-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PJ2LVW+5G42iwY2NSNk4SYy46DJyIdRyvPJZGtjNxNiTKpqlc3fhgI6aCn1Vg9/m pbjcNfCjGV+xIPUSUfk5sg== 0000927016-99-001234.txt : 19990402 0000927016-99-001234.hdr.sgml : 19990402 ACCESSION NUMBER: 0000927016-99-001234 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE TECHNOLOGY PARTNERS MASSACHUSETTS INC CENTRAL INDEX KEY: 0000895462 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 061320610 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21040 FILM NUMBER: 99581321 BUSINESS ADDRESS: STREET 1: 304 VASSAR ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6173749800 MAIL ADDRESS: STREET 1: 304 VASSAR ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to_______. COMMISSION FILE NUMBER 0-21040 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1320610 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 304 VASSAR STREET CAMBRIDGE, MASSACHUSETTS 02139 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 374-9800 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of Common Stock held by non-affiliates of the registrant was $528,757,015 based on the last reported sale price of $12.125 on The Nasdaq National Market on March 23, 1999. As of March 23, 1999, there were 59,508,894 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a definitive Proxy Statement for its Annual Meeting of Stockholders pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 1998. Portions of such proxy statement are incorporated by reference into Part III of this report. ================================================================================ PART I ITEM 1. BUSINESS. INTRODUCTION Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge" or the "Company") is an international management consulting and systems integration firm. Founded in 1991, the Company combines management consulting, internet solutions, custom and package software deployment, network services, and training to rapidly deliver end-to-end business solutions for "Global 1000" organizations worldwide. The Company provides the majority of its services on a fixed-time, fixed-price model, with client involvement at all stages of the process. In performing its services, the Company brings together key client users, executives, and information technology ("IT") professionals in interactive sessions to achieve consensus on the business case, strategic objectives, and functionality of a business solution. In many cases, the Company employs a rapid deployment methodology that features an iterative approach. The Company believes that these techniques permit the delivery of results in rapid time frames -- typically within three to twelve months. The Company's management consulting and information technology services are offered at three levels within an organization -- the enterprise-wide, specific business process and application software levels. In a typical IT services consulting engagement, the Company designs and develops one or more strategic software applications, which often include custom and third-party package software, and then rolls out the applications to the organization's end-users. These software applications are selected and designed to allow the client to achieve a competitive advantage, enhance the efficiency and functionality of specific business processes, and support financial goals. The Company may also assist its clients in providing end-user training and in managing the organizational changes that accompany the roll-out of new applications and the assimilation of such applications into production environments. In addition, the Company provides network services, and IT strategy services, to help clients establish their internal IT strategies and implement the recommended technology solutions. The Company's integrated management consulting services are designed to allow clients to achieve operational improvements. In October 1998, the Company announced the realignment of its North American operations. North American operations, which had been organized on a regional geographic basis, are now organized around the Company's six principal service offerings: Management Consulting, Interactive Solutions, Customer Management Solutions, Enterprise Resource Solutions, Custom Software Solutions, and Network Services. The Company's sales, marketing and human resources functions also operate on a service line basis within North America. This realignment helps integrate the Company's front-office, back-office, and internet application deployment capabilities. Under the former structure, consultants provided services to clients based on geographic location and the Company was unable to take full advantage of specialist skills not located in a client's geographic region. No longer constrained by geographic regions, the new service line structure is designed to permit the Company to provide clients with its best consultants in specific service areas who can deploy proven methodologies, training, and 1 business processes. This approach is also intended to allow the Company to realize economies of scale in forecasting and staffing and permit better leveraging of industry expertise. The Company's Cambridge, Massachusetts facility houses its Northeast operations and corporate departments. As of December 31, 1998, the Company had a total of 53 offices worldwide, with regional sales and operations facilities across the United States, Europe, Latin America and the Pacific Rim. See Note P of Notes to Consolidated Financial Statements. SERVICES The Company combines management consulting, IT strategy, process innovation and implementation, custom and package software deployment, network services, application maintenance, assimilation services and training to rapidly deliver end-to-end business systems that are designed to create bottom-line impact for clients. To achieve these objectives, the Company often utilizes its rapid deployment methodologies. The Company believes that, where applicable, this approach enables it to deliver results in time frames significantly shorter than those of its competitors, typically within three to twelve months. The Company offers a comprehensive set of services which can be deployed individually or in a combination. For most services, the Company and its clients agree on a fixed-time/fixed-price prior to the commencement of each stage of the project. Management consulting projects, which focus on operational improvements, have resulted in fees ranging from approximately $500,000 to $10,000,000, with the average project generating fees of approximately $1,000,000. Client engagements involving the development and implementation of a custom strategic software application typically result in fees to the Company ranging from approximately $1,000,000 to $6,000,000. The stages for package implementation are similar to those for custom software development, however the fee range typically is lower, usually $400,000 to $5,000,000. PRINCIPAL SERVICE OFFERINGS The Company's worldwide service offerings consist of the following six principal service lines: Management Consulting, Interactive Solutions, Customer Management Solutions, Enterprise Resource Solutions, Custom Software Solutions, and Network Services. MANAGEMENT CONSULTING. During 1998, the Company completed the process of combining the competencies and methodologies of its Management Consulting and Peter Chadwick Holdings Limited businesses. Peter Chadwick Holdings Limited, based in the United Kingdom, was merged with the Company in November 1997. The combined organization provides integrated consulting services to support clients across various industrial sectors, and across the entire scope of the value chain, in the rapid implementation of sustainable improvements capable of transforming their businesses. The combined organization operates under the name of Cambridge Management Consulting (CMC). CMC helps its clients achieve rapid, tangible, high-payback operational improvements through the implementation of major change programs, known as Change Implementation. These programs impact key business processes, management and decision-making systems, and roles and responsibilities and deliver financial and operational improvements identified at the 2 commencement of an engagement. Most importantly, the programs help clients sustain those improvements delivered by focusing on behavioral change in the clients' management and staff, at all levels of their business. Change Implementation focuses on improvements to operational performance such as reducing time from design to market, increasing operating capacity, reducing operating costs, shortening product cycle times, reducing inventory and improving customer acquisition and retention. A successful Change Implementation solution is dependent upon the full participation of the client. The Company's implementation process involves the Company's consultants working full-time, on site with the client at all levels of its business to develop and implement the required changes in the business. Change Implementation programs harness the knowledge, skills and enthusiasm within a client's business, and leverage these with Cambridge's industry and process knowledge and proven implementation expertise. Where appropriate, CMC utilizes the Company's systems integration capabilities to provide leading-edge technology platforms for the improvement program. The typical phases of Change Implementation are Analysis and Implementation: . In the Analysis phase, the Company first identifies, confirms and quantifies the scale and nature of the improvement potential within the client's business. Then the Company develops a detailed implementation plan to deliver the benefits identified. As in the rest of the Change Implementation process, a client's staff is fully involved during the Analysis phase in developing an understanding of current business performance and in formulating the plan to move the business forward. The Analysis phase utilizes interviews with staff, design and development workshops, statistical analysis of historical and forecast data and on-site observations to identify the root causes and effects of under-performance. The implementation plan details the project objectives, both operational and financial; the project schedule, outlining weekly activities and delivery milestones; the resource requirement of both consultants and client task force staff, and a full, detailed business case for the project. . In the Implementation phase, the Company works with the client to develop and install the operational and organizational changes identified during the Analysis phase. The changes implemented are driven largely by the client and focus on improving key business processes, enhancing the quality of management information and decision making, and developing management skills at all levels of the business. The Company's consultants work alongside client personnel, on site, full-time, to train, coach and mentor them to achieve the behavioral changes required. These services and the commitment of the Company to transfer knowledge to its clients are designed to ensure that all the people in the business "own" the program, and therefore, that the improvements delivered are sustainable after the consultants leave. Also, the Implementation phase is designed so that the changes in the business happen at a significantly accelerated pace, supporting the success of the change program itself and rapidly delivering competitive advantage. 3 CMC has performed services for major organizations across a range of industries, while also building focused practices in specific sectors including oil and gas, chemicals, engineering, automotive, financial services and consumer goods. To support its ability to add significant value to clients across the value chain, the Company has developed specific approaches and capabilities in the areas of asset management, supply chain management, product and process leadership, customer loyalty and knowledge management. INTERACTIVE SOLUTIONS. Cambridge's Interactive Solutions service line addresses clients' internal and external online business needs. The Company's services address marketing strategy, user experience, creative design, and technical infrastructure integration. Interactive Solutions include electronic commerce, extranet, intranet, online communities, online procurement, interactive marketing, interactive service web sites, and knowledge management systems, and permit clients to build cyber-relationships with their customers, consumers, and distribution channels. The Company delivers its Interactive Solutions using its Customer-oriented Rapid Application Development ("CoRAD") methodology. The CoRAD methodology is a balanced approached that brings together a multi-disciplinary team drawn from four critical disciplines for an electronic business solution's success: technical, business, creative, and cognitive. The CoRAD methodology consists of the following five phases: . Strategy Workshop - During the Strategy Workshop, the Company works with the client to identify and prioritize the electronic commerce initiative best suited for the client's business goals. The Company addresses internal factors that could contribute to or impede the success of an electronic commerce endeavor and conducts an external assessment focusing on competition and electronic commerce best practices from other industries. Typically, a strategy and work plan is developed that serves as the foundation for the next phase. . Product Definition - During the Product Definition phase, the Company defines the scope of the engagement. The team interacts with the client's customers to understand the design context and considers available technology choices. The team also develops the processes and corresponding changes in organizational structure that will be required and begins executing the communications and other plans developed during the Strategy Workshop. . Product Design - During the Product Design phase, the Company focuses on the architecture of the solution and the business practices and technology needed to support it. The multi-disciplinary approach becomes critical, as technologists address the infrastructure and application, creative and cognitive designers create the interface and business consultants work to align the functionality of the application with the delivery capabilities of the organization. . Product Development - During the Product Development phase, Cambridge writes software, refines content, creates training materials and prepares the organization to assimilate the changes in time for the product launch. 4 . Product Rollout - During the Product Rollout phase, the solution is implemented across the organization, the new system is assimilated into the business and the client's employees are trained. CUSTOMER MANAGEMENT SOLUTIONS (CMS). The Company's CMS services provide innovative, customer-focused solutions that enable the Company's clients to attract and retain profitable customers and cultivate customer loyalty. Client solutions may include: customer loyalty programs, customer service and support solutions, sales force automation, computer telephony integration, training and assimilation solutions, and enterprise marketing solutions. These solutions are typically delivered using packages from leading front office vendors, including Siebel, Clarify, and Vantive. The typical phases of a CMS engagement include: . Scope/Gap Analysis - During the Scope/Gap Analysis phase, the Company works to determine the breadth of the entire project. As part of this assessment, the Company works with the client to build a business case to justify the investment being made. In addition, the Company determines the current and future desired business processes of the client, assesses the client's technology infrastructure, and determines the gap between the desired functionality and the selected front office application. During this phase, the Company interviews the client's customers, in order to understand the customers and ensure that customer needs are considered in developing the solution. This is done to build consensus and to help ensure that the solution will cultivate customer loyalty. . Conference Room Pilot - During the Conference Room Pilot phase, the Company develops a working prototype in the chosen tool and identifies and resolves most user interface and workflow issues. . Design - During the Design phase, the Company fully designs the application, including all application interfaces. . Development and User Acceptance - During the Development and User Acceptance phase, the team completes package optimization, including customization, personalization, and coding. Often times a model office is utilized to allow for iterative development and parallel testing. The model office provides end-users with a facility to work with developers interactively in the testing of the application. At the end of this phase, the client has a deployable system that has been user tested. . Roll-out - During the Roll-out phase, implementation and training is completed and a full deployment of the complete system is delivered to all users. The Company works closely with key client staff to provide technical and project planning expertise to completely integrate applications with the client's business and computer operations. Also, at this time, Cambridge works with the client's IT staff to transfer knowledge about the system. ENTERPRISE RESOURCE SOLUTIONS (ERS). The Company's Enterprise Resource Solutions (ERS) support the implementation, modification, integration, and extension of Enterprise Resource 5 Planning (ERP) solutions throughout an organization. Many organizations use ERP applications to manage information across the enterprise, in areas such as finance, human resources, distribution, manufacturing or supply chain management. ERS provides customization and implementation services for software products supplied by PeopleSoft, i2, Concur, Conduit, CommerceOne, Maxager and BaaN. ERS also provides business process design and consulting services that leverage the capabilities of the major ERP and supply chain management applications, such as those developed by PeopleSoft, i2 and SAP. The Company deploys its ERS services using its Momentum(SM) methodology, which is comprised of five phases: . Scope - During the Scope phase, the Company works with the client to identify and prioritize the business requirements for the ERP system. In addition, the ERS team develops a project plan, develops a high-level technical architecture and analyzes the business benefits of an ERP solution. . Package Evaluation Workshop - Through a Package Evaluation Workshop, the Company assists the client in selecting an ERP package that best meets the client's business requirements. The ERS team, through sessions with executives, users and IT professionals, rapidly uncovers and defines required business processes and outlines the functionality, performance, support, and standards required from the ERP package. The team then creates likely business scenarios and evaluates the desired vendor's ability to support the client organization's vision and business goals. . Business Process Prototype (BPP) and Design - During the BPP and Design phase, the Company defines the client's business requirements while building a baseline package model. The ERS team utilizes an iterative process to map the client's business to a standard software package and to identify and prioritize customizations. Through this process, the ERS team can modify and refine the project plan to best meet the client's needs. . Deployment - During the Deployment phase, the Company rapidly implements the ERP solution across the client's organization. Deploying the solution involves making modifications, establishing security profiles, testing the system, and training the end-users. . Roll-out - During the Roll-out phase, the ERP solution becomes operational, with the goal of achieving the desired business benefit. The ERS team creates a production environment, converts existing client data, introduces the ERP solution to the entire user community, and conducts performance analysis. The Company provides technical and project planning expertise to the client's personnel and addresses the change management issues faced by the user community, the IT community, and the executive team. At the client's request, Cambridge may enhance the delivery of the ERP applications through the implementation of value-based consulting services. The value-based consulting services focus on delivering quantifiable results as an extension to the ERP application. These include the optimization of resources through: 6 . Value Assessments - Reviewing and enhancing the ERP implementation by focusing on processes that can leverage the existing applications' functionality or by adding a new application (for example, Maxager) that can improve a client's performance. . Supply Chain Performance - Optimizing the relationships between the client and its suppliers to enhance the efficiency of requesting and receiving goods. . Self Service - Web-enabling key processes of an organization such as human resources and expense management to improve the quality of information and decrease the costs of transactions. . Electronic Procurement - Leveraging the relationships between the client and its vendor to efficiently purchase goods for non-operational expenses. CUSTOM SOFTWARE SOLUTIONS (CSS). The Company's Custom Software Solutions (CSS) implements and integrates custom software solutions for clients looking to integrate their systems or achieve a competitive strategic advantage by automating their proprietary and unique business processes. CSS delivers its services to clients across industries using internet, object-oriented, and enterprise application integration technologies. CSS has particular expertise in the areas of data warehousing and money management and trading solutions. The Company uses its Rapid Application Deployment (RAD) methodology, a flexible approach to application software deployment, to deliver its CSS solutions. The RAD methodology consists of five phases: . Scope - The Scope phase is a critical first step in the RAD process. During the Scope phase, the Company works with a client's users, IT professionals, and executives to: . Clarify business goals . Establish critical success factors . Build cross-functional consensus on the application . Develop the business case with cost/benefit analysis . Define technical architecture . Review the fit between application and business processes The Company also matrices the application's functionality and prioritizes each function by its business benefit and technical complexity. This provides the team with a "road map" for deployment that eliminates non- strategic steps, prevents "scope creep" and enables rapid, on-time delivery of the solution. The functionality matrix also helps the team determine if a package solution can meet any or all of the proposed functionality, or if custom development is necessary. . Rapid Solutions Workshop (RSW) - The RSW brings together key client staff to reach consensus on the technology, processes, and methodology required to deploy strategic applications. This interactive workshop delivers a fully-functional prototype of the application's critical functionality, a detailed business case, a functionality matrix, and a 7 project plan with proposed time frames and costs for the next step, along with time frames and price estimates for subsequent steps. At the conclusion of the RSW, client participants demonstrate the team's commitment by presenting the prototype of the application to the client's senior executives. The presentation demonstrates the strategic benefits of the new business application, generates excitement among the client team, and builds consensus. This phase also builds top-level support for continuing on with the design and development of the application. . Design - During the Design phase, the Company defines architectures, recommends technical solutions, and develops system specifications. Since the network infrastructure is critical to the success of a distributed application, the Company may call on Network Services to evaluate network design, deployment, and support for the application. During the Design phase, the team also explores opportunities for leveraging a number of development opportunities -- reusable code, objects, and pre-existing frameworks -- to maximize efficiencies and speed deployment. This results in reduced project start-up preparation time; shortened development and roll-out phases; and project teams that devote more time to developing application functionality that delivers strategic benefits. . Development - During the Development phase, the Company builds and tests the fully functional application and develops all the necessary documentation. Frequent checkpoints bring together the Company's staff and key client users and IT personnel to ensure that applications adhere to the functionality matrix and business case set out in the Scope and RSW phases. . Roll-out - During the Roll-out phase, the implementation and training is completed and a full deployment of the system is delivered to all users. The Company works closely with key client staff to provide technical and project planning expertise to completely integrate applications with the client's business and computer operations. Also, at this time, Cambridge works with the client's IT staff to transfer knowledge about the system. NETWORK SERVICES. Network Services offers a combination of network assessment, design and deployment services with a comprehensive set of integration skills to support a client's distributed computing environments. These solutions address enterprise infrastructure, enterprise messaging, network operating systems, and enterprise strategy planning. . Enterprise infrastructure services are delivered to clients who are implementing major new applications. These services are designed to ensure that the client's network can support its computing needs and include enterprise assessment, optimization, architecture, planning and design, and deployment and support. During the enterprise assessment, the Company reviews all aspects of the enterprise that can affect network functionality, performance, and reliability. Next, the Company's consultants apply industry best practices designed to optimize the client's existing IT investments. The Company then designs solutions to address the client's business requirements and define the implementation process, specifications, documentation, migration plans, and coexistence strategies which are utilized in the deployment and support phase of the engagement. 8 . Enterprise messaging solutions are provided to clients that are implementing new messaging systems. A typical engagement involves architecture and design, implementation and operations, and migration and coexistence. During the architecture and design phase, the Company evaluates the impact of the new messaging system on the client's business and develops an architecture that supports scalability and coexistence. During the implementation and operations phase, the Company assists the client in choosing which features to implement and managing the new system. If the client needs to migrate to a new system or maintain disparate systems, the Company can design a solution that addresses key considerations such as directory synchronization, internet coexistence, and data migration. . Network operating systems services deliver enterprise solutions designed to meet current and future client needs in various areas of network operating systems management. These services include architecture and design, migration and coexistence, implementation and operations, and Windows 2000 readiness planning. During the architecture and design phase, the Company determines the specifications for an implementation plan that meet a client's service level requirements. In the course of the migration and coexistence phase, the Company applies its methodology for moving a client from its existing environment with minimal disruptions. This methodology includes tools identification and creation, detailed task lists, end-user communication, focused staff training, lab validation, production pilots, and implementation plans. During implementation and operations, the Company helps the client manage the new environment and develop an operations framework. Through Windows 2000 readiness planning, the Company can assist clients in preparing their network infrastructure to help make a smooth transition to Windows 2000. . Enterprise strategy planning service offerings provide clients with strategic and tactical solutions to address network management. Enterprise strategy planning service offerings include management strategy, operational planning, education, and analysis and research: . Management strategy. The Company's management strategy service focuses on strategic approaches to staffing, IT procurement, service level agreements, support services, and help desk services in order to design management strategies for distributed computing environments. . Operational planning. The operational planning service offers a structured methodology and approach for documenting and designing LAN/WAN, data center, and desktop support processes and services. . Education. The Company provides education services to clients in both beta and production environments so that the client will be able to support deployed technologies. . Analysis and research. The Company provides analysis and research services to companies entering into strategic partnerships or mergers or seeking financing. The Company assesses the current state of the infrastructure within a potential merger or investment candidate and analyzes technology under development. 9 In August 1998, the Company completed the acquisition of Excell Data Corporation. Excell is a systems integrator of Microsoft-centric solutions. The acquisition extended the Company's capabilities in the network services market to include implementation of multi-vendor applications, messaging systems, and network systems in heterogeneous network environments. In addition, through the acquisition of Excell, the Company expanded its resources by approximately 175 skilled network security and enterprise management consultants and extended its geographic reach throughout the Northwest. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations". ADDITIONAL SERVICES In addition to the services described above, the Company also offers the following services to its clients. ASSIMILATION SOLUTIONS. Assimilation Solutions are designed to allow clients to realize the benefits of various technology solutions. The Company's Assimilation Solutions group offers a comprehensive suite of education services, technical training, and technology assimilation tools that provide end users and IT professionals with the skills to use technology solutions that the client has implemented. Through its Rapid Roll-Out Assimilation and Support services, the Company identifies and creates an assimilation plan that is consistent with the client's business objectives, resources, and time constraints. To encourage use of and generate excitement for the new technology, the Company creates and targets messages to the client's organization. The Company also studies the client's day-to-day functions to develop employee training courses, curricula, materials and exercises that are based on real-life business scenarios. The Company conducts instructor-lead training and offers creative delivery methods, including computer-based training, internet-based training, and distance learning. To ensure that the assimilation solution delivers anticipated results, the Company conducts regular quality reviews, conducts focus groups to determine training effectiveness, and evaluates usage of the new technology. IT STRATEGY AND PLANNING. IT Strategy and Planning solutions focus on several major areas of strategic activity common to the concerns of both business and IT professionals. These areas, and the issues they address are as follows: . IT Planning: IT and business leaders determine how technology can be applied to the business to improve overall competitiveness. . IT Governance: The collaborative model between business, the IT function and its partners accelerates return on investment. . Enterprise Architecture: Helps make product and standards decisions, reduce total cost of ownership, and realize a better return on investment, and improves service delivery capability. 10 . Project Management Offices: Allow joint decision making about prioritization, funding, metrics, and staffing. The Company's IT Strategy and Planning solutions begin with workshops involving a client's business executives, end-users, and information technology staff. During these workshops, the Company works with the client to identify business drivers and critical success factors and define the strategic results expected from IT. Next, the team assesses the current IT/business environment of the client and envisions the desired result. The team then evaluates strategic alternatives and establishes a business case and action plan. Finally, the Company provides ongoing executive counsel and periodically reviews priorities, updates strategies, and revises plans as business conditions change. APPLICATION MANAGEMENT SERVICES. The Application Management Services group (AMS) provides enterprise application support and management solutions. These services are designed to improve clients' return on their technology investments and increase overall user satisfaction with new applications. AMS services fall into two major categories -- Roll-out Planning and Delivery services and Production Support and Maintenance services. Roll-out Planning and Delivery services address a client's readiness to implement an application. In delivering these services, the Company works with the client to identify hardware and software needs, resource and skill requirements, and the processes required to support the application. Production Support and Maintenance services are comprised of code maintenance, application support, and technology support for existing applications. Currently, AMS provides application maintenance methodologies and services for solutions the Company has developed and implemented. The Company anticipates extending this service offering to include supporting applications that have been developed by other systems integrators. CONCENTRATION OF REVENUES No customer accounted for more than 5% of net revenues in 1998, 1997, or 1996. In many cases the Company's management consulting and information technology services are delivered in connection with a major information technology project initiated by a client's senior management, board of directors, line of business executive, or information systems department. Since a management consulting project or an engagement involving the development and implementation of a custom strategic business application may result in fees to the Company which have ranged in the past from $500,000 to $10,000,000, in the case of management consulting, and $1,000,000 to $6,000,000 in the case of custom strategic business applications, most customers undertake these projects on an irregular basis. Accordingly, the Company expects that the identity of its largest customers may change from year to year. SALES AND MARKETING The Company markets its services to a wide variety of industries, and its clients include a diverse group of business organizations seeking to achieve competitive advantage. To date, the Company's marketing efforts have been directed toward clients on the basis of business needs rather than industry group and the Company believes that no single industry has been material to the Company's success. 11 The Company utilizes a dedicated sales and marketing organization to market and sell its services. The Company's sales and marketing organization for North America (excluding CMC) consists of 136 employees. Outside of North America, the sales and marketing organization consists of 56 employees operating from the Company's European, Latin American and Pacific Rim offices. CMC's sales and marketing organization consists of 63 employees. Sales and marketing employees outside of North America and for CMC address markets and client opportunities on a regional, geographic basis. During 1998, the Company realigned its sales and marketing resources in North America. The North American sales organization is now responsible for all sales, as well as service delivery relations, other than for CMC. This organization is comprised of a dedicated sales force organized by account; field marketing and business development staff; and a new level of relationship-marketing specialists termed "managing partners." These managing partners are responsible for driving longer-term relationships and demand among the Company's primary clients and act as the central point of contact for these clients. Together, these functions work towards identifying, building and maintaining client relationships for the Company. While the Company's sales and marketing organization has grown and developed with the Company, it strives to keep business development costs low by following a highly leveraged business development model rather than emphasizing traditional, high-cost marketing approaches. Initiatives include pursuing vendor relationships, sponsoring seminars, participating in industry events, and organizing client programs. The Company's vendor relationships provide a highly-leveraged approach to building marketing awareness. The Company has developed strong relationships with many of the industry's leading hardware and software providers, including Arbor, Baan, Broadvision, CBT Systems, Cisco, Clarify, Commerce One, Documentum, Hewlett-Packard, IBM, Informix, Lotus, Microsoft, Netscape, New Era of Networks, Novasoft, Open Market, Oracle, PeopleSoft, Scopus, Siebel, Sun Microsystems, Trilogy, and Vantive. These vendors provide a source of leads for the Company in addition to providing joint funding, content expertise, and additional name recognition for marketing events and programs. These vendors are not contractually obligated to participate in any of those programs and are not prohibited from entering into similar arrangements with the Company's competitors. The Company receives commissions on the sale of hardware manufactured by certain of these vendors. The amount of those commissions is not material to the Company's results of operations. In December 1998, the Company announced the commencement of a strategic alliance with Microsoft Corporation. Under this arrangement, the Company will deliver scalable, replicable solutions based on the Microsoft enterprise platform, with emphasis on electronic commerce, customer loyalty, data warehousing and investment trading platforms, and on Microsoft COM+ technology and the Microsoft Visual Studio development system. The Company is also committed to increasing its number of Microsoft Certified Systems Engineers and Microsoft Certified Solution Developers. The alliance extends the Company's existing relationship with Microsoft, whose products and technologies play an important role in the majority of its client engagements. 12 The Company holds marketing seminars and sponsors industry conferences to promote its service offerings and to provide clients with insight on key business and technology issues. The Company also conducts on-site educational events for senior management in client organizations; hosts marketing events geared toward client needs; and takes additional steps to build relationships with its key clients. These events allow the Company to cross-sell its services and solutions so that clients can take advantage of the full breadth of its offerings. The Company seeks to build strong market awareness and relationships with senior level executives through unique and innovative thought-leadership programs such as those conducted by its Management Lab and the Cambridge Information Network (CIN). THE MANAGEMENT LAB The Management Lab is the Company's research and education organization, chartered with providing intellectual guidance and thought leadership to clients facing the issues associated with adopting advanced information technology. The Management Lab's programs include: the Lyceum, Research Working Groups, Executive Education Programs, Customized Learning Programs, and The Directors Institute on Information Technology. . The Lyceum is an interactive forum that provides senior business and technology executives with insight from industry thought leaders, the Company's experts, and their peers. . Research Working Groups are in-depth research initiatives designed to give teams within organizations the opportunity to work together to find solutions to technology and business issues impacting several departments and create a customized action plan for implementing management practices and strategies. . Executive Education Programs provide high-quality training and instruction to IT executives on broad topics relating to managing the global information resource. . Customized Learning Programs are tailored to meet organization- specific topics. Recent Customized Learning Program topics include: "Celebrating Carbon in a Silicon Economy: Managing the Human Side of Cyber-Space;" "The Battle for Virtual Turf: Driving Brand Vision/Value in a Web-Enabled Economy;" and "Fast, Smart, and Rich: Making Technology Pay." . The Directors Institute on Information Technology is a series of forums that involve the external directors of "Global 1000" companies in IT conversations. CAMBRIDGE INFORMATION NETWORK (CIN) CIN is the Company's internet-based community of more than 2,500 senior information-technology professionals. Effectively a peer-based advisory service, CIN provides a global forum for member executives to discuss key business, technology, and career-management issues, and to collaborate to share experiences, solve common problems, and exchange benchmarking data and useful documents. The majority of the content is shaped by CIN's members. 13 The Company created CIN in 1996 in response to a need expressed by the CIO community to help solve the problems CIOs face: too much information, not enough insight, and not enough time. CIN acts as an information filter, providing an editorial focus and a pragmatic, real-world view of the key issues facing today's CIO. CIN's features include surveys, interviews, insight on technology strategy, help with career and personnel issues, columns, and most importantly, member-created and -led discussion groups. CIN also hosts events for CIOs at which it presents findings from its proprietary research. BACKLOG The Company's fixed-price contract backlog totaled $71.8 million at January 31, 1999, compared to $59.4 million at January 31, 1998. For software development services, the Company and its clients generally agree on a contractually fixed price for each stage of the software development process. The Company only includes in backlog that stage of the software deployment process for which it has obtained a signed contract. Accordingly, backlog does not reflect revenues expected to be derived from future stages of a software development engagement. Because the Company often employs a rapid deployment methodology providing for completion periods of approximately nine months, contracts included in client backlog are generally performed within 12 months. In accordance with industry practice, many of the Company's contracts are terminable by the Company or the client upon short notice. Contracts reflected in backlog could be canceled or delayed and, therefore, backlog is not a measure of future revenues. Those services which the Company performs on a time and materials basis generally can be terminated by the Company or the client at any time. Therefore, estimated backlog amounts for those services are not included in the Company's backlog amount. COMPETITION The management consulting and information technology services market comprises a large number of participants, is subject to rapid changes, and is highly competitive. The market includes participants from a variety of market segments, including systems consulting and integration firms, contract programming companies, application software firms, the professional service groups of computer equipment companies such as Hewlett-Packard Company, IBM, and Compaq Computer Corporation, facilities management and MIS outsourcing companies, "Big Five" accounting firms, and general management consulting firms. The Company's competitors also include companies such as Andersen Consulting, Technology Solutions Corporation, American Management Systems, Cap Gemini America, the consulting division of Computer Sciences Corporation, Electronic Data Systems Corporation, Sapient Corporation, Renaissance Worldwide Incorporated, AnswerThink Consulting Group Incorporated and International Integration Incorporated. The Company also faces competition from information services organizations within potential clients. Some participants in the information technology consulting and software development market have significantly greater financial, technical and marketing resources and greater name recognition than the Company, and generate greater systems consulting and integration revenues than does the Company. In addition, the custom software development and systems integration market is highly fragmented and served by numerous firms, many of which serve only their 14 respective local markets or specialized service niches. However, the Company believes that its rapid development methodology, coupled with its high quality standards, open systems philosophy, client/server and internet architecture approach, and fixed-time/fixed-price contracting practices, distinguish it from its competitors. The Company believes that the principal competitive factors in the consulting and information technology industry include responsiveness to client needs, speed of application software development, speed and effectiveness of business solution development and implementation, quality of service, price, project management capability, technical expertise, and identifiable results. The Company believes it competes favorably with respect to these factors. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability of its competitors to hire, retain and motivate senior project managers, the ownership by competitors of software used by potential clients, the development by others of software that is competitive with the Company's products and services, the price at which others offer comparable services, and the extent of its competitors' responsiveness to customer needs. INTERNATIONAL OPERATIONS In addition to its North American operations, the Company operates in numerous countries around the world. During 1998, the Company expanded its business presence in Europe and the Pacific Rim. The Company opened offices in Copenhagen, Denmark; Utrecht, Netherlands; Brussels, Belgium; Paris, France; Munich, Germany; and Sydney, Australia. In 1998, $190.3 million, or 31% of the Company's total revenues, were derived from customers outside of the United States and Canada, as compared to $128.8 million, or 30%, in 1997. See Note P of the Notes to Consolidated Financial Statements. As the Company increases the amount of business it transacts internationally, it becomes more susceptible to the risks associated with conducting international business. These risks include difficulties in building and managing foreign operations, difficulties in translating its methodologies into foreign languages, market acceptances of the Company's services, fluctuations in the value of foreign currencies, and unexpected regulatory, economic or political changes in foreign markets. These factors may have an adverse effect on the Company and its financial results. HUMAN RESOURCES As of January 31, 1999, the Company had a total staff of 4,444 employees, comprised of 20 senior executives, 63 vice presidents, 225 client partners, 457 project managers, 2,834 application developers and systems consultants, 300 sales and marketing personnel, including 21 managing partners, and an administrative staff of 545 employees. A project manager oversees all phases of a client assignment. Project managers are typically responsible for a single client assignment. At any one time, clients may be involved with the Company on the implementation of more than one strategic business solution. Client partners are responsible for coordinating all of the Company's services to a client, ensuring the solution meets the client's business needs, and maintaining client relationships. The Company's success will depend in large part upon its ability to attract, retain and motivate highly skilled employees, particularly project managers, managing partners, and client partners and other senior technical personnel. Qualified project managers and other technical personnel are in particularly great demand and are likely to remain a limited resource for the foreseeable future. However, the Company believes that it has been successful in its efforts to attract, develop and retain the number of high-quality professionals needed to support present operations and future growth, in part because of its emphasis on training, its policy of promoting from within, and its methodology, which allows associates to progress with one client through multiple phases of a project, thereby maximizing the learning process and maintaining the professional challenge. Although the Company expects to continue to attract sufficient numbers of highly skilled employees and to retain its existing project managers and other senior personnel for the foreseeable future, the Company may not be able to do so. None of the Company's employees is subject to a collective bargaining agreement. The Company believes that its relations with its employees are good. 15 INTELLECTUAL PROPERTY RIGHTS The Company's success is dependent upon its software deployment and consulting methodologies and other proprietary intellectual property rights. The Company relies upon a combination of trade secret, nondisclosure and other contractual arrangements and technical measures, and copyright and trademark laws, to protect its proprietary rights. The Company holds no patents or registered copyrights. The Company generally enters into confidentiality agreements with its employees, consultants, clients, and potential clients and limits access to and distribution of its proprietary information. The Company's steps in this regard may not be adequate to deter misappropriation of its proprietary information and the Company may not be able to detect unauthorized use or take appropriate steps to enforce its intellectual property rights. The Company's business includes the development of custom software applications in connection with specific client engagements. Ownership of this software is generally assigned to the client. In addition, the Company also develops object- oriented software components that can be reused in software application development and certain foundation and application software products, or software "tools," most of which remains the property of the Company. Although the Company believes that its services and products do not infringe on the intellectual property rights of others, it is possible that infringement claims could be asserted against the Company in the future. ITEM 2. PROPERTIES. The Company's Northeast operations and corporate departments are located in approximately 62,000 square feet of leased space in Cambridge, Massachusetts, under a lease which expires in 2007. The lease contains two options for five- year extensions to the term. In connection with the relocation of these operations, as described below, the Company expects to sublet the current facility for the remainder of the lease term. The Company's lease for its Allston, Massachusetts facility, which houses the remainder of the Company's Northeast operations, will be terminated effective June 30, 1999. In January 1998, the Company completed a Lease Agreement with Boston Properties, Inc. for a building to be constructed at Eight Cambridge Center, Cambridge, Massachusetts. The building is expected to contain 177,000 square feet, to house the Company's Northeast operations, new employee training facility, and corporate departments, and to be available to the Company on or about June 1, 1999. The Company also maintains offices and leases office space in the various locations in which it maintains branches and in which its subsidiaries operate. There are regional sales and operations facilities in: Atlanta, Bridgewater (NJ), Cambridge, Chicago, Columbus (OH), Dallas, Denver, Detroit, Los Angeles, Miami, Minneapolis, New York, Newport Beach (CA), Phoenix, Philadelphia, Pittsburgh, Portland (OR), Red Bank (NJ), San Francisco, San Juan (P.R.), San Mateo (CA), San Ramon (CA), Seattle, and Washington D.C. In Canada, the Company has an office in Toronto. European regional sales and operations facilities are located in: Vienna, Austria; Brussels, Belgium; Copenhagen, Denmark; Paris and Versailles, France; Augsburg, Frankfurt, and Munich, Germany; Dublin, Ireland; Amsterdam and Utrecht, Netherlands; Oslo, Norway; Linkoping, Malmo, and Stockholm, Sweden; Geneva and Zurich, Switzerland; and 16 London, Manchester, Reading, and Richmond, United Kingdom. Other offices include: Melbourne and Sydney, Australia; Sao Paolo, Brazil; Bangalore, India; Tokyo, Japan; Mexico City, Mexico; and Caracas, Venezuela. The Company believes that its facilities are suitable and adequate for its near term needs. ITEM 3. LEGAL PROCEEDINGS. On August 31, 1998, the Company acquired Excell Data Corporation ("Excell"). On November 18, 1998, certain of the former shareholders of Excell filed a lawsuit against the Company in the United States District Court for the District of Massachusetts. The complaint alleges breach of contract, violation of federal securities laws, common law fraud, and negligent misrepresentation in connection with the Excell acquisition and seeks unspecified damages. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend the lawsuit. In February 1999, the Company filed a counterclaim alleging breach of contract. On March 22, 1999 and March 29, 1999, certain stockholders of the Company filed class action lawsuits against the Company and certain of the Company's officers in the United States District Court for the District of Massachusetts. The suits allege misrepresentations and omissions regarding the Company's future growth prospects and progress of the Company's reorganization in violation of federal securities laws. The suits seek unspecified damages. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend the lawsuits. The Company is involved in litigation and various other legal matters which have arisen in the ordinary course of business. The Company does not believe that the ultimate resolution of any existing matter will have a material adverse effect on its financial condition, results of operations, or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended December 31, 1998. 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. PRICE RANGE OF COMMON STOCK The Company's Common Stock is currently quoted on the Nasdaq National Market system under the symbol CATP. The following table sets forth, on a per share basis for the periods shown, the range of high and low sales prices of the Company's Common Stock as reported by Nasdaq.
HIGH LOW ---- --- FISCAL YEAR 1997: First Quarter $36.00 $21.25 Second Quarter 34.94 21.75 Third Quarter 38.94 30.25 Fourth Quarter 43.63 34.13 1998: First Quarter 50.88 35.25 Second Quarter 57.88 45.56 Third Quarter 58.38 19.06 Fourth Quarter 24.50 13.38
DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock. The Company's current borrowing arrangements prohibit the payment of dividends without the lender's prior consent. The Company currently intends to retain future earnings for use in its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. STOCKHOLDERS As of March 23, 1999, there were approximately 2,800 stockholders of record. RECENT SALES OF UNREGISTERED SECURITIES On August 31, 1998, the Company issued 1,680,416 shares of its Common Stock in exchange for all of the outstanding shares of capital stock of Excell Data Corporation. The Company's issuance of these shares was exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to Regulation D, Rule 506 under the Securities Act. 18 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data presented below as of and for the fiscal years ended December 31, 1998, 1997, 1996, 1995, and 1994, have been derived from the Company's consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants. This data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company's Consolidated Financial Statements and Notes thereto, and other financial information appearing elsewhere in this Form 10-K.
Years Ended December 31, ------------------------------------------------------------- (in thousands, except per share data) 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues $612,041 $438,329 $294,527 $194,094 $121,117 Costs and expenses: Project personnel 272,263 203,928 138,706 92,924 58,786 General and administration 66,454 47,445 34,239 24,348 16,560 Sales and marketing 56,947 40,668 25,270 20,041 13,465 Other costs 126,970 84,582 55,544 30,739 19,366 Business combination costs 8,400 4,760 1,195 1,333 - -------- -------- -------- -------- -------- Total operating expenses 531,034 381,383 254,954 169,385 108,177 -------- -------- -------- -------- -------- Income from operations 81,007 56,946 39,573 24,709 12,940 Other income (expense): Interest income 2,432 2,135 1,009 817 393 Interest expense (199) (311) (132) (453) (166) Gain on equity investments 798 188 - 909 - Foreign exchange (loss) gain (934) (122) (141) 92 28 -------- -------- -------- -------- -------- Income before income taxes 83,104 58,836 40,309 26,074 13,195 Provision for income taxes 31,164 25,054 16,317 10,145 4,829 -------- -------- -------- -------- -------- Net income $ 51,940 $ 33,782 $ 23,992 $ 15,929 $ 8,366 ======== ======== ======== ======== ======== Basic net income per share $ .90 $ .62 $ .46 $ .32 $ .17 ======== ======== ======== ======== ======== Diluted net income per share $ .83 $ .55 $ .40 $ .28 $ .16 ======== ======== ======== ======== ======== Weighted average number of common shares outstanding 58,079 54,632 52,054 49,992 48,680 ======== ======== ======== ======== ======== Weighted average number of common and common equivalent shares outstanding 63,301 60,775 59,573 56,798 53,063 ======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA: December 31, ------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Cash and cash equivalents $ 80,051 $ 39,649 $ 26,456 $ 11,176 $ 5,676 Investments held to maturity 24,918 15,824 12,727 8,544 10,311 Working capital 177,929 108,301 72,334 37,657 22,930 Total assets 351,206 242,421 150,588 90,235 59,817 Stockholders' equity 242,150 150,867 98,796 56,007 35,102
19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Cambridge Technology Partners (Massachusetts), Inc. (the "Company") is an international management consulting and systems integration firm. Founded in 1991, the Company combines management consulting, internet solutions, custom and package software deployment, network services, and training to rapidly deliver end-to-end business solutions for "Global 1000" organizations worldwide. The Company provides the majority of its services on a fixed-time, fixed-price model with client involvement at all stages of the process. In performing its services, the Company brings together key client users, executives, and IT professionals in interactive sessions to achieve consensus on the business case, strategic objectives, and functionality of a business solution. In many cases, the Company employs a rapid deployment methodology that features an iterative approach. The Company believes that these techniques permit the delivery of results in rapid time frames -- typically within three to twelve months. Net revenues for 1998 increased 40% to $612.0 million compared to $438.3 million for the same period in 1997. Excluding the effect of business combination costs, net income for the year ended December 31, 1998, increased 50% to $57.7 million, or $.92 per share (diluted), compared to $38.5 million, or $.63 per share (diluted), for the same period in 1997. Giving effect to the business combination costs, net income for the year ended December 31, 1998 increased 54% to $51.9 million, or $.83 per share (diluted), compared to $33.8 million, or $.55 per share (diluted), for the same period in 1997. On August 31, 1998, the Company acquired all of the outstanding capital stock of Excell Data Corporation. This acquisition was accomplished through a merger of the Company's acquisition subsidiary and Excell Data Corporation in an exchange of 1,680,416 shares of the Company's common stock for all outstanding shares of capital stock of Excell Data Corporation. The acquisition has been accounted for using the pooling of interests method of accounting, and accordingly, all prior periods presented have been restated to include the financial results of Excell Data Corporation. Founded in 1991, Excell Data Corporation had approximately 510 employees at the time of the acquisition and had locations in Bellevue, Washington, Portland, Oregon, and Denver, Colorado. This acquisition augmented the Company's existing Microsoft-centric service capabilities, expanded the Company's network services business, extended the Company's capabilities in the network services market to include implementation of multi-vendor applications, messaging systems, and network systems in hetrogeneous network environments, and increased the Company's geographic reach in the domestic Northwest region. The Company currently expects to continue seeking opportunities for potential acquisitions of companies or technologies that may complement or enhance the Company's global growth initiatives. The Company cannot be certain that it will be able to identify suitable acquisition opportunities at an acceptable cost, if at all. 20 North American net revenues grew 36% in 1998 compared to 1997, while international net revenues grew 48% in 1998 compared to 1997. North American net revenues for 1998 represent 69% of total net revenues while international net revenues represent 31% of total net revenues for the same period. The international revenue growth resulted from increased demand for the Company's services, primarily in Europe, Latin America, and the Pacific Rim, including management consulting services, custom and package client/server applications, and interactive solutions. While the Company's net revenues grew by 40% in the aggregate in 1998, the Company experienced downward pressure on the growth of its North American Rapid Application Deployment business in the second half of 1998, resulting in a 26% increase in revenues compared to 1997. The lower rate of revenue growth in the Company's North American Rapid Application Deployment business was due to increased competition from the providers of application specific solutions compared to the Company's generalist approach. This increased competition resulted in a decline in the Company's new business win rates and project transition rates. The lower rate of revenue growth was also due to an increased number of clients opting to defer or cancel strategic IT initiatives in favor of completing Year 2000 remediation activities. Effective for 1999, the Company has realigned its North American operations. North American operations, which in 1998 were organized on a regional geographic basis, are now organized around the Company's six principal service offerings: Management Consulting, Interactive Solutions, Customer Management Solutions, Enterprise Resource Solutions, Custom Software Solutions, and Network Services. The Company's sales, marketing and human resources functions also operate on a service line basis within North America. This realignment helps integrate the Company's front-office, back-office, and internet application deployment capabilities. Under the former structure, consultants provided services to clients based on geographic location and the Company was unable to take full advantage of specialist skills not located in a client's geographic region. No longer constrained by geographic regions, the new service line structure is designed to permit the Company to provide clients with its best consultants in specific service areas who can deploy proven methodologies, training, and business processes. This approach is also intended to allow the Company to realize economies of scale in forecasting and staffing and permit better leveraging of industry expertise. During 1998, the Company expanded its business presence domestically and in Europe and the Pacific Rim. The Company opened offices in Copenhagen, Denmark, Utrecht, Netherlands, Brussels, Belgium, Paris, France, Munich, Germany, Sydney, Australia, Denver, Colorado, and Portland, Oregon, bringing worldwide locations to 53 offices at December 31, 1998. In order to meet increased demand for its services, the Company increased its total staff by 25% to 4,385 at December 31, 1998, from 3,496 at December 31, 1997. The Company expects to hire in accordance with its current and anticipated demand requirements and maintains employee appreciation and benefit programs to retain existing and attract new employees. 21 RESULTS OF OPERATIONS To facilitate comparisons, the following table sets forth selected statements of operations data as a percentage of net revenues and the period-to-period percentage changes for net revenues, costs and expenses, and income from operations.
Years Ended December 31, Percentage Increase ------------------------------ ----------------------- 1998 1997 1996 '97 to '98 '96 to '97 ---- ---- ----- ---------- ---------- Net revenues 100% 100% 100% 40% 49% Costs and expenses: Project personnel 45 47 47 34 47 General and administration 11 11 12 40 39 Sales and marketing 9 9 9 40 61 Other costs 21 19 19 50 52 Business combination costs 1 1 - 76 298 ---- ---- ---- Total operating expenses 87 87 87 39 50 ---- ---- ---- Income from operations 13 13 13 42% 44% Other income, net 1 - 1 ---- ---- ---- Income before income taxes 14% 13% 14% ==== ==== ====
All prior period amounts have been restated to reflect the final results of Excell Data Corporation, acquired on August 31, 1998, which was accounted for using the pooling of interests method of accounting (see Note B of Notes to Consolidated Financial Statements). Historically, a majority of the Company's revenues have been recognized using the percentage of completion method, which requires revenues to be recorded over the term of a client contract based on the percentage of work performed. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the fiscal quarter in which the revision becomes known. The Company's operating results may be adversely affected by inaccurate estimates of contract completion costs. Although the Company from time to time is required to make revisions to its work completion estimates, to date, none of these revisions has had a material adverse effect on the Company's operating results. Inaccuracies in future work completion estimates could result in a material adverse effect on the Company's operating results. Losses expected to be incurred on projects in progress are recognized when known. Revenues related to time and materials engagements are recognized when services are performed. A major portion of the Company's services are provided on a fixed-price basis and, therefore, the Company bears the risk of cost overruns. Client project margins and personnel utilization are critical components of the Company's financial performance. The Company regularly reviews staff compensation and overhead costs to ensure that its services are properly priced. In addition, management monitors the progress of client projects on a monthly basis. The Company attempts to manage its personnel utilization rates by closely monitoring project timetables and staffing requirements for new projects. Because the Company's client engagements are generally terminable without substantial client penalty, an unanticipated termination of a client project could require the Company to maintain or terminate under-utilized employees, resulting in a 22 higher than expected number of unassigned persons or higher severance expenses. While the level of professional staff may be adjusted to reflect active projects, the Company must maintain a sufficient number of senior professionals to oversee existing client projects and participate with the Company's sales force in securing new client assignments. RECENT DEVELOPMENTS On March 18, 1999, the Company announced that, based on a preliminary review of its results for the quarter ending March 31, 1999, revenues were expected to be between $148.0 million and $151.0 million, and earnings per share were expected to be in the range of $.12 to $.14 per share, which amounts were below security analysts' revenues estimates of approximately $163.0 million to $170.0 million and earnings per share estimates of $.21 to $.24 per share. The Company also reported that it expected revenues for the full year of 1999 to be between $660.0 million and $675.0 million, and earnings per share for the same period to be in the range of $.72 to $.74 per share. These estimates compare with security analysts' expectations of $750.0 million to $795.0 million in revenues and $1.06 to $1.15 in earnings per share. The Company reported that the benefits of the North American reorganization initiatives undertaken during the fourth quarter of 1998 had not materialized as quickly as anticipated and, as a result, sales growth for the first quarter had been lower than expected. In addition, a decrease in market demand for ERP software licenses had negatively affected demand for the Company's ERS package implementation offerings. The Company expects to report actual results for the first quarter on or about April 15, 1999. The statements concerning expected revenues and earnings per share are merely management's estimates. These estimates are forward-looking statements and are subject to various risks and uncertainties that could cause the Company's actual results to differ materially from these estimates. The factors described below under "Forward-looking Statements" are some of the factors that could cause a material difference in the Company's actual results. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Net revenues increased 40% to $612.0 million in 1998 compared to $438.3 million in 1997 due principally to an increase in the volume of services delivered to new clients, leveraging the existing client base by undertaking additional projects, and continued demand for the Company's service offerings. North American net revenues for 1998 grew 36% to $421.7 million from $309.5 million in 1997. Net revenues from international operations increased by 48% to $190.3 million in 1998 from $128.8 million in 1997. This increase is primarily due to the continued development of the Company's business in Europe and further expansion into Latin America and the Pacific Rim. The decrease in the growth rate in 1998 (40%) compared to 1997 (49%) was primarily attributable to a decrease in the net revenues growth rate of the Company's North American Rapid Application Deployment business. This decrease in the growth rate was due to increased competition from the providers of application specific solutions compared to the Company's generalist approach. The Company's new business win rates and project transition rates declined as a result of the increased competition. The lower rate of net revenues growth was also due to an increased number of clients opting to defer or cancel strategic information technology initiatives in favor of completing Year 2000 remediation activities. Project personnel costs consist principally of payroll and payroll-related expenses for personnel dedicated to client assignments and are directly associated with, and vary with, the level of client services being delivered. Project personnel costs were $272.3 million or 45% of net revenues in 1998 compared to $203.9 million or 47% of net revenues in 1997. The dollar increase resulted from the hiring of additional project personnel over 1997 staff levels and the related increase in payroll and payroll-related expenses to support the increased volume of services delivered to 23 clients and an increase in subcontractor costs. This dollar increase was partially offset by a decrease in variable compensation related to the Company's bonus plan, which contributed to the comparative decrease in project personnel costs as a percentage of net revenues. Worldwide project personnel headcount increased 25% to 3,596 employees at December 31, 1998, from 2,867 employees at December 31, 1997. While the Company anticipates meeting its hiring goals for 1999, competition for personnel with information technology skills is intense and the Company expects salaries and wages to continue to increase. The Company periodically reviews and updates its billing rates to cover the expected increase in costs. The Company manages project personnel costs through the periodic review and measurement of utilization, employee retention, and billability. During 1998, the Company improved its worldwide time entry system to serve as the basis for its productivity measurements. The Company also maintains staffing controls to monitor its subcontractor costs. General and administration expenses were $66.5 million in 1998 compared to $47.4 million in 1997, representing 11% of net revenues for both periods. The dollar increase reflects increased payroll and payroll-related expenses associated with increased staff headcount and increased company-wide relocation, travel, telecommunications and facilities expenses to support the Company's continued growth and geographic expansion in North America and internationally, partially offset by a decrease in variable compensation. General and administration headcount increased 25% to 482 employees at December 31, 1998, from 385 at December 31, 1997. Sales and marketing expenses were $56.9 million in 1998 compared to $40.7 million in 1997, reflecting 9% of net revenues for both periods. The dollar increase was primarily attributable to an increase in payroll and payroll- related expenses and facilities costs associated with the increase in sales and marketing personnel from 244 at December 31, 1997, to 307 at December 31, 1998. The increased headcount enables the Company to maximize potential client lead generation through its regional field marketing staff with subsequent services coordinated by its sales personnel. The dollar increase also resulted from an increase in travel related expenses and increased use of marketing publications in order to provide existing and potential clients with essential information about the Company and its service offerings. The dollar increase was partially offset by a decrease in variable compensation. The Company continued its investment in marketing initiatives and educational and training programs through those conducted by its Management Lab and the Cambridge Information Network. The Management Lab and Cambridge Information Network enable clients to participate in both physical and virtual interactive forums to discuss issues associated with adopting advanced information technology, as well as key business, technology, and career management issues. Other costs consist of non-billable expenses directly incurred for client projects and other associated business costs, including facilities costs and related expenses, non-billable staff costs, and staff training. Other costs were $127.0 million or 21% of net revenues in 1998 compared to $84.6 million or 19% of net revenues in 1997. The dollar increase is primarily attributable to a decrease in project personnel utilization which results in increased non- billable project personnel costs, and increased facility, travel, and employee training and administrative costs, including costs related to maintaining newly opened and expanded offices worldwide, as the Company continues to 24 expand globally. The increase as a percentage of net revenues from 1997 resulted principally from the decrease in project personnel utilization which resulted in increased non-billable project personnel costs. The decrease in project personnel utilization is primarily due to the reduced growth rate of the North American Rapid Application Deployment business. The Company has adjusted its hiring plans to reflect the reduced growth rate of the North American Rapid Application Deployment business and will continue to monitor its staffing needs based on critical skills and demand requirements. Business combination costs were $8.4 million in 1998 and $4.8 million in 1997. Of these business combination costs, approximately $1.7 million and $4.8 million in 1998 and 1997, respectively, related primarily to investment banking, legal, accounting, and consulting fees incurred in connection with the acquisitions of Excell Data Corporation in 1998 and Peter Chadwick Holdings Limited in 1997 (see Note B of Notes to Consolidated Financial Statements). Business combination costs for 1998 also included a charge to operations of $6.7 million, recorded upon consummation of the Excell acquisition, representing amounts owed to participants under the Excell Phantom Stock Plan. The Excell Phantom Stock Plan, by its terms, terminated as a result of the Excell acquisition (see Note G of Notes to Consolidated Financial Statements - Excell Phantom Stock Plan). Interest income increased to $2.4 million in 1998 from $2.1 million in 1997. This increase is principally due to increased cash and short-term investment balances, partially offset by lower interest rates in 1998 compared to 1997. The Company's cash and short-term investments consist primarily of tax exempt investment grade municipal bonds which mature within one year from the date of purchase, overnight repurchase agreements, and short-term commercial paper. Interest expense in 1998 was $199,000 compared to $311,000 in 1997. The decrease is primarily due to interest expense related to a loan obtained by Peter Chadwick Holdings Limited in April 1997 to finance the purchase of a training facility. This loan was repaid in full by the Company in March 1998 (see Note E of Notes to Consolidated Financial Statements). Gain on equity investments, which consists primarily of the Company's investment in Cambridge Technology Capital Fund I L.P. (the "Fund"), was $798,000 in 1998 compared to $188,000 in 1997. The increase is primarily due to investment gains generated by the Fund which was formed in October 1997 (see Note N of Notes to Consolidated Financial Statements). Foreign exchange loss was $934,000 in 1998 compared to a loss of $122,000 in 1997 related to foreign currency exchange rate fluctuations associated with intercompany balances. The 1998 foreign exchange loss consists primarily of losses related to Japan, Ireland, Australia, and Mexico. The Company maintains monthly foreign exchange forward contracts to hedge against the risk of changes in foreign exchange rates associated with intercompany balances. This risk coverage is dependent upon forecasted intercompany activities at the beginning of each month and the exchange rate gains and losses are directly related to the accuracy of these forecasted amounts. As of December 31, 1998, the Company held foreign exchange contracts of approximately $9.4 million. As the Company grows its international business, it becomes 25 increasingly subject to the risks associated with international operations, including changes in foreign currency exchange rates. The Company continues to monitor the impact of foreign currency exchange rates on revenues. The Company's effective income tax rate in 1998 decreased to 37.5% from 42.6% in 1997. This decrease is primarily due to the non-deductible acquisition costs incurred related to acquiring Peter Chadwick Holdings Limited in 1997, which resulted in a 3.7% increase in the effective tax rate for 1997, compared to non- deductible acquisition costs related to the acquisition of Excell Data Corporation in 1998, which resulted in a 0.8% increase in the 1998 effective tax rate. The effective tax rate before non-deductible acquisition costs was 36.7% in 1998 compared to 38.9% in 1997. The decrease is primarily due to a lower blended state income tax rate in 1998 resulting from the Company's state tax rate minimization initiatives put in place in the second half of 1997 and continuing into 1998 and favorable effects of the Company's global tax planning strategies. The Company's effective tax rate may vary from period to period based on the Company's future expansion into areas with varying country, state, and local statutory income tax rates (see Note J of Notes to Consolidated Financial Statements). Net income, excluding business combination costs, increased 50% to $57.7 million or $.92 per share (diluted) for 1998 compared to $38.5 million or $.63 per share (diluted) for the same period in 1997. Giving effect to the applicable business combination costs, net income increased 54% to $51.9 million or $.83 per share (diluted) for 1998 compared to $33.8 million or $.55 per share (diluted) for the same period in 1997. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net revenues increased 49% to $438.3 million in 1997 compared to $294.5 million in 1996 due principally to an increase in the volume of services delivered to new clients, leveraging the existing client base by undertaking additional projects for existing clients, as well as expanding the Company's service offerings to include new services. Operationally, North American net revenues for 1997 grew 56% to $309.5 million, or 71% of consolidated net revenues, from $199.0 million, or 68% of consolidated net revenues, in 1996. This increase reflected the continued marketplace demand for the Company's information technology services in North America. International operations continued to make significant contributions to the growth in net revenues accounting for $128.8 million or 29% of net revenues in 1997 compared to $95.5 million or 32% for the same period in 1996. The percentage decrease in international net revenues as a percentage of consolidated net revenues from 1996 to 1997 was primarily due to the continued increase in the delivery of the Company's services in North America in 1997 and the resulting increase in North American net revenues in 1997. For the year ended December 31, 1997, excluding a negative $5.4 million impact of changes in foreign exchange rates in 1997, the Company's net revenues would have been $443.7 million, or a 51% increase from 1996 net revenues. Project personnel costs were $203.9 million in 1997 compared to $138.7 million in 1996, reflecting 47% of net revenues for both periods. The dollar increase resulted from the hiring of additional project personnel over 1996 staff levels, the related increase in payroll and payroll- 26 related expenses, and increased use of skilled subcontractors on projects. Worldwide project personnel headcount increased 45% to 2,867 employees at December 31, 1997, from 1,979 employees at December 31, 1996. General and administration expenses were $47.4 million or 11% of net revenues in 1997 compared to $34.2 million or 12% of net revenues in 1996. The dollar increase reflected expenses associated with increased staff headcount and increased company-wide recruiting and relocation expenses to support the Company's continued growth and geographic expansion in North America and internationally. General and administration headcount increased 48% to 385 employees at December 31, 1997, from 266 at December 31, 1996. The decrease as a percentage of net revenues was primarily due to the significant increase in net revenues in 1997. Sales and marketing expenses were $40.7 million in 1997 compared to $25.3 million in 1996, reflecting 9% of net revenues for both periods. The dollar increase was primarily attributable to an increase in payroll and payroll- related expenses associated with the increase in sales and marketing personnel from 141 at December 31, 1996 to 244 at December 31, 1997, and the increase in sales commissions related to the increase in net revenues. This increase also resulted from increased participation in trade shows and marketing publications in order to provide existing and potential clients with essential information about the Company and its service offerings. Other costs were $84.6 million in 1997 compared to $55.5 million in 1996, reflecting 19% of net revenues for both periods. The dollar increase from 1996 resulted principally from increased facility, travel, and employee training costs, including costs related to maintaining newly opened and expanded offices in North America and internationally as the Company continued to expand globally. Business combination costs of $4.8 million in 1997 and $1.2 million in 1996, which consist primarily of investment banking, legal, accounting, and consulting fees, were incurred in connection with the acquisitions of Peter Chadwick Holdings Limited in 1997, and NatSoft S.A. and Ramos & Associates, Inc. in 1996 (see Note B of Notes to Consolidated Financial Statements). Interest income increased to $2.1 million in 1997 from $1.0 million in 1996. This increase was principally due to increased cash and short-term investment balances and higher average interest rates obtained in 1997 compared to 1996. The Company's cash and short-term investments consist primarily of tax exempt investment grade municipal bonds which mature within one year from the date of purchase, overnight repurchase agreements, and short-term commercial paper. Interest expense in 1997 was $311,000 compared to $132,000 in 1996. The increase was primarily due to interest expense related to a loan obtained by Peter Chadwick Holdings Limited in April 1997 to finance the purchase of a training facility (see Note E of Notes to Consolidated Financial Statements). 27 Foreign exchange loss was $122,000 in 1997 compared to a loss of $141,000 in 1996 related to foreign currency exchange rate fluctuations associated with intercompany balances. As of December 31, 1997, the Company held foreign exchange contracts of approximately $4.1 million. The Company's effective income tax rate in 1997 increased to 42.6% from 40.5% in 1996. This increase was primarily due to the non-deductible acquisition costs incurred related to acquiring Peter Chadwick Holdings Limited in the fourth quarter of 1997 which resulted in a 3.7% increase in the effective tax rate for 1997. The effective tax rate before non-deductible acquisition costs was 38.9% in 1997 compared to 40.5% in 1996. The decrease is primarily due to favorable effects of state tax rate minimization initiatives put in place in 1997 (see Note J of Notes to Consolidated Financial Statements). Net income was $33.8 million or $.55 per share (diluted) for 1997 compared to $24.0 million or $.40 per share (diluted) for the same period in 1996. Net income per share (diluted) increased 38% from 1996. Excluding the effects of business combination costs, net income per share (diluted) for 1997 increased 54% to $.63 from $.41 in 1996. LIQUIDITY AND CAPITAL RESOURCES In 1998, the Company continued to generate cash flow from operations to fund its business growth and strategic acquisitions. In addition, the Company continued to operate primarily debt free and enhanced its working capital position. Working capital increased to $177.9 million at December 31, 1998, from $108.3 million at December 31, 1997. This increase was primarily due to positive cash flows from operations, an increase in accounts receivable, proceeds from the exercise of stock options, and proceeds from shares issued under the Company's employee stock purchase plan, partially offset by cash used for capital expenditures related to office expansions and computer equipment for new employees and increases in accrued expenses and income taxes payable. The Company's days sales outstanding was 76 days at December 31, 1998 compared to 71 days at December 31, 1997. This increase was primarily due to lower net revenue growth coupled with an increase in average accounts receivable in the 1998 period. The average outstanding receivable balances from clients were greater in 1998 as a result of the higher billing amounts per project compared to smaller projects in 1997, coupled with the more time consuming payment processes of major corporations. The Company continued to focus on its outstanding receivables by involving its project management staff in the collection process and experienced a 6% improvement in days sales outstanding in the fourth quarter of 1998 (78 days) compared to the third quarter of 1998 (83 days). This positive trend is in line with the Company's short term goal of 70 days sales outstanding. Despite the increased days sales outstanding in 1998, the Company's cash equivalent and short-term investment balances increased 89% to $105.0 million at December 31, 1998, from $55.5 million at December 31, 1997. 28 Net cash provided by operating activities increased by $26.7 million to $51.2 million in 1998 from $23.3 million for the comparable period in 1997. This increase is primarily the result of increases in net income, depreciation and amortization, and tax benefits from the exercise of stock options plus decreases in the growth of accounts receivable, which were partially offset by an increase in other assets, a decrease in accounts payable, and decreases in the growth of accrued expenses and prepaid expenses and other current assets. The ability of the Company to sustain tax benefits from the exercise of stock options is dependent upon the market price of the Company's stock compared to the exercise price. Capital expenditures, which totaled $24.0 million in 1998, were principally for computer equipment to support the Company's expanding operations and employee workstations and leasehold improvements for the Company's expanding and new offices in North America and internationally. Capital expenditures for 1999 are expected to approximate $34 million, principally for leasehold improvements, personal computers, employee workstations, telecommunication and video conferencing equipment, and other equipment to support both current and anticipated levels of customer activities in North America and internationally plus relocating the Company's Cambridge, Massachusetts facility. The actual amount of capital expenditures may vary from management's estimates as capital needs arise and actual expenditures are made. In order to support the Company's anticipated business growth, capital expenditures, and working capital, the Company obtained, in September 1998, a $50.0 million unsecured senior revolving credit facility (the "Facility") through a syndication arrangement committed equally by The Chase Manhattan Bank ("Chase") and Fleet National Bank ("Fleet Bank"). The Facility expires on September 10, 2001 and replaces the Company's previously maintained $20.0 million revolving credit facility that expired on June 30, 1998. The Facility is administered by Chase and carries a commitment fee, payable quarterly in arrears, calculated based on the unused portion of the Facility and a price grid as set forth in the credit agreement. The Facility permits the Company to select any one of three possible interest rate formulas as defined in the credit agreement. Interest is payable in arrears based on an interest period determined by the interest rate elected by the Company. The Facility requires, among other things, the Company to maintain certain financial ratios, including debt service coverage, debt to capital, and net worth. For the year ended December 31, 1998, the Company was in compliance with these financial ratio requirements. As of December 31, 1998, the Company had no balance outstanding under the Facility. Cambridge Technology Capital Fund I L.P. (the "Fund") was formed in October 1997 as a limited partnership with committed capital of approximately $25.3 million. The Fund is intended to invest in expansion-stage, private companies providing products and services within areas of the Company's strategic expertise. A wholly owned subsidiary of the Company acts as the sole general partner of the Fund's general partner and the Company's investment is accounted for using the equity method of accounting. The Company's capital commitment to the Fund is approximately $6.0 million. No more than two-thirds of the Fund's committed capital may be called before October 1999 without approval of the Fund's partners. The balance of the Fund's 29 capital has been provided by institutional investors and directors and employees of the Company. At December 31, 1998, the Company's cumulative investment in the Fund amounted to approximately $1.9 million with an additional $800,000 contributed through February 1999. The Company's investment in the Fund resulted in a net gain of approximately $798,000 for the year ended December 31, 1998. In January 1998, the Company entered into an agreement with Boston Properties Limited Partnership ("Boston Properties") to lease a building to be constructed and developed by Boston Properties. This approximately 177,000 square foot building, which is located in Cambridge, Massachusetts, will house the Company's Northeast operations, new employee training facility, and corporate departments. The lease agreement is for a ten-year period, which is expected to commence in June 1999. The Company's current facility in Cambridge, Massachusetts, which houses part of the Company's Northeast operations and corporate functions, is expected to be subleased to a third party through its remaining lease term. The Company's lease at its Allston, Massachusetts facility, which houses the remainder of the Company's Northeast operations will be terminated effective June 30, 1999. The Company expects that cash flows from operations will provide the principal source of future liquidity for the Company. However, the Company is currently experiencing a period of growth which could place a strain on the Company's financial resources. The Company currently anticipates that existing cash and investment balances combined with cash generated from operations and amounts available under the Facility will be sufficient, at least through 1999, to meet the Company's working capital requirements and to fund the expansion of the Company's business. In order to meet client demand for the Company's services in 1999, the Company expects to continue to increase its professional staff and to open additional sales and operations offices in North America and internationally. The Company plans to open offices and hire personnel in anticipation of increased demand for the Company's services. Operating results and liquidity may be adversely affected if market demand and revenues do not increase as anticipated. As the Company expands its international operations, a number of factors, including market acceptance of the Company's services, significant fluctuations in currency exchange rates, and changes in general economic, political, or regulatory conditions could also adversely affect future results and liquidity. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue results from computer programs written using two digits rather than four to define the applicable year. Any of the Company's internal computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. 30 The Company has conducted an assessment of its information technology ("IT") systems and non-IT systems (such as building security, voice mail, telephone and other systems containing embedded microprocessors) and is in the process of upgrading and enhancing material internal systems to bring them into material Year 2000 compliance. These activities are expected to be completed by the end of the second quarter of 1999. The Company's material internal IT systems consist principally of accounting, human resources and sales force automation application software created by third parties, plus internally developed time and expense reporting and project accounting software applications. For the third-party software applications, the Company has obtained written confirmation that the software applications are Year 2000 compliant. The Company also expects that each of these third party applications will be upgraded, as well as tested by the Company for Year 2000 compliance by the end of the second quarter of 1999. The Company believes that its internally developed applications are now materially Year 2000 compliant. The Company's computer hardware platforms, principally servers, have been confirmed as Year 2000 compliant by the server manufacturers, and this has been supported by the Company's internal testing. Based on currently available information, the Company believes the expense associated with these efforts will be immaterial and has provided for the enhancement of these systems in its operating and capital budgets for the current fiscal year. However, if compliance efforts of which the Company is not currently aware are required and are not completed on time, or if the cost of any required updating, modification or replacement of the Company's IT systems exceeds the Company's estimates, the Year 2000 issue could have a material adverse effect on the Company. In addition to the Company's internal systems, the Company relies on third party relationships in the conduct of its business. For example, third party vendors handle the payroll function for the Company, and the Company also relies on the services of landlords of its facilities, telecommunication companies, banks, utilities, and commercial airlines, among others. The Company is currently obtaining assurances from its landlords and material vendors and suppliers that there will be no interruption of service as a result of the Year 2000 issue, and to the extent such assurances are not given, the Company intends to devise contingency plans to ameliorate the negative effects on the Company in the event the Year 2000 issue results in the unavailability of services. However, contingency plans developed by the Company may not prevent a service interruption on the part of one or more of the Company's third party vendors or suppliers from having a material adverse effect on the Company. In addition, the failure on the part of the accounting systems of the Company's clients due to the Year 2000 issue could result in a delay in the payment of invoices issued by the Company for services and expenses. A failure of the accounting systems of a significant number of the Company's clients would have a material adverse effect on the Company. The Company is preparing written contingency plans to address failures in its major IT and non-IT systems. These plans will include identification of major systems, dependencies on third parties, and resources and strategies necessary to restore operations or work around failures. The failure of the Company's accounting systems resulting from a Year 2000 related power system outage at the Company's central data center, particularly at the end of a fiscal period, could represent a reasonably likely worst case scenario. The Company's contingency plan provides for 31 back-up power systems that could support the data center, as well as the operation of a parallel third party disaster recovery site. Although the Company's principal service offerings do not include Year 2000 remediation services, former, present and future clients could assert that certain services performed by the Company involved or are related to the Year 2000 issue. The Company has recommended, implemented, and customized various third-party software packages for its clients, certain of which may not be Year 2000 compliant. Because the Company has designed, developed and implemented software and systems for a large number of clients since 1991, there can be no way of assuring that all such software programs and systems will be Year 2000 compliant. In particular, the Company's solution delivery methodology, in many cases, empowers clients to maintain, alter and upgrade systems after the completion of an engagement. Due to the potential significance of the Year 2000 issue upon client operations, upon any failure of critical client systems or processes that may be directly or indirectly connected or related to systems or software analyzed, designed, developed, or implemented by the Company, the Company may be subjected to claims regardless of whether the failure is related to the services provided by the Company. If asserted, the resolution of such claims (and the associated defense costs) could have a material adverse effect on the Company. The Company's policy has been to attempt to include provisions in client contracts that, among other things, disclaim implied warranties, limit the duration of express warranties, limit the Company's liability to the amount of fees paid by the client to the Company in connection with the project, and disclaim any liability arising from third-party software that is implemented, customized or installed by the Company. The Company may not be able to obtain these contractual protections in agreements concerning future projects, and contractual provisions governing current and completed projects may not prevent clients from asserting claims against the Company with respect to the Year 2000 issue. The contractual protections, if any, obtained by the Company may not effectively operate to protect the Company from, or limit the amount of, any liability arising from claims asserted against the Company. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company) (see Note A of Notes to Consolidated Financial Statements). FORWARD-LOOKING STATEMENTS This Form 10-K includes forward-looking statements (statements that are not historical facts), including, without limitation: statements about future net revenues and profits, including estimated revenues and earnings per share for the quarter ending March 31, 1999 and the year ending December 31, 1999; capital expenditures; liquidity sources and needs; working capital needs; the Year 2000 issue; the impact of the realignment of the Company's North American operations in 1999; 32 the Company's hiring efforts; increases in personnel and related costs; geographic expansion and opening additional offices; and litigation involving the Company. These forward-looking statements are subject to several risks and uncertainties. While it is impossible to identify each factor and event that could affect the Company's results, there are a number of important factors that could cause the Company's actual results to differ materially from those indicated by the forward-looking statements and that could have an impact on the Company's operating results. These factors include, without limitation, the number and significance of client engagements commenced and completed during a period; the number of working days in a period; employee hiring, retention, and utilization rates; the Company's ability to manage its growth; the Company's ability to manage the cost of its engagements; changes in demand for the Company's services; changes in demand for third party products or solutions for which the Company performs integration services; risks associated with the Company's realignment of its North American operations from a geographic-based to a service line model, including the orientation of new management teams within the service line structure and the need to develop reliable forecasting tools for each service line within the organization; the Year 2000 issue, including the effect of the Year 2000 issue on client purchasing patterns; competition; risks associated with international operations; the acceptance and profitability of the Company's services in new locations; the integration of acquired businesses; unanticipated negative outcomes of litigation involving the Company; and misappropriation of, or lack or loss of protection of, the Company's intellectual property. The timing of revenues is difficult to forecast because the Company's sales cycle is relatively long in the case of new clients and may depend on factors such as the size and scope of client assignments and general economic conditions. Because a high percentage of the Company's expenses are relatively fixed, a variation in the timing of the initiation or the completion of client assignments, particularly at or near the end of any quarter, can cause significant variations in operating results from period to period. 33 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates due to investments in instruments made for non-trading purposes. The interest rate risk relates primarily to the Company's portfolio of short-term investment grade municipal securities. The Company is also subject to risk relating to fluctuating interest rates to the extent that it incurs any borrowings under its credit facility. The foreign exchange rate risk relates to the Company's investment in foreign exchange contracts which are entered into in order to mitigate the risk of changes in foreign exchange rates associated with intercompany balances. The Company believes that interest rate risk and foreign currency exchange rate risk are both immaterial to the Company. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is contained in the financial statements and schedules set forth in Item 14(a) under the captions "Consolidated Financial Statements" and "Financial Statement Schedules" as a part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with accountants on accounting or financial disclosure matters during the Company's two most recent fiscal years. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required under this item may be found under the sections captioned "Election of Directors," "Election of Directors - Directors and Executive Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement pursuant to Regulation 14A (the "1999 Proxy Statement"), which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1998, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required under this item may be found under the section captioned "Compensation and Other Information Concerning Executive Officers and Directors" in the 1999 Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required under this item may be found under the section captioned "Principal Holders of Voting Securities" and "Election of Directors - Stock Ownership of Directors and Executive Officers" in the 1999 Proxy Statement, and is incorporated herein by reference. 34 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required under this item may be found under the section captioned "Election of Directors - Certain Relationships and Related Transactions" in the 1999 Proxy Statement, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Consolidated Financial Statements. For the following consolidated financial information included herein, see Index to Consolidated Financial Statements on Page F-1: Report of Independent Accountants. Consolidated Balance Sheets as of December 31, 1998 and 1997. Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules. The following consolidated financial statement schedule is included in Item 8 of this Form 10-K: II -- Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or the information is otherwise included. 3. Exhibits. The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Annual Report on Form 10-K, and such Exhibit Index is incorporated herein by reference. 35 (B) REPORTS ON FORM 8-K. On December 2, 1998, the Company filed a Current Report on Form 8-K relating to a lawsuit filed on November 18, 1998 by certain of the former shareholders of Excell Data Corporation. See "Item 3 - Legal Proceedings". (C) EXHIBITS. The Company hereby files as part of this Form 10-K the exhibits listed on the Exhibit Index referenced in Item 14(a)(3) above. Exhibits can be inspected and copied at the public reference facilities maintained by the Commission, 450 Fifth Street, N.W., Washington, D.C., 20549 and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048, and at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Common Stock of the Company is traded on the Nasdaq National Market. Reports and other information concerning the Company may be inspected at the National Association of Securities Dealers, Inc. 1735 K Street, N.W., Washington, D.C. 20006. (D) FINANCIAL STATEMENT SCHEDULES. The Company hereby files as part of this Form 10-K the consolidated financial statement schedule listed in Item 14(a)(2) above, which is attached hereto. 36 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THE 30TH DAY OF MARCH, 1999. Cambridge Technology Partners (Massachusetts), Inc. By: /s/ James K. Sims -------------------------------------- James K. Sims President POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of Cambridge Technology Partners (Massachusetts), Inc., hereby severally constitute and appoint James K. Sims and Arthur M. Toscanini, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, amendments to this report, and generally to do all things in our names and on our behalf in such capacities to enable Cambridge Technology Partners (Massachusetts), Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ James K. Sims Chief Executive Officer, President March 30, 1999 - ------------------------------ James K. Sims and Director (Principal Executive Officer) /s/ Arthur M. Toscanini Executive Vice President - Finance, March 30, 1999 - ------------------------------ Arthur M. Toscanini Chief Financial Officer and Treasurer (Principal Financial Officer) /s/Louis P. Persico Chief Accounting Officer (Principal March 30, 1999 - ------------------------------ Louis P. Persico Accounting Officer) /s/ Warren V. Musser Director March 30, 1999 - ------------------------------ Warren V. Musser /s/ Jack L. Messman Director March 30, 1999 - ------------------------------ Jack L. Messman /s/ John W. Poduska, Sr. Director March 30, 1999 - ------------------------------ John W. Poduska, Sr. /s/ Robert E. Keith, Jr. Director March 30, 1999 - ------------------------------ Robert E. Keith, Jr. /s/ James I. Cash, Jr. Director March 30, 1999 - ------------------------------ James I. Cash, Jr. /s/ James D. Robinson III Director March 30, 1999 - ------------------------------ James D. Robinson III
37 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996 F-6 Notes to Consolidated Financial Statements F-7 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cambridge Technology Partners (Massachusetts), Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Cambridge Technology Partners (Massachusetts), Inc. (the "Company") at December 31, 1998 and December 31, 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts February 2, 1999, except for Note R, as to which the date is March 29, 1999 F-2 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
DECEMBER 31, -------------------- 1998 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 80,051 $ 39,649 Investments held to maturity 24,918 15,824 Accounts receivable, less allowance of $4,550 and $2,757 at December 31, 1998 and 1997, respectively 133,583 105,206 Unbilled revenue on contracts 10,964 9,048 Deferred income taxes 2,179 950 Prepaid expenses and other current assets 33,284 27,878 -------- -------- Total current assets 284,979 198,555 Property and equipment, net 48,255 36,027 Other assets 16,786 5,745 Goodwill, net 1,186 2,094 -------- -------- Total assets $351,206 $242,421 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,804 $ 19,134 Accrued expenses 49,603 40,018 Deferred revenue 10,861 9,502 Income taxes payable 30,635 19,361 Obligations under capital leases, current 147 207 Other current liabilities - 2,032 -------- -------- Total current liabilities 107,050 90,254 Obligations under capital leases 197 377 Deferred income taxes 1,809 923 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, authorized 250,000,000 and 120,000,000 shares at December 31, 1998 and 1997, respectively; issued and outstanding 58,856,401 and 56,649,420 shares at December 31, 1998 and 1997, respectively 589 567 Additional paid-in capital 115,662 75,400 Retained earnings 127,551 77,361 Accumulated other comprehensive loss (1,652) (2,461) -------- -------- Total stockholders' equity 242,150 150,867 -------- -------- Total liabilities and stockholders' equity $351,206 $242,421 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-3 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
YEARS ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Net revenues $612,041 $438,329 $294,527 Costs and expenses: Project personnel 272,263 203,928 138,706 General and administration 66,454 47,445 34,239 Sales and marketing 56,947 40,668 25,270 Other costs 126,970 84,582 55,544 Business combination costs 8,400 4,760 1,195 -------- -------- -------- Total operating expenses 531,034 381,383 254,954 -------- -------- -------- Income from operations 81,007 56,946 39,573 Other income (expense): Interest income 2,432 2,135 1,009 Interest expense (199) (311) (132) Gain on equity investments 798 188 - Foreign exchange loss (934) (122) (141) -------- -------- -------- Income before income taxes 83,104 58,836 40,309 Provision for income taxes 31,164 25,054 16,317 -------- -------- -------- Net income $ 51,940 $ 33,782 $ 23,992 ======== ======== ======== Basic net income per share $.90 $.62 $.46 ======== ======== ======== Diluted net income per share $.83 $.55 $.40 ======== ======== ======== Weighted average number of common shares outstanding 58,079 54,632 52,054 ======== ======== ======== Weighted average number of common and common equivalent shares outstanding 63,301 60,775 59,573 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-4 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
ADDITIONAL NUMBER OF PAR PAID-IN SHARES VALUE CAPITAL ----------- --------- ------------ Balance, December 31, 1995 21,099,186 $ 212 $ 28,121 Comprehensive Income: Net income - - - Other comprehensive income: Foreign currency translation adjustment - - - Total comprehensive income Excercise of stock options 1,776,193 18 8,297 Tax benefit related to stock option exercises - - 10,555 Shares issued under employee stock purchase plan 124,123 1 2,070 Issuance of Ramos stock under restricted stock plan - - 5 Shares to effect stock split 30,368,134 303 (303) Accretion of Peter Chadwick preferred stock - - 787 Dividend distribution (Peter Chadwick) - - - Dividend distribution (NatSoft) - - - ----------- ----------- ---------- Balance, December 31, 1996 53,367,636 534 49,532 Comprehensive Income: Net income - - - Other comprehensive income: Foreign currency translation adjustment - - - Total comprehensive income Exercise of stock options 2,170,050 22 12,779 Tax benefit related to stock option exercises - - 5,807 Shares issued under employee stock purchase plan 211,734 2 4,934 Exercise of stock warrants 900,000 9 1,791 Foreign currency translation adjustment Accretion of Peter Chadwick preferred stock - - 557 Dividend distribution (Peter Chadwick) - - - Dividend distribution (Excell) - - - ----------- --------- ---------- Balance, December 31, 1997 56,649,420 567 75,400 Comprehensive Income: Net income - - - Other comprehensive income: Foreign currency translation adjustment - - - Unrealized gain on investment, net of taxes - - - Other comprehensive income Total comprehensive income Exercise of stock options 1,975,616 20 18,656 Tax benefit related to stock option exercises - - 12,238 Shares issued under employee stock purchase plan 231,365 2 7,618 Excell conversion to C Corporation - - 1,750 ----------- --------- ---------- Balance, December 31, 1998 58,856,401 $ 589 $ 115,662 =========== ========= ========== ACCUMULATED OTHER COMPREHENSIVE RETAINED INCOME (LOSS) EARNINGS TOTAL ------------- ------------- ------------ Balance, December 31, 1995 $ 260 $27,414 $ 56,007 Comprehensive Income: Net income - 23,992 23,992 Other comprehensive income: Foreign currency translation adjustment (135) - (135) ---------- Total comprehensive income 23,857 Excercise of stock options - - 8,315 Tax benefit related to stock option exercises - - 10,555 Shares issued under employee stock purchase plan - - 2,071 Issuance of Ramos stock under restricted stock plan - - 5 Shares to effect stock split - - - Accretion of Peter Chadwick preferred stock - (787) - Dividend distribution (Peter Chadwick) - (1,999) (1,999) Dividend distribution (NatSoft) - (15) (15) ---------- ---------- ---------- Balance, December 31, 1996 125 48,605 98,796 Comprehensive Income: Net income - 33,782 33,782 Other comprehensive income: Foreign currency translation adjustment (2,586) - (2,586) - ---------- Total comprehensive income 31,196 Exercise of stock options - - 12,801 Tax benefit related to stock option exercises - - 5,807 Shares issued under employee stock purchase plan - - 4,936 Exercise of stock warrants - - 1,800 Foreign currency translation adjustment Accretion of Peter Chadwick preferred stock - (557) - Dividend distribution (Peter Chadwick) - (4,085) (4,085) Dividend distribution (Excell) - (384) (384) ---------- ---------- ---------- Balance, December 31, 1997 (2,461) 77,361 150,867 Comprehensive Income: Net income - 51,940 51,940 Other comprehensive income: Foreign currency translation adjustment (446) - (446) Unrealized gain on investment, net of taxes 1,255 - 1,255 ---------- Other comprehensive income 809 ---------- Total comprehensive income 52,749 Exercise of stock options - - 18,676 Tax benefit related to stock option exercises - - 12,238 Shares issued under employee stock purchase plan - - 7,620 Excell conversion to C Corporation - (1,750) - --------- --------- ---------- Balance, December 31, 1998 $ (1,652) $127,551 $242,150 ========= ========= ==========
The accompanying notes are an integral part of the consolidated financial statements. F-5 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 ---------- --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 51,940 $ 33,782 $ 23,992 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,846 8,762 6,795 Tax benefit from exercise of stock options 12,238 5,807 10,555 Unrealized gain on investment in Cambridge Technology Capital Fund (798) - - Benefit for deferred income taxes (1,096) (337) (566) Changes in assets and liabilities: Increase in accounts receivable (27,574) (45,346) (21,733) Increase in unbilled revenue on contracts (1,880) (4,756) (1,422) Increase in prepaid expenses and other current assets (5,214) (10,533) (9,355) Increase in other assets (6,689) (2,346) (1,829) (Decrease)/increase in accounts payable (3,422) 6,483 5,429 Increase in accrued expenses 8,331 13,680 8,721 Increase in deferred revenue 1,359 4,217 2,371 Increase in income taxes payable 11,165 12,741 2,211 Other, net - 1,129 124 -------- -------- -------- Net cash provided by operating activities 51,206 23,283 25,293 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (24,048) (23,089) (13,282) Purchase of investments held to maturity (32,288) (18,261) (18,467) Maturity of investments held to maturity 23,194 15,164 14,284 Investment in Cambridge Technology Capital Fund (1,589) (300) - -------- -------- -------- Net cash used in investing activities (34,731) (26,486) (17,465) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under credit arrangements, net - - (325) Issuance of common stock, net of issuance costs - - 5 Proceeds from long-term loan arrangement - 875 12 Repayment of long-term debt and capital leases (1,013) (250) (271) Dividend distributions (1,193) (3,340) (2,014) Proceeds from employee stock purchase plan 7,620 4,936 2,071 Proceeds from exercise of stock options 18,676 12,801 8,315 Proceeds from exercise of warrants - 1,800 - -------- -------- -------- Net cash provided by financing activities 24,090 16,822 7,793 -------- -------- -------- Effect of foreign exchange rate changes on cash (163) (426) (341) Net increase in cash and cash equivalents 40,402 13,193 15,280 Cash and cash equivalents at beginning of period 39,649 26,456 11,176 -------- -------- -------- Cash and cash equivalents at end of period $ 80,051 $ 39,649 $ 26,456 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements F-6 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Summary of Significant Accounting Policies ------------------------------------------ BUSINESS DESCRIPTION Cambridge Technology Partners (Massachusetts), Inc. (the "Company") is an international management consulting and systems integration firm. Founded in 1991, the Company combines management consulting, internet solutions, custom and package software deployment, network services, and training to rapidly deliver end-to-end business solutions for "Global 1000" organizations worldwide. The Company provides the majority of its services on a fixed-time, fixed-price model with client involvement at all stages of the process. In performing its services, the Company brings together key client users, executives, and IT professionals in interactive sessions to achieve consensus on the business case, strategic objectives, and functionality of a business solution. In many cases, the Company employs a rapid development methodology that features an iterative approach. BASIS OF REPORTING The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and balances have been eliminated in consolidation. On August 31, 1998, the Company acquired all of the outstanding capital stock of Excell Data Corporation ("Excell"). The acquisition of Excell was accounted for using the pooling of interests method of accounting (see Note B). All prior period historical consolidated financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of Excell. Certain prior period amounts have been reclassified to conform with current period presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase and whose carrying amount approximates market value due to the short maturity of the investments. INVESTMENTS The Company has the positive intent and ability to hold its short-term investments to maturity. These investments are classified as investments held to maturity and mature within one year from the date of purchase. At December 31, 1998 and 1997, the Company held investment grade municipal bonds of $24.9 million and $15.8 million, respectively, which are reported at amortized cost that approximates market value. Marketable equity securities are classified as available for sale within other assets and are recorded at fair value. At December 31, 1998, the Company had marketable securities at fair value of $2.1 million with a cost of $96,000 and an unrealized gain of $1.3 million, net of taxes. F-7 PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Repairs and maintenance costs are charged to operations when incurred, while betterments are capitalized. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, which range from three to fifteen years for equipment, furniture and fixtures, leasehold improvements, motor vehicles, and software and other depreciable assets. Buildings are being depreciated over an estimated useful life of forty years. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation is removed from the accounts and any gain or loss is reflected in income. INTANGIBLE ASSETS Goodwill of approximately $4.8 million, related to the acquisition of IOS Group AB (now CTP Scandinavia) in February 1994, is being amortized over six years on a straight-line basis. The Company recorded amortization expense of $798,000 for each of the years ended December 31, 1998, 1997, and 1996. As of December 31, 1998 and 1997, the accumulated amortization was $3.9 million and $3.1 million, respectively. The carrying value of goodwill is subject to periodic review of realizability. REVENUE RECOGNITION The Company operates in one industry segment, the design, development, and implementation of business solutions. Revenues derived from any software maintenance and support services are immaterial to the consolidated financial statements of the Company. Revenues from software design, development, and implementation contracts are recognized primarily on the percentage of completion method. The cumulative impact of any revision in estimates of the percent complete is reflected in the period in which the changes become known. Losses on projects in progress are recognized when known. Revenues from management consulting and package software evaluation and implementation services are recognized as the service is provided, principally on a time and materials basis. Net revenues exclude reimbursable expenses charged to clients. Deferred revenue consists of amounts received or billed in advance of services to be provided. Unbilled revenue represents amounts recognized based on services performed in advance of billings in accordance with contract terms. EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standard No. 128, "Earnings per Share," ("SFAS 128") beginning with the year ended December 31, 1997, which includes retroactively restating earnings per share ("EPS") for all prior periods for which EPS data is presented. SFAS 128 requires the presentation of basic and diluted EPS. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed using the weighted average number of common shares outstanding plus the dilutive effect of common stock equivalents (using the treasury stock method). F-8 TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS For non-U.S. operations, the functional currency is the applicable local currency. The translation of the functional currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average rates of exchange prevailing during the reporting period. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses resulting from foreign currency transactions are included in the results of operations. FOREIGN EXCHANGE CONTRACTS The Company maintains foreign exchange contracts to mitigate the risk of changes in foreign exchange rates associated with intercompany balances. The contracts generally have maturities of one month. The impact of exchange rate movements on contracts is recorded in other income in the period in which the exchange rates change, generally consistent with the term of the contract. As of December, 31, 1998 and 1997, the Company held foreign exchange forward contracts of approximately $9.4 million and $4.1 million, respectively, and there were no related deferred gains and losses. The Company does not hold foreign exchange contracts for trading purposes. CONCENTRATION OF CREDIT RISK The Company provides its services primarily to Global 1000 companies. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses. Such losses have been immaterial and have been within management's expectation. No single customer accounted for 5% or more of total net revenues for the years ended 1998, 1997, and 1996. The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to these contracts are major financial institutions. The Company continually monitors its positions and credit ratings of its counterparties and limits the amount of contracts it enters into with any one party. RISKS AND UNCERTAINTIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to provide estimates and assumptions that affect the amounts reported in the financial statements and the related footnotes. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the presentation of comprehensive income and its components. Comprehensive income presents a measure of all changes in equity that result from recognized transactions and other economic events during the period other than transactions with stockholders. SFAS 130 requires restatement of all prior period financial statements presented and is effective for the periods beginning after December 15, 1997. The F-9 Company has elected to disclose the components of other comprehensive income and total comprehensive income, net of taxes, in the Consolidated Statements of Stockholders' Equity. The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. Interim reporting disclosures are not required in the first year of adoption. SFAS 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed (see Note P). In March 1998, Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued. SOP 98-1 provides guidance on applying generally accepted accounting principles in addressing whether and under what conditions the costs of internal-use software should be capitalized. SOP 98-1 is effective for transactions entered into in fiscal years beginning after December 15, 1998, however earlier adoption is encouraged. The Company adopted the guidelines of SOP 98-1 as of January 1, 1998 and the impact on the operating results for the year ended December 31, 1998 was immaterial. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded for each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company is currently determining the impact of the adoption of SFAS 133 on the Company's results of operations and financial position. B. ACQUISITIONS ------------ In August 1998, the Company acquired all of the outstanding capital stock of Excell. This acquisition was accomplished through a merger of the Company's acquisition subsidiary and Excell in an exchange of 1,680,416 shares of the Company's common stock for all outstanding shares of capital stock of Excell. The acquisition has been accounted for using the pooling of interests method of accounting. Founded in 1991, Excell had approximately 510 employees at the time of the acquisition, and had locations in Bellevue, Washington, Portland, Oregon, and Denver, Colorado. Transaction costs related to this acquisition which consist primarily of investment banking fees, accounting fees, legal fees and business integration costs were approximately $1.7 million and are included in business combination costs in the accompanying Consolidated Statements of Operations (also see Note G - "Excell Phantom Stock Plan"). In November 1997, the Company acquired all of the outstanding capital stock of Peter Chadwick Holdings Limited ("Peter Chadwick"). This acquisition was accomplished through an exchange of 3,255,731 shares of the Company's common stock for all outstanding shares of capital stock and options to purchase ordinary shares of Peter Chadwick. The acquisition has been accounted for using the pooling of interests method of accounting. Founded in 1987 and based in the F-10 United Kingdom, Peter Chadwick specialized in change implementation strategies and performance improvement programs. Peter Chadwick had offices in the United Kingdom, Germany, Holland, France, and the U.S. and had approximately 325 employees at the time of the acquisition. Peter Chadwick was renamed Cambridge Management Consulting Holdings Limited in July 1998. In November 1996, the Company acquired all the outstanding capital stock of Ramos & Associates, Inc. ("Ramos"). This acquisition was accomplished through a merger of the Company's acquisition subsidiary and Ramos in an exchange of 1,175,119 shares of the Company's common stock for all outstanding shares of capital stock of Ramos. Ramos, founded in 1991 and based in San Ramon, California, specialized in the Enterprise Resource Planning service market. The acquisition has been accounted for using the pooling of interests method of accounting. Ramos was renamed Cambridge Technology Partners - Enterprise Resource Solutions, Inc. ("ERS") in March 1997. In October 1996, the Company acquired all the outstanding capital stock of NatSoft S.A. ("NatSoft"), a Swiss-based information technology consulting and software implementation firm. This acquisition was accomplished through an exchange of 271,714 shares of the Company's common stock for all outstanding shares of capital stock of NatSoft. This acquisition established the Company's entry into the Swiss market and provided the Company with a pool of multi-lingual professionals who can support projects in Southern Europe. The acquisition of NatSoft has been accounted for using the pooling of interests method of accounting. In March 1997, NatSoft was renamed Cambridge Technology Partners Switzerland, S.A ("Cambridge-Switzerland"). The accompanying consolidated financial statements of the Company have been prepared to give retroactive effect to the acquisitions of Excell, Peter Chadwick, Ramos, and NatSoft in accordance with the pooling of interests requirements. All prior period historical consolidated financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of these acquisitions. Costs related to these acquisitions have been charged to business combination costs in the consolidated statements of operations for the period in which the transaction was consummated. The following information presents certain statement of operations data (in thousands) of the Company, NatSoft, Ramos, Peter Chadwick, and Excell for the periods prior to the acquisitions. NatSoft and Ramos information are presented through September 30, 1996, which represents the interim period end nearest to the date of these acquisitions. Peter Chadwick and Excell information are presented through September 30, 1997 and June 30, 1998, respectively, which represent the interim period ends nearest to the dates of these acquisitions. F-11
Cambridge Technology Peter Combined Partners NatSoft Ramos Chadwick Excell Total ---------- --------- --------- ---------- ---------- ---------- Net revenues for the: Nine months ended September 30, 1996 $ 141,862 $ 8,046 $ 17,497 $ 26,384 $ 15,635 $ 209,424 Year ended December 31, 1996 $ 236,554 $ 36,324 $ 21,649 $ 294,527 Nine months ended September 30, 1997 $ 250,501 $ 36,841 $ 22,217 $ 309,559 Year ended December 31, 1997 $ 406,672 $ 31,657 $ 438,329 Six months ended June 30, 1998 $ 238,018 $ 18,588 $ 256,606 Net income for the: Nine months ended September 30, 1996 $ 14,042 $ 163 $ 853 $ 2,049 $ 408 $ 17,515 Year ended December 31, 1996 $ 21,100 $ 2,925 $ (33) $ 23,992 Nine months ended September 30, 1997 $ 24,623 $ 2,365 $ 962 $ 27,950 Year ended December 31, 1997 $ 32,929 $ 853 $ 33,782 Six months ended June 30, 1998 $ 41,798 $ 397 $ 42,195
C. ACCOUNTS RECEIVABLE ------------------- Accounts receivable consists of the following (in thousands):
December 31, ------------------ 1998 1997 -------- -------- Contracts in process $ 78,767 $ 69,995 Completed contracts 59,366 37,968 -------- -------- 138,133 107,963 Less: Allowance for doubtful accounts 4,550 2,757 -------- -------- $133,583 $105,206 ======== ========
In accordance with state government practices, a governmental client withheld a percentage of invoiced receivables as retention until final review of completed projects. At December 31, 1998 and 1997, this retention receivable totaled $2.4 million and was included in other assets. The Company does not include client reimbursable expenses or other non-trade receivables as a component of net revenues. At December 31, 1998 and 1997, approximately $19.2 million and $14.0 million, respectively, of client reimbursable expenses and other non-trade receivables are included in prepaid expenses and other current assets. F-12 D. PROPERTY AND EQUIPMENT ---------------------- Property and equipment consists of the following (in thousands):
December 31, ------------------ 1998 1997 -------- -------- Equipment $ 54,591 $ 38,121 Furniture and fixtures 11,693 8,618 Leasehold improvements 11,312 7,611 Motor vehicles 880 1,137 Software and other 2,849 1,501 -------- -------- Total cost 81,325 56,988 Less accumulated depreciation 33,070 20,961 -------- -------- $ 48,255 $ 36,027 ======== ========
Depreciation expense for 1998, 1997, and 1996 was $11.9 million, $7.2 million, and $5.8 million, respectively. E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES ---------------------------------------------- Accrued expenses consist of the following (in thousands):
December 31, ------------------ 1998 1997 -------- -------- Accrued payroll and payroll related expenses $ 20,776 $ 21,106 Other accrued expenses 22,959 15,864 Accrued value added tax 5,868 3,048 -------- -------- $ 49,603 $ 40,018 ======== ========
In April 1997, Peter Chadwick acquired the assets of a training facility located in the United Kingdom for $1.9 million (see Note B). Peter Chadwick entered into a Loan Agreement with National Westminister Bank (the "Loan Agreement") to finance this acquisition. As of December 31, 1997, the principal amount due under the Loan Agreement was $823,000. Interest payments, at a rate of 2% above the Bank of England base rate (7.25% at December 31, 1997), were payable in monthly installments. A balloon payment for the entire outstanding balance was due in 2005. This amount is included in other current liabilities in the accompanying consolidated balance sheet at December 31, 1997. In the first quarter of 1998, the Company repaid the outstanding amount of approximately $823,000 and terminated the Loan Agreement. F-13 F. REVOLVING CREDIT FACILITY ------------------------- In September 1998, the Company obtained a $50.0 million unsecured senior revolving credit facility (the "Facility") through a syndication arrangement committed equally by The Chase Manhattan Bank ("Chase") and Fleet National Bank ("Fleet Bank"). The Facility expires on September 10, 2001 and replaces the Company's previously maintained $20.0 million revolving credit facility that expired on June 30, 1998. The Facility is administered by Chase and carries a commitment fee, payable quarterly in arrears, calculated based on the unused portion of the Facility and a price grid as set forth in the credit agreement. The Facility permits the Company to elect any of three possible interest rate formulas as defined in the credit agreement. Interest is payable in arrears based on an interest period determined by the interest rate elected by the Company. The Facility requires, among other things, the Company to maintain certain financial ratios, including debt service coverage, debt to capital, and net worth. For the year ended December 31, 1998, the Company was in compliance with these financial ratio requirements. As of December 31, 1998, the Company had no balance outstanding under the Facility. G. STOCKHOLDERS' EQUITY AND OTHER STOCK-RELATED INFORMATION -------------------------------------------------------- AUTHORIZED SHARES On May 13, 1998, the stockholders of the Company voted to amend to the Company's corporate charter to increase the number of authorized shares of common stock from 120 million shares to 250 million shares. STOCK SPLIT In March 1996, the Board of Directors approved a three-for-one stock split of the Company's common stock and an amendment to the Company's corporate charter to increase authorized common stock from 30 million to 120 million shares. Following stockholder approval in May 1996, the stock split was completed on June 19, 1996, in the form of a 200% stock dividend to stockholders of record on May 29, 1996. All references in the consolidated financial statements and the related notes to applicable share and per share data, stock option data, and market prices per share of the Company's common stock, for all periods presented, have been retroactively restated to reflect the stock split. STOCK OPTION PLANS Under the Company's amended 1991 Stock Option Plan (the "1991 Option Plan"), the Company may grant incentive stock options to employees and nonqualified stock options to employees, directors, officers, and other key individuals. The Management Resource Committee (the "MRC") of the Board of Directors administers the 1991 Option Plan, subject to approval by the Board of Directors with respect to certain matters. Options granted under the 1991 Option Plan prior to 1997 generally vest ratably over a 48 month period and expire ten years from the date of grant. Options granted under the 1991 Option Plan in 1997 and thereafter generally vest ratably over a 48 month period and expire in installments five to eight years from the date of grant. At December 31, 1998, 1997, and 1996, options to purchase 4,725,224, 4,063,342, and 4,014,783 shares, respectively, were exercisable under the 1991 Option Plan. In December 1996 and 1997, F-14 the Company's Board of Directors amended the 1991 Option Plan, with subsequent stockholder approval, to increase the number of shares of common stock authorized for issuance under the 1991 Option Plan from 15 million to 19 million in 1996, and from 19 million to 23 million in 1997. During 1995, the Company established the 1995 Non-employee Director Stock Option Plan ("Non-employee Director Option Plan"). The Non-employee Director Option Plan authorizes the grant of nonqualified options for up to 150,000 shares of the Company's common stock. Each member of the Company's Board of Directors who was neither (I) an employee nor an officer of the Company or Safeguard Scientific, Inc. ("Safeguard") nor (II) an affiliate of Technology Leaders II L.P. or any related entity, and was serving on the Company's Board of Directors on March 21, 1995, was granted an option to purchase 30,000 shares of the Company's common stock. Each person who is neither (I) an employee nor an officer of the Company or Safeguard nor (II) an affiliate of Technology Leaders II L.P. or any related entity, and who is first elected to the Board of Directors after March 21, 1995, is automatically granted, on the date of such election without further action by the Board of Directors, an option to purchase 30,000 shares of the Company's common stock. Options granted under the Non-employee Director Option Plan generally vest ratably over a 48 month period and expire ten years from the date of grant. At December 31, 1998, 1997 and 1996, options to purchase 95,136, 73,121, and 43,122 shares, respectively, were exercisable under the Non-employee Director Option Plan. In November 1997, the Board of Directors adopted the 1997 Stock Option Plan (the "1997 Option Plan") under which the Company may grant nonqualified stock options to purchase up to 450,000 shares of common stock to employees (other than officers) and consultants of the Company. The MRC administers the 1997 Option Plan, subject to approval by the Board of Directors with respect to certain matters. Options granted under the 1997 Option Plan generally vest ratably over a 48 month period and expire in installments five to eight years from the date of grant. At December 31, 1998 and 1997, options to purchase 34,773 and zero shares, respectively, were exercisable under the 1997 Option Plan. In October 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "1998 Option Plan") under which the Company may grant nonqualified stock options to purchase up to five million shares of the Company's common stock to employees of the Company and other key individuals other than members of the Board of Directors or officers of the Company. The MRC administers the 1998 Option Plan. Unless otherwise provided by the MRC at the time of grant, options granted under the 1998 Option Plan vest ratably over a 48 month period and expire four years from the last vesting date in each year. At December 31, 1998, options to purchase 31,732 shares were exercisable under the 1998 Option Plan. F-15 Stock option activity under the Company's stock option plans is summarized as follows:
Weighted Average Option Exercise Price Shares Per Share ---------- ------------------ Outstanding at December 31, 1995 11,354,211 $ 7.48 Granted 2,922,675 25.71 Exercised 2,660,679 3.18 Canceled 902,252 10.97 ---------- ------- Outstanding at December 31, 1996 10,713,955 13.27 Granted 6,281,988 29.89 Exercised 2,170,050 5.86 Canceled 2,768,753 26.31 ---------- ------- Outstanding at December 31, 1997 12,057,140 20.16 Granted 12,189,805 22.14 Exercised 1,975,616 9.39 Canceled 6,919,605 33.65 ---------- ------- Outstanding at December 31, 1998 15,351,724 $ 17.39 ========== =======
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 The following summarizes information about the Company's stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable - ----------------------------------------------------------- ----------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Price at 12/31/98 Life Price at 12/31/98 Price - --------------- ----------- ----------- -------- ----------- -------- $ .16 - $ 1.34 328,648 3.3 Years $ .62 328,648 $ .62 1.67 - 6.32 1,176,227 5.4 Years $ 5.64 1,176,227 $ 5.64 10.00 - 17.30 8,941,973 6.5 Years $ 15.45 2,634,841 $ 15.27 22.50 - 29.13 4,129,610 6.7 Years $ 22.81 547,759 $ 25.46 33.00 - 36.00 695,585 6.6 Years $ 34.95 197,890 $ 34.86 46.06 - 49.60 79,681 7.2 Years $ 48.82 1,500 $ 47.18 - --------------- ---------- --------- -------- --------- -------- $ .16 - $49.60 15,351,724 6.4 Years $ 17.39 4,886,865 $ 13.59 =============== ========== ========= ======== ========= ========
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its option plans. Accordingly, no compensation expense has been recognized. Had compensation expense for the Company's stock option plans and employee stock purchase plan been determined based on the fair value at the grant date for awards under these plans consistent with the methodology proscribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's consolidated net income and net income per share would have been reduced to the pro forma amounts indicated as follows for the years ended December 31, 1998, 1997, and 1996 (in thousands except per share data):
1998 1997 1996 ---------- ---------- ---------- As reported net income $51,940 $33,782 $23,992 Pro forma net income for SFAS 123 $24,133 $27,092 $18,692 Net income per share: As reported basic net income per share $ .90 $ .62 $ .46 Pro forma basic net income per share for SFAS 123 $ .42 $ .50 $ .36 As reported diluted net income per share $ .83 $ .55 $ .40 Pro forma diluted net income per share for SFAS 123 $ .38 $ .45 $ .31
F-17 The following assumptions were used by the Company to determine the fair value of stock options granted using the Black-Scholes options-pricing model:
1998 1997 1996 --------- -------- -------- Expected volatility 52% 45% 45% Average expected option life 4 Years 5 Years 5 Years Average expected life for employee stock purchase plan shares .5 Year .5 Year .5 Year Risk-free interest rate 4.5% 6.2% 6.2% Dividend yield 0% 0% 0%
The weighted average fair value of options granted under the stock option plans was $8.80 in 1998, $12.59 in 1997, and $12.25 in 1996. The weighted average fair value of shares issued under the employee stock purchase plan was was $13.40 in 1998, $4.81 in 1997, and $2.64 in 1996. The pro forma expense amounts assume that the fair value assigned to the option grants was amortized over the vesting period of the options, which is approximately four years, while the fair value assigned to grants under the Employee Stock Purchase Plan was recognized in full at the various dates of grant. EMPLOYEE STOCK PURCHASE PLAN On December 14, 1994, the Board of Directors adopted the Company's 1994 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which was subsequently approved by stockholders at the annual meeting of stockholders in May 1995. The Company has authorized 1,500,000 shares of the Company's common stock for purchases under the Stock Purchase Plan. The Stock Purchase Plan permits eligible employees to purchase shares of common stock, subject to limitations provided by Section 423(b) of the Internal Revenue Code, through accumulated payroll deductions. Each participating employee may purchase up to 1,500 shares per payment period and purchases by any one employee may not exceed $25,000 in fair market value of the stock purchased in any one year. The purchases are made twice per year at a price equal to the lesser of (i) 85% of the average market price of the Company' common stock on the first business day of the payment period and (ii) 85% of the average market price of the Company's common stock on the last day of the payment period. Annual payment periods consist of two six-month periods, January 15 through July 14 and July 15 through January 14. For the years ended December 31, 1998, 1997, and 1996, 231,365, 211,734, and 124,123 shares of common stock, respectively, were issued under the Stock Purchase Plan. PREFERRED STOCK The Company's certificate of incorporation was amended and restated, in December 1992, to increase the number of authorized shares of capital stock to include two million shares of preferred stock, par value $.01 per share, in one or more series. The Board of Directors is authorized, subject to certain limitations prescribed by law, to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series. The Company has not issued and, except pursuant to the preferred stock purchase rights F-18 described in the Rights Plan section of this note, has no present plans to issue any shares of preferred stock. WARRANTS In December 1992, the Company issued warrants to Safeguard Scientifics, Inc. for the purchase of 900,000 shares of common stock at a price of $2.00 per share. The warrants were exercisable for a five-year period from the date of issuance. In December 1997, all warrants were exercised for common stock. DIVIDENDS The Facility prohibits the Company from paying any dividends or making any distributions either in cash or in kind on any class of its capital stock without prior consent of Chase as administrator of the Facility (see Note F). The Company currently intends to retain future earnings for use in its business and, therefore, does not expect to pay dividends in the foreseeable future. Dividend distributions made by Peter Chadwick were made in accordance with the Peter Chadwick shareholder agreements in effect prior to the acquisition, and amounted to $1.2 million, $3.0 million, and $2.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1997, the $1.2 million of dividend distribution paid in the first quarter of 1998 was included in other current liabilities reflecting Peter Chadwick's dividend obligations up to the date of acquisition in accordance with the Peter Chadwick shareholder agreements in effect prior to the acquisition. Dividend distributions made by Excell prior to the acquisition were principally for reimbursement of income tax liabilities of its former stockholders due to Excell's S-Corporation tax status prior to the acquisition. RIGHTS PLAN On June 23, 1997, the Board of Directors of the Company approved and adopted a Rights Plan pursuant to a Rights Agreement which was amended on September 30, 1998, and in connection therewith, declared a dividend of one preferred stock purchase right for each outstanding share of the Company's common stock, which dividend was paid on July 3, 1997 to holders of record of the Company at the close of business on July 3, 1997. One preferred stock purchase right is also attached to each share of the Company's common stock issued after July 3, 1997. The rights are not presently transferable separate from the share of common stock with respect to which they were issued. The rights are subject to adjustment and become exercisable upon the occurrence of certain events described in the Rights Agreement. In general, the Company is entitled to redeem the rights at $.01 per right. The rights will expire on June 23, 2007, unless earlier redeemed or exchanged. As part of the Rights Plan, the Company designated 100,000 shares of its preferred stock as Series A Junior Participating Preferred Stock and reserved such shares for issuance upon exercise of the rights. EXCELL PHANTOM STOCK PLAN Excell maintained a 1996 Class I Phantom Stock Plan ("Phantom Plan") under which Excell granted nonqualified phantom stock units to qualifying employees. The Phantom Plan entitled a F-19 holder to surrender the units for cash equal to the defined per-unit amount derived from net income of Excell over the holding period of the units. The Phantom Plan also provided for a five-year vesting period along with other restrictions regarding redemption. The Phantom Plan also contained provisions related to payments to holders of units based on a defined market value if Excell was sold or a major change in ownership (collectively a "change in control") occurred, as defined under the Phantom Plan agreement. The acquisition of Excell by the Company qualified as a change in control under the Phantom Plan. As a result, upon consummation of the acquisition, the Company recorded a charge to operations of $6.7 million for the year ended December 31, 1998, which is included in business combination costs, representing amounts owed to Phantom Plan participants as of the closing date of the Excell acquisition. In accordance with the Phantom Plan, as a result of the acquisition, the Phantom Plan was terminated. H. LEASE COMMITMENTS ----------------- On June 4, 1992, the Company entered into, among other building and equipment leases, a lease for a building in Cambridge, Massachusetts, that houses its Northeast operations and corporate departments. The building is owned by a trust, the sole beneficiary of which is the Chairman of the Board of Directors of the Company. The initial lease term expires in August 2007, and is renewable for two additional five-year terms. The lease provides for rent increases, which began in September 1995, based upon increases in the Consumer Price Index-Urban Wage Earners and Clerical Workers, U.S. City Average, All Items. In January 1998, the Company entered into an agreement with Boston Properties Limited Partnership ("Boston Properties") to lease a building to be constructed and developed by Boston Properties. This approximately 177,000 square foot building, which is located in Cambridge, Massachusetts, will house the Company's Northeast operations, new employee training facility, and corporate departments. The lease agreement is for a ten-year period, which is expected to commence in June 1999. The Company's current facility in Cambridge, Massachusetts, which houses part of the Company's Northeast operations and corporate functions, is expected to be subleased through its remaining lease term. The Company's lease for its Allston, Massachusetts facility, which houses the remainder of the Company's Northeast operations, will be terminated effective June 30, 1999. F-20 Minimum future lease commitments under noncancelable operating leases for buildings and equipment in effect at December 31, 1998, are presented as follows (in thousands): 1999 $ 18,247 2000 18,272 2001 16,924 2002 15,076 2003 13,218 Thereafter 42,464 --------- Total minimum lease payments $ 124,201 ========= For the years ended December 31, 1998, 1997, and 1996, rental expense under all leases was approximately $15.6 million, $11.0 million, and $6.6 million, respectively, of which approximately $814,000, $765,000, and $785,000, respectively, were paid to the trust described above. I. OTHER COSTS ----------- Other costs consist of the following (in thousands):
1998 1997 1996 -------- -------- -------- Facility costs and related expenses $ 58,881 $ 43,920 $ 31,846 Non-billable project expenses 34,597 19,080 11,818 Non-billable staff costs 21,412 15,479 7,473 Education and training 12,080 6,103 4,407 -------- -------- -------- $126,970 $ 84,582 $ 55,544 ======== ======== ========
F-21 J. INCOME TAXES ------------ The components of income before income taxes and the related provision for income taxes for the years ended December 31, 1998, 1997, and 1996 are presented below (in thousands):
1998 1997 1996 -------- -------- -------- Income before income taxes: Domestic $ 57,071 $ 49,340 $ 33,220 Foreign 26,033 9,496 7,089 -------- -------- -------- $ 83,104 $ 58,836 $ 40,309 ======== ======== ======== Provision for income taxes: Current: Federal $ 19,955 $ 17,769 $ 10,430 Foreign 9,682 3,881 3,420 State 2,623 3,741 3,033 -------- -------- -------- 32,260 25,391 16,883 Deferred: Federal (1,009) (308) (311) Foreign - 10 (207) State (87) (39) (48) -------- -------- -------- (1,096) (337) (566) -------- -------- -------- Total $ 31,164 $ 25,054 $ 16,317 ======== ======== ========
The Company's deferred tax assets and (liabilities) are comprised of the following as of December 31, 1998 and 1997 (in thousands):
1998 1997 -------- -------- Bad debt reserves $ 838 $ 442 Vacation accrual 631 177 Fixed asset depreciation (485) (923) Cash to accrual adjustments (1,174) (476) Unrealized gain on investment (1,033) - Other accruals 1,593 807 -------- -------- $ 370 $ 27 ======== ========
Included in unrealized gain on investment is a deferred tax liability of $753,000 related to an increase in the basis of an investment recorded as part of comprehensive income reflected in the Consolidated Statements of Stockholders' Equity. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", this deferred tax liability amount is not included in the provision for income taxes. F-22 The table below reconciles the expected U.S. federal statutory income tax rate to the recorded income tax rate:
1998 1997 1996 -------- -------- -------- U.S. statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit 2.3 5.0 5.5 Goodwill amortization 0.3 0.4 0.7 Non-taxable S-Corporation income (0.5) (0.6) - Other, net (0.4) (0.9) (0.7) ----- ----- ----- Effective tax rate before non- deductible pooling costs 36.7 38.9 40.5 Non-deductible pooling costs 0.8 3.7 - ----- ----- ----- Effective tax rate 37.5% 42.6% 40.5% ===== ===== =====
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.
1998 1997 1996 -------- -------- -------- Pro forma data (unaudited): Historical income before income taxes $ 83,104 $ 58,836 $ 40,309 Provision for income taxes: Historical income taxes 31,164 25,054 16,317 Pro forma increase to historical income taxes 195 437 64 -------- -------- -------- Pro forma net income $ 51,745 $ 33,345 $ 23,928 ======== ======== ======== Pro forma basic net income per share $ .90 $ .62 $ .46 ======== ======== ======== Pro forma diluted net income per share $ .83 $ .55 $ .40 ======== ======== ========
F-23 K. NET INCOME PER SHARE -------------------- The following table presents the calculation of per share earnings for the years ended December 31, 1998, 1997, and 1996 (see Note A) (in thousands except per share data):
1998 1997 1996 -------- -------- --------- Net income $ 51,940 $ 33,782 $ 23,992 ======== ======== ========= Basic: Weighted average common shares outstanding 58,079 54,632 52,054 ======== ======== ========= Net income per common share $ .90 $ .62 $ .46 ======== ======== ========= Diluted: Weighted average common shares outstanding 58,079 54,632 52,054 Dilutive effects of stock options and warrants 5,222 6,143 7,519 -------- -------- --------- Weighted average common and common equivalent shares outstanding 63,301 60,775 59,573 ======== ======== ========= Net income per common and common equivalent share $ .83 $ .55 $ .40 ======== ======== =========
L. EMPLOYEE BENEFIT PLANS ---------------------- In 1992, the Company established a savings and profit-sharing plan (the "401(k) Plan") covering substantially all of the Company's employees. The 401(k) Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended. The Company may elect to make contributions under the 401(k) Plan. Starting in 1994, the Company elected to make matching contributions based on a percentage of employees' contributions, subject to limitations as defined in the 401(k) Plan. Company matching contributions made under the 401(k) Plan amounted to $2.3 million, $1.3 million, and $845,000 in 1998, 1997, and 1996, respectively. Cambridge-Switzerland sponsors a defined contribution retirement plan (the "Switzerland Plan") for its employees. Under the Switzerland Plan, employees can contribute between 5% to 11% of salary depending on age and other factors. All employee contributions are matched by Cambridge-Switzerland. Employer matching contributions amounted to $225,000, $188,000, and $202,000 for the years ended December 31, 1998, 1997, and 1996, respectively. In 1992, ERS established a savings and profit-sharing plan (the "ERS Profit- sharing Plan") covering substantially all of ERS' employees. The ERS Profit- sharing Plan was qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended. ERS could elect to make contributions under the ERS Profit- sharing Plan. ERS elected to make matching contributions based on a percentage of employees' contributions. The Company completed the rollover of assets held under the ERS Profit-sharing Plan to the 401(k) Plan in January 1998. ERS' matching F-24 contributions amounted to $538,000 and $455,000 for the years ended December 31, 1997 and 1996, respectively. In November 1995, Peter Chadwick Limited Employee Trust (the "Trust") was formed for the purpose of providing benefits to Peter Chadwick employees and facilitating the acquisition of Peter Chadwick shares by, or for the benefit of, employees. The Trust is controlled by an independent trustee and, accordingly, the Trust is not reflected in the consolidated financial statements. As a result of the acquisition of Peter Chadwick, the trustees terminated the Trust. Excell maintains a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code of 1986, as amended. Under this plan, employees may elect to defer a portion of their compensation subject to Internal Revenue Code defined limitations. Employees are eligible to participate in the plan after they have worked for Excell for 90 days. Excell did not provide any matching based on employee contributions. In December 1997, the MRC and the Board of Directors approved a Deferred Compensation Plan for executive officers and all vice presidents of the Company. Under the Deferred Compensation Plan, eligible employees may defer either 5% or 10% of eligible cash bonus compensation, beginning with bonus compensation for 1998, which amount the Company will match on a 100% basis. Deferrals and matching amounts are credited to an unfunded account maintained on the books of the Company and treated as notionally invested in common stock of the Company, based on the average of the closing prices of such stock over the ten business days immediately preceding the crediting date. The matching portion vests in 25% installments on each of the next four anniversaries of the date the match was credited to the account, provided that the participant has been continuously employed since the crediting date. With certain exceptions, the vested portion of a participant's account will be paid in a single payment upon termination of employment. As the Company did not, generally, pay any cash bonuses to employees eligible to participate in the Deferred Compensation Plan in 1998, there was no participation in the plan, or Company contributions, for 1998. M. COMMITMENTS AND CONTINGENCIES ----------------------------- On November 18, 1998, certain of the former shareholders of Excell filed a lawsuit against the Company in the United States District Court for the District of Massachusetts. The complaint alleges breach of contract, violation of federal securities laws, common law fraud, and negligent misrepresentation in connection with the Excell acquisition and seeks unspecified damages. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend the lawsuit. In February 1999, the Company filed a counterclaim alleging breach of contract. The Company is involved in litigation and various other legal matters, which have arisen in the ordinary course of business. The Company does not believe that the ultimate resolution of any existing matter will have a material adverse effect on its financial condition, results of operations, or cash flows. F-25 N. CAMBRIDGE TECHNOLOGY CAPITAL FUND I L.P. ---------------------------------------- Cambridge Technology Capital Fund I L.P. (the "Fund") was formed in October 1997 as a limited partnership with committed capital of approximately $25.3 million. The Fund is intended to invest in expansion-stage, private companies providing products and services within areas of the Company's strategic expertise. A wholly owned subsidiary of the Company acts as the sole general partner of the Fund's general partner. The Company's investment in the Fund is accounted for using the equity method of accounting. The Company's capital commitment to the Fund is approximately $6.0 million. No more than two-thirds of the Fund's committed capital may be called before October 1999 without approval of the Fund's partners. The balance of the Fund's capital has been provided by institutional investors and directors and employees of the Company. For the years ended December 31, 1998 and 1997, the Company's investment in the Fund amounted to approximately $1.6 million and $300,000, respectively. The Company's investment in the Fund resulted in a net gain of approximately $798,000 for the year ended December 31, 1998. O. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- Supplemental disclosures of cash flow information are presented as follows (in thousands):
1998 1997 1996 -------- -------- -------- Cash paid during the year for: Interest $ 199 $ 232 $ 107 Income taxes 11,171 5,503 4,505
P. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -------------------------------------------- In the fourth quarter of 1998, the Company has adopted Statement of Financial Accounting Standard No. 131, "Disclosure About Segments of an Enterprise and Related Information". The Company is managed in two operating segments: North America and International. North America provides systems integration and consulting services in the United States and Canada while International provides systems integration and consulting services outside of North America. In 1999, the Company will operate under a service line structure. F-26 The Company evaluates each segment's performance based on net revenues and income from operations. Corporate net revenue, depreciation/amortization expense, and income from operations has been allocated to each segment based on the proportionate operating income of each segment. Total corporate assets and fixed asset additions have been included in North America. Information about the Company's operating segments is presented as follows (in thousands):
1998 1997 1996 -------- -------- -------- Net revenues: North America $421,741 $309,531 $199,017 International 190,300 128,798 95,510 -------- -------- -------- Consolidated $612,041 $438,329 $294,527 ======== ======== ======== Depreciation and amortization: North America $ 9,386 $ 6,547 $ 4,756 International 3,460 2,215 2,039 -------- -------- -------- Consolidated $ 12,846 $ 8,762 $ 6,795 ======== ======== ======== Income from operations: North America $ 63,217 $ 49,661 $ 33,062 International 17,790 7,285 6,511 -------- -------- -------- Consolidated $ 81,007 $ 56,946 $ 39,573 ======== ======== ======== Fixed asset additions: North America $ 18,082 $ 17,745 $ 9,703 International 5,966 5,344 3,579 -------- -------- -------- Consolidated $ 24,048 $ 23,089 $ 13,282 ======== ======== ======== Total assets : North America $257,617 $185,845 $108,872 International 93,589 56,576 41,716 -------- -------- -------- Consolidated $351,206 $242,421 $150,588 ======== ======== ========
F-27 Geographic information of the Company is as follows (in thousands):
1998 1997 1996 -------- -------- -------- Net revenues: North America $421,608 $307,512 $198,959 Europe 172,650 121,630 93,578 Latin America 11,795 8,852 1,990 Pacific Rim 5,988 335 - -------- -------- -------- Consolidated $612,041 $438,329 $294,527 ======== ======== ======== Income (loss) from operations: North America $ 54,184 $ 46,150 $ 29,875 Europe 28,402 13,470 10,526 Latin America (1,778) (827) (828) Pacific Rim 199 (1,847) - -------- -------- -------- Consolidated $ 81,007 $ 56,946 $ 39,573 ======== ======== ======== Total long-lived assets: North America $ 53,683 $ 34,176 $ 20,937 Europe 11,158 9,336 5,869 Latin America 1,249 322 338 Pacific Rim 606 32 - -------- -------- -------- Consolidated $ 66,696 $ 43,866 $ 27,144 ======== ======== ========
Net revenues to external customers are based on the location of the customer. North American operations consist of services provided in the United States and Canada. European operations consist of services provided primarily in the United Kingdom, the Netherlands, Switzerland, Sweden, Norway, Ireland, Germany, France, and Austria, which have similar business environments. Latin American operations consist of services provided primarily in Mexico, Puerto Rico, Brazil, and Venezuela. Pacific Rim operations consist of services provided primarily in Japan, Australia, and India. There are no intraenterprise sales for the periods presented. Corporate net revenue, income from operations and long-lived assets have been included in North America. No customer of the Company accounted for 5% or more of the Company's net revenues for any of the periods presented. F-28 Q. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) ------------------------------------------- The following table presents unaudited quarterly financial information for the years ended 1998 and 1997 (in thousands, except per share data):
Quarters Ended ----------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, ----------------- ------------------- ------------------- ------------------- 1998 1997 1998 1997 1998 1997 1998 1997 -------- ------- -------- -------- -------- -------- -------- -------- Net revenues $142,223 $88,498 $156,578 $104,032 $153,074 $117,029 $160,166 $128,770 Income from operations 20,117 13,008 22,078 15,103 13,831 16,570 24,981 12,265 Income before income taxes 20,529 13,263 22,577 15,736 14,821 17,085 25,177 12,752 Net income 12,480 7,893 13,534 9,605 9,675 10,452 16,251 5,832 Basic net income per share .22 .15 .23 .18 .17 .19 .28 .10 Diluted net income per share .20 .13 .21 .16 .16 .17 .26 .09
R. SUBSEQUENT EVENT ---------------- On March 22, 1999 and March 29, 1999, certain stockholders of the Company filed class action lawsuits against the Company and certain of the Company's officers in the United States District Court for the District of Massachusetts. The suits allege misrepresentations and omissions regarding the Company's future growth prospects and progress of the Company's reorganization in violation of federal securities laws. The suits seek unspecified damages. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend the lawsuits. F-29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cambridge Technology Partners (Massachusetts), Inc.: Our report on the consolidated financial statements of Cambridge Technology Partners (Massachusetts), Inc. is included on page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in item 14(a) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements, taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts February 2, 1999 S-1 SCHEDULE II CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1996, 1997, and 1998 (in thousands)
(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 - --------------------------------------------------------------------------------------------------------------- Year ended December 31, 1996 $1,184 $ 572 $ - $ - $1,756 Year ended December 31, 1997 1,756 1,001 - - 2,757 Year ended December 31, 1998 2,757 1,793 - - 4,550
S-2 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1(5) Agreement and Plan of Merger, dated as of August 31, 1998, by and among the Company, a wholly-owned subsidiary of the Company, Excell Data Corporation ("Excell"), and the shareholders of Excell (without Exhibits). 2.2(5) Registration Rights Agreement, dated as of August 31, 1998, by and among the Company and the other parties named therein (with Schedule A thereto). 2.3(5) Escrow Agreement, dated as of August 31, 1998, by and among the Company and the other parties named therein (without Exhibits). 3.1(4) Amended and Restated Certificate of Incorporation of the Company, as amended. 3.2(1) Amended and Restated By-laws of the Company. 4.1(6) Rights Agreement, dated June 23, 1997, by and between the Company and ChaseMellon Shareholders Services, LLC (the "Rights Agreement"). 4.2(6) Amendment No. 1 to the Rights Agreement, dated September 30, 1998, by and between the Company and ChaseMellon Shareholder Services, LLC. 10.1* Amended and Restated 1991 Stock Option Plan, as amended. 10.2* Form of Non-Qualified Stock Option Agreement of the Company for Executive Officers under the Amended and Restated 1991 Stock Option Plan. 10.3* Form of Non-Qualified Stock Option Agreement of the Company for Non-Executive Officers under the Amended and Restated 1991 Stock Option Plan. 10.4* Form of Incentive Stock Option Agreement of the Company for Executive Officers under the Amended and Restated 1991 Stock Option Plan. 10.5* Form of Incentive Stock Option Agreement of the Company for Non-Executive Officers under the Amended and Restated 1991 Stock Option Plan. 10.6* 1998 Stock Option Plan. 10.7* Form of Non-Qualified Option Agreement of the Company under the 1998 Stock Option Plan. 10.8* 1995 Non-Employee Director Stock Option Plan. 10.9(1)* Agreement, dated December 1992, between the Company and James K. Sims. 10.10(2)* Amendment to Agreement between the Company and James K. Sims, dated December 15,1994. 10.11(1)* Agreement, dated December 1992, between the Company and Arthur M. Toscanini. 10.12(7) Credit Agreement, dated as of September 10, 1998, by and among the Company, certain of its subsidiaries, The Chase Manhattan Bank and Fleet National Bank. 10.13(7) Guaranty, dated September 10, 1998, by certain subsidiaries of the Company in favor of The Chase Manhattan Bank and Fleet National Bank. 10.14(3)* Deferred Compensation Plan for Key Employees. 10.15(3)* Form of Split-Dollar Life Insurance Agreement for Executive Officers and Vice Presidents. 10.16(3)* Service Agreement with Quentin Baer, as amended. 10.17(3)* Service Agreement with Ian Clarkson, as amended. 10.18* Employment Agreement, dated November 18, 1996, between the Company and Timothy A. Ramos. 10.19 Promissory Note, dated November 13, 1998, from H. Carvel Moore to the Company. 10.20 Promissory Note, dated November 2, 1998, from Theo Schnitfink to the Company. 10.21 Promissory Note, dated December 21, 1998, from Theo Schnitfink to the Company. 10.22(5) Agreement and Plan of Merger, dated as of August 31, 1998, by and among the Company, a wholly-owned subsidiary of the Company, Excell Data Corporation ("Excell"), and the shareholders of Excell (without Exhibits) 10.23(5) Registration Rights Agreement, dated as of August 31, 1998, by and among the Company and the other parties named therein (with Schedule A thereto). 10.24(5) Escrow Agreement, dated as of August 31, 1998, by and among the Company and the other parties named therein (without Exhibits). 10.25* The Peter Chadwick Limited Pension Scheme - Interim Trust Deed, dated October 17, 1989. 11 Statement Regarding Computation of Per Share Earnings. 21 Subsidiaries of the Company. 23 Consent of PricewaterhouseCoopers LLP. 24 Power of Attorney (included on Signature Page to this report). 27 Financial Data Schedule. (1) Incorporated herein by reference to the exhibits to the Company's Registration Statement on Form S-1 (File No. 33-56338). (2) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (3) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1998. (5) Incorporated herein by reference to the exhibits to the Company's Current Report on Form 8-K dated August 31, 1998, and filed on September 11, 1998. (6) Incorporated herein by reference to the exhibits to the Company's Registration Statement on Form 8-A/A filed on September 30, 1998. (7) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1998. * Indicates a management contract or any compensatory plan, contract or arrangement. EX-10.1 2 AMENDED AND RESTATED '91 STOCK OPTION PLAN EXHIBIT 10.1 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1991 STOCK OPTION PLAN 1. PURPOSE The name of this plan is the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option Plan (the "Plan"). The purpose of the Plan is to promote the long-term success of Cambridge Technology Partners (Massachusetts), Inc., a Delaware corporation (the "Company"), by providing financial incentives to the officers, employees, directors and consultants of the Company who are in positions to make significant contributions toward such success. The Plan is designed to attract individuals of outstanding ability to become or to continue as officers, employees, directors or consultants of the Company, to enable such individuals to acquire or increase proprietary interests in the Company through the ownership of shares of Common Stock of the Company, and to render superior performance during their associations with the Company. The Company intends that this purpose will be effected by the granting pursuant to the Plan of options for shares of the Company's Common Stock (hereinafter referred to as "Options") that either do meet the definition of "incentive stock options" ("Incentive Options") in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or do not meet such definition ("Nonqualified Options"). References herein to "the Company" shall include any successor corporation to the Company and also any subsidiary of the Company (such that, if the Company has one or more subsidiaries, individuals who are officers or key employees thereof are eligible to be granted Options under the Plan). 2. OPTIONS TO BE GRANTED AND ADMINISTRATION (a) Options granted under the Plan may be either Incentive Options or Nonqualified Options. An Option shall not be considered to be an Incentive Option unless designated as such at the time of grant or in the option agreement relating to such option, and any option that is not so designated (or even if so designated fails to meet the definition of "incentive stock option" under Section 422(b) of the Code) shall be a Nonqualified Option. Unless otherwise specified in a particular grant, Options granted under the Plan are intended to qualify as performance-based compensation to the extent required under Section 162(m) of the Code and the regulations thereunder. (b) The Plan shall be administered by a committee (the "Option Committee") of not less than two members of the Board of Directors of the Company selected by and from the members of the Company's Board of Directors in accordance with the provisions of the Company's By-Laws relating to the appointment of Committees; provided, however, that the Plan shall be administered so that Options granted under the Plan will qualify for the benefits provided by Rule 16b-3 (or any successor rule to the same effect) under the Securities Exchange Act of 1934 and by Section 162(m) of the Code (or any successor provision to the same effect) and the applicable regulations thereunder. Subject to the provisions of this Plan, the Option Committee shall exercise all powers under the Plan, unless and until other action is taken by the Company's Board of Directors. Action by the Option Committee shall require the affirmative vote of a majority of all its members, and a further vote of the Company's Board of Directors shall be required for the approval of any and all grants of Options recommended by the Option Committee. (c) Subject to the terms and conditions of the Plan, the Option Committee shall have the power: (i) To determine from time to time the Options to be granted to eligible persons under the Plan, and to prescribe the terms and provisions (which need not be identical) of each Option granted under the Plan to such persons, and to recommend the grant of Options to the Board of Directors of the Company for its approval; (ii) To construe and interpret the Plan and Options granted thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Option Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any option agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Option Committee and, with respect to the grant of Options, by the Board of Directors of the Company in the exercise of this power shall be final and binding upon the Company and all optionees; and (iii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. 3. STOCK SUBJECT TO THE PLAN (a) The stock subject to the Options granted under the Plan shall be shares of the Company's authorized but unissued common stock, par value $.01 per share (the "Common Stock"), or previously issued shares of Common Stock that have been reacquired and reserved by the Company's Board of Directors for resale upon exercise of Options granted under the Plan. The total number of shares of Common Stock that may be issued pursuant to Options granted under the Plan shall not exceed an aggregate of 23,000,000 shares of Common Stock. Such number shall be subject to adjustment as provided in Section 9 hereof. (b) Whenever any outstanding Option under the Plan expires, is canceled or is otherwise terminated (other than by exercise), the shares of Common Stock allocable to the unexercised portion of such Option may again be the subject of Options under the Plan. (c) No employee of the Company may be granted Options to acquire, in the aggregate, more than 3,000,000 shares of Common Stock under the Plan. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject to such Option shall be included in the determination of the aggregate number of shares of Common Stock deemed to have been granted to such employee under the Plan. 4. STOCK OPTION GRANTS (a) Incentive Options may be granted only to persons who are employees of the Company, including members of the Board of Directors who are also employees of the Company. Nonqualified Options may be granted to officers and employees of the Company, to directors of the Company, whether or not they are also employees of the Company, to consultants to the Company who are not employees, and to such other persons as the Option Committee shall select from time to time. The determination of the persons eligible to receive grants, the number of shares of Common Stock for which Options are granted and the determination of whether an Option shall be an Incentive Option or a Nonqualified Option shall be made by the Option Committee, subject to the approval of the Board of Directors of the Company. (b) No person shall be eligible to receive any Incentive Option under the Plan if at the date of grant such person beneficially owns (or would own upon the exercise of any Options held, or which upon such grant would be held, by such person) in excess of ten percent (10%) of the outstanding shares of Common Stock, unless (i) the exercise price is at least 110% of the fair market value (determined as provided in Section 5(c) hereof at the time the Incentive Option is granted) of the shares of Common Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five (5) years from the date such Option is granted. (c) The aggregate fair market value (determined as provided in Section 5(c) hereof at the time the Incentive Option is granted) of shares of Common Stock with respect to which any Incentive Option is exercisable for the first time by the optionee during any calendar year (plus the value of any other such shares of Common Stock first purchasable in such year under any other Option under the Plan or any other plan of the Company or any parent or subsidiary thereof intended to be an "incentive stock option" under Section 422 of the Code) shall not exceed $100,000, and no person shall be eligible to receive an Incentive Option for shares of Common Stock in excess of such limitation. 5. TERMS OF THE OPTION AGREEMENTS Each option agreement for Options granted under the Plan shall contain such provisions as the Option Committee shall from time to time deem appropriate. Option agreements need not be identical, but each option agreement by appropriate language, or by reference to this Section 5 of the Plan, shall include the substance of all of the following provisions: (a) Expiration. Each Option shall expire on the date specified in the option agreement, which date shall not be later than the tenth anniversary of the date on which the Option was granted. Each Incentive Option shall in any event expire not later than three months after the optionee is for any reason no longer employed by the Company, except (i) if such termination of employment results from optionee's disability (within the meaning of Section 22(e)(3) of the Code), an Option may be exercised within twelve months thereafter, whether or not exercisable at the time of such termination, and (ii) if such termination of employment results from the optionee's death, an Option may be exercised by his executors or administrators within twenty-four months thereafter, whether or not exercisable at the time of such termination. (b) Exercise. Unless the Option Committee shall otherwise determine at the time an Option is granted, each Option shall become vested and exercisable with respect to 25% of the shares of Common Stock subject to such Option as of the first anniversary of the date of grant and, thereafter, with respect to an additional 2.083% of the shares subject to such Option as of the same day (or the immediately preceding day if a month does not have such day) of each calendar month thereafter, so that such Option shall be exercisable in full as of the fourth anniversary of the date of grant. Unless otherwise provided in the vote of either the Option Committee or the Board of Directors of the Company, for this purpose the date of the grant of an Option shall be the date on which the Board of Directors approves the grant. To the extent not exercised, vested installments shall accumulate and be exercisable in whole or in part at any time after becoming exercisable, but not later than the date the Option expires or terminates. (c) Purchase Price. Unless the Option Committee shall otherwise determine at the time the Option is granted, the purchase price per share of Common Stock under each Option shall be not less than the fair market value of a share of Common Stock on the date the Option is granted. For the purposes of the Plan, the fair market value of the shares of Common Stock shall be determined by the Option Committee with the approval of the Board of Directors of the Company. 6. LIMITATION ON RIGHTS OF OPTIONEES (a) Transferability of Options. Except as set forth below, (i) no Option shall be transferable by any optionee other than by will or by the laws of descent and distribution and (ii) Options may be exercised during the optionee's lifetime only by the optionee (or, if the optionee is disabled and so long as the Option remains exercisable, by the optionee's duly appointed guardian or other legal representative). However, the Committee may, in its discretion, permit a Non-qualified Option holder to transfer the Non-qualified Option to family members or other persons for estate planning purposes. In connection with permitting transfers, the Committee may require that (i) no consideration be given or payment made for any such transfer, (ii) the stock option agreement pursuant to which such Option is granted must be approved by the Committee, and must expressly provide for transferability at the date of grant in a manner consistent with the Plan, and (iii) subsequent transfers of the transferred Option shall be prohibited except those in accordance with this Section. Following any such transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Sections 2, 6(b) - (d), 7, 8, 9 and 12 hereof the term "optionee" shall be deemed to refer to the transferee. The events of termination of employment set forth in an optionee's option agreement shall continue to be applied with respect to the original optionee, following which the Options shall be exercisable by the transferee only to the extent and for the periods specified in such option agreement. (b) No Shareholder Rights. No optionee shall be deemed for any purpose to be the owner of any shares of Common Stock subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the shares to the optionee, and (iii) the optionee's name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the optionee shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. (c) No Employment Rights. Neither the Plan nor the grant of any Option thereunder shall be deemed to confer upon any optionee any rights of employment with the Company, including without limitation any right to continue in the employ of the Company, or affect the right of the Company to terminate the employment of an optionee at any time, with or without cause. (d) Authority of Company. The existence of the Options shall not affect: the right or power of the Company or its shareholders to make adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; any issue of bonds, debentures, preferred or prior preference stock affecting the Common Stock or the rights thereof; the dissolution or liquidation of the Company, or sale or transfer of any part of its assets or business; or any other act, whether of a similar character or otherwise. 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Notice of Exercise. Any Option granted under the Plan may be exercised by the optionee by delivering to the Chief Financial Officer of the Company (or such other representative of the Company as the Option Committee may designate) on any business day a written notice specifying the number (which shall be consistent with the provisions of Section 5(b) hereof) of shares of Common Stock the optionee then desires to purchase (the "Notice"). (b) Payment. Payment for the shares of Common Stock purchased pursuant to the exercise of an Option shall be made either (i) in cash or by check representing good funds in an amount equal to the option price for the number of shares of Common Stock specified in the Notice (the "Total Option Price"), or (ii) if authorized by the applicable option agreement, by the valid and properly completed transfer to the Company of a number of shares of Common Stock having a fair market value, determined as provided in Section 5(c) hereof, equal to or less than the Total Option Price, plus cash or check in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such shares of Common Stock. 8. NOTICE OF DISPOSITION; WITHHOLDING; ESCROW An optionee shall immediately notify the Company in writing of any sale, transfer, assignment or other disposition (or action constituting a disqualifying disposition within the meaning of Section 421 of the Code) of any shares of Common Stock acquired through exercise of an Incentive Option, within two (2) years after the grant of such Incentive Option or within one (1) year after the acquisition of such shares of Common Stock, setting forth the date and manner of disposition, the number of shares of Common Stock disposed of and the price at which such shares of Common Stock were disposed of. The Company shall be entitled to withhold from any compensation or other payments then or thereafter due to the optionee such amounts as may be necessary to satisfy any withholding requirements of federal or state law or regulation and, further, to collect from the optionee any additional amounts which may be required for such purpose as a condition of delivering the shares of Common Stock acquired pursuant to an Option. The Option Committee may, in its discretion, require shares of Common Stock acquired by an optionee upon exercise of an Incentive Option to be held in an escrow arrangement for the purpose of enabling compliance with this Section 8. 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) Events for Adjusting Number and Price. If the shares of Common Stock as a whole are changed into or exchanged for a different number or kind of shares or securities of the Company, whether through reorganization, recapitalization, reclassification, stock dividend or other distribution, split, combination of interests, exchange of interests, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares of Common Stock subject to the Plan and in the number, kind, and per share exercise price of shares of Common Stock subject to unexercised Options or portions thereof granted prior to any such change. In the event of any such adjustment in an outstanding Option, the optionee thereafter shall have the right to purchase the number of shares of Common Stock under such Option at the per share price, as so adjusted, which the optionee could purchase at the total purchase price applicable to the Option immediately prior to such adjustment. (b) Option Committee and Board Action. Adjustments under this Section 9 shall be determined by the Option Committee and approved and ratified by the Board of Directors of the Company, and such determinations shall be conclusive. The Option Committee shall have the discretion, and power in any such event to determine and to make effective provision for acceleration of the time or times at which any Option or portion thereof shall become exercisable. No fractional interests shall be issued under the Plan on account of any adjustment specified above. 10. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors of the Company may modify, revise or terminate this Plan at any time and from time to time, except that, other than as provided in Section 9 hereof, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of shares of Common Stock as to which Options may be granted under the Plan; (b) change in substance Section 4 hereof relating to eligibility to participate in the Plan; (c) change the minimum purchase price of Incentive Options to be granted under the Plan; (d) increase the maximum term of Options provided herein; or (e) otherwise materially increase the benefits accruing to participants under the Plan. Except as provided in Section 9 hereof, rights and obligations under any Option granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the optionee. 11. EFFECTIVE DATE; NONEXCLUSIVITY (a) Effective Date. This Plan will be deemed to have been adopted and to be effective when approved by the stockholders of the Company in compliance with Temporary Regulation (S)14a-422A-2 under the Code. (b) Nonexclusivity. The adoption of the Plan shall not be construed as creating any limitations on the power of the Board of Directors of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) Securities Laws. If in the opinion of legal counsel for the Company the issuance or sale of any shares of Common Stock pursuant to the exercise of an Option would not be lawful for any reason, including without limitation the inability of the Company to obtain from any governmental authority or regulatory body having jurisdiction the authority deemed by such counsel to be necessary to such issuance or sale, the Company shall not be obligated to issue or sell any shares of Common Stock pursuant to the exercise of an Option to an Optionee or any other authorized person unless a registration statement that complies with the provisions of the Securities Act of 1933, as amended, (the "Act") in respect of such shares of Common Stock is in effect at the time thereof, or other appropriate action has been taken under and pursuant to the terms and provisions of the Act, or the Company receives evidence satisfactory to such counsel that the issuance and sale of such shares of Common Stock, in the absence of an effective registration statement or other appropriate action, would not constitute a violation of the Act or any applicable state securities law. The Company is in no event obligated to register any such shares of Common Stock, to comply with any exemption from registration requirements or to take any other action which may be required in order to permit, or to remedy or remove any prohibition or limitation on, the issuance or sale of such shares of Common Stock of any optionee or other authorized person. (b) Withholding Taxes. As a condition of exercise of an Option, the Company may, in its sole discretion, withhold or require the optionee to pay or reimburse the Company for any taxes which the Company determines are required to be withheld in connection with the grant or any exercise of an Option. (c) Governing Law. The Plan shall be interpreted such that all options hereunder intended to be Incentive Options shall meet the requirements therefor set forth in Section 422 of the Code (and any applicable regulations, rulings or judicial decisions interpreting said Section). Otherwise, the Plan shall be governed by and interpreted under the laws of the State of Delaware. 13. TERMINATION OF GRANTING OF OPTIONS UNDER THE PLAN No Option may be granted under the Plan after the tenth anniversary of the effective date of the Plan. EX-10.2 3 NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.2 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1991 STOCK OPTION PLAN Non-Qualified Option Agreement for Executive Officers Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase all or any part of the number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the Company (the "Option") under and subject to the Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following terms and conditions and those set forth on the reverse side of this certificate. This Option is not intended to qualify and shall not be treated as --- --- an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date) - ------------------- -------------- Granted to (the "Optionee"): (Name) Option Price: (Price) - ---------------------------- ------------- Social Security Number: (SSN) Expiration Date: 25% on (Date) - ----------------------- ---------------- 25% on (Date) 25% on (Date) 25% on (Date)
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date) - --------------------------------------------- Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting - ---------------- Start Date and an additional 2.083% each month thereafter up to and including the 48th month so that the Option is fully vested 48 months after the vesting start date. By acceptance of this Option, the Optionee agrees to the terms and conditions on the reverse side of this certificate and in the Plan. /s/ James K. Sims ------------------------------- ----------------------------- [LOGO] JAMES K. SIMS Cambridge Technology Partners CHIEF EXECUTIVE OFFICER ------------------------------- Cambridge Technology Partners (Massachusetts), Inc. Terms And Conditions 1. Plan Incorporated by Reference. This Option is issued pursuant to the terms ------------------------------- of the Cambridge Technology Partners (Massachusetts), Inc. 1991 Stock Option Plan, as amended (the "Plan"). Capitalized terms used and not otherwise defined in this certificate have the meanings given to them in the Plan. This certificate does not set forth all of the terms and conditions of the Plan, which are incorporated herein by reference. The Management Resource Committee of the Board of Directors ("MRC") administers the Plan and its determinations 2 regarding the operation of the Plan are final and binding. Copies of the Plan may be obtained upon written request without charge from AST StockPlan, Inc. 250 Broadway, 14th Floor, New York, NY, 10007, or on the Knowledge repository found on the internal Company web site address: http://w3.ctp.com/. 2. Option Price. The price to be paid for each share of Common Stock issued ------------- upon exercise of the whole or any part of this Option is the Option Price set forth on the face of this certificate. 3. Vesting Schedule. No portion of this Option may be exercised until the date ----------------- on which such portion shall have vested. Except as set forth herein, and subject to the determination of the Company in its sole discretion to accelerate the vesting schedule hereunder due to other circumstances and subject to a reduction in the percentage of Option Shares vesting each month in the event that the Optionee becomes employed on less than a full-time basis (such new percentage shall be determined by the Company at the time the Optionee becomes employed on less than a full time basis and shall be set forth in a replacement option agreement to be executed at that time), this Option shall be vested and exercisable with respect to the percentage of the total number of Option Shares as listed on the vesting and exercise schedule attached to this certificate. 4. Exercise of Option. --------------------- (a) Optionee may exercise only vested portions of this Option and only in the following manner. From time to time prior to the earlier to occur of (i) the termination hereof in accordance with the provisions of this Option, or (ii) the Expiration Date (as set forth in Paragraph 5 herein) with respect to a given portion of this Option, the Optionee may give written notice to the Company of his or her election to purchase some or all of the Option Shares for which this Option may be exercised at the time of such notice. Said notice shall specify the number of Option Shares to be purchased and shall be accompanied (i) by payment therefor in cash and (ii) by such agreement, statement or other evidence as the Company may require in order to satisfy itself that the issuance of the Option Shares being purchased pursuant to such exercise and any subsequent resale thereof will be in compliance with applicable laws and regulations, including without limitation all applicable federal and state securities laws and regulations. This Option shall not be exercisable for any fractional share. a Certificates for the Option Shares so purchased will be issued to the Optionee upon compliance to the satisfaction of the Company with all requirements under applicable laws or regulations in connection with such issuance, including without limitation, if said Option Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), receipt of a representation from the Optionee upon each exercise of this Option that the Optionee is purchasing the Option Shares for his or her own account and not with a view to any resale or distribution thereof, the legending of any certificate representing said Option Shares, and the imposition of a stop transfer order with respect thereto, to prevent a resale or distribution in violation of federal or state securities laws. Until the Optionee shall have complied with the requirements hereof and of the Plan, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the MRC (as defined in the Plan) as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed for any purpose to be the owner of any Option Shares subject to this Option until such Option Shares shall have been issued in accordance with the foregoing provisions. b Notwithstanding any other provision hereof or of the Plan, no portion of this Option shall be exercisable (i) after its termination in accordance with the provisions hereof, (ii) after the Expiration Date applicable thereto (as set forth in Paragraph 5 herein), or (iii) at any time unless all necessary regulatory or other approvals have been received. c To the extent that this Option is not exercised in full, it will be deemed to have been exercised first for any remaining Option Shares in the Installment (as defined in Paragraph 5 herein) which would otherwise expire on the next succeeding Expiration Date, then for any remaining Option Shares in the Installment which would otherwise expire on the second succeeding Expiration Date and so on, thereby reducing the number of Option Shares with respect to which this Option will expire on such Expiration Dates. 5. Expiration Date of Option and Underlying Option Shares. This Option will ------------------------------------------------------ expire and terminate in equal Installments (each, an "Installment") on the following dates (each, an "Expiration Date"): (a) the date which is the fifth anniversary of the Vesting Start Date with respect to the portion of this Option which vests one year after the Vesting Start Date; (b) the date which is the sixth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 13 months after the Vesting Start Date and ending 24 months after the Vesting Start Date; (c) the date which is the seventh anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 25 months after the Vesting Start Date and ending 36 months after the Vesting Start Date; and (d) the date which is the eighth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 37 months after the Vesting Start Date and ending 48 months after the Vesting Start Date. 6. Termination of Employment. This Option, as to any unexercised portion -------------------------- hereof, shall terminate on the date three (3) months after the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code (and, except as set forth in clauses (a) and (b) below, this Option shall not vest with respect to any additional Option Shares following the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code); provided, however, that (a) if such termination of employment results from the Optionee's permanent and total disability as defined in Section 22(e)(3) of the Code, this Option may be exercised, whether or not exercisable at the time of such termination, until the date twelve (12) months after such termination, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs, and (b) if such termination of employment results from the Optionee's death, this Option may be exercised, whether or not exercisable at the time of such termination, by the Optionee's executors or administrators within twenty- four (24) months thereafter, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs. No Option will confer upon the Optionee any right to continued employment by the Company or any subsidiary of the Company, nor will it interfere in any way with the Optionee's right or the Company's or any such subsidiary's right to terminate, or otherwise modify the terms of, the Optionee's employment at any time. 7. Transferability. Except as otherwise permitted by the Plan, each of this ---------------- certificate and this Option is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and is exercisable, during the Optionee's lifetime, only by the Optionee. 8. Effect of Certain Transactions. If (i) the Company is to be merged into ------------------------------- another entity, or if one or more entities is to be merged into the Company or if there is to be a consolidation of the Company and one or more entities and, in any such case, the shares of Common Stock are to be converted into cash, securities or other property other than shares of Common Stock (an "Acquisition"), or (ii) if the Company is to be liquidated, or is to sell or otherwise dispose of substantially all of its assets to another entity while unexercised Options remain outstanding under the Plan (a "Sale"), then: (a) the time for exercise of any unexercised and unexpired portion of this Option, including the then unvested portion of this Option, shall be accelerated to immediately prior to the consummation of such Acquisition or Sale, and (b) this Option shall terminate immediately after the effective date of such Acquisition or Sale; provided, however, that the foregoing clauses (a) and (b) shall not apply to any transaction in which the former stockholders of the Company immediately after such transaction hold or receive by reason of their prior ownership of shares of capital stock of the Company shares of capital stock of the resulting or surviving corporation constituting a majority of the voting power of all outstanding stock of such resulting or successor corporation. 9. Tax Withholding. The Optionee shall, not later than the date as of which ---------------- the exercise of this Option or disposition of Option Shares becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the MRC for payment of any Federal, state, and local taxes required by law to be withheld. 10. Representations. By acceptance of this Option, the Optionee agrees, ---------------- acknowledges and understands that a purchase of shares under this Option will not be made with a view to their distribution, as that term is used in the Act unless, in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Optionee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act. EX-10.3 4 NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.3 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1991 STOCK OPTION PLAN Non-Qualified Option Agreement for Non-Executive Officers Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase all or any part of the number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the Company (the "Option") under and subject to the Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following terms and conditions and those set forth on the reverse side of this certificate. This Option is not intended to qualify and shall not be treated as --- --- an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date) - ------------------- -------------- Granted to (the "Optionee"): (Name) Option Price: (Price) - ---------------------------- ------------- Social Security Number: (SSN) Expiration Date: 25% on (Date) - ----------------------- ---------------- 25% on (Date) 25% on (Date) 25% on (Date)
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date) - --------------------------------------------- Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting - ---------------- Start Date and an additional 2.083% each month thereafter up to and including the 48th month so that the Option is fully vested 48 months after the vesting start date. By acceptance of this Option, the Optionee agrees to the terms and conditions on the reverse side of this certificate and in the Plan. /s/ James K. Sims ------------------------------- ----------------------------- [LOGO] JAMES K. SIMS Cambridge Technology Partners CHIEF EXECUTIVE OFFICER ------------------------------- 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. a Certificates for the Option Shares so purchased will be issued to the Optionee upon compliance to the satisfaction of the Company with all requirements under applicable laws or regulations in connection with such issuance, including without limitation, if said Option Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), receipt of a representation from the Optionee upon each exercise of this Option that the Optionee is purchasing the Option Shares for his or her own account and not with a view to any resale or distribution thereof, the legending of any certificate representing said Option Shares, and the imposition of a stop transfer order with respect thereto, to prevent a resale or distribution in violation of federal or state securities laws. Until the Optionee shall have complied with the requirements hereof and of the Plan, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the MRC (as defined in the Plan) as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed for any purpose to be the owner of any Option Shares subject to this Option until such Option Shares shall have been issued in accordance with the foregoing provisions. b Notwithstanding any other provision hereof or of the Plan, no portion of this Option shall be exercisable (i) after its termination in accordance with the provisions hereof, (ii) after the Expiration Date applicable thereto (as set forth in Paragraph 5 herein), or (iii) at any time unless all necessary regulatory or other approvals have been received. c To the extent that this Option is not exercised in full, it will be deemed to have been exercised first for any remaining Option Shares in the Installment (as defined in Paragraph 5 herein) which would otherwise expire on the next succeeding Expiration Date, then for any remaining Option Shares in the Installment which would otherwise expire on the second succeeding Expiration Date and so on, thereby reducing the number of Option Shares with respect to which this Option will expire on such Expiration Dates. 5. Expiration Date of Option and Underlying Option Shares. This Option will ------------------------------------------------------ expire and terminate in equal Installments (each, an "Installment") on the following dates (each, an "Expiration Date"): (a) the date which is the fifth anniversary of the Vesting Start Date with respect to the portion of this Option which vests one year after the Vesting Start Date; (b) the date which is the sixth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 13 months after the Vesting Start Date and ending 24 months after the Vesting Start Date; (c) the date which is the seventh anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 25 months after the Vesting Start Date and ending 36 months after the Vesting Start Date; and (d) the date which is the eighth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 37 months after the Vesting Start Date and ending 48 months after the Vesting Start Date. 6. Termination of Employment. This Option, as to any unexercised portion -------------------------- hereof, shall terminate on the date three (3) months after the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code (and, except as set forth in clauses (a) and (b) below, this Option shall not vest with respect to any additional Option Shares following the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code); provided, however, that (a) if such termination of employment results from the Optionee's permanent and total disability as defined in Section 22(e)(3) of the Code, this Option may be exercised, whether or not exercisable at the time of such termination, until the date twelve (12) months after such termination, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs, and (b) if such termination of employment results from the Optionee's death, this Option may be exercised, whether or not exercisable at the time of such termination, by the Optionee's executors or administrators within twenty-four (24) months thereafter, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs. No Option will confer upon the Optionee any right to continued employment by the Company or any subsidiary of the Company, nor will it interfere in any way with the Optionee's right or the Company's or any such subsidiary's right to terminate, or otherwise modify the terms of, the Optionee's employment at any time. 7. Transferability. Except as otherwise permitted by the Plan, each of this ---------------- certificate and this Option is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and is exercisable, during the Optionee's lifetime, only by the Optionee. 8. Effect of Certain Transactions. If the Company is merged into another ------------------------------- entity, or if one or more entities is merged into the Company or there is a consolidation of the Company and one or more entities and, in any such case, the shares of Common Stock are converted into cash, securities or other property other than shares of Common Stock, or if the Company is liquidated, or sells or otherwise disposes of substantially all its assets to another entity while unexercised Options remain outstanding under the Plan, then: (i) subject to the provisions of clause (iii) below, this Option will terminate as of the effective date of any such merger, consolidation, liquidation or sale, provided that (x) notice of such termination shall be given to the Optionee and (y) the Optionee shall have the right to exercise this Option to the extent that it is then exercisable, during the 15-day period preceding the effective date of such merger, consolidation, liquidation or sale, contingent upon the consummation of such merger, consolidation, liquidation or sale, provided, however, that in no event shall any portion of this Option be exercisable after the Expiration Date applicable to such portion; (ii) the MRC, with the approval of the Board of Directors of the Company, may in its discretion accelerate the time for exercise of any unexercised and unexpired portion of this Option, including the then unvested portion of this Option, to and after a date prior to the effective date of such merger, consolidation, liquidation or sale specified by the MRC, and (iii) the MRC, with the approval of the Board of Directors of the Company, may provide that after the effective date of such merger, consolidation or sale (x) this Option shall survive and the Optionee shall be entitled, upon exercise of this Option, to receive, in lieu of shares of Common Stock, shares of stock or other securities as the holders of shares of Common Stock received pursuant to the terms of the merger, consolidation or sale or (y) this Option shall terminate and the Optionee shall be entitled to receive, in lieu of shares of Common Stock, cash in an amount per Option Share equal to the consideration per share of Common Stock received pursuant to the terms of the merger, consolidation or sale less the Option Price. 9. Tax Withholding. The Optionee shall, not later than the date as of which ---------------- the exercise of this Option or disposition of Option Shares becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the MRC for payment of any Federal, state, and local taxes required by law to be withheld. 10. Representations. By acceptance of this Option, the Optionee agrees, ---------------- acknowledges and understands that a purchase of shares under this Option will not be made with a view to their distribution, as that term is used in the Act unless, in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Optionee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act. EX-10.4 5 INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10.4 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1991 STOCK OPTION PLAN Incentive Stock Option Agreement for Executive Officers Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase all or any part of the number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the Company (the "Option") under and subject to the Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following terms and conditions and those set forth on the reverse side of this certificate. This Option is intended to qualify and shall be treated as an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date) - ------------------- -------------- Granted to (the "Optionee"): (Name) Option Price: (Price) - ---------------------------- ------------- Social Security Number: (SSN) Expiration Date: 25% on (Date) - ----------------------- ---------------- 25% on (Date) 25% on (Date) 25% on (Date)
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date) - --------------------------------------------- Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting Start Date and an additional 2.083% each month thereafter up to and including the 48th month so that the Option is fully vested 48 months after the vesting start date. By acceptance of this Option, the Optionee agrees to the terms and conditions on the reverse side of this certificate and in the Plan. /s/ James K. Sims ------------------------------- ----------------------------- [LOGO] JAMES K. SIMS Cambridge Technology Partners CHIEF EXECUTIVE OFFICER ------------------------------- 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. a Certificates for the Option Shares so purchased will be issued to the Optionee upon compliance to the satisfaction of the Company with all requirements under applicable laws or regulations in connection with such issuance, including without limitation, if said Option Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), receipt of a representation from the Optionee upon each exercise of this Option that the Optionee is purchasing the Option Shares for his or her own account and not with a view to any resale or distribution thereof, the legending of any certificate representing said Option Shares, and the imposition of a stop transfer order with respect thereto, to prevent a resale or distribution in violation of federal or state securities laws. Until the Optionee shall have complied with the requirements hereof and of the Plan, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the MRC (as defined in the Plan) as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed for any purpose to be the owner of any Option Shares subject to this Option until such Option Shares shall have been issued in accordance with the foregoing provisions. b Notwithstanding any other provision hereof or of the Plan, no portion of this Option shall be exercisable (i) after its termination in accordance with the provisions hereof, (ii) after the Expiration Date applicable thereto (as set forth in Paragraph 5 herein), or (iii) at any time unless all necessary regulatory or other approvals have been received. c To the extent that this Option is not exercised in full, it will be deemed to have been exercised first for any remaining Option Shares in the Installment (as defined in Paragraph 5 herein) which would otherwise expire on the next succeeding Expiration Date, then for any remaining Option Shares in the Installment which would otherwise expire on the second succeeding Expiration Date and so on, thereby reducing the number of Option Shares with respect to which this Option will expire on such Expiration Dates. 5. Expiration Date of Option and Underlying Option Shares. This Option will ------------------------------------------------------ expire and terminate in equal Installments (each, an "Installment") on the following dates (each, an "Expiration Date"): (a) the date which is the fifth anniversary of the Vesting Start Date with respect to the portion of this Option which vests one year after the Vesting Start Date; (b) the date which is the sixth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 13 months after the Vesting Start Date and ending 24 months after the Vesting Start Date; (c) the date which is the seventh anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 25 months after the Vesting Start Date and ending 36 months after the Vesting Start Date; and (d) the date which is the eighth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 37 months after the Vesting Start Date and ending 48 months after the Vesting Start Date. 6. Termination of Employment. This Option, as to any unexercised portion -------------------------- hereof, shall terminate on the date three (3) months after the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code (and, except as set forth in clauses (a) and (b) below, this Option shall not vest with respect to any additional Option Shares following the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code); provided, however, that (a) if such termination of employment results from the Optionee's permanent and total disability as defined in Section 22(e)(3) of the Code, this Option may be exercised, whether or not exercisable at the time of such termination, until the date twelve (12) months after such termination, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs, and (b) if such termination of employment results from the Optionee's death, this Option may be exercised, whether or not exercisable at the time of such termination, by the Optionee's executors or administrators within twenty-four (24) months thereafter, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs. No Option will confer upon the Optionee any right to continued employment by the Company or any subsidiary of the Company, nor will it interfere in any way with the Optionee's right or the Company's or any such subsidiary's right to terminate, or otherwise modify the terms of, the Optionee's employment at any time. 7. Transferability. Except as otherwise permitted by the Plan, each of this ---------------- certificate and this Option is personal to the Optionee, is non- assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and is exercisable, during the Optionee's lifetime, only by the Optionee. 8. Effect of Certain Transactions. If (i) the Company is to be merged into ------------------------------- another entity, or if one or more entities is to be merged into the Company or if there is to be a consolidation of the Company and one or more entities and, in any such case, the shares of Common Stock are to be converted into cash, securities or other property other than shares of Common Stock (an "Acquisition"), or (ii) if the Company is to be liquidated, or is to sell or otherwise dispose of substantially all of its assets to another entity while unexercised Options remain outstanding under the Plan (a "Sale"), then: (a) the time for exercise of any unexercised and unexpired portion of this Option, including the then unvested portion of this Option, shall be accelerated to immediately prior to the consummation of such Acquisition or Sale, and (b) this Option shall terminate immediately after the effective date of such Acquisition or Sale; provided, however, that the foregoing clauses (a) and (b) shall not apply to any transaction in which the former stockholders of the Company immediately after such transaction hold or receive by reason of their prior ownership of shares of capital stock of the Company shares of capital stock of the resulting or surviving corporation constituting a majority of the voting power of all outstanding stock of such resulting or successor corporation. 9. Tax Withholding. The Optionee shall, not later than the date as of which ---------------- the exercise of this Option or disposition of Option Shares becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the MRC for payment of any Federal, state, and local taxes required by law to be withheld. 10. Notice to Company of Disqualifying Disposition. If this Option is intended ------------------------------------------------ to be an incentive stock option under the Plan set forth on the face of this certificate, by acceptance hereof, the Optionee agrees to notify the Company in writing immediately after he or she makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of incentive stock options under the Plan. A Disqualifying Disposition is generally any disposition occurring within two years of the date the incentive stock option was granted or within one year of the date the incentive stock option was exercised, whichever period ends later. Such notice shall be mailed or delivered to the Company at its principal place of business. 11. Representations. By acceptance of this Option, the Optionee agrees, ---------------- acknowledges and understands that a purchase of shares under this Option will not be made with a view to their distribution, as that term is used in the Act unless, in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Optionee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act. EX-10.5 6 INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10.5 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1991 STOCK OPTION PLAN Incentive Stock Option Agreement for Non-Executive Officers Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase all or any part of the number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the Company (the "Option") under and subject to the Company's 1991 Stock Option Plan (the "Plan"), exercisable on the following terms and conditions and those set forth on the reverse side of this certificate. This Option is intended to qualify and shall be treated as an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date) - ------------------- -------------- Granted to (the "Optionee"): (Name) Option Price: (Price) - ---------------------------- ------------- Social Security Number: (SSN) Expiration Date: 25% on (Date) - ----------------------- ---------------- 25% on (Date) 25% on (Date) 25% on (Date)
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date) - --------------------------------------------- Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting Start Date and an additional 2.083% each month thereafter up to and including the 48th month so that the Option is fully vested 48 months after the vesting start date. By acceptance of this Option, the Optionee agrees to the terms and conditions on the reverse side of this certificate and in the Plan. /s/ James K. Sims ------------------------------- ----------------------------- [LOGO] JAMES K. SIMS Cambridge Technology Partners CHIEF EXECUTIVE OFFICER ------------------------------- 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. a Certificates for the Option Shares so purchased will be issued to the Optionee upon compliance to the satisfaction of the Company with all requirements under applicable laws or regulations in connection with such issuance, including without limitation, if said Option Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), receipt of a representation from the Optionee upon each exercise of this Option that the Optionee is purchasing the Option Shares for his or her own account and not with a view to any resale or distribution thereof, the legending of any certificate representing said Option Shares, and the imposition of a stop transfer order with respect thereto, to prevent a resale or distribution in violation of federal or state securities laws. Until the Optionee shall have complied with the requirements hereof and of the Plan, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the MRC (as defined in the Plan) as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed for any purpose to be the owner of any Option Shares subject to this Option until such Option Shares shall have been issued in accordance with the foregoing provisions. b Notwithstanding any other provision hereof or of the Plan, no portion of this Option shall be exercisable (i) after its termination in accordance with the provisions hereof, (ii) after the Expiration Date applicable thereto (as set forth in Paragraph 5 herein), or (iii) at any time unless all necessary regulatory or other approvals have been received. c To the extent that this Option is not exercised in full, it will be deemed to have been exercised first for any remaining Option Shares in the Installment (as defined in Paragraph 5 herein) which would otherwise expire on the next succeeding Expiration Date, then for any remaining Option Shares in the Installment which would otherwise expire on the second succeeding Expiration Date and so on, thereby reducing the number of Option Shares with respect to which this Option will expire on such Expiration Dates. 5. Expiration Date of Option and Underlying Option Shares. This Option will ------------------------------------------------------ expire and terminate in equal Installments (each, an "Installment") on the following dates (each, an "Expiration Date"): (a) the date which is the fifth anniversary of the Vesting Start Date with respect to the portion of this Option which vests one year after the Vesting Start Date; (b) the date which is the sixth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 13 months after the Vesting Start Date and ending 24 months after the Vesting Start Date; (c) the date which is the seventh anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 25 months after the Vesting Start Date and ending 36 months after the Vesting Start Date; and (d) the date which is the eighth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 37 months after the Vesting Start Date and ending 48 months after the Vesting Start Date. 6. Termination of Employment. This Option, as to any unexercised portion -------------------------- hereof, shall terminate on the date three (3) months after the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code (and, except as set forth in clauses (a) and (b) below, this Option shall not vest with respect to any additional Option Shares following the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code); provided, however, that (a) if such termination of employment results from the Optionee's permanent and total disability as defined in Section 22(e)(3) of the Code, this Option may be exercised, whether or not exercisable at the time of such termination, until the date twelve (12) months after such termination, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs, and (b) if such termination of employment results from the Optionee's death, this Option may be exercised, whether or not exercisable at the time of such termination, by the Optionee's executors or administrators within twenty- four (24) months thereafter, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs. No Option will confer upon the Optionee any right to continued employment by the Company or any subsidiary of the Company, nor will it interfere in any way with the Optionee's right or the Company's or any such subsidiary's right to terminate, or otherwise modify the terms of, the Optionee's employment at any time. 7. Transferability. Except as otherwise permitted by the Plan, each of this ---------------- certificate and this Option is personal to the Optionee, is non- assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, is exercisable, during the Optionee's lifetime, only by the Optionee. 8. Effect of Certain Transactions. If the Company is merged into another ------------------------------- entity, or if one or more entities is merged into the Company or there is a consolidation of the Company and one or more entities and, in any such case, the shares of Common Stock are converted into cash, securities or other property other than shares of Common Stock, or if the Company is liquidated, or sells or otherwise disposes of substantially all its assets to another entity while unexercised Options remain outstanding under the Plan, then: (i) subject to the provisions of clause (iii) below, this Option will terminate as of the effective date of any such merger, consolidation, liquidation or sale, provided that (x) notice of such termination shall be given to the Optionee and (y) the Optionee shall have the right to exercise this Option to the extent that it is then exercisable, during the 15-day period preceding the effective date of such merger, consolidation, liquidation or sale, contingent upon the consummation of such merger, consolidation, liquidation or sale, provided, however, that in no event shall any portion of this Option be exercisable after the Expiration Date applicable to such portion; (ii) the MRC, with the approval of the Board of Directors of the Company, may in its discretion accelerate the time for exercise of any unexercised and unexpired portion of this Option, including the then unvested portion of this Option, to and after a date prior to the effective date of such merger, consolidation, liquidation or sale specified by the MRC, and (iii) the MRC, with the approval of the Board of Directors of the Company, may provide that after the effective date of such merger, consolidation or sale (x) this Option shall survive and the Optionee shall be entitled, upon exercise of this Option, to receive, in lieu of shares of Common Stock, shares of stock or other securities as the holders of shares of Common Stock received pursuant to the terms of the merger, consolidation or sale or (y) this Option shall terminate and the Optionee shall be entitled to receive, in lieu of shares of Common Stock, cash in an amount per Option Share equal to the consideration per share of Common Stock received pursuant to the terms of the merger, consolidation or sale less the Option Price. 9. Tax Withholding. The Optionee shall, not later than the date as of which ---------------- the exercise of this Option or disposition of Option Shares becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the MRC for payment of any Federal, state, and local taxes required by law to be withheld 10. Notice to Company of Disqualifying Disposition. If this Option is ------------------------------------------------ intended to be an incentive stock option under the Plan set forth on the face of this certificate, by acceptance hereof, the Optionee agrees to notify the Company in writing immediately after he or she makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of incentive stock options under the Plan. A Disqualifying Disposition is generally any disposition occurring within two years of the date the incentive stock option was granted or within one year of the date the incentive stock option was exercised, whichever period ends later. Such notice shall be mailed or delivered to the Company at its principal place of business. 11. Representations. By acceptance of this Option, the Optionee agrees, ---------------- acknowledges and understands that a purchase of shares under this Option will not be made with a view to their distribution, as that term is used in the Act unless, in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Optionee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act. EX-10.6 7 1998 STOCK OPTION PLAN EXHIBIT 10.6 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1998 STOCK OPTION PLAN 1. PURPOSE The name of this plan is the Cambridge Technology Partners (Massachusetts), Inc. 1998 Stock Option Plan (the "1998 Plan"). The purpose of the 1998 Plan is to promote the long-term success of Cambridge Technology Partners (Massachusetts), Inc., a Delaware corporation (the "Company"), by providing financial incentives to employees and consultants of the Company who are in positions to make significant contributions toward such success except that no member of the Board of Directors of Cambridge Technology Partners (Massachusetts), Inc. (the "Board") or officer of the Company appointed by the Board shall be eligible for grants of options under the 1998 Plan. The 1998 Plan is designed to attract individuals of outstanding ability to become or to continue as employees of the Company or consultants of the Company, to enable such individuals to acquire or increase proprietary interests in the Company through the ownership of shares of Common Stock of the Company, and to render superior performance during their associations with the Company. The Company intends that this purpose will be effected by the granting, pursuant to the 1998 Plan, of options for shares of the Company's Common Stock that do not meet the definition of "incentive stock options" in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") (such options granted hereunder, "Nonqualified Options"). References herein to "the Company" shall include any successor corporation to the Company and, except where the context requires otherwise, also any subsidiary of the Company (such that if the Company has one or more subsidiaries, individuals who are employees thereof or consultants thereto are eligible to be granted Nonqualified Options under the 1998 Plan). References herein to "the Board" shall include the board of directors of any successor corporation to the Company. 2. OPTIONS TO BE GRANTED AND ADMINISTRATION (a) Options Granted. Options granted under the 1998 Plan shall only be Nonqualified Options. (b) Administration of 1998 Plan. The 1998 Plan shall be administered by a committee (the "Option Committee") of not less than two members of the Board selected by and from the members of the Board in accordance with the provisions of the Company's By-Laws relating to the appointment of Committees. Subject to the provisions of the 1998 Plan, the Option Committee shall exercise all powers under the 1998 Plan, unless and until other action is taken by the Board. Action by the Option Committee shall require the affirmative vote of a majority of all its members. (c) Option Committee. Subject to the terms and conditions of the 1998 Plan, the Option Committee shall have the power: (i) To determine from time to time the Nonqualified Options to be granted to eligible persons under the 1998 Plan, and to prescribe the terms and provisions (which need not be identical) of each Nonqualified Option granted under the 1998 Plan to such persons; (ii) To construe and interpret the 1998 Plan and Nonqualified Options granted thereunder and to establish, amend, and revoke rules and regulations for administration of the 1998 Plan. In this connection, the Option Committee may correct any defect or supply any omission, or reconcile any inconsistency in the 1998 Plan, or in any nonqualified option agreement, in the manner and to the extent it shall deem necessary or expedient to make the 1998 Plan fully effective. All decisions and determinations by the Option Committee in the exercise of this power shall be final and binding upon the Company and all optionees; and (iii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the 1998 Plan, including all actions the Option Committee deems necessary, under Section 422 of the Code and the regulations thereunder, to ensure that no Nonqualified Option issued hereunder is treated as an "incentive stock option" under Section 422(b) of the Code. 3. STOCK SUBJECT TO THE 1998 PLAN (a) Stock under the 1998 Plan. The stock subject to the Nonqualified Options granted under the 1998 Plan shall be shares of the Company's authorized but unissued common stock, par value $.01 per share (the "Common Stock"), or previously issued shares of Common Stock that have been reacquired and reserved by the Board for resale upon exercise of Nonqualified Options granted under the 1998 Plan. The total number of shares of Common Stock that may be issued pursuant to Nonqualified Options granted under the 1998 Plan shall not exceed an aggregate of 5,000,000 shares of Common Stock. Such number shall be subject to adjustment as provided in Section 9 hereof. (b) Reallocation of Unexercised Options. Whenever any outstanding Nonqualified Option under the 1998 Plan expires, is canceled or is otherwise terminated (other than by exercise), the shares of Common Stock allocable to the unexercised portion of such Nonqualified Option may again be the subject of Nonqualified Options under the 1998 Plan. 4. STOCK OPTION GRANTS Nonqualified Options may be granted to employees of the Company, to consultants to the Company who are not employees of the Company, and to such other persons as the Option Committee shall select from time to time, provided -------- that, in no event, shall any member of the Board or any officer of the Company - ---- appointed by the Board be eligible to receive any grants of Nonqualified Options issued under the 1998 Plan. The determination of the persons eligible to receive grants and the number of shares of Common Stock for which Nonqualified Options are granted shall be made by the Option Committee. -2- 5. TERMS OF THE NONQUALIFIED OPTION AGREEMENTS Each nonqualified option agreement for Nonqualified Options granted under the 1998 Plan (each, a "Nonqualified Option Agreement") shall contain such provisions as the Option Committee shall from time to time deem appropriate. The Nonqualified Option Agreements need not be identical, but each Nonqualified Option Agreement by appropriate language, or by reference to this Section 5 of the 1998 Plan, shall include the substance of all of the following provisions: (a) Expiration. Each Nonqualified Option shall expire on the date specified in the Nonqualified Option Agreement, which date shall not be later than the tenth anniversary of the date on which the Nonqualified Option was granted. Unless otherwise determined by the Option Committee, each Nonqualified Option shall in any event expire not later than three months after the optionee is for any reason no longer employed by (or in the case of a consultant, engaged in a business relationship with) the Company, except (i) if such termination of employment (or business relationship) results from optionee's disability (within the meaning of Section 22(e)(3) of the Code), a Nonqualified Option may be exercised within twelve months thereafter (but in no event later than the scheduled expiration date set forth in the Nonqualified Option Agreement), whether or not exercisable at the time of such termination, and (ii) if such termination of employment (or business relationship) results from the optionee's death, a Nonqualified Option may be exercised by his executors or administrators within twenty-four months thereafter (but in no event later than the scheduled expiration date set forth in the Nonqualified Option Agreement), whether or not exercisable at the time of such termination. (b) Exercise. Unless the Option Committee shall otherwise determine at the time a Nonqualified Option is granted, each Nonqualified Option shall become vested and exercisable with respect to 25% of the shares of Common Stock subject to such Nonqualified Option as of the first anniversary of the date of grant and, thereafter, with respect to an additional 2.083% of the shares subject to such Nonqualified Option as of the same day (or the immediately preceding day if a month does not have such day) of each calendar month thereafter, so that such Nonqualified Option shall be exercisable in full as of the fourth anniversary of the date of grant. Unless otherwise provided by the Option Committee, for this purpose the date of the grant of a Nonqualified Option shall be the date on which the Option Committee approves the grant. To the extent not exercised, vested installments shall accumulate and be exercisable in whole or in part at any time after becoming exercisable, but not later than the date the Nonqualified Option expires or terminates. Nonqualified Option Agreements may also contain provisions relating to the treatment of Nonqualified Options in the event of a merger, consolidation or liquidation of, or sale of assets by, the Company. (c) Purchase Price. Unless the Option Committee shall otherwise determine at the time the Nonqualified Option is granted, the purchase price per share of Common Stock under each Nonqualified Option shall be not less than the fair market value of a share of Common Stock on the date the Nonqualified Option is granted. For the purposes of the 1998 Plan, the fair market value of the shares of Common Stock of the Company shall be determined by the Option Committee. -3- 6. LIMITATION ON RIGHTS OF OPTIONEES (a) Transferability of Nonqualified Options. Except as set forth below, (i) no Nonqualified Option shall be transferable by any optionee other than by will or by the laws of descent and distribution and (ii) Nonqualified Options may be exercised during the optionee's lifetime only by the optionee (or, if the optionee is disabled and so long as the Nonqualified Option remains exercisable, by the optionee's duly appointed guardian or other legal representative). However, the Option Committee may, in its discretion, permit a Nonqualified Option recipient to transfer such Nonqualified Option to family members or other persons for estate planning purposes. In connection with permitting transfers, the Option Committee may require that (i) no consideration be given or payment made for any such transfer, (ii) the Nonqualified Option Agreement pursuant to which such Nonqualified Option is granted must be approved by the Option Committee, and must expressly provide for transferability at the date of grant in a manner consistent with the 1998 Plan, and (iii) subsequent transfers of the transferred Nonqualified Option shall be prohibited except those in accordance with this Section. Following any such transfer, any such Nonqualified Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Sections 2(c)(ii), 6(b), 6(c), 7, 8, 9 and 12 hereof the term "optionee" shall be deemed to refer to the transferee. The events of termination of employment (or business relationship in the case of a consultant) set forth in an optionee's Nonqualified Option Agreement shall continue to be applied with respect to the original optionee, following which the Nonqualified Options shall be exercisable by the transferee only to the extent, and for the periods specified, therein. (b) No Shareholder Rights. No optionee shall be deemed for any purpose to be the owner of any shares of Common Stock subject to any Nonqualified Option unless and until (i) the Nonqualified Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the shares to the optionee, and (iii) the optionee's name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the optionee shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. (c) No Employment Rights. Neither the 1998 Plan nor the grant of any Nonqualified Option thereunder shall be deemed to confer upon any optionee any rights of employment with the Company, including, without limitation, any right to continue in the employ of the Company, or affect the right of the Company to terminate the employment of an optionee at any time, with or without cause. (d) Authority of the Company. The existence of the Nonqualified Options shall not affect: the right or power of the Company or its shareholders to make adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; any issue of bonds, debentures, preferred or prior preference stock affecting the Common Stock or the rights thereof; the dissolution or liquidation of the Company, or sale or -4- transfer of any part of its assets or business; or any other act, whether of a similar character or otherwise. 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Notice of Exercise. Any Nonqualified Option granted under the 1998 Plan may be exercised by the optionee by delivering to the Chief Financial Officer of the Company (or such other representative of the Company as the Option Committee may designate) on any business day a written notice specifying the number (which shall be consistent with the provisions of Section 5(b) hereof) of shares of Common Stock the optionee then desires to purchase (the "Notice"). (b) Payment. Payment for the shares of Common Stock purchased pursuant to the exercise of a Nonqualified Option shall be made either (i) in cash or by check representing good funds in an amount equal to the option price for the number of shares of Common Stock specified in the Notice (the "Total Option Price"), (ii) if authorized by the Nonqualified Option Agreement, by the valid and properly completed transfer to the Company of a number of shares of Common Stock having a fair market value, determined as provided in Section 5(c) hereof, equal to or less than the Total Option Price, plus cash or check in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such shares of Common Stock. 8. WITHHOLDING; ESCROW The Company shall be entitled to withhold from any compensation or other payments then or thereafter due to the optionee such amounts as may be necessary to satisfy any withholding requirements of federal or state law or regulation and, further, to collect from the optionee any additional amounts which may be required for such purpose as a condition of delivering the shares of Common Stock acquired pursuant to a Nonqualified Option. The Option Committee may, in its discretion, require shares of the Common Stock acquired by an optionee upon the exercise of a Nonqualified Option to be held in an escrow arrangement for the purpose of enabling compliance with this Section 8. 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION (a) Events for Adjusting Number and Price. If the shares of Common Stock as a whole are changed into or exchanged for a different number or kind of shares or securities of the Company, whether through reorganization, recapitalization, reclassification, stock dividend or other distribution, split, combination of interests, exchange of interests, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares of Common Stock subject to the 1998 Plan and in the number, kind, and per share exercise price of shares of Common Stock subject to unexercised Nonqualified Options or portions thereof granted prior to any such change. In the event of any such adjustment in an outstanding Nonqualified Option, the optionee thereafter shall have the right to purchase the number of shares of Common Stock under such Nonqualified Option at the per share price, as so -5- adjusted, which the optionee could purchase at the total purchase price applicable to the Nonqualified Option immediately prior to such adjustment. (b) Option Committee Action. Adjustments under this Section 9 shall be determined by the Option Committee and such determinations shall be conclusive. The Option Committee shall have the discretion, and power in any such event to determine and to make effective provision for acceleration of the time or times at which any Nonqualified Option or portion thereof shall become exercisable. No fractional interests shall be issued under the 1998 Plan on account of any adjustment specified above. 10. AMENDMENT OR TERMINATION OF 1998 PLAN The Board may modify, revise or terminate the 1998 Plan at any time and from time to time.Except as provided in Section 9 hereof, rights and obligations under any Nonqualified Option granted before any amendment of the 1998 Plan shall not be altered or impaired by such amendment, except with the consent of the optionee. 11. EFFECTIVE DATE; NONEXCLUSIVITY (a) Effective Date. This 1998 Plan will be deemed to have been adopted and to be effective when approved by the Board. (b) Nonexclusivity. The adoption of the 1998 Plan shall not be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of options otherwise than under the 1998 Plan, and such arrangements may be either applicable generally or only in specific cases. 12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) Securities Laws. If in the opinion of legal counsel for the Company, the issuance or sale of any shares of Common Stock pursuant to the exercise of a Nonqualified Option would not be lawful for any reason, including, without limitation, the inability of the Company to obtain from any governmental authority or regulatory body having jurisdiction the authority deemed by such counsel to be necessary to such issuance or sale, the Company shall not be obligated to issue or sell any shares of Common Stock pursuant to the exercise of a Nonqualified Option to an optionee or any other authorized person unless a registration statement that complies with the provisions of the Securities Act of 1933, as amended (the "Act"), in respect of such shares of Common Stock is in effect at the time thereof, or other appropriate action has been taken under and pursuant to the terms and provisions of the Act, or the Company receives evidence satisfactory to such counsel that the issuance and sale of such shares of Common Stock, in the absence of an effective registration statement or other appropriate action, would not constitute a violation of the Act or any applicable state securities law. The Company is in no event obligated to register any such shares of Common Stock, to comply with any exemption from registration requirements or to take any other action which may be required in order to permit, or to remedy -6- or remove any prohibition or limitation on, the issuance or sale of such shares of Common Stock to any optionee or other authorized person. (b) Governing Law. The 1998 Plan shall be governed by and interpreted under the laws of the State of Delaware. 13. TERMINATION OF GRANTING OF NONQUALIFIED OPTIONS UNDER THE 1998 PLAN No Nonqualified Option may be granted under the 1998 Plan after the tenth anniversary of the effective date of the 1998 Plan (as set forth in Section 11 hereto). -7- EX-10.7 8 FORM OF NON-QUALIFIED OPTION AGREEMENT EXHIBIT 10.7 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1998 STOCK OPTION PLAN Non-Qualified Option Agreement Cambridge Technology Partners (Massachusetts), Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase all or any part of the number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the Company (the "Option") under and subject to the Company's 1998 Stock Option Plan (the "1998 Plan"), exercisable on the following terms and conditions and those set forth on the reverse side of this certificate. This Option is not intended to qualify and shall not be treated as --- --- an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). Option to Purchase: (Shares) Shares (the "Option Shares") Date of Grant: (Grant Date) - ------------------- -------------- Granted to (the "Optionee"): (Name) Option Price: (Price) - ---------------------------- ------------- Social Security Number: (SSN) Expiration Date: 25% on (Date) - ----------------------- ---------------- 25% on (Date) 25% on (Date) 25% on (Date)
Vesting Start Date(the "Vesting Start Date"): (Vesting Start Date) - --------------------------------------------- Vesting Schedule: To vest 25.000% on the one year anniversary of the Vesting - ---------------- Start Date and an additional 2.083% each month thereafter up to and including the 48th month so that the Option is fully vested 48 months after the vesting start date. By acceptance of this Option, the Optionee agrees to the terms and conditions on the reverse side of this certificate and in the Plan. /s/ James K. Sims ------------------------------- ----------------------------- [LOGO] JAMES K. SIMS Cambridge Technology Partners CHIEF EXECUTIVE OFFICER ------------------------------- CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. Terms And Conditions 1. Plan Incorporated by Reference. This Option is issued pursuant to the terms ------------------------------- of the Cambridge Technology Partners (Massachusetts), Inc. 1998 Stock Option Plan, as amended (the "1998 Plan"). Capitalized terms used and not otherwise defined in this certificate have the meanings given to them in the 1998 Plan. This certificate does not set forth all of the terms and conditions of the 1998 Plan, which are incorporated herein by reference. The Management Resource Committee of the Board of Directors ("MRC") administers the 1998 Plan and its determinations regarding the operation of the 1998 Plan are final and binding. Copies of the 1998 Plan may be obtained upon written request without charge from AST StockPlan, Inc. 250 Broadway, 14/th/ Floor, New York, NY, 10007, or on the Knowledge repository found on the internal Company web site address: http://w3.ctp.com/. 2. Option Price. The price to be paid for each share of Common Stock issued ------------- upon exercise of the whole or any part of this Option is the Option Price set forth on the face of this certificate. 3. Vesting Schedule. No portion of this Option may be exercised until the date ----------------- on which such portion shall have vested. Except as set forth herein, and subject to the determination of the Company in its sole discretion to accelerate the vesting schedule hereunder due to other circumstances and subject to a reduction in the percentage of Option Shares vesting each month in the event that the Optionee becomes employed on less than a full-time basis (such new percentage shall be determined by the Company at the time the Optionee becomes employed on less than a full time basis and shall be set forth in a replacement option agreement to be executed at that time), this Option shall be vested and exercisable with respect to the percentage of the total number of Option Shares as listed on the vesting and exercise schedule attached to this certificate. 4. Exercise of Option. ------------------- (a) Optionee may exercise only vested portions of this Option and only in the following manner. From time to time prior to the earlier to occur of (i) the termination hereof in accordance with the provisions of this Option, or (ii) the Expiration Date (as set forth in Paragraph 5 herein) with respect to a given portion of this Option, the Optionee may give written notice to the Company of his or her election to purchase some or all of the Option Shares for which this Option may be exercised at the time of such notice. Said notice shall specify the number of Option Shares to be purchased and shall be accompanied (i) by payment therefor in cash and (ii) by such agreement, statement or other evidence as the Company may require in order to satisfy itself that the issuance of the Option Shares being purchased pursuant to such exercise and any subsequent resale thereof will be in compliance with applicable laws and regulations, including without limitation all applicable federal and state securities laws and regulations. This Option shall not be exercisable for any fractional share. (b) Certificates for the Option Shares so purchased will be issued to the Optionee upon compliance to the satisfaction of the Company with all requirements under applicable laws or regulations in connection with such issuance, including without limitation, if said Option Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), receipt of a representation from the Optionee upon each exercise of this Option that the Optionee is purchasing the Option Shares for his or her own account and not with a view to any resale or distribution thereof, the legending of any certificate representing said Option Shares, and the imposition of a stop transfer order with respect thereto, to prevent a resale or distribution in violation of federal or state securities laws. Until the Optionee shall have complied with the requirements hereof and of the 1998 Plan, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the MRC (as defined in the 1998 Plan) as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed for any purpose to be the owner of any Option Shares subject to this Option until such Option Shares shall have been issued in accordance with the foregoing provisions. (c) Notwithstanding any other provision hereof or of the 1998 Plan, no portion of this Option shall be exercisable (i) after its termination in accordance with the provisions hereof, (ii) after the Expiration Date applicable thereto (as set forth in Paragraph 5 herein), or (iii) at any time unless all necessary regulatory or other approvals have been received. (d) To the extent that this Option is not exercised in full, it will be deemed to have been exercised first for any remaining Option Shares in the Installment (as defined in Paragraph 5 herein) which would otherwise expire on the next succeeding Expiration Date, then for any remaining Option Shares in the Installment which would otherwise expire on the second succeeding Expiration Date and so on, thereby reducing the number of Option Shares with respect to which this Option will expire on such Expiration Dates. 5. Expiration Date of Option and Underlying Option Shares. This Option will ------------------------------------------------------ expire and terminate in equal Installments (each, an "Installment") on the following dates (each, an "Expiration Date"): (a) the date which is the fifth anniversary of the Vesting Start Date with respect to the portion of this Option which vests one year after the Vesting Start Date; (b) the date which is the sixth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 13 months after the Vesting Start Date and ending 24 months after the Vesting Start Date; (c) the date which is the seventh anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 25 months after the Vesting Start Date and ending 36 months after the Vesting Start Date; and (d) the date which is the eighth anniversary of the Vesting Start Date with respect to the portion of this Option which vests during the period beginning 37 months after the Vesting Start Date and ending 48 months after the Vesting Start Date. 6. Termination of Employment. This Option, as to any unexercised portion -------------------------- hereof, shall terminate on the date three (3) months after the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code (and, except as set forth in clauses (a) and (b) below, this Option shall not vest with respect to any additional Option Shares following the date on which the Optionee is no longer employed by the Company or a subsidiary as defined in the Code); provided, however, that (a) if such termination of employment results from the Optionee's permanent and total disability as defined in Section 22(e)(3) of the Code, this Option may be exercised, whether or not exercisable at the time of such termination, until the date twelve (12) months after such termination, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs, and (b) if such termination of employment results from the Optionee's death, this Option may be exercised, whether or not exercisable at the time of such termination, by the Optionee's executors or administrators within twenty-four (24) months thereafter, or until the applicable Expiration Date with respect to any particular portion of this Option (as set forth in Paragraph 5 herein), whichever first occurs. No Option will confer upon the Optionee any right to continued employment by the Company or any subsidiary of the Company, nor will it interfere in any way with the Optionee's right or the Company's or any such subsidiary's right to terminate, or otherwise modify the terms of, the Optionee's employment at any time. 7. Transferability. Except as otherwise permitted by the 1998 Plan, each of ---------------- this certificate and this Option is personal to the Optionee, is non- assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and is exercisable, during the Optionee's lifetime, only by the Optionee. 8. Effect of Certain Transactions. If the Company is merged into another ------------------------------- entity, or if one or more entities is merged into the Company or there is a consolidation of the Company and one or more entities and, in any such case, the shares of Common Stock are converted into cash, securities or other property other than shares of Common Stock, or if the Company is liquidated, or sells or otherwise disposes of substantially all its assets to another entity while unexercised Options remain outstanding under the 1998 Plan, then: (i) subject to the provisions of clause (iii) below, this Option will terminate as of the effective date of any such merger, consolidation, liquidation or sale, provided that (x) notice of such termination shall be given to the Optionee and (y) the Optionee shall have the right to exercise this Option to the extent that it is then exercisable, during the 15-day period preceding the effective date of such merger, consolidation, liquidation or sale, contingent upon the consummation of such merger, consolidation, liquidation or sale, provided, however, that in no event shall any portion of this Option be exercisable after the Expiration Date applicable to such portion; (ii) the MRC, with the approval of the Board of Directors of the Company, may in its discretion accelerate the time for exercise of any unexercised and unexpired portion of this Option, including the then unvested portion of this Option, to and after a date prior to the effective date of such merger, consolidation, liquidation or sale specified by the MRC, and (iii) the MRC, with the approval of the Board of Directors of the Company, may provide that after the effective date of such merger, consolidation or sale (x) this Option shall survive and the Optionee shall be entitled, upon exercise of this Option, to receive, in lieu of shares of Common Stock, shares of stock or other securities as the holders of shares of Common Stock received pursuant to the terms of the merger, consolidation or sale or (y) this Option shall terminate and the Optionee shall be entitled to receive, in lieu of shares of Common Stock, cash in an amount per Option Share equal to the consideration per share of Common Stock received pursuant to the terms of the merger, consolidation or sale less the Option Price. 9. Tax Withholding. The Optionee shall, not later than the date as of which ---------------- the exercise of this Option or disposition of Option Shares becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the MRC for payment of any Federal, state, and local taxes required by law to be withheld. 10. Representations. By acceptance of this Option, the Optionee agrees, ---------------- acknowledges and understands that a purchase of shares under this Option will not be made with a view to their distribution, as that term is used in the Act unless, in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Act, and the Optionee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with the Act. EX-10.8 9 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN EXHIBIT 10.8 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purpose. This Non-Qualified Stock Option Plan, to be known as the ------- 1995 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended to promote the interests of Cambridge Technology Partners (Massachusetts), Inc. (hereinafter, the "Company") by providing an inducement to obtain and retain the services of qualified persons who are not employees or officers of the Company to serve as members of its Board of Directors (the "Board"). 2. Available Shares. The total number of shares of Common Stock, par ---------------- value $.01 per share, of the Company (the "Common Stock") for which options may be granted under this Plan shall not exceed 50,000 shares, subject to adjustment in accordance with paragraph 10 of this Plan. Shares subject to this Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under this Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor shall continue to be available under this Plan. 3. Administration. This Plan shall be administered by the Board or by a -------------- committee appointed by the Board (the "Committee"). In the event the Board fails to appoint or refrains from appointing a Committee, the Board shall have all power and authority to administer this Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board. The Committee shall, subject to the provisions of the Plan, have the power to construe this Plan, to determine all questions hereunder, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any option granted under it. 4. Automatic Grant of Options. Subject to the availability of shares -------------------------- under this Plan, each person who is or becomes a member of the Board and who is not an employee or officer of the Company or Safeguard Scientifics, Inc., or an affiliate of Technology Leaders II L.P. or any related entity (a "Non-Employee Director"), shall be automatically granted on the later of (i) the date such person is first elected to the Board or (ii) March 22, 1995 (the "Approval Date") (such later date being referred to herein as the "Grant Date"), without further action by the Board, an option to purchase 10,000 shares of the Common Stock. Options to be granted under this paragraph 4 shall be the only options ever to be granted at any time to any person under this Plan. 5. Option Price. The purchase price of the stock covered by an option ------------ granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of paragraph 10 of this Plan. For purposes of this Plan, if, at the time an option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on The NasdaqStock Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on The Nasdaq Stock Market. However, if the Common Stock is not publicly traded at the time an option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 6. Period of Option. Unless sooner terminated in accordance with the ---------------- provisions of paragraph 8 of this Plan, an option granted hereunder shall expire on the date which is ten (10) years after the date of grant of the option. 7. (a) Vesting of Shares and Non-Transferability of Options. Options ---------------------------------------------------- granted under this Plan shall not be exercisable until they become vested. Options granted under this Plan shall vest in the optionee and thus become exercisable, in accordance with the following schedule, provided that the optionee has continuously served as a member of the Board through such vesting date: Cumulative Percentage of Option Percentage of Shares for which Time After Shares Exercisable Option Will be Exercisable Grant Date ------------------ -------------------------- ---------- 25.000% 25% 1 year 27.083% 2.083% 13 months * 2.083% Each additional month thereafter up to and including the 47th month 100.000% 2.083 48th month The number of shares as to which options may be exercised shall be cumulative, so that once the option shall become exercisable as to any shares it shall continue to be exercisable as to said shares, until expiration or termination of the option as provided in this Plan. (b) Non-transferability. Any option granted pursuant to this Plan ------------------- shall not be assignable or transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order and shall be exercisable during the optionee's lifetime only by him or her. 8. Termination of Option Rights. ---------------------------- (a) Except as otherwise specified in the agreement relating to an option, in the event an optionee ceases to be a member of the Board for any reason other than death or permanent disability, any then unexercised portion of options granted to such optionee shall, to the extent not then vested, immediately terminate and become void; any portion of an option which is then vested but has not been exercised at the time the optionee so ceases to be a member of the Board may be exercised, to the extent it is then vested, by the optionee within 90 days of the date the optionee ceased to be a member of the Board; and all options shall terminate after such 90 days have expired. (b) In the event that an optionee ceases to be a member of the Board by reason of his or her death or permanent disability, any option granted to such optionee shall be immediately and automatically accelerated and become fully vested and all unexercised options shall be exercisable by the optionee (or by the optionee's personal representative, heir or legatee, in the event of death) until the scheduled expiration date of the option. 9. Exercise of Option. Subject to the terms and conditions of this Plan ------------------ and the option agreements, an option granted hereunder shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice to the Company by mail or in person addressed to Cambridge Technology Partners (Massachusetts), Inc. 304 Vassar Street, Cambridge, MA 02139, at its principal executive offices, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares. Payment may be (a) in United States dollars in cash or by check, (b) in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), valued at fair market value determined in accordance with the provisions of paragraph 5 or (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise. There shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the optionee as the owner of such shares on the books of the Company and shall cause the fully executed certificate(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in full. The holder of an option shall not have any rights of a stockholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him or her upon the due exercise of the option. 10. Adjustments Upon Changes in Capitalization and Other Events. Upon the ----------------------------------------------------------- occurrence of any of the following events, an optionee's rights with respect to options granted to him or her hereunder shall be adjusted as hereinafter provided: (a) Stock Dividends and Stock Splits. If the shares of Common Stock -------------------------------- shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) Recapitalization Adjustments. If the Company is to be ---------------------------- consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise, each option granted under this plan which is outstanding but unvested as of the effective date of such event shall become exercisable in full 15 days prior to the effective date of such event. In the event of a reorganization, recapitalization, merger, consolidation, or any other change in the corporate structure or shares of the Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the number and kind of shares authorized by this Plan and in the number and kind of shares covered by, and in the option price of outstanding options under this Plan necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of such option, shall be made. Notwithstanding the foregoing, no such adjustment shall be made which would, within the meaning of any applicable provisions of the Internal Revenue Code of 1986, as amended, constitute a modification, extension or renewal of any Option or a grant of additional benefits to the holder of an Option. (c) Issuances of Securities. Except as expressly provided herein, no ----------------------- issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (d) Adjustments. Upon the happening of any of the foregoing events, ----------- the class and aggregate number of shares set forth in paragraph 2 of this Plan that are subject to options which previously have been or subsequently may be granted under this Plan shall also be appropriately adjusted to reflect such events. The Board shall determine the specific adjustments to be made under this paragraph 10 and its determination shall be conclusive. 11. Restrictions on Issuance of Shares. Notwithstanding the provisions of ---------------------------------- paragraphs 4 and 9 of this Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The issuance of shares with respect to which the option has been exercised is at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or (ii) Counsel for the Company shall have given an opinion that the issuance of such shares is exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. 12. Legend on Certificates. The certificates representing shares issued ---------------------- pursuant to the exercise of an option granted hereunder shall carry such appropriate legend, and such written instructions shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 13. Representation of Optionee. If requested by the Company, the optionee -------------------------- shall deliver to the Company written representations and warranties upon exercise of the option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933). 14. Option Agreement. Each option granted under the provisions of this ---------------- Plan shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with this Plan as may be determined by the officer executing it. 15. Termination and Amendment of Plan. Options may no longer be granted --------------------------------- under this Plan after March 20, 2005, and this Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. The Board may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable; provided, however, that the Board may not, without approval by the -------- ------- affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and voting on such matter at a meeting, (a) increase the maximum number of shares for which options may be granted under this Plan (except by adjustment pursuant to Section 10), (b) materially modify the requirements as to eligibility to participate in this Plan, (c) materially increase benefits accruing to option holders under this Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the Securities Exchange Act (or any successor or amended provision thereof) to become inapplicable to this Plan; and provided further that the provisions of this Plan specified in -------- ------- Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the Securities Exchange Act of 1934 (including without limitation, provisions as to eligibility, amount, price and timing of awards) may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. 16. Withholding of Income Taxes. Upon the exercise of an option, the --------------------------- Company, in accordance with Section 3402(a) of the Internal Revenue Code, may require the optionee to pay withholding taxes in respect of amounts considered to be compensation includable in the optionee's gross income. 17. Compliance with Regulations. It is the Company's intent that the Plan --------------------------- comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended provision thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void. 18. Governing Law. The validity and construction of this Plan and the ------------- instruments evidencing options shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflicts of law thereof. Date Approved by Board of Directors of the Company: March 21, 1995 Date Approved by Stockholders of the Company: May 17, 1995 EX-10.18 10 EMPLOYMENT AGREEMENT DATED 11/18/96 W/ T. RAMOS EXHIBIT 10.18 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is made and entered into this 18th day of November, 1996, by and between Timothy A. Ramos (the "Executive") and Cambridge Technology Partners (Massachusetts), Inc. (hereinafter referred to as the "Company"), a corporation organized under the laws of the State of Delaware. WITNESSETH: ----------- WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of October 31, 1996 by and among the parties named therein (the "Merger Agreement"), the Company is acquiring all of the outstanding capital stock of Ramos & Associates, Inc. ("Associates") and Associates is becoming a wholly- owned subsidiary of the Company; and WHEREAS, Executive and the Company are entering into a Noncompetition Agreement of even date herewith (the "Noncompete Agreement"); WHEREAS, while Executive shall be an at will employee of the Company, Executive and the Company desire to enter into this agreement to provide for the terms Executive's continuing employment with the Company; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Position. Executive's current position is Senior Vice President of the -------- Company. Executive shall manage Associates as a subsidiary of the Company and shall perform such duties as are reasonably assigned to him by the Chief Executive Officer of the Company from time to time. The Executive shall also serve as a member of the executive committee of senior officers. Executive accepts such employment, and agrees to render the services described herein and to devote his entire available business time, effort, skill and attention to promote the best interests of the Company. 2. Salary. As compensation for the services to be rendered by the ------ Executive, the Company shall pay the Executive $210,000 per year (the "Salary"), payable periodically consistent with the Company's normal payroll practices and policies for full-time employees, less such deductions and amounts to be withheld therefrom as may be required under applicable law. Executive shall receive performance reviews at least annually. The Salary may be increased from time to time in such amount as the Board of Directors or any committee thereof may approve. 3. Participation in Benefit and Bonus Plans. The Company shall provide to ---------------------------------------- the Executive any fringe benefits that are provided by the Company to any other employees of the Company and any other benefits that are generally provided by the Company to executive-level -2- employees from time to time. Executive shall be considered eligible to participate in any discretionary option or bonus plans of the Company to the same extent as vice president level employees of the Company. In particular, Executive shall be eligible to receive an annual bonus of up to 50% of the Salary, to be determined based upon the performance of both Executive and the Company. 4. Severance. In the event Executive's employment with the Company is --------- terminated for any reason (including, without limitation, the death or long-term disability of Executive) other than Just Cause (as defined below) or his voluntary resignation, Executive shall be entitled to receive, and the Company shall pay to Executive, cash severance payments in an aggregate amount equal to six months salary at Executive's then-current base salary rate. The Company shall make such severance payments over a six-month period in accordance with its normal payroll practices and policies for full-time employees. The payment of such severance is conditioned on the Executive's adhering to his obligations under the Noncompete Agreement. (A) Termination for Just Cause. For purposes of this Agreement, -------------------------- termination by the Company of the Executive shall be considered termination for Just Cause if such termination is for one or more of the following reasons: (i) Executive's conviction in a court of law of any crime, which conviction makes him unfit for continuing employment, prevents him from effective management of the Company or materially and adversely affects the reputation or business of the Company. (ii) Dishonesty or willful misconduct which materially and adversely affects the reputation or business activities of the Company and which continues after written notice thereof to Executive, substance abuse for which Executive fails to undertake and maintain treatment after requested by the Company, or misappropriation of funds. (iii) Executive's continuing material failure or refusal to perform his duties as an Executive of the Company or to carry out in all material respects the lawful directives of the Board of Directors. 6. Non-assignability. This Employment Agreement may not be assigned by ----------------- either Company or Executive, except that the Company may assign its rights under this Agreement to any parent or other affiliated corporation or by means of an acquisition, merger, or a sale of all or substantially all of the assets or stock of the Company; and no such assignment shall impair the rights or obligations of the parties as provided herein. 6. Miscellaneous. ------------- 6.1 Notices. All notices and other communications required or permitted to ------- be given hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, sent by overnight courier service or facsimile transmission, or dispatched by certified mail -3- to the parties at the following addresses or to such other address for a party as such party may have designated to the other in a prior notice given in accordance herewith: (a) If to the Company, to: Cambridge Technology Partners (Massachusetts), Inc. 304 Vassar Street Cambridge, MA 02139 Telecopier (617) 374-8300 Attn: Chief Financial Officer with a copy to: Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, MA 02110 Attn: James P. O'Hare (b) If to Executive to: Timothy Ramos Ramos & Associates 3000 Executive Parkway Suite 402 San Ramon, CA 94583-2300 6.2 Entire Agreement. This Agreement, together with the Noncompete ---------------- Agreement, set forth the entire agreement and understanding of the parties hereto concerning the subject matter hereof and supersedes any prior understandings and agreements relating to the terms of the Executive's employment by the Company. 6.3 Amendments; Waivers. This Agreement may be amended, modified, ------------------- superseded, or canceled and the terms or covenants hereof may be waived, only by a written instrument specifically referring to this Agreement and executed by both of the parties hereto, or, in the case of a waiver, by the party entitled to the benefit of such provision. The failure by a party hereto at any time or from time to time to require performance of any obligation under this Agreement shall in no manner affect such party's right to enforce any provisions of this Agreement at a subsequent time; and the waiver by a party hereto of any right arising out of any breach shall not be construed as a waiver of any right arising out of any subsequent breach. 6.4 Severability. If any provision of this Agreement, or the application ------------ thereof to any person or circumstance, should, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or -4- circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 6.5 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and to be performed entirely within such Commonwealth. 6.6 Headings. The section headings contained in this Agreement are -------- intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 6.7 Remedies. Executive agrees that any intentional, willful, reckless or -------- negligent material breach of this Agreement by him will cause irreparable damage to the Company and that in the event of such breach the Company shall have, in addition to any and all remedies of law, the right to an injunction, specific performance or other equitable relief to prevent the violation of his obligations hereunder. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first written above, effective as of such date. EXECUTIVE: /s/Timothy A. Ramos Timothy A. Ramos CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. By: /s/James K. Sims James K. Sims President EX-10.19 11 PROMISSORY NOTE DATED 11/13/98 EXHIBIT 10.19 PROMISSORY NOTE November 13, 1998 FOR VALUE RECEIVED, H. Carvel Moore, an individual residing at 3410 259/th/ Court SE, Issaquah, WA 98029 (the "Maker"), promises to pay to the order of Cambridge Technology Partners (Massachusetts), Inc., the principal sum of $200,000.00, together with interest thereon from the date hereof on the unpaid principal balance thereof from time to time outstanding, on the earliest to occur of: (a) October 31, 1999, and (b) the date the Maker ceases to be employed by Cambridge Technology Partners (Massachusetts), Inc. or one of its subsidiaries (the "Maturity Date"). Interest on the unpaid principal balance hereof shall accrue from and including the date hereof to the date such principal amount is paid at the annual rate of 5.06%. Interest on the unpaid principal balance of this Promissory Note (the "Note") shall be payable on the Maturity Date. Payments of both principal and interest are to be made at the principal offices of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar Street, Cambridge, Massachusetts 01239, or such other place as Cambridge Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in lawful money of the United States of America. Interest shall be computed on the basis of a 360-day year and twelve 30-day months. No delay or omission on the part of Cambridge Technology Partners (Massachusetts), Inc., in exercising any right hereunder shall operate as a waiver of such right or of any other right of Cambridge Technology Partners (Massachusetts), Inc., nor shall any delay, omission or waiver on any one occasion be deemed to bar to or waiver of the same of any other right on any future occasion. This Note may be prepaid at any time, in whole or in part, by the Maker without penalty. The Maker hereby waives presentment, demand, protest, and notice of every kind. The Maker shall pay on demand all costs, including court costs and reasonable attorneys' fees, paid or incurred by Cambridge Technology Partners (Massachusetts), Inc., in enforcing the Note upon default. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as of the date first above written. MAKER Witness: /s/ James P. O'Hare /s/ H. Carvel Moore ------------------------------ ----------------------------------- James P. O'Hare H. Carvel Moore EX-10.20 12 PROMISSORY NOTE DATED 11/2/98 EXHIBIT 10.20 PROMISSORY NOTE 2 November, 1998 FOR VALUE RECEIVED, Theo Schnitfink, an individual residing at Dobbelaan 36, 1394 Lt Nederhorst, Den Berg, NLD (the "Maker"), promises to pay to the order of Cambridge Technology Partners (Massachusetts), Inc., the principal sum of 200,000.00, Netherlands Guilders together with interest thereon from the date hereof on the unpaid principal balance thereof from time to time outstanding, on the earliest to occur of: (a) October 31, 1999, and (b) the date the Maker ceases to be employed by Cambridge Technology Partners (Massachusetts), Inc. or one of its subsidiaries (the "Maturity Date"). Interest on the unpaid principal balance hereof shall accrue from and including the date hereof to the date such principal amount is paid at the annual rate of 5.06%. Interest on the unpaid principal balance of this Promissory Note (the "Note") shall be payable on the Maturity Date. Payments of both principal and interest are to be made at the principal offices of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar Street, Cambridge, Massachusetts 01239, or such other place as Cambridge Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in lawful money of the United States of America. Interest shall be computed on the basis of a 360-day year and twelve 30-day months. No delay or omission on the part of Cambridge Technology Partners (Massachusetts), Inc., in exercising any right hereunder shall operate as a waiver of such right or of any other right of Cambridge Technology Partners (Massachusetts), Inc., nor shall any delay, omission or waiver on any one occasion be deemed to bar to or waiver of the same of any other right on any future occasion. This Note may be prepaid at any time, in whole or in part, by the Maker without penalty. The Maker hereby waives presentment, demand, protest, and notice of every kind. The Maker shall pay on demand all costs, including court costs and reasonable attorneys' fees, paid or incurred by Cambridge Technology Partners (Massachusetts), Inc., in enforcing the Note upon default. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as of the date first above written. MAKER Witness: /s/ James P. O'Hare /s/ Theo Schnitfink ----------------------------- ---------------------------------- James P. O'Hare Theo Schnitfink EX-10.21 13 PROMISSORY NOTE DATED 12/21/98 EXHIBIT 10.21 PROMISSORY NOTE December 21, 1998 FOR VALUE RECEIVED, Theo Schnitfink, an individual residing at Dobbelaan 36, 1394 Lt Nederhorst, Den Berg, NLD (the "Maker"), promises to pay to the order of Cambridge Technology Partners (Massachusetts), Inc., the principal sum of 400,000.00, Netherlands Guilders together with interest thereon from the date hereof on the unpaid principal balance thereof from time to time outstanding, on the earliest to occur of: (a) December 31, 1999, and (b) the date the Maker ceases to be employed by Cambridge Technology Partners (Massachusetts), Inc. or one of its subsidiaries (the "Maturity Date"). Interest on the unpaid principal balance hereof shall accrue from and including the date hereof to the date such principal amount is paid at the annual rate of 5.06%. Interest on the unpaid principal balance of this Promissory Note (the "Note") shall be payable on the Maturity Date. Payments of both principal and interest are to be made at the principal offices of Cambridge Technology Partners (Massachusetts), Inc., located at 304 Vassar Street, Cambridge, Massachusetts 01239, or such other place as Cambridge Technology Partners (Massachusetts), Inc., designates to be Maker in writing, in lawful money of the United States of America. Interest shall be computed on the basis of a 360-day year and twelve 30-day months. No delay or omission on the part of Cambridge Technology Partners (Massachusetts), Inc., in exercising any right hereunder shall operate as a waiver of such right or of any other right of Cambridge Technology Partners (Massachusetts), Inc., nor shall any delay, omission or waiver on any one occasion be deemed to bar to or waiver of the same of any other right on any future occasion. This Note may be prepaid at any time, in whole or in part, by the Maker without penalty. The Maker hereby waives presentment, demand, protest, and notice of every kind. The Maker shall pay on demand all costs, including court costs and reasonable attorneys' fees, paid or incurred by Cambridge Technology Partners (Massachusetts), Inc., in enforcing the Note upon default. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Maker has caused this Note to be signed under seal, as of the date first above written. MAKER Witness: /s/ James P. O'Hare /s/ Theo Schnitfink ------------------------------- ---------------------------------- James P. O'Hare Theo Schnitfink EX-10.25 14 TRUST DEED FOR PETER CHADWICK EXHIBIT 10.25 ------------- DATED 12 OCTOBER 1989 THE PETER CHADWICK LIMITED PENSION SCHEME __________________________ INTERIM TRUST DEED __________________________ McKenna & Co. Inveresk House 1 Aldwych London WC2R OHP 2 THIS INTERIM TRUST DEED is made the 17 day of October 1989 BETWEEN PETER CHADWICK LIMITED whose registered office is at 7 Queen Street Mayfair London W1X 9PH (the "Principal Employer" which expression shall, where the context so admits, include any other company, firm of person which or who shall as a result of reconstruction, amalgamation, purchase or otherwise, be the successor in business of the Principal Employer, and which or who shall have assumed, whether expressly or by implication, the obligations of the Principal Employer under this Deed, of one part and IAN CLARKSON and QUENTIN BAER ("the Trustees" which expression includes the trustee or trustees for the time being of this Deed) of the other part WHEREAS: A. The Principal Employer has decided to establish a retirement benefits scheme to be known as "the Peter Chadwick Limited Pension Scheme" (the "Scheme") for providing relevant benefits as defined in Section 612 of the Income and Corporation Taxes Act 1988 (the "Taxes Act") for such directors and employees and former directors and employees of the Principal Employer and associated companies (as defined in this Deed) as shall be admitted to participation in the Scheme upon the basis of a staff announcement, a copy of which is annexed. B. It is intended in due course to apply to the Board of Inland Revenue to have the Scheme approved under Chapter I of Part XIV of the Taxes Act and treated as an exempt approved scheme under that Act and in the meantime by the execution of this Deed to confirm the establishment of the Scheme upon irrevocable trusts with effect from 1st November 1989 (the "Commencing Date"). 3
PETER CHADWICK LTD ------------------ STAFF ANNOUNCEMENT ------------------ ELIGIBILITY In the case of Executive Employees Executive Members is open to those invited to join by the Trustees and the Principal Employer. Membership is available to all other employees. NORMAL PENSION AGE 60 for males and females. PENSIONABLE SALARY Basic Salary less Lower Earnings Limit. FINAL PENSIONABLE SALARY The highest Pensionable Salary in the last 5 years. NORMAL RETIREMENT PENSION 1/80th of Final Pensionable Salary for each year of pensionable service. EARLY RETIREMENT PENSION Accrued pension subject to actuarial reduction, available from age 50 with the consent of the Company. LUMP SUM ON DEATH IN SERVICE 4 times' Basic Salary. SPOUSE'S PENSION ON DEATH IN 50% of member's prospective pension based SERVICE on current Pensionable Salary. SPOUSE'S PENSION ON DEATH IN 50% of member's pension. RETIREMENT PENSION INCREASES Guaranteed Minimum of 3% per annum compound. MEMBER'S CONTRIBUTIONS 5% of Pensionable Salary, except for Executive Members who sill not be required to make contributions. COMPANY CONTRIBUTIONS 5% of Pensionable Salary plus N.I. Rebate.
4 GUARANTEE The minimum benefit payable on retirement death or withdrawal from the Scheme will not be less than: a) the member's contribution plus b) the employers national insurance rebates accumulated with interest as certified by the Actuary as equivalent to the return on the assets of the Fund.
5 C. At the request of the Principal Employer the Trustees have agreed to be the first trustees of the Scheme. NOT THIS DEED WITNESSES as follows: 1. (a) the Scheme is established by this Deed upon irrevocable trusts with effect from the Commencing Date (b) The Principal Employer and all other associated companies for the time being admitted to the Scheme and the Members of the Scheme shall contribute to it in accordance with the provisions (c) The Principal Employer appoints the Trustees to be trustees of the Scheme and the Trustees accept such office (d) The Principal Employer may at any time by deed remove the Trustees or any of them and may appoint one or more persons or a body corporate (whether or not a trust corporation) to be a new or additional trustee of the Scheme. 2. THE Trustees and the Principal Employer shall within 24 months from the date of this Deed execute a further deed ("the Definitive Deed") setting out in full the constitution of the Scheme in such form as may be approved under Chapter 1 of Party XIV of the Taxes Act and treated as an exempt approved scheme under the Act and that it will meet the requirements of Part II of the Social Security Act of 1973 relating to the preservation of benefits under occupational pension schemes. 6 3. UNTIL superseded by the provisions of the Definitive Deed the following shall apply: (a) Moneys and assets of the Scheme available for investment may be invested or dealt with as the Trustees shall in their discretion think fit so that Trustees shall have the same full and unrestricted powers of investment and changing investments as if they were entitled to them beneficially and the Trustees may invest by effecting with an insurance company to which Part II of the Insurance Companies act of 1982 applies deferred or immediate annuity policies, retirement, endowment and assurance policies, sinking fund policies or other policies or contracts, including policies or contracts conferring rights to participation in the profits of such insurance company or by participating in any system of deposit administration administered by such insurance company, so long as that any sums payable by such insurance company shall be made payable from a branch or office in the United Kingdom unless the Board of Inland Revenue shall agree otherwise. (b) Any sums which become payable upon the death of a Member of the Scheme shall not belong to such Member but shall be held by the Trustees upon discretionary trusts, that is to say that in relation to any such sums (i) The Trustees shall have power, at their discretion, to pay or apply the whole or any part of that sum to or for the benefit of all or any 7 of the relatives, dependents, personal representatives or nominated beneficiaries of such deceased Member in such shares and proportions as the Trustees shall in their discretion decide but so that, if the Member shall not leave any relative or dependent, the Trustees may elect to retain all or any part of the same as part of the Fund; and in addition the Trustees shall have power to declare separate trusts including provisions for maintenance, education, advancement and accumulation of income during a minority, and including such discretionary trusts and powers, as the Trustees shall from time to time deed revocable or irrevocable appoint, but without infringing the rule against perpetuities, and the Trustees shall have power to appoint as trustees of such fund any two person or a trust corporation as the Trustees shall in their discretion decide, and to remove any trustees and appoint any other trustee in place of any one so removed. (ii) if or to the extent that the Trustees shall not exercise the powers contained in paragraph (i) within two years of the death of the Member, the Trustees shall hold such sum as a separate fund from the Fund constituted by this Deed upon trust for the personal representatives of the deceased Member or, if there are none, the next of kin of the deceased Member 8 (iii) the Trustees may, but without being in any way bound to do, so, have regard to any document signed by the Member expressing his wishes about the disposal of any sum to be held upon the discretionary trusts, and may issue forms to Members for the purposes; for the purpose of this clause "relatives" shall mean include the widow and widower of the Member the father or mother or grandparents (whether lawful or adoptive) of the Member and the widow or widower of such father or mother or grandparents and any person (except the Member) who is the child or remoter issue (whether lawful of adoptive) of such father or mother or grandparents and the spouse, widow or widower of any such person and "dependents" means any person (whether or not a relative) who is the opinion of the Trustees is or was at the time of the Member's death dependent on the Member or his or her spouse (c) The Scheme shall be operated in conformity with the requirements relating to the preservation of benefit rights for Members of the Scheme who leave the service of the Principal Employer or any other company for the time being participating in the Scheme and in conformity with the equal access requirements specified in the Social Security Pension Act 1975 (the "Pension Act") 9 (d) The Trustees may accept a transfer from the trustees or other persons having the management of any other fund scheme or arrangement (referred to in this paragraph as "the other fund") of all or any of the assets of the other fund upon the footing that one or more specified persons who are entitled or contingently entitled to rights and benefits under the Scheme (consistent with the treatment of the Scheme as an exempt approved scheme under the Taxes Act) as the Trustees may in their discretion arrange. But if the Scheme has not been approved as an exempt approved scheme within twenty four months after the date of this Deed, or within such longer period as the Board of Inland Revenue may agree, no person shall become entitled or contingently entitled under the other fund shall be entitled to contingently entitled to such rights and benefits under the Scheme to any benefit in respect of such transfer otherwise than in the form of a non-commutable and non-assignable annuity payable from a source within the United Kingdom or in such other form approved by the Board of Inland Revenue as the Trustees shall determine. On any such transfer the Trustees shall obtain a certificate from the trustees of the other fund or other persons stating (i) the extent (if any) to which such transfer arises from employee's contributions and such transfer (to the extent so certified) shall be deemed to be contributions paid by the Member to the Scheme and the Trustees shall ensure that 10 no part of such transfer as does not arise from employee's contributions shall be treated for any of the purposes of the Scheme as Member's contributions (ii) the name of each person in respect of whom no option to take a refund of employee's contributions was available under the other fund by reason of the operation of an Inland Revenue restriction and unless the Board of Inland Revenue otherwise agree any option to take a refund of contributions under the Scheme shall not apply to employee's contributions so transferred and (iii) the maximum amount of the transfer payment which may be taken by each person in the form of a lump sum in connection with retirement from or leaving service (e) In the event of a Member of the Scheme becoming a member of any other fund scheme or arrangement approved by the Board of Inland Revenue for the purpose of this paragraph (referred to in this paragraph as "the new fund") the Trustees shall, if requested by the Members so to do, and provide the rules or other provisions of the new fund permit acceptance, arrange for the payment to the trustees or other persons having the management of the new fund of such sum as the Trustees on the advice of an actuary shall consider appropriate, but 11 (i) the Trustees shall not make a payment until they have ascertained from the trustees of the new fund the basis of approval of the new fund by the Board of Inland Revenue (ii) if in respect of any Member the payment of a sum to the new fund is made no further benefit will be payable under the Scheme to or in respect to the Member and he shall accordingly cease to be a Member of the Scheme (iii) the Trustees may deduct from any such sum an amount not exceeding the amount of any income tax for which they may be liable to account to the Board of Inland Revenue in respect of the payment to the new fund (iv) the Trustees shall certify to the Trustees of the new fund any amount included in the payment under this paragraph (a) which has been treated as being Member's contributions to the Scheme (which is to be treated in the new fund as contributions paid to it by the Member) and whether or not any restriction applies to a refund of contributions in connection with leaving service under the new fund and (b) which the Member could have taken under the Scheme in form of a capital sum and 12 (v) the reference in this paragraph to the payment of a sum shall be deemed to include the transfer in kind of any part of the assets of the Scheme (f) If the Scheme is or has at any time been specified in a contracting- out certificate issued by the Occupational Pensions Board in accordance with Section 31 of the Pensions Act the Trustees shall in addition operate and administer the Scheme as a contracted-out scheme in conformity with Part III of the Pensions Act and in accordance with the following rules ("the interim contracted-out rules"): (1) Guaranteed Minimum Pension -------------------------- (a) The interim contracted-out rules shall apply if any employment becomes contracted-out employment by reference to the Scheme and they shall then override any other provisions of the Scheme which are inconsistent with them, except the provisions of clauses 5 to 7 inclusive of the Interim Trust Deed (b) The words and expressions used in the Interim contacted-out rules shall have the same meanings as in the Pensions Act and the expression "contracted-out member" shall mean an employee whose employment is or has been contracted-out employment by reference to the Scheme 13 (c) If a contracted-out Member has a guaranteed minimum in relation to the pension for him under the Scheme in accordance with Section 35 of The Pensions Act (i) the Member shall be entitled to receive from the Scheme from state pension age a pension payable for the remainder of his lifetime at a rate equivalent to not less than that guaranteed minimum, and (ii) if the Member is a man and dies leaving a widow, a pension shall be provided for her under the Scheme at a rate equivalent to not less than half that guaranteed minimum (iii) if the Member is a woman and dies leaving a widower, a pension shall be provided for him under the Scheme at a rate equivalent to a weekly rate of not less than half of that part of the Member's guaranteed minimum which is attributed to earnings for the tax year 1998/89 and subsequent tax years, notwithstanding that he might not otherwise be qualified for a pension, and 14 (iv) the guaranteed minimum pensions shall, in so far as they are attributable to earnings in the tax years from (and including) 1988/89, be increased in accordance with the requirements of Section 37A of the Pensions Act and to the extent of any orders made under it (d) Arrangements which satisfy the requirements of the Pensions Act may be made in respect of any pension for a contracted-out member or his spouse which, in accordance with the Pensions Act, is commuted for a lump sum, suspended, forfeited, transferred or otherwise terminated or varied (e) if the commencement of any contracted-out member's guaranteed minimum pension is postponed for any period after state pension age, his guaranteed minimum pension shall be increased as required by Section 35 (6), (6A) and (6B) of the Pensions Act (2) Revaluation ----------- 15 The Trustees shall operate whichever one of the following provisions (a) (b) and (c) set out below they shall in their absolute discretion determine - (a) in the event of any contacted-out member ceasing to be in contracted-out employment by reference to the Scheme before state pension age, the guaranteed minimum in respect of him at state pension age or at previous death will be calculated on the basis that the guaranteed minimum pension which has accrued up to cessation will be increased by whichever is the lesser of - (i) 6% per annum compound for each tax year after that in which contracted-out employment ceases, up to and including the last complete tax year before state pension age or previous death, or (ii) the percentage by which the earnings factors for the tax year in which contracted-out employment ceases are increased by the last order made 16 under Section 21 of the Pensions Act to come into force before the tax year in which he reaches state pension age or dies (if earlier) (b) in the event of any contracted-out member ceasing to be in contracted-out employment by reference to the Scheme before state pension age, the guaranteed minimum in respect of him at state pension age or at previous death will be calculated on the basis that the guaranteed minimum pension which has accrued up to cessation will be increased for each tax year after that in which contracted-out service ceases, up to and including the last complete tax year before state pension age or previous death, by such rate as regulations made under Section 45 (1)(b) of the Pensions Act specify as being relevant to the date of cessation (c) in the event of any contracted-out member ceasing to be in contracted-out employment by reference to the Scheme before state 17 pension age, the guaranteed minimum in respect of him at state pension age or at previous death will be calculated on the basis that the earnings factors for the tax year in which that contracted-out employment from which the guaranteed minimum pension is derived will be increased in accordance with the last order under Section 21 of the Pensions Act to come into force before the tax year in which he reaches state pension age or in which he dies, if earlier. The Trustees shall have power from time to time and at any time on giving notice in writing to the Occupational Pensions Board to substitute, in respect of Members leaving services after such notification, any one of such provisions for the one previously operated or any other basis of revaluation which is accepted by the Occupational Pensions Board. In relation to a Member in respect of whom a transfer payment has been made on such member joining the Scheme, the guaranteed minimum in respect of him at state pension age or at previous death will be calculated in accordance with whichever one of the foregoing provisions (a), (b) and (c) set out above as the Trustees shall determine or in accordance with the revaluation provisions used in the transferring scheme in respect of 18 the period while the Member is in pensionable service under this Scheme on terms which comply with the requirements of regulations 3(3) and (4) of the Occupational Pension Schemes Contracting-Out (Transfer) Regulations 1985. If a Member on ceasing to be in contracted-out employment by reference to the Scheme before the Scheme's normal pension age, has a pension entitlement under the Scheme in excess of the guaranteed minimum pension, (excluding any part deriving from a transfer payment received by the Scheme) his pension entitlement under the Scheme will be increased by the amount of any increase in his guaranteed minimum pension (excluding any part thereof deriving from a transfer payment received by the Scheme) due to its revaluation in accordance with the provisions of this Rule. (3) Termination of Liability. ------------------------ If a state scheme premium is paid in respect of a contracted-out member under Sections 42 or 44 of the Pensions Act and the Scheme's liability to provide guaranteed minimum pension benefits in respect of such contracted-out member is canceled, the benefits in respect of the Member under the Scheme shall be reduced accordingly, and any ancillary benefits (contingent on death or otherwise) which are related to the amount of guaranteed minimum pension benefits concerned shall cease to be payable unless the Trustees in their absolute discretion decide otherwise. 19 4. IF the Scheme is wound up pending the execution of the Definitive Deed, priority after payment of all costs, charges and expenses which may then be owing shall be given in the following order to the following liabilities of the Scheme:- (a) all pensions and benefits in respect of which entitlement to payment has already arisen (b) equivalent pension benefits within the meaning of Section 33 of the Pensions Act (c) any guaranteed minimum pensions under part III of the Pensions Act and any accrued rights to such pensions and (d) any state scheme premiums as described in Part III of the Pensions Act (e) benefits for Members and beneficiaries prospectively entitled to benefits, calculated on the basis that the Members had left service on the date of winding up. Any balance remaining shall be repaid to the principal Employer except to the extent that the Principal Employer and the Trustees shall otherwise decide. 5. THE Principal Employer may by deed admit to participation in the Scheme any other person, firm or body corporate or unincorporated so associated with the Principal Employer that the approval or treatment of the Scheme would not be prejudiced (in this Deed referred to as "an associated company") provided that such associated company shall covenant to observe and perform the provisions of the Scheme so far as they are applicable to such associated company. 20 6. THE Principal Employer may by deed at any time with the consent of the Trustees alter, amend, extend, modify or add to all or any of the provisions of this Deed or of the Definitive Deed, whether retrospectively or otherwise, provided that no such alteration, amendment, modification or addition shall have the effect of altering the main purpose of the Scheme, which shall continue to be the provision of relevant benefits (as defined in Section 612 of the Taxes Act). 7. (a) FOR the purpose of enabling the Scheme to be or continue to be treated as an exempt approved scheme in accordance with the provisions of the Taxes Act, the Trustees may give to the Board of Inland Revenue such undertakings as they see fit and may subject to the prior approval of the Inland Revenue vary any such undertakings (b) The provisions of any undertaking which may be given pursuant to this Deed shall be deemed to be incorporated in this deed and to the extent that it is inconsistent with any other provisions of the Scheme (including any apart from this clause which otherwise would have the effect of overriding it) it shall override that provision. 8. UNLESS the Scheme shall previously have been wound up, the trusts declared by this Deed, and as later declared and defined by the Definitive Deed, shall continue for the period of eighty years from the date of this Deed and such further periods as may then be lawful (which period is declared in accordance with the provisions of the Perpetuities and Accumulations Act 1984 to be the perpetuity period for the purposes of this Deed). 21 9. REFERENCE in this Deed to any statutory provision shall include such provision as re-enacted or amended from time to time and in addition where appropriate reference to the Pensions Act or a particular provision of the Pensions Act shall be read and construed as a reference to the Social Security Pensions (Northern Ireland) Order or the corresponding provision of it. THE COMMON SEAL of ) PETER CHADWICK LIMITED ) was affixed hereto in the presence of:- ) QUENTIN BAER ) /s/ Quentin Baer Director JANE SMART /s/Jane Smart Secretary SIGNED SEALED AND DELIVERED by ) IAN CLARKSON ) /s/Ian Clarkson in the presence of:- ) JANE SMART /s/Jane Smart SIGNED SEALED AND DELIVERED by ) QUENTIN BAER ) /s/Quentin Baer in the presence of:- ) JANE SMART /s/Jane Smart 22 DATED 25th SEPTEMBER 1995 THE PETER CHADWICK LIMITED PENSION SCHEME ____________________________________ DEFINITIVE TRUST DEED AND RULES ____________________________________ WE HEREBY CERTIFY THIS TO BE A TRUE AND CORRECT COPY OF THE ORIGINAL DATED THE 25TH DAY OF SEPTEMBER, 1995 McKENNA & CO. 23 THIS DEFINITIVE DEED is made the 25th day of September 1995 BETWEEN: 1. PETER CHADWICK LIMITED whose registered office is at Whittaker House. Whittaker Avenue, Richmond, Surrey TW9 1EH ("The Principal Employer") and 2. IAN CLARKSON and QUENTIN BAER ("The Trustees") WHEREAS: a) This Deed is supplemental to an Interim Trust Deed dated 17th October 1989 made between the Principal Employer and the Trustees (the "Interim Deed") which established the Peter Chadwick Limited Pension Scheme (the "Scheme"). b) It has not been found possible to execute the Definitive Deed referred to in the Interim Deed within the period mentioned in it and it has been agreed that such period shall be extended until the date of this Deed. c) This Deed is the Definitive Deed referred to in the Interim Deed. NOW THIS DEED WITNESSES as follows: 1. The Trustees declare that they hold the assets of the Scheme and all contributions and other moneys paid to them in accordance with the Rules on trust for the purpose of providing relevant benefits as defined in Section 612 of the Taxes Act in accordance with the Rules from time to time in force. 2. Subject to Clause 3 pursuant to the covenant in the Interim Deed the Principal Employer and the Trustees declare that the provisions of this Deed and of the Rules contained in the Schedule shall comprise the provisions of the Scheme to the entire exclusion of the provisions of the Interim Deed and this Deed and the Rules shall be deemed to have come into operation as from the Prescribed Date. 3. Anything done by the Trustees before the date of this Deed which would have been valid if this deed had then been in force shall be deemed to have been properly done by the Trustees and they shall be indemnified out of the Fund. EX-11 15 STATEMENT REGARDING COMPUTATION OF EARNINGS EXHIBIT 11 CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share data)
Years Ended December 31, ------------------------------------------ 1998 1997 1996 ------------- ------------ ------------ Net income $ 51,940 $ 33,782 $ 23,992 ============= ============ ============ Basic: Weighted average number of common shares outstanding 58,079 54,632 52,054 ============= ============ ============ Net income per common share $ .90 $ .62 $ .46 ============= ============ ============ Diluted: Weighted average number of common shares outstanding 58,079 54,632 52,054 Dilutive effects of stock options and warrants 5,222 6,143 7,519 ------------- ------------ ------------ Weighted average common and common equivalent shares outstanding 63,301 60,775 59,573 ============= ============ ============ Net income per common and common equivalent share $ .83 $ .55 $ .40 ============= ============ ============
EX-21 16 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Cambridge Technology Partners International, Inc. Delaware Cambridge Technology Partners (Latin America), Inc. Delaware Cambridge Technology Partners (Mexico), S.A. de C.V. Mexico CTP Services, S.A. de C.V. Mexico Cambridge Technology Partners (Venezuela) C.A. Venezuela Cambridge Technology Partners de Brazil S/C LTDA Brazil Cambridge Technology Partners Ltd. Ontario Cambridge Technology Partners (Switzerland) S.A. Switzerland Cambridge Technology Partners (Asia), Inc. Delaware Cambridge Technology Partners Pty. Ltd. Australia Cambridge Technology Partners India Private Limited India Cambridge Technology Partners Limited Japan Cambridge Technology Partners (Europe), Inc. Delaware Cambridge Technology Partners (Netherlands), B.V. Netherlands Cambridge Technology Partners (UK), Inc. Delaware Cambridge Technology Partners (UK), Ltd. United Kingdom Cambridge Technology Partners Ireland Ltd. Ireland Peter Chadwick Holdings Limited United Kingdom Cambridge Technology Partners (Benelux) B.V. Netherlands Cambridge PCHL L.L.C. Delaware Cambridge Technology Partners Cambridge Management Consulting, Inc. California
Cambridge Technology Partners-Enterprise Resources Solutions, Inc. California Cambridge Technology Partners Securities Corporation Massachusetts Excell Data Corporation Washington Cambridge Technology Capital Management, Inc. Delaware Cambridge Technology CGP, Inc. Delaware EX-23 17 CONSENT OF PRICEWATERHOUSECOOPERS EXHIBIT 23 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements of Cambridge Technology Partners (Massachusetts), Inc. on Form S-8 (File Nos. 33- 70114, 33-87710, 33-93054, 33-93056, 333-09709, 33-99672, 333-49895, 333-49903, 333-72943 and 333-72945) and on Form S-3 (File Nos. 333-43127, 33-96838, 333- 16165, 333-17347 and 333-65079) of our reports dated February 2, 1999, except for Note R, as to which the date is March 29, 1999, on our audits of the consolidated financial statements and financial statement schedule of Cambridge Technology Partners (Massachusetts), Inc. as of December 31, 1998 and 1997, and for each of the years in the three-year period ended December 31, 1998, which reports are included in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 29, 1999 EX-27 18 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 80,051 24,918 138,133 4,550 0 284,979 81,325 33,070 351,206 107,050 0 0 0 589 241,561 351,206 0 612,041 0 531,034 (2,296) 3,683 199 83,104 31,164 51,940 0 0 0 51,940 0.90 0.83
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