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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 06-1320610
(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
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 $528,757,015 based on the last reported sale price of $12.125 on
The Nasdaq National Market on March 23, 1999.
As of March 23, 1999, there were 59,508,894 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement for its Annual
Meeting of Stockholders pursuant to Regulation 14A within 120 days of the end of
the fiscal year ended December 31, 1998. Portions of such proxy statement are
incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge" or the
"Company") is an international management consulting and systems integration
firm. Founded in 1991, the Company combines management consulting, internet
solutions, custom and package software deployment, network services, and
training to rapidly deliver end-to-end business solutions for "Global 1000"
organizations worldwide. 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 brings together key client
users, executives, and information technology ("IT") professionals in
interactive sessions to achieve consensus on the business case, strategic
objectives, and functionality of a business solution. In many cases, the Company
employs a rapid deployment methodology that features an iterative approach. The
Company believes that these techniques permit the delivery of results in rapid
time frames -- typically within three to twelve months.
The Company's management consulting and information technology services are
offered at three levels within an organization -- the enterprise-wide, specific
business process and application software levels. In a typical IT services
consulting engagement, the Company designs and develops one or more strategic
software applications, which often include custom and third-party package
software, and then rolls out the applications to the organization's end-users.
These software applications are selected and designed to allow the client 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. In addition, the
Company provides network services, and IT strategy services, to help clients
establish their internal IT strategies and implement the recommended technology
solutions. The Company's integrated management consulting services are designed
to allow clients to achieve operational improvements.
In October 1998, the Company announced the realignment of its North American
operations. North American operations, which had been organized on a
regional geographic basis, are now organized around the Company's six principal
service offerings: Management Consulting, Interactive Solutions, Customer
Management Solutions, Enterprise Resource Solutions, Custom Software Solutions,
and Network Services. The Company's sales, marketing and human resources
functions also operate on a service line basis within North America. This
realignment helps integrate the Company's front-office, back-office, and
internet application deployment capabilities. Under the former structure,
consultants provided services to clients based on geographic location and the
Company was unable to take full advantage of specialist skills not located in a
client's geographic region. No longer constrained by geographic regions, the new
service line structure is designed to permit the Company to provide clients with
its best consultants in specific service areas who can deploy proven
methodologies, training, and
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business processes. This approach is also intended to allow the Company to
realize economies of scale in forecasting and staffing and permit better
leveraging of industry expertise.
The Company's Cambridge, Massachusetts facility houses its Northeast operations
and corporate departments. As of December 31, 1998, the Company had a total of
53 offices worldwide, with regional sales and operations facilities across the
United States, Europe, Latin America and the Pacific Rim. See Note P of Notes to
Consolidated Financial Statements.
SERVICES
The Company combines management consulting, IT strategy, process innovation and
implementation, custom and package software deployment, network services,
application maintenance, assimilation services and training to rapidly deliver
end-to-end business systems that are designed to create bottom-line impact for
clients. To achieve these objectives, the Company often utilizes its rapid
deployment methodologies. The Company believes that, where applicable, this
approach enables it to deliver results in time frames significantly shorter than
those of its competitors, typically within three to twelve months. The Company
offers a comprehensive set of services which can be deployed individually or in
a combination.
For most services, the Company and its clients agree on a fixed-time/fixed-price
prior to the commencement of each stage of the project. Management consulting
projects, which focus on operational improvements, have resulted in fees ranging
from approximately $500,000 to $10,000,000, with the average project generating
fees of approximately $1,000,000. Client engagements involving the development
and implementation of a custom strategic software application typically result
in fees to the Company ranging from approximately $1,000,000 to $6,000,000. The
stages for package implementation are similar to those for custom software
development, however the fee range typically is lower, usually $400,000 to
$5,000,000.
PRINCIPAL SERVICE OFFERINGS
The Company's worldwide service offerings consist of the following six principal
service lines: Management Consulting, Interactive Solutions, Customer Management
Solutions, Enterprise Resource Solutions, Custom Software Solutions, and Network
Services.
MANAGEMENT CONSULTING. During 1998, the Company completed the process of
combining the competencies and methodologies of its Management Consulting and
Peter Chadwick Holdings Limited businesses. Peter Chadwick Holdings Limited,
based in the United Kingdom, was merged with the Company in November 1997. The
combined organization provides integrated consulting services to support clients
across various industrial sectors, and across the entire scope of the value
chain, in the rapid implementation of sustainable improvements capable of
transforming their businesses. The combined organization operates under the name
of Cambridge Management Consulting (CMC).
CMC helps its clients achieve rapid, tangible, high-payback operational
improvements through the implementation of major change programs, known as
Change Implementation. These programs impact key business processes, management
and decision-making systems, and roles and responsibilities and deliver
financial and operational improvements identified at the
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commencement of an engagement. Most importantly, the programs help clients
sustain those improvements delivered by focusing on behavioral change in the
clients' management and staff, at all levels of their business.
Change Implementation focuses on improvements to operational performance such as
reducing time from design to market, increasing operating capacity, reducing
operating costs, shortening product cycle times, reducing inventory and
improving customer acquisition and retention. A successful Change
Implementation solution is dependent upon the full participation of the client.
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 the required changes in the business. Change Implementation programs
harness the knowledge, skills and enthusiasm within a client's business, and
leverage these with Cambridge's industry and process knowledge and proven
implementation expertise. Where appropriate, CMC utilizes the Company's systems
integration capabilities to provide leading-edge technology platforms for the
improvement program.
The typical phases of Change Implementation are Analysis and Implementation:
. In the Analysis phase, the Company 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 process, a client's staff is fully involved during the
Analysis phase in developing an understanding of current business
performance and in formulating the plan to move the business forward.
The Analysis phase utilizes interviews with staff, design and development
workshops, statistical analysis of historical and forecast data and on-site
observations to identify the root causes and 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.
. In the Implementation phase, the Company works with the client to develop
and install the operational and organizational changes identified during
the Analysis phase. The changes implemented are driven largely by the
client and focus on improving key business processes, enhancing the quality
of management information and decision making, and developing management
skills at all levels of the business. The Company's consultants work
alongside client personnel, on site, full-time, to train, coach and mentor
them to achieve the behavioral changes required. These services and the
commitment of the Company to transfer knowledge to its clients are designed
to ensure that all the people in the business "own" the program, and
therefore, that the improvements delivered are sustainable after the
consultants leave. Also, the Implementation phase is designed so 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.
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CMC has performed services for major organizations across a range of industries,
while also building focused practices in specific sectors including oil and gas,
chemicals, engineering, automotive, financial services and consumer goods. To
support its ability to add significant value to clients across the value chain,
the Company has developed specific approaches and capabilities in the areas of
asset management, supply chain management, product and process leadership,
customer loyalty and knowledge management.
INTERACTIVE SOLUTIONS. Cambridge's Interactive Solutions service line addresses
clients' internal and external online business needs. The Company's services
address marketing strategy, user experience, creative design, and technical
infrastructure integration. Interactive Solutions include electronic commerce,
extranet, intranet, online communities, online procurement, interactive
marketing, interactive service web sites, and knowledge management systems, and
permit clients to build cyber-relationships with their customers, consumers, and
distribution channels.
The Company delivers its Interactive Solutions using its Customer-oriented Rapid
Application Development ("CoRAD") methodology. The CoRAD methodology is a
balanced approached that brings together a multi-disciplinary team drawn from
four critical disciplines for an electronic business solution's success:
technical, business, creative, and cognitive.
The CoRAD methodology consists of the following five phases:
. Strategy Workshop - During the Strategy Workshop, the Company works with
the client to identify and prioritize the electronic commerce initiative
best suited for the client's business goals. The Company addresses internal
factors that could contribute to or impede the success of an electronic
commerce endeavor and conducts an external assessment focusing on
competition and electronic commerce best practices from other industries.
Typically, a strategy and work plan is developed that serves as the
foundation for the next phase.
. Product Definition - During the Product Definition phase, the Company
defines the scope of the engagement. The team interacts with the client's
customers to understand the design context and considers available
technology choices. The team also develops the processes and corresponding
changes in organizational structure that will be required and begins
executing the communications and other plans developed during the Strategy
Workshop.
. Product Design - During the Product Design phase, the Company focuses on
the architecture of the solution and the business practices and technology
needed to support it. The multi-disciplinary approach becomes critical, as
technologists address the infrastructure and application, creative and
cognitive designers create the interface and business consultants work to
align the functionality of the application with the delivery capabilities
of the organization.
. Product Development - During the Product Development phase, Cambridge
writes software, refines content, creates training materials and prepares
the organization to assimilate the changes in time for the product launch.
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. Product Rollout - During the Product Rollout phase, the solution is
implemented across the organization, the new system is assimilated into the
business and the client's employees are trained.
CUSTOMER MANAGEMENT SOLUTIONS (CMS). The Company's CMS services provide
innovative, customer-focused solutions that enable the Company's clients to
attract and retain profitable customers and cultivate customer loyalty. Client
solutions may include: customer loyalty programs, customer service and support
solutions, sales force automation, computer telephony integration, training and
assimilation solutions, and enterprise marketing solutions. These solutions are
typically delivered using packages from leading front office vendors, including
Siebel, Clarify, and Vantive.
The typical phases of a CMS engagement include:
. Scope/Gap Analysis - During the Scope/Gap Analysis phase, the Company works
to determine the breadth of the entire project. As part of this assessment,
the Company works with the client to build a business case to justify the
investment being made. In addition, the Company determines the current and
future desired business processes of the client, assesses the client's
technology infrastructure, and determines the gap between the desired
functionality and the selected front office application. During this phase,
the Company interviews the client's customers, in order to understand the
customers and ensure that customer needs are considered in developing the
solution. This is done to build consensus and to help ensure that the
solution will cultivate customer loyalty.
. Conference Room Pilot - During the Conference Room Pilot phase, the Company
develops a working prototype in the chosen tool and identifies and resolves
most user interface and workflow issues.
. Design - During the Design phase, the Company fully designs the
application, including all application interfaces.
. Development and User Acceptance - During the Development and User
Acceptance phase, the team completes package optimization, including
customization, personalization, and coding. Often times a model office is
utilized to allow for iterative development and parallel testing. The model
office provides end-users with a facility to work with developers
interactively in the testing of the application. At the end of this phase,
the client has a deployable system that has been user tested.
. Roll-out - During the Roll-out phase, implementation and training is
completed and a full deployment of the complete system is delivered to all
users. The Company works closely with key client staff to provide technical
and project planning expertise to completely integrate applications with
the client's business and computer operations. Also, at this time,
Cambridge works with the client's IT staff to transfer knowledge about the
system.
ENTERPRISE RESOURCE SOLUTIONS (ERS). The Company's Enterprise Resource
Solutions (ERS) support the implementation, modification, integration, and
extension of Enterprise Resource
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Planning (ERP) solutions throughout an organization. Many organizations use ERP
applications to manage information across the enterprise, in areas such as
finance, human resources, distribution, manufacturing or supply chain
management. ERS provides customization and implementation services for software
products supplied by PeopleSoft, i2, Concur, Conduit, CommerceOne, Maxager and
BaaN. ERS also provides business process design and consulting services that
leverage the capabilities of the major ERP and supply chain management
applications, such as those developed by PeopleSoft, i2 and SAP.
The Company deploys its ERS services using its Momentum(SM) methodology, which
is comprised of five phases:
. Scope - During the Scope phase, the Company works with the client to
identify and prioritize the business requirements for the ERP system. In
addition, the ERS team develops a project plan, develops a high-level
technical architecture and analyzes the business benefits of an ERP
solution.
. Package Evaluation Workshop - Through a Package Evaluation Workshop, the
Company assists the client in selecting an ERP package that best meets the
client's business requirements. The ERS team, through sessions with
executives, users and IT professionals, rapidly uncovers and defines
required business processes and outlines the functionality, performance,
support, and standards required from the ERP package. The team then creates
likely business scenarios and evaluates the desired vendor's ability to
support the client organization's vision and business goals.
. Business Process Prototype (BPP) and Design - During the BPP and Design
phase, the Company defines the client's business requirements while
building a baseline package model. The ERS team utilizes an iterative
process to map the client's business to a standard software package and to
identify and prioritize customizations. Through this process, the ERS team
can modify and refine the project plan to best meet the client's needs.
. Deployment - During the Deployment phase, the Company rapidly implements
the ERP solution across the client's organization. Deploying the solution
involves making modifications, establishing security profiles, testing the
system, and training the end-users.
. Roll-out - During the Roll-out phase, the ERP solution becomes operational,
with the goal of achieving the desired business benefit. The ERS team
creates a production environment, converts existing client data, introduces
the ERP solution to the entire user community, and conducts performance
analysis. The Company provides technical and project planning expertise to
the client's personnel and addresses the change management issues faced by
the user community, the IT community, and the executive team.
At the client's request, Cambridge may enhance the delivery of the ERP
applications through the implementation of value-based consulting services. The
value-based consulting services focus on delivering quantifiable results as an
extension to the ERP application. These include the optimization of resources
through:
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. Value Assessments - Reviewing and enhancing the ERP implementation by
focusing on processes that can leverage the existing applications'
functionality or by adding a new application (for example, Maxager) that
can improve a client's performance.
. Supply Chain Performance - Optimizing the relationships between the client
and its suppliers to enhance the efficiency of requesting and receiving
goods.
. Self Service - Web-enabling key processes of an organization such as human
resources and expense management to improve the quality of information and
decrease the costs of transactions.
. Electronic Procurement - Leveraging the relationships between the client
and its vendor to efficiently purchase goods for non-operational expenses.
CUSTOM SOFTWARE SOLUTIONS (CSS). The Company's Custom Software Solutions (CSS)
implements and integrates custom software solutions for clients looking to
integrate their systems or achieve a competitive strategic advantage by
automating their proprietary and unique business processes. CSS delivers its
services to clients across industries using internet, object-oriented, and
enterprise application integration technologies. CSS has particular expertise
in the areas of data warehousing and money management and trading solutions.
The Company uses its Rapid Application Deployment (RAD) methodology, a flexible
approach to application software deployment, to deliver its CSS solutions. The
RAD methodology consists of five phases:
. Scope - The Scope phase is a critical first step in the RAD process. During
the Scope phase, 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 the fit between application and business processes
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.
. Rapid Solutions Workshop (RSW) - The RSW brings together key client staff
to reach consensus on the technology, processes, and methodology required
to deploy strategic applications. This interactive workshop delivers a
fully-functional prototype of the application's critical functionality, a
detailed business case, a functionality matrix, and a
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project plan with proposed time frames and costs for the next step, along
with time frames and price estimates for subsequent steps. At the
conclusion of the RSW, 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 phase also builds top-level support for
continuing on with the design and development of the application.
. Design - During the Design phase, the Company defines architectures,
recommends technical solutions, and develops system specifications. Since
the network infrastructure is critical to the success of a distributed
application, the Company may call on Network Services to evaluate network
design, deployment, and support for the application. During the Design
phase, 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. This results
in 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.
. Development - 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.
. Roll-out - During the Roll-out phase, the implementation and training is
completed and a full deployment of the system is delivered to all users.
The Company works closely with key client staff to provide technical and
project planning expertise to completely integrate applications with the
client's business and computer operations. Also, at this time, Cambridge
works with the client's IT staff to transfer knowledge about the system.
NETWORK SERVICES. Network Services offers a combination of network assessment,
design and deployment services with a comprehensive set of integration skills to
support a client's distributed computing environments. These solutions address
enterprise infrastructure, enterprise messaging, network operating systems, and
enterprise strategy planning.
. Enterprise infrastructure services are delivered to clients who are
implementing major new applications. These services are designed to ensure
that the client's network can support its computing needs and include
enterprise assessment, optimization, architecture, planning and design, and
deployment and support. During the enterprise assessment, the Company
reviews all aspects of the enterprise that can affect network
functionality, performance, and reliability. Next, the Company's
consultants apply industry best practices designed to optimize the client's
existing IT investments. The Company then designs solutions to address the
client's business requirements and define the implementation process,
specifications, documentation, migration plans, and coexistence strategies
which are utilized in the deployment and support phase of the engagement.
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. Enterprise messaging solutions are provided to clients that are
implementing new messaging systems. A typical engagement involves
architecture and design, implementation and operations, and migration and
coexistence. During the architecture and design phase, the Company
evaluates the impact of the new messaging system on the client's business
and develops an architecture that supports scalability and coexistence.
During the implementation and operations phase, the Company assists the
client in choosing which features to implement and managing the new system.
If the client needs to migrate to a new system or maintain disparate
systems, the Company can design a solution that addresses key
considerations such as directory synchronization, internet coexistence, and
data migration.
. Network operating systems services deliver enterprise solutions designed to
meet current and future client needs in various areas of network operating
systems management. These services include architecture and design,
migration and coexistence, implementation and operations, and Windows 2000
readiness planning. During the architecture and design phase, the Company
determines the specifications for an implementation plan that meet a
client's service level requirements. In the course of the migration and
coexistence phase, the Company applies its methodology for moving a client
from its existing environment with minimal disruptions. This methodology
includes tools identification and creation, detailed task lists, end-user
communication, focused staff training, lab validation, production pilots,
and implementation plans. During implementation and operations, the Company
helps the client manage the new environment and develop an operations
framework. Through Windows 2000 readiness planning, the Company can assist
clients in preparing their network infrastructure to help make a smooth
transition to Windows 2000.
. Enterprise strategy planning service offerings provide clients with
strategic and tactical solutions to address network management. Enterprise
strategy planning service offerings include management strategy,
operational planning, education, and analysis and research:
. Management strategy. The Company's management strategy service focuses
on strategic approaches to staffing, IT procurement, service level
agreements, support services, and help desk services in order to
design management strategies for distributed computing environments.
. Operational planning. The operational planning service offers a
structured methodology and approach for documenting and designing
LAN/WAN, data center, and desktop support processes and services.
. Education. The Company provides education services to clients in both
beta and production environments so that the client will be able to
support deployed technologies.
. Analysis and research. The Company provides analysis and research
services to companies entering into strategic partnerships or mergers
or seeking financing. The Company assesses the current state of the
infrastructure within a potential merger or investment candidate and
analyzes technology under development.
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In August 1998, the Company completed the acquisition of Excell Data
Corporation. Excell is a systems integrator of Microsoft-centric solutions.
The acquisition extended the Company's capabilities in the network services
market to include implementation of multi-vendor applications, messaging
systems, and network systems in heterogeneous network environments. In addition,
through the acquisition of Excell, the Company expanded its resources by
approximately 175 skilled network security and enterprise management consultants
and extended its geographic reach throughout the Northwest. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ADDITIONAL SERVICES
In addition to the services described above, the Company also offers the
following services to its clients.
ASSIMILATION SOLUTIONS. Assimilation Solutions are designed to allow clients to
realize the benefits of various technology solutions. The Company's
Assimilation Solutions group offers a comprehensive suite of education services,
technical training, and technology assimilation tools that provide end users and
IT professionals with the skills to use technology solutions that the client has
implemented.
Through its Rapid Roll-Out Assimilation and Support services, the Company
identifies and creates an assimilation plan that is consistent with the client's
business objectives, resources, and time constraints. To encourage use of and
generate excitement for the new technology, the Company creates and targets
messages to the client's organization. The Company also studies the client's
day-to-day functions to develop employee training courses, curricula, materials
and exercises that are based on real-life business scenarios. The Company
conducts instructor-lead training and offers creative delivery methods,
including computer-based training, internet-based training, and distance
learning. To ensure that the assimilation solution delivers anticipated
results, the Company conducts regular quality reviews, conducts focus groups to
determine training effectiveness, and evaluates usage of the new technology.
IT STRATEGY AND PLANNING. IT Strategy and Planning solutions focus on several
major areas of strategic activity common to the concerns of both business and IT
professionals. These areas, and the issues they address are as follows:
. IT Planning: IT and business leaders determine how technology can be
applied to the business to improve overall competitiveness.
. IT Governance: The collaborative model between business, the IT function
and its partners accelerates return on investment.
. Enterprise Architecture: Helps make product and standards decisions,
reduce total cost of ownership, and realize a better return on investment,
and improves service delivery capability.
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. Project Management Offices: Allow joint decision making about
prioritization, funding, metrics, and staffing.
The Company's IT Strategy and Planning solutions begin with workshops involving
a client's business executives, end-users, and information technology staff.
During these workshops, the Company works with the client to identify business
drivers and critical success factors and define the strategic results expected
from IT. Next, the team assesses the current IT/business environment of the
client and envisions the desired result. The team then evaluates strategic
alternatives and establishes a business case and action plan. Finally, the
Company provides ongoing executive counsel and periodically reviews priorities,
updates strategies, and revises plans as business conditions change.
APPLICATION MANAGEMENT SERVICES. The Application Management Services group
(AMS) provides enterprise application support and management solutions. These
services are designed to improve clients' return on their technology investments
and increase overall user satisfaction with new applications.
AMS services fall into two major categories -- Roll-out Planning and Delivery
services and Production Support and Maintenance services. Roll-out Planning and
Delivery services address a client's readiness to implement an application. In
delivering these services, the Company works with the client to identify
hardware and software needs, resource and skill requirements, and the processes
required to support the application. Production Support and Maintenance services
are comprised of code maintenance, application support, and technology support
for existing applications. Currently, AMS provides application maintenance
methodologies and services for solutions the Company has developed and
implemented. The Company anticipates extending this service offering to include
supporting applications that have been developed by other systems integrators.
CONCENTRATION OF REVENUES
No customer accounted for more than 5% of net revenues in 1998, 1997, or 1996.
In many cases the Company's management consulting and information technology
services are delivered in connection with a major information technology project
initiated by a client's senior management, board of directors, line of business
executive, or information systems department. Since a management consulting
project or an engagement involving the development and implementation of a
custom strategic business application may result in fees to the Company which
have ranged in the past from $500,000 to $10,000,000, in the case of management
consulting, and $1,000,000 to $6,000,000 in the case of custom strategic
business applications, most customers undertake these projects on an irregular
basis. Accordingly, the Company expects that the identity of its largest
customers may change from year to year.
SALES AND MARKETING
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.
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The Company utilizes a dedicated sales and marketing organization to market and
sell its services. The Company's sales and marketing organization for North
America (excluding CMC) consists of 136 employees. Outside of North America, the
sales and marketing organization consists of 56 employees operating from the
Company's European, Latin American and Pacific Rim offices. CMC's sales and
marketing organization consists of 63 employees. Sales and marketing employees
outside of North America and for CMC address markets and client opportunities on
a regional, geographic basis.
During 1998, the Company realigned its sales and marketing resources in North
America. The North American sales organization is now responsible for all sales,
as well as service delivery relations, other than for CMC. This organization is
comprised of a dedicated sales force organized by account; field marketing and
business development staff; and a new level of relationship-marketing
specialists termed "managing partners." These managing partners are responsible
for driving longer-term relationships and demand among the Company's primary
clients and act as the central point of contact for these clients. Together,
these functions work towards identifying, building and maintaining client
relationships for the Company.
While the Company's sales and marketing organization has grown and developed
with the Company, it strives to keep business development costs low by following
a highly leveraged business development model rather than emphasizing
traditional, high-cost marketing approaches. Initiatives include pursuing vendor
relationships, sponsoring seminars, participating in industry events, and
organizing client programs.
The Company's vendor relationships provide a highly-leveraged approach to
building marketing awareness. The Company has developed strong relationships
with many of the industry's leading hardware and software providers, including
Arbor, Baan, Broadvision, CBT Systems, Cisco, Clarify, Commerce One, Documentum,
Hewlett-Packard, IBM, Informix, Lotus, Microsoft, Netscape, New Era of Networks,
Novasoft, Open Market, 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 participate in any of those 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 those commissions is not
material to the Company's results of operations.
In December 1998, the Company announced the commencement of a strategic alliance
with Microsoft Corporation. Under this arrangement, the Company will deliver
scalable, replicable solutions based on the Microsoft enterprise platform,
with emphasis on electronic commerce, customer loyalty, data warehousing and
investment trading platforms, and on Microsoft COM+ technology and the Microsoft
Visual Studio development system. The Company is also committed to
increasing its number of Microsoft Certified Systems Engineers and Microsoft
Certified Solution Developers. The alliance extends the Company's existing
relationship with Microsoft, whose products and technologies play an important
role in the majority of its client engagements.
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<PAGE>
The Company holds marketing seminars and sponsors industry conferences to
promote its service offerings and to provide clients with insight on key
business and technology issues. The Company also conducts on-site educational
events for senior management in client organizations; hosts marketing events
geared toward client needs; and takes additional steps to build relationships
with its key clients. These events allow the Company to cross-sell its services
and solutions so that clients can take advantage of the full breadth of its
offerings.
The Company seeks to build strong market awareness and relationships with senior
level executives through unique and innovative thought-leadership programs such
as those conducted by its Management Lab and the Cambridge Information Network
(CIN).
THE MANAGEMENT LAB
The Management Lab is the Company's research and education organization,
chartered with providing intellectual guidance and thought leadership to clients
facing the issues associated with adopting advanced information technology. The
Management Lab's programs include: the Lyceum, Research Working Groups,
Executive Education Programs, Customized Learning Programs, and The Directors
Institute on Information Technology.
. 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 and create 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 organization-
specific topics. Recent Customized Learning Program 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."
. The Directors Institute on Information Technology is a series of
forums that involve the external directors of "Global 1000" companies
in IT conversations.
CAMBRIDGE INFORMATION NETWORK (CIN)
CIN is the Company's internet-based community of more than 2,500 senior
information-technology professionals. Effectively a peer-based advisory service,
CIN provides a global forum for member executives to discuss key business,
technology, and career-management issues, and to collaborate to share
experiences, solve common problems, and exchange benchmarking data and useful
documents. The majority of the content is shaped by CIN's members.
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<PAGE>
The Company created CIN in 1996 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 surveys, interviews, insight on technology
strategy, help with career and personnel issues, columns, and most importantly,
member-created and -led discussion groups. CIN also hosts events for CIOs at
which it presents findings from its proprietary research.
BACKLOG
The Company's fixed-price contract backlog totaled $71.8 million at January 31,
1999, compared to $59.4 million at January 31, 1998. For software development
services, the Company and its clients generally agree on a contractually fixed
price for each stage of the software development process. The Company only
includes in backlog that stage of the software deployment 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 engagement.
Because the Company often employs a rapid deployment methodology providing for
completion periods of approximately nine months, contracts included in client
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. Contracts reflected in backlog could be canceled or
delayed and, therefore, backlog is not 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 those services are not included in the Company's backlog
amount.
COMPETITION
The management consulting and information technology services 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 Compaq
Computer 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 Incorporated,
AnswerThink Consulting Group Incorporated and International Integration
Incorporated. The Company also faces competition from information services
organizations within potential clients.
Some participants in the 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
systems consulting and integration revenues than does the Company. In addition,
the custom software development and systems integration market is highly
fragmented and served by numerous firms, many of which serve only their
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<PAGE>
respective local markets or specialized service niches. 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-time/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, speed and effectiveness
of business solution development and implementation, quality of service, price,
project management capability, technical expertise, and identifiable results.
The Company believes it competes favorably with respect to these factors.
The Company believes that its ability to compete also 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.
INTERNATIONAL OPERATIONS
In addition to its North American operations, the Company operates in numerous
countries around the world. During 1998, the Company expanded its business
presence in Europe and the Pacific Rim. The Company opened offices in
Copenhagen, Denmark; Utrecht, Netherlands; Brussels, Belgium; Paris, France;
Munich, Germany; and Sydney, Australia. In 1998, $190.3 million, or 31% of the
Company's total revenues, were derived from customers outside of the United
States and Canada, as compared to $128.8 million, or 30%, in 1997. See Note P of
the Notes to Consolidated Financial Statements. As the Company increases the
amount of business it transacts internationally, it becomes more susceptible to
the risks associated with conducting international business. These risks include
difficulties in building and managing foreign operations, difficulties in
translating its methodologies into foreign languages, market acceptances of the
Company's services, fluctuations in the value of foreign currencies, and
unexpected regulatory, economic or political changes in foreign markets. These
factors may have an adverse effect on the Company and its financial results.
HUMAN RESOURCES
As of January 31, 1999, the Company had a total staff of 4,444 employees,
comprised of 20 senior executives, 63 vice presidents, 225 client partners, 457
project managers, 2,834 application developers and systems consultants, 300
sales and marketing personnel, including 21 managing partners, and an
administrative staff of 545 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,
managing partners, and client partners and other senior technical personnel.
Qualified project managers and other technical personnel 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, the
Company may not 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 good.
15
<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. The Company's steps in this
regard may not be adequate to deter misappropriation of its proprietary
information and the Company may not be able to detect unauthorized use or 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 this 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 remains the property of the Company.
Although the Company believes that its services and products do not infringe on
the intellectual property rights of others, it is possible that infringement
claims could be asserted against the Company in the future.
ITEM 2. PROPERTIES.
The Company's Northeast operations and corporate departments are located in
approximately 62,000 square feet of leased space in Cambridge, Massachusetts,
under a lease which expires in 2007. The lease contains two options for five-
year extensions to the term. In connection with the relocation of these
operations, as described below, the Company expects to sublet the current
facility for the remainder of the lease term. The Company's lease for its
Allston, Massachusetts facility, which houses the remainder of the Company's
Northeast operations, will be terminated effective June 30, 1999.
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 square feet, to house
the Company's Northeast operations, new employee training facility, and
corporate departments, and 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 branches and in which its subsidiaries operate.
There are regional sales and operations facilities in: Atlanta, Bridgewater
(NJ), Cambridge, Chicago, Columbus (OH), Dallas, Denver, Detroit, Los Angeles,
Miami, Minneapolis, New York, Newport Beach (CA), Phoenix, Philadelphia,
Pittsburgh, Portland (OR), Red Bank (NJ), San Francisco, San Juan (P.R.), San
Mateo (CA), San Ramon (CA), Seattle, and Washington D.C. In Canada, the Company
has an office in Toronto. European regional sales and operations facilities are
located in: Vienna, Austria; Brussels, Belgium; Copenhagen, Denmark; Paris and
Versailles, France; Augsburg, Frankfurt, and Munich, Germany; Dublin, Ireland;
Amsterdam and Utrecht, Netherlands; Oslo, Norway; Linkoping, Malmo, and
Stockholm, Sweden; Geneva and Zurich, Switzerland; and
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<PAGE>
London, Manchester, Reading, and Richmond, United Kingdom. Other offices
include: Melbourne and Sydney, Australia; Sao Paolo, Brazil; Bangalore, India;
Tokyo, Japan; Mexico City, Mexico; and Caracas, Venezuela.
The Company believes that its facilities are suitable and adequate for its near
term needs.
ITEM 3. LEGAL PROCEEDINGS.
On August 31, 1998, the Company acquired Excell Data Corporation ("Excell"). On
November 18, 1998, certain of the former shareholders of Excell filed a lawsuit
against the Company in the United States District Court for the District of
Massachusetts. The complaint alleges breach of contract, violation of federal
securities laws, common law fraud, and negligent misrepresentation in connection
with the Excell acquisition and seeks unspecified damages. The Company believes
that the plaintiffs' claims are without merit and intends to vigorously defend
the lawsuit. In February 1999, the Company filed a counterclaim alleging breach
of contract.
On March 22, 1999 and March 29, 1999, certain stockholders of the Company filed
class action lawsuits against the Company and certain of the Company's officers
in the United States District Court for the District of Massachusetts. The suits
allege misrepresentations and omissions regarding the Company's future growth
prospects and progress of the Company's reorganization in violation of federal
securities laws. The suits seek unspecified damages. The Company believes that
the plaintiffs' claims are without merit and intends to vigorously defend the
lawsuits.
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, 1998.
17
<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 quoted on 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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR
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 50.88 35.25
Second Quarter 57.88 45.56
Third Quarter 58.38 19.06
Fourth Quarter 24.50 13.38
</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 March 23, 1999, there were approximately 2,800 stockholders of record.
RECENT SALES OF UNREGISTERED SECURITIES
On August 31, 1998, the Company issued 1,680,416 shares of its Common Stock in
exchange for all of the outstanding shares of capital stock of Excell Data
Corporation. The Company's issuance of these shares was exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to Regulation D, Rule 506 under the Securities Act.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below as of and for the fiscal years ended
December 31, 1998, 1997, 1996, 1995, and 1994, have been derived from the
Company's consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, 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 Notes
thereto, and other financial information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
(in thousands, except per share data) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues $612,041 $438,329 $294,527 $194,094 $121,117
Costs and expenses:
Project personnel 272,263 203,928 138,706 92,924 58,786
General and administration 66,454 47,445 34,239 24,348 16,560
Sales and marketing 56,947 40,668 25,270 20,041 13,465
Other costs 126,970 84,582 55,544 30,739 19,366
Business combination costs 8,400 4,760 1,195 1,333 -
-------- -------- -------- -------- --------
Total operating expenses 531,034 381,383 254,954 169,385 108,177
-------- -------- -------- -------- --------
Income from operations 81,007 56,946 39,573 24,709 12,940
Other income (expense):
Interest income 2,432 2,135 1,009 817 393
Interest expense (199) (311) (132) (453) (166)
Gain on equity investments 798 188 - 909 -
Foreign exchange (loss) gain (934) (122) (141) 92 28
-------- -------- -------- -------- --------
Income before income taxes 83,104 58,836 40,309 26,074 13,195
Provision for income taxes 31,164 25,054 16,317 10,145 4,829
-------- -------- -------- -------- --------
Net income $ 51,940 $ 33,782 $ 23,992 $ 15,929 $ 8,366
======== ======== ======== ======== ========
Basic net income per share $ .90 $ .62 $ .46 $ .32 $ .17
======== ======== ======== ======== ========
Diluted net income per share $ .83 $ .55 $ .40 $ .28 $ .16
======== ======== ======== ======== ========
Weighted average number of common
shares outstanding 58,079 54,632 52,054 49,992 48,680
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 63,301 60,775 59,573 56,798 53,063
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 80,051 $ 39,649 $ 26,456 $ 11,176 $ 5,676
Investments held to maturity 24,918 15,824 12,727 8,544 10,311
Working capital 177,929 108,301 72,334 37,657 22,930
Total assets 351,206 242,421 150,588 90,235 59,817
Stockholders' equity 242,150 150,867 98,796 56,007 35,102
</TABLE>
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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. Founded in
1991, the Company combines management consulting, internet solutions, custom and
package software deployment, network services, and training to rapidly deliver
end-to-end business solutions for "Global 1000" organizations worldwide. 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 brings together key client users, executives, and IT
professionals in interactive sessions to achieve consensus on the business case,
strategic objectives, and functionality of a business solution. In many cases,
the Company employs a rapid deployment methodology that features an iterative
approach. The Company believes that these techniques permit the delivery of
results in rapid time frames -- typically within three to twelve months. Net
revenues for 1998 increased 40% to $612.0 million compared to $438.3 million for
the same period in 1997. Excluding the effect of business combination costs, net
income for the year ended December 31, 1998, increased 50% to $57.7 million, or
$.92 per share (diluted), compared to $38.5 million, or $.63 per share
(diluted), for the same period in 1997. Giving effect to the business
combination costs, net income for the year ended December 31, 1998 increased 54%
to $51.9 million, or $.83 per share (diluted), compared to $33.8 million, or
$.55 per share (diluted), for the same period in 1997.
On August 31, 1998, the Company acquired all of the outstanding capital stock of
Excell Data Corporation. This acquisition was accomplished through a merger of
the Company's acquisition subsidiary and Excell Data Corporation in an exchange
of 1,680,416 shares of the Company's common stock for all outstanding shares of
capital stock of Excell Data Corporation. The acquisition has been accounted for
using the pooling of interests method of accounting, and accordingly, all prior
periods presented have been restated to include the financial results of Excell
Data Corporation. Founded in 1991, Excell Data Corporation had approximately 510
employees at the time of the acquisition and had locations in Bellevue,
Washington, Portland, Oregon, and Denver, Colorado. This acquisition augmented
the Company's existing Microsoft-centric service capabilities, expanded the
Company's network services business, extended the Company's capabilities in the
network services market to include implementation of multi-vendor applications,
messaging systems, and network systems in hetrogeneous network environments, and
increased the Company's geographic reach in the domestic Northwest region. 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. The Company cannot be certain that it will
be able to identify suitable acquisition opportunities at an acceptable cost, if
at all.
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North American net revenues grew 36% in 1998 compared to 1997, while
international net revenues grew 48% in 1998 compared to 1997. North American net
revenues for 1998 represent 69% of total net revenues while international net
revenues represent 31% of total net revenues for the same period. The
international revenue growth resulted from increased demand for the Company's
services, primarily in Europe, Latin America, and the Pacific Rim, including
management consulting services, custom and package client/server applications,
and interactive solutions. While the Company's net revenues grew by 40% in the
aggregate in 1998, the Company experienced downward pressure on the growth of
its North American Rapid Application Deployment business in the second half of
1998, resulting in a 26% increase in revenues compared to 1997. The lower rate
of revenue growth in the Company's North American Rapid Application Deployment
business was due to increased competition from the providers of application
specific solutions compared to the Company's generalist approach. This increased
competition resulted in a decline in the Company's new business win rates and
project transition rates. The lower rate of revenue growth was also due to an
increased number of clients opting to defer or cancel strategic IT initiatives
in favor of completing Year 2000 remediation activities.
Effective for 1999, the Company has realigned its North American operations.
North American operations, which in 1998 were organized on a regional geographic
basis, are now organized around the Company's six principal service offerings:
Management Consulting, Interactive Solutions, Customer Management Solutions,
Enterprise Resource Solutions, Custom Software Solutions, and Network Services.
The Company's sales, marketing and human resources functions also operate on a
service line basis within North America. This realignment helps integrate the
Company's front-office, back-office, and internet application deployment
capabilities. Under the former structure, consultants provided services to
clients based on geographic location and the Company was unable to take full
advantage of specialist skills not located in a client's geographic region. No
longer constrained by geographic regions, the new service line structure is
designed to permit the Company to provide clients with its best consultants in
specific service areas who can deploy proven methodologies, training, and
business processes. This approach is also intended to allow the Company to
realize economies of scale in forecasting and staffing and permit better
leveraging of industry expertise.
During 1998, the Company expanded its business presence domestically and in
Europe and the Pacific Rim. The Company opened offices in Copenhagen, Denmark,
Utrecht, Netherlands, Brussels, Belgium, Paris, France, Munich, Germany, Sydney,
Australia, Denver, Colorado, and Portland, Oregon, bringing worldwide locations
to 53 offices at December 31, 1998.
In order to meet increased demand for its services, the Company increased its
total staff by 25% to 4,385 at December 31, 1998, from 3,496 at December 31,
1997. The Company expects to hire in accordance with its current and anticipated
demand requirements and maintains employee appreciation and benefit programs to
retain existing and attract new employees.
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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.
<TABLE>
<CAPTION>
Years Ended December 31, Percentage Increase
------------------------------ -----------------------
1998 1997 1996 '97 to '98 '96 to '97
---- ---- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues 100% 100% 100% 40% 49%
Costs and expenses:
Project personnel 45 47 47 34 47
General and administration 11 11 12 40 39
Sales and marketing 9 9 9 40 61
Other costs 21 19 19 50 52
Business combination costs 1 1 - 76 298
---- ---- ----
Total operating expenses 87 87 87 39 50
---- ---- ----
Income from operations 13 13 13 42% 44%
Other income, net 1 - 1
---- ---- ----
Income before income taxes 14% 13% 14%
==== ==== ====
</TABLE>
All prior period amounts have been restated to reflect the final results of
Excell Data Corporation, acquired on August 31, 1998, which was accounted for
using the pooling of interests method of accounting (see Note B of Notes to
Consolidated Financial Statements).
Historically, a majority of the Company's revenues have been recognized using
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 revision becomes
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. Inaccuracies in future work completion estimates could result in a
material adverse effect on the Company's operating results. 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. 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 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 substantial client
penalty, an unanticipated termination of a client project could require the
Company to maintain or terminate under-utilized employees, resulting in a
22
<PAGE>
higher than expected number of unassigned persons or higher severance expenses.
While the level of professional staff may 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.
RECENT DEVELOPMENTS
On March 18, 1999, the Company announced that, based on a preliminary review of
its results for the quarter ending March 31, 1999, revenues were expected to be
between $148.0 million and $151.0 million, and earnings per share were expected
to be in the range of $.12 to $.14 per share, which amounts were below security
analysts' revenues estimates of approximately $163.0 million to $170.0 million
and earnings per share estimates of $.21 to $.24 per share. The Company also
reported that it expected revenues for the full year of 1999 to be between
$660.0 million and $675.0 million, and earnings per share for the same period to
be in the range of $.72 to $.74 per share. These estimates compare with security
analysts' expectations of $750.0 million to $795.0 million in revenues and $1.06
to $1.15 in earnings per share. The Company reported that the benefits of the
North American reorganization initiatives undertaken during the fourth quarter
of 1998 had not materialized as quickly as anticipated and, as a result, sales
growth for the first quarter had been lower than expected. In addition, a
decrease in market demand for ERP software licenses had negatively affected
demand for the Company's ERS package implementation offerings. The Company
expects to report actual results for the first quarter on or about April 15,
1999. The statements concerning expected revenues and earnings per share are
merely management's estimates. These estimates are forward-looking statements
and are subject to various risks and uncertainties that could cause the
Company's actual results to differ materially from these estimates. The factors
described below under "Forward-looking Statements" are some of the factors that
could cause a material difference in the Company's actual results.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net revenues increased 40% to $612.0 million in 1998 compared to $438.3 million
in 1997 due principally to an increase in the volume of services delivered to
new clients, leveraging the existing client base by undertaking additional
projects, and continued demand for the Company's service offerings. North
American net revenues for 1998 grew 36% to $421.7 million from $309.5 million in
1997. Net revenues from international operations increased by 48% to $190.3
million in 1998 from $128.8 million in 1997. This increase is primarily due to
the continued development of the Company's business in Europe and further
expansion into Latin America and the Pacific Rim. The decrease in the growth
rate in 1998 (40%) compared to 1997 (49%) was primarily attributable to a
decrease in the net revenues growth rate of the Company's North American Rapid
Application Deployment business. This decrease in the growth rate was due to
increased competition from the providers of application specific solutions
compared to the Company's generalist approach. The Company's new business win
rates and project transition rates declined as a result of the increased
competition. The lower rate of net revenues growth was also due to an increased
number of clients opting to defer or cancel strategic information technology
initiatives in favor of completing Year 2000 remediation activities.
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 $272.3 million or 45% of net revenues in 1998
compared to $203.9 million or 47% of net revenues in 1997. The dollar increase
resulted from the hiring of additional project personnel over 1997 staff levels
and the related increase in payroll and payroll-related expenses to support the
increased volume of services delivered to
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clients and an increase in subcontractor costs. This dollar increase was
partially offset by a decrease in variable compensation related to the Company's
bonus plan, which contributed to the comparative decrease in project personnel
costs as a percentage of net revenues. Worldwide project personnel headcount
increased 25% to 3,596 employees at December 31, 1998, from 2,867 employees at
December 31, 1997. While the Company anticipates meeting its hiring goals for
1999, 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 manages project personnel costs through the periodic review and
measurement of utilization, employee retention, and billability. During 1998,
the Company improved its worldwide time entry system to serve as the basis for
its productivity measurements. The Company also maintains staffing controls to
monitor its subcontractor costs.
General and administration expenses were $66.5 million in 1998 compared to $47.4
million in 1997, representing 11% of net revenues for both periods. The dollar
increase reflects increased payroll and payroll-related expenses associated with
increased staff headcount and increased company-wide relocation, travel,
telecommunications and facilities expenses to support the Company's continued
growth and geographic expansion in North America and internationally, partially
offset by a decrease in variable compensation. General and administration
headcount increased 25% to 482 employees at December 31, 1998, from 385 at
December 31, 1997.
Sales and marketing expenses were $56.9 million in 1998 compared to $40.7
million in 1997, reflecting 9% of net revenues for both periods. The dollar
increase was primarily attributable to an increase in payroll and payroll-
related expenses and facilities costs associated with the increase in sales and
marketing personnel from 244 at December 31, 1997, to 307 at December 31, 1998.
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. The dollar increase also resulted from an
increase in travel related expenses and increased use of marketing publications
in order to provide existing and potential clients with essential information
about the Company and its service offerings. The dollar increase was partially
offset by a decrease in variable compensation. The Company continued its
investment in marketing initiatives and educational and training programs
through those conducted by its Management Lab and the Cambridge Information
Network. The Management Lab and Cambridge Information Network 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.
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 costs, and staff training. Other costs
were $127.0 million or 21% of net revenues in 1998 compared to $84.6 million or
19% of net revenues in 1997. The dollar increase is primarily attributable to a
decrease in project personnel utilization which results in increased non-
billable project personnel costs, and increased facility, travel, and employee
training and administrative costs, including costs related to maintaining newly
opened and expanded offices worldwide, as the Company continues to
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expand globally. The increase as a percentage of net revenues from 1997 resulted
principally from the decrease in project personnel utilization which resulted in
increased non-billable project personnel costs. The decrease in project
personnel utilization is primarily due to the reduced growth rate of the North
American Rapid Application Deployment business. The Company has adjusted its
hiring plans to reflect the reduced growth rate of the North American Rapid
Application Deployment business and will continue to monitor its staffing needs
based on critical skills and demand requirements.
Business combination costs were $8.4 million in 1998 and $4.8 million in 1997.
Of these business combination costs, approximately $1.7 million and $4.8 million
in 1998 and 1997, respectively, related primarily to investment banking, legal,
accounting, and consulting fees incurred in connection with the acquisitions of
Excell Data Corporation in 1998 and Peter Chadwick Holdings Limited in 1997 (see
Note B of Notes to Consolidated Financial Statements). Business combination
costs for 1998 also included a charge to operations of $6.7 million, recorded
upon consummation of the Excell acquisition, representing amounts owed to
participants under the Excell Phantom Stock Plan. The Excell Phantom Stock
Plan, by its terms, terminated as a result of the Excell acquisition (see Note G
of Notes to Consolidated Financial Statements - Excell Phantom Stock Plan).
Interest income increased to $2.4 million in 1998 from $2.1 million in 1997.
This increase is principally due to increased cash and short-term investment
balances, partially offset by lower interest rates in 1998 compared to 1997.
The Company's cash and short-term investments consist primarily of tax exempt
investment grade municipal bonds which mature within one year from the date of
purchase, overnight repurchase agreements, and short-term commercial paper.
Interest expense in 1998 was $199,000 compared to $311,000 in 1997. The
decrease is primarily due to interest expense related to a loan obtained by
Peter Chadwick Holdings Limited in April 1997 to finance the purchase of a
training facility. This loan was repaid in full by the Company in March 1998
(see Note E of Notes to Consolidated Financial Statements).
Gain on equity investments, which consists primarily of the Company's investment
in Cambridge Technology Capital Fund I L.P. (the "Fund"), was $798,000 in 1998
compared to $188,000 in 1997. The increase is primarily due to investment gains
generated by the Fund which was formed in October 1997 (see Note N of Notes to
Consolidated Financial Statements).
Foreign exchange loss was $934,000 in 1998 compared to a loss of $122,000 in
1997 related to foreign currency exchange rate fluctuations associated with
intercompany balances. The 1998 foreign exchange loss consists primarily of
losses related to Japan, Ireland, Australia, and Mexico. 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 these forecasted amounts. As of December 31, 1998, the Company held
foreign exchange contracts of approximately $9.4 million. As the Company grows
its international business, it becomes
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increasingly subject to the risks associated with international operations,
including changes in foreign currency exchange rates. The Company continues to
monitor the impact of foreign currency exchange rates on revenues.
The Company's effective income tax rate in 1998 decreased to 37.5% from 42.6% in
1997. This decrease is primarily due to the non-deductible acquisition costs
incurred related to acquiring Peter Chadwick Holdings Limited in 1997, which
resulted in a 3.7% increase in the effective tax rate for 1997, compared to non-
deductible acquisition costs related to the acquisition of Excell Data
Corporation in 1998, which resulted in a 0.8% increase in the 1998 effective tax
rate. The effective tax rate before non-deductible acquisition costs was 36.7%
in 1998 compared to 38.9% in 1997. The decrease is primarily due to a lower
blended state income tax rate in 1998 resulting from the Company's state tax
rate minimization initiatives put in place in the second half of 1997 and
continuing into 1998 and favorable effects of the Company's global tax planning
strategies. The Company's effective tax rate may vary from period to period
based on the Company's future expansion into areas with varying country, state,
and local statutory income tax rates (see Note J of Notes to Consolidated
Financial Statements).
Net income, excluding business combination costs, increased 50% to $57.7 million
or $.92 per share (diluted) for 1998 compared to $38.5 million or $.63 per share
(diluted) for the same period in 1997. Giving effect to the applicable business
combination costs, net income increased 54% to $51.9 million or $.83 per share
(diluted) for 1998 compared to $33.8 million or $.55 per share (diluted) for the
same period in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net revenues increased 49% to $438.3 million in 1997 compared to $294.5 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. Operationally, North American net revenues
for 1997 grew 56% to $309.5 million, or 71% of consolidated net revenues, from
$199.0 million, or 68% of consolidated net revenues, in 1996. This increase
reflected the continued marketplace demand for the Company's information
technology services in North America. International operations continued to make
significant contributions to the growth in net revenues accounting for $128.8
million or 29% of net revenues in 1997 compared to $95.5 million or 32% for the
same period in 1996. The percentage decrease in international net revenues as a
percentage of consolidated net revenues from 1996 to 1997 was 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. 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 $443.7 million, or a 51% increase from 1996 net revenues.
Project personnel costs were $203.9 million in 1997 compared to $138.7 million
in 1996, reflecting 47% of net revenues for both periods. The dollar increase
resulted from the hiring of additional project personnel over 1996 staff levels,
the related increase in payroll and payroll-
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related expenses, and increased use of skilled subcontractors on projects.
Worldwide project personnel headcount increased 45% to 2,867 employees at
December 31, 1997, from 1,979 employees at December 31, 1996.
General and administration expenses were $47.4 million or 11% of net revenues in
1997 compared to $34.2 million or 12% of net revenues in 1996. The dollar
increase reflected 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 48% to 385
employees at December 31, 1997, from 266 at December 31, 1996. The decrease as a
percentage of net revenues was primarily due to the significant increase in net
revenues in 1997.
Sales and marketing expenses were $40.7 million in 1997 compared to $25.3
million in 1996, reflecting 9% of net revenues for both periods. The dollar
increase was primarily attributable to an increase in payroll and payroll-
related expenses associated with the increase in sales and marketing personnel
from 141 at December 31, 1996 to 244 at December 31, 1997, and the increase in
sales commissions related to the increase in net revenues. 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.
Other costs were $84.6 million in 1997 compared to $55.5 million in 1996,
reflecting 19% of net revenues for both periods. The dollar 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 continued to expand
globally.
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
Holdings Limited in 1997, and NatSoft S.A. and Ramos & Associates, Inc. in 1996
(see Note B of Notes to Consolidated Financial Statements).
Interest income increased to $2.1 million in 1997 from $1.0 million in 1996.
This increase was principally due to increased cash and short-term investment
balances and higher average interest rates obtained in 1997 compared to 1996.
The Company's cash and short-term investments consist primarily of tax exempt
investment grade municipal bonds which mature within one year from the date of
purchase, overnight repurchase agreements, and short-term commercial paper.
Interest expense in 1997 was $311,000 compared to $132,000 in 1996. The
increase was primarily due to interest expense related to a loan obtained by
Peter Chadwick Holdings Limited in April 1997 to finance the purchase of a
training facility (see Note E of Notes to Consolidated Financial Statements).
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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. 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 42.6% from 40.5% in
1996. This increase was primarily due to the non-deductible acquisition costs
incurred related to acquiring Peter Chadwick Holdings Limited 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 acquisition costs was 38.9%
in 1997 compared to 40.5% in 1996. The decrease is primarily due to favorable
effects of state tax rate minimization initiatives put in place in 1997 (see
Note J of Notes to Consolidated Financial Statements).
Net income was $33.8 million or $.55 per share (diluted) for 1997 compared to
$24.0 million or $.40 per share (diluted) for the same period in 1996. Net
income per share (diluted) increased 38% from 1996. Excluding the effects of
business combination costs, net income per share (diluted) for 1997 increased
54% to $.63 from $.41 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company continued to generate cash flow from operations to fund its
business growth and strategic acquisitions. In addition, the Company continued
to operate primarily debt free and enhanced its working capital position.
Working capital increased to $177.9 million at December 31, 1998, from $108.3
million at December 31, 1997. This increase was primarily due to positive cash
flows from operations, an increase in accounts receivable, proceeds from the
exercise of stock options, and proceeds from shares issued under the Company's
employee stock purchase plan, partially offset by cash used for capital
expenditures related to office expansions and computer equipment for new
employees and increases in accrued expenses and income taxes payable. The
Company's days sales outstanding was 76 days at December 31, 1998 compared to 71
days at December 31, 1997. This increase was primarily due to lower net
revenue growth coupled with an increase in average accounts receivable in the
1998 period. The average outstanding receivable balances from clients were
greater in 1998 as a result of the higher billing amounts per project compared
to smaller projects in 1997, coupled with the more time consuming payment
processes of major corporations. The Company continued to focus on its
outstanding receivables by involving its project management staff in the
collection process and experienced a 6% improvement in days sales outstanding in
the fourth quarter of 1998 (78 days) compared to the third quarter of 1998 (83
days). This positive trend is in line with the Company's short term goal of 70
days sales outstanding. Despite the increased days sales outstanding in 1998,
the Company's cash equivalent and short-term investment balances increased 89%
to $105.0 million at December 31, 1998, from $55.5 million at December 31, 1997.
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Net cash provided by operating activities increased by $26.7 million to $51.2
million in 1998 from $23.3 million for the comparable period in 1997. This
increase is primarily the result of increases in net income, depreciation and
amortization, and tax benefits from the exercise of stock options plus decreases
in the growth of accounts receivable, which were partially offset by an increase
in other assets, a decrease in accounts payable, and decreases in the growth of
accrued expenses and prepaid expenses and other current assets. The ability of
the Company to sustain tax benefits from the exercise of stock options is
dependent upon the market price of the Company's stock compared to the exercise
price.
Capital expenditures, which totaled $24.0 million in 1998, were principally for
computer equipment to support the Company's expanding operations and employee
workstations and leasehold improvements for the Company's expanding and new
offices in North America and internationally. Capital expenditures for 1999 are
expected to approximate $34 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
plus relocating the Company's Cambridge, Massachusetts facility. The actual
amount of capital expenditures may vary from management's estimates as capital
needs arise and actual expenditures are made.
In order to support the Company's anticipated business growth, capital
expenditures, and working capital, the Company obtained, in September 1998, a
$50.0 million unsecured senior revolving credit facility (the "Facility")
through a syndication arrangement committed equally by The Chase Manhattan Bank
("Chase") and Fleet National Bank ("Fleet Bank"). The Facility expires on
September 10, 2001 and replaces the Company's previously maintained $20.0
million revolving credit facility that expired on June 30, 1998. The Facility
is administered by Chase and carries a commitment fee, payable quarterly in
arrears, calculated based on the unused portion of the Facility and a price grid
as set forth in the credit agreement. The Facility permits the Company to
select any one of three possible interest rate formulas as defined in the credit
agreement. Interest is payable in arrears based on an interest period
determined by the interest rate elected by the Company. The Facility requires,
among other things, the Company to maintain certain financial ratios, including
debt service coverage, debt to capital, and net worth. For the year ended
December 31, 1998, the Company was in compliance with these financial ratio
requirements. As of December 31, 1998, the Company had no balance outstanding
under the Facility.
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.
The Fund is intended 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 and the Company's investment is accounted for using the
equity method of accounting. 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
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capital has been provided by institutional investors and directors and employees
of the Company. At December 31, 1998, the Company's cumulative investment in the
Fund amounted to approximately $1.9 million with an additional $800,000
contributed through February 1999. The Company's investment in the Fund resulted
in a net gain of approximately $798,000 for the year ended December 31, 1998.
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 is located in Cambridge, Massachusetts, will house the Company's
Northeast operations, new employee training facility, and corporate departments.
The lease agreement is for a ten-year period, which is expected to commence in
June 1999. The Company's current facility in Cambridge, Massachusetts, which
houses part of the Company's Northeast operations and corporate functions, is
expected to be subleased to a third party through its remaining lease term. The
Company's lease at its Allston, Massachusetts facility, which houses the
remainder of the Company's Northeast operations will be terminated effective
June 30, 1999.
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 1999, 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 1999, the Company expects to continue to increase its professional staff and
to open additional sales and operations offices in North America and
internationally. The Company plans to open offices and hire
personnel in anticipation of increased demand for the Company's services.
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.
YEAR 2000 READINESS DISCLOSURE
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.
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The Company has conducted an assessment of its information technology ("IT")
systems and non-IT systems (such as building security, voice mail, telephone and
other systems containing embedded microprocessors) and is in the process of
upgrading and enhancing material internal systems to bring them into material
Year 2000 compliance. These activities are expected to be completed by the end
of the second quarter of 1999. The Company's material internal IT systems
consist principally of accounting, human resources and sales force automation
application software created by third parties, plus internally developed time
and expense reporting and project accounting software applications. For the
third-party software applications, the Company has obtained written confirmation
that the software applications are Year 2000 compliant. The Company also expects
that each of these third party applications will be upgraded, as well as tested
by the Company for Year 2000 compliance by the end of the second quarter of
1999. The Company believes that its internally developed applications are now
materially Year 2000 compliant. The Company's computer hardware platforms,
principally servers, have been confirmed as Year 2000 compliant by the server
manufacturers, and this has been supported by the Company's internal testing.
Based on currently available information, the Company believes the expense
associated with these efforts will be immaterial and has provided for the
enhancement of these systems in its operating and capital budgets for the
current fiscal year. However, if compliance efforts of which the Company is not
currently aware are required and are not completed on time, or if the cost of
any required updating, modification or replacement of the Company's IT systems
exceeds the Company's estimates, the Year 2000 issue could have a material
adverse effect on the Company.
In addition to the Company's internal systems, the Company relies on third party
relationships in the conduct of its business. For example, third party vendors
handle the payroll function for the Company, and the Company also relies on the
services of landlords of its facilities, telecommunication companies, banks,
utilities, and commercial airlines, among others. The Company is currently
obtaining assurances from its landlords and material vendors and suppliers that
there will be no interruption of service as a result of the Year 2000 issue, and
to the extent such assurances are not given, the Company intends to devise
contingency plans to ameliorate the negative effects on the Company in the event
the Year 2000 issue results in the unavailability of services. However,
contingency plans developed by the Company may not prevent a service
interruption on the part of one or more of the Company's third party vendors or
suppliers from having a material adverse effect on the Company. In addition, the
failure on the part of the accounting systems of the Company's clients due to
the Year 2000 issue could result in a delay in the payment of invoices issued by
the Company for services and expenses. A failure of the accounting systems of a
significant number of the Company's clients would have a material adverse effect
on the Company.
The Company is preparing written contingency plans to address failures in its
major IT and non-IT systems. These plans will include identification of major
systems, dependencies on third parties, and resources and strategies necessary
to restore operations or work around failures. The failure of the Company's
accounting systems resulting from a Year 2000 related power system outage at the
Company's central data center, particularly at the end of a fiscal period, could
represent a reasonably likely worst case scenario. The Company's contingency
plan provides for
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back-up power systems that could support the data center, as well as the
operation of a parallel third party disaster recovery site.
Although the Company's principal service offerings do not include Year 2000
remediation services, former, present and future clients could assert that
certain services performed by the Company involved or are related to the Year
2000 issue. The Company has recommended, implemented, and customized various
third-party software packages for its clients, certain of which may not be Year
2000 compliant. Because the Company has designed, developed and implemented
software and systems for a large number of clients since 1991, there can be no
way of assuring that all such software programs and systems will be Year 2000
compliant. In particular, the Company's solution delivery methodology, in many
cases, empowers clients to maintain, alter and upgrade systems after the
completion of an engagement. Due to the potential significance of the Year 2000
issue upon client operations, upon any failure of critical client systems or
processes that may be directly or indirectly connected or related to systems or
software analyzed, designed, developed, or implemented by the Company, the
Company may be subjected to claims regardless of whether the failure is related
to the services provided by the Company. If asserted, the resolution of such
claims (and the associated defense costs) could have a material adverse effect
on the Company.
The Company's policy has been to attempt to include provisions in client
contracts that, among other things, disclaim implied warranties, limit the
duration of express warranties, limit the Company's liability to the amount of
fees paid by the client to the Company in connection with the project, and
disclaim any liability arising from third-party software that is implemented,
customized or installed by the Company. The Company may not be able to obtain
these contractual protections in agreements concerning future projects, and
contractual provisions governing current and completed projects may not prevent
clients from asserting claims against the Company with respect to the Year 2000
issue. The contractual protections, if any, obtained by the Company may not
effectively operate to protect the Company from, or limit the amount of, any
liability arising from claims asserted against the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company) (see Note A of Notes to Consolidated Financial Statements).
FORWARD-LOOKING STATEMENTS
This Form 10-K includes forward-looking statements (statements that are not
historical facts), including, without limitation: statements about future net
revenues and profits, including estimated revenues and earnings per share for
the quarter ending March 31, 1999 and the year ending December 31, 1999; capital
expenditures; liquidity sources and needs; working capital needs; the Year 2000
issue; the impact of the realignment of the Company's North American operations
in 1999;
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the Company's hiring efforts; increases in personnel and related costs;
geographic expansion and opening additional offices; and litigation involving
the Company. These forward-looking statements are subject to several risks and
uncertainties. While it is impossible to identify each factor and event that
could affect the Company's results, there are a number of important factors that
could cause the Company's actual results to differ materially from those
indicated by the forward-looking statements and that could have an impact on the
Company's operating results. These factors include, without limitation, the
number and significance of client engagements commenced and completed during a
period; the number of working days in a period; employee hiring, retention, and
utilization rates; the Company's ability to manage its growth; the Company's
ability to manage the cost of its engagements; changes in demand for the
Company's services; changes in demand for third party products or solutions for
which the Company performs integration services; risks associated with the
Company's realignment of its North American operations from a geographic-based
to a service line model, including the orientation of new management teams
within the service line structure and the need to develop reliable forecasting
tools for each service line within the organization; the Year 2000 issue,
including the effect of the Year 2000 issue on client purchasing patterns;
competition; risks associated with international operations; the acceptance and
profitability of the Company's services in new locations; the integration of
acquired businesses; unanticipated negative outcomes of litigation involving the
Company; and misappropriation of, or lack or loss of protection of, the
Company's intellectual property. 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 client 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
quarter, can cause significant variations in operating results from period to
period.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates due to investments in instruments made for non-trading
purposes. The interest rate risk relates primarily to the Company's portfolio of
short-term investment grade municipal securities. The Company is also subject to
risk relating to fluctuating interest rates to the extent that it incurs any
borrowings under its credit facility. The foreign exchange rate risk relates to
the Company's investment in foreign exchange contracts which are entered into in
order to mitigate the risk of changes in foreign exchange rates associated with
intercompany balances. The Company believes that interest rate risk and foreign
currency exchange rate risk are both immaterial to the Company.
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.
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 "1999 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, 1998, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item may be found under the section
captioned "Compensation and Other Information Concerning Executive Officers and
Directors" in the 1999 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 section
captioned "Principal Holders of Voting Securities" and "Election of Directors -
Stock Ownership of Directors and Executive Officers" in the 1999 Proxy
Statement, and is incorporated herein by reference.
34
<PAGE>
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 1999 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.
For the following consolidated financial information included herein,
see Index to Consolidated Financial Statements on Page F-1:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
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. Exhibits.
The Exhibits listed in the Exhibit Index immediately preceding such
Exhibits are filed as part of this Annual Report on Form 10-K, and
such Exhibit Index is incorporated herein by reference.
35
<PAGE>
(B) REPORTS ON FORM 8-K.
On December 2, 1998, the Company filed a Current Report on Form 8-K relating to
a lawsuit filed on November 18, 1998 by certain of the former shareholders of
Excell Data Corporation. See "Item 3 - Legal Proceedings".
(C) EXHIBITS.
The Company hereby files as part of this Form 10-K the exhibits listed on
the Exhibit Index referenced in Item 14(a)(3) above. Exhibits can be inspected
and copied at the public reference facilities maintained by 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 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 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 schedule listed in Item 14(a)(2) above, which is attached hereto.
36
<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 30TH DAY OF MARCH, 1999.
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 Chief Executive Officer, President March 30, 1999
- ------------------------------
James K. Sims and Director (Principal Executive
Officer)
/s/ Arthur M. Toscanini Executive Vice President - Finance, March 30, 1999
- ------------------------------
Arthur M. Toscanini Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/Louis P. Persico Chief Accounting Officer (Principal March 30, 1999
- ------------------------------
Louis P. Persico Accounting Officer)
/s/ Warren V. Musser Director March 30, 1999
- ------------------------------
Warren V. Musser
/s/ Jack L. Messman Director March 30, 1999
- ------------------------------
Jack L. Messman
/s/ John W. Poduska, Sr. Director March 30, 1999
- ------------------------------
John W. Poduska, Sr.
/s/ Robert E. Keith, Jr. Director March 30, 1999
- ------------------------------
Robert E. Keith, Jr.
/s/ James I. Cash, Jr. Director March 30, 1999
- ------------------------------
James I. Cash, Jr.
/s/ James D. Robinson III Director March 30, 1999
- ------------------------------
James D. Robinson III
</TABLE>
37
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1998, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Cambridge
Technology Partners (Massachusetts), Inc. (the "Company") at December 31, 1998
and December 31, 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for Note R,
as to which the date
is March 29, 1999
F-2
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 80,051 $ 39,649
Investments held to maturity 24,918 15,824
Accounts receivable, less allowance of $4,550 and $2,757
at December 31, 1998 and 1997, respectively 133,583 105,206
Unbilled revenue on contracts 10,964 9,048
Deferred income taxes 2,179 950
Prepaid expenses and other current assets 33,284 27,878
-------- --------
Total current assets 284,979 198,555
Property and equipment, net 48,255 36,027
Other assets 16,786 5,745
Goodwill, net 1,186 2,094
-------- --------
Total assets $351,206 $242,421
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,804 $ 19,134
Accrued expenses 49,603 40,018
Deferred revenue 10,861 9,502
Income taxes payable 30,635 19,361
Obligations under capital leases, current 147 207
Other current liabilities - 2,032
-------- --------
Total current liabilities 107,050 90,254
Obligations under capital leases 197 377
Deferred income taxes 1,809 923
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 250,000,000 and
120,000,000 shares at December 31, 1998 and 1997, respectively;
issued and outstanding 58,856,401 and 56,649,420 shares
at December 31, 1998 and 1997, respectively 589 567
Additional paid-in capital 115,662 75,400
Retained earnings 127,551 77,361
Accumulated other comprehensive loss (1,652) (2,461)
-------- --------
Total stockholders' equity 242,150 150,867
-------- --------
Total liabilities and stockholders' equity $351,206 $242,421
======== ========
</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,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net revenues $612,041 $438,329 $294,527
Costs and expenses:
Project personnel 272,263 203,928 138,706
General and administration 66,454 47,445 34,239
Sales and marketing 56,947 40,668 25,270
Other costs 126,970 84,582 55,544
Business combination costs 8,400 4,760 1,195
-------- -------- --------
Total operating expenses 531,034 381,383 254,954
-------- -------- --------
Income from operations 81,007 56,946 39,573
Other income (expense):
Interest income 2,432 2,135 1,009
Interest expense (199) (311) (132)
Gain on equity investments 798 188 -
Foreign exchange loss (934) (122) (141)
-------- -------- --------
Income before income taxes 83,104 58,836 40,309
Provision for income taxes 31,164 25,054 16,317
-------- -------- --------
Net income $ 51,940 $ 33,782 $ 23,992
======== ======== ========
Basic net income per share $.90 $.62 $.46
======== ======== ========
Diluted net income per share $.83 $.55 $.40
======== ======== ========
Weighted average number of
common shares outstanding 58,079 54,632 52,054
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 63,301 60,775 59,573
======== ======== ========
</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>
ADDITIONAL
NUMBER OF PAR PAID-IN
SHARES VALUE CAPITAL
----------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995 21,099,186 $ 212 $ 28,121
Comprehensive Income:
Net income - - -
Other comprehensive income:
Foreign currency translation adjustment - - -
Total comprehensive income
Excercise of stock options 1,776,193 18 8,297
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)
Accretion of Peter Chadwick preferred stock - - 787
Dividend distribution (Peter Chadwick) - - -
Dividend distribution (NatSoft) - - -
----------- ----------- ----------
Balance, December 31, 1996 53,367,636 534 49,532
Comprehensive Income:
Net income - - -
Other comprehensive income:
Foreign currency translation adjustment - - -
Total comprehensive income
Exercise of stock options 2,170,050 22 12,779
Tax benefit related to stock option exercises - - 5,807
Shares issued under employee stock purchase plan 211,734 2 4,934
Exercise of stock warrants 900,000 9 1,791
Foreign currency translation adjustment
Accretion of Peter Chadwick preferred stock - - 557
Dividend distribution (Peter Chadwick) - - -
Dividend distribution (Excell) - - -
----------- --------- ----------
Balance, December 31, 1997 56,649,420 567 75,400
Comprehensive Income:
Net income - - -
Other comprehensive income:
Foreign currency translation adjustment - - -
Unrealized gain on investment, net of taxes - - -
Other comprehensive income
Total comprehensive income
Exercise of stock options 1,975,616 20 18,656
Tax benefit related to stock option exercises - - 12,238
Shares issued under employee stock purchase plan 231,365 2 7,618
Excell conversion to C Corporation - - 1,750
----------- --------- ----------
Balance, December 31, 1998 58,856,401 $ 589 $ 115,662
=========== ========= ==========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED
INCOME (LOSS) EARNINGS TOTAL
------------- ------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 260 $27,414 $ 56,007
Comprehensive Income:
Net income - 23,992 23,992
Other comprehensive income:
Foreign currency translation adjustment (135) - (135)
----------
Total comprehensive income 23,857
Excercise of stock options - - 8,315
Tax benefit related to stock option exercises - - 10,555
Shares issued under employee stock purchase plan - - 2,071
Issuance of Ramos stock under restricted stock plan - - 5
Shares to effect stock split - - -
Accretion of Peter Chadwick preferred stock - (787) -
Dividend distribution (Peter Chadwick) - (1,999) (1,999)
Dividend distribution (NatSoft) - (15) (15)
---------- ---------- ----------
Balance, December 31, 1996 125 48,605 98,796
Comprehensive Income:
Net income - 33,782 33,782
Other comprehensive income:
Foreign currency translation adjustment (2,586) - (2,586)
- ----------
Total comprehensive income 31,196
Exercise of stock options - - 12,801
Tax benefit related to stock option exercises - - 5,807
Shares issued under employee stock purchase plan - - 4,936
Exercise of stock warrants - - 1,800
Foreign currency translation adjustment
Accretion of Peter Chadwick preferred stock - (557) -
Dividend distribution (Peter Chadwick) - (4,085) (4,085)
Dividend distribution (Excell) - (384) (384)
---------- ---------- ----------
Balance, December 31, 1997 (2,461) 77,361 150,867
Comprehensive Income:
Net income - 51,940 51,940
Other comprehensive income:
Foreign currency translation adjustment (446) - (446)
Unrealized gain on investment, net of taxes 1,255 - 1,255
----------
Other comprehensive income 809
----------
Total comprehensive income 52,749
Exercise of stock options - - 18,676
Tax benefit related to stock option exercises - - 12,238
Shares issued under employee stock purchase plan - - 7,620
Excell conversion to C Corporation - (1,750) -
--------- --------- ----------
Balance, December 31, 1998 $ (1,652) $127,551 $242,150
========= ========= ==========
</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,
-----------------------------------
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,940 $ 33,782 $ 23,992
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,846 8,762 6,795
Tax benefit from exercise of stock options 12,238 5,807 10,555
Unrealized gain on investment in Cambridge
Technology Capital Fund (798) - -
Benefit for deferred income taxes (1,096) (337) (566)
Changes in assets and liabilities:
Increase in accounts receivable (27,574) (45,346) (21,733)
Increase in unbilled revenue on contracts (1,880) (4,756) (1,422)
Increase in prepaid expenses and other current assets (5,214) (10,533) (9,355)
Increase in other assets (6,689) (2,346) (1,829)
(Decrease)/increase in accounts payable (3,422) 6,483 5,429
Increase in accrued expenses 8,331 13,680 8,721
Increase in deferred revenue 1,359 4,217 2,371
Increase in income taxes payable 11,165 12,741 2,211
Other, net - 1,129 124
-------- -------- --------
Net cash provided by operating activities 51,206 23,283 25,293
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (24,048) (23,089) (13,282)
Purchase of investments held to maturity (32,288) (18,261) (18,467)
Maturity of investments held to maturity 23,194 15,164 14,284
Investment in Cambridge Technology Capital Fund (1,589) (300) -
-------- -------- --------
Net cash used in investing activities (34,731) (26,486) (17,465)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under credit arrangements, net - - (325)
Issuance of common stock, net of issuance costs - - 5
Proceeds from long-term loan arrangement - 875 12
Repayment of long-term debt and capital leases (1,013) (250) (271)
Dividend distributions (1,193) (3,340) (2,014)
Proceeds from employee stock purchase plan 7,620 4,936 2,071
Proceeds from exercise of stock options 18,676 12,801 8,315
Proceeds from exercise of warrants - 1,800 -
-------- -------- --------
Net cash provided by financing activities 24,090 16,822 7,793
-------- -------- --------
Effect of foreign exchange rate changes on cash (163) (426) (341)
Net increase in cash and cash equivalents 40,402 13,193 15,280
Cash and cash equivalents at beginning of period 39,649 26,456 11,176
-------- -------- --------
Cash and cash equivalents at end of period $ 80,051 $ 39,649 $ 26,456
======== ======== ========
</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. Founded in
1991, the Company combines management consulting, internet solutions, custom and
package software deployment, network services, and training to rapidly deliver
end-to-end business solutions for "Global 1000" organizations worldwide. 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 brings together key client users, executives, and IT
professionals in interactive sessions to achieve consensus on the business case,
strategic objectives, and functionality of a business solution. In many cases,
the Company employs a rapid development methodology that features an iterative
approach.
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. On August 31, 1998, the Company
acquired all of the outstanding capital stock of Excell Data Corporation
("Excell"). The acquisition of Excell 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 Excell. Certain
prior period amounts have 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.
INVESTMENTS
The Company has the positive intent and ability to hold its short-term
investments to maturity. These investments are classified as investments held to
maturity and mature within one year from the date of purchase. At December 31,
1998 and 1997, the Company held investment grade municipal bonds of $24.9
million and $15.8 million, respectively, which are reported at amortized cost
that approximates market value.
Marketable equity securities are classified as available for sale within other
assets and are recorded at fair value. At December 31, 1998, the Company had
marketable securities at fair value of $2.1 million with a cost of $96,000 and
an unrealized gain of $1.3 million, net of taxes.
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, motor vehicles, and
software and other depreciable assets. 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 is 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, 1998, 1997, and 1996. As of December 31,
1998 and 1997, the accumulated amortization was $3.9 million and $3.1 million,
respectively. The carrying value of goodwill is subject to periodic review of
realizability.
REVENUE RECOGNITION
The Company operates in one industry segment, the design, development, and
implementation of business 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 advance of billings in accordance with contract terms.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," ("SFAS 128") beginning with the year ended December 31,
1997, which includes retroactively restating earnings per share ("EPS") for all
prior periods for which EPS data is presented. SFAS 128 requires the
presentation of basic and diluted EPS. Basic EPS is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed using the weighted
average number of common shares outstanding plus the dilutive effect of common
stock equivalents (using the treasury stock method).
F-8
<PAGE>
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
generally have maturities of one month. The impact of exchange rate movements on
contracts is 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,
1998 and 1997, the Company held foreign exchange forward contracts of
approximately $9.4 million and $4.1 million, respectively, 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 Global 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 have
been within management's expectation. No single customer accounted for 5% or
more of total net revenues for the years ended 1998, 1997, and 1996.
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 amounts reported in the financial statements and the related
footnotes. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). 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 financial
statements presented and is effective for the periods beginning after December
15, 1997. The
F-9
<PAGE>
Company has elected to disclose the components of other comprehensive income and
total comprehensive income, net of taxes, in the Consolidated Statements of
Stockholders' Equity.
The Company has adopted 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 (see
Note P).
In March 1998, Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued. SOP
98-1 provides guidance on applying generally accepted accounting principles in
addressing whether and under what conditions the costs of internal-use software
should be capitalized. SOP 98-1 is effective for transactions entered into in
fiscal years beginning after December 15, 1998, however earlier adoption is
encouraged. The Company adopted the guidelines of SOP 98-1 as of January 1, 1998
and the impact on the operating results for the year ended December 31, 1998 was
immaterial.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded for each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company is currently
determining the impact of the adoption of SFAS 133 on the Company's results of
operations and financial position.
B. ACQUISITIONS
------------
In August 1998, the Company acquired all of the outstanding capital stock of
Excell. This acquisition was accomplished through a merger of the Company's
acquisition subsidiary and Excell in an exchange of 1,680,416 shares of the
Company's common stock for all outstanding shares of capital stock of Excell.
The acquisition has been accounted for using the pooling of interests method of
accounting. Founded in 1991, Excell had approximately 510 employees at the time
of the acquisition, and had locations in Bellevue, Washington, Portland, Oregon,
and Denver, Colorado. Transaction costs related to this acquisition which
consist primarily of investment banking fees, accounting fees, legal fees and
business integration costs were approximately $1.7 million and are included in
business combination costs in the accompanying Consolidated Statements of
Operations (also see Note G - "Excell Phantom Stock Plan").
In November 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. The acquisition has been accounted for using
the pooling of interests method of accounting. Founded in 1987 and based in the
F-10
<PAGE>
United Kingdom, Peter Chadwick specialized in change implementation strategies
and performance improvement programs. Peter Chadwick had offices in the United
Kingdom, Germany, Holland, France, and the U.S. and had approximately 325
employees at the time of the acquisition. Peter Chadwick was renamed Cambridge
Management Consulting Holdings Limited in July 1998.
In November 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, specialized in the Enterprise Resource Planning service market. The
acquisition has been accounted for using the pooling of interests method of
accounting. Ramos was renamed Cambridge Technology Partners - Enterprise
Resource Solutions, Inc. ("ERS") in March 1997.
In October 1996, the Company acquired all the outstanding capital stock of
NatSoft S.A. ("NatSoft"), a Swiss-based information technology consulting and
software implementation firm. This acquisition was accomplished through an
exchange of 271,714 shares 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 ("Cambridge-Switzerland").
The accompanying consolidated financial statements of the Company have been
prepared to give retroactive effect to the acquisitions of Excell, Peter
Chadwick, Ramos, and NatSoft 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 for the period in which the transaction was
consummated.
The following information presents certain statement of operations data (in
thousands) of the Company, NatSoft, Ramos, Peter Chadwick, and Excell for the
periods prior to the acquisitions. NatSoft and Ramos information are presented
through September 30, 1996, which represents the interim period end nearest to
the date of these acquisitions. Peter Chadwick and Excell information are
presented through September 30, 1997 and June 30, 1998, respectively, which
represent the interim period ends nearest to the dates of these acquisitions.
F-11
<PAGE>
<TABLE>
<CAPTION>
Cambridge
Technology Peter Combined
Partners NatSoft Ramos Chadwick Excell Total
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues for the:
Nine months ended
September 30, 1996 $ 141,862 $ 8,046 $ 17,497 $ 26,384 $ 15,635 $ 209,424
Year ended
December 31, 1996 $ 236,554 $ 36,324 $ 21,649 $ 294,527
Nine months ended
September 30, 1997 $ 250,501 $ 36,841 $ 22,217 $ 309,559
Year ended
December 31, 1997 $ 406,672 $ 31,657 $ 438,329
Six months ended
June 30, 1998 $ 238,018 $ 18,588 $ 256,606
Net income for the:
Nine months ended
September 30, 1996 $ 14,042 $ 163 $ 853 $ 2,049 $ 408 $ 17,515
Year ended
December 31, 1996 $ 21,100 $ 2,925 $ (33) $ 23,992
Nine months ended
September 30, 1997 $ 24,623 $ 2,365 $ 962 $ 27,950
Year ended
December 31, 1997 $ 32,929 $ 853 $ 33,782
Six months ended
June 30, 1998 $ 41,798 $ 397 $ 42,195
</TABLE>
C. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Contracts in process $ 78,767 $ 69,995
Completed contracts 59,366 37,968
-------- --------
138,133 107,963
Less: Allowance for doubtful accounts 4,550 2,757
-------- --------
$133,583 $105,206
======== ========
</TABLE>
In accordance with state government practices, a governmental client withheld a
percentage of invoiced receivables as retention until final review of completed
projects. At December 31, 1998 and 1997, this retention receivable totaled $2.4
million and was included in other assets. The Company does not include client
reimbursable expenses or other non-trade receivables as a component of net
revenues. At December 31, 1998 and 1997, approximately $19.2 million and $14.0
million, respectively, of client reimbursable expenses and other non-trade
receivables are included in prepaid expenses and other current assets.
F-12
<PAGE>
D. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Equipment $ 54,591 $ 38,121
Furniture and fixtures 11,693 8,618
Leasehold improvements 11,312 7,611
Motor vehicles 880 1,137
Software and other 2,849 1,501
-------- --------
Total cost 81,325 56,988
Less accumulated depreciation 33,070 20,961
-------- --------
$ 48,255 $ 36,027
======== ========
</TABLE>
Depreciation expense for 1998, 1997, and 1996 was $11.9 million, $7.2 million,
and $5.8 million, respectively.
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Accrued payroll and payroll related expenses $ 20,776 $ 21,106
Other accrued expenses 22,959 15,864
Accrued value added tax 5,868 3,048
-------- --------
$ 49,603 $ 40,018
======== ========
</TABLE>
In April 1997, Peter Chadwick acquired the assets of a training facility located
in the United Kingdom for $1.9 million (see Note B). Peter Chadwick entered into
a Loan Agreement with National Westminister Bank (the "Loan Agreement") to
finance this acquisition. As of 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), were payable in
monthly installments. A balloon payment for the entire outstanding balance was
due in 2005. This amount is included in other current liabilities in the
accompanying consolidated balance sheet at December 31, 1997. In the first
quarter of 1998, the Company repaid the outstanding amount of approximately
$823,000 and terminated the Loan Agreement.
F-13
<PAGE>
F. REVOLVING CREDIT FACILITY
-------------------------
In September 1998, the Company obtained a $50.0 million unsecured senior
revolving credit facility (the "Facility") through a syndication arrangement
committed equally by The Chase Manhattan Bank ("Chase") and Fleet National Bank
("Fleet Bank"). The Facility expires on September 10, 2001 and replaces the
Company's previously maintained $20.0 million revolving credit facility that
expired on June 30, 1998. The Facility is administered by Chase and carries a
commitment fee, payable quarterly in arrears, calculated based on the unused
portion of the Facility and a price grid as set forth in the credit agreement.
The Facility permits the Company to elect any of three possible interest rate
formulas as defined in the credit agreement. Interest is payable in arrears
based on an interest period determined by the interest rate elected by the
Company. The Facility requires, among other things, the Company to maintain
certain financial ratios, including debt service coverage, debt to capital, and
net worth. For the year ended December 31, 1998, the Company was in compliance
with these financial ratio requirements. As of December 31, 1998, the Company
had no balance outstanding under the Facility.
G. STOCKHOLDERS' EQUITY AND OTHER STOCK-RELATED INFORMATION
--------------------------------------------------------
AUTHORIZED SHARES
On May 13, 1998, the stockholders of the Company voted to amend to the Company's
corporate charter to increase the number of authorized shares of common stock
from 120 million shares to 250 million shares.
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 "1991 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 (the "MRC") of the Board of Directors administers
the 1991 Option Plan, subject to approval by the Board of Directors with respect
to certain matters. Options granted under the 1991 Option Plan prior to 1997
generally vest ratably over a 48 month period and expire ten years from the date
of grant. Options granted under the 1991 Option Plan in 1997 and thereafter
generally vest ratably over a 48 month period and expire in installments five to
eight years from the date of grant. At December 31, 1998, 1997, and 1996,
options to purchase 4,725,224, 4,063,342, and 4,014,783 shares, respectively,
were exercisable under the 1991 Option Plan. In December 1996 and 1997,
F-14
<PAGE>
the Company's Board of Directors amended the 1991 Option Plan, with subsequent
stockholder approval, to increase the number of shares of common stock
authorized for issuance under the 1991 Option Plan from 15 million to 19 million
in 1996, and from 19 million to 23 million in 1997.
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 nonqualified 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 Company's 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, and 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 granted under the
Non-employee Director Option Plan generally vest ratably over a 48 month period
and expire ten years from the date of grant. At December 31, 1998, 1997 and
1996, options to purchase 95,136, 73,121, and 43,122 shares, respectively, were
exercisable under the Non-employee Director Option Plan.
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. The MRC administers the 1997 Option
Plan, subject to approval by the Board of Directors with respect to certain
matters. Options granted under the 1997 Option Plan generally vest ratably over
a 48 month period and expire in installments five to eight years from the date
of grant. At December 31, 1998 and 1997, options to purchase 34,773 and zero
shares, respectively, were exercisable under the 1997 Option Plan.
In October 1998, the Board of Directors adopted the 1998 Stock Option Plan (the
"1998 Option Plan") under which the Company may grant nonqualified stock options
to purchase up to five million shares of the Company's common stock to employees
of the Company and other key individuals other than members of the Board of
Directors or officers of the Company. The MRC administers the 1998 Option Plan.
Unless otherwise provided by the MRC at the time of grant, options granted under
the 1998 Option Plan vest ratably over a 48 month period and expire four years
from the last vesting date in each year. At December 31, 1998, options to
purchase 31,732 shares were exercisable under the 1998 Option Plan.
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, 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
Granted 12,189,805 22.14
Exercised 1,975,616 9.39
Canceled 6,919,605 33.65
---------- -------
Outstanding at December 31, 1998 15,351,724 $ 17.39
========== =======
</TABLE>
In October of 1998, in order to re-establish the incentive nature of outstanding
stock options with exercise prices greater than the then current fair market
value of the Company's common stock, the Company offered to holders of
outstanding stock options granted on or after April 24, 1997 the opportunity to
exchange those options for options covering an equivalent number of shares with
an exercise price of $15.50 per share, the then current fair market value. The
Chief Executive Officer and directors of the Company were not eligible to
participate in the exchange. The table above reflects the cancellation and
re-issuance of options to purchase 5,236,670 shares of common stock in 1998 in
connection with the option exchange. The new options vest in accordance with the
vesting schedule of the options they replaced, but cannot be exercised until
October 15, 1999, in the case of the Company's executive vice presidents, senior
vice presidents, vice presidents and associate vice presidents, and until April
15, 1999, in the case of all other employees who participated in the option
exchange.
The above table also reflects the cancellation and re-issuance of options to
purchase 2,051,286 shares of common stock in 1997 under the 1991 Option Plan.
These re-issued 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 these options
re-started at April 1997 and option lives were shortened compared to the
original grants.
F-16
<PAGE>
The following summarizes information about the Company's stock options
outstanding at December 31, 1998:
<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 12/31/98 Life Price at 12/31/98 Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .16 - $ 1.34 328,648 3.3 Years $ .62 328,648 $ .62
1.67 - 6.32 1,176,227 5.4 Years $ 5.64 1,176,227 $ 5.64
10.00 - 17.30 8,941,973 6.5 Years $ 15.45 2,634,841 $ 15.27
22.50 - 29.13 4,129,610 6.7 Years $ 22.81 547,759 $ 25.46
33.00 - 36.00 695,585 6.6 Years $ 34.95 197,890 $ 34.86
46.06 - 49.60 79,681 7.2 Years $ 48.82 1,500 $ 47.18
- --------------- ---------- --------- -------- --------- --------
$ .16 - $49.60 15,351,724 6.4 Years $ 17.39 4,886,865 $ 13.59
=============== ========== ========= ======== ========= ========
</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
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, 1998, 1997, and 1996 (in thousands except per
share data):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
As reported net income $51,940 $33,782 $23,992
Pro forma net income for SFAS 123 $24,133 $27,092 $18,692
Net income per share:
As reported basic net income per share $ .90 $ .62 $ .46
Pro forma basic net income per
share for SFAS 123 $ .42 $ .50 $ .36
As reported diluted net income per share $ .83 $ .55 $ .40
Pro forma diluted net income per
share for SFAS 123 $ .38 $ .45 $ .31
</TABLE>
F-17
<PAGE>
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>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Expected volatility 52% 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 4.5% 6.2% 6.2%
Dividend yield 0% 0% 0%
</TABLE>
The weighted average fair value of options granted under the stock option plans
was $8.80 in 1998, $12.59 in 1997, and $12.25 in 1996. The weighted average fair
value of shares issued under the employee stock purchase plan was was $13.40 in
1998, $4.81 in 1997, and $2.64 in 1996. The pro forma expense amounts assume
that the fair value assigned to the option grants was amortized over the vesting
period of the options, which is approximately four years, while the fair value
assigned to grants under the Employee Stock Purchase Plan was recognized in full
at the various dates of grant.
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 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 consist of two
six-month periods, January 15 through July 14 and July 15 through January 14.
For the years ended December 31, 1998, 1997, and 1996, 231,365, 211,734, and
124,123 shares of common stock, respectively, were issued under the Stock
Purchase Plan.
PREFERRED STOCK
The Company's 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
F-18
<PAGE>
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 Scientifics, Inc. 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 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 prior consent of Chase as administrator of the Facility (see Note F).
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 $1.2 million, $3.0 million, and $2.0 million for the years ended
December 31, 1998, 1997 and 1996, respectively. At December 31, 1997, the $1.2
million of dividend distribution paid in the first quarter of 1998 was included
in other current liabilities reflecting Peter Chadwick's dividend obligations up
to the date of acquisition in accordance with the Peter Chadwick shareholder
agreements in effect prior to the acquisition.
Dividend distributions made by Excell prior to the acquisition were principally
for reimbursement of income tax liabilities of its former stockholders due to
Excell's S-Corporation tax status prior to the acquisition.
RIGHTS PLAN
On June 23, 1997, the Board of Directors of the Company approved and adopted a
Rights Plan pursuant to a Rights Agreement which was amended on September 30,
1998, 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 is also
attached to each share 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.
EXCELL PHANTOM STOCK PLAN
Excell maintained a 1996 Class I Phantom Stock Plan ("Phantom Plan") under which
Excell granted nonqualified phantom stock units to qualifying employees. The
Phantom Plan entitled a
F-19
<PAGE>
holder to surrender the units for cash equal to the defined per-unit amount
derived from net income of Excell over the holding period of the units. The
Phantom Plan also provided for a five-year vesting period along with other
restrictions regarding redemption. The Phantom Plan also contained provisions
related to payments to holders of units based on a defined market value if
Excell was sold or a major change in ownership (collectively a "change in
control") occurred, as defined under the Phantom Plan agreement. The acquisition
of Excell by the Company qualified as a change in control under the Phantom
Plan. As a result, upon consummation of the acquisition, the Company recorded a
charge to operations of $6.7 million for the year ended December 31, 1998, which
is included in business combination costs, representing amounts owed to Phantom
Plan participants as of the closing date of the Excell acquisition. In
accordance with the Phantom Plan, as a result of the acquisition, the Phantom
Plan was terminated.
H. 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 houses its
Northeast operations and corporate departments. 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 term expires in August 2007, and is renewable
for two additional five-year terms. The lease provides for rent 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.
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 is located in Cambridge, Massachusetts, will house the Company's
Northeast operations, new employee training facility, and corporate departments.
The lease agreement is for a ten-year period, which is expected to commence in
June 1999. The Company's current facility in Cambridge, Massachusetts, which
houses part of the Company's Northeast operations and corporate functions, is
expected to be subleased through its remaining lease term. The Company's lease
for its Allston, Massachusetts facility, which houses the remainder of the
Company's Northeast operations, will be terminated effective June 30, 1999.
F-20
<PAGE>
Minimum future lease commitments under noncancelable operating leases for
buildings and equipment in effect at December 31, 1998, are presented as follows
(in thousands):
1999 $ 18,247
2000 18,272
2001 16,924
2002 15,076
2003 13,218
Thereafter 42,464
---------
Total minimum lease payments $ 124,201
=========
For the years ended December 31, 1998, 1997, and 1996, rental expense under all
leases was approximately $15.6 million, $11.0 million, and $6.6 million,
respectively, of which approximately $814,000, $765,000, and $785,000,
respectively, were paid to the trust described above.
I. OTHER COSTS
-----------
Other costs consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Facility costs and related expenses $ 58,881 $ 43,920 $ 31,846
Non-billable project expenses 34,597 19,080 11,818
Non-billable staff costs 21,412 15,479 7,473
Education and training 12,080 6,103 4,407
-------- -------- --------
$126,970 $ 84,582 $ 55,544
======== ======== ========
</TABLE>
F-21
<PAGE>
J. INCOME TAXES
------------
The components of income before income taxes and the related provision for
income taxes for the years ended December 31, 1998, 1997, and 1996 are presented
below (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes:
Domestic $ 57,071 $ 49,340 $ 33,220
Foreign 26,033 9,496 7,089
-------- -------- --------
$ 83,104 $ 58,836 $ 40,309
======== ======== ========
Provision for income taxes:
Current:
Federal $ 19,955 $ 17,769 $ 10,430
Foreign 9,682 3,881 3,420
State 2,623 3,741 3,033
-------- -------- --------
32,260 25,391 16,883
Deferred:
Federal (1,009) (308) (311)
Foreign - 10 (207)
State (87) (39) (48)
-------- -------- --------
(1,096) (337) (566)
-------- -------- --------
Total $ 31,164 $ 25,054 $ 16,317
======== ======== ========
</TABLE>
The Company's deferred tax assets and (liabilities) are comprised of the
following as of December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Bad debt reserves $ 838 $ 442
Vacation accrual 631 177
Fixed asset depreciation (485) (923)
Cash to accrual adjustments (1,174) (476)
Unrealized gain on investment (1,033) -
Other accruals 1,593 807
-------- --------
$ 370 $ 27
======== ========
</TABLE>
Included in unrealized gain on investment is a deferred tax liability of
$753,000 related to an increase in the basis of an investment recorded as part
of comprehensive income reflected in the Consolidated Statements of
Stockholders' Equity. In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", this deferred tax liability
amount is not included in the provision for income taxes.
F-22
<PAGE>
The table below reconciles the expected U.S. federal statutory income tax rate
to the recorded income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 2.3 5.0 5.5
Goodwill amortization 0.3 0.4 0.7
Non-taxable S-Corporation income (0.5) (0.6) -
Other, net (0.4) (0.9) (0.7)
----- ----- -----
Effective tax rate before non-
deductible pooling costs 36.7 38.9 40.5
Non-deductible pooling costs 0.8 3.7 -
----- ----- -----
Effective tax rate 37.5% 42.6% 40.5%
===== ===== =====
</TABLE>
During the period from April 1, 1996 through August 31, 1998 (the date of the
Company's acquisition of Excell), Excell elected to be treated as an
S-Corporation for income tax reporting purposes. Under this election, Excell's
individual stockholders are deemed to have received a pro rata distribution of
taxable income of Excell (whether or not an actual distribution was made), which
is included in each stockholder's taxable income. Accordingly, Excell did not
provide for income taxes during the period from April 1, 1996 through August 31,
1998. Excell's S-Corporation tax reporting status was terminated on the date of
acquisition and therefore, the undistributed earnings of Excell, as of the date
of acquisition, were reclassified to additional paid-in-capital as of August 31,
1998. Pro forma net income per share data is presented below to reflect the pro
forma increase to historical income taxes related to Excell as if Excell was a
C-Corporation for tax reporting purposes during those periods.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Pro forma data (unaudited):
Historical income before income taxes $ 83,104 $ 58,836 $ 40,309
Provision for income taxes:
Historical income taxes 31,164 25,054 16,317
Pro forma increase to historical income taxes 195 437 64
-------- -------- --------
Pro forma net income $ 51,745 $ 33,345 $ 23,928
======== ======== ========
Pro forma basic net income per share $ .90 $ .62 $ .46
======== ======== ========
Pro forma diluted net income per share $ .83 $ .55 $ .40
======== ======== ========
</TABLE>
F-23
<PAGE>
K. NET INCOME PER SHARE
--------------------
The following table presents the calculation of per share earnings for the years
ended December 31, 1998, 1997, and 1996 (see Note A) (in thousands except per
share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Net income $ 51,940 $ 33,782 $ 23,992
======== ======== =========
Basic:
Weighted average common shares outstanding 58,079 54,632 52,054
======== ======== =========
Net income per common share $ .90 $ .62 $ .46
======== ======== =========
Diluted:
Weighted average common shares outstanding 58,079 54,632 52,054
Dilutive effects of stock options and warrants 5,222 6,143 7,519
-------- -------- ---------
Weighted average common and common
equivalent shares outstanding 63,301 60,775 59,573
======== ======== =========
Net income per common and common
equivalent share $ .83 $ .55 $ .40
======== ======== =========
</TABLE>
L. 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. Company matching contributions made under the 401(k) Plan amounted to $2.3
million, $1.3 million, and $845,000 in 1998, 1997, and 1996, respectively.
Cambridge-Switzerland sponsors a defined contribution retirement plan (the
"Switzerland Plan") for its employees. Under the Switzerland Plan, employees can
contribute between 5% to 11% of salary depending on age and other factors. All
employee contributions are matched by Cambridge-Switzerland. Employer matching
contributions amounted to $225,000, $188,000, and $202,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
In 1992, ERS established a savings and profit-sharing plan (the "ERS Profit-
sharing Plan") covering substantially all of ERS' employees. The ERS Profit-
sharing Plan was qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended. ERS could elect to make contributions under the ERS Profit-
sharing Plan. ERS elected to make matching contributions based on a percentage
of employees' contributions. The Company completed the rollover of assets held
under the ERS Profit-sharing Plan to the 401(k) Plan in January 1998. ERS'
matching
F-24
<PAGE>
contributions amounted to $538,000 and $455,000 for the years ended December 31,
1997 and 1996, respectively.
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 Trust is not reflected in the consolidated financial statements. As a result
of the acquisition of Peter Chadwick, the trustees terminated the Trust.
Excell maintains a qualified deferred compensation plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended. Under this plan, employees may
elect to defer a portion of their compensation subject to Internal Revenue Code
defined limitations. Employees are eligible to participate in the plan after
they have worked for Excell for 90 days. Excell did not provide any matching
based on employee contributions.
In December 1997, the MRC and the Board of Directors approved a Deferred
Compensation Plan for executive officers and all vice presidents of the Company.
Under the Deferred Compensation Plan, eligible employees may defer either 5% or
10% of eligible cash bonus compensation, beginning with bonus compensation for
1998, which amount the Company will match on a 100% basis. Deferrals and
matching amounts are credited to an unfunded account maintained on the books of
the Company and treated as notionally invested in common stock of the Company,
based on the average of the closing prices of such stock over the ten business
days immediately preceding the crediting date. The matching portion vests in 25%
installments on each of the next four anniversaries of the date the match was
credited to the account, provided that the participant has been continuously
employed since the crediting date. With certain exceptions, the vested portion
of a participant's account will be paid in a single payment upon termination of
employment. As the Company did not, generally, pay any cash bonuses to employees
eligible to participate in the Deferred Compensation Plan in 1998, there was no
participation in the plan, or Company contributions, for 1998.
M. COMMITMENTS AND CONTINGENCIES
-----------------------------
On November 18, 1998, certain of the former shareholders of Excell filed a
lawsuit against the Company in the United States District Court for the District
of Massachusetts. The complaint alleges breach of contract, violation of federal
securities laws, common law fraud, and negligent misrepresentation in connection
with the Excell acquisition and seeks unspecified damages. The Company believes
that the plaintiffs' claims are without merit and intends to vigorously defend
the lawsuit. In February 1999, the Company filed a counterclaim alleging breach
of contract.
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.
F-25
<PAGE>
N. 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.
The Fund is intended 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 investment in the Fund is accounted for
using the equity method of accounting. 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. For the
years ended December 31, 1998 and 1997, the Company's investment in the Fund
amounted to approximately $1.6 million and $300,000, respectively. The Company's
investment in the Fund resulted in a net gain of approximately $798,000 for the
year ended December 31, 1998.
O. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental disclosures of cash flow information are presented as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 199 $ 232 $ 107
Income taxes 11,171 5,503 4,505
</TABLE>
P. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
--------------------------------------------
In the fourth quarter of 1998, the Company has adopted Statement of Financial
Accounting Standard No. 131, "Disclosure About Segments of an Enterprise and
Related Information". The Company is managed in two operating segments: North
America and International. North America provides systems integration and
consulting services in the United States and Canada while International provides
systems integration and consulting services outside of North America. In 1999,
the Company will operate under a service line structure.
F-26
<PAGE>
The Company evaluates each segment's performance based on net revenues and
income from operations. Corporate net revenue, depreciation/amortization
expense, and income from operations has been allocated to each segment based on
the proportionate operating income of each segment. Total corporate assets and
fixed asset additions have been included in North America.
Information about the Company's operating segments is presented as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
North America $421,741 $309,531 $199,017
International 190,300 128,798 95,510
-------- -------- --------
Consolidated $612,041 $438,329 $294,527
======== ======== ========
Depreciation and amortization:
North America $ 9,386 $ 6,547 $ 4,756
International 3,460 2,215 2,039
-------- -------- --------
Consolidated $ 12,846 $ 8,762 $ 6,795
======== ======== ========
Income from operations:
North America $ 63,217 $ 49,661 $ 33,062
International 17,790 7,285 6,511
-------- -------- --------
Consolidated $ 81,007 $ 56,946 $ 39,573
======== ======== ========
Fixed asset additions:
North America $ 18,082 $ 17,745 $ 9,703
International 5,966 5,344 3,579
-------- -------- --------
Consolidated $ 24,048 $ 23,089 $ 13,282
======== ======== ========
Total assets :
North America $257,617 $185,845 $108,872
International 93,589 56,576 41,716
-------- -------- --------
Consolidated $351,206 $242,421 $150,588
======== ======== ========
</TABLE>
F-27
<PAGE>
Geographic information of the Company is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
North America $421,608 $307,512 $198,959
Europe 172,650 121,630 93,578
Latin America 11,795 8,852 1,990
Pacific Rim 5,988 335 -
-------- -------- --------
Consolidated $612,041 $438,329 $294,527
======== ======== ========
Income (loss) from operations:
North America $ 54,184 $ 46,150 $ 29,875
Europe 28,402 13,470 10,526
Latin America (1,778) (827) (828)
Pacific Rim 199 (1,847) -
-------- -------- --------
Consolidated $ 81,007 $ 56,946 $ 39,573
======== ======== ========
Total long-lived assets:
North America $ 53,683 $ 34,176 $ 20,937
Europe 11,158 9,336 5,869
Latin America 1,249 322 338
Pacific Rim 606 32 -
-------- -------- --------
Consolidated $ 66,696 $ 43,866 $ 27,144
======== ======== ========
</TABLE>
Net revenues to external customers are based on the location of the customer.
North American operations consist of services provided in the United States and
Canada. European operations consist of services provided primarily in the United
Kingdom, the Netherlands, Switzerland, Sweden, Norway, Ireland, Germany, France,
and Austria, which have similar business environments. Latin American operations
consist of services provided primarily in Mexico, Puerto Rico, Brazil, and
Venezuela. Pacific Rim operations consist of services provided primarily in
Japan, Australia, and India. There are no intraenterprise sales for the periods
presented. Corporate net revenue, income from operations and long-lived assets
have been included in North America. No customer of the Company accounted for 5%
or more of the Company's net revenues for any of the periods presented.
F-28
<PAGE>
Q. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
The following table presents unaudited quarterly financial information for the
years ended 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------- ------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $142,223 $88,498 $156,578 $104,032 $153,074 $117,029 $160,166 $128,770
Income from operations 20,117 13,008 22,078 15,103 13,831 16,570 24,981 12,265
Income before income taxes 20,529 13,263 22,577 15,736 14,821 17,085 25,177 12,752
Net income 12,480 7,893 13,534 9,605 9,675 10,452 16,251 5,832
Basic net income per share .22 .15 .23 .18 .17 .19 .28 .10
Diluted net income per share .20 .13 .21 .16 .16 .17 .26 .09
</TABLE>
R. SUBSEQUENT EVENT
----------------
On March 22, 1999 and March 29, 1999, certain stockholders of the Company filed
class action lawsuits against the Company and certain of the Company's officers
in the United States District Court for the District of Massachusetts. The suits
allege misrepresentations and omissions regarding the Company's future growth
prospects and progress of the Company's reorganization in violation of federal
securities laws. The suits seek unspecified damages. The Company believes that
the plaintiffs' claims are without merit and intends to vigorously defend the
lawsuits.
F-29
<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 statement 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,
present fairly, in all material respects, the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999
S-1
<PAGE>
SCHEDULE II
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1997, and 1998
(in thousands)
<TABLE>
<CAPTION>
(2)
Charged to
Balance at (1) other Balance at
Allowances for Beginning Charged to accounts - End of
Doubtful Accounts of Period cost and expenses describe Deductions Period
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996 $1,184 $ 572 $ - $ - $1,756
Year ended December 31, 1997 1,756 1,001 - - 2,757
Year ended December 31, 1998 2,757 1,793 - - 4,550
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1(5) Agreement and Plan of Merger, dated as of August 31, 1998, by
and among the Company, a wholly-owned subsidiary of the
Company, Excell Data Corporation ("Excell"), and the
shareholders of Excell (without Exhibits).
2.2(5) Registration Rights Agreement, dated as of August 31, 1998, by
and among the Company and the other parties named therein
(with Schedule A thereto).
2.3(5) Escrow Agreement, dated as of August 31, 1998, by and among the
Company and the other parties named therein (without
Exhibits).
3.1(4) Amended and Restated Certificate of Incorporation of the
Company, as amended.
3.2(1) Amended and Restated By-laws of the Company.
4.1(6) Rights Agreement, dated June 23, 1997, by and between the
Company and ChaseMellon Shareholders Services, LLC (the
"Rights Agreement").
4.2(6) Amendment No. 1 to the Rights Agreement, dated September 30,
1998, by and between the Company and ChaseMellon Shareholder
Services, LLC.
10.1* Amended and Restated 1991 Stock Option Plan, as amended.
10.2* Form of Non-Qualified Stock Option Agreement of the Company for
Executive Officers under the Amended and Restated 1991 Stock
Option Plan.
10.3* Form of Non-Qualified Stock Option Agreement of the Company for
Non-Executive Officers under the Amended and Restated 1991
Stock Option Plan.
10.4* Form of Incentive Stock Option Agreement of the Company for
Executive Officers under the Amended and Restated 1991 Stock
Option Plan.
10.5* Form of Incentive Stock Option Agreement of the Company for
Non-Executive Officers under the Amended and Restated 1991
Stock Option Plan.
10.6* 1998 Stock Option Plan.
10.7* Form of Non-Qualified Option Agreement of the Company under the
1998 Stock Option Plan.
10.8* 1995 Non-Employee Director Stock Option Plan.
10.9(1)* Agreement, dated December 1992, between the Company and James
K. Sims.
10.10(2)* Amendment to Agreement between the Company and James K. Sims,
dated December 15,1994.
10.11(1)* Agreement, dated December 1992, between the Company and Arthur
M. Toscanini.
10.12(7) Credit Agreement, dated as of September 10, 1998, by and among
the Company, certain of its subsidiaries, The Chase Manhattan
Bank and Fleet National Bank.
10.13(7) Guaranty, dated September 10, 1998, by certain subsidiaries of
the Company in favor of The Chase Manhattan Bank and Fleet
National Bank.
10.14(3)* Deferred Compensation Plan for Key Employees.
10.15(3)* Form of Split-Dollar Life Insurance Agreement for Executive
Officers and Vice Presidents.
<PAGE>
10.16(3)* Service Agreement with Quentin Baer, as amended.
10.17(3)* Service Agreement with Ian Clarkson, as amended.
10.18* Employment Agreement, dated November 18, 1996, between the
Company and Timothy A. Ramos.
10.19 Promissory Note, dated November 13, 1998, from H. Carvel Moore
to the Company.
10.20 Promissory Note, dated November 2, 1998, from Theo Schnitfink
to the Company.
10.21 Promissory Note, dated December 21, 1998, from Theo Schnitfink
to the Company.
10.22(5) Agreement and Plan of Merger, dated as of August 31, 1998, by
and among the Company, a wholly-owned subsidiary of the
Company, Excell Data Corporation ("Excell"), and the
shareholders of Excell (without Exhibits)
10.23(5) Registration Rights Agreement, dated as of August 31, 1998, by
and among the Company and the other parties named therein
(with Schedule A thereto).
10.24(5) Escrow Agreement, dated as of August 31, 1998, by and among the
Company and the other parties named therein (without
Exhibits).
10.25* The Peter Chadwick Limited Pension Scheme - Interim Trust Deed,
dated October 17, 1989.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on Signature Page to this report).
27 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).
(2) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(3) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(4) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the three-month period ended June 30, 1998.
(5) Incorporated herein by reference to the exhibits to the Company's Current
Report on Form 8-K dated August 31, 1998, and filed on September 11, 1998.
(6) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(7) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the three-month period ended September 30, 1998.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
<PAGE>
EXHIBIT 10.1
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.
5. TERMS OF THE OPTION AGREEMENTS
<PAGE>
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, if the optionee is disabled and so long as
the Option remains exercisable, by the
<PAGE>
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 representative of the Company as the Option Committee may designate)
on any business
<PAGE>
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 any such
adjustment in an outstanding Option, the optionee thereafter shall have the
right
<PAGE>
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 10.2
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1991 STOCK OPTION PLAN
Non-Qualified Option Agreement for Executive Officers
Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware
corporation, hereby grants to the person named below an option to purchase all
or any part of the number of shares of Common Stock, $0.01 par value (the
"Common Stock"), of the Company (the "Option") under and subject to the
Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate. This Option is not intended to qualify and shall not 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").
<TABLE>
<S> <C>
Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date)
- ------------------- --------------
Granted to (the "Optionee"): (Name) Option Price: (Price)
- ---------------------------- -------------
Social Security Number: (SSN) Expiration Date: 25% on (Date)
- ----------------------- ----------------
25% on (Date)
25% on (Date)
25% on (Date)
</TABLE>
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date)
- ---------------------------------------------
Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting
- ---------------- Start Date and an additional 2.083% each month thereafter up
to and including the 48th month so that the Option is fully
vested 48 months after the vesting start date.
By acceptance of this Option, the Optionee agrees to the terms and conditions on
the reverse side of this certificate and in the Plan.
/s/ James K. Sims
------------------------------- -----------------------------
[LOGO] JAMES K. SIMS
Cambridge Technology Partners CHIEF EXECUTIVE OFFICER
-------------------------------
<PAGE>
Cambridge Technology Partners (Massachusetts), Inc.
Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the terms
-------------------------------
of the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option
Plan, as amended (the "Plan"). Capitalized terms used and not otherwise
defined in this certificate have the meanings given to them in the Plan. This
certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. The Management Resource Committee
of the Board of Directors ("MRC") administers the Plan and its determinations
2 regarding the operation of the Plan are final and binding. Copies of the Plan
may be obtained upon written request without charge from AST StockPlan, Inc.
250 Broadway, 14th Floor, New York, NY, 10007, or on the Knowledge repository
found on the internal Company web site address: http://w3.ctp.com/.
2. Option Price. The price to be paid for each share of Common Stock issued
-------------
upon exercise of the whole or any part of this Option is the Option Price set
forth on the face of this certificate.
3. 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 option agreement to be executed at that time), this
Option shall be vested and exercisable with respect to the percentage of the
total number of Option Shares as listed on the vesting and exercise schedule
attached to this certificate.
4. 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 5 herein) with
respect to a given portion of this Option, the 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
<PAGE>
applicable federal and state securities laws and regulations. This Option
shall not be exercisable for any fractional share.
a Certificates for the Option Shares so purchased will be issued to the
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 the Optionee upon each exercise of this
Option that the 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 the 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 MRC (as
defined in the Plan) as to such compliance shall be final and binding on
the Optionee. The Optionee shall not be deemed for any 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.
b 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 5 herein), or (iii) at any time unless
all necessary regulatory or other approvals have been received.
c To the extent that this Option is not exercised in full, it will be
deemed to have been exercised first for any remaining Option Shares in
the Installment (as defined in Paragraph 5 herein) which would otherwise
expire on the next succeeding Expiration Date, then for any remaining
Option Shares in the Installment which would otherwise expire on the
second succeeding Expiration Date and so on, thereby reducing the number
of Option Shares with respect to which this Option will expire on such
Expiration Dates.
5. Expiration Date of Option and Underlying Option Shares. This Option will
------------------------------------------------------
expire and terminate in equal Installments (each, an "Installment") on the
following dates (each, an "Expiration Date"): (a) the date which is the
fifth anniversary of the Vesting Start Date with respect to the portion of
this Option which vests one year after the Vesting Start Date; (b) the date
which is the sixth anniversary of the Vesting Start Date with respect to
the portion of this Option which vests during the period beginning 13
months after the Vesting Start Date and ending 24 months after the Vesting
Start Date; (c) the date which is the seventh anniversary of the Vesting
Start Date with respect to the portion of this Option which vests during
the period beginning 25 months after the Vesting Start Date and ending 36
months after the Vesting Start Date; and (d) the date which is the eighth
anniversary of the Vesting Start Date with respect to the portion of this
Option which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date.
6. Termination of Employment. This Option, as to any unexercised portion
--------------------------
hereof, shall terminate on the date three (3) months after the date on
which the Optionee is no longer employed by the Company or a subsidiary as
defined in the Code (and, except as set forth in clauses (a) and (b) below,
this Option shall not vest with respect to any additional Option Shares
following the date on which the Optionee is no longer employed by the
Company or a subsidiary as defined in the Code); provided, however, that
(a) if such termination of
<PAGE>
employment results from the 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 applicable
Expiration Date with respect to any particular portion of this Option (as
set forth in Paragraph 5 herein), whichever first occurs, and (b) if such
termination of employment results from the 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 applicable Expiration Date with
respect to any particular portion of this Option (as set forth in Paragraph
5 herein), whichever first occurs. No Option will confer upon the Optionee
any right to continued employment by the Company or any subsidiary of the
Company, nor will it interfere in any way with the Optionee's right or the
Company's or any such subsidiary's right to terminate, or otherwise modify
the terms of, the Optionee's employment at any time.
7. Transferability. Except as otherwise permitted by the Plan, each of this
----------------
certificate and this Option is personal to the 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 the Optionee's lifetime, only by the Optionee.
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 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 MRC for payment of any Federal, state, and
local taxes required by law to be withheld.
10. 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 Optionee 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>
EXHIBIT 10.3
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1991 STOCK OPTION PLAN
Non-Qualified Option Agreement for Non-Executive Officers
Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware
corporation, hereby grants to the person named below an option to purchase all
or any part of the number of shares of Common Stock, $0.01 par value (the
"Common Stock"), of the Company (the "Option") under and subject to the
Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate. This Option is not intended to qualify and shall not 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").
<TABLE>
<S> <C>
Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date)
- ------------------- --------------
Granted to (the "Optionee"): (Name) Option Price: (Price)
- ---------------------------- -------------
Social Security Number: (SSN) Expiration Date: 25% on (Date)
- ----------------------- ----------------
25% on (Date)
25% on (Date)
25% on (Date)
</TABLE>
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date)
- ---------------------------------------------
Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting
- ---------------- Start Date and an additional 2.083% each month thereafter up
to and including the 48th month so that the Option is fully
vested 48 months after the vesting start date.
By acceptance of this Option, the Optionee agrees to the terms and conditions on
the reverse side of this certificate and in the Plan.
/s/ James K. Sims
------------------------------- -----------------------------
[LOGO] JAMES K. SIMS
Cambridge Technology Partners CHIEF EXECUTIVE OFFICER
-------------------------------
<PAGE>
Cambridge Technology Partners (Massachusetts), Inc.
Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the terms
-------------------------------
of the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option
Plan, as amended (the "Plan"). Capitalized terms used and not otherwise
defined in this certificate have the meanings given to them in the Plan. This
certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. The Management Resource Committee
of the Board of Directors ("MRC") administers the Plan and its determinations
regarding the operation of the Plan are final and binding. Copies of the Plan
may be obtained upon written request without charge from AST StockPlan, Inc.
250 Broadway, 14th Floor, New York, NY, 10007, or on the Knowledge repository
found on the internal Company web site address: http://w3.ctp.com/.
2. Option Price. The price to be paid for each share of Common Stock issued
-------------
upon exercise of the whole or any part of this Option is the Option Price set
forth on the face of this certificate.
3. 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 option agreement to be executed at that time), this
Option shall be vested and exercisable with respect to the percentage of the
total number of Option Shares as listed on the vesting and exercise schedule
attached to this certificate.
4. 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 5 herein) with
respect to a given portion of this Option, the 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. This Option shall not be exercisable for any
fractional share.
<PAGE>
a Certificates for the Option Shares so purchased will be issued to the
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 the Optionee upon each exercise of this
Option that the 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 the 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 MRC (as
defined in the Plan) as to such compliance shall be final and binding on
the Optionee. The Optionee shall not be deemed for any 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.
b 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 5 herein), or (iii) at any time unless
all necessary regulatory or other approvals have been received.
c To the extent that this Option is not exercised in full, it will be
deemed to have been exercised first for any remaining Option Shares in
the Installment (as defined in Paragraph 5 herein) which would otherwise
expire on the next succeeding Expiration Date, then for any remaining
Option Shares in the Installment which would otherwise expire on the
second succeeding Expiration Date and so on, thereby reducing the number
of Option Shares with respect to which this Option will expire on such
Expiration Dates.
5. Expiration Date of Option and Underlying Option Shares. This Option will
------------------------------------------------------
expire and terminate in equal Installments (each, an "Installment") on the
following dates (each, an "Expiration Date"): (a) the date which is the
fifth anniversary of the Vesting Start Date with respect to the portion of
this Option which vests one year after the Vesting Start Date; (b) the date
which is the sixth anniversary of the Vesting Start Date with respect to
the portion of this Option which vests during the period beginning 13
months after the Vesting Start Date and ending 24 months after the Vesting
Start Date; (c) the date which is the seventh anniversary of the Vesting
Start Date with respect to the portion of this Option which vests during
the period beginning 25 months after the Vesting Start Date and ending 36
months after the Vesting Start Date; and (d) the date which is the eighth
anniversary of the Vesting Start Date with respect to the portion of this
Option which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date.
6. Termination of Employment. This Option, as to any unexercised portion
--------------------------
hereof, shall terminate on the date three (3) months after the date on
which the Optionee is no longer employed by the Company or a subsidiary as
defined in the Code (and, except as set forth in clauses (a) and (b) below,
this Option shall not vest with respect to any additional Option Shares
following the date on which the 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 the 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
<PAGE>
such termination, until the date twelve (12) months after such termination,
or until the applicable Expiration Date with respect to any particular
portion of this Option (as set forth in Paragraph 5 herein), whichever
first occurs, and (b) if such termination of employment results from the
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
applicable Expiration Date with respect to any particular portion of this
Option (as set forth in Paragraph 5 herein), whichever first occurs. No
Option will confer upon the Optionee any right to continued employment by
the Company or any subsidiary of the Company, nor will it interfere in any
way with the Optionee's right or the Company's or any such subsidiary's
right to terminate, or otherwise modify the terms of, the Optionee's
employment at any time.
7. Transferability. Except as otherwise permitted by the Plan, each of this
----------------
certificate and this Option is personal to the 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 the Optionee's lifetime, only by the Optionee.
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 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 the Optionee and (y) the 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 any portion of this Option be exercisable
after the Expiration Date applicable to such portion; (ii) the MRC, 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 MRC, and (iii)
the MRC, with the approval of the Board of Directors of the Company, may
provide that after the effective date of such merger, consolidation or sale
(x) this Option shall survive and the 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
or (y) this Option shall terminate and the Optionee shall be entitled to
receive, in lieu of shares of Common Stock, cash in an amount per Option
Share equal to the consideration per share of Common Stock received
pursuant to the terms of the merger, consolidation or sale less the Option
Price.
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 MRC for payment of any Federal, state, and
local taxes required by law to be withheld.
<PAGE>
10. 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 Optionee 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>
EXHIBIT 10.4
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1991 STOCK OPTION PLAN
Incentive Stock Option Agreement for Executive Officers
Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware
corporation, hereby grants to the person named below an option to purchase all
or any part of the number of shares of Common Stock, $0.01 par value (the
"Common Stock"), of the Company (the "Option") under and subject to the
Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate. 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").
<TABLE>
<S> <C>
Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date)
- ------------------- --------------
Granted to (the "Optionee"): (Name) Option Price: (Price)
- ---------------------------- -------------
Social Security Number: (SSN) Expiration Date: 25% on (Date)
- ----------------------- ----------------
25% on (Date)
25% on (Date)
25% on (Date)
</TABLE>
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date)
- ---------------------------------------------
Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting
Start Date and an additional 2.083% each month thereafter up
to and including the 48th month so that the Option is fully
vested 48 months after the vesting start date.
By acceptance of this Option, the Optionee agrees to the terms and conditions on
the reverse side of this certificate and in the Plan.
/s/ James K. Sims
------------------------------- -----------------------------
[LOGO] JAMES K. SIMS
Cambridge Technology Partners CHIEF EXECUTIVE OFFICER
-------------------------------
<PAGE>
Cambridge Technology Partners (Massachusetts), Inc.
Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the terms
-------------------------------
of the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option
Plan, as amended (the "Plan"). Capitalized terms used and not otherwise
defined in this certificate have the meanings given to them in the Plan. This
certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. The Management Resource Committee
of the Board of Directors ("MRC") administers the Plan and its determinations
regarding the operation of the Plan are final and binding. Copies of the Plan
may be obtained upon written request without charge from AST StockPlan, Inc.
250 Broadway, 14th Floor, New York, NY, 10007, or on the Knowledge repository
found on the internal Company web site address: http://w3.ctp.com/.
2. Option Price. The price to be paid for each share of Common Stock issued
-------------
upon exercise of the whole or any part of this Option is the Option Price set
forth on the face of this certificate.
3. 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 option agreement to be executed at that time), this
Option shall be vested and exercisable with respect to the percentage of the
total number of Option Shares as listed on the vesting and exercise schedule
attached to this certificate.
4. 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 5 herein) with
respect to a given portion of this Option, the 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. This Option shall not be exercisable for any
fractional share.
<PAGE>
a Certificates for the Option Shares so purchased will be issued to the
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 the Optionee upon each exercise of this
Option that the 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 the 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 MRC (as
defined in the Plan) as to such compliance shall be final and binding on
the Optionee. The Optionee shall not be deemed for any 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.
b 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 5 herein), or (iii) at any time unless
all necessary regulatory or other approvals have been received.
c To the extent that this Option is not exercised in full, it will be
deemed to have been exercised first for any remaining Option Shares in
the Installment (as defined in Paragraph 5 herein) which would otherwise
expire on the next succeeding Expiration Date, then for any remaining
Option Shares in the Installment which would otherwise expire on the
second succeeding Expiration Date and so on, thereby reducing the number
of Option Shares with respect to which this Option will expire on such
Expiration Dates.
5. Expiration Date of Option and Underlying Option Shares. This Option will
------------------------------------------------------
expire and terminate in equal Installments (each, an "Installment") on the
following dates (each, an "Expiration Date"): (a) the date which is the
fifth anniversary of the Vesting Start Date with respect to the portion of
this Option which vests one year after the Vesting Start Date; (b) the date
which is the sixth anniversary of the Vesting Start Date with respect to
the portion of this Option which vests during the period beginning 13
months after the Vesting Start Date and ending 24 months after the Vesting
Start Date; (c) the date which is the seventh anniversary of the Vesting
Start Date with respect to the portion of this Option which vests during
the period beginning 25 months after the Vesting Start Date and ending 36
months after the Vesting Start Date; and (d) the date which is the eighth
anniversary of the Vesting Start Date with respect to the portion of this
Option which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date.
6. Termination of Employment. This Option, as to any unexercised portion
--------------------------
hereof, shall terminate on the date three (3) months after the date on
which the Optionee is no longer employed by the Company or a subsidiary as
defined in the Code (and, except as set forth in clauses (a) and (b) below,
this Option shall not vest with respect to any additional Option Shares
following the date on which the 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 the 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
<PAGE>
such termination, until the date twelve (12) months after such termination,
or until the applicable Expiration Date with respect to any particular
portion of this Option (as set forth in Paragraph 5 herein), whichever
first occurs, and (b) if such termination of employment results from the
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
applicable Expiration Date with respect to any particular portion of this
Option (as set forth in Paragraph 5 herein), whichever first occurs. No
Option will confer upon the Optionee any right to continued employment by
the Company or any subsidiary of the Company, nor will it interfere in any
way with the Optionee's right or the Company's or any such subsidiary's
right to terminate, or otherwise modify the terms of, the Optionee's
employment at any time.
7. Transferability. Except as otherwise permitted by the Plan, each of this
----------------
certificate and this Option is personal to the 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 the Optionee's lifetime, only by the Optionee.
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 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 MRC for payment of any Federal, state, and
local taxes required by law to be withheld.
10. Notice to Company of Disqualifying Disposition. If this Option is intended
------------------------------------------------
to be an incentive stock option under the Plan set forth on the face of
this certificate, by acceptance hereof, the Optionee agrees to notify the
Company in writing immediately after he or she 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 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. Such
notice shall be mailed or delivered to the Company at its principal place
of business.
<PAGE>
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 Optionee 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>
EXHIBIT 10.5
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1991 STOCK OPTION PLAN
Incentive Stock Option Agreement for Non-Executive Officers
Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware
corporation, hereby grants to the person named below an option to purchase all
or any part of the number of shares of Common Stock, $0.01 par value (the
"Common Stock"), of the Company (the "Option") under and subject to the
Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate. 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").
<TABLE>
<S> <C>
Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date)
- ------------------- --------------
Granted to (the "Optionee"): (Name) Option Price: (Price)
- ---------------------------- -------------
Social Security Number: (SSN) Expiration Date: 25% on (Date)
- ----------------------- ----------------
25% on (Date)
25% on (Date)
25% on (Date)
</TABLE>
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date)
- ---------------------------------------------
Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting
Start Date and an additional 2.083% each month thereafter up
to and including the 48th month so that the Option is fully
vested 48 months after the vesting start date.
By acceptance of this Option, the Optionee agrees to the terms and conditions on
the reverse side of this certificate and in the Plan.
/s/ James K. Sims
------------------------------- -----------------------------
[LOGO] JAMES K. SIMS
Cambridge Technology Partners CHIEF EXECUTIVE OFFICER
-------------------------------
<PAGE>
Cambridge Technology Partners (Massachusetts), Inc.
Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the terms
-------------------------------
of the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option
Plan, as amended (the "Plan"). Capitalized terms used and not otherwise
defined in this certificate have the meanings given to them in the Plan. This
certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. The Management Resource Committee
of the Board of Directors ("MRC") administers the Plan and its determinations
regarding the operation of the Plan are final and binding. Copies of the Plan
may be obtained upon written request without charge from AST StockPlan, Inc.
250 Broadway, 14th Floor, New York, NY, 10007, or on the Knowledge repository
found on the internal Company web site address: http://w3.ctp.com/.
2. Option Price. The price to be paid for each share of Common Stock issued
-------------
upon exercise of the whole or any part of this Option is the Option Price set
forth on the face of this certificate.
3. 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 option agreement to be executed at that time), this
Option shall be vested and exercisable with respect to the percentage of the
total number of Option Shares as listed on the vesting and exercise schedule
attached to this certificate.
4. 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 5 herein) with
respect to a given portion of this Option, the 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
<PAGE>
applicable federal and state securities laws and regulations. This Option
shall not be exercisable for any fractional share.
a Certificates for the Option Shares so purchased will be issued to the
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 the Optionee upon each exercise of this
Option that the 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 the 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 MRC (as
defined in the Plan) as to such compliance shall be final and binding on
the Optionee. The Optionee shall not be deemed for any 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.
b 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 5 herein), or (iii) at any time unless
all necessary regulatory or other approvals have been received.
c To the extent that this Option is not exercised in full, it will be
deemed to have been exercised first for any remaining Option Shares in
the Installment (as defined in Paragraph 5 herein) which would otherwise
expire on the next succeeding Expiration Date, then for any remaining
Option Shares in the Installment which would otherwise expire on the
second succeeding Expiration Date and so on, thereby reducing the number
of Option Shares with respect to which this Option will expire on such
Expiration Dates.
5. Expiration Date of Option and Underlying Option Shares. This Option will
------------------------------------------------------
expire and terminate in equal Installments (each, an "Installment") on
the following dates (each, an "Expiration Date"): (a) the date which is
the fifth anniversary of the Vesting Start Date with respect to the
portion of this Option which vests one year after the Vesting Start Date;
(b) the date which is the sixth anniversary of the Vesting Start Date
with respect to the portion of this Option which vests during the period
beginning 13 months after the Vesting Start Date and ending 24 months
after the Vesting Start Date; (c) the date which is the seventh
anniversary of the Vesting Start Date with respect to the portion of this
Option which vests during the period beginning 25 months after the
Vesting Start Date and ending 36 months after the Vesting Start Date; and
(d) the date which is the eighth anniversary of the Vesting Start Date
with respect to the portion of this Option which vests during the period
beginning 37 months after the Vesting Start Date and ending 48 months
after the Vesting Start Date.
6. Termination of Employment. This Option, as to any unexercised portion
--------------------------
hereof, shall terminate on the date three (3) months after the date on
which the Optionee is no longer employed by the Company or a subsidiary
as defined in the Code (and, except as set forth in clauses (a) and (b)
below, this Option shall not vest with respect to any additional Option
Shares following the date on which the Optionee is no longer employed by
the Company or a subsidiary as defined in the Code); provided, however,
that (a) if such termination of
<PAGE>
employment results from the 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 applicable
Expiration Date with respect to any particular portion of this Option (as
set forth in Paragraph 5 herein), whichever first occurs, and (b) if such
termination of employment results from the 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 applicable Expiration Date with
respect to any particular portion of this Option (as set forth in
Paragraph 5 herein), whichever first occurs. No Option will confer upon
the Optionee any right to continued employment by the Company or any
subsidiary of the Company, nor will it interfere in any way with the
Optionee's right or the Company's or any such subsidiary's right to
terminate, or otherwise modify the terms of, the Optionee's employment at
any time.
7. Transferability. Except as otherwise permitted by the Plan, each of this
----------------
certificate and this Option is personal to the 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,
is exercisable, during the Optionee's lifetime, only by the Optionee.
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 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 the Optionee and (y) the 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 any portion of this Option be
exercisable after the Expiration Date applicable to such portion; (ii)
the MRC, 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 MRC, and
(iii) the MRC, with the approval of the Board of Directors of the
Company, may provide that after the effective date of such merger,
consolidation or sale (x) this Option shall survive and the 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 or (y) this Option shall terminate and the
Optionee shall be entitled to receive, in lieu of shares of Common Stock,
cash in an amount per Option Share equal to the consideration per share
of Common Stock received pursuant to the terms of the merger,
consolidation or sale less the Option Price.
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
<PAGE>
event for Federal income tax purposes, pay to the Company
or make arrangements satisfactory to the MRC for payment of any
Federal, state, and local taxes required by law to be withheld
10. Notice to Company of Disqualifying Disposition. If this Option is
------------------------------------------------
intended to be an incentive stock option under the Plan set forth on the
face of this certificate, by acceptance hereof, the Optionee agrees
to notify the Company in writing immediately after he or she 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 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. Such notice shall be mailed or delivered to the Company at its
principal place of business.
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 Optionee 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>
EXHIBIT 10.6
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1998 STOCK OPTION PLAN
1. PURPOSE
The name of this plan is the Cambridge Technology Partners (Massachusetts),
Inc. 1998 Stock Option Plan (the "1998 Plan"). The purpose of the 1998 Plan is
to promote the long-term success of Cambridge Technology Partners
(Massachusetts), Inc., a Delaware corporation (the "Company"), by providing
financial incentives to employees and consultants of the Company who are in
positions to make significant contributions toward such success except that no
member of the Board of Directors of Cambridge Technology Partners
(Massachusetts), Inc. (the "Board") or officer of the Company appointed by the
Board shall be eligible for grants of options under the 1998 Plan. The 1998 Plan
is designed to attract individuals of outstanding ability to become or to
continue as employees of the Company 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 1998
Plan, of options for shares of the Company's Common Stock that do not meet the
definition of "incentive stock options" in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code") (such options granted hereunder,
"Nonqualified Options").
References herein to "the Company" shall include any successor corporation
to the Company and, except where the context requires otherwise, also any
subsidiary of the Company (such that if the Company has one or more
subsidiaries, individuals who are employees thereof or consultants thereto are
eligible to be granted Nonqualified Options under the 1998 Plan). References
herein to "the Board" shall include the board of directors of any successor
corporation to the Company.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options Granted. Options granted under the 1998 Plan shall only be
Nonqualified Options.
(b) Administration of 1998 Plan. The 1998 Plan shall be administered by a
committee (the "Option Committee") of not less than two members of the Board
selected by and from the members of the Board in accordance with the provisions
of the Company's By-Laws relating to the appointment of Committees. Subject to
the provisions of the 1998 Plan, the Option Committee shall exercise all powers
under the 1998 Plan, unless and until other action is taken by the Board. Action
by the Option Committee shall require the affirmative vote of a majority of all
its members.
(c) Option Committee. Subject to the terms and conditions of the 1998
Plan, the Option Committee shall have the power:
<PAGE>
(i) To determine from time to time the Nonqualified Options to be
granted to eligible persons under the 1998 Plan, and to prescribe the terms and
provisions (which need not be identical) of each Nonqualified Option granted
under the 1998 Plan to such persons;
(ii) To construe and interpret the 1998 Plan and Nonqualified
Options granted thereunder and to establish, amend, and revoke rules and
regulations for administration of the 1998 Plan. In this connection, the Option
Committee may correct any defect or supply any omission, or reconcile any
inconsistency in the 1998 Plan, or in any nonqualified option agreement, in the
manner and to the extent it shall deem necessary or expedient to make the 1998
Plan fully effective. All decisions and determinations by the Option Committee
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 1998 Plan, including all actions the Option Committee deems
necessary, under Section 422 of the Code and the regulations thereunder, to
ensure that no Nonqualified Option issued hereunder is treated as an "incentive
stock option" under Section 422(b) of the Code.
3. STOCK SUBJECT TO THE 1998 PLAN
(a) Stock under the 1998 Plan. The stock subject to the Nonqualified
Options granted under the 1998 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 Board for resale upon exercise of Nonqualified Options granted under the
1998 Plan. The total number of shares of Common Stock that may be issued
pursuant to Nonqualified Options granted under the 1998 Plan shall not exceed an
aggregate of 5,000,000 shares of Common Stock. Such number shall be subject to
adjustment as provided in Section 9 hereof.
(b) Reallocation of Unexercised Options. Whenever any outstanding
Nonqualified Option under the 1998 Plan expires, is canceled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to the
unexercised portion of such Nonqualified Option may again be the subject of
Nonqualified Options under the 1998 Plan.
4. STOCK OPTION GRANTS
Nonqualified Options may be granted to employees of the Company, to
consultants to the Company who are not employees of the Company, and to such
other persons as the Option Committee shall select from time to time, provided
--------
that, in no event, shall any member of the Board or any officer of the Company
- ----
appointed by the Board be eligible to receive any grants of Nonqualified Options
issued under the 1998 Plan. The determination of the persons eligible to
receive grants and the number of shares of Common Stock for which Nonqualified
Options are granted shall be made by the Option Committee.
-2-
<PAGE>
5. TERMS OF THE NONQUALIFIED OPTION AGREEMENTS
Each nonqualified option agreement for Nonqualified Options granted under
the 1998 Plan (each, a "Nonqualified Option Agreement") shall contain such
provisions as the Option Committee shall from time to time deem appropriate. The
Nonqualified Option Agreements need not be identical, but each Nonqualified
Option Agreement by appropriate language, or by reference to this Section 5 of
the 1998 Plan, shall include the substance of all of the following provisions:
(a) Expiration. Each Nonqualified Option shall expire on the date
specified in the Nonqualified Option Agreement, which date shall not be later
than the tenth anniversary of the date on which the Nonqualified Option was
granted. Unless otherwise determined by the Option Committee, each Nonqualified
Option shall in any event expire not later than three months after the optionee
is for any reason no longer employed by (or in the case of a consultant, engaged
in a business relationship with) the Company, except (i) if such termination of
employment (or business relationship) results from optionee's disability (within
the meaning of Section 22(e)(3) of the Code), a Nonqualified Option may be
exercised within twelve months thereafter (but in no event later than the
scheduled expiration date set forth in the Nonqualified Option Agreement),
whether or not exercisable at the time of such termination, and (ii) if such
termination of employment (or business relationship) results from the optionee's
death, a Nonqualified Option may be exercised by his executors or administrators
within twenty-four months thereafter (but in no event later than the scheduled
expiration date set forth in the Nonqualified Option Agreement), whether or not
exercisable at the time of such termination.
(b) Exercise. Unless the Option Committee shall otherwise determine at
the time a Nonqualified Option is granted, each Nonqualified Option shall become
vested and exercisable with respect to 25% of the shares of Common Stock subject
to such Nonqualified 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 Nonqualified 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
Nonqualified Option shall be exercisable in full as of the fourth anniversary of
the date of grant. Unless otherwise provided by the Option Committee, for this
purpose the date of the grant of a Nonqualified Option shall be the date on
which the Option Committee 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
Nonqualified Option expires or terminates. Nonqualified Option Agreements may
also contain provisions relating to the treatment of Nonqualified Options in the
event of a merger, consolidation or liquidation of, or sale of assets by, the
Company.
(c) Purchase Price. Unless the Option Committee shall otherwise determine
at the time the Nonqualified Option is granted, the purchase price per share of
Common Stock under each Nonqualified Option shall be not less than the fair
market value of a share of Common Stock on the date the Nonqualified Option is
granted. For the purposes of the 1998 Plan, the fair market value of the shares
of Common Stock of the Company shall be determined by the Option Committee.
-3-
<PAGE>
6. LIMITATION ON RIGHTS OF OPTIONEES
(a) Transferability of Nonqualified Options. Except as set forth below,
(i) no Nonqualified Option shall be transferable by any optionee other than by
will or by the laws of descent and distribution and (ii) Nonqualified Options
may be exercised during the optionee's lifetime only by the optionee (or, if the
optionee is disabled and so long as the Nonqualified Option remains exercisable,
by the optionee's duly appointed guardian or other legal representative).
However, the Option Committee may, in its discretion, permit a Nonqualified
Option recipient to transfer such Nonqualified Option to family members or other
persons for estate planning purposes. In connection with permitting transfers,
the Option Committee may require that (i) no consideration be given or payment
made for any such transfer, (ii) the Nonqualified Option Agreement pursuant to
which such Nonqualified Option is granted must be approved by the Option
Committee, and must expressly provide for transferability at the date of grant
in a manner consistent with the 1998 Plan, and (iii) subsequent transfers of the
transferred Nonqualified Option shall be prohibited except those in accordance
with this Section. Following any such transfer, any such Nonqualified 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(c)(ii),
6(b), 6(c), 7, 8, 9 and 12 hereof the term "optionee" shall be deemed to refer
to the transferee. The events of termination of employment (or business
relationship in the case of a consultant) set forth in an optionee's
Nonqualified Option Agreement shall continue to be applied with respect to the
original optionee, following which the Nonqualified Options shall be exercisable
by the transferee only to the extent, and for the periods specified, therein.
(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 Nonqualified Option
unless and until (i) the Nonqualified 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 1998 Plan nor the grant of any
Nonqualified 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 the Company. The existence of the Nonqualified 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
-4-
<PAGE>
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 Nonqualified Option granted under the
1998 Plan may be exercised by the optionee by delivering to the Chief Financial
Officer of the Company (or such other 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 a Nonqualified 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"), (ii) if authorized by the Nonqualified 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. WITHHOLDING; ESCROW
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 a Nonqualified Option. The Option Committee may, in
its discretion, require shares of the Common Stock acquired by an optionee upon
the exercise of a Nonqualified 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 1998 Plan and in the
number, kind, and per share exercise price of shares of Common Stock subject to
unexercised Nonqualified Options or portions thereof granted prior to any such
change. In the event of any such adjustment in an outstanding Nonqualified
Option, the optionee thereafter shall have the right to purchase the number of
shares of Common Stock under such Nonqualified Option at the per share price, as
so
-5-
<PAGE>
adjusted, which the optionee could purchase at the total purchase price
applicable to the Nonqualified Option immediately prior to such adjustment.
(b) Option Committee Action. Adjustments under this Section 9 shall be
determined by the Option Committee 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 Nonqualified Option or portion thereof shall become exercisable. No
fractional interests shall be issued under the 1998 Plan on account of any
adjustment specified above.
10. AMENDMENT OR TERMINATION OF 1998 PLAN
The Board may modify, revise or terminate the 1998 Plan at any time and
from time to time.Except as provided in Section 9 hereof, rights and obligations
under any Nonqualified Option granted before any amendment of the 1998 Plan
shall not be altered or impaired by such amendment, except with the consent of
the optionee.
11. EFFECTIVE DATE; NONEXCLUSIVITY
(a) Effective Date. This 1998 Plan will be deemed to have been adopted
and to be effective when approved by the Board.
(b) Nonexclusivity. The adoption of the 1998 Plan shall not be construed
as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of options otherwise than under the 1998 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 a
Nonqualified 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 a Nonqualified 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
-6-
<PAGE>
or remove any prohibition or limitation on, the issuance or sale of such shares
of Common Stock to any optionee or other authorized person.
(b) Governing Law. The 1998 Plan shall be governed by and interpreted
under the laws of the State of Delaware.
13. TERMINATION OF GRANTING OF NONQUALIFIED OPTIONS UNDER THE 1998 PLAN
No Nonqualified Option may be granted under the 1998 Plan after the tenth
anniversary of the effective date of the 1998 Plan (as set forth in Section 11
hereto).
-7-
<PAGE>
EXHIBIT 10.7
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1998 STOCK OPTION PLAN
Non-Qualified Option Agreement
Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware
corporation, hereby grants to the person named below an option to purchase all
or any part of the number of shares of Common Stock, $0.01 par value (the
"Common Stock"), of the Company (the "Option") under and subject to the
Company's 1998 Stock Option Plan (the "1998 Plan"), exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate. This Option is not intended to qualify and shall not 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").
<TABLE>
<S> <C>
Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date)
- ------------------- --------------
Granted to (the "Optionee"): (Name) Option Price: (Price)
- ---------------------------- -------------
Social Security Number: (SSN) Expiration Date: 25% on (Date)
- ----------------------- ----------------
25% on (Date)
25% on (Date)
25% on (Date)
</TABLE>
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date)
- ---------------------------------------------
Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting
- ---------------- Start Date and an additional 2.083% each month thereafter up
to and including the 48th month so that the Option is fully
vested 48 months after the vesting start date.
By acceptance of this Option, the Optionee agrees to the terms and conditions on
the reverse side of this certificate and in the Plan.
/s/ James K. Sims
------------------------------- -----------------------------
[LOGO] JAMES K. SIMS
Cambridge Technology Partners CHIEF EXECUTIVE OFFICER
-------------------------------
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the terms
-------------------------------
of the Cambridge Technology Partners (Massachusetts), Inc. 1998 Stock Option
Plan, as amended (the "1998 Plan"). Capitalized terms used and not otherwise
defined in this certificate have the meanings given to them in the 1998
Plan. This certificate does not set forth all of the terms and conditions of
the 1998 Plan, which are incorporated herein by reference. The Management
Resource Committee of the Board of Directors ("MRC") administers the 1998
Plan and its determinations regarding the operation of the 1998 Plan are
final and binding. Copies of the 1998 Plan may be obtained upon written
request without charge from AST StockPlan, Inc. 250 Broadway, 14/th/ Floor,
New York, NY, 10007, or on the Knowledge repository found on the internal
Company web site address: http://w3.ctp.com/.
2. Option Price. The price to be paid for each share of Common Stock issued
-------------
upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. 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 option agreement to be executed at that time),
this Option shall be vested and exercisable with respect to the percentage
of the total number of Option Shares as listed on the vesting and exercise
schedule attached to this certificate.
4. 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 5
herein) with respect to a given portion of this Option, the 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. This Option shall
not be exercisable for any fractional share.
(b) Certificates for the Option Shares so purchased will be issued to the
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 the Optionee upon each
exercise of this Option that the 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 the Optionee shall have
complied with the requirements hereof and of the 1998 Plan, the Company
shall be under no obligation to issue the Option Shares subject to this
Option, and the determination of the MRC (as defined in the 1998 Plan)
as to such compliance shall be final and binding on the Optionee. The
Optionee shall not be deemed for any 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 1998 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 5 herein), or (iii)
at any time unless all necessary regulatory or other approvals have
been received.
(d) To the extent that this Option is not exercised in full, it will be
deemed to have been exercised first for any remaining Option Shares in
the Installment (as defined in Paragraph 5 herein) which would
otherwise expire on the next succeeding Expiration Date, then for any
remaining Option Shares in the Installment which would otherwise expire
on the second succeeding Expiration Date and so on, thereby reducing
the number of Option Shares with respect to which this Option will
expire on such Expiration Dates.
5. Expiration Date of Option and Underlying Option Shares. This Option will
------------------------------------------------------
expire and terminate in equal Installments (each, an "Installment") on the
following dates (each, an "Expiration Date"): (a) the date which is the
fifth anniversary of the Vesting Start Date with respect to the portion of
this Option which vests one year after the Vesting Start Date; (b) the date
which is the sixth anniversary of the Vesting Start Date with respect to the
portion of this Option which vests during the period beginning 13 months
after the Vesting Start Date and ending 24 months after the Vesting Start
Date; (c) the date which is the seventh anniversary of the Vesting Start
Date with respect to the portion of this Option which vests during the
period beginning 25 months after the Vesting Start Date and ending 36 months
after the Vesting Start Date; and (d) the date which is the eighth
anniversary of the Vesting Start Date with respect to the portion of this
Option which vests during the period beginning 37 months after the Vesting
Start Date and ending 48 months after the Vesting Start Date.
6. Termination of Employment. This Option, as to any unexercised portion
--------------------------
hereof, shall terminate on the date three (3) months after the date on which
the Optionee is no longer employed by the Company or a subsidiary as defined
in the Code (and, except as set forth in clauses (a) and (b) below, this
Option shall not vest with respect to any additional Option Shares following
the date on which the 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 the 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 applicable
Expiration Date with respect to any particular portion of this Option (as
set forth in Paragraph 5 herein), whichever first occurs, and (b) if such
termination of employment results from the 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 applicable Expiration Date with respect to any
particular portion of this Option (as set forth in Paragraph 5 herein),
whichever first occurs. No Option will confer upon the Optionee any right to
continued employment by the Company or any subsidiary of the Company, nor
will it interfere in any way with the Optionee's right or the Company's or
any such subsidiary's right to terminate, or otherwise modify the terms of,
the Optionee's employment at any time.
7. Transferability. Except as otherwise permitted by the 1998 Plan, each of
----------------
this certificate and this Option is personal to the 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 the Optionee's lifetime, only by the Optionee.
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 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 1998 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 the Optionee and (y) the 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,
<PAGE>
contingent upon the consummation of such merger, consolidation, liquidation
or sale, provided, however, that in no event shall any portion of this
Option be exercisable after the Expiration Date applicable to such portion;
(ii) the MRC, 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 MRC, and (iii)
the MRC, with the approval of the Board of Directors of the Company, may
provide that after the effective date of such merger, consolidation or sale
(x) this Option shall survive and the 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
or (y) this Option shall terminate and the Optionee shall be entitled to
receive, in lieu of shares of Common Stock, cash in an amount per Option
Share equal to the consideration per share of Common Stock received
pursuant to the terms of the merger, consolidation or sale less the Option
Price.
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 MRC for payment of any Federal, state, and
local taxes required by law to be withheld.
10. 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 Optionee 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>
EXHIBIT 10.8
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
-------
1995 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is
intended to promote the interests of Cambridge Technology Partners
(Massachusetts), Inc. (hereinafter, the "Company") by providing an inducement to
obtain and retain the services of qualified persons who are not employees or
officers of the Company to serve as members of its Board of Directors (the
"Board").
2. Available Shares. The total number of shares of Common Stock, par
----------------
value $.01 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 50,000 shares, subject to adjustment
in accordance with paragraph 10 of this Plan. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise, in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
--------------
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Automatic Grant of Options. Subject to the availability of shares
--------------------------
under this Plan, each person who is or becomes a member of the Board and who is
not an employee or officer of the Company or Safeguard Scientifics, Inc., or an
affiliate of Technology Leaders II L.P. or any related entity (a "Non-Employee
Director"), shall be automatically granted on the later of (i) the date such
person is first elected to the Board or (ii) March 22, 1995 (the "Approval
Date") (such later date being referred to herein as the "Grant Date"), without
further action by the Board, an option to purchase 10,000 shares of the Common
Stock. Options to be granted under this paragraph 4 shall be the only options
ever to be granted at any time to any person under this Plan.
5. Option Price. The purchase price of the stock covered by an option
------------
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the
<PAGE>
day the option is granted. The option price will be subject to adjustment in
accordance with the provisions of paragraph 10 of this Plan. For purposes of
this Plan, if, at the time an option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on The NasdaqStock
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on The Nasdaq Stock Market.
However, if the Common Stock is not publicly traded at the time an option is
granted under the Plan, "fair market value" shall be deemed to be the fair value
of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
6. Period of Option. Unless sooner terminated in accordance with the
----------------
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. (a) Vesting of Shares and Non-Transferability of Options. Options
----------------------------------------------------
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable, in accordance with the following schedule, provided that the
optionee has continuously served as a member of the Board through such vesting
date:
Cumulative Percentage of Option
Percentage of Shares for which Time After
Shares Exercisable Option Will be Exercisable Grant Date
------------------ -------------------------- ----------
25.000% 25% 1 year
27.083% 2.083% 13 months
* 2.083% Each additional month
thereafter up to and
including the 47th month
100.000% 2.083 48th month
<PAGE>
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.
(b) Non-transferability. Any option granted pursuant to this Plan
-------------------
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
8. Termination of Option Rights.
----------------------------
(a) Except as otherwise specified in the agreement relating to an
option, in the event an optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.
(b) In the event that an optionee ceases to be a member of the Board
by reason of his or her death or permanent disability, any option granted to
such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the option.
9. Exercise of Option. Subject to the terms and conditions of this Plan
------------------
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to Cambridge Technology Partners
(Massachusetts), Inc. 304 Vassar Street, Cambridge, MA 02139, at its principal
executive offices, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares. Payment may
be (a) in United States dollars in cash or by check, (b) in whole or in part in
shares of the Common Stock of the Company already owned by the person or persons
exercising the option or shares subject to the option being exercised (subject
to such restrictions and guidelines as the Board may adopt from time to time),
valued at fair market value determined in accordance with the provisions of
paragraph 5 or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise. There shall be no
such exercise at any one time as to fewer than one hundred (100) shares or all
of the remaining shares then purchasable by the person or
<PAGE>
persons exercising the option, if fewer than one hundred (100) shares. The
Company's transfer agent shall, on behalf of the Company, prepare a certificate
or certificates representing such shares acquired pursuant to exercise of the
option, shall register the optionee as the owner of such shares on the books of
the Company and shall cause the fully executed certificate(s) representing such
shares to be delivered to the optionee as soon as practicable after payment of
the option price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Events. Upon the
-----------------------------------------------------------
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Recapitalization Adjustments. If the Company is to be
----------------------------
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, each option granted
under this plan which is outstanding but unvested as of the effective date of
such event shall become exercisable in full 15 days prior to the effective date
of such event. In the event of a reorganization, recapitalization, merger,
consolidation, or any other change in the corporate structure or shares of the
Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act
of 1934, adjustments in the number and kind of shares authorized by this Plan
and in the number and kind of shares covered by, and in the option price of
outstanding options under this Plan necessary to maintain the proportionate
interest of the optionee and preserve, without exceeding, the value of such
option, shall be made. Notwithstanding the foregoing, no such adjustment shall
be made which would, within the meaning of any applicable provisions of the
Internal Revenue Code of 1986, as amended, constitute a modification, extension
or renewal of any Option or a grant of additional benefits to the holder of an
Option.
(c) Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
<PAGE>
(d) Adjustments. Upon the happening of any of the foregoing events,
-----------
the class and aggregate number of shares set forth in paragraph 2 of this Plan
that are subject to options which previously have been or subsequently may be
granted under this Plan shall also be appropriately adjusted to reflect such
events. The Board shall determine the specific adjustments to be made under
this paragraph 10 and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions of
----------------------------------
paragraphs 4 and 9 of this Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The issuance of shares with respect to which the option has
been exercised is at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws as now in force or hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion that
the issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.
12. Legend on Certificates. The certificates representing shares issued
----------------------
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. Representation of Optionee. If requested by the Company, the optionee
--------------------------
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
14. Option Agreement. Each option granted under the provisions of this
----------------
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions
and conditions not inconsistent with this Plan as may be determined by the
officer executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
---------------------------------
under this Plan after March 20, 2005, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time
<PAGE>
terminate this Plan or make such modification or amendment thereof as it deems
advisable; provided, however, that the Board may not, without approval by the
-------- -------
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or by proxy and voting on such matter at a meeting, (a)
increase the maximum number of shares for which options may be granted under
this Plan (except by adjustment pursuant to Section 10), (b) materially modify
the requirements as to eligibility to participate in this Plan, (c) materially
increase benefits accruing to option holders under this Plan or (d) amend this
Plan in any manner which would cause Rule 16b-3 under the Securities Exchange
Act (or any successor or amended provision thereof) to become inapplicable to
this Plan; and provided further that the provisions of this Plan specified in
-------- -------
Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under
the Securities Exchange Act of 1934 (including without limitation, provisions as
to eligibility, amount, price and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Termination or any modification or amendment of this Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
16. Withholding of Income Taxes. Upon the exercise of an option, the
---------------------------
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includable in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the Plan
---------------------------
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
18. Governing Law. The validity and construction of this Plan and the
-------------
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
Date Approved by Board of Directors of the Company: March 21, 1995
Date Approved by Stockholders of the Company: May 17, 1995
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into this 18th day of
November, 1996, by and between Timothy A. Ramos (the "Executive") and Cambridge
Technology Partners (Massachusetts), Inc. (hereinafter referred to as the
"Company"), a corporation organized under the laws of the State of Delaware.
WITNESSETH:
-----------
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
October 31, 1996 by and among the parties named therein (the "Merger
Agreement"), the Company is acquiring all of the outstanding capital stock of
Ramos & Associates, Inc. ("Associates") and Associates is becoming a wholly-
owned subsidiary of the Company; and
WHEREAS, Executive and the Company are entering into a Noncompetition
Agreement of even date herewith (the "Noncompete Agreement");
WHEREAS, while Executive shall be an at will employee of the Company,
Executive and the Company desire to enter into this agreement to provide for the
terms Executive's continuing employment with the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Position. Executive's current position is Senior Vice President of the
--------
Company. Executive shall manage Associates as a subsidiary of the Company and
shall perform such duties as are reasonably assigned to him by the Chief
Executive Officer of the Company from time to time. The Executive shall also
serve as a member of the executive committee of senior officers.
Executive accepts such employment, and agrees to render the services described
herein and to devote his entire available business time, effort, skill and
attention to promote the best interests of the Company.
2. Salary. As compensation for the services to be rendered by the
------
Executive, the Company shall pay the Executive $210,000 per year (the "Salary"),
payable periodically consistent with the Company's normal payroll practices and
policies for full-time employees, less such deductions and amounts to be
withheld therefrom as may be required under applicable law. Executive shall
receive performance reviews at least annually. The Salary may be increased from
time to time in such amount as the Board of Directors or any committee thereof
may approve.
3. Participation in Benefit and Bonus Plans. The Company shall provide to
----------------------------------------
the Executive any fringe benefits that are provided by the Company to any other
employees of the Company and any other benefits that are generally provided by
the Company to executive-level
<PAGE>
-2-
employees from time to time. Executive shall be considered eligible to
participate in any discretionary option or bonus plans of the Company to the
same extent as vice president level employees of the Company. In particular,
Executive shall be eligible to receive an annual bonus of up to 50% of the
Salary, to be determined based upon the performance of both Executive and the
Company.
4. Severance. In the event Executive's employment with the Company is
---------
terminated for any reason (including, without limitation, the death or long-term
disability of Executive) other than Just Cause (as defined below) or his
voluntary resignation, Executive shall be entitled to receive, and the Company
shall pay to Executive, cash severance payments in an aggregate amount equal to
six months salary at Executive's then-current base salary rate. The Company
shall make such severance payments over a six-month period in accordance with
its normal payroll practices and policies for full-time employees. The payment
of such severance is conditioned on the Executive's adhering to his obligations
under the Noncompete Agreement.
(A) Termination for Just Cause. For purposes of this Agreement,
--------------------------
termination by the Company of the Executive shall be considered termination for
Just Cause if such termination is for one or more of the following reasons:
(i) Executive's conviction in a court of law of any crime,
which conviction makes him unfit for continuing employment, prevents him from
effective management of the Company or materially and adversely affects the
reputation or business of the Company.
(ii) Dishonesty or willful misconduct which materially and
adversely affects the reputation or business activities of the Company and which
continues after written notice thereof to Executive, substance abuse for which
Executive fails to undertake and maintain treatment after requested by the
Company, or misappropriation of funds.
(iii) Executive's continuing material failure or refusal to
perform his duties as an Executive of the Company or to carry out in all
material respects the lawful directives of the Board of Directors.
6. Non-assignability. This Employment Agreement may not be assigned by
-----------------
either Company or Executive, except that the Company may assign its rights under
this Agreement to any parent or other affiliated corporation or by means of an
acquisition, merger, or a sale of all or substantially all of the assets or
stock of the Company; and no such assignment shall impair the rights or
obligations of the parties as provided herein.
6. Miscellaneous.
-------------
6.1 Notices. All notices and other communications required or permitted to
-------
be given hereunder shall be in writing and shall be deemed to have been duly
given when delivered by hand, sent by overnight courier service or facsimile
transmission, or dispatched by certified mail
<PAGE>
-3-
to the parties at the following addresses or to such other address for a party
as such party may have designated to the other in a prior notice given in
accordance herewith:
(a) If to the Company, to:
Cambridge Technology Partners
(Massachusetts), Inc.
304 Vassar Street
Cambridge, MA 02139
Telecopier (617) 374-8300
Attn: Chief Financial Officer
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: James P. O'Hare
(b) If to Executive to:
Timothy Ramos
Ramos & Associates
3000 Executive Parkway
Suite 402
San Ramon, CA 94583-2300
6.2 Entire Agreement. This Agreement, together with the Noncompete
----------------
Agreement, set forth the entire agreement and understanding of the parties
hereto concerning the subject matter hereof and supersedes any prior
understandings and agreements relating to the terms of the Executive's
employment by the Company.
6.3 Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, or canceled and the terms or covenants hereof may be waived, only by
a written instrument specifically referring to this Agreement and executed by
both of the parties hereto, or, in the case of a waiver, by the party entitled
to the benefit of such provision. The failure by a party hereto at any time or
from time to time to require performance of any obligation 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 hereto of any right
arising out of any breach shall not be construed as a waiver of any right
arising out of any subsequent breach.
6.4 Severability. If any provision of this Agreement, 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
<PAGE>
-4-
circumstances shall not be affected thereby, but rather shall be enforced to the
greatest extent permitted by 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.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed entirely within such Commonwealth.
6.6 Headings. The section headings contained in this Agreement are
--------
intended solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
6.7 Remedies. Executive agrees that any intentional, willful, reckless or
--------
negligent material breach of this Agreement by him will cause irreparable damage
to the Company and that in the event of such breach the Company shall have, in
addition to any and all remedies of law, the right to an injunction, specific
performance or other equitable relief to prevent the violation of his
obligations hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written above, effective as of such date.
EXECUTIVE:
/s/Timothy A. Ramos
Timothy A. Ramos
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
By: /s/James K. Sims
James K. Sims
President
<PAGE>
EXHIBIT 10.19
PROMISSORY NOTE
November 13, 1998
FOR VALUE RECEIVED, H. Carvel Moore, an individual residing at 3410 259/th/
Court SE, Issaquah, WA 98029 (the "Maker"), promises to pay to the order of
Cambridge Technology Partners (Massachusetts), Inc., the principal sum of
$200,000.00, together with interest thereon from the date hereof on the unpaid
principal balance thereof from time to time outstanding, on the earliest to
occur of: (a) October 31, 1999, and (b) the date the Maker ceases to be employed
by Cambridge Technology Partners (Massachusetts), Inc. or one of its
subsidiaries (the "Maturity Date"). Interest on the unpaid principal balance
hereof shall accrue from and including the date hereof to the date such
principal amount is paid at the annual rate of 5.06%. Interest on the unpaid
principal balance of this Promissory Note (the "Note") shall be payable on the
Maturity Date.
Payments of both principal and interest are to be made at the principal offices
of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar
Street, Cambridge, Massachusetts 01239, or such other place as Cambridge
Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in
lawful money of the United States of America. Interest shall be computed on the
basis of a 360-day year and twelve 30-day months.
No delay or omission on the part of Cambridge Technology Partners
(Massachusetts), Inc., in exercising any right hereunder shall operate as a
waiver of such right or of any other right of Cambridge Technology Partners
(Massachusetts), Inc., nor shall any delay, omission or waiver on any one
occasion be deemed to bar to or waiver of the same of any other right on any
future occasion.
This Note may be prepaid at any time, in whole or in part, by the Maker without
penalty.
The Maker hereby waives presentment, demand, protest, and notice of every kind.
The Maker shall pay on demand all costs, including court costs and reasonable
attorneys' fees, paid or incurred by Cambridge Technology Partners
(Massachusetts), Inc., in enforcing the Note upon default.
This Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as
of the date first above written.
MAKER
Witness: /s/ James P. O'Hare /s/ H. Carvel Moore
------------------------------ -----------------------------------
James P. O'Hare H. Carvel Moore
<PAGE>
EXHIBIT 10.20
PROMISSORY NOTE
2 November, 1998
FOR VALUE RECEIVED, Theo Schnitfink, an individual residing at Dobbelaan 36,
1394 Lt Nederhorst, Den Berg, NLD (the "Maker"), promises to pay to the order of
Cambridge Technology Partners (Massachusetts), Inc., the principal sum of
200,000.00, Netherlands Guilders together with interest thereon from the date
hereof on the unpaid principal balance thereof from time to time outstanding, on
the earliest to occur of: (a) October 31, 1999, and (b) the date the Maker
ceases to be employed by Cambridge Technology Partners (Massachusetts), Inc. or
one of its subsidiaries (the "Maturity Date"). Interest on the unpaid principal
balance hereof shall accrue from and including the date hereof to the date such
principal amount is paid at the annual rate of 5.06%. Interest on the unpaid
principal balance of this Promissory Note (the "Note") shall be payable on the
Maturity Date.
Payments of both principal and interest are to be made at the principal offices
of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar
Street, Cambridge, Massachusetts 01239, or such other place as Cambridge
Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in
lawful money of the United States of America. Interest shall be computed on the
basis of a 360-day year and twelve 30-day months.
No delay or omission on the part of Cambridge Technology Partners
(Massachusetts), Inc., in exercising any right hereunder shall operate as a
waiver of such right or of any other right of Cambridge Technology Partners
(Massachusetts), Inc., nor shall any delay, omission or waiver on any one
occasion be deemed to bar to or waiver of the same of any other right on any
future occasion.
This Note may be prepaid at any time, in whole or in part, by the Maker without
penalty.
The Maker hereby waives presentment, demand, protest, and notice of every kind.
The Maker shall pay on demand all costs, including court costs and reasonable
attorneys' fees, paid or incurred by Cambridge Technology Partners
(Massachusetts), Inc., in enforcing the Note upon default.
This Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as
of the date first above written.
MAKER
Witness: /s/ James P. O'Hare /s/ Theo Schnitfink
----------------------------- ----------------------------------
James P. O'Hare Theo Schnitfink
<PAGE>
EXHIBIT 10.21
PROMISSORY NOTE
December 21, 1998
FOR VALUE RECEIVED, Theo Schnitfink, an individual residing at Dobbelaan 36,
1394 Lt Nederhorst, Den Berg, NLD (the "Maker"), promises to pay to the order of
Cambridge Technology Partners (Massachusetts), Inc., the principal sum of
400,000.00, Netherlands Guilders together with interest thereon from the date
hereof on the unpaid principal balance thereof from time to time outstanding, on
the earliest to occur of: (a) December 31, 1999, and (b) the date the Maker
ceases to be employed by Cambridge Technology Partners (Massachusetts), Inc. or
one of its subsidiaries (the "Maturity Date"). Interest on the unpaid principal
balance hereof shall accrue from and including the date hereof to the date such
principal amount is paid at the annual rate of 5.06%. Interest on the unpaid
principal balance of this Promissory Note (the "Note") shall be payable on the
Maturity Date.
Payments of both principal and interest are to be made at the principal offices
of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar
Street, Cambridge, Massachusetts 01239, or such other place as Cambridge
Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in
lawful money of the United States of America. Interest shall be computed on the
basis of a 360-day year and twelve 30-day months.
No delay or omission on the part of Cambridge Technology Partners
(Massachusetts), Inc., in exercising any right hereunder shall operate as a
waiver of such right or of any other right of Cambridge Technology Partners
(Massachusetts), Inc., nor shall any delay, omission or waiver on any one
occasion be deemed to bar to or waiver of the same of any other right on any
future occasion.
This Note may be prepaid at any time, in whole or in part, by the Maker without
penalty.
The Maker hereby waives presentment, demand, protest, and notice of every kind.
The Maker shall pay on demand all costs, including court costs and reasonable
attorneys' fees, paid or incurred by Cambridge Technology Partners
(Massachusetts), Inc., in enforcing the Note upon default.
This Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as
of the date first above written.
MAKER
Witness: /s/ James P. O'Hare /s/ Theo Schnitfink
------------------------------- ----------------------------------
James P. O'Hare Theo Schnitfink
<PAGE>
EXHIBIT 10.25
-------------
DATED 12 OCTOBER 1989
THE PETER CHADWICK LIMITED
PENSION SCHEME
__________________________
INTERIM TRUST DEED
__________________________
McKenna & Co.
Inveresk House
1 Aldwych
London WC2R OHP
<PAGE>
2
THIS INTERIM TRUST DEED is made the 17 day of October 1989 BETWEEN PETER
CHADWICK LIMITED whose registered office is at 7 Queen Street Mayfair London W1X
9PH (the "Principal Employer" which expression shall, where the context so
admits, include any other company, firm of person which or who shall as a result
of reconstruction, amalgamation, purchase or otherwise, be the successor in
business of the Principal Employer, and which or who shall have assumed, whether
expressly or by implication, the obligations of the Principal Employer under
this Deed, of one part and IAN CLARKSON and QUENTIN BAER ("the Trustees" which
expression includes the trustee or trustees for the time being of this Deed) of
the other part
WHEREAS:
A. The Principal Employer has decided to establish a retirement benefits
scheme to be known as "the Peter Chadwick Limited Pension Scheme" (the
"Scheme") for providing relevant benefits as defined in Section 612 of the
Income and Corporation Taxes Act 1988 (the "Taxes Act") for such directors
and employees and former directors and employees of the Principal Employer
and associated companies (as defined in this Deed) as shall be admitted to
participation in the Scheme upon the basis of a staff announcement, a copy
of which is annexed.
B. It is intended in due course to apply to the Board of Inland Revenue to
have the Scheme approved under Chapter I of Part XIV of the Taxes Act and
treated as an exempt approved scheme under that Act and in the meantime by
the execution of this Deed to confirm the establishment of the Scheme upon
irrevocable trusts with effect from 1st November 1989 (the "Commencing
Date").
<PAGE>
3
<TABLE>
<CAPTION>
PETER CHADWICK LTD
------------------
STAFF ANNOUNCEMENT
------------------
<S> <C>
ELIGIBILITY In the case of Executive Employees
Executive Members is open to those invited
to join by the Trustees and the Principal
Employer. Membership is available to all
other employees.
NORMAL PENSION AGE 60 for males and females.
PENSIONABLE SALARY Basic Salary less Lower Earnings Limit.
FINAL PENSIONABLE SALARY The highest Pensionable Salary in the last
5 years.
NORMAL RETIREMENT PENSION 1/80th of Final Pensionable Salary for each
year of pensionable service.
EARLY RETIREMENT PENSION Accrued pension subject to actuarial
reduction, available from age 50 with the
consent of the Company.
LUMP SUM ON DEATH IN SERVICE 4 times' Basic Salary.
SPOUSE'S PENSION ON DEATH IN 50% of member's prospective pension based
SERVICE on current Pensionable Salary.
SPOUSE'S PENSION ON DEATH IN 50% of member's pension.
RETIREMENT
PENSION INCREASES Guaranteed Minimum of 3% per annum
compound.
MEMBER'S CONTRIBUTIONS 5% of Pensionable Salary, except for
Executive Members who sill not be required
to make contributions.
COMPANY CONTRIBUTIONS 5% of Pensionable Salary plus N.I. Rebate.
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
GUARANTEE The minimum benefit payable on retirement
death or withdrawal from the Scheme will
not be less than:
a) the member's contribution plus
b) the employers national insurance rebates
accumulated with interest as certified by
the Actuary as equivalent to the return on
the assets of the Fund.
</TABLE>
<PAGE>
5
C. At the request of the Principal Employer the Trustees have agreed to be the
first trustees of the Scheme.
NOT THIS DEED WITNESSES as follows:
1. (a) the Scheme is established by this Deed upon irrevocable trusts
with effect from the Commencing Date
(b) The Principal Employer and all other associated companies for the time
being admitted to the Scheme and the Members of the Scheme shall
contribute to it in accordance with the provisions
(c) The Principal Employer appoints the Trustees to be trustees of the
Scheme and the Trustees accept such office
(d) The Principal Employer may at any time by deed remove the Trustees or
any of them and may appoint one or more persons or a body corporate
(whether or not a trust corporation) to be a new or additional trustee
of the Scheme.
2. THE Trustees and the Principal Employer shall within 24 months from the
date of this Deed execute a further deed ("the Definitive Deed") setting
out in full the constitution of the Scheme in such form as may be approved
under Chapter 1 of Party XIV of the Taxes Act and treated as an exempt
approved scheme under the Act and that it will meet the requirements of
Part II of the Social Security Act of 1973 relating to the preservation of
benefits under occupational pension schemes.
<PAGE>
6
3. UNTIL superseded by the provisions of the Definitive Deed the following
shall apply:
(a) Moneys and assets of the Scheme available for investment may be
invested or dealt with as the Trustees shall in their discretion think
fit so that Trustees shall have the same full and unrestricted powers
of investment and changing investments as if they were entitled to
them beneficially and the Trustees may invest by effecting with an
insurance company to which Part II of the Insurance Companies act of
1982 applies deferred or immediate annuity policies, retirement,
endowment and assurance policies, sinking fund policies or other
policies or contracts, including policies or contracts conferring
rights to participation in the profits of such insurance company or by
participating in any system of deposit administration administered by
such insurance company, so long as that any sums payable by such
insurance company shall be made payable from a branch or office in the
United Kingdom unless the Board of Inland Revenue shall agree
otherwise.
(b) Any sums which become payable upon the death of a Member of the Scheme
shall not belong to such Member but shall be held by the Trustees upon
discretionary trusts, that is to say that in relation to any such
sums
(i) The Trustees shall have power, at their discretion, to pay or
apply the whole or any part of that sum to or for the benefit of
all or any
<PAGE>
7
of the relatives, dependents, personal representatives or
nominated beneficiaries of such deceased Member in such shares
and proportions as the Trustees shall in their discretion decide
but so that, if the Member shall not leave any relative or
dependent, the Trustees may elect to retain all or any part of
the same as part of the Fund; and in addition the Trustees shall
have power to declare separate trusts including provisions for
maintenance, education, advancement and accumulation of income
during a minority, and including such discretionary trusts and
powers, as the Trustees shall from time to time deed revocable or
irrevocable appoint, but without infringing the rule against
perpetuities, and the Trustees shall have power to appoint as
trustees of such fund any two person or a trust corporation as
the Trustees shall in their discretion decide, and to remove any
trustees and appoint any other trustee in place of any one so
removed.
(ii) if or to the extent that the Trustees shall not exercise the
powers contained in paragraph (i) within two years of the death
of the Member, the Trustees shall hold such sum as a separate
fund from the Fund constituted by this Deed upon trust for the
personal representatives of the deceased Member or, if there are
none, the next of kin of the deceased Member
<PAGE>
8
(iii) the Trustees may, but without being in any way bound to do,
so, have regard to any document signed by the Member
expressing his wishes about the disposal of any sum to be
held upon the discretionary trusts, and may issue forms to
Members for the purposes;
for the purpose of this clause "relatives" shall mean include the
widow and widower of the Member the father or mother or grandparents
(whether lawful or adoptive) of the Member and the widow or widower of
such father or mother or grandparents and any person (except the
Member) who is the child or remoter issue (whether lawful of adoptive)
of such father or mother or grandparents and the spouse, widow or
widower of any such person and "dependents" means any person (whether
or not a relative) who is the opinion of the Trustees is or was at the
time of the Member's death dependent on the Member or his or her
spouse
(c) The Scheme shall be operated in conformity with the requirements
relating to the preservation of benefit rights for Members of the
Scheme who leave the service of the Principal Employer or any other
company for the time being participating in the Scheme and in
conformity with the equal access requirements specified in the Social
Security Pension Act 1975 (the "Pension Act")
<PAGE>
9
(d) The Trustees may accept a transfer from the trustees or other persons
having the management of any other fund scheme or arrangement
(referred to in this paragraph as "the other fund") of all or any of
the assets of the other fund upon the footing that one or more
specified persons who are entitled or contingently entitled to rights
and benefits under the Scheme (consistent with the treatment of the
Scheme as an exempt approved scheme under the Taxes Act) as the
Trustees may in their discretion arrange. But if the Scheme has not
been approved as an exempt approved scheme within twenty four months
after the date of this Deed, or within such longer period as the Board
of Inland Revenue may agree, no person shall become entitled or
contingently entitled under the other fund shall be entitled to
contingently entitled to such rights and benefits under the Scheme to
any benefit in respect of such transfer otherwise than in the form of
a non-commutable and non-assignable annuity payable from a source
within the United Kingdom or in such other form approved by the Board
of Inland Revenue as the Trustees shall determine. On any such
transfer the Trustees shall obtain a certificate from the trustees of
the other fund or other persons stating
(i) the extent (if any) to which such transfer arises from
employee's contributions and such transfer (to the extent so
certified) shall be deemed to be contributions paid by the
Member to the Scheme and the Trustees shall ensure that
<PAGE>
10
no part of such transfer as does not arise from employee's
contributions shall be treated for any of the purposes of
the Scheme as Member's contributions
(ii) the name of each person in respect of whom no option to take
a refund of employee's contributions was available under the
other fund by reason of the operation of an Inland Revenue
restriction and unless the Board of Inland Revenue otherwise
agree any option to take a refund of contributions under the
Scheme shall not apply to employee's contributions so
transferred and
(iii) the maximum amount of the transfer payment which may be
taken by each person in the form of a lump sum in connection
with retirement from or leaving service
(e) In the event of a Member of the Scheme becoming a member of any other
fund scheme or arrangement approved by the Board of Inland Revenue for
the purpose of this paragraph (referred to in this paragraph as "the
new fund") the Trustees shall, if requested by the Members so to do,
and provide the rules or other provisions of the new fund permit
acceptance, arrange for the payment to the trustees or other persons
having the management of the new fund of such sum as the Trustees on
the advice of an actuary shall consider appropriate, but
<PAGE>
11
(i) the Trustees shall not make a payment until they have
ascertained from the trustees of the new fund the basis of
approval of the new fund by the Board of Inland Revenue
(ii) if in respect of any Member the payment of a sum to the new
fund is made no further benefit will be payable under the
Scheme to or in respect to the Member and he shall
accordingly cease to be a Member of the Scheme
(iii) the Trustees may deduct from any such sum an amount not
exceeding the amount of any income tax for which they may be
liable to account to the Board of Inland Revenue in respect
of the payment to the new fund
(iv) the Trustees shall certify to the Trustees of the new fund
any amount included in the payment under this paragraph (a)
which has been treated as being Member's contributions to
the Scheme (which is to be treated in the new fund as
contributions paid to it by the Member) and whether or not
any restriction applies to a refund of contributions in
connection with leaving service under the new fund and (b)
which the Member could have taken under the Scheme in form
of a capital sum and
<PAGE>
12
(v) the reference in this paragraph to the payment of a sum
shall be deemed to include the transfer in kind of any part
of the assets of the Scheme
(f) If the Scheme is or has at any time been specified in a contracting-
out certificate issued by the Occupational Pensions Board in
accordance with Section 31 of the Pensions Act the Trustees shall in
addition operate and administer the Scheme as a contracted-out scheme
in conformity with Part III of the Pensions Act and in accordance with
the following rules ("the interim contracted-out rules"):
(1) Guaranteed Minimum Pension
--------------------------
(a) The interim contracted-out rules shall apply if any
employment becomes contracted-out employment by
reference to the Scheme and they shall then override
any other provisions of the Scheme which are
inconsistent with them, except the provisions of
clauses 5 to 7 inclusive of the Interim Trust Deed
(b) The words and expressions used in the Interim
contacted-out rules shall have the same meanings as in
the Pensions Act and the expression "contracted-out
member" shall mean an employee whose employment is or
has been contracted-out employment by reference to the
Scheme
<PAGE>
13
(c) If a contracted-out Member has a guaranteed minimum in
relation to the pension for him under the Scheme in
accordance with Section 35 of The Pensions Act
(i) the Member shall be entitled to receive from the
Scheme from state pension age a pension payable
for the remainder of his lifetime at a rate
equivalent to not less than that guaranteed
minimum, and
(ii) if the Member is a man and dies leaving a widow, a
pension shall be provided for her under the Scheme
at a rate equivalent to not less than half that
guaranteed minimum
(iii) if the Member is a woman and dies leaving a
widower, a pension shall be provided for him under
the Scheme at a rate equivalent to a weekly rate
of not less than half of that part of the Member's
guaranteed minimum which is attributed to earnings
for the tax year 1998/89 and subsequent tax years,
notwithstanding that he might not otherwise be
qualified for a pension, and
<PAGE>
14
(iv) the guaranteed minimum pensions shall, in so far
as they are attributable to earnings in the tax
years from (and including) 1988/89, be increased
in accordance with the requirements of Section 37A
of the Pensions Act and to the extent of any
orders made under it
(d) Arrangements which satisfy the requirements of the
Pensions Act may be made in respect of any pension for
a contracted-out member or his spouse which, in
accordance with the Pensions Act, is commuted for a
lump sum, suspended, forfeited, transferred or
otherwise terminated or varied
(e) if the commencement of any contracted-out member's
guaranteed minimum pension is postponed for any period
after state pension age, his guaranteed minimum pension
shall be increased as required by Section 35 (6), (6A)
and (6B) of the Pensions Act
(2) Revaluation
-----------
<PAGE>
15
The Trustees shall operate whichever one of the following
provisions (a) (b) and (c) set out below they shall in their
absolute discretion determine -
(a) in the event of any contacted-out member ceasing
to be in contracted-out employment by reference to
the Scheme before state pension age, the
guaranteed minimum in respect of him at state
pension age or at previous death will be
calculated on the basis that the guaranteed
minimum pension which has accrued up to cessation
will be increased by whichever is the lesser of -
(i) 6% per annum compound for each tax year
after that in which contracted-out
employment ceases, up to and including the
last complete tax year before state pension
age or previous death, or
(ii) the percentage by which the earnings factors
for the tax year in which contracted-out
employment ceases are increased by the last
order made
<PAGE>
16
under Section 21 of the Pensions Act to come
into force before the tax year in which he
reaches state pension age or dies (if
earlier)
(b) in the event of any contracted-out member ceasing
to be in contracted-out employment by reference to
the Scheme before state pension age, the
guaranteed minimum in respect of him at state
pension age or at previous death will be
calculated on the basis that the guaranteed
minimum pension which has accrued up to cessation
will be increased for each tax year after that in
which contracted-out service ceases, up to and
including the last complete tax year before state
pension age or previous death, by such rate as
regulations made under Section 45 (1)(b) of the
Pensions Act specify as being relevant to the date
of cessation
(c) in the event of any contracted-out member ceasing
to be in contracted-out employment by reference to
the Scheme before state
<PAGE>
17
pension age, the guaranteed minimum in respect
of him at state pension age or at previous death
will be calculated on the basis that the earnings
factors for the tax year in which that
contracted-out employment from which the
guaranteed minimum pension is derived will be
increased in accordance with the last order under
Section 21 of the Pensions Act to come into force
before the tax year in which he reaches state
pension age or in which he dies, if earlier.
The Trustees shall have power from time to time and at any time on giving notice
in writing to the Occupational Pensions Board to substitute, in respect of
Members leaving services after such notification, any one of such provisions for
the one previously operated or any other basis of revaluation which is accepted
by the Occupational Pensions Board.
In relation to a Member in respect of whom a transfer payment has been made on
such member joining the Scheme, the guaranteed minimum in respect of him at
state pension age or at previous death will be calculated in accordance with
whichever one of the foregoing provisions (a), (b) and (c) set out above as the
Trustees shall determine or in accordance with the revaluation provisions used
in the transferring scheme in respect of
<PAGE>
18
the period while the Member is in pensionable service under this Scheme on terms
which comply with the requirements of regulations 3(3) and (4) of the
Occupational Pension Schemes Contracting-Out (Transfer) Regulations 1985.
If a Member on ceasing to be in contracted-out employment by reference to the
Scheme before the Scheme's normal pension age, has a pension entitlement under
the Scheme in excess of the guaranteed minimum pension, (excluding any part
deriving from a transfer payment received by the Scheme) his pension entitlement
under the Scheme will be increased by the amount of any increase in his
guaranteed minimum pension (excluding any part thereof deriving from a transfer
payment received by the Scheme) due to its revaluation in accordance with the
provisions of this Rule.
(3) Termination of Liability.
------------------------
If a state scheme premium is paid in respect of a
contracted-out member under Sections 42 or 44 of the
Pensions Act and the Scheme's liability to provide
guaranteed minimum pension benefits in respect of such
contracted-out member is canceled, the benefits in respect
of the Member under the Scheme shall be reduced accordingly,
and any ancillary benefits (contingent on death or
otherwise) which are related to the amount of guaranteed
minimum pension benefits concerned shall cease to be payable
unless the Trustees in their absolute discretion decide
otherwise.
<PAGE>
19
4. IF the Scheme is wound up pending the execution of the Definitive Deed,
priority after payment of all costs, charges and expenses which may then be
owing shall be given in the following order to the following liabilities of
the Scheme:-
(a) all pensions and benefits in respect of which entitlement to payment
has already arisen
(b) equivalent pension benefits within the meaning of Section 33 of the
Pensions Act
(c) any guaranteed minimum pensions under part III of the Pensions Act and
any accrued rights to such pensions and
(d) any state scheme premiums as described in Part III of the Pensions Act
(e) benefits for Members and beneficiaries prospectively entitled to
benefits, calculated on the basis that the Members had left service on
the date of winding up.
Any balance remaining shall be repaid to the principal Employer except to
the extent that the Principal Employer and the Trustees shall otherwise
decide.
5. THE Principal Employer may by deed admit to participation in the Scheme any
other person, firm or body corporate or unincorporated so associated with
the Principal Employer that the approval or treatment of the Scheme would
not be prejudiced (in this Deed referred to as "an associated company")
provided that such associated company shall covenant to observe and perform
the provisions of the Scheme so far as they are applicable to such
associated company.
<PAGE>
20
6. THE Principal Employer may by deed at any time with the consent of the
Trustees alter, amend, extend, modify or add to all or any of the
provisions of this Deed or of the Definitive Deed, whether retrospectively
or otherwise, provided that no such alteration, amendment, modification or
addition shall have the effect of altering the main purpose of the Scheme,
which shall continue to be the provision of relevant benefits (as defined
in Section 612 of the Taxes Act).
7. (a) FOR the purpose of enabling the Scheme to be or continue to be
treated as an exempt approved scheme in accordance with the
provisions of the Taxes Act, the Trustees may give to the Board of
Inland Revenue such undertakings as they see fit and may subject to
the prior approval of the Inland Revenue vary any such undertakings
(b) The provisions of any undertaking which may be given pursuant to this
Deed shall be deemed to be incorporated in this deed and to the
extent that it is inconsistent with any other provisions of the
Scheme (including any apart from this clause which otherwise would
have the effect of overriding it) it shall override that provision.
8. UNLESS the Scheme shall previously have been wound up, the trusts declared
by this Deed, and as later declared and defined by the Definitive Deed,
shall continue for the period of eighty years from the date of this Deed
and such further periods as may then be lawful (which period is declared in
accordance with the provisions of the Perpetuities and Accumulations Act
1984 to be the perpetuity period for the purposes of this Deed).
<PAGE>
21
9. REFERENCE in this Deed to any statutory provision shall include such
provision as re-enacted or amended from time to time and in addition where
appropriate reference to the Pensions Act or a particular provision of the
Pensions Act shall be read and construed as a reference to the Social
Security Pensions (Northern Ireland) Order or the corresponding provision
of it.
THE COMMON SEAL of )
PETER CHADWICK LIMITED )
was affixed hereto in the presence of:- )
QUENTIN BAER )
/s/ Quentin Baer Director
JANE SMART
/s/Jane Smart Secretary
SIGNED SEALED AND DELIVERED by )
IAN CLARKSON )
/s/Ian Clarkson
in the presence of:- )
JANE SMART
/s/Jane Smart
SIGNED SEALED AND DELIVERED by )
QUENTIN BAER )
/s/Quentin Baer
in the presence of:- )
JANE SMART
/s/Jane Smart
<PAGE>
22
DATED 25th SEPTEMBER 1995
THE PETER CHADWICK LIMITED
PENSION SCHEME
____________________________________
DEFINITIVE TRUST DEED AND RULES
____________________________________
WE HEREBY CERTIFY THIS TO BE A TRUE
AND CORRECT COPY OF THE ORIGINAL
DATED THE 25TH DAY OF SEPTEMBER, 1995
McKENNA & CO.
<PAGE>
23
THIS DEFINITIVE DEED is made the 25th day of September 1995
BETWEEN:
1. PETER CHADWICK LIMITED whose registered office is at Whittaker House.
Whittaker Avenue, Richmond, Surrey TW9 1EH ("The Principal Employer") and
2. IAN CLARKSON and QUENTIN BAER ("The Trustees")
WHEREAS:
a) This Deed is supplemental to an Interim Trust Deed dated 17th October 1989
made between the Principal Employer and the Trustees (the "Interim Deed")
which established the Peter Chadwick Limited Pension Scheme (the "Scheme").
b) It has not been found possible to execute the Definitive Deed referred to in
the Interim Deed within the period mentioned in it and it has been agreed
that such period shall be extended until the date of this Deed.
c) This Deed is the Definitive Deed referred to in the Interim Deed.
NOW THIS DEED WITNESSES as follows:
1. The Trustees declare that they hold the assets of the Scheme and all
contributions and other moneys paid to them in accordance with the Rules on
trust for the purpose of providing relevant benefits as defined in Section 612
of the Taxes Act in accordance with the Rules from time to time in force.
2. Subject to Clause 3 pursuant to the covenant in the Interim Deed the
Principal Employer and the Trustees declare that the provisions of this Deed and
of the Rules contained in the Schedule shall comprise the provisions of the
Scheme to the entire exclusion of the provisions of the Interim Deed and this
Deed and the Rules shall be deemed to have come into operation as from the
Prescribed Date.
3. Anything done by the Trustees before the date of this Deed which would have
been valid if this deed had then been in force shall be deemed to have been
properly done by the Trustees and they shall be indemnified out of the Fund.
<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,
------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net income $ 51,940 $ 33,782 $ 23,992
============= ============ ============
Basic:
Weighted average number of common shares outstanding 58,079 54,632 52,054
============= ============ ============
Net income per common share $ .90 $ .62 $ .46
============= ============ ============
Diluted:
Weighted average number of common shares outstanding 58,079 54,632 52,054
Dilutive effects of stock options and warrants 5,222 6,143 7,519
------------- ------------ ------------
Weighted average common and common equivalent
shares outstanding 63,301 60,775 59,573
============= ============ ============
Net income per common and common equivalent share $ .83 $ .55 $ .40
============= ============ ============
</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), Inc. Delaware
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
</TABLE>
<PAGE>
Cambridge Technology Partners-Enterprise
Resources Solutions, Inc. California
Cambridge Technology Partners Securities Corporation Massachusetts
Excell Data Corporation Washington
Cambridge Technology Capital
Management, Inc. Delaware
Cambridge Technology CGP, Inc. Delaware
<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, 33-99672, 333-49895, 333-49903,
333-72943 and 333-72945) and on Form S-3 (File Nos. 333-43127, 33-96838, 333-
16165, 333-17347 and 333-65079) of our reports dated February 2, 1999, except
for Note R, as to which the date is March 29, 1999, on our audits of the
consolidated financial statements and financial statement schedule of Cambridge
Technology Partners (Massachusetts), Inc. as of December 31, 1998 and 1997, and
for each of the years in the three-year period ended December 31, 1998, which
reports are included in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 80,051
<SECURITIES> 24,918
<RECEIVABLES> 138,133
<ALLOWANCES> 4,550
<INVENTORY> 0
<CURRENT-ASSETS> 284,979
<PP&E> 81,325
<DEPRECIATION> 33,070
<TOTAL-ASSETS> 351,206
<CURRENT-LIABILITIES> 107,050
<BONDS> 0
0
0
<COMMON> 589
<OTHER-SE> 241,561
<TOTAL-LIABILITY-AND-EQUITY> 351,206
<SALES> 0
<TOTAL-REVENUES> 612,041
<CGS> 0
<TOTAL-COSTS> 531,034
<OTHER-EXPENSES> (2,296)
<LOSS-PROVISION> 3,683
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 83,104
<INCOME-TAX> 31,164
<INCOME-CONTINUING> 51,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,940
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.83
</TABLE>
