Section 162(m) of the Code (or any
successor provision to the same effect) and the applicable regulations
thereunder. Subject to the provisions of this Plan, the Option Committee shall
exercise all powers under the Plan, unless and until other action is taken by
the Company's Board of Directors. Action by the Option Committee shall require
the affirmative vote of a majority of all its members, and a further vote of the
Company's Board of Directors shall be required for the approval of any and all
grants of Options recommended by the Option Committee.
(c) Subject to the terms and conditions of the Plan, the Option Committee
shall have the power:
(i) To determine from time to time the Options to be granted to eligible
persons under the Plan, and to prescribe the terms and provisions (which need
not be identical) of each Option granted under the Plan to such persons, and
to recommend the grant of Options to the Board of Directors of the Company for
its approval;
(ii) To construe and interpret the Plan and Options granted thereunder and
to establish, amend, and revoke rules and regulations for administration of
the Plan. In this connection, the Option Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, or in any
option agreement, in the manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All decisions and determinations
by the Option Committee and, with respect to the grant of Options, by the
Board of Directors of the Company in the exercise of this power shall be final
and binding upon the Company and all optionees; and
(iii) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
3. STOCK SUBJECT TO THE PLAN
(a) The stock subject to the Options granted under the Plan shall be shares of
the Company's authorized but unissued common stock, par value $.01 per share
(the "Common Stock"), or previously issued shares of Common Stock that have
been reacquired and reserved by the Company's Board of Directors for resale upon
exercise of Options granted under the Plan. The total number of shares of Common
Stock that may be issued pursuant to Options granted under the Plan shall not
exceed an aggregate of 23,000,000 shares of Common Stock. Such number shall be
subject to adjustment as provided in Section 9 hereof.
(b) Whenever any outstanding Option under the Plan expires, is canceled or is
otherwise terminated (other than by exercise), the shares of Common Stock
allocable to
<PAGE>
the unexercised portion of such Option may again be the subject of Options under
the Plan.
(c) No employee of the Company may be granted Options to acquire, in the
aggregate, more than 3,000,000 shares of Common Stock under the Plan. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, the unpurchased shares subject to such Option shall be
included in the determination of the aggregate number of shares of Common Stock
deemed to have been granted to such employee under the Plan.
4. STOCK OPTION GRANTS
(a) Incentive Options may be granted only to persons who are employees of the
Company, including members of the Board of Directors who are also employees of
the Company. Nonqualified Options may be granted to officers and employees of
the Company, to directors of the Company, whether or not they are also employees
of the Company, to consultants to the Company who are not employees, and to such
other persons as the Option Committee shall select from time to time. The
determination of the persons eligible to receive grants, the number of shares of
Common Stock for which Options are granted and the determination of whether an
Option shall be an Incentive Option or a Nonqualified Option shall be made by
the Option Committee, subject to the approval of the Board of Directors of the
Company.
(b) No person shall be eligible to receive any Incentive Option under the Plan
if at the date of grant such person beneficially owns (or would own upon the
exercise of any Options held, or which upon such grant would be held, by such
person) in excess of ten percent (10%) of the outstanding shares of Common
Stock, unless (i) the exercise price is at least 110% of the fair market value
(determined as provided in Section 5(c) hereof at the time the Incentive Option
is granted) of the shares of Common Stock subject to the Option and (ii) such
Option by its terms is not exercisable after the expiration of five (5) years
from the date such Option is granted.
(c) The aggregate fair market value (determined as provided in Section 5(c)
hereof at the time the Incentive Option is granted) of shares of Common Stock
with respect to which any Incentive Option is exercisable for the first time by
the optionee during any calendar year (plus the value of any other such shares
of Common Stock first purchasable in such year under any other Option under the
Plan or any other plan of the Company or any parent or subsidiary thereof
intended to be an "incentive stock option" under Section 422 of the Code)
shall not exceed $100,000, and no person shall be eligible to receive an
Incentive Option for shares of Common Stock in excess of such limitation.
<PAGE>
5. TERMS OF THE OPTION AGREEMENTS
Each option agreement for Options granted under the Plan shall contain such
provisions as the Option Committee shall from time to time deem appropriate.
Option agreements need not be identical, but each option agreement by
appropriate language, or by reference to this Section 5 of the Plan, shall
include the substance of all of the following provisions:
(a) Expiration. Each Option shall expire on the date specified in the option
agreement, which date shall not be later than the tenth anniversary of the date
on which the Option was granted. Each Incentive Option shall in any event expire
not later than three months after the optionee is for any reason no longer
employed by the Company, except (i) if such termination of employment results
from optionee's disability (within the meaning of Section 22(e)(3) of the Code),
an Option may be exercised within twelve months thereafter, whether or not
exercisable at the time of such termination, and (ii) if such termination of
employment results from the optionee's death, an Option may be exercised by his
executors or administrators within twenty-four months thereafter, whether or not
exercisable at the time of such termination.
(b) Exercise. Unless the Option Committee shall otherwise determine at the
time an Option is granted, each Option shall become vested and exercisable with
respect to 25% of the shares of Common Stock subject to such Option as of the
first anniversary of the date of grant and, thereafter, with respect to an
additional 2.083% of the shares subject to such Option as of the same day (or
the immediately preceding day if a month does not have such day) of each
calendar month thereafter, so that such Option shall be exercisable in full as
of the fourth anniversary of the date of grant. Unless otherwise provided in the
vote of either the Option Committee or the Board of Directors of the Company,
for this purpose the date of the grant of an Option shall be the date on which
the Board of Directors approves the grant. To the extent not exercised, vested
installments shall accumulate and be exercisable in whole or in part at any time
after becoming exercisable, but not later than the date the Option expires or
terminates.
(c) Purchase Price. Unless the Option Committee shall otherwise determine at
the time the Option is granted, the purchase price per share of Common Stock
under each Option shall be not less than the fair market value of a share of
Common Stock on the date the Option is granted. For the purposes of the Plan,
the fair market value of the shares of Common Stock shall be determined by the
Option Committee with the approval of the Board of Directors of the Company.
6. LIMITATION ON RIGHTS OF OPTIONEES
(a) Transferability of Options. Except as set forth below, (i) no Option
shall be transferable by any optionee other than by will or by the laws of
descent and distribution and (ii) Options may be exercised during the optionee's
lifetime only by the optionee (or,
<PAGE>
if the optionee is disabled and so long as the Option remains exercisable, by
the optionee's duly appointed guardian or other legal representative). However,
the Committee may, in its discretion, permit a Non-qualified Option holder to
transfer the Non-qualified Option to family members or other persons for estate
planning purposes. In connection with permitting transfers, the Committee may
require that (i) no consideration be given or payment made for any such
transfer, (ii) the stock option agreement pursuant to which such Option is
granted must be approved by the Committee, and must expressly provide for
transferability at the date of grant in a manner consistent with the Plan, and
(iii) subsequent transfers of the transferred Option shall be prohibited except
those in accordance with this Section. Following any such transfer, any such
Options shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of Sections
2, 6(b) - (d), 7, 8, 9 and 12 hereof the term "optionee" shall be deemed to
refer to the transferee. The events of termination of employment set forth in an
optionee's option agreement shall continue to be applied with respect to the
original optionee, following which the Options shall be exercisable by the
transferee only to the extent and for the periods specified in such option
agreement.
(b) No Shareholder Rights. No optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any Option unless and until
(i) the Option shall have been exercised pursuant to the terms thereof, (ii) the
Company shall have issued and delivered the shares to the optionee, and (iii)
the optionee's name shall have been entered as a shareholder of record on the
books of the Company. Thereupon, the optionee shall have full voting, dividend
and other ownership rights with respect to such shares of Common Stock.
(c) No Employment Rights. Neither the Plan nor the grant of any Option
thereunder shall be deemed to confer upon any optionee any rights of employment
with the Company, including without limitation any right to continue in the
employ of the Company, or affect the right of the Company to terminate the
employment of an optionee at any time, with or without cause.
(d) Authority of Company. The existence of the Options shall not affect: the
right or power of the Company or its shareholders to make adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business; any issue of bonds, debentures, preferred or prior
preference stock affecting the Common Stock or the rights thereof; the
dissolution or liquidation of the Company, or sale or transfer of any part of
its assets or business; or any other act, whether of a similar character or
otherwise.
7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Notice of Exercise. Any Option granted under the Plan may be exercised
by the optionee by delivering to the Chief Financial Officer of the Company (or
such other
<PAGE>
representative of the Company as the Option Committee may designate) on any
business day a written notice specifying the number (which shall be consistent
with the provisions of Section 5(b) hereof) of shares of Common Stock the
optionee then desires to purchase (the "Notice").
(b) Payment. Payment for the shares of Common Stock purchased pursuant to
the exercise of an Option shall be made either (i) in cash or by check
representing good funds in an amount equal to the option price for the number of
shares of Common Stock specified in the Notice (the "Total Option Price"), or
(ii) if authorized by the applicable option agreement, by the valid and properly
completed transfer to the Company of a number of shares of Common Stock having a
fair market value, determined as provided in Section 5(c) hereof, equal to or
less than the Total Option Price, plus cash or check in an amount equal to the
excess, if any, of the Total Option Price over the fair market value of such
shares of Common Stock.
8. NOTICE OF DISPOSITION; WITHHOLDING; ESCROW
An optionee shall immediately notify the Company in writing of any sale,
transfer, assignment or other disposition (or action constituting a
disqualifying disposition within the meaning of Section 421 of the Code) of any
shares of Common Stock acquired through exercise of an Incentive Option, within
two (2) years after the grant of such Incentive Option or within one (1) year
after the acquisition of such shares of Common Stock, setting forth the date and
manner of disposition, the number of shares of Common Stock disposed of and the
price at which such shares of Common Stock were disposed of. The Company shall
be entitled to withhold from any compensation or other payments then or
thereafter due to the optionee such amounts as may be necessary to satisfy any
withholding requirements of federal or state law or regulation and, further, to
collect from the optionee any additional amounts which may be required for such
purpose as a condition of delivering the shares of Common Stock acquired
pursuant to an Option. The Option Committee may, in its discretion, require
shares of Common Stock acquired by an optionee upon exercise of an Incentive
Option to be held in an escrow arrangement for the purpose of enabling
compliance with this Section 8.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) Events for Adjusting Number and Price. If the shares of Common Stock as
a whole are changed into or exchanged for a different number or kind of shares
or securities of the Company, whether through reorganization, recapitalization,
reclassification, stock dividend or other distribution, split, combination of
interests, exchange of interests, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares of Common Stock subject to the Plan and in the number, kind, and per
share exercise price of shares of Common Stock subject to unexercised Options or
portions thereof granted prior to any such change. In the event of
<PAGE>
any such adjustment in an outstanding Option, the optionee thereafter shall have
the right to purchase the number of shares of Common Stock under such Option at
the per share price, as so adjusted, which the optionee could purchase at the
total purchase price applicable to the Option immediately prior to such
adjustment.
(b) Option Committee and Board Action. Adjustments under this Section 9
shall be determined by the Option Committee and approved and ratified by the
Board of Directors of the Company, and such determinations shall be conclusive.
The Option Committee shall have the discretion, and power in any such event to
determine and to make effective provision for acceleration of the time or times
at which any Option or portion thereof shall become exercisable. No fractional
interests shall be issued under the Plan on account of any adjustment specified
above.
10. AMENDMENT OR TERMINATION OF PLAN.
The Board of Directors of the Company may modify, revise or terminate this
Plan at any time and from time to time, except that, other than as provided in
Section 9 hereof, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations at
an annual or special meeting held within twelve (12) months before or after the
date of adoption of such amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which Options may be
granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum purchase price of Incentive Options to be granted
under the Plan;
(d) increase the maximum term of Options provided herein; or
(e) otherwise materially increase the benefits accruing to participants under
the Plan.
Except as provided in Section 9 hereof, rights and obligations under any
Option granted before any amendment of the Plan shall not be altered or impaired
by such amendment, except with the consent of the optionee.
<PAGE>
11. EFFECTIVE DATE; NONEXCLUSIVITY
(a) Effective Date. This Plan will be deemed to have been adopted and to be
effective when approved by the stockholders of the Company in compliance with
Temporary Regulation (S)14a-422A-2 under the Code.
(b) Nonexclusivity. The adoption of the Plan shall not be construed as
creating any limitations on the power of the Board of Directors of the Company
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) Securities Laws. If in the opinion of legal counsel for the Company the
issuance or sale of any shares of Common Stock pursuant to the exercise of an
Option would not be lawful for any reason, including without limitation the
inability of the Company to obtain from any governmental authority or regulatory
body having jurisdiction the authority deemed by such counsel to be necessary to
such issuance or sale, the Company shall not be obligated to issue or sell any
shares of Common Stock pursuant to the exercise of an Option to an Optionee or
any other authorized person unless a registration statement that complies with
the provisions of the Securities Act of 1933, as amended, (the "Act") in
respect of such shares of Common Stock is in effect at the time thereof, or
other appropriate action has been taken under and pursuant to the terms and
provisions of the Act, or the Company receives evidence satisfactory to such
counsel that the issuance and sale of such shares of Common Stock, in the
absence of an effective registration statement or other appropriate action,
would not constitute a violation of the Act or any applicable state securities
law. The Company is in no event obligated to register any such shares of Common
Stock, to comply with any exemption from registration requirements or to take
any other action which may be required in order to permit, or to remedy or
remove any prohibition or limitation on, the issuance or sale of such shares of
Common Stock of any optionee or other authorized person.
(b) Withholding Taxes. As a condition of exercise of an Option, the Company
may, in its sole discretion, withhold or require the optionee to pay or
reimburse the Company for any taxes which the Company determines are required to
be withheld in connection with the grant or any exercise of an Option.
(c) Governing Law. The Plan shall be interpreted such that all options
hereunder intended to be Incentive Options shall meet the requirements therefor
set forth in Section 422 of the Code (and any applicable regulations, rulings or
judicial decisions interpreting said Section). Otherwise, the Plan shall be
governed by and interpreted under the laws of the State of Delaware.
<PAGE>
13. TERMINATION OF GRANTING OF OPTIONS UNDER THE PLAN
No Option may be granted under the Plan after the tenth anniversary of the
effective date of the Plan.
<PAGE>
EXHIBIT 10.5
Cambridge Technology Partners (Massachusetts), Inc.
1991 Stock Option Plan
Incentive Stock Option Agreement
Name of Optionee: [Executive Officer]
Number of Option Shares:
Option Exercise Price: $
Grant Date:
Vesting Start Date:
Pursuant to the Cambridge Technology Partners (Massachusetts), Inc. 1991
Stock Option Plan, as amended (the "Plan"), Cambridge Technology Partners
(Massachusetts), Inc., a Delaware corporation (the "Company"), hereby grants to
the Optionee named above an Option to purchase all or any part of the number of
shares of Common Stock, $.01 par value (the "Common Stock"), of the Company
specified above (the "Option Shares") at the Option Exercise Price per Option
Share specified above, subject to the terms and conditions set forth herein and
in the Plan. This Option is intended to qualify and shall be treated as an
"incentive stock option" under Section 422(b) of the Internal Revenue Code of
1986, as amended from time to time (the "Code").
1. Vesting Schedule. No portion of this Option may be exercised until the
----------------
date on which such portion shall have vested. Except as set forth herein, and
subject to the determination of the Company in its sole discretion to accelerate
the vesting schedule hereunder due to other circumstances and subject to a
reduction in the percentage of Option Shares vesting each month in the event
that the Optionee becomes employed on less than a full-time basis (such new
percentage shall be determined by the Company at the time the Optionee becomes
employed on less than a full time basis and shall be set forth in a replacement
non-qualified option agreement to be executed at that time; provided, however,
that in any event all Option Shares shall vest no later than 60 days prior to
the Expiration Date applicable to such Option Shares as set forth in Paragraph 3
herein), this Option shall be vested and exercisable with respect to the
following percentage of the total number of Option Shares on the following dates
determined with respect to the Vesting Start Date set forth above:
<PAGE>
-2-
<TABLE>
<CAPTION>
Cumulative
Time After Percentage of Percentage of
Vesting Start Date Option Shares Shares Exercisable
------------------ ------------- ------------------
<S> <C> <C>
1 year 25.000% 25.000%
13 months 2.083% 27.083%
Each additional month 2.083%* 2.083%*
thereafter up to and
including the 47th month
48th month 2.083% 100.000%
</TABLE>
_____________________
*Additional 2.083% per month.
2. Exercise of Option.
------------------
(a) Optionee may exercise only vested portions of this Option and only
in the following manner. From time to time prior to the earlier to occur of (i)
the termination hereof in accordance with the provisions of this Option, or (ii)
the Expiration Date (as set forth in Paragraph 3 herein) with respect to a given
portion of this Option, Optionee may give written notice to the Company of his
or her election to purchase some or all of the Option Shares for which this
Option may be exercised at the time of such notice. Said notice shall specify
the number of Option Shares to be purchased and shall be accompanied (i) by
payment therefor in cash and (ii) by such agreement, statement or other evidence
as the Company may require in order to satisfy itself that the issuance of the
Option Shares being purchased pursuant to such exercise and any subsequent
resale thereof will be in compliance with applicable laws and regulations,
including without limitation all applicable federal and state securities laws
and regulations.
(b) Certificates for the Option Shares so purchased will be issued to
Optionee upon compliance to the satisfaction of the Company with all
requirements under applicable laws or regulations in connection with such
issuance, including without limitation, if said Option Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), receipt of
a representation from Optionee upon each exercise of this Option that Optionee
is purchasing the Option Shares for his or her own account and not with a view
to any resale or distribution thereof, the legending of any certificate
representing said Option Shares, and the imposition of a stop transfer order
with respect thereto, to prevent a resale or distribution in violation of
federal or state securities laws. Until Optionee shall have complied with the
requirements hereof and of the Plan, the Company shall be under no obligation to
issue the Option Shares subject to this Option, and the determination of the
Option Committee (as defined in the Plan) as to such compliance shall be final
and binding on Optionee. Optionee shall not be deemed for any
<PAGE>
-3-
purpose to be the owner of any Option Shares subject to this Option until such
Option Shares shall have been issued in accordance with the foregoing
provisions.
(c) Notwithstanding any other provision hereof or of the Plan, no
portion of this Option shall be exercisable (i) after its termination in
accordance with the provisions hereof, (ii) after the Expiration Date applicable
thereto (as set forth in Paragraph 3 herein), or (iii) at any time unless all
necessary regulatory or other approvals have been received.
(d) To the extent that this Option is exercised for a number of Option
Shares which is less than the full number of Option Shares for which this Option
is then exercisable, it shall be deemed to have been exercised first with
respect to the maximum number of First-Year Option Shares for which this Option
has not been previously exercised, then the maximum number of Second-Year Option
Shares for which this Option has not been previously exercised, then the maximum
number of Third-Year Option Shares for which this Option has not been previously
exercised and then the maximum number of Fourth-Year Option Shares for which
this Option has not been previously exercised, including for purposes of
determining which Option Shares hereunder have expired in accordance with
Paragraph 3 herein.
3. Expiration Date of Option and Underlying Option Shares. For purposes of
------------------------------------------------------
this Option, "Expiration Date" shall mean:
(a) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion) which vests one year after
the Vesting Start Date (such Option Shares being herein referred to as the
"First-Year Option Shares"), the date which is the fifth anniversary of the
Vesting Start Date;
(b) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares) which vests during the period beginning 13 months
after the Vesting Start Date and ending 24 months after the Vesting Start Date
(such Option Shares being herein referred to as the "Second-Year Option
Shares"), the date which is the sixth anniversary of the Vesting Start Date;
(c) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares and the Second-Year Option Shares) which vests
during the period beginning 25 months after the Vesting Start Date and ending 36
months after the Vesting Start Date (such Option Shares being herein referred to
as the "Third-Year Option Shares"), the date which is the seventh anniversary of
the Vesting Start Date; and
(d) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares, Second-Year Option Shares and Third-Year Option
Shares) which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date (such Option Shares
being herein referred to as the "Fourth-Year Option Shares"), the date which is
the eighth anniversary of the Vesting Start Date.
<PAGE>
-4-
4. Termination of Employment. This Option, as to any unexercised portion
-------------------------
hereof, shall terminate on the date three (3) months after the date on which
Optionee is no longer employed by the Company or a subsidiary as defined in the
Code; provided, however, that (a) if such termination of employment results from
Optionee's permanent and total disability as defined in Section 22(e)(3) of the
Code, this Option may be exercised, whether or not exercisable at the time of
such termination, until the date twelve (12) months after such termination, or
until the Expiration Date (as set forth in Paragraph 3 herein), whichever first
occurs, and (b) if such termination of employment results from Optionee's death,
this Option may be exercised, whether or not exercisable at the time of such
termination, by the Optionee's executors or administrators within twenty-four
(24) months thereafter, or until the Expiration Date (as set forth in Paragraph
3 herein), whichever first occurs. No Option will confer upon Optionee any right
to continued employment by the Company or any subsidiary of the Company, nor
will it interfere in any way with Optionee's right or the Company's or any such
subsidiary's right to terminate, or otherwise modify the terms of, Optionee's
employment at any time.
5. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Option shall be subject to and governed by all the terms and
conditions of the Plan.
6. Transferability. Each of this Agreement and this Option is personal to
---------------
Optionee, is non-assignable and is not transferable in any manner, by operation
of law or otherwise, other than by will or by the laws of descent and
distribution, and is exercisable, during Optionee's lifetime, only by Optionee.
7. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) If the Common Stock as a whole is changed into or exchanged for a
different number or kind of interests or securities of the Company, whether
through reorganization, recapitalization, reclassification, stock dividend or
other distribution, split, combination or interests, exchange of interests,
change in corporate structure or the like, an appropriate and proportionate
adjustment shall be made in the number and kind of Option Shares subject to this
Option. In addition, upon such change, the exercise price of shares of Common
Stock or other securities subject to any unexercised portions of this Option
shall be appropriately and proportionately adjusted such that Optionee
thereafter shall have the right to purchase the number and kind of Option Shares
(as so adjusted) under this Option at an Exercise Price (as so adjusted) which
Optionee could purchase for the total purchase price applicable to the
unexercised portion of this Option immediately prior to such adjustment,
provided that any fractional shares resulting from such calculation shall be
eliminated.
(b) Adjustments under this Paragraph 7 shall be made by the Option
Committee of the Company, whose determination shall be conclusive.
8. Effect of Certain Transactions. If (i) the Company is to be merged
------------------------------
into another entity, or if one or more entities is to be merged into the Company
or if there is to be a consolidation of the Company and one or more entities
and, in any such case, the shares of
<PAGE>
-5-
Common Stock are to be converted into cash, securities or other property other
than shares of Common Stock (an "Acquisition"), or (ii) if the Company is to be
liquidated, or is to sell or otherwise dispose of substantially all of its
assets to another entity while unexercised Options remain outstanding under the
Plan (a "Sale"), then: (a) the time for exercise of any unexercised and
unexpired portion of this Option, including the then unvested portion of this
Option, shall be accelerated to immediately prior to the consummation of such
Acquisition or Sale, and (b) this Option shall terminate immediately after the
effective date of such Acquisition or Sale; provided, however, that the
foregoing clauses (a) and (b) shall not apply to any transaction in which the
former stockholders of the Company immediately after such transaction hold or
receive by reason of their prior ownership of shares of capital stock of the
Company shares of capital stock of the resulting or surviving corporation
constituting a majority of the voting power of all outstanding stock of such
resulting or successor corporation.
9. Tax Withholding. The Optionee shall, not later than the date as of
---------------
which the exercise of this Option or disposition of Option Shares becomes a
taxable event for Federal income tax purposes, pay to the Company or make
arrangements satisfactory to the Option Committee for payment of any Federal,
state, and local taxes required by law to be withheld on account of such taxable
event.
10. Notice to Company of Disqualifying Disposition. If this Option is
----------------------------------------------
intended to be an incentive stock option under the Plan as set forth on the
first page hereof, by its acceptance hereof, each Optionee agrees to notify the
Company in writing immediately after he makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of incentive stock options
granted under the Plan. A Disqualifying Disposition is generally any
disposition occurring within two years of the date the incentive stock option
was granted or within one year of the date the incentive stock option was
exercised, whichever period ends later.
11. Representations. By acceptance of this Option, the Optionee agrees,
---------------
acknowledges and understands that a purchase of shares under this Option will
not be made with a view to their distribution, as that term is used in the Act
unless, in the opinion of counsel to the Company such distribution is in
compliance with or exempt from the registration and prospectus requirements of
the Act, and the Employee agrees to sign a certificate to such effect at the
time of exercising this option and agrees that the certificate for the shares so
purchased may be inscribed with a legend to ensure compliance with the Act.
12. Miscellaneous. Notice hereunder shall be mailed or delivered to the
-------------
Company at its principal place of business, and shall be delivered to Optionee
in person or mailed or delivered to Optionee at the address set forth below, or
in either case at such other address as one party may subsequently furnish to
the other party in writing.
Std. Exec. ISO Option Agrmt.
Rev. 1.1
8/97
449PDT1306/6.483799-2
<PAGE>
EXHIBIT 10.6
Cambridge Technology Partners (Massachusetts), Inc.
1991 Stock Option Plan
Incentive Stock Option Agreement
Name of Optionee: [ Employee ]
Number of Option Shares:
Option Exercise Price: $
Grant Date:
Vesting Start Date:
Pursuant to the Cambridge Technology Partners (Massachusetts), Inc. 1991
Stock Option Plan, as amended (the "Plan"), Cambridge Technology Partners
(Massachusetts), Inc., a Delaware corporation (the "Company"), hereby grants to
the Optionee named above an Option to purchase all or any part of the number of
shares of Common Stock, $.01 par value (the "Common Stock"), of the Company
specified above (the "Option Shares") at the Option Exercise Price per Option
Share specified above, subject to the terms and conditions set forth herein and
in the Plan. This Option is intended to qualify and shall be treated as an
"incentive stock option" under Section 422(b) of the Internal Revenue Code of
1986, as amended from time to time (the "Code").
1. Vesting Schedule. No portion of this Option may be exercised until the
----------------
date on which such portion shall have vested. Except as set forth herein, and
subject to the determination of the Company in its sole discretion to accelerate
the vesting schedule hereunder due to other circumstances and subject to a
reduction in the percentage of Option Shares vesting each month in the event
that the Optionee becomes employed on less than a full-time basis (such new
percentage shall be determined by the Company at the time the Optionee becomes
employed on less than a full time basis and shall be set forth in a replacement
non-qualified option agreement to be executed at that time; provided, however,
that in any event all Option Shares shall vest no later than 60 days prior to
the Expiration Date applicable to such Option Shares as set forth in Paragraph 3
herein), this Option shall be vested and exercisable with respect to the
following percentage of the total number of Option Shares on the following dates
determined with respect to the Vesting Start Date set forth above:
<PAGE>
-2-
<TABLE>
<CAPTION>
Cumulative
Time After Percentage of Percentage of
Vesting Start Date Option Shares Shares Exercisable
------------------ ------------- ------------------
<S> <C> <C>
1 year 25.000% 25.000%
13 months 2.083% 27.083%
Each additional month 2.083%* 2.083%*
thereafter up to and
including the 47th month
48th month 2.083% 100.000%
</TABLE>
_____________________
*Additional 2.083% per month.
2. Exercise of Option.
------------------
(a) Optionee may exercise only vested portions of this Option and
only in the following manner. From time to time prior to the earlier to occur
of (i) the termination hereof in accordance with the provisions of this Option,
or (ii) the Expiration Date (as set forth in Paragraph 3 herein) with respect to
a given portion of this Option, Optionee may give written notice to the Company
of his or her election to purchase some or all of the Option Shares for which
this Option may be exercised at the time of such notice. Said notice shall
specify the number of Option Shares to be purchased and shall be accompanied (i)
by payment therefor in cash and (ii) by such agreement, statement or other
evidence as the Company may require in order to satisfy itself that the issuance
of the Option Shares being purchased pursuant to such exercise and any
subsequent resale thereof will be in compliance with applicable laws and
regulations, including without limitation all applicable federal and state
securities laws and regulations.
(b) Certificates for the Option Shares so purchased will be issued to
Optionee upon compliance to the satisfaction of the Company with all
requirements under applicable laws or regulations in connection with such
issuance, including without limitation, if said Option Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), receipt of
a representation from Optionee upon each exercise of this Option that Optionee
is purchasing the Option Shares for his or her own account and not with a view
to any resale or distribution thereof, the legending of any certificate
representing said Option Shares, and the imposition of a stop transfer order
with respect thereto, to prevent a resale or distribution in violation of
federal or state securities laws. Until Optionee shall have complied with the
requirements hereof and of the Plan, the Company shall be under no obligation to
issue the Option Shares subject to this Option, and the determination of the
Option Committee (as defined in the Plan) as to such compliance shall be final
and binding on Optionee. Optionee shall not be deemed for any
<PAGE>
-3-
purpose to be the owner of any Option Shares subject to this Option until such
Option Shares shall have been issued in accordance with the foregoing
provisions.
(c) Notwithstanding any other provision hereof or of the Plan, no
portion of this Option shall be exercisable (i) after its termination in
accordance with the provisions hereof, (ii) after the Expiration Date applicable
thereto (as set forth in Paragraph 3 herein), or (iii) at any time unless all
necessary regulatory or other approvals have been received.
(d) To the extent that this Option is exercised for a number of
Option Shares which is less than the full number of Option Shares for which this
Option is then exercisable, it shall be deemed to have been exercised first with
respect to the maximum number of First-Year Option Shares for which this Option
has not been previously exercised, then the maximum number of Second-Year Option
Shares for which this Option has not been previously exercised, then the maximum
number of Third-Year Option Shares for which this Option has not been previously
exercised and then the maximum number of Fourth-Year Option Shares for which
this Option has not been previously exercised, including for purposes of
determining which Option Shares hereunder have expired in accordance with
Paragraph 3 herein.
3. Expiration Date of Option and Underlying Option Shares. For purposes
------------------------------------------------------
of this Option, "Expiration Date" shall mean:
(a) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion) which vests one year after
the Vesting Start Date (such Option Shares being herein referred to as the
"First-Year Option Shares"), the date which is the fifth anniversary of the
Vesting Start Date;
(b) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares) which vests during the period beginning 13 months
after the Vesting Start Date and ending 24 months after the Vesting Start Date
(such Option Shares being herein referred to as the "Second-Year Option
Shares"), the date which is the sixth anniversary of the Vesting Start Date;
(c) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares and the Second-Year Option Shares) which vests
during the period beginning 25 months after the Vesting Start Date and ending 36
months after the Vesting Start Date (such Option Shares being herein referred to
as the "Third-Year Option Shares"), the date which is the seventh anniversary of
the Vesting Start Date; and
(d) with respect to the portion of this Option (and the underlying
number of Option Shares with respect to such portion, but specifically excluding
the First-Year Option Shares, Second-Year Option Shares and Third-Year Option
Shares) which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date (such Option Shares
being herein referred to as the "Fourth-Year Option Shares"), the date which is
the eighth anniversary of the Vesting Start Date.
<PAGE>
-4-
4. Termination of Employment. This Option, as to any unexercised portion
-------------------------
hereof, shall terminate on the date three (3) months after the date on which
Optionee is no longer employed by the Company or a subsidiary as defined in the
Code; provided, however, that (a) if such termination of employment results from
Optionee's permanent and total disability as defined in Section 22(e)(3) of the
Code, this Option may be exercised, whether or not exercisable at the time of
such termination, until the date twelve (12) months after such termination, or
until the Expiration Date (as set forth in Paragraph 3 herein), whichever first
occurs, and (b) if such termination of employment results from Optionee's death,
this Option may be exercised, whether or not exercisable at the time of such
termination, by the Optionee's executors or administrators within twenty-four
(24) months thereafter, or until the Expiration Date (as set forth in Paragraph
3 herein), whichever first occurs. No Option will confer upon Optionee any right
to continued employment by the Company or any subsidiary of the Company, nor
will it interfere in any way with Optionee's right or the Company's or any such
subsidiary's right to terminate, or otherwise modify the terms of, Optionee's
employment at any time.
5. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Option shall be subject to and governed by all the terms and
conditions of the Plan.
6. Transferability. Each of this Agreement and this Option is personal to
---------------
Optionee, is non-assignable and is not transferable in any manner, by operation
of law or otherwise, other than by will or by the laws of descent and
distribution, and is exercisable, during Optionee's lifetime, only by Optionee.
7. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) If the Common Stock as a whole is changed into or exchanged for a
different number or kind of interests or securities of the Company, whether
through reorganization, recapitalization, reclassification, stock dividend or
other distribution, split, combination or interests, exchange of interests,
change in corporate structure or the like, an appropriate and proportionate
adjustment shall be made in the number and kind of Option Shares subject to this
Option. In addition, upon such change, the exercise price of shares of Common
Stock or other securities subject to any unexercised portions of this Option
shall be appropriately and proportionately adjusted such that Optionee
thereafter shall have the right to purchase the number and kind of Option Shares
(as so adjusted) under this Option at an Exercise Price (as so adjusted) which
Optionee could purchase for the total purchase price applicable to the
unexercised portion of this Option immediately prior to such adjustment,
provided that any fractional shares resulting from such calculation shall be
eliminated.
(b) Adjustments under this Paragraph 7 shall be made by the Option
Committee of the Company, whose determination shall be conclusive.
8. Effect of Certain Transactions. If the Company is merged into another
------------------------------
entity, or if one or more entities is merged into the Company or there is a
consolidation of the Company and one or more entities and, in any such case, the
shares of Common
<PAGE>
-5-
Stock are converted into cash, securities or other property other than shares of
Common Stock, or if the Company is liquidated, or sells or otherwise disposes of
substantially all its assets to another entity while unexercised Options remain
outstanding under the Plan, then: (i) subject to the provisions of clause (iii)
below, this Option will terminate as of the effective date of any such merger,
consolidation, liquidation or sale, provided that (x) notice of such termination
shall be given to Optionee and (y) Optionee shall have the right to exercise
this Option to the extent that it is then exercisable, during the 15-day period
preceding the effective date of such merger, consolidation, liquidation or sale,
contingent upon the consummation of such merger, consolidation, liquidation or
sale, provided, however, that in no event shall this Option be exercisable after
the Expiration Date; (ii) the Option Committee, with the approval of the Board
of Directors of the Company, may in its discretion accelerate the time for
exercise of any unexercised and unexpired portion of this Option, including the
then unvested portion of this Option, to and after a date prior to the effective
date of such merger, consolidation, liquidation or sale specified by the Option
Committee, and (iii) the Option Committee, with the approval of the Board of
Directors of the Company, may provide that after the effective date of such
merger, consolidation or sale this Option shall survive and Optionee shall be
entitled, upon exercise of this Option, to receive, in lieu of shares of Common
Stock, shares of stock or other securities as the holders of shares of Common
Stock received pursuant to the terms of the merger, consolidation or sale.
9. Tax Withholding. The Optionee shall, not later than the date as of
---------------
which the exercise of this Option or disposition of Option Shares becomes a
taxable event for Federal income tax purposes, pay to the Company or make
arrangements satisfactory to the Option Committee for payment of any Federal,
state, and local taxes required by law to be withheld on account of such taxable
event.
10. Notice to Company of Disqualifying Disposition. If this Option is
----------------------------------------------
intended to be an incentive stock option under the Plan as set forth on the
first page hereof, by its acceptance hereof, each Optionee agrees to notify the
Company in writing immediately after he makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of incentive stock options
granted under the Plan. A Disqualifying Disposition is generally any
disposition occurring within two years of the date the incentive stock option
was granted or within one year of the date the incentive stock option was
exercised, whichever period ends later.
11. Representations. By acceptance of this Option, the Optionee agrees,
---------------
acknowledges and understands that a purchase of shares under this Option will
not be made with a view to their distribution, as that term is used in the Act
unless, in the opinion of counsel to the Company such distribution is in
compliance with or exempt from the registration and prospectus requirements of
the Act, and the Employee agrees to sign a certificate to such effect at the
time of exercising this option and agrees that the certificate for the shares so
purchased may be inscribed with a legend to ensure compliance with the Act.
<PAGE>
-6-
12. Miscellaneous. Notice hereunder shall be mailed or delivered to the
-------------
Company at its principal place of business, and shall be delivered to Optionee
in person or mailed or delivered to Optionee at the address set forth below, or
in either case at such other address as one party may subsequently furnish to
the other party in writing.
Std. ISO Option Agrmt.
Rev. 1.1
8/97
449pdt1306/6.483813-2
<PAGE>
EXHIBIT 10.14
YOUR 1997 EXECUTIVE BONUS PLAN
PLAN PURPOSE
At Cambridge Technology Partners, we work hard to satisfy our clients each and
every day. As a growing company, we can see the tangible results of this
dedication and loyalty. We know these results depend on you. We are committed
to sharing the company's financial success with our employees. Our 1997
Executive Bonus Plan is designed to reward our success and your contribution.
This year's plan has been revised to be reflective of the contribution level
that each of the various roles has on three separate goal oriented plan
components. The focus of the three components are outlined below.
It is our hope that the 1997 Executive Bonus Plan will continue to motivate all
employees to strive for company prosperity. By working together, we can all
share financially in the company's growth.
OUR 1997 GOAL
Our investors consider growth in our pre-tax income to be a key measure of our
performance. Therefore, the bonus pool is driven by the annual increase in the
measure. Our 1996 pre-tax income will be the trigger point for 1997 bonuses.
If our pre-tax income does not exceed actual 1996 pre-tax income, no bonuses
will be paid. Pre-tax income will be determined after giving effect to payments
under Cambridge Technology Partners' compensation plans.
We have set a target for this year's pre-tax income. If our 1997 pre-tax income
equals this target, 100% of the bonus pool will be available for bonuses. This
is an aggressive but reachable objective.
If we exceed this target, an additional pool will be made available for bonuses.
The executive bonus amounts will be paid out according to the attached schedule.
ELIGIBILITY
You are eligible for the Executive Bonus Plan if (i) you hold the position of
Chief Executive Officer, President, Senior Vice President or Vice President,
(ii) you are a full-time Cambridge Technology Partners employee and, (iii) you
were hired before July 1, 1997. If you join the Company after January 1, 1997,
but after July 1, 1997, your bonus will be pro-rated on your full months
consecutive employment through the year-end. Employees who have salary and/or
level changes in 1997 will receive a pro-rated bonus based on the number of
months at each salary level.
YOUR BONUS OPPORTUNITY
Your bonus will be based on a fixed percentage of your base salary. This
percentage is determined by your salary level. The total amount available for
your bonus is based on pre-tax income. As mentioned above, the revised 1997
bonus plan structure is designed to be reflective of the role you play and the
impact of your role on the three focus areas of the plan. There are three parts
to your bonus. These parts focus on the areas of contributing to the success
of others (pre-tax income), contributing to the success of your business unit
(individual goals), and the new component for this year: Working together to
accomplish mutual goals. For 1997 our mutual goal has been defined as
improving client retention.
The impact of the roles on the bonus plan measures are as follows:
OFFICERS:
Sixty percent (60%) of your bonus potential is based upon our achievement of the
pre-tax income goal. Your individual contribution to the success of your
business unit accounts for an additional 20% and the shared goal of client
retention accounts for the remaining 20%.
<PAGE>
VICE PRESIDENTS:
Fifty percent (50%) of your bonus potential is split between our achievement of
the pre-tax income goal (30%) and the cross-SBU cooperation goal (20%). Your
individual contribution to the success of your business unit accounts for an
additional 30% and the shared goal of client retention accounts for the
remaining 20%.
This award will be made at management's discretion and is intended to recognize
and reward employees for their overall contribution to the Company throughout
the year.
THE BONUS POOL
The percentage of the bonus pool paid will depend on our pre-tax income.
Bonuses will be paid according to the attached schedule. The actual amount you
receive will be based on the bonus potential for your position.
BONUS PAYMENTS
We will make every reasonable effort to ensure that bonuses are distributed
within 60 days after the completion of the fiscal year. Bonuses will be paid by
check and applicable taxes will be deducted from your payment.
IF YOU LEAVE CAMBRIDGE TECHNOLOGY PARTNERS
You must be on the payroll the day that bonuses are distributed to be eligible
for a bonus. If you are on an approved leave, your bonus will be pro-rated,
based on your continuous full months of employment during the year.
PLAN CONTINUATION AND MODIFICATION
The Employee Bonus Plan will be updated each year. The plan does not guarantee
that you will be offered a bonus and does not guarantee your continued
employment with the Company. The program is based on Company, individual, and
mutual (shared) performance measures. Management reserves the right to modify
or terminate the plan at its discretion at any time.
IN SUMMARY
At Cambridge Technology Partners, we want to recognize everyone's contribution
in helping to make the Company successful. We believe that the Employee Bonus
Plan will assist us in ensuring that individual employees can be recognized for
their achievements. We look forward to all of us sharing in our Company's
success.
<PAGE>
EXHIBIT 10.15
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
Deferred Compensation Plan for Key Employees
--------------------------------------------
1. In General. The Cambridge Technology Partners (Massachusetts), Inc.
----------
Deferred Bonus Compensation Plan for Key Employees set forth herein provides
deferred compensation and related benefits for a select group of management or
highly compensated employees of Cambridge Technology Partners (Massachusetts),
Inc. and its subsidiaries, and their beneficiaries. The Plan is intended to
defer until actual receipt the taxable income associated with benefits payable
hereunder, to constitute an unfunded "top hat" plan described in Section 201(2),
301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974,
as amended, and to constitute a plan that is unfunded for tax purposes. The
Plan shall be construed in a manner that is consistent with the intentions
expressed in the preceding sentence.
2. Certain terms defined. The following terms when used in the Plan shall
---------------------
have the meanings set forth below except as the context may otherwise clearly
indicate:
"Account": The account or accounts, including any sub-account,
maintained on the books of the Company for purposes of the Plan to
reflect the Company's deferred compensation obligations with respect
to a Participant under the Plan.
"Administrator": The Management Resource Committee of the Board
of Directors.
"Beneficiary": An individual or other person (including a trust)
designated by a Participant in accordance with Section 10 below to
receive benefits remaining to be paid to a Participant at the
Participant's death.
"Board of Directors": The Board of Directors of the Company.
"Bonus Compensation": Bonuses and other incentive compensation
specified by the Administrator. The term "Bonus Compensation" does not
include base salary, expense reimbursements or fringe benefits
(whether or not taxable). Bonus Compensation for purposes of the Plan
is determined before reduction for any other contributions, salary
reductions or withholdings.
"Company": Cambridge Technology Partners (Massachusetts), Inc.
and any successor thereto by operation of law or by contract.
"Crediting Date": The date as of which amounts deferred under the
Plan are credited to a Participant's Account.
<PAGE>
"Eligible Employee": An employee of the Company with the title of
vice president or above and any other key employee of the Company or
of any subsidiary of the Company designated by the Administrator who
is selected by the Administrator by name or title as eligible to
participate in the Plan. No individual who is not either a
"management" employee or a "highly compensated" employee, as
determined by the Administrator, shall be treated as an "Eligible
Employee" for purposes of the Plan.
"Employer": The Company and its subsidiaries.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Plan": The Cambridge Technology Partners (Massachusetts), Inc.
Deferred Compensation Plan set forth herein and as amended from time
to time.
"Plan Year": The calendar year.
"Stock": The common stock of the Company.
"Participant": An Eligible Employee who participates in the Plan.
3. Elective deferral of Bonus Compensation. Each Eligible Employee may
---------------------------------------
elect to defer either five (5%) percent or ten (10%) percent of his or her Bonus
Compensation for a Plan Year by completing and delivering to the Administrator a
deferral election in form acceptable to the Administrator. A deferral election
shall be effective to defer Bonus Compensation payable for a Plan Year or any
portion thereof only if delivered to the Administrator by the close of the Plan
Year preceding the Plan Year in which the Bonus Compensation is earned.
Notwithstanding the foregoing, an individual who first becomes an Eligible
Employee on or prior to October 31 in any Plan Year may (if so permitted by the
Administrator and subject to such limitations and restrictions as the
Administrator may prescribe) deliver an initial deferral election to the
Administrator before the earlier of (i) the thirtieth (30th) day following the
day on which the individual becomes an Eligible Employee, or (ii) October 31 of
such Plan Year. An initial deferral election described in the preceding
sentence shall be effective as to Bonus Compensation earned during the Plan Year
of initial eligibility and after the election is delivered to the Administrator.
Solely for purposes of this Section, Bonus Compensation determined on the basis
of individual, Company or other performance for a period (the "measuring year")
but payable after the close of the measuring period shall be deemed earned (if
at all) at the end of the measuring period. An election of deferral under this
Section 3 shall be irrevocable.
4. Crediting of elective deferrals to Account. In the case of each
------------------------------------------
effective election by a Participant under Section 3, the Administrator shall
cause the Participant's Bonus Compensation from the Company or other
participating employer to be reduced by the deferral amount specified in the
election and shall credit such amount to the Participant's Account. The
Crediting Date for any deferred amount shall be the date such amount would have
been paid to the
<PAGE>
Participant absent the deferral. The portion of a Participant's Account
attributable to elective deferrals shall be fully vested at all times.
5. Matching credits. For each dollar of elective deferrals credited to a
----------------
Participant's Account under Section 4, an additional dollar (a "matching
credit") shall also be credited to the Account as of the same Crediting Date.
That portion of a Participant's Account attributable to any matching credit
under this Section 5 shall vest in twenty-five (25%) percent installments on
each of the first, second, third and fourth anniversaries of the Crediting Date,
provided the Participant has been continuously employed by the Employer at all
times during the period commencing on the Crediting Date and ending on the
vesting date. For purposes of the preceding sentence, a Participant shall not
be deemed to have suffered a break in continuous employment solely by reason of
an approved leave of absence or by reason of any other absence required by law
to be credited for purposes of the Plan. Any unvested portion of a
Participant's Account shall be fully vested if the Participant's employment with
the Employer terminates by reason of death, if the Participant suffers a total
and permanent disability (as determined by the Administrator in its sole
discretion) while employed by the Employer, or if the Participant retires from
the employ of the Employer after attaining age 65.
6. Adjustment of Accounts for notional investment in Stock. Amounts
-------------------------------------------------------
credited to an Account under Section 4 or Section 5 as of any crediting date
shall be deemed to have been immediately invested in shares, including
fractional shares, of Stock at the average of the closing prices of the Stock
over the ten business days immediately preceding the Crediting Date. If any
cash dividend or other distribution (a "dividend") is made with respect to
outstanding shares of Stock, an equivalent per-share cash amount shall be deemed
credited as of the dividend payment date with respect to shares that were
notionally credited to a Participant's Account as of the record date for such
dividend, and the dividend equivalent so credited shall be deemed to have been
immediately invested in additional shares, including fractional shares, of Stock
at the average of the closing prices of the Stock over the ten business days
immediately preceding the dividend payment date. The Administrator shall
likewise make appropriate adjustment in Accounts to reflect any stock dividends,
stock splits, or other transactions (other than cash dividends or distributions)
affecting the Stock.
7. Termination of employment. The vested portion of a Participant's
-------------------------
Account shall be promptly paid in a single payment, and any unvested portion of
the Participant's account shall be promptly forfeited, upon termination of the
Participant's employment with the Employer for any reason.
8. Hardship withdrawals. No amounts shall be payable under the Plan prior
--------------------
to a Participant's termination of employment except as specified in this Section
8 or as provided under Section 15 or Section 16 below. A Participant who suffers
an unforeseeable emergency may petition the Administrator for a hardship
withdrawal from the Plan. The Administrator shall have complete discretion to
determine whether to permit any such hardship withdrawal. The amount of any
hardship withdrawal under this Section shall in no event exceed the least of the
following: (i) the amount of withdrawal requested by the Participant; (ii) the
amount which the Administrator determines to be necessary to alleviate the
hardship; and (iii) the vested balance of the Participant's Account. For
purposes of the Plan, an "unforeseeable emergency" means an
<PAGE>
unanticipated emergency that is caused by an event beyond the control of the
Participant and that would result in severe financial hardship to the
Participant if a withdrawal under this Section were not permitted.
9. Form of payment. The amount payable to any Participant (or to his or
---------------
her Beneficiary, in the event payment is made following the Participant's death)
under Section 7, Section 8, Section 15, or Section 16 shall be distributed in
whole shares of Stock equal in number to the number of whole shares credited to
the Participant's Account at time of payment plus cash equal to the average fair
market value (determined based on the average of the closing prices of the Stock
over the ten business days immediately preceding the date of payment) of any
fractional share so credited, in each case after giving effect to the forfeiture
of unvested portions (if any) of the Account, provided that the aggregate number
of shares of Stock which may be issued in connection with payments under the
Plan shall not exceed 25,000 (subject to adjustment as provided in the last
sentence of this Section 9). Shares distributed under the Plan may be original
issue shares or shares held in treasury, as the Board of Directors may
determine. Any payment or portion thereof which cannot be made in shares of
Stock because of the limit on the aggregate number of shares of Stock that may
be issued in connection with the Plan shall be made in cash equal to the average
fair market value (determined based on the average of the closing prices of the
Stock over the ten business days immediately preceding the date of payment) of
the number of shares of Stock which, but for such limit, would have been
issuable to the Participant in connection with such payment, after giving effect
to the forfeiture of unvested portions (if any) of the Account. If shares of the
Stock are subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Stock as a stock dividend on its
outstanding shares of Stock, the aggregate number of shares of Stock which may
be issued in connection with payments under the Plan shall be apropriately
increased or decreased proportionately, with such increase or decrease to be
determined by the Administrator.
10. Beneficiaries. A Participant may designate one or more Beneficiaries
-------------
for purposes of the Plan and may change such designation by delivering to the
Administrator a written Beneficiary designation in form acceptable to the
Administrator. If the Participant designates more than one Beneficiary and any
of the designated Beneficiaries does not survive the Participant, benefits
payable hereunder upon the Participant's death shall be paid to the remaining
Beneficiary or Beneficiaries in accordance with such rules as the Administrator
may prescribe. The Administrator may disregard any Beneficiary designation or
change of Beneficiary designation received after a Participant's death and may
also disregard any Beneficiary designation (whenever received) if, after
inquiry, it cannot locate the Beneficiary. In the case of payments to a
Beneficiary who is a minor or incompetent, the Administrator may require that
payments be made only to a duly authorized administrator or guardian for such
Beneficiary. Prior to any payment to a Beneficiary, the Administrator may
require evidence satisfactory to the Administrator of the Beneficiary's
entitlement to such payment. Any payment not made in accordance with a
Participant's Beneficiary designation for the reasons described above may be
paid to other designated Beneficiaries, to a parent (in the case of a minor) or
to the Participant's estate, all as the Administrator determines. If no
Beneficiary has been effectively designated, any portion of the Participant's
vested Account remaining unpaid at his or her death shall be paid to the
Participant's estate.
11. Nature of rights; nontransferability. The Company's obligations under
------------------------------------
the Plan constitute mere contractual promises to pay cash or property in the
future, and nothing herein shall obligate the Company to set aside amounts or
establish any trust or fund for the payment of benefits. However, the Company
may, if the Board of Directors so determines, establish one or more grantor
trusts (of the type commonly referred to as "rabbi trusts") to assist in the
payment of Plan benefits. Whether or not such a trust is established,
Participants and their beneficiaries under the Plan shall have rights no greater
than those of unsecured general creditors of the Company. The rights of
Participants and their beneficiaries under the Plan are not subject in any
<PAGE>
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment. Any attempt by any person, other than a
claim for benefits by a Participant or his or her Beneficiary(ies), shall be
null and void.
12. Taxes. All distributions under the Plan shall be subject to reduction
-----
for applicable tax withholding. To the extent a Participant is subject to
FICA/Medicare taxes on amounts deferred hereunder prior to distribution, such
taxes shall be withheld from the Participant's other remuneration except as the
Administrator otherwise determines.
13. No contract of employment. Nothing in the Plan or in its operation
-------------------------
shall be construed as limiting the right of the Company or any of its
subsidiaries to terminate the employment of an Eligible Employee at any time.
The loss of benefits or future benefits under the Plan shall not constitute an
element of damages in connection with any claim brought by any person against
the Company or its subsidiaries.
14. Acknowledgment by Participants. Each Eligible Employee, by
------------------------------
participating in the Plan, thereby acknowledges that he or she consents to the
terms of the Plan.
15. Certain mergers, acquisitions and other events. In the event of a
----------------------------------------------
merger or other transaction involving the Company in which the Company does not
survive or in which the Company is acquired by another person (including an
entity) or persons acting as a group, or a sale of all or substantially all the
assets of the Company or a liquidation of the Company (any of the above, a
"covered transaction"), all Accounts (to the extent not previously forfeited)
shall become fully vested and shall be distributed in full immediately prior to
the covered transaction unless the surviving or acquiring entity or an affiliate
thereof either assumes the Plan or establishes a substitute plan on terms that
(i) provide for the notional investment of Accounts in the common stock of the
surviving or acquiring entity or an affiliate thereof, and (ii) are otherwise
substantially similar to the Plan as in effect immediately prior to the covered
transaction.
16. Amendment and termination. The Board of Directors may terminate the
-------------------------
Plan at any time and may amend the Plan at any time and from time to time, with
or without retroactive effect. The power of the Board of Directors to amend the
Plan expressly includes, but is not limited to, the power to change the form or
timing of distributions hereunder and the power to change a Participant's right
to vest in any unvested portion of his or her Account, including in each case
with respect to amounts already credited to the Participant's Account. No
amendment to the Plan, however, shall have the effect of reducing the vested
balance of a Participant's Account (as determined immediately after the
effective date of the Amendment) below such balance determined immediately prior
to the effective date of the Amendment. Without limiting the foregoing, the
Board of Directors may exclude from participation in the Plan (and, if it so
determines, require an immediate distribution of the vested Account of) any
person whose continued participation in the Plan, in the determination of the
Board of Directors, would or could reasonably be expected to jeopardize the
Plan's status as an unfunded "top hat" plan for purposes of ERISA.
<PAGE>
17. Administration; claims; review procedure. The Administrator shall be
----------------------------------------
the "plan administrator" of the Plan and shall have complete discretion to
construe its terms, determine each individual's eligibility for deferral or
other benefits hereunder, and make all other determinations and take all other
actions assigned to the Administrator hereunder. If any person claims any
benefits hereunder, the Administrator shall make and communicate its decision
with respect to the claim within 90 days from the date the claim was received.
Where special circumstances require additional time for processing the claim,
the ninety-day response period may be extended by the Administrator to 180 days.
If the Administrator does not render a written determination prior to the
expiration of such 90-day (or 180-day) period, the claim will be deemed denied.
If a claim hereunder is denied, the claimant may, within 60 days of such denial,
appeal the denial by written request for review delivered to the Board of
Directors or its designate, which request may include a request to review
pertinent documents and to submit issues and comments in writing. The Board or
its designate shall render a decision on the appeal within 60 days (or, if
special circumstances require an extension of the time for processing, 120 days)
after receipt of the request for review; but if no written decision is rendered
within such period(s), the appeal will be deemed denied.
18. Governing law. The Plan shall be construed in accordance with the
-------------
laws of the Commonwealth of Massachusetts to the extent those laws are not
preempted by ERISA.
<PAGE>
EXHIBIT 10.16
SPLIT-DOLLAR AND COLLATERAL ASSIGNMENT AGREEMENT
THIS SPLIT-DOLLAR AND COLLATERAL ASSIGNMENT AGREEMENT made and entered into
this ___ day of ________________, 199_, by and between Cambridge Technology
Partners ("the Company") and _____________________(the "Employee"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Company; and
WHEREAS, the Employee wishes to provide life insurance protection for his
or her family in the event of his or her death, under the Policy of life
insurance insuring his or her life (hereinafter referred to as the "Policy"),
which is by this reference made part hereof, and which is being issued by the
John Hancock Mutual Life Insurance Company (hereinafter referred to as the
"Insurer") as Policy No. _________________; and
WHEREAS, the Employee is the owner of the Policy and, as such, possesses
all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to have the Policy collaterally assigned to it
by the Employee, in order to secure full repayment of all the amounts which it
will pay toward the premiums on the Policy (the "Company's Policy Interest");
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
Section 1. Purchase of Policy by Employee from Insurer.
--------- -------------------------------------------
The Employee has purchased the Policy from the Insurer. The Employee has
taken all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement and to remain in effect. The parties hereto
agree that the Policy shall be subject to the terms and conditions of this
Split-Dollar and Collateral Assignment Agreement (this "Agreement"). The
parties further agree to execute any additional documents required to be filed
with the Insurer relating to the Policy or this Agreement.
<PAGE>
Section 2. Employee as Policy Owner.
--------- ------------------------
The Employee shall be the sole and absolute owner of the Policy, and may
exercise all ownership rights granted to the owner thereof by the terms of the
Policy, except as may otherwise be provided herein.
Section 3. Dividend Option to Be Mutually Agreed To.
--------- ----------------------------------------
Any dividend declared on the Policy shall be applied under the Policy's
dividend option mutually selected and agreed to by the parties.
Section 4. Premium Payment.
--------- ---------------
On or before the due date of each Policy premium or within the grace period
provided therein, the Company shall during the term of this Agreement pay the
amount of the premium due the Insurer not to exceed the maximum annual premium
specified in Exhibit A attached hereto and shall, upon request, furnish the
Employee evidence of timely payment of such premium.
Section 5. Collateral Assignment of Policy to the Company.
--------- ----------------------------------------------
To secure the repayment to the Company of the amount of all the premiums on
the Policy paid by the Company, the Employee hereby assigns the Policy to the
Company as collateral. For purposes of this Agreement, the total of all
premiums paid by the Company shall be referred to as the "Company's Policy
Interest" and the Policy shall be collaterally assigned to the Company to the
full extent of the Company's Policy Interest. This collateral assignment of the
Policy to the Company shall not be terminated, altered, amended, adversely
affected or reduced in any way by the Employee, without the express written
consent of the Company. The parties hereto agree to execute any additional
collateral assignment forms or documents required by the Insurer, or which may
otherwise be necessary to implement this Agreement.
Section 6. Necessity of Consent from The Company.
--------- -------------------------------------
(a) The Employee shall not sell, assign, transfer, withdraw from,
borrow against, surrender in whole or in part or cancel the Policy, change the
beneficiary designation provision thereof (as described in Section 7 below), nor
terminate the dividend election mutually selected by the parties without, in any
such case, the express written consent of the Company.
(b) Notwithstanding any provision hereof to the contrary, the Employee shall
have the right to absolutely and irrevocably give to a donee (including,
but not limited to, any insurance trust) all of his or her right, title and
interest in and to the Policy, subject to the collateral assignment of the
Policy to the Company pursuant hereto. The Employee may exercise
-2-
<PAGE>
this right by executing a written transfer of ownership in the form used by
the Insurer for irrevocable gifts of insurance policies, and delivering
this form to the Company. Upon receipt of such form, executed by the
Employee and duly accepted by the donee thereof, the Company shall consent
thereto in writing, and shall thereafter treat the Employee's donee as the
sole owner of all of the Employee's right, title and interest in and to the
Policy, subject to this Agreement and the collateral assignment of the
Policy to the Company pursuant thereto. Thereafter, the Employee shall have
no right, title or interest in and to the Policy, all such rights being
vested in and exercisable only by such assignee.
Section 7. Death Benefit Payable to The Company.
--------- ------------------------------------
Upon the death of the Employee, the Company shall have the unqualified
right to receive a portion of the death benefit provided under the Policy equal
to the Company's Policy Interest, reduced by any outstanding indebtedness which
was incurred by the Company and secured by the Policy (as the Company shall have
the right at all times to borrow against and withdraw from the Policy to the
extent of its Policy Interest as an assignee), including any interest due on
such indebtedness. The balance of the death benefit provided under the Policy,
if any, shall be paid directly to the beneficiary or beneficiaries designated by
the Employee, in the manner and in the amount or amounts provided in the
beneficiary designation provision of the Policy. In no event shall the amount
payable to the Company hereunder exceed the Policy proceeds payable at the death
of the Employee. No amount shall be paid from such death benefit to the
beneficiary or beneficiaries designated by the Employee until the full amount of
the Company's Policy Interest has been paid to the Company. The parties hereto
agree that the beneficiary designation provision of the Policy shall conform to
the provisions hereof.
Section 8. Termination of Agreement.
--------- ------------------------
This Agreement shall terminate upon the occurrence of the earlier of the
following events:
(a) The termination of the Employee's employment with the Company
(other than by reason of his or her death in which event the
Company will be repaid for its Policy Interest in accordance with
Section 7), or
(b) Upon thirty (30) days written notice by the Company to the
Employee.
Section 9. Full Repayment to The Company Upon Termination of the
--------- -----------------------------------------------------
Agreement.
---------
(a) For thirty (30) days after the date of the termination of this
Agreement, the Employee shall have the option of obtaining the release of the
collateral assignment of the Policy to the Company. To obtain such release, the
Employee shall repay to the Company the total amount of the Company's Policy
Interest. Upon receipt of such amount, the Company shall
-3-
<PAGE>
release the collateral assignment of the Policy, by the execution and delivery
of an appropriate instrument of release.
(b) If the Employee fails to exercise such option within such thirty
(30) day period, then, at the request of the Company, the Employee (and any
donee of the Employee) shall immediately execute any documents required by the
Company or the Insurer (including, but not limited to, transfer of ownership of
the Policy to the Company) to enable the Company to be repaid the full amount of
the Company's Policy Interest from the cash value of the Policy under the
collateral assignment of the Policy. For purposes of this Agreement, the
Policy's "cash value" shall include the Policy's cash surrender value, any
amounts in any "side fund", "contract fund", "separate account" or similar funds
under the Policy, and any cash amounts available under the Policy for any reason
other than death. In the event the Company surrenders the Policy for its cash
value and the cash value is less than the total amount of the Company's Policy
Interest, the Employee shall not be liable for the difference between the
Company's Policy Interest and the cash value of the Policy actually received by
the Company; in the event the Company surrenders the Policy for its cash value
and the cash value exceeds the Company's Policy Interest, any such excess cash
value (the "excess cash value") remaining after the Company has been fully
repaid for the Company's Policy Interest, shall remain the exclusive property of
the Employee; thereafter, neither the Employee nor his or her respective heirs,
assigns or beneficiaries shall have any further interest in and to the Policy,
either under the terms thereof or under this Agreement.
Section 10. Discharge of Insurer.
---------- --------------------
The Insurer shall be fully discharged from its obligations under the Policy
by payment of the Policy death benefit to the beneficiary or beneficiaries named
in the Policy, subject to the terms and conditions of the Policy. In no event
shall the Insurer be considered a party to this Agreement, or any modification
or amendment hereof. No provision of this Agreement, nor of any modification or
amendment hereof, shall in any way be construed as enlarging, changing, varying,
or in any other way affecting the obligations of the Insurer as expressly
provided in the Policy, except insofar as the provisions hereof are made a part
of the Policy by this collateral assignment.
Section 11. Nature of Agreement.
----------- -------------------
This Split-Dollar Agreement is intended to constitute an employee welfare
benefit Plan under the Employee Retirement Income Security Act of 1974
("ERISA"). For purposes of ERISA, the Company is hereby designated as the named
fiduciary under this Agreement. As the named fiduciary, the Company shall have
discretionary authority to control and manage the operation, interpretation, and
administration of this Agreement and to establish any claim procedures required
by ERISA.
-4-
<PAGE>
Section 12. Amendment Only by Written Instrument.
----------- ------------------------------------
This Agreement may not be amended, altered or modified, except by a written
instrument signed by the parties hereto, or their respective successors or
assigns, and may not be otherwise terminated except as provided herein.
Section 13. Agreement Binding Upon Successors and Assigns.
----------- ---------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns, and the Employee, his or her successors,
assigns, donees, heirs, executors, administrators and beneficiaries.
Section 14. Notice Provisions.
----------- -----------------
Any notice, consent or demand required or permitted to be given under the
provisions of this Agreement shall be in writing, and shall be signed by the
party giving or making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail, postage
prepaid, addressed to such party's last known address as shown on the records of
the Company. The date of such mailing shall be deemed the date of notice,
consent or demand.
Section 15. Employee Responsible for Payment of Taxes Due from Him or Her.
----------- -------------------------------------------------------------
The Employee shall be responsible for the payment of any state or federal
taxes due from him or her arising out of, or in any way related to, this
Agreement or the Policy, including, but not limited to, any taxes due on the
economic benefits received by the Employee under this Agreement and the Policy,
as determined in accordance with the rulings and regulations of the Internal
Revenue Service relating to split-dollar life insurance. The Employee
acknowledges that the Company has made no representations as to any actual or
potential tax consequences to the Employee arising out of, or in any way related
to, this Agreement or the Policy.
Section 16. Indemnification for Failure to Withhold.
----------- ---------------------------------------
The Employee shall indemnify and reimburse the Company for any liability
(including, but not limited to, penalties and interest) the Company may incur
for failure to withhold state or federal income tax or social security tax in
connection with this Agreement or the Policy.
Section 17. Satisfaction of Company's Obligations to Provide Employee with
----------- --------------------------------------------------------------
Life Insurance
--------------
By entering into this Agreement, the Company shall have fully satisfied,
and shall be fully discharged from, any obligations it may have had to provide
the Employee with
-5-
<PAGE>
life insurance, including, but not limited to, any such obligations contained in
any employment agreement between the Company and the Employee.
Section 18. Governing Law - ERISA Preemption.
----------- --------------------------------
Except to the extent federal law applies, this Agreement, and the rights of
the parties hereunder, shall be governed by and construed in accordance with the
laws of Massachusetts. However, to the extent ERISA applies, it shall preempt
any state laws (including the laws of Massachusetts) relating to this Agreement
or the Policy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The Company:
By
-----------------------------
(Signature)
- -------------------------------
(print)
Title
--------------------------
Date
---------------------------
Employee:
(Signature)
- ------------------------------
Date
---------------------------
-6-
<PAGE>
EXHIBIT A
---------
Maximum Annual Premium Payment
------------------------------
In no event will the Company have any obligation to pay any annual premium
due under the Policy exceeding $_________________ (the "Maximum Annual Premium
Payment").
-7-
<PAGE>
EXHIBIT 10.17
DATE 16 NOVEMBER 1995
---------------------
PETER CHADWICK HOLDINGS LIMITED
QUENTIN JAMES FRANK BAER
SERVICE AGREEMENT
Macfarlanes
10 Norwich Street
London EC4A 1BD
JRSD/519336/0681797.01
24 March 1998
Draft 1
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1 Definitions and Interpretation 1
2 Appointment 4
3 Duties 5
4 Remuneration and Expenses 5
5 Place of Work 8
6 Hours of Work 9
7 Holidays 9
8 Illness 9
9 Confidentiality 11
10 Conflicts of Interest 12
11 Intellectual Property 13
12 Termination 14
13 Termination of Directorship and Group Reconstruction 17
14 Action to be taken upon Termination 18
15 Restrictions following Termination 18
16 Statutory Requirements 21
17 General 22
18 Notices 22
19 Governing Law and Jurisdiction 23
</TABLE>
<PAGE>
SERVICE AGREEMENT
DATE 16 November 1995
PARTIES
1 PETER CHADWICK HOLDINGS LIMITED (Registered No. 3114683) whose registered
office is at Whittaker House, Whittaker Avenue, Richmond, Surrey TW9 1EH
("the Company")
2 QUENTIN JAMES FRANK BAER of 32 St James' Gardens, London W11 4RH ("the
Employee")
AGREEMENT
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the
following meanings:-
THE BOARD: the Board of directors of the Company or any Committee of the
Board duly appointed by it;
CLIENT: any person, concern, undertaking, firm or body corporate or any
division, branch or establishment within any such entity responsible for
any particular product, service or brand which at any time during the
period of 12 months immediately preceding the Termination Date was a
customer or client of the Company or any Group Company or to whom the
Company has in the three months preceding the Termination Date made a
pitch or presentation or other such offer or request to provide services
(which has not been finally refused or rejected by the Client) and on or
for whose account or business the Employee personally worked or was
responsible or in relation to whom or whose products services business or
plans the Employee shall have obtained Confidential Information during
the periods preceding the Termination Date referred to above;
<PAGE>
THE COMMENCEMENT DATE: the date hereof;
COMPETITOR: any person, concern, undertaking, firm or body
corporate which is engaged in or carries on within any part of
the Restricted Territories any business which competes with any
business of a kind carried on by the Company or by any Group
Company at the Termination Date in which the Employee has been
involved to a material extent on behalf of the Company or any
Group Company at any time within the 12 months immediately
preceding the Termination Date;
CONFIDENTIAL INFORMATION: all and any information not in the
public domain (or which comes into the public domain as a result
of unauthorised disclosure by the Employee or by any other person
who owes the Company or any Group Company an obligation of
confidentiality in respect of the information disclosed)
concerning the business and/or finances of the Company or any
Group Company or any partners or joint venturers of the Company
or any Group Company or any Client or Supplier, including,
without prejudice to the generality of the foregoing: trade
secrets; customer/client lists, contact details of Clients and
Suppliers and individuals within Clients and Suppliers;
technical information, know how, research and development;
financial projections, targets details and accounts; fee levels,
pricing policies, commissions and commission charges; budgets,
forecasts, reports, interpretations, records and corporate and
business plans; planned products and services; marketing and
advertising plans, requirements and materials; marketing surveys
and research reports and market share and pricing statistics;
and computer software and passwords;
DOCUMENTS: any document, disc, memory device, notebook, tape or
other medium whether or not eye-readable on which any information
may from time to time be recorded;
GROUP COMPANY: any company which is from time to time a holding
company (as defined by Section 736 Companies Act 1985 (as amended
by the Companies Act 1989)) of the Company, a subsidiary (as so
defined) of the Company or a subsidiary (as so defined) of a
holding company (as so defined) of the Company;
2
<PAGE>
THE GROUP: the Company and all Group Companies;
INVENTION: any discovery, invention, secret process, improvement
in procedure, trade mark, design or copyright work made,
discovered or produced by the Employee in the course of his
employment and which is in connection with or in any way
affecting or relating to the business of the Company or any Group
Company or capable of being used or adapted for use in connection
with the business of the Company or any Group Company;
THE RESTRICTED TERRITORIES: any country in which the Group
carries on any part of its business, or in which it has provided
services to clients, being countries in which the Employee has to
a material extent direct or indirect dealings with clients or
prospective clients of the Company or any Group Company or in
which he has to a material extent been involved in market
research on behalf of the Company or any Group Company because of
his duties hereunder during the period of 12 months preceding the
Termination Date;
SUPPLIER: any person, concern, undertaking, firm or body
corporate or any readily identifiable division within any
concern, undertaking, firm or body corporate which at any time
during the period of 12 months immediately preceding the
Termination Date was a supplier to or the introducer of a
prospective customer or clients to the Company or any Group
Company and with which the Employee was involved personally in
dealings or negotiations on behalf of the Company or any Group
Company at any time during that period of 12 months immediately
preceding the termination date; and
TERMINATION DATE: the date on which the Employee's employment
under this Agreement is terminated.
1.2 In this Agreement (unless the context requires otherwise):-
1.2.1 any reference to any statute or statutory provision shall be
construed as including a reference to any modification, re-
enactment or extension of such statute or statutory provision for
the time being in force or to any subordinate legislation made
under the same;
3
<PAGE>
1.2.2 the singular includes a reference to the plural and vice versa;
1.2.3 any reference to a Clause is to a Clause of this Agreement; and
1.2.4 "directly or indirectly" shall (without prejudice to the
generality of the expression) mean either alone or jointly with
any other person, firm or body corporate and whether on his own
account or in partnership with another or others or as the holder
of any interest in or as officer, employee or agent of or
consultant to any other person, firm or body corporate.
The headings contained in this Agreement are for the purposes of
convenience only and do not form part of and shall not affect the
construction of this Agreement or any part of it.
2 APPOINTMENT
The Company appoints the Employee and the Employee agrees to
serve the Company as Chairman subject to the terms and conditions
of this Agreement.
2.2 The appointment of the Employee shall (subject to the provisions
of Clause 12) be for an initial fixed period of two years from
the Commencement Date and shall continue thereafter unless and
until terminated by either party giving to the other not less
than six months' notice in writing expiring on the second
anniversary of the Commencement Date or at any time thereafter.
2.3 The Employee warrants that by entering into these or any other
arrangements made or to be made between the Company or any Group
Company and him he will not be in breach of any express or
implied terms of any contract with or other obligation to any
third party binding on him, including without limitation the
provisions of any restrictive covenants or confidentiality
obligations, arising out of any employment with any other
employer or former employer.
4
<PAGE>
3 DUTIES
3.1 The Employee shall perform during his employment such duties and
exercise such powers in relation to the business of the Company
or of any Group Company as may from time to time be assigned to
or vested in him by the Board and shall at all times and in all
respects conform to and comply with the reasonable directions of
and regulations made by the Board. The Employee shall perform
such services for any Group Company (without further remuneration
except as set out in this Agreement) and shall accept such
offices in any such companies as the Board may require.
3.2 The Employee shall during his employment well and faithfully
serve the Company and the Group Companies and use his best
endeavours to promote, develop and extend their businesses and
interests and shall devote substantially all of his working time
and attention to the duties of his office.
3.3 The Employee shall carry out his duties and exercise his powers
jointly with any other person appointed by the Board to act
jointly with him.
4 REMUNERATION AND EXPENSES
4.1.1 The Company shall pay to the Employee by way of remuneration for
his services under this Agreement a salary at the rate of ONE
HUNDRED AND SEVENTY FIVE THOUSAND POUNDS ((Pounds)175,000) per
annum.
4.1.2 Such salary shall be:-
4.1.2.1 payable by equal monthly instalments in arrears on the
day appointed by the Board for the payment of employees'
salaries or pro rata where the Employee is only employed
hereunder during part of a month;
4.1.2.2 reviewed by the Board annually in June of each year and
shall be increased by an amount not less than the
increase in the retail prices index for the period under
review.
5
<PAGE>
4.1.2.3 the Employee shall not be entitled to any director's or
other fees from the Company or any Group Company in
respect of any office he may hold with the Company or as
nominee or representative of the Company or any Group
Company and accordingly either the Employee shall pay
over or procure to be paid over to the Company all such
fees received or receivable by him or his remuneration
shall be reduced pro tanto;
4.2 The Company shall reimburse the Employee for all reasonable
travelling, hotel and other out-of-pocket expenses which are
properly and necessarily incurred by him in or about the
performance of his duties and for which receipts or other
supporting documents (if so required) are provided to the
reasonable satisfaction of the Board.
4.3 In addition to the salary payable pursuant to Clause 4.1, the
Employee shall be entitled to a bonus calculated in the manner
set out in the Schedule hereto.
4.4 The Company shall provide and maintain (including the costs of
servicing, taxing, insuring and fuelling the same) two motor cars
one of which shall be a used BMW 750i or its equivalent and one
of which shall be of a value of not more than (Pounds)20,000
("the Second Car") for the use of the Employee for the
performance of his duties, such cars to be changed from time to
time in accordance with the Company's policy regarding
replacement cars. The Employee may at his option in each calendar
year elect to receive a cash sum equivalent to 30% of the value
of the Second Car to which he may be entitled from time to time,
instead of his entitlement to the Second Car. The Employee shall
be at liberty to use the cars for his private purposes but
shall:-
4.4.1 take good care of the cars and procure that the provisions and
conditions of any policy of insurance relating to the cars are
observed;
4.4.2 comply with any directions from time to time given by the Company
with regard to the cars provided by the Company for the use of
its staff;
6
<PAGE>
4.4.3 The Employee agrees and acknowledges that his entitlement to the
provision and use of the car subsists only so long as he
continues to be employed and shall return the car to the Company
immediately upon the termination of his employment under this
Agreement. The Employee shall not be entitled to retain the car
as a purported set-off or otherwise against any claim by the
Employee for damages from the Company.
4.4.4 If for any reason the Employee is disqualified from driving, the
Employee shall if the Company in its absolute discretion so
determines cease to be entitled to the use of the car during the
period of disqualification. The Employee shall upon demand return
the car to the Company and shall not be entitled to any
compensation or payment in lieu in this respect nor shall this
action constitute a breach of contract.
4.5 The Company shall provide the Employee with a telephone fitted to
each of the cars and shall be responsible for all outgoings in
respect of such telephones. In addition the Employee is required
to install and keep installed a telephone and fax machine in his
home to enable him to perform his duties and the Company shall be
responsible for all outgoings in respect of this telephone and
fax line.
4.6 The Employee and his spouse and children under 18 years of age
shall be entitled to participate in any private health care
insurance scheme providing benefits for medical and surgical
treatment which the Company may from time to time maintain
(subject always to the rules of such scheme).
4.7 The Employee shall be entitled to participate in any scheme of
Permanent Health and Disability Insurance which the Company may
from time to time maintain (subject always to the rules of such
scheme).
4.8 The Company shall during the Employee's employment under this
Agreement arrange and pay the premiums of a life insurance scheme
or policy which provides for payment to the Employee's nominated
dependents of a sum equal to the aggregate of (Pounds)500,000
plus four times the basic salary payable to the Employee under
Clause 4.1 as at the date of his death together with a pension
payable to his spouse equal to two-thirds of the pension to which
the Employee
7
<PAGE>
would have been entitled pursuant to the pension scheme referred
to in Clause 4.9.1.
4.9.1 The Employee shall be entitled to continue as a member of Peter
Chadwick Limited pension scheme ("the Scheme") (subject to the
rules of the Scheme).
4.9.2 Provided that, and for so long as, the Employee shall continue as
a member of the Scheme (or any other similar scheme established
by the Company or the Group in replacement of the Scheme for the
purpose of providing pension benefits to employees) the Company
shall procure that the pension benefits to which the Employee
shall be entitled shall be calculated and paid as if those
benefits were not subject to the limitation on remuneration
imposed by Section 590C of the Income and Corporation Taxes Act
1988 (or any statutory modification or reenactment thereof, and
as amended from time to time). If and to the extent that the
Company is not permitted by law to provide those benefits through
the Scheme, the Company shall make such other arrangements as it
considers appropriate, whether by a funded or by an unfunded
unapproved arrangement, at its sole option. The pension benefits
referred to in this paragraph shall be based on the Employee's
basic salary only, and not upon any other element of his
remuneration or benefits.
4.9.3 If the Company in breach of this Agreement terminates the
Employee's employment prior to the expiry of the fixed term
referred to in Clause 2.2 or without due notice the Company shall
(subject to any limits imposed by law) ensure that the actuarial
value of the pension benefits to which the Employee is entitled
shall be equal to the amount which it would have been if the
employment had been terminated at the earliest date permitted by
this Agreement.
5 PLACE OF WORK
The Employee shall perform his duties at any place within the
United Kingdom as the Board may require from time to time for the
proper performance and exercise of his duties and powers and he
may be required to travel abroad on the business of the Company
or any Group Company.
8
<PAGE>
6 HOURS OF WORK
There are no normal hours of work applicable to the Employee but
the Employee shall conform to such hours of work as may from time
to time reasonably be required of him and in any event he shall
work such hours as may be necessary for the proper performance of
his duties. The Employee shall not be entitled to receive any
additional remuneration for work outside his normal hours.
7 HOLIDAYS
7.1 In addition to the usual bank and other public holidays, the
Employee shall be entitled without loss of remuneration to six
weeks' holiday in each calendar year to be taken at such time or
times as may be approved by the Board. Any entitlement to holiday
remaining at the end of any calendar year shall lapse without
entitlement to payment in lieu thereof.
7.2 On the expiration or termination of this Agreement, the Employee
shall be entitled to holiday pay in respect of holiday accrued
pro rata to the number of complete months of service during the
calendar year of termination less holiday actually taken.
8 ILLNESS
8.1 The Employee shall continue to be paid during absence due to any
illness, accident or other incapacity (such payment to be
inclusive of any statutory sick pay or social security benefits
to which he may be entitled) for a total of up to 26 weeks.
Thereafter, for a further period of 26 weeks of absence due to
illness accident or other incapacity the Employee shall receive
half the normal remuneration payable to him under this Agreement
(inclusive of any statutory sick pay or social security benefits
to which he may be entitled) subject always to the provisions of
Clause 12.1.2.
8.2 Immediately following the Employee's return to work after a
period of absence of seven days or less which, or any part of
which, has not previously been authorised by the Company, the
Employee shall on request by the Company
9
<PAGE>
complete a self-certification form in such form as the Company
may require stating the date of, and the reason for, the
Employee's absence, including details of sickness on non-working
days, as this information is required by the Company for
calculating statutory sick pay entitlement. Self-certification
forms will be retained in the Company's records.
8.3 For periods of absence of more than seven consecutive days, the
Employee shall, if so required by the Company, produce a doctor's
certificate verifying that any absence from work is due to
accident or ill-health and in default such absence shall be
deemed to be unjustified.
8.4 The Employee may be required at the reasonable request of the
Company during the course of his employment to attend a doctor or
clinic nominated by the Company for the purpose of a
comprehensive medical examination to determine his fitness for
continued employment and shall co-operate in ensuring the prompt
delivery of the relative report to the Company.
8.5 If the illness, accident or other incapacity shall be or appear
to be occasioned by actionable negligence of a third party in
respect of which damages are or may be recoverable, the Employee
shall immediately notify the Board of that fact and of any claim,
compromise, settlement or judgment made or awarded in connection
with it, shall give to the Board all particulars the Board may
reasonably require and shall, if required by the Board, refund
all or such part of the sums paid to or for the benefit of the
Employee by way of salary, bonus or benefit during the relevant
period as the Board may reasonably determine provided that the
amount to be refunded shall not exceed the amount of damages or
compensation and interest thereon recovered by the Employee less
any costs borne by the Employee in connection with the recovery
of such damages or compensation and shall not exceed the total
remuneration paid to him by way of salary, bonus and benefits in
respect of the period of such illness, accident or other
incapacity.
9 CONFIDENTIALITY
9.1 Except in so far as is required for the proper performance of his
duties or as expressly authorised by the Company the Employee
shall at all times before and
10
<PAGE>
after the Termination Date use his best endeavours to prevent the
publication, disclosure or unauthorised use of any Confidential
Information.
9.2 Except in so far as is required for the proper performance of his
duties or as expressly authorised by the Company the Employee
shall not at any time before or after the Termination Date:-
9.2.1 communicate or divulge to any person, concern, undertaking, firm
or body corporate or make any use of any Confidential Information
which he shall have come to know or have received or obtained at
any time by reason of or in connection with his service with the
Company or any Group Company;
9.2.2 copy or reproduce in any form or by or on any medium or device or
allow others access to or to copy or reproduce any Documents
containing any Confidential Information;
9.2.3 remove from the Company's or any Group Company's premises any
Documents containing any Confidential Information.
9.3 The Employee shall not be restricted from disclosing (but only to
the proper recipient) any Confidential Information which the
Employee is required to disclose by law or any order of a court
of competent jurisdiction or any relevant regulatory body of
competent jurisdiction, provided that the Employee shall, unless
prevented by law from so doing, have given prior written notice
to the Company of the requirement and of the information to be
disclosed and allowed the Company a reasonable opportunity to
apply to the relevant Court or body or prevent disclosure before
the Employee makes it; and
9.4 The Employee acknowledges that all Documents containing or
referring to Confidential Information at any time in the
Employee's control or possession are and shall at all times
remain the absolute property of the Company and the Employee
undertakes both during his employment and after the Termination
Date:
11
<PAGE>
9.4.1 to exercise all due care and diligence to avoid any unauthorised
publication disclosure or use of any Confidential Information and any
Documents containing or referring to it;
9.4.2 whenever requested by the Company, to deliver up any Confidential
Information (including all Documents and all copies of Documents whether
or not lawfully made or obtained) or (at the Company's option) to delete
Confidential Information from any re-usable medium; and
9.4.3 to do such things and sign such documents at the expense of the Company
as shall be reasonably necessary to give effect to Clause 9.4 and/or to
provide evidence that Clause 9.4 has been complied with.
9.5 The Employee agrees that the restrictions set out in Clause 9 are without
prejudice to any other duties of confidentiality owed to the Company
whether express or implied and will remain in force after termination of
the employment.
10 CONFLICTS OF INTEREST
10.1 The Employee shall not without the previous written consent of the Board
during the course of his employment:-
10.1.1 directly or indirectly engage or be interested in any other business
undertaking or activity which would or might reasonably be expected to
compete or conflict with the business or interests for the time being of
the Company or any Group Company; or
10.1.2 directly or indirectly engage or be interested in any other business
undertaking or activity which would or might reasonably require him to
disclose any Confidential Information in breach of this Agreement;
10.1.3 directly or indirectly engage in or be interested in any business other
than that of the Company and the Group in a manner or to an extent which
would or might materially affect his performance of his duties as a
Director of the Company and
12
<PAGE>
other Group Companies or his performance of his obligations under this
Agreement;
10.1.4 hold any directorship of any company
save that he may (but without prejudice to Clause 9) be interested as a
holder or beneficial owner solely for investment purposes of less than
five per cent. of any securities of any company (other than a Competitor)
whose securities are listed or quoted on any recognised investment
exchange in the United Kingdom.
11 INTELLECTUAL PROPERTY
11.1 The Employee shall immediately disclose any Invention to the Company and
the Invention shall belong to and be the absolute property of the Company
or such Group Company as the Company may nominate for the purpose.
11.2 The Employee shall, at the request and expense of the Company (or its
nominee), (whether during or after the termination of this Agreement)
apply or join in applying for patents, trade marks or other equivalent
protection in the United Kingdom or any other part of the world for any
Invention and complete all instruments and do all things necessary for
vesting patents, trade marks or other equivalent protection when obtained
and all right, title and interest to and in the same in the Company (or
its nominee) absolutely and as sole beneficial owner. The Employee hereby
irrevocably appoints the Company to be his attorney in his name and on his
behalf to complete any such instrument or do any such thing and generally
to use his name for the purpose of giving to the Company (or its nominee)
the full benefit of the provisions of this Clause.
11.3 Until such time as any Invention is fully vested in the Company pursuant
to Clause 11.2 the Employee shall hold all rights, title and interest in
the Invention in trust for the Company absolutely.
11.4 The Employee acknowledges and agrees that the Employee will not (whether
during or after his employment) apply or join in applying for any patent,
13
<PAGE>
registered design, trade mark or other equivalent protection in respect of
any Invention without the prior written approval of the Company.
11.5 The Employee hereby waives all moral rights as defined in Chapter IV of
Part I of the Copyright Designs and Patents Act 1988 in any works
produced during the period of his employment with the Company in which
Copyright is vested in the Company or any Group Company whether by virtue
of this Clause or otherwise.
11.6 The Employee further acknowledges that having regard in particular to the
nature of the business of the Company and the nature of the Employee's
skills, qualifications and expertise:-
11.6.1 the normal duties of the Employee include the making of Inventions and
Inventions may result from the carrying out by the Employee of his
duties; and
11.6.2 because of the nature of the Employee's duties referred to in this Clause
and the responsibilities arising from the nature of those duties, the
Employee has a special obligation to further the interests of the
Company's undertaking.
12 TERMINATION
12.1 The employment of the Employee may be terminated by the Company without
notice or payment in lieu of notice:-
12.1.1 if the Employee shall become of unsound mind or be or become a patient
under the Mental Health Act 1983;
12.1.2 if the Employee shall at any time be prevented by illness or accident or
other incapacity from properly performing his duties for a period of
three consecutive months or for more than 90 working days in any
consecutive 12 months except where such incapacity arises out of the
performance of his duties or where the Employee is entitled, during his
employment to benefit under any such scheme as is referred to in Clause
4.7. In the event that any benefit is payable to the Employee under such
a scheme, the Company shall not for so long as such benefit continues to
be payable, terminate the employment of the Employee on
14
<PAGE>
grounds of illness or incapacity, but any other remuneration payable to
the Employee under this Agreement shall be reduced by a sum equal to the
amount of such benefit as is paid under the said scheme;
12.1.3 if the Employee shall have committed either any serious breach or (after
warning) repeated or continued any material breach of his obligations
under this Agreement or persistently failed or neglected to carry out his
duties under this Agreement or failed to maintain a satisfactory standard
of conduct or performance within a reasonable time after receiving
written warning from the Board relating to the Employee's conduct and/or
performance;
12.1.4 if the Employee shall have been guilty of conduct (whether or not in the
course of his employment) tending to bring himself, the Company or any
Group Company into disrepute or otherwise to affect prejudicially the
interests of the Company or any Group Company;
12.1.5 if the Employee shall have committed an act of bankruptcy or compounded
with his creditors generally;
12.1.6 if the Employee is convicted of any criminal offence (excluding an
offence under the road traffic legislation in the United Kingdom or
elsewhere in respect of which a custodial sentence is not imposed on the
Employee);
12.1.7 if the Employee shall be or become prohibited by law from being a
director of any company; or
12.1.8 if for any reason the Employee shall (otherwise than at the request of
the Company) resign as a director of the Company.
12.2 If a disciplinary matter arises involving the Employee, the Employee may
be suspended on such terms and conditions as the Board of Directors may
reasonably determine provided that the Employee's salary and benefits
shall not be reduced or withheld.
15
<PAGE>
12.3 The employment of the Employee may be terminated by either party giving
to the other notice in accordance with Clause 2.2 above.
12.4 Notwithstanding any other provisions, the employment of the Employee
shall automatically terminate when the Employee reaches his retirement
date on his 65th birthday.
12.5 The termination by the Company of the Employee's employment shall be
without prejudice to any claim which the Company may have for damages
arising from any breach by the Employee giving rise to such termination.
12.6 In the event that either party gives notice to terminate the employment
the Employee agrees:-
12.6.1 that for a period not exceeding the period of notice in Clause 2.2 above
the Board may in its absolute discretion require the Employee to perform
only such duties as it may allocate to him or not to perform any of his
duties and may require him not to have any contact with Clients of the
Company or any Group Company nor any contact (other than purely social
contact) with such employees of the Company and any Group Company as the
Board shall determine and/or may exclude him from any premises of the
Company or of any Group Company (without providing any reason therefor);
and
12.6.2 that such action taken on the part of the Company shall not constitute a
breach of this Agreement of any kind whatsoever nor shall the Employee
have any claim against the Company in respect of any such action;
PROVIDED ALWAYS that throughout the period of any such action the
Employee's salary and contractual benefits shall not cease to be paid or
provided (unless and until his employment shall be terminated).
12.7 The Company may elect to terminate the contract immediately and make a
payment in lieu of the remainder of the fixed term of this Agreement or
any applicable period of notice. The Employee is required to mitigate his
loss where he is dismissed and any payment in lieu of notice may be
reduced to take account
16
<PAGE>
of mitigation and to take account of the payment or any part of it being
paid earlier than the salary or benefits to which he would otherwise be
entitled under this Agreement.
12.8 If the Employee fails to make himself available for work during any
period of notice of termination of the Employee's employment, other than
at the request of the Company pursuant to clause 12.6 or with the
permission of the Board, the Employee shall not be entitled to any
payment of salary or to any benefits in respect of such absence.
13 TERMINATION OF DIRECTORSHIP AND GROUP RECONSTRUCTION
13.1 If for any reason the Employee shall either:-
13.1.1 resign as a director of the Company; or
13.1.2 be removed from office as a director of the Company
then his employment shall automatically terminate but without prejudice
to any claim which either party may have against the other in respect of
such termination or any breach of contract or duty giving rise to it.
13.2 If before the expiration or termination of this Agreement, the employment
of the Employee shall be terminated by reason of the liquidation of the
Company for the purpose of reconstruction or amalgamation and he shall be
offered employment with any concern or undertaking resulting from such
reconstruction or amalgamation on terms and conditions no less favourable
(financially and in personal status) than the terms then the Employee
shall have no claim against the Company in respect of the termination of
his employment for such reason.
14 ACTION TO BE TAKEN UPON TERMINATION
Upon the Termination Date:-
17
<PAGE>
14.1 the Employee shall forthwith resign without claim for compensation for
loss of office (but without prejudice to any claim he may have against
the Company arising out of any breach of this Agreement by the Company)
from such offices held by him in the Company and any of the Group
Companies and from any other offices he may hold as nominee or
representative of the Company or any Group Company and, should he fail to
do so, the Company is hereby irrevocably authorised to appoint some
person in his name and on his behalf to sign any documents and do any
things necessary or requisite to give effect to such resignations; and
14.2 the Employee shall immediately deliver to the Company all Documents and
copies of Documents (whether or not lawfully obtained), keys, security
passes, telephones, faxes, cars, credit cards and other property of the
Company or any Group Company or any of their respective customers or
clients in his possession or under his control and the Employee shall not
retain any copies of the Company's Documents and the Employee shall at
the Company's request delete all Confidential Information from any re-
usable medium.
15 RESTRICTIONS FOLLOWING TERMINATION
15.1 The Employee acknowledges that during the course of his employment under
this Agreement he will be privy to Confidential Information and he will
make maintain and develop personal knowledge of, influence over and
valuable personal contacts with Clients, Suppliers, staff and third
parties. He therefore covenants with the Company that save with the
previous express written consent of the Company he will not in the
Restricted Territories for the period of two years following the
Termination Date directly or indirectly on his own behalf or on behalf of
any other person, concern, undertaking, firm or body corporate:-
15.1.1 deal with in competition with the Company, seek employment or engagement
with, be employed or engaged by or engage in business with or be in any
way interested in or connected with any Competitor;
15.1.2 deal with, seek employment or engagement with, be employed or engaged by
or engage in business with or work on any account or business of any
Client for the
18
<PAGE>
purpose of providing to that Client services which are the same as or
similar to those which he has been involved in providing to that Client
in the 12 months preceding the Termination Date;
15.1.3 solicit or endeavour to entice away business from any Client for the
purpose of providing to that Client services which are the same as or
similar to those which he has been involved in providing to that Client
in the 12 months preceding the Termination Date;
15.1.4 interfere or seek to interfere with contractual or other trade relations
between the Company or any Group Company and any of its or their
Suppliers;
15.1.5 solicit or endeavour to entice away from the Company or any Group Company
any employee, officer or consultant of the Company or any Group Company
known personally to the Employee other than secretarial, clerical or
junior employees (whether or not such person would commit any breach of
his contract of employment or engagement by reason of leaving the service
of such company or knowingly employ, assist in or procure the employment
by any other person, concern, undertaking, firm or body corporate of any
such person;
15.1.6 communicate to any person, concern, undertaking, firm or body corporate
anything which is intended to or which will or may damage the reputation
or good standing of the Company or any Group Company.
15.2 The Employee will not at any time following the Termination Date, save
with the previous express written consent of the Company, represent
himself as being in any way connected with or interested in the business
of the Company or any Group Company.
15.3 In the event that the Company requires the Employee not to perform any of
his duties and/or exclude the Employee from the Company's premises
("garden leave") as set out in Clause 12.6 above for some or all of any
period of notice, the period of the post termination restrictions set out
in Clause 15 will be reduced by the length of the garden leave served
prior to the Termination Date.
19
<PAGE>
15.4 The Employee agrees that the restrictions contained in Clauses 15.1 and
15.2 are reasonable and necessary for the protection of the legitimate
interests of the Company and the Group Companies and that, having regard
to those interests, those restrictions do not work harshly on him. It is
nevertheless agreed that if any of those restrictions shall taken
together or separately be held to be void or ineffective for any reason
but would be held to be valid and effective if part of its wording were
deleted, or the period or area of application reduced, that restriction
shall apply with such deletions as may be necessary to make it valid and
effective. The Employee further acknowledges that the restrictions
contained in Clauses 15.1 and 15.2 shall apply in relation to all
Customers and Suppliers notwithstanding that such Customers and Suppliers
may have been introduced to the Company or any Group Company by the
Employee before or during his employment with the Company.
15.5 The restrictions contained in each sub-clause of Clause 15.1 shall be
construed as separate and individual restrictions and shall each be
capable of being severed without prejudice to the other restrictions or
to the remaining provisions.
15.6 If the Company transfers all or any part of its business to a third party
("the transferee") the restrictions contained in this Clause shall with
effect from the Employee becoming an employee of the transferee apply to
the Employee as if references to the Company include the transferee and
references to any Group Company were construed accordingly and as if
references to customers, Clients or Suppliers were to, Clients or
Suppliers of the Company and/or the transferee and their respective Group
Companies.
15.7 The Employee hereby agrees that he will at the request and cost of the
Company enter into a direct agreement or undertaking with any Group
Company whereby he will accept restrictions and provisions corresponding
to the restrictions and provisions contained in Clause 15 (or such of
them as may be appropriate in the circumstances) in relation to such
services and such area and for such period as such company or companies
may reasonably require for the protection of its or their legitimate
interests.
20
<PAGE>
15.8 Before accepting any offer of alternative employment the Employee
undertakes that he shall provide a copy of this Agreement to his
prospective new employe r.
15.9 The restrictions set out in this Clause 15 are without prejudice to other
express or implied duties whether fiduciary or otherwise owed by the
Employee to the Company or any Group Company.
16 STATUTORY REQUIREMENTS
16.1 For the purpose of the Employment Protection (Consolidation) Act 1978 as
amended, it is hereby further agreed and declared that:-
16.1.1 the Employee's previous employment with PCH Investments Limited (formerly
Peter Chadwick Holdings Limited) and Peter Chadwick Limited shall count
as part of his continuous employment with the Company which therefore
began on 28 January 1990;
16.1.2 a contracting out certificate is in force for the purposes of the Social
Security Pensions Act 1975 in respect of the Employee.
16.2 Pursuant to the Wages Act 1986, the Employee authorises the Company to
deduct and to retain from any salary or other remuneration (including
without limitation any payment made to the Employee in lieu of notice)
accrued to him in consideration of his employment by the Company (whether
or not actually paid during the continuance of his employment):-
16.2.1 any pension or other similar contribution owed by the Employee as a
consequence of the Employee's membership of the pension scheme referred
to in Clause 4.8 above; and
16.2.2 any sum due from the Employee to the Company or any Group Company.
21
<PAGE>
17 GENERAL
17.1 This Agreement is in substitution for all previous contracts of service
or other arrangements relating to his employment between the Employee and
the Company or any Group Company, which shall be deemed to have been
terminated by mutual consent as from the Commencement Date.
17.2 The expiry or termination of this Agreement shall not operate to affect
such of the provisions of this Agreement as are expressed to remain in
full force and effect notwithstanding such termination.
18 NOTICES
18.1 Any notice to be served in connection with and any notice or other
correspondence under or in connection shall be delivered:-
18.1.1 in the case of the Company, to its registered office for the time being;
and
18.1.2 in the case of the Employee, to his address given or to such other
address as may be notified by him
in writing or transmitted by facsimile or sent by first class pre-paid
mail or delivered by hand in each case to the address as set out above.
18.2 Any such notice or correspondence shall be deemed to have been served as
follows:-
18.2.1 in the case of service by first class mail, on the third business day
after the day on which it was posted;
18.2.2 in the case of delivery or facsimile transmission (subject, in the case
of facsimile transmission, to oral confirmation of receipt of all
transmitted pages) on the day it is delivered or transmitted provided
that if that day is not a business day or, being a business day,
transmission delivery or takes place after 5.00 p.m., then at
22
<PAGE>
9.00 a.m. on the first business day following delivery or transmission of
the notice.
18.3 Subject to Clause 18.2, in proving service by post or delivery it shall
be sufficient to prove that the notice or correspondence was properly
addressed and left at or posted to the place to which it was so
addressed.
18.4 In this Clause, "business day" means any day other than Saturday, Sunday
or any other day which is a public holiday in the place where or to which
the notice or correspondence is left or despatched.
19 GOVERNING LAW AND JURISDICTION
19.1 This Agreement shall be governed by and construed in accordance with the
Laws of England.
19.2 The parties to this Agreement submit to the exclusive jurisdiction of the
English Courts as regards any claim, dispute or matter arising out of or
relating to this Agreement.
EXECUTED as a deed and delivered on the date set out at the head of this
Agreement.
23
<PAGE>
SCHEDULE
BONUS ARRANGEMENTS
The bonus payable to the Employee in respect of each financial year shall be
determined by reference to the matters set out below:-
1 For each financial year of the Company the Employee shall be paid by
way of bonus up to 50% of the basic salary paid pursuant to Clause
4.1.1 hereof in the event that there has been substantial progress
towards achieving the Company's and the Group's strategic objectives
and, in particular, in the event that the Company has achieved its
performance relative to the budget for the financial year in question.
Such bonus shall be pro rated by reference to the proportion of the
financial year during which the Employee is employed. Such bonus shall
be paid in the event the Board shall unanimously resolve that it
should be paid.
2 For each financial year of the Company, the Employee shall be paid by
way of an additional bonus up to 25% of the basic salary payable
pursuant to Clause 4.1.1 hereof in the event that the Board shall
unanimously resolve that such additional bonus should be paid to the
Appointee as a result of the exceptional performance of the Company
during the financial year in question.
24
<PAGE>
SIGNED as a Deed by PETER )
CHADWICK HOLDINGS LIMITED )
acting by )
and )
Director
Director/Secretary /s/ Malcolm Glynn
-----------------------------
SIGNED as a Deed by QUENTIN )
JAMES FRANK BAER in the ) /s/ Quentin J.F. Baer
presence of:- ) -----------------------------
25
<PAGE>
DATED 24 November 1997
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC
PETER CHADWICK HOLDINGS LIMITED
QUENTIN BAER
____________________________
EMPLOYMENT AGREEMENT
____________________________
HOLMAN FENWICK & WILLAN
Marlow House
Lloyds Avenue
London EC3N 3AL
Tel: (0171) 488 2300
Fax: (0171) 481 0316
Telex: 8812247 HFWLON
Ref. RNH/JYK/557
<PAGE>
THIS AGREEMENT is made 24 November 1997
AMONG
(1) CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC., of 304 Vassar Street,
Cambridge, Massachusetts 02139, USA ("Cambridge")
(2) QUENTIN BAER of 32 St. James Gardens, London W11 4RF ("the Executive")
(3) PETER CHADWICK HOLDINGS LIMITED, a company incorporated in England, whose
registered number is 03114683 ("PCH")
WHEREAS:
(A) Cambridge has acquired at least 95% of the share capital of PCH pursuant
to an offer dated 17 November 1997.
(B) It is a term of such acquisition that the Executive is appointed as an
Executive Vice President of Cambridge.
IT IS AGREED as follows:
1. Appointment as executive vice president
---------------------------------------
1.1 The Executive is hereby employed by Cambridge as an executive vice
president of Cambridge. As such he shall manage PCH and its subsidiary
companies and perform such duties as are reasonably assigned to him by the
Chief Executive Officer of Cambridge from time to time (whether they
relate to the business of Cambridge or to the business of PCH and any of
its subsidiaries). In addition, Executive, together with the other
Executive Vice President of Cambridge, who is also formerly a senior
officer at PCH, shall be responsible for the management of the management
consulting strategic business unit of Cambridge and its subsidiaries. The
Executive shall also serve as a member of the executive committee of
senior officers of Cambridge.
1.2 The Executive accepts such employment and agrees to render the services
described in this agreement and in the agreement dated 16 November 1995
between him and PCH ("the Agreement") and to devote his entire available
business time, effort, skill and attention to promote the best interests
of Cambridge and PCH and it subsidiaries. The Executive also agrees that
the remuneration and other benefits which he enjoys under the Agreement,
as modified by clause 4, shall cover his position as executive vice
president of Cambridge and he shall not be entitled to any additional
consideration for such employment.
1.3 In addition to the rights set out in the Agreement (as amended by this
agreement) the Executive shall be considered eligible to participate in
any other fringe benefits, benefit plans or related compensation
<PAGE>
programs or plans such as the discretionary option or bonus plans of
Cambridge to the same extent as executive vice president levels of
employees in Cambridge. In that connection, the Executive shall be
eligible to receive an annual bonus commencing with the twelve month
period ending December 31, 1998 of up to 50% of the salary paid to him by
PCH under the Agreement, to be determined upon the same basis as executive
vice president level employees of Cambridge. All of the Executive's years
of service with PCH shall be deemed to be years of service with Cambridge
or its subsidiaries, as applicable, in determining the Executive's rights
to participate in such benefits, plans or programs.
2. Cessation of Office
-------------------
2.1. If the Executive's employment with PCH pursuant to the Agreement is
terminated for any reason, the Executive shall cease to be an Executive
Vice President of Cambridge contemporaneously with the termination of the
Agreement and shall not be entitled to any compensation as a result in
addition to that to which he may be entitled pursuant to the Agreement or
as a result of it being terminated.
3. Miscellaneous
-------------
3.1 All notices and other communications required or permitted to be given
under this agreement relating to the Executive's employment as an
executive vice president of Cambridge shall be in writing and shall be
deemed to have been duly given and delivered by hand, sent by overnight
courier service or facsimile transmission to the parties at the following
addresses or to such other address of a party if such party may have
designated to the other any prior notice given in accordance with this
agreement:
(a) if to Cambridge to 304 Vassar Street, Massachusetts, 02139, USA
attention Chief Financial Officer
with a copy to
Testa, Hurwitz & Thibeault, LLP
High Street Tower
High Street
Boston MA 02110 USA
Attention: S. Browne Esq
(b) if to the Executive to:
32 St. James Gardens
London
W11 4RF
3.2 This agreement, together with the Agreement as varied by this agreement
and that certain Share and Option Purchase Agreement contemplated by the
share capital offer by Cambridge as described above, sets out the entire
agreement and understanding of the parties concerning the subject matter
of this
2.
<PAGE>
agreement and supersedes any prior understanding and agreement relating to
the terms of the Executive's employment by PCH and by Cambridge.
3.3 This agreement may be amended, modified, superseded or canceled or the
terms or covenants of it may be waived only by a written instrument
specifically referring to this agreement and executed by Cambridge and the
Executive, or in the case of a waiver, by the party entitled to the
benefit of such provisions. The failure by a party hereto at any time or
from time to time to require performance of any obligations under this
agreement shall in no manner affect such party's right to enforce any
provisions of this agreement at a subsequent time; and the waiver by a
party to this agreement of any right arising out of any breach shall not
be construed as a waiver of any right arising out of any subsequent
breach.
3.4 If any provision of this agreement (save for clause 4), or the application
thereof to any person or circumstance, should for any reason and to any
extent be invalid or unenforceable, the remainder of this agreement and
the application of such provision to other persons or circumstances shall
not be affected thereby, but rather shall be enforced to the greatest
extent permitted by the law. Moreover, if one or more of the provisions
contained in this agreement shall for any reason be held to be excessively
broad as to scope, activity, subject or otherwise so as to be
unenforceable at law, such provision or provisions shall be construed by
the appropriate Judicial body by limiting or reducing it or them so as to
be enforceable to the maximum extent compatible with the applicable law as
it shall then appear.
3.5 This agreement shall be governed by and construed in accordance with the
laws of England.
4. Variation of the Agreement
--------------------------
4.1 The Agreement shall be varied in the following respects:
(a) Clause 4.1.2.2 shall be amended to say:
"reviewed by the board of Cambridge annually in December for the
calendar year commencing the following January, the first such
review to take place in December 1998".
(b) Clause 4.2 shall be amended by clarifying that the Executive is
entitled to travel Business or such similar Class on all flights
originating from and terminating in Europe and First or such similar
Class oil all other international flights.
(c) Clause 4.3 (which confers an entitlement to a bonus calculated in the
manner set out in the Schedule to the Agreement) shall cease to apply.
(d) Clause 4.4 shall be varied by removing the right of the Executive to
two motor cars and
3.
<PAGE>
replacing it with a right to be provided one motorcar which shall be a
used BMW 750i or its equivalent.
(e) Clause 4.5 shall be varied by deleting "each of the cars" in the
second line and replacing it with "the car".
(f) Clause 6 shall be varied by inserting at the end of the first sentence
after "the proper performance of his duties" the following:
"under this Agreement and under the agreement between the
Executive, Cambridge and PCH dated 24 November 1997".
4.2 The Executive acknowledges and agrees that, at the time of amending the
Agreement, there were no amounts due to him from PCH or its subsidiaries,
save for his accrued salary and any outstanding business expense
reimbursements.
4.3 In all other respects the agreement shall continue in full force and
effect.
IN WITNESS whereof the parties have signed this agreement
/s/ James P. O'Hare
- ---------------------------------
SIGNED by JAMES P. O'HARE
for and on behalf of Cambridge Technology Partners (Massachusetts), Inc.
/s/ Quentin Baer
- ---------------------------------
SIGNED by QUENTIN BAER
/s/ Malcolm Glyn
- ---------------------------------
SIGNED by Malcolm Glyn
for and on behalf of Peter Chadwick Holdings Limited
4.
<PAGE>
EXHIBIT 10.18
DATE 16 NOVEMBER 1995
----------------------
PETER CHADWICK HOLDINGS LIMITED
IAN PETER CLARKSON
SERVICE AGREEMENT
Macfarlanes
10 Norwich Street
London EC4A 1BD
JRSD/519336/0681797.01
24 March 1998
Draft 1
<PAGE>
CONTENTS
CLAUSE PAGE
1 Definitions and Interpretation 1
2 Appointment 4
3 Duties 5
4 Remuneration and Expenses 5
5 Place of Work 8
6 Hours of Work 9
7 Holidays 9
8 Illness 9
9 Confidentiality 11
10 Conflicts of Interest 12
11 Intellectual Property 13
12 Termination 14
13 Termination of Directorship and Group Reconstruction 17
14 Action to be taken upon Termination 17
15 Restrictions following Termination 18
16 Statutory Requirements 21
17 General 22
18 Notices 22
19 Governing Law and Jurisdiction 23
<PAGE>
SERVICE AGREEMENT
DATE 16 November 1995
PARTIES
1 PETER CHADWICK HOLDINGS LIMITED (Registered No. 3114683) whose
registered office is at Whittaker House, Whittaker Avenue, Richmond,
Surrey TW9 1EH ("the Company")
2 IAN PETER CLARKSON of 38 St Peter's Square, London W6 9NW ("the
Employee")
AGREEMENT
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the
following meanings:-
THE BOARD: the Board of directors of the Company or any Committee of
the Board duly appointed by it;
CLIENT: any person, concern, undertaking, firm or body corporate or
any division, branch or establishment within any such entity
responsible for any particular product, service or brand which at any
time during the period of 12 months immediately preceding the
Termination Date was a customer or client of the Company or any Group
Company or to whom the Company has in the three months preceding the
Termination Date made a pitch or presentation or other such offer or
request to provide services (which has not been finally refused or
rejected by the Client) and on or for whose account or business the
Employee personally worked or was responsible or in relation to whom
or whose products services business or plans the Employee shall have
obtained Confidential Information during the periods preceding the
Termination Date referred to above;
<PAGE>
THE COMMENCEMENT DATE: the date hereof;
COMPETITOR: any person, concern, undertaking, firm or body corporate
which is engaged in or carries on within any part of the Restricted
Territories any business which competes with any business of a kind
carried on by the Company or by any Group Company at the Termination
Date in which the Employee has been involved to a material extent on
behalf of the Company or any Group Company at any time within the 12
months immediately preceding the Termination Date;
CONFIDENTIAL INFORMATION: all and any information not in the public
domain (or which comes into the public domain as a result of
unauthorised disclosure by the Employee or by any other person who
owes the Company or any Group Company an obligation of confidentiality
in respect of the information disclosed) concerning the business
and/or finances of the Company or any Group Company or any partners or
joint venturers of the Company or any Group Company or any Client or
Supplier, including, without prejudice to the generality of the
foregoing: trade secrets; customer/client lists, contact details of
Clients and Suppliers and individuals within Clients and Suppliers;
technical information, know how, research and development; financial
projections, targets details and accounts; fee levels, pricing
policies, commissions and commission charges; budgets, forecasts,
reports, interpretations, records and corporate and business plans;
planned products and services; marketing and advertising plans,
requirements and materials; marketing surveys and research reports
and market share and pricing statistics; and computer software and
passwords;
DOCUMENTS: any document, disc, memory device, notebook, tape or other
medium whether or not eye-readable on which any information may from
time to time be recorded;
GROUP COMPANY: any company which is from time to time a holding
company (as defined by Section 736 Companies Act 1985 (as amended by
the Companies Act 1989)) of the Company, a subsidiary (as so defined)
of the Company or a subsidiary (as so defined) of a holding company
(as so defined) of the Company;
THE GROUP: the Company and all Group Companies;
2
<PAGE>
INVENTION: any discovery, invention, secret process, improvement in
procedure, trade mark, design or copyright work made, discovered or
produced by the Employee in the course of his employment and which is
in connection with or in any way affecting or relating to the business
of the Company or any Group Company or capable of being used or
adapted for use in connection with the business of the Company or any
Group Company;
THE RESTRICTED TERRITORIES: any country in which the Group carries on
any part of its business, or in which it has provided services to
clients, being countries in which the Employee has to a material
extent direct or indirect dealings with clients or prospective clients
of the Company or any Group Company or in which he has to a material
extent been involved in market research on behalf of the Company or
any Group Company because of his duties hereunder during the period of
12 months preceding the Termination Date;
SUPPLIER: any person, concern, undertaking, firm or body corporate or
any readily identifiable division within any concern, undertaking,
firm or body corporate which at any time during the period of 12
months immediately preceding the Termination Date was a supplier to or
the introducer of a prospective customer or clients to the Company or
any Group Company and with which the Employee was involved personally
in dealings or negotiations on behalf of the Company or any Group
Company at any time during that period of 12 months immediately
preceding the termination date; and
TERMINATION DATE: the date on which the Employee's employment under
this Agreement is terminated.
1.2 In this Agreement (unless the context requires otherwise):-
1.2.1 any reference to any statute or statutory provision shall be construed
as including a reference to any modification, re-enactment or
extension of such statute or statutory provision for the time being in
force or to any subordinate legislation made under the same;
3
<PAGE>
1.2.2 the singular includes a reference to the plural and vice versa;
1.2.3 any reference to a Clause is to a Clause of this Agreement; and
1.2.4 "directly or indirectly" shall (without prejudice to the generality of
the expression) mean either alone or jointly with any other person,
firm or body corporate and whether on his own account or in
partnership with another or others or as the holder of any interest in
or as officer, employee or agent of or consultant to any other person,
firm or body corporate.
1.3 The headings contained in this Agreement are for the purposes of
convenience only and do not form part of and shall not affect the
construction of this Agreement or any part of it.
2 APPOINTMENT
2.1 The Company appoints the Employee and the Employee agrees to serve the
Company as Chairman subject to the terms and conditions of this
Agreement.
2.2 The appointment of the Employee shall (subject to the provisions of
Clause 12) be for an initial fixed period of two years from the
Commencement Date and shall continue thereafter unless and until
terminated by either party giving to the other not less than six
months' notice in writing expiring on the second anniversary of the
Commencement Date or at any time thereafter.
2.3 The Employee warrants that by entering into these or any other
arrangements made or to be made between the Company or any Group
Company and him he will not be in breach of any express or implied
terms of any contract with or other obligation to any third party
binding on him, including without limitation the provisions of any
restrictive covenants or confidentiality obligations, arising out of
any employment with any other employer or former employer.
4
<PAGE>
3 DUTIES
3.1 The Employee shall perform during his employment such duties and
exercise such powers in relation to the business of the Company or of
any Group Company as may from time to time be assigned to or vested in
him by the Board and shall at all times and in all respects conform to
and comply with the reasonable directions of and regulations made by
the Board. The Employee shall perform such services for any Group
Company (without further remuneration except as set out in this
Agreement) and shall accept such offices in any such companies as the
Board may require.
3.2 The Employee shall during his employment well and faithfully serve the
Company and the Group Companies and use his best endeavours to
promote, develop and extend their businesses and interests and shall
devote substantially all of his working time and attention to the
duties of his office.
3.3 The Employee shall carry out his duties and exercise his powers
jointly with any other person appointed by the Board to act jointly
with him.
4 REMUNERATION AND EXPENSES
4.1.1 The Company shall pay to the Employee by way of remuneration for his
services under this Agreement a salary at the rate of ONE HUNDRED AND
SEVENTY FIVE THOUSAND POUNDS ((Pounds)175,000) per annum.
4.1.2 Such salary shall be:-
4.1.2.1 payable by equal monthly instalments in arrears on the day
appointed by the Board for the payment of employees'
salaries or pro rata where the Employee is only employed
hereunder during part of a month;
4.1.2.2 reviewed by the Board annually in June of each year and
shall be increased by an amount not less than the increase
in the retail prices index for the period under review.
5
<PAGE>
4.1.2.3 the Employee shall not be entitled to any director's or
other fees from the Company or any Group Company in respect
of any office he may hold with the Company or as nominee or
representative of the Company or any Group Company and
accordingly either the Employee shall pay over or procure to
be paid over to the Company all such fees received or
receivable by him or his remuneration shall be reduced pro
tanto;
4.2 The Company shall reimburse the Employee for all reasonable
travelling, hotel and other out-of-pocket expenses which are properly
and necessarily incurred by him in or about the performance of his
duties and for which receipts or other supporting documents (if so
required) are provided to the reasonable satisfaction of the Board.
4.3 In addition to the salary payable pursuant to Clause 4.1, the Employee
shall be entitled to a bonus calculated in the manner set out in the
Schedule hereto.
4.4 The Company shall provide and maintain (including the costs of
servicing, taxing, insuring and fuelling the same) two motor cars one
of which shall be a used BMW 750i or its equivalent and one of which
shall be of a value of not more than (Pounds)20,000 ("the Second Car")
for the use of the Employee for the performance of his duties, such
cars to be changed from time to time in accordance with the Company's
policy regarding replacement cars. The Employee may at his option in
each calendar year elect to receive a cash sum equivalent to 30% of
the value of the Second Car to which he may be entitled from time to
time, instead of his entitlement to the Second Car. The Employee shall
be at liberty to use the cars for his private purposes but shall:-
4.4.1 take good care of the cars and procure that the provisions and
conditions of any policy of insurance relating to the cars are
observed;
4.4.2 comply with any directions from time to time given by the Company with
regard to the cars provided by the Company for the use of its staff;
6
<PAGE>
4.4.3 The Employee agrees and acknowledges that his entitlement to the
provision and use of the car subsists only so long as he continues to
be employed and shall return the car to the Company immediately upon
the termination of his employment under this Agreement. The Employee
shall not be entitled to retain the car as a purported set-off or
otherwise against any claim by the Employee for damages from the
Company.
4.4.4 If for any reason the Employee is disqualified from driving, the
Employee shall if the Company in its absolute discretion so determines
cease to be entitled to the use of the car during the period of
disqualification. The Employee shall upon demand return the car to the
Company and shall not be entitled to any compensation or payment in
lieu in this respect nor shall this action constitute a breach of
contract.
4.5 The Company shall provide the Employee with a telephone fitted to each
of the cars and shall be responsible for all outgoings in respect of
such telephones. In addition the Employee is required to install and
keep installed a telephone and fax machine in his home to enable him
to perform his duties and the Company shall be responsible for all
outgoings in respect of this telephone and fax line.
4.6 The Employee and his spouse and children under 18 years of age shall
be entitled to participate in any private health care insurance scheme
providing benefits for medical and surgical treatment which the
Company may from time to time maintain (subject always to the rules of
such scheme).
4.7 The Employee shall be entitled to participate in any scheme of
Permanent Health and Disability Insurance which the Company may from
time to time maintain (subject always to the rules of such scheme).
4.8 The Company shall during the Employee's employment under this
Agreement arrange and pay the premiums of a life insurance scheme or
policy which provides for payment to the Employee's nominated
dependents of a sum equal to the aggregate of (Pounds)500,000 plus
four times the basic salary payable to the Employee under Clause 4.1
as at the date of his death together with a pension payable to his
spouse equal to two-thirds of the pension to which the Employee
7
<PAGE>
would have been entitled pursuant to the pension scheme referred to in
Clause 4.9.1.
4.9.1 The Employee shall be entitled to continue as a member of Peter
Chadwick Limited pension scheme ("the Scheme") (subject to the rules
of the Scheme).
4.9.2 Provided that, and for so long as, the Employee shall continue as a
member of the Scheme (or any other similar scheme established by the
Company or the Group in replacement of the Scheme for the purpose of
providing pension benefits to employees) the Company shall procure
that the pension benefits to which the Employee shall be entitled
shall be calculated and paid as if those benefits were not subject to
the limitation on remuneration imposed by Section 590C of the Income
and Corporation Taxes Act 1988 (or any statutory modification or
reenactment thereof, and as amended from time to time). If and to the
extent that the Company is not permitted by law to provide those
benefits through the Scheme, the Company shall make such other
arrangements as it considers appropriate, whether by a funded or by an
unfunded unapproved arrangement, at its sole option. The pension
benefits referred to in this paragraph shall be based on the
Employee's basic salary only, and not upon any other element of his
remuneration or benefits.
4.9.3 If the Company in breach of this Agreement terminates the Employee's
employment prior to the expiry of the fixed term referred to in Clause
2.2 or without due notice the Company shall (subject to any limits
imposed by law) ensure that the actuarial value of the pension
benefits to which the Employee is entitled shall be equal to the
amount which it would have been if the employment had been terminated
at the earliest date permitted by this Agreement.
5 PLACE OF WORK
The Employee shall perform his duties at any place within the United
Kingdom as the Board may require from time to time for the proper
performance and exercise of his duties and powers and he may be
required to travel abroad on the business of the Company or any Group
Company.
8
<PAGE>
6 HOURS OF WORK
There are no normal hours of work applicable to the Employee but the
Employee shall conform to such hours of work as may from time to time
reasonably be required of him and in any event he shall work such
hours as may be necessary for the proper performance of his duties.
The Employee shall not be entitled to receive any additional
remuneration for work outside his normal hours.
7 HOLIDAYS
7.1 In addition to the usual bank and other public holidays, the Employee
shall be entitled without loss of remuneration to six weeks' holiday
in each calendar year to be taken at such time or times as may be
approved by the Board. Any entitlement to holiday remaining at the end
of any calendar year shall lapse without entitlement to payment in
lieu thereof.
7.2 On the expiration or termination of this Agreement, the Employee shall
be entitled to holiday pay in respect of holiday accrued pro rata to
the number of complete months of service during the calendar year of
termination less holiday actually taken.
8 ILLNESS
8.1 The Employee shall continue to be paid during absence due to any
illness, accident or other incapacity (such payment to be inclusive of
any statutory sick pay or social security benefits to which he may be
entitled) for a total of up to 26 weeks. Thereafter, for a further
period of 26 weeks of absence due to illness accident or other
incapacity the Employee shall receive half the normal remuneration
payable to him under this Agreement (inclusive of any statutory sick
pay or social security benefits to which he may be entitled) subject
always to the provisions of Clause 12.1.2.
8.2 Immediately following the Employee's return to work after a period of
absence of seven days or less which, or any part of which, has not
previously been authorised by the Company, the Employee shall on
request by the Company
9
<PAGE>
complete a self-certification form in such form as the Company may
require stating the date of, and the reason for, the Employee's
absence, including details of sickness on non-working days, as this
information is required by the Company for calculating statutory sick
pay entitlement. Self-certification forms will be retained in the
Company's records.
8.3 For periods of absence of more than seven consecutive days, the
Employee shall, if so required by the Company, produce a doctor's
certificate verifying that any absence from work is due to accident or
ill-health and in default such absence shall be deemed to be
unjustified.
8.4 The Employee may be required at the reasonable request of the Company
during the course of his employment to attend a doctor or clinic
nominated by the Company for the purpose of a comprehensive medical
examination to determine his fitness for continued employment and
shall co-operate in ensuring the prompt delivery of the relative
report to the Company.
8.5 If the illness, accident or other incapacity shall be or appear to be
occasioned by actionable negligence of a third party in respect of
which damages are or may be recoverable, the Employee shall
immediately notify the Board of that fact and of any claim,
compromise, settlement or judgment made or awarded in connection with
it, shall give to the Board all particulars the Board may reasonably
require and shall, if required by the Board, refund all or such part
of the sums paid to or for the benefit of the Employee by way of
salary, bonus or benefit during the relevant period as the Board may
reasonably determine provided that the amount to be refunded shall not
exceed the amount of damages or compensation and interest thereon
recovered by the Employee less any costs borne by the Employee in
connection with the recovery of such damages or compensation and shall
not exceed the total remuneration paid to him by way of salary, bonus
and benefits in respect of the period of such illness, accident or
other incapacity.
9 CONFIDENTIALITY
9.1 Except in so far as is required for the proper performance of his
duties or as expressly authorised by the Company the Employee shall at
all times before and
10
<PAGE>
after the Termination Date use his best endeavours to prevent the
publication, disclosure or unauthorised use of any Confidential
Information.
9.2 Except in so far as is required for the proper performance of his
duties or as expressly authorised by the Company the Employee shall
not at any time before or after the Termination Date:-
9.2.1 communicate or divulge to any person, concern, undertaking, firm or
body corporate or make any use of any Confidential Information which
he shall have come to know or have received or obtained at any time by
reason of or in connection with his service with the Company or any
Group Company;
9.2.2 copy or reproduce in any form or by or on any medium or device or
allow others access to or to copy or reproduce any Documents
containing any Confidential Information;
9.2.3 remove from the Company's or any Group Company's premises any
Documents containing any Confidential Information.
9.3 The Employee shall not be restricted from disclosing (but only to the
proper recipient) any Confidential Information which the Employee is
required to disclose by law or any order of a court of competent
jurisdiction or any relevant regulatory body of competent
jurisdiction, provided that the Employee shall, unless prevented by
law from so doing, have given prior written notice to the Company of
the requirement and of the information to be disclosed and allowed the
Company a reasonable opportunity to apply to the relevant Court or
body or prevent disclosure before the Employee makes it; and
9.4 The Employee acknowledges that all Documents containing or referring
to Confidential Information at any time in the Employee's control or
possession are and shall at all times remain the absolute property of
the Company and the Employee undertakes both during his employment and
after the Termination Date:
11
<PAGE>
9.4.1 to exercise all due care and diligence to avoid any unauthorised
publication disclosure or use of any Confidential Information and any
Documents containing or referring to it;
9.4.2 whenever requested by the Company, to deliver up any Confidential
Information (including all Documents and all copies of Documents
whether or not lawfully made or obtained) or (at the Company's option)
to delete Confidential Information from any re-usable medium; and
9.4.3 to do such things and sign such documents at the expense of the
Company as shall be reasonably necessary to give effect to Clause 9.4
and/or to provide evidence that Clause 9.4 has been complied with.
9.5 The Employee agrees that the restrictions set out in Clause 9 are
without prejudice to any other duties of confidentiality owed to the
Company whether express or implied and will remain in force after
termination of the employment.
10 CONFLICTS OF INTEREST
10.1 The Employee shall not without the previous written consent of the
Board during the course of his employment:-
10.1.1 directly or indirectly engage or be interested in any other business
undertaking or activity which would or might reasonably be expected to
compete or conflict with the business or interests for the time being
of the Company or any Group Company; or
10.1.2 directly or indirectly engage or be interested in any other business
undertaking or activity which would or might reasonably require him to
disclose any Confidential Information in breach of this Agreement;
10.1.3 directly or indirectly engage in or be interested in any business
other than that of the Company and the Group in a manner or to an
extent which would or might materially affect his performance of his
duties as a Director of the Company and
12
<PAGE>
other Group Companies or his performance of his obligations under this
Agreement;
10.1.4 hold any directorship of any company
save that he may (but without prejudice to Clause 9) be interested as
a holder or beneficial owner solely for investment purposes of less
than five per cent. of any securities of any company (other than a
Competitor) whose securities are listed or quoted on any recognised
investment exchange in the United Kingdom.
11 INTELLECTUAL PROPERTY
11.1 The Employee shall immediately disclose any Invention to the Company
and the Invention shall belong to and be the absolute property of the
Company or such Group Company as the Company may nominate for the
purpose.
11.2 The Employee shall, at the request and expense of the Company (or its
nominee), (whether during or after the termination of this Agreement)
apply or join in applying for patents, trade marks or other equivalent
protection in the United Kingdom or any other part of the world for
any Invention and complete all instruments and do all things necessary
for vesting patents, trade marks or other equivalent protection when
obtained and all right, title and interest to and in the same in the
Company (or its nominee) absolutely and as sole beneficial owner. The
Employee hereby irrevocably appoints the Company to be his attorney in
his name and on his behalf to complete any such instrument or do any
such thing and generally to use his name for the purpose of giving to
the Company (or its nominee) the full benefit of the provisions of
this Clause.
11.3 Until such time as any Invention is fully vested in the Company
pursuant to Clause 11.2 the Employee shall hold all rights, title and
interest in the Invention in trust for the Company absolutely.
11.4 The Employee acknowledges and agrees that the Employee will not
(whether during or after his employment) apply or join in applying for
any patent,
13
<PAGE>
registered design, trade mark or other equivalent protection in
respect of any Invention without the prior written approval of the
Company.
11.5 The Employee hereby waives all moral rights as defined in Chapter IV
of Part I of the Copyright Designs and Patents Act 1988 in any works
produced during the period of his employment with the Company in which
Copyright is vested in the Company or any Group Company whether by
virtue of this Clause or otherwise.
11.6 The Employee further acknowledges that having regard in particular to
the nature of the business of the Company and the nature of the
Employee's skills, qualifications and expertise:-
11.6.1 the normal duties of the Employee include the making of Inventions and
Inventions may result from the carrying out by the Employee of his
duties; and
11.6.2 because of the nature of the Employee's duties referred to in this
Clause and the responsibilities arising from the nature of those
duties, the Employee has a special obligation to further the interests
of the Company's undertaking.
12 TERMINATION
12.1 The employment of the Employee may be terminated by the Company
without notice or payment in lieu of notice:-
12.1.1 if the Employee shall become of unsound mind or be or become a patient
under the Mental Health Act 1983;
12.1.2 if the Employee shall at any time be prevented by illness or accident
or other incapacity from properly performing his duties for a period
of three consecutive months or for more than 90 working days in any
consecutive 12 months except where such incapacity arises out of the
performance of his duties or where the Employee is entitled, during
his employment to benefit under any such scheme as is referred to in
Clause 4.7. In the event that any benefit is payable to the Employee
under such a scheme, the Company shall not for so long as such benefit
continues to be payable, terminate the employment of the Employee on
14
<PAGE>
grounds of illness or incapacity, but any other remuneration payable
to the Employee under this Agreement shall be reduced by a sum equal
to the amount of such benefit as is paid under the said scheme;
12.1.3 if the Employee shall have committed either any serious breach or
(after warning) repeated or continued any material breach of his
obligations under this Agreement or persistently failed or neglected
to carry out his duties under this Agreement or failed to maintain a
satisfactory standard of conduct or performance within a reasonable
time after receiving written warning from the Board relating to the
Employee's conduct and/or performance;
12.1.4 if the Employee shall have been guilty of conduct (whether or not in
the course of his employment) tending to bring himself, the Company or
any Group Company into disrepute or otherwise to affect prejudicially
the interests of the Company or any Group Company;
12.1.5 if the Employee shall have committed an act of bankruptcy or
compounded with his creditors generally;
12.1.6 if the Employee is convicted of any criminal offence (excluding an
offence under the road traffic legislation in the United Kingdom or
elsewhere in respect of which a custodial sentence is not imposed on
the Employee);
12.1.7 if the Employee shall be or become prohibited by law from being a
director of any company; or
12.1.8 if for any reason the Employee shall (otherwise than at the request of
the Company) resign as a director of the Company.
12.2 If a disciplinary matter arises involving the Employee, the Employee
may be suspended on such terms and conditions as the Board of
Directors may reasonably determine provided that the Employee's salary
and benefits shall not be reduced or withheld.
15
<PAGE>
12.3 The employment of the Employee may be terminated by either party
giving to the other notice in accordance with Clause 2.2 above.
12.4 Notwithstanding any other provisions, the employment of the Employee
shall automatically terminate when the Employee reaches his retirement
date on his 65th birthday.
12.5 The termination by the Company of the Employee's employment shall be
without prejudice to any claim which the Company may have for damages
arising from any breach by the Employee giving rise to such
termination.
12.6 In the event that either party gives notice to terminate the
employment the Employee agrees:-
12.6.1 that for a period not exceeding the period of notice in Clause 2.2
above the Board may in its absolute discretion require the Employee to
perform only such duties as it may allocate to him or not to perform
any of his duties and may require him not to have any contact with
Clients of the Company or any Group Company nor any contact (other
than purely social contact) with such employees of the Company and any
Group Company as the Board shall determine and/or may exclude him from
any premises of the Company or of any Group Company (without providing
any reason therefor); and
12.6.2 that such action taken on the part of the Company shall not constitute
a breach of this Agreement of any kind whatsoever nor shall the
Employee have any claim against the Company in respect of any such
action;
PROVIDED ALWAYS that throughout the period of any such action the
Employee's salary and contractual benefits shall not cease to be paid
or provided (unless and until his employment shall be terminated).
12.7 The Company may elect to terminate the contract immediately and make a
payment in lieu of the remainder of the fixed term of this Agreement
or any applicable period of notice. The Employee is required to
mitigate his loss where he is dismissed and any payment in lieu of
notice may be reduced to take account
16
<PAGE>
of mitigation and to take account of the payment or any part of it
being paid earlier than the salary or benefits to which he would
otherwise be entitled under this Agreement.
12.8 If the Employee fails to make himself available for work during any
period of notice of termination of the Employee's employment, other
than at the request of the Company pursuant to clause 12.6 or with the
permission of the Board, the Employee shall not be entitled to any
payment of salary or to any benefits in respect of such absence.
13 TERMINATION OF DIRECTORSHIP AND GROUP RECONSTRUCTION
13.1 If for any reason the Employee shall either:-
13.1.1 resign as a director of the Company; or
13.1.2 be removed from office as a director of the Company
then his employment shall automatically terminate but without
prejudice to any claim which either party may have against the other
in respect of such termination or any breach of contract or duty
giving rise to it.
13.2 If before the expiration or termination of this Agreement, the
employment of the Employee shall be terminated by reason of the
liquidation of the Company for the purpose of reconstruction or
amalgamation and he shall be offered employment with any concern or
undertaking resulting from such reconstruction or amalgamation on
terms and conditions no less favourable (financially and in personal
status) than the terms then the Employee shall have no claim against
the Company in respect of the termination of his employment for such
reason.
14 ACTION TO BE TAKEN UPON TERMINATION
Upon the Termination Date:-
17
<PAGE>
14.1 the Employee shall forthwith resign without claim for compensation for
loss of office (but without prejudice to any claim he may have against
the Company arising out of any breach of this Agreement by the
Company) from such offices held by him in the Company and any of the
Group Companies and from any other offices he may hold as nominee or
representative of the Company or any Group Company and, should he fail
to do so, the Company is hereby irrevocably authorised to appoint some
person in his name and on his behalf to sign any documents and do any
things necessary or requisite to give effect to such resignations; and
14.2 the Employee shall immediately deliver to the Company all Documents
and copies of Documents (whether or not lawfully obtained), keys,
security passes, telephones, faxes, cars, credit cards and other
property of the Company or any Group Company or any of their
respective customers or clients in his possession or under his control
and the Employee shall not retain any copies of the Company's
Documents and the Employee shall at the Company's request delete all
Confidential Information from any re-usable medium.
15 RESTRICTIONS FOLLOWING TERMINATION
15.1 The Employee acknowledges that during the course of his employment
under this Agreement he will be privy to Confidential Information and
he will make maintain and develop personal knowledge of, influence
over and valuable personal contacts with Clients, Suppliers, staff and
third parties. He therefore covenants with the Company that save with
the previous express written consent of the Company he will not in the
Restricted Territories for the period of two years following the
Termination Date directly or indirectly on his own behalf or on behalf
of any other person, concern, undertaking, firm or body corporate:-
15.1.1 deal with in competition with the Company, seek employment or
engagement with, be employed or engaged by or engage in business with
or be in any way interested in or connected with any Competitor;
15.1.2 deal with, seek employment or engagement with, be employed or engaged
by or engage in business with or work on any account or business of
any Client for the
18
<PAGE>
purpose of providing to that Client services which are the same as or
similar to those which he has been involved in providing to that
Client in the 12 months preceding the Termination Date;
15.1.3 solicit or endeavour to entice away business from any Client for the
purpose of providing to that Client services which are the same as or
similar to those which he has been involved in providing to that
Client in the 12 months preceding the Termination Date;
15.1.4 interfere or seek to interfere with contractual or other trade
relations between the Company or any Group Company and any of its or
their Suppliers;
15.1.5 solicit or endeavour to entice away from the Company or any Group
Company any employee, officer or consultant of the Company or any
Group Company known personally to the Employee other than secretarial,
clerical or junior employees (whether or not such person would commit
any breach of his contract of employment or engagement by reason of
leaving the service of such company or knowingly employ, assist in or
procure the employment by any other person, concern, undertaking, firm
or body corporate of any such person;
15.1.6 communicate to any person, concern, undertaking, firm or body
corporate anything which is intended to or which will or may damage
the reputation or good standing of the Company or any Group Company;
15.2 The Employee will not at any time following the Termination Date, save
with the previous express written consent of the Company, represent
himself as being in any way connected with or interested in the
business of the Company or any Group Company.
15.3 In the event that the Company requires the Employee not to perform any
of his duties and/or exclude the Employee from the Company's premises
("garden leave") as set out in Clause 12.6 above for some or all of
any period of notice, the period of the post termination restrictions
set out in Clause 15 will be reduced by the length of the garden leave
served prior to the Termination Date.
19
<PAGE>
15.4 The Employee agrees that the restrictions contained in Clauses 15.1
and 15.2 are reasonable and necessary for the protection of the
legitimate interests of the Company and the Group Companies and that,
having regard to those interests, those restrictions do not work
harshly on him. It is nevertheless agreed that if any of those
restrictions shall taken together or separately be held to be void or
ineffective for any reason but would be held to be valid and effective
if part of its wording were deleted, or the period or area of
application reduced, that restriction shall apply with such deletions
as may be necessary to make it valid and effective. The Employee
further acknowledges that the restrictions contained in Clauses 15.1
and 15.2 shall apply in relation to all Customers and Suppliers
notwithstanding that such Customers and Suppliers may have been
introduced to the Company or any Group Company by the Employee before
or during his employment with the Company.
15.5 The restrictions contained in each sub-clause of Clause 15.1 shall be
construed as separate and individual restrictions and shall each be
capable of being severed without prejudice to the other restrictions
or to the remaining provisions.
15.6 If the Company transfers all or any part of its business to a third
party ("the transferee") the restrictions contained in this Clause
shall with effect from the Employee becoming an employee of the
transferee apply to the Employee as if references to the Company
include the transferee and references to any Group Company were
construed accordingly and as if references to customers, Clients or
Suppliers were to, Clients or Suppliers of the Company and/or the
transferee and their respective Group Companies.
15.7 The Employee hereby agrees that he will at the request and cost of the
Company enter into a direct agreement or undertaking with any Group
Company whereby he will accept restrictions and provisions
corresponding to the restrictions and provisions contained in Clause
15 (or such of them as may be appropriate in the circumstances) in
relation to such services and such area and for such period as such
company or companies may reasonably require for the protection of its
or their legitimate interests.
20
<PAGE>
15.8 Before accepting any offer of alternative employment the Employee
undertakes that he shall provide a copy of this Agreement to his
prospective new employer.
15.9 The restrictions set out in this Clause 15 are without prejudice to
other express or implied duties whether fiduciary or otherwise owed by
the Employee to the Company or any Group Company.
16 STATUTORY REQUIREMENTS
16.1 For the purpose of the Employment Protection (Consolidation) Act 1978
as amended, it is hereby further agreed and declared that:-
16.1.1 the Employee's previous employment with PCH Investments Limited
(formerly Peter Chadwick Holdings Limited) and Peter Chadwick Limited
shall count as part of his continuous employment with the Company
which therefore began on 10 September 1987;
16.1.2 a contracting out certificate is in force for the purposes of the
Social Security Pensions Act 1975 in respect of the Employee.
16.2 Pursuant to the Wages Act 1986, the Employee authorises the Company to
deduct and to retain from any salary or other remuneration (including
without limitation any payment made to the Employee in lieu of notice)
accrued to him in consideration of his employment by the Company
(whether or not actually paid during the continuance of his
employment):-
16.2.1 any pension or other similar contribution owed by the Employee as a
consequence of the Employee's membership of the pension scheme
referred to in Clause 4.8 above; and
16.2.2 any sum due from the Employee to the Company or any Group Company.
21
<PAGE>
17 GENERAL
17.1 This Agreement is in substitution for all previous contracts of
service or other arrangements relating to his employment between the
Employee and the Company or any Group Company, which shall be deemed
to have been terminated by mutual consent as from the Commencement
Date.
17.2 The expiry or termination of this Agreement shall not operate to
affect such of the provisions of this Agreement as are expressed to
remain in full force and effect notwithstanding such termination.
18 NOTICES
18.1 Any notice to be served in connection with and any notice or other
correspondence under or in connection shall be delivered:-
18.1.1 in the case of the Company, to its registered office for the time
being; and
18.1.2 in the case of the Employee, to his address given or to such other
address as may be notified by him
in writing or transmitted by facsimile or sent by first class pre-paid
mail or delivered by hand in each case to the address as set out
above.
18.2 Any such notice or correspondence shall be deemed to have been served
as follows:-
18.2.1 in the case of service by first class mail, on the third business day
after the day on which it was posted;
18.2.2 in the case of delivery or facsimile transmission (subject, in the
case of facsimile transmission, to oral confirmation of receipt of all
transmitted pages) on the day it is delivered or transmitted provided
that if that day is not a business day or, being a business day,
transmission delivery or takes place after 5.00 p.m., then at
22
<PAGE>
9.00 a.m. on the first business day following delivery or transmission
of the notice.
18.3 Subject to Clause 18.2, in proving service by post or delivery it
shall be sufficient to prove that the notice or correspondence was
properly addressed and left at or posted to the place to which it was
so addressed.
18.4 In this Clause, "business day" means any day other than Saturday,
Sunday or any other day which is a public holiday in the place where
or to which the notice or correspondence is left or despatched.
19 GOVERNING LAW AND JURISDICTION
19.1 This Agreement shall be governed by and construed in accordance with
the Laws of England.
19.2 The parties to this Agreement submit to the exclusive jurisdiction of
the English Courts as regards any claim, dispute or matter arising out
of or relating to this Agreement.
EXECUTED as a deed and delivered on the date set out at the head of this
Agreement.
23
<PAGE>
SCHEDULE
BONUS ARRANGEMENTS
The bonus payable to the Employee in respect of each financial year shall be
determined by reference to the matters set out below:-
1 For each financial year of the Company the Employee shall be paid by
way of bonus up to 50% of the basic salary paid pursuant to Clause
4.1.1 hereof in the event that there has been substantial progress
towards achieving the Company's and the Group's strategic objectives
and, in particular, in the event that the Company has achieved its
performance relative to the budget for the financial year in question.
Such bonus shall be pro rated by reference to the proportion of the
financial year during which the Employee is employed. Such bonus shall
be paid in the event the Board shall unanimously resolve that it
should be paid.
2 For each financial year of the Company, the Employee shall be paid by
way of an additional bonus up to 25% of the basic salary payable
pursuant to Clause 4.1.1 hereof in the event that the Board shall
unanimously resolve that such additional bonus should be paid to the
Appointee as a result of the exceptional performance of the Company
during the financial year in question.
24
<PAGE>
SIGNED as a Deed by PETER )
CHADWICK HOLDINGS LIMITED )
acting by )
and )
Director
/Secretary /s/ Malcolm Glynn
----------------------------
SIGNED as a Deed by IAN )
PETER CLARKSON in the ) /s/ Ian P. Clarkson
presence of:- ) ----------------------------
25
<PAGE>
DATED 24 NOVEMBER 1997
----------------------
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
PETER CHADWICK HOLDINGS LIMITED
IAN CLARKSON
________________________________
EMPLOYMENT AGREEMENT
________________________________
HOLMAN FENWICK & WILLAN
Marlow House
Lloyds Avenue
London EC3N 3AL
Tel: (0171) 488 2300
Fax: (0171) 481 0316
Telex: 8812247 HFWLON
<PAGE>
THIS AGREEMENT is made 24 November 1997.
AMONG
(1) CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC., of 304 Vassar Street,
Cambridge, Massachusetts 02139, USA ("Cambridge")
(2) IAN CLARKSON of 38 St. Peter's Square, London W6 9NW ("the Executive").
(2) PETER CHADWICK HOLDINGS LIMITED, a company incorporated in England, whose
registered number is 03114683 ("PCH").
WHEREAS:
(A) Cambridge has acquired at least 95% of the share capital of PCH pursuant to
an offer dated 17 November 1997.
(B) It is a term of such acquisition that the Executive is appointed as an
Executive Vice President of Cambridge.
IT IS AGREED as follows:
1. Appointment as executive vice president
---------------------------------------
1.1 The Executive is hereby employed by Cambridge as an executive vice
president of Cambridge. As such he shall manage PCH and its subsidiary
companies and perform such duties as are reasonably assigned to him by the
Chief Executive Officer of Cambridge from time to time (whether they relate
to the business of Cambridge or to the business of PCH and any of its
subsidiaries). In addition, Executive, together with the other Executive
Vice President of Cambridge, who is also formerly a senior officer at PCH,
shall be responsible for the management of the management consulting
strategic business unit of Cambridge and its subsidiaries. The Executive
shall also serve as a member of the executive committee of senior officers
of Cambridge.
1.2 The Executive accepts such employment and agrees to render the services
described in this agreement and in the agreement dated 16 November 1995
between him and PCH ("the Agreement") and to devote his entire available
business time, effort, skill and attention to promote the best interests of
Cambridge and PCH and its subsidiaries. The Executive also agrees that the
remuneration and other benefits which he enjoys under the Agreement, as
modified by clause 4, shall cover his position as executive vice president
of Cambridge and he shall not be entitled to any additional consideration
for such employment.
1.3 In addition to the rights set out in the Agreement (as amended by this
agreement) the Executive shall be considered eligible to participate in any
other fringe benefits, benefit plans or related compensation
<PAGE>
programs or plans such as the discretionary option or bonus plans of
Cambridge to the same extent as executive vice president levels of
employees in Cambridge. In that connection, the Executive shall be eligible
to receive an annual bonus commencing with the twelve month period ending
December 31, 1998 of up to 50% of the salary paid to him by PCH under the
Agreement, to be determined upon the same basis as executive vice president
level employees of Cambridge. All of the Executive's years of service with
PCH shall be deemed to be years of service with Cambridge or its
subsidiaries, as applicable, in determining the Executive's rights to
participate in such benefits, plans or programs.
2. Cessation of Office
-------------------
2.1 If the Executive's employment with PCH pursuant to the Agreement is
terminated for any reason, the Executive shall cease to be an Executive
Vice President of Cambridge contemporaneously with the termination of the
Agreement and shall not be entitled to any compensation as a result in
addition to that to which he may be entitled pursuant to the Agreement or
as a result of it being terminated.
3. Miscellaneous
-------------
3.1 All notices and other communications required or permitted to be given
under this agreement relating to the Executive's employment as an executive
vice president of Cambridge shall be in writing and shall be deemed to have
been duly given and delivered by hand, sent by overnight courier service or
facsimile transmission to the parties at the following addresses or to such
other address of a party if such party may have designated to the other any
prior notice given in accordance with this agreement:
(a) if to Cambridge to 304 Vassar Street, Massachusetts, 02139, USA
attention Chief Financial Officer
with a copy to
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110, USA
Attention: S. Browne Esq
(b) if to the Executive to:
38 St. Peter's Square
London
W6 9NW
3.2 This agreement, together with the Agreement as varied by this agreement and
that certain Share and Option Purchase Agreement contemplated by the share
capital offer by Cambridge as described above, sets out the entire
agreement and understanding of the parties concerning the subject matter of
this
2.
<PAGE>
agreement and supersedes any prior understanding and agreement relating to
the terms of the Executive's employment by PCH and by Cambridge.
3.3 This agreement may be amended, modified, superseded or canceled or the
terms or covenants of it may be waived only by a written instrument
specifically referring to this agreement and executed by Cambridge and the
Executive, or in the case of a waiver, by the party entitled to the benefit
of such provisions. The failure by a party hereto at any time or from time
to time to require performance of any obligations under this agreement
shall in no manner affect such party's right to enforce any provisions of
this agreement at a subsequent time; and the waiver by a party to this
agreement of any right arising out of any breach shall not be construed as
a waiver of any right arising out of any subsequent breach.
3.4 If any provision of this agreement (save for clause 4), or the application
thereof to any person or circumstance, should for any reason and to any
extent be invalid or unenforceable, the remainder of this agreement and the
application of such provision to other persons or circumstances shall not
be affected thereby, but rather shall be enforced to the greatest extent
permitted by the law. Moreover, if one or more of the provisions contained
in this agreement shall for any reason be held to be excessively broad as
to scope, activity, subject or otherwise so as to be unenforceable at law,
such provision or provisions shall be construed by the appropriate judicial
body by limiting or reducing it or them so as to be enforceable to the
maximum extent compatible with the applicable law as it shall then appear.
3.5 This agreement shall be governed by and construed in accordance with the
laws of England.
4. Variation of the Agreement
--------------------------
4.1 The Agreement shall be varied in the following respects:
(a) Clause 4.1.2.2 shall be amended to say:
"reviewed by the board of Cambridge annually in December for the
calendar year commencing the following January, the first such
review to take place in December, 1998".
(b) Clause 4.2 shall be amended by clarifying that the Executive is
entitled to travel Business or such similar Class on all flights
originating from and terminating in Europe and First or such similar
Class on all other international flights.
(c) Clause 4.3 (which confers an entitlement to a bonus calculated in the
manner set out in the Schedule to the Agreement) shall cease to apply.
(d) Clause 4.4 shall be varied by removing the right of the Executive to
two motor cars and
3.
<PAGE>
replacing it with a right to be provided one motorcar which shall be a
used BMW 750i or its equivalent.
(e) Clause 4.5 shall be varied by deleting "each of the cars" in the
second line and replacing it with "the car".
(f) Clause 6 shall be varied by inserting at the end of the first sentence
after "the proper performance of his duties" the following:
"under this Agreement and under the agreement between the
Executive, Cambridge and PCH dated 24 November 1997.
4.2 The Executive acknowledges and agrees that, at the time of amending the
Agreement, there were no amounts due to him from PCH or its subsidiaries,
save for his accrued salary and any outstanding business expense
reimbursements.
4.3 In all other respects the agreement shall continue in full force and
effect.
IN WITNESS whereof the parties have signed this agreement.
/s/ James P.O'Hare
- ------------------------
SIGNED by James P. O'Hare
for and on behalf of Cambridge Technology Partners (Massachusetts), Inc.
/s/ Ian Clarkson
- -----------------------
SIGNED by IAN CLARKSON
/s/ Malcolm Glyn
- -----------------------
SIGNED by Malcolm Glyn
for and on behalf of Peter Chadwick Holdings Limited
4.
<PAGE>
Exhibit 11
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income $32,929 $24,025 $15,658
============= ============= =============
Basic:
Weighted average number of common
shares outstanding 52,952 50,374 48,312
============= ============= =============
Net income per common share $ .62 $ .48 $ .32
============= ============= =============
Diluted:
Weighted average number of common shares outstanding 52,952 50,374 48,312
Dilutive effects of stock options and warrants 6,143 7,519 6,806
------------- ------------- -------------
Weighted average common and common equivalent
shares outstanding 59,095 57,893 55,118
============= ============= =============
Net income per common and common equivalent share $ .57 $ .42 $ .28
============= ============= =============
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
<S> <C>
Cambridge Technology Partners International, Inc. Delaware
Cambridge Technology Partners (Latin America), Inc. Delaware
Cambridge Technology Partners (Mexico), S.A. de C.V. Mexico
CTP Services, S.A. de C.V. Mexico
Cambridge Technology Partners (Venezuela) C.A. Venezuela
Cambridge Technology Partners de Brazil S/C LTDA Brazil
Cambridge Technology Partners Ltd. Ontario
Cambridge Technology Partners (Switzerland) S.A. Switzerland
Cambridge Technology Partners (Asia), Inc. Delaware
Cambridge Technology Partners Pty. Ltd. Australia
Cambridge Technology Partners India Private Limited India
Cambridge Technology Partners Limited Japan
Cambridge Technology Partners (Europe), Inc. Delaware
Cambridge Technology Partners (Netherlands), B.V. Netherlands
Cambridge Technology Partners (UK), Ltd. United Kingdom
Cambridge Technology Partners Ireland Ltd. Ireland
Peter Chadwick Holdings Limited United Kingdom
Cambridge Technology Partners (Benelux) B.V. Netherlands
Cambridge PCHL L.L.C. Delaware
Cambridge Technology Partners Cambridge Management
Consulting, Inc. California
Cambridge Technology Partners-Enterprise Resources
Solutions, Inc. California
Cambridge Technology Partners Securities Corporation Massachusetts
</TABLE>
<PAGE>
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Cambridge Technology Partners (Massachusetts), Inc. on Form S-8 (File Nos. 33-
70114, 33-87710, 33-93054, 33-93056, 333-09709 and 33-99672) and on Form S-3
(File Nos. 333-43127, 33-96838, 333-16165 and 333-17347) of our reports dated
February 2, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Cambridge Technology Partners (Massachusetts),
Inc. as of December 31, 1997 and 1996, and for each of the years in the period
ended December 31, 1997, which reports are included in this Annual Report on
Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 39,496
<SECURITIES> 15,824
<RECEIVABLES> 104,494
<ALLOWANCES> 2,607
<INVENTORY> 0
<CURRENT-ASSETS> 194,121
<PP&E> 55,559
<DEPRECIATION> 20,156
<TOTAL-ASSETS> 237,242
<CURRENT-LIABILITIES> 86,191
<BONDS> 0
0
0
<COMMON> 550
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 237,242
<SALES> 0
<TOTAL-REVENUES> 406,672
<CGS> 0
<TOTAL-COSTS> 350,658
<OTHER-EXPENSES> (2,201)
<LOSS-PROVISION> 937
<INTEREST-EXPENSE> 232
<INCOME-PRETAX> 57,983
<INCOME-TAX> 25,054
<INCOME-CONTINUING> 32,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,929
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.57
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 26,087 24,661 40,135 45,301
<SECURITIES> 12,727 13,653 14,470 15,251
<RECEIVABLES> 61,856 78,731 88,424 93,534
<ALLOWANCES> 1,670 2,629 2,986 3,295
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 121,079 138,050 163,082 182,215
<PP&E> 33,865 36,655 43,031 48,878
<DEPRECIATION> 13,274 14,220 15,733 17,781
<TOTAL-ASSETS> 147,644 166,282 197,640 220,315
<CURRENT-LIABILITIES> 48,826 56,149 73,537 76,052
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 517 523 529 535
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 147,644 166,282 197,640 220,315
<SALES> 0 0 0 0
<TOTAL-REVENUES> 272,878 82,222 178,748 287,343
<CGS> 0 0 0 0
<TOTAL-COSTS> 233,422 69,176 151,102 243,686
<OTHER-EXPENSES> (868) (311) (1,006) (1,573)
<LOSS-PROVISION> 518 434 776 1,118
<INTEREST-EXPENSE> 71 33 76 107
<INCOME-PRETAX> 40,253 13,324 28,576 45,122
<INCOME-TAX> 16,228 5,370 11,501 18,134
<INCOME-CONTINUING> 24,025 7,954 17,075 26,988
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 24,025 7,954 17,075 26,988
<EPS-PRIMARY> 0.48 0.15 0.32 0.51
<EPS-DILUTED> 0.42 0.14 0.30 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 11,081 13,119 17,109 18,091
<SECURITIES> 8,544 9,256 10,126 12,248
<RECEIVABLES> 39,723 48,244 58,970 74,865
<ALLOWANCES> 1,152 1,354 1,588 1,864
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 69,732 78,743 94,256 113,419
<PP&E> 21,226 22,984 26,145 30,658
<DEPRECIATION> 7,813 8,014 9,104 11,427
<TOTAL-ASSETS> 88,172 98,453 116,582 139,033
<CURRENT-LIABILITIES> 32,499 34,379 40,152 54,044
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 489 494 504 508
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 88,172 98,453 116,582 139,033
<SALES> 0 0 0 0
<TOTAL-REVENUES> 179,667 55,866 121,207 193,789
<CGS> 0 0 0 0
<TOTAL-COSTS> 155,382 46,887 102,989 165,471
<OTHER-EXPENSES> (1,818) (176) (488) (738)
<LOSS-PROVISION> 304 250 485 758
<INTEREST-EXPENSE> 373 17 59 69
<INCOME-PRETAX> 25,730 9,138 18,647 28,987
<INCOME-TAX> 10,072 3,714 7,628 11,880
<INCOME-CONTINUING> 15,658 5,424 11,019 17,107
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 15,658 5,424 5,424 17,107
<EPS-PRIMARY> 0.32 0.11 0.22 0.34
<EPS-DILUTED> 0.28 0.10 0.20 0.30
</TABLE>
