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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to___________.
Commission File Number 0-21040
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
(Exact name of registrant as specified in its charter)
Delaware 06-132-0610
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Eight Cambridge Center
Cambridge, Massachusetts 02142
(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 approximately $771,275,552 based on the last reported sale price
of $14.938 on The Nasdaq National Market on March 22, 2000, as reported by
Nasdaq.
As of March 22, 2000, there were 62,810,077 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1999. 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") performs technology and consulting services to help its clients
develop and accelerate their transition to Internet-based e-business solutions
and processes - the information technology that defines the "New Economy."
Founded in 1991, the Company combines electronic business and digital (Internet)
strategy consulting and cross-enterprise, software integration services to
"Global 1000" organizations worldwide, delivering rapid end-to-end business
solutions, usually on a fixed-time, fixed-price basis. Cambridge's services
include digital business strategies, e-commerce technical solutions consulting,
Internet user experience design, advanced software application integration,
custom software solutions, network solutions, enterprise resource solutions,
change management consulting, and integrated management consulting across
various industrial sectors and the entire scope of the value chain of the
Company's clients.
Electronic commerce business solutions delivered to clients have become and will
likely continue to become more integrated with clients' value chains and legacy
systems. This market trend represents a growth opportunity for Cambridge.
Cambridge groups its services into three lines of business, "eBusiness,"
"eIntegration" and "Change Management Consulting." Prior to this realignment,
the Company's services had been organized in six service lines since October
1998: Cambridge Management Consulting, Customer Management Solutions,
Interactive Solutions, Custom Software Solutions, Enterprise Resource Solutions,
and Network Services.
The Company's largest business unit, the North America Business Unit, is
responsible for all eBusiness and eIntegration service offerings in North
America; outside of North America, country and regional managers have
responsibility for the same service offerings in their respective geographic
areas. Responsibility for the Company's worldwide Change Management Consulting
group is centralized in the United Kingdom, where it was based when Cambridge
acquired it. By organizing responsibility for its services outside of North
America according to culturally similar regions, the Company can operate more
effectively within the cultural, economic and technological differences among
countries where its customers do business. In 1999, 1998 and 1997, 37%, 30% and
31%, respectively, of the Company's total revenues derived from sources outside
the United States.
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.
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The Company holds investments in new and existing companies through its
investment in the Cambridge Technology Capital Fund I, L.P. The Company also
makes strategic investments in new and existing companies through the
recently-announced NEWCO Investment Strategy, which will make its first
investments in 2000. See "Cambridge Technology Capital Fund I, L.P." and "NEWCO
Investment Strategy."
The Company's headquarters are located in Cambridge, Massachusetts. The Company
has a total of 55 offices worldwide, with regional sales and operations
facilities across the United States and in Western Europe, Latin America and
Asia/Pacific.
Cambridge's Services
The Company combines its service offerings to rapidly deliver end-to-end
business systems that are designed to create immediate, improved financial
results for clients. To achieve these objectives, the Company often uses 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.
eBusiness Service Offerings
Cambridge's eBusiness group addresses its clients' internal and external online
business needs and bring together many of the Company's existing skills and
competencies in order to respond to the market opportunity presented by the use
of the Internet as a value exchange mechanism. The eBusiness group is organized
to accelerate Cambridge's clients' transition to the New Economy by defining new
digital strategies and deploying advanced interactive solutions that incorporate
strategy, technology and user experience design. The skills needed to deliver
these services include the cognitive and creative elements of user interface
design; the management, localization and personalization of content; the
integration of user interface and transaction processing systems; the management
and administration of web based e-commerce solutions; and the creation and
operation of trading exchanges and blended media service centers that put the
power of the Internet at the disposal of our clients' customers. The Company's
eBusiness services address marketing strategy, user experience, creative design,
and technical infrastructure integration. These solutions include e-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
channels. In 1999 and 1998, eBusiness services comprised 39% and 31%,
respectively, of the Company's total revenues.
DIGITAL BUSINESS STRATEGY. Cambridge's Digital Business Strategy services
comprise elements of the Company's former IT Strategy and Interactive Solutions
groups. In a Digital Business Strategy assignment, the Company works with the
client to identify and prioritize the e-commerce initiative best suited for the
client's business goals. The Company uses a Strategy Workshop to address the
client's internal factors that could contribute to or impede the success of an
e-commerce endeavor and conducts an external assessment through which it focuses
on competition and e-commerce best practices from other industries. Typically, a
strategy and work plan is developed from this workshop that serves as the
foundation for product definition and the
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implementation of a technical solution. 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.
ELECTRONIC COMMERCE. The Company deploys its e-commerce technical solutions
- - customer, commerce and e-Market solutions for the New Economy - using
Cambridge's strategic and architectural expertise. Cambridge deploys these
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.
Cambridge's Electronic Commerce group is comprised of elements of the Company's
former Interactive Solutions group.
Cambridge's electronic Customer Management Solutions ("e-CMS") services provide
innovative, Internet-based, customer-focused solutions that enable the Company's
clients to attract and retain profitable customers and cultivate customer
loyalty. Customer Management solutions can 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.
UXDESIGN. Cambridge's Uxdesign service delivers well-crafted online
experiences that encompass all areas of user-facing design. The Uxdesign service
was formed in August 1999. It adds user-facing design to Cambridge's other
services and offerings. With centers in Atlanta, New York, and San Francisco,
this new group focuses on designing and developing online experiences that are
sensitive to users' needs and clients' brands. This approach helps clients
translate or establish their e-commerce businesses, thereby easing and
increasing business transactions, partners, and stakeholders benefits, while
improving overall processes in their business models. The Uxdesign group's
collective expertise in cognitive design, interactive content, visual design,
and user interface development contributes to the Company's ability to provide
its clients with end-to-end eBusiness solutions.
eMARKETS. Cambridge's eMarkets service is being organized to offer a new
offering aimed at building free-standing Internet-based trade exchanges.
Cambridge intends to target selectively industries and companies that seek to
build free-standing, value-exchanging entities between sellers and buyers of
goods and services. Such entities, known as e-markets, will require significant
business and systems integration services to operate. Cambridge intends to offer
such services, along with other capabilities, to individual companies and
consortiums participating in and building e-markets.
eIntegration Service Offerings
Cambridge's eIntegration group encompasses the Company's system integration
services that were formerly offered under the names "Custom Software Solutions,"
"Enterprise Resource
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Solutions," "Customer Relationship Management Solutions," "Network Services" and
"Assimilation Solutions." These services address the growing market opportunity
of transforming the Company's clients to network-based businesses. Cambridge's
eIntegration services offerings leverage the Company's traditional experience in
designing custom systems, implementing package solutions, and structuring change
management. These services are structured to accelerate Cambridge's clients'
transition to new technologies through extra-enterprise integration of advanced
technologies, architectures and services and through intra-enterprise
development and deployment of mission-critical systems in selected sectors. In
1999 and 1998, eIntegration services comprised 42% and 49%, respectively, of the
Company's total revenues.
e-SECTOR SOLUTIONS. The Company's e-Sector Solutions service develops and
leverages Cambridge's industry-specific knowledge, skills and technologies to
provide New Economy integrated solutions to customers in selected industries,
including financial services, energy/utility services, high technology
manufacturing and telecommunications services.
ADVANCED APPLICATION INTEGRATION. The Company's Advanced Application
Integration ("AAI") service (formerly called "Custom Software Solutions")
implements and integrates custom solutions for clients looking to integrate
their systems or achieve a competitive strategic advantage by automating their
proprietary and unique business processes. AAI delivers its services to clients
across industries using object-oriented, and enterprise application integration
technologies. AAI has particular expertise in the areas of meta data,
identification, security, semantics, processes, information exchange, data
warehousing and money management and trading solutions.
The Network Solutions service (formerly "Network Services") offers a combination
of network assessment, design, and deployment services with a comprehensive set
of integration skills to support a client's open systems. The Company believes
that network performance and reliability are critical in a distributed computing
environment and the Network Solutions group provides clients with expertise that
helps ensure applications perform as planned. The Company offers its client's
these services using a rapid facilitated workshop approach, led by technical
consultants with access to the Company's depth and breadth of application and
technology expertise. Network Solutions services are offered on an integrated
basis with other service offerings, as well as on a stand-alone basis.
e-ENTERPRISE. The Company's e-Enterprise service (formerly called
"Enterprise Resource Solutions") supports customers in the implementation,
modification, integration, and extension of Enterprise Resource 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. e-Enterprise
provides customization and implementation services for software products
supplied by PeopleSoft. e-Enterprise 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. The
Company's clients may purchase services for a full e-Enterprise deployment or
elect to purchase only a portion of these services.
The e-Enterprise service also includes the Company's supply chain implementation
groups of the former Enterprise Resource Solutions service offering. Supply
chain management is the
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coordination of material, information and financial flows between and among
participating enterprises. In the New Economy, the supply chain consists of
multiple companies that function as efficiently and effectively as a single
company, with full information visibility and accountability. The Company is
working to integrate its supply chain service offerings with its enterprise
resource planning and customer relationship management services. These combined
services will allow the Company's clients to leverage the technologies of the
New Economy as they manage their inbound and outbound logistics, enterprise
operations, marketing and sales activities, and customer service and support.
ASSIMILATION AND POST-LAUNCH SERVICES. The Assimilation and Post-Launch
Services offering (formerly "Assimilation Solutions") is designed to assist
clients in realizing the benefits of technology solutions through organizational
change management and production support for New Economy solutions. The
Company's Assimilation and Post-Launch Services service 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.
Within Assimilation and Post-Launch Services, the Company's Application
Management Services ("AMS") group 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 are separated 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.
EXCELL DATA CORPORATION. Excell Data Corporation ("Excell") is a
wholly-owned subsidiary of the Company. Excell is a consulting firm and systems
integrator of Microsoft-centric solutions, providing staff augmentation and
project delivery services on a contract basis
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for hourly fees. Excell extends 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.
Change Management Consulting
The Cambridge Management Consulting ("CMC") organization provides
integrated change management 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. In 1999 and 1998, CMC services comprised 19% and 20%,
respectively, of the Company's total revenues.
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 commencement of an
engagement. The improvements delivered are sustained by behavioral change in the
client's 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 of 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 their 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 implementation expertise.
Where appropriate, CMC utilizes the Company's systems integration capabilities
to provide a leading-edge technology platform for the improvement program.
CMC provides services for major organizations across a range of industries,
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.
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
for the purpose of capital appreciation. A wholly-owned subsidiary of the
Company acts as the general partner of the Fund's general partner. The Company's
capital commitment to the Fund is approximately $6.0 million, of which
approximately $4.9 million has been contributed as of December 31, 1999. The
balance
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of the Fund's capital has been provided by institutional investors, directors of
the Company and other individuals. The Company's investment in the Fund resulted
in a net gain of approximately $29.6 million for the year ended December 31,
1999 and $798,000 for the year ended December 31, 1998. At December 31, 1999,
the Company has received approximately $2.2 million of common stock
distributions from the Fund. See Note N of the Notes to the Consolidated
Financial Statements. In early 2000, a successor venture capital fund, Cambridge
Technology Capital Fund II, L.P., commenced fund raising with a target committed
capital of $150 million.
NEWCO Investment Strategy
In December 1999, Cambridge announced its "NEWCO" investment strategy. The
Company intends to finance and develop new and existing New Economy companies,
using a combination of the knowledge and skills of Cambridge's employees,
capital from internal sources, and relationships with venture capital firms. The
goals for the NEWCO investment strategy are to increase shareholder value, to
supplement Cambridge's e-business services consultancy model, and to attract and
retain high-competency employees. The focus of NEWCO investments is primarily
strategic in nature, specifically to strengthen Cambridge's core business and to
enable expansion into new services, e-technologies, infrastructures and markets.
The NEWCO management team began in January 2000 to identify potential
investments, with the goal of building an extended network of companies that
compliment Cambridge's existing service offerings and help Cambridge penetrate
new markets and industries. The NEWCO management team will initially target
investments in Internet services, Internet technology and infrastructure, and
Internet-based markets. Its investment criteria are based on traditional venture
capital practices, with the additional requirement that the investment support
Cambridge's strategic intent. The NEWCO management team also plans to
collaborate with the Cambridge Technology Capital Fund I in identifying joint
investment opportunities. The Company made no NEWCO investments and had no NEWCO
operations in 1999. The Company does not hold itself out as an "investment
company," as that term is defined in the Investment Company Act of 1940, as
amended.
Concentration of Revenues
No customer accounted for more than 5% of the Company's net revenues in 1999,
1998, or 1997. In many cases the Company's consulting and software development
and implementation services are delivered in connection with a major information
technology project initiated by a client's senior management, board of
directors, line of business executive or information systems department. Since
the implementation of a strategic business solution may result in fees to the
Company exceeding $1,000,000, most customers undertake these projects on an
irregular basis. Accordingly, the Company expects that the existence and
identity of its largest customers may change from year to year. The Company does
not believe that any service line is seasonal.
Sales and Marketing
The Company has a dedicated sales and marketing organization to market and sell
its services. The Company's sales and marketing organization consists of 114
North America Business Unit employees and 25 CMC employees operating in North
America and 112 employees operating in
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Europe, Latin America and the Pacific Rim. These employees address markets and
client opportunities on a geographic and service-line basis.
This organization is comprised of a dedicated sales force, field marketing and
business development staff, and 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.
The Company's vendor relationships provide a highly-leveraged approach to
building marketing awareness. Cambridge is working closely with strategic
partners, integrating technology and service companies to provide unique
solutions that provide added value to our clients. These partners are selected
for their market leadership and the Company's expectation of a cultural match
with Cambridge. The Company has built strong relationships with many of the
industry's leading hardware and software providers, including Broadvision,
Clarify, Commerce One, E.piphany, GTE Inetworking, Hewlett-Packard, Interworld,
Interwoven, Microsoft, Netscape, PeopleSoft, Siebel, Sun Microsystems and
Vantive. Those vendors provide a source of leads for the Company in addition to
providing joint funding on occasion, content expertise and additional name
recognition for marketing events and programs. The vendors are not contractually
obligated to continue to participate in any of those programs and are not
prohibited from entering into similar arrangements with the Company's
competitors.
Since December 1998, the Company has maintained a strategic alliance with
Microsoft Corporation. Under this agreement, the Company delivers scalable,
replicable solutions based on the Microsoft(R) enterprise platform, with
emphasis on e-commerce, customer loyalty, data warehousing and investment
trading platforms, and on Microsoft COM+ technology and the Microsoft Visual
Studio(R) development system. The Company is also committed to increasing its
number of Microsoft Certified Systems Engineers (MCSEs) and Microsoft Certified
Solution Developers (MCSDs).
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. In addition, this approach allows the Company to
cross-sell its services and solutions so that clients can take advantage of the
full breadth of its offerings.
The Management Lab
The Management Lab is the Company's research and education arm, chartered with
providing intellectual guidance and thought leadership to clients facing the
issues associated with adopting advanced information technology. Its programs
include: the Lyceum, Executive Education Programs, Customized Learning Programs,
and The Directors Institute on Information Technology.
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Markets and Clients
The Company markets its services to a wide variety of industries, and its
clients include a diverse group of business organizations seeking to achieve
competitive advantage. To date, the Company's marketing efforts have been
directed toward clients on the basis of business needs rather than industry
group and the Company believes that no single industry has been material to the
Company's success. The projects described below are representative of the types
of projects undertaken by the Company's clients. Because of the costs involved
in implementing a strategic solution, clients may undertake projects on an
irregular basis and level of services performed for individual clients varies
from year to year.
Since its inception, the Company has utilized client/server technology, and,
increasingly since 1998, the Internet, to deliver innovative IT solutions for
clients. The Company believes that these solutions have helped provide clients
with competitive advantages by focusing on high value-added areas such as
distribution, sales and marketing, and customer management.
Competition
The markets in which the Company competes include 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 Compaq Computer Corporation, Hewlett-Packard Company, and IBM;
facilities management and MIS outsourcing companies, "Big Five" accounting
firms, and general management consulting firms. The Company's competitors also
include companies such as American Management Systems, Andersen Consulting,
AnswerThink, Cap Gemini America, the consulting division of Computer Sciences
Corporation, Consulting Group Incorporated, Electronic Data Systems Corporation,
Gen3 Partners, Razorfish, Renaissance Worldwide Incorporated, Sapient
Corporation, Scient, Technology Solutions Corporation, Viant, and numerous
smaller consulting companies, including those established or staffed by former
employees of the Company. The Company also faces competition from information
services organizations within potential clients.
Some participants in the e-commerce consulting and software development markets
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
Internet consulting, custom software development and systems integration markets
are highly fragmented and served by numerous firms, many of which serve only
their respective local markets. However, the Company believes that its rapid
development methodology, coupled with its high quality standards, open systems
philosophy, client/server and Internet architecture approach, and fixed-price
contracting practices, distinguish it from its competitors. The Company believes
that the principal competitive factors in the consulting and information
technology industry include responsiveness to client needs, speed of application
software development, 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.
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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.
Human Resources
As of December 31, 1999, the Company had a total staff of 4,200 employees,
including 3,375 project personnel, 254 in sales and marketing and 571 in the
general and administrative staff.
A project manager oversees all phases of a client assignment. Project managers
are typically responsible for a single client assignment. At any one time,
clients may be involved with the Company on the implementation of more than one
strategic business solution. Client partners are responsible for coordinating
all of the Company's services to a client, ensuring the solution meets the
client's business needs and maintaining client relationships.
The Company's success will depend in large part upon its ability to attract,
retain and motivate highly skilled employees, particularly project managers and
client partners and other senior technical personnel. Qualified project managers
are in particularly great demand and are likely to remain a limited resource for
the foreseeable future. In 1999, the Company suffered from a historically high
employee turnover rate of 30%. The Company believes, however, that its new
strategies for attracting, developing and retaining high-quality professionals
will support present operations and anticipated future growth. In addition to
Cambridge's traditional 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), the Company has committed
substantial capital in 2000 to increasing employee compensation, training and
personal development. Although the Company expects to continue to attract
sufficient numbers of highly skilled employees and to retain its existing
project managers and other senior personnel for the foreseeable future, there
can be no assurance that the Company will be able to do so. Failure to do so
could have a material adverse effect on the Company's future results of
operations.
None of the Company's employees is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good.
Intellectual Property Rights
The Company's success is partially 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
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distribution of its proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.
The Company's business includes the development of custom software applications
in connection with specific client engagements. Ownership of such software is
generally assigned to the client. In addition, the Company also develops
object-oriented software components that can be reused in software application
development and certain foundation and application software products, or
software "tools," most of which remain the property of the Company.
Although the Company believes that its services and products do not infringe on
the intellectual property rights of others, the Company cannot give assurance
that such a claim will not be asserted against the Company in the future.
ITEM 2. PROPERTIES.
The Company's headquarters and principal administrative and sales and marketing
operations are located in approximately 177,000 square feet of leased space in
Cambridge, Massachusetts. The Company also maintains offices and leases office
space in the various locations in which it maintains branches and in which its
subsidiaries operate. The Company has regional sales and operations facilities
in the United States located in: Atlanta (GA), Bridgewater (NJ), Cambridge (MA),
Chicago (IL), Columbus (OH), Dallas (TX), Denver (CO), Detroit (MI), Houston
(TX), Los Angeles (CA), Miami (FL), Minneapolis (MN), New York (NY), Newport
Beach (CA), Philadelphia (PA), Phoenix (AZ), Pittsburgh (PA), Red Bank (NJ), San
Francisco (CA), San Juan (PR), San Mateo (CA), San Ramon (CA), Seattle (WA), 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; Frankfurt
and Munich, Germany; Dublin, Ireland; Milan, Italy; Amsterdam and Woerden,
Netherlands; Oslo, Norway; Malmo and Stockholm, Sweden; Geneva and Zurich,
Switzerland; London, Manchester, Reading and Richmond, United Kingdom. Other
offices include: Melbourne and Sydney, Australia; Sao Paolo, Brazil; Bangalore,
Mumbai and Deli, India; Tokyo, Japan; Mexico City, Mexico; and Caracas,
Venezuela.
Management of 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 19, 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 alleged breach of contract, violation of federal
securities laws, common law fraud, and negligent misrepresentation in connection
with the Excell acquisition and sought unspecified damages. In February 1999,
the
11
<PAGE>
Company filed a counterclaim against such former stockholders of Excell which
alleges breach of contract. On March 2, 2000, the United States District Court
for the District of Massachusetts granted Cambridge's motion for summary
judgment, dismissing the complaints of the former shareholders of Excell in
their entirety.
In March and April 1999, certain stockholders of the Company filed ten separate
class action lawsuits against the Company and certain of the Company's officers
in the United States District Court for the District of Massachusetts. These
suits have since been consolidated by the court. 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, 1999.
12
<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
("Nasdaq") 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
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
1999:
First Quarter 32.25 10.63
Second Quarter 20.75 11.50
Third Quarter 21.06 12.50
Fourth Quarter 27.00 10.81
</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 22, 2000, there were approximately 2,786 stockholders of record of
the Company's common stock.
Recent Sales of Unregistered Securities
On August 27, 1999, the Company awarded 300,000 shares of restricted common
stock to Jack L. Messman in connection with his election as President and Chief
Executive Officer of the Company. The closing price of the Company's common
stock on that date was $14.438, and Mr. Messman is required to pay the Company
the par value of the shares, $.01 per share. The Company's right to repurchase
the shares of restricted stock expires as follows: (i) 33.33% on December 31,
2000, (ii) 33.33% on the earlier to occur of either July 31, 2002 or the first
date on which the closing price of the Company's common stock equals or exceeds
$28.876, and (iii) 33.33% on the earlier to occur of either January 31, 2003 or
the first date on which the closing
13
<PAGE>
price of the Company's common stock equals or exceeds $36.095. Dividends would
be paid on the restricted stock in the event that dividends are paid on common
stock. The shares of restricted common stock were issued to Mr. Messman pursuant
to the exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended, because the issuance did not involve any public
offering. The proceeds of the $3,000 par value purchase price will be used for
general corporate purposes.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below as of and for the fiscal years ended
December 31, 1999, 1998, 1997, 1996, and 1995, 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) 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues $ 628,111 $ 612,041 $ 438,329 $ 294,527 $ 194,094
Costs and expenses:
Project personnel 316,931 272,263 203,928 138,706 92,924
General and administration 94,590 66,454 47,445 34,239 24,348
Sales and marketing 66,042 56,947 40,668 25,270 20,041
Other costs 182,497 126,970 84,582 55,544 30,739
Business combination costs -- 8,400 4,760 1,195 1,333
--------- --------- --------- --------- ---------
Total operating expenses 660,060 531,034 381,383 254,954 169,385
--------- --------- --------- --------- ---------
Income (loss) from operations (31,949) 81,007 56,946 39,573 24,709
Other income (expense):
Interest income, net 2,727 2,233 1,824 877 364
Gain on equity investments 29,556 798 188 -- 909
Gain on sale of marketable
equity securities 2,228 -- -- -- --
Foreign exchange (loss) gain 856 (934) (122) (141) 92
--------- --------- --------- --------- ---------
Total other income 35,367 2,097 1,890 736 1,365
--------- --------- --------- --------- ---------
Income before income taxes 3,418 83,104 58,836 40,309 26,074
Provision for income taxes 1,299 31,164 25,054 16,317 10,145
--------- --------- --------- --------- ---------
Net income $ 2,119 $ 51,940 $ 33,782 $ 23,992 $ 15,929
========= ========= ========= ========= =========
Basic net income per share $ .04 $ .90 $ .62 $ .46 $ .32
========= ========= ========= ========= =========
Diluted net income per share $ .03 $ .83 $ .55 $ .40 $ .28
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding 60,004 58,079 54,632 52,054 49,992
========= ========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding 61,745 63,301 60,775 59,573 56,798
========= ========= ========= ========= =========
<CAPTION>
Consolidated Balance Sheet Data: December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 62,288 $ 80,051 $ 39,649 $ 26,456 $ 11,176
Investments held to maturity 28,659 24,918 15,824 12,727 8,544
Working capital 179,147 177,929 108,301 72,334 37,657
Total assets 367,674 351,206 242,421 150,588 90,235
Stockholders' equity 277,036 242,150 150,867 98,796 56,007
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge" or the
"Company") performs technology and consulting services to help its clients
develop and accelerate their transition to Internet-based e-business solutions
and processes - the information technology that defines the "New Economy."
Founded in 1991, the Company combines electronic business and digital (Internet)
strategy consulting and cross-enterprise, software integration services to
"Global 1000" organizations worldwide, delivering rapid end-to-end business
solutions, usually on a fixed-time, fixed-price basis. Cambridge's services
include digital business strategies, e-commerce technical solutions consulting,
Internet user experience design, advanced software application integration,
custom software solutions, network solutions, enterprise resource solutions,
change management consulting, and integrated management consulting across
various industrial sectors and the entire scope of the value chain of the
Company's clients.
Electronic commerce business solutions delivered to clients have become and will
likely continue to become more integrated with clients' value chains and legacy
systems. This market trend represents a growth opportunity for Cambridge.
Cambridge groups its services into three lines of business, "eBusiness,"
"eIntegration" and "Change Management Consulting." Prior to this realignment,
the Company's services had been organized in six service lines since October
1998: Cambridge Management Consulting, Customer Management Solutions,
Interactive Solutions, Custom Software Solutions, Enterprise Resource Solutions,
and Network Services.
The Company provides the majority of its services on a fixed-time, fixed-price
model, with client involvement at all stages of the process. For software
development services, the Company and its clients generally agree on a
contractually fixed price for each phase of a project. 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 in future periods.
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. Revenues for 1999 increased 3% to $628.1 million compared to
$612.0 million in 1998. Net income for the year ended December 31, 1999
decreased 96% to $2.1 million, or $.03 (diluted), compared to $51.9 million or
$.83 (diluted), for the same period in 1998.
16
<PAGE>
eBusiness revenues increased 27% to $243.3 million, or 39% of revenues, for 1999
compared to $190.9 million, or 31% of revenues, for 1998. eIntegration revenues
decreased 13% to $261.3 million, or 42% of revenues, for 1999 compared to $299.0
million, or 49% of revenues for 1998. Change Management increased 1% to $123.5
million, or 19% of revenues, for 1999 compared to $122.1 million, or 20% of
revenues, for 1998. The dollar and percentage increase in eBusiness revenues was
due to increased demand resulting from the adoption of eBusiness and Internet
business models globally. The dollar and percentage decrease in eIntegration
revenues is attributed to lowered demand for the Company's client server
solutions and ERP package software implementations due to an increased number of
clients opting to defer or cancel strategic information technology initiatives
in favor of completing Year 2000 prevention and remediation activities. Revenues
for Change Management increased slightly.
North American revenues decreased 4% in 1999 compared to 1998, while
international revenues grew 17% in 1999 compared to 1998. North American
revenues for 1999 represent 64% of total revenues while international revenues
represent 36% of total revenues for the same period. For 1998, North American
revenues represent 69% of total revenues while international revenues represent
31% of total revenues for the same period. The international revenue growth
resulted from increased demand for the Company's services in Europe, Latin
America, and Asia Pacific. The decrease in North American revenues is attributed
to lowered demand for the Company's client server solutions and ERP package
software implementations due to an increased number of clients opting to defer
or cancel technology initiatives in favor of completing Year 2000 remediation
activities and higher than expected employee turnover.
Employee turnover was approximately 30%, excluding forced turnover, for 1999
compared to approximately 22%, excluding forced turnover, for 1998. The Company,
along with the rest of the technology industry, continues to be challenged by
employee turnover as companies compete for employees with the skill sets
required to fulfill client demand. Company headcount was approximately 4,200 at
December 31, 1999 compared to approximately 4,400 December 31, 1998. The Company
continues to assess the skill sets necessary to address the changing market
dynamics and focuses on training, hiring, and assimilating appropriate personnel
to service its clients.
17
<PAGE>
RESULTS OF OPERATIONS
To facilitate comparisons, the following table sets forth selected statements of
operations data as a percentage of revenues and the period-to-period percentage
changes for revenues, costs and expenses, and income from operations.
<TABLE>
<CAPTION>
Years Ended December 31, Percentage Increase (Decrease)
------------------------------ -------------------------------
1999 1998 1997 `98 to `99 `97 to `98
------- -------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% 100% 3% 40%
Costs and expenses:
Project personnel 50 45 47 16 34
General and administration 15 11 11 42 40
Sales and marketing 11 9 9 16 40
Other costs 29 21 19 44 50
Business combination costs -- 1 1 (100) 76
----- ----- -----
Total operating expenses 105 87 87 24 39
----- ----- -----
Income from operations (5) 13 13 (139)% 42%
Other income, net 6 1 --
----- ----- -----
Income before income taxes 1% 14% 13%
===== ===== =====
</TABLE>
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 expenses incurred to
total project expenses. 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 continuously monitors the progress of client projects. 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 higher than
expected number of unassigned employees or severance expenses. While the level
of professional staff may be adjusted to reflect active projects, the Company
must maintain a
18
<PAGE>
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
The Company announced that it will continue to transition the organization to a
provider of eBusiness solutions. However, the skill sets required to deliver
e-Business solutions are in high demand, and the issues surrounding turnover and
slowdown in the ERP implemenation services are expected to continue. The Company
announced that it therefore expects to continue to incur losses in the first
half of 2000 based on flat revenue compared to the first half of the prior year,
and the need to make strategic investments to fund the Company's growth. Even
with total revenues expected to be flat in the first half of 2000, Cambridge
expects continued growth in its e-Business revenues. 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, 1999 Compared to Year Ended December 31, 1998
Revenues increased 3% to $628.1 million in 1999 as compared to the prior fiscal
year. North American revenues decreased 4% to $404.8 million from $421.6 million
in 1998. Revenues from international operations increased by 17% to $223.3
million in 1999 from $190.4 million in 1998. This increase is primarily due to
the increased demand for Company's services in Europe, Latin America and Asia
Pacific. The decrease in the growth rate of revenues in 1999 of 3% compared to
40% in 1998 was primarily attributable to a decrease in the revenues in North
America. This decrease in North America revenue was primarily attributed to
lower demand for the Company's client server solutions and ERP package software
implementations due to an increased number of clients opting to defer or cancel
technology initiatives in favor of completing Year 2000 remediation activities
and higher than expected employee turnover.
During the second quarter of 1999, the Company recorded incremental costs of
$8.9 million resulting from a human resources repositioning and retention
programs to enable the Company to retain, retrain, relocate and strategically
redeploy employees into its eBusiness service offerings due to changing market
dynamics which resulted in decreased demand for Enterprise Resource Planning
(ERP) services and increased demand for e-business solutions. The program
included employee retention bonuses, staff reductions, and the retraining,
relocation and redeployment of certain employees. The $8.9 million of
repositioning costs included $5.9 million of employee retention bonuses, $1.3
million of severance costs, and $1.7 million of costs to retrain, relocate and
redeploy certain employees. Of the $8.9 million of repositioning and retention
costs, $6.6 million was charged to project personnel costs, $1.9 million to
general and administrative expenses, $.2 million to sales and marketing
expenses, and $.2 million to other costs. These costs were paid during
1999. Staff reductions included approximately 55 professional staff and 17
administrative personnel.
19
<PAGE>
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 $316.9 million, or 50% of revenues in 1999,
compared to $272.3 million, or 45% of revenues, in 1998. The dollar and
percentage increase resulted from additional compensation and benefit costs
resulting from the competitive market environment for technical skills and a
change in the skill mix of personnel. Worldwide project personnel headcount
decreased 6% to 3,375 employees at December 31, 1999, from 3,596 employees at
December 31, 1998. Competition for personnel with IT skills is intense and the
Company expects salaries and wages to continue to increase. The Company
periodically reviews and updates its billing rates in an attempt to mitigate the
expected increase in project personnel costs.
General and administration expenses were $94.6 million, or 15% of revenues in
1999, compared to $66.5 million, or 11% of revenues in 1998. The dollar and
percentage increase reflects costs for client receivables determined to be
uncollectable and additional compensation and benefit costs associated with
personnel to support the Company's business. The increase was also caused by
increased recruiting costs associated with adding senior leadership positions as
well as maintaining current staff levels. General and administration headcount
increased 18% to 571 employees at December 31, 1999, from 482 at December 31,
1998.
Sales and marketing expenses were $66.0 million, or 11% of revenues in 1999,
compared to $56.9 million, or 9% of revenues in 1998. The dollar and percentage
increase was primarily attributable to additional compensation and benefit
costs, 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. Sales and marketing
headcount decreased 17% to 254 at December 31, 1999, from 304 at December 31,
1998. The Company continued its investment in marketing initiatives and
educational and training programs through those conducted by its Management Lab.
The Management Lab enables clients to participate in both physical and virtual
interactive forums to discuss issues associated with adopting IT, 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
$182.5 million or 29% of revenues in 1999 compared to $127.0 million or 21% of
revenues in 1998. The dollar and percentage increase from 1998 resulted
principally from a decrease in project personnel utilization and billability, a
provision for uncollectable project expenses due from clients, and increased
facility, travel, and employee training costs. The decrease in project personnel
utilization was primarily caused by costs associated with higher than expected
turnover and changes in market demand for the Company's traditional services
caused by customer concerns regarding Year 2000 and this shift in market demand
toward eBusiness solutions. The decrease in billability was primarily caused by
costs associated with project overruns and changes in the Company's project
management model that resulted in an increase in non-billable resources.
20
<PAGE>
Interest income net of interest expense increased to $2.7 million in 1999 from
$2.2 million in 1998. This increase is principally due to higher interest rates
received on cash balances and short-term investments in 1999 compared to 1998.
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.
Gain on equity investments, which consists primarily of the Company's investment
in Cambridge Technology Capital Fund I L.P. (the "Fund"), was $29.6 million in
1999 compared to $798,000 in 1998. The increase is due to investment gains
generated primarily by the Fund's unrealized appreciation of its portfolio of
securities (see Note N of Notes to Consolidated Financial Statements).
Foreign exchange gain was $856,000 in 1999 compared to a loss of $934,000 in
1998 related to foreign currency exchange rate fluctuations associated with
intercompany balances. The gain in 1999 was primarily due to a favorable
fluctuation in foreign exchange rates and the 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, 1999, the Company held foreign exchange
contracts of approximately $10.2 million. As the Company grows its international
business, it becomes 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 1999 increased to 38.0% from 37.5% in
1998. This increase is primarily due to the statutory rates of foreign entities.
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 decreased 96% to $2.1 million or $.03 per share (diluted) for 1999
compared to $51.9 million or $.83 per share (diluted) for the same period in
1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
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
revenues for 1998 grew 37% to $421.6 million from $307.5 million in 1997.
Revenues from international operations increased by 46% to $190.4 million in
1998 from $130.8 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 of total
revenues in 1998 (40%) compared to 1997 (49%) was primarily attributable to a
decrease in the revenue growth rate of the Company's North
21
<PAGE>
American client server and ERP 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 revenue growth was also due to an
increased number of clients opting to defer or cancel technology initiatives in
favor of completing Year 2000 remediation activities.
Project personnel costs were $272.3 million or 45% of revenues in 1998 compared
to $203.9 million or 47% of 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 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 revenues.
Worldwide project personnel headcount increased 25% to 3,596 employees at
December 31, 1998, from 2,867 employees at December 31, 1997.
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 enabled 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.
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 revenues in 1998 compared to $84.6 million or 19% of
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
22
<PAGE>
continues to expand globally. The increase as a percentage of 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 was primarily due to the reduced growth rate of
the North American Rapid Application Deployment business.
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 ("Excell") 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.
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. As of December 31,
1998, the Company held foreign exchange contracts of approximately $9.4 million.
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 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
23
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to operate primarily debt-free in 1999. Working capital
increased to $179.1 million at December 31, 1999, from $177.9 million at
December 31, 1998. This increase was primarily due to increases in unbilled
revenue on contracts, and prepaid expenses and other current assets, and a
decrease in income taxes payable, partially offset by a decrease in cash and
cash equivalents and accounts receivable. The increase in unbilled revenue on
contracts was caused by timing differences, including timing differences between
contractual billing terms and percentage of completion revenue recognition
requirements. The Company's days sales outstanding was 74 days at December 31,
1999 compared to 80 days at December 31, 1998. This decrease was primarily due
to a decrease in accounts receivable from 1999 to 1998 while revenue remained
essentially the same. The Company actively assesses and monitors the
collectability of its accounts receivable.
Net cash used in operating activities was $29.1 million in 1999, compared to net
cash provided by operating activities of $51.2 million for the same period in
1998. The difference in net cash used in operating activities in 1999 compared
to net cash provided by operating activities in 1998 was primarily caused by
lower net income in 1999, a decrease in tax benefits from a reduction in the
exercise of stock options during 1999, and a decrease in income taxes payable,
partially offset by lower accounts receivable in 1999 compared to 1998. In
addition, net income for 1999 includes non-cash gains from the Fund. 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 of $21.4 million in 1999 were used principally for computer
equipment to support the Company's operations, the consolidation of its
Northeast operations and corporate functions into a new facility, and employee
workstations, telecommunications equipment, and leasehold improvements. Capital
expenditures for 2000 are expected to approximate $22 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 worldwide.
The actual amount of capital expenditures may vary from management's estimates
as capital needs arise and actual expenditures are made.
24
<PAGE>
The Company maintains 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, which expires on September 10, 2001, 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 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, 1999, the Company was in
compliance with the debt to capital and net worth ratio requirements but, for
the quarter ended December 31, 1999, was not in compliance with the debt service
coverage ratio. The Company received a waiver through March 31, 2000 regarding
the non-compliance with the debt service coverage ratio. The Company is in the
process of renegotiating the terms of the Facility. As of December 31, 1999, the
Company had no balance outstanding under the Facility.
The Fund was formed in October 1997 as a limited partnership with committed
capital of approximately $25.3 million. The Fund's goal is capital appreciation
and is intended to invest in expansion-stage, private companies. A wholly owned
subsidiary of the Company acts as the 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. At December 31, 1999, the Company's cumulative capital contribution to
the Fund amounted to approximately $4.9 million. The Company's investment in the
Fund resulted in a net gain of approximately $29.6 million for the year ended
December 31, 1999.
The Company expects that cash flows from operations will provide the principal
source of future liquidity for the Company. However, the Company's strategy to
transition its business to internet oriented solutions could place a strain on
the Company's financial resources. The Company anticipates that existing cash
and investment balances combined with cash generated from operations and amounts
available under the Facility will be sufficient to meet the Company's working
capital requirements for at least the next 12 months and to fund the transition
of the Company's business. Operating results and liquidity may be adversely
affected if market demand and revenues do not increase as anticipated. As the
Company expands its international operations, a number of factors, including
market acceptance of the Company's services, significant fluctuations in
currency exchange rates, and changes in general economic, political, or
regulatory conditions could also adversely affect future results and liquidity.
The Year 2000 Issue
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any computer programs that have
date-sensitive software may
25
<PAGE>
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.
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. 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.
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. There also can be no assurance that the contractual protections, if
any, obtained by the Company will operate to protect the Company from, or limit
the amount of, any liability arising from claims asserted against the Company.
To date, the Company's software and services have not revealed any significant
year 2000 problems. As of March 15, 2000, the Company has not experienced any
significant issues as a result of Year 2000 problems and does not anticipate
incurring material incremental costs in future periods due to such issues.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, recorded as a
gain or loss, depends on the intended use of the derivative and its resulting
designation. The statement initially was to be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. In July 1999, the Financial
Accounting Standards Board issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activites-deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for the Company's fiscal quarters beginning after January 1, 2001. The
Company is evaluating if the adoption of SFAS 137 will have a material effect on
its financial position or results of operations.
26
<PAGE>
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; capital expenditures; liquidity sources and needs; working
capital needs; e-business initiatives undertaken in response to customer demand
and anticipated market growth oppotunities; estimated costs for additional
retention programs; the Company's efforts to retain, retrain, relocate, and
strategically redeploy employees; the Company's hiring efforts; increases in
personnel and wages for the Company's personnel; the impact of varying
compensation arrangements; 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:
o risks associated with the Company's transition to an e-Business company,
including the orientation of new management teams within the new structure
and the need to develop reliable forecasting tools for each e-Business
service offering;
o the success of the Company's human resources repositioning and retention
programs;
o employee hiring, retention, billability and utilization;
o the number and significance of client engagements commenced and completed
during a period;
o the number of working days in a period;
o the Company's ability to manage its growth;
o the Company's ability to manage the cost of its engagements and operating
costs;
o changes in demand for the Company's services and third party products or
solutions for which the Company performs integration services;
o future initiatives in an attempt to adapt to changing market dynamics;
o estimated costs for additional retention programs;
o changes in market conditions that could impact the value of securities
owned by the Company or the Company's investment in the Cambridge
Technology Capital Fund I;
o turnover in senior management;
o competition;
o risks associated with international operations;
27
<PAGE>
o the acceptance and profitability of the Company's services in new
locations;
o the integration of acquired businesses;
o unanticipated negative outcomes of litigation involving the Company; and
o 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.
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.
28
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998, and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
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, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000, except for the first
paragraph of Note M, as to which the date is March 2, 2000
F-2
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,288 $ 80,051
Investments held to maturity 28,659 24,918
Accounts receivable, less allowance of $10,287 and $4,550
at December 31, 1999 and 1998, respectively 126,842 133,583
Unbilled revenue on contracts 13,181 10,964
Deferred income taxes 247 2,179
Prepaid expenses and other current assets 38,465 33,284
--------- ---------
Total current assets 269,682 284,979
Property and equipment, net 53,127 48,255
Deferred tax asset 3,619 --
Other assets 41,246 17,972
--------- ---------
Total assets $ 367,674 $ 351,206
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,845 $ 15,804
Accrued expenses 54,971 49,603
Deferred revenue 9,594 10,861
Income taxes payable 12,054 30,635
Obligations under capital leases, current 71 147
--------- ---------
Total current liabilities 90,535 107,050
Obligations under capital leases 103 197
Deferred income taxes -- 1,809
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 2,000,000 shares
authorized and none issued and outstanding
at December 31, 1999 and 1998, respectively -- --
Common stock, $.01 par value, authorized 250,000,000 shares at
December 31, 1999 and 1998, respectively;
issued and outstanding 62,065,028 and 58,856,401 shares
at December 31, 1999 and 1998, respectively 621 589
Additional paid-in capital 159,738 115,662
Retained earnings 129,670 127,551
Accumulated other comprehensive loss (9,331) (1,652)
Deferred compensation (3,662) --
--------- ---------
Total stockholders' equity 277,036 242,150
--------- ---------
Total liabilities and stockholders' equity $ 367,674 $ 351,206
========= =========
</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,
-----------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 628,111 $ 612,041 $ 438,329
Costs and expenses:
Project personnel 316,931 272,263 203,928
General and administration 94,590 66,454 47,445
Sales and marketing 66,042 56,947 40,668
Other costs 182,497 126,970 84,582
Business combination costs -- 8,400 4,760
--------- --------- ---------
Total operating expenses 660,060 531,034 381,383
--------- --------- ---------
Income/(loss) from operations (31,949) 81,007 56,946
Other income (expense):
Interest income, net 2,727 2,233 1,824
Gain on equity investments 29,556 798 188
Gain on sale of marketable
equity securities 2,228 -- --
Foreign exchange gain/(loss) 856 (934) (122)
--------- --------- ---------
Total other income 35,367 2,097 1,890
--------- --------- ---------
Income before income taxes 3,418 83,104 58,836
Provision for income taxes 1,299 31,164 25,054
--------- --------- ---------
Net income $ 2,119 $ 51,940 $ 33,782
========= ========= =========
Basic net income per share $ .04 $ .90 $ .62
========= ========= =========
Diluted net income per share $ .03 $ .83 $ .55
========= ========= =========
Weighted average number of
common shares outstanding 60,004 58,079 54,632
========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 61,745 63,301 60,775
========= ========= =========
</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>
Accumulated
Additional Other
Number of Par Paid-In Comprehensive Deferred Retained
Shares Value Capital Income (Loss) Compensation Earnings Total
---------- ----- --------- ------------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 53,367,636 $534 $49,532 $125 $ -- $48,605 $98,796
Comprehensive income/(loss):
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 2,170,050 22 12,779 -- -- -- 12,801
Tax benefit related to stock option exercises -- -- 5,807 -- -- -- 5,807
Shares issued under employee stock purchase plan 211,734 2 4,934 -- -- -- 4,936
Exercise of stock warrants 900,000 9 1,791 -- -- -- 1,800
Accretion of Peter Chadwick preferred stock -- -- 557 -- -- (557) --
Dividend distribution (Peter Chadwick) -- -- -- -- -- (4,085) (4,085)
Dividend distribution (Excell) -- -- -- -- -- (384) (384)
---------- ----- --------- ------------- ------------- -------- -------
Balance, December 31, 1997 56,649,420 567 75,400 (2,461) -- 77,361 150,867
Comprehensive income/(loss):
Net income -- -- -- -- -- 51,940 51,940
Other comprehensive income/(loss):
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 1,975,616 20 18,656 -- -- -- 18,676
Tax benefit related to stock option exercises -- -- 12,238 -- -- -- 12,238
Shares issued under employee stock purchase plan 231,365 2 7,618 -- -- -- 7,620
Excell conversion to C Corporation -- -- 1,750 -- -- (1,750) --
---------- ----- --------- ------------- ------------- -------- -------
Balance, December 31, 1998 58,856,401 589 115,662 (1,652) -- 127,551 242,150
Comprehensive income/(loss):
Net income -- -- -- -- -- 2,119 2,119
Other comprehensive income/(loss):
Foreign currency translation adjustment -- -- -- (6,489) -- -- (6,489)
Reclassification adjustment
for gain on investment -- -- -- (1,255) -- -- (1,255)
Unrealized gain on investment, net of taxes -- -- -- 65 -- -- 65
-------
Other comprehensive income/(loss) (7,679)
-------
Total comprehensive income/(loss) (5,560)
Exercise of stock options 2,462,864 25 29,767 -- -- -- 29,792
Tax benefit related to stock option exercises -- -- 1,690 -- -- -- 1,690
Shares issued under employee stock purchase plan 445,763 4 8,291 -- -- -- 8,295
Issuance of restricted stock to employee at par 300,000 3 4,328 -- (4,328) -- 3
Amortization of deferred compensation -- -- -- -- 666 -- 666
---------- ----- --------- ------------- ------------- -------- -------
Balance, December 31, 1999 62,065,028 $621 $159,738 $(9,331) $(3,662) $129,670 $277,036
========== ===== ========= ============= ============= ======== =======
</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,
-----------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,119 $ 51,940 $ 33,782
Adjustments to reconcile net income to net cash
(used in)/provided by operating activities:
Depreciation and amortization 16,609 12,846 8,762
Stock based compensation 666 -- --
Tax benefit from exercise of stock options 1,690 12,238 5,807
Gain on equity investment in Cambridge
Technology Capital Fund (29,556) (798) --
Realized gain on sale of marketable equity securities (2,228) -- --
Change in deferred income taxes (2,746) (1,096) (337)
Changes in assets and liabilities:
Decrease/(increase) in accounts receivable 3,684 (27,574) (45,346)
Increase in unbilled revenue on contracts (2,766) (1,880) (4,756)
Increase in prepaid expenses and other current assets (5,957) (5,214) (10,533)
Decrease/(increase) in other assets 7,515 (6,689) (2,346)
(Decrease)/increase in accounts payable (1,640) (3,422) 6,483
Increase in accrued expenses 5,226 8,331 13,680
(Decrease)/increase in deferred revenue (1,223) 1,359 4,217
(Decrease)/increase in income taxes payable (20,521) 11,165 12,741
Other, net -- -- 1,129
--------- --------- ---------
Net cash (used in)/provided by operating activities (29,128) 51,206 23,283
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (21,377) (24,048) (23,089)
Purchase of investments held to maturity (36,758) (32,288) (18,261)
Maturity of investments held to maturity 33,017 23,194 15,164
Proceeds from sale of Cambridge Technology
Capital Fund distributions in kind 888 -- --
Investment in Cambridge Technology Capital Fund (2,978) (1,589) (300)
Proceeds from sale of marketable securities 2,324 -- --
--------- --------- ---------
Net cash used in investing activities (24,884) (34,731) (26,486)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term loan arrangement -- -- 875
Repayment of long-term debt and capital leases (170) (1,013) (250)
Dividend distributions -- (1,193) (3,340)
Proceeds from employee stock purchase plan 8,295 7,620 4,936
Proceeds from exercise of stock options 29,792 18,676 12,801
Proceeds from exercise of warrants -- -- 1,800
--------- --------- ---------
Net cash provided by financing activities 37,917 24,090 16,822
--------- --------- ---------
Effect of foreign exchange rate changes on cash (1,668) (163) (426)
Net (decrease)/increase in cash and cash equivalents (17,763) 40,402 13,193
Cash and cash equivalents at beginning of period 80,051 39,649 26,456
--------- --------- ---------
Cash and cash equivalents at end of period $ 62,288 $ 80,051 $ 39,649
========= ========= =========
</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. ("Cambridge" or the
"Company") performs global technology and consulting services that accelerate
its clients' transition to the New Economy. Founded in 1991, the Company
combines electronic business and digital strategy consulting and
cross-enterprise, software integration services to "Global 1000" organizations
worldwide, delivering "end-to-end" business solutions usually on a fixed-time,
fixed-price basis. Cambridge's services include digital business strategies,
electronic commerce technical solutions consulting, Internet user experience
design, advanced software application integration, custom software solutions,
network solutions, enterprise resource solutions, change management consulting,
and integrated management consulting across various industrial sectors and the
entire scope of the value chain of the Company's clients.
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 to 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 holds investments in marketable securities which are classified as
held to maturity and all have remaining maturities of twelve months or less from
the balance sheet date. At December 31, 1999 and 1998, held to maturity
securities consist of investment grade municipal bonds of $28.7 million and
$24.9 million, respectively, which are reported at amortized cost which
approximates market value.
The Company also holds marketable equity securities which are classified as
available for sale within other assets and are recorded at fair value. At
December 31, 1999, the Company had marketable securities at fair value of $1.3
million with a cost of $1.2 million, and an unrealized gain of $65,000, net of
taxes. 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. Estimated useful life of equipment is three to five
years, furniture and fixtures is five to seven years, motor vehicles is four
years and software is three to five years. Leasehold improvements are amortized
over the shorter of its useful life or the term of the lease. 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, 1999, 1998, and 1997. As of December 31,
1999 and 1998, the accumulated amortization was $4.6 million and $3.9 million,
respectively. The carrying value of goodwill is subject to periodic review of
realizability.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on temporary
differences between the financial statement and tax bases of assets and
liabilities using the expected tax rates in the year in which the differences
are expected to reverse. The Company may provide a valuation allowance against
net deferred tax assets if, based on the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Equity Method Investments
The Company accounts for its investment in the Cambridge Technology Capital Fund
I L.P. (the "Fund") under the equity method whereby the Company's share of the
income or losses of the Fund is reflected in "Gain (loss) on equity investments"
in the consolidated statements of operations. The Company's carrying value for
its equity method investment in the Fund is included in "Other assets" in the
consolidated balance sheets (see Note N). The Company records distributions from
the Fund as a reduction in its investment in the Fund.
The Company owns both limited partner and general partner interests in the Fund.
To date the Company has recognized income or loss based on its approximately 24%
interest in the Fund. In 1999, the Fund's net income was primarily derived from
unrealized gains based on changes in the fair value of the securities it has
invested in, which are subject to market fluctuations (see Note N).
Revenue Recognition
The Company operates in one industry segment, the design, development, and
implementation of business solutions. Revenues from business solutions contracts
are recognized primarily on the percentage of completion method. The cumulative
impact of any revision in estimates of the
F-8
<PAGE>
percent complete is reflected in the period in which the changes become known.
Losses on projects in progress are recognized when known. Net revenues exclude
reimbursable expenses charged to clients. Revenues from package software
evaluation and implementation services are recognized as service is provided,
principally on a time and materials basis.
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
Earnings per share ("EPS") is presented as 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).
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,
1999 and 1998, the Company held foreign exchange forward contracts of
approximately $10.2 million and $9.4 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 1999, 1998, and 1997.
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
F-9
<PAGE>
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 and may impact
future results of operations and cash flows. Estimates are inherent in
determining revenue recognition and associated profits under the percentage of
completion method. The value of the Company's investments in marketable
securities and investment in the Fund may be subject to significant volatility
resulting from fluctuations in capital markets.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, recorded as a
gain or loss, depends on the intended use of the derivative and its resulting
designation. The statement initially was to be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. In July 1999, the Financial
Accounting Standards Board issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activites-deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for the Company's fiscal quarters beginning after January 1, 2001. The
Company is currently evaluating if the adoption of SFAS 137 will have a material
effect on its financial position or results of operations.
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
F-10
<PAGE>
interests method of accounting. 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
United Kingdom, Peter Chadwick specialized in change implementation strategies
and performance improvement programs. Peter Chadwick was renamed Cambridge
Management Consulting Holdings Limited in July 1998.
The accompanying consolidated financial statements of the Company have been
prepared to give retroactive effect to the acquisitions of Excell and Peter
Chadwick 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.
F-11
<PAGE>
The following information presents certain statement of operations data (in
thousands) of the Company, Peter Chadwick, and Excell for the periods prior to
the 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.
<TABLE>
<CAPTION>
Cambridge
Technology Peter Combined
Partners Chadwick Excell Total
-------- -------- ------ -----
<S> <C> <C> <C> <C>
Net revenues for the:
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, 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,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Contracts in process $ 69,229 $ 78,767
Completed contracts 67,900 59,366
----------- -----------
137,129 138,133
Less: Allowance for doubtful accounts 10,287 4,550
----------- -----------
$ 126,842 $ 133,583
=========== ===========
</TABLE>
The Company does not include client reimbursable expenses or other non-trade
receivables as a component of net revenues. At December 31, 1999 and 1998,
approximately $22.4 million and $19.2 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,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Building $ 1,414 $ 1,406
Equipment 66,912 54,591
Furniture and fixtures 14,662 11,693
Leasehold improvements 16,569 11,312
Motor vehicles 690 880
Software and other 897 1,443
-------- --------
Total cost 101,144 81,325
Less accumulated depreciation 48,017 33,070
-------- --------
$ 53,127 $ 48,255
======== ========
</TABLE>
Depreciation expense for 1999, 1998, and 1997 was $15.6 million, $11.9 million,
and $7.2 million, respectively.
E. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
Accrued payroll and payroll related expenses $ 21,562 $ 20,776
Contract reserve 4,786 5,082
Other accrued expenses 23,898 17,877
Accrued value added tax 4,725 5,868
---------- --------
$ 54,971 $ 49,603
========== ========
</TABLE>
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
F-13
<PAGE>
December 31, 1999, the Company was in compliance with the debt to capital and
net worth ratio requirements but was not in compliance with the debt service
coverage ratio. The Company received a waiver through March 31, 2000 regarding
the non-compliance with the debt service coverage ratio. The Company is in the
process of renegotiating the terms of the Facility. For the year ended December
31, 1998, the Company was in compliance with these financial ratio requirements.
As of December 31, 1999 and 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 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, 1999, 1998, and 1997, there
were 9,939,985, 13,204,447, and 11,677,140 options outstanding, respectively,
under the 1991 Option Plan. At December 31, 1999, 1998, and 1997, options to
purchase 4,906,435, 4,725,224, and 4,063,342 shares, respectively, were
exercisable under the 1991 Option Plan. In December 1997 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 19 million to 23 million.
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
F-14
<PAGE>
December 31, 1999 and 1998 there were 103,000 options outstanding, and at
December 31, 1997 there were 120,000 options outstanding under the 1995 Option
Plan. At December 31, 1999, 1998 and 1997, options to purchase 103,000, 95,136,
and 73,121 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, 1999, 1998, and 1997, there were 130,680, 139,095, and
260,000 options outstanding, respectively, under the 1997 Option Plan. At
December 31, 1999, 1998 and 1997, options to purchase 64,882, 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 5.0 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. In December 1999 the Company's Board of
Directors amended the 1998 Option Plan to increase the number of shares of
common stock authorized for issuance under the 1998 Option Plan from 5.0 million
to 11.5 million. 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, 1999 and 1998, there were 6,886,401
and 1,905,182 options outstanding, respectively, under the 1998 Option Plan. At
December 31, 1999 and 1998, options to purchase 1,203,854 and 31,732 shares,
respectively, 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, 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
Granted 8,512,910 18.72
Exercised 2,462,864 12.10
Canceled 4,341,704 18.86
---------- ---------
Outstanding at December 31, 1999 17,060,066 $ 18.44
========== =========
</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, 1999:
<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 12/31/99 Life Price at 12/31/99 Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ .16 - $ 1.67 240,792 2.4 Years $ .69 240,792 $ .69
3.09 - 6.32 364,957 4.2 Years $ 5.53 364,957 $ 5.53
10.00 - 14.44 2,237,880 7.3 Years $13.75 313,790 $11.03
15.34 - 22.88 9,921,216 5.9 Years $17.68 4,924,354 $17.71
23.19 - 34.00 3,863,927 7.7 Years $23.53 224,085 $25.48
35.00 - 49.60 431,294 5.9 Years $35.57 210,193 $35.58
- -------------------------------------------------------------------------------------------------------------------------
$ .16 - $ 49.60 17,060,066 6.4 Years $18.44 6,278,171 $16.89
=========================================================================================================================
</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 required 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, 1999, 1998, and 1997 (in thousands except per
share data):
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
As reported net income $ 2,119 $ 51,940 $ 33,782
Pro forma net income (loss) for SFAS 123 $ (15,046) $ 24,133 $ 27,092
Net income (loss) per share:
As reported basic net income per share $ .04 $ .90 $ .62
Pro forma basic net income (loss) per
share for SFAS 123 $ (.25) $ .42 $ .50
As reported diluted net income (loss) per share $ .03 $ .83 $ .55
Pro forma diluted net income (loss) per
share for SFAS 123 $ (.25) $ .38 $ .45
</TABLE>
The effects of applying SFAS 123 in this disclosure are not indicative of future
amounts. Additional grants in future years are anticipated.
F-17
<PAGE>
The following weighted average assumptions were used by the Company to determine
the fair value of stock options granted using the Black-Scholes options-pricing
model:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Expected volatility 73% 52% 45%
Average expected option life 4 Years 4 Years 5 Years
Average expected life for employee
stock purchase plan shares .5 Year .5 Year .5 Year
Risk-free interest rate 5.8% 4.5% 6.2%
Dividend yield 0% 0% 0%
</TABLE>
The weighted average grant date fair value of options granted under the stock
option plans was $11.13 in 1999, $8.80 in 1998, and $12.59 in 1997. The weighted
average fair value of shares issued under the employee stock purchase plan was
$7.83 in 1999, $13.40 in 1998, and $4.81 in 1997. 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, 1999, 1998, and 1997, 445,763, 231,365, and
211,734 shares of common stock, respectively, were issued under the Stock
Purchase Plan. At December 31, 1999 457,365 shares were available for future
grant.
Restricted Stock
On August 27, 1999 the Board of Directors approved the issuance of 300,000
shares of restricted stock to the Chief Executive Officer at par value. The
restricted stock will vest as follows: (i) 100,000 shares on December 31, 2000,
(ii) 100,000 shares on the earlier to occur of either July 31, 2002 or the first
date on which the closing price of the Company's common stock equals or exceeds
$28.876, and (iii) 100,000 shares on the earlier to occur of either January 31,
2003 or the first date on which the closing price of the Company's common stock
equals or exceeds $36.095.
F-18
<PAGE>
The Company recorded deferred compensation of $4.3 million related to the hiring
of its Chief Executive Officer and compensation expense of $666,000 was
recognized for the year ended December 31, 1999.
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 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 vested immediately and 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.
Dividends may also be restricted by the inability to liquidate ownership
interests in the Fund to pay cash dividends. At December 31, 1999, approximately
$17.1 million of consolidated retained earnings relates to undistributed gains
on the Company's equity method investment in the Fund.
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 and $3.0 million for the years ended December 31, 1998
and 1997, 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.
F-19
<PAGE>
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 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
In January 1998, the Company entered into a lease for an approximately 177,000
square foot building, which is located in Cambridge, Massachusetts, and houses
the Company's Northeast operations, new employee training facility, and
corporate departments. The lease agreement is for a ten-year period, which
commenced in June 1999, and is renewable for two additional five-year terms.
On June 4, 1992, the Company entered into, among other building and equipment
leases, a lease for a building in Cambridge, Massachusetts. This facility
previously housed part of 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. Beginning in 1999, this facility is being subleased through its
remaining lease term. The Company's lease for its Allston, Massachusetts
facility, which housed the remainder of its Northeast operations, terminated
effective June 30, 1999.
F-20
<PAGE>
Minimum future lease commitments under non-cancelable operating leases for
buildings and equipment in effect at December 31, 1999, are presented as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 18,943
2001 17,149
2002 15,115
2003 12,472
2004 9,855
Thereafter 27,629
-----------
Total minimum lease payments $ 101,163
===========
</TABLE>
For the years ended December 31, 1999, 1998, and 1997, rental expense under all
leases was approximately $17.0 million, $15.6 million and $11.0 million,
respectively, of which approximately $833,000, $814,000 and $765,000,
respectively, were paid to the trust described above.
I. Other Costs
Other costs consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Facility costs and related expenses $ 81,801 $ 58,881 $ 43,920
Non-billable project expenses 38,617 34,597 19,080
Non-billable staff costs 39,115 21,412 15,479
Education and training 22,964 12,080 6,103
----------- ---------- ----------
$ 182,497 $ 126,970 $ 84,582
============ =========== ==========
</TABLE>
F-21
<PAGE>
J. Income Taxes
The components of income (loss) before income taxes and the related provision
for income taxes for the years ended December 31, 1999, 1998, and 1997 are
presented below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic $(25,435) $ 57,071 $ 49,340
Foreign 28,853 26,033 9,496
-------- -------- --------
$ 3,418 $ 83,104 $ 58,836
======== ======== ========
Provision (benefit) for income taxes:
Current:
Federal $ (7,098) $ 19,955 $ 17,769
Foreign 11,143 9,682 3,881
State -- 2,623 3,741
-------- -------- --------
4,045 32,260 25,391
Deferred:
Federal (2,530) (1,009) (308)
Foreign -- -- 10
State (216) (87) (39)
-------- -------- --------
(2,746) (1,096) (337)
-------- -------- --------
Total $ 1,299 $ 31,164 $ 25,054
======== ======== ========
</TABLE>
The Company's deferred tax assets and (liabilities) are comprised of the
following as of December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating losses $ 7,677 $ --
Bad debt reserves 1,196 838
Vacation accrual 1,493 631
Contract reserves 1,353 --
Research credits 5,570 --
Fixed asset depreciation (1,567) (485)
Cash to accrual adjustments (615) (1,174)
Unrealized gain on investment (11,505) (1,033)
Other accruals 264 1,593
-------- --------
$ 3,866 $ 370
======== ========
</TABLE>
Included in unrealized gain on investment at December 31, 1999 and 1998 is a
deferred tax liability of $29,000 and $753,000, respectively, 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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. statutory tax rate @ 35% $ 1,196 $ 29,086 $ 20,593
State income taxes, net of
federal income tax benefit 149 1,829 2,931
Goodwill amortization 251 249 235
Meals and entertainment 1,049 1,662 530
Foreign tax credits 420 -- (824)
Research credits (1,735) (1,662) --
Non-taxable S-Corporation income -- (416) (353)
Other, net (31) (332) (235)
-------- -------- --------
Effective tax rate before non-
deductible pooling costs 1,299 30,416 22,877
Non-deductible pooling costs -- 748 2,177
-------- -------- --------
Effective tax rate $ 1,299 $ 31,164 $ 25,054
======== ======== ========
</TABLE>
At December 31, 1999 the Company has a $ 26.0 million net operating loss
carryover of which $14.7 million relates to employee stock option deductions
which do not benefit the tax provision. Any future benefit will be recorded as
an increase to additional paid in capital.
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
------- -------
<S> <C> <C>
Pro forma data (unaudited):
Historical income before income taxes $83,104 $58,836
Provision for income taxes:
Historical income taxes 31,164 25,054
Pro forma increase to historical income taxes 195 437
------- -------
Pro forma net income $51,745 $33,345
======= =======
Pro forma basic net income per share $ .90 $ .62
======= =======
Pro forma diluted net income per share $ .83 $ .55
======= =======
</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, 1999, 1998, and 1997 (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income $ 2,119 $51,940 $33,782
======= ======= =======
Basic:
Weighted average common shares outstanding 60,004 58,079 54,632
======= ======= =======
Net income per common share $ .04 $ .90 $ .62
======= ======= =======
Diluted:
Weighted average common shares outstanding 60,004 58,079 54,632
Dilutive effects of stock options,
restricted stock, and warrants 1,741 5,222 6,143
------- ------- -------
Weighted average common and common
equivalent shares outstanding 61,745 63,301 60,775
======= ======= =======
Net income per common and common
equivalent share $ .03 $ .83 $ .55
======= ======= =======
</TABLE>
At December 31, 1999, 1998 and 1997 outstanding options to purchase
approximately 7,015,174, 4,906,686, and 2,825,606 shares, respectively, were
excluded from the computation of diluted EPS because the effects of these option
shares were anti-dilutive.
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 $2.9
million, $2.3 million, and $1.3 million in 1999, 1998, and 1997, 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 $504,000, $225,000, and $188,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
In 1992, Enterprise Resource Solutions, Inc. ("ERS"), a subsidiary of the
Company, established a savings and profit-sharing plan (the "ERS Profit-sharing
Plan") covering substantially all of
F-24
<PAGE>
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 contributions amounted to $538,000
for the year ended December 31, 1997.
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.
M. Commitments and Contingencies
On August 31, 1998, the Company acquired Excell Data Corporation ("Excell"). On
November 19, 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 alleged breach of contract, violation of federal
securities laws, common law fraud, and negligent misrepresentation in connection
with the Excell acquisition and sought unspecified damages. In February 1999,
the Company filed a counterclaim against such former stockholders of Excell
which alleges breach of contract. On March 2, 2000, the United States District
Court for the District of Massachusetts granted Cambridge's motion for summary
judgment, dismissing the complaints of the former shareholders of Excell in
their entirety.
In March and April 1999, certain stockholders of the Company filed ten separate
class action lawsuits against the Company and certain of the Company's officers
in the United States District Court for the District of Massachusetts. These
suits have since been consolidated by the court. 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 such existing matter will have a material
adverse effect on its financial condition, results of operations, or cash flows.
N. 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's goal is capital appreciation
and is intended to invest in expansion-stage, private companies providing
products and services within the technology industry. A wholly owned subsidiary
of the Company acts as the general partner of the Fund's general partner. The
Company's ownership interest in the Fund, of approximately 24%, is
F-25
<PAGE>
accounted for using the equity method of accounting. The Company's total capital
commitment to the Fund is approximately $6.0 million, of which $4.9 million has
been contributed through December 31, 1999. The carrying value of the Company's
investment in the fund was approximately $33.2 million and $2.7 million
respectively at December 31, 1999 and 1998 and is included in other assets in
the consolidated balance sheet. The increase in the carrying value of the
Company's investment in the Fund in 1999 is primarily a result of unrealized
changes in the fair value of securities in the Fund's investment portfolio.
During 1999, the Company has received approximately $2.2 million of
distributions from the Fund in the form of securities.
Summarized financial information of the Fund is presented as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Current assets $139,472 $ 11,141
Non-current assets -- --
-------- --------
Total assets $139,472 $ 11,141
======== ========
Current liabilities $ 20 $ 22
Non-current liabilities -- --
-------- --------
Total liabilities $ 20 $ 22
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Net realized gains $ 7,399 $ -- $ --
Net increase in unrealized
appreciation of investments 118,336 4,012 --
Net loss from operations (656) (685) (129)
Cumulative effect of
accounting change (151) -- --
-------- -------- ---------
Net increase in partners' capital $124,928 $ 3,327 $ (129)
======== ======== =========
</TABLE>
F-26
<PAGE>
O. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are presented as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
Cash paid during the year for:
<S> <C> <C> <C>
Interest $ 118 $ 199 $ 232
Income taxes 16,990 11,171 5,503
</TABLE>
P. Operating Segment and Geographic Information
In the fourth quarter of 1998, the Company 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. The North American operating segment consists of
e-business, systems integration, and consulting services in the United States
and Canada, while the International operating segment consists of e-business,
systems integration, and consulting services outside of North America.
The Company evaluates each segment's performance based on revenues and income
from operations. For 1999 segment reporting purposes, total corporate revenues,
depreciation/amortization expense, income from operations, fixed asset additions
and assets have been included in North America. The investment in the Fund of
$33.2 million, $2.7 million and $295,000 is included in total assets for North
America at December 31, 1999, 1998, and 1997, respectively. For segment
reporting purposes in prior periods, corporate revenues, depreciation/
amortization expense and income from operations had been allocated
to each segment based on the proportionate operating income of each segment.
Prior period revenues, depreciation/amortization expense, and income from
operations have been reclassified to conform with current period presentation.
F-27
<PAGE>
Information about the Company's operating segments is presented as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
North America $ 404,808 $ 421,608 $ 307,512
International 223,303 190,433 130,817
--------- --------- ---------
Consolidated $ 628,111 $ 612,041 $ 438,329
========= ========= =========
Depreciation and amortization:
North America $ 13,130 $ 9,386 $ 6,547
International 3,479 3,460 2,215
--------- --------- ---------
Consolidated $ 16,609 $ 12,846 $ 8,762
========= ========= =========
Income (loss) from operations:
North America $ (48,556) $ 54,184 $ 46,150
International 16,607 26,823 10,796
--------- --------- ---------
Consolidated income (loss)
from operations (31,949) 81,007 56,946
Other income 35,367 2,097 1,890
--------- --------- ---------
Consolidated income before income taxes $ 3,418 $ 83,104 $ 58,836
========= ========= =========
Fixed asset additions:
North America $ 16,788 $ 18,082 $ 17,745
International 4,589 5,966 5,344
--------- --------- ---------
Consolidated $ 21,377 $ 24,048 $ 23,089
========= ========= =========
Total assets :
North America $ 270,749 $ 257,617 $ 185,845
International 96,925 93,589 56,576
--------- --------- ---------
Consolidated $ 367,674 $ 351,206 $ 242,421
========= ========= =========
</TABLE>
F-28
<PAGE>
Geographic information of the Company is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
North America $ 404,808 $ 421,608 $ 307,512
Europe 192,711 172,650 121,630
Latin America 15,679 11,795 8,852
Asia Pacific 14,913 5,988 335
--------- --------- ---------
Consolidated $ 628,111 $ 612,041 $ 438,329
========= ========= =========
Income (loss) from operations:
North America $ (48,556) $ 54,184 $ 46,150
Europe 17,093 28,402 13,470
Latin America (2,409) (1,778) (827)
Asia Pacific 1,923 199 (1,847)
--------- --------- ---------
Consolidated $ (31,949) $ 81,007 $ 56,946
========= ========= =========
Total long-lived assets:
North America $ 84,799 $ 53,214 $ 34,176
Europe 10,275 11,158 9,336
Latin America 1,030 1,249 322
Asia Pacific 1,888 606 32
--------- --------- ---------
Consolidated $ 97,992 $ 66,227 $ 43,866
========= ========= =========
</TABLE>
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, Denmark, Ireland,
Germany, France, Austria, and Italy which have similar business environments.
Latin American operations consist of services provided primarily in Mexico,
Puerto Rico, Brazil, Venezuela, and Columbia. Asia Pacific operations consist of
services provided primarily in Japan, Australia, and India. There are no
intraenterprise sales for the periods presented. Corporate 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 revenues for
any of the periods presented.
F-29
<PAGE>
Q. Quarterly Financial Information (unaudited)
The following table presents unaudited quarterly financial information for the
years ended 1999 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarters Ended
March 31, June 30, September 30, December 31,
--------------------- ---------------------- --------------------- ----------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 151,373 $ 142,223 $ 163,496 $ 156,578 $ 168,235 $ 153,074 $ 145,007 $ 160,166
Income (loss) from operations 11,138 20,117 (1,538) 22,078 11,450 13,831 (52,999) 24,981
Income (loss) before
income taxes 12,031 20,529 1,917 22,577 17,317 14,821 (27,847) 25,177
Net income (loss) 7,459 12,480 1,189 13,534 10,736 9,675 (17,265) 16,251
Basic net income (loss)
per share .13 .22 .02 .23 .18 .17 (.28) .28
Diluted net income (loss)
per share .12 .20 .02 .21 .18 .16 (.28) .26
</TABLE>
F-30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting or
financial disclosure matters during the Company's two most recent fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item may be found under the sections
captioned "Election of Directors," "Election of Directors - Directors and
Executive Officers," and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive proxy statement pursuant to Regulation
14A (the "2000 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, 1999, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item may be found under the sections
captioned "Compensation and Other Information Concerning Executive Officers and
Directors" in the 2000 Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item may be found under the sections
captioned "Principal Holders of Voting Securities" and "Election of Directors -
Stock Ownership of Directors and Executive Officers" in the 2000 Proxy
Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item may be found under the section
captioned "Election of Directors - Certain Relationships and Related
Transactions" in the 2000 Proxy Statement, and is incorporated herein by
reference.
<PAGE>
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 Item 8 on Page F-1:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
The following consolidated financial statement schedule is included in Item
8 of this Form 10-K:
II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
either not required or the information is otherwise included.
3. List of Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1(i)(2) Amended and Restated Certificate of Incorporation of the Company, as amended.
3.1(ii)(3) Amended and Restated By-laws of the Company.
4.1(4) Rights Agreement dated June 23, 1997 by and between the Company and ChaseMellon Shareholders
Services, LLC (the "Rights Agreement").
4.2(4) Amendment No. 1 to the Rights Agreement dated September 30, 1998 by and between the Company
and ChaseMellon Shareholder Services, LLC.
10.1(4) Lease dated June 4, 1992, as amended, between 304 Vassar Street Realty Trust and the
Company, for 304 Vassar Street, Cambridge, Massachusetts.
10.2(5)* Amended and Restated 1991 Stock Option Plan as amended.
10.3(6)* Form of Non-Qualified Stock Option Agreement of the Company for Executive Officers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4(6)* Form of Non-Qualified Stock Option Agreement of the Company for Non-Executive Officers.
10.5(5)* Form of Incentive Stock Option Agreement of the Company for Executive Officers.
10.6(5)* Form of Incentive Stock Option Agreement of the Company for Non-Executive Employees.
10.7(3)* Agreement dated December 1992 between the Company and James K. Sims.
10.8(7)* Amendment to Agreement between the Company and James K. Sims dated December 15,1994.
10.9(8) 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.
10.10(8) Guaranty dated September 10, 1998 by certain subsidiaries of the Company in favor of The
Chase Manhattan Bank and Fleet National Bank.
10.11(5)* Description of 1997 Executive Bonus Plan.
10.12(5)* Form of Split-Dollar Life Insurance Agreement for Executive Officers and Vice Presidents
10.13* Employment Agreement between the Company and Jack L. Messman, dated as of August 27, 1999.
10.14* Restricted Stock Award Agreement between the Company and Jack L. Messman, dated as of August 27, 1999.
10.15* Form of non-qualified stock agreement awarded to Jack L. Messman, dated August 27, 1999.
10.16(9)* Amended and Restated Service Agreement between the Company and Gerard Van Kemmel, dated July 12, 1999.
10.17(5)* Service Agreement with Quentin Baer, as amended.
10.18(5)* Service Agreement with Ian Clarkson, as amended.
10.19(9)* Agreement between the Company and James K. Sims, dated as of September 1, 1999.
10.20(10) Promissory Note, dated December 31, 1998, from Arthur M. Toscanini to the Company.
10.21(10) Promissory Note, dated November 13, 1998, from H. Carvel Moore to the Company.
10.22(10) Promissory Note, dated December 21, 1998, from Theo Schnitfink to the Company.
10.23(10) Promissory Note, dated November 2, 1998, from Theo Schnitfink to the Company.
10.24 Secured Recourse Promissory Note, dated February 24, 2000, from Theo Schnitfink to the Company.
10.25 Pledge Agreement, dated February 24, 2000, between Theo Schnitfink and the Company.
10.26* H. Carvel Moore Letter of Understanding, dated March 3, 2000.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24 Power of Attorney (included on Signature Page to this report)
27.1 Financial Data Schedule
99.1 Cambridge Technology Capital Fund I, L.P. Financial Statements
(1) Incorporated herein by reference to the exhibits to the Company's Current Report on Form 8-K dated
August 31, 1998.
(2) 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.
(3) Incorporated herein by reference to the exhibits to the Company's Registration Statement on Form S-1
(File No. 33-56338).
(4) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(5) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the twelve-month period ended December 31, 1997.
(6) Incorporated herein by reference to the exhibits to the Company's Current Report on Form 8-K dated
October 16, 1995.
(7) 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, 1994.
(8) 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.
(9) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q/A for the three-month period ended September 30, 1999.
(10) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the twelve-month period ended December 31, 1998.
</TABLE>
* Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) Reports on Form 8-K.
The Company filed no current reports on Form 8-K during the quarter ended
December 31, 1999.
(c) Exhibits.
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) above. Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference facilities maintained by the
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. Certain reports and other information
<PAGE>
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 and Separate Financial Statements of
Subsidiaries Not Consolidated.
The Company hereby files as part of this Form 10-K the consolidated
financial statement schedules listed in Item 14(a)(2) above, which are attached
hereto. In addition, refer to Item 14(a)(3) and Exhibit 99.1 for the financial
statements of Cambridge Technology Capital Fund I, L.P. as of December 31, 1999
and 1998 and for the years ended December 31, 1999 and 1998 and for the period
from October 17, 1997 (date of inception) to December 31, 1997, which are filed
as part of this report.
<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 21st day of March, 2000.
Cambridge Technology Partners
(Massachusetts), Inc.
By: /s/ Jack L. Messman
-------------------------
Jack L. Messman
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Cambridge Technology's
Partners (Massachusetts), Inc., hereby severally constitute and appoint Jack L.
Messman and Joseph A. LaSala, Jr., 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/ Jack L. Messman Chief Executive Officer, President March 21, 2000
- ------------------------ and Director (Principal Executive Officer)
Jack L. Messman
/s/ John J. Gavin, Jr. Executive Vice President - Finance, March 21, 2000
- ------------------------ Chief Financial Officer and
John J. Gavin, Jr. Treasurer (Principal Financial and
Accounting Officer)
/s/ Warren V. Musser Director March 21, 2000
- ------------------------
Warren V. Musser
Director
- ------------------------
John W. Poduska, Sr.
/s/ Robert E. Keith, Jr. Director March 21, 2000
- ------------------------
Robert E. Keith, Jr.
Director
- ------------------------
James I. Cash, Jr.
/s/ James D. Robinson III Director March 21, 2000
- ------------------------
James D. Robinson III
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 10, 2000, except for the first paragraph of Note M, as to which
the date is March 2, 2000, appearing in the 1999 Annual Report of Cambridge
Technology Partners (Massachusetts), Inc. (which report and consolidated
financial statements are included in this Annual Report on Form 10-K) also
included an audit of the financial statement schedule listed in Item 14(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
S-1
<PAGE>
SCHEDULE II
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
VALUATION AND QUALIFYING
ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(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, 1997 $1,756 $1,001 $ -- $ -- $ 2,757
Year ended December 31, 1998 2,757 1,793 -- -- 4,550
Year ended December 31, 1999 4,550 5,737 -- -- 10,287
<CAPTION>
(2)
Charged to
Balance at (1) other Balance at
Beginning Charged to accounts - End of
Contract Reserve of Period cost and expenses describe Deductions Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 $3,816 $1,212 $ -- $ -- $ 5,028
Year ended December 31, 1998 5,028 54 -- -- 5,082
Year ended December 31, 1999 5,082 (296) -- -- 4,786
</TABLE>
S-2
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), is entered into by and between
Cambridge Technology Partners (Massachusetts), Inc., a Delaware corporation
("CTP"), and Jack L. Messman ("Messman" or "Employee").
W I T N E S S E T H :
WHEREAS, CTP and Messman wish to enter into an employment relationship in
which CTP employs Messman as its President and Chief Executive Officer;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, CTP and Messman hereby AGREE as follows:
1. Employment. CTP hereby employs Messman as its President and Chief
Executive Officer and Messman hereby accepts such employment upon the terms
and conditions set forth below.
2. Term. The term of Messman's employment shall be one year beginning
on July 19, 1999, as further extended or unless sooner terminated in
accordance with the other provisions of this Agreement ("Term"). On the
first anniversary of Messman's employment and on each subsequent such
anniversary, the Term shall automatically extend for one year, unless
either party shall have given to the other party written notice of
termination of this Agreement at least 30 days before such anniversary,
which notice shall effect the termination of Messman's employment upon the
expiration of the Term and any extensions thereto.
3. Office and Duties.
(a) During the Term and subject to the other provisions of this
Agreement, Messman shall serve as President and Chief Executive
Officer of CTP and, subject to any restrictions set forth in the
Shareholders' Agreement or in the Bylaws of CTP, Messman shall perform
such duties as are customary for a President and Chief Executive
Officer and such other duties as may from time to time be assigned to
him by the Board of Directors of CTP.
(b) During the Term hereof, Messman shall use his best efforts to
carry out his duties and responsibilities hereunder and devote his
entire working time to the business and affairs of CTP and shall not,
in any advisory or other capacity, work for any other individual, firm
or corporation without first having obtained the written consent of
the Board of Directors of CTP, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the Board of Directors of CTP
acknowledge that Messman currently is a director of Safeguard, Novell,
USData, Tandy and Metallurg and no consent is required with respect to
those directorships.
<PAGE>
(c) During the Term hereof, the principal place of employment of
Messman shall be CTP's headquarters in Cambridge, Massachusetts or
such other locations as may be selected for CTP's facilities, although
it is understood that in connection with his duties under this
agreement, Messman will be required to travel to and perform services
at other locations.
(d) Messman represents and warrants that he is not subject to any
agreement, covenant, understanding or restriction, including without
limitation any non-competition agreement, that would prohibit him from
executing and performing fully his duties and responsibilities under
this Agreement.
(e) Messman agrees to cooperate at the request of CTP in any
efforts to obtain "key-man" life insurance on his life.
4. Compensation. As compensation for the services to be rendered
hereunder by Employee, CTP agrees to pay or provide to Messman:
(a) Salary. A basic salary (the "Base Salary") for such services
at the annual rate of $650,000, payable in periodic installments in
accordance with CTP's regular payroll practices in effect from time to
time. This rate of compensation shall be reviewed by the Board of
Directors at least once per fiscal year and may be increased at the
discretion of the Board of Directors of CTP, but not reduced, during
the Term hereof.
(b) Bonus. An annual bonus payable after the end of each fiscal
year commencing with the end of 1999, based upon the Employee's
performance during such fiscal year. At the discretion of the Board of
Directors, the Employee may receive an annual bonus equal to 100% of
his annual base salary for above-average performance and up to 200% of
his annual base salary for exceptional performance. The amount of this
annual bonus may be reviewed and adjusted by the Board of Directors
from year to year.
(c) Options.
(i) On August 27, 1999, CTP granted to Messman options to
purchase, at an exercise price of $14.438 per share, the reported
closing price of CTP's common stock on the Nasdaq National Market
system on August 26, 1999, an aggregate of 1,200,000 shares of
common stock of CTP, in accordance with and subject to CTP's
applicable Stock Option Plan as amended from time to time and the
terms and conditions set forth in the applicable Option Agreement
between CTP and Messman, as follows:
(A) Options to purchase 27,704 shares under CTP's 1991
Stock Option Plan pursuant to CTP's Executive Incentive
Stock Option Agreement with Messman;
(B) Options to purchase 572,296 shares under CTP's 1991
Stock Option Plan pursuant to CTP's Executive Non-Qualified
Option Agreement with Messman; and
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<PAGE>
(C) Options to purchase 600,000 shares under CTP's 1998
Stock Option Plan pursuant to CTP's Executive Non-Qualified
Option Agreement with Messman.
Each applicable Option Agreement is attached hereto and incorporated
herein and a copy of CTP's Special Option Plan has been provided to
Messman.
(ii) On August 27, 1999, CTP shall grant to Employee 300,000
restricted shares of CTP's common stock, which shall vest according to
the schedule set forth in the restricted stock grant agreement which
is attached hereto and incorporated herein.
(iii) CTP may grant to Employee additional annual options at the
discretion of the Management Resource Committee.
(d) Medical. CTP shall obtain immediately medical and health
insurance coverage for Messman and his spouse and unemancipated
children, similar to medical and health benefits provided to CTP's
other executive employees. Medical insurance coverage will be reviewed
from time to time and adjusted at the discretion of the Board of
Directors to maintain such coverage at levels commensurate with the
size and financial condition of CTP.
(e) Life Insurance. CTP will purchase term life insurance in an
amount that is commensurate to that which is provided to other senior
executives of CTP.
(f) Other Benefits. Nothing contained herein shall be deemed to
limit or affect the right of Messman to receive other forms of
compensation or to participate in any retirement, disability, profit
sharing, stock option, cash or stock bonus or other plan or
arrangement, or in any other benefits now or hereafter provided by CTP
for its employees or executives at the sole discretion of the Board of
Directors of CTP.
(g) Business Expenses. CPT shall reimburse Employee for all
reasonable expenses incurred by him in connection with the performance
of his duties hereunder subject to Employee's timely submission of
appropriate documentation in accordance with its regular reimbursement
policies in effect from time to time.
(h) Vacation. Messman shall be entitled to a paid vacation (taken
consecutively or in segments) of six weeks during each fiscal year,
adjusted pro rata for any partial fiscal year during the Term hereof.
Such vacation may be taken at such times as is reasonably consistent
with proper performance by Messman of his duties and responsibilities
hereunder.
(i) Relocation Expenses. CTP will reimburse Messman for his
reasonable costs incurred in connection with his relocation from Ft.
Worth, Texas to the Cambridge, Massachusetts area to commence
employment hereunder, including the following:
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<PAGE>
(i) The cost of packing, shipping, storage of and unpacking
the household belongings of Messman and his immediate family from
Ft. Worth, Texas to the Cambridge, Massachusetts area;
(ii) The difference between the unadjusted price at which
Messman sells his Ft. Worth residence and the unadjusted price at
which he purchased the Ft. Worth residence, if such sale price
does not exceed such purchase price; and
(iii) Non-recoverable transaction costs of purchasing a home
in the Cambridge area including only the following: home
inspection fee, transfer tax and other closing costs.
All reimbursements made hereunder shall be contingent upon Messman's prior
submission to CTP's of supporting receipts, invoices or other similar
documentation.
Since Messman's Ft. Worth residence was unsold on the closing date for his
purchase of a residence in the Cambridge area, CTP shall grant him an
interest-free loan in the amount of his equity in his Ft. Worth residence, the
proceeds of which shall be applied in their entirety to the purchase price of a
residence in the Cambridge area, and which loan shall be repaid in its entirety
from the proceeds of the sale of the Ft. Worth residence.
5. Death and Disability.
(i) The Term of employment of Messman shall terminate upon the
death of Messman, or, at the option of CTP, in the event of physical
or mental incapacity or disability that renders him unable, with
reasonable accommodation, to perform the essential duties required of
him under this Agreement ("Disability") for a period of 90 consecutive
days or for one hundred eighty (180) days or more during any period of
twelve (12) consecutive months. Such Disability shall be subject to
verification by a qualified physician if requested by Messman or his
duly appointed representative. During any period of Disability prior
to termination, Messman shall continue to be compensated as provided
herein (less any payments due Messman under disability benefit
programs paid for by CTP, including without limitation Social Security
disability, worker's compensation and disability or retirement
benefits).
(ii) In the event of the death of Messman during the period of
employment or in the event of the termination of this Agreement by CTP
because of the Disability of Messman, Messman shall be entitled to
receive the compensation specified in Paragraphs 4(a), 4(b) and 4(g)
earned by Messman through the date of death or termination and the
restricted shares granted under Paragraph 4(c)(ii) shall automatically
be fully vested. CTP thereafter shall have no further obligations
under this Agreement except for its obligations to pay any vested
Messman benefits referred to in Paragraph 4 hereof.
4
<PAGE>
6. Termination of Employment.
(a) CTP may terminate this Agreement with cause immediately upon
written notice to Messman. "Termination for cause" shall mean
discharge by CTP on the following grounds:
(i) Messman's plea or conviction in a court of law of any
crime or offense, which plea or conviction, as determined by the
Board of Directors in its sole discretion, makes him unfit for
continuing employment, prevents him from effective management of
CTP or materially adversely affects the reputation or business
activities of CTP.
(ii) Dishonesty or willful misconduct that, as determined by
the Board of Directors, materially, adversely affects the
reputation or business activities of CTP.
(iii) Substance abuse, including the possession or use of
illegal drugs or the abuse of legal drugs or alcohol or being
under the influence of drugs or alcohol in the workplace or
during the course of his duties.
(iv) Misappropriation of funds or other property.
(v) Messman's continuing material failure or refusal to
perform his duties in accordance with the terms of this Agreement
or to carry out in all material respects the lawful directives of
the Board of Directors; provided that discharge pursuant to this
subparagraph (v) shall constitute discharge for cause only if
Messman has first received written notice from the Board of
Directors of CTP stating with specificity the nature of such
failure or refusal and, if requested by Messman within 10 days
thereafter, Messman is afforded a reasonable opportunity to be
heard before the Board.
Upon termination for cause, Messman shall lose all right, title and
interest in and to all payments required to be made in accordance with the
provisions of this Agreement, and CTP shall have no further obligation to
Messman hereunder, except for compensation pursuant to Paragraphs 4(a) and
4(g) to which Messman is entitled through the date of termination, bonus
compensation to which Messman is entitled for and in respect of the
preceding fiscal year if not theretofore paid, and any benefits referred to
in Paragraph 4 hereof to which Messman has a vested right under the terms
and conditions of the plan or program pursuant to which such benefits were
granted.
(b) CTP, at the sole discretion of the Board of Directors, may
remove Messman from the position of President and Chief Executive
Officer without cause at any time. In the event of such removal
without cause, CTP shall employ Messman in an advisory capacity for a
period of not less than two years from the date of such removal and
shall pay or provide to Messman during the two-year period: (i) his
then Base Salary pursuant to the provisions of Paragraph 4(a) (ii) an
amount equal to the average of the
5
<PAGE>
annual bonus paid to Messman for each of the two years prior to his
removal, payable in the same periodic installments as his then Base
Salary under (i) above, and (iii) the medical, health and life
insurance coverages pursuant to the provisions of Paragraphs 4(d) and
(e). Notwithstanding any of the foregoing, CTP shall not be obligated
to make payments or provide benefits under this Subparagraph unless
Messman has executed and delivered to CTP a further agreement
satisfactory to CTP, including without limitation a general release of
all claims, a provision incorporating his duties under Paragraphs 7
and 8 and a continued assistance agreement.
(c) Messman may terminate this Agreement by giving three (3)
months' written notice to the Board of Directors of CTP. CTP can waive
this notice and agree with Messman to an earlier termination date.
Upon termination by Messman, all obligations of CTP and Messman under
this Agreement will cease as of the date of final termination, except
Messman's obligations under Paragraphs 7 and 8 will survive.
7. Restrictive Covenants and Confidentiality; Injunctive Relief.
(a) In exchange for and in consideration of this Agreement,
Messman agrees that, during the Restricted Period (as defined below),
he shall not, either directly or indirectly, in any capacity
whatsoever:
(i) Solicit, entice or induce any Customer (as defined
below) to become a client, customer, OEM, distributor or reseller
of any other person, firm, corporation or other business with
respect to products and/or services provided or under development
by CTP, its affiliates, subsidiaries, successors or assigns
before or during the Restricted Period, or to cease doing
business with CTP, its affiliates, subsidiaries, successors or
assigns, and Messman shall not approach any such person, firm,
corporation or business for such purpose or authorize or
knowingly allow the taking of such actions by any other person;
(ii) Solicit, induce or encourage any employee during the
Restricted Period of CTP or its affiliates, subsidiaries,
successors or assigns to become employed by any other person,
firm, corporation or business or to leave their employment with
CTP, its affiliates, subsidiaries, successors or assigns. In
addition, neither Messman nor any person, corporation, firm or
business for whom he is employed or with whom he is involved will
hire any person who is then, or was at any time during the one
year prior to such hiring, an employee of CTP, its affiliates,
subsidiaries, successors or assigns, unless such employee is CTP
involuntarily terminated by CTP, its affiliates, subsidiaries,
successors or assigns.
(iii) Compete with, or encourage or assist others to compete
with, solicit or engage in business in competition with, any
business, product or service provided or under development by
CTP, its affiliates, subsidiaries. successors or assigns before
or during the Restricted Period. The restriction contained in
this subparagraph shall apply anywhere where CTP, its affiliates,
6
<PAGE>
subsidiaries, successors or assigns conducted business in the two
years preceding his termination or during the remainder of the
Restricted Period thereafter.
For purposes of this Paragraph 7, "Restricted Period" means, the Term
of this Agreement and any renewals and extensions thereof, and in addition
thereto:
1. If Messman is terminated for cause, the two-year period
beginning on the effective date of such termination; or
2. If Messman is terminated without cause, the two-year period
beginning on the effective date of such termination.
3. If Messman terminates his employment pursuant to Paragraph
6(c), the one-year period beginning on the effective date of such
termination.
For purposes of this Paragraph 7, a "Customer" means any person or
entity which is or was a client, customer, OEM, distributor or reseller of
CTP, its affiliates, successors or assigns or a bona fide prospect to
become a Customer at any time in the two years preceding his employment
termination or during the Restricted Period.
Nothing in the foregoing shall prohibit Messman from engaging in any
business that is not in competition with CTP, its affiliates, subsidiaries,
successors and assigns after termination of employment with CTP, or
investing in the securities of any corporation having securities listed on
a national securities exchange, provided that such investment does not
exceed 5% of any class of securities of any corporation engaged in business
in competition with CTP, its affiliates and subsidiaries and provided that
such ownership represents a passive investment and that neither Messman nor
any group of persons including him, in any way, either directly or
indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in
its business, other than exercising his rights as a shareholder, or seeks
to do any of the foregoing.
(b) Messman acknowledges that during the Term of his employment,
he will have access to confidential information of CTP, its affiliates
and subsidiaries, including information about "Developments" (as
defined in Paragraph 8 below), business plans, costs, customers,
profits, markets, sales, products, services, strategies, marketing,
key personnel, pricing policies, operational methods and other
business affairs and methods and other information not available to
the public or in the public domain (hereinafter referred to as
"Confidential Information"). In recognition of the foregoing, Messman
covenants and agrees that, except as required by his duties to CTP,
Messman will keep secret all Confidential Information and will not,
directly or indirectly, either during the Term of his employment
hereunder or at any time thereafter while such Confidential
Information remains confidential, disclose or disseminate to anyone or
make use of, for any purpose whatsoever except for the benefit of the
Company in the course of his employment, any Confidential Information,
and upon termination of his employment, Messman will promptly deliver
to CTP all tangible materials and objects containing Confidential
Information (including all copies thereof, whether prepared by Messman
or
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<PAGE>
others) which he may possess or have under his control. The term
"Confidential Information" shall not include any information which can
be demonstrated (i) to be generally known in the industry or to the
public other than through breach of Messman's obligations hereunder,
(ii) to have been in Messman's possession prior to his employment with
CTP and not assigned to CTP, or (iii) to have been disclosed to
Messman by an independent third party not under any obligation of
confidentiality.
(c) Messman represents that he has, prior to the execution of
this Agreement, reviewed this Agreement thoroughly.
(d) Messman acknowledges that the restrictions contained in this
Paragraph 7 are reasonable and necessary to protect the legitimate
business interests of CTP and that CTP would not have entered into
this Agreement in the absence of such restrictions. By reason of the
foregoing, Messman agrees that if he violates any of the provisions of
this Paragraph 7, CTP would sustain irreparable harm and, therefore,
irrevocably and unconditionally (i) agrees that in addition to any
other remedies which CTP may have under this Agreement or otherwise,
all of which remedies shall be cumulative, CTP shall be entitled to
apply to any court of competent jurisdiction for preliminary and
permanent injunctive relief and other equitable relief, (ii) that such
relief and any other claim by CTP pursuant hereto may be brought in
the United States District Court for the District of Massachusetts, or
if such court does not have subject matter jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in the
Commonwealth of Massachusetts; (iii) consents to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding,
and (iv) waives any objection which Messman may have to the laying of
venue of any such suit, action or proceeding in any such court.
Messman also irrevocably and unconditionally consents to the service
of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions hereof. In the event that any of
the provisions of this Paragraph 7 hereof should ever be adjudicated
to exceed the time, geographic, product or service, or other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations
permitted by applicable law. In the event of a lawsuit pursuant to
this Paragraphs 7 and 8, the prevailing party shall be entitled to
recover reasonable costs, expenses and attorney's fees from the other
party.
(e) Messman agrees that CTP may provide a copy of this Paragraph
7 to any business or enterprise (i) which the Messman may directly or
indirectly own, manage, operate, finance, join, control or participate
in the ownership, management, operation, financing, or control of, or
(ii) with which he may be connected with as an officer, director,
employee, partner, principal, agent, representative, consultant or
otherwise, or in connection with which he may use or permit his name
to be used; provided, however, that this provision shall not apply as
to subparagraph (a) or (b) after expiration of the time periods set
forth therein or with respect to any activities, entities or persons
excluded by the terms hereof. Messman will provide the names and
addresses of any of such persons or entities as CTP may from time to
time reasonably request.
8
<PAGE>
(f) In the event of any breach or violation of the restriction
contained in subparagraph (a) above, the Restricted Period therein
specified shall be tolled and shall not begin to run until such
violation has been fully and finally cured.
8. Ownership of Inventions and Ideas. Messman acknowledges that CTP
shall be the sole owner of all the results and proceeds of Messman's
service hereunder, including but not limited to, all patents, patent
applications, patent rights, formulas, copyrights, inventions,
developments, discoveries, other improvements, data, documentation,
drawings, charts, and other written, audio and/or visual materials relating
to equipment, methods, products, processes, or programs in connection with
or useful to CTP's business (collectively, the "Developments") which
Messman, by himself or in conjunction with any other person, may conceive,
make, acquire, acquire knowledge of, develop or create during the Term of
Messman's employment hereunder, free and clear of any claims by Messman (or
any successor or assignee of him) of any kind or character whatsoever other
than Messman's right to compensation hereunder. Messman acknowledges that
all copyrightable Developments shall be considered works made for hire
under the Federal Copyright Act. Messman hereby assigns and transfers his
right, title and interest in and to all such Developments, and agrees that
he shall, at the request of CTP, execute or cooperate with CTP in any
patent applications, execute such assignments, certificates or other
instruments, and do any and all other acts, as the Board of Directors of
CTP from time to time reasonably deems necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend CTP's right, title
and interest in or to any such Developments.
9. Survival and Assignment. The provisions of Paragraphs 7 and 8 shall
survive the termination of this Agreement for any reason whatsoever. In
addition, Paragraphs 7 and 8 shall inure to the benefit of CTP's successors
and assigns and its rights hereunder will automatically be assigned.
10. Change of Control.
(a) If, during the Term, there should be a Change of Control (as
defined herein) and the acquiring or resulting entity shall not offer
Messman comparable employment before the effective date of such Change
of Control, Messman's employment shall terminate and CTP shall
continue to pay Messman his then current Base Salary on
regularly-scheduled paydays, as reduced by all voluntary and required
withholdings, for not less than two years from the effective date of
such Change of Control.
(b) Notwithstanding anything to the contrary in this Agreement or
in any other agreement or document relating to stock grants, options,
or restrictions, all stock grants and outstanding stock options
granted to Messman shall become immediately vested and exercisable and
any and all rights CTP may have to repurchase securities from Messman
shall immediately expire on the effective date of such Change of
Control to the extent permitted by the applicable plans and law.
(c) Notwithstanding any of the foregoing, CTP shall not be
obligated to make payments or provide benefits under this Subparagraph
unless Messman has
9
<PAGE>
executed and delivered to CTP a further agreement satisfactory to CTP,
including without limitation a general release of all claims, a
provision incorporating his duties under Paragraphs 7 and 8 and a
continued assistance agreement.
(d) A "Change of Control" of CTP shall mean:
(i) The acquisition by any person, entity or "group" of
beneficial ownership of 50% or more of either the then
outstanding shares of common stock or the combined voting power
of Company's then outstanding voting securities entitled to vote
generally in the election of directors; and/or
(ii) The sale, conveyance or other disposition in one or a
series of related transactions of all or substantially all of the
assets of CTP.
11. Disputes/Good Faith Negotiations
(a) If any dispute arises under this Agreement that is not
settled promptly in the ordinary course of business, Employer and
Messman shall seek to resolve any such dispute between them, first, by
negotiating promptly with each other in good faith in face-to-face
negotiations.
(b) Except as provided in respect of the provisions set forth in
Paragraphs 7 and 8 hereof, and specifically as provided in Paragraph
7(d), any dispute arising under this Agreement or out of his
employment shall be resolved exclusively by arbitration before the
American Arbitration Association at its Boston, Massachusetts offices
in accordance with its National Rules for the Resolution of Employment
Disputes. The arbitration decision shall be final and binding on both
parties, who shall be precluded from bringing or raising in any court
or other forum any dispute that was or could have been brought or
raised pursuant to this Agreement. Judgment upon such award may be
entered in any state or federal court of competent jurisdiction.
12. Miscellaneous.
(a) Any notice authorized or required to be given or made by or
pursuant to this Agreement shall be made in writing and either
personally delivered or mailed by overnight express mail to the
respective address of the party to receive such notice, which address
is the one designated below the name of such party on the signature
page hereof, or to such other address as a party may specify by notice
to the other parties hereto.
(b) This Agreement cancels and supersedes any and all prior
agreements and understandings, whether written or oral, between or
among any or all of the parties hereto with respect to the employment
by or obligations of Messman to any thereof. This Agreement
constitutes the entire agreement among the parties with respect
10
<PAGE>
to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by
the parties hereto.
(c) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties
and responsibilities of Messman hereunder are of a personal nature and
shall not be assignable or delegable in whole or in part by Messman.
(d) Messman agrees that the obligations of CTP hereunder shall be
limited to CTP only, and Messman agrees that he shall not bring any
claim or suit against any director, shareholder, employee or
representative of CTP or any person other than CTP for any breach or
default hereunder.
(e) If any provision of this Agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect any other provision or application of this Agreement
which can be given effect without the invalid or unenforceable
provision or application and shall not invalidate or render
unenforceable such provision or application in any other jurisdiction.
(f) No remedy conferred upon any party by this Agreement is
intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission by any party in exercising any right,
remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may
be exercised by the party possessing the same from time to time and as
often as may be deemed expedient or necessary by such party in its
sole discretion.
(g) This Agreement may be executed in several counterparts, each
of which is an original. It shall not be necessary in making proof of
this Agreement or any counterpart hereof to produce or account for any
of the other counterparts.
13. Controlling Law. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the laws
of the Commonwealth of Massachusetts
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<PAGE>
IN WITNESS WHEREOF, and intending to be bound hereby, Messman has hereunto
set his hand and CTP has caused this Employment Agreement to be duly executed.
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
/s/ Jack L. Messman /As of 8/27/99 By: /s/ James P. O'Hare /As of 8/27/99
- -------------------------------------- -----------------------------------
Jack L. Messman Date Name: Date
---------------------------------
Title:
--------------------------------
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Exhibit 10.14
RESTRICTED STOCK AWARD AGREEMENT
Name of Grantee: Jack L. Messman
No. of Shares: 300,000
Purchase Price per Share: $.01 (par value)
Grant Date: As of August 27, 1999
Cambridge Technology Partners (Massachusetts), Inc., a Delaware corporation
(the "Company"), hereby grants a Restricted Stock Award (an "Award") to the
Grantee named above. Upon acceptance of this Award, the Grantee shall receive
the number of shares of Common Stock, $.01 par value per share (the "Restricted
Stock"), of the Company specified above, subject to the restrictions and
conditions set forth herein.
1. Acceptance of Award. (a) The Grantee shall have no rights with
respect to this Award unless he or she shall have accepted this Award by
(i) signing below and returning a signed copy to the Company and (ii)
making payment to the Company by certified or bank check or other
instrument acceptable to the Management Resource Committee of the Company's
Board of Directors (the "Committee") of the Purchase Price per Share
multiplied by the number of shares of Restricted Stock to be accepted. Upon
acceptance of this Award by the Grantee, certificates evidencing the shares
of Restricted Stock so accepted shall be issued and delivered to the
Grantee, and the Grantee's name shall be entered as the stockholder of
record on the books of the Company. Thereupon, the Grantee shall have all
the rights of a shareholder with respect to such shares, including voting
and dividend rights, subject, however, to the restrictions and conditions
specified in Paragraph 2 below.
(b) The Grantee represents that he is an "accredited investor," as
defined in Rule 501(a) under the Securities Act of 1933, as amended. The
Grantee, by reason of his business and financial experience has such
knowledge, sophistication and experience in financial and business matters
and in making investment decisions of this type that he is capable of (i)
evaluating the merits and risks of an investment in the Restricted Stock
and making an informed investment decision, (ii) protecting his own
interests and (iii) bearing the economic risk of such investment. Seller is
acquiring the Restricted Stock for investment for his own account, not as a
nominee or agent and not with the view to, or any intention of, a resale or
distribution thereof, in whole or in part, or the grant of any
participation therein.
2. Restrictions and Conditions.
(a) The Grantee shall not sell, assign, transfer, pledge, hypothecate,
mortgage, encumber or otherwise dispose of any shares of Restricted Stock
prior to vesting, as provided for in Paragraph 3 below, and otherwise
except as expressly provided for in this Agreement.
(b) Certificates evidencing the shares of Restricted Stock granted
herein shall bear the following legend, or a similar legend as determined
by the Committee in its sole discretion to the effect that such shares are
subject to restrictions as set forth herein:
<PAGE>
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred,
pledged, hypothecated, mortgaged, encumbered or otherwise disposed on
except in accordance with and subject to all the terms and conditions
of a certain Restricted Stock Award Agreement dated as of August 27,
1999 (the "Agreement"), a copy of which the Company will furnish to
the holder of this certificate upon request and without charge. The
shares represented by this certificate are designated as Tranche [A, B
or C] under the Agreement."
(c) Prior to vesting of shares of Restricted Stock granted herein, if
the Grantee's employment with the Company is terminated:
(i) by the Company for Cause (as defined in Section 6 of the
Grantee's Employment Agreement dated as of August 27, 1999), then
the Company shall have the right, at the discretion of the
Committee, to repurchase such unvested shares, in whole or in
part, from the Grantee or the Grantee's legal representative at
their Purchase Price per Share.
(ii) by the Company without Cause, then the Company shall have the
right, at the discretion of the Committee, to repurchase such
unvested shares, in whole or in part, from the Grantee or the
Grantee's legal representative at a price equal to the average
closing market price of the Company's common stock during the
five (5) business days preceding such termination.
(iii) by the Grantee for any reason other than Death or Disability (as
defined in the Section 5 of the Grantee's Employment Agreement
dated as of August 27, 1999), then the Company shall have the
right, at the discretion of the Committee, to repurchase such
unvested shares, in whole or in part, from the Grantee or the
Grantee's legal representative at a price equal to the average
closing market price of the Company's common stock during the
five (5) business days preceding such termination.
The Company must exercise such right of repurchase or forfeiture by written
notice to the Grantee or the Grantee's legal representative not later than 60
days following such termination of employment.
3. Vesting of Restricted Stock. The restrictions and conditions in
Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified
in the following schedule. The restrictions and conditions in Paragraph 2 shall
lapse only with respect to the number of shares of Restricted Stock specified as
vested on such date.
<TABLE>
<CAPTION>
Number of
Shares Vested Vesting Date
------------- ------------
<S> <C>
100,000 (33.33%) December 31, 2000 ("Tranche A")
100,000 (33.33%) The earlier to occur of either (i) July
31, 2002 or (ii) the first date after
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Vested Vesting Date
------------- ------------
<S> <C>
the date hereof on which the closing
price of the Company's common stock on
the Nasdaq Stock Market equals or
exceeds $28.876 ("Tranche B")
100,000 (33.33%) The earlier to occur of either (i)
January 31, 2003 or (ii) the first date
after the date hereof on which the
closing price of the Company's common
stock on the Nasdaq Stock Market equals
or exceeds $36.095 ("Tranche C")
</TABLE>
Subsequent to such Vesting Date or Dates, the shares of Stock on which all
restrictions and conditions have lapsed shall no longer be deemed Restricted
Stock. The Committee may at any time accelerate the vesting schedule specified
in this Paragraph 3. In the event (a) of a Change of Control (as defined below)
of the Company or (b) the expiration of the Company's repurchase option pursuant
to Section 2(c) above or (c) termination of Grantee's employment with the
Company by reason of Death or Disability, then any restrictions and conditions
on shares of Restricted Stock subject to this Award shall be deemed waived by
the Committee, and such shares shall automatically become fully vested. A
"Change in Control" shall occur 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 (a "Sale"), or (iii) a person,
entity or group acquires beneficial ownership of 50% or more of either the then
outstanding shares of the Company's common stock or the combined voting power of
the Company's then outstanding voting securities entitled to vote generally in
the election of directors, or (iv) 50% or more of the directors of the Company
are persons who are not Continuing Directors (defined below); provided, however,
that the foregoing clauses (i) and (ii) 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. For purposes of this Section, a "Continuing
Director" shall mean (i) any member of the Board of Directors of the Company as
of the date of this Agreement or (ii) any person who subsequently becomes a
member of the Board, if such person's nomination or election to the Board is
recommended or approved by a majority of the Continuing Directors.
4. Dividends. Dividends on Shares of Restricted Stock shall be paid
immediately to the Grantee, unless the Grantee shall provide the Committee with
written instructions as to the waiver, deferral, or reinvestment of such
dividends.
5. Transferability. This Agreement is personal to the Grantee, is
non-assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution.
3
<PAGE>
6. Tax Withholding. The Grantee shall, not later than the date as of which
the receipt of this Award becomes a taxable event for Federal income tax
purposes, pay to the Company or make arrangements satisfactory to the Committee
for payment of any Federal, state, and local taxes required by law to be
withheld on account of such taxable event.
7. SEC Registration. The Grantee understands that the Restricted Stock has
not been registered under the Securities Act or state securities laws. Promptly,
but in no event later than December 31, 1999, the Company shall file with the
Securities and Exchange Commission a registration statement on Form S-8 relating
to the Restricted Stock, and the Company shall make diligent efforts to achieve
the effectiveness of such registration statement.
8. Miscellaneous.
(a) Notice hereunder shall be given to the Company at its principal place
of business, and shall be given to the Grantee at the address set forth below,
or in either case at such other address as one party may subsequently furnish to
the other party in writing.
(b) This Agreement does not confer upon the Grantee any rights with respect
to continuance of employment by the Company or any Subsidiary.
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
By: /s/ James P. O'Hare
-----------------------------
Title
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated as of August 27, 1999 /s/ Jack L. Messman
-----------------------------
Grantee's Signature
Grantee's name and address:
JACK L. MESSMAN
-----------------------------
-----------------------------
-----------------------------
4
<PAGE>
Exhibit 10.15
Cambridge Technology Partners (Massachusetts), Inc.
1991 Stock Option Plan
Executive 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 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>
<CAPTION>
<S> <C>
Option to Purchase: 572,296 SHARES (THE "OPTION SHARES") Date of Grant: August 27, 1999
Granted to (the "Optionee"): JACK L. MESSMAN Option Price: $14.438
Social Security Number: ###-##-#### Expiration Date: AS SET FORTH IN SECTION 5
Vesting Start Date(the "Vesting Start Date"): August 27, 2000
Vesting Schedule: To vest:
</TABLE>
(a) 143,074 shares on August 27, 2000 and
(b) an additional 12,500 shares each month thereafter (commencing September 27,
2000) up to and including December 31, 2000, and
(c) an additional 5,574 shares on January 1, 2001, and
(d) an additional 12,500 shares each month thereafter (commencing February 27,
2001) up to and including December 31, 2001, and
(e) an additional 5,574 shares on January 1, 2002, and
(f) an additional 12,500 shares each month thereafter (commencing February 27,
2002) up to and including December 31, 2002, and
(g) an additional 5,574 shares on January 1, 2003, and
(h) an additional 12,500 shares each month thereafter (commencing February 27,
2003) up to and including August 31, 2003.
(i) In addition, (A) if the closing price of the Company's common stock on the
Nasdaq Stock Market equals or exceeds $28.876, then 143,074 unvested shares
(or such lesser amount to the extent that fewer than 143,074 shares remain
unvested on such date) shall vest immediately and automatically, and (B) if
the closing price of the Company's common stock on the Nasdaq Stock Market
equals or exceeds $36.095, then 143,074 unvested shares (or such lesser
amount to the extent that fewer than 143,074 shares remain unvested on such
date) shall vest immediately and automatically.
By acceptance of this Option, the Optionee agrees to the terms and
conditions on the reverse side of this certificate and in the Plan.
James P. O'Hare
Secretary
<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.
(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. 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.
(c) Notwithstanding any other provision hereof or of the Plan, no portion
of this Option shall be exercisable (i) after its termination in
accordance with the provisions hereof, (ii) after the Expiration Date
applicable thereto (as set forth in Paragraph 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 installments (each, an "Installment") on the
following dates (each, an "Expiration Date" ): (a) August 27, 2005 with
respect to the portion of this Option which vests during the period
beginning on the Vesting Start Date and ending August 26, 2001; (b) August
27, 2006 with respect to the portion of this Option which vests during the
period beginning August 27, 2001 and ending August 26, 2002; (c) August 27,
2007 with respect to the portion of this Option which vests during the
period beginning August 27, 2002 and ending August 26, 2003; (d) August 27,
2008 with respect to the portion of this Option which vests on or after
August 27, 2003; provided, however, that if the vesting of any portion of
this Option is accelerated because the closing price of the Company's
common stock on the Nasdaq Stock Market equals or exceeds $28.876, then
that portion of this Option shall not expire until August 27, 2007, and if
the vesting of any portion of this Option is accelerated because the
closing price of the Company's common stock on the Nasdaq Stock Market
equals or exceeds $36.095, then that portion of this Option shall not
expire until August 27, 2008.
6. Termination of Employment. Except as set forth in Section 8(b), below, 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 6(a) and 6(b) and section 8 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 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.
(a) 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 (a "Sale"), or (iii) a person, entity or group acquires
beneficial ownership of 50% or more of either the then outstanding
shares of the Company's common stock or the combined voting power of
the Company's then outstanding voting securities entitled to vote
generally in the election of directors, or (iv) 50% or more of the
directors of the Company are persons who are not Continuing Directors
(defined below), or (v) the Company materially changes Optionee's
authority or the conditions of Optionee's employment (including the
election of
<PAGE>
another President or Chief Executive Officer), then: (x) 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 event,
and (y) solely in the event of an Acquisition or Sale, this Option
shall terminate within 90 days after the effective date of such
Acquisition or Sale; provided, however, that the foregoing clauses (x)
and (y) 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. For
purposes of this Section, a "Continuing Director" shall mean (i) any
member of the Board of Directors of the Company as of the date of this
Agreement or (ii) any person who subsequently becomes a member of the
Board, if such person's nomination or election to the Board is
recommended or approved by a majority of the Continuing Directors.
(b) If Optionee voluntarily retires from his employment with the Company
or the Company terminates Optionee's employment without "cause" (as
defined in Section 6 of the Employment Agreement between Optionee and
the Company), then any unvested portion of this Option shall
immediately become vested and fully exercisable on the effective date
of the retirement, resignation or termination, and any unexpired
portion of this Option shall expire on the fifth anniversary of such
accelerated vesting date.
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 Securities Act of 1933 (the "Act") unless 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 10.24
SECURED RECOURSE PROMISSORY NOTE
$1,000,000 February 24, 2000
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, Theo
Schnitfink ("Maker") hereby unconditionally promises to pay to the order of
Cambridge Technology Partners (Massachusetts), Inc., a Delaware corporation (the
"Company"), having an address at 8 Cambridge Center, Cambridge, MA 02142, at
such address or at such other place as may be designated in writing by the
holder of this Note, or its assigns, the principal sum of ONE MILLION DOLLARS
($1,000,000) on the earlier to occur of February 24, 2002, or (ii) ninety (90)
days after the date on which the Maker's employment with the Company terminates
for any reason (the "Maturity Date"). The undersigned also agrees to pay
interest at said office in like money at a fixed rate per annum equal to Prime
Rate established by Chase Manhattan Bank plus one percent (Prime Rate + 1%)
(computed on the basis of a 360-day year) from the date hereof on the unpaid
principal amount hereof, said interest payable on the Maturity Date. Optional
prepayments, and mandatory prepayments pursuant to the third paragraph hereof,
received by the Company on or prior to the Maturity Date shall be applied first
to the payment of interest accrued and unpaid on this Note, and second to reduce
the principal balance hereunder.
Capitalized terms used herein that are not defined herein shall have the
meanings ascribed thereto in that certain Pledge Agreement between Maker and the
Company dated as of even date herewith (the "Pledge Agreement").
Maker agrees to make mandatory prepayments as follows: an amount equal to
one hundred percent (100%) of all after-tax net proceeds received by Maker or
members of Maker's family, heirs, executors or legal representatives or trusts
for the benefit of Maker or Maker's family (a "Related Transferee"), from any
transfer by Maker or any Related Transferee of any or all interests in the
Collateral and cash dividends or other cash distributions arising from the
Collateral, whether payable upon the liquidation or dissolution of the Company
or otherwise upon receipt thereof by Maker or any Related Transferee, as the
case may be.
Maker may prepay this Note in whole or from time to time in part without
premium or penalty.
Maker agrees that:
(i) upon the failure to pay when due the principal balance
hereunder and accrued interest thereon or any required prepayment of
this Note;
(ii) if Maker or any Related Transferee which holds any of the
Collateral; (1) commences any voluntary proceeding under any provision
of Title 11 of the United States Code, as now or hereafter amended, or
commences any other proceeding, under any law, now or hereinafter in
force, relating to bankruptcy, insolvency, reorganization,
liquidation, or otherwise
<PAGE>
-2-
to the relief of debtors or the readjustment of indebtedness; (2)
makes any assignment for the benefit of creditors or a composition or
similar arrangement with such creditors; or (3) appoints a receiver,
trustee or similar judicial officer or agent to take charge of or
liquidate any of its property or assets; or
(iii) upon the commencement against Maker or any Related
Transferee which holds any of the Collateral of any involuntary
proceeding of the kind described in paragraph (ii);
all unpaid principal and accrued interest under this Note shall become
immediately due and payable without presentment, demand, protest or
notice of any kind.
This Note is binding on Maker and Maker hereby waives presentment, demand,
notice and protest and any defense by reason of an extension of time for payment
or other indulgences. Failure of the holder hereof to assert any right herein
shall not be deemed to be a waiver thereof.
Maker may not set off from any amounts due under this Note any amounts due
Maker from the Company or its transferees.
The Obligations of Maker under this Note are secured by the pledge of the
Collateral to the Company in accordance with the terms of the Pledge Agreement.
The Maker shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and any
fees and disbursement of any attorneys employed by the Company to collect such
deficiency.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of law thereof.
------------------------------
Theo Schnitfink
<PAGE>
Exhibit 10.25
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February 24, 2000, made by Theo Schnitfink,
an individual with an address at Dennelei 30, Schoten B-2900, Belgium (the
"Pledgor"), in favor of Cambridge Technology Partners (Massachusetts), Inc., a
Delaware corporation having its principal place of business at 8 Cambridge
Center, Cambridge, MA 02142 (the "Company").
WITNESSETH:
----------
WHEREAS, for good and valuable consideration, the Company has agreed to
loan the Pledgor the principal amount of $1,000,000 (the "Loan"), to be
evidenced by a promissory note delivered by the Pledgor to the Company (the
"Note"); and
WHEREAS, for good and valuable consideration, the Company has previously
granted a loan to the Pledgor in the principal amount of 600,000 Dutch Guilders,
pursuant to a Promissory Note dated December 21, 1998 (the "1998 Note"), which
to date has not bee repaid; and
WHEREAS, it is a condition to the obligation of the Company to make the
Loan that the Pledgor pledge the Collateral (as further defined below), as
security for his obligations under the Note and the 1998 Note.
NOW, THEREFORE, in consideration of the promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. The following terms shall have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in effect
in the Commonwealth of Massachusetts.
"Collateral" means the all of the Pledgor's assets including those
items identified on Schedule I hereto, together with all stock
certificates, securities or other property, options or rights of any nature
whatsoever that may arise out of such items while this Pledge Agreement is
in effect and all Proceeds thereof.
"Common Stock" means the Company's Common Stock, $0.01 par value per
share.
"Obligations" means the unpaid principal of and interest on the Note,
the 1998 Note and all other obligations and liabilities of the Pledgor to
the Company which may arise under, out of, or in connection with, the Note,
the 1998 Note or this Pledge Agreement.
<PAGE>
-2-
"Person" means an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
"Pledge Agreement" this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall include, without limitation,
all dividends or other income from the Collateral, collections thereon or
distributions with respect thereto.
2. Pledge; Grant of Security Interest; Return of Collateral; Use of
Proceeds. Concurrently with his execution and delivery of this Pledge
Agreement, the Pledgor shall deliver the Collateral to the Company. The
Pledgor hereby grants to the Company a first priority security interest in
the Collateral, as collateral security for the prompt and complete payment
and performance when due (whether at the stated maturity, by acceleration,
upon required prepayment or otherwise) of the Obligations, subject to any
subordination agreement hereinafter entered into by the Company in its sole
discretion. Promptly following the receipt of payment in respect of all
Obligations hereunder, the Company shall return to the Pledgor the
Collateral then held by it. Pledgor hereby agrees that the proceeds
resulting from the Note will be used solely to purchase an interest in the
real estate described on Schedule I hereto.
3. Stock Powers. Concurrently with the delivery to the Company of each
certificate representing one or more shares Collateral, the Pledgor shall
deliver an undated stock power, in the form attached hereto as Exhibit A,
covering such certificate, duly executed in blank by the Pledgor.
4. Representations and Warranties. The Pledgor represents and warrants
that:
(a) the Pledgor is the record and beneficial owner of and has
good and marketable title to, the Collateral, free of any and all
liens, options, security interests or encumbrances in favor of, or
adverse claims of, any other Person, except the liens created
hereunder; and
(b) the lien granted pursuant to this Pledge Agreement
constitutes a valid, perfected first priority lien on the Collateral,
subject to any subordination agreement hereinafter entered into by the
Company in its sole discretion.
5. Covenants. The Pledgor covenants and agrees with the Company that,
from and after the date hereof until the Obligations are paid in full:
(a) If the Pledgor shall, as a result of his ownership of the
Collateral, become entitled to receive or shall receive any non-cash
dividend or distribution (whether in shares of Common Stock of the
Company, other securities or other property and whether in connection
with any reclassification, increase or reduction of capital or any
reorganization or otherwise), or
<PAGE>
-3-
any option or right, whether in addition to, in substitution of, as a
conversion of, or in exchange for any interest in the Collateral, or
otherwise in respect thereof, the Pledgor shall accept the same as the
agent of the Company, hold the same in trust for the Company, and
deliver the same forthwith to the Company in the exact form received,
duly endorsed by the Pledgor to the Company, if required, together
with an undated stock power covering any certificate received by the
Pledgor duly executed in blank by the Pledgor, to be held by the
Company, subject to the terms hereof, as additional collateral
security for the Obligations under the Note and the 1998 Note.
(b) Without the prior written consent of the Company, the Pledgor
will not (i) sell, assign, transfer, exchange, or otherwise dispose of
or grant any option with respect to, the Collateral, or (ii) create,
incur or permit to exist any lien, option, security interest or
encumbrance in favor of, or any adverse claim of any person with
respect to, any of the Collateral, or any interest therein, except for
the lien created by this Pledge Agreement.
(c) At any time and from time to time, upon the written request
of the Company, and at the sole expense of the Pledgor, the Pledgor
will promptly and duly execute and deliver such further instruments
and documents and take such further actions the Company may reasonably
request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted.
(d) The Pledgor agrees to pay, and to save the Company harmless
from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated
by this Pledge Agreement.
(e) The Pledgor agrees to assign his interest, including any
payments made thereunder in the event of his death, under that certain
split dollar life insurance policy entered into between the Company
and John Hancock Life Insurance Company, dated as of January 1998, and
will execute and deliver to the Company all assignments and
documentation necessary to give effect thereto.
6. Voting Rights. Unless the Pledgor fails to pay or perform any of
his Obligations under the Note or the 1998 Note, the Pledgor shall be
permitted to exercise all voting and consensual rights with respect to the
Collateral, provided, however, that no vote shall be cast or consensual
right exercised or other action taken which, in the Company's reasonable
judgment, would impair the Collateral or which would be inconsistent with
or result in any violation of any provision of the Note, the 1998 Note or
this Pledge Agreement.
7. Rights of the Company.
(a) If the Pledgor fails to pay or perform any of the Obligations
in accordance with their respective terms, all rights and interests in
the Collateral shall be registered in the name of the Company or its
nominee and the Company or its nominee may thereafter exercise, to the
extent permitted by applicable law, (i) all voting, corporate and
other rights pertaining to the
<PAGE>
-4-
Collateral at any meeting of shareholders of the Company or otherwise
and (ii) any and all rights of conversion, exchange, subscription and
any other rights, privileges or options pertaining to the Collateral
as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the
Collateral upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate
structure of the Company, or upon the exercise by the Pledgor or the
Company of any right privilege or option pertaining to the Collateral,
and in connection therewith, the right to deposit and deliver any and
all of the Collateral with any committee, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as
it may determine), all without liability except to account for
property actually received by it, but the Company shall have no duty
to the Pledgor to exercise any such rights privilege or option and
shall not be responsible for any failure to do so or delay in so
doing.
(b) The rights of the Company hereunder shall not be conditioned
or contingent upon the pursuit by the Company of any right or remedy
against the Pledgor or against any other Person which may be or become
liable in respect of all or any part of the Obligations or against any
collateral security therefor, guarantee therefor or right of offset
with respect thereto. The Company shall not be liable for any failure
to demand, collect or realize upon all or any part of the Collateral
or for any delay in doing so, nor shall the Company be under any
obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
8. Remedies. If the Pledgor fails to perform any of his Obligations in
accordance with their respective terms and such failure is continuing, the
Company may exercise, in addition to all other rights and remedies granted
in this Pledge Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a
secured party under the Code. Without limiting the generality of the
foregoing, the Company, without demand of performance or other demand,
presentment protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor or any other
Person (all and each of which demands, defenses, advertisements and notices
are hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or
may forthwith sell, assign, give an option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange,
broker's board or office of the Company or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any
credit risk. The Company shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Company shall apply any Proceeds from time
to time held by it and the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sales after deducting all reasonable
costs and expenses of every kind incurred in respect thereof or incidental
to the care or safekeeping of any of the Collateral or in any way relating
to the Collateral or the rights of the Company hereunder, including,
without limitation, reasonable attorneys' fees and disbursements
<PAGE>
-5-
of counsel to the Company, to the payment in whole or in part of the
Obligations, in such order as the Company may elect and only after such
application and after the payment by the Company of any other amount
required by any provision of law, including, without limitation, Section
9-504(l)(c) of the Code, need the Company account for the surplus, if any,
to the Pledgor. To the extent permitted by applicable law, the Pledgor
waives all claims, damages and demands he may acquire against the Company
arising out of the exercise by the Company of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given
at least 10 days before such sale or other disposition. The Pledgor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Company to collect
such deficiency.
9. Limitation on Duties Regarding Collateral. From and after the date
hereof, the Company's sole duty with respect to the custody, safekeeping
and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the
same manner as the Company deals with similar securities and property for
its own account. Neither the Company nor any of its directors, officers,
employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon
the request of the Pledgor or otherwise; provided, however, that the
Company shall cooperate with the Pledgor in order to transfer any or all of
the Collateral in accordance with the terms of the Restricted Stock
Agreement.
10. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and are
powers coupled with an interest.
11. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
12. Section Headings. The section headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
13. No Waiver, Cumulative Remedies. The Company shall not by any act
(except by a written instrument pursuant to Section 15 hereof be deemed to
have waived any right or remedy hereunder or to have acquiesced in any
breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Company, any right, power
or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Company of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right
or remedy which the Company would otherwise have on any future occasion.
The rights and remedies herein
<PAGE>
-6-
provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.
14. Waivers and Amendments: Successors and Assigns: Governing Law.
None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed
by the Pledgor and the Company, provided that any provision of this Pledge
Agreement enforceable by the Company may be waived by the Company in a
letter or agreement executed by the Company or by telex or facsimile
transmission from the Company. This Pledge Agreement shall be binding upon
the successors and assigns of the Pledgor and shall inure to the benefit of
the Company and its successors and assigns. This Pledge Agreement shall be
governed by, and construed and interpreted in accordance with, the internal
laws of the Commonwealth of Massachusetts, without regard to the conflict
of law provisions thereof.
15. Notices. Notices under this Pledge Agreement may be given by
express overnight courier service or by facsimile transmission, addressed
to the Parties at their respective addresses set forth in the first
paragraph to this Pledge Agreement and shall be effective when sent. Either
party may change their respective addresses by written notice to the other
party.
16. Counterparts. This Pledge Agreement may be executed in two or more
c arts, each of which shall be deemed an original, and all of which shall
be deemed one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY BEEN LEFT BLANK)
<PAGE>
-7-
IN WITNESS WHEREOF, the undersigned have caused this Pledge Agreement to be
duly executed and delivered as of the date first above written.
-------------------------------------
Theo Schnitfink
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
By:__________________________________
Name:
Title:
<PAGE>
Exhibit 10.26
[Cambridge Technology Partners, LOGO Appears Here]
CARV MOORE LETTER OF UNDERSTANDING
This document is intended to finalize the employment agreement between Cambridge
Technology Partners and Carv Moore with regard to his new position at Cambridge.
Upon your acceptance of the position of Leader of the North American Business
Unit of Cambridge Technology Partners (the "Company"), you will be promoted to
the position of Executive Vice President/President of NABU and reporting to the
Chief Operations Officer. Your annual salary will be $500,000 per year paid on
biweekly basis. Your bonus potential at plan performance will represent 100% of
your annual salary; (for 2000, this represents the potential to earn a bonus of
$500,000). In addition, the Company will recommend to the Board of Directors of
Cambridge Technology Partners that you receive 100,000 options at the option
price at the close of business prior to the scheduled Board meeting of March 21,
2000.
With your acceptance of the position, the Company will issue a check in the
amount of $350,000 to be paid within two weeks of taking responsibility for the
NABU operations. This check is an indication of our commitment to your success
and is not to be construed as a prepayment of any part of the bonus stated above
for the year 2000.
In the event that you are terminated from the Company for reasons other than
cause, you will receive one year's severance at your then current annual base
salary. During your severance period, the Company will provide you benefits
coverage under the then current employee benefits program. Your costs for these
benefits will be the employee costs that are in place during the severance
period.
During the year 2000, it is expected that you will perform your responsibilities
without the requirement of you moving to our Cambridge facility in the Boston
area. At the end of the year 2000, the Company and you will mutually agree to
one of the following scenarios relative to your work location: (a) that you will
continue to formally reside in Seattle, Washington as it does not cause you or
the Company any adverse business impact; or (b) it is the common belief that to
continue to carry out your responsibilities in an effective way would require
you to move to Cambridge, Massachusetts. In the event that both parties agree
that a move to Massachusetts is necessary, the Company will provide you
relocation assistance as described in the attachment.
As additional incentive to encourage Carv Moore to continue his employment with
the Company past the year 2000, the Company will pay to him the amount of
$650,000. The payment is to be made on or about January 15th, 2001. These
payments are not contigent on his status of being an active employee of
Cambridge Technology Partners.
If the decision is that Carv Moore wishes to remain in Seattle, Washington and
the Company believes that for him to continue in his role as Leader of NABU he
must move to the Boston
<PAGE>
area, the Company will terminate his services from Cambridge Technology Partners
and provide him severance as so recorded in this document, specifically
referencing paragraph four.
As part of this agreement, Carv Moore acknowledges that in the event of his
termination from Cambridge Technology Partners that he will not compete with the
then businesses of Cambridge Technology Partners for a period of one year from
his termination date. In addition, Carv Moore agrees not to solicit employees or
customers of Cambridge Technology Partners for a period of two years from his
termination date from the Company.
The signature of Carv Moore on this document is his acknowledgement of the terms
and conditions of his employment as Leader of the North American Business Unit
for Cambridge Technology Partners. The signature of Gerard Van Kemmel binds
Cambridge Technology Partners to the terms and conditions as outlined in the
above.
/s/ Carv Moore Date: 2/29/00 /s/ Gerard Van Kemmel Date: 3/3/2000
- -------------------------------- -------------------------------------
Carv Moore Gerard Van Kemmel
Chief Operations Officer
Cambridge Technology Partners
<PAGE>
Exhibit 11
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
Years Ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Net income $ 2,119 $ 51,940 $ 33,782
======== ======== ========
Basic:
Weighted average number of common
shares outstanding 60,004 58,079 54,632
======== ======== ========
Net income per common share $ .04 $ .90 $ .62
======== ======== ========
Diluted:
Weighted average number of common
shares outstanding 60,004 58,079 54,632
Dilutive effects of stock options,
restricted stock, and warrants 1,741 5,222 6,143
-------- -------- --------
Weighted average common and common
equivalent shares outstanding 61,745 63,301 60,775
======== ======== ========
Net income per common and common
equivalent share $ .03 $ .83 $ .55
======== ======== ========
<PAGE>
Exhibit 21
Cambridge Technology Partners (Massachusetts), Inc. Subsidiary List
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
State (Country) % of
Company of Inc. ownership
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cambridge Technology Partners Cambridge Management Consulting, Inc. CA (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners-Enterprise Resource Solutions, Inc. CA (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (International), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Latin America), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Europe), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Asia), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Capital Management, Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology CGP, Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Empirical Acquisition Corp. DE (USA) 85%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Puerto Rico), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge PCHL L.L.C. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Excell Data Corporation DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Capital Fund I, L.P. DE (USA) 24%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology GPLP, L.P. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Securities Corporation DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (UK), Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Peter Chadwick USA, Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Peter Chadwick (Training) Limited UK 100%
- ----------------------------------------------------------------------------------------------------------------------
PCH Investments Limited UK 100%
- ----------------------------------------------------------------------------------------------------------------------
IOS Gruppen AB Sweden 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Scandinavia AB Sweden 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners PTY Limited Australia 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Netherlands B.V. Netherlands 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Benelux, Inc. DE (USA) 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Limited Canada 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners India Private Limited India 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners do Brasil s/c Ltda Brazil 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (United Kingdom) Ltd. UK 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Benelux) BV Netherlands 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting Holdings Limited UK 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting Limited UK 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting N.V. Netherlands 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting Netherlands Holdings B.V. Netherlands 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting GmbH Germany 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Management Consulting S.A. France 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Mexico) S.A. de C.V. Mexico 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Services S.A. de C.V. Mexico 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Colombia S.A. Colombia 100%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cambridge Technology Partners (Switzerland) Natsoft SA Switzerland 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Venezuela) Venezuela 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Deutschland GmbH Germany 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners Ireland LTD Ireland 100%
- ----------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners (Japan) KK Japan 100%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statements 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 report dated
February 10, 2000, except for the first paragraph of Note M, as to which the
date is March 2, 2000, on our audits of the consolidated financial statements of
Cambridge Technology Partners (Massachusetts), Inc. as of December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999,
which report is included in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report dated February 10, 2000 relating to
the financial statement schedule, which appears in this Form 10-K.
We consent to the incorporation by reference in the Registration Statements 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 report dated January
28, 2000 on our audits of the financial statements of Cambridge Technology
Capital Fund I L.P. as of December 31, 1999 and 1998 and for the years ended
December 31, 1999 and 1998 and for the period from October 17, 1997 (date of
inception) to December 31, 1997, which report is included in this Annual Report
on Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 62,288
<SECURITIES> 28,659
<RECEIVABLES> 137,129
<ALLOWANCES> 10,287
<INVENTORY> 0
<CURRENT-ASSETS> 269,682
<PP&E> 101,144
<DEPRECIATION> 48,017
<TOTAL-ASSETS> 367,674
<CURRENT-LIABILITIES> 90,535
<BONDS> 0
0
0
<COMMON> 621
<OTHER-SE> 276,415
<TOTAL-LIABILITY-AND-EQUITY> 367,674
<SALES> 0
<TOTAL-REVENUES> 628,111
<CGS> 0
<TOTAL-COSTS> 660,060
<OTHER-EXPENSES> (35,485)
<LOSS-PROVISION> 12,487
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> 3,418
<INCOME-TAX> 1,299
<INCOME-CONTINUING> 2,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,119
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.03
</TABLE>
<PAGE>
Exhibit 99.1
Cambridge Technology Capital Fund I L.P.
Financial Statements
For the Years Ended December 31, 1999, 1998 and 1997
<PAGE>
Cambridge Technology Capital Fund I L.P.
Index to Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants 1
Balance Sheets as of December 31, 1999 and 1998 2
Statements of Operations for the Years Ended December 31, 1999 and 1998 and
for the Period from October 17, 1997 (Date of Inception) to December 31, 1997 3
Statements of Changes in Partners' Capital for the Years Ended December 31, 1999
and 1998 and for the Period from October 17, 1997 (Date of Inception)
to December 31, 1997 4
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
and for the Period from October 17, 1997 (Date of Inception) to December 31, 1997 5
Notes to Financial Statements 6-9
</TABLE>
<PAGE>
Report of Independent Accountants
To the Partners of
Cambridge Technology Capital Fund I L.P.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' capital and cash flows present fairly, in all
material respects, the financial position of Cambridge Technology Capital Fund I
L.P. at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years ended December 31, 1999 and 1998 and for the period
from October 17, 1997 (date of inception) to December 31, 1997, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Partnership'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
auditing standards generally accepted in the United States 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.
As explained in Note 2 to the financial statements, the Partnership changed its
method of accounting for organizational costs, effective January 1, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 2000
<PAGE>
Cambridge Technology Capital Fund I L.P.
Balance Sheets
December 31, 1999 and 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1999 1998
<S> <C> <C>
Investments, at fair value (cost of $16,772,765 and
$5,661,777, respectively) (Note 10) $ 139,120,870 $ 9,673,417
Cash and cash equivalents 342,491 1,307,976
Capital subscription receivable 8,564 8,526
Organizational costs, net -- 151,151
------------- -------------
Total assets $ 139,471,925 $ 11,141,070
============= =============
Liabilities
Accrued expenses 19,888 22,494
------------- -------------
Partners' Capital
Syndication costs (34,011) (34,011)
Contributed capital 20,707,070 7,954,545
Accumulated loss from operations (1,620,614) (813,598)
Realized gains on investments 7,398,793 --
Unrealized appreciation of investments 122,348,105 4,011,640
Distributions (9,347,306) --
------------- -------------
Total partners' capital 139,452,037 11,118,576
------------- -------------
Total liabilities and partners' capital $ 139,471,925 $ 11,141,070
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Cambridge Technology Capital Fund I L.P.
Statements of Operations
For the Years Ended December 31, 1999 and 1998 and for the Period from
October 17, 1997 (Date of Inception) to December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Investment income:
Interest income $ 46,100 $ 32,821 $ 6,877
------------- ----------- ---------
Expenses:
Management fees 631,313 631,270 130,423
Professional fees and other expenses 70,652 86,196 5,407
------------- ----------- ---------
Total operating expenses 701,965 717,466 135,830
------------- ----------- ---------
Net operating loss before cumulative effect of accounting change (655,865) (684,645) (128,953)
Cumulative effect of change in accounting for organizational costs (151,151) -- --
------------- ----------- ---------
Net operating loss after cumulative effect of accounting change (807,016) (684,645) (128,953)
Net realized gains 7,398,793 -- --
Net increase in unrealized appreciation of investments 118,336,465 4,011,640 --
------------- ----------- ---------
Net increase in partners' capital resulting from investment
performance and operations $ 124,928,242 $ 3,326,995 $(128,953)
============= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Cambridge Technology Capital Fund I L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999 and 1998 and for the Period from
October 17, 1997 (Date of Inception) to December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
<S> <C> <C> <C>
Partners' capital at October 17, 1997 $ -- $ -- $ --
Syndication costs incurred during the period (338) (33,673) (34,011)
Capital contributions during the period 12,626 1,250,000 1,262,626
Net operating loss for the period (1,368) (127,585) (128,953)
----------- ------------- -------------
Partners' capital at December 31, 1997 10,920 1,088,742 1,099,662
Capital contributions during the year 66,919 6,625,000 6,691,919
Net operating loss for the year (6,846) (677,799) (684,645)
Increase in unrealized appreciation of
investments during the year 40,116 3,971,524 4,011,640
----------- ------------- -------------
Partners' capital at December 31, 1998 111,109 11,007,467 11,118,576
Capital contributions during the year 127,525 12,625,000 12,752,525
Net operating loss for the year (8,070) (798,946) (807,016)
Realized gains on investments during the year 73,988 7,324,805 7,398,793
Increase in unrealized appreciation of
investments during the year 1,183,365 117,153,100 118,336,465
Distributions during the year (93,473) (9,253,833) (9,347,306)
----------- ------------- -------------
Partners' capital at December 31, 1999 $1,394,444 $138,057,593 $139,452,037
----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Cambridge Technology Capital Fund I L.P.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 and for the Period from
October 17, 1997 (date of Inception) to December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net operating loss $ (807,016) $ (684,645) $ (128,953)
Adjustments to reconcile net operating loss to net cash
used in operating activities:
Amortization of organizational costs 151,151 43,905 5,342
Changes in assets and liabilities:
Accrued expenses (2,606) (180,979) 203,473
------------ ------------ ------------
Net cash (used in) provided by operating activities (658,471) (821,719) 79,862
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from the sale of investments 551,482 -- --
Organization costs -- (40,152) (160,246)
Purchase of investments (13,610,983) (5,161,777) (500,000)
------------ ------------ ------------
Net cash used in investing activities (13,059,501) (5,201,929) (660,246)
------------ ------------ ------------
Cash flows provided by financing activities:
Partners' capital contributions 12,752,487 6,696,097 1,249,922
Syndication costs -- -- (34,011)
------------ ------------ ------------
Net cash provided by financing acivities 12,752,487 6,696,097 1,215,911
Net (decrease) increase in cash and cash equivalents (965,485) 672,449 635,527
Cash and cash equivalents, beginning of year 1,307,976 635,527 --
------------ ------------ ------------
Cash and cash equivalents, end of year $ 342,491 $ 1,307,976 $ 635,527
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Cambridge Technology Capital Fund I L.P.
Notes To Financial Statements
- -------------------------------------------------------------------------------
1. Description of the Partnership
Cambridge Technology Capital Fund I L.P. (the "Partnership"), a Delaware
Limited Partnership, was organized on October 17, 1997 to achieve a return
on investment for its partners by locating, analyzing, and investing in
high-growth oriented businesses, primarily businesses which are privately
held, providing products and services within the areas of information
technology. The Partnership term expires on December 31, 2007.
2. Summary of Significant Accounting Policies
Valuation of Investments
Investments in securities traded on national securities exchanges are
valued at closing price, adjusted for restrictions as to sale or transfer.
For all other investments, the General Partner determines the fair market
value. In determining these values, the General Partner takes into account
the cost of the investments, current financial condition and operating
results of the issuer, recent transactions of the issuers securities, and
other factors pertinent to the valuation of investments.
Because of the inherent uncertainty of these valuations, values determined
by the General Partner may differ significantly from the values that would
have been used had a ready market for the securities existed, and the
differences could be material.
Interest Income
Interest income is recognized when earned to the extent deemed collectible
by the General Partner.
Realized Gains and Losses
Realized gains and losses from security dispositions are recorded on the
identified cost basis.
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
cost basis approximates market value due to the short maturity of the
investments.
Syndication Costs
Syndication costs related to the fund-raising for the Partnership of
$34,011 have been recorded as a reduction in partners' capital.
Cumulative Effect of Accounting Change
Effective January 1, 1999, the Partnership adopted the provisions of
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires all start-up costs, as defined by the SOP,
to be expensed as incurred. Previously, the Partnership's accounting policy
was to capitalize organizational costs and amortize those costs over a
60-month period. As a result of adopting SOP 98-5, the Partnership recorded
a charge of $151,151 in 1999 as the cumulative effect of expensing the
organization costs remaining as of the effective date.
6
<PAGE>
Cambridge Technology Capital Fund I L.P.
Notes To Financial Statements
- -------------------------------------------------------------------------------
Income Taxes
The Partnership reports on the accrual method for financial statement and
income tax purposes and treats all operating income and losses and realized
investment gains and losses (as defined in the partnership agreement) as
distributed to its partners for tax purposes. Accordingly, the Partnership
has not recorded a tax provision within its statement of operations.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
3. Partners' Capital
The Partnership's committed capital totals approximately $25.3 million at
December 31, 1999, consisting of capital commitments from the Limited
Partners of 99% and from the General Partner of 1% of the total.
4. Allocations
Allocations are generally made at the end of the fiscal year, although
allocations can be made at other times at the discretion of the General
Partner as determined by the partnership agreement. The partnership
agreement provides for the allocation of net gains and net losses as
follows:
Net Gain
Net gains are generally allocated to the capital accounts of the partners
in the following order. First, if cumulative net losses previously
allocated exceed cumulative net gains previously allocated, each partner is
allocated the amount to reverse out such excess net losses. Second, net
gain is allocated to all partners until each partner has been allocated an
aggregate amount of net gain equal to such partner's 8% preferential return
as of such time. Third, until the Partnership has distributed to each
partner an aggregate amount equal to such partner's aggregate capital
contributions plus its 8% preferential return as of such time (the "Pre-8%
Payback Period"), any remaining net gain is allocated to the partners in
proportion to their respective capital contributions. After each partner
has received aggregate distributions from the Partnership equal to such
partner's capital contributions plus its 8% preferential return (the "8%
Payback Period"), net gain is allocated (a) 100% to the General Partner
until the General Partner has been allocated an aggregate amount of net
gain equal to 20% of the excess of allocated net gain over net loss; and
(b) the remaining amount of net gain is allocated 80% to the partners in
proportion to their respective capital contributions and 20% to the General
Partner.
7
<PAGE>
Cambridge Technology Capital Fund I L.P.
Notes To Financial Statements
- -------------------------------------------------------------------------------
Net Loss
Net loss is generally allocated to the capital accounts of the partners to
reverse-out allocations of net gain, on a last-in, first-out basis.
Cumulative net losses are allocated to all partners in proportion to their
respective capital contributions.
Eight Percent Preferential Return Determination
In general, a partner's 8% preferential return is calculated on a monthly
basis, by multiplying such partner's unreturned capital contributions by
.66666%. For this purpose, unreturned capital contributions generally means
such partner's aggregate capital contributions less the aggregate amount of
distributions made to such partner.
5. Distributions
The partnership agreement provides for two types of distributions:
discretionary distributions and tax distributions.
Discretionary Distributions
The General Partner has discretion with respect to the timing and total
amount of distributions to the partners. Distributions may be made in cash
or in kind. A discretionary distribution is generally any distribution
other than a tax distribution. Each partner's share of a discretionary
distribution is determined as follows: First, partners receive an amount in
proportion to their relative capital contributions until each partner has
received aggregated distributions equal to its contributed capital plus its
respective 8% preferential return. Second, the General Partner will receive
80% of a distribution and the remaining 20% will be distributed to all
partners in proportion to their relative capital contributions, until the
General Partner has received cumulative distributions (excluding
distributions with respect to its capital contributions) equal to 20% of
the aggregate amount distributed in excess of the partners' capital
contributions. Third, the partners receive 80% in proportion to their
relative capital contributions and the remaining 20% is distributed to the
General Partner.
Tax Distributions
If the amount of discretionary distributions made to a partner in cash
during any fiscal year is not sufficient to satisfy such partner's federal
and state income tax liability attributable to its interest in the
partnership with respect to such year, the general partner has discretion
to make additional cash distributions (a tax distribution) to the partner
in an amount up to such unsatisfied tax liability. The partnership
agreement sets forth certain assumptions to be used in calculating a
partner's tax liability attributable to its interest in the Partnership.
6. Management Fees
The Partnership has entered into a management agreement with Cambridge
Technology Capital Management, Inc. (the "Management Company") pursuant to
which the Management Company receives an annual management fee for
providing investment management, administrative and other services to the
Partnership in connection with its day-to-day operations. The annual fee is
2.5% of the Partnership's total committed capital.
8
<PAGE>
Cambridge Technology Capital Fund I L.P.
Notes To Financial Statements
- -------------------------------------------------------------------------------
7. Related Parties
The Management Company is a wholly-owned subsidiary of Cambridge Technology
Partners (Massachusetts), Inc. ("Cambridge"). A wholly-owned subsidiary of
Cambridge is also the general partner of the Partnership's General Partner.
Cambridge is a limited partner of the Partnership with an aggregate capital
commitment of approximately 24% of the Partnership's total committed
capital. The managing director of the Management Company (the "Managing
Director") is also a limited partner of the General Partner of the
Partnership.
8. Statement of Cash Flows Supplementary Disclosure
In March 1999, the Partnership made discretionary distributions of 245,075
shares of common stock of BEA Systems, Inc. with a cost basis of $899,860
valued at $4,264,305. In July 1999, the Partnership made discretionary
distributions of 64,477 shares of common stock of Concur Technology, Inc.
with a cost basis of $499,699 valued at $2,493,661. During November and
December 1999, the Partnership made cumulative discretionary distributions
of 101,147 shares of common stock of Pro-Business, Inc. with a cost basis
of $1,000,000 valued at $2,589,340. The resulting realized gain from the
distribution of investments of $6,947,747 is included in net realized gains
in the statement of operations.
9. Concentrations of Market and Credit Risk
The Partnership invests primarily in development stage, private companies
for which no ready market exists to provide liquidity. This portfolio
strategy presents a high degree of market and credit risk due to its
concentration in privately held start-up companies.
9
<PAGE>
Cambridge Technology Capital Fund I L.P.
Notes To Financial Statements
- -------------------------------------------------------------------------------
10. Portfolio Summary
The Partnership held the following investments, in companies within the
technology industry and in the United States, at December 31, 1999:
I. Individual Investments Greater than 5% of net assets
<TABLE>
<CAPTION>
Percentage of
Issuer Type of Security Cost Valuation total investments
<S> <C> <C> <C>
Active Software, Inc. 275,738 shares of common stock $ 822,966 $22,831,023
Epiphany Martketing Software, Inc. 295,858 shares of common stock $1,000,000 $59,411,986
SilkNet Software, Inc. 136,538 shares of common stock $1,000,004 $20,367,758
InterWorld Corporation 100,000 shares of common stock $1,000,000 $ 7,683,750
Interwoven 117,785 shares of common stock $1,000,000 $11,460,481
----------- ------------
$4,822,970 $121,754,998 87.52%
II. Aggregate Other Investments by Type
Preferred Stock 3,877,254 shares of various series of
preferred stock from various issuers $10,949,695 $16,365,772 11.76%
Note receivable Bridge loan with interest at 12% and a
warrant to purchase 75,000 shares of
common stock $1,000,100 $1,000,100 0.72%
----------- ------------ ------
Total Investment Portfolio $16,772,765 $139,120,870 100.00%
=========== ============ ======
</TABLE>
10
